MacroGenics, Inc. — Q2 2014 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2014. Dollar amounts are in millions unless noted. MacroGenics is a clinical-stage biopharmaceutical company developing antibody-based cancer and autoimmune disease therapies. It had no product-sales revenue.
Financial performance and position
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Total revenue | $9.2 | $12.3 | $23.9 | $22.9 |
| Research and development expense | $17.3 | $11.0 | $31.9 | $21.1 |
| General and administrative expense | $4.1 | $1.5 | $7.4 | $5.3 |
| Net loss | $12.3 | $0.3 | $15.4 | $3.7 |
| Basic and diluted loss per share | $0.44 | $0.24 | $0.57 | $3.00 |
Revenue was primarily collaborative research revenue; grant revenue was $18,000 in Q2 and $336,000 for the first half. No gross margin is reported, and it is not a meaningful measure for the company’s development-stage operations.
At June 30, cash and cash equivalents were $194.0, versus $116.5 at December 31, 2013. Current assets were $198.8 and current liabilities $29.9. Total liabilities were $63.7, including deferred revenue, lease exit liabilities and deferred rent; the filing reports no conventional borrowings. Operating cash flow was positive $1.7 for the first half, compared with negative $13.8 in 2013; investing cash use was $1.2. Financing provided $77.0, primarily from the February follow-on stock offering. The company also had $19.8 of future minimum operating lease payments.
Material changes and drivers
- Q2 revenue fell 25% year over year, mainly because recognition of deferred Servier MGA271 revenue slowed after the expected development period was extended, and Pfizer research obligations had ended. First-half revenue rose 5%, supported by a Servier milestone, the Green Cross agreement amendment and Takeda revenue.
- First-half R&D expense rose 51%, principally reflecting clinical manufacturing, margetuximab Phase 3 preparation and DART Phase 1 preparations. G&A increased, particularly in Q2, due to stock-based compensation and public-company costs.
- Net loss increased as spending rose substantially. Per-share comparisons are affected by the IPO and February 2014 follow-on offering, which increased shares outstanding.
- Deferred revenue was $44.6 at June 30, up from $27.4 at year-end, including amounts received under new and expanded collaborations.
Outlook, collaborations and risks
Management expected existing cash plus anticipated collaboration receipts to fund development of margetuximab, MGA271, MGD006, MGD007, MGD010 and two additional preclinical DART oncology candidates into 2017, assuming collaboration programs advance as planned. Management expected R&D spending to increase. The company had three oncology candidates in clinical development and expected to start a fourth Phase 1 trial later in 2014; it also planned to advance three additional preclinical DART candidates toward IND submissions and Phase 1 trials in 2015.
- Takeda paid a nonrefundable $15.0 upfront for MGD010 and holds an option to license it after a defined Phase 1a study. Potential future payments include an $18.0 option fee plus early milestone and up to $468.5 in further milestones, as well as royalties if commercialized.
- Servier exercised its MGD006 option; MacroGenics reported a $5.0 milestone after MGD006’s IND cleared FDA review. In July 2014, MGD007’s IND cleared the 30-day FDA review, triggering another $5.0 milestone due to MacroGenics.
- The company’s cash runway depends in part on uncertain collaboration reimbursements and milestones, which require specified development achievements. It has not generated product revenue and may never obtain regulatory approval or commercialize a candidate.
- Key risks include clinical-trial outcomes and timing, regulatory approvals, financing needs, collaboration funding and milestones, competition, intellectual property, commercialization and manufacturing capabilities, litigation, and regulatory compliance. The filing states that management considered disclosure controls effective at a reasonable-assurance level and reported no material change in internal control.
Investor facts to verify
- Whether cash use and clinical/R&D spending remain consistent with the stated conditional runway into 2017.
- Progress, enrollment, trial timing and regulatory outcomes for margetuximab, MGA271, MGD006, MGD007 and MGD010.
- Whether Servier’s July 2014 $5.0 milestone was received and whether further milestones or option fees are achieved.
- How collaboration revenue recognition, deferred revenue balances and future partner commitments develop.
- Potential dilution from equity compensation and future financing; review the effect of increased shares outstanding on per-share results.