Wondering your thoughts on Jublia vs MOB-015 - I know the myco cure rate is a lot higher, but the complete cure seems to be the goal, returning the nail to normal. Which seems to be what the ongoing study is testing. They're both daily, similar cure rates, with MOB having a superior myco cure. Only a few phase 3 studies each. Doesn't seem like the total slam dunk management thinks it'll be (90% market share). What do you think.
You're correct that showing improved complete cure is the point of the ongoing Phase 3 studies, but the superiority of mycological cure is very very important; the fact is that MOB-015 is much more effective than Jublia as a result. Moreover, Jublia has a well-established reputation for being quite hated and ineffectual. I recently watched the Netflix show Dirty Money, which has an episode on Valeant (the remnants of which became Bausch). Funny enough, there is some commentary in there about how Valeant was selling ineffective products and the exact example they used in support was Jublia. You can see further evidence of this by looking at the reviews of Jublia online, which I cite in the Cipher write-up. Ultimately, the combination of ineffectiveness and a poor reputation amongst doctors and patients leads me to believe that Cipher won't have much difficulty capturing huge amounts of market share.
Thank you Jake, this is an excellent answer. I need to check out the Dirty Money show now. No doubt people will try alternatives then. MOB-015 is better. I did take a look at those reviews when I read your original write-up, appreciate that. Hopefully MOB-015's reviews will be better.
The 80% of cases being unprescribed is kind of a big deal. I'm trying to figure out why that is. Is it simply because Jublia sucks? Or is there something else going on, like people just don't bother treating it. To what extent would a more effective alternative increase the size of the actual market. What are your thoughts. Thanks Jake
Yes, that is likely one reason. Some advertising and enthusiasm around new treatment options would likely expand the number of people seeking treatment. Right now your options are ineffective topical (like Jublia), oral terbinafine (which has nasty side effects and scares people away), and laser (which is expensive and requires numerous sessions as I understand it). So one would think an effective topical would probably expand the # of people that seek treatment. To be clear, you don't need the market to be larger than what the IQVIA data suggests for Cipher to do really well, given the inferiority of Julia and how little of the MOB-015 upside has actually been priced in at this point. E.g. if Cipher could get half of the market ($45m cad) that would translates to +CAD$20m of operating income at a 50% margin vs. ~$15m TTM. So even half of their projection bearing out would double the company's EBIT.
Absolutely, thanks for the thought out response. Definitely still going to make money, I'm just trying to appraise the odds of getting a 10-bagger, which the increased market size could make it.
I modeled a scenario where the market for toe nail fungus goes to $200M CAD by 2030, and CPH gets 50% of it. I applied the 60% EBIT margin from the SIB model to CPH's sales, and it sees EBIT/share getting to $3.15 vs the current $0.54 (30% CAGR). Apply any multiple you want to that (I did 10), and CPH is a $30 dollar stock, before any backs or acqusitions or other products.
I think that's a perfectly reasonable scenario and not a bad result at all, 20% CAGR.
I think the 10-bagger opportunity has likely passed here, absent an absolute home run of an M&A deal (not that remote of a chance imo). But I do think there's a pretty low risk triple sitting here, and likely a fair bit more than that. If you want a nail fungus 10-bagger, the better bet is to play Moberg directly (which I am also doing).
awesome summary mate. Any chance we can get an update on your thoughts about Sportsmans? Earnings coming up pretty soon and the discount to fair value is looking pretty steep
Hey Low. My thoughts on SPWH are relatively unchanged. Clearly, I was too early but I continue to think this is way too cheap and personally have been a buyer around these prices. Look, retail is tough and there is also some chance there is an idiosyncratic issue going on at Sportmans that I am not aware of. But at ~3/share this thing is priced like its on the verge on insolvency and I just don't see that. I see no reason why the revolver balance won't come down to about to where it was guided (~$135m) given inventory fire sales. Operating margins should likewise improve given what I outlined in the write-up. So, I think the real question is demand. And on that, I think we have a pretty good piece of evidence from the recent Smith and Wesson earnings call and PR:
- "just in general, look, I mean, the election year is always a healthy demand period, for the firearms industry. I think you can kind of, we expect the NICS results, and the firearms market to remain healthy, throughout the calendar year."
