TG Therapeutics Could Be About To Deliver On Rich Promise

Nov. 11, 2019 8:07 AM ETTG Therapeutics, Inc. (TGTX)8 Comments6 Likes

Summary

  • TG Therapeutics shareholders have had to be patient with a stock that has ultimately fallen from $18 to $7.5 since 2014.
  • The company has raised nearly $600m to support drug development meaning shareholders have regularly been diluted.
  • The upshot is that TGTX now has 2 complementary drugs undergoing phase III trials for the treatment of Chronic Lymphocytic Leukemia (CLL), non-Hodgkin Lymphoma (NHL) and Multiple Sclerosis (MS).
  • FDA approval for commercialisation would surely see the share price spike; markets are crowded but sales revenues could potentially be in billions.
  • Recent news-flow has been encouraging: ahead of Q3 earnings announcement stock looks a good speculative buy in my opinion.

Investment Thesis

Q3 results will be announced on Tuesday 12th November and I am hopeful for good news concerning 2 of TG Therapeutics drugs in development: b-cell targeted drug candidates ublituximab and umbrasilab, designed to treat Chronic Lymphocytic Leukemia (CLL), non-Hodgkin Lymphoma (NHL) and Multiple Sclerosis.

Research indicates that both drugs have proven to be potential best-in-class treatments and the total addressable market looks to be in the single digit billions. Management has already begun the process of filing for the commercialisation of the drugs with the FDA and believes that there could be significant developments within the next 12 months.

The big red flag concerning TG is its precarious cash position and the fact that it will have to continue to raise money through debt and equity to finance an annual cash burn that is likely to exceed $150m in 2020.

The share price has done little recently but a recent upsurge on the back of regular positive news-flow gives me hope that TG stock could gain significantly, and continue to do so as it gets closer and closer to commercialisation. Importantly, TG also has 3 other drugs at various stages of clinical trials, so looks to be in it for the long haul.

Company Background

Shareholders could be forgiven for losing faith in TG Therapeutics (NASDAQ:TGTX) but those who have held onto the stock may be about to see their position rise in value, as the company's flagship drugs inch their way towards FDA approval for full-scale commercialisation.

The company now has 2 complementary drugs in "pivotal" Phase 3 clinical trials; ublituximab (TG-1101) and umbralisib (TGR-1202); for the treatment of Chronic Lymphocytic Leukemia (CLL), and non-Hodgkin Lymphoma (NHL).

Whilst ublituximab is a novel anti-CD20 antibody administered via intravenous injection, umbralisib is an oral, once daily inhibitor of PI3K delta. Hence it is believed that combining the two treatments could be the most effective strategy; this combination is usually referred to as "U2".

Additionally, since ublituximab is a cell-surface antigen for B cells with the ability to suppress the autoimmune response within both relapsing and progressive forms of multiple sclerosis (Source: Informa Pharma Intelligence), the drug is concurrently being tested in Phase 3 trials for treatment of MS.

According to the website FDAAA Trials Tracker, TG Therapeutics is currently participating in no fewer than 17 ongoing clinical trials, one of which, involving ublituximab treating patients with relapsing forms of multiple sclerosis, is currently overdue.

But in the interests of clarity and the near term, this diagram from the TG Therapeutics website provides a simpler picture of where the company is at currently.

Trial progress of TG Therapeutics drugs (Source: TG Therapeutics website)

Taken in turn, the highlights; where management anticipate value creation milestones to occur within approximately 12 months from today; are as follows:

Umbrasilib for treatment of MZL

As part of the Unity trials Umbralisib has now been granted breakthrough therapy designation and orphan drug designation (Source: TG Therapeutics press release) by the FDA for the treatment of margin zone lymphoma (MZL). According to TG's Chairman and CEO Michael Weiss, speaking during the company's Q219 earnings call:

in June, we met with the FDA and confirmed our path forward to submit on umbralisib for accelerated approval in patients with relapse or refractory margins zone lymphoma. We anticipate the initiation of rolling NDA submission around year end.

