StemCell Therapy

Investment Thesis

I last posted about TG Therapeutics (TGTX) in November last year after the company published long-awaited positive trial data concerning flagship drugs umbralisib and ublituximab, which caused a small uptick in the share price from ~$5 to ~$9.

I felt that TG was edging closer to commercialising its first drug and recommended its stock as a speculative investment - since then the share price has continued to grow and has reached $16 at the time of posting this update on further positive news flow. The next few months promise to be a critical period for the company.

Data is expected in the coming days from a pivotal trial - UNITY CLL - in which umbralisib and ublituximab are being used in combination (referred to as "U2") to treat chronic lymphocytic leukemia ("CLL"). The randomised trial - which began in November 2015 and has enrolled ~420 patients - compares U2 against a combination of Obinutuzumab and Chlorambucil with the primary outcome measure being progression-free survival ("PFS") assessed over 3 years and the secondary outcome being overall response rates ("ORR"). The company is waiting for the PFS data before deciding whether to push for accelerated approval from the FDA for the treatment.

What makes the data from this trial all the more significant is the impact it will have on a phase 1/2a triple combination trial TG is conducting where U2 is being combined with a third indication targeting CLL, venetoclax. Early data from this trial released in December suggested ORR of 87% after U2 induction and before the use of venetoclax, and the U2 induction was also shown to reduce risk of tumor lysis syndrome. After venetoclax was introduced a 100% ORR was achieved as well as a 44% complete response ("CR"). After 12 cycles of therapy 7 of 9 patients tested had undetectable minimal residue disease and stopped therapy.

According to a recent TG coporate presentation 115,000 Americans are affected by CLL with 20,000 patients being diagnosed with the disease every year. The size of the treatment market for CLL is estimated to reach ~$10bn by 2025 growing at a CAGR of 15%. TG believes that there is significant unmet need in this market and therefore should U2 receive approval as a stand-alone treatment for relapsed patients who have not responded to prior treatment or in combination with other drugs such as venetoclax as a first line treatment then TG's share price is likely to soar on the prospect of global drug sales in the triple-digit millions.

Besides U2 TG is progressing ublituximab through phase 3 trials as a potential treatment for multiple sclerosis ("MS") compared with oral teriflunomide with top line data expected sometime in 2020, and through phase 3 trials in combination with ibrutinib for treatment of high-risk CLL. Umbrasilib could soon win approval as a stand-alone treatment for MZL and FL after management submitted a joint NDA to the FDA in January. Other promising candidates are also in the early phases of clinical testing.

The company recently completed a $50m direct public offering of common stock to a single investor which has eased perennial fears over TG's precarious funding runway, and as such, a stellar 2020 could conceivably be in prospect.

It's worth remembering however that 1 bad trial result could seriously undermine TG's progress and decimate the share price. The fact that TG does not have any development partners for its drug candidates programs in the US and does not seem to be an acquisition target at present can be read either as an encouraging sign (TG can go it alone and earn bigger profits) or as slightly suspicious (do pharma insiders know something investors don't?).

On balance however, just as I did in November, I am prepared to give management the benefit of the doubt. One thing that is for certain is that the company's fortunes (and share price) are about to change significantly whether for better or for worse. After taking a deep breath, I remain bullish.

TG Therapeutics has a somewhat unique approach to drug discovery - founded in 2012 the company is focused on B-cell mediated diseases. B-cells are produced by hematopoietic stem cells in bone marrow from where they migrate to the spleen, lymph nodes or other tissues forming immunocompetent B-cells capable of initiating an immune response when activated by cell antigens. B-cells however can become cancerous causing diseases such as non-Hodgkin's lymphoma ("NHL") or CLL, or become aberrant causing auto-immune diseases such as MS, rheumatoid arthritis ("RA") or systemic lupus erythematosus ("SLE").

TG's strategy is to identify validated targets against B-cell mediated diseases and then conduct global searches for and acquire "best-in-class" drug candidates in early stages of development - preferably with human clinical proof-of-concept ("POC") from a network of academic research centres or biotech drug development companies. Having acquired a candidate the company then looks to use its proprietary technology platform to develop multiple complementary candidates that can be used either as single treatments or in combination.

