# Macrogenics Inc: Form 10-Q for the period ended Sep 30, 2023

- Company: [Macrogenics Inc](/companies/mgnx.md) (CIK 1125345)
- Form: 10-Q
- Filed: 2023-11-06
- Accepted by EDGAR: Nov 6, 2023, 16:03 ET
- Period: 2023-09-30
- Accession: 0001125345-23-000124
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1125345/000112534523000124/mgnx-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1125345/000112534523000124/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $10.4m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $48.0m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $85.0k | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $456.0k | us-gaap:CostOfGoodsAndServicesSold |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $30.1m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $119.2m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$35.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$118.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $0 | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $1.4m | us-gaap:InterestExpense |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $17.6m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $37.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.28 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.60 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.28 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.60 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 62,244,602 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 62,090,343 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$50.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $1.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $89.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $291.3m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $340.0m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $51.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $146.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $194.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 30,315 characters.

*The following discussion of our financial condition and results of operations is based upon our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q, which have been prepared by us in accordance with U.S. generally accepted accounting principles (GAAP), for interim periods and with Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended. This discussion and analysis should be read in conjunction with these unaudited consolidated financial statements and the notes thereto as well as in conjunction with our audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022.*

### Overview

We are a biopharmaceutical company focused on developing, manufacturing and commercializing innovative antibody-based therapeutics for the treatment of cancer. We have a pipeline of product candidates being evaluated in clinical trials sponsored by us or our collaborators in addition to several molecules in preclinical development. Our clinical product candidates include multiple oncology programs, many of which were created using our proprietary, antibody-based technology platforms. We believe our product candidates have the potential, if approved for marketing by regulatory authorities, to have a meaningful effect on treating patients' unmet medical needs as monotherapy or, in some cases, in combination with other therapeutic agents. To date, three products originating from our pipeline of proprietary or partnered product candidates have received U.S. Food and Drug Administration (FDA) approval. In March 2021, we and our commercialization partner commenced U.S. marketing of MARGENZA (margetuximab-cmkb), a human epidermal growth factor receptor 2 (HER2) receptor antagonist indicated, in combination with chemotherapy, for the treatment of adult patients with metastatic HER2-positive breast cancer who have received two or more prior anti-HER2 regimens, at least one of which was for metastatic disease. In November 2022, the FDA approved TZIELD® (teplizumab-mzwv) to delay the onset of Stage 3 Type 1 Diabetes (T1D) in adult and pediatric patients aged 8 years and older with Stage 2 T1D. Teplizumab was acquired from us by Provention Bio, Inc. (Provention) in 2018, pursuant to an asset purchase agreement. In March 2023, the FDA approved ZYNYZ™ (retifanlimab-dlwr), a humanized monoclonal antibody targeting programmed death receptor-1 (PD-1). Retifanlimab was previously developed by us and licensed to Incyte Corporation (Incyte) pursuant to an exclusive global collaboration and license agreement in October 2017.

Our operations to date have concentrated on developing our technology platforms, identifying potential product candidates, undertaking preclinical studies, conducting clinical trials, developing collaborations, operating manufacturing facilities, business planning and raising capital. We only began generating revenues from the sale of products in 2021. We have financed our operations primarily through the public and private offerings of our securities and collaborations with other biopharmaceutical companies. Although it is difficult to predict our funding requirements, we anticipate that our cash, cash equivalents and marketable securities as of September 30, 2023, combined with anticipated and potential collaboration payments, product revenue, contract manufacturing revenue, and royalties, should enable us to fund our operations into 2026. Our expected funding requirements reflect anticipated expenditures related to the Phase 2 TAMARACK clinical trial of vobramitamab duocarmazine (vobra duo) in metastatic castration-resistant prostate cancer (mCRPC), our Phase 2 LORIKEET study of lorigerlimab in mCRPC as well as our other clinical and preclinical studies currently ongoing.

Through September 30, 2023, we had an accumulated deficit of $1.1 billion. We expect that over the next several years this deficit will increase as we continue to incur research and development expense in connection with our ongoing activities and several clinical studies.

### Macroeconomic Conditions

The global economy, credit markets and financial markets have and may continue to experience significant volatility as a result of significant worldwide events, including adverse events involving financial institutions or the financial services industry, inflation and rising interest rates and geopolitical upheaval (collectively, the Macroeconomic Conditions). These Macroeconomic Conditions have and may continue to create supply chain disruptions, inventory disruptions, and fluctuations in economic growth, including fluctuations in employment rates, inflation, energy prices and consumer sentiment. It remains difficult to assess or predict the ultimate duration and economic impact of the Macroeconomic Conditions. Prolonged uncertainty with respect to Macroeconomic Conditions could cause further economic slowdown or cause other unpredictable events, each of which could adversely affect our business, results of operations or financial condition.

