Weekly Report CardWeekly Report Card - 07/17/21
Summary: As you may have already figured out, I am a grumpy grader. As long as the stock remains in a zone that seems out of whack with both reality and comparable companies, I reserve the right to remain grumpy about the shareholder engagement of THTX. Now, having said that, in many ways this week’s quarterly conference call was well done, so the THTX team gets high marks for that. In particular, allowing questions from participants other than the analysts was a huge step forward. But in other ways, there were shortcomings too and I am not in a mood to overlook those. The main shortcomings I noticed were not making cancer the top focus of the call and not offering enough detail about that open label trial, the inability to provide good answers to questions about the partnership strategy on NASH and the unnecessarily long section of the call on the non-timely subjects of building talent, dealing with complexity and improving execution (this seemed like an unneeded distraction from much more important info on the call). In the end, the stock’s negative reaction to the news of the NASH partnership highlighted a failure to communicate that news well. So, I am only giving them a “C” this week.
Stock Price: THTX’s stock price fell by 6.8% last week, despite recovering 2.8% on Friday. THTX is now up 43.2% in 2021 and up 61.3% over the last year. THTX’s stock price, is however, still about 68% 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. THTX’s ability to turn NASH into a phase III trial ready asset they are now looking to partner, when they actually have never done any company-led trials in NASH, is quite an achievement. Yet somehow they still managed to talk about this triumph in a way that led some investors to believe the news on the partnership was a failure. THTX actually created what could turn out to be a valuable asset out of almost nothing and THTX’s past and present management, as well as its board of directors, deserves a lot of praise for that. 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 with THTX’s cancer drug, TH-1902.
Trading Volume: Last week THTX traded 812,000 shares, a sizable jump from the 472,000 shares traded during the previous week. Trading was likely higher than normal as a result of trading related to the quarterly results announcement and, specifically, the announcement of THTX’s intention to pursue a partnership in NASH. The headlines about this were that the NASH trial’s start had been delayed and the estimated cost of the trial had increased. Computers that read headlines and then trade off of those were no doubt responsible for some of the selling we saw as most current shareholders who have been paying attention to developments at THTX likely would recognize that the willingness to partner its NASH asset might be an indication of the growing confidence THTX has about its cancer program.
A year ago THTX traded 455,000 shares, so some improvement has been seen from that level. Two years ago during the same week, THTX traded only a measly 185,000 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 far more frequently and effectively in the future than it has in the past.
Presentations to Investors: The only presentation THTX made during the last week was the quarterly conference call and they did a pretty good job with it. Opening up the call to questions to shareholders and other participants on the call was a surprise new addition and a very good one given the low quality of questions (and in one case no questions at all) from the analysts covering the stock on previous quarterly conference calls. The much deeper press releases associated with the quarterly financial results are also a big improvement.
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 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.
Analyst Reports/Comments: Three of the four analysts wrote reports following the quarterly call, with only the Canaccord analyst not doing so yet. The Mackie analyst’s report was likely the best of the three while the NBF analyst has maintained his negative approach to the stock and the Leede analyst still has not even figured out that the cancer trial has started. Overall, however, the three reports issued this week again highlight how dreadfully weak the analyst coverage of this stock is.
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 with a partner, and especially if its cancer trial is a success, US NASH and cancer-focused analysts may become more inclined to cover it. With THTX now intending to partner with another pharma company to pursue the phase III NASH trial, the need for additional cash to fund their trials will likely be much reduced, if not eliminated. They may end up getting additional cash via future cancer partnerships as well, further postponing, and depending on the exact nature of any partnership, or eliminating the need to raise more money via share offerings.
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 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 should have a bigger focus on retail investors in the their investor relations efforts.
Appropriate Analyst Expectations: 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.
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. Sine he has not yet written a report on the quarter, he has not yet adjusted those figures. It will be interesting to see how he sorts this out and it could have a negative impact on the stock as it may force him to reduce his price target unless he makes an adjustment elsewhere (for example giving THTX some value for the expected NASH partnership or for cancer). So, somehow, THTX’s best analyst has the worst 2021 revenue forecasts! He was expecting a $10 million increase in quarterly revenues in Q2 over Q1 (66%!) when the increase was only $2.3 million. 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. 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.
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 general 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 and the news regarding the search for a partner in NASH as three months is a very long time to go without an update in the corporate presentation. Typically, THTX only updates its presentation when it is about to do a presentation to a conference or group of investors. Since the presentation has not been updated in three months, we can reasonably surmise the company has not been making presentations to investors about THTX during that time frame (with the exception of the very well done cancer webinar on 6/21).
Press Releases: The only press release this week was for the quarterly results.
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.
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: 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 912 followers on Stocktwits, which is 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.
Website Improvements: THTX posted a new job for a communications person who would have as part of their job function the updating of the corporate website. In the past, such updates were few and far between, so hopefully they will find some new person who will improve the timeliness of their website.
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 meaningful changes in institutional holdings last week.
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 made no public effort in the past week to address the discount in its stock price to other similar companies. However, the move to partner its NASH asset could help that process along. We suspect, however, that the negotiations around this partnership could take some time, so it may be some time before the hoped for partnership will bring some desired validation of their NASH asset.
From our perspective, the easiest way for THTX’s stock price to appreciate significantly in the short term is for the 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, and currently, they are not doing that. 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 - C – The quarterly call was pretty good but there were some shortcomings. In the end, the stock price falling by 6.8% on the week indicates their attempts to engage well with shareholders came up short in the past week. We actually liked most of what we heard but it is the whole market that matters more than my opinion and it is clear from the share price movement that THTX did not figure out a way to communicate the NASH partnership news in a way that would be received favorably, as we think it should have been.
Again, suggestions for improving this are welcome.