Finch Therapeutics Group, Inc. (FNCH): Realizing the Value of a Pioneering Microbiome Technology Portfolio

Published on September 24, 2024 | Ticker: FNCH

Finch Therapeutics Group, Inc. (FNCH) is a microbiome technology company with a portfolio of intellectual property and microbiome assets. The company's objectives are to realize the value of its intellectual property estate through licensing its technology to collaboration partners and enforcing its patent rights against infringing parties through intellectual property litigation.

In January 2023, the company announced the decision to wind down its development efforts and focus on realizing the value of its intellectual property estate and other assets. This strategic reprioritization has led the company to significantly scale back its expenses by liquidating certain assets, terminating vendor contracts, and reducing headcount. As a result, the company no longer expects to progress any product candidate through clinical trials or commercial approval, and it does not currently expect to generate any revenue from product sales.

Business Overview

Finch Therapeutics was formed in 2017 as a result of a merger and recapitalization of Finch Therapeutics, Inc. and Crestovo Holdings LLC. The company's portfolio includes a range of intellectual property and microbiome assets, including patents, patent applications, and know-how related to the exploitation of products manufactured directly from stool from a stool donor source without the use of culturing or replication.

The company's primary focus is on realizing the value of its intellectual property estate. This includes its licensing relationship with the University of Minnesota, pursuant to which the university is conducting multiple investigator-sponsored clinical trials using a microbiome product candidate comprised of compositions to which Finch holds an exclusive license. In addition to its clinical and pre-clinical assets, the company has developed a biorepository of samples and strains that can be used in a variety of research applications and may form the basis for future collaborations.

Financials

For the fiscal year ended December 31, 2023, Finch Therapeutics reported annual revenue of $107,000 and a net loss of $74,754,000. The company's annual operating cash flow and free cash flow were both -$31,505,000.

In the first quarter of 2024, the company reported no revenue and a net loss of $3,876,000. The company's cash and cash equivalents as of March 31, 2024 were $20,762,000, and it had restricted cash of $2,348,000, for a total of $23,110,000 in cash, cash equivalents, and restricted cash.

Liquidity

As of March 31, 2024, the company's unrestricted cash and cash equivalents were $20,762,000. The company believes that its existing cash on hand will enable it to fund its operating expenses and capital expenditure requirements into 2025. However, the company's anticipated cash expenditures and funding requirements are largely dependent upon the outcome of its ongoing litigation against Rebiotix, which is scheduled to go to trial in August 2024.

The company has concluded that there is substantial doubt regarding its ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued. This is due to the consideration of certain qualitative factors, including the company's recurring losses from operations incurred since inception, the expectation of continuing operating losses for the foreseeable future, and uncertainty around its ability to successfully realize the full value of its intellectual property estate and other assets.

Intellectual Property and Litigation

Finch Therapeutics owns a portfolio of intellectual property, including patents, patent applications, and know-how related to the exploitation of products manufactured directly from stool from a stool donor source without the use of culturing or replication. The company is currently engaged in a patent infringement lawsuit against Rebiotix Inc. and Ferring Pharmaceuticals Inc., which was filed in December 2021.

The lawsuit seeks a declaratory judgment of non-infringement and invalidity with respect to seven United States Patents owned by Finch Therapeutics. The company has filed counterclaims against Rebiotix for infringement of several of its patents, including the '107 Patent, the '702 Patent, and the '309 Patent. The company has also alleged infringement of additional patents, including the '406 Patent, the '413 Patent, the '080 Patent, and the '193 Patent.

The pending lawsuit is subject to inherent uncertainties, and the actual legal fees and costs will depend upon many unknown factors. The outcome of the pending lawsuit cannot be predicted with certainty. However, the company believes strongly in the value of its pioneering intellectual property portfolio and the merits of its current litigation activities relating to those assets.

Risks and Challenges

Finch Therapeutics faces several key risks and uncertainties, including:

1. Ability to Realize Value from Intellectual Property Estate: The company may never succeed in realizing the value of its intellectual property estate and other assets, and even if it does, it may never generate revenue that is significant or large enough to achieve profitability.

2. Ongoing Litigation: The outcome of the company's patent infringement lawsuit against Rebiotix is uncertain, and the actual legal fees and costs associated with the litigation will depend on many unknown factors.

3. Ability to Obtain Funding: The company may be unable to raise additional funds or enter into other arrangements when needed or on favorable terms, which could lead to a decision to pursue a dissolution and liquidation.

4. Recurring Losses and Going Concern: The company has incurred significant operating losses since inception and expects to continue generating operating losses and negative operating cash flows for the foreseeable future. This raises substantial doubt about the company's ability to continue as a going concern.

Outlook

Finch Therapeutics does not currently expect to progress any product candidate through clinical trials or commercial approval, and it does not currently expect to generate any revenue from product sales. The company's revenue for the next several years, if any, will be derived from enforcement and out-licensing of its intellectual property estate.

The company continues to explore opportunities to realize the value of its intellectual property and microbiome assets through strategic partnerships and academic collaborations. However, the company's ability to successfully execute on this strategy and generate meaningful revenue remains uncertain.

Conclusion

Finch Therapeutics is a microbiome technology company with a pioneering intellectual property portfolio that it is seeking to monetize through licensing and litigation. The company has significantly scaled back its operations to focus on this objective, but it faces significant risks and uncertainties, including the outcome of its ongoing patent infringement lawsuit and its ability to obtain additional funding to support its activities.

While the company's intellectual property assets represent a potentially valuable asset, the path to realizing that value remains uncertain. Investors should carefully consider the risks and uncertainties facing the company before making any investment decisions.

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