- "inventory in the distribution channel declined from October levels, in terms of actual units and weeks of inventory, indicating strong sell through of our products at retail."
To me, this indicates that firearms demand is set to be strong as it always is during an election year, though perhaps we will not start seeing that demand translate to sales until subsequent quarters. Altogether, I really like the R/R here still and could easily see this being an $8 stock later this year. Hopefully that helps but let me know if you have any specific Qs.
thanks for the reply. totally agree there. I remember a specific comment in the Q&A where the board said they are very confident they can hit the 135 million mark. There was also a comment earlier in the call cant remember if it was from CFO or CEO but he said once the 135million point is hit they will revaluate the best use of cash moving forward (or something along those lines). That got me thinking they could forecast a small divi or buyback, which could offset the negative sentiment around reporting a negative Q4. But anyway, thanks for covering this one, wouldnt have seen it otherwise and it really interests me
The market is either missing that comment or does not believe it. My view here is that this new management team has effectively zero incentive to sugar coat things given this mess was not of their making, sentiment is already terrible, and the worst thing they could do is impeach their credibility by guiding to outcomes that don't materialize. Further, freeing up 50m of cash by liquidating inventory does not seem like a Herculean aspiration, especially given the improved cost structure. And it's not like they are a retail brand and have to do deal with fashion or obsolescence risk. They sell guns, which are sure to be met with demand at the right price. If you look at their website, you'll note that the vast majority of products are on sale right now. Let's hope those deals are working.
On capital returns, I am not holding my breath as they want to instill more confidence in the liquidity situation before doing so. That said, it's certainly possible if they hit their guide and maintain that run-rate; a buyback would surely galvanize the stock at this valuation.
Thanks for the great ideas. Love reading how you structure an investment thesis.
Wondering your thoughts on Jublia vs MOB-015 - I know the myco cure rate is a lot higher, but the complete cure seems to be the goal, returning the nail to normal. Which seems to be what the ongoing study is testing. They're both daily, similar cure rates, with MOB having a superior myco cure. Only a few phase 3 studies each. Doesn't seem like the total slam dunk management thinks it'll be (90% market share). What do you think.
You're correct that showing improved complete cure is the point of the ongoing Phase 3 studies, but the superiority of mycological cure is very very important; the fact is that MOB-015 is much more effective than Jublia as a result. Moreover, Jublia has a well-established reputation for being quite hated and ineffectual. I recently watched the Netflix show Dirty Money, which has an episode on Valeant (the remnants of which became Bausch). Funny enough, there is some commentary in there about how Valeant was selling ineffective products and the exact example they used in support was Jublia. You can see further evidence of this by looking at the reviews of Jublia online, which I cite in the Cipher write-up. Ultimately, the combination of ineffectiveness and a poor reputation amongst doctors and patients leads me to believe that Cipher won't have much difficulty capturing huge amounts of market share.
Thank you Jake, this is an excellent answer. I need to check out the Dirty Money show now. No doubt people will try alternatives then. MOB-015 is better. I did take a look at those reviews when I read your original write-up, appreciate that. Hopefully MOB-015's reviews will be better.
The 80% of cases being unprescribed is kind of a big deal. I'm trying to figure out why that is. Is it simply because Jublia sucks? Or is there something else going on, like people just don't bother treating it. To what extent would a more effective alternative increase the size of the actual market. What are your thoughts. Thanks Jake
Yes, that is likely one reason. Some advertising and enthusiasm around new treatment options would likely expand the number of people seeking treatment. Right now your options are ineffective topical (like Jublia), oral terbinafine (which has nasty side effects and scares people away), and laser (which is expensive and requires numerous sessions as I understand it). So one would think an effective topical would probably expand the # of people that seek treatment. To be clear, you don't need the market to be larger than what the IQVIA data suggests for Cipher to do really well, given the inferiority of Julia and how little of the MOB-015 upside has actually been priced in at this point. E.g. if Cipher could get half of the market ($45m cad) that would translates to +CAD$20m of operating income at a 50% margin vs. ~$15m TTM. So even half of their projection bearing out would double the company's EBIT.
