Turtle

Back to compelling upside vs downside potential

Current market cap based on today's Aussie price of $A1.75 is only $US883m. That could be justified by net earnings of $US30.5m in a couple of years (assuming P/E 35x and 10% discount rate). At current US tax rate, that would require pretax profit of $US38.6m. That's pretty modest given the $US120m pa revenue possibility for kids' aGvHD in the US alone (at 60% margins, possibly rising to 80% in the future with serum-free 3-D manufacturing). So, the smallest indication justifies the current market cap (make your own estimates for corporate overheads depending on future R&D spend etc). Add the value of the patents and years of clinical trials data with 3 or 4 completed phase 3 trials and offset the debt against the cash position. Total aGvHD - adults and kids in the US and EU could generate revenue of $US750m pa. So, the share price down at current levels pretty much assumes nothing will be approved past US kids aGvHD. I think it's the base case valuation - though panicky shareholders can push the price down below reasonable valuations. The upside remains enormous IFF several of the product candidates are approved - but everything is dominated by ARDS.
No evidence of shorting today - volume only 1.42m including Chi-X at midday. Very little stock available for borrowing, price looks like bottoming around here. Shorts correlated with days that see volume over 3m shares. Volume over 5-6m indicates reasonable shorts. But these short-term price moves mean nothing in the absence of an announcement.Some points worth noting from my previous response:
1. As the Turtles passionately believe, fretting about short term price moves creates anxiety and stress and therefore pressure to sell - even if you don't believe the stories being peddled. Best to avoid engaging, as it is hard enough holding a stock with good long-term fundamentals when it is under short-term pressure.
2. Ecoool2 and the Turtles are max long at this price (within our individual risk limits) and it is more likely than not that we will see positive news from the FDA and from Novartis by the end of June, but probably this month - though nothing is guaranteed. That is based on the trial results released so far and other approvals and partnership deals which have occurred. It looks like a no-brainer.
3. Available stock for shorting is only 600,000 MSB Australian shares at a borrow rate of 18% - so shorts aren't likely to be significant in the near term.
4. After increasing net shorts by around 7.5m shares in the second half of April. The main sellers this year seem to be retail when you see the net selling from CommSec. Once that selling finishes or the good news is released the price should have another run. Of course, retail could always continue to panic over stupid class action rumours etc.
5. There are still no class actions filed in the US. If served, MSB would have to announce it, and they haven't.
6. Back to priorities - after last week's data - ARDS, ARDS, ARDS! This is MSB's biggest market potential by far. If the FDA ask them to run another trial in both ARDS and aGvHD, MSB (and Novartis) would first do COVID ARDS or All Cause Viral ARDS in adults (probably under 65's) - this is a huge market (400,000 all-cause viral ARDS patients in ICU likely in US each year: long-term guesstimate 250,000 Covid and 150,000 other viral ARDS (assuming a 50% death rate). US paediatric aGVHD market is only 400 patients per year. Time to market is a fraction for Covid ARDS under current EUA conditions. If they had to run another Covid ARDS trial it would take around 9 months to enrol around 300 under-65 adult patients - and it's still possible it could be approved under EUA with existing data - it's a numbers game. After last week's data, it looks very promising for All-Cause Viral ARDS, and then later we can look at expanding the label. Once they get adult approval for Rem-L in ARDS, then they can work on label extend to over-65 ARDS and adult GvHD (which is 3x the size of paediatric aGvHD). That is the fastest commercial path to market -so if the FDA doesn't approve aGvHD in kids, it will go on the backburner - now we have last week's ARDS mortality data and survival benefit. NVT will confirm the data and look at manufacturing data. MSB already transferred tech to US using serum-free. 3-D will come later. Lonza Singapore w/be approvable product - then later up to 100,000 doses pa out of US (possibly NVT also getting involved at some stage). That would be 25% of the potential viral ARDS market size and revenue of $US6bn to NVT at $US60k per patient (maybe $US1.8bn to MSB - ie $A1.9bn net profit or nearly $A3 per share - put that on 30x!). Note Pfizer's Covid sales forecast is now $US26bn (at much lower margins) so $US6bn isn't outrageous if it cures 75% of deaths. ARDS is the whole game after last week's exceptional data! It might not happen, but if it does, it could be huge