Stock in TG Therapeutics (TGTX) popped in Wednesday trading, seeing shares bounce 9.11%. Driving the gains appears to be the favorable deal secured by rival Infinity (INFI) with AbbVie (ABBV) . The deal, which gives AbbVie the right to market and commercialize duvelisib, an oral inhibitor of phosphoinositide-3-kinase (PI3K)-delta and PI3K-gamma. It includes a $275 million upfront payment to Infinity as well as an additional $550 million in additional payments for reaching regulatory and commercial milestones.
Why Would Infinity’s Deal Benefit TG Therapeutics?
So it’s pretty clear that Infinity hit the lottery with duvelisib after this deal. The announcement prompted a 44.05% spike in the company’s stock in a single day, a pretty substantial jump for a small-cap company of Infinity’s size.
But how does that help TG Therapeutics? It bodes very well for TG Therapeutics own PI3K inhibitor, TGR-1202. As Roth Capital’s Joe Pantginis observed while reiterating his buy rating and $25 price target, the Infinity deal should act as the rising tide that raises all ships for company’s with PI3K inhibitors in the works.
"Management has commented previously that the company would like to hold onto the drugs
for as long as possible, and possibly not partner at all,” Pantginis wrote. “However, given the favorable terms that INFI secured in the deal with ABBV and given TGTX's clinical data to date, we believe TGTX would have significant leverage if it chose to pursue a partnership."
It’s not uncommon to see a big deal prompt ripples across the health care industry. It played out pretty clearly earlier this year when a massive deal in which Merck (MRK) shelled out $3.85 billion to buy Idenix (IDIX) . Idenix was working on a hepatitis C treatment, a disease that recently demonstrated itself to be a massive cash cow after Gilead Sciences (GILD) started making an absolute killing off of its own hep C treatment Sovaldi.
In the week following Idenix’s huge deal, a number of other small-cap companies sporting their own hep C treatments in development started to see shares soar in anticipation of them getting snapped up by other major pharmaceutical companies seeking out their own cash cow.
TG Therapeutics a Shining Small-Cap Star
TG Therapeutics is one of equities.com’s Small-Cap Stars, our proprietary list of small-cap companies we’ve determined to be most likely to show major growth over the course of 2014. And TG Therapeutics has been one of the major success stories in 2014, more than doubling in value since the start of 2014.
The Small-Cap Stars system utilizes careful fundamental research to arrive at a list of companies best suited for investment. We examine the most successful small-cap companies in the past and develop a clear profile of fundamental metrics that those companies had prior to making that nest jump. Then, after determining which factors are the most predictive of future success, we determine which current companies are closest to the profile.
The system is certainly far from a guarantee, but it does help highlight those stocks that have a strong chance of showing major gains. Certainly, no one can say with certainty which clinical trials are going to be major successes and spike the biotech companies running them, but a clear fundamental profile can determine which companies are best suited to take advantage of a major success if/when it comes.
In the case of TG Therapeutics, the company showed low revenue growth in the year prior1 and a low effective tax rate indicated that the company was potentially poised to take off in 2014. And, in this case, the system worked. Any investor buying into TG Therapeutics at the beginning of the year, it would have cost $3.90 a share. Today? Shares are at more than $9.20.
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