TG Therapeutics: An Immunology Powerhouse

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Introduction of Company

TG Therapeutics (NASDAQ:TGTX) is a biopharmaceutical company focused on treating hematological cancers (specifically, B-cell malignancies) and autoimmune diseases. The company has two possibly synergistic phase 3 pipeline candidates (TG-1101/Ublituximab, an anti-CD20 monoclonal antibody (mAb), and TGR-1202/Umbralisib, a PI3K delta inhibitor, together called “U2”) with a deep pipeline. TGTX has had a strong year thus far, and the rest of 2018 will likely determine the long-term trajectory of the company. This report will focus on virtually all aspects of the company, including a pipeline, financial, and management analysis, as well as a concluding DCF-based value estimate.

Besides the above-mentioned upcoming catalysts, TGTX has an outstanding opportunity to address the lack of efficacy of currently available treatments in several relapsed or refractory patient populations. Furthermore, the company is branching out to determine efficacy of several pipeline candidates in broader indications, as opposed to more gene mutation-targeted or disease sub-type approaches. The main near-term risks for TGTX include a failure for ublituximab to have meaningful clinical benefits in high-risk CLL patients (per GENUINE outcomes review), as this could weaken the ublituximab BLA filing. Furthermore, because of the broad indication of NHL/CLL in some of their clinical trials, the outcomes are less predictable than targeted mutations or disease sub-types. Failure in these trials has the potential to dramatically decrease the stock price. Furthermore, there are already several treatment options for some of these disease indications, although the competition may not be as effective. This competition could inhibit the ability to gain larger market shares.

Jefferies Global Healthcare Conference, 2018

Indication Backgrounds

Non-Hodgkin’s Lymphoma [1, 2]: NHL is a solid tumor originating from immune cells that manifests primarily in older populations and has a high mortality rate. Close to 75,000 NHL cases occur in the US every year, with about 20,000 annual deaths. Over 85% of NHL cases arise from B-lymphocyte malignancies, and several sub-types of this disease exist. An example of this heterogeneity is diffuse large B-cell lymphoma (DLBCL), the most common NHL subtype (~33% of cases), which often does not express CD-20, necessitating combination therapies, such as such as CHOP (chemo drug cocktail) with rituximab (a best-in-class anti-CD20 mAb that has increased survival rates for NHL patients in combination therapies). However, NHL patients often relapse or become refractory to rituximab and thus require alternative treatment options. TG-1101 has a glycoengineered Fc region, allowing for a higher incidence of antibody-dependent cellular toxicity (the mechanism that leads to direct apoptosis of B-cells) than that seen with rituximab. Furthermore, because the PI3K pathway is often deregulated in NHL (particularly the delta isoform in B-cell lymphomas), TGTX has decided to tackle the disease with its U2 combination in the hopes that combo CD-20/PI3K delta inhibition will have even greater efficacy, and the potential appears quite promising.

TGTX has currently limited the scope of its NHL clinical efforts to:

In-House:

Phase 3:

  1. U2 (+/- bendamustine & TGR-1202 alone) for previously treated NHL patients (UNITY-NHL, a pivotal trial focusing on DLBCL, Follicular Lymphoma/Small B-cell Lymphocytic Lymphoma (FL/SLL)*, and Marginal Zone Lymphoma (MZL) subtypes; Phase 2/3)

Phase 2:

  1. Ublituximab for relapsed/refractory B-cell NHL (with several subtypes) (Phase 1/2)

Phase 1: N/A

Partnered Combination Trials:

Phase 3: N/A

Phase 2:

  1. Ublituximab+lenalidomide for broad NHL (Phase 1/2)

Phase 1:

  1. U2 (possibly + ibrutinib/bendamustine) for broad NHL

Treatments/Potential Competition:

Due to the aggressiveness of DLBCL, patients are normally given a combination of cyclophosphamide, doxorubicin, vincristine, and prednisone (NASDAQ:CHOP) and rituximab (R-CHOP). FL is much less aggressive, and therefore patients tend to receive rituximab or obinutuzumab combined with chemo (such as CHOP) or alone. Second line treatments for FL include the radioactive mAb, ibritumomab. SLL is treated similarly to CLL due to their overlapping etiology. Rituximab or obinutuzumab, often along with chemo such as bendamustine or drugs such as ibrutinib, are first line options. MZL is unique in that therapy is often based on the bacterial strain that triggered the lymphoma, such as H. pylori. Often, however, rituximab is prescribed, with strong response rates.

