TG Therapeutics, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Amounts are in U.S. dollars; financial statement figures are in thousands unless otherwise indicated.
Business context
TG Therapeutics is a clinical-stage biopharmaceutical company developing treatments for B-cell-mediated diseases, including CLL, NHL and multiple sclerosis. It had five drug candidates in clinical development and had not received approval for any candidate or generated product-sales revenue. Revenue was limited to license-fee recognition from an existing sublicense.
Financial performance and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| License revenue | $38,000 in 2020 and 2019 | $76,000 in 2020 and 2019 |
| Research and development expense | $36.4 million vs. $32.9 million | $72.5 million vs. $65.3 million |
| General and administrative expense | $14.4 million vs. $2.7 million | $28.7 million vs. $5.1 million |
| Operating loss | $50.8 million vs. $35.5 million | $101.1 million vs. $70.2 million |
| Net loss | $52.9 million vs. $36.2 million | $104.0 million vs. $71.4 million |
| Basic and diluted net loss per share | $0.47 vs. $0.42 | $0.95 vs. $0.85 |
| Cash used in operating activities | Not separately provided | $105.9 million vs. $69.2 million |
Product sales were zero, so conventional gross margin is not meaningful. Operating margin is also not meaningful given negligible license revenue and the company’s development-stage cost base.
- At June 30, cash and cash equivalents were $260.5 million and short-term investments were $15.1 million; management reported combined cash and investments of $275.6 million. Including restricted cash, cash, cash equivalents and restricted cash totaled $261.8 million.
- Management said cash, cash equivalents and investments on hand were expected to fund operations for more than 12 months from the filing date, while also stating that significant future financing would be needed to execute current operations and commercialization plans.
- Net cash from financing was $241.2 million for the first half, primarily from a May public offering and at-the-market sales. The company reported approximately $165.1 million net proceeds from the public offering and $76.0 million net proceeds from ATM sales.
- Balance-sheet debt was $29.4 million net of issuance costs, including a $7.2 million current portion. The underlying Hercules term loan principal was $30.0 million, matures March 2022, and is secured by substantially all assets other than intellectual property. The interest-only period was extended to April 1, 2021; the company reported covenant compliance.
- Other current liabilities included $24.8 million owed to a contract manufacturer for deferred costs and fees. The company reported approximately $73 million in known contractual obligations related to debt, manufacturing and leases.
- Stockholders’ equity was $194.2 million at June 30, compared with $38.6 million at year-end 2019; accumulated deficit was $805.2 million. Shares issued increased from 109.4 million at year-end to 126.7 million at June 30.
Changes versus prior comparable periods
- First-half net loss increased by $32.6 million year over year, while operating cash use increased by $36.7 million.
- Higher R&D spending reflected late-stage development and manufacturing for ublituximab and umbralisib. G&A rose sharply, including a substantial increase in noncash compensation related primarily to restricted stock and options granted to executives, and increased commercial-launch preparation costs.
- First-half noncash stock compensation was $18.4 million, compared with $3.6 million in 2019. The company expects significant noncash compensation expense to continue.
- Interest expense increased to $3.4 million for the first half from $1.9 million, mainly due to administrative fees on deferred contract-manufacturing costs.
- Equity financing materially increased cash and equity, but also increased the share count and diluted existing holders.
Outlook, developments and risks
- In May 2020, TG Therapeutics announced that the UNITY-CLL trial met its primary progression-free-survival endpoint at a prespecified interim analysis (p<0.0001) and would stop early for superior efficacy. Safety and secondary endpoints were still being assessed; the filing cautions that final safety results and regulatory implications remained uncertain.
- The rolling NDA submission for umbralisib for MZL and FL was completed in June 2020. The company also reported that the relevant single-agent trial cohorts had met their primary overall-response-rate endpoints; approval and commercial success were not assured.
- The ULTIMATE I and II Phase 3 trials of ublituximab in relapsing multiple sclerosis were fully enrolled. Management anticipated minimal COVID-19 impact on timelines for several fully enrolled late-stage trials but could not guarantee that timelines or outcomes would be unaffected.
- Management expected G&A expenses to increase modestly during 2020 for potential launch preparation. It also described substantial expected spending on development, manufacturing and regulatory applications over the following 12–18 months.
- Key risks include clinical efficacy and safety uncertainty, regulatory review and approval, COVID-19-related trial or regulatory disruption, reliance on single-source manufacturers, manufacturing scale-up and comparability, commercialization readiness, competition, reimbursement and pricing, and the need for additional capital. The company stated that COVID-19 had not materially adversely affected its business or supply chain to date, but future effects were uncertain.
- The filing reported no material pending legal proceedings. Management concluded disclosure controls and procedures were effective as of June 30, 2020, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Subsequent UNITY-CLL safety and secondary-endpoint data, and the regulatory pathway and timing following the interim efficacy result.
- FDA review status, any decision and timing for the umbralisib NDA, and whether the MZL and FL evidence supports approval.
- Actual cash burn, manufacturing commitments and remaining runway against management’s greater-than-12-month liquidity estimate.
- Contract-manufacturer payment terms and the timing of the $24.8 million deferred-cost liability, as well as Hercules loan amortization and covenant requirements.
- Further equity issuance, dilution, stock-based compensation and executive awards; the filing reports 126,649,205 common shares outstanding as of August 5, 2020.
- COVID-19 effects on clinical-trial follow-up, regulatory review, overseas manufacturing and potential launch preparations.