Theratechnologies Inc T.TH

Some thoughts on the financing

[SPCEO1]

The cancer data was the critical info last week but the financing deal was very important as well, so let's look at little more at that too:

1.) $40 million to be taken down shortly at a rate of just over 11%

2.) $28.5 million of that will be used to repurchase $30 million face amount of the convert, leaving anoter $27 million outstanding. 

3.) Interest costs will start off at roughly $367,000 per month ($4.4 million per year) for the new loan but  will almost certainly rise as the SOFR rises with the general level of short term interest rates. This will only impact 1 month of Q3. Of course they will still be paying interest on $27 million in convertible debt for the next three quarters too or roughly $1.2 million on that.

4.) So, $11.5 million of extra money from the first tranche added to the say $27 million they probably already have at this point for a total of $38.5 million in cash on hand. 

5.) But $27 million is committed for paying off the remainder of the convert (assuming they don't have great data between now and June  that causes the world to suddenly fall in love with the stock and push the stock above the convert's $14.80 conversion price). So, after taking that into consideration, cash is just $11.5 million.

6.)  Of course, that is where the second tranche of $20 million by June of 2023 comes in. So, adding that back in, we get to $31.5 million less any additional cash burn between now and then. Let's peg that cash burn at $4 million a quarter or roughly $12 million. So, by the time they take down that second tranche, they will have roughly $20 million in cash on the  balance sheet. This assume they have not started a phase II trial.

7.) I am going to go ahead and assume an interest rate of 13% on the loan by the time the second tranche is taken down which brings the yearly interest bill to $7.8 million post June 2023 or about $650,000 per month.

8.) TH is incentivized to take the third $15 million tranche by December 2023 in order to extend the period where the loan is interest only to three years and to extend its term from 5 to six years. As long as the company meets the milestones, I have to believe they are drawing this down too. And assuming no huge influx in cash from partners, they will need the money too.

9.) Now, we have to assume TH will be in a phase II trial by June 2023. If somehow TH-1902 flops in phase 1b, then things get ugly pretty quickly. If not, and a phase 2 trial is started, then that means the outlook for the drug is pretty good, and the opportunity for partnerships, and the upfront cash that comes with it, will have expanded very significantly. So, maybe they never draw that third tranche or even the second tranche. Maybe they even pay off the entire Marathon loan at the end of two years before it moves into a principal and interest payment because they are suddenly cash rish? Moreover, if they are in a phase II trial, maybe they have already gotten a BTD from the FDA for TH-1902. It is not hard to see them raising more equity off of a much higher share price at that time and starting to look like a more standard overcashed biotech company. That's a lot of maybes, but you get the idea. Good clinical success begets increased financial flexibility on better terms. 

10.) THTX is about to turn the corner into such good clinical success. It if successfully completes that turn, the loan will likely become an afterthought among investors. If they don't, TH's finances will get very strained and they will be deperately looking to raise cash at bad equity and partnership prices while trying to restart their cancer efforts with a new version of TH-1902.

[SPCEO1]

One other thing. Truist Securities helped TH in securing this loan. They ahve an equity research team so it is possible they might pick up coverage of TH. Here is their desecription of their equity research efforts: Equity Research has the breadth and depth you need to understand changing markets—with demonstrated growth across more than 650+ companies in core industries and sub-sectors. Rely on

[TH1902]

great post, thank you SPCEO, after a long journey its pretty incredible that the future of Thera lies in the katana acquistion by Luc  What stood out to me about your post was that TH1902's success/failure defines the future for Thera.  I wonder what Marathon saw that yielded the $100M deal? A successful 1b goes a long way to re-defining our future...I pray for that! 

