Faron Pharmaceuticals - Innovative medical solutions (Part 2)

[Pati]

I would rather ask why Faron has previously used its treasury shares for repayments. Treasury shares were effectively “created” earlier at a higher average price, so using them can increase relative dilution in the long run and transfer voting power to the creditor in the short term. I’m oversimplifying things a bit here, but the idea should be clear.

Faron has three ways to repay the loan: in cash, with treasury shares, or with new shares. In this structure, new shares should be the default solution because repayments are fundamentally intended to be made through the Special Rights mechanism. This has been agreed upon in the financing terms, and the necessary authorizations have been sought for this.

In practice, HCM uses pre-issued subscription rights, based on which new shares are created according to a pre-agreed formula. The price is not fixed but linked to the market. The subscription price is 90% of the lowest VWAP, compared between the VWAP of the payment date or the lowest VWAP of the five preceding trading days. In other words, the volume-weighted average prices from recent days are reviewed, the lowest is selected, and a further 10% discount is applied. At this price, debt is converted into shares.

This mechanism is built to protect HCM, not to minimize dilution. The euro amount of the debt remains the same, but if the share price is low, more shares are needed to settle it.

The variation in payment methods can be due to several reasons, and one can only speculate about them. My own guess is that dilution is being balanced. On the other hand, the treasury is a limited resource that can be saved for other purposes later. The share price level can also have an impact. At a higher share price, when paying with new shares, dilution remains lower, whereas at a low price, treasury shares might be a more attractive option.

Why cash was used in the fall is a total mystery to me. Somehow I have a feeling that in the fall, a deal was close or just waiting to be signed, but when the FDA pushed the study half a step back, the deal fell through. Not necessarily because of results, but due to pricing views (X amount of extra time for the study → contract X dollars smaller). In this context, it was a good idea to change the CFO and start new negotiations with a new potential partner. Perhaps we will hear more about this in connection with the Annual General Meeting.

Your guess is as good as mine.

[ValkoinenPeura]

There’s no need to write a whole book on when existing shares are used versus when share capital is increased. I’ve already explained this earlier in this thread, but let’s do it again:

Faron handles regular repayments primarily with new shares, but it requires a separate board decision and an increase in the number of shares in the Trade Register. Extra repayments have been handled with treasury shares, as they are already held by Faron and can be transferred directly to the recipient.

In the grand scheme of things, it doesn’t matter at what “price” the treasury shares were created. Their value is determined daily on the market.

[Pati]

You seem to have a very strange approach to posting on the forum. If people don’t understand things the same way as you, or don’t agree, you take that as a reason to put down their writing. No need to write a bible? You need to if you want to explain things and potentially also respond to others who might have missed individual messages. If the matter is clear, there is no need to read the message. Your post would have fully served its purpose without the first paragraph.

The purpose of a discussion forum is to discuss. I would appreciate it if you could change the way you write to others. You do have smart ideas that can be shared without unnecessary snark. That way, others might also feel encouraged to post.

There is no clear pattern in the completed batches suggesting that “regular ones are always with new shares” and “extra ones are always with treasury shares.” Both have been used in different situations. An example of this is 28.10.2025. Iemeli’s question was completely justified.

This is not about some separate new decision sought for every installment, but about using a previously granted authorization. It is the exact same authorization that treasury shares have.

Regarding the “creation price” of treasury shares, I agree that the market determines their current value. From a shareholder’s perspective, however, it still matters. When treasury shares are transferred, they return to the market and shift ownership and voting power. Even though the total number of shares doesn’t increase, the ownership structure changes. If the treasury stock originated from previous conversions at a higher share price and new shares are being created now at a low price, the history of total dilution looks different from a shareholder’s perspective than what the current market price alone would suggest.

[ValkoinenPeura]

First of all, regarding your venting, I would say that it is quite frustrating to have a discussion in this “sect” when the starting point is 1 against 1000, regardless of the arguments.

@Pati

It is not about some separate new decision to be sought for each reduction, but about using a previously granted authorization. Exactly the same authorization that Treasury shares have.

Treasury shares are existing shares that are registered in the Trade Register. When issuing new shares (under existing authorizations), those shares must be separately registered as an increase in the number of shares in the Trade Register every time, and this requires a decision by the company’s board, etc.

[Pati]

@ValkoinenPeura

First of all, regarding your vent, I would say it’s quite frustrating to have a discussion in this “congregation” when the starting point, regardless of arguments, is 1 against 1000.

In my opinion, there was no FOMO or hype in my message referring to any “congregation,” but rather reflection on why all the various repayment methods have been used. Perhaps even a bit of negativity as I reflected on the cash repayment in hindsight.

@ValkoinenPeura

and this requires a decision by the company’s board of directors

Thanks for this. I learned something new, so this conversation was productive after all.

[Kulkuri]

Can someone who’s in the loop please tell me:
How long will this latest cash grab be enough to keep the shop running?
Is there a continuation to this loan arrangement, and if so, for how long?
Edit: Didn’t Inderes use to take a stand on things like this?