Absolutely, thanks for the thought out response. Definitely still going to make money, I'm just trying to appraise the odds of getting a 10-bagger, which the increased market size could make it.
I modeled a scenario where the market for toe nail fungus goes to $200M CAD by 2030, and CPH gets 50% of it. I applied the 60% EBIT margin from the SIB model to CPH's sales, and it sees EBIT/share getting to $3.15 vs the current $0.54 (30% CAGR). Apply any multiple you want to that (I did 10), and CPH is a $30 dollar stock, before any backs or acqusitions or other products.
I think that's a perfectly reasonable scenario and not a bad result at all, 20% CAGR.
I think the 10-bagger opportunity has likely passed here, absent an absolute home run of an M&A deal (not that remote of a chance imo). But I do think there's a pretty low risk triple sitting here, and likely a fair bit more than that. If you want a nail fungus 10-bagger, the better bet is to play Moberg directly (which I am also doing).
Yeah, I think that's a fair assessment. A nail fungus ten-bagger would be something to tell the grandkids about, I'll look into it. Thanks
awesome summary mate. Any chance we can get an update on your thoughts about Sportsmans? Earnings coming up pretty soon and the discount to fair value is looking pretty steep
Hey Low. My thoughts on SPWH are relatively unchanged. Clearly, I was too early but I continue to think this is way too cheap and personally have been a buyer around these prices. Look, retail is tough and there is also some chance there is an idiosyncratic issue going on at Sportmans that I am not aware of. But at ~3/share this thing is priced like its on the verge on insolvency and I just don't see that. I see no reason why the revolver balance won't come down to about to where it was guided (~$135m) given inventory fire sales. Operating margins should likewise improve given what I outlined in the write-up. So, I think the real question is demand. And on that, I think we have a pretty good piece of evidence from the recent Smith and Wesson earnings call and PR:
- "just in general, look, I mean, the election year is always a healthy demand period, for the firearms industry. I think you can kind of, we expect the NICS results, and the firearms market to remain healthy, throughout the calendar year."
- "inventory in the distribution channel declined from October levels, in terms of actual units and weeks of inventory, indicating strong sell through of our products at retail."
To me, this indicates that firearms demand is set to be strong as it always is during an election year, though perhaps we will not start seeing that demand translate to sales until subsequent quarters. Altogether, I really like the R/R here still and could easily see this being an $8 stock later this year. Hopefully that helps but let me know if you have any specific Qs.
thanks for the reply. totally agree there. I remember a specific comment in the Q&A where the board said they are very confident they can hit the 135 million mark. There was also a comment earlier in the call cant remember if it was from CFO or CEO but he said once the 135million point is hit they will revaluate the best use of cash moving forward (or something along those lines). That got me thinking they could forecast a small divi or buyback, which could offset the negative sentiment around reporting a negative Q4. But anyway, thanks for covering this one, wouldnt have seen it otherwise and it really interests me
The market is either missing that comment or does not believe it. My view here is that this new management team has effectively zero incentive to sugar coat things given this mess was not of their making, sentiment is already terrible, and the worst thing they could do is impeach their credibility by guiding to outcomes that don't materialize. Further, freeing up 50m of cash by liquidating inventory does not seem like a Herculean aspiration, especially given the improved cost structure. And it's not like they are a retail brand and have to do deal with fashion or obsolescence risk. They sell guns, which are sure to be met with demand at the right price. If you look at their website, you'll note that the vast majority of products are on sale right now. Let's hope those deals are working.
On capital returns, I am not holding my breath as they want to instill more confidence in the liquidity situation before doing so. That said, it's certainly possible if they hit their guide and maintain that run-rate; a buyback would surely galvanize the stock at this valuation.