Weekly Report Card – 10/2/21 Summary – THTX’s stock fell by 7.6% last week as the burst higher in the previous week was not sustainable since THTX did nothing to engage further with the retail investors who responded favorably to the financial advisor who pitched the stock as a buy on Charles Payne's Fox Business channel show. THTX did present at the Cantor Global Healthcare Conference on Wednesday but, as has been typical lately with regards to THTX's investment conference presentations, the institutions that may have been listening in did not respond by buying the stock. My best guess is that few institutions were even listening as THTX's market cap is too small for most institutional investors to spend much time on (that being said, institutional ownership in the shares has still picked up a little in 2021). Basically, the last two weeks highlight that THTX's story plays well with retail investors but not so much with institutional investors. Good cancer data will change that equation, thereby attracting more institutions to the stock and we are not too far away now from getting our first look at how TH-1902 has worked in human testing. But THTX has missed a major opportunity to help push the share price higher by ignoring retail investors. Other than the Cantor conference, THTX did not do anything in the public realm to help support the share price this week. Moreover, THTX's CEO once again failed to take advantage of the Cantor conference to highlight how undervalued THTX's NASH program is versus other similarly positioned NASH stocks. As a result, this week's grade is back to a "D", and I probably should have given even a lower grade as the CEO made quite a strong pitch at the Cantor conference about THTX's NASH asset, as he should, but just cannot seem to bring himself to highlight to investors the great disparity between how the market values THTX's NASH asset versus other NASH stocks. It is hard to understand why any self-respecting CEO would not continuously pound away on investors on this subject until such time as a more justifiable valuation was seen in the stock price.
Once again, despite our general grumpiness in handing out these weekly grades, which will undoubtedly persist at least until the stock hits a price greater than the $11.25 it hit in late May 2018, 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:
- A new board member with capital markets experience was added (but he unfortunately did not have US capital markets experience)
- 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 non-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 increasing institutional interest in the stock
- THTX's stock price has greatly outperformed the Biotech Index in 2021
While we remain very interested in NASH’s long term possibilities for THTX, cancer is our focus at the moment. Cancer is much “cleaner” than NASH and the pre-clinical work, as well as any hints we have been able to glean in the midst of the ongoing human phase 1a trial, have been mostly very positive. In the end, however, we need to see the results of that phase 1a trial before taking our hopes up a notch for THTX’s cancer program. But make no mistake, if those results are anything close to resembling what was seen in the pre-clinical work with mice, it is going to be a very big deal for THTX’s future and its share price. It would likely lead to a Breakthrough Therapy designation from the FDA for TH-1902 and a steady increase in investor interest in THTX in the months thereafter. If THTX's investor relations operation has been doing its job, there should be a lot of investors ready to buy the stock once positive preliminary results are released. We have had no indication of any backtracking this week from THTX's management on any of their previous very positive statements about cancer. We remain hopeful the preliminary results, when announced, will line up pretty well with the company's favorable characterization of their cancer prospects and there are good reasons to believe it will, most notably that the trial appears to be continuing through its planned conclusion, which could come as early as this week although we cannot be certain of the exact timing. Even if the final patients are dosed this week with the heaviest dose of TH-1902, it will take some time before THTX will be able to evaluate how the drug worked on them.
The biggest risk for THTX's stock right now is the CEO and board forcing another low-priced share offering down the market's throat to fund the NASH trial prior to the announcement of the cancer data. Following last year's poorly conceived share offering, another such offering would likely have even greater negative consequences for management and the board. The CEO has stated flatly that he is going to find some way to get the NASH trial started but how he does that will make all the difference. We have suggested a partial spinout of the company's NASH program in order to crystallize it value, raise the needed funds, gain better analyst coverage for the stock and reduce the risk of the trial's potential failure (NASH trials have developed a track record of failing). Perhaps THTX has a better idea but if they fall back on a low-priced share offering to finance it, that will further undermine the management and board's reputation to the detriment of the stock over the short and long term.
