An In-Depth Assessment Of TG Therapeutics

Last Updated on September 26, 2019 by Sultan Beardsley

You voted and we heard you. After my initial article on a few noteworthy results from AACR 2019, we asked you the subscribers to choose one of the four companies that you would like to learn more about. The results of the poll showed TG Therapeutics was the company most subscribers were interested in, and we couldn’t be happier to provide coverage on this interesting small-cap biotech company.

Introduction

TG Therapeutics (TGTX) $8.09 is a small cap biotechnology company that focuses on the development of therapies for B-cell (blood) cancers and autoimmune diseases. One might initially think with these two different conditions, why would a company have such differentiated focuses? However, autoimmune diseases can be treated with the same or very similar agents to that which blood cancers are treated. A poster-child example would be CD-20 agents, such as rituximab. Ironically, one of TGTX’s lead candidates is a CD-20 targeting agent called ublituximab. Here, I will review TGTX’s current clinical pipeline, a brief overview of the pre-clinical pipeline, followed by a financial outlook with overall opinions on the company…

Clinical Pipeline

TGTX’s goal in development is to develop curative combination regimens for the treatment of blood cancers and autoimmune diseases. In order to work toward this vision, TGTX has amassed a robust pipeline of medications via licensing (licensing deals discussed below). The most advanced assets are umbralisib and ublituximab. Umbralisib is a PI3K delta and CK1 epsilon inhibitor, while ublituximab is an anti-CS20 antibody. TGTX has coined the combination of these two agents as the U2 regimen.

One may say, “ok, a PI3K inhibitor and CD-20 antibody, nothing new,” and in a sense, you would be correct. However, TGTX tout’s differentiation of both agents. TGTX believes that umbralisib’s inhibition of CK1-epsilon may be the reason for its favorable safety profile seen thus far. It does have the benefit of being an oral medication that is taken once daily. For ublituximab, it has the distinct benefit of a shorter infusion. Often, trips to the infusion clinics may be an all-day visit for patients. For example, an infusion of rituximab can take well over 3 hours, not counting the several premedication’s that must be given. Ublituximab can be infused over 1.5 hours. Additionally, ublituximab has shown activity in patients refractory to rituximab, another CD-20 targeting agent. But now, let’s look at TGTX’s lead programs.

UNITY-NHL

First, UNITY-NHL is a phase 2b trial TGTX is conducting in patients with previously treated Non-Hodgkin’s Lymphoma including diffuse large c-cell lymphoma, follicular lymphoma, small lymphocytic lymphoma, and marginal zone lymphoma (MZL). There are three arms in this trial: umbralisib monotherapy, the U2 regimen and then the U2 regimen plus bendamustine. Thus far, we have only seen results from the MZL monotherapy cohort of the study, and the results were impressive. So impressive, the FDA has granted TGTX Breakthrough Therapy Designation for the treatment of MZL patients who have received at least one prior CD-20 targeting regimen. The overall response rate (ORR) at the interim analysis, which is nearly 2/3 of the patients enrolled in this cohort, was 52%. As TGTX notes, this compares favorably to the 46% ORR that was enough for ibrutinib to receive accelerated approval in 2017. TGTX believes this indication could have a total addressable market of around 3,000 patients annually, which is not that impressive but would be a good start for TGTX. We are still waiting for the full analysis of data for the entire cohort of 69 patients, and we should see that here in 2019.

Things to Watch: TGTX is planning to meet with the FDA to discuss accelerated approval. Their goal is to file the NDA by the end of 2019, which would mean we are looking at potential approval somewhere in the second half of 2020. Additionally, we are awaiting data on the other UNITY-NHL cohorts FL and SLL, which should occur in 2H19. The most likely conference to see this data will be ASH.

UNITY-CLL

The UNITY-CLL trial was a very promising trial that would potentially support accelerated approval, however as announced in September of 2018, TGTX will no longer be pursuing this regulatory track. UNITY-CLL is a phase 3 trial evaluating the efficacy and safety of the U2 regimen compared to obinutuzumab and chlorambucil for the treatment of CLL. During an interim analysis in September of 2018, the independent Data Safety Monitoring Board (DSMB) reported that the current data was not mature enough to conduct an analysis of the ORR between the two arms. As such, TGTX has decided to forgo accelerated approval based on ORR, and rather pursue full approval based on the primary endpoint of progression-free survival (PFS). Interestingly, this trial has enrolled patients who are both treatment naïve, and those that have received prior therapy. This expands the potential addressable market. As TGTX notes, the addressable market for treatment naïve patients in the US is nearly 20,000 patients annually. What I like about this more than MZL, is not only is the market substantially larger, but also TGTX would be generating revenue from two products, and not just one. This is not without risks, which is underscored by the uncertainty of the exact implications of the interim ORR analysis blunder.

