MacroGenics, Inc. — Q3 2021 Form 10-Q
Business context and period: Biopharmaceutical company developing antibody-based cancer therapies. This unaudited report covers the quarter and nine months ended September 30, 2021. MARGENZA, approved in December 2020 for certain patients with metastatic HER2-positive breast cancer, launched in March 2021 with commercialization partner Eversana. The company also reported eight immuno-oncology programs in clinical testing.
Financial performance and position
| Metric | Three months ended Sept. 30, 2021 | Nine months ended Sept. 30, 2021 |
|---|---|---|
| Total revenue | $15.7 million | $63.3 million |
| Operating loss | $53.0 million | $144.6 million |
| Net loss | $52.9 million | $144.1 million |
| Basic and diluted loss per share | $0.86 | $2.42 |
| Research and development expense | $49.8 million | $158.7 million |
| Selling, general and administrative expense | $17.2 million | $47.4 million |
| MARGENZA product revenue, net | $3.6 million | $7.7 million |
Margins: Product revenue less cost of product sales implies an approximate gross margin of 54% for Q3 (cost of sales was $1.7 million). The filing says costs included a $1.6 million reserve for unsaleable inventory and that sales of inventory expensed before approval favorably affected gross margin; this margin may not reflect future production economics.
Cash flow and liquidity: Operating cash used was $89.5 million for the nine months, versus $106.4 million in 2020. Investing activities used $23.1 million, and financing activities provided $122.0 million. Cash and cash equivalents were $190.5 million; marketable securities were $108.4 million, totaling $298.9 million at September 30. Current assets were $334.7 million and current liabilities $68.9 million. Total liabilities were $100.7 million, including $26.5 million in current and long-term lease liabilities. The filing reports no off-balance-sheet arrangements and does not disclose outstanding borrowings.
Changes versus prior comparable periods
- Q3 revenue fell 14% year over year to $15.7 million, while nine-month revenue rose 21% to $63.3 million.
- Q3 collaboration revenue declined to $12.0 million from $17.4 million, primarily because the prior-year quarter included a $15.0 million Incyte development milestone. Nine-month collaboration revenue increased to $54.3 million from $46.0 million, driven mainly by the 2021 Zai Lab agreement and Incyte commercial manufacturing services.
- Q3 R&D expense rose 11% year over year; nine-month R&D rose 5%. Management attributed increases to programs including MGC018 and discovery/preclinical work, partly offset by lower margetuximab-related spending.
- Q3 SG&A increased to $17.2 million from $9.7 million; nine-month SG&A increased to $47.4 million from $30.2 million. The company cited MARGENZA launch costs, labor-related costs and legal expenses.
- Nine-month net loss widened to $144.1 million from $127.7 million, although loss per share was $2.42 versus $2.49, reflecting the higher weighted-average share count.
- Shares outstanding increased to 61.3 million at September 30 from 56.2 million at December 31, 2020, principally reflecting equity issuance and stock-plan activity.
Outlook, management commentary, risks and unusual items
- Management said cash, cash equivalents and marketable securities, together with anticipated and potential collaboration payments and product revenue, were expected to fund operations through 2023, assuming programs and collaborations advance as contemplated. The liquidity note separately states that current liquidity is sufficient for at least 12 months from the filing date. Additional capital may be needed; access to financing is not assured.
- Management expects R&D expense to increase as pipeline programs progress and SG&A to increase as the MARGENZA launch continues. No specific revenue or earnings guidance was provided.
- Incyte received an FDA Complete Response Letter for retifanlimab in anal canal cancer in July 2021, with additional clinical-benefit data requested; Incyte later withdrew its European marketing application for that indication. This may affect the timing or value of potential milestones and royalties.
- The June 2021 Zai Lab agreement covered four immuno-oncology molecules and included a $25.0 million upfront payment, potential development, regulatory and commercial milestones, and royalties. A related July stock purchase provided approximately $30.0 million gross proceeds for 958,467 shares. The agreement includes a potential $85.0 million payment if Zai Lab exercises an option for a global 50/50 profit share after a defined clinical milestone.
- COVID-19 had slowed clinical-trial enrollment, and management expected near-term effects on new study initiation and enrollment to continue. The company also noted uncertainty about workforce attrition or labor availability in connection with the federal contractor vaccination requirement.
- A securities class action concerning statements about the SOPHIA trial was dismissed with prejudice on September 29, 2021; the lead plaintiff filed an appeal on October 28. The company reported no material changes to the risk factors in its 2020 Form 10-K.
Important facts for investors to verify
- Whether MARGENZA uptake, net pricing, returns, rebates and distribution-channel inventory support sustainable product revenue and margins, particularly after pre-approval inventory is depleted.
- Whether clinical-trial progress, regulatory outcomes and commercial milestones support expected collaboration cash flows, including developments following Incyte’s CRL.
- Whether the conditional runway estimate through 2023 remains achievable given operating cash use, planned pipeline spending and the availability and timing of collaboration receipts or additional financing.
- How the Zai Lab agreement’s performance, option terms, milestone conditions and potential royalties translate into recognized revenue and cash receipts.
- The outcome of the appeal in the securities class action and any material developments in other legal or regulatory matters.