Fresh Tracks Therapeutics, Inc. (OTC: FRTX), a clinical-stage pharmaceutical company, has found itself in a challenging situation as it navigates through a proposed dissolution and wind-down of its operations. After an extensive strategic review process, the company's board of directors has decided to seek shareholder approval for a plan of liquidation, marking a significant shift in the biotech's trajectory.
Business Overview
Fresh Tracks Therapeutics was founded in 2009 and has been primarily focused on the development of innovative prescription therapeutics, with a pipeline aimed at disrupting existing treatment paradigms for autoimmune, inflammatory, and other debilitating diseases. The company's lead development-stage asset was FRTX-2.00, a novel and potent DYRK1A inhibitor that demonstrated promising results in preclinical and early-stage clinical studies for conditions like atopic dermatitis and rheumatoid arthritis.
FRTX-2.00 is a potential first-in-class oral DYRK1A inhibitor designed to restore immune balance in patients with dysregulated immune systems. The compound is covered by a composition of matter patent issued in the U.S., Japan, China, and other key countries through at least 2038, subject to potential extensions, as well as additional pending patent applications.
In August 2021, Fresh Tracks acquired exclusive, worldwide rights to research, develop, and commercialize FRTX-2.00 and other next-generation kinase inhibitors through a license agreement with Voronoi Inc. This acquisition significantly expanded the company's pipeline and potential therapeutic reach. The agreement includes potential milestone payments of up to $211 million for the FRTX-2.00 program and up to $107.5 million for the next-generation kinase inhibitor platform, as well as tiered royalties on net sales.
Further bolstering its portfolio, in February 2022, Fresh Tracks in-licensed a portfolio of novel Stimulator of Interferon Genes (STING) inhibitor compounds from Carna Biosciences, Inc. The company's early-stage STING inhibitor candidate, FRTX-10.00, was a novel, potent, and orally bioavailable covalent STING inhibitor that specifically targeted the palmitoylation site of STING. This compound held promise for addressing autoimmune disorders and interferonopathies linked to excessive STING signaling. The agreement with Carna includes potential milestone payments of up to $258 million and tiered royalties on net sales.
In addition to its lead programs, Fresh Tracks acquired exclusive global rights to a cutting-edge platform of next-generation kinase inhibitors. This library of new chemical entities includes next-generation DYRK1 inhibitors, as well as molecules targeting other kinases such as Leucine-Rich Repeat Kinase 2 (LRRK2), CDC2-like kinase (CLK), and TTK protein kinase. Some of these drug candidates have the potential to cross the blood-brain barrier, presenting an opportunity to address neuroinflammatory conditions, while other peripherally acting novel kinase inhibitors could be developed for autoimmunity, inflammation, and oncology applications. The compounds from this platform are covered by pending U.S. and foreign patent applications.
Previously, Fresh Tracks had an agreement with Kaken Pharmaceutical Co., Ltd., granting Kaken exclusive rights to develop, manufacture, and commercialize the company's sofpironium bromide compound in Japan and certain other Asian countries. In 2020, Kaken received regulatory approval in Japan to market sofpironium bromide gel, 5% ECCLOCK for the treatment of primary axillary hyperhidrosis, resulting in Fresh Tracks recognizing royalty revenue from sales in Japan. However, in May 2022, the company sold the assets primarily related to sofpironium bromide, including the Kaken agreement, to Botanix.
Financial Overview
Financials and Liquidity
Fresh Tracks Therapeutics has struggled with mounting losses in recent years, reflecting the significant investments required for its clinical development programs. For the fiscal year ended December 31, 2022, the company reported a net loss of $21.10 million, compared to a net loss of $39.47 million in the prior year. This trend continued in the first nine months of 2023, with the company reporting a net loss of $4.50 million.
The company's annual revenue has fluctuated, reaching $6.94 million in 2022 and $8.01 million in the first nine months of 2023, primarily driven by contract revenue and royalty income. However, these revenues have not been sufficient to offset the company's substantial research and development expenses, which amounted to $14.04 million in 2022 and $3.18 million in the first nine months of 2023.
