MacroGenics, Inc. (MGNX) Q3 2014 Earnings Report, Transcript and Summary

Good afternoon. We will begin the MacroGenics’ Second Quarter Conference Call in just a moment. All participants are in listen-only mode at the moment. And we will conduct a question-and-answer session at the conclusion of the call. At this point, I will turn the call over to Jim Karrels, Chief Financial Officer of MacroGenics.

Thank you, operator. Good afternoon and welcome to MacroGenics conference call to discuss our third quarter 2014 financial and operational results. For anyone who has not had a chance to review our results, we issued a press release this afternoon, outlining today’s announcement which is available under the Investors tab on our website at www.macrogenics.com. You can also listen to this conference call via webcast on our website and it will be archived there for 30 days beginning approximately two hours after the call is completed. I will point out that in observance of Veterans Day the SEC is closed today. Therefore, our 10-Q filing will show up at the Edgar site tomorrow before the market opens. I’d like to remind listeners that we will make forward-looking statements on today’s call. Therefore, I would like to also remind you that today’s discussion will include statements about the Company’s future expectations, plans and prospects that constitute forward-looking statements for purposes of the Safe Harbor provision under The Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factor section of our annual and current reports filed with the SEC. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. Now, I’d like to turn the call over to Dr. Scott Koenig, MacroGenics’ President and Chief Executive Officer.

Thank you, Jim. I’d like to welcome everyone participating via conference call and webcast today. Thank you for joining us. We’re happy to have the chance to discuss the progress we made during the third quarter as we continue to accomplish the key objectives that we set for MacroGenics in 2014. We advanced our second DART molecules into the clinic this quarter and continue to advance our position in the immuno oncology field. We also announce the second strategic alliance with Takeda to develop multiple additional DART targets beyond the agreement we announced in May of this year. The second agreement covers four additional candidates beyond MGD010. In a few minutes, I’ll review our third quarter accomplishments in more detail and then provide some key highlights of our pipeline including an important update to the margetuximab late-stage development program. After our prepared remarks, we will open up the call for question-and-answer session. But first, I would like to hand the call over to Jim, who will give a brief recap of our financial results.

Thank you, Scott. This afternoon, we reported financial results in line with our expectations. Briefly as we described in our release, MacroGenics had research and development expenses of $18.6 million for the quarter ended September 30, 2014, compared to $11.1 million for the quarter ended September 30, 2013. This increase was in line with our expectation as we continue to move into later stage clinical trial and to add product candidates to our pipeline. We had general and administrative expenses of $3.7 million for the quarter ended September 30, 2014, compared to $2 million for the quarter ended September 30, 2013. We record a total revenues consisting primarily of revenue from collaborative research of $18.4 million for the quarter ended September 30, 2014, compared to $20.2 million for the quarter ended September 30, 2013. Collaborative research revenue includes the recognition of deferred revenue from payments received in previous periods as well as payments received during the quarter. For the quarter ended September 30, 2014, we had a net operating loss of $3.9 million, compared to net income of $6.6 million for the quarter ended September 30, 2013. Our cash and cash equivalents as of September 30, 2014 were $179.2 million, compared to $116.5 million as of December 31, 2013. We also intend to file a Shelf Registration Statement with SEC covering the potential sale of up to $150 million of securities, although this facility provides us some fund raising flexibility to more quickly access the capital markets with either equity or debt securities offerings. We don’t have immediate plans to issue any such securities. Based on the company’s cash balances and our current operating plan, MacroGenics continues to expect that its current cash and cash equivalents combined with anticipated non-equity funding under its various strategic collaborations should fund the company’s operations into 2017. With that, I’ll hand the call back to Scott.