Looking at obinutuzumab’s labeling, the ORR in the CLL11 trial that leads to obinutuzumab’s approval was roughly 78-80%, with a median PFS around 27 months. There is limited data on the U2 combination in this setting, so it is hard to estimate what to expect, but we are able to see a historical benchmark for the control arm. I would like to point out that the CLL11 trial was all treatment naïve patients, while the UNITY-CLL trial is roughly 60% treatment, naïve patients. How this mix of patients will affect the data, we do not know. It is noteworthy that the DSMB met in the first quarter to conduct a safety and futility analysis, and recommended the trial continue, as no safety signals were detected and that the trial was not futile. Futility is the term used to refer to the inability of a clinical trial to achieve its primary objective. TGTX has noted that the entire CLL market is estimated to be valued at roughly $6 billion in 2020. As noted above, the U2 regimen would generate significant value for TGTX as both agents in the regimen are TGTX’s.

Things to Watch: TGTX expects the top line PFS results to be available in the second half of 2019 to the first half of 2019. Until then, there are limited expectations for updates. The DSMB is reported to meet quarterly to review the data, however, in the absence of drastic issues, these meetings will not provide a catalyst.

ULTIMATE I & II Potentially the most interesting program, in my opinion, is TGTX’s multiple sclerosis initiative. The ULTIMATE I & II trials are evaluating ublituximab in the treatment of relapsing multiple sclerosis (RMS). The comparator arm is teriflunomide, with the primary endpoint being annualized relapsing rate (ARR) at 96 weeks. These trials enrolled roughly 1,100 patients in total. As such, R&D expenses should start to wind down as the trial’s complete readouts. Ublituximab is being compared with Sanofi’s teriflunomide. While it is not best to compare trial head-to-head, we often do in order to gauge chances of trial success. As seen in Figure 2, the annualized relapse rate from two Phase 2 trials shows a benefit in favor of ublituximab. For reference, the ARR for teriflunomide ranged from 0.319 to 0.389 depending on trial and dose in its registrational trials. I believe this trial has a high chance of success.

But what about the ocrelizumab comparison? Ocrelizumab was approved in early 2017, and during 2018, it did $2.35 billion in sales for Genentech (Roche). Furthermore, it is estimated that the global market for MS could reach >$30 billion by 2025. This a very lucrative market opportunity for TGTX if these trials result positive. Furthermore, as being second to the market behind ocrelizumab, TGTX may have a pricing advantage.

Things to Watch: As these trials are enrolled, there are limited updates expected till topline results, which are slated to be in mid-2020, so there are plenty of other developments to expect between now these results, likely, the majority of which will be oncology developments.

Remaining Pipeline

The remaining candidates in the pipeline are in phase 1 trials. TG-1501, TGTX’s anti-PD-L1 candidate, is being developed for the treatment of primary mediastinal DLBCL, which could be an accelerated approval pathway if results are positive. Furthermore, TGTX has seen encouraging results of US with pembrolizumab in patients with Richter’s Transformation, a genetic mutation. The goal is to amend the protocol to replace pembrolizumab with TG-1501 moving forward. Regarding the BTK inhibitor TG-1701, a Phase 1 trial has been started in patients with relapsed B-cell cancers or CLL has begun. This evaluating TG-1701 as monotherapy and in combination with U2. Finally, the candidate TG-1801 was brought to the clinic earlier this year, with a phase 1 trial evaluating efficacy in patients with relapsed or refractory B-cell lymphomas. TG-1801 is an interesting candidate that targets two surface proteins, as opposed to the traditional one surface protein (See Figure 4). The idea is that by targeting two proteins, you will kill cancer cells that may express one protein and not the other. Until we receive more data on these candidates, and they advance, it is hard to assign a value to them. But what is clear, is that TGTX will have many shots on goal with so many candidates and combinations.

Pre-Clinical Pipeline

TGTX has three disclosed preclinical assets, those being TG-1601 (a BET inhibitor), an anti-GITR antibody, and an IRAK4 inhibitor. All three of these assets were licensed from third parties, which means there will be remaining milestones and royalties on any potential net sales of these products. TG-1601 is being developed for hematologic cancers, while the IRAK4 programs are being developed for potential use in both hematologic cancers and autoimmune diseases. The anti-GITR antibody was part of the collaboration deal for TG-1501 from Checkpoint Therapeutics (discussed below) and is licensed for hematologic cancers, but there is an option to acquire the rights for autoimmune diseases as well. The preclinical data available on TG-1601 has been encouraging in animal models, which preclinical work being completed in AML and multiple myeloma models. The IRAK4 program only has in vitro preclinical data on TGTX’s website, while there is no data shared on the website for the anti-GITR program.