### Collaborations

We pursue a balanced approach between product candidates that we develop ourselves and those that we develop with our collaborators. Under our strategic collaborations to date, we have received significant non-dilutive funding and continue to have rights to additional funding upon completion of certain research, achievement of key product development milestones and royalties and other payments upon the commercial sale of products. Our current collaborations include the following:

- *Incyte.* We have an exclusive global collaboration and license agreement with Incyte for retifanlimab, an investigational monoclonal antibody that inhibits PD-1 (Incyte License Agreement). Under this agreement, as amended, Incyte has obtained exclusive worldwide rights for the development and commercialization of retifanlimab in all indications, while we retain the right to develop our pipeline assets in combination with retifanlimab. We received an upfront payment of $150.0 million and milestone payments totaling $115.0 million from Incyte through September 30, 2023, including $15.0 million upon the FDA approval of ZYNYZ (retifanlimab-dlwr) in March 2023. We are eligible to receive an additional $320.0 million in development and regulatory milestones and $330.0 million in commercial milestones. We are also eligible to receive tiered royalties of 15% to 24% on any global net sales and we have the option to co-promote retifanlimab with Incyte. We retain the right to develop our pipeline assets in combination with retifanlimab, with Incyte commercializing retifanlimab and us commercializing our asset(s), if any such potential combinations are approved. We also have an agreement with Incyte under which we are to perform development and manufacturing services for Incyte's clinical needs of retifanlimab (Incyte Clinical Supply Agreement) and another agreement under which we are entitled to manufacture a portion of Incyte’s global commercial supply of retifanlimab (Incyte Commercial Supply Agreement).
- *Gilead*. In October 2022, we and Gilead Sciences, Inc. (Gilead) entered into an exclusive option and collaboration agreement (Gilead Agreement) to develop and commercialize MGD024 and create bispecific cancer antibodies using our DART platform and undertake their early development under a maximum of two separate bispecific cancer target research programs. Under the Gilead Agreement, we will continue the ongoing phase 1 trial for MGD024 according to a development plan, during which Gilead will have the right to exercise an option granted to Gilead to obtain an exclusive license to develop and commercialize MGD024 and other bispecific antibodies of ours that bind CD123 and CD3 (CD123 Option). The agreement also grants Gilead the right, within its first two years, to nominate a bispecific cancer target set for up to two research programs conducted by us and to exercise separate options to obtain an exclusive license for the development, commercialization and exploitation of molecules created under each research program (Research Program Option). As part of the Gilead Agreement, Gilead paid us a non-refundable upfront payment of $60.0 million and we will be eligible to receive up to $1.7 billion in target nomination, option fees, and development, regulatory and commercial milestones, assuming Gilead exercises the CD123 Option and Research Program Option, successfully develops and commercializes MGD024 or other CD123 products developed under the agreement, and products result from the two additional research programs. Assuming exercise of the CD123 Option, we will also be eligible to receive tiered, low double-digit royalties on worldwide net sales of MGD024 (or other CD123 products developed under the agreement) and assuming exercise of the Research Program Option, a flat royalty on worldwide net sales of any products resulting from the two research programs. In September 2023, Gilead nominated the first of the two research programs contemplated in the Gilead Agreement (First Research Program), we granted Gilead a research license, and the parties agreed on a research plan for the First Research Program under which we will provide research and development services. Gilead paid us a $15.7 million nomination fee, which we received in October 2023.
- *Zai Lab*. In 2018, we entered into a collaboration and license agreement with Zai Lab Limited (Zai Lab) under which Zai Lab obtained regional development and commercialization rights in mainland China, Hong Kong, Macau and Taiwan (Zai Lab’s territory) for (i) margetuximab, an immune-optimized anti-HER2 monoclonal antibody, (ii) tebotelimab, a bispecific DART molecule designed to provide coordinate blockade of PD-1 and LAG-3 for the potential treatment of a range of solid tumors and hematological malignancies, and (iii) an undisclosed multi-specific TRIDENT molecule in preclinical development (2018 Zai Lab Agreement). Zai Lab will lead clinical development in its territory. Zai Lab has informed us that they have decided to discontinue development of tebotelimab for indications they were enrolling in their territory and is evaluating future development plans in other indications.