MZL is the third most common B-cell non-Hodgkin lymphoma, comprising about 10% of all non-Hodgkin lymphomas.

Although there are other PI3K pathway inhibitors available, such as idelalisib (sold under the brand name Zydelig developed and marketed by Gilead Sciences) and duvelisib (sold under brand name Copiktra, manufactured by Verastem Oncology), umbrasilib has arguably performed best in clinical trials.

Reviewing results of the phase II UNITY-NHL trial, presenting author Nathan H. Fowler, MD, Associate Professor of Medicine and Director of Clinical Research in the Department of Lymphoma/Myeloma at The University of Texas MD Anderson Cancer Center, Houston, commented:

The adverse event and clinical activity data are highly encouraging at this early time point. We are excited to continue following patients for a longer time to further establish the long-term activity and side effects of umbralisib. With the results reported so far, umbralisib has the potential to make a real difference for patients with relapsed or refractory marginal zone lymphoma. (Source: The ASCO Post)

Ublituximab & umbrasilib for treatment of Chronic Lymphocytic Leukemia (CLL)

The "U2" combination also impressed in its phase III GENUINE trial, demonstrating a benefit in progression-free survival over ibrutinib monotherapy (Source: Targeted Oncology).

Ibrutinib is marketed under the brand name Imbruvica™ by pharma giant AbbVie, which also sells the CLL chemotherapy drug Venclexta. In 2018 AbbVie reported hematologic oncology product sales of $3.21 billion in the US market; a 44% year-on-year rise in sales; with a further $719m from international sales. (Source: MarketRealist)

In Q4 alone, AbbVie recorded Imbruvica sales of more than $1bn; a 42% year-on-year increase; which it mainly ascribed to uptake of the drug in frontline chronic lymphocytic leukemia (or CLL) indication.

This illustrates the size of the potential market for U2. Imbruvica does not compete against generics, but my understanding is that there would be nothing stopping doctors selecting a commercialised form of U2 over Imbruvica, which costs around $12,500 for 28 70mg capsules. (Source: Drugs.com).

Clearly, TG has a lot of work ahead if it is to make a successful NDA MBLE filing and progress the drug all the way to commercialisation, but if the company were to capture even one tenth of Imbruvica's sales it would surely send the company's stock soaring. It's also worth noting that Ublituximab is being tested alongside ibrutinib for high risk CLL in the phase III GENUINE trial, with results which:

demonstrated a benefit in progression-free survival over ibrutinib monotherapy, as assessed by an independent review committee. (Source: TargetedOncology)

Ublituximab for treatment of MS

Ublituximab has tested positively in both Phase II trials and in the "Ultimate" Phase III trials. During the Q2 earnings call CEO Weiss commented:

We believe the Phase 2 results are highly supportive of our fully enrolled ultimate Phase 3 program and our belief that ublituximab can deliver a best in class profile that includes comparable to better efficacy, comparable safety, convenience and price over anti-CD-20 MS therapies. Ublituximab and is the only anti-CD-20 approved for MS. And is anticipated to generate approximately $4 billion in revenues in 2019 only in its second full year following launch. As we've mentioned before, this is a large market, and one in which we believe we can provide significant value to patients with MS. (Source: TG Therapeutics Q219 Earnings Call)

For a more independent assessment, we can turn to the Multiple Sclerosis Association of America, who see many positives in the Phase II and III trials:

Findings from a Phase II multi-center, placebo-controlled study suggest that ublituximab reduces MS disease activity, suppresses relapses, and can be safely infused in approximately one hour. (Source: MSAA)

There are already several similar drugs on the market, like Ocrevus, Rituxan, and ofatumumab that target the CD20 molecule. Based on my research; and this tends to be the case across all of the TG clinical trials mentioned above; it does appear that both ublituximab and umbrasilib outperform, or at the very least complement the current solutions that are available at this time.

