TG Therapeutics, Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015; financial statements are unaudited. TG Therapeutics is a clinical-stage biopharmaceutical company developing treatments for B-cell malignancies and autoimmune diseases. Its lead clinical programs are TG-1101 (ublituximab) and TGR-1202; it had no approved products or product sales.
Financial results and liquidity
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| License revenue | $38,095 | $38,095 | $76,190 | $76,190 |
| Research and development expense | $11.26 million | $6.85 million | $20.88 million | $11.26 million |
| General and administrative expense | $5.89 million | $5.15 million | $10.91 million | $8.38 million |
| Operating loss | $17.11 million | $11.96 million | $31.71 million | $19.56 million |
| Net loss | $17.10 million | $11.99 million | $31.68 million | $19.53 million |
| Basic and diluted loss per share | $0.38 | $0.36 | $0.73 | $0.62 |
For the six months, operating cash outflow was $21.13 million, versus $11.90 million a year earlier. Investing activities used $27.24 million, mainly for government securities; financing provided $52.96 million, principally from stock sales and warrant exercises. Cash and cash equivalents rose to $60.30 million from $55.71 million at year-end 2014.
At June 30, 2015, cash, investment securities and interest receivable totaled approximately $110.6 million. Total assets were $123.61 million; total liabilities were $10.66 million, and equity was $112.95 million. Management estimated available cash and investments, including subsequent ATM proceeds, would fund anticipated operating cash requirements for more than 24 months from June 30, 2015. This is an estimate dependent on clinical-trial timing and spending.
The balance sheet reports $295,360 of notes payable at fair value. The related 5% notes’ cumulative face liability, including accrued interest, was approximately $20.0 million; they matured March 8, 2015, and the company reported no payments made. The filing describes the company’s obligations as limited to specified product cash flows, if any, and the notes’ conversion feature. The difference between the recorded fair value and cumulative liability merits attention.
Material changes and operating developments
- Six-month R&D expense increased $9.62 million year over year, driven mainly by TG-1101 and TGR-1202 clinical development and manufacturing. Management expected R&D costs to increase modestly for the rest of 2015 as patient enrollment grew.
- Six-month G&A expense increased $2.53 million, including higher noncash compensation. Management expected other G&A costs to remain at a comparable level for the remainder of 2015.
- Noncash stock compensation totaled $11.60 million for the first half of 2015. The company reported approximately $21.0 million of unrecognized compensation cost for unvested time-based restricted stock.
- The company raised approximately $51.2 million net from 3.22 million shares sold under its ATM during the first half. From July 1 through August 6, it raised a further approximately $15.8 million net from 873,781 shares.
- The Phase 2 TG-1101/ibrutinib trial in CLL and mantle cell lymphoma had completed enrollment. Enrollment continued in selected expansion cohorts in the TG-1101/TGR-1202 study. The planned GENUINE Phase 3 trial had an FDA Special Protocol Assessment and was intended to evaluate TG-1101 plus ibrutinib versus ibrutinib alone in high-risk CLL.
Outlook, risks, contingencies and unusual items
- Management expected continued operating losses and stated the company may never become profitable. Development timelines and projections assume additional financing; future equity financing may dilute shareholders.
- Key risks include clinical-trial failure or delay, patient enrollment, regulatory approval, safety and combination-treatment risks, reliance on third-party manufacturers and contractors, competition, intellectual-property disputes, reimbursement and access to capital.
- In March 2015, the company entered a related-party collaboration with Checkpoint Therapeutics for anti-PD-L1 and anti-GITR programs in hematologic malignancies. Terms included a $500,000 upfront payment, up to $164 million in development and sales milestones, and tiered single-digit royalties. Executive Chairman and Interim CEO Michael Weiss held leadership roles and equity interests in TG, Fortress and Checkpoint.
- The company incurred approximately $2.3 million in LFB-related development and manufacturing expense during the first half, compared with $183,000 in 2014; it reported $1.8 million payable and $5.7 million in prepaid R&D advances to LFB at quarter-end.
- A related-party desk-space agreement with Fortress carries an estimated average annual rent obligation of $1.1 million under a 15-year lease; Fortress expected to take possession in late 2015 or early 2016. Approximately $0.6 million was pledged as restricted cash.
- The company reported no material pending legal proceedings. Management concluded disclosure controls were effective as of June 30, 2015 and reported no materially affecting change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether clinical-trial progress, enrollment and subsequent safety or efficacy data support the stated development plans, including the GENUINE trial and FDA pathway.
- Whether the more-than-24-month runway estimate remains supportable after actual trial spending, planned commitments and any additional financing.
- The terms, enforceability and accounting treatment of the matured 5% notes, given the approximately $20.0 million cumulative liability versus $295,360 recorded fair value.
- The economics and governance of the Checkpoint collaboration and other related-party arrangements, including potential milestones, royalties and lease costs.
- The extent of dilution from ATM sales, outstanding warrants and restricted stock, and the timing and amount of future capital needs.