MacroGenics, Inc. — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. The filing also reports unaudited quarterly results, including the fourth quarter. MacroGenics is a clinical-stage biopharmaceutical company developing antibody-based therapeutics; it had no approved products and no product-sales revenue.
Financial performance and liquidity
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Total revenue | $157.7 million | $91.9 million |
| Research and development expense | $147.2 million | $122.1 million |
| General and administrative expense | $32.7 million | $29.8 million |
| Operating loss | $22.1 million | $60.0 million |
| Net loss | $19.6 million | $58.5 million |
| Basic and diluted loss per share | $0.54 | $1.69 |
| Cash, cash equivalents and marketable securities at year-end | $305.1 million | $285.0 million |
| Operating cash flow | $14.4 million provided | $43.7 million used |
FY 2017 operating and net margins were approximately negative 14% and negative 12%, respectively, calculated against reported revenue. The company reported $373.9 million in total assets, $74.6 million in total liabilities and $299.2 million in stockholders’ equity. No interest-bearing debt is identified in the balance sheet presented. Current assets were $322.3 million and current liabilities $49.8 million, implying working capital of approximately $272.5 million.
Revenue was highly concentrated: the Incyte collaboration accounted for 96% of FY 2017 revenue. The $150 million upfront payment for global MGA012 (anti-PD-1) rights was recognized in the fourth quarter. Q4 revenue was $152.4 million and net income was $105.7 million; the annual net loss reflects losses in the first three quarters and the timing of this collaboration revenue.
Material changes versus the prior year
- Revenue increased 72%, primarily because of the $150 million Incyte upfront payment; collaboration revenue rose to $155.5 million from $86.6 million. Government-agreement revenue declined to $2.2 million from $5.3 million.
- R&D expense increased 21%, reflecting clinical-trial enrollment and activity, including margetuximab and other clinical programs, as well as development work for MGC018 and MGD019. G&A expense rose 10%.
- Net loss narrowed by $38.9 million, from $58.5 million to $19.6 million. The improvement should be viewed in light of the nonrecurring timing and recognition of collaboration payments, rather than as evidence of product-sales profitability.
- Operating cash flow turned positive, mainly due to cash received under the Incyte agreement. Cash and marketable securities increased by $20.1 million; the company also received $34.2 million in net proceeds from equity issuance.
- Property, equipment and software, net, rose to $50.0 million from $18.0 million, including construction in progress for a commercial-scale manufacturing suite.
Business outlook, management commentary and risks
- Management estimated that year-end cash, cash equivalents and marketable securities, together with anticipated collaboration payments, would fund operations for approximately two years, assuming programs and collaborations progress as planned. The company expected operating expenses to increase and anticipated continued losses; it had an accumulated deficit of $312.3 million.
- Margetuximab was in the Phase 3 SOPHIA trial for HER2-positive metastatic breast cancer. In January 2018, an independent monitoring committee recommended continuing the trial after a preplanned interim futility analysis. Approval and commercial revenue remained contingent on trial results and regulatory review.
- The company reported interim margetuximab combination-study data in gastric/GEJ cancer and planned to enroll additional gastric cancer patients. Other pipeline milestones included ongoing Phase 1/2 studies, anticipated 2018 IND submissions for MGD019 and MGC018, and a planned Phase 1 start for MGD014.
- Incyte obtained global development and commercialization rights to MGA012. MacroGenics may receive up to approximately $420 million in development and regulatory milestones, up to $330 million in commercial milestones, and tiered royalties of 15%–24% on global net sales if the product is commercialized. These amounts are contingent, not guaranteed revenue.
- In January 2018, Janssen notified MacroGenics that it was terminating the MGD015 agreement. This post-year-end development could affect future collaboration revenue and the program’s development path.
- Key risks include clinical-trial failure or delay, regulatory uncertainty, reliance on collaborators and milestone payments, future financing needs, competition and biosimilars, manufacturing scale-up and supply constraints, and intellectual-property disputes. The company specifically noted third-party Fc-engineering patents that could pose risk to margetuximab and enoblituzumab.
- The commercial manufacturing suite was expected to be completed in mid-2018; MacroGenics acknowledged it had no company-level experience in large-scale or commercial manufacturing. It also had no established U.S. sales and marketing infrastructure.
- The Tax Act’s effect was still under review; the company recorded a provisional tax remeasurement offset by a valuation allowance, with no tax expense or benefit. Federal and state net operating loss carryforwards were approximately $239.7 million, and research and development tax credits were approximately $42.8 million, subject to limitations.
Ernst & Young issued an unqualified opinion on the financial statements and on internal control over financial reporting. Management reported effective disclosure controls and internal controls as of year-end. No material legal proceedings were reported.
Most important facts for investors to verify
- Timing and results of the SOPHIA Phase 3 trial, and whether margetuximab can obtain approval and compete effectively in a crowded HER2 market.
- Actual cash burn and runway relative to management’s approximately two-year estimate, including the impact of clinical spending, capital investment and future collaboration receipts.
- How much future revenue depends on Incyte and other collaborators, and the conditions, timing and likelihood of milestones, royalties and cost reimbursements.
- Completion, regulatory readiness and commercial-scale performance of the manufacturing facility, and the extent of reliance on contract manufacturers.
- Consequences of Janssen’s MGD015 termination and other changes in collaborator priorities, including effects on deferred revenue and pipeline plans.
- Clinical safety and efficacy data across the pipeline, and potential intellectual-property, reimbursement, competition and financing risks.