MacroGenics, Inc. — Q1 2017 Form 10-Q
Business context and reporting period
Biopharmaceutical company developing antibody-based therapeutics, primarily for cancer, with programs also targeting autoimmune disorders and infectious diseases. The unaudited quarter ended March 31, 2017; comparisons are with the three months ended March 31, 2016. The company had not generated product-sales revenue.
Key financial metrics
| Metric | Q1 2017 | Q1 2016 / prior balance date |
|---|---|---|
| Total revenue | $2.1 million | $2.8 million |
| Research and development expense | $32.8 million | $27.3 million |
| General and administrative expense | $7.5 million | $6.1 million |
| Operating loss | $38.2 million | $30.6 million |
| Net loss | $37.7 million | $30.4 million |
| Basic and diluted loss per share | $1.08 | $0.88 |
| Operating cash used | $35.3 million | $31.9 million |
| Cash and cash equivalents | $40.5 million | $84.1 million at Dec. 31, 2016 |
| Marketable securities | $207.6 million | $200.9 million at Dec. 31, 2016 |
| Total assets / total liabilities | $274.7 million / $40.1 million | $311.3 million / $42.5 million at Dec. 31, 2016 |
Cash, cash equivalents and marketable securities totaled $248.1 million at quarter-end. The filing reports no debt balance. Current liabilities were $26.6 million. Gross margin is not meaningful as the company reported no product sales; the filing does not provide a conventional product gross-margin measure.
Material changes versus the prior comparable period
- Revenue fell $0.7 million (25%), mainly because less collaboration revenue was recognized under the Takeda MGD010 agreement after Takeda declined its license option in 2016. Government-agreement revenue declined $0.1 million, primarily due to lower NIAID contract costs.
- R&D expense rose $5.5 million (20%), driven by the MGA012 Phase 1 trial, continued enrollment in the margetuximab SOPHIA study, and activity in other programs. Lower duvortuxizumab manufacturing costs partly offset the increase.
- G&A expense increased $1.4 million (23%), reflecting higher professional fees and employee compensation and benefits.
- Net loss widened by $7.3 million; loss per share increased from $0.88 to $1.08. Operating cash use increased $3.4 million.
- Cash and cash equivalents declined $43.6 million during the quarter, while the company held a larger proportion of its liquid resources in marketable securities.
Outlook, commentary, risks and unusual items
- Management estimated existing cash, cash equivalents and marketable securities, together with anticipated collaboration payments, would fund operations through late 2018, excluding proceeds from the subsequent offering. The company expects continued losses and rising expenses as clinical and preclinical development advances; the timing and receipt of milestone and collaboration funding are uncertain.
- On May 2, 2017, the company completed a registered direct offering of 1.1 million shares at $21.50 per share, generating gross proceeds of $23.7 million before estimated expenses. These proceeds were not included in management’s stated runway estimate.
- Significant execution risks include clinical-trial results and timing, regulatory approval, commercialization, competition, intellectual-property protection, collaboration milestones, and the ability to obtain additional funding. The filing refers readers to the 2016 Form 10-K for further risk factors.
- The company expects to adopt the new revenue-recognition standard on January 1, 2018. It anticipated possible timing changes for license revenue and certain milestone payments, but had not completed its impact assessment or chosen an implementation approach.
- Available-for-sale securities had $0.1 million of gross unrealized losses at quarter-end; management determined no losses were other-than-temporary. Management stated that an immediate 100-basis-point interest-rate change would not materially affect investment fair value.
- Disclosure controls were assessed as effective at the reasonable-assurance level; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Progress, safety and efficacy data, enrollment, and timing for margetuximab, MGA012, and other key clinical programs.
- Whether collaboration partners advance programs, exercise options, and deliver milestone or cost-sharing payments, particularly under the Janssen and Servier agreements.
- Actual quarterly cash burn and whether the stated late-2018 runway remains achievable, including the effect of the May 2017 offering.
- The final accounting impact and transition method for adoption of the revenue-recognition standard.
- Future R&D spending, revenue recognition from collaborations, and any additional financing needs as clinical programs progress.