Under the terms of the 2018 Zai Lab Agreement, Zai Lab paid us an upfront payment of $25.0 million less foreign withholding tax of $2.5 million. Assuming successful development and commercialization of margetuximab, tebotelimab and the TRIDENT molecule, we could receive up to $140.0 million in development and regulatory milestones, of which we have earned and received $9.0 million through September 30, 2023. In addition, Zai Lab would pay us tiered royalties at percentage rates of mid-teens to 20% for net sales of margetuximab in Zai Lab’s territory, mid-teens for net sales of tebotelimab in Zai Lab’s territory and 10% for net sales of the TRIDENT molecule in Zai Lab’s territory, which may be subject to adjustment in specified circumstances.

- *Provention*. In 2018, we entered into an asset purchase agreement (Provention APA) pursuant to which Provention acquired our interest in teplizumab. Under the Provention APA, if Provention successfully develops, obtains regulatory approval for, and commercializes teplizumab, we will be eligible to receive up to $170.0 million in regulatory milestones, and up to $225.0 million in commercial milestones. In November 2022, the FDA approved TZIELD (teplizumab-mzwv) to delay the onset of Stage 3 T1D in adult and pediatric patients aged 8 years and older with Stage 2 T1D, and we recognized $60.0 million in milestone revenue during the year ended December 31, 2022. In November 2022 we and Provention amended the Provention APA. Under the amended Provention APA, the $60.0 million milestone for a first approval was split into four $15 million payments, all of which were received prior to June 30, 2023. Under the Provention APA we are also eligible to receive single-digit royalties on net sales of TZIELD. Provention has also agreed to pay third-party obligations, including low single-digit royalties, a portion of which is creditable against royalties payable to us, aggregate milestone payments of up to approximately $1.3 million and other consideration, for certain third-party intellectual property under agreements Provention assumed pursuant to the Provention APA. Further, Provention is required to pay us a low double-digit percentage of certain consideration to the extent it is received in connection with a grant of rights by Provention to a third party.

In March 2023, we sold our single-digit royalty interest in TZIELD (Royalty Interest) to a wholly-owned subsidiary of DRI Healthcare Trust (DRI) and received a $100.0 million payment from DRI under a Royalty Purchase Agreement. We retain our other economic interests related to TZIELD, including future potential regulatory and commercial milestones. We retain the right to receive a 50% share of the royalty on global net sales above a certain annual threshold (Retained Interest). In addition, we received $50.0 million upon the occurrence of the primary endpoint milestone event in September 2023, and we are also eligible to receive an additional $50.0 million if TZIELD achieves a certain level of net sales (the Sales Milestone Payment). In April 2023, we entered into an agreement (the Tripartite Agreement) with DRI and a subsidiary of Sanofi S.A. (Sanofi), whereby we consented to the sale of DRI’s Royalty Interest and the related milestone payment obligations to Sanofi. The Tripartite Agreement eliminated our obligation to deliver payments to DRI related to the Royalty Interest and removed all of our other obligations under the Royalty Purchase Agreement. The Royalty Interest will be paid directly to Sanofi by Provention, therefore we no longer have any obligation to pay DRI. There was no modification to our Retained Interest in the Tripartite Agreement.

In September 2023, we and Sanofi executed Amendment No. 2 to the Provention APA to incorporate the Sales Milestone Payment obligation from the Royalty Purchase Agreement into the Provention APA and terminated the Royalty Purchase Agreement. As a result, the remaining $50.0 million Sales Milestone Payment under the Royalty Purchase Agreement was incorporated into the Provention APA.

### Critical Accounting Estimates

Our critical accounting estimates are policies which require the most significant judgments and estimates in the preparation of our consolidated financial statements. A summary of our critical accounting estimates is presented in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2022. The following accounting policies and estimates were deemed critical during the nine months ended September 30, 2023:

### Liability related to the sale of future royalties and related interest expense

The liability related to future royalties is presented net of unamortized issuance costs on our consolidated balance sheets. Interest expense on the liability related to future royalties is recognized using the effective interest rate method over the life of the arrangement. We calculate an effective interest rate which will amortize our related obligation to zero over the anticipated repayment period. The liability related to future royalties and the related interest expense are based on our current estimates of future royalties expected to be received over the life of the arrangement, which we determine by using internal sales projections and external information from market data sources, which are considered Level 3 inputs. We periodically assess the expected payments and to the extent our estimates of future royalty payments are greater or less than previous estimates or the estimated timing of such payments is materially different than previous estimates, we will adjust the effective interest rate and recognize related non-cash interest expense on a prospective basis.