[SPCEO1]

We can now have much greater confidence that a successful 1b is probable. But they still have to deliver those goods. I imagine there are a lot of other scientific aspects yet to come out about the trial that will also make the opportuities for partnerships more or less lucrative.  The first $60 million from Marathon is all about the convert. The final $40 million is likely targetting cancer

[Trogarzon]

In all honesty it's disgusting what happened following so many positive news this week.  Put it they way you want this  is even worse a day like yesterday.  But IR can't be changed in 45 days you say... maybe but how come they don't take the time to mention the quality of the centres that are recruiting for th1902.. I mean Sedar Sinai material... not Santa Cabrini or

[Trogarzon]

A good Pfizer VP of sales does'nt make a good biotech entrepreneur and promoter.. ok he increases efficiency and all... but in the end same stock price 24 months later... were is the excitement... when do we hear about them on the news and in the paper... the proof is in the pouding approach will only get us another OO because of the time and complexity to get the proof... another 2$ horror

[palinc2000]

 You wrote thst a successful Phase 1 b is PROBABLE !Do you really mean that? I rate it as PoSSIBLE which is what I would have called it after the extensive pre clinical studies... Maybe we could now describe the chance of success MORE POSSIBLE but imo no more thsn that  

[qwerty22]

I'd call it PROBABLE and POSSIBLE. PROBABLE that they have a molecule with anti-tumour activity in humans (based on 1a signs of efficacy). And POSSIBLE that they can hit the number of responders in 1b that triggers go forward to Phase 2 and a registration trial.

[SPCEO1]

While mthat isa good description I can live with, I still think it is probable they get to two responders in one cancer type, particularly if they increase the number of patients to 25 in each of t he four main cancer categories.

[qwerty22]

Great post thanks. The way I read this is they've secured the financial position through to getting the next data readout. An interim 1b for sure but probably also to the end of 1b or even 1b with some expanded cohort in a promising and nicely advancing particular cancer. That seems a typical model for a lot of biotech. You get somebody to finance you through a major derisking, if you deliver

[qwerty22]

The other point to make is there isn't much scope in $$ terms to do anything but 1902. They might do R&D on other molecules but it highly unlikely that will proceed to the clinic. The only option there atm is a partner comes in with interest in a particular molecule and are prepared to pay the early development costs but that's something of a long shot too. It's 1902 all the way

[palinc2000]

The cash used by operations in the second quarter was over 11 millions .... not sure where you got your 4 millions .... Thst makes a huge difference  

[SPCEO1]

Dubuc has historically done a good job managing the cash position and after you take into account all the other operating activities, they actully only burned a little over $1 million in cash in Q2. I think it makes sense to look at all of it, including the movements in AP, AR, etc. After that, it is just a guess and yours is as a good as mine. But if you used your number, they would be burning

[palinc2000]

    We ended the second quarter of fiscal 2022 with $32,491,000 in cash, bonds and money market funds. The Company believes that its cash position and future operating cash flows will be sufficient to finance its operations and capital needs for at least the next 12 months from the consolidated statement of financial position date. Furthermore, subsequent to May 31, 2022, (refer to

[SPCEO1]

Go look at the cash flow statement and check out the "Cash Flows USed in Operating Activities" line about halfway down the page.

[SPCEO1]

Also, here is the free cash flow line from Bloomberg for the last 4 quarters: -$3.1 million -$5.5 million -$5.7 million -$1.3 million That is the cash they are actually burning - the $11 milion last quarter you are reeferring to is not the full story.

[palinc2000]

You cant use that line to forecast future cash burn. They increased the payables by 7 million $ in the quarter but this will be reversed in the subsequent quarters .... the expenses have been incurred but payment has been defered  The true burn is the 11736000$ for the 2nd quarter. I think it night include a milestone payment due to Taimed which ended up in the accounts payable and paid

[vladpanka]

This post has been removed in accordance with Community Policy

[PWIB123]

FCF is the best calculation to determine realized cash burn since it excludes non-cash items and includes cap-x and changes in working capital.  Payables did increase far greater than receivables and will have to be repaid within terms, but you also should be thinking about the offsetting change in receivables and what that usually looks like quarter-over-quarter.  FCF is far less