Weekly Report CardWeekly Report Card - 06/26/21
Summary: Finally, we got a higher level of activity from THTX last week. The week started really well as the LSA sponsored cancer webinar went off about as well as anyone could have expected, short of a fuller reveal of what was the status of the phase I. We were left with the impression from the Q&A that LSA was at least somewhat successful in getting new investors to listen into THTX’s outstanding presentation. Similar to the conference call they hosted when they announced the move from HIV NASH to the broader NASH market, the cancer call was pretty much flawless in its production. And while the stock market ignored totally the NASH call last September, it at least paid a little bit of attention this time as trading volume picked up and the stock price rose again this week (it is up about 10% over the last two weeks in anticipation of and in reaction to the cancer webinar). Had they shared some detailed, positive info on the status of the phase I trial, the stock may have had a bigger reaction. But their evident confidence in their presentations, and the fact they even held the webinar suggest all is well with the phase I trial. They also announced some new interesting cancer data about TH-1902’s ability to inhibit a cancerous tumor metastasizing and that non-small cell lung cancer also is a potential target for TH-1902. Finally, THTX announced a new board member with capital markets experience, as THTX promised shareholders they would, but the capital markets experience he has is Canadian-based when US experience is what THTX needs. So, that was a disappointment and we hope that absence of US capital markets experience and relationships will not be too costly to shareholders in the long run. As a result of that unfortunate miss on the new board member, we are only giving a grade of “B” this week, despite the excellent cancer webinar.
So THTX has checked three boxes in the last two weeks: 1.) increased investor engagement with the help of LSA, 2.) the appointment of a new board member and 3.) the redesign of the website. Hopefully, they will keep making progress on the checklist in the weeks ahead!
Stock Price: THTX’s stock price rose by just 4.8% last week, the second week in a row it advanced by that percentage. THTX is now up 55.6% in 2021 and up 79.0% over the last year. THTX’s stock price, is however, still about 65% below the high of $11.25 it reached in late May, 2018 highlighting the company’s inability to get investors interested in their cancer and NASH opportunities as they transitioned away from disappointed sales expectations for Trogarzo. We were hoping for a bigger bounce in the stock last week than we got, but that may yet come as those who were new on the call may take some time to research THTX further before starting to take a position in the stock. Going into the cancer webinar we were not sure exactly what THTX would share relative to the critical phase I cancer trial. Had they given more information on the status of the phase I trial, the share price may have reacted better. But they clearly chose to not share much about the phase I trial and to save that for later. This is normally how drug companies share information on trials (holding onto key info longer versus sharing it on a more contemporaneous basis) but THTX has the freedom to share whatever they want on this trial at any time as it is an open label trial. While they shared very little about the trial’s current situation, the fact they chose to hold this cancer webinar at all and the confidence that was evident on the call are good indications that the trial is proceeding in a satisfactory manner.
Trading Volume: THTX traded roughly 759,000 shares last week, a big improvement versus the 453,000 shares traded last week, reflecting some limited success in engaging new investors as a result of the cancer webinar. A year ago THTX traded an astounding 8,400,000 shares, which you may recall was the wild and crazy bubbly market response to the announcement that their cancer drug inhibited something called vascular mimicry. So, that was a total aberration brought about by the stock market bubble which was in full force at that time. Two years ago during the same week, THTX traded only a measly 131,000 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 improve on the trading volume in its stock, it will need to continue to engage with investors, as it did last Monday, far more frequently in the future than it has in the past.
Presentations to Investors: As already noted, THTX’s cancer webinar this past week was very well done. THTX’s CEO has shown he can do a very good job in such 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 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. Additionally, with the new website, anyone can now easily access the cancer webinar anytime they want, which is very helpful for new investors considering investing in THTX.
Analyst Reports/Comments: Only two of the four analysts covering THTX wrote a report commenting on the cancer webinar. In both cases, the analysts made encouraging comments about THTX’s cancer program but are not yet willing to incorporate any value for it into their stock price target. We believe that is appropriate at this point as it is rare to give much value until phase I test results are available. But it seemed clear to us that both analysts were indicating they were willing to up their price targets if the phase I test does produce good results. With results from the first part of the phase I trial not too far away, we may see some significant upward revisions to their price targets before too much longer.
