Litigation: Multibagger Upside
This pitch was shared by JESQ.
The FNCH saga, previously covered on SSI here, is rapidly approaching a legal catalyst, and now presents a tremendous binary upside opportunity. The company, which has dwindled to a market cap of just $2-3 million, now, finally, has line of sight on a potential $50M+ patent infringement verdict in a matter of days. Liquidity is limited unfortunately, but accumulations of several thousand shares should be possible over the next week. Disclosure: I am long FNCH.
FNCH is now basically just a cash-and-IP shell (one employee!) that pays monthly lawyer invoices. But those lawyers are about to try to earn their keep. A five-day jury trial opens Monday August 5 in federal court in Delaware on FNCH’s patent infringement claims against Ferring Pharmaceuticals. Ferring markets and sells Rebyota for treatment of C. difficile infections, but FNCH alleges that Ferring essentially stole FNCH’s patented inventions on fecal biotherapeutics (some originally licensed from U. of Minnesota) to develop Rebyota, driving FNCH out of the business. After considerable narrowing, FNCH now asserts 5 claims on 3 patents.
In terms of potential recovery, FNCH’s damages expert will present testimony that FNCH should be awarded, essentially, a $50M license fee based on a comparable Nestle-Seres license for a similar drug, and a 30% running royalty on all Rebyota sales, past and future. Ferring worked like hell to toss FNCH’s expert, but the judge denied Ferring’s motion to exclude on July 30, so this damages testimony will go to the jury. That gives FNCH a puncher’s chance at a big award.
Obviously, anything can happen in a patent trial — including a settlement on the courthouse steps, or FNCH losing entirely. (Ferring has several defenses and gating items for FNCH to clear). But having navigated all the way to the doorstep of a jury trial — which is rarely easy for patent plaintiffs — FNCH appears to be in prime position, at long last. (I had my doubts along the way.) And obviously, any significant recovery for a company with just a $2-3M market cap means potential returns measured in multiples/baggers, as the company has no debt, no employees besides the CEO, and has largely subleased away its lease obligations.
Downside is *somewhat* protected only insofar as this: If FNCH loses the case entirely, it could be left with roughly $7-10M cash on hand at the end of August, based on some rough back-of-the-envelope calculations of lawyer, lease, and admin costs. (It had $20.8M COH as of 3/31/24). You’d think it would then admit defeat, sell off the IP (if it has any value), and return cash to shareholders. Of course, if they lose entirely, it could also decide to just spend down the remaining cash on further quixotic legal campaigns or appeals.
There’s plenty more of interest here, including (1) valuing a potential Rebyota royalty award based on public Ferring disclosures (not impressive, unfo), (2) the string of legal wins FNCH has notched in the case this summer, simplifying its path to an award, (3) sizing up the legal teams, and the judge, (4) what portion of the award FNCH would owe to U. of Minnesota (not public, but we can make some informed speculation), (5) conversely, potential award sweeteners, including a potential willfulness enhancement, interest, and fees, (6) possible secondary targets for an ongoing FNCH IP lit campaign if this one proves successful, (7) settlement potential, (8) the long slow slide of FNCH over the last year, and some guesses as to reasons for it, (9) recent insider buying, (10) liquidity issues, and what’s been my experience accumulating over the summer, (11) prior FNCH price spikes as the meme-stock people get ahold of it for 24h bouts, (12) a more precise COH estimate, (13) why, if FNCH has a shot at big award, why wouldn’t Ferring just buy the company for cheap?, (14) relatedly, my brief, quixotic, pointless exploration last year of trying to buy FNCH myself outright for its cash when the IP campaign seemed stuck in the mud (see the previous post on SSI), and (15) the current CEO and his IP background + incentive grants.
On (1), Ferring is not a public company, but it does disclose certain financials, most recently in its FY23 annual report here:
https://www.ferring.com/sdc_download/29539/?key=y11b665gzws6lm3djjp1mjqzztxrer
See pages 100-103 and in particular “Goodwill recognized on the acquisition of Rebiotix.” Ferring has written down the value of the the Rebyota franchise substantially since acquiring it, and it *seems* at the end of that graf to essentially do a NPV calculation on the Rebyota franchise, arriving at 45,327M EURO, or roughly $50M USD.
Now, on the one hand, that calculation is not total revenues but instead present value, which would seem to include capitalized development and manufacturing costs that wouldn’t necessarily count against a 30% FNCH royalty right, so the value of the royalty could be higher, should FNCH win it. On the other hand, the NPV includes worldwide sales (though only approved in U.S. so far), so maybe the value of the royalty should be adjusted down. Perhaps someone more versed in pharmaceutical accounting conventions could shed some light on what’s evident from the Ferring reporting?
More colloquially, it seems that analysts think competitor drug Vowst — which is administered in oral rather than enema form — and sold by Nestle/Seres, has better market potential. Ferring insists Rebyota has better clinical efficacy than Vowst but, perhaps not surprisingly, patients may prefer a pill to something up the ass. Nestle just announced in June it was buying out the rights to Vowst from collaborator (and developer) Seres for upfront payments and milestones estimated at ~$175M.
One more arcane datapoint: Ferring and Seres both recently applied for Medicare coverage for their drugs and received approval in a final rule containing extensive discussion about the drugs, available here:
https://www.federalregister.gov/documents/2023/08/28/2023-16252/medicare-program-hospital-inpatient-prospective-payment-systems-for-acute-care-hospitals-and-the
The document notes that Rebyota has a list price of $9,000 per patient and that Ferring “projected that 2,180 cases will involve the use of Rebyota in FY 2024.” (Seres projected only 448 cases). Whether that projection is worth the paper it’s (not) printed on, how much Ferring might collect from Medicare (and what the Medicare reimbursement rate actually is), and whether any of those numbers can be extrapolated to the U.S. commercial insurance market to refine Rebyota revenue forecasts — that’s all beyond my ken.
Bottom line: Plenty of speculation to do, but IF we just take Ferring’s NPV calculation of $50M for Rebyota at face value with no adjustments, a 30% royalty worth $16.7M currently would be a nice cherry on top of a $50M license fee, should FNCH collect. To be sure, FNCH’s damages expert has access to Ferring’s (sealed) sales and forecast data, and he’ll present all that to the jury to argue for his own final number for the value of any royalty. But those calculations are sealed for now, and may even be presented in a sealed courtroom during the trial to prevent them from being publicly released. All we’ll get at the end is (hopefully) a final big damages number on the verdict form.
JESQ, thank you for this pitch and additional comments . A couple of questions:
– Why did Ferring allow this patent lawsuit to proceed to jury trial instead of settling earlier (or as you suggest, just buy out the company)? Could it be a sign that Ferring is confident they will win in court and are unwilling to settle for anything?
– Leases – I am not sure if liability on the leases should be ignored. The subleases are only for 3 year terms and expire in 2025 (started at the end of 2022). Not clear if FNCH will be able to sublease these premises again at similar terms. Also from the disclosures in 10-K it seems that the current sub-lease income does not cover the rent expense fully – there is a deficiency of c. $1m annually. Rent for the main remaining lease stands at $4.5+/annually, so it might be quite costly to terminate if FNCH is not able to sublease it. The lease still has 6 years left on it.
– You mention ‘recent insider buying’ – could you shed some more light on this, I was not able to find any buys over the recent year.
– Regarding incentives – are you referring to option grants in Jun’23? Or is there something on top of this? The options have exercise price of c. $8/share (adjusted for the 1:30 reverse split) and do not seem to be a meaningful incentive (only 34k of options after reverse split) even if shares rise above the exercise price.
Do they disclose the locations of the remaining leases?
Maybe I can use my office expertise to assess the current desirability of those locations.
Does anyone have the link to the case?
Hi JESQ, thanks for the idea. I have a few newbie questions for you:
1) 5-day trial starts August 5th. Am I understanding correctly that this is more or less a “certain” short-term catalyst (either good or bad), in the sense that the jury will decide on verdict more or less immediately after trial (next Friday?), and we’ll have a win/loss answer with visibility on $ reward one week from now? Or is there a chance we have no visibility for a long time?
2) In a “loss” scenario where Finch loses at trial… What do we expect to be the probabily of Finch (a) returning net cash to shareholders vs (b) jerking around for a long time with other litigations and burning the cash?
Current or recent board members own total of 42%ish of company (largest is Chris Shumway, ex Tiger mgmt, with 26%), and one passive investor from pre-IPO with no board seats (Symbiosis) owns another 10%. Would these guys even care about returning a few millions in cash to shareholders? 3mm marketcap for 7-10mm net cash would obv be a great play here, but I have zero experience with busted pharmas and how these liquidate-or-burn-cash dynamics play out.
The case is 1:21-cv-01694 in the D. Del.
Docket docs are available from PACER or commercial docketing services. I particularly recommend #288 (filed 1/19/24), which is FNCH’s omnibus opposition to Ferring’s motions for summary adjudication and exclusion of FNCH expert witness testimony. It gives a good flavor of FNCH’s responses to Ferring’s best punches, and the FNCH story.
Sanchos,
On your (1): Yes, one way or another, we’re getting a verdict in the next week or two, unless the parties settle or something truly anomalous happens with unexpected judge/lawyer/witness unavailability sufficient to push the trial. That’s a high bar with trial starting tomorrow.
On (2): That’s the biggest question re: sizing up downside potential. There’s not much of “FNCH” left but, to the degree most of the board has been around from the beginning, I get the sense that they truly, sincerely believe that both (a) Ferring pushed them out of business and (b) they were pioneers in this space and everyone else is, to some degree, copying their early work. This could suggest jihad / blood vendetta tendencies.
On the other hand, if the court or jury rejects their best punch in terms of patent infringement claims, one would think it would be hard to justify soldiering on. The BOD still has fiduciary obligations after all.
I guess worst case would be the company loses and decides to appeal prior adverse rulings, which could easily take 18-24 months to resolve. And while appeals aren’t very expensive — less than $500k most likely — there would be further admin/lease burn and probably total lack of market interest in the stock. (Although hard to see how market interest could get any lower than current.)
Finally, I think your final point about insider holdings is quite valid. For the guys who put money in at a much higher valuation years ago, what is the difference between getting 3 cents back on the dollar versus 9 cents?
Re DT re insider buying: I’m thinking of Symbiosis, mentioned by Sanchos above, which upped its stake from 7.3% to 9.99% last December with 43,000 additional shares when the stock was trading around $4. Obviously not a significant chunk of change for these guys, but I thought it interesting that, in the “depths of winter”, they liked where things were headed enough to up their holdings to the 10% threshold.
Re DT re incentive awards to Blischak: Yes I’m referencing the June 23 options grant. I guess I was thinking the opposite of DT: That with the stock trading at around a $10-15M MC, for the incoming CEO to accept his whole incentive package struck at that price and with that number of grants, he must have concluded there was a chance for significant upside / multiples of return, else it’s not worth much at all. The guy has a strong IP lit background so I assume he did serious due diligence before accepting the position.
But I agree neither of the above are strong data points one way or another, more just “huh this is interesting.”
Re DT re lease: I agree. One bright spot is the $2.3M in restricted cash on the books, which is their security deposit on the lease. That’s presumably available to help pad any walk-away deal with the landlord, should one be pursued.
Re DT re: why Ferring hasn’t settled or bought FNCH. Most civil lit, including IP lit, settles. Trials are rare. So we’re already in a somewhat unusual situation, but some speculation:
— The period following summary judgment disposition is a common settlement point in U.S. civil litigation, but here the judge didn’t rule on those motions until last week, very late. Ferring’s MSJ would have cut the nuts off FNCH, so perhaps Ferring held out hope it could win through motion practice.
— Rebyota’s underperformance, discussed in my first comment, may have “converted” FNCH’s settlement demands into something wholly unreasonable to Ferring given current projections for the drug. The nice thing for FNCH is: its expert gets to argue a license fee award based on the old Seres-Nestle deal, meaning that damage number is untethered from current Rebyota revenues. (Obviously any royalty award would be a different matter). So between that and the potential jihad-tendencies of the FNCH BOD, Ferring and FNCH may just be too far apart on a number.
— As for buying FNCH, I assume they would have run into the same thing I did when I briefly explored it last year: With close to 50% insider ownership, it’s basically impossible to mount anything hostile to the BOD. And as Sanchos and I sort of discussed above, a stubborn BOD that has already lost millions in early capital may not give a s*** about selling a $3M company for $10M — it’s just pennies on the dollar to them either way. Better to gamble with a jury and try to shoot the moon.
