Faron Pharmaceuticals - Innovative Medical Solutions (Part 1)

[Pohjolan_Eka]

@Puutaheinaa

@Pohjolan_Eka

When you go to financiers with hat in hand, begging for money, with your back against the wall and no proof of the drugs’ efficacy, the terms can be considerably tougher than what cancer drug research enthusiasts would hope for.

Are you assuming that

1. Faron doesn’t remember to secure funding in time
2. The data from the tropics is so poor and potential future businesses so small that no financier can be found
3. There is only one interested financier in the world, and they are tightening the screws as much as they can?

Or all of the above.
Otherwise, your claim is strange.

Faron has, in fact, left the funding collection (once again) until the very last minute. The money should have been collected last year, according to all reason, because Phase 2 data is needed to negotiate a reasonable partnering agreement. According to the company’s own stated goals, funding collection has already been attempted, and apparently the terms were not liked, as no stock exchange release has been issued.

This is such a unique and different sector that there are very few specialized financiers, and domestic capital is notoriously insufficient. Faron’s cash problems are public knowledge, so vultures have no reason to show mercy, unless they happen to have a huge shortage of investment targets and money burning in their pockets right now.

@Maikki1

“without proof of the drug’s efficacy”? Yes, there is evidence of both efficacy and safety. Whether this will become a commercial product is still open, but the facts should be acknowledged.

That’s why these tests have to be done, to get that evidence and statistical data on the drug’s efficacy. The preliminary results have indeed been very promising, which is, of course, a prerequisite for continuing further research at all, but at this stage, there is still a genuine non-zero possibility that the drug will fail completely, and this potential financier must assess this risk. That’s why Faron’s value increases the more the research can demonstrate the product’s efficacy and safety.

[Pasimus]

Here, some specifically imagine that Faron is in a weak position in partner negotiations due to a poor financial situation! That financial situation doesn’t affect much if there are, for example, five partner candidates, as negotiations proceed on an auction principle!

[JusaVaan]

So, in practice, a directed share issue or other similar financing was discussed here. See e.g. in the link above\ninderes’s comment on the probable future development path

[Vino_Pino]

Regarding the previous discussion on the determination of the issue price. Even this, @MajorD, does not provide an answer as to whether the day’s closing price determines the discount, even though Faron has communicated the percentage in stock exchange releases. Many explanatory factors. Faron has generally financed its operations with these directed issues.

Directed Share Issue 2023, translated by ChatGPT (which also explained the bookbuilding process) and Grok2, reviewed. At the bottom, a waiver of IPF terms, if Faron collects at least half of what it sought.

On Thursday, October 26, 2023, at 6:30 PM, after the stock exchange closes, a stock exchange release will be published faron.com/releases-and-publications/proposed-issue-and-placing/

"Faron Pharmaceuticals is arranging a share issue where shares will be sold to investors through an accelerated bookbuilding process. Carnegie acts as the lead manager of the issue.

• The bookbuilding process begins immediately after this announcement and ends no later than October 27, 2023, at 9:00 AM (EEST).

• Investors can submit bids for new shares (Placing Shares).

• The final price of the shares (Issue Price) will be determined based on the bookbuilding process.

• The bookbuilding process can be terminated at any time.

• Once the bookbuilding process ends, Faron’s Board of Directors will decide:

• How many shares will be allotted.

• To whom the shares will be allocated.

• The final price.

• Finally, Faron will first register the shares in the company’s name and then transfer them to investors.

• After the bookbuilding process ends, Faron will publish final information on quantities, prices, and the registration schedule.

What is bookbuilding?

Bookbuilding is a method for pricing and allocating new shares in a share issue. It is a commonly used method, especially in large share issues and listings (IPO, SPO).

How does bookbuilding work?

1. Share issue announced → The company and the lead manager (here Carnegie) announce that shares are available.

2. Investors make bids → Institutional investors (e.g., funds, large investors) indicate how many shares they want and at what price.

3. Demand is compiled → The lead manager compiles the bids and assesses at what price level the shares can be sold.

4. Pricing and allocation → The company’s Board of Directors decides the final price and how many shares will be allotted.

5. Shares are distributed to investors → Once the price and quantity are decided, the shares are allocated to investors.

Why bookbuilding?

• Market-driven pricing: The final price of the shares is determined by demand.

• Efficiency: An accelerated procedure (accelerated bookbuilding) allows the share issue to be carried out quickly.

• Institutional investors prioritized: Bookbuilding is generally aimed at professional investors, not retail investors.

In Faron’s case, it is an accelerated bookbuilding, meaning the lead manager collects bids and decides on the allocation in a short period."

"Regarding the agreement with IPF (IPF Partners):

• IPF has agreed to a waiver of covenants under certain conditions. Specifically, IPF has agreed to waive compliance with certain covenants under Faron Pharmaceuticals’ financing agreement until the share issue is completed, provided that Faron succeeds in raising at least 3.0 million euros by October 27, 2023, among other conditions.

• According to the agreement, Faron must also maintain a cash reserve of at least 6.0 million euros while maintaining a three-month cash flow."

