Weekly Report CardFor the younger folks reading this, when I was young (a long time ago) we received something called "report cards" from school which displayed our grades and we had to bring home and show our parents. Our parents then had to sign it and we had to then show their signature to the teacher. It was physically a card with all your classes on it and all of your grades listed beside it. Showing it to your Mom and Dad was a form of accountability for your school work. So, that is why I call this weekly accountability effort a 'Report Card'. It finally occurred to me that the younger folk may have no idea why I call it that. But basically, as TH shareholders, we are TH's managements' parents in this situation and we are reviewing their progress to give them some accountability.
While my spelling is still bad, you should be glad we now type things rather than handwrite them because I always got bad grades in handwriting - I always tried to explain to my parents that my bad handwriting was a sign of genius! I am not sure how well that worked but I needed a good excuse for the poor handwriting grade.
Weekly Report Card - 9/18/21 Summary – THTX’s stock fell just under 3.0% last week despite THTX speaking at the HC Wainwright conference and holding its NASH KOL. Volume was again unusually low for most of the week even with these events occurring, which I would have thought would have led to increased trading in THTX. I have heard reports that around 150 people called into the NASH KOL, but based on the lack of a reaction in the share price and in the trading volume, one has to presume those were mainly current shareholders. Additionally, we did not think many potential new investors would listen into the HC Wainwright call so we are not surprised there was little reaction to it (there were 850 companies presenting at this conference so it is hard for a small company like THTX to stand out). But when you have three of the most noteworthy scientists in their field singing the praises of your NASH program and you get no reaction to that, it certainly suggests the event was not well structured and/or THTX failed to get the right people on the call. And even if it was well structured (others have indicated they thought it was) and THTX got the right people on the call, there was no positive reaction, so it has to be considered a failure on that measure. While I suspect I might be in the minority, I found this KOL rather boring. That likely reflects the fact that I knew much of what they were saying already and that was less likely to be true for others who perhaps have not been following THTX's NASH program as closely as I have over the years. Still, I think the presentation could have presumed a higher level of NASH knowledge at the outset and not wasted half of the allotted time on a general NASH review. With the stock lower on the week and an ineffective KOL event (ineffective in the sense there was no positive market reaction to it), The Grumpy Grader is understandably still pretty grumpy so this week's grade is a "D". The other problem with all the NASH talk at this point is that it keeps the focus off of cancer where we should soon hear some preliminary results (I am guessing we hear them in November but the company just says in the fourth quarter sometime). Every day that passes and we have not heard the trial has ended is a good sign and increases the probabilities of a worthwhile result which could really propel the stock price significantly higher.
As we noted last week, THTX and their investor relations consultant, LSA had a hard task to get a good result from the KOL presentation. NASH is just way out of favor right now with many investors now turning away from the earlier excitement about NASH following the failure of other NASH drugs. Those competitor's failures, however, actually increase the chances THTX's drug could end up being more successful from a commercial standpoint should THTX be able to get its NASH trial going and eventually get the drug approved. But the big question right now is can THTX get the phase III trial, that they worked so hard to put together, launched. It certainly appears that partnership interest is not strong and THTX's CEO this week said they were looking into alternative ways of financing it. If THTX were to try to finance it by selling shares at anywhere near current prices, that would pretty much lock them into a permanent "F" grade, so we are hoping that is not what they are considering. Given the bull market conditions, the endorsements of the leading scientists in the NASH field and the never-ending desire of brokers to earn fat fees from IPO's, we believe THTX should consider listing their NASH assets as a separate company. It may be the only way to get the market to value those assets properly but the negativity towards NASH right now is an issue that might make that option more difficult to pull off, even in the midst of a stock market bubble where money is flowing freely to some of the most ridiculous investment ideas.