The 2 drugs are TG's most advanced candidates. Ublituximab is an anti-CD20 monoclonal antibody, similar to commercialised drugs such as Rituximab, Ofatumumab or Obinutuzumab. CD20 tends to be over-expressed in cancerous or malignant B-cells - anti CD20 antibodies can attach themselves to these cells and trigger immune reactions - such as antibody dependent cellular cytotoxicity or phagocytosis - that result in the death of the malignant cell.

TG has bioengineered ublituximab using a process known as glyco-engineering so that certain naturally occurring sugar molecules have been removed from the antibody which the company says increases its potency and shortens drug-infusion times.

Umbralisib is a PI3K delta and CK1 epsilon inhibitor taken orally once a day. PI3K delta is part of a family of enzymes involved in various cell processes such as proliferation and immunity which tends to be implicated in B-cell related lymphomas, whilst inhibiting CK1 epsilon is also suggested to have anti-cancer effects and modulate adverse T-cell activity.

TG initiated this in January after data from a phase 2b study - Unity-NHL - of 72 patients with MZL and 118 with FL showed that the number of positive responses to umbrailsib as a single treatment was above the study threshold of 40%. Preliminary efficacy data from the first 42 patients with MZL also showed 52% of patients who had failed to respond to prior treatment responded to umbralisib and an additional 36% attained stable disease. Overall, umbralisib was well tolerated by patients - 10 patients discontinued treatment due to adverse events ("AEs") possibly related to the drug's side-effects, no deaths were reported and only 3 patients demonstrated grade 3 infections.

A rolling submission allows TG to file sections of the NDA on an ongoing basis, which is an unusual concession from the FDA, as is the permission to file one NDA for 2 separate indications (MZL and FL) - but umbralisib's prior breakthrough drug designation seems to have made this possible. The NDA should be submitted during the first half of 2020 moving the company one step closer to commercialisation.

The data behind TG's NDA submission for umbralisib. Source: TG Therapeutics analyst day presentation Jan 2020.

22,500 new cases of MZL or FL are diagnosed per annum (according to the American Cancer Society, quoted in TG's JPM Healthcare conference presentation), with ~6,000 - 10,000 relapsed indolent patients needing treatment per annum.

Ublituximab is now progressing through 2 fully-enrolled (500 patients) randomised phase 3 trials - ULTIMATE 1 and ULTIMATE 2 - where the drug is being evaluated against oral treatment Teriflunomide (marketed by Sanofi as Aubagio, Teriflunomide makes sales of ~$430m per quarter) with topline data expected in 2H 2020. During its phase 2 MS trials ublituximab patients' annualized relapse rates of 0.05 were favourably comparable to treatments Ocrelizumab (0.13), Rebif (0.36) and the placebo (0.64), whilst no T1 GD-enhancing lesions were present at weeks 24 and 48 of the trial compared to a baseline of 3.63.

TG estimates the global market for MS treatment will exceed $30bn by 2025 with the only other anti-CD20 approved treatment, Ocrelizumab (marketed as Ocrevus by Roche) currently making more than $2bn in annual sales (and on track to reach $4bn by 2025). Should approval be granted to ublituximab the drug will compete in a crowded field (as shown by the table below) but TG management believes that the convenience of the bi-annual, one-hour duration infusion, efficacy and pricing will translate to a $1 - $2bn market opportunity.

MS treatment options. Source: TG Therapeutics analyst day presentation Jan 2020.

TG Therapeutics drug candidate pipeline. Source: TG Website.

TG is progressing a number of other candidates with similar indications to umbrasilib and ublituximab.

TG 1701 is a novel covalent Brutons tyrosine kinase ("BTK") inhibitor that targets the B-cell receptor signalling pathway that helps to proliferate and protect B-lymphocytes. The drug has entered a phase 1 trial where it will be evaluated both as a single agent and in triple combination alongside U2, an interesting prospect for the company since success would enable them to provide an entirely in-house triple combination therapy.

