TG Therapeutics: Trying To Fill The Gap Back To $20 (NASDAQ:TGTX)

On August 1, TG Therapeutics’ (NASDAQ:TGTX) announced Q2’23 earnings and an ex-US commercialization agreement for its recently launched multiple sclerosis drug Briumvi (ublituximab). The updates weren’t well received, with the stock falling about 50 percent from a $20 handle, to a $10 handle. With Q3’23 earnings TGTX has rallied, and is up over 100% from the lows between earnings. It seems then the fate of this stock and its volatility rests in the near-term on sales of its newly launched drug. This article takes a look.

The Briumvi launch so far, and the future

Q1’23

Briumvi only launched on January 26, 2023, but in a partial quarter still managed net sales of $7.8M in Q1’23. The stock reaction was positive.

Q2’23: Neuraxpharm deal a necessary evil

TGTX reported Q2’23 earnings on August 1, with Briumvi net sales of $16.04M, but the stock fell as revenues of $16.07M, derived largely from sales of Briumvi, missed expectations by $1.88M. Of course it is hard to work out whether the miss on revenues, or the ex-US commercialization agreement for Briumvi, is responsible for the stock being cut in half.

The commercialization agreement with Neuraxpharm Group, came with an upfront payment of $140M, a near-term milestone of $12.5M on launch in the first EU country, additional milestones worth up to $492.5M, and double-digit tiered royalties on net product sales up to 30%. In exchange though, TGTX gave the commercialization rights for Briumvi to Neuraxpharm outside of the US/Mexico/Canada and select Asian countries where TGTX has already partnered. There is a silver lining, TGTX has the option to buy back the rights for a period of two years, if there is a change in control of TGTX. Any company looking to buy out TGTX then, has the potential to get those commercialization rights back.

Perhaps TGTX investors had hoped for a better deal than the company managed to close. The upfront payment was needed though, as TGTX had cash, cash equivalents and investment securities as of June 30 of $144.9M, and the $140M upfront payment doubled that to a pro forma cash balance of nearly $285M. Net cash used in operating activities had been $101.9M in the first six months of 2023, so had TGTX not done the deal, we might have predicted cash to only last 9 months from the end of Q2’23, and that’s not including the potential increase in expenditures had the company wanted to launch Briumvi in Europe itself, or the non-current loan payable of $97.7M at the end of Q2’23 (albeit the interest only period lasts to August 1, 2025). Indeed, TGTX announced European Commission Approval of Briumvi in relapsing forms of MS on June 1, 2023, so a European launch was imminent.

Q3’23: Market easily satisfied

TGTX continued to slide into earnings this month, but on November 1, when TGTX reported Q3’23 earnings, the company noted net sales of Briumvi of $25.1M in Q3’23. That number represented a 56% increase from the prior quarter, even though in Q2’23, the quarterly increase in net sales had been over 100% (although the Q2/Q1 comparison includes only about 2 months of sales in Q1’23).

Further, the Q3’23 numbers were helped by J-code availability from July 1 onwards (J-codes help streamline reimbursement of Part B drugs like Briumvi that are administered by a physician, thus their availability should boost sales). Perhaps given the J-code I might have expected a bit better growth than 56% Q/Q, especially given the growth early in the launch (compare Q1 to Q2) when a J-code wasn’t even available. That being said, at the time of Q1’23 earnings TGTX noted it had “Payor coverage in place for over 50% of covered lives for Briumvi.” That payor coverage number increased to 80% at the time of Q2’23 earnings and 95% at the time of Q3’23 earnings. Even though I might have predicted a bit more of a quarterly increase in sales in Q3’23, the market nonetheless seemed to like what it saw.

Summing up Q3’23 then, the company had total net revenues of $165.8M (including $140M from the Neuraxpharm upfront payment and $25.1M from Briumvi sales in the US). R&D expenses were $14.8M in Q3’23, with SG&A expenses of $32.8M in the same quarter. Net income was $113.9M for Q3’23, although this is aided by the one off upfront payment. Cash, cash equivalents and investment securities were $229.2M with TGTX making a pretty important prediction.

We anticipate that our cash, cash equivalents and investment securities as of September 30, 2023, combined with the projected revenues from BRIUMVI, will be sufficient to fund our planned operations into cash flow positivity based on the current operating plan.

TGTX Q3’23 earning press release.

