Picking the Dip on this Early-Stage Oncology Developer

Shares of TG Therapeutics (TGTX) have soared in 2013, rising nearly 80% year-to-date as investors caught wind of the company’s unique oncology assets and their relation to other class-leading drugs in development. TGTX has rallied most recently following the company’s up-listing to the NASDAQ in late May and news that the company will be added to a number of the Russell indices at the end of the month. With a pipeline of just two clinical assets, both of which are still in Phase I trials, investors may be skeptical of the small-cap oncology company. But it’s pipeline quality — not quantity — that matters, and based on results from early trials and TGTX’s valuation disparity next to similarly focused oncology companies, TGTX has the makings of a lucrative cancer play. Backed by a committed management team and a catalyst-rich 2nd half ’13, we believe that TG should be on investors’ radars, particularly following the fortuitous dip in share price over the last two trading sessions.

TG-1101: Complementing Rituxan and Carving a Lucrative Market Niche

TG’s first product candidate is TG-1101 (ublituximab), an anti-CD20 monoclonal antibody (mAb) in Phase I/II trials for several hematologic malignancies, including follicular lymphoma (FL), mantle cell lymphoma (MCL), marginal zone lymphoma (MZL), and chronic lymphocytic leukemia (CLL). TG-1101 is similar to Roche’s Rituxan by virtue of being an anti-CD20 mAb, but that’s where the similarities end. TG-1101 is not simply a “remake” of Rituxan. Rather, it is a unique mAb with the potential to complement Rituxan, creating a lucrative niche for this $175M company. TG-1101 has a unique protein sequence designed to enhance antibody dependent cellular cytotoxicity (ADCC), as well as an ability to demonstrated activity in low-CD20 expressing tumors, which have shown resistance to Rituxan. Published preclinical data shows that TG-1101 is much more potent (when measured by ADCC induction) than Rituxan:

Screen Shot 2013-06-24 at 10.10.47 AM

TG-1101 is currently in Phase I/II trials, and TG presented new data at ASCO, building on existing data, that showed a 45.5% ORR in relapsed/refractory CLL patients that have undergone at least one prior therapy. Notably, this response was maintained over the course of a year. In its own monotherapy trials in CLL patients, Rituxan demonstrated an ORR of just 13%, due in part to the fact that CLL patients, on average, express less CD20 than other leukemia patients, thereby blunting Rituxan’s efficacy. At ASCO, TG presented interim results from the Phase I/II trial of TG-1101 in FL, MZL, and MCL. The trial, although small (with 12 patients enrolled), yielded meaningful insights on the potential of TG-1101. Within FL (7 total patients in the FL arm), a 33% overall response rate was observed across, with a 17% complete response rate. One patient was un-evaluable due to a lack of full data. Within MCL, results were less than ideal, but given the fact that only two patients were enrolled in the study, these results may not fully represent TG-1101’s ability to treat MCL. Within this arm, one patient was un-evaluable, and the other patients saw disease progression. Within MZL, however, there was a 100% overall response rate in the 3 patients within that arm, with 2 of those patients showing complete responses. Notably, MZL is known to be a low-CD20 expressing tumor, a key feature in Rituxan resistance.

On the surface, the 50% overall response rate for the 12 patients in this Phase I/II trial may seem less than ideal. But that’s not the full story. For these 12 patients, the median number of prior therapies was 4 (with a range of 2-6), meaning that TG-1101 was, on average, used as a 5th-line therapy. All patients in the trial were treated with Rituxan-based regimens at least once, and 9 of the 12 patients had at least 2 rounds of Rituxan-based treatment regimens. Out of the 10 evaluable patients, 9 saw decreases in overall tumor volume, and 4 of the 5 patients refractory to Rituxan achieved responses superior to that of Rituxan, with the 5th patient achieving an equivalent response.

