MacroGenics, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Financial amounts below are in millions of dollars unless noted. The company develops, manufactures and commercializes antibody-based therapeutics, with approved products and partnered programs as well as its own clinical pipeline.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $10.4 | $41.7 | $48.0 | $78.8 |
| Operating loss | $(35.5) | $(25.0) | $(118.9) | $(133.4) |
| Gain on royalty monetization | $50.0 | — | $150.9 | — |
| Net income (loss) | $17.6 | $(24.8) | $37.0 | $(132.6) |
| Net income (loss) per diluted share | $0.28 | $(0.40) | $0.60 | $(2.16) |
- Revenue mix: Q3 revenue included $4.7 million of product sales, $4.5 million of contract manufacturing, $0.9 million from collaborative and other agreements, and $0.3 million from government agreements. Nine-month product sales were $13.2 million and contract manufacturing revenue was $9.7 million.
- Expenses and margins: R&D expense was $30.1 million in Q3 and $119.2 million for nine months, down 38% and 26%, respectively, year over year. SG&A was $12.4 million in Q3 and $39.6 million for nine months, also lower year over year. Manufacturing-services costs rose to $3.3 million in Q3 and $7.6 million for nine months. Product costs were unusually low in part because sold MARGENZA inventory had been expensed before approval; the filing says this benefits product gross margin as that inventory is sold through.
- Cash flow: Operating cash use was $50.2 million for the first nine months, versus $116.3 million in 2022. Investing cash use was $118.9 million, largely reflecting purchases of marketable securities; financing provided $150.1 million, principally from the royalty transaction. Cash and cash equivalents decreased $19.0 million to $89.9 million.
- Liquidity and obligations: At September 30, cash and cash equivalents were $89.9 million and marketable securities were $166.5 million. Current assets totaled $291.3 million versus current liabilities of $51.3 million. Marketable securities had maturities under one year. The royalty-monetization liability was zero at quarter-end; lease liabilities totaled $34.1 million. The balance sheet does not report conventional borrowings.
Material changes and notable items
- Revenue fell 76% in Q3 and 39% for the nine-month period, primarily because prior-year periods included collaboration milestones and revenue from programs that later slowed, ended or were terminated. Q3 2022 included a $30 million Incyte milestone.
- Net income in both 2023 periods depended on the nonrecurring royalty-monetization gain. The company recorded $100.9 million in Q2 after the royalty transaction was modified and a further $50.0 million in Q3 after achievement of a TZIELD milestone. The nine-month gain was $150.9 million; excluding it, the company remained loss-making.
- In March 2023, MacroGenics received $100 million for selling its single-digit TZIELD royalty interest. A subsequent agreement with DRI and Sanofi eliminated its obligation to remit that royalty interest and reduced the related liability to a de minimis amount; the arrangement was later terminated. MacroGenics retained other potential TZIELD economics, including a 50% share of royalties above a specified annual threshold and a further $50 million sales milestone incorporated into the Provention APA.
- Gilead nominated the first research program under its collaboration in September. Its $15.7 million nomination payment was received in October, after quarter-end; $15.6 million was deferred revenue at September 30. MacroGenics also remains eligible for substantial contingent milestones and royalties under the Gilead agreement, subject to options, development and commercialization outcomes.
- MacroGenics and Zai Lab mutually terminated their 2021 collaboration in August 2023. Zai Lab had discontinued development of the lead program in 2022. I-Mab’s agreement terminated in February 2023.
Outlook, risks and contingencies
- Management’s MD&A says cash, cash equivalents and marketable securities at September 30, combined with anticipated and potential collaboration payments, product revenue, manufacturing revenue and royalties, should fund operations into 2026. Separately, the liquidity note says current resources are sufficient for at least 12 months from the filing date. The longer-range outlook depends in part on expected and potential receipts, not cash already on hand.
- Planned spending includes the Phase 2 TAMARACK trial of vobramitamab duocarmazine and the Phase 2 LORIKEET study of lorigerlimab in metastatic castration-resistant prostate cancer, along with other clinical and preclinical programs. Management expects R&D needs and the accumulated deficit to continue increasing.
- Risks include clinical-trial and regulatory outcomes, uncertain collaboration milestones and royalties, ability to obtain future financing or partnerships, competition, manufacturing execution, and macroeconomic conditions including inflation, higher rates and geopolitical uncertainty. If funding or new arrangements are insufficient, the company may delay or reduce programs, cut expenses or downsize.
- The filing reports ordinary-course legal and regulatory matters, including potential intellectual-property disputes, but management does not currently expect them to have a material adverse effect. It cautions that an unfavorable resolution could affect results or cash flows. No material changes to the prior annual report’s risk factors were reported.
- Management assessed disclosure controls as effective at the reasonable-assurance level and reported no materially affecting change in internal control during the quarter.
Important facts for investors to verify
- How much of the projected runway into 2026 depends on future collaboration, milestone, royalty or product receipts, and how does that compare with the note’s 12-month liquidity statement?
- What are the clinical progress, timelines and funding needs for TAMARACK, LORIKEET and other priority programs?
- What options, milestones and commercial conditions must be met to generate further Gilead, Incyte and TZIELD-related payments, including the remaining $50 million TZIELD sales milestone?
- How sustainable are MARGENZA sales and Incyte manufacturing revenue, and how will manufacturing costs and product margins change as previously expensed inventory is sold through?
- What are the future implications of the TZIELD royalty sale and retained-interest terms, and could additional capital or equity issuance be needed?