MacroGenics Inc: Bispecifics Hold Promise, but

Transcription

MacroGenics Inc | February 25, 2016
MORGAN STANLEY RESEARCH
MORGAN STANLEY & CO. LLC
February 25, 2016
Matthew Harrison
MacroGenics Inc
Matthew.Harrison@morganstanley.com
+1 212 761-8055
David N Lebowitz, MPH, CFA
Bispecifics Hold Promise, but Awaiting
Initial Data; Initiate at Equal-weight
Industry View
In-Line
Stock Rating
Equal-weight
Price Target
$20.00
We initiate at EW with a $20 PT. DARTs represent the key upside
driver, but we await initial derisking data in 2016/2017. While
margetuximab offers downside support, it is likely limited to
refractory breast cancer patients. B7-H3 remains intriguing, but initial
data don't support significant value.
Initiate at Equal-weight with a $20 PT: MacroGenics is one of the few pure
play biotechs with a broad platform that can recruit immune cells in the body
and send them to a target tissue using so-called bispecific antibodies, or
DARTs. This platform can potentially achieve efficacy similar to cell based
therapy without individualized manufacturing. That said, without initial clinical
data we think it's too early to highly value the platform. MacroGenics has two
other potential growth drivers with its breast cancer antibody, margetuximab,
that targets the ~$7B global HER2+ market and enoblituzumab, a B7-H3
antibody potentially useful in I/O combinations. However, we see modest sales
potential for margetuximab given the competitive HER2 market and initial data
from B7-H3 as insufficient to value the asset.
DARTs represent the potential major upside driver to our valuation:
Mgt. has 5 DARTs currently in clinical testing, with initial data on at least two of
the targets (and potentially three) in 2016. We see the CD3/CD19 DART, which
has the same target as Amgen's Blincyto and CAR-T, and the CD3/CD123
DARTs as the most promising. Importantly, mgt. has improved upon prior
bispecific platforms by increasing DART half-lives to prevent continuous
infusions and improving manufacture. This being said, while initial data could
offer a first look at safety and some efficacy, we may need to await more
robust data in 2017 before the efficacy signal is known.
Other assets provide downside support: Though we see modest
commercial value in margetuximab, it is directed against a validated target in a
large commercial opportunity. Thus, our peak sales of ~$150M represent
downside support in the event that the DART platform is unsuccessful. As for
B7-H3, either initial data from a PD-1 combination or from the DART/CD3
combination offer the most promise given the limited single agent activity.
We need initial DART data to get more bullish: Core to our thesis is solid
DART data that would allow us to value the opportunity across targets and
diseases. Thus, while we remain optimistic on bispecifics as a therapeutic
approach and believe that MacroGenics has developed a suitable platform for
their development, initial data is key to our ability to value the program. We
await clear efficacy data from the platform.
David.Lebowitz@morganstanley.com
+1 212 761-0324
Cyrus Amoozegar, M.D., Ph.D.
Cyrus.Amoozegar@morganstanley.com
+1 212 761-6009
MacroGenics Inc ( MGNX.O, MGNX US )
Biotechnology / United States of America
Stock Rating
Industry View
Price target
Shr price, close (Feb 24, 2016)
Mkt cap, curr (mm)
52-Week Range
Fiscal Year Ending
ModelWare EPS ($)
Prior ModelWare EPS
($)
P/E
Consensus EPS ($)§
Div yld (%)
Equal-weight
In-Line
$20.00
$15.74
$441
$39.90-14.84
12/14
(1.40)
-
12/15e
(0.29)
-
12/16e
(2.29)
-
12/17e
(2.63)
-
NM
-
NM
-
NM
-
NM
-
Unless otherwise noted, all m etrics are based on Morgan Stanley ModelWare fram ework
§ = Consensus data is provided by Thom son Reuters Estim ates
e = Morgan Stanley Research estim ates
QUARTERLY MODELWARE EPS ($)
Quarter
Q1
Q2
Q3
Q4
2014
(0.12)
(0.44)
(0.14)
(0.69)
2015e
Prior
-
2015e
Current
1.42a
(0.71)a
(0.46)a
(0.51)
2016e
Prior
-
2016e
Current
(0.51)
(0.56)
(0.63)
(0.59)
e = Morgan Stanley Research estim ates, a = Actual Com pany reported data
Morgan Stanley does and seeks to do business with
companies covered in Morgan Stanley Research. As a result,
investors should be aware that the firm may have a conflict
of interest that could affect the objectivity of Morgan
Stanley Research. Investors should consider Morgan
Stanley Research as only a single factor in making their
investment decision.
For analyst certification and other important disclosures,
refer to the Disclosure Section, located at the end of this
report.
1
Risk Reward
Successful Data from Proprietary DART Bispecific Platform To Drive Value
Investment Thesis
So u rce: Th o mso n Reu ters, Mo rgan Stan ley
Price Target $20
Our PT is derived from a DCF that uses a 15% discount rate and a
0% terminal growth rate beyond 2030E to value MacroGenics's
most advanced therapeutics programs.
Bull
Strong uptake for all three clinical programs. Our bull scenario
assumes greater margetuximab uptake versus competing HER2
regimens, incorporating sales for the treatment of both breast and
gastric cancers. It also assumes that MGD011 achieves profound
clinical results that leads to significant uptake in a variety of
hematologic cancers. This scenario also assumes that
enoblituzumab achieves success in trials and is launched for the
treatment of multiple solid tumors.
$57
DCF
Base
$20
DCF
Bear
$11
DCF (Cash-based Value)
$150M in margetuximab peak, DART supplies bulk of value.
Margetuximab achieves modest success in studies and finds a
place as a niche therapy in refractory breast cancer patients.
MGD011 demonstrates benefit and achieves uptake for the
treatment of hematologic cancers.
Failure to commercialize proprietary and partnered
programs. Cash-based value, as MacroGenics generates no
product related revenues.
We are Equal-weight MacroGenics. MacroGenics is
one of the few pure play biotechs that has a broad
bispecific antibody platform. Though we believe
the platform has substantial potential, we would
like to see ample data before applying a higher
valuation.
DART bispecific antibodies could offer CAR-T like
efficacy in the treatment of cancer but in a more
manufacturable package. DARTs are broadly
applicable and can be implemented beyond
oncology, with efforts underway to treat both
autoimmune and infectious diseases.
Other programs offer support for valuation.
Though we have modest expectations for
margetuxemab, it is directed at a validated target
and could yield ~$150M in sales, providing
downside support. With respect to the B7-H3
targeted enoblituzumab, we think it could offer
greatest utility in combination with other
checkpoint inhibitors but would like to see more
data before increasing our expectations.
Key Value Drivers
Clinical data from DART bispecific antibodies in
2016 and 2017.
Updates for Phase III compound margetuximab
should bolster downside support to valuation.
Clinical updates to B7-H3, including potential PD-1
combination data.
Potential Catalysts
Dose expansion data from Phase I enoblituzumab
monotherapy trial in 2H16
Data from multiple Phase I trials evaluating DART
bispecific platform in 2H16 and 2017
Risks to Achieving Price Target
Pipeline failure for partnered or proprietary
programs
Negative safety or efficacy data from any of the
therapeutic programs under development
Poor data from other bispecific programs that
casts doubts on bispecifics as an overall approach
2
Investment Case
Summary & Conclusions
We are initiating coverage of MacroGenics with a $20 PT and an Equal-weight rating. MarcoGenics is
focused on developing biologic therapies for both oncology and autoimmune diseases. The company's key
technology involves optimizing the Fc-region of antibodies which potentially improves efficacy and the creation
of antibodies which can both target and recruit cells, a so-called bispecific approach. Its lead program is
margetuximab for HER2+ breast cancer and is in Phase III testing. Its bispecific platform is called DART, with lead
candidates for oncology. Overall, we believe that MacroGenics could derive most of its value from its DART
platform, but without initial derisking data , it is difficult for us to be more optimistic than our current estimates
of $500M+ in peak sales potential. And while we agree that margetuximab represents a lower risk clinical asset,
we remain less convinced that the peak opportunity is above $200M. Thus, with cash until 2018, there is plenty
of runway to achieve key milestones, but we await those milestones before offering greater value to the
platform.
