Taking the Long View on TFF

This week my group had a Zoom call with TFF Pharma (TFFP). Over the past year TFF has become a very polarizing stock. There are those, like myself, who are enamored with the technology. In our minds, thin-film-freezing is a game changing drug delivery platform that is going to take this company to great heights sometime soon.

On the other side of the coin are those investors who are disappointed with the Company. They point to the lack of a signed deal with a major pharma partner and worry about the cash runway. Are these concerns valid? Sure they are, but are they reasons to sell the stock? I don’t think so.

When a stock go down everyone looks to poke holes in the company. The sky is falling and we’re all Chicken Littles. Look, if you’re concerned about where a stock is headed in the short term, I get it. The market has been painful.

But, if you’re focused on the long-term, it’s important to remember the reasons you invested and to focus on the company’s performance in achieving those goals. I own TFF for two reasons; because I think the internal drug programs are going to be sold for multiples of the current share price sometime within the next year, and the Company is currently working with over 50% of the world’s largest pharmaceutical companies.

It’s not that I’m not frustrated by the lack of a major partnership with upfront capital being signed so far. Like everyone else, the sooner the catalyst happens the happier I am. But, the bigger picture is so much greater than the timing of a deal or if they might need to dilute. The upside dwarfs those concerns.

This week TFF announced that they are opening another R&D facility, their biggest yet, in Austin, TX. Here’s what Dr. John Koleng, Vice President of Product Development and Manufacturing, had to say about this (highlights by yours truly)…

“The opening of our new Austin R&D facility represents an important evolution of TFF’s operations, reflecting growing demand for our Thin Film Freezing technology and product development services. The Austin facility will enable us to increase testing capacity so that we can run a larger number of feasibility studies, including a focus on biologics where demand has continued to grow. Additionally, as many of our partnered programs move to clinical evaluation, the ability to scale-up manufacturing in parallel becomes mission critical. We expect the new Austin facility will allow us to meet the current growing demand for Thin Film Freezing-based products.”

Okay, so we’re all frustrated with the lack of a deal being inked by now. However, the bigger picture about many deals transforming this platform technology into the leading process for delivering many non-water soluble drugs continues to get closer and closer.

Regarding the new facility, if financing was an issue, would the Company be spending more money on another facility? Or, would insiders have bought millions of dollars of stock recently? In my mind, the need to expand capacity is simply a huge endorsement of the technology.

Looking at Dr. Koleng’s comments, my key takeaway is his statement, “as many of our partnered programs move to clinical evaluation.” As of now, the only clinical programs at TFF are their internal program. From my conversations with CEO Mattes, it appears he is drawing the line in the sand that nothing moves into the clinic without a signed partnership agreement. Put those two things together and it looks like there’s going to be real progress on partnering in the very near future.

Meanwhile, my base case scenario, the sale of the internal programs, continues to play out. Both VORI and TAC are on pace to produce phase 2 results around the end of September. The data room for potential suitors is open and active. It’s not a stretch to think that, with the excellent data presented to date (and realize these current trials are open label), both drugs will be sold off in early 2023.

What could a sale look like? My guess is over $300M in payments for each drug, including a high seven figure (approaching $10M) upfront check and with additional royalties coming on top of the milestone payments. Either one of these would spark a big rally in TFF and demonstrate the value play.

But let’s not forget about UNION, who should be reaching a decision on Niclosamide soon. Glenn remains optimistic that UNION will exercise their option but, even if they don’t, believes there’s more upside in a competitive situation.

Cutting to the point, I own TFF because there’s tremendous value being created below the surface. It’s taken longer than hoped but, as I’ve mentioned regarding just about every drug company, things are taking longer than expected across the board in healthcare. When your upside is multiples on investment, I’m willing to sit tight.

At least, I’m willing to wait as long as the company’s technology continues to perform and the story remains intact. In the case of TFF, that’s truly appears to be the situation. Looking out a few years from now, Thin-Film-Freezing will likely be widely adopted and, when that happens, our patience will be well rewarded.

This week marks the end of my annual pilgrimage up to the hometown in Mass. The weather has actually been perfect and the highlight of the trip comes tomorrow night, which is when Zac Brown plays at Fenway Park. My happy space with my favorite band.

The celebration of summer, America and just all-around happiness that is Zac Brown means that I’m writing this newsletter on Thursday to get done before a crazy weekend makes it impossible to find a couple hours at the keyboard.

With that in mind, I’m recapping a week that has one day left but has truly been bad for markets. Inflation is rearing its ugly head and there isn’t much worse that could happen. Unless it’s a recession…with inflation. Stagflation certainly seems to be a possibility and that’s just not good for markets.

The end of Q2 saw a bear market rally. These are common and often sharp. Don’t fall for it; we have yet to see true capitulation. While I like the valuations and the action in my micro-cap universe, I do not want to be playing the overall market to rally just yet.

Instead I’m looking for the next coming of a “Taper Tantrum”. Until the markets fully realize the liquidity crunch coming from the FED’s actions, the water is not safe. Be careful out there.