MGNX - MacroGenics: No Near-Term Catalysts

Summary

• MacroGenics shut down a trial and reduced its workforce.
• The B7-H3 program seems to be in a lot of trouble.
• I will avoid this stock.

Since my February coverage, MacroGenics ( MGNX ) is down 64%. The company has a drug called margetuximab approved in patients with metastatic HER2+ breast cancer in a late line setting. Margetuximab was approved in 2020, but has failed to succeed in the market mainly because it competes with herceptin (trastuzumab), Roche's breast cancer giant. Although a direct comparison trial called SOPHIA showed PFS improvements with margetuximab over trastuzumab, those, as I discussed in my earlier article, did not translate to OS improvement except in a small subgroup of patients carrying a CD16A 158F allele - an OS improvement of 6.8 months in this subgroup compared to just 1.7 months in the general population. That is part of the reason why the stock hasn't fared too well lately.

The other reason, as I also discussed in my other article, is a toxicity problem with its lead candidate MGC018. MGC018 is in a phase 2 proof of concept trial targeting a basket of cancers - mCRPC, NSCLC, SCCHN, Melanoma. SSCHN is squamous cell carcinoma of the head and neck. There were a large number of treatment emergent adverse events or TEAEs, there were two serious adverse events or SAEs, and one particularly disturbing grade 4 neutropenia, which brought the stock down.

Besides this, Daiichi is developing a B7-H3 antibody called DS-7300 which published data from a phase 1/2 trial in metastatic lung, prostate or esophageal cancer, including for mCRPC at ASCO this year, and at ESMO . If you read through the two papers cited above, you will note that at least in these indications, the safety profile is more robust than what we saw for MGNX drugs, see below.

B7-H3 produces all the characteristics of a proper oncology target. It is overexpressed with high frequency in numerous cancer types. It is present in very low levels in normal tissues. It has a distinctive and well-studied tumorigenic effect. However, a problem with the B7-H3 approach is that it is still an orphan ligand, and its receptor has not been identified. Without such a receptor, it is difficult to develop blocking antibodies. Current strategies are basically twofold; genetic B7-H3 silencing, and "antibody-based strategies utilizing distinct effector mechanisms to target B7-H3-expressing cancer cells." MGC018, of course, uses the latter strategy.

The toxicity problem has come back to bite the company after the SSCHN trial was halted in July due to fatalities. This wasn't for MGC018 but for enoblituzumab, which is another B7-H3 adc. An internal safety review found "seven deaths potentially linked to hemorrhagic events in both arms of the trial, with one incident possibly related to the study treatment." The study was shut down; this will surely impact their other B7-H3 candidate. On the impact on other B7-H3 candidates, Seeking Alpha says:

Acknowledging that enoblituzumab was not a key contributor to its previous valuation BMO analysts argue: "…the update has eroded our confidence in MGNX's ability to address the unresolved safety issues" with an antibody-drug conjugate called B7-H3. Earlier, in 2020, the company similarly stopped another B7-H3 program, MGD009.

As a result of the trial stoppage, the company laid off 15% of its workforce. They did put their game face on as they were doing this. According to Fierce :

MacroGenics doesn't believe the shuttered trial bears weight on its other B7-H3-directed programs or its ability to potentially develop enoblituzumab in other indications. The biotech said enoblituzumab's effect on prostate cancer should be further evaluated, citing data from an ongoing phase 2 trial being conducted by Johns Hopkins University in patients with localized prostate cancer.

Other analysts have raised concern about the reduced dosage of MGC018 in light of toxicity issues, which may reduce efficacy readings from the phase 2 trial. Overall, with lack of major catalysts, poor prospects of its approved drug and problems with its pipeline, MGNX does not look good. Their nearest major catalyst now is in end-2024 - which is only the interim data from the phase 2 portion of the Tamarack study of MGC018.

Financials

MGNX has a market cap of $216mn. Cash, cash equivalents and marketable securities as of June 30, 2022, were $133.7 million, excluding the $34.5 million in payments received from collaboration partners in July 2022. Research and development expenses were $51.7 million while selling, general and administrative expenses were $13.7 million. The company says that their cash runway extends to 2024.

Bottomline

MGNX looks highly un-investible right now. Like I said, they have no near term catalysts, margenza sales are poor, and their B7-H3 program is in trouble. I will firmly avoid.

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