2023-04-25 14:05:50 ET
Summary
- Today, we circle back on development firm Fulcrum Therapeutics whose shares have been hit by a litany of bad news in 2023.
- However, the stock now sells for less than net cash, has one late stage candidate and could resolve a key clinical hold in the months ahead.
- Time to go bottom fishing or is the stock still an 'avoid'? An investment analysis follows in the paragraphs below.
When you combine ignorance and leverage, you get some pretty interesting results ."? Warren Buffett
It has been just over two years since our initial and only look at Fulcrum Therapeutics ( FULC ) . We concluded that article with this summary around the company's prospects:
We are passing on making any investment recommendation on this small cap name for now. We may revisit it next year at this time to see if has advanced its pipeline far enough along for investment consideration at that time ."
That was the right investment call as the shares have lost approximately 85% of their value since that March 2021 piece. Almost all of that pullback took place in the first quarter of this year on some very disappointing news. Has the stock dropped into the ' buy zone ' yet or still a falling knife? An updated analysis follows below.
Company Overview
Fulcrum Therapeutics is a clinical-stage biopharma concern based just outside of Boston in Cambridge, MA. The company development efforts are focused on genetically defined diseases in the areas of high unmet medical need. Currently, the stock trades at approximately $2.75 a share and sports an approximate market capitalization of $170 million.
April 2022 Company Presentation
Recent Developments
Shareholders have been rocked by a couple of troubling events so far in 2023. On February 24th, the FDA placed a complete clinical hold on Fulcrum's Investigational New Drug application on IND for sickle cell disease or SCD treatment FTX-6058. This compound is an oral therapeutic designed to induce expression of fetal hemoglobin (HbF) to compensate for the mutated adult hemoglobin in SCD. This hold stopped the 12 mg dosing in one cohort of the Phase 1B trial. The 2mg and 6mg cohorts had already been dosed and initial data from the study was available. Data continue to support a significant reduction of HbF, as well as a robust dose response effect. The news around the new clinical hold cut the stock in more than have even as Fulcrum's CEO stated in response to the FDA action.
We continue to have confidence in the benefit-risk profile of FTX-6058 and remain committed to our goal of providing a differentiated therapeutic option for people living with sickle cell disease ."
April Company Presentation
Further bad news followed when the company's Chief Medical Officer resigned from the company in early March which was followed by the departure of Fulcrum's CFO earlier this month.
Company Website
Outside of FTX-6058 has several pre-clinical programs in early stage development as well as a compound called Losmapimod. This candidate is a selective p38?/? mitogen activated protein kinase (MAPK) inhibitor that is targeting the treatment of Facioscapulohumeral muscular dystrophy, or FSHD. This is a rare, progressive and disabling disease that results in severe skeletal muscle weakness. There are no current approved treatments for this rare affliction. FSHD affects some 16,000 to 38,000 individuals in the U.S.
April 2022 Company Presentation
The company initiated a Phase 3 trial in June of last year and should have all 230 patients fully enrolled in this study sometime in the second half of this year. This approximate 48-week trial is intended to be registration enabling both in the U.S. and in ex-U.S. geographies. Fulcrum has achieved alignment with regulators in the U.S. and Europe on the primary endpoint for this trial 'REACH'.
April 2022 Company Presentation
Analyst Commentary & Balance Sheet
Four analyst firms including Stifel Nicolaus and Credit Suisse downgraded the stock to Sell/Hold following the trial setback in February. Price targets proffered ranged from $5 to $8 a share. Morgan Stanley maintained its Hold rating and $7 price target. Goldman Sachs ($9 price target), SVB Securities ($10 price target) and Oppenheimer ($20 price target) reissued their Buy/Outperform ratings on Fulcrum Therapeutics. Credit Suisse's analyst take on the clinical hold from the FDA is that is the government agency ' is focusing on the "risk-benefit within the broader SCD patient population and that this action will likely limit the patient population to the most severe cases .'
Approximately 16% of the outstanding float in the shares are currently held short. A beneficial owner added nearly $40 million to their stake in the company in December and January. That bet has not worked out to this point given the plunge in the shares since late February. A director also added just over $100,000 to his holdings in mid-January. Fulcrum ended FY2022 with just over $200 million in cash and marketable securities on its balance sheet and then raised approximately an additional $125 million via a secondary offering that priced at $13.00 a share in mid-January. The buying director and beneficial owner purchased approximately 1.93 million shares via that secondary offering it should be noted. The company has no long-term debt.
Fulcrum had a net loss of just under $110 million for FY2022. After the recent secondary offering, management has guided that they ' expect their cash, cash equivalents and marketable securities to fund our operating expenses into mid-2025, assuming a tiny resolution of the FTX-6058 clinical hold .' They are also ' optimistic there is a path forward to resolve the full clinical hold on FTX-6058 '
Verdict
It is understandable why the shares have plunged over the past two months. There has been a lot of bad news for investors to digest and myriad analyst downgrades. However, the stock now sells for far under the current net cash on the balance sheet.
Fulcrum also has one late-stage candidate that should have trial data out sometime in the second half of 2024 and the equity was seeing heavy insider buying from a beneficial owner before its recent setbacks. The clinical hold on FTX-6058 also could get resolved in the second half of this year. Given that ' sum of the parts ' story, I have taken a small position in FULC using covered call orders for addition downside protection.
Staying hopeful in the face of corruption is an act of defiance. "? Vanessa Osage
For further details see:
Fulcrum Therapeutics: Barrage Of Bad News In 2023 But Key Catalysts Remain