TG Therapeutics, Inc. — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016. Financial statements are unaudited.
Business context
TG Therapeutics is a development-stage biopharmaceutical company focused on treatments for B-cell malignancies and autoimmune diseases. Its principal clinical candidates are ublituximab (TG-1101) and TGR-1202; IRAK4, BET, anti-PD-L1 and anti-GITR programs were preclinical. No candidate had been approved for sale, and the company had no product sales. Reported revenue was license-fee amortization from Ildong.
Financial results and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| License revenue | $38,096 | $38,096 | $114,286 | $114,286 |
| Research and development expense | $21.8 million | $11.6 million | $46.9 million | $32.5 million |
| General and administrative expense | $3.2 million | $2.3 million | $8.1 million | $13.2 million |
| Operating loss | $24.9 million | $13.8 million | $54.9 million | $45.5 million |
| Net loss | $24.8 million | $13.7 million | $54.6 million | $45.3 million |
| Basic and diluted loss per share | $0.50 | $0.28 | $1.11 | $1.01 |
No product gross margin was reported because there were no product sales; margins are not meaningful for this revenue profile.
- Cash flow: Cash used in operations was $44.6 million for the first nine months, versus $31.8 million in 2015. Investing activities provided $15.1 million, largely from security maturities and sales; financing provided $3.6 million, including ATM stock sales and warrant exercises. Cash and cash equivalents declined $25.9 million to $29.2 million.
- Liquidity: Cash, cash equivalents, investments and interest receivable totaled approximately $60.7 million at September 30. Current assets were $71.3 million and current liabilities $16.9 million. Management estimated funding for planned operations into the first half of 2018, but stated that significant future financing would be needed to execute its plans.
- Debt and equity: The balance sheet reported $117,126 of notes payable at fair value, all current. Separately, the company disclosed approximately $17.0 million of cumulative liability, including accrued interest, on legacy 5% notes; the stated obligations are limited to a share of any net product cash flows from specified Ariston candidates and the conversion feature. Stockholders’ equity was $56.8 million, down from $101.6 million at year-end 2015, primarily reflecting accumulated losses. The company issued 396,811 shares under its ATM program for approximately $3.5 million net proceeds.
Material changes and developments
- Q3 R&D expense rose approximately 88% year over year, principally due to clinical development and manufacturing for TG-1101 and TGR-1202. Nine-month R&D expense increased about 45%, also including a $1.0 million BET-program license fee.
- Q3 net loss increased to $24.8 million from $13.7 million. For the nine-month period, net loss increased to $54.6 million from $45.3 million, despite lower G&A stock-based compensation.
- Q3 G&A expense increased, partly due to rent and costs for the new office. The company recorded $2.5 million of leasehold interest at quarter-end and disclosed an approximately $1.1 million average annual rental obligation.
- The company sold its long-term investment securities during Q3, receiving about $12.6 million and recording a gain of approximately $33,000.
- In October 2016, after quarter-end, the GENUINE Phase 3 study was amended: planned enrollment was reduced from about 330 to 120, the PFS component was removed, and ORR became the sole primary endpoint. The study was no longer under its SPA. The company expected enrollment completion by year-end 2016 and topline data in the first half of 2017.
Outlook, risks and contingencies
Management expected R&D costs to increase through the remainder of 2016 as Phase 3 enrollment expanded and the company prepared for potential launch; G&A costs were expected to remain at a comparable level. The filing provides no earnings or revenue guidance and states that losses are expected to continue, with no assurance of eventual profitability.
Key risks include clinical-trial failure or delay, regulatory uncertainty, safety and tolerability of candidates, reliance on third-party manufacturers and clinical contractors, competition, intellectual-property challenges, and the need to raise additional capital. Further financing may dilute shareholders or may not be available on acceptable terms. The filing reports no material pending legal proceedings and no material off-balance-sheet arrangements. Management concluded disclosure controls were effective as of September 30, 2016.
Important facts for investors to verify
- Current cash and investment levels, actual cash burn, and whether the projected runway into the first half of 2018 remains achievable.
- Progress and results for GENUINE, UNITY-CLL and UNITY-DLBCL, including the implications of the GENUINE protocol change and loss of its SPA.
- Clinical safety, efficacy and regulatory developments for TG-1101 and TGR-1202, as well as manufacturing comparability and supply capacity.
- Future financing needs, ATM or other share issuance, dilution, and the terms and economic significance of the legacy 5% notes.
- Milestone obligations, potential royalties and related-party arrangements, including the BET sublicense and services involving LFB, Fortress and Checkpoint.