Weekly Report Card - 08/14/21 Summary – THTX’s stock fell 3.0% last week despite a really good presentation to the Canaccord Growth Stock conference and the publishing of the first peer-reviewed article on their cancer drug TH-1902 in a leading cancer journal. Frankly, the stock should have risen given the information that was shared last week, but, for whatever reason, the sellers were more motivated than the buyers. Additionally, we were very happy to hear the CEO state publicly at the Canaccord conference that he views the THTX stock price as being “ridiculously low”. We believe the same but it is much better hearing it from the CEO than me. Still, while meaningfully good things happened last week, with the stock price still down, a grade of “B” is the best the Grumpy Grader can muster.
August has many times in past years been a slow month for investor engagement from the company due to vacations, both within THTX (French Canadians often operate more like Europeans when it comes to summer vacations with many taking much of the month of August off) and among those investors THTX might seek to engage with. But we at the THTX Weekly Report Card never take a week off (at least not yet)!
Once again, despite our general grumpiness in handing out these weekly grades, we do still think we should give credit where credit is due. Some of the issues raised here (and elsewhere too) in the past have been addressed to varying degrees of success – here are several we could think of:
- THTX’s CEO recently publicly addressed the issue of the stock’s too low valuation
- A new board member with capital markets experience was added
- The corporate presentation has been updated and is very well done
- Analysts expectations for the legacy drug sales have been brought much closer to reality
- There was a major upgrade to the company’s website
- Allowing on-analysts to ask questions at the quarterly conference calls was a major positive
- There has been at least some minimal insider buying of the stock (and no insider selling)
- There has been indications of increasing, yet quite minor, institutional interest in the stock
- Trading volume in the stock has picked up notably in recent weeks
- THTX has spoken about possibly holding an in-person R&D Day event in the second week of September
While we are pleased with that progress, there remains a lot of work yet to be done if shareholders hope to see the best possible outcome as THTX continues what increasingly looks like a very intriguing and worthwhile adventure with its cancer drug TH-1902. And we should not forget about NASH, where a forthcoming partnership deal could crystallize some shareholder value very quickly as well.
Stock Price: Last Week YTD 1 Year Since THTX Hit its Peak (5/25/18) THTX 3.0% 40.0% 28.2% - 69.0%
S&P Biotech Index -2.1% -11.5% 12.3% 32.9%
THTX’s stock price fell by 3.0% last week despite only good news as a backdrop. In particular, THTX’s presentation to the Canaccord growth Stock conference was chock full of favorable comments. But we do not think many people likely tuned into to hear what the company had to say, so those very positive comments had not real impact on the stock price.
The table above summarizes THTX’s better than index performance over the last year. THTX’s stock price, is however, still 69% below the high of $11.25 it reached in late May, 2018 whereas the S&P Biotech index is up 32.9% during that same time period, highlighting the company’s inability to get investors interested in their cancer and NASH opportunities as they transitioned away from disappointing sales for Trogarzo. Given how significant the NASH and cancer opportunities are and in light of the new CEO, as well as money spent on investor relations consultants and a new Investor Relations officer, all within a backdrop of a big bull market where stocks with far less than what THTX has to offer investors are performing much better, THTX’s longer term stock price performance has been quite disappointing. But the very good performance so far in 2021 indicates a new, more positive trend has begun and we hope developments in their cancer and NASH programs will propel the stock significantly higher, supported by an improved effort to reach investors with their very intriguing story, particularly regarding THTX’s cancer drug, TH-1902, or more appropriately its Sort1+ technology platform, of which TH-1902 is the first part.
Trading Volume: Last week THTX traded close to 977,000 shares, a good number for THTX relative to the recent past and a big jump higher from the 690,000 shares traded during the previous week. Clearly, there is a motivated seller in the market right now as the news was all good for THTX during the past week. One can never be sure what is motivating a seller but we are not aware of any reason someone should be in a hurry to sell THTX right now with a number of key events on the immediate horizon.
A year ago trading in THTX was average with 534,000 shares changing hands. Two years ago during the same week, THTX traded only a paltry 137,000 shares (it had not yet listed on NASDAQ so most of the trading was on the Toronto Stock Exchange at that time). If the company hopes to continue to improve on the trading volume in its stock, it will need to pick up the pace of effective engagements with investors.
Presentations to Investors: As noted earlier, THTX’s CEO made an excellent presentation to Canaccord’s Growth Stock conference last week. While not providing any direct evidence of success in the now 4+ month old phase 1a cancer trial, he basically said things were going along very well with this key trial. There was much more to this excellent presentation than just intimating that cancer was on a very good track but we will not go into it all for the sake of brevity in this already too long Weekly Report Card. But we will note the CEO indicated there would be an R&D Day in the second week of September. We would not expect the company to divulge phase 1a data at this investor event but they should use the opportunity to do what they can to build excitement and anticipation for the eventual release of the safety and preliminary efficacy data scheduled for some time in the fourth quarter. Also, we noticed on Bloomberg that THTX is scheduled to present to the Canaccord Global Healthcare conference at the end of September. We anticipate the company will participate in more investor and medical conferences in the latter part of this year when such conferences are normally more plentiful (of course, covid could play havoc with those expectations).
