TG Therapeutics, Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. Financial statements are unaudited. TG Therapeutics is a clinical-stage biopharmaceutical company developing treatments for B-cell malignancies and autoimmune diseases. It had no approved drug candidates and no product sales; reported revenue was licensing revenue.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| License revenue | $38,000 | $38,000 | $114,000 | $114,000 |
| Research and development expense | $33.4 million | $27.1 million | $107.1 million | $76.5 million |
| General and administrative expense | $1.0 million | $4.5 million | $13.2 million | $11.3 million |
| Operating loss | $34.3 million | $31.6 million | $120.3 million | $87.7 million |
| Net loss | $34.0 million | $31.5 million | $119.6 million | $87.6 million |
| Basic and diluted loss per share | $0.43 | $0.48 | $1.61 | $1.45 |
- Cash and investments: At September 30, cash and cash equivalents were $70.7 million, short-term investments $27.0 million, interest receivable $0.08 million, and restricted cash $1.2 million. Management reported approximately $97.8 million in cash, cash equivalents, investments, and interest receivable, and expected those resources to fund planned operations through the end of 2019.
- Cash flow: Nine-month operating cash use was $95.2 million, compared with $71.9 million in 2017. Investing activities provided $0.9 million; financing activities provided $108.9 million, primarily from common-stock sales. Cash, cash equivalents, and restricted cash rose by $14.7 million to $72.0 million.
- Debt and liquidity: Total liabilities were $42.6 million and current liabilities $40.2 million. Notes payable had a $91,000 carrying value, but the filing reports cumulative principal and accrued interest of approximately $18.2 million on the 5% notes. The notes matured in March 2015; no payments had been made. The company’s obligations are described as limited to specified product cash flows, if any, and the conversion feature.
- Margins: The filing does not provide a meaningful product gross margin; the company had no product sales.
Material changes versus the prior comparable period
- Nine-month R&D expense increased $30.6 million, primarily reflecting ongoing clinical development; other R&D expense alone rose $27.5 million. Q3 R&D expense increased $6.2 million.
- Nine-month net loss increased $32.0 million. The 2018 period included $4.0 million of noncash stock expense for in-licensing agreements with Novimmune and Jiangsu Hengrui; there was no comparable expense in 2017.
- Nine-month operating cash use increased $23.3 million, primarily due to spending on TG-1101 and TGR-1202 clinical programs.
- The company sold 8.1 million shares through its at-the-market program in the first nine months, generating approximately $109.0 million in net proceeds. It reported approximately $141.3 million remaining available under its active shelf registration.
Outlook, commentary, and risks
- Management said other R&D costs were expected to remain relatively consistent for the rest of 2018, and other G&A expenses were expected to remain at a comparable level. These are expense expectations, not earnings guidance.
- In September, the UNITY-CLL trial’s independent safety monitoring board said the planned interim overall response rate analysis was not sufficiently mature. TG Therapeutics said it would focus on progression-free survival for potential full approval and was not then planning to seek accelerated approval based on response rate. The company remained blinded to efficacy data. The board identified no safety concerns and recommended continuing the trial without modification.
- Management expects continuing operating losses and says significant future financing will be needed. The stated runway through year-end 2019 depends on clinical-trial timing, design, and execution; additional financing may dilute shareholders or may not be available on acceptable terms.
- Major risks include clinical-trial failure or delays, regulatory approval uncertainty, safety and manufacturing risks, reliance on licensors and contract manufacturers, competition, intellectual-property disputes, and the need for future capital. The filing also reports an October 2018 securities class action alleging misleading statements concerning UNITY-CLL; the case was in its early stages and the company intended to contest it.
- The company recorded $11.4 million of stock-based compensation for the first nine months. Consultant-award fair-value changes can cause expense to fluctuate; the Q3 G&A compensation line was a credit of $0.8 million.
Important facts for investors to verify
- Whether UNITY-CLL reaches a mature PFS analysis and what the results show; the company was blinded to efficacy results at the filing date.
- Whether available cash and investments support the stated operating plan through the end of 2019, and the timing and terms of any additional financing.
- Clinical progress, enrollment, safety, and regulatory status of the Phase 3 ULTIMATE multiple-sclerosis trials and other lead programs.
- The dilution and remaining capacity associated with the ATM and shelf offerings, including the effect of further equity issuance.
- Developments in the securities class action and the 5% notes’ obligations, carrying value, and conversion terms.