TG Therapeutics, Inc.

Moat: 1/5

Understandability: 3/5

Balance Sheet Health: 2/5

TG Therapeutics is a biopharmaceutical company focused on the acquisition, development and commercialization of novel treatments for B-cell malignancies and autoimmune diseases.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

TG Therapeutics is a commercial-stage biopharmaceutical company, primarily focused on the development of targeted therapies for B-cell cancers and autoimmune diseases. Their commercial product is BRILYVANT, which has been approved by the FDA for a specific type of lymphoma and some off-label applications and is now being commercialized. They also have two other molecules in their drug pipeline and are working with several partners for potential future commercialization of those drugs. The company operates in the highly competitive biotechnology and pharmaceutical industry, where success is contingent on regulatory approvals, successful clinical trials, a strong sales force, and the ability to build a strong brand.

Revenue Streams

The company’s current main revenue driver is sales of their lymphoma treatment BRILYVANT, which was approved for specific use cases in the US and EU. They also have commercialization agreements with other companies to use their technology which bring in revenue. However, these revenue streams can fluctuate based on treatment demand, reimbursement rates, and competitive dynamics.

The biotechnology and pharmaceutical industry is marked by several key trends:

  • Increased focus on precision medicine: The trend is to develop therapies that target the specific pathways of the disease, rather than using broad approaches. This is increasing the development of new and more expensive targeted therapies.
  • Complex regulations: The regulatory environment is constantly changing, as agencies like the FDA and the European Medicines Agency (EMA) implement new protocols and requirements for trial and approval process.
  • High R&D costs: The development of new drugs is incredibly expensive and only a small percentage of compounds make it from the lab to the clinic and then to market.
  • Rapid Innovation: Technological breakthroughs can quickly become outdated and thus decrease marketshare.
  • High pricing: The rising cost of prescription drugs has become a political issue with governments and third parties pushing to reduce drug prices, which affects margins.

Competitive Landscape

The biotech industry is characterized by intense competition from numerous companies, both large pharmaceutical firms and small biotech start-ups. Competitors range across each category of indication that TGTX is going after. In addition to direct drug competitors, the company will have to compete with existing and new treatments being offered. To generate sufficient revenues to support the company’s operations and to stay ahead of the competition, a company needs a novel therapy, better marketing, a quicker FDA approval.

What Makes TGTX Different?

  • Proprietary Technology: TGTX is primarily focused on developing novel therapies, using a target-specific technology for B-cell cancers, that could translate into more effectiveness of the treatment.
  • Collaboration with Research Institutions: TGTX is working with recognized medical schools and research institutions to expand their product and pipeline. This means their research and development process might be streamlined.
  • Focus on a relatively small number of conditions TGTX is primarily focused on a specific type of lymphoma, and a few autoimmune conditions.
  • Late-stage commercialization: TGTX is not a traditional “development-stage” biotech company but a commercial-stage company, which can help them generate profits from a commercial product.

Financials

TGTX is at the stage of commercializing a new product. At this stage, the sales will be minimal as the new drug starts to take market share. Revenue has increased year over year but remains relatively low compared to expenses, and especially R&D costs, so TGTX is still not a profitable business. Even though they’re not yet profitable, this is normal for a commercial stage biotechnology company. The current situation of the company is still relatively uncertain, as it’s unclear how profitable the sales of BRILYVANT will be. There are other drugs in the pipeline, but many require substantial investments and also will take a long time for FDA approval, if even approved.

Income Statement

Revenues: The product revenue has grown over the past years, but is still relatively small compared to operating costs. Revenue is primarily driven by BRILYVANT and royalty payments from other companies. As of the three months ended September 30, 2023, product revenues were $7.3 million. Cost of Revenue: The cost of products was $3.5 million during the latest quarter of 2023, which gives the company a very high gross margin. This is typical for biopharmaceutical companies, and the cost of revenue is likely to decrease over time as the manufacturing process becomes more refined. Research and Development (R&D) Costs: R&D remains a significant expenditure, showing the company’s commitment to innovation. R&D expenses were $55.6 million for the three months ended September 30, 2023. Selling, General and Administrative (SG&A) Expenses: SG&A expenses are also quite high, at $34.4 million in the latest quarter of 2023, which is expected as the company invests in commercialization. Net Loss: The company has made a substantial net loss of $70.7 million in the three months ended September 30, 2023, with a net loss of $294.2 million in 2022. The reason for that is the company is in the commercialization stage but expenses are significantly higher than revenues.

