Finch Therapeutics Group, Inc. (FNCH) is a microbiome technology company with a portfolio of intellectual property and microbiome assets. The company has faced significant challenges in recent years, including the decision to wind down its clinical development efforts and focus on realizing the value of its intellectual property estate. Despite these setbacks, Finch remains committed to leveraging its pioneering intellectual property portfolio and pursuing strategic partnerships and legal actions to unlock the potential of its assets.
Business Overview and History Finch Therapeutics Group, Inc. was incorporated in 2017 as a result of the merger and recapitalization of Finch Therapeutics, Inc. and Crestovo Holdings LLC. The newly formed company, FTG, was created to combine the former owners' equivalent stakes in the two legacy companies. Finch Therapeutics and Finch Holdings (the former Crestovo) became wholly owned subsidiaries of FTG. The company was formed with the goal of developing innovative microbiome-based therapies to address a wide range of diseases. In the early years, Finch made significant investments in research and development, dedicating substantial resources to advancing its product pipeline. This included progressing certain product candidates, such as CP101 for recurrent C. difficile infection, through clinical trials.
However, in January 2023, the company announced a strategic shift, deciding to wind down its clinical development efforts and instead focus on realizing the value of its intellectual property estate. This decision was driven by the company's recurring losses from operations, the expectation of continuing operating losses, and uncertainty around its ability to successfully progress any product candidate through clinical trials and commercial approval.
As part of the strategic reprioritization, Finch has scaled back its expenses, liquidating certain assets, terminating vendor contracts, and reducing headcount to a single full-time employee. The company now concentrates its efforts on enforcing its patent rights against infringing parties through intellectual property litigation and exploring opportunities to license its technology to collaboration partners.
Financial Performance and Liquidity Financials Finch's financial performance has been significantly impacted by the company's strategic shift. For the year ended December 31, 2023, Finch reported total revenue of $107,000, a substantial decrease from the $861,000 generated in the prior year. The company's net loss for the period was $74.75 million, compared to a net loss of $114.65 million in 2022. Operating cash flow and free cash flow for 2023 were both negative $31.51 million.
For the most recent quarter (Q2 2024), Finch reported no revenue, compared to no revenue in Q2 2023. The net loss for Q2 2024 was $4.83 million, with operating cash flow and free cash flow both at negative $4.73 million. The company does not report financials by geographic market, as it is a small cap company focused primarily in the US.
Liquidity As of June 30, 2024, Finch had $16.04 million in unrestricted cash and cash equivalents, a significant decrease from the $25.12 million it had at the end of 2023. The company's current liabilities stood at $4.46 million, while its non-current liabilities, primarily consisting of operating lease liabilities, amounted to $26.89 million.
Finch's liquidity position is further characterized by a debt-to-equity ratio of 0, a current ratio of 3.87, and a quick ratio of 3.87 as of June 30, 2024. The company has not disclosed any available credit lines.
While Finch's management believes that its existing cash and cash equivalents will enable the company to fund its operating expenses and capital expenditure requirements into 2025, this projection is largely dependent on the outcome of the company's ongoing litigation against Rebiotix. Finch has raised concerns about its ability to continue as a going concern, citing the significant uncertainty around its ability to successfully realize the value of its intellectual property estate and other assets.
Intellectual Property Litigation A key focus for Finch in recent years has been the enforcement of its patent rights through intellectual property litigation. On December 1, 2021, Rebiotix Inc. and Ferring Pharmaceuticals Inc. filed a complaint against Finch in the U.S. District Court for the District of Delaware, seeking a declaratory judgment of non-infringement and invalidity with respect to seven patents owned by Finch.
Finch responded by filing counterclaims against Rebiotix for infringement of its patents, and the case has since expanded to include additional patents owned by Finch and the University of Minnesota, which are exclusively licensed to the company. The trial in this ongoing litigation is currently scheduled to begin on August 5, 2024.
The outcome of this legal battle is critical to Finch's future, as the company seeks to realize the value of its intellectual property estate. A favorable ruling could provide the company with significant damages and ongoing royalties, potentially bolstering its financial position and enabling it to explore new strategic opportunities.
Challenges and Risks Finch's decision to shift its focus to realizing the value of its intellectual property estate has been met with several challenges and risks. The company's delisting from the Nasdaq Global Select Market in May 2024 has raised concerns about the liquidity and trading of its common stock, as well as its ability to attract new investors.
In February 2024, Nasdaq notified Finch that it believes the company is a "public shell" due to the strategic reprioritization and intended to delist the company's shares. Finch appealed this decision, but the appeal was ultimately rejected in May 2024. As a result, Finch's shares began trading over-the-counter in late May 2024.
Additionally, the company's reliance on the success of its ongoing litigation against Rebiotix introduces significant uncertainty into its financial projections and long-term viability. A negative outcome in the legal proceedings could severely impact Finch's ability to generate revenue from its intellectual property assets and jeopardize its future as a going concern.
Finch also faces the challenge of effectively monetizing its intellectual property portfolio through licensing agreements and partnerships. The company's ability to negotiate favorable terms and secure collaborations that unlock the full value of its assets will be crucial to its future success.
Guidance and Outlook Finch has not provided any formal guidance or financial outlook for the future, as the company's focus has shifted away from product development and toward realizing the value of its intellectual property. The company's success will largely depend on the outcome of its ongoing litigation and its ability to secure lucrative licensing agreements or other strategic partnerships.
Finch expects that any revenue over the next several years, if any, will be derived from enforcement and out-licensing of its IP estate. The company's operating expenses have significantly decreased due to its strategic shift, with operating expenses for the six months ended June 30, 2024, at $11.31 million, down from $75.77 million in the prior year period.
Investors should closely monitor Finch's progress in the Rebiotix lawsuit and any updates on the company's efforts to monetize its intellectual property. The company's ability to generate meaningful revenue from its assets will be a key indicator of its long-term viability and potential for shareholder value creation.
Conclusion Finch Therapeutics Group, Inc. (FNCH) has faced significant challenges in recent years, but the company remains committed to unlocking the value of its intellectual property portfolio. While the company's decision to shift its focus has introduced substantial uncertainty, Finch's pioneering microbiome technology and its ongoing legal battles against Rebiotix present a compelling investment opportunity for those willing to navigate the risks.
The company's financial performance reflects its strategic shift, with significantly reduced revenue and operating expenses. Finch's liquidity position, while improved from previous years, remains a concern as the company continues to operate at a loss. The outcome of the Rebiotix litigation and Finch's ability to monetize its IP assets will be crucial in determining the company's future viability and potential for shareholder value creation.
Investors should carefully consider the risks associated with Finch's current situation, including its delisting from Nasdaq, ongoing litigation, and the uncertainty surrounding its ability to generate revenue from its intellectual property. However, for those who believe in the potential of Finch's microbiome technology and IP portfolio, the current challenges may present an opportunity to invest in a company with significant upside potential if it successfully navigates its current obstacles.