MacroGenics, Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise. MacroGenics is a clinical-stage biopharmaceutical company developing antibody-based therapies. It had no product sales.
Financial performance and position
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Total revenue | $6.7 | $9.2 | $78.0 | $23.9 |
| Research and development expense | $22.7 | $17.3 | $44.1 | $31.9 |
| General and administrative expense | $5.3 | $4.1 | $10.0 | $7.4 |
| Operating income (loss) | $(21.3) | $(12.3) | $23.8 | $(15.4) |
| Net income (loss) | $(21.4) | $(12.3) | $23.8 | $(15.4) |
| Diluted earnings (loss) per share | $(0.71) | $(0.44) | $0.75 | $(0.57) |
- Revenue mix: Collaboration research revenue was $5.6 million in Q2 and $76.8 million for the first half; grant revenue was $1.1 million and $1.2 million, respectively. First-half revenue included $62.3 million recognized after MacroGenics submitted the MGD011 IND under its Janssen agreement, plus Takeda revenue that included a $3.0 million milestone.
- Margins: The filing does not present a conventional gross margin; the company had no product sales and reports research and development and administrative expenses.
- Cash flow: First-half operating cash flow was $18.1 million, investing cash flow $(3.8) million, and financing cash flow $63.1 million. Cash and cash equivalents increased by $77.4 million to $235.0 million.
- Liquidity and balance sheet: Current assets were $242.4 million and current liabilities $23.8 million at June 30. Total liabilities were $42.5 million and stockholders’ equity $211.7 million. The balance sheet reports no borrowings or debt balance.
Material changes versus prior comparable periods
- First-half revenue rose $54.1 million year over year, primarily because of the Janssen collaboration and Takeda activity; these agreements were not in place in the first half of 2014. Q2 revenue fell $2.5 million, chiefly due to lower Gilead revenue and slower recognition under the Servier MGA271 agreement.
- First-half net income of $23.8 million contrasts with a $15.4 million loss a year earlier, principally reflecting the Janssen revenue recognition. Q2’s net loss widened to $21.4 million from $12.3 million.
- R&D expense rose 38% in the first half, led by margetuximab Phase 3 preparation, the MGD010 Phase 1 study, and MGD009 IND preparation. G&A expense rose 35%, primarily from higher stock compensation, labor, and IT costs.
- Cash increased from $157.6 million at year-end 2014 to $235.0 million at June 30, 2015, including $62.7 million of net proceeds from JJDC’s stock purchase in connection with the Janssen transaction.
Outlook, developments, and risks
- Management said June 30 cash, the July equity offering proceeds, and anticipated collaboration payments were expected to fund operations into 2018, assuming programs advance as currently contemplated. The company expects operating expenses to increase with clinical and preclinical development. It has no product revenue and does not expect product sales before regulatory approval and commercialization, which remain uncertain.
- In July 2015, MacroGenics completed a public offering of 4,053,750 shares at $37 per share and received approximately $141.0 million net. Janssen dosed the first patient in an MGD011 Phase 1 study, triggering a $10.0 million milestone payment due to MacroGenics.
- Also in July, the company signed a seven-year lease for additional office, laboratory, and manufacturing space, with $14.6 million in future minimum lease payments; it was entitled to a $5.1 million assignment fee and tenant-improvement allowance.
- Clinical and regulatory outcomes, trial enrollment and timing, collaboration milestones and funding, competition, and the ability to build and qualify commercial-scale manufacturing capacity are key uncertainties. The company disclosed no material change in internal controls and stated that disclosure controls were effective at a reasonable-assurance level.
- Contingent Raven acquisition consideration includes a $5.0 million payment if a qualifying Phase 2 trial begins by July 15, 2018, as well as potential sales-based payments and revenue participation. No such payments were made in the periods reported.
Important facts for investors to verify
- How much of reported revenue and first-half profit reflects one-time or milestone-related collaboration recognition, especially the $62.3 million Janssen amount, versus recurring research activity.
- The timing, achievement conditions, and collectability of future collaboration milestones, options, reimbursements, royalties, and potential profit-sharing obligations.
- Whether clinical programs meet development and enrollment objectives, particularly the margetuximab Phase 3 trial and the MGD006, MGD007, MGD010, and MGD009 programs.
- Whether the conditional cash runway estimate remains achievable as R&D spending rises and manufacturing expansion and the new lease add costs.
- The impact of the July share issuance on dilution, and progress toward manufacturing readiness and the upcoming independent auditor attestation of internal controls.