Exhibit 1: Valuation: Bear to Bull Bridge
So u rce: Mo rgan Stan ley Research
Key Investment Points
1. DART platform the key upside driver, but we need initial data: Bispecifics are clearly a very interesting
approach to attacking cancer and MacroGenics has one of the more robust platforms. On the positive side, we
have some validation of the approach with Amgen's BiTE platform and its approved agent Blincyto. Further,
MacroGenics has been able to improve upon Amgen's liabilities (including short half-live, tolerability and
manufacturability) with much more usable DARTs. That said, the two most viable DARTs - MGD011 (a
CD3/CD19 similar to Blincyto and CAR-T therapy) and MGD006 (CD3/CD123) - have yet to provide any initial
data. Thus, while we believe those targets are likely to be active, it is hard for us to be more bullish ahead of
initial data. Importantly, if MacroGenics can prove out its platform with initial data from these two key DARTs,
the size of the overall opportunity is large. Thus even if we miss the initial upside from positive data, we believe
there would likely be significantly more upside potential with a derisked platform.
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Exhibit 2: MacroGenics's Clinical Stage Programs
So u rce: Co mp an y rep o rts an d Mo rgan Stan ley Research
2. Margetuximab has a validated target and is likely to offer some differentiation in late-line HER2+
Breast Cancer: Management has positioned margetuximab as a better HER2+ agent given its optimized Fc
binding domain. Based on the data to date, we believe that potential exists, though the head-to-head Phase III
study versus Herceptin will be key to proving that differential. However, given the dominance of Perjeta and
Herceptin in earlier lines of therapy and the potential for Herceptin biosimilars over the next few years, given the
data thus far, we think it is unlikely margetuximab could generate significant sales outside of the refractory
setting. We do however acknowledge that if very strong data exists in the refractory setting, margetuximab
could see use in earlier lines of therapy which offers the potential of $1B+ in sales, given that the US HER2+
market is ~$5B+ currently. We currently model ~$150M in margetuximab sales in our base case.
Exhibit 3: Currently Approved HER2 Therapies
3. B7-H3 remains an interesting target, but we need more data before assigning value: B7-H3 remains
interesting given that it could complement the efficacy seen across PD-1/PDL1 agents. That said, the initial data
presented at SITC in 2015 were not compelling with low response rates and no clear indication of response in
any one tumor type. For a traditional oncology agent, we would not hold out any hope with such low response
rates, but we do remember that PD-1/PDL1 had low response rates in some of their initial studies, so we await
4
durability data before declaring this asset as unlikely to succeed as a monotherapy. Further, given the potential
for synergistic (or at least additive) efficacy with PD-1, we think there is the possibility it could be used in
combination. Nonetheless, given the initial data we do not include B7-H3 in our base case and only include it in
our bull case.
Exhibit 4: Waterfall Plot for Phase I Enoblituzumab Data
So u rce: Co mp an y rep o rts
Key Catalysts
MacroGenics has a host of upcoming catalysts in the near term from across its clinical programs. In 2016 there
are multiple data updates including additional dose expansion data from the enoblituzumab Phase I trials and
initial data from the MGD006 DART and AML/MDS. Also, there is the possibility to see data from MGD011, the
CD19/CD3 DART partnered with J&J. Finally, initial data from MGD010 in healthy individuals for use in
autoimmune diseases is likely in 2016. Data from other DARTS is likely to be presented as we move into 2017.
Exhibit 5: MacroGenics Catalyst Calendar
So u rce: Co mp an y rep o rts an d Mo rgan Stan ley
5
Valuation
Our $20 price target includes ~$300M+ in (2023E) global revenue. We derive our price target from a
discounted cash flows (DCF) analysis that uses a WACC of 15% and 0% terminal growth.
Valuation Methodology: We prefer the use of a DCF analysis to value biotechnology companies. Given the
defined patent life for each product, we believe a DCF fully captures both the upfront investment period as well
as the long-term earnings power. While investors do look at biotechnology on a multiples basis (P/E), we prefer
a DCF as it is more rigorous and requires more explicit assumptions about the long-term prospects of a
company.
Discount Rate: We use a 10% discount rate for all commercial companies, a 12.5% rate for companies with
randomized PhII data, and a 15% rate for all development stage companies.
Terminal Growth Rate: We model explicit revenues through 2030E and assume 0% terminal growth from
2030E.
Revenue: We model a launch for margetuximab for the treatment of 3rd and 4th line HER2+ metastatic breast
cancer in 2019, achieving $27M in sales and growing to almost $150 million by 2025. We also incorporate
revenue from MacroGenics's MGD-011, assuming a launch in 2021 with $169M in sales during the first year
and growing to $945 million by 2025. We await additional data prior to including enoblituzumab and other
DARTs in our numbers.
Economics: MacroGenics's has several partnerships with pharmaceutical companies for which the company
would ultimately receive royalties upon receipt of marketing approvals. Key partnerships include Janssen for
MGD011, Takeda for MGD010, Servier for MGD006, MGD007 and a TBD third molecule and Boehringer
Ingelheim for up to ten undisclosed DARTs.
COGS: We model COGS as 30% of product revenue in the first year of product sales (2019E), gradually stepping
down to 19% of product revenue by 2023E.
Operating Expenses: We assume R&D of ~$92M in 2015E growing to $143M in 2023E. We assume SG&A of
~$21M in 2015E growing to $72M in 2023E.
Key Risks To Our Price Target Include: The major risks are (1) pipeline failure for partnered or proprietary
programs, (2) negative safety or efficacy data from any of the therapeutic programs under development. and (3)
poor data from other bispecific programs that casts doubts on bispecifics as an overall approach.
6
Debate 1: What is margetuximab worth?
Overview: Margetuximab, an anti-HER2 monoclonal antibody (mAb), is MacroGenics's most advanced
clinical program. The company recently initiated the Phase III SOPHIA trial examining the drug used as a
monotherapy in relapsed/refractory HER2+ metastatic breast cancer. It is also being studied in
combination with Merck's KEYTRUDA (pembrolizumab) for the treatment of relapsed/refractory gastric
cancer. Though the current focus is in later lines of therapy, positive data from these studies could allow
MacroGenics to potentially push toward earlier line usage and a greater revenue opportunity.
Street's take: Despite the crowded nature of the HER2+ space, the Street has shown a willingness to put
a premium on development stage HER2+ targeted therapies, with Puma Biotechology's neratinib being a
prime example. This is in large part due to the substantial multibillion market size. Nonetheless, with
Roche the dominate player in the HER2+ market and other assets like Novartis' Tykerb only achieving
~$150M in peak sales, many see significant hurdles to achieving significant sales outside of the
refractory setting.
Our take: Although HER2+ is a validated target, it is a relatively crowded space that could pose a
challenge for margetuximab to take share, offering little revenue upside unless the drug demonstrates a
distinct advantage in either safety, tolerability and/or efficacy. We do believe the mechanism of action as
well as the Phase I data are suggestive that margetuximab could demonstrate clinical benefit though with
Roche having distinct advantages in the market and biosimilar Herceptin on the horizon, our
expectations are modest.
Margetuximab versus other HER2+ agents
The human epidermal growth factor receptor 2 (HER2) pathway in cancer is associated with cell proliferation in
a variety of tumors. Mutations that lead to over-expression of this receptor contribute to tumor growth in
patients. With breast cancer, for example, it is estimated that between 10% and 34% of patients are considered
HER2+. In these patients, a therapy that inhibits the function of the HER2 pathway is a well established approach
for attacking the disease.
Herceptin (trastuzumab) – which was developed by Genentech (now owned by Roche) and initially won
marketing approval in 1998 – remains the therapy for cancer patients with HER2 overexpression. Over the
years, other HER2 targeted therapies such as Novartis' Tykerb (lapatinib), Roche/Immunogen's Kadcyla (adotrastuzumab emtansine) and Roche's Perjeta (pertuzumab) have been added to the landscape (Exhibit 6).
MacroGenics is developing margetuximab as a potentially best-in-class anti-HER2 monoclonal antibody.
7
Exhibit 6: Approved & Late Stage HER2 Targeted Therapies
So u rce: Co mp an y rep o rts & Mo rgan Stan ley Research
Margetuximab is an anti-HER2 antibody that was developed with Fc optimization to be a more potent
therapeutic than currently approved drugs in this drug class. The hypothesis is that the Fc optimization applied
to margetuximab could allow it to be more effective in HER2+ patients than current therapies, especially those
who have either failed prior HER2 targeted treatment or due to low expression are not eligible for currently
approved drugs in the first place.
HER2 monoclonal antibodies help mediate antibody dependent cellular cytotoxicity (ADCC). It is within the
ADCC that a HER2 inhibitor binds to the Fc region of the IgG receptor (FcγR) in order to increase control over
immune function and to potentially more effectively target the cancer. Roche's Herceptin remains the most used
HER2 therapy (US $6.8B sales 2015) and is dominant in the marketplace, being the drug of choice in first line
therapy. However, the therapy is more effective in some patients than others. It is estimated that ~15-20% of
patients express a CD16A receptor that has a higher-affinity FcγR. Such patients seem to gain greater benefit
from Herceptin – as measured by progression-free survival (PFS) – than the ~80-85% that have the lower
binding form of the receptor (Exhibit 7).