On Friday, October 27, 2023, before the stock exchange opens and after a good night’s sleep, a new release will be published at 9 AM.

A minimum of 6 MEUR was sought, 7.1 MEUR was raised. faron.com/releases-and-publications/results-of-placing/

In bookbuilding, capital can accumulate more than sought in an oversubscription, and vice versa. Faron can stretch the deal further, potentially making it larger, or go with just a two-month issue. Sentiment may now be better due to the outlook and results than at the time of the digestion event.

P.S. A three-month cash flow is 6 MEUR with monthly expenses of 2 MEUR, but with 2.5 MEUR, it’s already 7.5 MEUR. At the time of the hiccup, it was 3 MEUR/month. At that time, preliminary inquiries about bookbuilding were probably not favorable.

[Sperakartio]

Getting the funding last spring certainly became expensive because the matter wasn’t handled in time, either due to incompetence or inability. There’s no getting around that. One can only hope that they will come out with the matter soon so that we don’t get screwed over again. We must talk about things as they were. One would think that something has been learned, and things won’t be left to the last minute. There are plenty of willing parties, if the talk is true.

[Bozero]

How much money, I wonder, have different parties spent on the pharaohs? Now that the company is in a better situation than ever before (or at least it was a few months ago), surely the funding is taken care of?

[Riskiottaja]

-Timo and top owners hardly have cash just like that to participate in a directed issue.
-Now Faron’s shares are being sold so that one can buy at a -15-20%? discount.
-Carnegie asks if your cash reserves are now large enough?
-If so, the issue begins…

[Maikki1]

If bex maintains its efficacy and safety, this medicine will not be kept off the market due to a lack of funds in the company’s coffers. Society simply cannot afford not to have it. Cancer rates are constantly increasing as the population ages, and each of us has a loved one who has suffered or will suffer from cancer. This message will surely be deleted again as spam and an advertisement, but so be it. It must be remembered that we are now talking about human lives. The cost of developing this medicine is small compared to what it costs if there is no effective medicine. Some entity will bring this to the market, provided the research yields no surprises.

[Hermit]

Surely no one has thought that a drug won’t be brought to market if it’s effective (and cost-effective); rather, what’s still open in that case is who gets rich from it, and by how much. Small investors will surely get their share at that point, but the big players certainly don’t think about small investors at all; instead, they maximize their own profits. And as long as there are financial difficulties, they have much better cards to make optimal decisions for themselves. Pharmaceutical giants also have no heart (even if one wished they did), of which US drug policy alone is already a good example.

[Odetus]

Business is business. No one is funding this, at least not out of charity for now, and potential funders will take everything they can get. If the company goes bankrupt, those assets will certainly be sold. From there, the buyer will continue if they choose to.

Above, @Pasimus mentioned an auction. That was probably sarcasm. If there were offers, they would be public.

I believe some funding model will be announced soon, and again (for the umpteenth time) the can will be kicked down the road until the next important earnings report.

[Pasimus]

I meant that the best offer wins. And there are indeed offers on the table, confidential ones.

[All_in_aina]

@Pasimus

I meant that the best offer wins. And there are indeed offers on the table, confidential ones.

One would think that a listed company should publish those offers if they were on the table? I at least thought that when you own a part of the kiosk, they should tell you about this and that, and what’s being done

[MagnificRat]

Hardly anything needs to be published before the names are on paper. Negotiations have been held and are ongoing. Surely there’s no need to issue a press release for every offer. However, it’s about a partnership agreement. If some party wants to buy out the entire company, then they will make a public tender offer.

[jounijp.leppanen]

At least Juho told me directly, when I asked about it in CMD, that offers for partnership or similar have been received and they have been considering what kind/size of offer should be published. Publicly, they have stated that the tender process is ongoing. The matter now concerns the completion of Phase 2 and thereby the improvement of the company’s value. These matters have also been mentioned in Juho’s interviews.

[ZSilver]

It seems there’s a complete paralysis here. Apparently, there’s still a good 0 - 2 months to buy before one can expect any results.

20% added to the gaming portfolio, and the 33% sold in December (for tax reasons) from the long-term portfolio are awaiting reconsideration for repurchase.

Signed “November’s sure money-maker is gone and I’m a bit annoyed myself”

[Puutaheinaa]

I’m wondering what drives this stock’s price, what factors, so to speak, ‘drive’ it. There’s little news flow; mainly good BEX results occasionally get confirmation. On the financing front, things have also been predictable after the summer’s chaos, although some offering should be launched again soon.
The price movements are large, and trading volumes aren’t small either, so what do you think is behind it?
The latest owner listing today showed nothing unusual, just a couple of funds and pension foundations on the selling side.

[MagnificRat]

Investors fear a possible share issue and sell off so they can potentially buy cheaper from the issue, or from a market collapse caused by the issue. I myself don’t take the risk that the share price skyrockets when it turns out that the upcoming (possible) dilution is very small, if any (some other financing arrangement than an issue). That’s why I’m not selling anything. I fully trust Juho’s word that after Phase 2 results, it’s very highly probable that we’ll partner up. I’m not interested in some 5%-10% possible dilution before that. I’ll buy more if that happens.