Of the four analysts covering the stock only the Canaccord analyst is a US based analyst. THTX desperately needs new and better US analyst coverage but it is going to be hard to come by in our estimation any time soon. As THTX moves into its phase III NASH trial and especially if its cancer trial is a success, US NASH and cancer-focused analysts may become more inclined to cover it. As THTX moves closer to needing more money to pursue their cancer and NASH trials, they may be able to entice some analysts looking to get a piece of any future share offering to pick up coverage of the stock, but that is not likely to be an incentive anytime soon since they have enough cash at the moment. Additionally, they may end up getting additional cash via partnerships, further postponing, and depending on the exact nature of any partnership, or eliminating the need to raise more money.
Also, we have discovered that LSA does not apparently directly offer a paid for research option but functions much like other investment banks in this regard. So, LSA may only write a research report on THTX if it sees a way in which it can earn investment banking fees from THTX. They likely do see such a possibility in the future, so we may eventually get a LSA research report on THTX, but since THTX is not likely to do a deal in the near future, LSA may not be in a big rush to produce a research report in the near term.
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 have an analyst specializing in cancer stocks covering them yet. Canaccord’s analyst is a NASH expert. The remaining analysts really do not specialize in any particular type of drug company. THTX needs cancer specialist analysts to pick up coverage of the stock if they expect to get full value from the market for their cancer program.
Appropriate Analyst Expectations: The following is just a repeat from previous week as nothing has changed on this front that we are aware of.
The Canaccord analyst, who is actually the most accomplished of the analysts covering the stock and an expert in NASH, has sales quarterly sales forecasts for THTX in 2021 that are absurdly high. So, somehow, THTX’s best analyst has the worst 2021 revenue forecasts! He is expecting a $10 million increase in quarterly revenues in Q2 over Q1 (66%!), which is simply not going to happen. He expects Q3 revenues to be twice that of Q1 and Q4 to be nearly 3X that of Q1. None of this is remotely possible. I am not sure how he ever came up with these numbers but he will need to bring them way down as we have no reason to believe these numbers have even any chance of being attained. The only reason I can see for having such wildly high forecasts was to help sell the share offering in January. These ridiculously high forecasts will lead to headlines at the next quarterly earnings report (early July) that will indicate THTX missed analysts’ forecasts on sales, when in reality it was the analyst who “missed” not the company. THTX needs to get this analyst to revise his numbers lower as soon as they can. The best way of doing that is to announce revenue guidance as the analysts always fall in line with such guidance. Perhaps they will do that when/if they start the process of rebranding the stock with the help of LSA.
The Mackie analyst has much more sensible and achievable 2021 revenue numbers. The NBF analyst did not provide any revenue forecasts in the most recent report so we can’t even tell what he is thinking. The Leede analyst did not provide any quarterly projections in his most recent report but his annual sales forecast indicates he is still a bit too optimistic and needs to bring his numbers down, but he is nowhere near as off the mark as the Canaccord analyst.
Corporate Presentation: There was again no update to the corporate presentation in the last week. The most recent update occurred on April 16th. A separate cancer-specific presentation was produced for the cancer webinar but the corporate presentation was not updated. Hopefully, we will see an updated corporate presentation soon which incorporates some of the material shared on the cancer webinar.
Press Releases: THTX put out two press releases this week – one covering the new cancer data showing TH-1902 inhibited the spread of cancer and another highlighting the new board member which was appointed.
LSA Activity: The cancer webinar hosted by LSA was very well done and, based on the quality and number of questions during the Q&A at the webinar, we suspect LSA was able to deliver some knowledgeable cancer analysts and portfolio managers from institutions that are not currently investors in THTX.
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 this week. 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, Monday’s 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.
We have discovered LSA writes research reports at least somewhat independently of their investor relations consultancy activities and that THTX would not actually be able to pay LSA to produce a research report on them. Now, in its research report disclosures for other stocks LSA analysts have written reports on, it indicates it may seek, or already had received, investment banking fees from these companies. So, it is possible LSA will choose to write a research report on THTX in the future if it sees a way to earn fees from any financing or other investment banking deal THTX might do in the future.
Retail Investor Engagement: Apparently, LSA’s job includes attracting high net worth, retail investors to THTX. Some participants on Monday’s webinar apparently included people who work with such investors.
