MacroGenics, Inc. — Q2 2018 Form 10-Q
Business context and period: Biopharmaceutical company developing antibody-based therapeutics, primarily for cancer. This filing covers the quarter and six months ended June 30, 2018; results are unaudited. The company had no product-sales revenue and remained dependent on collaborations, government funding and equity financing.
Financial results and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Total revenue | $18.8 million | $1.7 million | $23.5 million | $3.7 million |
| Research and development | $52.0 million | $34.5 million | $97.7 million | $67.3 million |
| General and administrative | $11.1 million | $8.4 million | $20.4 million | $15.8 million |
| Operating loss | $(44.3) million | $(41.2) million | $(94.5) million | $(79.4) million |
| Net loss | $(43.2) million | $(40.7) million | $(92.8) million | $(78.3) million |
| Basic and diluted loss per share | $(1.03) | $(1.14) | $(2.35) | $(2.21) |
Cash flow: For the first half, operating cash use was $89.0 million, investing activities provided $11.6 million net, and financing provided $104.4 million. Cash and cash equivalents rose to $238.7 million from $211.7 million at year-end, primarily reflecting the April public offering.
Balance sheet and liquidity: Cash, cash equivalents and marketable securities totaled $300.9 million at June 30, 2018. Current assets were $322.1 million and current liabilities $48.0 million. Total liabilities were $74.9 million; the balance sheet does not show material interest-bearing debt. Accumulated deficit was $411.6 million. Gross margin is not presented.
Changes, drivers and unusual items
- Revenue rose sharply from the prior-year quarter, principally from collaboration activity, including Incyte, Roche and Provention. Q2 included $9.9 million for Incyte clinical-supply manufacturing services and $6.1 million of revenue tied to Provention warrants and transferred assets. Revenue is therefore collaboration-driven and not indicative of product sales.
- R&D increased 51% in Q2 and 45% for the first half, driven chiefly by margetuximab and flotetuzumab trial enrollment and manufacturing/development headcount. First-half spending also included initiation of two MGA012 combination studies.
- G&A increased 32% in Q2 and 29% for the first half, mainly due to ERP implementation consulting and higher patent costs.
- The company adopted ASC 606 on January 1, 2018 using the modified retrospective method. Adoption increased first-half collaboration revenue by $0.3 million versus the prior accounting basis and altered deferred revenue and accumulated deficit balances.
- In April, the company sold 5.175 million shares in an underwritten offering and received approximately $103.0 million net. Capital expenditures included substantial facility improvements and manufacturing-suite build-out.
Outlook, risks and contingencies
Management estimated that existing cash, cash equivalents and marketable securities, together with anticipated collaboration payments, would fund operations into mid-2020, assuming programs and collaborations progress as planned. The company expected continuing losses and higher operating expenses as clinical and preclinical programs advanced; it had no product revenue and could not predict when, or whether, product commercialization would occur.
- Potential Incyte consideration includes up to approximately $420 million in development and regulatory milestones, $330 million in commercial milestones, and tiered royalties of 15%–24%; these amounts depend on successful development and commercialization.
- Provention agreements provide potential development, regulatory and commercial milestones and royalties, also contingent on success. The initial $6.1 million consideration was valued using warrants, making valuation assumptions relevant.
- Key risks include clinical-trial outcomes and timing, regulatory approvals, collaboration and milestone execution, competition, intellectual-property protection, manufacturing investment recovery, and the need for additional financing if plans or collaborations do not proceed as assumed.
- Management reported disclosure controls were effective at a reasonable-assurance level. ERP implementation continued, with the second phase completed in July 2018; the filing reported no material change in risk factors from the 2017 Form 10-K.
Important facts for investors to verify
- Whether the stated mid-2020 cash runway remains supportable given the $89.0 million first-half operating cash burn and planned clinical and manufacturing spending.
- Clinical progress, enrollment and data timelines for margetuximab, flotetuzumab and other pipeline programs, and the status of MGA012 development and manufacturing transfer to Incyte.
- Future collaboration revenue recognition, deferred-revenue balances and the timing and probability of milestone payments; most potential milestones were excluded from transaction prices as constrained.
- The valuation and realizability of Provention warrants and the contingent economics of the transferred MGD010 and teplizumab programs.
- Manufacturing-suite costs, operational readiness and expected utilization, as well as the effectiveness of controls following ERP implementation.