MacroGenics, Inc. — Q3 2014 Form 10-Q
Reporting period: Three and nine months ended September 30, 2014. Amounts are in U.S. dollars; financial statement amounts below are in millions unless stated otherwise.
Business context and reporting period
MacroGenics is a clinical-stage biopharmaceutical company developing antibody-based cancer and autoimmune disease therapies. It had no product sales; revenue came primarily from collaborations and grants. At quarter-end, the company reported three oncology candidates in clinical development. It began a Phase 1 trial for MGD006 in Q2, and MGD007’s IND was cleared in July; its Phase 1 trial began after quarter-end.
Financial performance and liquidity
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Total revenue | $18.4 | $20.2 | $42.3 | $43.1 |
| Research and development expense | $18.6 | $11.1 | $50.5 | $32.2 |
| General and administrative expense | $3.7 | $2.0 | $11.1 | $7.3 |
| Operating income (loss) | ($3.9) | $7.2 | ($19.3) | $3.6 |
| Net comprehensive income (loss) | ($3.9) | $6.6 | ($19.3) | $2.9 |
| Basic earnings (loss) per share | ($0.14) | $0.14 | ($0.71) | $0.00 |
For the nine months, operating cash flow was negative $12.6 million, investing cash flow negative $1.9 million, and financing cash flow positive $77.2 million. Cash and cash equivalents rose to $179.2 million at September 30, from $116.5 million at year-end 2013, primarily reflecting $76.7 million net proceeds from the February follow-on offering. Restricted cash was $0.3 million. Current assets were $187.0 million and current liabilities $26.0 million, a current ratio of approximately 7.2. The balance sheet reports no interest-bearing debt; lease obligations and other liabilities remain.
Material changes versus the prior comparable period
- Q3 revenue fell 9% year over year; nine-month revenue declined 2%. Collaboration revenue was broadly flat for the nine-month period, while grant revenue decreased.
- Q3 operating results shifted from $7.2 million income to a $3.9 million loss. Nine-month results shifted from $3.6 million operating income to a $19.3 million operating loss.
- R&D expense increased 68% in Q3 and 57% for the nine months, driven mainly by clinical manufacturing, margetuximab Phase 3 preparation, MGA271 trial expansion, and MGD006/MGD007 trial preparations. G&A increased with stock-based compensation and public-company costs.
- Collaboration revenue reflected offsetting changes, including Servier milestones and Boehringer’s $2.0 million candidate-selection milestone, alongside lower Servier MGA271 revenue recognition and the completion of Pfizer-related development revenue recognition.
- Per-share comparisons are affected by the October 2013 IPO and conversion of preferred shares, and the February 2014 follow-on offering. The 2013 quarterly EPS figures also reflect pre-IPO participating securities.
Outlook, management commentary, risks and unusual items
- Management stated that September 30 cash, together with anticipated collaboration payments, was expected to fund development of named clinical programs and one additional preclinical DART oncology candidate into 2017, assuming programs advance as planned. This is conditional, not a guarantee; milestone receipts are uncertain.
- Management expected operating expenses, particularly R&D, to rise as clinical trials and preclinical work expand. No formal revenue or earnings guidance was provided.
- Clinical plans included a margetuximab Phase 3 breast cancer trial targeted to start in Q3 2015; the company no longer planned a Phase 3 study in advanced gastroesophageal cancer. MGA271 expansion and combination cohorts were planned, and three additional preclinical DART candidates were targeted for IND submissions and Phase 1 starts in 2015.
- Takeda paid $15.0 million upfront for MGD010 rights and options; the company recognized $5.0 million for a delivered research-compound license in Q3. Potential future option, milestone, royalty and co-promotion economics depend on development and commercialization.
- Revenue recognition estimates changed for Servier arrangements as expected development periods lengthened: Servier MGA271 recognition was extended to 42 months, and the Servier DART collaboration period to 75 months. The MGD006 license fee is being recognized over 82 months.
- Lease commitments totaled $17.1 million as of September 30; the manufacturing lease was extended through 2019, and a subsequent five-year lease for additional office space was entered into. A separate $5.0 million contingent payment to former Raven stockholders may be due upon initiation of a qualifying Phase 2 trial by July 15, 2018, subject to the agreement’s terms.
- The company reported no material litigation matters and no off-balance-sheet arrangements. It identified development, clinical trial, regulatory, financing, collaboration, competition, intellectual property and execution risks. Management assessed disclosure controls as effective at a reasonable assurance level.
Important facts for investors to verify
- Whether clinical progress and planned trial timelines support the stated, conditional runway into 2017.
- Quarterly cash use, expected R&D spending, and the timing and probability of collaboration reimbursements and milestones.
- Trial status and results for margetuximab, MGA271, MGD006 and MGD007, including the revised margetuximab gastroesophageal plan.
- Servier and Takeda development decisions, option exercises, cost-sharing obligations and the effect of extended revenue-recognition periods on reported revenue.
- Lease and Raven contingent-payment obligations, and potential dilution from outstanding options and future equity financing.