Our featured small cap stock to keep an eye on this week is Factor Therapeutics Limited (FTT).
FTT is a small Australian company operating in the biotechnology sector, a sector which has received a great deal of attention in the last few months, with some small cap stocks in this field soaring. If the recent traded volume in FTT is any indication, approximately 285 million shares in a week towards the beginning of July; roughly 30% of their total register has turned over.
Last week, FTT announced they will enter into a voluntary suspension pending news on an acquisition after their original trading halt expired on July 17th. The reason for this suspension is to finalise the terms of an acquisition and therefore it will be interesting to see how this unfolds.
The company currently has a market cap of approximately $5 million and has said to have reviewed over 30 different prospective plays within the biotechnology sector.
The board has mentioned this has largely revolved around looking for companies in the “clinical-stage (or near to clinical stage)” “…with sufficient data to support a high likelihood of successful commercialisation”.
Furthermore, with roughly $3 million cash in the bank as at the latest quarterly report, this company is operating close to its enterprise value (EV) and therefore provides a potentially low-risk entry for investors offering considerable upside if the proposed acquisition is looked upon favourably by the market.
Nevertheless, it is important to note that FTT has disappointed the market in the past following a halt in trading at the backend of 2018. Here, FTT management released that their Phase 2 trials on a potential treatment for the venous leg ulcer ultimately failed, producing no statistically significant different results in wound healing in comparison to the controlled placebo. This was disastrous for shareholders which saw the share price plummet from around 0.073 to 0.003, a loss of approximately 96% for holders. While the share price has recovered slightly following this bloodbath, long-term holders will be anxiously awaiting the finer details of the proposed acquisition in a bid to recover some of this lost capital. This therefore leads little margin for error pending this new announcement which will have investors with their mouse hovering over the sell button if this deal is to fall through.
FTT 5-year chart (Commsec, 2020)
However, past performance aside, FTT seems to have a very capable management team and Board of Directors with a breadth of experience in this biotechnology and life sciences field.
Furthermore, based on their background they have a history of being able to deliver something of value to investors. It will be exciting to see what they can produce with results expected as soon as this week.
This article does not take into account the investment objectives, financial situation or needs of a particular person or entity. Before acting on any investment strategy or advice you should first consult with your current ASIC accredited investment professional or seek out a compliant investment professional for such.