Description

TG Therapeutics (TGTX) – Long

BACKGROUND: TG Therapeutics is a biopharmaceutical company based out of Morrisville, NC that focuses on “acquisition, development, and commercialization of novel treatments for B-cell mediated diseases in the United States and internationally.”  Its flagship product (and the one on which I will focus most today) is Briumvi, a newly approved treatment for Multiple Sclerosis (MS). 

Other products (for completeness):

• Umbralisib, an oral inhibitor of PI3K-delta inhibitor for the treatment of adult patients with relapsed or refractory marginal zone lymphoma and follicular lymphoma; 

• TG-1701 is an orally available and covalently bound Bruton's tyrosine kinase (BTK) inhibitor that exhibits selectivity to BTK in vitro kinase screening; and 

• TG-1801, a bispecific CD47 and CD19 antibody. Its research pipeline includes various investigational medicines. 

Briumvi (ublituximab) is an anti-CD20 monoclonal antibody (more on this later) for the treatment of several specific types of MS.  MS is a chronic and typically progressive autoimmune disorder characterized mostly by areas of “demyelination” of the nerves of the central nervous system (brain and spinal cord). To understand this, think of a typical household wire - demyelination would be analogous to an area of loss of the outer insulation of the wire.  The result of this for an individual with MS can be a wide variety of physical symptoms.  Most commonly, these are vertigo, double vision, tingling or numbness in the limbs, bowel disturbances, and cognitive impairment.

Without treatment, MS is progressive, but progression varies greatly amongst individuals.  MS is typically classified into three major types: relapsing-remitting multiple sclerosis (RRMS), secondary progressive multiple sclerosis (SPMS), and primary progressive multiple sclerosis (PPMS). In most cases, the disease initially follows a relapsing and remitting course. RRMS shows clear exacerbations of neurological symptoms known as relapses, followed by a stage of remission with no disease progression.

MS, like other autoimmune conditions, results from the over (and inappropriate) activation of one’s immune system that leads to their own immune cells attacking the body - in this case, the nervous system.

Treatments for MS can be broken down by mechanism of action:

Monoclonal Antibodies: these can further be broken down into the target of the monoclonal antibody:

• Integrin Antagonist: Natalizumab (Tysabri); one hour infusion ever 4 weeks; observation for 1 hour; duration of therapy limited to ~24 months or less

• Anti-CD 20 (see below)

• Anti-CD 54: Alemtuzumab (Lemtrada); reserved for patients with highly active MS AND inadequate response to two or more other drugs.

Platform Injection Therapies: these are the oldest MS drugs and typically have the most side effects.

Oral Therapy: typically used for patients who highly value self-administration AND have less active disease. 

To understand how Briumvi works, one must have a (very) basic understanding of the immune system (remember that Immunology is an entire subspecialty of Internal Medicine, so again, this is an incredibly simplistic primer, only presented to allow understanding of the mechanism of action of Briumvi. 

There are two main “types” of white blood cell lymphocytes: B cells and T cells (red highlighted region below):

T cells typically fight foreign antigens/proteins (bacteria, viruses, fungus, etc.) directly, but also direct B cells to make antibodies to improve our immune system.

B cells create antibodies which bind to the foreign substances to neutralize them.  B cells also recruit other types of immune cells to help destroy infected cells.

The primary cells involved in the pathophysiology of MS have historically been thought to be T cells.  However, B cells have recently been implicated in the pathophysiology of the disease in several ways (beyond the scope of this article).  

Both T cells and B cells have unique surface proteins that are used as drug targets.  For B cell therapy for MS, “CD-20” is targeted by monoclonal antibodies to deplete that B cell.  The schematic below shows how a monoclonal antibody binds to a cancer cell, but the idea is the exact same:

Rituximab was the first anti-CD20 antibody developed and tested in phase I and a subsequent phase II trial on 439 patients with PPMS. While it was associated with a lower annualized relapse rate (ARR) and a reduction in the number of T2 and gadolinium-enhancing brain lesions, it was limited by its efficacy.  

• Ocrelizumab (Ocrevus, Roche-Genentech) was approved by the FDA in 2017.
• Ofatumumab (Kesimpta, Novartis), the third anti-CD20 antibody, has several notable adverse effects: low blood counts (platelets and red blood cells) and infusion reactions requiring prolonged monitoring following infusions.
• In December 2022, the FDA approved Briumvi for MS.  Briumvi is unique in that it targets a specific region of the B Cell CD20, distinct from other approved therapies. Due to its engineering, Briumvi targets B cells most likely to contribute to the pathology of MS.

How does the administration of Briumvi compare to Ocrevus and Kesimpta?

Briumvi: loading dose on day #1 and day #14, then once every ~6 months.  Infusions last 1 hour and only requires monitoring after the first infusion.  After the first infusion, total time is ~90 minutes including pre-infusion time.  

Ocrevus: loading dose on day #1 and day #14, then once every 6 months.  Infusions last 2-4 hours and require 1 hour of monitoring after every infusion.  Total time for every infusion is ~4-6 hours. 

Kesimpta: once weekly for 3 weeks, then once monthly thereafter.  It is administered via a subcutaneous (into the skin) injection pen at home and does not require post-injection monitoring.  

What do peak sales look like?

In 2023, with Briumvi on the market for a mere ~11 months of the year, Briumvi sales (and nearly full company revenues)were ~$89M.  The Q4 run rate for Briumvi was $160 million annually.  On their earning call in March, guidance was given for $220-260M for 2024.  All of this comes from U.S. sales only having just been approved in Germany, their first non-US country to launch.  

