MacroGenics, Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017; financial statements are unaudited. MacroGenics is a clinical-stage biopharmaceutical company developing antibody-based therapies. It had no product-sale revenue.
Financial results and liquidity
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $1.7 million | $80.7 million | $3.7 million | $83.5 million |
| Research and development expense | $34.5 million | $33.3 million | $67.3 million | $60.7 million |
| General and administrative expense | $8.4 million | $7.2 million | $15.8 million | $13.4 million |
| Operating income (loss) | $(41.2) million | $40.1 million | $(79.4) million | $9.5 million |
| Net income (loss) | $(40.7) million | $40.5 million | $(78.3) million | $10.1 million |
| Diluted earnings (loss) per share | $(1.14) | $1.12 | $(2.21) | $0.28 |
For the six months, operating cash use was $66.1 million, compared with $65.1 million in 2016. Investing activities provided $64.8 million, primarily reflecting securities maturities, while financing provided $33.8 million, mainly from stock offerings. Cash and cash equivalents rose to $116.6 million from $84.1 million at year-end 2016.
At June 30, cash, cash equivalents and marketable securities totaled $243.7 million; current assets were $250.1 million and current liabilities were $29.9 million. The filing reports no interest-bearing debt. The accumulated deficit was $371.0 million. The company said existing funds and anticipated collaboration payments were expected to fund operations into 2019.
Changes versus prior comparable periods
- Revenue fell sharply because 2016 included the $75.0 million Janssen MGD015 upfront payment and a $2.0 million Pfizer milestone, recognized in Q2 2016. The 2017 comparison therefore reflects prior-period collaboration payments, not a comparable recurring product-revenue stream.
- Six-month R&D expense increased 11% to $67.3 million, primarily due to the MGA012 Phase 1 trial, continued clinical-trial enrollment and activity in other programs. Six-month G&A expense rose 18% to $15.8 million, principally from professional fees and employee compensation.
- Six-month net loss was $78.3 million versus net income of $10.1 million a year earlier. The company raised $33.4 million in net proceeds from registered direct and at-the-market stock sales during the first half.
Outlook, risks and unusual items
- Management expects continued losses and increased operating expenses as clinical and preclinical development advances; future product revenue depends on obtaining regulatory approval and commercialization, which remain uncertain.
- Potential collaboration milestones and other payments depend on successful research and development and are uncertain. Programs include Janssen’s duvortuxizumab and MGD015 and Servier’s flotetuzumab; potential milestone and royalty payments are contingent on development and commercialization.
- In Q2, MacroGenics and Servier extended the expected flotetuzumab development period to 124 months. The estimate change reduced 2017 revenue by $0.8 million.
- The company plans to adopt the new revenue-recognition standard on January 1, 2018 using the modified retrospective method. It anticipates possible timing changes for license revenue and certain milestone payments; the ultimate financial-statement impact was still under assessment.
- Subsequent to quarter-end, MacroGenics agreed to sublease Rockville space for total receipts of $2.4 million over 30 months. A July 2017 headquarters lease amendment extends the lease to August 2027 and provides a $7.5 million tenant-improvement allowance; future rent payments increase by $23.5 million, not included in the June 30 lease commitment table.
- Management cited clinical, regulatory, funding, collaboration, competition, intellectual-property and manufacturing risks. It reported no material change to previously disclosed risk factors, no material litigation matters identified, and effective disclosure controls as of June 30, 2017.
Important facts for investors to verify
- Whether the company’s projected funding runway into 2019 remains valid given operating cash use, development spending and contingent collaboration receipts.
- Clinical-trial progress, enrollment, safety and regulatory milestones for internally developed and partnered candidates, particularly margetuximab, enoblituzumab, flotetuzumab and MGA012.
- Remaining capacity and potential dilution from equity issuance; the ATM agreement authorized up to $75.0 million in sales, of which 536,942 shares had been sold through June 30, 2017.
- The eventual effect of the new revenue-recognition standard on collaboration revenue and the impact of the amended headquarters lease on future cash commitments.