Upon changes in facts and circumstances, for example as a result of a modification to the existing agreements, we re-evaluate our rights and obligations and account for the change in accordance with the respective accounting guidance.

### Results of Operations

### Revenue

The following represents a comparison of our revenue for the three and nine months ended September 30, 2023 and 2022 (dollars in millions):

|  | Three Months Ended September 30, 2023 | 2022 | Change% |  | Nine Months Ended September 30, 2023 | 2022 | Change% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Collaborative and other agreements | $0.9 | $35.7 | $(34.8) | (98)% | $23.6 | $59.6 | $(36.0) | (60)% |
| Product sales, net | 4.7 | 4.4 | 0.3 | 7% | 13.2 | 12.6 | 0.6 | 5% |
| Contract manufacturing | 4.5 | 1.1 | 3.4 | 309% | 9.7 | 5.1 | 4.6 | 90% |
| Royalty revenue | \* | — | — | N/A | 0.4 | — | 0.4 | N/A |
| Government agreements | 0.3 | 0.5 | (0.2) | (40)% | 1.1 | 1.5 | (0.4) | (27)% |
| Total revenue | $10.4 | $41.7 | $(31.3) | (76)% | $48.0 | $78.8 | $(30.8) | (39)% |

\* Represents revenue of less then $0.1 million.

The decrease in revenue of $31.3 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 was primarily due to:

- recognition of $30.0 million in milestone payments under the Incyte License Agreement during the three months ended September 30, 2022;
- a decrease of $3.8 million in revenue recognized under the I-Mab License Agreement; and
- a decrease of $1.8 million in revenue recognized under the 2021 Zai Lab Agreement.

These decreases were partially offset by an increase of $3.3 million in revenue recognized under the Incyte Manufacturing and Clinical Supply Agreement.

The decrease in revenue of $30.8 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was primarily due to:

- a decrease of $16.8 million in revenue recognized under the 2021 Zai Lab Agreement;
- a decrease of $15.0 million in milestone payments under the Incyte License Agreement;
- a decrease of $4.9 million in revenue recognized under the 2018 Zai Lab Agreement;
- a decrease of $4.5 million in revenue recognized under the I-Mab License Agreement; and
- a decrease of $1.4 million in revenue recognized under the I-Mab Clinical Supply Agreement.

These decreases were partially offset by:

- an increase of $5.5 million in revenue recognized under the Provention APA;
- an increase of $4.5 million in revenue recognized under the Incyte Manufacturing and Clinical Supply Agreement;
- an increase of $1.1 million in revenue recognized under the Gilead Agreement; and
- an increase of $1.1 million in revenue recognized under the Incyte Clinical Supply Agreement.

Revenue from collaborative and other agreements may vary substantially from period to period depending on the progress made by our collaborators with their product candidates and the timing of milestones achieved under current agreements, and whether we enter into additional collaboration agreements.

### Cost of Product Sales

Cost of product sales for all periods presented consists primarily of product royalties and fill finish costs. Product sold during these periods consisted of drug product that was previously charged to research and development expense prior to FDA approval of MARGENZA, which favorably impacted our gross margin. We expect cost of product sales to continue to be positively impacted as we sell through this drug product.

### Cost of Manufacturing Services

Cost of manufacturing services consists of the costs to provide manufacturing services to produce certain Incyte bulk drug substance under the Incyte Manufacturing and Clinical Supply Agreement. We expect cost of manufacturing services to vary from period to period based on the agreed-upon manufacturing schedule.

### Research and Development Expense

The following represents a comparison of our research and development expense for the three and nine months ended September 30, 2023 and 2022 (dollars in millions):

