MacroGenics, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; balance-sheet comparisons are to December 31, 2018. MacroGenics is a clinical-stage biopharmaceutical company developing antibody-based therapeutics. It reported no product sales.
Financial results
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $9.7 million | $4.7 million |
| Research and development expense | $47.1 million | $45.7 million |
| General and administrative expense | $10.2 million | $9.2 million |
| Operating loss | $47.6 million | $50.2 million |
| Net loss | $45.0 million | $49.5 million |
| Net loss per share, diluted | $0.99 | $1.34 |
| Net cash used in operating activities | $30.0 million | $31.3 million |
Revenue was primarily collaboration and government-agreement revenue; collaboration revenue rose $5.0 million, mainly from $4.0 million of Incyte clinical-supply services and recognition of deferred Zai Lab upfront consideration. The filing does not report a conventional gross margin. Other income was $2.6 million, versus $0.7 million, reflecting higher investment income and revaluation of Provention warrants.
Liquidity, capital and obligations
- Cash and cash equivalents were $238.6 million and marketable securities were $81.8 million, totaling $320.4 million at March 31, 2019. The company reported no conventional debt balance in the presented balance sheet.
- Current assets were $335.0 million and current liabilities were $51.8 million. Total liabilities were $94.0 million; these included $28.8 million of operating lease liabilities, adopted on the balance sheet in 2019.
- Cash increased $18.5 million during the quarter. Financing provided $119.0 million, principally from the February public offering; investing used $70.5 million, largely for purchases of marketable securities.
- The offering of 6.325 million shares generated net proceeds of approximately $118.7 million. Shares outstanding increased from 42.4 million at year-end to 48.8 million at quarter-end.
Material changes and management outlook
- Net loss narrowed by $4.5 million year over year despite higher R&D and G&A spending. R&D increased $1.4 million; reduced margetuximab spending, following completion of enrollment in the Phase 3 SOPHIA study, partly offset higher spending on other programs.
- Management said cash, cash equivalents, marketable securities and anticipated collaboration payments were expected to fund operations into 2021, assuming programs and collaborations advance as currently contemplated. This is a conditional runway estimate, not revenue or earnings guidance.
- The company expects operating expenses to increase as clinical and preclinical programs continue. It has not generated product revenue and said it is uncertain whether or when product sales will occur.
- MacroGenics adopted lease-accounting standard ASC 842 on January 1, 2019, recognizing $16.4 million of operating lease right-of-use assets and $27.7 million of lease liabilities at adoption. During the quarter it determined it would extend one lease, leading to remeasurement.
Risks, contingencies and notable items
- Funding from milestones and other collaboration payments depends on successful research, development and regulatory progress and is uncertain. Potential collaboration milestones and royalties are generally excluded from recognized revenue until applicable conditions are met.
- Clinical, regulatory, commercialization, competition, intellectual-property, collaboration, manufacturing and financing risks could affect results. The company reported no material changes to the risk factors in its 2018 Form 10-K.
- Available-for-sale securities had no losses deemed other-than-temporary. Management stated an immediate 100-basis-point interest-rate change would not materially affect the fair value of cash equivalents and marketable securities.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the stated operating runway into 2021 remains supportable as clinical spending, collaboration receipts and program timelines evolve.
- Clinical-trial progress and spending for margetuximab, flotetuzumab, MGD013 and MGC018, including relevant results and regulatory developments.
- Timing and conditions for future collaboration milestones, royalties and other payments, including the economics of Incyte, Zai Lab and Servier agreements.
- Effects of the February 2019 equity offering and subsequent share issuance on dilution, and the company’s lease commitments and other cash obligations.