Exhibit 7: PFS Of Herceptin Patients Dependent Upon FcγR Region Binding Affinity
So u rce: Mu so lin o , et al., J Clin O n c, 2008 & Co mp an y rep o rts
MacroGenics designed margetuximab to have a crystallizable fragment (Fc) that is optimized to enhance binding
with key immune effector cell receptors. Specifically, the Fc region on the antibody is enhanced so that there is
increased binding affinity to activating receptors (CD16A) of immune effector cells and decreased affinity to
inhibitory receptors (CD32B). It is hoped that such modification would allow margetuximab to potentially
8
become a best-in-class therapy that could be effective in patients who do not initially respond to other antiHER2 agents or to patients who develop resistance as they progress on other therapies.
Margetuximab Clinical Program
Margetuximab is being investigated in HER2+ cancers. Specifically, the drug is being studied in metastatic breast
cancer as well as gastric cancer. MacroGenics completed a Phase I dose escalating trial that examined
margetuximab in several HER2-expressing cancers. The Phase III SOPHIA study, which is studying margetuximab
in 3rd/4th line therapy is underway. A Phase I/II program in combination with the anti-PD-1 inhibitor KEYTRUDA
(pembrolizumab) in relapsed/refractory gastric cancer is on track to initiate in 1Q16. There is also a Phase IIa
trial that is examining margetuximab in patients with lower overall HER2 expression patients that initiated in
2013. This trial has proceeded slowly and timing for a readout has not been disclosed.
Phase I trial in HER2 expressing cancers. The margetuximab Phase I trial was specifically designed to
demonstrate proof of concept (PoC) by 1) assessing safety, 2) determining maximum tolerated dose (MTD), 3)
characterizing pharmacokinetics (PK) and 4) determining if the drug is able to offer evidence of anti-tumor
activity in a variety of different cancers. The study was a dose escalating trial that assessed doses ranging from
0.1mg/kg weekly (qw) up to 6mg/kg as well as alternate dosing regimens of 10mg/kg every three weeks (q3w)
up to 18mg/kg q3w in refractory who were unresponsive to current therapies. Importantly, the study was
inclusive of patients that had HER+ expression based on immunohistochemistry (IHC) tests of 2/3+.
IHC test. An IHC test is utilized to determine the extent of HER2 expression. An IHC test
score of 0 represents no HER2 expression , while a 3+ score indicates a high concentration of
HER2 DNA in the cell. As a frame of reference, Herceptin is approved for use in patients who
score 2+ and 3+, although, it is more effective in the 3+ population. Both Perjeta and
Kadcyla, on the other hand, are approved for patients who are either IHC 3+ or FISH+
patients.
FISH test. A fluorescence in situ hybridization (FISH) test is used to map genetic material
within a sample of cells. Such tests can also be utilized to determine the level of HER2
expression.
Overall the Phase I data demonstrated that margetuximab is active in a heavily pretreated population. Not
surprisingly, the greatest activity was seen in the breast cancer population, with the majority of patients
demonstrating some level of tumor shrinkage (Exhibit 8). Also, the data suggests durability for margetuximab
as the trial achieved a median progression-free survival (PFS) of 24.1 weeks. As a comparison, the physician's
arm of the Phase III TH3RESA trial – which examined Kadcyla versus physician's choice in breast cancer patients
who have failed 2 or more prior therapies – achieved a 14.1 weeks PFS (Exhibit 9). A more apt comparison for
later line HER2 therapy might be Kadcyla, which achieved a PFS of ~41 weeks in its Phase III, although, this was
in a predominantly 2nd line population (Exhibit 10). With respect to safety and tolerability, margetuximab has a
strong safety and tolerability profile. The bulk of adverse events were Grade 1 or 2, with infusion-related
reactions, lymphopenia and fatigue being the most common (Exhibit 11).
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Exhibit 8: Phase I Margituximab Single Agent Activity
Exhibit 9: Phase I Durable Responses In Breast Cancer
10
Exhibit 10: PFS Data For Other Refractory HER2 Therapies
Exhibit 11: Margetuximab Adverse Events from Phase I
Another Phase Ib/II trial will examine margetuximab in even lower HER2 expessing patients. It will include those
who are IHC 1-2+ patients who are FISH-nonamplified. Beyond the breast cancer studies, MacroGenics is also
looking at the use of margetuximab in other HER2 expressing cancers. A Phase I/II that combines margetuximab
with Merck's PD-1 inhibitor KEYTRUDA for the treatment of gastric cancer would not only provide insight into
applicability into these patients but also it would help inform MacroGenic's decision on how they might try to
push margetuximab earlier in the treatment paradigm.
Phase III SOPHIA trial for MBC. Based on the activity in the margetuximab Phase I trial, MacroGenics elected
to initiate the pivotal Phase III SOPHIA trial. This trial, which began enrolling patients in 3Q15, is examining
margetuximab for the treatment of 3rd and 4th line relapsed/refractory metastatic breast cancer patients who
have HER2 amplification at either the 2+ or 3+ levels. The study will enroll 530 patients randomized on a 1:1
basis to take either margetuximab + chemotherapy or trastuzumab + chemotherapy. There are sequential
primary endpoints, with the first being PFS and the latter being overall survival (OS). Specifically, with respect to
PFS the trial is being powered at the 90% level to achieve a hazard ratio (HR) of 0.67 at 257 events. On the OS
endpoint, the study is powered to the 80% level to achieve an HR of 0.75 at 358 events (Exhibit 12). There will
be a futility analysis in 2017 with final data expected in 2018. Positive data from this trial would lead to
regulatory submissions in 2018 and potentially a 2019 FDA approval. We assume a European approval and
launch would lag by a year.
11
Exhibit 12: Phase III SOPHIA Margetuximab Plus Chemo Trial In Breast Cancer
Phase Ib/II study in combo with KEYTRUDA for relapsed/refractory gastric cancer. MacroGenics is
planning to initiate a Phase I/II study to evaluate margetuximab in combination with Merck's KEYTRUDA for the
treatment of relapsed/refractory gastric cancer. This trial is being conducted in collaboration, with drug being
supplied by Merck. It is estimated that 20% of gastric cancer patients are HER2+. In the Phase I margetuximab
trial – of which 30% of the enrolled patients had gastroesophageal cancer and have completed a median of two
prior therapies – anti-tumor activity was seen in approximately 9 of 20 patients (Exhibit 13) with a 10%
response rate (2 partial responses). Various studies in animal models seem to suggest that there could be
synergy between anti-HER2 activity and the innate immune system. Coupling this with the fact that KEYTRUDA
has demonstrated activity in gastric cancer, with the KEYNOTE-012 trial having enrolled 39 HER2- patients
achieving a 22% response rate, the margetuximab/KEYTRUDA combo could offer utility in these patients.
Exhibit 13: Phase I Single Agent Margetuximab Activity In Pretreated Gastric Cancer
The Phase Ib portion of the trial will be a dose escalation study that will examine 10-15mg/kg q3w
margetuximab in combination with KEYTRUDA, with between 3 and 6 patients in each cohort. The dose
expansion portion of the trial, will examine the combination of the therapies utilizing the maximum tolerated
dose of margetuximab. Patients in the trial will have to have failed prior Herceptin therapy as well as at least one
round of chemo and be IHC Her2 2+/3+ or FISH+ amplified. Patients must be immunotherapy naïve. The
primary endpoints are safety and tolerability as well as overall response rate (ORR). Secondary endpoints will
include PFS and OS as well as immunogenicity.
12
Exhibit 14: Phase Ib/II Margetuximab/KEYTRUDA Combo Trial In Gastric Carcinoma
Phase IIa MBC trial in low-expressing HER2 patients. Recall that one of the potential competitive
advantages of margetuximab versus other HER2 inhibitors is that Fc optimization could enable margetuximab to
have utility in patients with low HER2 expression levels. This could enable the therapy to have effectiveness in
patients in which earlier line HER targeted therapies have failed or in whom their use was contraindicated in the
first place. For example, Herceptin is indicated for use in IHC 2/3+ patients; although, it is less effective in 2+
patients. Perjeta and Kadcyla are only indicated to be used in high expressing IHC 3+ or FISH+ patients. This
Phase IIa trial, on the other hand, is examining the drug in IHC 1/2+/FISH-nonamplified patients. Results from
such a study could be intriguing as it could allow margetuximab to be used in a population not addressed by
any of the currently approved anti-HER2 therapies. Despite the intrigue of data in the low HER2 expression
population, this trial has proceeded slowly and has not been a point of emphasis for MacroGenics. The trial
began in 2013 and was to enroll 41 patients. The primary challenge to this study has been slow enrollment,
seemingly linked to strict inclusion criteria. IHC tests for low expression HER2 are not as reliable. This issue is
accentuated by the fact that IHC testing in this study is on a localized level. This differs from the Phase III SOPHIA
study that uses centralized testing, making the results more reliable.