|  | Three Months Ended September 30, 2023 | 2022 | Change% |  | Nine Months Ended September 30, 2023 | 2022 | Change% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Antibody-drug conjugates (ADCs) (a) | $7.9 | $6.3 | $1.6 | 25% | $25.2 | $13.0 | $12.2 | 94% |
| Vobramitamab duocarmazine | 6.5 | 10.1 | (3.6) | (36)% | 28.0 | 37.6 | (9.6) | (26)% |
| Lorigerlimab | 6.2 | 4.9 | 1.3 | 27% | 21.6 | 14.6 | 7.0 | 48% |
| Margetuximab | 3.3 | 6.9 | (3.6) | (52)% | 12.9 | 22.6 | (9.7) | (43)% |
| Next-generation T-cell engagers (b) | 2.1 | 1.2 | 0.9 | 75% | 8.1 | 13.2 | (5.1) | (39)% |
| MGD024 | 1.2 | 2.1 | (0.9) | (43)% | 4.6 | 6.1 | (1.5) | (25)% |
| IMGC936 | 0.8 | 1.4 | (0.6) | (43)% | 2.4 | 6.2 | (3.8) | (61)% |
| Tebotelimab | 0.7 | 1.9 | (1.2) | (63)% | 5.3 | 9.3 | (4.0) | (43)% |
| DART molecules under HIV government contract | 0.5 | 1.8 | (1.3) | (72)% | 1.7 | 3.6 | (1.9) | (53)% |
| Retifanlimab | 0.2 | 0.2 | — | —% | 0.7 | 1.9 | (1.2) | (63)% |
| Enoblituzumab | 0.1 | 3.7 | (3.6) | (97)% | 2.3 | 12.5 | (10.2) | (82)% |
| Flotetuzumab | — | 1.5 | (1.5) | (100)% | 2.7 | 10.8 | (8.1) | (75)% |
| Other programs (b) | 0.6 | 6.2 | (5.6) | (90)% | 3.7 | 10.0 | (6.3) | (63)% |
| Total research and development expense | $30.1 | $48.2 | $(18.1) | (38)% | $119.2 | $161.4 | $(42.2) | (26)% |

(a) Includes MGC026 and other preclinical ADCs.

(b) Includes research and discovery projects, as well as early preclinical molecules and molecules not advanced to clinical development.

Our research and development expense for the three months ended September 30, 2023 decreased by $18.1 million compared to the three months ended September 30, 2022 primarily due to:

- decreased development and clinical trial costs related to margetuximab, including expenses under the 2018 Zai Lab Agreement;
- decreased development, manufacturing and clinical trial costs related to enoblituzumab;
- decreased development and vobra duo clinical trial costs;
- decreased development and clinical trial costs related to flotetuzumab due to discontinued development of this molecule;
- decreased development, manufacturing and clinical trial costs related to tebotelimab; and
- decreased development costs related to other programs;.

These decreases were partially offset by:

- increased research and development costs related to preclinical ADC product candidates; and
- increased clinical trial costs related to lorigerlimab.

Our research and development expense for the nine months ended September 30, 2023 decreased by $42.2 million compared to the nine months ended September 30, 2022 primarily due to:

- decreased development, manufacturing and clinical trial costs related to enoblituzumab;
- decreased development and clinical trial costs related to margetuximab, including expenses under the 2018 Zai Lab Agreement;
- decreased manufacturing related costs for vobra duo;
- decreased development and clinical trial costs related to flotetuzumab due to discontinued development of this molecule;
- decreased research and development costs related to next-generation T-cell engagers under the discontinued 2021 Zai Lab Agreement lead program;
- decreased development, manufacturing and clinical trial costs related to tebotelimab;
- decreased development costs related to other programs.

These decreases were partially offset by:

- increased research and development costs related to preclinical ADC product candidates; and
- increased clinical trial costs related to lorigerlimab.

There are uncertainties associated with our research and development expenses for future quarters which are impacted by multiple variables, including timing of wind down activities for recently closed studies and current and expected expenditures associated with our ongoing clinical studies.

### Selling, General and Administrative Expense

Selling, general and administrative expenses decreased by $3.0 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, and decreased by $5.6 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to decreased MARGENZA-related selling expenses.

### Gain on Royalty Monetization Arrangement

In April 2023, we entered into the Tripartite Agreement with DRI and Sanofi, whereby we consented to the sale of DRI’s Royalty Interest and the related milestone payment obligations to Sanofi. The execution of the Tripartite Agreement resulted in a modification to the liability related to future royalties, and we recognized a $100.9 million gain on royalty monetization arrangement. In July 2023, Sanofi reported achievement of the primary endpoint milestone event related to a $50.0 million milestone, which resulted in an additional $50.0 million gain on royalty monetization arrangement. In September 2023, we amended the Provention APA and terminated the Royalty Purchase Agreement with DRI. See Note 6, Royalty Monetization Arrangement, of the Notes to Consolidated Financial Statements, for additional information.