*In SLL, rituximab has had lower response rates than in other subtypes, suggesting this may be the same situation with TG-1101. While FL has a long median survival in even its advanced stages (~10 years), its transformation into diffuse stages becomes a more rapidly fatal issue. Rituximab is considered a necessity for initial treatment of FL. Other treatment candidates include radio-labelled anti-CD20 mAbs such as Y-Ibritumomab and I-Tositumomab.

Chronic Lymphocytic Leukemia Background [3]: CLL is a condition that arises from antigen-experienced B-cells, each with varying levels of V-gene mutations (which encode for binding sites of antigen receptors) and CD38 or ZAP-70 (involved in signaling to T lymphocytes) expression. Generally, environmental signals have the capability of activating these mutated cells in a way that causes accumulation (specifically, survival and proliferation). Patients with V-gene mutations and low CD38/ZAP-70+ expression have a mild disease course, whereas the opposite generally results in poor prognosis. Genetic alterations/deletions that amplify the severity of the patient’s CLL are 11q22-23, 17p13, and 6q21 (in TGTXs Ublituximab high-risk CLL patient population, they have screened for 17p deletions, 11q deletions, or p53 mutations). It is estimated that about 60,000 patients will be diagnosed with CLL in 2018, with 24,000 associated deaths.

TGTX clinical trials for patients with CLL include:

In House:

Phase 3:

  1. U2 versus obinutuzumab+chlorambucil in patients with untreated/previously treated CLL (UNITY-CLL, a pivotal trial for broad CLL)

Phase 2:

  1. TGR-1202 for patients with intolerant CLL

Phase 1:

  1. TGR-1202 for patients with relapsed/refractory CLL

Partnered Combination Trials:

Phase 3:

  1. Ublituximab+ibrutinib versus ibrutinib for patients with previously treated high-risk CLL (GENUINE, a pivotal trial that could result in strong first BLA submission)

Phase 2:

  1. U2+venetoclax for patients with relapsed/refractory CLL and SLL (Phase 1/2)
  2. Ublituximab+ibrutinib in patients with CLL and MCL, TGR-1202+ibrutinib in patients with CLL and MCL (Phase 1/2)
  3. Ublituximab+lenalidomide in patients with CLL and SLL (Phase 1/2)

Phase 1:

  1. TGR-1202+obinutuzumab+chlorambucil for patients with broad CLL
  2. U2+pembrolizumab for patients with relapsed/refractory CLL or Richter’s transformation
  3. U2 (+/- bendamustine or ibrutinib) for patients with CLL

This perfectly describes TGTXs business model, and arguably that seen with many targeted cancer companies today: there are several combination therapies that can potentially boost the efficacy of a treatment compared to the individual components, so why not test them all? TGTX, however, wants to become a “one stop shop” for B-cell therapies as can be seen with its highly inclusive pipeline, including PD-1 and BTK inhibitors.

Treatments/Potential Competition:

Primary treatment for CLL comprises of a combination of fludarabine, cyclophosphamide, and rituximab (FCR), bendamustine (+/- CD20 mAb such as rituximab), ibrutinib, or alemtuzumab+rituximab. Patients that do not handle these options well are generally put on rituximab, obinutuzumab, or ibrutinib alone (although this may be less effective).

Multiple Sclerosis Background [4]: MS is a chronic autoimmune disease in which inflammatory cells create lesions via myelin degradation, which can often lead to axonal damage. It is currently believed that MS is due to both genetic predisposition and environmental causes, which explains the high variation in incidence of the disease based on geographical area. The disease is classified into relapsing/remitting (85% of patients), secondary progressive, primary progressive (10%), and progressive/relapsing (<5%), with TGTX focusing on relapsing subtypes.