Margetuximab value
Based on the data we have seen to date, margetuximab would appear to be an active therapy with potential to
be sucessful as a refractory agent. HER2 is a proven target that has been the target for an array of approved
cancer therapies. Margetuximab has also demonstrated activity in its Phase I clinical trial. Together these facts
would suggest that margetuximab has a good chance at finding a place in the treatment paradigm. The Phase III
SOPHIA trial is investigating the drug in a 3rd/4th line population. Such patients would have failed at least two
prior lines of therapies, with patients failing Herceptin/Perjeta/taxane in the first line and Kadcyla in second line.
This is a challenging population with a poor overall prognosis. Considering these patients have no other
approved treatment options, such patients could offer a niche opportunity and we believe approval in this
population is attainable.
Ultimately, although approval for 3rd/4th line disease offers a ~$150M revenue opportunity, the full potential of
margetuximab would be determined by 3 key items including (1) how early in the treatment paradigm is it
ultimately going to be used; (2) can margetuximab demonstrate incremental benefit versus current options in
low Her2 expressing patients, and (3) whether or not a material benefit can be provided for patients with tumors
other than breast cancer.
In our margetuximab projections, we have elected to take a conservative overall approach. To date, we believe
there is enough clinical benefit in relapsed/refractory HER2 breast cancer patients to believe that the Phase III
SOPHIA trial has a reasonable chance for success. Given that the SOPHIA data is to be released in 2018, we
would expect FDA approval and first revenues to occur in the U.S. in 2019. Our model assumes that Europe
would follow a year later.
13
Beyond the 3rd/4th line HER2 metastatic breast cancer population, we are taking a wait an see approach before
we determine how early and how broad the treatment opportunity will be. We include gastric cancer in our bull
case projections, but do not include low HER2 expressors or early lines of breast cancer therapy in our model.
We will await initial data from both the PhII and PhIII studies before valuing further opportunities.
In our margetuximab sales model (Exhibit 15 & Exhibit 16), we assume the drug is launched for 3rd and 4th
line metastatic breast cancer in the US in 2019 . With $10,000/year pricing assumption, we model $27M in sales
during its first year. It should achieve steady growth to $110M in sales by 2025. In Europe, we expect
margetuximab would enter the market one year later. At an estimated ~ $6,000/year price point with modest
share gains, we forecast $11M in 2020 growing to $37M by 2025. Peak sales for margetuximab in our base
scenario in 2025 would be ~$150M. Although we do not include gastric cancer in our base scenario, we have
presented this model in the bull case scenario for reference (Exhibit 17).
Exhibit 15: Margetuximab US Breast Cancer sales
14
Exhibit 16: Margetuximab EU Breast Cancer Sales
15
Exhibit 17: Margetuximab Gastric Cancer Sales - Bull Scenario
16
Debate 2: How much value should we assign to enoblituzumab?
Overview: Checkpoint inhibitors are viewed as one of the most exciting areas in cancer therapy. It is a
commonly held view that utilizing an individual's own immune system offers a compelling approach to
targeting the disease. Checkpoint inhibitors offer the potential to modulate the immune system for this
purpose. Although PD-1 and CTLA-4 inhibitors lead the way with Merck's KEYTRUDA (a PD-1 inhibitor
approved in 2014), Bristol-Myers Squibb's Yervoy (a CTLA-4 inhibitor approved in 2015) and Bristol's
Opdivo (a PD-1 inhibitor also approved in 2015), a variety of other targets that could lead to effective
therapies are under investigation including B7-H3. MacroGenics is the only company currently pursuing
B7-H3. The company is pursuing this target in a variety of tumors both as a monotherapy as well as in
combination with either KEYTRUDA or Yervoy. Recently, MacroGenics partner Servier elected to not
exercise its option with respect to enoblituzumab, making it a wholy owned molecule for the company.
Street's take: Investors has a great appetite for I/O driven targets. Indeed, investors have viewed targets
which could complement or imrpove I/O responses as great interest. Examples, include IDO inhibitors
and other checkpoint targets. B7-H3 is a checkpoint inhibitor and as such could have potential to
approach the success of other checkpoints such as PD-1s and CTLA-4s. Nonetheless, given the mixed
Phase I data, we think consensus is taking a wait and see approach with B7-H3.
Our take: Though B7-H3 offers potential utility as a target for immunotherapies, we would like to see
more data from the evolving Phase I/II clinical program prior to including the target in our revenue
forecast. The SITC data presented in November did demonstrate activity; however, we need more
evidence before being convinced of B7-H3 as a viable monotherapy. A B7-H3 inhibitor in combination
with either a PD-1 inhibitor or a CTLA-4 inhibitor is an intriguing combination but there is no clinical
experience to determine if the potential for synergy will ultimately provide material benefit. Also, such
combinations are likely to be associated with increased toxicity, the extent of which to this point is
unknown. Further, although Servier's decision to not exercise its option on the drug could create
additional upside for MacroGenics, the decision was made post SITC data and likely points toward some
doubts regarding the therapy.
Enoblituzumab and its mechanism
Enoblituzumab is a B7-H3 inhibitor that is currently being investigated as a potential treatment for a variety of
cancers. The drug targets the B7-H3 receptor, which is one of many checkpoint inhibitors that offer potential
utility as an immuno-oncology therapy for the treatment of cancer. Though PD-1/PDL1 inhibitors and CTLA-4
inhibitors have led the way in immuno-oncology, with multiple approvals to date (Merck's KEYTRUDA and
Bristol's Yervoy & Opdivo), there are a host of other drugs in development that targeting the immune system
(Exhibit 18). With enoblituzumab, MacroGenics is targeting B7-H3. The company has two other B7-H3 targeted
therapies in development including the DART bispecific MGD009 (B7-H3 and CD3) as well as a B7-H3 antibody
drug conjugate (ADC). It is hoped that targeting B7-H3 could offer similar anti-cancer benefits as other
checkpoints as well as providing a molecule that is potentially synergistic with other checkpoint inhibitor
treatments.
17
Exhibit 18: Immune Regulators
So u rce: Co mp an y rep o rts, adap ted fro m Pardo ll, et al., Natu re, Ap ril 2012
There are a variety of studies that suggest that B7-H3 plays a role in immune system inhibition. An in vivo
mouse study published in Nature Immunology in 2003 suggests that B7-H3 is a negative regulator of T-cell
proliferation that had preference for Th1. In this study, mice that were B7-H3 deficient had greater inflammation,
implying increased immune activity. A more recent study published in blood in 2015 suggested that B7-H3's
function as a negative immune regulator might reduce the risk of graft-versus-host disease (GvHD) in a
mismatched bone marrow transplantation model. This study also suggested a negative correlation for T-cell
response.
Though the bulk of the data is suggestive that B7-H3 is a negative immune system regulator, the discussion is
not entirely without controversy. Some earlier studies had indicated that B7-H3 could potentially have a costimulatory role with respect to the pathway. It should be noted that this effect was mostly seen in murine
models. If these studies held true, a stimulatory effect would counter the target's potential as a therapy. An
article printed in the European Journal of Immunology in 2009 entitled "B7-H3 is a potent inhibitor of human Tcell activation: No evidence for B7-H3 and TREML2 interaction specifically addressed this potential issue,
dispelling the notion that B7-H3 has a stimulatory effect in human cells. Based on the full body of evidence, it
would appear that the target is viable; although, clearly some risks remain.
B7-H3 is expressed on both primary and metastatic tumors. It is also expressed on the cancer stem cells and
18
within the tumor vasculature (Exhibit 19). This could allow it to directly kill tumor cells and kill cancer stem cells
– which could reduce the risk for cancer regrowth. It would also suggest interference with the tumor's
vasculature, essentially choking the tumor of its oxygen supply.
Exhibit 19: Potential Features to Exploit B7-H3 Therapeutically
Of course, having a potentially effective mechanism for targeting the pathway is only relevant in diseases in
which the receptor is expressed to a high enough level. An IHC test was applied across a wide range of cancers
to explicitly determine if B7-H3 expression is high enough to make this a relevant target (Exhibit 20). B7-H3 is
expressed in a broad array of cancers, with the bulk of IHC tests pointing toward 2+ or 3+ levels, again
suggestive that it is a viable target.