Balance Sheet

TGTX has large cash holdings, which are needed to fund the business during its current R&D, Clinical Trials, commercialization stages. The short-term debt is relatively minimal, but the company does have long-term debt as part of its financing activities. In the most recent financials, total assets are $329.3 million, including $222.3 million in cash. Liabilities are $66.7 million (including $17.8 million in deferred revenue and $42 million in long-term debt).

Cash Flow

TGTX is burning through cash at a rapid rate. As of latest data, cash from operating activities came out to be a negative value of $41.8 million. The cash balance at the end of the period was $105.8 million. The company might need to take up debt or equity financing if the cash burn continues.

Moat Assessment

Based on my research and analysis, TGTX does not have an economic moat for the following reasons:

  1. Intangible assets: Although BRILYVANT has received FDA approval for a specific rare cancer type, it does not seem to have significant patent protections. In addition, other pharmaceutical companies are likely to innovate and come up with similar drugs in the same category, further shrinking market share of the drug. Also, if a future drug works better than BRILYVANT, then it might lose market share immediately.
  2. Switching costs: Because they are operating in a very competitive space, customers (mostly clinicians) may easily switch between different competitors to gain the most benefits. This will result in price compression and lower market share.
  3. Network economics: It does not seem as if TGTX has any network effects in the business, since each company’s drug is sold independently and does not rely on any sort of customer network.
  4. Cost advantages: TGTX currently does not seem to have any cost advantages in its operations as its cost of revenue remains high, and has large selling and general expenses. However, as the product pipeline continues, some of this cost may be offset. Overall, it’s unlikely that TGTX can create a solid cost structure given it’s in an industry that has many large companies. Given that information, I have to rate TGTX with a 1/5 economic moat rating. There is very little in TGTX’s business that helps to produce consistent returns on capital in the long term.

Risks to the Moat and Business Resilience

TGTX is exposed to several risks that could impact its moat and overall business.

  1. Regulatory approvals: The company is reliant on the FDA and other regulatory bodies for approval of its drug candidates. The process can take a long time and cost enormous amounts of capital.
  2. Clinical trial uncertainty: TGTX relies on successful clinical trials for its drug candidates, which can be costly, time-consuming and subject to failure.
  3. Competition: The biopharma industry is intensely competitive and it’s very likely that other players enter the market with competing products and better treatments, reducing TGTX’s market share and revenues.
  4. Financial Instability: The company is currently losing money in its operations and its dependence on outside financing may pose a problem to the long term stability of the business.
  5. Commercialization challenges: Even a well-developed drug might fail in the commercialization phase due to poor marketing, distribution channels and others.
  6. Intellectual property: Despite patent filings and patenting their technology, TGTX is not safe from other companies replicating or improving upon their technologies or if their patents fail in court.
  7. Changing Healthcare Landscape: Constant shifts in drug pricing regulations, treatment preferences, and the structure of insurance plans can negatively influence TGTX’s profitability, pricing power, and market share. Based on that information, the business resilience is below average. Even though there are some factors that support the business, there are significant risks which might cause a major downturn.

Understandability

The company is a commercial stage biotech, which makes it a bit more difficult to understand than a traditional consumer business. There are complex financials that one has to consider. Also, understanding the drug development process is more difficult. While TGTX produces information and news, it’s not easy for a regular investor to predict and understand the performance of the company. For these reasons, I will rate the company with a 3 / 5 in understandability rating.

Balance Sheet Health

TGTX’s current balance sheet health is relatively risky. Although the company does possess a lot of cash, it has accumulated significant losses, and thus its equity is very low. The company needs cash to fund the research and development process, and currently it’s running a cash burn rate which is very difficult to sustain. For these reasons, the current balance sheet is rated as a 2/5. While not in immediate danger, if the company is unable to make some revenue from its drugs, the balance sheet might deteriorate quickly.