Fresh Tracks Therapeutics, Inc. (NASDAQ:FRTX) is a clinical-stage pharmaceutical company that has recently announced a proposed plan of liquidation and dissolution (the "Plan of Dissolution") after an extensive strategic alternatives review process. The company's Board of Directors unanimously approved the Dissolution and the Plan of Dissolution, subject to shareholder approval, as the best path forward to maximize shareholder value.
Business Overview
Historically, Fresh Tracks Therapeutics was focused on developing innovative and differentiated prescription therapeutics to transform patient lives. The company's pipeline aimed to disrupt existing treatment paradigms and featured several new chemical entities that inhibit novel targets with first-in-class potential for autoimmune, inflammatory, and other debilitating diseases. This included FRTX-02, a DYRK1A inhibitor for the treatment of certain autoimmune and inflammatory diseases, FRTX-10, a preclinical-stage Stimulator of Interferon Genes (STING) inhibitor candidate, and a platform of next-generation kinase inhibitors.
In September 2023, the company announced that after conducting an extensive, months-long strategic alternatives review process, including four unsuccessful attempts to find a merger or reverse merger partner, the Board unanimously approved the Dissolution and the Plan of Dissolution, subject to shareholder approval. The company plans to hold a special meeting of stockholders on November 16, 2023 to seek approval for the Dissolution and the Plan of Dissolution.
Financials
For the full year 2022, Fresh Tracks Therapeutics reported annual revenue of $8.0 million, an annual net loss of $5.7 million, annual operating cash flow of -$4.3 million, and annual free cash flow of -$4.3 million.
In the third quarter of 2023, the company recognized $7.9 million in contract revenue related to the buyout of post-closing payment obligations under its asset purchase agreement with Botanix. This contributed to the company reporting net income of $2.1 million for the third quarter of 2023, compared to a net loss of $6.0 million in the prior year period.
For the first nine months of 2023, Fresh Tracks Therapeutics reported revenue of $8.0 million, a net loss of $4.5 million, operating cash flow of -$3.2 million, and free cash flow of -$3.2 million.
The company's cash and cash equivalents balance as of September 30, 2023 was $12.0 million.
Fresh Tracks Therapeutics' current ratio as of September 30, 2023 was 6.98, indicating a strong short-term liquidity position. However, the company's net profit margin was -70.0% for the first nine months of 2023, reflecting the significant losses incurred during this period.
The company's return on assets and return on equity were -49.0% and -58.0%, respectively, as of September 30, 2023, indicating a poor utilization of assets and capital. Additionally, the company's price-to-book ratio of 0.52 suggests that the market is valuing the company's shares at a significant discount to its book value.
Dissolution and Plan of Dissolution
In connection with the Plan of Dissolution, effective October 2, 2023, Fresh Tracks Therapeutics discontinued all clinical and preclinical development programs and terminated most of its employees, except for certain employees, consultants, and advisors who will supervise or facilitate the dissolution and wind down of the company, if approved by shareholders.
If the Dissolution and the Plan of Dissolution are approved by shareholders, the company intends to distribute all remaining cash to shareholders over time. However, the timing, amount, and number of any such distributions are uncertain and will depend on various factors, including the ultimate amount and scope of the company's liabilities, operating costs, and amounts to be set aside for claims and obligations during the liquidation and winding-up process.
Risks and Challenges
The proposed Dissolution and Plan of Dissolution are subject to shareholder approval, and if not approved, the company may have limited alternatives available, such as seeking voluntary judicial dissolution or bankruptcy protection, which may not result in greater shareholder value than the proposed Plan of Dissolution.
Additionally, the company faces the risk of being delisted from the Nasdaq stock exchange prior to the Dissolution, which could make it more difficult for shareholders to dispose of their shares. The company has requested a hearing with the Nasdaq Hearings Panel to appeal the delisting determination, but there can be no assurance as to the outcome of this process.
Other key risks include the adequacy of the cash reserve to satisfy potential claims and obligations, the potential liability of shareholders to creditors if the reserve is insufficient, the loss of key personnel during the dissolution process, and the inability to find buyers for the company's remaining non-cash assets.
Liquidity
As of September 30, 2023, Fresh Tracks Therapeutics had $12.0 million in cash and cash equivalents. The company's management has concluded that substantial doubt exists about the company's ability to continue as a going concern for the next twelve months, given the implementation of the Plan of Dissolution.
Conclusion
Fresh Tracks Therapeutics' decision to pursue the Dissolution and the Plan of Dissolution comes after an extensive strategic review process and reflects the company's inability to find a viable alternative that would provide greater value to shareholders. While the timing, amount, and number of any distributions to shareholders are uncertain, the company's focus is now on maximizing the value of its remaining assets and efficiently winding down its operations. Shareholders will need to carefully consider the risks and uncertainties associated with the Dissolution before approving the plan at the upcoming special meeting.