Blischak was VP Intellectual Property at Roivant, an $8bn biotech, and previously general counsel of Global Specialty IP Litigation at Teva. At Teva he was lead in-house counsel who took a famous case in 2015 against Sandoz to US Supreme Court and won. Why would a 60-year old guy who worked for blue chip pharma companies and white shoe law firms his whole career join a busted nanocap? He gets paid $400,000 + a 40% “target bonus” + he was given 32,000 options with a $8.13 exercise price. The salary is nothing special and the options part is really low unless you make some aggressive assumptions. In order for him to earn a million dollars on the stock the settlement would have to be over $60 million.
The way the Rebiotix founder described the story in an interview shows at minimum there was a huge conflict of interest:
“I […] ended up at the University of Minnesota Office of Technology Commercialization, where I was looking for my next thing to do. They gave me a job in the Diabetes Institute, trying to develop cellular transplant therapies to cure Type 1 diabetes, but we couldn’t get that out of the pre-clinical animal stage, so I moved on. Someone in the Office of Technology Commercialization told me about fecal transplants, and I thought, “How stupid of an idea can that possibly be?” So I volunteered to help the university scientists see if it was a viable business.
At that time, it seemed no one knew anything about the microbiome, so I was trying to figure out how fecal transplants would be regulated, because my specialty was taking products from early stage through the clinic and into the market. Then, the scientists got funding and went somewhere else. But I decided that this was such a cool concept, and the more I learned about it, the more excited I got. First, I thought about making a more patient-friendly product that could replace the fecal transplant. I started thinking, “Wait a minute, it’s not like rocket science.” At least that’s what I thought at the time. “I can find my own scientists and do my own work.” So I found a partner who had looked at a similar opportunity a year before but couldn’t get it funded. The two of us formed a partnership, brought in a third partner who knew financing, and started Rebiotix in 2011.”
Baupost Group got wiped out in this stock and decided to sell out in Q1. Despite the position being immaterial Baupost has a disciplined culture so I’m sure they would at least have analyzed the situation.
What about the prospect for an appeal by Ferring should Finch prevail? Wouldn’t that delay a payout by an indeterminate period of time?
Absolutely, there is a difference between winning and collecting. And Ferring could very well decide to take an appeal and string things out. But with a jury verdict in hand, FNCH would likely have solid options for either monetizing or financing the rest of the legal process. It could “hunker down” and simply ride out the appeal with its own remaining COH — which might be a nice option if it could zero out the remaining lease liability. It could sell a portion of the award for immediate monetization, as TUSK did last year with SPCP Group on TUSK’s contingent Puerto Rico receivable that was stuck in the courts. FNCH could also insure some smaller portion of an award to guarantee at least some recovery, as APPN did last year with its $2B verdict against PEGA.
Lot of options with financial engineering IF it gets an award. But yes, all that would delay actual payout. At the very least, there will be post-trial motions. There is no check coming in the mail this week (unless they settle).
It’s a little arcane for investment purposes, but here’s a fun post by an IP blogger on the saga of turncoat inventor/witness Dr. Thomas Borody, who is the named inventor on some (not all) of the patents FNCH is asserting, and tried to essentially extort FNCH for witness testimony before THEN trying to change sides and appear as a witness/consultant for Ferring, which is just beyond shady. He’s a colorful guy even before this latest monkey business.
https://en.wikipedia.org/wiki/Thomas_Borody
https://ipde.com/blog/2024/08/02/to-say-that-the-court-is-troubled-by-the-occurrences-to-date-would-be-an-extreme-understatement/
The most relevant info for our purposes is that Ferring’s lead counsel (who is known as one of the sharpest IP litigators in the Bay Area, FWIW) pushed this funny business with Borody, got called out by the judge, and was forced to essentially surrender one of Ferring’ main defenses in shame (FNCH’s alleged lack of standing/ownership). This is one of the recent legal wins I was alluding to above, and the blogger summarizes it nicely (FNCH = plaintiff in the blog post). Two additional points:
The blogger doesn’t quite convey it, but the judge’s “oral order” is incredibly sharp language against Ferring’s counsel. The first half of that order is basically judge-speak for “Are you fucking kidding me?!” — which is never good for the judge to declare on the eve of trial.
Second, the blogger hints that this conduct alone might be sufficient for “§ 285 fees and enhanced damages” — meaning the judge’s discretion to award attorney fees in “exceptional” cases and/or multiple damages (up to trebling) with a jury willfullness finding. I wasn’t quite prepared to go that far myself, but I’m heartened this guy thinks so.
Day one of testimony concluded today, but unfortunately the minute order doesn’t reveal anything of substance.
Thanks for the updates, JESQ! They are much appreciated.
every time I think it’s too late, stock just goes up another 20%
On very small volume, shallow order book, and wide bid-ask spread. After all, the market up is just $4 million.
For patient capital, there could be better entry points after the trial.
FNCH filed a motion for judgment as a matter of law today at the conclusion of evidence, and so we finally have our total damages number and it is, as forecast above, underwhelming:
“No reasonable jury could find…that the required royalty is anything other than an upfront payment [of $50 million] and running royalty…less than 30%. UMN/Finch are accordingly entitled as a matter of law to $54.4 million in damages for Ferring’s infringing conduct from the date of first infringement to the present.”
Ferring was approved December 2022 so that’s about 18 months of sales totaling just $15M. The motion notes that at the time a license “should” have been negotiated, Ferring projected “that REBYOTA would generate over $2.1 billion in sales over the life of the patents.”
So obviously that’s a smaller number. On the other hand, it often takes time for these new drug sales to ramp up, especially in a brand new market like the “fecal microbiome,” so a running 30% royalty may yet prove at least relatively lucrative to FNCH, should the court eventually award one following positive jury findings. But there will not be some $100M+ headline tomorrow.
Do bear in mind though that a jury willfulness finding could entitle FNCH to enhanced damages (up to trebling, at the discretion of the judge), as well as attorney fees; interest could also be award on a pre-judgment and possibly post-judgment basis regardless of willfullness.
Closings are scheduled for tomorrow (Friday).
Could the trial end at anytime tmrw, or is there a schedule which must be followed? I’m asking in case it’s advisable to put in some (dreamy) offers in case FNCH whips higher – dare i say – temporarily.
It should go to the jury tomorrow, but there’s no set time for the jury to return a verdict. It could take them an hour, or a week. Almost certainly: something in between.
Aren’t you too busy campaigning to be looking at SSI?
Some more inside baseball, but FNCH filing a JMOL is…kind of funny. And weird. You usually see these (usually futile) motions from defendants at the end of evidence, far less frequently from plaintiffs. FNCH is essentially arguing that no reasonable jury could do anything but agree with FNCH on patent validity, infringement, and damages, and so the judge should take it out of the jury’s hands and just award FNCH everything, without even waiting for a verdict.
Now sadly I was unable to attend the trial, but I’m just going to say that that is…not going to happen. The chances of it happening are zero point zero. Maybe maybe maybe the judge might take invalidity away, but I doubt it.
So why file it?
Perhaps it’s a flex from FNCH, to show (on paper) just how much the evidence is stacked in FNCH’s favor (or so FNCH believes), so perhaps Ferring would really, really like to think about opening its checkbook before the jury gets back with a verdict?
More likely, it’s a kind of placeholder: The judge will likely take the JMOL under advisement, let the jury return a verdict, and then could *theoretically* overturn a verdict adverse to FNCH with a JMOL ruling in FNCH’s favor. The odds of that happening are not zero. More like 2%.
Perhaps FNCH senses that the the judge really, really doesn’t like Ferring (based in part on the conduct discussed in that blog post above), and so wants to preserve the option for the judge. Perhaps with a true bet-the-company situation, as this is, you might as well play your 3% card.
Perhaps any litigators on the board want to weigh in?
Anyway, it’s very likely not going to matter legally, but it is a good pretty read, if you want to see what the trial has come down to, and check out FNCH’s best arguments. Docket # 475.
THE VERDICT IS IN.
FNCH is awarded $25.8 million.
A running royalty on future Rebyota sales will be determined by the judge, but will likely be close to jury’s findings of approximately 5.5%.
BUT WAIT THERE’S MORE. The jury found willful infringement, which opens Ferring to enhanced or multiplied damages, at court’s discretion. I will try to write more on willfulness implication later.
Take a bow, JESQ!
JESQ, this trade will make a meaningful impact on my portfolio and I really appreciated your thoughtful and timely analysis throughout. Two questions for you:
(1) Do you have a Venmo? Would like to send some $ as a thank you.
(2) Do you cover legal special sits elsewhere? If not I’d be your first subscriber!
JESQ, I’d like to +1 on both (1) and (2). Congrats and thanks for the coverage!
huge congrats! sad I didn’t pull the trigger!
Do you know the split between Finch and UoM?
Always heartening to see great work pay off – congratulations!
Do you have a link to the confirmation of the award?
I am trying to fully understand the situation as this doesn’t seem ‘signed sealed and delivered’. To me, that means there is still a risk/reward scenario at play. Appeals could be forthcoming delaying the receipt of proceeds, there is mention of a portion of the award FNCH would owe to U. of Minnesota – any guesstimates here?
Then there are bigger questions, is it possible/probable they retain all the proceeds and perhaps pay themselves massive bonuses rather than return capital, or what if they use the proceeds commence research into a new drug?
Just focusing on the simplicity of the 25.8m award, and an after hours price on 9-Aug-24 of 4.49 implying a market cap of 7.21m (4.49 * 1.606m), it is technically trading at ~28% of the 25.8m award.
So the big picture question is, at ~4.49 is there still an opportunity with a large margin of safety still available, or has it been discounted appropriately given some of the risks (valid or not) I identified (and others I haven’t considered)?
Thanks for all your timely updates – they are really the key to many ideas posted on SSI. Without timely updates when material changes occur, unless those following are intimately familiar with the idea it really affects the risk/reward and conviction that can be attained.
https://www.reuters.com/legal/litigation/finch-wins-us-jury-trial-against-ferring-over-fecal-transplant-patents-2024-08-09/
Will try to answer some of these, but where’d you see an after hours quote? As a PINK stock, IB tells me it doesn’t trade after 4 ET, which has been my experience.
I agree with you that post-verdict is actually when the real fun begins and where bigger money can be made.
Pre-verdict, I doubt many were willing to bet more than a few percentage points of their portfolio on FNCH, because of the binary nature of the short-term outcome.
Now that we have a known verdict, we can start placing a number/rage on FNCH’s fair value and accordingly make bigger bets.
JESQ – congrats! This was fantastic coverage by you and really appreciate all the Q&A and the extended commentary you provided here. I also agree with user Ex Dividends sentiments regarding a tip jar for this kind of work!
Congratulations! Thank you for this gem. Terrific outcome.
Thanks for all the plaudits folks. To Ex Dividend, Sanchos, JoeytheKid, very generous, thank you, but no tip necessary. In the meantime, let me try to crank out some follow-up comments in the next hour or two on what’s ahead.
“ON NEXT WEEK’S EPISODE.”
What happens next in the Ferring litigation? The passage of time. The judge will set a briefing schedule for post-trial motions, probably a 75 or 90 day schedule.
FNCH will file a motion for enhanced damages, attorney fees, pre-judgment interest, post-judgment interest, and a running royalty — all chances to increase the final award. I’ll try to unpack those in the next comment.
Ferring meanwhile will file a motion for judgment as a matter of law and/or a new trial, arguing the evidence is so overwhelming against FNCH that the judge should reverse the verdict, or at least order a new trial. Ferring will also scrounge the trial record for any supposed errors by the judge (e.g., evidentiary rulings) that it can assert. Given the course of this litigation and the jury verdict, I highly doubt Ferring gets any traction on this. (I could also see FNCH renewing its own JMOL to try to reverse the two patent claims the jury invalidated, just to have an offensive weapon to point at Ferring in addition to $$$ enhancements.)
The judge will then typically set a hearing on the cross-motions, ideally by end of year. I could see a strong effort by the judge to wrap this up by the holidays, but it could also be early 2025 before we see a decision on post-trial motions.
After that, Ferring could appeal to the federal circuit, a process that would likely take 12-18 months to resolve. But they’ll need to post a bond to prevent execution of judgment. Given Ferring’s size, I don’t think collectability is an issue.
That’s a long timeline, but note several things working in FNCH’s favor:
— This could be mooted by settlement at any time, which is not usual in these situations. And given the different shots on goal that FNCH has to increase the final $$$ award big-time, Ferring may want to avoid that risk.