The only positive analyst feedback from the NASH KOL was the Mackie analyst took his expectation that THTX's NASH trial would be a success and the drug would be approved from 15% to 25%. He raised his price target to $6.45 from $5 to reflect this. Given the endorsement of the three leading scientists, that was a weak response. Also Mackie is a small firm and does not influence the share price much under any circumstance. No other analyst even bothered commenting on the NASH KOL. So the situation with the analysts covering the stock remains a disaster that THTX has simply been unable to fix. Likely the only reason the Mackie analyst wrote a report was because his firm underwrote the share offering in January and he felt he needed to be supportive of THTX in gratitude for the substantial fees his firm was paid for that. On the positive side, THTX confirmed they will be speaking at the Cantor conference at 10AM on 9/29 and we are hopeful we will get an upbeat analyst report from the Cantor analyst sometime around that conference.
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
Unfortunately, I had to remove two items from the above list. First, the NASH KOL has been held and so there is no longer reason to mention that. Second, THTX's CEO failed to mention the undervaluation of their stock, relative to other NASH stocks in particular, during wither the HC Wainwright or NASH KOL event, so we removed that. He only mentioned it once in the past and we hope he soon returns to highlighting that undervaluation. At one point we had 10 items on this list and we trust the size of the list will start growing again soon.
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.
Stock Price: Last Week YTD 1 Year Since THTX Hit its Peak (5/25/18) THTX -3.0% 45.4% 45.6% -67.9% S&P Biotech Index 1.0% -5.6% 15.8% 41.7% The table above summarizes THTX’s better than index performance over the YTD and the last year. THTX’s stock price, is however, still
67.9% below the high of $11.25 it reached in late May, 2018 whereas the S&P Biotech index is up
41.7% 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,
though the stock's 2021 advance has backtracked a bit since the end of the second quarter. 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 THTX traded close to 308,000 shares, a small drop from the 371,000 shares traded during the previous week and a disappointingly small level of weekly trading in the stock. On Wednesday, the stock had somehow only traded 1,200 shares by around 1PM! That is an unbelievably low level of trading that we have not seen in many, many years and is somewhat impossible to comprehend in light of the NASH KOL having been held just a day and a half previous to that and the Mackie price target upgrade the previous day. There was literally no one moved by the KOL event to buy the stock. Fortunately, there were no sellers either so the stock price was pretty stable but that half a day of almost no trading at all was really odd. This low volume reflects the lack of investor interest in NASH and the inability of THTX to take advantage of the KOL presentation on NASH to drive investor interest in the stock. Alarm bells should be ringing inside THTX's headquarters about the near absence of analyst coverage of the stock and the resulting lack of trading in its shares. Something substantial really needs to be done to fix these ongoing issues, A year ago 1,025,000 THTX shares traded during this week,
which is a much more normal and healthy level of trading for this stock. Two years ago during the same week, THTX traded only a paltry
141,000 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. 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.
Presentations to Investors: There were two public presentations by THTX last week - the HC Wainwright conference and the NASH KOL presentation. The HC Wainwright presentation was handled well by THTX's CEO but we suspect almost no one was listening to it. The NASH KOL presentation was not as effective as the cancer KOL THTX had back in June, but it was good to see three leading scientists effectively endorse THTX's NASH efforts. But given the lack of response, it appears that those listening into the NASH KOL were not the desired audience. 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. 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.
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: As noted previously, only the Mackie analyst wrote a report following the NASH KOL. 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 Mackie 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 6/21 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 $346 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.
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. 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, 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 research that gains the respect of institutional investors. So the analyst situation with THTX, which has been a long-standing problem for the company, remains 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: There is no change from last week in this section. We will take a closer look at this as THTX’s Q3 financial results draw nearer. THTX will likely report their third quarter financial results in the first or second week of October.
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. 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: The most recent update to the Corporate Presentation took place on 7/20/21.
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 highlighting their upcoming presentation at the Cantor conference on 9/29. They also fixed whatever problem they had that kept their previous two press releases from being picked up by the wire services. 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 goes down as it did this week.
LSA Activity: LSA was the sponsor of the Monday 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.
Retail Investor Engagement: Once again, 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 905 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 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 around $537 million and $868 million respectively while THTX's total market cap, which also includes two already approved drugs and its very intriguing cancer asset, is just $342 million. THTX's NASH program alone is likely worth more than $342 million on its own based on the valuations these other companies are getting.
Again, suggestions for improving this are welcome.