TG-1501, a monoclonal antibody that attaches to Programmed Death-Ligand 1 (PD-L1) blocking the signals that cancerous cells use to protect themselves from the body's natural immune system. Similarly to TG-1701 the drug is in single agent and combination trials with other TG candidates.

Finally, TG-1801 is an ANTI-CD47/CD19 monoclonal antibody. CD47, is expressed by cancerous cells in order to express a "don't eat me" signal to avoid elimination through phagocytosis whilst CD19 is used by B-tumor cells to make up for a loss of CD20 and continue to resist treatment. TG-1801 has also entered a phase 1 trial.

In Q319 TG made a loss of $59.9m compared to a net loss of $34m over the same period in 2018. The difference was put down to manufacturing and CMC costs but the company says they decreased trial costs by $3.8m in the quarter and expect this reduction to continue into 2020. CFO Sean Power told analysts on the Q3 earnings call that management expects to reduce cash burn from Q3's $33m to $25m - $30m per quarter going forward, and that the cash position (at the time) of $96m would be sufficient to see the company through 2020 and the conclusion of the critical ongoing phase 3 trials.

The $50m raise completed in December will probably be viewed by investors as good business since the share price has subsequently risen and therefore the effects of dilution have been minimised. Still management has made repeated use of at-the-market offerings ("ATMs") with the most recent being a $24m raise at the end of Q319 - and further use of their mixed shelf offering may start to try backers' patience.

The upside for investors is that, besides several minor licensing agreements TG has resisted the temptation to enter into collaboration agreements with big-pharma concerns based on development milestones and post commercialisation revenue sharing, and therefore retains exclusive rights to all of its drug candidates.

TG clearly believes that commercialisation is imminent having appointed a new Chief Commercial Officer, Adam Waldman, who joins from Celgene where he was Head of Hematology-Oncology Marketing. Waldman has extensive experience building sales and marketing teams and will be expected to deliver the launch programs that TG will hope are initiated before the end of this year.

The upcoming results, firstly from the UNITY-CLL trial, and subsequently from ublituximab's MS trial will dictate whether or not TG proves to be a good investment or whether investors who have endured years of frustration will have to accept further short-to-medium term disappointment.

Management has done well in my view to progress different drug candidates to the near-conclusion of pivotal trials, win breakthrough drug designations and submit NDAs to the FDA that stand a good chance of success. It has taken time admittedly and the share price has suffered but it feels to me as though the company now has some momentum.

In my view, the signs are promising enough to suggest that TG will have a commercialised drug - and possibly 2 - by the end of the year. Should they be approved both drugs - perhaps ublituximab for MS more so than Umbrasilib for MZL and FL - will have sizeable addressable markets, and the prospect of an approval for treatment of CLL (U2 + venetoclax or even U2 + proprietary TG-1701) is a juicy one given the size of the market.

If the upcoming UNITY-CLL data is positive TG will surely make an attractive acquisition target for a big pharma - and the figures involved could be large - witness the $9.7bn Novartis recently paid Medicines Company for a single RNA therapy. Therefore I would put at least a 25-50% premium on TG's current price and look at a price of $21+, which is below analyst consensus targets of ~$25, and significantly below what TG could achieve if the market, as expected, reacts buoyantly to good news. With more candidates in development and because the company addresses a range of indications, the worst case scenario (in the event of poorly received data) is not catastrophic either.

Long-term, management will have to prove it has what it takes to successfully commercialise an approved drug and generate sales volumes that justify the high cash burn investors have endured for years. But that is for a different day. In the short term I remain bullish and see this as a potentially exciting time to be holding TG stock, although the usual biotech investing caveats still apply. Things can de-escalate quickly when data is not up to scratch.

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.

Read the original:
TG Therapeutics Edges Closer To Commercialization And Potential Share Price Gain - Seeking Alpha

This entry was posted on February 26, 2020 at 8:41 pm and is filed under Stem Cell Negative. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed. |