TG Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2012. The company was a development-stage biopharmaceutical business with no commercial product sales.
Financial performance and position
| Metric | Q3 2012 | Nine months 2012 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $1.56 million | $19.95 million |
| General and administrative expense | $1.15 million | $3.26 million |
| Operating loss | $2.71 million | $23.20 million |
| Net loss attributable to TG Therapeutics | $2.46 million | $14.61 million |
| Basic and diluted loss per share | $0.16 | $1.34 |
| Operating cash used | Not separately stated | $4.35 million |
There were no product revenues, so profit margins are not meaningful. Q3 2011 net loss attributable to the company was $28,605; Q3 2012 loss increased substantially as operations and development activity expanded. Nine-month 2011 company-attributable loss was $310,710, versus $14.61 million in 2012, including a $16.58 million noncash research and development charge for TG-1101 license-related shares. The 2012 nine-month results also include $2.18 million of stock compensation and $1.00 million paid as an upfront milestone for TGR-1202.
At September 30, cash and cash equivalents were $17.37 million, up from $9.75 million at December 31, 2011. Current assets were $19.16 million and current liabilities $2.96 million. Total liabilities were $7.34 million, including $5.06 million of notes payable; the company reported $17.89 million of total equity. Management estimated the cash balance would fund anticipated operating needs for approximately 18–21 months from September 30, while noting that financing would be needed thereafter and that actual cash needs depended on clinical-trial plans.
Material changes, outlook and risks
- Research and development spending rose sharply year over year, reflecting the TG-1101 U.S. trial and TGR-1202 collaboration and development work. Management expected R&D costs to increase through the remainder of 2012 and into 2013 as clinical programs progressed.
- TG-1101 received FDA IND acceptance in April 2012; a Phase I/II U.S. trial in relapsed or refractory B-cell non-Hodgkin lymphoma began in September. TGR-1202 had not entered human trials; management planned an IND submission by year-end 2012 and a Phase I trial in Q1 2013.
- AST-915’s Phase I study did not meet its primary efficacy endpoint; future development was under evaluation. The company had not decided whether to continue, sell, or license AST-726 and expected to decide within roughly 6–12 months.
- The ICON convertible note, with $677,778 principal and $107,569 interest payable, was in default after the January 31, 2012 balloon payment was missed. The company said it was seeking a settlement or alternative arrangement.
- The 5% notes had a $4.38 million recorded fair value, versus approximately $17.52 million face liability including accrued interest. Their fair value is Level 3 and depends on projected cash flows from AST-726 and AST-915 and significant assumptions, including an approximately 20% discount rate. No payments had been made on these notes.
- Subsequent events: In November 2012, LFB agreed to exchange its TG Bio shares for 5.0 million company shares and a warrant for 2.5 million shares at $0.001 per share; LFB also agreed to buy at least $750,000 of additional shares if specified financing conditions occurred. The company reported 25,058,995 common shares outstanding on November 12, compared with 20,058,995 at September 30. Also in November, Ildong obtained South Korea and Southeast Asia rights to TG-1101 for a stated $2 million upfront payment plus potential milestones and royalties; these were post-period developments, not Q3 revenue or cash receipts.
- Disclosure controls were found ineffective as of September 30 because financial and accounting duties were concentrated in the CFO, creating a segregation-of-duties deficiency. Management intended to address this by hiring accounting personnel.
- Key risks include continued operating losses and reliance on future financing, clinical and regulatory failure or delay, dependence on licensors and contract manufacturers, product supply concentration, competition, intellectual-property challenges, and potential dilution. The company also disclosed a limited OTC Bulletin Board trading market and no expectation of dividends.
Important facts for investors to verify
- Cash burn, trial spending, and whether actual liquidity remains consistent with management’s 18–21-month estimate.
- Status and terms of the defaulted ICON note, and any settlement or changes to the 5% notes’ fair-value assumptions.
- Progress of TG-1101 and TGR-1202 trials and whether the stated development timelines and financing needs have changed.
- Completion and economic terms of the LFB share exchange and Ildong license, including receipt of the upfront payment and any resulting dilution.
- Remediation of the disclosure-control weakness and any subsequent changes in accounting personnel or internal controls.