— Legal fees for FNCH will decline dramatically, probably < $100k a month. It's just not very expensive, relative to trial, to do post-trial and appellate briefing. (I know this, sadly, as a former appellate lawyer: we're cheap all things considered).
— Relatedly, post-judgment interest on the entire award will begin accruing at around 5% (the T-Bill rate), making it a tougher financial call for Ferring to drag things out on a long-shot appeal, versus the zero-interest environment of a few years ago.
“NICE NUMBER YOU GOT. LET’S MAKE IT BIGGER.”
How might the jury’s verdict of $25.8M increase through post-trial practice? The willfulness finding by the jury is a skeleton key that helps (but does not guarantee) a bigger recovery. In descending order of likelihood:
— Post-judgment interest: FNCH is entitled to this by statute, set at the 1-year Treasury rate, beginning on entry of final judgment following post-trial motions, and inclusive of the full award (i.e., any enhanced damages and pre-judgment interest). So roughly 5% a year at current rates. As noted in the above comment, this is helpful for NPV calculations and making it tougher for Ferring to drag things out.
— Pre-judgment interest: This is nearly always awarded, typically at prime compounded quarterly (though Ferring will probably argue for a lower rate), that runs from first infringement (December 2022) to entry of judgment. I found a recent motion in a patent case laying out the calculation, so just borrowing that and doing a rough back-of-envelope calculation, and assuming entry of judgment at year end, I get that the $25.8M verdict should really be thought of as a $29.6M verdict today, given pre-judgment interest.
— Running royalty on future infringing Rebyota sales: FNCH is pretty much entitled to this too, though the rate is up to the court’s discretion, and the court can award a higher royalty than the jury found, and sometimes does, but the starting point is basically the jury’s calculation, which here is 5.5%. See above discussion for that this might be worth.
— Attorney fees and enhanced damages: The court has the discretion to award FNCH reasonable attorney fees in “exceptional” cases and enhanced damages (up to trebling) in “egregious” cases. There are long multi-part tests for each set forth by the Supreme Court and refined by the Federal Circuit, and I don’t want to get into those. The standards are a bit different for each, but suffice it to summarize like this: the jury’s “willfulness” finding is quite helpful (but not totally sufficient) in getting to exceptional/fees and egregious/enhanced. I get the impression the “fee test” is weighted a little more toward counsel conduct, and “enhanced damages” toward underlying infringer behavior, but the tests tend to be kind of overlapping in practice.
I will say this: The funny business with the Borody witness + the evidence of Ferring copying and access with its people + willfulness…may be enough to get FNCH over the hump on both. (Or the judge could award one and not the another.)
What are baseline estimates on all this? I found a write-up from last year that found that, among recent cases with a willfulness finding, 55% resulted in enhanced damages, with an average damages multiplier of 2.2. Courts tripled damages in 40% of cases with some enhancement. (Delaware seems to be a bit lower, but Judge Hall is a new judge so may not yet have imbued that “district tendency.”)
In other words, FNCH would seem, just based on the above statistics, to have a solid shot at turning the $25M award into at least a $50M award on damages, maybe even $75M.
How about attorney fees? Based on the reporting in the Qs and Ks for professional fees and the detail provided specifically on legal fees, some assumptions and experience on what this kind of thing cost, some of the accrual numbers, I’m guessing FNCH’s total spend on this case is about $25-$30M. If they win attorney fees though, they don’t just submit the bills for reimbursement; the court estimates a “reasonable fee” based on a whole bunch of factors not terribly pertinent here, so best to assume some kind of modest haircut to the final number.
I hope this overview helps. I cannot and will not provide odds on any of this, but suffice to note: there is a reasonable path for FNCH to an enhanced total award — perhaps maybe even multiples when all is said and done, but there’s a lot left to litigate before that happens.
Obligatory disclosure on all commentary: I am not a current practicing lawyer, am not currently licensed to practice law, nothing I have written is legal advice, and you should consult your own attorney for any legal advice.
You’re much better! But my own pedantic attorney said that was a disclaimer, not disclosure.
“I WANT YOU TO KILL EVERY GOPHER ON THE COURSE.”
What about U of Minnesota? One of the three patents the jury found infringed is licensed from UMN.
The license agreement is attached to the last 10-K as Exhibit 10.3, but unfortunately the amounts owed to UNM on any enforcement litigation are redacted (see Section 8.3), and FNCH doesn’t disclose it on the Qs and Ks as far as I can find.
But note that the license agreement provides, “any recovery shall be first used to reimburse the party initiating the Enforcement Litigation for its actual fees, costs, and expenses incurred in the Enforcement Litigation.” That’s key. That likely means FNCH first gets its legal spend back, which, as discussed above, I estimate at $25-30M. That would pretty much protect the current award, before any potential enhancement.
Beyond that, note as well that 2 of the 3 infringing patents are not UNM patents, and I believe the FNCH damages expert did some apportionment between the UNM and Borody patent families, which might in turn mean that between half and two-thirds of any FNCH award is further “protected” from sharing with UNM.
Now, browsing around Google, I did find a *model* UNM patent licensing agreement that provides for an even split between the licensor and UNM for any enforcement recovery. I guess that’s typical in these situations. But who knows what FNCH actually negotiated.
Bottom line: This is a Rumsfeldian “known unknown” for now, but between the FNCH right to first recover its legal fees, and likely apportionment between UNM and non-UNM infringing patents, I would think the current award is basically well-protected, and UNM sharing will only start to really matter if FNCH is able to get a 2-3x enhanced award. But that’s just speculation.
Love the Caddyshack reference. Lucky for Ferring that Judge Smails was not presiding over the trial last week. He would have sent them all to the gas chamber!
“WHAT ELSE YOU GOT?”
Finally, what might FNCH ex-Ferring be worth? Not sure but:
— As mentioned above, I think they probably have $7-$10M COH today, based on guesstimated legal spend. Note though the lease obligation discussed above.
— They got 113 patents covering “microbiome therapeutics in a range of potential indications,” including U.S. and foreign patents.
— They’re still doing some investigatory clinical work with UNM, specifically on evaluating their old CP101 product candidate for ulcerative colitis, per the Q and a 4/18/23 PR.
— Looming large is Seres/Nestle and its oral microbiome drug Vowst, which unlike Rebyota, DOES seem to be doing big numbers, at least based on recent transactions. Are they a legitimate target for an infringement suit? I don’t know. Certainly I’ve seen nothing about Seres copying/access the way we had with Ferring. On the other hand, both Vowst and CP101 are orally administered — unlike the enema treatment of Rebyota. Does the similar oral administration of the Seres and FNCH drugs get FNCH a little closer to an infringement suit? Maybe!
Bottom line: FNCH does have some other stuff in the hopper, but not so easily valued or monetized.
Re: Ex Dividend “Do you cover legal special sits elsewhere? If not I’d be your first subscriber!”
I appreciate that. I do about 20-30 trades a year, focused almost exclusively on legal special situations (with some occasional non-legal, SSI-driven dabbling).
I’ve thought about a newsletter or Substack for a couple years, and I’m heartened to see folks like Valorem Legal Research make a go for it, and I know Mr. Chris DeMuth Jr (commenter above) has done some excellent work in the area too, so I know there’s a niche where maybe I can contribute.
If I pull the trigger, I’ll let folks know here, if DT’s cool with that. Thanks again.
That’s very gracious of you not to accept any tips, JESQ! But yes, I’d gladly fork out a few hundred bucks per year for this type of analysis on Substack or somewhere else. Totally understand if you’d rather manage your personal account in peace and not have to deal with subscribers, though!
Hey JESQ, thanks for the idea with this awesom outcome! Are you following the PALT vs. Cisco case? Would love to hear your thoughts on it!
OK so you probably won’t believe me, but swear to God swear to God this was the literal entry on my personal notes on PALT last week:
“8/22/24: Eh, I don’t like it. $40M MC and expectation of win. Just one patent. No willfulness. Multiple invalidity defenses. Asking for $120M. What happens if they get just half that? So watch but no action.”
Feel like I need an investment heat check here, just total swing for the fences. [Proceeds to lose all of 2024 gains].
You were again spot on! I managed to exit without a loss (my entry price was mid 3s), but I still dont get the sp action on Friday after the veredict. This would give them some leverage to go after other big companies that have infringed too.
Happy to hear more thoughts on that or any other case you are following..;)
“WHAT DOES $FNCH OPEN AT AND SETTLE AT THIS WEEK???”
You tell me folks! I’m tired. JESQ out.
At 10:20am, settling ~$8. Range ~$8-10 regular trading, 133k shares. Premarket traded 16k shares, mostly $7-9, beginning with 30sh at $5, and 2k sh at $4.18 (quite a steal!) at exactly 8am.
So, there is premarketing trading even with OTC stocks. I guess it depends if any market makers are willing to trade, and using a broker who’s willing to use those market makers.
+300% gain in a week – hands down the best performing pitch on SSI.
JESQ – congrats on a great call.
Seems like FNCH still offers compelling risk/reward even after this morning’s move. As JESQ notes above, the potential for pre/post-judgment interest, a running royalty on future infringing Rebyota sales, attorney fees, and/or enhanced damages mean FNCH could end up with a much larger award than just $25M. At a current market cap of ~$15M, still looks to me like a cheap call option on some of these outcomes.
Yes I agree, and I was looking for $15 or $20. I’d also speculate it may take a week or more for the FNCH price to stabilize, especially if there’s some heavy hitters out there who want to now build a position with the still-somewhat-limited liquidity.
I would guess the biggest current caps on the stock besides just general unsophistication on the legal issues are (1) unsure what FNCH will do with the money if/when it receives it and (2) time value. If you add up my estimates on post-trial briefing, post-trial decision, and CAFC appeal, you’ll see that if Ferring drags it out, could be 2+ years to collection. Mitigating that somewhat is (1) the running 5% or so interest and (2) FNCH’s ability to monetize the judgment in the near-term, as discussed above, coupled with (3) Ferring’s possible desire to settle before they get tagged for more.
If you were representing Ferring, would you advise them to attempt to settle at this stage?
$15 or $20 as future value (e.g., two years from now) or present value? Thanks!
But you definitely see some bigger folks starting to enter the market versus just the nibbling pre-verdict. Like at 2:22 ET someone just lifted the offer for 8k or so shares at $9, a $72k buy-in.
What do you think Finch is worth if it’s unable to get enhanced damages and attorney fees?
Last year, the Federal Circuit affirmed 75% of the appeals taken up from final judgment in the district courts.
If we take that as the baseline and assume that (1) FNCH will wind down and distribute all eventual cash to SHs and (2) win no enhancements and (3) has $7M COH and (4) accruing post-judgment interest + actual interest on the COH is sufficient to net out administrative and lease costs + appellate costs, then with a current award of $28.6M (including pre-judgment interest accrued to date), you get a PV of:
(.75 * 28.6M) + 7M COH = $28.5 million, or $17.73 a share, plus whatever residual value you assign to the running Rebyota royalty and the FNCH patent estate.
Obviously we can quibble with all those assumptions, and perhaps a closer look at lease obligations and projected COH is called for in this hypo.
And that’s assuming the willfulness finding is worth nothing.
Have their $25-$30MM in estimated legal fees already been paid out / covered by them? Or is any substantial amount of it still due or paid out of the award?
Thanks so much for all your analysis on this!
As is customary in the U.S. legal system, FNCH has been paying its own lawyer bills as the litigation progresses. Hence the continual cash burn over the last two years. FNCH will now seek to recoup those fees from Ferring in a post-trial 35 U.S. Code § 285 motion for attorney fees.
The $25-30M is my estimate of total legal fees based on FNCH financial disclosures and a little bit of this and a little bit of that. FNCH has not explicitly disclosed its total legal spend to date.
Because FNCH may recoup only “reasonable” fees, it will NOT just submit all its invoices to the court — it will likely shave them a little to present a tighter case, and then the court, should it award them, will likely give a further modest haircut to the calculations. That’s just typical practice. I won’t speculate on what those final numbers might be.
Thanks! I wasn’t sure if they were financing this themselves or using something like a ligitation financing firm that takes a cut at the end.
So if Federal Circuit doesnt affirm in this instance, the stock might crater. I guess there is still risk FNCH gets nothing here?
IB and Degiro do not allow OTC purchases from Spain. I miss out on many opportunities like this :(
Hi JESQ, thanks so much! I owe you big time for this trade.
Re: “I do about 20-30 trades a year, focused almost exclusively on legal special situations”
Would you be willing to share any other companies you currently hold a position in?
Thank you.
Reminds me of that Dave Chappelle meme: “Y’all got any more of them multibaggers?”
