New York-based biopharmaceutical company TG Therapeutics, Inc. (TGTX - Get Rating) has been one of the best performing cancer stocks over the past year, delivering 319.1% returns. Its performance has been backed by  splendid  results in its ULTIMATE MS Phase 3 trials. However, its shares have retreated  10.3% year-to-date and 5.7% over the past month.

In its recently released fourth quarter results, TGTX  reported high operating expenses and a significant operational loss. In fact, the company has been unable to meet  consensus earnings expectations in any of its trailing four quarters.

So, we think it is highly likely the stock will struggle to rebound because the biotech industry is very competitive and TGTX’s fairly weak financials and lofty valuation place it at a significant disadvantage. This backdrop makes TGTX’s growth prospects bleak.

Here is what we think could influence TGTX’s performance in the near term:

Increasing Competition and Risks in the Biotech Industry

The U.S. biopharmaceutical market has become highly competitive in recent years with more companies investing in R&D and generic product segments. Product innovation is a costly affair and involves high risk and long lead times prior to a new therapy’s ability to generate  revenues. This increased competition and high risk involved in product innovation can  negatively affect the commercialization and manufacturing process of many major biotech companies, including TGTX.

Unimpressive Financials

TGTX’s total costs and expenses increased 128.5% from their year-ago value to $86.82 million in the fourth quarter, ended December 31. The company reported an operating loss of $86.78 million and a net loss of $88.22 million. Its loss per share was  $0.71 over this period.

Premium Valuation

In terms of trailing-12-month ev/sales, TGTX is currently trading at 36.13Kx, which is significantly higher than the industry average  8.44x. Its forward price/sales of 194.09x is 2315.1% higher than the industry average  8.04x. Also, its trailing-12-month price-to-book of 24.93x is 441% higher than the industry average 4.61x.

POWR Ratings Indicate Bleak Prospects

TGTX has an overall rating of D, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. Among these categories, TGTX has a grade of C for Momentum, which is consistent with the decline in price year-to-date.

It also has  a C grade  for Value and a D for Quality, given its lofty valuation and lower profitability.

TGTX is currently ranked #327 of 486 stocks in the F-rated Biotech industry. In addition to the grades I’ve highlighted, you can check out TGTX’s POWR Ratings for Sentiment, Stability, and Growth here.

If you’re looking for better stocks in the Biotech industry, with an Overall POWR Rating of A or B, you can access them here.

Bottom Line

TGTX has witnessed impressive gains over the past year based on the successful outcomes and top line results from its ULTIMATE MS Phase 3 trials. However, its weak financials, and lofty valuations at a time when competition in the biopharmaceutical industry is heated could create challenges in the stock’s path to recovery.

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TGTX shares were trading at $48.70 per share on Friday morning, down $1.59 (-3.16%). Year-to-date, TGTX has declined -6.38%, versus a 4.83% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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