Thanks, Jim. In the third quarter, we extended our track record of advancing our portfolio of product candidates both those fully owned by MacroGenics and those being developed in partnership with our various collaboration partners. As we’ve stated previously, every product candidate in our portfolio was purpose designed for specific therapeutic application using our proprietary protein engineering technology. These technologies include our Fc-optimization platform, which enhances the body’s immune system to mediate the killing of cancer cells through antibody-dependent cellular cytotoxicity or ADCC. And our Dual Affinity Re-Targeting or DART platform which enables the targeting of multiple antigens or cells by using a single molecule with multiple antibody-like specificities. We are also able to utilize our proprietary cancer stem like cell platform which provides a unique discovery tool to identify cancer targets shared both by tumor-initiating cells and the differentiated cancer cells derived from them. To the successful integration of these platforms into our product development efforts, we remain on track to have six oncology programs in our portfolio in the clinic by the end of 2015 primarily focused on various types of immune therapy. I like to begin our portfolio view with an announcement we made in our earnings release this evening regarding the development of margetuximab a molecule antibody engineered using UCSF innovation technology and direct it to HER2, which as you know is expressed in many forms of breast, gastroesophageal and other types of solid tumors. We plan to commence a pivotal Phase 3 study margetuximab in HER2 positive metastatic breast cancer in the third quarter of 2015. This decision is based on several factors, including clinical data from our ongoing Phase 1 expansion cohorts testing a once every three week dosing regimen. We’re very encouraged by what we’ve seen in these 10 mg/kg, 15 mg/kg and…

Thank you. (Operator Instructions) Our first question comes from the line of Michael Schmidt from Leerink Partners. Jonathan Wei Ji Chang – Leerink Swann LLC: Hi it’s actually Jonathan Chang stepping in for Michael Schmidt. Thanks for taking my questions. The first question I have is with regards to your new margetuximab development strategy, can you elaborate on what you’ve seen so far that led to this decision, to begin the pivotal Phase 3 study in breast cancer? And also, could you elaborate on the decision to evaluate margetuximab in patients with HER2 expression at the 3+ or 2+ level biopsy with gene amplification versus 1+ or 2+ biopsy without gene amplification?

Thank you very much Jonathan, this is Scott. So as you know, on our last conference call, I had updated everybody in terms of the expansion of the Phase 1 study that we were conducting, where we were giving the margetuximab to patients on the Q3 weekly basis at three different doses. As I indicated at that time, we were seeing some very encouraging data from those studies. We in fact have continued to follow those patients, and the majority of these patients that participated in that part of the study were individuals that had breast cancer. And the majority of those had amplification or 3+ expression by IHC. The overall data has shown objective responses that all the three dosing ranges that what we tested and we’ve seen prolonged treatments of this population, both in the individuals that had objective responses, as well as those patients that experience stable disease. Encompass it this was extremely encouraging and many of these patients that perhaps participated in this study are still on therapy. So with the basis of this very encouraging data and follow-up data looking at the pharmacokinetics of this molecule showing that the delivery at Q3 weekly interval parallel that those patients that were give the 6 migs on a weekly basis, we felt that number one, we would wanted to go to a Q3 weekly dosing on regimen. And with the encouraging study in these amplified populations, this was clearly a population that we believe will benefit from margetuximab. I should also point out that virtually all these patients had been on multiple HER2 based therapy. So that was in a large part of which triggered our decision moving forward to treat patients in this amplified or over expressing population. With regard to your second question which was…

Well, thanks Jonathan, the question is on 006. Again as you recall from my previous comments about 006, we had conducted a very careful study pre-clinically in cynomolgus monkeys in which our DART molecule of course reacts with the CD123 specificity and cynomolgus monkeys. And when giving doses that far exceeded dose that we anticipate in our clinical study, we do not observe bone marrow toxicity in those studies. And that was conditions where we have given the animals both continuous infusion over 28 days as well as a current regimen which is an intermittent dosing regimen in which we dose patients for four days on, three days off and then repeat that for four weeks. So, based on the pre-clinical data we’re encouraged by that data. We also indicated previously that the pharmacodynamic effects of this drug showed activity at the nanogram per kg dosing level, extremely low dosing level. And as a result, when we met with the various regulatory agencies, the FDA in particular, they were encouraging us to continue and start this dosing at the initial dose where we saw a pharmacodynamic effect. And so, again that started that single-digit nanogram per kg. Obviously, we are slowly working our way up in the dosing schedule. As you know, for all these immuno-oncology molecules, particularly those that have activating properties we have to be very judicious on how we do this. We have to be concerned about the safety. So there is slow escalation of the dosing in this patient population. And so, therefore I can’t give you any particular guidance at this time when we will have the data available. But as I said, patients were enrolling in this study and we’re moving forward with it. Jonathan Wei Ji Chang – Leerink Swann LLC: Great, that’s very helpful. And maybe, just a my final question on your newly disclosed DART molecule, MGD011. So CD19s are fairly crowded space. I’m curious to know what drove your decision to develop a CD19 target DART? What your development plans for this product? And whether MGD011 is part of any existing partnership? Thanks.

