TG Therapeutics, Inc. — Q2 2014 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2014. Financial statements are unaudited. TG Therapeutics is a development-stage biopharmaceutical company developing treatments for cancer and autoimmune diseases. It had no approved products or product sales; reported revenue was license revenue from its Ildong sublicense.
Financial performance and position
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| License revenue | $38,095 | $38,095 | $76,190 | $76,190 |
| Total costs and expenses | $11.99 million | $6.67 million | $19.64 million | $10.42 million |
| Operating loss | $11.96 million | $6.63 million | $19.56 million | $10.34 million |
| Net loss | $11.99 million | $6.58 million | $19.53 million | $10.26 million |
| Basic and diluted loss per share | $0.36 | $0.29 | $0.62 | $0.46 |
| Operating cash used | Not separately reported | Not separately reported | $11.90 million | $4.76 million |
- Cash and investments: At June 30, cash and cash equivalents were $37.08 million; short- and long-term investment securities totaled $14.07 million, and interest receivable was $74,682. Together these totaled $51.22 million.
- Balance sheet: Total assets were $56.30 million, total liabilities $4.21 million, and equity $52.10 million. Accumulated deficit was $58.94 million.
- Debt: Notes payable had a $159,214 carrying value at June 30, all current, compared with $742,307 at December 31, 2013. The remaining 5% notes are measured at fair value; their stated principal and accrued interest totaled approximately $19.08 million, but the company says its obligations are tied to specified legacy-product cash flows and a conversion feature. The ICON note was settled in January 2014 for $772,369, generating a $95,427 gain.
- Margins: Product gross margins are not meaningful because the company had no product sales; license revenue was minimal relative to expenses.
- Equity and financing: A March public offering generated approximately $16.79 million net proceeds; warrant exercises added $1.60 million. Common shares issued increased from 34.34 million at year-end to 38.16 million at June 30. Potentially dilutive securities were excluded from loss per share; approximately 9.70 million were outstanding at June 30.
Material changes versus prior periods
- Net loss increased to $11.99 million in Q2 from $6.58 million, and to $19.53 million for the half-year from $10.26 million. Revenue was unchanged in both comparisons.
- Half-year operating cash use rose to $11.90 million from $4.76 million, which management attributed primarily to increased clinical-development spending for TG-1101 and TGR-1202.
- Noncash stock compensation was $11.97 million for the first six months, versus $3.26 million in the comparable 2013 period. Management attributed much of the increase to milestone-based restricted-stock vesting. The half-year also included $1.21 million of noncash R&D expense for shares issued to Ligand.
- Other R&D expense declined year over year, primarily because of the timing of TG-1101 manufacturing costs, partly offset by higher TGR-1202 spending. Total R&D nevertheless increased due to stock compensation and the Ligand license expense.
- The company raised equity capital and invested in government-agency securities. Cash declined by $3.41 million over the six months, as financing inflows were partly offset by operating and investing cash outflows.
Business developments, outlook, and risks
- Pipeline: The principal programs are ublituximab (TG-1101), TGR-1202, and a preclinical IRAK-4 inhibitor program. The filing reports early clinical activity and generally manageable tolerability in small patient cohorts, including combination studies. These results are preliminary and do not establish efficacy or safety in larger or later-stage trials.
- IRAK-4 license: In June 2014, the company licensed Ligand’s preclinical IRAK-4 inhibitor technology. Ligand received 125,000 shares and may receive up to approximately $207 million in milestone payments plus royalties. Opus Point Partners, which advised on the transaction and is affiliated with the Executive Chairman and Interim CEO, is also entitled to a 1% royalty on annual sales up to $1 billion.
- Cash outlook: Management estimated that cash, cash equivalents, and investments at June 30 would fund anticipated operating cash requirements for approximately 24 months. It also stated that significant future financing will be needed to execute operations, with actual cash needs dependent in part on clinical-trial timing, design, and conduct.
- Expense outlook: Management expected other R&D costs to increase modestly during the remainder of 2014 as trial enrollment increased, while other G&A costs were expected to remain at a comparable level. The company expected continued operating losses and significant noncash compensation expense.
- Key risks: Clinical and regulatory failure or delay; dependence on licensors, CROs, and largely single-source manufacturing partners; uncertain manufacturing comparability and supply; competition; intellectual-property challenges; and the need for additional capital, potentially dilutive to shareholders. The company had no active IND for its newly licensed IRAK-4 program. It reported no material pending legal proceedings.
- Subsequent event: On July 18, 2014, the board adopted a stockholder rights plan, with rights distributed to holders of record on July 28. The rights generally become exercisable following a person becoming an “Acquiring Person” under the plan.
Important facts for investors to verify
- Whether the stated approximately 24-month cash runway remains supportable as trial activity, enrollment, and manufacturing costs evolve, and what financing the company may require afterward.
- How much of the reported losses reflects recurring cash operating costs versus stock compensation and other noncash items.
- The definitions, patient counts, follow-up, and durability behind the preliminary clinical response and tolerability results, and whether later trials confirm them.
- The economic terms and potential dilution associated with the Ligand license, its milestones and royalties, and the related Opus royalty and executive affiliation.
- The basis for the 5% notes’ $159,214 fair value despite approximately $19.08 million of stated principal and accrued interest, including the conversion feature and cash-flow assumptions.
- Potential dilution from outstanding warrants, restricted stock, and other equity awards, as well as the effect of the stockholder rights plan.