Perhaps another reason why this is still cheap is due to the fact that the licensing agreement with Sun on Absorica and Absorica AG is due December 2026 and Absorica LD due December 2024. They represent about 40% of revenue.
-----------------------------------
Let's play with the worst case scenario: Total revenues remain flat up to FY26 (Assuming MOB-15 sales haven't picked up & slight delays and whatnot). They don't come to an agreement with Sun, so 30% of revenue is cut off. Epuris not picking up sales in Mexico.
We have currently at Q1 2024 (USD):
MC=154M
cash = 42M, debt=0
EV = 112M
TTM EBIT= 11M ish
TTM EV/EBIT = 10x
-----------------------------------
Assume EBIT=FCF= 2.75M / quarter.
FY26 numbers=11 quarters left.
11*2.75=30M extra cash so we have
(assuming same stock price):
MC=154M
cash=42+30=72M
EV=82M
EBIT cut by 40% so we get 0.6*11=6.6M
FY26 EV/EBIT = 82/6.6 = 12.4x
So essentially 20% more expensive (but 47% of MC is cash), assuming Epuris sales to Mexico don't increase, everything else remains stable, MOB-015 not getting any credit, etc. If they come to an agreement with Absorica, we suddenly have EV/EBIT of 7.4x just from the underlying business.
Interesting idea. I just saw that Medexuss has a topical terbinafine product expected to launch in Canada in the first half of 2025 ahead of Cipher. Do you have any thoughts on this? Why would MOB-015 beat out this competitor? Management is expecting 90% market share?
Hi Philip, thanks for the question. You're right Medexus' product should be a competitor absent any impediments to its commercialization. While MOB-015 has shown slightly higher mycological cure rates, the difference between the two products does appear substantial (though I'd note, I'm far from an expert here). So, I think we need to assume that Medexus does capture some market share. However, I would consider two things that mitigate this: 1) we do not need Cipher's projections to hold to make a lot of money here - cut the 2027 projection in half ($15m usd sales) and at a 55% EBIT margin that is worth around $12m CAD of EBIT or 75% of current EBIT. At 10 x that is worth an additional $120m, which is essentially today's enterprise value. So there is still big upside. 2) But more significantly, Cipher's projections probably understate the size of the onychomycosis market as that projection is based on IQVIA data, which in turn is based on treatment data: and we know that many onychomycosis patients fail to get prescribed treatment for various reasons. See this study, e.g., which indicates that treatment is prescribed in only 1/5 visits. https://jddonline.com/articles/onychomycosis-treatment-prescribed-at-only-twenty-percent-of-visits-a-cross-sectional-analysis-of-the-national-ambulatory-medical-care-survey-2007-to-2016-S1545961623P1040X/. So while Cph's 90% projection may be high, it is likely balanced out by a conservative TAM estimate.
I am hoping to get some color on the call next week.
Thank you for the thoughtful response. That's really helpful.
I saw that Moberg recently commercially launched MOB-015 in Sweden. I am still new to Cipher and Moberg and need to do some more research but do you know if they solved the discoloration issue in Europe through less frequent and shorter dosage period? Trying to get a sense of the risk of that in the Phase 3 in the US. I read the key opinion piece from 2020 and it seems they feel pretty confident that a shorter dosage period will work but curious if there is anything more recent on that from Moberg.
Correction to the above in case it wasn't obvious: "the difference between the two products does NOT appear substantial."
Complete cure rate is the primary end point of the ongoing North American studies - it wasn't in Europe. This tells me that, as I said above, the product could probably be approved without achieving this endpoint, but that they are running studies in NA so that the can market the drug with this added selling point.
I do not believe specific date on the complete cure rate has been disclosed out of Europe. Look at Moberg's June 28, 2023 press release regarding EU approval. It notes that "MOB-015 demonstrated superior levels of mycological cure (76% vs up to 42% for comparators), and a significantly better complete cure rate compared to vehicle." That doesn't exactly tell us whether the complete cure issues were resolved, only that it was better than the alternative.