[Kulkuri]

Inderes’ morning review for Faron was perhaps a bit downbeat. At least no superlatives were used, and for the most sensitive, this might be a reason to sell. Also noteworthy is today’s global gloom, which is naturally contagious.

On the positive side, I would see some fairly large trade lots, meaning risk-taking has not disappeared. On the contrary.

[Vino_Pino]

@Yamarin

So what do you see as risks that Bex would not become a medicine?

@Yamarin

….the target price for Faron is increasingly questioned.

Did the previous answer already tentatively cover some potential challenges keskustelut.inderes.fi/t/faron-pharmaceuticals-innovatiivisia-laaketieteen-ratkaisuja/2655/8125?u=vino_pino ? It’s hard to believe in a pharmacological black swan, where, for example, the chemical incompatibility you described would materialize, given that dozens of critically ill patients have already received Bex with aza, and in MATINS, patients received Bex up to 10 mg/kg, and primates in experiments up to 100 mg/kg without problems. The maximum dose for BEXMAB is now 6 mg/kg. With an anti-PD-1 drug, the risk would be if Bex and the combination drug had a similar side effect profile. PD-1 drugs are known for lung, bowel, liver, thyroid, and you name it inflammations; with Bex in MATINS, only fatigue, minor fever, anemia, and elevated liver enzymes were observed, many of which occur in late-stage cancer patients anyway.

In solid tumors with PD-1, the efficacy might be too low, but that probability decreases with biomarker analysis, or it could be too good, like CTLA-4 + PD-1, which, along with cancer efficacy, sometimes opens the gates to an autoimmune hell, requiring extra treatments. Still, they are still used in combination. In hematological cancers, Bex does not appear too effective with aza, nor ineffective, based on current information.

The target price is indeed secondary; the recommendation is more important. Inderes’ views have not always been bullish, as became clear during the cash crisis, and I ranted enough about the existence of old forum investors then… and now, grandmas move forward.

The comprehensive report states, “We have not modeled share issues into our forecasts.” And conversely, “We have not accounted for potential upfront or milestone payments from licensing agreements in our forecasts due to the unpredictability of their timing and magnitude. We note that if a collaboration agreement materializes, upfront and milestone payments could be very significant.”

@Antti_Siltanen has promised to at least try to update the comprehensive report after the Phase 2 readout. Many things have already changed, trials have been delayed by about a year and have changed, so we are essentially back to the same time horizon, as it will be 1.5 years since the last comprehensive report in the spring. The target price derived from the DCF model may change in some direction.

Now, the possibility of partnering and an offering, which have not been fully modeled into the target price, is increasing. Juho already talked about calculating upfront payments; thanks to the podcast, preparing the comprehensive report became easier, which was probably one of the reasons for doing it. Antti had, according to him, planned such a report in the autumn, and then Juho offered the opportunity. It is difficult to reasonably calculate the possibility of acquiring the entire company or the success of all Bex hematological cancers and all potential solid tumors worldwide, and the success of Traumakine partnerships, into any model. One can, of course, calculate a share of Inderes’ estimated total annual cancer drug market, which is 279 BUSD for 2026, where Bex could work in 20-30% of cancers. Would the target price look nice?

If Inderes were to set the target price at 10-20x the current, i.e., 28-48 euros (the bullish case in the comprehensive report is currently 19 €, with 60 M shares at the time of the report), it’s possible that Inderes and the analyst who wrote the report would hear “some teasing” if things didn’t go so well. The same applies to excessive caution, but it might be easier to err on the side of being too cautious. Or one might hit the mark, at least within the range.

Let’s see what calculation is reached in the comprehensive report, what the visible market is by indication, what Bex’s estimated market share is, when money would start coming in from each with R&D risk adjustment and discounting. The WACC might be lower due to clearer initial prospects with good readout results, pricing research, and a decrease in interest rates, which also has a significant impact on the outcome. And the future number of shares will become clear after the Phase 2 readout, i.e., by what number the future value of Faron will at least be divided. These can then be discussed when there is more up-to-date factual information/forecast. The analysis forecasts are lagging as long as “we have not modeled” and “we have not accounted for” remain their characteristics.

[jounijp.leppanen]

Just a few thoughts of my own. I still trust Faron’s story, perhaps too much. Somehow, their actions exude a calmness rarely seen in a business that would be facing problems. Results are coming within a few months, which will significantly affect the value. I consider the risk of results deteriorating to be small. My position in this investment is large, and somehow I don’t quite dare to increase it, even though I’d like to. I have already come to the same conclusion before, that I will hold onto my shares. I’ll make some minor fine-tuning, because something always needs to be done. I’m most interested in others’ thoughts, as to when a financing announcement would be made, if one comes? In the depths of my own thoughts, I believe February is the time. If it doesn’t come, the situation would then look really good. Then a deal has largely been agreed upon with someone, which I hope/believe. Time will tell what happens again.