[Pati]

I’m not necessarily any wiser, but let’s give it a try. Let me know if there are errors in the figures and I’ll correct them.

Cash flow for January-June 2025 was -€10.4M, which means a burn rate of approximately -€1.7M/month. In the H1 report, Faron stated the operational burn rate to be €2M. Cash at the end of June was €13.5M.

The second tranche was drawn down in December and the bonds were issued at a price of 92.5%, i.e., approximately €9.25M.

• Burn July-November -€10M
• Second tranche in December +€9.25M
• Burn December-January -€4M
• Cash repayment in August approximately -€1M

Total cash €7.75M

This means less than 4 months of cash remaining, i.e., the end of Q2/2026 (May-June).

There is still a third tranche remaining in the loan, but it has conditions:

1. The average daily traded value of the share (“arithmetic mean of the daily traded value”) for the three months prior to drawing down the third tranche is over €500,000.
2. The company’s market capitalization must be at least 120% of the level it was on the issue date of the second tranche (Jan 30, 2026, MC €225.9M → 226*1.2= approx. €270M).
3. No material adverse change, e.g., in market conditions.

It should also be noted that HCM has the right to demand the issuance of the third tranche. In other words, HCM can exercise its option without these conditions being met, but Faron cannot.

There were some other conditions as well. They can be checked here. HCM has tied Faron quite tightly to this convertible bond.

Disclaimer also that we don’t know what has happened behind the scenes and if there have been changes to the burn rate.

Edit.

@Kulkuri

Is there a continuation to this loan arrangement and if so, for how long?

Third tranche €10M, i.e., 5 months if conditions are met or if a draw-down is otherwise agreed upon.

@Kulkuri

Edit2: Doesn’t the loan repayment in a way reduce the amount of available funds and bring that “wall to hit” closer?

Yes, if repaid in cash. If repaid with shares, no, because more of them can be printed.

[Stallion]

Could a deal have really been close back in the autumn when the loan was being paid down in cash?

I wonder if Trump’s situation has complicated the valuation?

You can no longer get the same price for drugs as before → Novo and Lilly

[Puutaheinaa]

@Stallion

I wonder if Trump’s moves have complicated the valuation?

You can no longer get the same price for drugs as before → Novo and Lilly

This topic isn’t allowed to be discussed here; I tried a few days ago, but the post was flagged and removed.

Well, hopefully this time the opening on the subject can stay, as it might be quite significant. Trump is publicly boasting about up to a 600% general decrease in drug prices in the USA (however those percentages are to be interpreted); obviously, it won’t go that far, but significant price cuts could be in the cards.

[Peku-Piensijoittaja]

Impact on Faron?:

• Bexmarilimab has, as I understand it, orphan drug status, and these have received better protection from price drops than mass-market drugs.
• Big Pharma’s perspective: If the prices of traditional blockbuster drugs come under political pressure, Big Pharma will be forced to find new, innovative drugs with high value. This could increase interest in Faron, as specialty medicines maintain their margins better than general drugs.

[Taystumpelo]

From last year, but regarding the conduct and monitoring of trials, is the time of day also usually taken into account?

https://x.com/StephenVLiu/status/1929537643794051350

[Kulkuri]

ALX Oncology is active in the US, for instance in blood cancers. The share price has risen about 110% in a month. Today it’s already up about 16%.
Is it a formidable competitor for Faron or just a peer?
As I understand it (which is limited), both are trying to break through cancer’s
“protective wall”

[RipaRapa]

August 10, 2023: Terminating azacitidine combination development programs: ASPEN-02 in MDS and ASPEN-05 in AML: https://ir.alxoncology.com/news-releases/news-release-details/alx-oncology-reports-second-quarter-2023-financial-results-and?

The Evopacept + AZA combination did not provide a significant clinical benefit compared to the historical responses of azacitidine alone in MDS patients. For this reason, ALX Oncology already halted the ASPEN-02 program in 2023. Evopacept is a CD47-blocking fusion protein with an inactive Fc domain. It is designed as a cancer treatment that blocks the “don’t eat me” signal, enhancing the phagocytosis of cancer cells by macrophages.

[Vino_Pino]

That molecule is a relative of magrolimab, on which Gilead blew its 4.9 BUSD. The one that was framed as a potential competitor for Bex, but Naval Daver also considered it as a combo candidate for Bex.

Now they are trying a modification to the antibody so that it shouldn’t incite the immune system as much against, among others, healthy red blood cells. It remains to be seen if it works as a combo somewhere.

In blood cancers, its only target is r/r multiple myeloma, and regarding myeloma, Bono specifically stated that Faron is not going there. It doesn’t have Clever.

Has the ALX share price gone up or down? It has.

[Kulkuri]

I’d like to return to that ALX share price for comparison.
Since that roughly 110% monthly increase is a reality, after all.
So, in the US market, a much thinner narrative can generate at least a relatively temporary, significant share price surge!
Is Faron poor at developing narratives, or are local investors mostly just much more skeptical?
Edit: Philosophers, wake up!