TGTX currently has the following trials for MS (importantly, management is hinting at competing on price and convenience versus ocrelizumab, so it is important to determine if there are any efficacy improvements between ublituximab and ocrelizumab in the relapsed MS indication that could provide a competitive advantage):

In-House:

Phase 3:

  1. Ublituximab versus teriflunomide in patients with relapsing MS (ULTIMATE, a pivotal trial)

Phase 2:

  1. Ublituximab for patients with relapsing MS

Phase 1: N/A

Partnered Combination Trials:

Phase 3: N/A

Phase 2: N/A

Phase 1: N/A

Treatment/Potential Competition:

The current treatment options for MS revolve around mAbs (alemtuzumab, ocrelizumab, and natalizumab), beta interferon (such as avonex or betaseron), glatiramer acetate (copaxone), peginterferon (plegridy) and other options such as the sphingosine-1-phosphate receptor modulator (fingolimod) and antineoplastic anthracenedione (mitoxantrone).

Pipeline and Current Results

TG Therapeutics Pipeline, 2018

Jefferies Global Healthcare Conference, 2018

Ublituximab (not all data between separate clinical trials is comparable; we have included the numbers available from different trials that are as comparable as possible, but we recommend delving deeper into trial details as your own due diligence):

  • Multiple Sclerosis Readouts (6-month Ph2 studies; to use 450mg moving forward) [5]:
    • Ublituximab: 100% reduction in T1 Gd-enhancing lesions after 24 weeks of treatment.
      • Ocrelizumab: 0.6 lesions/patient at 600mg dose vs. 5.6 lesions on placebo (mean of total number of gadolinium-enhancing T1 lesions observed on MRI scans of the brain at Weeks 12, 16, 20, 24)
        • 0.8 new lesions (600mg) vs. 5.1 new lesions (placebo)
    • Ublituximab: 7.67% reduction in T2 lesions after 24 weeks of treatment, with virtually no additional/enlarging lesions throughout treatment (good disease control as 84% had no increase in T2 lesions or avoided progression).
      • Ocrelizumab: 6.29% reduction in T2 lesion volume (600mg) vs. 1.25% placebo
    • Ublituximab: 99% B-cell depletion observed by Day 2 and maintained through 24 week treatment (solid immunosuppression).
      • Ocrelizumab: N/A
    • Ublituximab: No drug-related discontinuation due to AEs (no grade 3/4 drug-related AEs), with grade 1/2 infusion-related reactions (42%), headaches (21%), fatigue (19%), dizziness (15%), numbness (13%), nausea/vomiting (10%), and common cold (10%); no deaths.
      • Ocrelizumab: virtually no serious adverse effects at 600mg, with other low-grade AEs including infusion-related reaction (45.45%), upper respiratory tract infection (23.64%), nasopharyngitis (20%), headache (16.36%), depression (10.91%), urinary tract infection (10.91%), hypertension (9.09%), back pain (9.09%), arthralgia (9.09%), gastroenteritis viral (9.09%)
    • Ublituximab: Annualized relapse rate of 0.05 after 24 weeks of treatment, with 98% of patients being relapse free and 93% of patients avoiding disability progression.
      • Ocrelizumab: ARR of 0.13 at 24 weeks (600mg), with 85.5% relapse free (600mg vs. 1000mg=87% relapse free)
  • High-risk CLL (Ph3 GENUINE study) [6, 7]:
    • ORR for ublituximab+ibrutinib: 78% (19% MRD-)
      • Ibrutinib alone: 45% (2% MRD-)
      • Awaiting 2 month minimum confirmation of response affirmation
    • 66% of patients had >75% decrease in nodal size
      • Ibrutinib alone: 52% had >75% decrease
    • Complete Response at 7%
      • Ibrutinib CR: 0%
    • No statistically significant improvement in PFS (TGTX is undergoing additional analysis to review the true patient benefits of ublituximab+ibrutinib in high-risk CLL patients per FDA guidance)
    • Adverse effects table:

ASCO, 2017

  • Laboratory abnormalities table:

ASCO, 2017

Umbralisib [8, 9]

  • Relapsed/Refractory FL (targeting 45-55% ORR with either umbralisib monotherapy or U2; 53% ORR seen at higher doses in Ph1 trial)
  • Relapsed/Relapsed MZL (targeting 40-50% ORR with either umbralisib monotherapy or U2; 46% ORR seen with ibrutinib in recent approval)
  • Relapsed/Refractory CLL: 24 month PFS vs 13.3 month (Helios)
  • Frontline CLL: 36+ months with 100% ORR (Umbralisib+Gazyva+CHL not yet reached) vs. 26.7 months Gazyva+CHL and ibrutinib 82% ORR
  • CLL who are intolerant to prior BTK or PI3Kδ inhibitor therapy (Ph2): 90% of patients progression free after 6.5 months of treatment
    • Considering these patients have to switch drugs due to intolerance, the AE profile for umbralisib in this condition is quite favorable:

