Moberg Pharma - Toenail Fungus Pure-Play with Potential- MOB.ST

$100M company disrupting a $3-4B toenail fungus treatment market

Introduction

This article is essentially an extension of my article on Cipher Pharmaceuticals, as it investigates Moberg Pharma, the developer of the toenail fungus treatment Cipher has licensed, MOB-015.

Unfortunately for readers, this article is not complete, as my wife gave birth to our second child (a boy named Percy!) while I was halfway done researching and writing. I don’t really have a hope of finishing it any time soon but publicly posting is part of my investment process, so here’s what I have.

It’ll be focused on framing the opportunity at the expense of probably relevant details. So more than usual, do your own due diligence on this one.

The Company

Oscar 100% covered this aspect well, so I’ll save some time and let you go there for more info. Short story is MOB.ST has a ~$1,000M SEK (~$100M USD) market cap, burns cash, dilutes, has minimal insider-ownership, a complicated cap table, and is pre-revenue. Bottom line, it’s very easy to write-off Moberg Pharma as another speculative biotech.

It's had a good recent run though, as “foreign speculators” (according to the Swedish press) bid it up. So maybe something is going on.

Why MOB-015 might be the Real Deal

The thing about toenail fungus science is that it is not that hard to understand. You just must find out how well a product gets rid of the fungus (mycological cure rate), restores the nail to normal appearance (complete cure rate), how long it takes, and what is required to get that outcome.

Everything hinges on MOB-015 being a better drug than what exists. I made a chart tracking this:

As you can see MOB-015 (branded as Terclara), is better than all competing treatments except for oral terbinafine pills, to which it is comparable. Currently, oral terbinafine has a better complete cure rate but 20% of users get the fungus again, and it has dramatic side effects like liver toxicity, and complex drug interactions that lead many doctors to avoid prescribing it, even though it works. Here’s what Harvard says about it:

Link https://www.health.harvard.edu/a_to_z/toenail-fungus-onychomycosis-a-to-z

There is no doubt MOB-015 is effective at killing the fungus, but can it restore the nail to normal appearance inside a year? Interestingly, MOB-015’s somewhat lackluster complete cure rate (though still better than main topical competitor Jublia) may be partially because patients were dosed more heavily than is required to kill the fungus, which caused a discoloration of the nail. Here’s what Moberg has to say about it:

Taken from Moberg’s 2022 annual report

Self-reported complete cure was much higher than the 5% the official results reported, and the speed that patients saw improvement (as early as 12 weeks), give investors some hope that complete cure is improvable. The ongoing phase three trial altered the dosage to try to prove this. The results are due Q1 2025.

So what do we need to know about MOB-015’s competitive positioning? MOB-015 is better in every way than the current leading topical treatment Jublia, and if complete cure can be improved in the ongoing trial, then it will match the leading oral treatment, but without the risk of liver poisoning, dangerous drug interactions, and relapsing.

The phase three trial results will be a big catalyst in 2025, but even without positive results, MOB-015 looks to be competitive already.

Sales Potential

Moberg Pharma estimates the revenue potential for MOB-015 to be USD $250-500M:

Moberg’s guidance could be substantially low-balled because…

1. Estimates of market share are underestimated

   1. Objectively better than other topical treatments (Jublia, Emtrix, Medexus)

   2. Competitive with “gold standard” oral terbinafine (Lamisil + generics) but without the drawbacks.

2. Estimates of market size are underestimated

   1. People prescribed Jublia rarely complete the course because it’s expensive, slow, and frankly doesn’t work that well.

      1. If MOB-015 works quickly and effectively, it could cause existing customers to finish their prescription, increasing sales.

   2. 1/5 people with onychomycosis get it treated and are counted in “market size,” the other 4/5 people with the fungus are uncounted potential customers.

      1. If a de-risked treatment comes to market that works quickly and easily, maybe more people will get treated.

For example, Canada’s market is around $65M USD, growing, and dominated 95% by Jublia (in dollar terms). Cipher is projecting they’ll eat Jublia’s lunch and take 80-90% market share, which is in sharp contrast to Moberg’s estimate of 10-20%. In Canada alone the revenue potential is over $50M USD. Canada is just one of the five countries to which they’ve out licensed MOB-015 and it already meets their sales expectations for all those markets put together. The estimates have clearly been lowballed.

The real prize though is the USA, and the reason Moberg has retained rights to the drug in that jurisdiction; the want the golden goose for themselves. Keeping in mind this is extremely speculative, here is a potential base case for what Moberg’s economics in just the USA could look like:

So now we understand why people are excited; a reasonable (though speculative) base case for Terclara in just the USA results in the high-end of the company’s estimates for the product globally.  

People are going to argue all about the assumptions here. The price may be off, maybe you think market share will be lower or higher, maybe you’re certain some of the untreated people are going to get on board, maybe I’ve over or underestimated how much the cost of treatment is, and maybe the EBIT margin is off. Stock could be cheaper or more expensive than I’ve suggested. Point is the current price is low enough that investors can be wrong about a lot of assumptions and still make money.

The Risks

I don’t see too much risk in the product or market itself; there is clearly demand and MOB-015 is already proven effective. Jublia is coming off patent however, and it’s a little unclear how well a generic version would sell/compete with Terclara. Nonetheless, the main risks the above sales estimate doesn’t account for are in the business and roll-out.

What if the roll-out, an approval, the phase three study, anything else, is delayed? What if the manufacturer of terbinafine can’t make enough? What if the salesforce they go with sucks? What if the company ends up diluting so much to pay for all this that even if the product is a success, shareholders still don’t make money? There is a good thread on this here.

I have some information on these details, but not that I’m confident enough about to share. I do believe though that these are the questions I think investors should be asking themselves. For me, the answers I get will determine whether and in what percentage, I buy MOB.ST. Execution matters.

Conclusion:

Moberg already doesn’t expect US roll-out until late 2026 or 2027, so investors have some time. There is potential here for a serious multi-bagger, and at the current price you aren’t assuming too much.

It’ll take investor skill to get the most out of it however, as I don’t expect this to be a smooth ride. There are a lot of moving parts and it’ll take a lot of research to get the confidence to buy it in meaningful size, emotional fortitude to not sell during periods of euphoria and depression, and a longer-term time horizon than most have.

Personally, I think Cipher is the safer pick to play MOB-015 because it is backed by a cash-flowing business and entering a market that is 95% Jublia (easy prey for Terclara). Moberg itself has a lot more going on investors need to balance. As one might expect, with the higher risk comes greater reward; Moberg’s upside is significantly more than Cipher’s, but much less certain (or harder to be certain about).

I don’t own either yet, and not really thinking about since I have to go change a diaper. Thanks for reading.