The other big risks for THTX's stock price is a big decline in share prices and a failure of the cancer trial. Given the market's bubble mode at this time, a big market sell-off is a bigger risk than normal. A complete failure of the cancer trial seems highly unlikely as there almost certainly will be some path forward for the trial after the phase 1a results are released, but the nature of the results could still be disappointing and lead to some downside in THTX’s share price. Stock Price: Last Week YTD 1 Year Since THTX Hit its Peak (5/25/18) THTX 7.6% 50.4% 65.6% -66.6% S&P Biotech Index -3.1% -10.4% 12.0% 35.7% The table above summarizes THTX’s better than index performance over the YTD and the last year. THTX’s stock price, is however, still
66.6% below the high of $11.25 it reached in late May, 2018 whereas the S&P Biotech index is up
35.7% 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. 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. The biggest immediate risk to THTX’s share price is a sell-off from bubble highs in the market overall, which would likely drag THTX down with it. The biggest short term risk is that the cancer trial would end up with inconclusive or outright bad results or that THTX would decide to fund the NASH phase III trial themselves by selling shares anywhere near the current low stock price.
Trading Volume: Last week there was a big drop-off in the number of shares traded versus the previous week - to 555,000 from 3.8 million. This decline was the result of the huge spike in volume the previous week resulting from the mention on the Fox Business channel of THTX being a good buy. Hopefully, THTX management has not somehow missed the obvious point that their previous efforts to bring attention to the stock look completely lame versus this short positive mention on a business show that caters to many retail investors. If they try to pretend what happened was just a lucky one-off situation rather than trying to capitalize on it, and return to operating as they have in the past despite this wake-up call, they will likely get the same lousy results they have in the past. And that is exactly what happened last week since trading volume was tiny following the Cantor presentation. Institutions simply are not paying any attention to the good message THTX's CEO is trying to communicate to them but retail investors are willing to listen. THTX got a gift with what happened two weeks ago - let's hope they let it help them shape their future communications strategy in a positive way. A year ago 220,000 THTX shares traded during this week, which was an unusually level of trading for this stock. Two years ago during the same week, THTX traded only a paltry 125,000 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 who are best positioned to listen and respond to their message. This Fall should give them ample opportunity to do that via both numerous conferences and, most importantly, the release of the phase 1a cancer data which hold the potential to completely alter the trajectory of THTX’s future prospects. THTX needs to have in place a good plan to capitalize on this release of this important data, presuming it is good news. THTX should already know a lot about the phase 1a cancer test results and if they know they have a positive story to tell about it, they need to work very hard to build investor anticipation for those results. Presentations to Investors: THTX's CEO presented to the Cantor Global Healthcare conference which utilized the "fireside chat" format where the analysts from Cantor asked the CEO relevant questions about THTX's business. The analyst was not the main analyst covering biotechs for Cantor suggesting that any effort to raise money using the ATM facility set up with Cantor is not imminent. It also suggests that a report on THTX coming out of Cantor may not be imminent either. The questions the Cantor analyst asked were good and THTX's CEO did a good job of answering them. Still, he offered no new additional information on the phase 1a cancer trial which is likely nearly completed (we suspect the last very high dosage amount will be given to the final patients in the trial this week) but he did note that the trial was going well. Just the fact that it is still going is a very good sign for the results that will ultimately be revealed sometime in the next few months. The longer the trial goes, the better the chances are of a good result being seen on efficacy and it also indicates the drug has been safe even at very high dosage levels. THTX's CEO did indicate there is potential for cancer partnerships in China, that the way their cancer drug could be used could be to increase the frequency of treatments due to the lack of side effects and that they are investigating areas they might be able to use the drug (immunology). He also made a strong case for their NASH program but once again failed to note the undervaluation of THTX based on comparing their NASH asset to those of comparable NASH stocks. From our perspective, if he really believes the strong case he is making for THTX's NASH program, it is rather bizarre that he does not then make the rather straightforward and obvious comparison to other publically traded NASH stocks like IVA and AKRO that are situated very similarly to THTX in the FDA testing process. While investors should be doing that comparison themselves, they are not and they need THTX's CEO to highlight the massive disparity in valuations over and over again until they start acknowledging the obvious. While these presentations to institutional investment conferences are well done, it is pretty obvious that few institutions are actually listening to them. THTX needs to figure out a way to get on the radar screen of institutions and their cancer data is the easiest way for that to happen if it turns out to be as good as we hope it will. 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. Drs.Loomba, Harrison and Grinspoon all did a good job presenting their material in the NASH KOL. THTX does not lack for effective communicators but for communication opportunities in front of the right audiences, as we saw with the clip on the Fox Business channel this week. The more such presentations they are able to do in front of varied audiences, the better. THTX has a n intriguing history of creating value from next to nothing in both cancer and NASH and has the people who can communicate those stories well. They now just need the right audiences to present to, something LSA is trying to help them with. LSA seemed to bring a good audience for the cancer KOL but was clearly unable to do so for the NASH KOL. Additionally, with the new website, anyone can now easily access any past 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.
