TG Therapeutics, Inc. — FY 2016 Form 10-K
Reporting period: Year ended December 31, 2016. The filing was signed March 15, 2017; subsequent events and clinical updates through that date are noted separately.
Business context
TG Therapeutics is a clinical-stage biopharmaceutical company developing treatments for B-cell malignancies and autoimmune diseases. Its lead candidates are ublituximab (TG-1101), an anti-CD20 antibody, and TGR-1202, an oral PI3K-delta inhibitor. IRAK4, BET, anti-PD-L1 and anti-GITR programs remained preclinical. No candidate had received marketing approval, and the company had no product sales.
Financial performance and liquidity
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $152,381 | $152,381 |
| Research and development expense | $69.2 million | $47.7 million |
| General and administrative expense | $9.9 million | $15.6 million |
| Total costs and expenses | $79.1 million | $63.3 million |
| Operating loss | $79.0 million | $63.2 million |
| Net loss | $78.3 million | $62.9 million |
| Basic and diluted loss per share | $1.60 | $1.38 |
| Cash, equivalents, investments and interest receivable at year-end | $45.0 million | $102.4 million |
| Cash used in operating activities | $61.6 million | $44.7 million |
Revenue was license-fee amortization from the Ildong sublicense, not product sales. Operating costs exceeded revenue substantially; profit margins are not meaningful for this loss-making development-stage company. The filing reports no material market-risk exposure from its short-duration investment portfolio.
Cash and equivalents alone were $25.0 million at year-end; short-term investments were $19.9 million. Current assets were $50.9 million versus current liabilities of $16.9 million. Total liabilities were $18.9 million, including a $68,875 carrying value for the convertible 5% notes. The notes’ stated cumulative liability, including accrued interest, was approximately $16.7 million; no payments had been made, and fair value depended on a conversion feature and significant estimates.
Operating cash use increased as clinical-development spending expanded. Investing activities provided $26.5 million, mainly from securities maturities and sales; financing activities provided $5.0 million, primarily ATM stock sales and warrant exercises. The company reported an accumulated deficit of $236.4 million and total equity of $35.9 million.
Material changes and developments
- R&D expense rose 45% year over year, driven mainly by clinical development and manufacturing for TG-1101 and TGR-1202; these two programs accounted for most reported project-level R&D spending.
- G&A expense declined, largely because noncash stock compensation fell; other G&A increased with office, personnel and related costs.
- Cash and investments declined by $57.4 million during 2016, while operating cash use rose by $16.9 million.
- After year-end, the company raised approximately $31 million net through ATM sales and approximately $54 million net from a public offering that closed March 14, 2017. Management said year-end funds plus first-quarter 2017 financing would fund planned operations for approximately 24 months.
- At December 31, 2016, 56.8 million common shares were outstanding; the filing reported 56.9 million outstanding on March 1, 2017. The post-year-end stock sales increased the share count and diluted existing holders.
Outlook, pipeline and risks
- Management expected R&D costs to increase modestly in 2017 as Phase 3 enrollment expanded and the company prepared for a potential commercial launch; other G&A was also expected to increase modestly. These expectations were contingent on financing and clinical progress.
- The UNITY-CLL Phase 3 trial evaluates ublituximab plus TGR-1202 against single-agent arms and active control. The company estimated approximately $20 million to complete the relevant Phase 3 portion, targeted for 2018, subject to success and funding. The registration-directed UNITY-DLBCL Phase 2b program was estimated to require approximately $5 million to complete its phase, also targeted for 2018.
- The filing reports March 6, 2017 GENUINE topline results: ublituximab plus ibrutinib achieved an 80% overall response rate versus 47% for ibrutinib alone in the treated population, with p<0.001. Follow-up was approximately 12 months and some responses awaited confirmation. The protocol had been amended in October 2016: enrollment was reduced, PFS removed as an endpoint, and the FDA Special Protocol Assessment was no longer in effect. The company planned to seek FDA discussion of a possible accelerated-approval filing; approval was uncertain and at FDA discretion.
- Key risks include clinical-trial failure or delay, FDA review and approval uncertainty, adverse effects and drug interactions, competition, dependence on licensors and contract manufacturers, lack of commercial infrastructure, and the need for additional capital. The company warned that failure to raise funds could force it to curtail development.
- Two purported securities class actions filed in January 2017 concerning statements about the GENUINE trial were pending in early stages. The company also disclosed related-party arrangements, including office and shared-service agreements with Fortress Biotech and a BET sublicense involving Checkpoint; CEO Michael Weiss held leadership roles at those organizations.
- Operating lease commitments totaled approximately $18.0 million through 2031. The company relied on third parties for manufacturing and had no internal manufacturing capability. Auditors issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Current cash runway after the 2017 ATM and public offering, actual burn rate, and potential need for further financing and dilution.
- Full, confirmed GENUINE efficacy and safety results, including response confirmation, and the FDA’s view of whether the data can support an accelerated-approval application.
- Enrollment, timing, costs and outcomes for UNITY-CLL and UNITY-DLBCL, and whether management’s 2018 estimates remain achievable.
- Longer-term safety and efficacy of TGR-1202, including in combinations, and the adequacy and continuity of contract manufacturing supply.
- Developments in the pending securities litigation, material related-party costs and obligations, and the distinction between the notes’ reported fair value and stated cumulative liability.