TG Therapeutics, Inc. — Q3 2013 Form 10-Q
Business context and reporting period
Quarter ended September 30, 2013. TG Therapeutics is a development-stage biopharmaceutical company focused on therapies for cancer and underserved conditions. Its lead programs were TG-1101 (ublituximab) and TGR-1202; it also held rights to AST-726. No drug candidate had been approved or generated product-sale revenue.
Financial performance and position
| Metric | Q3 2013 / September 30, 2013 | Comparable period / prior year-end |
|---|---|---|
| License revenue | $38,096 for the quarter; $114,286 for nine months | $0 for the 2012 quarter and nine months |
| Research and development expense | $3.31 million for the quarter; $9.91 million for nine months | $1.56 million and $19.95 million, respectively |
| General and administrative expense | $1.38 million for the quarter; $5.20 million for nine months | $1.15 million and $3.26 million, respectively |
| Net loss | $4.56 million for the quarter; $14.81 million for nine months | Consolidated loss of $2.71 million and $22.68 million, respectively |
| Cash and cash equivalents | $50.18 million | $16.46 million at December 31, 2012 |
| Total assets / total liabilities | $54.30 million / $9.66 million | $22.07 million / $6.52 million at December 31, 2012 |
| Operating cash flow | $(5.92) million for nine months | $(4.35) million for 2012 nine months |
Quarterly operating loss was $4.65 million. Gross margin is not meaningful for this development-stage company, which reported only license revenue and no product sales. The July public offering generated approximately $37.6 million net proceeds; warrant exercises added approximately $2.0 million. Common shares outstanding were 33.40 million at quarter-end, up from 25.81 million at year-end 2012.
Changes versus comparable periods
Quarterly R&D expense rose about $1.75 million year over year, primarily as clinical development spending increased for TG-1101 and TGR-1202. Nine-month R&D expense fell substantially year over year because 2012 included a $16.58 million noncash in-licensing stock charge; excluding that item, 2013 R&D spending increased. Nine-month G&A expense also increased, including higher noncash compensation and corporate costs. Nine-month operating cash use increased by about $1.56 million.
Outlook, risks, and unusual items
- Management estimated that September 30 cash would fund anticipated operating requirements for at least 24 months, while noting that spending depends on clinical-trial timing and that significant future financing will be needed to execute plans.
- Management expected R&D costs to increase modestly for the remainder of 2013, mainly due to additional clinical-trial enrollment; other G&A costs were expected to remain comparable. No formal revenue or earnings guidance was provided.
- As of November 2013, enrollment was complete in the TG-1101 single-agent and lenalidomide-combination studies. The TGR-1202 Phase I trial continued dose escalation at 1,200 mg once daily; early tolerability observations were preliminary. TG-1101 received orphan drug designation for marginal zone lymphoma in September.
- The company reported a defaulted ICON convertible note: $677,778 principal, classified current, plus $172,751 interest payable. The balloon payment was due January 2012; the company said it was negotiating a settlement or alternative arrangement.
- The 5% notes had a stated accrued liability of approximately $18.39 million but a fair-value carrying amount of $2.27 million, measured using a Level 3 discounted-cash-flow model. No payments had been made. The valuation depends on uncertain AST-726/AST-915 cash-flow assumptions.
- AST-726 development plans remained undecided; management warned that failure to determine a plan could lead to future impairment as related intellectual property began expiring in 2014. The company recorded $1.10 million of cumulative in-process R&D impairment through the reporting date.
- LFB Group, a related party and development/manufacturing partner, provided approximately $6.07 million of services in the first nine months; about $3.08 million was payable at quarter-end. The company also cited reliance on third-party licensors, clinical and manufacturing contractors, regulatory approval, intellectual-property protection, and future financing as key risks.
- Stock-based compensation was $4.26 million for the first nine months. Management concluded disclosure controls were effective; no material pending legal proceedings were reported.
Important facts for investors to verify
- Whether clinical-trial progress, safety, efficacy, and enrollment translate into later-stage results and regulatory approvals.
- Whether the stated 24-month cash runway remains supportable as trial spending changes, and when additional capital may be required.
- Status and terms of negotiations to resolve the defaulted ICON note, and potential cash or dilution consequences.
- Basis and sensitivity of the Level 3 5% note valuation, including the underlying AST-726 and AST-915 assumptions.
- AST-726’s development or partnering decision, and any resulting impairment or change in the notes’ estimated value.
- Future obligations to LFB Group and dependence on external development and manufacturing partners.