TG Therapeutics, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. The company was formerly Manhattan Pharmaceuticals and reported as a development-stage biopharmaceutical company. The December 2011 reverse acquisition makes a year-earlier operating comparison unavailable; the filing states that TG Bio did not begin operations until April 2011. Financial statement amounts below are as presented in the filing, which retroactively reflects the April 30, 2012 1-for-56.25 reverse stock split.
Business context
The company had no commercial products or revenue. Its main development program was ublituximab (TGTX-1101), an anti-CD20 antibody for cancer and other B-cell disorders. It also held rights to AST-726 for vitamin B12 deficiency and AST-915 for essential tremor.
Financial results and liquidity
| Metric | Q1 2012 |
|---|---|
| Revenue | $0 |
| Research and development expense | $16.741 million, including $16.578 million of non-cash expense related to the ublituximab license |
| General and administrative expense | $644,001, including $188,509 of non-cash compensation |
| Operating loss | $17.385 million |
| Net loss | $17.397 million total; $10.256 million attributable to TG Therapeutics |
| Basic and diluted loss per share | $2.03 |
| Cash used in operating activities | $861,634 |
| Cash from financing activities | $12.037 million, primarily net preferred-stock proceeds, partly offset by loan repayment |
| Cash and cash equivalents, March 31 | $20.924 million |
| Total assets / total liabilities | $27.074 million / $5.887 million |
| Accumulated deficit | $11.109 million |
Margins are not meaningful because the company had no revenue. Management estimated that March 31 cash would fund anticipated operating requirements for approximately 24 months, while cautioning that funding needs depend on clinical-trial timing and other factors. The company expected continued losses and rising operating cash use as development advanced.
Material changes and notable items
- Q1 results include a one-time, non-cash $16.578 million license-related R&D charge. The filing said this expense should decrease substantially over the remainder of 2012, while other R&D costs were expected to increase with clinical development.
- The company raised $13.909 million gross through two preferred-stock closings in January and February. Preferred stock carried a $20-per-share liquidation preference and was convertible into common stock, subject to authorized-share availability; the placements also included warrants.
- The ublituximab license granted exclusive development and commercialization rights worldwide except France and Belgium. The licensor may receive up to approximately $31 million in development, regulatory and sales milestones, plus royalties.
- The company submitted a U.S. IND for ublituximab in March; FDA acceptance was received in April. Management intended to begin a Phase I/II U.S. study in Q2 2012.
- The ICON convertible note was in default: the company had not made the January 31 balloon payment or February and March installments. At March 31, principal was $677,778 and interest payable was $76,793; management was seeking a settlement or alternative arrangement.
- The separate 5% notes had approximately $17.089 million of accrued face-value liability at March 31 but were carried at a $4.665 million fair value using a Level 3 discounted-cash-flow valuation. The estimate depends on uncertain projections for AST-726 and AST-915.
Outlook, risks and controls
- Management expected other R&D and G&A expenses to rise during 2012, including from ublituximab clinical work and planned hiring. AST-726 development plans were under review; a decision was expected in 6–12 months. The company said it was unlikely to continue AST-915 development after sponsored research concluded, expected in June 2012, subject to a final decision.
- Management said the company would need additional capital to continue operations beyond its estimated cash runway. Failure to obtain financing could delay, reduce or stop development; future equity financing could dilute shareholders.
- Key risks include clinical and regulatory failure, dependence on licensors and contract manufacturers, manufacturing scale-up and single-source supply, competition, intellectual-property disputes, and the absence of commercial revenue. Ublituximab patent applications had not yet issued; the filing also described potential third-party patent barriers.
- Disclosure controls and procedures were deemed ineffective as of March 31 because financial and accounting duties were concentrated in the CFO, creating a lack of segregation of duties. Management intended to address this by hiring accounting personnel.
- The filing reported no material pending legal proceedings and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the planned Q2 2012 ublituximab Phase I/II study began on schedule and what subsequent clinical and safety data showed.
- Actual cash burn, trial costs and financing needs compared with management’s approximately 24-month runway estimate.
- Whether the ICON note default was resolved and whether any related settlement or financing terms changed liquidity or obligations.
- Progress toward scalable, reliable ublituximab manufacturing, and the status of patent applications and potential third-party intellectual-property challenges.
- Whether the company remedied the segregation-of-duties control deficiency and whether later filings disclosed any control changes or material weaknesses.