THTX has proven they can present their intriguing case to investors well. Success will ultimately be found when they find a way to get the right audience to hear what they have to say.
Analyst Reports/Comments: There were no analyst reports published this week. As noted previously, only the Mackie analyst wrote a report following the NASH KOL (and ignored the IV Push news). He also apparently did not listen to the HC Wainwright call before writing that report as he made no mention of the CEO saying something about looking for alternative ways to finance the NASH phase III trial. While the Mackieanalyst raised his chance of success in NASH from 15% to 25%, that really does not square with the comments of the three leading scientists, who all painted a much more positive case for the drug. Additionally, the Mackie analyst, the only analyst so far who has even tried hard to put together a NASH model for THTX, is not very influential due to the small Canadian firm he works for. So, while it was nice to see a price target upgrade from him, his 25% chance of success assumption and lack of overall influence on investors led to no positive reaction in THTX's share price.
With the company highlighting cancer on their 6/21 Cancer KOL persentation 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. 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 $356 million is a big impediment to most institutions buying the shares at this point anyway, 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. Additionally, THTX’s sub-$5 stock price is another major impediment to attracting institutional interest in the stock. THTX’s credibility with institutional analysts and portfolio managers is low due to the company overestimating the markets for both Egrifta and Trogarzo when those drugs were launched and due to the very unfortunate decision to go ahead with a share offering in January at a low price and primarily backed by lower quality, Canadian brokers. Once THTX does report some cancer data, assuming it is worthwhile, it is possible they will begin to attract some coverage from US based cancer analysts but even this will likely prove to be challenging with the way Wall Street operates these days. Of course, we suspect THTX will sell additional shares following any positive cancer news and this will give the US cancer analysts a chance to underwrite that offering and start to follow the stock.
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. But with the Cantor conference on the immediate horizon, if Cantor is going to produce a report, it may be sometime soon, perhaps just before or just after the conference. If a report is produced, we suspect it will be biased towards a positive conclusion and that may provide some limited support for the stock in the short term. While THTX apparently has no interest in selling shares through the ATM at this time or price (though it is always a risk they will do so given their expressed interest in pushing their NASH phase III forward), 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. In the end, however, I do not view the Cantor analyst as one who will likely create a lot of institutional interest in the stock given that analyst’s apparent focus on generating fees for her firm based on getting deals versus by generating consistent research coverage that gains the respect of institutional investors. So the analyst situation with THTX, which has been a long-standing problem for the company, remains really bad. We suspect only good cancer results will lead to an improvement in this situation as the current finance team has never been able to achieve lasting and worthwhile analyst coverage for the stock.
Appropriate Analyst Expectations: We will take a closer look at this next week as THTX’s Q3 financial results will be released the following week. Looking at the Bloomberg sales estimates for their two drugs, which are often inaccurate, it appears Egrifta sales are moving slowly in the right direction and those sales might be 8-9% higher than in Q2. US Trogarzo sales are likely to be a bit lower in the quarter but may be helped by European sales,
which Bloomberg does not track. We suspect the final results will be pretty close to the estimates the analysts are carrying but the analysts still may be a little too high.
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: We thought the Cantor presentation might result in an update to the Corporate Presentation but since it was a Q&A format, they did not rely on a presentation. The last update took place on 7/20/21. We should see a new update of the presentation soon as THTX will likely update following the release of Q3's financial results. THTX’s corporate presentation is now 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. That improvement is also the result in how the company’s fundamental situation has improved over that time in both NASH and cancer – they now have more to talk about. 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.
Press Releases: THTX sent out a press release this week noting they would release their third quarter financial results on Wednesday, October 13th.
Increasingly, stocks trade based on computer algorithms that read press releases and react to them by placing trades depending upon whether the algorithm thinks the news is good or bad. If THTX issues no press releases, trading volume tends to fall.