As of November 1, 2023, there were 151,410,073 shares of TGTX’s common stock outstanding, corresponding to a market cap of $1.9B ($12.54 per share). Under the 2022 equity incentive plan, and the 2012 equity incentive plan, there were also 4,697,029 options outstanding and 9,954,576 shares worth of restricted stock outstanding as of September 30, 2023. Further as part of the Hercules loan agreement, there were warrants outstanding to purchase 147,058 shares (exercise price $4.08), 115,042 shares (exercise price $17.95) and 50,172 shares (exercise price $14.70) of TGTX’s stock. As of September, the non-current portion of the loan payable stands at $98.9M.

Not everyone is easily satisfied

Looking at the Q3’23 numbers, Seeking Alpha’s Edmund Ingham rated TGTX a sell, noting, among other factors, that the $140M payment was a one off and the increase in sales from $16M to $25M doesn’t seem enough to justify a buying spree. That article also noted the impressive sales of competitors.

Indeed Novartis’ (NVS) anti-CD20 antibody, Kesimpta, which competes with Briumvi in relapsing forms of MS reached $1.092B in net sales in 2022 ($921M of which was in the US), and that continues to grow in 2023 with US sales of $407M in Q3’23 alone. Further, Roche’s (OTCQX:RHHBY) Ocrevus brought in CHF $4.49B in 2022 in the US region alone (~$5.1B USD at current exchange rates). It is worth noting Ocrevus sales also come from primary progressive MS, so that clouds judgement of how large the anti-CD20 market is when only relapsing forms of MS are considered.

I don’t disagree with Ingham’s points, especially since the 50% increase in sales from the prior quarter was aided by increased payor coverage and J-code availability. That being said, Ingham’s valuation is pretty conservative.

If we work on an assumption of a commercial stage pharma trading at ~3 – 5x full year product sales, provided it’s not heavily loss making, or at least has a shot at being profitable, and we discount the one-off payment from Neuraxpharm, then TG Therapeutics stock would be good value if supporting a market cap valuation of ~$300 – $500m i.e. it would be slightly attractive at ~$3 per share.

TG Therapeutics: Q3 Earnings Spike Hard To Explain Given Rival’s Numbers, Edmund Ingham.

Considering Q3’23 sales of $25M, multiplying it by four assumes no growth, gets us to $100M in sales, three times which would support a market cap of $300M. Instead we could think about a company being bought out for three times peak sales. Even if Briumvi at its peak could take half the market from Kesimpta, based on sales of Kesimpta right now, that would be $200M a quarter. Then annual revenues of $800M would be possible and a valuation of $2.4B isn’t out of the question.

That valuation however, is a blue sky scenario, as Kesimpta experienced a launch aided by pandemic lockdowns, where the advantage of a one minute subcutaneous administration provided benefits over travelling to an infusion center for Ocrevus. Many of those patients may now simply stay on Kesimpta and RHHBY presented results in July showing non-inferiority of a 10-minute, subcutaneous administration of Ocrevus vs the traditional IV infusion. Ocrevus is traditionally administered as a 2 hour IV infusion in those who haven’t had serious reactions to previous infusions, or 3.5 to 4 hours in others.

Conclusions, Rating and Risks

I end up looking away from what we think the stock should be worth, and look towards what the market is deciding it is worth. Even if neither Ingham nor I find the Q3 sales that impressive, they were enough to stimulate a rally in the stock. With the name trading above the Q2’23 earnings slump, I think it could fill the gap back to $20. I also think we are still fairly early into the launch of Briumvi and it is going to be possible to keep adding millions to the net sales of the drug for many quarters to come. As such I rate TGTX a buy, based on that momentum, the fact the market is impressed with what amounts to modest growth in absolute terms ($9M in sales), and the fact that right now TGTX can increase sales simply as awareness of- and familiarity with- Briumvi increases among prescribers and patients.

The risk of any long are several fold, firstly, I do note that TGTX has made the early advances of securing a J-code and getting payor coverage over a majority of lives. Perhaps it won’t be possible to keep up a 50% quarter-over-quarter rate of sales increases, or even add $9M more on in sales in Q4’23, in which case the stock could fall.

Further, many investors are tracking script numbers of Briumvi using services like Symphony (see this article from ONeil Trader for an example) and may pre-empt that Briumvi sales growth seems weak, so weak sales could impact the stock before Q4’23 earnings are reported.

Outside of that, an enhanced perception of competition from subcutaneous Ocrevus or another competing therapy, could hit estimates of peak sales from Briumvi and trigger selling in the stock.