TG Therapeutics: Addressing The SC Ocrevus Concern (NASDAQ:TGTX)

TG Therapeutics (NASDAQ:TGTX) launched Briumvi in late January and it is off to a solid start. This drove the stock significantly higher earlier this year but it then pulled back to consolidate and fell more after Roche (OTCQX:RHHBY) announced the widely expected positive phase 3 results of subcutaneously delivered Ocrevus that uses Halozyme’s (HALO) technology to deliver large doses of drugs subcutaneously.

I believe the risk of SC Ocrevus is overblown and that Novartis’ (NVS) Kesimpta will remain the preferred subcutaneous version of an anti-CD20 antibody for the treatment of multiple sclerosis. Yes, Kesimpta is administered once a month versus every six months administration of SC Ocrevus (if approved), but Kesimpta offers a simple, small-volume, at-home administration of the drug using an autoinjector while SC Ocrevus will be a 10-minute subcutaneous delivery that requires pre-medication one hour prior to administration (mandatory corticosteroids and antihistamine and optional analgesic prophylactic treatment) and one hour of following the patient post-administration. Roche also said the initial product offering will have to be physician-administered and that they are working on a longer-term at-home solution but the length of the administration will not change.

The reason for the significant differences between SC Ocrevus and Kesimpta is that Kesimpta’s dose is 20mg and Ocrevus’ is a 300mg loading dose followed by 600mg every six months. The small dose of Kesimpta allowed for a simple subcutaneous injection packaging (and the trade-off seems to be once-monthly administration) and Roche’s solution for the large dose is the Halozyme technology that allows subcutaneous administration of large drug volumes.

Roche may have a hard time switching its own IV-treated patients to SC Ocrevus, let alone taking share from Kesimpta or Briumvi.

TG is said to be doing some preliminary work on a subcutaneous Briumvi, but it has similar volume limitations as Ocrevus as the first infusion is 150mg and the following infusions are 450mg and hard to fit into a small volume subcutaneous injection.

But overall and as mentioned, I do not see SC Ocrevus as a more significant threat than Kesimpta and believe Briumvi is well-positioned to capture decent market share in the growing anti-CD20 market for the treatment of MS.

There are three reasons I decided to add TG to our Growth Stock Forum model portfolio now:

• The share price has corrected to levels where I believe the risk-reward is once again attractive.
• I have seen sufficient Briumvi uptake information to feel confident about the launch.
• I expect strong Q2 results and believe they will be a catalyst for the stock or at least stabilize the stock after the recent correction and eventually lead to stronger performance in the following months and quarters.

The discussion above was related to convenience, which is not and should not be a deciding factor on which drug to take, and there are reasons for being bullish on Briumvi’s launch.

Briumvi’s topline efficacy is excellent. With the caveat of cross-trial comparisons, I believe Briumvi has the best package of the three drugs.

There are two ways to compare Briumvi (ublituximab) to Ocrevus (ocrelizumab) and Kesimpta (ofatumumab). The first is to look at absolute data and compare one drug to the other, and the second is to look at the relative performance of each drug compared to the control arm. The job would be easier if the control arms were the same in each study, but they were not. Briumvi’s and Kesimpta’s trials had teriflunomide (Aubagio) as the control arm and ocrelizumab’s control arm was interferon beta 1a (Rebif). The performance across trials is summarized in the two tables below. Green represents the best value for each endpoint.

As you can see, Briumvi does well on almost all endpoints.

One of the endpoints where Briumvi compares numerically worse is disability progression relative to its own control arm, but that is because there was very little disability progression in the control arm. The absolute numbers for Briumvi are the lowest in all trials and teriflunomide actually performed better on this endpoint than ocrelizumab and ofatumumab.

Disability improvement is also lower compared to ocrelizumab on an absolute basis, but far better than the control arm itself and much higher than ocrelizumab and ofatumumab – an 88% and 100% improvement over teriflunomide versus 33% and 35% improvements of ocrelizumab and ofatumumab over their respective control arms (Roche did not report 24-week data and Novartis did not report 12-week data).

Infusion reactions were higher in ublituximab trials, that’s an advantage for ocrelizumab. However, most infusion reactions were mild to moderate and the vast majority happened when patients received their first infusion. After the first infusion, the reaction rate drops to single digits.

How the launch is going

Briumvi had a strong partial first quarter on the market (commercial launch on January 26). Below are the key metrics shared in the Q1 earnings report and on the earnings call.

• $7.8 million in net sales compared to the $3.4 million consensus. The vast majority of net sales are demand driven versus inventory buildup.
• Gross to net was 77%, which is pretty good this early in the launch, but could also get worse as contract terms with payers call for higher discounts. Management has not provided guidance on where gross to nets would be going forward or long-term.
• More than 400 prescriptions from more than 165 healthcare providers in more than 125 centers. These prescriptions have gone through the company’s patient support hub and it estimates the hub is capturing 80% to 90% of total prescriptions which means there were another 50 to 100 prescriptions in the quarter.
• Prescriptions have accelerated from February to March and on the earnings call, the company said the same happened in April over March.
• Payor coverage was in place for more than 50% of covered lives and the company anticipates this will grow to over 80% by the end of the year.