For the fiscal year 2022, Fresh Tracks reported annual operating cash flow of -$19.34 million and annual free cash flow of -$19.38 million. In the most recent quarter (Q3 2023), the company reported revenue of $0 million and a net loss of $1.24 million. There was no year-over-year growth, as the company discontinued all clinical and preclinical development programs in Q3 2023.
Fresh Tracks has historically financed its operations through the sale of common stock and warrants, as well as payments received under its various licensing and collaboration agreements. As of September 30, 2023, the company had $12.02 million in cash and cash equivalents, providing a limited runway to support its ongoing operations and wind-down efforts. The company did not have any available credit lines.
In terms of liquidity ratios, Fresh Tracks reported a debt-to-equity ratio of 0, a current ratio of 6.98, and a quick ratio of 6.98 as of September 30, 2023. These ratios indicate that the company has a strong short-term liquidity position, with sufficient current assets to cover its current liabilities.
As of September 30, 2023, Fresh Tracks had an accumulated deficit of $170.93 million, reflecting the substantial losses incurred over its operating history.
Dissolution and the Path Forward
On September 18, 2023, Fresh Tracks Therapeutics announced that its board of directors had unanimously approved a plan of dissolution, subject to shareholder approval. This decision came after an extensive strategic review process, which included four unsuccessful attempts to find a merger or reverse merger partner due to the potential acquirers' inability to secure necessary financing or offer adequate value.
The company has already discontinued all clinical and preclinical development programs and terminated most of its employees, except for a core team that will oversee the dissolution and wind-down process. Fresh Tracks plans to hold a special meeting of shareholders on November 16, 2023, to seek approval for the proposed dissolution and liquidation plan.
If approved, the company intends to distribute all remaining cash to its shareholders over time, subject to the establishment of appropriate reserves to address any outstanding liabilities and obligations. The timeline and amount of these distributions, however, remain uncertain and will depend on various factors, including the resolution of any pending claims or litigation, the costs associated with the wind-down process, and the company's ability to monetize its remaining assets, such as its intellectual property and data packages.
Risks and Challenges
The proposed dissolution and wind-down of Fresh Tracks Therapeutics are not without risks and challenges. The company's ability to successfully navigate this process and maximize value for its shareholders is subject to several key factors:
1. Timing and approval of the dissolution plan The company's dissolution plan is contingent on shareholder approval, and any delays or failure to obtain such approval could significantly impact the timeline and outcome of the wind-down process.
2. Adequacy of cash reserves The company's ability to make timely and sufficient distributions to shareholders will depend on its ability to accurately estimate and provision for all outstanding liabilities and obligations, including potential legal claims or litigation.
3. Monetization of remaining assets The company's success in selling or licensing its remaining assets, such as its intellectual property and data packages, will directly affect the amount of cash available for distribution to shareholders.
4. Regulatory and legal complexities The dissolution and wind-down process may be subject to various regulatory and legal requirements, which could introduce additional costs and delays.
5. Potential claims and liabilities The company may face unforeseen claims or liabilities that could further reduce the funds available for distribution to shareholders.
Conclusion
Fresh Tracks Therapeutics finds itself at a critical juncture as it navigates the proposed dissolution and wind-down of its operations. The company's once-promising pipeline and strategic partnerships have been overshadowed by the challenges facing the biotech industry and the broader macroeconomic environment. While the decision to pursue dissolution may be a difficult one, it reflects the board's commitment to maximizing value for shareholders in the face of limited alternatives.
The path forward for Fresh Tracks Therapeutics is uncertain, and the successful execution of the dissolution plan will be crucial in determining the ultimate outcome for the company and its shareholders. Investors will need to closely monitor the company's progress and the resolution of any outstanding issues as the wind-down process unfolds. The company's ability to monetize its remaining assets, including its intellectual property portfolio and data packages, will play a significant role in determining the final value returned to shareholders.
As Fresh Tracks Therapeutics transitions from a clinical-stage pharmaceutical company to a dissolving entity, it serves as a reminder of the inherent risks and challenges in the biotech industry. The company's journey highlights the importance of strategic planning, financial management, and adaptability in an ever-changing market landscape. While the outcome of this dissolution process remains to be seen, it underscores the need for investors to carefully evaluate the risks and potential rewards associated with early-stage biopharmaceutical companies.