19
Exhibit 20: Cancers That Express B7-H3
Initial data offers some responses but efficacy sign not clear
MacroGenics is pursuing a clinical program for enoblituzumab, an Fc optimised anti-B7-H3 monoclonal
antibody. MacroGenics has initiated a Phase I/II study of enoblituzumab to determine its activity in several
cancers, specifically melanoma, prostate and other tumors. The first part of the trial was a dose escalation study,
before progressing into three expansion cohorts of 15 patients.
In 4Q14, the company modified this trial. The modified protocol specified a host of other cancers to be included
in the study including head and neck cancer, triple-negative breast cancer, renal cell carcinoma, melanoma and
either non-small cell lung cancer or bladder cancer, with each cohort including 16 patients. The protocol
modification also tweaked the dosing schedule with respect to enoblituzumab. In the new study, it would be
continuous weekly dosing as opposed to the 3 weeks on 1 off approach used when the trial started. A 4-week
gap during cycle 1 was also eliminated. Further, there were some modifications to the assessment. Now, new
lesions would not automatically be deemed as progression. Also, once progression is seen the new protocol has
patients maintained on therapy until after a confirmation scan. Lastly, the new protocol reduced the level of
steroid pre-medication.
This past November, MacroGenics presented data from this trial at the Society for Immunotherapy of Cancer
(SITC) meeting. The data included response data for each of the specific cancers. It also included tumor
responses for patients, stratified between both the newer and older study protocols (Exhibit 21). In examining
the data, it does appear to support the contention that enoblituzumab triggers anti-tumor activity. However, in
our view, to this point the benefit would appear modest, even in the patients that were enrolled under the
modified protocol. When drilling into the specific cancers, we see some activity across the full range of cancers –
a positive that points to the broad expression of B7-H3 in tumors. However, in each of the cancers the activity
seen seems modest. Melanoma had the best response, 5 of 18 of the heavily pretreated patients demonstrating
some tumor shrinkage. However, only 1/20 or 5% had an ORR (1 partial response). The drug appears to be safe
and well tolerated, with few grade 3/4 adverse events and only one episode of cytokine release syndrome (CRS)
(Exhibit 22). Given this data, we are cautious on the potential of enoblituzumab.
20
Exhibit 21: SITC Phase I Data for Enoblituzumab
Exhibit 22: Adverse Events From Phase I Enoblituzumab Trial
Looking forward, MacroGenics is going to continue assessing enoblituzumab as a monotherapy. However, we
ultimately believe that the drug's most promising trials could be those that are in combination with other
checkpoint inhibitors. Both PD-1 and CTLA-4 have an inhibitory effect on T-cell activation. Inhibiting these
pathways with drugs such as KEYTRUDA, Opdivo or Yervoy, allow for increased T-cell activity, which in turn
contributes to better outcomes for cancer patients. As B7-H3 inhibition should also lead to increased T-cell
activity, it can be hypothesized that such drugs would be complementary, leading to an even more pronounced
level of T-cell activation and better tumor fighting.
Overall, we believe the combination of B7-H3 inhibitors with either PD-1 or CTLA-4 inhibitors is intriguing,
though there are some key caveats. First, activity of a therapy is correlated to the expression levels of the various
21
receptors and are not beneficial to all patients.Though the expression of these receptors is higher in a variety of
cancers, their expression must overlap in patients to become additive. The other issue that could be a challenge
is with respect to safety and tolerability. Toxicities such as cytokine release syndrome – which is associated with
immunotherapies – are challenging. Combining two immunotherapies could not only be additive for efficacy
but also additive with respect to the frequency and severity of adverse events.
MacroGenics is conducting two combination studies evaluating enoblituzumab in combination with other
checkpoint inhibitors. One trial will examine the drug in combination with the CTLA-4 inhibitor Yervoy (Bristol)
and the other with the PD-1 inhibitor KEYTRUDA (Merck) (Exhibit 23). The company is likely to complete the
dose escalation for both of these trials in 2016. We expect data from these studies is likely in 2017. It should be
noted that although Merck is supplying KEYTRUDA for MacroGenics's margetuximab study, neither Merck nor
Bristol are supplying drug for these studies. Comparator drugs need to be bought on the market for these trials.
Exhibit 23: Enoblituzumab Phase I Trials
So u rce: Co mp an y rep o rts & Mo rgan Stan ley
Waiting on data before valuing B7-H3
While B7-H3 has significant scientific evidence to supports its potential as a therapeutic target, the current
clinical data are not impressive. Ultimately, scientific rationale needs to be supported by the data. Though the
monotherapy trials demonstrated activity for enoblituzumab, the responses were modest, with very few partial
responses generated.
Though we do NOT include enoblituzumab in our base case assumption, we have displayed our bull case
scenario for the drug for illustrative purposes (Exhibit 24 & Exhibit 25). In our bull scenario, we assume that
enoblituzumab generates the bulk its sales as a combination therapy with anti-PD-1 checkpoint inhibitors. We
assume the drug could be approved for non-small cell lung cancer (NSCLC), melanoma, and head & neck in
combo and as a monotherapy for prostate cancer. We assume US launch would occur in 2021 and in Europe in
2022. At $10,000/year pricing in the US and ~$7000 in Europe, this would yield $107M in sales during year 1
(2021), growing in excess of $1B by 2025.
22
Exhibit 24: Enoblituzumab US Sales- Bull Scenario
23
Exhibit 25: Enoblituzumab EU Sales - Bull Scenario
24
Debate 3: DART in early stages, but what is the potential?
Overview: Bispecifics are a therapeutic class of drugs which are able to target two (or in the case of
multi-specifics, more) receptors concurrently, potentially eliciting a therapeutic response. The class of
therapies has burgeoned in recent years, with historical challenges surrounding molecule stability, halflife and manufacturing being solved. While bispecifics have applicability across a wide variety of disease,
those targeting cancer and autoimmune diseases are most common. MacroGenics has developed DARTs,
a proprietary bispecific (and multispecific) platform that could allow the company to become a leader in
this class of drugs. Management has 5 DART drugs currently in clinical testing, with data from at least
two (and potentially three) in 2016.
Street's take: We believe consensus is most focused on the DART platform out of MacroGenics entire
portfolio of drugs. In particular, the DART platform has the biggest breakout potential of any of the core
development areas and could, if successful, achieve similar efficacy to that seen with T-cell therapy. While
there are many consensus views on the ability of bispecifics to achieve a therapeutic response, there is at
least some validation of the approach with Amgen's BiTE platform and its recent approval of Blincyto.
Our take: Bispecifics is a highly competitive field, yet the clinical data for the class are very nascent. In
particular, with the exception of Amgen, there is very little public data available for any other bispecifics.
This being said, the DART program appears to be one of the more promising platforms. DARTs
potentially offer flexibility of targeting, a long half life (with the more recently developed DARTs), and
improved manufacturability. Also with many DARTs set to enter the clinic, the platform offers
MacroGenics a wide variety of targets to interrogate given both target selection and drugs properties
could be key to eliciting a therapeutic response. Currently, we see MGD011 (the CD19/CD3 bispecific) as
the most interesting given the results generated with CAR-T therapies with the same targets.
How does DART compare to other bispecific platforms?
A bispecific (or multi-specific) monoclonal antibody (BsMAb) is a customized protein that essentially combines
two (or more) distinct antibodies, enabling the molecule to bind concurrently to two cellular receptors.
Bispecifics have the potential for broad applicability, though many of the initial targets are oncology related.
Bispecifics could be applied to treat a host of other disorders such as rheumatoid arthritis, age-related macular
degeneration or osteoarthritis. In oncology the typical approach is to design the bispecifics as immunotherapies
in which the molecule concurrently targets one receptor on the cancer cell and another receptor on a cytotoxic
cell (such as a T-cell, an NK cell or a macrophage) thus engaging the immune system to target the tumor.
MacroGenics has 5 DARTs currently in Phase I testing with another 2 DARTs nearing the clinic. Of the 5 currently
in Phase I testing, we are most interested in MGD006, a combination of CD123 and CD3 for AML/MDS patients
and MGD011, a combination of CD19 and CD3 for various blood cancers. While both these agents are
partnered, the former with Servier and the latter with J&J, MacroGenics retains significant commercial rights,
including North America in the Servier partnership and a US co-promote with J&J. For MGD006 we would
expect an initial clinical update in 2016 and for MGD011, while J&J is responsible for clinical disclosures, we
wouldn't be surprised to also see some initial data in 2016.