I did not participate here, as I didn’t see an edge. I’m re-reading the idea, and I still don’t see it. Maybe I’ve just burned my hand on the patent litigation stove.
Could someone explain what the edge was here, if they believe there was one? Thanks in advance.
Not so much edge. It was asymmetric…in that the the Company’s cash balance exceeded its market cap (i.e., a downside “floor” of sorts).
Even if the Company only had a ~20% chance of winning (i.e., either the jury finding in favor; or settlement), it seemed like a positive IRR particularly for a less than < 1-month long trade.
That being said, I have no idea how much the share price would've declined if the Company had lost the jury trial…do others have thoughts (based on similar case studies?)
The lease liabilities made the cash floor unclear to me.
I’m reminded of Nanoco (NANO.L), which also appeared asymmetric but agreed to a less-than-expected settlement. Perhaps a key difference here was the high level of insider ownership.
I think part of what makes SSI so great is the active discussion in the comments section, especially with the author providing Q&A. A big part of developing conviction here for me were JESQ’s notes in his/her Aug 6th comment and providing the link to the ipde.com blog post. That bit of scuttlebutt made me think this trial was going the way of FNCH at much better than even odds. There was still the risk of a $0, but this name was already trading like it was going to lose the litigation in my opinion (based on the floor of value math; even accounting for the hole the lease might provide). So the risk/reward seemed great here. We have all the benefit of hindsight of course. And I am speaking as someone who pulled the trigger only 8 hours before the verdict. So I got lucky here as well.
Income tax on award ($25.8m now + any future awards)? Shielded by past losses?
10Q, 6-30-24:
https://archive.fast-edgar.com/20240813/AW2ZW222ZZ22A26Z25ZD2M42SRGPZK22Z36Q/
Thanks, JESQ, for all the hard work!
@JESQ
Any idea about the timeline for the judge awarding/not awarding enhanced damages?
I believe JESQ touches on this in his Aug. 11 comment. What happens next in the Ferring litigation? Basically the judge will set a briefing schedule for both sides to file post-trial motions, probably a 75 or 90 day schedule, after which she will render a judgment on enhanced damages/attorney fees/etc.
@JESQ you should launch a substack
It looks like the docket was updated with a few things including Ferring’s Motion for Reconsideration of the Court’s denial of Ferring’s original Motion for Summary Judgement. It is an interesting read (to the extent that fecal-focused litigation is interesting). Anyway, at first it seems quite “damning” but then seems more like a “hail-Mary” – plus have not heard Finch’s post-trial Motions yet. With that said, you could write everything I know about patent litigation on a single piece of two-ply. So if anyone has any thoughts on the aforementioned Motion and are willing to share that would be heroic!
Operating lease liabilities stands at $27M from a few days ago.
Anybody have any insights or clarity on this?
It’s been addressed by the OP, http://www.specialsituationinvestments.com/2024/08/guest-pitch-finch-therapeutics-group-fnch/#comment-21434
Sorry to be a little MIA, was on vacation. A couple thoughts and updates, partially in response to above comments.
— The judge sua sponte entered judgment for FNCH consistent with the jury verdict (#488). Sometimes the parties wrangle about the form of judgment, but here the judge just did it, which has the effect of denying Ferring’s “motion for reconsideration” without even waiting for briefing from FNCH. Ferring will renew all these arguments in formal post-trial motions of course, but it’s still a nice little judicial FU LOL to Ferring’s tactic.
— The new Q is out, and while I haven’t had a chance to read every word, I think my initial end-of-August COH estimate of $7-10M is proving correct, with some potential for the upside. The Q shows $16.04M COH as of 6/30/24, with accrued legal of $2.23M. That’s the June bill, I suspect. July, the month before trial, will be absolutely nuts, say $2.5-3M. August is trial, but the spigot largely shut off by August 9, though you’ve got the travel bills too, so let’s say $1-1.5M. That leaves cash somewhere between $9.3M and $10.8M at the end of the month, by my rough calculations.
— That’s a nice position, and then going forward you’ve got the slow cost of lease obligations net of sublease income ($1.89M cost in total for 2023, $1.31M through first 6 months of 2024, though that’s under the 2023 pace), post-trial legal work on Ferring (much, much smaller spend than trial costs), and then whatever or whoever FNCH is paying to consider/analyze/threaten other IP licensing or litigation targets. So they can almost certainly ride-out Ferring post-trial and appeal if they want. And they can work on licensing their IP to other players.
–What they can’t do, I don’t think, is mount another full-on lit campaign against a Seres/Nestle without some outside funding. But maybe getting some outside funding would be a nice win-win for everyone — preserve the cash, go after Seres/Nestle with someone else’s money , surrendering maybe 20-50% of any eventual upside. More fun for everyone. The jury verdict (partially) vindicates the strength of their IP, and may attract the attention of lit funders going forward. But this is all just deep, deep speculation.
— I would think NOLs would offset any income tax hit from any awards for foreseeable future, but I’m not a tax guy.
— Assuming no settlement, the course of the post-trial motions, and the possibility of adding multiples to the award in terms of enhanced damages plus attorney fees, will likely be the next big inflection point.
Pretty good overview from some IP lawyers in the microbiome space:
https://www.microbiometimes.com/ferring-v-finch-ripples-from-the-decision/
If I were a $500M hedge fund, I’d hire these guys for a $50k flat fee to analyze in depth the post-trial motions and assay the overall strength of FNCH’s patent estate. (And tell me what they conclude.)
The environment is looking tough for the sublease renewal: https://www.wsj.com/real-estate/this-once-hot-real-estate-type-is-now-being-offered-as-office-space-3fde02d4
Do we have a list of the properties FNCH leases?
Although FNCH is a life science company, all of the spaces they lease are not necessarily the type of properties purpose-built specifically for life science and which charge premium rents.
The sublease market in the Boston area is a buyers market, as I am ops mgr for a biotech in Boston, and we are slowly looking for new space – there are lots of deals out there – free rent for a year etc. lots of “very motivated” property owners. I new building in Somerville – they have broken ground but not started on the structure and they halted the project becuase they know they won’t be able to rent it. in 2022 when we moved – our realtor had a list of subleases – 7 properties and around 100,000 sq ft. now they have a list 8 pages long and 3 million sq ft.
From the last 10K, the location of the lease is:
100 Hood Park Drive Charlestown, Massachusetts 02129
BUILDING: That certain building designated as “100 Hood Park Drive” upon Exhibit A.
RENTABLE FLOOR AREA OF THE DEMISED PREMISES: Approximately 61,139 rentable square feet located on the second (2nd) floor of the Building.
TOTAL RENTABLE FLOOR AREA OF THE BUILDING: Approximately 110,729 rentable square feet, subject to addition following completion of the Landlord’s Expansion Project, if applicable.
Ferring and Finch filed their post-trial motions this afternoon. Nothing unexpected. Finch is asking for enhanced damages up to 3x the initial award, an ongoing royalty on Rebyota sales, pre- and post-judgment interest, and, eventually, attorneys fees and costs. Ferring, meanwhile, is renewing their motion for judgment as a matter of law.
@jesq Any updated thoughts on post trial timing going forward? Did these post trial motions came ahead of schedule, or no?
I’m not JESQ but the motions came in right on time. Here is the agreed-upon post trial briefing schedule: Cover Motion due 9/12/2024; Opening Briefs due 9/26/2024; Responsive Briefs due 10/30/2024; Reply Briefs due 11/21/2024.
I’m also not a lawyer but I imagine both sides will submit their briefs on the respective due dates to not give the other side the advantage of seeing their brief “early”.
JESQ – Would you care to connect and chat about FNCH? I wrote it up on my Substack before the trial in parallel to you; didn’t know anyone else was following :) My Twitter is @Mike10947310
Yeah, thanks, not on Twitter, but please ask DT to email me your email address if you like, and I’ll reach out.
Both sides agreed to extend the deadline for their opening briefs from 5pm to 9pm tonight. Turns out lawyers procrastinate just like we do.
Hi all- I have downloaded the briefs from both sides and have included links below. Hopefully people find them helpful.
Finch: https://drive.google.com/file/d/1gcUInVfMRKhe9472bqPgys3mNgE9I2g_/view?usp=sharing
Ferring: https://drive.google.com/file/d/1voQ7xt6R2hVzStUsSJwR8Cr0rxHRgpSL/view?usp=sharing
Do you have any opinions/thoughts after reading the briefs? Willful infringement sounds strong but I have NO idea given my close to 0 experience.
I have been backed up on other projects, but now that the initial round of briefs are in, I hope to share some further thoughts in the coming days. Thanks to Ex-D for saving us some PACER costs and clicking.
DT, why is this excluded from your list of active “quick pitch summaries”? You consider it “closed” after its run from $3 to $12? in early August? Thanks for starting the “quick pitch summaries”!
Yes, I am no longer following FNCH myself after the initial run to $12/share. I might add it back after JESQ shares some further thoughts on the current situation.
Having finally had a chance to review the initial post-trial briefing, I want to share some thoughts on where we are now. Since this is a sophisticated crowd, I’m not going to summarize the briefs, but rather share some things that caught my eye.
On the willfulness enhancement — reminder: FNCH is trying to triple the award — I thought FNCH wrote a very strong brief, particularly on (1) Ferring personnel access to and copying of UNM work and (2) the Borody witness saga, with Ferring’s shady-as-all-heck behavior. And though pieces of the story have been evident from prior docs and trial coverage, it’s helpful to see it all laid out. I think it presents a strong case for enhancement. A couple of eye-raisers I hadn’t seen written so clearly:
— After Rebiotix’s founder accessed the provisional patent application for FNCH’s ‘914 patent — while ostensibly serving as a ‘CEO in residence’ at UNM — she saved the data to a personal drive titled “newco ideas” (!!). I mean, JFC, hard to imagine something more blatant in terms of access and copying.
— Way before any litigation or even threatening letters had materialized, the Ferring buy-out agreement of Rebiotix required Rebiotix’s founders to personally indemnify Ferring for potential patent infringement of FNCH. Broad indemnification agreements are of course common in acquisitions, but to have a specific carve-out for a specific set of competitor patents — before anyone is even talking about suing! — strikes me as rather unusual and indicative of, shall we say, a guilty conscience.
— FNCH seems to have the goods on Ferring straight-up lying to the court at certain points in the Borody saga (discussed above), the kind of thing that might merit a bar referral. And all in service of, essentially, trying to pay off Borody to undermine the patents, then hide him, then spring him on FNCH at the last minute. It’s all a little crazy and would seem sufficient on its won for both enhancement and (eventually) attorney fees, as some other bloggers references above have noted.
To be sure, some of the other “enhancement factors” feels a little weaker (like adding and removing defenses late in lit), but note FNCH doesn’t have to hit all of the factors for a multiplier — even a single egregious one may be enough — and if FNCH can manage to check the boxes on all of them, that becomes a strong case for straight tripling, per their cited caselaw.
All in all, we’ll of course have to wait to see what Ferring comes back with in the oppo brief, but it reads to me like a strong opening salvo. More thoughts coming below.
On timing, briefing is due to be completed November 21. The FNCH judge, Jennifer Hall, actually has another IP case that went to trial a little ahead of FNCH, Sight Science v. Ivantis. There, verdict was in April, post-trial briefing completed end of August, and she just set a hearing for early December — although that case has s a little wrinkle that may have delayed things. If we assume a similar sort of schedule for us, we could see a FNCH hearing in the Feb-March timeframe.
What about settlement prospects? I actually think there’s a window here where we MIGHT see a settlement before the hearing, even as briefing is underway. And the reason is: the unique bad optics of the “willfulness” factors, as it’s finally laid out for Ferring by FNCH.
Basically, somewhere in the bowels of Ferring U.S. or European headquarters, there’s a general counsel or AGC trying to get his handle on this lit. He’s now a bit more skeptical of what his outside counsel at MoFo have been telling him, since they assured him all along that Ferring had a great chance at trial — before promptly getting their ass handed to them. Now this GC needs these same lawyers to evaluate the prospect of enhancement and attorney fees, but the lawyers are even more conflicted, since the very pre-trial and trial conduct that may lead to tripling implicates them specifically (and Rebiotix people of course). It’s a big principal-agent problem for the GC to get an accurate read on the situation.
But now FNCH lays it all out in one place, in one brief, with a shiny bow: all the bad acts by Rebiotix and MoFo. The Ferring GC can read it all for himself on the toilet.