TG-1101 & Rituxan Responses

Dose (mg) Indication # of Rituxan Therapies Rituxan Status Rituxan Response TG-1101 Response Months in Trial
450 MZL 3 Refractory Disease Progression Complete Response 10
600 MZL 2 Relapsed Partial Response Complete Response 7
900 MZL 1 Relapsed Stable Disease Partial Response 5
900 FL 1 Relapsed Partial Response Partial Response 6
900 FL 3 Refractory Disease Progression Complete Response 4

All 5 of these patients are still in the study, and TG has stated that their responses to TG-1101 have been maintained.

In addition to quality efficacy thus far, TG-1101 has been safe and well-tolerated, with most adverse events being Grade 1 or 2 (one Grade 3 event was reported). There were few observations of infusion-related reactions, and all 12 patients successfully completed all TG-1101 infusions. This safety profile is similar to that of TG-1101 in CLL, where most adverse events were seen after the first infusion, with the remainder seen by the 2nd infusion. Grade 3 adverse events (elevations in ALT, GGT, and AST) were transient, and most resolved themselves within several days. Although the CLL trial did show dose-dependent increases in neutropenia, it can be treated with Neulasta. TG is currently progressing with both expansion cohorts of TG-1101, as well as Phase II trials, and the company has pledged to present new data at ASH in December. Furthermore, TG-1101 is also being tested in combination with Revlimid (dose-escalating trials are currently ongoing) and updated data regarding that trial will also be presented at ASH.

Although TG-1101 is early in its clinical life cycle, we believe that TG-1101 has solid potential in carving out a niche in treating relapsed/refractory Rituxan patients, driven by promising data related to both efficacy and safety. As Ladenburg Thalmann notes, “the initial demand for TG-1101 will be driven by Rituxan relapsed or refractory patients. Most patients treated with Rituxan eventually relapse, and Rituxan offers only limited benefit on B-cell NHL patients with aggressive disease.”

Notably, TG owns nearly full global rights to TG-1101, with the exception of France and Belgium. This is due to TG’s corporate history. For much of its life, TG was a subsidiary of LFB, a French pharmaceutical company wholly owned by the French government (LFB holds a legal monopoly on all plasma production in France, the cost of which is full government control), and was spun out of LFB only in January 2012. In conjunction with the spin-off, TG entered into a licensing agreement with LFB, under which it secured full global rights to TG-1101, in exchange for the payment of up to $31 million in development and commercial milestones, as well as royalties on future sales of TG-1101. In November 2012, TG also entered into a licensing agreement with Ildong Pharmaceuticals for the commercialization of TG-1101 in South Korea and 8 other countries in Southeast Asia. Under the terms of this agreement, TG received an upfront $2 million payment and is eligible for further sales-based milestones, as well as royalties on all sales within these countries. While the Ildong agreement is small in absolute size, it’s notable because it was based on only Phase I data. With peak sales estimates for TG-1101 reaching $1 billion, TG isn’t likely to have difficulty finding partners for TG-1101’s potential commercialization in Europe or the United States.

TGR-1202: PI3K Inhibition With a Twist

TG’s second clinical asset is TGR-1202, a PI3K-delta inhibitor currently in Phase I trials, which commenced in January 2013. As with TG-1101, TGR-1202 shares similarities with more advanced compounds, in this case Gilead’s (GILD) idelalisib and Infinity’s (INFI) IPI-145. However, TGR-1202 is unique, and its structure offers several potential benefits over these other PI3K inhibitors (Although we are bullish on Infinity, we believe that there is room for more than one PI3K asset on the market, and in any case, an investment in TG could serve as a hedge against a position in Infinity). Both idelalisib and IPI-145 contain nitrogen-based heterocyclic backbones, resulting in their association with hepatotoxicity.

Screen Shot 2013-06-24 at 10.10.59 AM

Preclinical data for TGR-1202 shows similar efficacy to idelalisib, both in CLL (as measured by cytotoxicity, pAKT suppression, and induction of apoptosis) and DLCBL (as measured by cytotoxicity).

