RE:Hiring SpreeLet's take a look at the potential cash needs and potential cash sources over the next year t 18 months or so. These are mostly just guesses though.
Cash Needs:
1.) Funding for phase 1b trial which should be starting soon - I think the company may have mentioned an estimate for this once but I cannot remember it. I am going to guess $8 million, which is about $200,000 per each of the 40 proposed patients. Of course, this trial has not yet been set in stone so it could end up being larger and more costly if TH and the FDA are agreed that they should look at additional sortilin over-expressing cancer types.
2.) Funding for phase III NASH trial - I am assuming we are just looking at the first part of the trial at the moment not the $160 million cost for the full trial. So, I am using $40 million which would be spread out over at least two years.
3.) Funding for acquisitions - TH has made it sound like they have some opportunities to acquire Katana-like companies. I am not sure how likly this is or if they should be diverting any of our CMO's time to investigate such matters at this critical point in time for cancer and NASH but maybe they will need $10-$20 million for such an adventure.
4.) The potential for the convertible to Redeem rather than convert - $57.5 million in June of 2023 if it redeems.
5.) Operating losses ex the cost of the trials above - They seem to be hiring at a rapid clip and revenues are not growing anywhere near as fast as they have claimed they would, so maybe TH will need to find another $10-$20 million for operating losses over the next 18 months or so.
Sources of Cash:
1.) Partnership deal with Chinese drug company - It is hard to know what amount of upfront cash might be involved as we do not know how such a deal would be structured or what its scope might be. I am going to guess there is a $10-$15 million upfront payment in any such deal but it is a total guess, not an educated one. Perhaps there is upside in that amount as it really is not in TH's best interest to sign a partnership deal on cancer this early, so they may demand a higher amount from the Chinese company to sign a deal now.
2.) Partnership and/or licensing deals with non-Chinese companies - Again, the timing of doing a partnership deal on Sort1+ seems early as much more value could likely be obtained later once there are some phase II data. Licensing deals, however make a lot of sense once TH establishes proof of concept with TH-1902 since TH cannot possibly explore by itself all of the possible options. I would expect the licensing deals to be smaller dollar amounts, maybe amounting to $5-$10 million but again, this is a totally uninformed guess. Partnership deals on cancer could be very significant sources of cash, however. If TH-1902 looks like it has exciting prospects across different cancer types then TH will need to figure out what to keep for itself and what to partner with others on. I am going to assume, again a total guess, that there is $50 million in possible partnership up-front cash somewhere over the 18 month or so horizon we are looking at if TH-1902 looks as promising as we think it might look.
3.) Selling a 10-20% stake in TH to a larger pharma company - I doubt TH want to sell out totally at the moment but they may be willing to sell a significant stake to a larger pharma company if what they have in TH-1902 is truly compelling as a blocking stake protecting them against a hostile bidder trying to steal the company at a cheap price. Basically, TH would be gaining the protection from the admittedly unlikely prospect of a hostile bidder (it would have to be a financially-inclined hostile bidder as hostile bids of small biotechs is almost unheard of by larger pharma companies) in exchange for a serious cash injection. Again, this may not be likely, or even advisable as it would mean a non-competitive bid when the protector finally does buy the rest of TH at a later date, but there may be good cause for it. At a much earlier time in TH's history, a former CEO of TH (John Huss) contacted me some years after he left TH and was clearly thinking about taking the company over. So, these things are talked about. Shoot, if we long term shareholders had any sense, we would go get financing and take the company private ourselves!
4.) Some type of share offering or convertible refinancing - TH is all set up to sell shares with its ATM and shelf prospectus and we should expect them to do so after good results are announced on the pahse 1a. The effort to visit with major shareholders recently was likely at least partly a prelude to that so that TH could help ward off another potential shareholder rebellion at the upcoming AGM. I am guessing we get a normal share offering sometime soon and that the amount raised will not be enormous as they may be aware of or confident in other cash infusions coming from partnership/licensing deals. Since I am assuming good results on phase 1a, I am guessing they are not completely freaked out about the prospect of the convert redeeming as the price of the stock could well be above $14.80 by the June 2023 if things are looking good on cancer (which would mean the convert would turn into TH shares rather than require the company to pay out $57.5 million). There could also be an effort to refinance the convert in some way where TH approaches the holders with a deal to extend the maturity of the convert or buy it back at somewhere areound its current discount to its maturity value. With JP Morgan apparently getting more involved with TH, I would be surprised if things of this nature are not being looked into. There is a chance that there ends up being some sort of complex refinancing of the convert along with a share issue that ends up with TH having more cash in the bank and with the convert transformed into a new version with a five year maturity added onto the current one. Basically, the ingredients are there for a pretty complicatede financing that leaves TH with a lot more cash and no risk of the convert redeeming anytime soon. I am not sure how it might all come down, but if they have good news on cancer, TH will want to transform themselves in a way to prepare for a much different future than what most current shreholders are imagining. I won't even try to speculate on an amount of cash but it likely would be larger than we now think as most biotechs have a considerable amount of cash on their balance sheets. Such a deal would also result in much better analyst coverage in the US and likely a considerably higher share price. Basically, what I am contemplating here is a really big deal that solves a lot of problems at once but does create significant dilution too. So, how such a deal is structured will be important. On the other hand, TH may feel pretty confident about the convert converting rather than being redeemed based on what they already know about TH-1902 and know they have cash coming in from partnerships so, they may not see a need for anything other than a more minor financing that does not create a lot of dilution. If the news on TH-1902 is good enough, they will know they could raise required funds at any time from either partners or a share offering at a higher share price, so they might not want or need to do anything too complex. The more simple and smaller any share offering is, however, the less the chance of getting good analyst coverage and that is a problem that is years overdue in getting fixed and which the ONO delayed even further.
The bottom line is the success of TH-1902 creates a form of currency for TH. The program is still in its very early stages so some financial risk mitigation on the back of any trial success makes sense. The question the board will be struggling with is how much financial risk mitigation should they be engaging in since the more risk you mitigate now, the more you lower future shareholder returns. Hopefully, the results of the phase 1a are impressive and the board finds the right balance in mitigating the risk of a future, unexpected negative turn of events with the Sort1+ platform.
No matter what the path forward might be, it should be interesting. If TH-1902 has bad phase 1a results, things will not look very good for TH. So, we really are banking on all the hints we have seen proving to be predictive of a good outcome. If the hints are predictive of a good outcome, the currency that creates will also allow the NASH trial to begin and, very quickly, you could have TH with a compelling cancer drug moving forward quickly and an active phase III NASH trial. That is certainly worth far more than the current stock price!
longterm56 wrote: So what would give THTX enough confidence in their finances to create & fill all these new positions (when they know the convert is coming due and the clinicals need funding)? One could say "they know the Phase 1a trial is going well and they may be able to obtain financing from that good news." But I don't think they would commit significant financial resources for a "might be able to." with all other known expenses.
It must be something more objective ... like maybe an "almost signed deal" in cancer or NASH that they know actual $$ amounts. Anything less would be quite risky and possibly put you in need of another ONO.
This certainly gives me hope ...
-LT