Perhaps another reason why this is still cheap is due to the fact that the licensing agreement with Sun on Absorica and Absorica AG is due December 2026 and Absorica LD due December 2024. They represent about 40% of revenue.
-----------------------------------
Let's play with the worst case scenario: Total revenues remain flat up to FY26 (Assuming MOB-15 sales haven't picked up & slight delays and whatnot). They don't come to an agreement with Sun, so 30% of revenue is cut off. Epuris not picking up sales in Mexico.
We have currently at Q1 2024 (USD):
MC=154M
cash = 42M, debt=0
EV = 112M
TTM EBIT= 11M ish
TTM EV/EBIT = 10x
-----------------------------------
Assume EBIT=FCF= 2.75M / quarter.
FY26 numbers=11 quarters left.
11*2.75=30M extra cash so we have
(assuming same stock price):
MC=154M
cash=42+30=72M
EV=82M
EBIT cut by 40% so we get 0.6*11=6.6M
FY26 EV/EBIT = 82/6.6 = 12.4x
So essentially 20% more expensive (but 47% of MC is cash), assuming Epuris sales to Mexico don't increase, everything else remains stable, MOB-015 not getting any credit, etc. If they come to an agreement with Absorica, we suddenly have EV/EBIT of 7.4x just from the underlying business.
Interesting idea. I just saw that Medexuss has a topical terbinafine product expected to launch in Canada in the first half of 2025 ahead of Cipher. Do you have any thoughts on this? Why would MOB-015 beat out this competitor? Management is expecting 90% market share?
Hi Philip, thanks for the question. You're right Medexus' product should be a competitor absent any impediments to its commercialization. While MOB-015 has shown slightly higher mycological cure rates, the difference between the two products does appear substantial (though I'd note, I'm far from an expert here). So, I think we need to assume that Medexus does capture some market share. However, I would consider two things that mitigate this: 1) we do not need Cipher's projections to hold to make a lot of money here - cut the 2027 projection in half ($15m usd sales) and at a 55% EBIT margin that is worth around $12m CAD of EBIT or 75% of current EBIT. At 10 x that is worth an additional $120m, which is essentially today's enterprise value. So there is still big upside. 2) But more significantly, Cipher's projections probably understate the size of the onychomycosis market as that projection is based on IQVIA data, which in turn is based on treatment data: and we know that many onychomycosis patients fail to get prescribed treatment for various reasons. See this study, e.g., which indicates that treatment is prescribed in only 1/5 visits. https://jddonline.com/articles/onychomycosis-treatment-prescribed-at-only-twenty-percent-of-visits-a-cross-sectional-analysis-of-the-national-ambulatory-medical-care-survey-2007-to-2016-S1545961623P1040X/. So while Cph's 90% projection may be high, it is likely balanced out by a conservative TAM estimate.
I am hoping to get some color on the call next week.
Thank you for the thoughtful response. That's really helpful.
I saw that Moberg recently commercially launched MOB-015 in Sweden. I am still new to Cipher and Moberg and need to do some more research but do you know if they solved the discoloration issue in Europe through less frequent and shorter dosage period? Trying to get a sense of the risk of that in the Phase 3 in the US. I read the key opinion piece from 2020 and it seems they feel pretty confident that a shorter dosage period will work but curious if there is anything more recent on that from Moberg.
Correction to the above in case it wasn't obvious: "the difference between the two products does NOT appear substantial."
Complete cure rate is the primary end point of the ongoing North American studies - it wasn't in Europe. This tells me that, as I said above, the product could probably be approved without achieving this endpoint, but that they are running studies in NA so that the can market the drug with this added selling point.
I do not believe specific date on the complete cure rate has been disclosed out of Europe. Look at Moberg's June 28, 2023 press release regarding EU approval. It notes that "MOB-015 demonstrated superior levels of mycological cure (76% vs up to 42% for comparators), and a significantly better complete cure rate compared to vehicle." That doesn't exactly tell us whether the complete cure issues were resolved, only that it was better than the alternative.