The J-code became effective on July 1 and should provide for a smoother reimbursement process and act as an additional accelerant for growth in the second half of the year.

The launch dynamics are a bit unusual in terms of the time of administration. Patients get the first 150mg dose on day one and then another 450mg dose two weeks later. After that, patients receive 450mg every six months. This means an early bump in sales as patients take two doses in two months (although this is basically 1.33 doses since the first dose is a third of the following doses and Briumvi is priced per 6ml vial containing 150mg of the drug) and then there are no revenues for those patients for six months. This suggests we should see a bump in sales growth once patients start coming back for that third dose six months later and that should start happening in August.

Making accurate estimates at this point is not really possible, but part of the reason I want to buy the stock prior to the Q2 report is that I expect TG to post strong numbers in August. The current consensus is $16.4 million and the range is $12 million to $26 million among six analysts. Getting $16.4 million in net sales only translates to less than 550 patients receiving the first two Briumvi infusions.

I find it hard to believe that sales will not be significantly above the consensus and I expect TG to report more than $25 million in Q2 net sales. Getting $25 million in Q2 translates to approximately 800 patients receiving those first two infusions and does not sound far-fetched considering the fact the company generated 450 to 500 prescriptions in the first two months (and change) on the market in the first quarter and that there was prescription growth acceleration from February to March and from March to April.

The bullish case is sales being in the $35-40 million range but for that to happen, we would probably need to see faster conversion from written prescription to two infusions and I assume many patients being prescribed Briumvi in June will only receive their first two infusions in Q3.

An absolute blowout number would be more than $40 million in net sales in Q2.

And while the company does not provide sales guidance, I see the potential for a beat-and-raise situation with the raise part meaning the analyst consensus continues to trend higher after revenue beats.

Financial overview

TG’s cash balance is on the thin side. The company had $139.7 million in cash and equivalents at the end of Q1 and another $20 million of available capacity under its existing term loan facility and it believes this and Briumvi revenues should be sufficient to fund the company into mid-2024. There is also an active at-the-market offering that the company can utilize, or may have already utilized during the second and third quarters to raise cash.

Cash burn was $32 million in the first quarter. I always feel more comfortable when a cash position is more robust than what we are seeing at TG, but given the launch progress, we should see minimal or no dilution going forward and if Briumvi exceeds expectations, TG should become cash flow positive within 3-4 quarters.

Risks

The risks for the thesis were more or less covered throughout the article:

• Big pharma competitors with deep pockets and a potentially improved convenience profile for Ocrevus if the subcutaneous version makes it to market. Roche is also conducting a higher dose trial of Ocrevus that may improve its ARR (1,200mg or 1,800mg versus the approved 600mg dose) but this would then be an IV-administered drug again and would lose the convenience of the SC version.
• Launch falling short of expectations. Briumvi needs to exceed analyst estimates in the near term and at least meet longer-term estimates for us to see value creation from current levels.
• Financing risk. TG’s cash position is on the low side and should the previously mentioned risk materialize (launch falling short of expectations), the company would need to raise more cash at worse terms than may currently be available.

Lastly, after the demise of its oncology portfolio, TG is now a one-drug company and lacks any kind of diversification. There are other potential disease targets for Briumvi, but to my knowledge, there are no active clinical development plans and my assumption is that commercial uptake in MS is all we can expect to see from the company in the medium-term.

Briumvi’s launch is the only consideration for positioning in the near and medium term and should the launch fall short of expectations, I will close my position.

Other considerations

M&A is the other potential consideration for TG Therapeutics. Given the de-risked clinical and regulatory position, good early launch metrics, and a relatively straightforward competitive position including the risk of a more convenient competing product, TG would be a good fit for growth-starved big pharma companies. Of course, Roche and Novartis are out of the picture as they have their own CD20 antibodies, but there are no obstacles for others.

Related to that, what TG does with ex-U.S. rights to Briumvi will provide a strong tell of whether there are negotiations going on (if nothing happens) or whether they have likely failed if the company out-licenses ex-U.S. rights or rights in certain geographies.

This is by no means a key part of the thesis, but worthy of our consideration in terms of realization of near to medium-term upside for the stock.

Conclusion

I believe Briumvi is well positioned to become a successful CD20 drug in the multiple sclerosis market and expect the launch to continue to go well with a Q2 revenue beat and a strong second half of the year that will set the company for success in the following years.

I also see the company as an attractive acquisition target and believe that the decision on what to do outside the U.S. will provide a strong indication of its medium-term plans – partnering ex-U.S. should suggest there is no imminent buyout and going alone would suggest the company is open to offers. To be clear, partnering outside of the U.S. does not preclude a buyout as the U.S. is by far the most important market, but it would lower the probability of a deal happening in the medium term.

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