[Retired]

@Kulkuri

Is Faron bad at developing narratives, or are local investors for the most part significantly more skeptical?

Google told me something like the following a while back when I asked something: “In addition to stock exchange releases, company management should maintain active investor relations to increase shareholder confidence and support the share price.”

Investor communications have stalled because, due to management’s “careless” choice of words, the message or timeline has been misunderstood by investors or interpreted to fit their own wishes. Now it feels like they’ve buried their heads in the sand regarding communication, and shareholders are baffled as to what is going on.

Silence can, of course, also mean that something big is coming, or that things are not progressing as hoped.

Faron has a next-generation drug candidate on its hands, top scientists in the background, rainmakers on the board and as support… but a deal just doesn’t seem to be happening?

Having been involved for over five years now myself (with money tied up and unproductive at -30%). Is it stupidity or gullibility?

[MyrtsiZzz]

Faith, hope, and a bit of love for the stock are definitely needed during these times. Even by Turku standards, “Soon” is certainly outdated, so it stirs up paranoid feelings during the small hours of the night.

I calm myself by looking at the list of the largest shareholders, and when I see only increases, I try to do nothing and trust those who are smarter.

So, if the fact is that a deal was very close in the autumn, a pessimist immediately thinks that, fueled by Finnish inexperience and an overinflated belief in one’s own expertise, the counterparty got fed up and walked out the door with their money. On the other hand, expertise was brought into the house with Hughes in May, so I assume there is enough experience to avoid such pitfalls, and of course, they must try to maximize shareholder value.

An optimist thinks that the deal was close, but another suitor came to the table. Taking the holidays into account, a few months have passed since the last data update and ASH. It is still a short time, but so long for someone who is waiting.

As a long-term, loss-making stock investor, I would say the situation is either really bad or then really good. Not investment advice

[supersanthi]

Has anyone contacted Paavo recently to find why investor comms has been pretty non existent recently?

[jounijp.leppanen]

@Retired

Investor communication has stalled as management’s “careless” choice of words has led investors to misunderstand the message or timeline, or to interpret them to fit their own hopes. Now it feels like they’ve buried their heads in the sand regarding communication, and shareholders are puzzled about what is going on.

You are absolutely right, because in the corporate world, trust is the most valuable currency and it is lost quickly if words and reality do not meet. It is quite remarkable if empty promises are publicly given to investors, as the CEO’s word must carry weight and communication must be honest. In Faron’s case, the situation is frustrating: the drug development itself and the results achieved have been good, but the company’s other operations have not met expectations in the same way. In particular, financing, timelines, and the related partnering have not been anywhere near the same level as the successes in drug development, and this must change. How, I do not know, and based on the information provided to investors, one cannot even be expected to know. The past years have not been profitable for long-term investors, so a solid strategy for the future is needed now instead of just talk about partnering. The financial statements are only a few weeks away, and they are unlikely to reveal anything extraordinary about last year, but the greatest pressure is on the board. The board has a statutory supervisory responsibility over the CEO’s performance and for ensuring that the company’s operational side is finally brought to the same level as the research results. The Annual General Meeting is fast approaching, and there the board must be able to explain how the financing, partnering, and timelines are actually intended to be executed. The time for excuses is over, as investors deserve to see clinical success finally materialize in the company’s other operations and management. I have thought of the following question for the meeting: Partnering has been promoted as a key part of the financing solution for a long time. How does the board ensure that waiting for partnering and conducting share issues are not just ways to buy more time, but that negotiations progress toward a result that secures the company’s financing and the interests of investors without timeline disappointments?

[OsakasOssi]

A few things are worth keeping in mind when talking specifically about Faron. It is a drug development company. No revenue, no product, no business operations. The drug candidate has a certain potential, which of course has its own value, but Faron’s value is currently speculative. It is not mathematical in any respect. There is no revenue, so there is no calculable valuation. And here is my most important point regarding this: Speculative value cannot be expected to develop in a steadily upward trend, as is the case with a normal revenue-generating company. A normal company’s valuation rises when earnings improve or are expected to improve by x percent. Faron does not have these expectations in the same way. With Faron, the expectation is whether the drug succeeds or not. Almost all components of value formation are based on speculation.

In my opinion, Juho has been a good CEO. The trials have progressed almost as reported so far. Now the FDA threw a curveball (the dose-finding requirement), but that is not Juho’s fault. That FDA curveball could also be the reason why partnering did not succeed at the end of the year. We don’t know that. Currently, it’s quiet on the news front, but that’s perfectly understandable if there’s nothing to report. I also own unlisted companies, and in their case, years can go by where the only announcements are once a year at the AGM. Pointless press releases don’t raise the share price. If there’s nothing real to say, why force yourself to invent something to announce?

Juho is also being criticized in your posts for talking too much about partnering or possible future arrangements, while at the same time you’re demanding more announcements? Aren’t those a bit contradictory?

Patience! Faron has a promising drug candidate, and work is constantly being done to move it toward a finished drug. One step at a time. BEX won’t turn into a finished drug just because of shareholder demands!