MacroGenics, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. MacroGenics is a clinical-stage biopharmaceutical company developing antibody-based therapeutics. It reported no product sales; revenue came from collaborations and government agreements.
Financial performance and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $10.6 million | $18.8 million | $20.3 million | $23.5 million |
| Operating loss | $53.0 million | $44.3 million | $100.6 million | $94.5 million |
| Net loss | $31.8 million | $43.2 million | $76.8 million | $92.8 million |
| Net loss per share | $0.65 | $1.03 | $1.63 | $2.35 |
- Q2 revenue fell 44% year over year; first-half revenue fell 14%. Lower collaboration revenue, including the prior-year $6.1 million Provention recognition and reduced Incyte revenue, was partly offset by recognition of Zai Lab’s upfront payment.
- Research and development expense was $51.4 million in Q2, down 1% year over year, and $98.5 million for the half, up 1%. General and administrative expense rose 9% in both comparison periods, to $12.1 million for Q2 and $22.3 million for the half.
- Other income was $21.2 million in Q2 and $23.8 million for the half, largely reflecting gains from revaluing Provention warrants and higher investment interest. The warrant revaluation contributed $19.6 million in Q2 and $20.5 million for the half; it is not recurring operating revenue.
- Cash, cash equivalents and marketable securities totaled $272.1 million at June 30, 2019, versus $232.9 million at December 31, 2018. Cash and cash equivalents alone were $180.3 million. Current assets were $287.6 million and current liabilities $49.5 million.
- Operating cash use was $78.8 million for the first half, compared with $89.0 million a year earlier. Investing activities used $80.6 million, mainly reflecting purchases of marketable securities; financing provided $119.6 million, principally from the February public offering. Cash and cash equivalents decreased by $39.8 million.
- Total liabilities were $89.2 million. The filing reports operating lease liabilities of $27.9 million; it does not identify conventional borrowings or other financial debt. No off-balance-sheet arrangements were reported. No meaningful product gross margin was reported because the company had no product sales.
Material changes, outlook and risks
- Management said existing cash, cash equivalents and marketable securities, together with anticipated collaboration payments, were expected to fund operations into 2021 under the current plan. This outlook assumes programs and collaborations advance as contemplated; milestone receipts remain uncertain.
- Clinical spending shifted across programs: margetuximab costs declined following completion of enrollment in the Phase 3 SOPHIA study, while MGD013, MGC018 and MGA012 costs increased. First-half R&D expense was broadly flat overall.
- In July 2019, Servier notified MacroGenics it intended to terminate the collaboration effective January 15, 2020, unless the parties agree otherwise. The agreement covers flotetuzumab; the MGD007 and third-molecule options had already been discontinued.
- Also after quarter-end, MacroGenics entered a collaboration with I-Mab for enoblituzumab, including a $15 million upfront payment and potential development and regulatory milestones of up to $135 million, plus tiered royalties.
- The company adopted lease accounting standard ASC 842 in January 2019, recording operating lease right-of-use assets and liabilities. At June 30, lease liabilities were $27.9 million.
- Key risks include clinical-trial and regulatory uncertainty, the need for additional collaboration or milestone funding, competition, intellectual-property protection, and the possibility that candidates will not be approved or commercialized. Management reported effective disclosure controls and no material change in internal control; it reported no material changes to the risk factors in its 2018 Form 10-K.
Important facts for investors to verify
- Whether cash burn and collaboration receipts remain consistent with management’s stated runway into 2021, and the sensitivity of that runway to trial plans and milestone timing.
- Clinical and regulatory progress for major programs, particularly margetuximab, MGD013, flotetuzumab and enoblituzumab.
- The effect and timing of Servier’s intended termination, including any transition or retained rights relating to flotetuzumab.
- The source, valuation assumptions and potential volatility of the Provention warrant gain; the company said it exercised the warrants cashlessly after quarter-end.
- Potential dilution: MacroGenics issued 6.325 million shares in its February 2019 offering, and outstanding shares rose to 48.9 million at June 30, 2019.