Intellectual Property

Patents: In the table below (Table 1), the patent expirations for TGTX’s compounds are presented.

Licensing Activities

In this section, the licensing and collaboration agreements for TGTX’s compounds is discussed and laid out. First, ublituximab was licensed in 2012 from subsidiaries of LFB Group. TGTX has $31.0 million in milestone obligations remaining to be paid, if certain clinical development, regulatory and sales milestones are achieved. Additionally, TGTX will be obligated to pay LFB Group a tiered-royalty on net sales of ublituximab starting at mid-single digits to high-single digits. This low royalty rate and minimal aggregate number of milestones remaining pales in comparison to the potential addressable markets for ublituximab. Furthermore, TGTX has sublicensed ublituximab to Ildong Pharmaceuticals, granting them the right to develop and commercialize ublituximab in South Korea and Southeast Asia. Under this agreement, Ildong has paid TGTX $2 million as an upfront payment, with an additional $5 million in sales-based milestones. Ildong is also required to pay TGTX royalties on the net sales of ublituximab at a rate from mid-teens to high-teens. There is no discussion if income from this sublicense will be subject to a sublicense fee pertaining to the LFB agreement, but either way, I anticipate the income from this sublicensing agreement to be minimal at best.

Umbralisib has been licensed from Rhizen Pharmaceuticals. Under the terms of this agreement, Rhizen is still eligible to receive roughly $175 million in regulatory, approval, and sales-based milestones. Notably, the first of these is going to be payable on the NDA filing, which may be relatively soon given umbralisib’s potential accelerated approval pathway in MZL. Rhizen will also receive tiered royalties starting in the high-single digits up to the low-double digits. Interestingly, the agreement also has terms for financial implications if/when umbralisib is co-formulated with another drug. This may be a hint for future development options of TGTX’s multiple drug candidates. Again, given the potentially lucrative addressable market (CLL) for umbralisib, TGTX should be able to retain a good portion of its potential future revenue.

TGTX entered into a collaboration with Checkpoint Therapeutics for the development and commercialization of TG-1501. At present time, this is only for hematological malignancies, but TGTX has the option to expand the rights to include autoimmune diseases. This agreement includes $165 million in developmental and sales-based milestones that TGTX will need to pay if these milestones are achieved. Furthermore, TGTX will be required to pay tiered single digits royalty on net sales. Interestingly, TGTX notes they are currently renegotiating certain terms of the agreement. I am interested to see if they are pursuing the rights to autoimmune diseases, or what portions of the agreement they want to change. Currently, the royalty rate seems to be very low, relative to their other deals, and I would anticipate that this may go up lightly, but this is not concerning to me, given a slight increase would still allow them to retain much of their revenue.

The newest candidates of TGTX to enter the clinic were licensed in 2018. First, TG-1701 was licensed from Jaingsu Hengrui Medicine Company (Hengrui) and includes worldwide rights, excluding Asia but including Japan. In fact, this agreement is for two drug candidates (TG-1701 and TG-1702), however, TGTX has elected to move TG-1701 into the clinic. TGTX has roughly $350 million in remaining milestones to pay to Hengrui. There is the option for some of these payments to be made in company stock as opposed to cash payments. Hengrui is eligible to receive low double-digit sales royalties, and on revenue earned from any sublicensees. It appears that Hengrui is interested in TGTX’s product(s) as well, as the deal has the provision that before TGTX can license, sell, develop, or commercialize ublituximab in China, TGTX must notify Hengrui and give them the right of the first offer. This deal appears to have the potential to grow into a much larger deal, that sends licenses to compounds in each direction. This can only benefit TGTX moving forward in my opinion. Also, from 2018, was the Joint Venture and license option agreement with Novimmune for TG-1801. Under this agreement, TGTX will be responsible for the costs of clinical development through the end of Phase 2. At which point, TGTX, and Novimmune will be jointly responsible for the development and commercialization costs. TGTX and Novimmune retain an exclusive option. If TGTX elects to license the rights, Novimmune would then be eligible to receive additional milestone of roughly $185 million in addition to tiered royalties on net sales in the range of high-single digits to low double-digits.

Preclinical assets TG-1601, IRAK4 inhibitor, and an anti-GITR antibody were also licensed from other parties. Given their uncertain priority and timing of development, the financial terms of these assets will not be discussed at the current time.

