Wino115 wrote: Thanks for this perceptive post too. I think you're right about why we are where we are now. There were high growth expectations 12-18 months ago which proved to be unrealistic. That shift will kill a small cap growth stock. Others here debate who caused the expectations but it doesn't really matter. Investors, analysts, management all read signs and probably expected more than what the actual patient market delivered. Everyone miscalculated the hurdles a new niche drug with completely different delivery mechanism causes. Be that as it may, they seem to have adapted to the new reality and IV push may help along those line. Trogarzos worth something positive to the value of the company, not negative. Probably something along the lines of what Cannacord put out yesterday.
You bring up some other valid and good points. I don't know about the agreement fine print and how that drug owner vs sales rep dynamic could work. But I would assume if those rights were initially paid for by TH, you would also have to buy them back. You can't just take them unless there was a clear legal breach and slower sales would not be one. I'm not sure you'd get any better sales prospects by taking a meaningful drug from a sales force and placing it with a larger sales force where it would be pretty meaningless. I think they and we have learned the market is small and slowly adapting. My guess is there's something like 15 key metropolitan areas to cover with 2-12 major practices within each depending on size. I am sure anyone who needs to know about the drug does so it's just a question of when does the last ART tweak not work and you are forced to add in Trog. They seem to love to tweak a lot first. Europe will be very interesting to follow to see if their doctors approach it the same way or not.
Two last comments to further your useful analysis. I like your term the "accidental" Nash player! I guess they knew all along Grinspoon was studying it but they didn't have the money to sponsor it. Since NIH picked up the tab, they were probably happy. But the one highly valuable thing going for them is, unlike all the other NASH players in the crowded field, they actually have zero competition now. Recall it was Galmeds Aramchol anti fibrotic that tried and failed in HIV patients. All the existing drug trials exclude HIV for obvious reasons. So they have this market to themselves and may always since it's a tiny fraction of the massive overall market the others are targeting. I think a doctor treating an HIV patient would always use the HIV tested drug over a general population drug for any serious therapy. The interactions of the liver are complicated enough for an HIV patient. But you are bang on correct that they are still looked at as specialty HIV and not NASH. The Cannacord report is entitled "Generating cash in HIV, NASH is next in Phase 3". In the future you hope to read "Unique NAFLD and NASH HIV developer with Specialty HIV Cash Cow - Dominating High Growth and Profitable Markets"
Lastly, on the balance sheet and cash, It definitely doesn't compare to the big guys and there is the expectation of raising some at some future point. But there's a few ways to measure the quality of a balance sheet and interest cover is one way. They pay 3.3 mil a year in interest. That's it. The EBITDA from yesterday's report is roughly 5, 15, 30 mil for 2019 to 2021. The year the converts due its 70mil estimate. Remember this assumes no NASH costs or revenues. So if nothing happens, they have ample cover. As for cash, they started this year with $39mil and will end around $45mil. So covering that interest is not an issue which also means that if they don't convert in 2023 they could easily refinance the same amount. They have stated they could cover the costs of a 500 person Phase 3 between 2020 and 2023 from existing $45 mil of cash and estimated generation of $40 free cash flow on average from 2020 to 2023. So there's no massive over leverage at this point or in the future most likely. But you are right that if they get the go ahead for Phase 3 they will burn cash as that ramps, mostly in 2021 onwards. The Cannacord guy would have them back to positive cash flow by 2022 or 2023 it looks like (he doesn't have any Phase 3 or oncology RD in model yet).
But the sensible strategy would be to do a healthy capital raise so there are no issues and your bank account provides you loads of flexibility. On those numbers, using all your cash to run the trial does cut it close and leaves little for oncology. A capital raise is not a bad thing as you develop a whole new group of Inst investors that buy in to your strategy. You would hope it's post regulatory feedback and at a fair price. Remember, shares are open to everyone so if you feel it's too low and don't want to dilute yourself, go ahead and buy the shares instead of complaining about dilution. You choose whether you want to be diluted or not, not the company or the new investors.
hopefully someone else can opine on the contract issue better than me. But great thoughts on why we are here and how the market perceives them right now. It's their job to go out and change that view and to get those revenues, profits and free cash flow cranking.
Greenviolino wrote:
First, thank you to the knowledgeable posters who have fed this board with invaluable information. You know who you are. This has been a very rewarding investment for me. I feel compelled to put in my two cents at this point.
In my humble view, the valuation of this company essentially went from a perceived high-growth smallcap with earnings visibility to one not being able to generate profit despite reasonable revenue.
In addition, they now have a weak balance sheet with debt making up more than their cash position. People keep comparing TH to pure R&D biotechs, but the companies with higher valuations have a much better cash positions to fund the R&D projects. The market is discounting dillution which is difficult to estimate at this point. So back to the model, TH has become a company that will burn cash as opposed to generating cash - at least for the next 3-4 quarters.
I also have a concern regarding the agreement between Taimed and Thera. Remenber Thera ended the agreement with Serono because sales were not picking up to THs satisfaction. I wonder what would happen if the relationship between Taimed and Thera deteriorated in a similar dynamic. I would welcome any feedback on the fine print of this agreement.
Finally, the market may view Thera as an accidental NASH player. They could get lucky, but the field is crowded. Above all, in my opinion, Thera management seems to run after too many rabbits. I wonder what the weekly salesforce meetings sound like. Still quite a bit of uncertainty. We are now in a "show me" phase. Clearly, confidence has eroded and good execution is the only remedy.