25
Exhibit 26: MacroGenic's Clinical Stage DARTs
DARTs
MacroGenics's Dual-Affinity Re-Targeting (DART) platform offers a highly versatile approach to developing
bispecific molecules. DARTs utilize a proprietary covalent linkage technology that addresses some of the key
concerns with respect to bispecific molecules. A typical DART bispecific is composed of two variable fragments
(Fv). Each Fv combines a VL (light chain) and a VH (heavy chain) domain pair, each with affinities that vary from
one side of the DART to the other, For example, in one terminus VL might have affinity for one receptor
(receptor Y) while VH might have affinity for another (receptor Z); however, the other terminus would be
alternated making a configuration of VLY - VHZ and VLZ - VHY . The two chains are covalently linked, which
MacroGenics believes is a more natural and comparable with the IgG molecule. Management expects this
linkage would create a bispecific where: (1) the potency of the bispecific is higher; (2) the potential for
immunogenicity is reduced and (3) there would be a reduced frequency of unwanted 'domain exchange' with
other molecules.
There are a variety of different types of DART structures (Exhibit 27). The evolution of DARTs has focused on
increasing stability, increasing flexibility, reducing risks safety and tolerability risks and increasing half life. As an
example, MGD006 (CD123 x CD3), an earlier generation 'simple' bivalent DART for AML/MDS utilizes a
redirected T-cell killing modality and has a half life on the order of hours. MGD011 (CD19 x CD3) on the other
hand is a bivalent MP3-DART that also utilizes T-cell directed killing when targeting B-cell lymphomas; however,
it has a half life on the order of days to weeks. This boost in half life can be the difference between requiring
continuous infusion or less frequent dosing.
26
Exhibit 27: Differences in DART structures
The DART program is also quite flexible in that it has multiple modalities (Exhibit 28). It can be utilized as an
immunotherapy by redirecting the actions of cytotoxic cells. Examples of this include MGD011 (CD19 x CD3) for
B-cell malignancies, MGD006 (CD123 x CD3) for AML/MDS, MGD007 (gpA33 x CD3) for colorectal cancer and
MGD009 (B7-H3 x CD3) for solid tumors, all of which are in Phase I studies. Another example is MGD014, an
HIV x CD3 DART, which was recently funded by the National Institute of Allergy and Infectious Disease (NIAID).
MGD014 is set to enter the clinic in 2017. DARTs can also be engineered to be potentially effective autoimmune
disease treatments by targeting the cytokine blockade or B-cell signaling modulation. MGD010 (CD32B x
CD79B) is one example which is in Phase Ia testing in healthy volunteers. A third, modality is the potential to
target more than one checkpoint inhibitor at a time. Examples include DARTs in preclinical development for PDL1 and B7-H3. Another and more unique application is to use the platform to target epitopes on a pathogen
such as a Dengue DART.
27
Exhibit 28: Examples of DART Targeting Approaches and Clinical Applications
DARTs versus other competitive approaches
Bispecifics are currently a very competitive development field given their potential applications. Based on our
research, there are at least 36 separate bispecific molecules that have (or are about to) enter clinical testing
(Exhibit 30 & Exhibit 31). Further, there are a multitude of distinct platforms (Exhibit 29 ). We also count over at
least 60 distinct clinical trials, despite many other candidates still being in preclinical development. The
bispecifics currently in development also offer a wide variety of therapeutic targets from oncology to eye
diseases.
28
Exhibit 29: Known Bispecific Platforms
Key Bispecific statistics
~40 distinct bispecifics in development
~28 Phase I trials ongoing
~35 Phase II trials ongoing
~15 trials with primary completion dates in 2016
~23 distinct bispecific combos for oncology
~10 distinct bispecific combos for non-oncology
29
Most unique target and indication: ABT-981 targeting IL-1α x IL-1β by Abbvie for
osteoarthritis
Exhibit 30: Bispecifics in Clinical Testing (Part 1)
So u rce: Co mp an y rep o rts, Mo rgan Stan ley Research
30
Exhibit 31: Bispecifics in Clinical Testing (Part 2)
So u rce: Co mp an y rep o rts, Mo rgan Stan ley Research
History and Challenges with Bispecifics
Despite the excitement, bispecifics are not new. In fact, this approach has been under investigation for over 30
years. In 2001, Medarex became the first company to put a bispecific into Phase III trials. In 2009, privately held
Trion Pharma became the first company to obtain regulatory approval for a bispecific, with Removab
31
(catumaxumab targeting CD3 x EpCAM x FcyRs) gaining European approval for malignant ascites. In 2014,
Amgen and its BiTE program obtained FDA approval for BLYNCYTO (blinatumomab targetting CD19 x CD3) for
Acute Lymphoblastic Leukemia (ALL). In other words, despite the substantial interest and potential of bispecifics,
successes have thus far been limited. Although the potential is substantial, there are inherent challenges in
bispecific development that have limited the clinical success with this class of molecules. One of the key reasons
we see promise in the MarcoGenics platform is that we believe it has the potential to overcome many of the
historical hurdles in the class.
Key Milestones In Bispecific Development
2001 - Medarex starts first Phase III study with a bispecific targeting HER2 (MDX-210)
2009 - Trion Pharmaceutics receives the first regulatory approval for a bispecific with EU approval of
Removab
2014 - Amgen receives the first US approval for a bispecific with its approval of Blincyto
Historically, bispecifics have had several challenges that have prevented them from realizing their ultimate
potential. Bispecifics have tended toward being larger, more complex and somewhat unwieldy molecules
relative to typical antibodies. Other issues surrounding bispecifics include general instability, lack of solubility
and low expression. These factors have led to challenges with half life and administration.
The bispecific universe can be roughly divided into two overall categories, those with a crystallizable fragment
(Fc) and those without. Amgen's BiTE, platform lacks an Fc region. Though this characteristic has benefits such as
being a smaller molecule that can more easily penetrate a tumor, it also is associated with challenges. Amgen's
BLYNCYTO, for example, has a very short half life and needs to be administered via continuous infusion from a
portable mini-pump that must be carried for 28 straight days. MacroGenics's MGD006 lacks an Fc region and
similarly has a short half life. Subsequent DARTs have managed to push the half life from the order of hours to
days and weeks.
Other challenges associated with bispecifics include a toxicity profile common with immunotherapies, including
cytokine release syndrome and neurotoxicity. The propensity for such a toxicity could be magnified, especially as
combinations of immunotherapies are attempted. Also important is that bispecifics have been historically hard
to manufacture. Purity of the yield product has been a challenge, with inefficient manufacture contributing to
unwanted clinical effects. Many of the characteristics of DARTs have been specifically tailored to increase
potency, stability, manufacturability and half life while not sacrificing safety. It would appear that DARTs
represent a compelling option based on the science; although, we await data from the clinic to validate this
contention.
DARTs versus CAR-T
Given that most of the oncology bispecifics target similar surface antigens as CAR-T treatments, bispecifics are
viewed as a potential way to achieve the benefits of CAR-T without the unique manufacturing required with the
competing approach. Both bispecifics and chimeric antigen receptor (CAR) technology as applied in cancer
therapy are what would be termed as active immunotherapies. An active immunotherapy takes a cytotoxic cell
and redirects it to fight a tumor. This differs from a passive immunotherapy such as a checkpoint inhibitor, an
antibody or a cytokine that triggers the immune system but does not directly play a role in the immune
response.
As discussed earlier, bispecifics in cancer therapy engage a cancer cell and a cytotoxic cell (often a T lymphocyte)
in order to bring the two together and harness the cancer killing strength of the immune cell. With CAR-T, the
specificity of an antibody is engineered into a receptor which is then grafted onto the surface of a T-cell. These
32
cells are then introduced to the patient, thereby leading to adoptive T-cell therapy. Major players in the CAR
space include Juno Therapeutics, Kite Pharma, Bluebird Bio, Cellectis and Bellicum Pharmaceuticals. Both
bispecific and CAR-T approaches stimulate and guide the immune system to specifically target tumor cells.
Clinical and preclinical studies to date suggest that both approaches are highly sensitive and can successfully
treat tumors.