So when MoFo assures this GC that they’ll beat back enhancement, does he quite believe them? Does he want to see the company dragged through the mud again, publicly, at a hearing that will center largely on these bad acts? Maybe a deal can be reached to avoid further unpleasantness? Maybe maybe. I’m not saying one will definitely happen — but there’s a possibility, given these dynamics.
Re: going-forward royalty damages: Although the jury came back with, essentially, a 5.5% royalty, FNCH cites caselaw to justify a 16.5% royalty, based on the willfulness finding and, basically, that FNCH is in a much-stronger position for a “hypothetical license” having proved infringement. That would be nice.
Also note that the brief (with a little math) discloses the current Rebyota revenue pace: $12M a year. Not a banger, but not nothing. Plus it’s still early in the deployment of the drug and, per the briefing, Ferring evidently has plans to expand the franchise/scope of Rebyota, which could get mighty interesting in the years ahead.
Ferring’s opening brief to throw out the verdict lays forward a number of technical patent arguments. One thing that struck me though is how many of them were previously raised and rejected in Ferring’s summary judgment and Daubert motions (all but one, as far as I can see). Now, when a judge denies a summary judgment motion, it’s generally because (in layman terms) there’s a conflict in the evidence that requires the jury to sort out, or there is no conflict but the movant is wrong on the law. Both of these put FNCH on solid ground now, because if the judge previously thought “this is for the jury” in resolving MSJ, it’s unlikely she would now conclude “actually the jury got it wrong.” And if she made conclusions of law, that’s very unlikely to change. (The substance of the MSJ rulings is unfortunately in a sealed transcript.)
Now, that doesn’t mean Ferring can’t win on the post-trial issues — it’s not a logical impossibility. JMOLs are of course occasionally (if sporadically) granted in patent cases. Maybe on some of these issues, FNCH suggested they had favorable evidence that never materialized at trial. Maybe trial testimony diverged from deposition testimony and expert reports (the basis for MSJ motions). There’s a host of reasons the Ferring motion may have a valid basis. Still, in the broader sense, the judge has seen almost all of these arguments and Ferring’s best evidence, and found it lacking. Which is nice.
Some final odds and ends:
— Per the briefing, pre-judgment interest comes to $3.8M, which is tacked onto the $25.8M verdict. Post-judgment interest is running at $1.17M a year, though that’s before any potential enhancement.
— I assumed Ferring’s post-verdict “motion for reconsideration” on the MSJ order would be folded into their post-trial JMOL motion, but in reviewing the reco motion now, I see it’s a Section 101/Alice invalidity argument, which is an issue of law for the judge, which means it’s not in the Ferring JMOL motion (and properly shouldn’t be). The civil procedure nerd in me *thinks* that entry of judgment necessarily mooted this motion, but the parties keep briefing it, so I don’t know. In any event, Ferring raises an issue the judge (necessarily) considered and rejected in the MSJ, so it’s a long shot.
— Per the post-trial schedule, attorney fee briefing is actually reserved until after an APPELLATE DECISION, which could be 2+ years off. I hope the market doesn’t lose sight of this (but fear it will), because, especially if FNCH wins enhancement, it would have excellent line-of-sight on a potential $20M+ attorney fee award — basically it’s current market cap! The tests are not identical, but are substantially overlapping, so an enhancement win would be strong ground for the fee motion. Does this augur in favor of early settlement, since FNCH, like the Terminator, will just keep COMING AND COMING at Ferring, for years on end? Maybe. It would be nice to see some resolution.
Delisting effective Oct 31. Already trading in OTC for months, wonder what delisting now means? News says it is possible for trading in OTC to totally stop.
https://finance.yahoo.com/news/finch-announces-delisting-nasdaq-sec-113000794.html
FNCH was already suspended on NASDAQ on May 28, which is why it is currently trading on OTC before delisting from NASDAQ.
However, as usual, similar to what happened in the week approaching the May suspension, there could be some panic selling in the following two weeks because some people will be scared.
” Following the delisting, the Company expects that the Common Stock will continue to be traded on a market operated by the OTC. No assurances can be provided, however, that trading of the Common Stock on the OTC will be maintained.”
If anyone is still following this case, let me know if you want to talk (my burner email is [email protected]). I’ve created a valuation model and would be curious to get feedback on some of the inputs. I’ll look to post responsive briefs once they are available on 10/30, similar to what I did for the opening briefs.
A few folks have requested to see my valuation model and a write-up of the assumptions behind it. Write-up and link to the model can be found below. The model was created in Excel so I’d recommend you download the file rather than reviewing it in Google Sheets. Note that the write-up assumes familiarity with the case, as detailed by JESQ and others above. I welcome any feedback you may have.
Write-up:
https://docs.google.com/document/d/11Ja3TNhPJkwBwEZV5-VQ3B_h1QsiNQSq/edit
Valuation model: https://docs.google.com/spreadsheets/d/17YyzHJkw1craNiJyJA0iWE_uyI6MgFq1/edit?usp=sharing&ouid=108080697553622198619&rtpof=true&sd=true
Fantastic effort, much obliged Sir. So assuming conservatively a 50c on the dollar valuation, when is the earliest one should expect a conclusion to proceedings? 2027? That’s 100% (conservative) upside over 4 years or a 25% CAGR?
Hi Surrealty–thanks for the kind feedback. If you assume that the market converges to your expectations over X number of years, you can calculate your implied annualized return as follows:
Annualized return=((Fair value*(1+cost of equity)^years before market adjusts)/current market cap)^(1/years before market adjusts)-1
In my valuation, I am calculating a probability-weighted fair value of $39MM for FNCH based off a 10% cost of equity. FNCH’s current market cap sits at $18.5MM. Assuming that it takes 3 years for the market to converge to my expectations, the annualized return over 3 years is 41%: ((39*(1+0.1)^3)/18.5)^(1/3)-1 = 0.41.
If you haven’t read it already, I would highly recommend Michael Mauboussin’s book, Expectations Investing. It touches on topics like this.
In the case of FNCH, the returns will be “pulled forward” because Judge Hall will render a judgment sometime over the coming months regarding enhanced damages and the Rebyota royalty (attorneys fees will be decided after an appeal). So the market will reprice given this information and the risk/reward will look quite different at that time. But in terms of an overall timeline, yes, I think it is fair to expect a conclusion by the end of 2027, given what JESQ has stated above.
Another way to calculate the expected return is to find a discount rate value that equalizes the NPV with the current market cap.
The Finch and Minnesota patents expire in 2031-2032, so using 2040 as the final timeline for calculating royalties does not add up.
Hi Giova123, perhaps JESQ can weigh in here, but it was my understanding that FNCH would be entitled to a royalty on all Rebyota sales regardless of when the FNCH/UMN patents expire, as Rebyota was developed illegally using FNCH/UMN IP and therefore all Rebyota sales would be “infringing”. I could easily be mistaken in this assumption, however, which is why I wanted to put all of my assumptions on the table! Thanks for the feedback!
That’s something the judge should have needed to say, but in general terms, in all the cases I have studied, infringement ends when the patent expires. I hope JESQ can weigh in, since he has been following the case very closely.
Just FYI: the parties agreed to extend the deadline for their answering briefs to November 4th, and the deadline for their reply briefs to November 26th (original deadline of November 21st).
should be an interesting month
Apologies for the delay, but here is a link to FNCH’s answering brief:
https://drive.google.com/file/d/1bCMVGmKHvjTAj9tsB0VuvSEFoOnq8Ayn/view?usp=sharing
Ferring’s answering brief has been sealed by the court, so I can’t include it here. If you’re having trouble falling asleep, just read FNCH’s brief and you’ll be asleep in no time. It’s dry and technical. Jokes aside, as JESQ notes above, many of Ferring’s requests have previously been denied earlier in the legal proceedings so they seem to me (a non-attorney observer) to be long shots.
If an answering brief is sealed, does it indicate anything material?
Here is a link to Ferring’s (redacted) answering brief:
https://drive.google.com/file/d/12pqMWbp75HzfvNIKfEnd59j-m_2XG2rO/view?usp=sharing
@mitalt89 I believe the sealed version of the brief just needed to be redacted before being disseminated publicly. As you’ll see, they don’t details about Rebyota sales to be public.
Got it. That makes sense.
So final briefs were in today. Was wondering if someone could shed some light on the following:
1. Any idea on how long the judges decision on enhanced damages might take from here?
2. Any reason on why Finch’s final reply brief was sealed when they hadn’t sealed any of their prior briefs?
Thank you!
Not sure about #2. But to your #1: Based on @JESQ on October 11 “On timing, briefing is due to be completed November 21. The FNCH judge, Jennifer Hall, actually has another IP case that went to trial a little ahead of FNCH, Sight Science v. Ivantis. There, verdict was in April, post-trial briefing completed end of August, and she just set a hearing for early December — although that case has s a little wrinkle that may have delayed things. If we assume a similar sort of schedule for us, we could see a FNCH hearing in the Feb-March timeframe.”
Hi Mike, I suspect FNCH’s reply brief was sealed because it contains some sensitive information about Rebyota sales, similar to why Ferring’s answering brief was initially sealed before being released in redacted form. I imagine that the FNCH reply brief will probably be redacted and released on a similar time frame.
Very helpful answers. Thanks to both!
Interesting that there’s a bit of institutional money now behind FNCH:
https://seekingalpha.com/article/4755567-finch-therapeutics-post-trial-decision-can-potentially-drive-stock-higher
The analysis seems reasonable — even a bit of [Leo-pointing-at-TV.meme]
That’s just me. I own a few million dollars worth in my small fund.
Thanks for continuing to shine a light on Finch. I was disappointed to learn that judges don’t announce a decision at the post-trial hearing. I assumed the whole point of waiting three months was to come to a decision. Can either of you shed light on what actually happens at the post-trial hearing and why it can take 2 weeks to two months from there on a decision on enhanced damages. The more this drags on the more I wish they would each just take a haircut and come to a settlement. Thanks!
Any update here? The stock as ticked higher lately, I think some might be re-entering in advance of the final order.
Still waiting on the judge to set a hearing on the post-trial motions.
expected timeline still feb-march?
Something happen today?!
News?
8K shares traded vs. 2K average. large volume for the name, but still small volume in absolute terms
I’m seeing 18k of volume now but still only $270k to your point.
Maybe someone put in a mkt order and got filled?
Bid is currently showing $14.05 for me though which is still 17% above the open though maybe that’s just some sort of algo (smarter folks than I can opine here)
Alternatively, does one take the also reasonable stance one takes when a stock moves down on no news that someone knows something?
was no market order. Someone was buying over the day. But I don’t consider it noteworthy, yet, probably someone who sold on the jury award getting back in.
There is some action on PacerMonitor. It looks like the judge orally denied a Ferring motion to amend. I assume this means the post-trial hearing has started??
Here are the two items that hit the docket in the past two days:
ORAL ORDER: Having reviewed Ferring’s Motion for Reconsideration (D.I. 485 ) and UMN/Finch’s Opposition thereto (D.I. 493 ), and the Court being unpersuaded that it made a clear error of law or fact, IT IS ORDERED that the motion is DENIED. Ferring’s Motion for Leave to File Reply in Support of Motion for Reconsideration (D.I. 495 ) is DENIED. Ordered by Judge Jennifer L. Hall on 3/6/2025. (twk) (Entered: 03/06/2025)
ORAL ORDER: Ferring’s motion to amend (D.I. 316 ) is denied, based on Ferring’s representation that it is now “moot.” (D.I. 511 at 21-22; see also D.I. 508 at 72-73, 75.) Ordered by Judge Jennifer L. Hall on 3/5/2025. (twk) (Entered: 03/05/2025)
These are positive developments for Finch, but I don’t see any indication of the post-trial hearing being scheduled. I imagine Judge Hall’s schedule must be very busy. Hopefully we get some clarity on that soon, and more visibility into when a final judgment would be entered.
Is it possible for final judgment is issued without hearings being held?
Anyone have thoughts on the letter filed by Ferring on March 17th?
What was the letter?
So I finally got my pacer account up and running and what this looks like (non-lawyer here) is that Ferring is asking the judge to re-reconsider judgment on matter of law because another judge in Delaware made a ruling / finding on how to interpret something in another case on Feb 24, 2025.
Seems crazy to me that one judge would consider what another judge has said, especially when they said it after they have already ruled, but this is a question for the lawyers.
That’s what I gathered too but also have no idea if the judge will serious consider the new ruling and if so, how applicable is this other ruling.
Are you referring to the March 17th JMOL request from Ferring? I think this is basically done as CYA as otherwise, Ferring’s lawyers wouldn’t have done all they can to have argued their case. I think it’s standard practice and has a near zero chance of hurting Finch. @JESQ would be curious your comments.
