MBP looks to me like it may have found a floor at $1.06.If the...

MBP looks to me like it may have found a floor at $1.06.

If the stock closes above this level today I would see it as being very positive possibly marking the start of an upwards retracement.

I've spoken to MBP management and I was left with the distinct impression that they are genuine in their interpretation of the recent trial result (i.e. they believe the drug is effective).

The real beauty with this drug, the way I see it, is that there are no side effects. I would imagine the drug would find a substantial market with women, whether or not they were classicly obese. Add to this that increasing obesity is very much on the health agendas in western countries and this stock could be a standout winner.

Some ideas on valuation:

Market cap is around $250m.

For the company to settle on a P/E of 10 (conservative I think), drug revenues will need to exceed A$35.7m to generate an after tax income of A$25m. Of course, given that the drug remains some years from market, we need to scale this revenue stream up by a discount factor - but I haven't done this here.

As a base case, if you assume that MBP get royalties of say 10% of sales after doing a deal with a big pharma, drug sales would have to come in at A$357m or US$277m.

I reckon this is chicken feed for a drug like this. Look at a drug like Viagra - the market for which is necessarily limited to just half the population (males) - which achieves revenues of $US1.9bn. If MBP's drug is 1/10th as successful, revenues would be $US380m (assuming the potential market is twice as large). This yields an undiscounted price for MBP of A$1.48.

Alternatively, if the drug is as successful as I think it could be, MBP is potentially worth billions.

Interested in other views.

Zoot