NVS - TG Therapeutics: The Revenue Beat Isn't What It Looks Like

2023-12-19 13:13:17 ET

Summary

• TG Therapeutics, Inc. stock has gone up a lot due to a Q3 revenue beat.
• However, look closely at the Q3 numbers, and you can see Briumvi wasn't responsible for the revenue beat.
• Briumvi hasn't done as well as it should have.

My TG Therapeutics, Inc. ( TGTX ) article hasn’t aged well. The stock is up 167% at last count since my “sell” rating, and there’s a guy here on Seeking Alpha who has bet that TGTX will go up 200% since my call. He may well win his bet.

He should remember, though, that I have been a TGTX bull since around 2018. Here’s the list of all 18 articles I wrote on this ticker. Go through this list - just the titles are enough - and you can well see the initial enthusiasm, followed by high conviction, low conviction, and finally, no conviction. I went from Hold to Buy to Strong Buy to Hold again, and finally to Sell. I first bought TGTX at $25, got out at $40, bought again at $15, and got stuck for a very long time; managed to exit $15 at a small profit - and then the stock fell.

The stock fell because a strong candidate newly approved and with superior data does not miss its initial earnings estimates. Briumvi did - not once but twice. The situation was interesting. Briumvi was approved in December 2022 and missed its very first earnings. Next time, analysts must have been more cautious with their estimates, and overcorrected for Briumvi’s poor performance - as a result, Briumvi beat earnings. Then, the third time, analysts must have been a little more enthusiastic, and came up with higher numbers - baam! Briumvi missed earnings estimates again. Finally, this fourth time, analysts, absolutely at a loss to understand this asset, predicted very poor earnings. TGTX (note I did not say Briumvi; I will explain soon) beat earnings again, by a whopping $102mn. I do not have data on what, exactly, this estimate consisted of - whether this was only for Briumvi or whether they had something else in mind. But if it was Briumvi alone, then they were too optimistic.

Before I delve into explaining that last cryptic paragraph, let's recall that this news was immediately followed by the one about Merck KGaA’s (MKGAF) evobrutinib flunking two phase 3 trials. Although evobrutinib was not the main competitor for Briumvi, that news still took the stock up. The two effects together have had a cascading effect on TGTX shares, which look plenty bullish right now since around November.

However, look closely at Briumvi revenue alone. Here are the numbers from Seeking Alpha:-

Feb 28, 2023 - Revenue of $0.08M (-96.6% Y/Y) misses by $1.52M.

May 01, 2023 - Revenue of $7.8M (+286.1% Y/Y) beats by $4.42M.

Aug 01, 2023 - Revenue of $16.07M (+2606.1% Y/Y) misses by $1.88M.

Nov 01, 2023 - Revenue of $165.82M beats by $102.48M.

There’s one more important paragraph here, which you shouldn’t miss:

Third quarter 2023 total net revenue of $165.8 million, including quarterly BRIUMVI net sales of $25.1 million in the United States, and license revenue of $140.0 million from the upfront payment received from Neuraxpharm

Now go back to the earnings estimate for the September quarter; here’s what I have:

Consensus Revenue Estimate is $63.34mn.

If you are not blindly bullish, you gotta modify that November figure now. I would do it like this:-

Nov 01, 2023 - Revenue of $28M missed by $38M.

Neuraxpharm and Merck KGaA took up TGTX stock. Where’s Briumvi’s credit in that?

Now compare that with Kesimpta’s initial revenue figures. Fellow contributor Edmund Ingham , who also seems to have started with a Buy rating for TGTX in the early years and is now solidly Sell , mentions a very large figure somewhere, so I checked. Kesimpta (Ofatumumab) is approved for RRMS. It is developed by Novartis (NVS). This third quarter, Kesimpta had sales (not revenue) of $657mn. It was approved in 2020 for RRMS, and was already a billion dollar blockbuster by 2022. By the second quarter of launch, Kesimpta was making $66mn in net sales. In Q3 2021, net sales were $109mn. And so on. These are robust figures; Briumvi’s figures are not.

Bulls also missed another crucial statement that occurs in the very first paragraph of my article:

..and there seems to be little hope of recovery - from these levels, sure, but back to those earlier levels, doubtful.

So, you can see that I was aware that there may be recovery from those levels, when it was trading at lows. Every investor’s situation is different, and I have often objected to loose use of Buy/Sell ratings in public. These days, at least for my Hold ratings, I provide a disclosure which basically states that my ratings are for my situation and my investments. They may not apply to you. Read my article and make your own decisions.

There are other reasons besides earnings for my bearishness. While Merck’s drug failed, the threat is from Roche (RHHBY), whose Ocrevus scored a major hit, as I covered earlier:

Speaking of trials, Ocrevus was the clear winner here. Recall that Briumvi is a one hour IV infusion, while Ocrevus used to be a 3-4 hour IV infusion. Now, this trial, the OCARINA II trial, was designed to evaluate Ocrevus as a twice-a-year 10-minute subcutaneous ("SC") injection against intravenously-delivered Ocrevus. The trial showed comparable safety and efficacy between the two versions. Now, obviously, a 10-minute SC injection beats a 1-hour IV injection hands down. With this one fell swoop, Briumvi has lost its lower infusion time edge. This, and the price, was all it had. I have noted before that a small price difference (15% here) does not matter in the larger scheme of things, given how much more entrenched an MS player Roche is. So, with both edges gone, Briumvi is looking at a bleak future.

The only thing left is ARR, and this has never been proven in a head to head trial. I doubt TGTX has any plans to do such a trial - better leave well enough alone, they perhaps are thinking. I don’t know what they are thinking, but I will tell you what I am thinking - I am an investor, not a swing trader. I work with science and fundamentals, not on whims. If I see solid scientific reasons for buying TG Therapeutics, Inc., I will eat humble pie and tell you so. Until then, I am going to stay away from TGTX.

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