Great question. Thank you for that. And as you recall in previous discussions, as a proof of principle way back when we were first developing our DART program, one of the first molecules we developed was the CD3 x CD19 where we compared the properties of the DART containing these specificities without the bi-molecule. And as we had previously published in 2011, we showed salutary properties of our DART molecule compared to the bi-molecule. We did not actually anticipate initially going into the clinic with this molecule. As you know, we moved forward with MGD06 and MGD07 as our first two molecules. But despite of that we’re encouraged by the fact that other technologies had proven very beneficial to patients with AML and in some patients with non-Hodgkin’s lymphoma. And in particular the data that we have now generated in pre-clinical studies, we were extremely encouraged about the prospects for this molecule. First of all, as we have indicated, this DART molecule is engineered as monovalent specificities for the CD3 and CD19 targets. And it includes an Fc domain that dramatically increases the half life of this molecule. I am particularly encouraged and as we’ve indicated earlier this week, the pre-clinical data for this molecule will be presented at ASH in December. So I encourage everybody to take a look at the data at the post session there. But in my 40 years of working in various animal model systems, this is some of the best data I have seen in various tumor model systems. So with the properties of a) being able to create a off the shelf molecule that can be used universally in patients and with NHL and potentially AML and other indications as well. As the ability of being able to give this less frequency than current therapies, I think we have a potential up to a best-in-class molecule. Jonathan Wei Ji Chang – Leerink Swann LLC: And is that MGD011 part of any existing partnership?

It is not. Jonathan Wei Ji Chang – Leerink Swann LLC: Okay. Thank you very much.

Thank you. And our next question comes from the line of Steve Byrne from Bank of America. Steve Byrne – Bank of America/Merrill Lynch: So, Scott, what do you expect the competitor arm to be in your Phase 3 study and HER2-positive metastatic breast?

Yes. That’s a great question, Steve. And as we have indicated it is likely to be a targeted HER2 targeted containing regimen with chemotherapy. At this point, we would like to discuss the trial with regulators particularly the FDA before we give details of that trial and the design of the trial, but as I indicated earlier today, we have met and discussed it with KOLs we had an advisory committee meeting about the design of this trail. We have also met with payers and they have been very enthusiastic and very supportive of how we are going forward with the design, but what I will hold off is giving you the details about the competitor arm until we meet with the regulators. Steve Byrne – Bank of America/Merrill Lynch: Would you anticipate the patients to be enrolled to have previously progressed on a HER2 therapy?

Well, absolutely. I mean it is likely they would be – have had two previous in the majority of cases two previous HER2 therapies. Steve Byrne – Bank of America/Merrill Lynch: And with respect to the ongoing study that you have in low HER2 expression in the non-amplified tumors, is it worse waiting to see the results of that before you move ahead into a Phase III program?

No. We have – the data that we have today has shown extremely encouraging data in the amplified population. And so we feel that those patients with HER2 amplification or expression by IHC would certainly benefit by this treatment. Obviously, we will have to see the result of that study. Independently, if we do see also a significant signal in the low expressing population, we would entertain the prospects of conducting a separate study in that population for looking at its benefit. Steve Byrne – Bank of America/Merrill Lynch: And given your HER-2 product margetuximab, it differs from the others in that you do engage the immune system. Is there any synergy by combining with the checkpoint inhibitor?

