FULC - Fulcrum's Balance: Between Promise And Uncertainty

2023-09-11 12:00:00 ET

Summary

• Fulcrum Therapeutics focuses on rare genetic diseases with losmapimod in Phase 3 trial; stock is down 56% since February.
• Fulcrum's financial health is strong with $278.2M in cash; monthly cash burn approximates $7.484M, supporting operations till mid-2025.
• Given clinical uncertainties and Fulcrum's robust finances, the recommended investment stance on Fulcrum's stock remains "Hold".

Introduction

Fulcrum Therapeutics ( FULC ) is a biopharmaceutical company advancing treatments for rare genetic diseases. Their lead product, losmapimod, targets Facioscapulohumeral Muscular Dystrophy ((FSHD)) and is undergoing a Phase 3 trial set for completion in 2024. Another product, FTX-6058 for sickle cell disease ((SCD)), faced an FDA hold in its Phase 1b trial. In 2023, Fulcrum secured a license from CAMP4 for its Diamond-Blackfan Anemia program. They also have a proprietary engine, FulcrumSeek, that pinpoints cellular drug targets for genetic diseases, having identified losmapimod and FTX-6058.

I previously analyzed Fulcrum's efforts in treating FSHD, highlighting the potential of losmapimod. While it could address FSHD's root cause, concerns arose from a Phase 2 trial suggesting benefits might be from improved glucose uptake rather than DUX4 inhibition. Given its safety, I noted that losmapimod might still benefit patients. All in all, the results were inconclusive, requiring more research. I rated Fulcrum's stock as "Hold", advising caution for investors awaiting Phase 3 outcomes. Since my recommendation in February, FULC is down 56%.

Recent Developments: Stifel upgraded Fulcrum Therapeutics to "Buy" after the FDA lifted a hold on FTX-6058, raising its target price to $11. Analyst Dae Gon Ha emphasized its potential and the focus on a specific sickle cell population.

The following article discusses Fulcrum's financial health, its recent stock performance, and the potential of its drug pipeline, including the expected results for losmapimod in 2024.

Q2 Earnings Report

Looking at Fulcrum's most recent earnings report , as of June 30, 2023, the company held $278.2M in cash and investments, up from $202.9M at the end of 2022. Collaboration revenue was down to $0.9M from $1.9M in Q2 2022. R&D expenses decreased by $7.2M to $17.8M, with the decline attributed to a $5.0M milestone in 2022 and lowered costs for FTX-6058 due to a clinical hold. G&A expenses also saw a reduction of $0.8M to $10.3M because of lower professional services costs. The company reported a net loss of $23.8M, a significant improvement from $34.1M in the previous year. With its current cash position, Fulcrum anticipates funding operations until mid-2025.

Cash Runway & Liquidity

Turning to Fulcrum's balance sheet , as of June 30, 2023, the company held $33.966M in cash and cash equivalents and $244.198M in marketable securities. Combining these values gives a total liquidity of $278.164M. Over the six months ended June 30, 2023, the company's net cash used in operating activities amounted to $44.901M, translating to a monthly cash burn of approximately $7.484M. If this burn rate persists, the company has an estimated cash runway of roughly 37 months based on its current assets. It's important to note that these values and estimates are based on past data and may not be indicative of future performance.

Fulcrum's liquidity appears to be in a stable position given its substantial cash and marketable securities on hand. The company's total liabilities amount to $24.904M, which is considerably less than its assets. The company has not indicated any debt, and its robust liquidity could potentially position it favorably for securing additional financing if required. These are my personal observations, and other analysts might interpret the data differently.

Capital Structure, Growth, & Momentum

According to Seeking Alpha data, Fulcrum presents an intriguing capital structure with an enterprise value of just $55.47M. While the company is currently in its developmental phase, given its nature as a biopharmaceutical entity focused on rare genetic diseases, it exhibits minimal revenue projections. This is evidenced by sales of $3.73M in 2023, dropping slightly to $3.05M in 2024 but then witnessing a significant surge to $36.85M by 2025. Such revenue projections underscore its growth potential stemming from its pipeline, particularly with the conclusion of Phase 3 trials for losmapimod in 2024. In terms of stock momentum, FULC experienced a 63.52% increase over the past three months, although its performance over six, nine, and twelve-month periods indicates a negative momentum of -16.93%, -15.31%, and -39.39% respectively, underperforming the SP500 in these durations.

Company Updates

During the recent earnings call, management spotlighted the launch of the Phase 3 REACH study for losmapimod in 2022, tailored for those battling FSHD. FSHD is a genetic muscle disorder that causes the progressive weakening of facial, upper arm, and shoulder muscles. This intensive 48-week trial will assess the efficacy of the drug on upper extremity functions. If it proves successful, we could witness the debut of the first-ever FDA-approved treatment for FSHD by Q4 2024. In another development, the company's 6058, an oral solution for SCD - a condition where abnormal red blood cells can obstruct blood vessels - had initially faced a pause due to FDA reservations about preclinical data. However, this suspension was subsequently lifted . The company also secured a global licensing deal with CAMP4 Therapeutics to address the rare blood disorder, Diamond-Blackfan Anemia, representing another potential growth avenue for the firm.

My Analysis & Recommendation

Reviewing Fulcrum Therapeutics' trajectory, investors have undoubtedly experienced a tumultuous journey. On one hand, there are unresolved concerns surrounding losmapimod's potential in FSHD. My earlier analysis pointed to the ambiguity regarding its efficacy, as the Phase 2 trial results seemed to suggest benefits were more likely tied to glucose uptake enhancement rather than direct DUX4 inhibition. With FTX-6058, it's no secret that SCD has been a challenging therapeutic area , and despite the FDA's recent lift of the hold, 6058 remains some distance from the final stages of commercialization.

On the bright side, while the stock performance of FULC has seen a significant decline, it's worth noting the company's robust financial position. With $278.2M in cash and equivalents and a monthly cash burn rate of approximately $7.484M, the company appears well-funded to continue its operations and R&D efforts until mid-2025. Furthermore, the enterprise value suggests that the market is already baking in low odds of success. Such a position, combined with its promising clinical developments, could signal a mismatch between current valuations and the company's intrinsic value.

As we move forward, investors would do well to closely monitor the Phase 3 results for losmapimod expected in Q4 2024. This data will be pivotal in determining Fulcrum's trajectory. Additionally, the Diamond-Blackfan Anemia program and the company's broader pipeline hint at a diversified approach, which may mitigate some of the risks tied to any single drug candidate.

Given the uncertainties surrounding the clinical prospects of losmapimod in FSHD and the challenges inherent in SCD treatments, contrasted with Fulcrum's strong financial health and low valuation, I reiterate my earlier stance on Fulcrum's stock. My recommendation remains a "Hold." This is not just a nod to caution, but also an acknowledgment that selling now might preclude investors from potential upward momentum in the coming months leading to FSHD data, especially given the market's seemingly pessimistic pricing of FULC's prospects.

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