THTX’s CEO has shown he can do a very good job in investor presentations and the Chief Medical Officer has also demonstrated similarly good presentation skills. I don’t imagine we will hear from their medical advisor, Dr. Beliveau too often, but he also did an excellent job on his part of the June cancer webinar. The more such presentations they are able to do in front of varied audiences, the better. THTX has a great story and has the people who can communicate that story well. They now just need the right audiences to present to, something LSA is trying to help them with. Additionally, with the new website, anyone can now easily access any THTX presentation anytime they want, which is very helpful for new investors considering investing in THTX. But they need to be out pressing the flesh with investors more often and with a narrative that they have created remarkable shareholder value while expending minimal shareholder resources in NASH and cancer in order to generate sustained interest in the stock prior to the release of the all-important cancer data in the fourth quarter.
Analyst Reports/Comments: There were no new analysts’ reports written on THTX last week.
With the company highlighting cancer on 6/21 and choosing to lead their pitches to investors with cancer, it is worth noting they do not yet have an analyst specializing in cancer stocks covering THTX’s stock. As noted, Canaccord’s analyst is a NASH expert. The remaining analysts really do not specialize in any particular type of drug company. THTX needs US-based cancer specialist analysts to pick up coverage of the stock if they expect to get full value from the market for their cancer program. Such analysts are the ones who have the best ability to convince institutional investors to buy THTX’s stock due to its prospects in cancer. Unfortunately, THTX’s small market cap of just $360 million is a big impediment to most institutions buying the shares at this point, which means they likely should have a bigger focus on retail investors in their investor relations efforts until the market cap has grown to a level more in line with institutional interest.
Cantor’s analyst may produce a new report on THTX at some point but there may be securities regulations that limit Cantor’s ability to research the company actively while in the midst of a share offering they are leading. While THTX apparently has no interest in selling shares through the ATM at this time or price, technically, there is an open share offering that Cantor is leading and we have not been able to get to the bottom of whether that restricts Cantor from writing up a report on THTX. Nevertheless, they can speak to their clients about the stock and encourage them to buy it. From Cantor’s perspective, they are incentivized to push THTX’s share price higher as that increases the odds THTX will issue shares thru the ATM thereby earning Cantor some healthy fees.
Appropriate Analyst Expectations: There is no change from last week in this section.
Following the Q2 results, the NBF and Leede analysts did reduce their revenue forecasts from the too high levels they had previously maintained. The Mackie analyst seems to still have the most realistic revenue forecast from our perspective and the NBF and Leede analysts are likely still too high, particularly with regard to fiscal 2022 revenue estimates. Now, with the Canaccord analyst finally taking a hatchet to his way, way too-high sales forecasts, the analysts as a group are much more closely aligned with reality. But I still think they could easily have to reduce their forecasts again once the Q3 numbers are released. Ideally, a company wants the analysts to always be too low in their expectations for quarterly sales and earnings so they are always increasing their estimates each quarter rather than lowering them. THTX could use quarterly revenue guidance to bring the analysts to forecasted sales levels they think they can beat each quarter but for reasons that remain a mystery, THTX is just not willing to do what almost all other companies do in order to manage their analyst’s expectations so that each quarter results in a headline proclaiming that THTX did better than the analysts’ expectations. It is not easy to understand why giving quarterly revenue guidance is a difficult thing for THTX to do as the revenue stream from the two legacy drugs does not seem so uncertain as to not be able to make a conservative, beatable forecast for the next quarter.
Corporate Presentation: THTX put out a new corporate presentation recently and it is a very good one. The corporate presentation is now so much better than it was a couple of years ago and THTX deserves a lot of credit for getting it dramatically improved. They can easily go into a meeting with US medically-trained analysts and gain their respect with the high quality of their current corporate presentation.
We do not think there was likely to have been much behind the scenes activity between investors and THTX as both the Investor Relations Officer and the Chief Medical Officer were apparently on vacation or out of the office on business travel last week.
Press Releases: The only press release this week from THTX was the announcement of the publication of a peer-reviewed article on TH-1902’s pre-clinical research in the cancer journal Cancer Science. This is an important development as it provides a degree of confirmation that what THTX has been telling us about their cancer drug TH-1902 is accurate and can be trusted. Not that we doubted it, but it can never hurt to have a third party confirm that your research was done well. Additionally, the presence of this article in a publication like Cancer Science can have the effect of drawing larger pharmaceutical companies into a dialogue with THTX about partnerships. Basically, it gives THTX in TH-1902 a degree of legitimacy it did not have previously. So, this article is definitely a good thing to have published and freely available, particularly since they also seem to have the intellectual property behind it patented already.
LSA Activity: Following the very well done cancer webinar sponsored by LSA in June, there was again no obvious LSA activity this past week. Likely there has been follow-up going on behind the scenes, but there were no new LSA public events.