I think that’s an excellent question. And it clearly as you know the field is looking at various combination therapies. We have done some pre-clinical work showing that combination of margetuximab with other agents that maybe immune modifying could have benefit. And so that certainly, an area of that we are considering for designing feature studies of how patients could that benefit by various combination of immune therapy. So those that are on the market as well as those that we are developing ourselves. Steve Byrne – Bank of America/Merrill Lynch: Okay. And then I guess similar in couple of your DARTs, are CD3 this one of finance domains CD3 is that or do you have data that would suggest that those would also benefit or how synergy by combining with the checkpoint inhibitor.

So I’m not quite – so combining a CD3-directed DART with a checkpoint inhibitor is that the kind of question you’re asking? Steve Byrne – Bank of America/Merrill Lynch: It is yes.

Okay, because those model systems are very difficult to test and invariably require surrogate molecules, we have not modeled that in vivo systems. We have suggestions from in vitro data that is very encouraging. But at this point we have no in vivo data looking at that combination, but that clearly is an obvious pathway that is right for exploring. Steve Byrne – Bank of America/Merrill Lynch: Okay, thank you.

(Operator Instructions) Our next question comes from the line of Chris Marai from Oppenheimer. Christopher N. Marai – Oppenheimer & Co. Inc.: Hi good afternoon, thanks for taking my questions. First just on MGD007 your DART in colorectal, I mean, I think, you’ve previously mentioned that this might also have efficacy in hematological malignancies, and you have given often a very strong early data that comes out of these heme/onc trials. I was wondering why did you decided to bring it forward in colorectal, first and would we expect to see some additional trials later in a heme/onc setting?

I’m sorry if that was your impression on I’m not quite clear how that, how you came to that conclusion. Just to refreshing memory gpA33 is restricted to gastrointestinal tissues. And what we have previously shown is that gpA33 is highly over expressed on almost all colorectal cancer tissues, as well as the cancers, colorectal cancer stem cell. We’ve also indicated that approximately a half of all gastroesophageal cancer patients’ specimens and those from patients with pancreatic cancer, are also positive for gpA33. We have no data to show any expression of gpA33 in hematological malignancies. So maybe it’s a [close over] (ph) some of the other molecules but it isn’t (indiscernible). Christopher N. Marai – Oppenheimer & Co. Inc.: Got it, maybe I’m confusing my numbers there, no worries. But with, I guess, respect then to combination therapies in MGD007, I mean, obviously some immunomodulatory molecules if they could essentially be combined as supposed with a molecule like this. But there is some great toxicity over the weekend really regarding small molecule kinase inhibitors and their potential role in synergizing with therapies, T-cell therapies specifically the target solid tumors and I was just wondering have you thought about potential combinations there?

Not only have we thought about potential combinations, we’ve actually begun to explore combinations in preclinically of 007 which exactly things that you are describing both in terms of the small molecule opportunities as well as other immune based therapies. So again we are going to dose escalate the 007 molecule getting to the dose that we think will give the best therapeutic benefit and safety profile in patients and then look at the potential combined is both with the small molecule as you’ve alluded to as well as other immune based therapies. Christopher N. Marai – Oppenheimer & Co. Inc.: Okay, great. And then, I guess finally with respect to 271 you have noted that you treated some patients who have been previously exposed to prior monotherapies. Just wondered if going forward you might have to retreat these patients not just with 271 as a single agent but also potentially with these immunotherapies and if you sort of look trial designs around that. Thanks.

So just for clarification what we announced today is the part of the expanded monotherapy cohort. We’ll include melanoma patients that are selected specifically for being on other immune based therapies. And as you could imagine which say most like it will be. In the inclusion of the first cohort of melanoma patients we also had a couple of patients who had been on prior immuno therapy and so as a result given now that Margetuximab is now proved and (indiscernible) is approved. This will clearly most of these patients with melanoma which have experienced one or both of these drug. We also wanted to expand our experience of looking at this population in combination of MGA271 going forward. And so that was the basis of this design of this new part of the study. Christopher N. Marai – Oppenheimer & Co. Inc.: Great. Thanks for taking for my question.