The new FNCH annual report for FY24 is out and available at: otcmarkets.com/stock/FNCH/disclosure
I’ve done a quick spin and noticed a few things.
The GOOD:
— They are still reporting at all, yay.
— Cash comes in at $10.26M as of 12/31/24, a pleasant bump from the $9.3M-$10.8 I forecast as of 8/31/24.
— In turn, the “we have sufficient cash to fund ourselves…” language has jumped from “12 months” in the August 2024 10Q to “through the first quarter of 2026.”
— They kept the lease/sublease gap to $748,000 in 2024 (i..e, net loss).
The BAD:
— No new licensing deals, collaborations, IP sales — nothing making use of the patents. I didn’t ascribe much value to the residual estate, but it’d be nice to see SOMETHING happening here. What does the CEO do all day?
The UNCLEAR:
— Lease issues are up in the air, as they expect $3.1M in sublease income in 2025 against $4.9M in lease obligations, for subleases that “expire in the second half of 2025.” I guess the subleases expire before year-end (or they would have said year-end), and that explains the delta. But in this challenging macroeconomic environment, what kind of new sublease terms can they ink? They have $2.3M in a security deposit that, presumably at some point, will help close the lease out.
— There is still no disclosure of the royalty arrangement with U. of Minnesota. But…maybe that’s a good thing by now? Like, at this point would they have to disclose significant obligations on the jury award? I don’t know. They do, for the first, time, disclose numbers on the UNM deal: ” Under the agreement with the University of Minnesota, the Company owes an annual minimum royalty that escalates each year ranging from $20 thousand in 2024 up to a maximum of $0.1 million in 2031 and thereafter.” Does “money received in litigating the patents” = “minimum royalty obligation”? Unclear without seeing the agreement.
All in all, I read the report as a modest positive. Anyone notice anything else?
I’ve seen some questions on the court case. TLDR: We are still waiting for the judge to act.
— The recent letters on the docket are standard procedure: as new district court decisions come down, a party will send in a letter arguing that the new case sheds light on this or that legal issue. Par for the course.
— I would expect the judge to set oral argument on the post-trial motions soon. It is *possible* for her to issue a decision w/o oral argument, though you typically see that from older judges “tired of lawyers and their bullshit.” She’s been an Article III judge for just over a year and has yet to issue any major post-trial decisions, let alone any w/o oral argument. I think a lot of judges believe it’s disrespectful to the lawyers to let them litigate a case to verdict for five years and then issue a dispositive post-trial order without so much as being heard…but it’s possible.
— The big completed-trial IP case that is “ahead” of FNCH on her docket just washed out of mediation without a settlement, and the parties in turn asked the judge to decide their post-trial motions. It may be that that case is first in line for the judge’s attention, but of course she’s under no obligation to do anything in any order.
>> “tired of lawyers and their bullshit.” May very well fit the bill with the judge and Ferring’s counsel though, right?
I should add, I had expected the court to set oral argument when there was a brief flurry of oral orders on the docket March 5-6, since chambers were doing some administrative clean-up and that would have been the natural time to set a hearing. The fact that the court didn’t schedule anything then, in my mind, raises a bit the odds of a post-trial decision without hearing, though I still think it’s unlikely.
a month later and still nothing, this is now officially “weird”, right?
Greetings to anyone still following this saga! If it’s ok with dt, I’d like to share some case documents that have been made public since the trial ended. The first one is the transcript of the pretrial conference held on July 31, 2024, concerning Ferring’s shenanigans with Dr. Borody. Link below:
https://drive.google.com/file/d/1EJwxUC5Bpruls8bHoOZOv5LEvJ2sMn9p/view
It’s a fun read compared to other case documents and really shows the extent to which Judge Hall was troubled by Ferring’s behavior. My favorite excerpt: “THE COURT: Just for purposes of the record, it is a normal occurrence to hear from a mentor, but I think we call agree that what has happened to date with respect to us sitting here today is not in any way normal.”
I asked ChatGPT to read the document and summarize Judge Hall’s attitude towards Ferring. Here is its assessment: “Judge Hall’s tone and line of questioning indicate critical scrutiny of Ferring’s procedural behavior, with a strong emphasis on transparency, fairness, and timing of disclosures. While she did not explicitly accuse Ferring of misconduct, her skepticism was clear, particularly on the points of delayed disclosure, witness inducement, and potential gamesmanship in discovery.”
Assuming I get the green light to post additional documents here, I’d like to share the transcripts from each day of the trial in case people want to peruse them. I have not had the opportunity to read through them (the transcripts are ~1,400 pages in total), so perhaps that is another task for ChatGPT.
I have access to deep research on perplexity (which I like a lot), if you get permission to share, happy to run it through deep research and see what pops out. I bet it will be especially useful if you want it to research other similar cases.
Ok here are the links to the trial transcripts:
Day 1: https://drive.google.com/file/d/1r2tkc33lPw9Xpqjodx3Su3eO8DmV4bwO/view?usp=sharing
Day 2: https://drive.google.com/file/d/1oE0XRZKH1sGDPSNHWRgK0sKUZH6PlfJF/view?usp=sharing
Day 3: https://drive.google.com/file/d/1bvQEND1efP4WtX4gt0b3cfV2ZTDekbzv/view?usp=sharing
Day 4: https://drive.google.com/file/d/1_SQvHILgG_zJ5jGavS1gy0NQpU3Yus7H/view?usp=sharing
Day 5: https://drive.google.com/file/d/1Fl1t7rrD1v73BYZ_HROFLxpHzlxBO_0P/view?usp=sharing
Consider this an open invitation to read the transcripts yourselves or to have an AI model process the materials and report back!
When were these made public? Just now?
No they were made public quite some time ago. Just got around to retrieving and reading them, though! I don’t think there’s anything further that has yet to be released, but I would need to take a closer look at the docket to confirm.
Nothing new here, I think this AI conclusion sums up to our conclusion along with DT anyway – @anyone please correct if mistaken.
Conclusion
Research suggests the final legal outcome was set on August 9, 2024, with the jury verdict finding Ferring liable for patent infringement and awarding Finch $25 million in damages and future royalties. It seems likely no appeal was filed, as no public updates exist by May 8, 2025, and the evidence leans toward the verdict standing as final. This conclusion is based on extensive searches across legal databases and news outlets, with no indication of further proceedings, aligning with the absence of reported appeals and the typical timeline for patent case resolutions.
Can ChatGPT or other AI say something about the expected timeline? i.e. When will the judge issue a decision?
I’m not sure AI would be helpful for that, as it really depends on the judge’s workload. While we wait for an update on the case, here is what ChatGPT’s deep research module says about trebled damages:
https://chatgpt.com/s/dr_6829de732f3c819198da3e23effe0729
Is it possible the judge is aware there is a settlement being worked on and that is why they haven’t scheduled anything?
I was wondering the same thing.
Two new filings today. Have not got a chance to read them.
Joint STIPULATION and Proposed Order to Stay Execution of Judgment Pending Appeal by Ferring Pharmaceuticals Inc., Rebiotix Inc.. (Bourke, Mary) (Entered: 06/26/2025
Jun 26, 2025 [SEALED] EXHIBIT re 540 Stipulation by Ferring Pharmaceuticals Inc., Rebiotix Inc.. (Attachments: # 1 Certificate of Service)(Bourke, Mary) (Entered: 06/26/2025)
Shoulda started with Mike, ended with Tyson. Settlement could be in the works regardless of Judge, and they have a slate of trials/schedule anyway.
Assuming I am using PACER correctly, the last entry was mid-April.
04/16/2025 539 NOTICE requesting Clerk to remove Eric Speckhard as co-counsel.. (Metzler, Sara) (Entered: 04/16/2025)
If helpful, ran a search on deep research to analyze the likelihood of appeal being granted. Here is what i found:
Assessment of Appeal Success Likelihood
-Factors Favoring Ferring’s Appeal:
-Patent validity challenges remain viable on appeal
-Potential claim construction issues
-Damages calculation methodology disputes
Factors Against Ferring’s Appeal:
-Strong statistical headwinds (70% district court affirmance rate, Reversal rate of 7%; Vacated and remanded 14% of cases)
-Willful infringement finding supported by substantial evidence
-Judicial criticism of Ferring’s litigation conduct
-Multiple patent infringement findings across distinct claims
-Federal Circuit deference to jury verdicts and factual findings
The strong willfulness finding and potential for enhanced damages create significant leverage for Finch, which may incentivize settlement discussions during the appeal process rather than risking an even larger final judgment.
I am wondering what happened to the remaining 9%? (70%+7%+21%=91%)
“Strong statistical headwinds (70% district court affirmance rate, Reversal rate of 7%; Vacated and remanded 14% of cases)”
Maybe settlement between the parties?
Ferring posted a letter of credit / bond today for appeal. There doesn’t appear to have been any other activity in the last 3 months.
I was doing some thinking using Ex Dividend’s amazing model. One thing that concerns me is by the time cash comes into the co and assuming the ceo hands it back efficiently there will still be a tax leakage in our hands, cash shells trade at 15-25% discounts. So if we take the case that there’s no enhanced or legal fees then we’re actually going to be trading sub $10. At $14 I’m getting paid $4 to give up the optionality of an additional $10 or even $15. Wouldnt it make sense to take the money and run? Come back when it’s lower? The sublease piece is a real issue that may end up causing pressure to settle on appeal even if the case is good.
Good points, especially on sublease, but don’t forget interest is accruing on the award + NOLs (though not sure if they need to be used by certain date).
@Ex-Dividend’s model actually covers the interest pre and post trial. The NOLs are why there will be no tax on any income from the judgement or part of the royalty. However there will still be tax to pass through to us.
I’m more and more convinced to take the $4 bucks now for the call option on $10-15 after potentially 2 years. Thank you so much for your incredible depth and idea by the way.
Why do you think it will potentially take 2 years? If the ruling (expected within the next 6 months) is favorable, even if Ferring appeals, I think the stock price will reflect the market’s updated expectation and we don’t necessarily need to wait until the appeal results are known.
@snowball yes I agree the stock may reflect higher value even if there is an appeal. As investors that invest in dead biotechs with only cash know (eg $KZR) they’ll trade at substancial discounts even if it’s hard cash but if the timelines are long and unclear.
Anyhow my point is more that at $14.5 I’m getting paid $4.5 to NOT buy the option for an additonal $2-3 more in the base case and $15 in the bull case. If the downside due to the sublease was not potentially zero the risk return would be worthwhile. I’m having trouble actually selling at the 14.5 though! I guess the bid price for real volume is much lower
I’m back in here in the $9s. Risk reward looks good again. The ceo only job is dealing with lease and litigation. I’m assuming bankruptcy was the sensible strategy until they get a ruling.
I am glad to have sold off earlier though.
Some recent docs posted to the docket if anyone has Pacer access and can summarize
it has something to do with the letter of credit posted by Ferring.
The wait continues.
Seriously if I knew it was going to take over a year to get a final judgment I would have just sold on the jury award.
On the bright side – you’ve unlocked the previous gains and the potential for all the enhancements at LT cap gains tax instead of short term.
I just hope if u knew it was going to take over a year, u would have told us.
The original idea took about a week and went from $2 to $10. Appeals processes always take time – I’m not sure why anyone would think that 2nd stage would go quickly. Probably moreso if the government shutdown continues for 1-2 more weeks and federal civil courts close for the timebeing, which will mess with all the calendars.
JESQ said this in August 2024:
“I hope this overview helps. I cannot and will not provide odds on any of this, but suffice to note: there is a reasonable path for FNCH to an enhanced total award — perhaps maybe even multiples when all is said and done, but there’s a lot left to litigate before that happens.”
Saw some stuff on twitter, feels like we are close to hearing something:
“Judge Hall has a doctorate in molecular biophysics and biochemistry from Yale. Apparently, she is known for detailed case management and careful deliberation. Often takes longer to decide but delivers well-reasoned rulings. I would be surprised at this point if there is an oral hearing before a ruling. I think a ruling without hearing is a virtual certainty. 1) she has shown she is willing to do so when there is a comprehensive trial record. 2) Delaware patent judges, resolve the vast majority of post-trial motions without hearing, especially when there has already been a jury trial and comprehensive written briefing. The estimate I have is Judge Hall has done so for ~80% of her cases. In terms of timing, Delaware court rarely allow post-trial motions to remain over a year unless there are settlement talks or there are complex issues. I think length of delay makes it extremely likely there is a ruling without a hearing. Over a year is highly unusual” https://x.com/WallStWary/status/1968988010294267913
@mitalt89 you may be correct in your prediction – looks like there is some action the last few days.
