MacroGenics, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Financial amounts below are in U.S. dollars; unless noted, figures are in millions. MacroGenics is a clinical-stage biotechnology company developing antibody-based therapeutics. It had no product-sales revenue.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Total revenue | $13.7 | $9.7; up 42% |
| Research and development | $48.9 | $47.1 |
| General and administrative | $10.2 | $10.2 |
| Operating loss | $(45.4) | $(47.6) |
| Net loss | $(44.7) | $(45.0) |
| Net loss per share, basic and diluted | $(0.91) | $(0.99) |
| Cash used in operating activities | $(44.1) | $(30.0) |
| Cash and cash equivalents, March 31 | $93.1 | $126.5 at December 31, 2019 |
| Marketable securities, March 31 | $77.8 | $89.3 at December 31, 2019 |
Cash, cash equivalents and marketable securities totaled $170.8 million at quarter-end, down from $215.8 million at year-end 2019. Operating cash use was partly offset by $10.6 million of net investing cash inflow, largely from security maturities; financing provided $0.2 million. The prior-year quarter included $118.7 million of net proceeds from a public stock offering. No shares were sold under the company’s $50 million at-the-market offering in Q1 2020.
Current assets were $195.3 million and current liabilities $39.6 million at March 31. The balance sheet reports lease liabilities of $29.7 million in total; it does not report conventional borrowings. The filing does not present a meaningful product gross margin, as the company had no product sales. Operating loss was approximately 332% of revenue.
Material changes and business developments
- Revenue increased $4.0 million year over year, driven by Incyte clinical supply services, Zai Lab milestone and manufacturing revenue, I-Mab agreement revenue, higher NIAID contract revenue, and accelerated recognition of a Servier license fee after Servier gave notice of termination. These gains were partly offset by the end of recognition periods for deferred Zai Lab and Roche upfront payments.
- R&D expense increased $1.8 million. Retifanlimab, MGD013 and flotetuzumab costs rose, while margetuximab and several other program costs declined. G&A expense was essentially unchanged.
- Net loss was modestly lower despite higher operating cash use. Other income fell to $0.7 million from $2.6 million, mainly reflecting lower investment income and the absence of the prior-year Provention warrant revaluation.
- Shares outstanding rose from 49.0 million at December 31, 2019 to 49.1 million at March 31, 2020; weighted-average shares were 49.0 million versus 45.6 million a year earlier.
Outlook, risks and contingencies
Management stated that cash, cash equivalents and marketable securities, together with anticipated and potential collaboration revenue, were expected to fund operating plans for at least 12 months from the filing date. The overview also said available resources and potential collaboration payments were expected to fund operations into 2022, assuming programs and collaborations advance as planned. These are estimates, not guarantees; management noted that financing may be needed longer term and could require equity or debt issuance, new collaborations, licensing arrangements, or changes to research programs if funding is unavailable. No full-year financial guidance was provided.
COVID-19 had slowed clinical-trial enrollment, and management expected near-term effects on new study starts and enrollment. The planned Phase 2 enoblituzumab study in advanced head and neck cancer was delayed, with a timing update expected in the second half of 2020. Enrollment in an ex-U.S. Phase 1/2 flotetuzumab-retifanlimab study in relapsed or refractory AML was stopped, with resumption and U.S. site activity anticipated in the future. The company cited potential further disruption to trials, suppliers, collaborators, manufacturing, and financing.
Collaboration milestones and royalties are contingent on future development, regulatory, or commercial outcomes. The company could receive up to approximately $420 million in Incyte development and regulatory milestones and $330 million in commercial milestones, in addition to tiered royalties; it had recognized $15 million of Incyte development milestones. Zai Lab milestone revenue of $3.6 million was recognized in Q1 after withholding, and the agreement includes additional contingent milestones and royalties.
A securities class action filed in September 2019 alleges misleading statements concerning the SOPHIA trial. The company intends to defend the case, but says the outcome and any loss cannot be reasonably estimated; no liability was accrued. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether COVID-19 delays affect clinical enrollment, study timing, manufacturing, or the expected development timelines for key candidates.
- Whether the stated cash runway assumptions remain supportable as operating cash use continues, and whether the ATM facility or other financing will be used.
- Progress toward contingent collaboration milestones, royalty-bearing commercialization, and the timing and amount of future collaboration revenue.
- The effects of Servier’s termination notice, including the impact of accelerated license-fee recognition and future collaboration activity.
- Developments in the SOPHIA-related securities litigation; the filing provides no estimable loss range.