MacroGenics, Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. MacroGenics is a clinical-stage biopharmaceutical company developing antibody-based therapeutics; it had not generated product-sale revenue.
Financial performance and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total revenue | $1.7 million | $3.3 million | $5.4 million | $86.8 million |
| Research and development | $41.0 million | $30.3 million | $108.2 million | $91.0 million |
| General and administrative | $8.4 million | $7.2 million | $24.2 million | $20.6 million |
| Net loss | $47.0 million | $33.8 million | $125.4 million | $23.7 million |
| Basic and diluted loss per share | $1.28 | $0.97 | $3.50 | $0.69 |
At September 30, cash and cash equivalents were $90.9 million and marketable securities were $112.8 million, totaling $203.6 million. Current assets were $209.5 million versus current liabilities of $32.4 million. Total liabilities were $52.4 million; the filing reports no debt balance. Operating cash use for the first nine months was $97.4 million, investing activities provided $69.2 million, and financing provided $35.0 million. Cash increased $6.8 million to $90.9 million. Capital expenditures, principally facility and manufacturing-suite improvements, were $18.6 million. No gross-margin figure is presented.
Material changes and operating developments
- Nine-month revenue fell 94% year over year, primarily because 2016 included the $75.0 million Janssen MGD015 upfront payment and a $2.0 million Pfizer milestone, as well as revenue recognized after Takeda declined its MGD010 option. Q3 revenue declined 48%, mainly because a remaining MGD010 deferred-revenue balance had been recognized in Q3 2016.
- R&D expense increased 19% for the nine-month period, driven by MGA012 development and continued clinical-trial enrollment; lower MGD010 spending partly offset the increase. G&A rose 17%, mainly from professional fees and employee compensation.
- Janssen notified MacroGenics in August 2017 that it was terminating the MGD011 (duvortuxizumab) agreement. The separate MGD015 collaboration remained in place.
- During Q3, NIAID exercised a $10.8 million option under its development contract. MacroGenics also completed equity financings during 2017, reporting $34.3 million in net proceeds for the nine months.
- The company’s headquarters lease was extended to August 2027, with an additional $7.5 million tenant-improvement allowance received in Q3. Future minimum operating-lease payments totaled $52.8 million at quarter-end.
Outlook, risks, and contingencies
Management expected existing cash, cash equivalents, marketable securities, and anticipated collaboration payments to fund operations into 2019, excluding the anticipated Incyte upfront payment. The filing expects continued operating losses and increased expenses as clinical development, regulatory work, and infrastructure investment continue.
In October 2017, MacroGenics announced a global MGA012 collaboration with Incyte. The agreement provides for a $150.0 million upfront payment, up to $750.0 million in milestones, and tiered royalties of 15%–24% on global net sales. At the filing date, closing was expected in Q4 2017 and remained subject to regulatory waiting periods and customary conditions; the anticipated payment was not included in the company’s stated runway estimate.
Management reported no material change to the risk factors in its 2016 Form 10-K and no material litigation matters believed likely to result in loss. Principal uncertainties include clinical-trial results and timing, regulatory approvals, collaboration and milestone receipts, financing needs, commercialization prospects, manufacturing investment recovery, competition, and intellectual-property and compliance risks. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the Incyte transaction closed, when the $150.0 million upfront payment was received, and any resulting accounting or runway impact.
- Clinical and regulatory progress, costs, and outcomes for key programs, particularly margetuximab, enoblituzumab, flotetuzumab, and MGA012.
- Consequences of Janssen’s MGD011 termination and any effect on research spending or future collaboration revenue.
- Cash burn, financing needs, dilution from equity issuance, and whether the stated runway assumptions remain valid.
- Timing and amount of potential collaboration milestones and royalties, which depend on development and commercial success and are not assured.