As of 11/4, nothing on pacer since early July.
Big news on Rebyota – think this decreases incentive for Ferring to pursue appeals? https://www.ferring.com/ferring-pharmaceuticals-to-explore-strategic-options-for-rebyota/
“Explore strategic options” usually means finding a buyer?
But I don’t understand why Ferring also has to “reduce commercial efforts in the United States” for Rebyota.
Don’t they want to show rx numbers as good as possible when marketing the property to potential buyers?
Or maybe they believe that a transaction is imminent?
Not to mention it seems like the worst time ever to sell it if you have pending litigation and you don’t know how much of a royalty is going to be on it? Unless of course Ferring indemnifies the buyer which also seems crazy.
Frankly, I’m reading this more as Ferring is saying it’s not commercial to try and limit damages given in this case.
Extremely weird release regardless
In my view the case has 2 main prongs . One is what the damages will be after Judge hall decides on any enhanced damages and second the royalty. This sale to me indicates there is a settlement likely close to being finalized because this doesn’t actually impact Judge halls decision around damages at all. Sale likely only happens after settlement. I would think maybe settlement is at least $50mm but that is pure guess.
There has been major volume coming in over the past few days. I checked w/ several large shareholders I know of, and they haven’t heard anything, and they aren’t the ones buying. This feels like a small fund establishing a new position. Has anyone seen anything on Rebyota recently, perhaps better than expected sales numbers somewhere?
The kind of intraday volatility we’ve been seeing in the past few days doesn’t look like well-planned buying by a sophisticated fund/investor, but more like someone heard something and jumped in.
For OTC stocks, someone trying to fill a large order will usually go to the dealers for quotes, instead of submitting/showing bids/asks directly to the OTC ECN.
Then someone must have been willing to sell because we had over 100k shares change hands the the price hasn’t really moved.
Also, still nothing on PACER since July.
On 3 Dec the closing price indeed didn’t moved much from the day before, but intraday volatility was wild and most of the 100k shares changed hands at above $15.5/share.
I sold my position in the last month or two due to my fear on the sublease.
Anyone have any insight on the leasing, is that done?
Any view on how this is taking so long? According to lawyers I’ve spoken to this is now completely extraordinary timing wise.
Also: any news on the leases that expire end of this year?
My hope is that the two parties are negotiating a settlement. Otherwise I have no idea why an opinion hasn’t been issued by this point. Haven’t seen any news on the leases.
The timing is completely ridiculous at this point. I have confirmed the same thing speaking with some very large law firms I know through work. It has to be a settlement they are negotiating I assume.
I am a bit worried about cash situation though. Not sure if anyone has a view on that?
FNCH has to settle the $30m lease liability with the landlord as soon as possible.
The only leverage FNCH has over the landlord is the threat of entering strategic bankruptcy (and the ensuring option to cancel the lease by paying only 1 year rent of $5m).
Once the judgement is awarded and the expected proceeds are visible, it will be much harder for FNCH to argue to the court that it’s (technically) insolvent or unable to pay the full rents.
On the other hand, in order to pay for the rent settlement (I expect $15-20 million), FNCH has to find litigation financing to monetize its pre-judgment “assets”.
So the window is pretty narrow: FNCH has to settle before the outcome has become too certain, but it can’t be done when the outcome is still too uncertain.
The lease situation is for sure gross but I would argue leverage between them and the landlord is determined by the strength of the sub-lease market. They may be better continuing to look for sub-lease tenants at a subsidized rate versus cutting the landlord a cheque. Perhaps return to office mandates have helped over the years. Or maybe not. But that’s what should drive negotiations, not the settlement outcome.
The sublease issue has been on my mind last few weeks. I was really hoping there would be some sort of clarity by now. How are you thinking about the sublease risk here?
I have not been following FNCH as I never got involved. For lease settlement, we can use Kronos and now GenBio (see my comment today on GenBio). did the teneant renew the sublease? Still, of the $30 million or so outstanding, I would take a quick guestimmate fo $18-24 million, although I don’t know Finch’s cash situation. The life science real estate market in Boston is still terrible, with 15+ million sq ft vacant plus 3.6 million sq ft of sublease offerings.
https://bostonrealestatetimes.com/boston-life-sciences-market-softens-as-vacancies-hit-record-highs-rents-fall-colliers/
So snowball this is exactly what appears to be happening, with the CH 11 filing today and the motion to break the lease.
Is this still a valid idea give it’s > $14 now. Could we get an update? Is @dt still having the position?
Pretty sure the sublease expired at this point so Finch needs to figure something out. https://www.loopnet.com/Listing/100-Hood-Park-Dr-Charlestown-MA/34950940/
complacency in charge now…..or logic?
Something bad happened today?
Filing CH 11 in Delaware yesterday to get out of the lease. Computers and/or dummies don’t understand the filing.
But the “smart” money doesn’t have the guts, means or risk budget to buy more either.
only 27k shares traded so far. Very small stuff.
Actually I think I had this wrong. Read the statement by the CEO. They are accelerating a sale because the judge hasn’t ruled.
Where is this statement by the CEO at?
Its one of the motions today in Pacer.
This is annoying, given how long the judge’s role is taking so long. I wonder what it sells for. hopefully at least 15/share.
where does it leaves us? I mean can we get wiped out?
Is this posturing? Under bankruptcy code the lease liability is capped at greater of 1 year or 15% of contract value (max 3 years). If Finch can settle the lease liability while waiting for the judgement I don’t see how this is incrementally bearish.
Exactly. Once the lease is tossed I expect the bankruptcy to get withdrawn/ resolved with no other changes. I have seen things like this with REITs before.
Are you considering buying more at these prices?
No, I already have a bunch and it is very difficult to buy or sell.
trading stopped? symbol no longer shows up
It is FNCHQ now.
Pretty common for a chance to a Q ticker to force funds out who can’t own them, no?
Explains a forced liquidation in the span of the day yesterday.
Has anyone done an updated valuation? I think Finch is now less valuable as it will incur substantial Ch.11 and liquidation costs and have to be sold in a fire sale essentially to a buyer that will need a discount to account for the risks or maybe to Ferring itself.
They don’t need an actual sale. A trustee can take over and manage the whole process, wait for the judgement and pay off various stakeholders including shareholders.
snowball have you ever seen an instance where a landlord accepted equity in lieu of payment? I haven’t, but it would make huge sense here.
Also not like there’s a huge debt reorg with massive banker fees here
How so? The motion for a sale order was filed on Monday, all assets are being auctioned off to the highest bidder. A stalking horse bidder will be selected by April 30 and the auction will be held on May 27.
They cannot wait because Finch is basically out of cash with $3.5M left but needed for the expenses it will have as part of the Chapter 11 process.
the only major debt/obligation they have is the lease at like $2.3mm based on the filing. Its not like they have tranches of debt where they need to restructure all of them. so its not a massive debt reorg.
what you are describing is actually fairly simple in the grand scheme of things. I am hoping equity holders get at least $12/share. am hoping i make a little profit after waiting for 2 years.
I thought i was good on my cost basis for last 2 years, first time I am not like risk reward. Lets see what happens.
It’s pretty comical the ypf appeal has been ruled on before this
Is there any news behind the sell off today?
I can’t find anything. Its brutal. Although only $48k traded…its pretty illiquid so not sure how much that has to do with someone just dumping. I still think it gets sold for a minimum of $10 but who knows i guess.
Nothing filed today for the case.
Bk case had auction instructions on Fri so maybe someone not liking that?
The automatic stay on the case was lifted suggesting we’ll get post trial motions before the sale date but that happened a couple weeks ago. Pure speculation that will be the case vs. Anything factual
The landlord came back and is asking for an additional 700k.
Has anyone been able to figure out how much Kirkland & Ellis is owed? The bidding procedures order (Doc 118) preserves K&E’s attorney’s lien on any judgment or settlement proceeds, but doesn’t specify the amount. The retention agreements are listed as assumed contracts with a $0 cure amount, which seems to mean there’s no default, not that they aren’t owed anything once this is all wrapped up.
where do you see that? I dont see anything in the bk docket since 4/6
Something is filed basically every day. https://www.pacermonitor.com/public/case/63726253/Finch_Therapeutics_Group,_Inc
Wasn’t the stalking horse deadline April 30 – any news?
not April 30. Email from Rock Creek:
Rock Creek Advisors is contacting you regarding the sale of assets (including the pending trial judgement) of Finch Therapeutics Group, Inc. (the “Company” or “Finch”), an early pioneer in the microbiome field with a significant IP estate and a pending eight-figure patent infringement judgment.
Finch’s most time-sensitive asset is a jury verdict entered in its favor on August 9, 2024, against Ferring Pharmaceuticals, awarding $25M+ in damages and royalties, with post-trial motions pending that could enhance the award up to 3x based on a willful infringement finding. The Company filed for Chapter 11 bankruptcy relief on March 22, 2026, in the District of Delaware.
Finch owns or exclusively licenses over 160 issued patents and pending patent applications covering fecal microbiota transplantation (FMT) technology — including compositions, methods of transplantation, and a range of indications from C. difficile to autoimmune, metabolic, and autism-related applications. The Company completed two successful clinical trials (PRISM3 and PRISM-EXT) for its flagship candidate CP101, producing statistically significant efficacy outcomes in recurrent C. diff.
Key Highlights
Significant Pending Judgment: $25M+ jury award with potential for up to 3x enhancement based on willful infringement; post-trial motions pending before the Delaware District Court
Broad IP Estate: 160+ issued patents and applications owned or exclusively licensed from Finch, UMN, and ASU covering FMT compositions, methods, and multiple indications
Additional Infringement Opportunity: Company has identified a second potential infringement case against another large global corporation — details available under NDA
Proven Clinical Data: Two completed trials with strong efficacy outcomes providing a clear scientific foundation for licensing or further development
Large and Growing Market: Clostridioides difficile (commonly referred to as C. diff), alone represents 400k–500k US infections annually with $5.4–$6.3B in systemic costs; FMT technology has broad applicability across autoimmune, metabolic, hepatic, and other indications
Flexible Sale Structure: Bids considered for a portion of assets or all/substantially all assets, including the patent portfolio and any related litigation proceeds
Finch represents a rare opportunity to acquire a foundational microbiome IP estate combined with near-term cash value from a pending patent judgment, available through a structured Chapter 11 sale process.
You can access the links at the bottom of the email for the sales memo and NDA related to the process.
Stalking Horse Deadline: Tuesday, May 5, 2026, 5 pm ET
Bid Deadline: Friday, May 29, 2026, 5 pm ET
Auction (if needed): Wednesday, June 3, 2026, 10 am ET
While the Company may give preference to all-cash bids, Rock Creek will consider all types of consideration.
We require an executed Confidentiality Agreement (see NDA link below) to provide access to a Confidential electronic data room with more Company information.
If there is another person at your firm who would be more appropriate to review this matter, please let us know and/or forward this information accordingly. Also, if your firm is not interested in pursuing this opportunity, we’d appreciate knowing in order not to continue to follow up with you.
“Additional Infringement Opportunity: Company has identified a second potential infringement case against another large global corporation — details available under NDA”
Is this new? I don’t recall reading about this previously but this thing has dragged on so long that maybe I forgot.
it’s just bs, can’t assign any value to it
Will the stalking horse bids be disclose publically?
Yes
The stalking horse deadline was extended to May 12. I view this as there must be something they are working on, as if there was no interest they wouldn’t have a reason to extend.
Reasonably common to move bid deadlines back, particularly binding ones so I wouldn’t necessarily read it as a positive, but also not a negative.
Where do you see that?
Is there any update on the stalking those bid?
Stalking horse deadline expired on Tuesday. Guess no bids were received. I suppose we have to wait until the auction now.
It was extended again
Lets hope its because they are negotiating a bid and not because there is a lack of interest. A judges final decision would be helpful
Where do you see that? I don’t see anything on pacer.
Friday, May 15, 2026
179 misc Exhibit Fri 05/15 2:11 PM
Exhibit(s) // Second Notice of Extension of Stalking Horse Deadline Related [+] Filed by Finch Therapeutics Group, Inc.. (Weber, Robert)
When I run the “docket report” in pacer it doesn’t show any activity past the 12th, how do you find that in PACER?
https://www.pacermonitor.com/public/case/63726253/Finch_Therapeutics_Group,_Inc There were filings every day last week. Does it show up for you?
when I go into pacer and go to the docket report, I don’t see any of that. I guess I don’t know how to use PACER. Thanks for the link!