Screen Shot 2013-06-24 at 10.11.06 AM Screen Shot 2013-06-24 at 10.11.12 AM

A Phase I trial of TGR-1202 began in January 2013, and will enroll around 30 patients in a dose escalation arm, with another 30 patients in several expansion cohorts across multiple indications, including CLL, NHL, and Peripheral T-cell Lymphoma (PTCL). As with TG-1101, TG has pledged that data for TGR-1202 will be available at ASH. In addition to a Phase I monotherapy trial of TGR-1202, TG will initiate a combination trial of TG-1101 and TGR-1202 during the 2nd half of 2013. Although early, existing data for TGR-1202 is encouraging, demonstrating TGR-1202’s equivalency to the leading PI3K inhibitor (in terms of development), idelalisib.

Unlike TG-1102, TG does not own the rights to TGR-1202. The company struck a licensing agreement with Rhizen Pharmaceuticals (Swiss, privately held) in August 2012 to develop and commercialize TGR-1202. Under the terms of the agreement between TG and Rhizen, TG made a $1 million upfront payment to Rhizen, with $2 million remaining in potential developmental milestone payments. TG is responsible for all developmental costs through Phase II, after which costs will be split between TG and Rhizen. Rhizen and TG both hold an option for TG to licensefully  the rights to TGR-1202, which would make Rhizen eligible to receive up to $182.5 million in future milestone payments tied to TGR-1202’s clinical and commercial progress, as well as royalties on global sales.

Financials & Insiders

To fully understand TG’s finances and capital structure, a brief review of the company’s corporate history is in order. In conjunction with its spin-off from LFB, TG, known then as TG Biologics, merged with Manhattan Pharmaceuticals, and raised capital alongside the transaction, changing its name to TG Therapeutics in the process. TG currently has 26,322,671 outstanding shares, with a fully diluted share count of approximately 32 million, owing primarily to warrants issued in conjunction with the company’s financing activities. TG’s merger with Manhattan Pharmaceuticals also gave the company a third clinical asset, AST-726, which is a nasal form of hydroxocobalamin designed to treat vitamin B12 deficiency. TG notes that AST-726 has shown pharmacokinetic equivalence with existing B12 deficiency treatments and that the company will make a final decision as to whether or not to develop AST-726 within the next 6 to 12 months.

TG ended Q1 2013 with just under $15.2 million in cash & investments and just over $3.1 million in convertible notes (of which $677,778 mature within 12 months, with the remainder maturing in March 2015). The company states that its current balance of cash & investments is sufficient to fund operations for the next 15 to 18 months, nevertheless, TGTX revealed a $50M At-The-Market financing (MLV as sales agent) on June 21st after the close. The ATM allows TG to sell shares at market prices at any time, disclosing in later filings. While we’re not thrilled by the “behind the scenes” qualities of the financing,  the ATM should provide a strong cash ramp particularly if the company sells into post-ASH strength at the end of this year (assuming positive results).

Furthermore, given the level of insider ownership at TG, it seems the interests of investors and management are closely linked. Michael Weiss, the Chairman, President, and Interim CEO of TG, currently owns 7,829,471 shares of TG. Based on the company’s 26,322,671 outstanding shares, Weiss’ 29.74% stake makes him TG’s largest investor. CFO Sean Power owns 565,874 shares, giving him a 2.15% stake. TG’s 5 remaining directors (Weiss serves as the sixth) own a combined 380,074 shares, equivalent to a 1.44% stake. Together, TG’s board and management team own over a third of the company, and when combined with a 5-million share stake held by LFB (19% of outstanding shares), TG’s float is meaningfully lower than its overall share count implies, and currently stands at around 17.2 million shares. Of course, its low float will likely help fuel an ASH-associated rally. Notably, TG’s insiders have not been actively selling even as the company’s stock has tripled in the past eight months. With over a third of the company owned by insiders, TG’s management and board have clear incentive to see TG-1101 and TGR-1202 succeed given that they have much to lose should the company be mismanaged.


TG’s clinical assets offer unique twists on two oncology pathways. Both TG-1101 and TGR-1202 have differentiated clinical profiles, and although both assets are in early stages of development, their existing data is encouraging. With TG set to release new data on virtually its entire pipeline at ASH, the 2nd half of 2013 offers a meaningful catalyst, and investors might consider using the pullback on Friday and early this week as an entrance or addition point.