RE:RE:RE:RE:RE:EarningsI don't think that is how such things work. You may have noticed in the past notes to the financial statements entitled something like "Subsequent Events". So while any write-off might not be reflected in the actual results, in order to get the auditors to sign off on the results, they may have to include a subsequent event note that highlights the impending write-off. Now, I have no idea if this is even an issue and am just throwing it out there for all to think about. It may be totally off the mark. The later date on the 4Q earnings release may simply about getting a lower cost from the auditors by being williing to be a lower priority for them to get the work done. Or, it may be nothing at all and just is what it is. Even if there is a write-off of some of their cancer goodwill assets, it is not a big deal as it is a non-cash charge. So,it is not anything to stress about - the market, perhaps wrongly, has clearly already written off cancer as an asset of THTX. Also, the announcement of the pause came on 12/1 not 12/2 but again that makes no difference. I find it hard to forget that unfortunate day!
The real issue is cash flow and the balance sheet. They should be able to manage the situation but it will be good to get some hard numbers and hopefully good commmentary about it on the conference call. They ended the third quarter, now almost half a year ago, with $36.5 million in cash. We know they had to buy the special water to keep the dedvelopment of the F8 on track (which is important since they need the FDA to approve the F8 by the end of 2023 in order to get the third tranche of the Marathon loan and extend the interest only portion of the loan until mid 2025 from mid 2024) and I have to believe that was not cheap. So, how much cash was burned in Q4 is the first big question. Then, we know the second tranche of the Marathon loan is $20 million (contingent upon getting the human factor study done) but the remaining converts will cost them about $27 million, so that is a $7 million or so hit to cash coming up soon. Management has said the move into a positive cash flow situation will be achieved by the end of 2023, so how much additional cash will be burned in the interim? The 4Q report will give us cash at the end of November but we are closing in on the end of February now. We can all make our individual guesses but it would certainly be surprising if cash was not down meaningfully from the $36.5 million at the end of August (although credit should be given to the CFO for good cash management in the past, so maybe the burn rate will not be too bad).
While there is not likely to be a cash crisis soon, with an inability to raise new cash in a conventional way, they really need to manage their affairs well to avoid any possible problems further down the road and to be prepared to weather any oddities that might come along (think covid-like scenarios).
Cost cutting is the most obvious option to get things sorted as quickly as possible but there does not seem to be any noticeable action on that front so far, which I find surprising. Maybe cost cutting is going on behind the scenes that we are not aware of but snce they need to substantially cut costs, those type of cost cuts are hard to hide. One could take the lack of announced cost cuts as a positive as it may indicate something else is going on (a NASH parntership with some upfront cash maybe?) that is giving them more time to consider their options? Hopefully, we will find out more soon about their plans to manage their cash and get to cash flow positive without doing additional harm to shareholders. If they can reiterate their sales guidance (maybe even raise the lower end of the range to $91 million based on good 1Q sales) and lay out a reasonable path to avoiding a cash crunch in 2023 and beyond, then perhaps the stock starts to grind higher towards the $2-$3 range.
I will believe a NASH partnership when I see one, so I am not counting on that. But I suppose there is a chance something might ultimately come from their hard work on that front. NASH maybe back in vogue a bit in the pharma industry but I suspect it is not yet in vogue enough to cause some other pharma to take a flyer on Egrifta. Hopefully, I am wrong about that. If there is only one company which is interested in taking that chance, the terms THTX would get from that would likely be based on future milestones being hit. To get really good terms with meaningful upfront cash would require big pharma competing over it, which I suspect is unlikely to happen. I suppose they could just sell the whole thing for upfront cash and only retain minimal back-end rewards if it successful. Given the current situation and the liklihood cancer is not dead, that might be a wise move if it would be available, which it probably is not.
My best guess is cancer does move forward but how it does so is hard to say. With THTX driving hard for cash flow breakeven out of necessity, it will be hard for them to fund a restarted cancer trial. Ideally, they can do so, get good results and then partner it on decent terms to take it forward from phase 2 onward. But if they have to partner before good phase 1 results are seen, it is hard to see good terms being achieved in any partnership deal and it may be hard to get one at all.
All of the current mess THTX is in is a result of the TH-1902 trial pause. Had they gotten good phase 1b results, they would have been able to raise new money via a share sale as the stock would have popped on those good results. With more capital in hand, they could have taken TH-1902 further on their own in the trial process and been on a track to emulate IMMU. Given the really impressive preclinical results for TH-1902, the expectation was they could at least get good phase 1 results, raise the needed capital and move forward. So, the failure to get those expected good results in phase the 1b trial turned this stock from moving into a virtuous cycle where good news leads to more good news into a venomous cycle where management needs to work hard to get the cash burning poison out of its system quickly. Thankfully, they do have to the two legacy drugs and can work those as they try to put Humpty Dumpty back together again, yet again.