I see using that link that the deadline is extended again, also, There will be a hearing on 6/10 regarding objection to sale by OpenBiome, so this is dragging out a bit, IMHO, which is good as more time for the trial judge to rule.
Stalking Horse deadline now May 28
Bid Deadline June 8
Auction June 11
Sale Hearing June 17
Trial Judge, hurry up!
Judge is fucking FNCH holders so badly
I’m seeing no bids/offers and no trades last two days. Is something wrong?
I found out the listing was transferred to the Expert Market. So retail can’t transact in it anymore unless it’s a closing transaction and you work with your broker.
Yes, it is listed as closing trades only on IBKR. That’s usually something reserved for chinese scam listings after they crash.
In the good news department, the order rejecting the lease was approved today.
actually there are some good obscure companies on the expert market as well.
What do you make of this, from the OmniAgentSolutions site: Transcript regarding Hearing Held 5/26/2026 RE: Ruling. Remote electronic access to the transcript is restricted until 9/2/2026. The transcript may be viewed at the Bankruptcy Court Clerk’s Office. For information about how to obtain a transcript, call the Clerk’s Office or Contact the Court Reporter/Transcriber, Reliable, at Telephone number (302)654-8080.
Trial judge ruled. No enhanced damages, and low royalty (5.5%). Overall, very disappointing. Basically best possible outcome for Ferring.
Where do you see that? And it’s unbelievable it took almost two years to come to that decision.
thats really surprising. what does that translate to in terms of per share value? wonder what happens to shares now
I don’t know. My guess is we ultimately liquidate around $10. The only reason I say that is once the ruling hit the bid solidified around 7.50. The only reason to buy the stock at 7.50 is because you “know” you are gong to get 10 or more upon liquidation. Like selling once a buyout is announced. Except the margin will be much wider.
Well my cost basis is $11 (I was upsizing like an idiot clearly). I guess if its $10 not the worst outcome in terms of risk return, but secretly hoping for $11+
Where do you see that? And it’s unbelievable it took almost two years to come to that decision.
https://pacer.login.uscourts.gov/csologin/login.jsf?pscCourtId=DEDC&appurl=https://ecf.ded.uscourts.gov/doc1/04307254741?caseid%3D77279
btw if the judge was going to screw finch on royalty and enhancements, which she did, the only real favor she could do is hold the announcement long enough to let FNCH purge the hood lease through CH11. So in a way she did everyone a favor.
From the OmniAgentSolutions site:
Modified Bid Deadline June 12, 2026 at 5:00 p.m. (ET)
Auction June 15, 2026 at 10:00 a.m. (ET)
Sale Hearing June 17, 2026 at 2:30 p.m. (ET)
Hi all, thanks for the recent updates, I am not familiar with liquidations process and I have some shares in IB. How will it work for stockholders when the company will be liquidated, will our shares automatically be “sold” at the highest bidder price and receive the funds? Thanks in advance
Auction continued to June 18, 9 am and there is more than one qualified bidder.
maybe someone bids $50 for the whole business. one can hope haha
Not sure how much upside there realistically is with the threat of appeal to drag out timelines as well.
I feel like $8-9 is best outcome now between the time discount plus the risk on the appeal
I think it could be higher. Honestly, the entity most incentivized to bid is Ferring. There is little to appeal for them now — the won on royalty, there are no enhanced damages, and they will pay more fees and interest by delaying the inevitable.
In lieu of settling under the threat of appeal, the smartest move is to just buy the assets at auction and be done with it.
If you believe lawsuits end when it makes financial sense I would completely agree with you.
However, there are a countless number of lawsuits that do not follow that direction.
Ferring has already done multiple irrational things throughout the process given what was at stake.
Did the judge rule on legal fees reimbursement?
No reimbursement
I don’t think that was a part of this decision. In the original filing, Finch stated (paraphrasing) they intend to pursue reimbursement of legal claims separately.
I will have to revisit my original calculations, but the earlier comment was correct that by her delay the judge at least made it possible to get out of the lease..which was smothering the company finances.
The reason I asked earlier about reimbursement for legal fees was that I think they have amounted to $8 million or more.
I may be totally wrong, but it seems to me that it is worth at least $15-$20 to Ferring, and they can fire the Ferring person who directed their legal effort!
Not investment advice. Do your own diligence.
I have been dialed in to the auction for 90 minutes and I have no idea what is going on, at 9 am they said everyone would go into breakout rooms for 10-15 minutes, and that was 90 minutes ago, and it’s still dead silence.
Any idea who the qualified bidders are?
Yes, it’s Ferring and some other investment group, they are the only 2. Bids are at $25M, with one cash and one some kind of stock / rights plan it sounds like. How $25M nets out to shareholders I do not know. Nothing is final yet.
Thanks for your updates
What a deal for Ferring if they land it at $25M. Blatantly rip off a patent and just pay the $25M jury award with no interest, royalties or legal fees. The only good thing if they ultimately win is the risk premium simply becomes time value of money. For what it’s worth (probably little), Gemini believes a $25m bid would net a $12.78 share. That was after quite a bit of prompting on the details of the trials.
So the other bidder is Crestovo who I think is the largest shareholder in FNCH. What they are trying to do is buy the assets with a combination of cash and value rights, essentially, set up a new FNCH clear of lease and all other obligations. Ferring is trying to buy their way out of the judgment. Effectively this is settlement discussions taking place in a bankruptcy venue. Both sides are disputing the value of the other’s offer. Who decides I have no idea. Also each side is taking 2 hours to come up with a new bid, apparently there is no shot clock in asset auctions. We will see.
It will be interesting what each side ups their bid to. It should be worth more to Crestover. I assume they view the NOLs as icing on the cake and won’t pay up for them (probably limited on an annual basis). The legal fee reimbursement could be the real upside potential.My gut (hope) feeling is ultimately $15 per share value. Not investment advice, do your diligence.
Any update here?
I had to disconnect in the late afternoon, and there was no update on PACER. Last bid I heard was $26.5M from Crestover or whatever their name is.
Have you seen or heard anything? Weird there hasn’t been any news.
At $25mm, after the lease obligation and legal fees probably only $10/share. Ugh…was hoping for at least $15
bidding continues monday
Where do you see that? I don’t see anything in PACER.
Do we know what the final amount due for the lease ended up being?
I think shareholders should be rooting for Ferring here. If we get some never-ending CVR deal out of this it could be a while til we get paid out. If Crestovo wins they still have to collect, and Ferring could decide to appeal. Show me the money.
I think Crestovo is rooting for Ferring as well. They just want them to pay as much as possible.
I hope you’re right, if so I’m appreciative of the pressure.
Don’t forget the NOLs!
FWIW when I ask Claude the shareholder distribution assuming a winning bid by Ferring of $26.5M it tells me ~$15 a share.
I take the under. Lots of lawyers to pay
I have been keeping tabs on every document since FNCH filed bankruptcy (every expense, liability, NOLs and etc). I think the real range is $9-$13/share. hard to know exactly as it really depends on the fees. I personally think $10+ is 85% probability. $15+ is probably like 15% probability.
Yes other way to look at it is the share price today implies $11m or so of fees/the lease assuming a $25m settlement and Ferring close.
I think $5m+ in fees seems a bit rich given what has transpired over the past couple months but we will see.
For reference, bankruptcy fees (incl. Legal) through the end of April were $780k.
Success fee on the sale for their advisors are 4% for first $15m and 8% above that so at $25m that is $1.4m.
Chipman Brown Cicrero & Cole filed their May expenses. They were roughly half of late Mar/April so feels like we’re on track for a doubling of that number for fees (so $1.5mm in legal fees plus $1.4mm for the sale fee) gets you to $4mm in fees plus the lease
And I believe they had $3.5m in cash heading into bankruptcy, correct?
I didn’t see anything on PACER regarding the auction today, and when I dialed into Friday’s link this morning, no one was there, so I have no idea what has transpired.
Hearing rumors that latest bid is at $30mm but not sure how accurate that is.
The agreement is $30 million ($18 million for the judgement and $12 million for the other assets) with Ferring and an additional $2 million from Charlestown Capital for all of the assets not included with the Ferring purchase. So $32 million total. There should be a filing in the bankruptcy docket shortly.
Feels like a great outcome for shareholders. Still unclear exactly what is at the end of the waterfall after all the bills are paid but I’m pretty happy about it.
Not a bad outcome after we did not get the enhanced damages. We’ll have to ballpark the expenses to come to our per share number. Appreciate thoughts from others on that.
Great buy for anyone who came in at the bk filing.
I’m around $15/sh based on:
$32mm judgment
$3.5mm cash
-$2mm deal fee
-$3mm legal/admin expenses
-$6mm lease rejection
$24.5mm net to sh
depends on when you bought. Adjusted for split, this puts the stock priced precisely where it was 3 years ago when they announced strategic alternatives. Or was it 4 years ago, It can’t even remember.
So what happens now and how do share holders get paid out? Will that be spelled out as a part of the bankruptcy proceedings?
I suspect that even if everything goes perfectly from here on out, we would get a partial distribution for a large chunk sometime in late summer and then a final distribution at some time later. The good news here is that bankruptcy makes things go faster, so that’s nice at least. This is all a guess from me though.
Government bar date is September 18. Won’t be any distributions before that.
Are the distributions through our broker?
I don’t understand. In the couple years leading up to the bankruptcy filing, FNCH incurred about 6 millon ( or more)dollars of legal fees. I thought the company was pursuing reimbursement of those fees. And that the judge would rule on that after any appeals were finished. Am I wrong?
It’s June 30. Why is there no notice of successful bidder on Pacer?
I think its normal. They still need to finalize: APA amendments, sale order, excluded assets schedule since there are multiple parties, assumed/rejected contracts, allocation between judgment and other assets;
language around releases, claims, and closing mechanics. Typically this all can take multiple weeks. Maybe its a bit faster with it being bankruptcy – Not 100% sure.
Disclosure Statement and Ch 11 Plan was released today. It notes a purchase price of $30m with no mention of the $2m Charlestown purchase Arquitos mentioned above.
Deal is supposed to close Sept 1.
Yes, I downloaded it. Sadly the liquidation estimate is still “to be filed”.
So the $2mm charlestown purchase is not true?
The $30 million is for almost all assets. The filing mentions certain assets excluded but it does not spell out the $2 million carve out. I would imagine a new filing with more details on that are to come. Voting is July 15.
Correction: Record date is July 15 and the vote takes place August 24.
It appears Ferring has filed for appeal, am I seeing that correctly? I don’t really understand that now that Ferring owns most of Finch. Will this delay any payout to shareholders?
Most likely a procedural move in Ferring v. Finch docket in the chance that the bankruptcy sale process hits some unforeseen obstacles.
$12/sh in value per the liquidation analysis
Still no mention of the add’l $2MM mentioned here, so the net amount toe shareholders is $19.476MM or
I’m perplexed on what happened to the $2MM of restricted cash they had at the end of May which I thought was to be applied to the lease liab
When was that posted in PACER?
Nevermind, I see it now. Disappointing. Should have sold a year ago.
I was happy to hold when it hit $15 last year. I would gladly pay an extra $3 to have a reasonable, >20% chance to more than quadruple the $12. That upside didn’t materialize. And then I had a little scare during the Chapter 11 process that maybe we’d end up with mid-single-digits. But I thought I was correct to hold.
Got my ballot in the mail today. The documents state approximately $11.83 per share in distributions.
https://cases.omniagentsolutions.com/ballot/index?clientId=3783
I just received some documents in the mail from the BK court. Anyone have any insight on what to fill out / if we need to fill anything out?
I moved recently so no mail for me. Any chance you guys know what we have to do? Hoping I get distribution regardless.
I have not received a ballot should I be worried?
If you didn’t receive a ballot you can contact the phone number or email on this site https://cases.omniagentsolutions.com/ballot/index?clientId=3783
Yeah I called them 3 days ago and sent email. Just waiting to hear back. Is there an actual election we have to make? Just making sure in terms of worst case scenario, I still get the liquidation value.
It’s a vote. If you don’t vote and the vote passes you’ll get paid out anyways.
okay cool.
Did anyone get an eballot id on their paperwork? Omni says you need one to vote but I can’t find it on the paperwork anywhere
Correction: you need it to vote online
Unless things really get delayed, shouldn’t the stock be trading north of $12?
We are supposed to get ~$11.8 per share so I would think it trades around 11.