TG Therapeutics, Inc. — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015; balance-sheet comparisons are against December 31, 2014. The filing was signed November 9, 2015.
Business context
TG Therapeutics is a clinical-stage biopharmaceutical company developing treatments for B-cell malignancies and autoimmune diseases. Its principal clinical programs are ublituximab (TG-1101) and the oral PI3K-delta inhibitor TGR-1202. IRAK4 inhibitors and anti-PD-L1 and anti-GITR antibodies were in preclinical development. The company had no approved drug candidates and no product-sale revenue; reported revenue was license-fee amortization from its Ildong agreement.
Financial results and liquidity
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| License revenue | $38,096 | $38,096 | $114,286 | $114,286 |
| Research and development expense | $11.57 million | $13.69 million | $32.45 million | $24.95 million |
| General and administrative expense | $2.29 million | $3.79 million | $13.20 million | $12.16 million |
| Operating loss | $13.83 million | $17.44 million | $45.54 million | $37.00 million |
| Net loss | $13.66 million | $17.45 million | $45.34 million | $36.98 million |
| Basic and diluted loss per share | $0.28 | $0.51 | $1.01 | $1.14 |
At September 30, cash and cash equivalents were $65.46 million, short- and long-term investments were $49.79 million, and interest receivable was $0.16 million. Management reported approximately $115.4 million in cash, cash equivalents, investments and interest receivable, and estimated these funds would cover anticipated operating cash needs for more than 24 months from quarter-end. Total assets were $127.41 million; current liabilities were $9.69 million; total liabilities were $11.10 million. Accumulated deficit was $140.52 million.
For the first nine months, operating cash use was $31.79 million, investing cash use was $27.16 million, and financing provided $68.70 million. Financing included approximately $67.0 million net proceeds from the at-the-market stock offering and $1.01 million from warrant exercises. Cash increased by $9.75 million to $65.46 million. No operating margin is meaningful given negligible license revenue and continuing losses.
The balance sheet showed $181,668 of notes payable at fair value. The filing also disclosed approximately $20.3 million of cumulative principal and accrued interest on the legacy 5% notes; no payments had been made. The notes’ stated repayment obligation is tied to specified product cash flows, with a conversion feature, and the carrying value uses a Level 3 fair-value estimate.
Material changes versus prior comparable periods
- Nine-month R&D expense increased $7.50 million, mainly reflecting higher manufacturing and clinical-trial costs for TG-1101 and TGR-1202; the comparison also included a $4.0 million TGR-1202 license-option payment in 2014.
- Quarterly R&D expense declined year over year, largely because 2014 included noncash in-licensing stock expense and higher noncash compensation. Other R&D expense nevertheless increased in the quarter.
- Nine-month net loss widened by $8.35 million, while loss per share improved from $1.14 to $1.01, alongside a higher weighted-average share count. Cash from equity financing supported higher quarter-end cash and investments.
- Common shares issued increased to 52.56 million from 44.97 million at year-end 2014. The company sold 4.09 million shares through its ATM offering during the first nine months.
Outlook, developments, risks and unusual items
- Management expected other R&D costs to increase modestly for the remainder of 2015 as clinical-trial enrollment expanded; it expected other G&A costs to remain at a comparable level.
- The FDA agreed to Special Protocol Assessments for the Phase 3 GENUINE trial of TG-1101 plus ibrutinib in high-risk CLL and the UNITY-CLL Phase 3 program evaluating TG-1101 plus TGR-1202. The filing cautions that an SPA does not guarantee approval.
- A Phase 1/2 trial of TG-1101, TGR-1202 and pembrolizumab in relapsed or refractory CLL began in September 2015. TGR-1202 was also being studied in several combinations; a solid-tumor study opened in October 2015, after quarter-end.
- The company expects operating losses to continue and may never become profitable. Its runway estimate depends on trial timing, design and conduct; management also stated that significant future financing would be needed to execute its strategy and sustain operations beyond the projected runway.
- Key risks include clinical efficacy and safety uncertainty, regulatory and enrollment delays, dependence on licensors and contract manufacturers, potential supply interruptions, competition, patent disputes, reimbursement and commercialization challenges, and possible dilution or financing constraints.
- Notable items include $12.84 million of noncash stock compensation for the first nine months and $18.9 million of unrecognized compensation cost on unvested time-based restricted stock. A Checkpoint collaboration provides for up to $164 million in development and sales milestones plus royalties. Related-party transactions included development/manufacturing services with LFB and shared services and workspace arrangements involving Fortress/Checkpoint; executive chairman Michael Weiss held roles and equity interests in related entities.
- The company reported no material pending legal proceedings and stated that disclosure controls were effective as of September 30, 2015.
Most important facts for investors to verify
- Whether clinical-trial progress, enrollment, safety and efficacy data support the planned Phase 3 programs and eventual regulatory filings.
- Whether the reported more-than-24-month cash runway remains achievable given clinical spending, prepaid development commitments and the timing of future financing.
- The terms, potential dilution and remaining capacity of the shelf registrations and ATM program, and any financing completed after quarter-end.
- The economic and legal terms of the legacy 5% notes, including the substantial difference between cumulative accrued obligations and the reported fair-value carrying amount.
- Manufacturing capacity and comparability, licensor performance, intellectual-property status, and the costs and conflicts associated with related-party arrangements.