Thank you. And our next question comes from the line of Stephen Willey from Stifel. Stephen Willey – Stifel: Yeah. Thanks for taking the question. Just respect to 271, I know that the three initial monotherapy cohorts I think have completed enrollment. I think it was last quarter and just kind of wondering at this point if there is any additional clarity with respect to when that data may be communicated and in what form.

Thanks, Steve. Just – but actually to collect that as you recall on the last call, we anticipate completing enrollment in those three cohorts by the end of this year. Just to update you we were on track, one of those cohorts is totally completely enrolled; a second one is one patient away; and the third one a few patients away. So we’re close to finishing the enrollment by the end of this year, clearly patients will get continuous healthy into 2015. And as I’ve indicated, as that data is accumulated, we’ll find the right forum to presenting this data at a major meeting. But clearly, as indicated today, we would like to get a larger body of data looking at other indications starting this year and as I’ve also indicated starting next year, we’re going to be combining 271 with a number of different other agents to look at the effective combination therapy. So I expect 2015 will have several opportunities to present and update on 271. Stephen Willey – Stifel: Okay. And you talked about how 007 you are evaluating preclinically both with other immune modulators and with small cell lung cancer. Are those kind of combinations in the clinical stages for 271 as well clinically?

So clearly, that I can definitely say obviously, in the thought for combination therapy for 271, we have actually protocols that have been submitted are being reviewed and we intend to look at combinations and clearly the opportunity to look with other immune therapies that are available to us will be conducted. So, yes, for 271 that definitely will happen. Stephen Willey – Stifel: Okay. And just with respect to the plans to evaluate additional combination regimens and gastroesophageal, I guess are those going to be in earlier lines of therapy and maybe one of those agents that you’re going to be looking to combine (indiscernible).

Thank you for the question, Steve, and be able to address that. Obviously the whole landscape for the treatment of gastroesophageal cancer has dramatically changed this past year. As all of you know, ramucirumab was approved in April of this year. The recent data from the rainbow study this fall were the approval in the chemotherapy (indiscernible) treated populations as second line has been approved. At the end of September, Merck presented their data showing about our 31% response rate of pembrolizumab. Overall response rate of pembrolizumab in gastric cancer and we also know that Roche has indicated that the (indiscernible) data is likely to come out earlier than first anticipated. So that – with that change of the landscape and with our own data that we have been generating internally looking at combinations of our molecule of margetuximab with other therapies showing – in some cases synergistic opportunities. We think that it was very important for us to recognize that change of landscape and now look at the potential of opportunities instead of treating patient in third-line gastric cancer to be able to now combine this with one or more agents to get to early lines of therapies. So we’re very excited about this opportunity and I think it make sense for the patient. Stephen Willey – Stifel: Okay thanks.

Thank you. And our next question comes from the line of Chris Marai from Oppenheimer. Christopher N. Marai – Oppenheimer & Co. Inc.: Hi, guys. Thanks for taking the follow-up. Just given broadly you’re partnering on the DART molecules and DART platform, I was wondering if you could help elaborate on, what sort of provoked you to retain rights to certain DART molecules for certain targets more indications and just roughly how you view that landscape in terms of partnership? Thanks.

Well, thanks very much Chris. So as you know, historically, MacroGenics has been very active in finding ways of bringing non-dilutive capital into the company to both advance the platform as well as developing potential commercial opportunities. And as you sure have noticed particularly in the past couple of partnerships, we have spent a lot of efforts in trying to retain significant commercial rights for these programs. There are obviously occasions where a partner will come to us with interest in using our platform to pursue targets that we might not have any particular interest in pursuing ourselves. And so, what we have decided to do is to have a balanced opportunity both to bring in additional non-dilutive capital in this manner or to partner with companies where we can both develop the compound and leave us with a large opportunity for commercialization of those molecules. And what I can indicate is that you should expect more of these opportunities to arise both near-term and in the future. Christopher N. Marai – Oppenheimer & Co. Inc.: Thanks.

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back to management for any closing comments.

Well, first, I’d like to thank everyone again for joining us and let you all know that we look forward to updating you on each of the programs that we discussed today as we continue to make progress throughout the rest of 2014. Thanks very much.

Thank you. Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may now disconnect. Everyone, have a good day.