The big question is whether LSA has the capability to consistently provide a whole new audience to hear THTX’s very intriguing cancer story and if that can drive investor interest in the stock. We suspect LSA does have such a capability and we saw indications of that at the cancer webinar. We have been told that LSA is a bit capacity constrained and does not accept all companies which would like LSA to represent them. If that is correct, it is a good sign that they were willing to take THTX on as a client. If LSA is good at what they do, the cancer webinar could prove to be a watershed moment for THTX’s stock where it will begin to move from being relatively unknown by most investors and start the process of becoming much better known as a company with some rather startling cancer prospects. The pick-up in trading volume recently may be an indication that LSA has been able to attract at least a little more interest to THTX, but for the LSA relationship to be viewed as a success, they will need to build off that modest start considerably. I would have hoped to have seen more of an obvious impact from LSA’s involvement by now.
Retail Investor Engagement: Once again, there was no new evidence of retail investor engagement in the last week. What follows is a repeat from past weeks.
Apparently, LSA’s job includes attracting high net worth, retail investors to THTX. Some participants on the cancer webinar apparently included people who work with such investors. But it is not evident that THTX has a sensible strategy in place to pursue retail investors or even desires to do so. With retail investors becoming a prime mover in so many stocks, particularly smaller ones like THTX, we are not sure why THTX seems to be largely ignoring this segment of investors. A crude measure of retail investor engagement with THTX is the number of “followers;” the stock has on Stocktwits. At the moment, THTX has only 902 followers on Stocktwits, which is a pitifully small number and continues to fall slightly each week. Many other companies with far lesser prospects than THTX’s have many thousands of investors following them on Stocktwits. For example, GALT, a company with less impressive cancer and NASH prospects than THTX, and with no approved drugs at all, has over 9,000 followers on Stocktwits – 10x the amount THTX has! THTX clearly has some work to do on this front but they have shown very little interest in doing it so far.
Website Improvements: Overall, the recent website improvements have been very good and we hope the new and improved site will be well maintained and improved even further. The ability to find recent conference presentations and listen to them again is extremely helpful. We should also note the improvement to the quarterly meeting whereby investors other than the analysts covering the stock can now ask questions of management.
Insider Trading Activity: As noted previously, two insiders purchased small amounts of stock recently. New board member Joseph Arena purchased several thousand shares which likely reflects the amount his board membership requires him to purchase. New head of Global Marketing John Leasure, however, purchased 5,000 shares and he has no such requirement. These are relatively small insider purchases but some are clearly better than none. It is also worth noting that Leasure was also granted options that will allow him to buy more than 21,000 additional shares. So, he bought shares with his own money in addition to being ranted those shares by the company, a good sign.
Insider trading in THTX usually comes in spurts as the insiders are prevented from buying or selling most of the time. When a window for insiders to trade occasionally opens, there has only infrequently been much trading. Almost all the trading has been on the buy side when it has happened in recent years. With the former CEO and former board Chairman Paul Pommier now retired, two of the largest insider holdings are no longer present. Overall, insider holdings of THTX are low reflecting the fact that THTX is not a young company so the original insiders have been diluted over the decades. Also insiders have the opportunity to pick up cheap shares via options, which is more attractive to them than buying them on the open market. Still, it would be nice to see more insider buying. Our new CEO should be credited for picking up a sizable number of shares during his still short stint with the company even though he is entitled to receive a very large number of shares via options.
Changes in Institutional Investors Shareholdings: A variety of institutional investors made filings last week highlighting increased holdings in THTX during the second quarter, but none of the changes seen thus far have been major. Virtually all new institutional transactions in THTX’s shares were on the buy side in the second quarter, which is clearly what we want to see and indicates that perhaps LSA and the company’s efforts are having at least a small impact in raising the profile of THTX. However, one of the firms we believe participated in the share offering in January, Arrowstreet Capital, sold its entire 335,000 share position during the second quarter. Renaissance also sold 150,000 shares during the second quarter and continues to hold 185,000 shares. Renaissance is generally known as a high frequency trading firm so we would expect its holdings to fluctuate a lot. The largest shareholder, Soleus, has not yet updated its holdings but should soon.
Most weeks there will not be new information on this item as filing requirements cause notifications of most changes in institutional holdings to be announced six weeks after the end of each quarter. Occasionally there are some other changes filed during the quarter and we will remain on the lookout for those.
Efforts to Highlight the Relative Undervaluation of TH's Stock: In a major change, the CEO took the opportunity of the Canaccord Growth Stock conference to highlight the absurd undervaluation of THTX’s shares. Hopefully, this will become a constant feature in his presentations as it is true and it will be very helpful for potential investors to hear him make that claim. If he is not confident that the stock is a great buy, why should any potential investors be confident about that? Now, if insiders would back up these claims with meaningful insider buying, investors would be sure to take notice and be attracted to the stock.
Weekly Grade - B – Given the lower share price this week, we cannot give an “A” but the company is to be congratulated on the very strong presentation to Canaccord’s conference and the publishing of a peer reviewed article on their cancer research last week. There is still much to be done, however, to earn a higher grade.
Again, suggestions for improving this are welcome.