MacroGenics, Inc. — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016. The company develops antibody-based therapeutics and has not generated product sales; revenue is from collaborations and government agreements.
Financial performance
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $3.3 million | $14.7 million | $86.8 million | $92.7 million |
| Operating expenses | $37.5 million | $30.1 million | $111.6 million | $84.3 million |
| Operating income (loss) | $(34.3) million | $(15.4) million | $(24.8) million | $8.4 million |
| Net income (loss) | $(33.8) million | $(15.4) million | $(23.7) million | $8.3 million |
| Basic diluted EPS | $(0.97) | $(0.46) | $(0.69) | $0.27 basic; $0.25 diluted |
Q3 collaboration revenue fell 86% year over year, principally because the prior-year quarter included a $10 million Janssen milestone and Boehringer revenue had ended. Nine-month revenue included $75 million recognized under the new Janssen MGD015 agreement. Government-agreement revenue was $4.4 million year to date, primarily reflecting the NIAID contract.
Research and development expense rose 26% in Q3 and 33% year to date, to $30.3 million and $91.0 million, respectively. Drivers included immune-checkpoint research, combination trials involving enoblituzumab, and the NIAID program. General and administrative expense increased 20% in Q3 and 28% year to date, reflecting staffing, recruiting, and share-based compensation. No gross margin is reported; product revenue has not begun.
Liquidity, cash flow, and balance sheet
- Cash, cash equivalents, and marketable securities totaled $314.1 million at September 30, 2016, versus $339.0 million at December 31, 2015. Cash and cash equivalents alone were $109.9 million; marketable securities were $204.2 million current and $3.0 million non-current.
- For the first nine months, operating cash flow was $(15.4) million, investing cash flow $(72.3) million, and financing cash flow $1.4 million. Cash and cash equivalents declined $86.3 million to $109.9 million. Investing outflows principally reflected securities purchases net of maturities and capital spending.
- Total assets were $339.9 million; total liabilities were $39.8 million and stockholders’ equity $300.1 million. The filing reports no borrowings or off-balance-sheet arrangements. Deferred revenue and lease liabilities are among reported obligations.
- Current assets were $316.3 million against current liabilities of $22.1 million. The accumulated deficit was $257.9 million.
Material changes, outlook, and risks
- Janssen paid a $75 million upfront fee in July for MGD015 and will lead its development after IND-enabling work. MacroGenics may receive up to $665 million in development, regulatory, and sales milestones, plus low-double-digit royalties if commercialized.
- Takeda declined its option to license MGD010 in September; MacroGenics regained worldwide rights and recognized the remaining deferred revenue under that agreement. Management plans to advance the program and consider internal development or another collaboration.
- A sublease agreement generated an approximately $1.3 million reduction in R&D expense in the first half of 2016. The lease exit liability was $2.2 million at September 30, 2016.
- Management estimated existing cash, cash equivalents, marketable securities, and anticipated collaboration payments would fund operations for approximately two years, assuming programs and collaborations advance as planned. The company expects operating expenses to rise as clinical and preclinical development continues; milestone receipts are uncertain and depend on achieving specified results.
- Key risks include clinical-trial outcomes and timing, regulatory approval, ability to secure or sustain collaborations and funding, competition, intellectual-property protection, and commercialization execution. The filing gives no specific product approval or revenue forecast. Interest-rate exposure was described as limited given the short maturities and low-risk investment portfolio.
Investor items to verify
- Whether the MGD015 upfront payment and subsequent collaboration revenue support the operating plan, and the timing and conditions of future milestone payments.
- Clinical progress, trial costs, and regulatory developments for internally developed programs, including margetuximab, enoblituzumab, and regained MGD010 rights.
- Cash consumption against the stated approximately two-year runway, particularly if spending rises or anticipated collaboration payments are delayed.
- Impact of the Takeda opt-out on MGD010 development strategy and any replacement partner or funding plan.
- Deferred revenue, lease obligations, and the assumptions underlying management’s funding estimate.