This is encouraging news for TG Therapeutics and their shareholders. Shareholders may be generally disappointed by the performance of the stock over the past 6 months since it has not moved significantly, but it has recently shown signs of life.

TG Therapeutics Stock Price vs S&P past year. Source: TradingView

Caveats: Financial Position, Doubts About Management

There are certainly some good reasons why investors may have become frustrated with TG. The slow progress of clinical trials test patience, and positive news-flow has not been regular enough to build share price momentum.

The biggest red flag about TG, in my view, concerns the company's financial position. TG has raised almost exactly $600m to fund its operations, including an $85m raise involving debt and equity, announced in March 2019 (Source: TG Therapeutics press release). The shares were sold at a price of $6.80, which is not unreasonable, however shareholders are likely to be disappointed that their holdings are being continually diluted as TG keeps coming back to the well for more cash.

Besides the share issue; which raised approximately $25.2m; TG secured a $60m venture debt facility with Hercules Capital. If that sounds like a lot, think again. TG burnt through $71m in the first 6 months of 2019 alone, and $85m in the first 6 months of 2018, as we can see from the company cashflow statement below.

Source: TG Theraputics 10Q Q219

The $85m that TG says it has available is unlikely to last much beyond the first 6 months of 2020, if that long, and in fact the company has already filed a prospectus for a mixed shelf offering (Source: Seeking Alpha)

When we also factor in the fact that the company will almost certainly not be revenue generating until, perhaps, 2021 at the earliest, and will need to build a sales team to make a case for hospital to stock ublituximab & umbrasilib (if they are even approved) and for insurance companies and medicaid / medicare to provide reimbursement, then it's easy to see why cash is a major concern.

On the other hand, the addressable market is huge - most likely in the single digit billions - so perhaps the "jam tomorrow" is worth waiting for.

Can Management Deliver?

Although I am not familiar with TG Therapeutics management team, I have read quite a lot of criticism directed at them in the comments section of many previous SA articles concerning TG. Perhaps this relates to the frustration around the length of time it is taking to get the drugs tested and commercialised - or perhaps the concerns are based on more deep rooted, justifiable objections.

There is no doubt that the company faces huge challenges even if, in a best case scenario, its drugs are approved. Building out the sales team to commercialise products, as I mentioned before, is probably the biggest challenge, bit there is also manufacturing, distribution, and competition from generics to consider. It will be interesting to see how they cope.

Conclusion - I'm Giving TG Therapeutics the benefit of the doubt

The more I look at TG, the more I can't get away from the fact that their clinical trials appear to be progressing smoothly and that ublituximab & umbrasilib are; if not nailed on successes; at the very least extremely promising candidates.

I would also add to this that TG are developing 3 other drugs too besides (note the diagram at the beginning of this article). I will not go into detail here (perhaps in another article), suffice it to say the number of trials ongoing helps to explain why the company burns so much cash.

I can foresee a scenario where TG has 2 commercially approved best-in-class drugs on the market, with a pipeline of new drugs progressing towards stage III trials, and a significantly less precarious cash position offset by actual sales, and, perhaps one day, actual profits.

Perhaps that is too optimistic; and I am under no illusions that this is anything but a highly speculative stock; but I feel that I am coming to this stock at what looks like a good time, with 2 treatments so close to commercialisation, and a lot of investor pain and patience about to be rewarded.

Q3 results are due this Tuesday (Source: Yahoo Finance), and in my view, more good news could drive a serious gain in stock price. I don't want to miss out on that, and, at $8 a share, I see the risk of loss as manageable.

I like the fact there are more candidates in development, and am hopeful this young company can gain invaluable experience and continue to strive to tackle hematological malignancies and relapsing forms of MS - a worthy goal in my view.

This article was written by

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Disclosure: I am/we are long TGTX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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