New Board Member: While THTX should be commended for acting quickly to live up to its promise to add a board member with capital markets experience, in our view they missed the mark by choosing a candidate with mostly Canadian experience rather than one whose background was firmly planted in the US. This new board member will still bring needed capital markets expertise to board discussions but he will be lacking the relationships in, and knowledge of, the US capital markets that shareholders had requested be added. So, this selection of a new board member was, in the end, disappointing and a missed opportunity for THTX.
Website Improvements: I have not added anything to following since last week when the new website was rolled out.
It was a very long time coming, but the new and improved website was released last week and it looks pretty good. The overall navigation is still clunkier (you have to click on too many things to get to where you want to go) than I would prefer but the content is much improved. You can now easily access past presentations the company made as well as scientific research papers that show why they are pursuing the various drug trials they are doing. Videos explaining their drugs activity are now also easily accessible, among other improvements. They also are no longer using a Trogarzo market size chart that was clearly incorrect based on real life experience with the drug (although it is still in the corporate presentation that likely will be revised shortly). A new potential investor looking to find out a lot very quickly about THTX will now be able to do so much easier than in the past. Hopefully, they have someone in charge of keeping the new website up to date and adding to it with further enhancements in a timely fashion. Where the website is lacking is in comparative data to other NASH companies, both on the clinical and valuation side of the equation. We believe THTX needs to draw out these comparisons, particularly on the valuation side, since we think this is something that will catch new investor’s attention and also believe that many new investors will most likely not figure it out on their own. Unfortunately, they do not seem to share that point of view.
Insider Trading Activity: There was no insider trading in THTX this week.
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 were no reported changes in institutional holdings last week. While trading volume picked up last week following the webinar, it did not pick up to the point where it indicated strongly a new institutional investor was picking up shares in THTX.
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: THTX did not address the valuation of their stock at all during the cancer webinar, which was clearly positioned as a science presentation, so that was not surprising.
From our perspective, the easiest way for THTX’s stock price to appreciate significantly in the short term is for this huge valuation gap with other NASH stocks to be greatly reduced or eliminated altogether. But it is less likely to happen if the company does not draw investor attention to the gap. We are hoping when they announce the NASH protocol they will also highlight the valuation gap. Unfortunately, with NGM basically leaving the NASH arena and with the resulting sell-off in almost all NASH stocks, the valuation gap is now a bit less impressive, but it is still there and is still quite significant. Hopefully, THTX can overcome what we believe is an irrational belief that they should not mention anything about the valuation of their shares versus other companies in similar lines of business. They are happy to note different clinical results of similar companies in their presentations but thus far have been unwilling to highlight to investors the rather absurd undervaluation of THTX’s shares versus those same companies. They could also easily highlight similar valuation discrepancies with other early stage cancer stocks.
Additionally, THTX’s management has clearly chosen to focus on its cancer program first in order to attract investors in the short term, which makes sense due to its huge upside potential, the fact that there will be quite a lot of data coming out in the short term on cancer, the novel approach THTX has with its cancer drug, its Fast Track status with the FDA and the fact that NASH is temporarily out of favor among investors. With two R&D programs in huge potential markets, it actually complicates THTX investor relations effort a bit as separate groups of analysts focus on NASH and cancer. Clearly, THTX has chosen to focus on cancer in the short term so we are not sure now how they plan to handle the NASH phase III protocol announcement at this point. But these are high class problems to be facing.
Weekly Grade - B - The big highlight of the past week was the cancer webinar and THTX really did do a wonderful job with it. We have seen some initial good outcomes from this session with the share price increasing on much improved trading volume. Hopefully, there will be follow through from both LSA working its contacts and THTX management planning more, and more frequent, informative interactions with the investment community as the cancer phase I trial progresses. It will be interesting to see if LSA also sponsors a webinar for NASH once they announce the finalized protocol for the phase III trial. Offsetting the success of the cancer webinar was the disappointment about the skill set of the new board member as he is clearly lacking in the one area shareholders focused on in their communications with the chairwoman of the board and the CEO prior to the annual meeting. So, it was a good week but not good enough to get an “A”.
Again, suggestions for improving this are welcome.