TGTX recently signed a commercialization agreement with Neuraxpharm whereby they have already received $140M in upfront payment with potential to receive another ~$500M based on commercialization milestones in Europe.  Further, they are set to receive tiered double digit percentage royalties based on net product sales, with royalties capped at 30%. An interesting piece to the commercialization agreement with Neuraxpharm is an option to buy back all the rights handed over to Neuraxpharm for a period of two years (through August 2025) “in the event of a change in control of TG Therapeutics.”  I believe that this provides us with another way to win with TGTX.  If a buyout doesn’t materialize before August 2025, it is less likely to happen.  My contention is that this date was chosen to allow for a full year of sales data to market itself for a sale.

Market Capture

The company indicated that they have captured ~10% of all patients on anti-CD20 therapy.  The company’s stated goal is to be the #1 prescribed IV anti-CD 20 drug. While I find this to be a very high hurdle, Ocrevus (Roche), the far-and-away leader for MS treatment, brought in $7B in sales in 2023, low double digits growth from 2022. Kesimpta (Novartis) came to market in 2020 and in 2022, after just 2 years on the market, generated $1.1B in sales.  As above, Kesimpta has the benefit of home injection subcutaneously (think of how Ozempic pens) but has to be injected monthly and has significant adverse effects.

The total market for MS (all drug mechanisms included) is estimated to be ~$29 billion in 2024 and to grow to ~$35B by 2029.  Anti-CD 20 sales in 2024 are expected to be ~$9.0B and to grow at a ~9% CAGR to reach ~$20B in the next 10 years.  

The company noted they had 1000 patient starts, or approximately 10% of the 10,000 new starts per quarter. If Briumvi can capture even 30% of the market for anti-CD20 drugs (~3,000 patients/quarter) at ~$59k/patient/year, their Briumvi sales will hit ~$600M.  It’s not unreasonable to think that this could happen in 2025 given their growth rate to date in the past 14 months on market.  

Patent Protection

In the company’s Q4 press release, they announced that due to the unique composition of Briumvi, they were awarded 2 patents that protect the drug through 2042.  While there are likely to be newer, better disease modifying therapies brought to market before then, this does alleviate some concern over generic composition.

Insurance Coverage/Reimbursement

The company indicated that insurance coverage has been very good to date, with 95% of commercial and Medicare plans covering it.  It is also the lowest cost anti-CD20 treatment, which helps with insurance coverage.  The company indicated on their Q4 call that “90% of the top 100 medical centers in the US are utilizing” Briumvi.  They have noted increased switching from other anti-CD 20 therapies as well. 

Anti-CD20 therapy captures ~50-60% of all new patients every year, likely to increase in the coming years given the positive response rates.

Valuation

The company had a net cash position ($217M cash and equivalents, $109M in debt) at year end with at on the most recent management call.  Management indicated they believe they have enough cash to fund operations through to cash flow positivity this year.  While company projections for sales of Briumvi are expected to rise to $220-260M for 2024, their operating expenses are also expected to rise in line to ~$250M likely due to increased sales force to push sales to end-users. 

Roche’s Ocrevus has a large head start on the market which is likely to be sustained given their recent data showing efficacy of subcutaneous formulation. On the day this data was announced, TGTX stock dropped ~ 14%.  While I do not contend that Briumvi will displace Ocrevus as #1 drug for MS at any point, I do believe that it is at least the second best anti-CD20 MS treatment on the market.  Should subcutaneous administration of Ocrevus be approved and adopted, it could make it even more of a juggernaut, but I do believe there is still room for multiple other competitors, of which I think Briumvi will gain market share.

Bear: peak sales of $500M, 6x EV/rev = ~$20/share (50% upside)

Base: peak sales of $1B, 7x EV/rev = ~$50/share (250% upside)

Bull: peak sales of $3B, 10x EV/rev = ~$180/share (1000+% upside)

Based on a conservative peak annual sales of $500M using a 6x EV/revenue multiple, TG Therapeutics is worth ~$3B, or $20/share.  Sales ramping from there, which I fully expect into 2026 could provide 100+% upside within 2-3 years.  This is assuming no subcutaneous form ever comes to market.  Should TGTX show positive results from subcutaneous delivery trials, it will be a game changer and they could realistically gain significant market share from Ocrevus.  The CEO had the following to say about subcutaneous (“Subcu”) development on their most recent call: “A second key area for us is developing subcu BRIUMVI. We have completed our preliminary subcu formulation and are preparing to enter human bioequivalent studies this year. We believe this subcu market could represent a significant new market opportunity for us, as the IV and subcu CD20 markets within RMS are rather distinct. Given the known profile of the currently available subcu and the profile of the other one under development, we believe there is plenty of room to strive to develop a potentially best-in-class subcu CD20 product.”

Data from the subcutaneous delivery trial is likely a year or two away, at the earliest.

Once the market sees the sales continue with increased market share of the anti-CD20 MS market, I believe this stock will rerate to $30-40/share. 

Management has also telegraphed a potential acquisition by large pharma based on their commercialization agreement with Neuraxpharm.  The CEO, Michael Weiss, owns ~12M shares including RSUs, which is over 8% of the outstanding shares.  He has been buying as recently as August 2023 at ~$10/share.

Risks:

1. Drug price pressure (though currently the cheapest of any brand MS medication)

2. Ocrevus subcutaneous formulation rolled out and takes market share

3. Failure of Briumvi subcutaneous delivery trial

4. New entrants to market

Catalyst

1. Sales growth momentum, increased market share

2. SubQ formulation allowing at home administration

3. Acquisition by large pharma

4. Additional indications for Briumvi

5. Positive development of remainder of pipeline: Umbralisib; TG-1701, TG-1801