To date, there is not enough information available to determine which technology is preferred over the other. In
particular, the approved bispecific from Amgen has major limitations with dosing which currently make CAR-T
more attractive. However, if DARTs could achieve more favorable dosing with similar efficacy to CAR-T, DARTs
would obviously become more attractive. However, as there is currently only clinical data on CAR-T, a
conclusion will have to wait for initial DART data. Potentially both approaches will find a place in the treatment
paradigm. A journal article entitled, "A sensitivity scale for targeting T cells with chimeric antigen receptors
(CARs) and bispecific T-cell engagers (BiTEs)," published in OncoImmunology in September, 2012 attempts to
examine both approaches in order to provide some insight into this topic by conducting a preclinical analysis
where both approaches were assessed versus a tumor-specific glycopeptide isoptope. While both CAR T and
bispecifics were highly sensitive in the analysis, CAR technology was overall considered more sensitive to low
concentrations of tumor epitopes. The authors contend that CAR T lends itself to be most effective when
targeting tumors with low concentration. Amgen's BiTE technology, on the other hand, might be a better choice
when a tumor epitope is over expressed as compared with normal tissue. Clearly, this analysis was somewhat
limited in that it is not in a clinical setting and also that there are many distinct approaches to CAR and
bispecifics that would lead to variability in results. For example, BiTEs are one of many different bispecific
platforms and might not be representative of other technologies. Also, there will be differences in safety and
tolerability and administration profiles between CAR T and bispecifics that would impact utilization. This being
said, it would appear that both approaches will have a place in the therapeutic landscape and it would be too
simplistic to view the competition as a zero-sum game.
DART has a plethora of targets
As we have previously discussed there are many potential bispecific targets. As such, MacroGenics is pursing
many targets with management publicly highlighting seven DARTs targets on which it has at least filed an IND
on five of the targets (Exhibit 32). These DARTs pursue a variety of different indications by targeting a multitude
of targets.
Exhibit 32: Publicly Available DART Targets
MGD011 (JNJ-64052781)
This DART is partnered with Janssen (a subsidiary of J&J) and targets CD19 on the surface of B-cells for treating
malignancies and the CD3 receptor on the T-lymphocyte. Given the precedent provided by CAR-T with the same
targets, this is potentially the least risky and most interesting of the DARTs. Further, the targets are the same as
33
Amgen's BLYNCYTO, which has already received FDA approval thereby offering some level of validation. This
molecule is in a Phase I dose escalation trial which began in mid-2015. The trial begins with accelerated titration
using a single subject cohort before moving to a 3+3 design after the first 2 related Grade 2 adverse events or
one Grade 3 AE. Dose limiting toxicity will be assessed on day 28. We believe it is possible to see some interim
data from this dose escalation study in 2016, but acknowledge it could take until 2017 to see final data. Though
MacroGenics out-licensed this product to Janssen (who controls the development and thus the lack of clarity on
when we could see initial data) the company has the option to fund a portion of late stage clinical in exchange
for a profit share in the US. Ex-US, MacroGenics receives double-digit royalties on net sales.
Considering that Amgen's Blyncyto has the same targets and is targeted toward the same indications as
MGD011, a comparison between the two molecules as well as a comparison of DARTs versus BiTEs is useful.
Blyncyto (blinatumomab) was developed utilizing the Bi-specific T- cell Engager (BiTE) platform by Micromet,
which was acquired by Amgen in 2012. BiTEs essentially string together four chains (2 VL and 2 VH) in order to
give it the specificity required to bind to two separate antigen receptors. BiTE technology offers several attractive
characteristics including (1) their small size brings the effector cell closer to the target; and (2) its structure
prevents unwanted systematic activation of the effector cells. MGD011 places the 2 VL and VH chains with
differing binding affinities on two separate polypeptide changes, with a disulfide bridge connecting them. Aside
from having a longer half life and less arduous administration as compared to Blyncyto, which has 28-day
continuous infusion, preclinical data suggests that DARTs could ultimately be more effective. DARTs seem to be
able to more efficiently cross-link the CD19 B-cell receptor with the CD3 T-cell receptor. This could lead to
greater cytotoxicity, making the DART potentially more effective as a tumor therapy. As Exhibit 33
demonstrates, a preclinical study published by Moor et al in the April 28, 2011 edition of blood demonstrates
increased cytotoxicity for the DART versus the BiTE.
Exhibit 33: Preclinical Comparison of DART vs BiTE Platforms
MGD006
This DART targets CD123 and CD3 and is partnered with Servier who exercised its option in September 2014.
This molecule was designed with a simple DART format and is being developed to treat hematologic
malignancies including acute myeloid leukemia (AML) and myelodysplastic syndromes (MDS). MGD006 is in a
Phase I dose escalation trial. The study will dose escalate a single patient cohort with 4 week cycles before
moving to a second dose escalation stage that takes a 3+3 interpatient format, also using 4-week cycles. The
third stage of the study will contain two expansion cohorts of 24-patients, with one looking at the drug in
relapsed/refractory AML and the other in int-2/high risk MDS. Given that this molecule has a simple DART
34
format, it should be noted that it has a considerably shorter half life than other prominent DARTs. As such, the
drug is administered with continuous intravenous infusion (IV) four days on followed by 3 days off. The trial,
which will look at safety and tolerability, determine a MTD, characterize PK as well as looking for early evidence
of efficacy, should have data in 2016. Upon receiving approvals, Servier would be responsible for paying low
double-digit to mid-teen royalties on its territories, which includes all territories not assigned to MacroGenics.
MacroGenics maintains rights in the US, Canada, Mexico, Japan, Korea and India .
MGD007
This DART targets gpA33 and CD3 and is currently in development for the treatment of colorectal cancer.
Servier maintains an option on this drug for all territories except US, Canada, Mexico, Japan, Korea and India . A
decision on whether or not to opt in would likely occur at some point after data from the Phase I trial are
released. Payout for MGD007 payout parallels that for MGD006. The Phase I trial for MGD007 examines two
dose escalating intravenous infusion dose groups with a 3+3+3 design, with one using weekly dosing and the
other using tri-weekly dosing. These will be followed by expansion cohorts. The trial's objective is to examine
safety and tolerability, determine MTD, characterize PK and look for evidence of activity (using the RECIST or
irRECIST criteria) for MGD007 for the treatment of relapsed/refractory metastatic colorectal cancer. We expect to
see initial data from this study in 2016 with an update in 2017.
MGD010
This DART targets CD32B and CD79B for the treatment of autoimmune diseases. Takeda has an option to opt
into this drug following a Phase Ia trial. The structure is similar to the Janssen deal with MacroGenics
maintaining a double digit royalty on global net sales and maintaining a right to opt into a co-promote in the
US. MGD010 is initially being investigated in a Phase Ia trial in healthy volunteers. The study will enroll eight
patients in several dose cohorts (6 on drug, 2 on placebo). This trial will be examining MGD010 for its potential
application for signal modulation. We would expect to see data from this study in 2016 with next steps likely in
2017.
MGD009
This is the fifth DART being investigated in a Phase I trial. This molecule targets B7-H3 and CD3 and is wholly
owned by MacroGenics. It is currently being investigated in a Phase I dose escalating trial in a variety of solid
tumors including NSCLC, bladder cancer, squamous cell carcinoma head & neck cancer, mesothelioma, and
melanoma (16 patients per cohort). The trial uses a 3+3+3 dose escalating design. This is an intriguing molecule
in that it specifically targets B7-H3, an area of emphasis for MacroGenics with enoblituzumab. While we
acknowledge our optimism on B7-H3 is limited given the initial single agent activity, given that this agent also
recruits T-cells it will allow an inherent test of a potential combination with a PD-1 type combination. Preclinical
data does point toward potential activity, with cytotoxic activity for MGD009 being higher than a control dart in
several cancers (Exhibit 34)
35
Exhibit 34: Preclinical Data on MGD009
Other DARTs
There are several other DARTS of interest that are not yet in the clinic. MGD013 is MacroGenics's first bispecific
molecule that specifically targets two checkpoint inhibitors: PD-1 and LAG3. Given the already aggressive plays
being made by pharmaceutical players to combine immunotherapy drugs, it is natural for bispecific companies
to implement the same approach but using one molecule. This molecule will enter the clinic in 2017. Also
entering the clinic in 2017 is another unique DART, MDG014. MGD014 is being developed to treat HIV, targeting
both the HIV virus and the CD3 receptor on T-cells.
How much is it worth?
We view the DART platform as potentially generating the most value for MacroGenics. This bispecific platform
has the potential to target an array of billion-plus opportunities. The challenge when assessing the franchise, is
to determine the value of something that has yet to be validated with clinical data. With this in mind, we have
decided to value the DART platform by assessing what we consider to be the least risky asset: MGD011. This
molecule was selected as it targets CD3 and CD19, like Blyncyto and CAR-T therapy. With the targets validated
by a currently marketed therapy, we see MGD011 having a reasonable chance to succeed. Also given that this
molecule has superior characteristics (i.e., easier administration given its longer half-life) versus Amgen's drug,
MGD011 would likely be more successful if it were to be launched.
