MacroGenics, Inc. — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. MacroGenics is a clinical-stage biopharmaceutical company developing antibody-based therapies. It reported no product sales; revenue came primarily from collaborations and grants.
Financial results
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $14.7 million | $18.4 million | $92.7 million | $42.3 million |
| Research and development expense | $24.1 million | $18.6 million | $68.2 million | $50.5 million |
| General and administrative expense | $6.0 million | $3.7 million | $16.1 million | $11.1 million |
| Operating income (loss) | $(15.4) million | $(3.9) million | $8.4 million | $(19.3) million |
| Net income (loss) | $(15.4) million | $(3.9) million | $8.3 million | $(19.3) million |
| Diluted earnings (loss) per share | $(0.46) | $(0.14) | $0.25 | $(0.71) |
Q3 operating margin was approximately -105%; nine-month operating margin was approximately 9%, calculated from reported operating results and revenue. The nine-month profit reflects collaboration revenue, not product sales.
Cash, liquidity, and obligations
- Cash and cash equivalents were $365.8 million at September 30, 2015, up from $157.6 million at December 31, 2014. Current assets were $370.5 million and current liabilities were $22.4 million.
- Nine-month operating cash flow was positive $10.5 million, versus negative $12.6 million in 2014; investing cash flow was negative $6.4 million, and financing cash flow was positive $204.1 million.
- Financing included approximately $141.0 million net proceeds from the July public offering and approximately $62.7 million from JJDC’s stock purchase. Property and equipment purchases were $6.4 million.
- Total liabilities were $44.8 million. The filing reports no interest-bearing debt; liabilities include lease exit obligations, deferred revenue, and deferred rent. Future minimum operating lease payments totaled $28.8 million.
Material changes and business developments
- Nine-month revenue rose 119% year over year, primarily because MacroGenics recognized $72.3 million under the Janssen agreement, including a $10.0 million milestone after the first patient was dosed in the MGD011 Phase 1 study. Q3 revenue declined 20%, partly because Q3 2014 included Servier and Takeda milestone/license revenue.
- R&D expense increased 35% for the nine months, mainly reflecting margetuximab Phase 3 preparation, MGD010 clinical activity, and MGD009 IND preparation. G&A expense increased 45%, primarily due to labor-related, stock-based compensation, and IT costs.
- In July, MacroGenics began enrolling patients in the margetuximab SOPHIA Phase 3 trial for metastatic breast cancer. It also initiated a Phase 1 study of MGD009; Janssen initiated a Phase 1 study of MGD011. Five DART candidates were in human clinical development, according to management.
- In October 2015, Servier declined its option to develop and commercialize enoblituzumab outside specified territories; MacroGenics regained worldwide development and commercialization rights.
- A new NIAID contract effective September 15, 2015 provides a $7.5 million base period and up to $17.0 million in additional option funding for development of up to two DART molecules, including MGD014. No revenue was recognized under it by quarter-end.
Outlook, risks, and contingencies
Management said cash and anticipated collaboration payments were expected to fund operations into 2018, assuming programs advanced as planned. No specific financial guidance was provided. Management expected R&D spending to rise as clinical and preclinical development continued. Future milestone receipts are uncertain and depend on achieving specified development events.
- Key risks include clinical-trial progress and results, regulatory approvals, future financing needs, collaboration funding, competition, and the ability to build and qualify commercial-scale manufacturing capacity. The company disclosed that it had no experience in large-scale or commercial manufacturing.
- MacroGenics noted additional compliance risks from becoming a government contractor under the NIAID agreement, including possible audits, penalties, or suspension from contracting. It also highlighted the coming requirement for auditor attestation of internal controls after it ceased to qualify as an emerging growth company at year-end 2015.
- Potential Raven acquisition-related consideration includes a $5.0 million payment upon initiation of a qualifying Phase 2 trial by July 15, 2018, plus other sales- and revenue-based contingent payments. No such payments were made in the periods reported.
- Lease commitments include a seven-year lease signed in July 2015; related assignment fees and tenant improvement allowance totaling $5.1 million were recorded as deferred rent.
Important facts for investors to verify
- Whether collaboration revenue, especially Janssen-related revenue, recurs or depends on milestones and performance obligations.
- Whether cash runway remains consistent with the stated into-2018 estimate as clinical spending and manufacturing investment increase.
- Clinical progress, trial outcomes, and financing or cost-sharing decisions for margetuximab, enoblituzumab, and the DART programs.
- Whether MacroGenics can develop compliant commercial manufacturing capacity and meet internal-control attestation requirements.
- How Servier’s return of enoblituzumab rights affects development costs, strategic plans, and any future collaboration arrangements.