LSA Activity: There were no new LSA-related events this week but LSA could have been active behind the scenes. LSA was the sponsor of the NASH KOL event and it seems clear from the non-reaction to the event that they were unable to provide interested listeners to the call. So, while they did well with the cancer KOL in June, we really cannot give them any credit for creating the right audience for the NASH KOL. However, as we already noted, LSA had a difficult job in creating interest in a NASH presentation with NASH in the dog house from the perspective of most investors following the failed drug trials of other prominent NASH players.
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. I would have hoped to have seen more of an obvious positive impact from LSA’s involvement by now but perhaps the increase in institutional investment seen in the second quarter is partly the result of LSA’s efforts. It was interesting to see how much more effective one financial advisor recommending THTX's stock on the Fox Business channel was than any of LSA's efforts so far. And, unlike LSA's consulting services, it was free too!
Retail Investor Engagement: Once again, there was no new evidence of retail investor engagement by THTX in the last week. The very positive reaction from retail investors watching the Fox Business channel show where a financial advisor recommended THTX's stock was a fantastic indication of how THTX's stock price could benefit from greater outreach to retail investors. Let's hope this strong message was received by THTX's management and they start to alter their approach to get the same good results so many other small companies have gotten by focusing on retail investors.
Apparently, LSA’s job includes attracting high net worth, retail investors to THTX. 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.
The number of followers on Stocktwits rose from 944 to 945 this week, but this remains a pitifully small number. 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: 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: There was no new insider trading this week.
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 granted those shares by the company, a good sign.
One of the biggest negatives surrounding THTX has always been the low level of insider holdings and the lack of much buying activity in the stock. That has been true even when the stock was doing well. Ideally, we would see more frequent insider buying of the shares and that such purchases would be substantial from those board members who have the financial capacity to make larger purchases.
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: There is no update to this section this week as there were no meaningful new filings indicating significant changes in share ownership by institutions or others.
All of the quarterly institutional filings are now in and there actually was some considerable buying in THTX by Morgan Stanley where they added over 1 million shares to their holdings during the second quarter. Soleus, the largest shareholder in THTX also added a small amount to the large stake in the second quarter (although we are wondering if they have been the seller recently). 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.
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: As noted several weeks ago week, in a major change, the CEO took the opportunity of the Canaccord Growth Stock conference to highlight the absurd undervaluation of THTX’s shares. Unfortunately, he has not mentioned it since that time. The undervaluation of their NASH assets is very apparent as THTX's NASH program is fairly similar to the programs both IVA and AKRO have ongoing and these two stocks have market caps of
over $500 million and $800 million respectively while THTX's total market cap, which also includes two already approved drugs and its very intriguing cancer asset, is just
$356 million. THTX's NASH program alone is likely worth more than
$356 million on its own based on the valuations these other companies are getting and it would make a lot of sense if THTX's CEO highlighted this fact in any presentation he gives. It should be something they highlight on a chart in their presentation. It is just not reasonable for a CEO to not draw the market's attention to an asset worth as much as $500 million and which is being ignored by investors. I think things like this are covered in the first chapter in the book used in CEO 101 classes! And if THTX's NASH program is not worth as much as IVA's or AKRO's, then THTX's CEO should tell us why.
In addition to the startling undervaluation based on its NASH asset alone, THTX's stock is also undervalued relative to its partner in Trogarzo, the Taiwanese company Taimed. All Taimed has is Trogarzo, which has not really performed well in the market and yet their stock is valued at almost twice as much as THTX. Then there is CYDY, a company that was once believed to be a competitor for THTX in the MDR HIV market. It has failed in that market and in everything else it has tried since and is frankly a complete disaster of a company. Still it has a market cap that is three times as great as THTX. As far as cancer stocks that might be comparable, we discovered that Prelude Therapeutics, a company with a phase 1a program ongoing just like THTX and nothing else besides that, has a market cap of nearly $1.5 billion versus THTX's market cap of $356 million. And Prelude has no approved products like THTX which generate any revenue or a NASH program. All they have is a cancer program in phase 1a just like THTX and $346 million in cash on their balance sheet.
The message is very clear - whatever THTX is doing to connect with investors so that its stock price is valued like many other similarly positioned stock is not working anywhere near as well as whatever these other companies are doing. And this has been true for an unacceptably long period of time. Again, suggestions for improving this are welcome.