Financials

TGTX’s closing price on Friday, April 12^th was $8.09, valuing the company at a market cap of roughly $660 million. At the end of 2018, TGTX nearly $69 million in cash, cash equivalents, and short-term investment securities. On a proforma basis, TGTX ended 2018 with $128 million. In the fiscal year of 2018, TGTX incurred a net loss of $173,482 million. In the 4^th quarter of 2018, the net loss was $53,860 million. The majority of the operating expenses are research and development, as one would expect. In the first quarter of 2019, TGTX raised roughly $85 million: $60 million in the form of debt financing from Hercules Capital and roughly $25 million in the form of a public offering of equity. Regarding the debt financing, $30 million was drawn on the closing date, with two tranches of $10 million being available at TGTX’s discretion subject to certain trial milestones. The remaining $10 million is available subject to approval by the Hercules’ investment committee.

TGTX did not provide guidance for Q1 of 2019 or the entire year of 2019 with regards to expenses and cash. However, I believe there will be a need for additional funding this year, and that will likely come in the form of a public offering later this year. At this point, I expect TGTX to end the quarter with roughly $70 million in cash and cash equivalents. Essentially, I expect a similar net loss for the first quarter of 2019 (~$54 million), which will offset the roughly $55 million raised between the debt financing and offering. This leaves TGTX in need of funds to maintain the development of its pipeline. Regardless of if you look at the $69 million on the balance sheet, or the $125 million on a proforma basis, TGTX does not have enough funds to make it through the end of 2019 at its current burn rate. What I would expect, and hope to happen, is positive data results in an appreciation in share price, which would be when the offering is made, to avoid excessive dilution of shareholder value. However, many times companies will raise cash prior to data readouts to reduce the risk of failing to secure funding if a trial fails. However, TGTX just completed this round of funding, so I am uncertain if I would expect another offering in the near future, but these are always risks to consider going into the second half of 2019.

Final Thoughts, Risks, And Conclusions

TGTX has the makings of blood cancer behemoth in my opinion. If you look at some the most successful blood cancer medications, TGTX has a candidate it is developing in hope to capitalize on the others’ success: ublituximab (think rituximab), TG-1701 (think ibrutinib), TG-1501 (think pembrolizumab or nivolumab). Am I saying any of TGTX’s candidates will be as successful as the comparators? No, most likely not. But is there an opportunity to capitalize on the work and market these other drugs have made? Absolutely. While results and approval are still several quarters away, TGTX’s multiple sclerosis program could turn into a very lucrative source of revenue, especially comparing it to the revenue ocrelizumab has generated in just its second year on the market. Furthermore, in my opinion, TGTX has managed to negotiate good deals for the products it has licensed, which if/when approved, will allow TGTX to retain a large portion of the revenue, without having to deal with high royalty rates.

TGTX has many shots on goal and is clearly prioritizing the U2 combination while adding their other ancillary compounds to U2. This is a bold gamble, as umbralisib is part of most of these regimens, and PI3K inhibitors are notoriously toxic and poorly tolerated. Gilead’s idelalisib set poor precedence for this class. This is exemplified by the poor launch of Verastem’s duvelisib. In the first quarter commercial quarter duvelisib did $1.2 million in revenue with a sales staff of 50 individuals, that is a very slow launch. It’s hard to say what is causing such a slow launch, but I am cautious that a similar situation may be seen if umbralisib is approved. The flip side is umbralisib seems to have a differentiated side effect profile, but so does duvelisib allegedly. Ideally, umbralisib (and its combo) would be better tolerated and/or significantly more efficacious, justifying its use.

The other risk for TGTX is its cash position. Research and Development costs associated with developing such a large pipeline in larger indications results in the inherent need for funds. TGTX will need to raise funds to see the end of 2019, and investors need to be aware of this and plan accordingly. There is always the potential they license ublituximab to a company for use in China, which based on its potential market, should be able to fetch a sizable up-front payment. If positive data is released, which appears the second half of 2019 timing-wise, then I would anticipate an offering would be soon to follow. At a market cap valuation of nearly $660 million, I believe TGTX provides investors with a unique opportunity to capitalize on this excellent pipeline of compounds. Despite my reservations on the commercial success of umbralisib as a PI3K inhibitor, I believe ublituximab has the opportunity to generate significant value for the multiple sclerosis indication alone. While the general biotech market seems to be overbought at the current time, I believe a pullback in TGTX’s stock price (and the biotech sector) would provide good entry and favorable risk/reward set-up for patient investors.

Author Disclosures: I have no positions in any of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. This discussion is in no manner a recommendation to buy or sell any of the mentioned stocks.