MCRB got the thumbs up from the FDA on their PDUFA last night after the close. Shockingly, the shares popped up to $7 but immediately dropped below the $6.40 close to $6.20 before finally recovering to $6.70 to close after hours on heavy volume. The drop seemed weird and overdone and I added 20% to my position at $6.30.
It is now a 4% postioin. Today should be interesting.
Board is open.
Beer, Whiskey and Pizza Investing Club 
I think you made a good choice
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woke up and I see MCRB is up 15%. I wish I’d been around for a little after hours trading last night… markets sometimes are not all that efficient. TGTX was similar.
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PDLB reported their earnings yesterday. This is a 2.8% position for me (I’m down 14%). While everyone is on pins and needles regarding banks, this looked pretty benign.
They increased BV/share from 10.77 to 10.90 (they trade at a paltry 7.22).
Deposits were up over 6%.
But I do understand part of the problem => it is costing them more to get/keep the deposits.
In 2022 they averaged paying 0.66% in interest to their depositors/borrowings. Which frankly was a rip-off. On the flip side they loaned out $ in 2022 at 5.14%. So that is a huge spread.
In Q1 2023, they paid 2.97% for deposits/borrowings. Strangely their loan rate was compressed down to 4.76%.
That might be problematic, I can kind of understand why banks are really under pressure right now. I don’t believe they should trade at 66% of BV, but they aren’t going to be as profitable.
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None of my other banks have reported earnings yet. I think this will be a metric I watch.
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Reading up on RETA this morning. As a reminder, they announced Feb 28th the approval of their Skyclays drug to treat FA. This is a rare disease that impacts 6,000 people in USA and there is no other effective treatment.
As an orphan drug, they can charge a high price for dosage, we’re talking 370,000 a year per patient. Dr Tran does his work up on expected profit, but I think he is way low as he assumes a 25% profit margin. But when the patient population is so small and you’re the only real option, I believe the margin will be much higher (say 50%) as you need a smaller sales force, you don’t need to run advertisements etc.
If we assume they get 1/2 the market that is 3,000 x 370,000 x 50% as a baseline = $555 million of profit per year. Call it $450m as there could be some form of discounting. That is just the US market. I have to believe rest of world is just as big, but RETA would probably just have 10% margins there.
RETA has a 3.5 billion market cap. So 8x earnings.
Things should start moving quickly. They seemed fully prepared for a launch and expect 50% of HCP to start treatments within 1 to 2 months => that means by end of May we should get our first pulse of how it is going.
Now a point I didn’t realize is that RETA has another drug in phase three study right now => bardoxolone to treat chronic kidney disease. It’s results are due in 1H 2023, so sometime within next 2+ months. It is a more prevalent condition than FA. clearly we don’t know if it will be approved, but if it is then it isn’t unreasonable to expect it could create about the same level of profit as Skyclarys. Hard to say, but my guess is that approval could take this from $100 stock to $150. Of course if not approved (and Skyclarys isn’t exceeding expectations) the stock could drop some.
After thinking about all of this, for me there is no reason to be selling call options on this name. I’d prefer to retain upside in a positive outcome.
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MCRB getting a little more respect this morning. Up 10% pre-market.
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Under the category of WTF!!!
ACRB down 16% on a day when their gut drug was approved??? Volume is thru the roof???
Did they irrevocably lose the secret formula for the drug??
I can find absolutely no reason for this drop. Certainly not for this degree of drop in the face of basically getting everything we could have wanted out of the approval. In addition, they are also getting $85million from their partner Nestle for meeting their PDUFA threshold.
The only negatives were a pre-existing JPM price target set at $7.50 and perhaps the fact that they signed a new LOC with a relatively high rate?
I just don’t see any reason for this crater?
Very very frustrating.
Not selling but certainly not feeling good about this situation.
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Sold my ATVI trade. I think I needed a little bigger drop yesterday before I should have bought. Probably still a great company but I don’t really want to own this LT and it just wasn’t bouncing the way I thought it should. Small gain on a small trade.
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I started a 1% position in MCRB today at 5.80. They have sold off today as they opened a debt facility with Oaktree. They borrowed immediately $110m and will pay off $53m of outstanding debt. The new debt has a rate that should be around 12%, so not cheap.
That means $13m a year to service that debt initially. But that enables them to go forward with their product launch. The estimate from IBI (and I don’t really put much faith in these figures) is they’ll make $250m a year from the approved product (to me that feels a bit high). But for a company with a $760m EV, even if they can make $150m to $200m a year profit from this new product, that would be nice.
They do have some sort of partnership with Nestle, not sure (need to find out) if they’ll have to share profits with them.
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I checked. They have to share 50/50 with Nestle. Hmm. starting to wonder if this name really has enough upside.
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I listened to the MCRB conference call along with the slides. I didn’t note any glaring red flags. They definitely have some challenges ahead of them => production, education of physicians etc. But it seems that their partnership with Nestle will help them (I had no idea Nestle was in this space).
I don’t think they’ll have any chance to get the instant type of penetration RETA will get as there are other approaches available.
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I think the Nestle partnership is a big positive. FIrst of all they will now receive $85 million threshold payment for getting the approved PDUFA. Second, Nestle is in an excellent position to actually acquire MCRB and use their scale and expertise to assist in product rollout.
In addition, 1. their treatment is taken orally vs their current competitors approach requiring either the insertion a probe to inject fecal biome into the gut or some type of enema procedure (neither sounds pleasant to me). and 2. The cost of their “pill” is dramatically lower than the competition with similar efficacy.
Yes the rate on the new credit facility seems high and we do have a JPM price target hanging over them at $7.50.
Regardless none of the above justified the volume of selling today and a 17% price drop.
What realy has me wondering? If this name drops 17% when we pretty much got exactly what we wanted how bad would it have been if the PDUFA was denied?
Without MCRB’s loss today, I would have been in the green. Unfortunately, it was a big position. Probably too big. So with MCRB I ended down 85 bps which is especially disappointing when all the US indexes were up well over 1%.
Not a good day.
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It was very weird to get the PDUFA and then crash 17%. Probably lights out if they’d been denied. I do think they’ll bounce back and yes Nestle is in pole position if they decide to acquire.
I was up 55 bps.
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