ASCO, 2018

U2 (/umbralisib alone have the potential to be both a best-in-class for both frontline and relapsed/refractory CLL indications)

  • Broad CLL:
    • PFS for Relapsed/Refractory: 24+ months (U2 not yet reached) vs. 13.3 months (Helios)
  • Relapsed/Refractory DLBCL in conjunction with bendamustine treatment (targeting 40-50% ORR with no current competition in this segment outside of transplants)
  • Expected U2 ORRs in UNITY CLL readout, with important information in the right “Comps” column:

Jefferies Global Healthcare Conference, 2018

  • We do not perceive phase 1 and pre-clinical pipeline candidates as being analyzable, as their approval is likely far in the future and it is difficult to predict their chances of success. For example, the probability of approval for phase 1 pipeline candidates based on BIO study is 5.1% in oncology, with hematology at 26.1%. Thus, we are pleased to see that TGTX is initiating several early-stage clinical trials, as is seen with the in-licensed BTK inhibitor that has Ph1 enrolling in China with Ph1/2 U.S. trials run by TGTX enrolling in Q3 2018. This strategy ensures a steady flow of drugs through the pipeline, but at the moment these drugs are not the focus of the company.

Recent Updates

The following are updates based on the Q1 2018 TGTX earnings call.

2018 Updates:

  • January: TGTX entered into license agreement with the Hengrui (China) for the rights to develop BTK inhibitor program.
  • February: Phase 1 first-in-human umbralisib (TGR-1202) study published in The Lancet.
  • ASCO: Presented TG-1606 (BET inhibitor) preclinical data.
  • AANAM: Phase 2 multiple sclerosis ublituximab data presented.
    • Well tolerated at 400-450 mg dose, which will be used in Phase 3 (ULTIMATE; n=850 in US/EU by Q1 2019).
    • 48-week data on all Phase 2 patients to be presented late 2018.
  • UNITY-CLL enrolled 9 months ahead of schedule with a 60:40 split for frontline versus refractory conditions.
    • Expect topline results before the end of the summer, with potential filing for accelerated approval in Q4 2018.
    • Target is 15% improvement in ORR, particularly after prolonged monitoring period.
    • Full approval based on PFS primary endpoint.
  • GENUINE results still undergoing further analysis from CLL experts, but expect potential BLA filing in Q3 2018.
  • UNITY-NHL still enrolling relapsed/refractory FL patients into umbralisib single arm group, targeting n=100 by mid-2018.
    • Still enrolling relapsed/refractory MZL into umbralisib single arm group, targeting n=60 by Q4 2018.
    • Still enrolling relapsed/refractory DLCBL into U2+bendamustine (due to more aggressive nature), expecting full enrollment by mid-2018.

Financial Runway

Management states cash/liquid position at $123.3m, providing them a runway “well in to 2019”. Based on TGTXs current liquidity and their operating expenses (average of ~$32m per quarter if you simply take into account R&D and G&A with an average growth of ~11%, both since Q1 2017), the available funds should keep the company covered until Q4 2018 or Q1 2019 (management guided Q2 2019 in the 2017 10-K). Utilizing TGTXs quarterly cash used on operations, the company is actually covered until Q2 2019 (average of ~$24 million per quarter with an average growth of ~7%). However, it is also important to consider that the completion of certain clinical trials and early ramp up of new trials to be seen later in 2018 may shift the cash runway. We have to see how the cash situation stands as time progresses, but regardless, management expects to see a similar cash burn to Q1 2018 in the near future (~$40m in operating expenses, ~$28 million of which was a strict cash expenditure on operations).

Management

Of note, both named executive officers work at Opus Point Partners and have had a history at Keryx Biopharm. TGTX has also entered into a Strategic Advisory Agreement with Carbe BioAdvisors, LLC, which is owned by Mr. Weiss (this did result in a base salary reduction from $375,000 to $187,500 in 2017).

