MacroGenics, Inc. — Q3 2019 Form 10-Q
Business context and period: Biopharmaceutical company developing antibody-based cancer therapies; it has not generated product-sale revenue. This unaudited report covers the quarter and nine months ended September 30, 2019. Dollar amounts below are in millions unless stated otherwise.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $18.7 | $20.8 | $39.0 | $44.3 |
| Research and development expense | $44.9 | $46.2 | $143.4 | $143.9 |
| General and administrative expense | $11.8 | $9.6 | $34.2 | $30.0 |
| Loss from operations | $(37.9) | $(35.0) | $(138.5) | $(129.5) |
| Net loss | $(44.6) | $(34.0) | $(121.4) | $(126.8) |
| Basic and diluted loss per share | $(0.91) | $(0.81) | $(2.54) | $(3.13) |
- Revenue and margins: Collaboration and other-agreement revenue was $18.0 million in Q3 and $37.5 million for nine months; government-agreement revenue was $0.8 million and $1.5 million, respectively. The filing does not report a conventional gross margin; product sales have not begun.
- Cash flow: Nine-month operating cash use was $96.2 million, versus $126.0 million a year earlier. Investing used $87.0 million, primarily reflecting purchases of marketable securities; financing provided $119.7 million, primarily from the February 2019 stock offering. Cash and cash equivalents declined $63.5 million to $156.6 million.
- Liquidity and obligations: Cash, cash equivalents and marketable securities totaled $254.4 million at September 30, 2019. Current assets were $276.2 million and current liabilities $57.6 million. Total liabilities were $96.3 million. The filing does not report conventional borrowings; operating lease liabilities totaled $31.5 million, including $3.0 million current.
- Equity financing: The February 2019 public offering generated net proceeds of $118.7 million from 6.325 million shares.
Material changes and unusual items
- Nine-month revenue declined 12% year over year. The main drags were the absence of $6.1 million of Provention revenue recognized in 2018 and lower Incyte-related revenue, including $10.0 million of 2018 milestones. Higher Servier and Zai Lab revenue partly offset the declines.
- Nine-month R&D expense was nearly flat: lower margetuximab trial costs and flotetuzumab costs were offset by higher MGD013 spending, initiation of the MGC018 Phase 1 study, and increased discovery spending. Q3 G&A expense rose 23%, mainly due to consulting and professional-service fees.
- Q3 other expense included a $7.6 million unrealized loss on corporate equity securities received after exercising Provention warrants. For the nine-month period, other income included a $20.5 million increase in the warrants’ value before exercise, partly offset by the equity-security loss and otherwise higher interest income.
- In July, Servier gave notice that it intends to terminate its flotetuzumab agreement effective January 15, 2020, unless the parties agree otherwise; MacroGenics expects to regain worldwide rights. Roche gave notice in August of termination effective November 2019.
- MacroGenics adopted lease accounting requirements in January 2019 and recognized operating lease right-of-use assets and liabilities. It also extended two leases by five years each during the period.
Outlook, risks and contingencies
- Management expected cash, cash equivalents, marketable securities and anticipated collaboration payments to fund operations into 2021, assuming programs and collaborations advance as planned. Management expects spending to increase and the accumulated deficit to grow; milestone receipts are uncertain.
- MacroGenics intended to submit a margetuximab BLA by the end of 2019 and expected a 10-month FDA target review after acceptance. Final SOPHIA overall-survival results were expected in 2020. The second interim analysis did not show statistically significant overall-survival results in the intent-to-treat population; final results may not be significant, and approval is uncertain.
- Clinical results may change with complete data review, later-stage trials can fail, and regulators may require additional evidence or decline approval. The filing also identifies risks around collaboration performance, financing needs, competition, intellectual property and commercialization.
- A putative securities class action filed September 13, 2019 alleges misstatements or omissions concerning the margetuximab SOPHIA study. The company says it will vigorously defend the case and has established no reserve for potential liability.
Important facts for investors to verify
- Whether the margetuximab BLA was submitted and accepted, and the final SOPHIA overall-survival results and regulatory outcome.
- Whether Servier’s termination takes effect and how regained flotetuzumab rights affect development costs, responsibilities and revenue.
- Cash burn, collaboration receipts and whether the stated runway into 2021 remains achievable as clinical programs progress.
- Subsequent valuation changes in the Provention shares and any material developments in the securities litigation.