In my previous article, TFF Pharmaceuticals: A Very Attractive Basket of Options, I presented the bullish case for TFF Pharmaceuticals (Nasdaq: TFFP). Unfortunately, everything has gone wrong since then and investors have had to put up with it Painful losses. In this article, I would like to provide an update on recent developments or lack thereof and establish that TFFP is now a speculative buy with high risk but a strong uptrend. As a reminder, TFFP required a technology called thin-film immobilization that enables massive amount of drug to be converted into powder form while maintaining functionality and efficacy. In fact, the TFF version is often more effective as the medication can be applied directly where needed such as in the lungs.
In the risk section of my previous article, I mentioned financing and not having a deal closed. Both are far worse than I could have imagined.
First of all, the company could not conclude any agreement, deal or partnership, which would bring in the urgently needed revenue and cash, ever. The option agreement on niclosamide with Union Therapeutics has not even been implemented.
With respect to the niclosamide inhalation powder program, we and our partner, Union Therapeutics, have not made further progress on TFF niclosamide, pending additional party review of Phase 1 results, animal data and antiviral market opportunities.
Even worse, TFFP has had to announce significant delays in the clinical programs of both VORI and TAC, the two main parts of the internal development program. The failure to call is highly questionable, considering these are open studies, and CEO Glenn Mathis was eager to confirm the schedule until almost the last minute. Results are now expected in the first quarter and second quarter of 2023, and any partnership on these drugs will have to wait until then as well. The result, of course, was that the cash runway was too short to fill the additional gap and the company saw it necessary to make a highly diluted offer with half collateral at $1.15. Thus, the number of fully diluted shares increased by about 70%.
Moreover, there is no guarantee yet, that the funds raised will be sufficient:
We anticipate that we will need additional financing following this offering to implement our business plan and financing operations, for which additional financing may not be available on reasonable terms or at all. As of September 30, 2022, we had total assets of approximately US$20.2 million and working capital of approximately US$14.9 million. As of September 30, 2022, our working capital included approximately $13.1 million in cash and cash equivalents. We believe that the net proceeds of this offering, plus the cash we have on hand as of the date of this Prospectus Addendum, are sufficient to fund our proposed operating plan for at least 12 months after the date of this Prospectus Addendum. However, as of the date of the Supplement to this Prospectus, we believe that we will need additional capital to fund our operations until the marketing approval of TFF Vori and TFF Tac-Lac, assuming such approval can ever be obtained, and participate in substantial development of any of our other drug candidates, such as formulation, early-stage animal testing and formal toxicology studies. We intend to seek additional funds through various financing sources, including the sale of our equity and debt securities, licensing fees for our technology and joint development and joint ventures with industry partners, with a preference for licensing fees for our technology and joint development. and joint ventures with industry partners
With the current burn rate it will run out of cash in a year and at this point it seems investors have lost faith in the CEO completely, I certainly have.
But is the stock now buy or sell? Investors need to ask themselves if the technology has lost any appeal, if the internal pipeline is still promising, if there is still room to close deals besides the internal pipeline, and how it all compares to the current market capitalization after the significant easing the last one .
At first, the answer should be no. Despite all the bad news, the technology itself is still undefeated. The company has yet to report any type of failure to achieve stable drugstore powders. So why haven’t any deals been executed yet? One reason may be that the technology is failing and not working. However, we have absolutely no evidence of this, on the contrary. Assuming the technology does indeed work as promised, which should be the base case, there are a number of reasons for the lack of deals. TFFP can have very high expectations in terms of pricing and drug companies are not willing to pay large royalties and milestones. Another reason is the sheer inactivity of companies, in which the adoption of new technologies, especially in large corporations, is agonizingly slow. A more serious reason may be that a potential partner can see the TFFP’s balance sheet together with a large cash burn, delaying the process of extracting better terms. Moreover, it is likely that the rapid developments regarding Covid and its mutations have so caught all the interest of pharmaceutical companies in terms of developing new vaccines and therapeutic formulations adapted to these new mutations that alternative methods of administration such as thin films, frozen powder, simply were not in focus. .
The bottom line is that there are many possible explanations for the lack of closed deals despite the technology’s success. To be conservative, I would therefore assume that no deals will be closed at all or with only a slight probability and only the internal pipeline remains. And in fact, we had some good news on that front among all the bad as well in the form of a second patient who was successfully treated with Voriconazole Inhalation Powder through the Compassionate Use Program.
In my previous article, I explained the case that based on a conservative 1 times peak sales multiple for VORI and TAC, the potential value would be $1.4 billion, which under a 50% chance of approval becomes $700 million, and I still think that would be a valid approach. Of course, the TFFP has proven disastrous in closing any deal and the partners will demand major concessions because the TFFP is probably in its worst negotiating position ever. So we have to keep in mind that it’s probably much lower than my previous assumption that 50% of economies will result in a TFFP. If we take 25%, the result is $175 million. However, that compares very favorably with its fully diluted market value — even after the most recent dilution — of only about $50 million. The stock would be attractive, if a 50% dilution is required by these estimates.
Does that make TFFP an outrageous buy here? Absolutely not, as there are still significant risks. Technically, the warrants issued in the latest offering could provide a significant uptick and hold back the stock’s rally. Further, we can’t be sure if TFFP will ever be able to participate in VORI and TAC, and I wouldn’t be willing to invest in inventory in a scenario where they have to progress clinical development toward approval themselves and even conduct marketing and sales. As mentioned earlier, it is also unlikely that another diluted increase will be required, which would certainly hurt the performance of the stock in the short to medium term and the degree of dilution cannot be known in advance (my previous estimate, which is now outdated, is only 25% more than The required dilution clearly demonstrates this). Furthermore, it is impossible for me to prove that any stock is a Strong Buy, since I have no confidence in the CEO anymore, and after Glenn’s disastrous performance and communication with him, the stock can only be a speculative buy in my country. Opinion.
Putting it all together, the stock and company were hugely disappointing. Failure to implement, delays, and painful dilution worsened the investment situation and destroyed confidence in the CEO with many investors. However, even with the conservative assumptions of the internal pipeline, specifically VORI and TAC, the potential for a good return is still very much there given the lower stock prices. And although the high stakes make this stock very risky, the speculative situation may be justified. This would be even more true, though, if the company surprised to the upside by closing deals outside its internal pipeline. The recent announcement of the collaboration with Aptar Pharma is just one example of the many pieces of evidence showing this is still very possible in the future. Presumably, the company has expanded its R&D for good reason, too. Any success on this front is certainly underappreciated and could provide impatient shareholders with a pleasant surprise.