We model FDA approval and launch for MGD011 in 2021 in the US and 2022 in Europe. We assume the drug is
approved for use in multiple hematologic malignancies including acute lymphoblastic lymphoma (ALL), diffuse
large B-cell lymphoma (DLCBC), follicular lymphoma (FL) and chronic lymphocytic leukemia (CLL). We assume
pricing of $10,000/year in the US and $7,000/year in Europe similar to the assumptions we applied for
margetuximab and enoblituzumab; although, this might be conservative given that MGD011 is a bispecific and
could command higher reimbursement. In the first year of launch, we model $170M in sales growing to $945M
in sales by 2025. MGD011 is partnered with J&J's Janssen, with MacroGenics receiving a double digit royalty.
We apply a 20% royalty to these sales estimates, yielding royalty revenue of $34M in 2021, growing to almost
$190M in 2025.
36
Exhibit 35: MGD011 US ALL Sales
So u rce: Mo rgan Stan ley
37
Exhibit 36: MGD011 EU ALL Sales
38
Exhibit 37: MGD011 US DLCBC Sales
Exhibit 38: MGD011 EU DLCBC Sales
39
Exhibit 39: MGD011 US FL Sales
40
Exhibit 40: MGD011 EU FL Sales
41
Exhibit 41: MGD011 US CLL Sales
Exhibit 42: MGD011 EU Cll Sales
42
43
Exhibit 43: MacroGenics Income Statement
44
Exhibit 44: MacroGenics Balance Sheet
45
Exhibit 45: MacroGenics Statement of Cash Flows
46
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As of January 29, 2016, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in
Morgan Stanley Research: Amgen Inc., DBV Technologies SA, GW Pharmaceuticals PLC, ImmunoGen Inc., Ophthotech Corp.
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Pharmaceuticals Inc, Regenxbio Inc, Ultragenyx Pharmaceutical Inc.
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Global Blood Therapeutics Inc, GW Pharmaceuticals PLC, Ironwood Pharmaceuticals, Inc., MacroGenics Inc, Ocular Therapeutix Inc, Portola
Pharmaceuticals Inc, Regeneron Pharmaceuticals Inc., Regenxbio Inc, Ultragenyx Pharmaceutical Inc.
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Innoviva Inc, Intercept Pharmaceuticals Inc, Ironwood Pharmaceuticals, Inc., Juno Therapeutics Inc, Keryx Biopharmaceuticals Inc, MacroGenics Inc,
Ocular Therapeutix Inc, Ophthotech Corp, Portola Pharmaceuticals Inc, Regeneron Pharmaceuticals Inc., Regenxbio Inc, Relypsa, Inc., Ultragenyx
Pharmaceutical Inc, Versartis, Inc., Vertex Pharmaceuticals.
Within the last 12 months, Morgan Stanley has received compensation for products and services other than investment banking services from Amgen Inc.,
Biogen Inc, Celgene Corp, Gilead Sciences Inc., Vertex Pharmaceuticals.
Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship
with, the following company: Acceleron Pharma Inc, Akebia Therapeutics Inc, Alexion Pharmaceuticals, Amgen Inc., Biogen Inc, Bluebird Bio Inc, Celgene
Corp, Cempra Inc, Chimerix Inc, DBV Technologies SA, Galapagos NV, Gilead Sciences Inc., Global Blood Therapeutics Inc, GW Pharmaceuticals PLC,
ImmunoGen Inc., Infinity Pharmaceuticals Inc, Innoviva Inc, Intercept Pharmaceuticals Inc, Ironwood Pharmaceuticals, Inc., Juno Therapeutics Inc, Keryx
Biopharmaceuticals Inc, MacroGenics Inc, Ocular Therapeutix Inc, Ophthotech Corp, Portola Pharmaceuticals Inc, Regeneron Pharmaceuticals Inc.,
Regenxbio Inc, Relypsa, Inc., Ultragenyx Pharmaceutical Inc, Versartis, Inc., Vertex Pharmaceuticals.
Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the past has
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Biogen Inc, Bluebird Bio Inc, Celgene Corp, Cempra Inc, Chimerix Inc, DBV Technologies SA, Galapagos NV, Gilead Sciences Inc., Global Blood
Therapeutics Inc, GW Pharmaceuticals PLC, ImmunoGen Inc., Infinity Pharmaceuticals Inc, Innoviva Inc, Intercept Pharmaceuticals Inc, Ironwood
Pharmaceuticals, Inc., Juno Therapeutics Inc, Keryx Biopharmaceuticals Inc, MacroGenics Inc, Ocular Therapeutix Inc, Ophthotech Corp, Portola
Pharmaceuticals Inc, Regeneron Pharmaceuticals Inc., Regenxbio Inc, Relypsa, Inc., Rockwell Medical Inc, Ultragenyx Pharmaceutical Inc, Versartis, Inc.,
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Global Stock Ratings Distribution
(as of January 31, 2016)
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47
definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy recommendation; we correspond
Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively.
COVERAGE UNIVERSE
STOCK RATING CATEGORY
Overweight/Buy
Equal-weight/Hold
Not-Rated/Hold
Underweight/Sell
TOTAL
INVESTMENT BANKING CLIENTS (IBC)
COUNT
% OF TOTAL
COUNT
% OF TOTAL
IBC
% OF RATING
CATEGORY
1206
1432
79
658
36%
42%
2%
19%
323
331
9
86
43%
44%
1%
11%
27%
23%
11%
13%
3,375
749
Data include common stock and ADRs currently assigned ratings. Investment Banking Clients are companies from whom Morgan Stanley received
investment banking compensation in the last 12 months.
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48
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49
INDUSTRY COVERAGE: Biotechnology
COMPANY (TICKER)
RATING (AS OF)
PRICE* (02/24/2016)
O (08/13/2015)
O (09/09/2015)
O (11/16/2015)
O (08/13/2015)
E (01/29/2016)
E (10/05/2015)
O (02/17/2016)
U (08/13/2015)
U (08/13/2015)
E (08/13/2015)
$26.40
$7.45
$17.21
$43.65
$112.45
$3.50
$7.99
$16.78
$8.66
$6.75
O (10/01/2015)
O (12/14/2015)
O (03/26/2014)
E (12/07/2015)
E (03/26/2014)
U (02/22/2016)
O (09/15/2015)
O (06/08/2015)
E (10/01/2015)
O (09/08/2015)
U (09/21/2015)
O (09/21/2015)
U (08/14/2014)
E (08/14/2014)
E (01/13/2015)
E (02/25/2016)
O (08/14/2014)
O (08/14/2014)
E (10/01/2015)
O (10/12/2015)
E (07/27/2015)
O (10/01/2015)
$141.97
$147.11
$257.22
$52.37
$102.08
$5.03
$26.03
$41.26
$89.36
$14.96
$7.30
$6.10
$11.44
$8.84
$33.99
$15.74
$47.09
$28.85
$393.63
$12.97
$62.74
$86.77
Andrew S Berens
Acceleron Pharma Inc (XLRN.O)
Akebia Therapeutics Inc (AKBA.O)
Cempra Inc (CEMP.O)
GW Pharmaceuticals PLC (GWPH.O)
Intercept Pharmaceuticals Inc (ICPT.O)
Keryx Biopharmaceuticals Inc (KERX.O)
Ocular Therapeutix Inc (OCUL.O)
Relypsa, Inc. (RLYP.O)
Rockwell Medical Inc (RMTI.O)
Versartis, Inc. (VSAR.O)
Matthew Harrison
Alexion Pharmaceuticals (ALXN.O)
Amgen Inc. (AMGN.O)
Biogen Inc (BIIB.O)
Bluebird Bio Inc (BLUE.O)
Celgene Corp (CELG.O)
Chimerix Inc (CMRX.O)
DBV Technologies SA (DBVT.O)
Galapagos NV (GLPG.O)
Gilead Sciences Inc. (GILD.O)
Global Blood Therapeutics Inc (GBT.O)
ImmunoGen Inc. (IMGN.O)
Infinity Pharmaceuticals Inc (INFI.O)
Innoviva Inc (INVA.O)
Ironwood Pharmaceuticals, Inc. (IRWD.O)
Juno Therapeutics Inc (JUNO.O)
MacroGenics Inc (MGNX.O)
Ophthotech Corp (OPHT.O)
Portola Pharmaceuticals Inc (PTLA.O)
Regeneron Pharmaceuticals Inc. (REGN.O)
Regenxbio Inc (RGNX.O)
Ultragenyx Pharmaceutical Inc (RARE.O)
Vertex Pharmaceuticals (VRTX.O)
Stock Ratings are subject to change. Please see latest research for each company.
* Historical prices are not split adjusted.
© 2016 Morgan Stanley
50

MacroGenics Inc: Bispecifics Hold Promise, but

Transcription

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