### Liquidity and Capital Resources

### Cash Flows

The following table represents a summary of our cash flows for the nine months ended September 30, 2023 and 2022:

*(dollars in millions)*

| Net cash provided by (used in): | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Operating activities | $(50.2) | $(116.3) |
| Investing activities | (118.9) | 76.5 |
| Financing activities | 150.1 | 0.3 |
| **Net change in cash and cash equivalents** | $(19.0) | $(39.5) |

#### Operating Activities

Net cash used in operating activities consists of our net loss adjusted for non-cash items such as depreciation and amortization expense and stock-based compensation, gain on royalty monetization arrangement which is classified as a financing activity, and changes in working capital. Net cash used in operating activities for the nine months ended September 30, 2023 benefited from $15.0 million in milestones received from Incyte under the Incyte License Agreement. Net cash used in operating activities for the nine months ended September 30, 2022 benefited from $30.0 million in milestones received from Incyte under the Incyte License Agreement, $12.3 million received from Incyte under the Incyte Manufacturing and Clinical Supply Agreement and $4.5 million (after netting value-added tax withholding) in milestones received under the 2018 Zai Lab Agreement.

#### Investing Activities

Net cash used in investing activities during the nine months ended September 30, 2023 is primarily due to purchases of marketable securities, partially offset by maturities of marketable securities. Net cash provided by investing activities during the nine months ended September 30, 2022 is primarily due to maturities of marketable securities, partially offset by purchases of marketable securities.

#### Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2023 includes net cash proceeds from our Royalty Purchase Agreement with DRI of $149.7 million.

Our multiple product candidates currently under development will require significant additional research and development efforts that include extensive preclinical studies and clinical testing, and regulatory approval prior to commercial use. Our future success is dependent on our ability to identify and develop our product candidates, and ultimately upon our ability to attain profitable operations. We have devoted substantially all of our financial resources and efforts to research and development and general and administrative expense to support such research and development. Net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital, and accordingly, our ability to execute our future operating plans.

As a biotechnology company, we have primarily funded our operations with proceeds from the sale of our common stock in equity offerings and revenue from our multiple collaboration agreements. Management regularly reviews our available liquidity relative to our operating budget and forecast to monitor the sufficiency of our working capital, and anticipates continuing to draw upon available sources of capital, including equity and debt instruments, to support our product development activities. There can be no assurances that new sources of capital will be available to us on commercially acceptable terms, if at all. Also, any future collaborations, strategic alliances and marketing, distribution or licensing arrangements may require us to give up some or all rights to a product or technology at less than its full potential value. If we are unable to enter into new arrangements or to perform under current or future agreements or obtain additional capital, we will assess our capital resources and may be required to delay, reduce the scope of, or eliminate one or more of our product research and development programs or clinical studies, and/or downsize our organization. Although it is difficult to predict our funding requirements, we anticipate that our cash, cash equivalents and marketable securities as of September 30, 2023 combined with anticipated and potential collaboration payments, product revenue, contract manufacturing revenue, and royalties, should enable us to fund our operations into 2026. Our expected funding requirements reflect anticipated expenditures related to the Phase 2 TAMARACK clinical trial of vobra duo in mCRPC, our Phase 2 study of lorigerlimab in mCRPC as well as our other clinical and preclinical studies currently ongoing.

### Material Cash Requirements

During the nine months ended September 30, 2023, there were no significant changes to our material cash requirements, including contractual and other obligations, as presented in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

## Market risk

As filed, 203 characters.

Under SEC rules and regulations, because we are considered to be a “smaller reporting company," we are not required to provide the information required by this item in this Quarterly Report on Form 10-Q.

## Controls and procedures

As filed, 1,325 characters.

### Disclosure Controls and Procedures

Our management, including our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2023. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in our periodic reports filed with the SEC (such as this Quarterly Report on Form 10-Q) has been appropriately recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Based on their evaluation of our disclosure controls and procedures as of September 30, 2023, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

### Changes in Internal Control

There were no changes in our internal control over financial reporting during the three months ended September 30, 2023 that materially affected, or are reasonably likely to materially effect, our internal control over financial reporting.

## Risk factors

As filed, 592 characters.

Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and trading price of our securities. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors described in Part I, Item 1A. “ Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. There have been no material changes in the risk factors described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022.

Filed Nov 6, 2023.
Source: SEC EDGAR, the filing index for accession 0001125345-23-000124. Last ingested by Listed: Nov 3, 2026, 20:21 ET. No prices; not investment advice.