Chief Executive Officer (+President & E.C.): Michael S. Weiss (since 2011)

Background: Serves on the board of several pharmaceutical companies, such as Checkpoint Therapeutics, Inc. He received a J.D. from Columbia Law and BS Finance from the University of Albany. Founded Access oncology which was acquired by Keryx Biopharm in 2004 (and subsequently became the CEO of Keryx as part of merger where he grew the company to $1 billion through equity capital and private offerings, strategic alliances, and negotiation of special protocol assessments with the FDA, which are of importance in TGTXs clinical trials, such as the SPA for Ublituximab in MS). Mr. Weiss appears to have a surprisingly biotech-focused background considering his educational history, which we see as a benefit for TGTX.

Chief Financial Officer (+Treasurer & Secretary): Sean A. Power (since 2011)

Background: Served as Corporate Controller at Keryx Biopharm from 2006 to 2011, where he was responsible for capital raising, licensing transactions, and SEC compliance. He received a BBA Accounting from Siena College and is a CPA.

Payment Structure: (aligned with 20 mid-cap biotechnology companies, such as Array, Synergy, and Loxo)

  1. Base Salary
    1. Weiss: $187,500 (although his company can make up to $1.5 million/year if TGTX hits a $3 billion market cap).
    2. Power: $315,000 (up from $300,000 the previous year).
  2. Annual Cash Incentive Awards (based on pre-established company targets which include clinical/regulatory goals and other corporate goals: preclinical/clinical goals were 73% out of 105% achieved, manufacturing and regulatory goals were 18% out of 25% achieved, and financial goals were 25% out of 25% achieved)
    1. Weiss: eligible for bonus valued at 100% of base salary; received 116% of target bonus
    2. Power: eligible for bonus valued at 33% of base salary; received 116% of target bonus
  3. Long-term Equity Awards
    1. Weiss: no longer receives annual restricted stock grant (instead his advisory firm receives 1.25% of common stock outstanding at each Annual Meeting, which vests when TGTXs market cap increases by $100 million after contract.
    2. Power: granted 70,000 shares of restricted stock.

We believe that the named executive officer payment plans are reasonable and do not see the partnership with Carbe BioAdvisers as an issue, as Mr. Weiss has taken reduction in direct company payments in the form of base salary and long-term equity incentives as a result of the partnership.

Discount Cash Flow Model

Analysts covering the stock cumulatively believe the stock has a value of about $29.67/share, with individual target prices in the range of $22-38/share. Our discount cash flow analysis (projected to 2024), which utilizes a probability of success-based revenue estimation with an expense structure that puts the company in a profitable position by 2021, and resulted in an estimated FCF/share of $37.07, a 276% upside from $13.50, the closing price as of 6/13/18. Therefore, we are comfortable predicting a stock price of $35-40 when taking TGTXs near-term pipeline into account.

This estimated stock price assumes 2024 peak sales of $820 million for Ublituximab in high-risk CLL and RMS (after assuming 7.5% royalties), $150 million for Umbrasilib (after 10% royalties), and $345 million for U2 (after 17.5% royalties at a market penetration of ) at a 15% discount rate with 2% long-term growth. A uniform 70% probability of success (30% penalty to drug revenues) was given to each pipeline candidate due to their late-stage, pre-commercial status. Thus, it is our belief that ublituximab treatment of RMS may be the greatest source of value for TGTX, with the hemotological malignancy segments still accumulating decent revenues over time. Ultimately, this theory is highly dependent on TGTXs market penetration in the blood cancer markets it is targeting, which we believe should be high primarily in the refractory segments, but maybe less aggressive in the broad markets.

Final Thoughts

TGTX is a promising, targeted oncology biotechnology company with strong fundamentals, including a pipeline with several early- and late-stage candidates, promising clinical results, a decent cash runway, and a seemingly experienced management team. Considering the unusually large amount of catalysts expected in 2018, particularly the EHA presentation coming up in a few days, we expect this stock to perform exceptionally well in the short term. Once again, things to watch out for include GENUINE data support for the ublixutimab BLA and data readouts for the broad NHL/CLL indications.

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.

https://seekingalpha.com/article/4181611-tg-therapeutics-immunology-powerhouse?source=feed_tag_long_ideas

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