{"url_path":"/sec/mgnx/10-q/2026/item-2","section_key":"item-2","section_title":"Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-13","source_url":"https://www.sec.gov/Archives/edgar/data/1125345/0001125345-26-000038-index.html","accession_number":"0001125345-26-000038","cik":"0001125345","ticker":"MGNX","issuer_name":"MACROGENICS INC","edgar_url":"https://www.sec.gov/Archives/edgar/data/1125345/0001125345-26-000038-index.html","primary_entity_key":"0001125345","primary_entity_name":"MACROGENICS INC"},"word_count":2806,"has_tables":true,"body_markdown":"ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n\nThe following discussion of our financial condition and results of operations is based upon our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q, which have been prepared by us in accordance with U.S. generally accepted accounting principles (GAAP), for interim periods and with Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended. This discussion and analysis should be read in conjunction with these unaudited consolidated financial statements and the notes thereto as well as in conjunction with our audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. \n\nOverview\n\nWe are a clinical-stage biopharmaceutical company focused on developing innovative antibody-based therapeutics for the treatment of cancer. We generate our pipeline of product candidates from our proprietary suite of antibody technology platforms. We are currently developing therapeutics utilizing multiple modalities, including antibody-drug conjugates (ADCs) and multi-specific antibodies (which we refer to as DART and TRIDENT molecules). The combination of our technology platforms and antibody engineering expertise has allowed us to generate promising product candidates – three of which have received marketing approval by the U.S. Food and Drug Administration (FDA) – and to enter into several strategic collaborations with global biopharmaceutical companies. These collaborations have provided us with over $1.6 billion of non-dilutive funding since our inception in 2000, and have enabled us to leverage the additional expertise of our collaborators to advance the development of multiple partnered product candidates. In addition, we operate a commercial-scale cGMP antibody manufacturing facility in our Maryland headquarters. We have utilized the facility to support our clinical programs and we also provide outsourced contract development and manufacturing services to our collaborators and other third parties for commercial and clinical products to offset a significant portion of the operating costs of this facility. See Note 12, Subsequent Events, of the Notes to the Consolidated Financial Statements for additional information regarding the sale of the assets and liabilities related to our manufacturing operations.\n\nWe currently have three proprietary product candidates in clinical development: lorigerlimab, a bispecific DART molecule that targets checkpoint inhibitors PD-1 and CTLA-4; MGC026, an ADC that targets B7-H3 and delivers a novel topoisomerase I inhibitor (TOP1i)-based linker-payload, and MGC028, an ADC that targets ADAM9 and delivers a novel TOP1i-based linker-payload. We are also actively developing preclinical-stage ADC and next generation T-cell engager programs.\n\nWe and our partners are developing or commercializing product candidates for which we retain certain economic rights. These include three products approved by the FDA: ZYNYZ (retifanlimab-dlwr), an anti-PD-1 monoclonal antibody (mAb) that we out-licensed; MARGENZA (margetuximab-cmkb), an anti-HER2 mAb that we sold to a partner; and TZIELD (teplizumab-mzwv), an anti-CD3 mAb that we sold to a partner. We are also collaborating with Gilead Sciences, Inc. (Gilead) on the development of MGD024, a bispecific DART molecule targeting CD123 and CD3 that utilizes our next-generation T-cell engager technology, as well as two additional undisclosed pre-clinical DART and TRIDENT molecule development programs\n\nOur operations to date have concentrated on developing our technology platforms, identifying potential product candidates, undertaking preclinical studies, conducting clinical trials, developing collaborations, operating manufacturing facilities, business planning and raising capital. We began generating revenues from the sale of products in 2021. We have financed our operations primarily through the public and private offerings of our securities, and collaborations with other biopharmaceutical companies. Although it is difficult to predict our funding requirements, we anticipate that our cash, cash equivalents and marketable securities as of March 31, 2026, combined with the $60.0 million received from Sagard in May 2026, and the anticipated $122.5 million proceeds (before transaction fees and expenses and subject to customary adjustments), expected upon closing, from the sale of our manufacturing operations to Bora Pharmaceuticals Co., Ltd. and Bora Biologics USA, LLC (collectively, Bora), as well as projected and anticipated future payments from our partners and anticipated savings from our ongoing cost-reduction initiatives, supports our cash runway through 2028. We have implemented, and will continue to evaluate and execute, various cost-saving measures that are intended to extend our financial runway while continuing to progress our pipeline.\n\nThrough March 31, 2026, we had an accumulated deficit of $1.3 billion. We expect that over the next several years this deficit will increase as we continue to incur research and development expense in connection with our ongoing activities and several clinical trials. \n\nMacroeconomic Conditions\n\n19\n\nThe global economy, credit markets and financial markets have and may continue to experience significant volatility as a result of significant worldwide events, including, fluctuating interest rates, geopolitical upheaval and tariffs or other restrictions imposed by the United States government or governments of other nations (collectively, the Macroeconomic Conditions). These Macroeconomic Conditions have and may continue to create supply chain disruptions, inventory disruptions, and fluctuations in economic growth, including fluctuations in employment rates, inflation, energy prices and consumer sentiment. It remains difficult to assess or predict the ultimate duration and economic impact of the Macroeconomic Conditions. Prolonged uncertainty with respect to Macroeconomic Conditions could cause further economic slowdown or cause other unpredictable events, each of which could adversely affect our business, results of operations or financial condition.\n\nCollaborations\n\nWe pursue a balanced approach between product candidates that we develop ourselves and those that we develop with our collaborators. Under our strategic collaborations to date, we have received significant non-dilutive funding and continue to have rights to additional funding upon completion of certain research, achievement of key product development milestones and royalties and other payments upon the commercial sale of products. Our current collaborations include the following:\n\n•Incyte Corporation (Incyte). We have an exclusive global collaboration and license agreement with Incyte for retifanlimab, an investigational monoclonal antibody that inhibits PD-1 (Incyte License Agreement). Under this agreement, as amended, Incyte has obtained exclusive worldwide rights for the development and commercialization of retifanlimab in all indications, while we retain the right to develop our pipeline assets in combination with retifanlimab. We received an upfront payment of $150.0 million and milestone payments totaling $215.0 million from Incyte through March 31, 2026, including $100.0 million received in August 2024. We are eligible to receive up to an additional $210.0 million in development and regulatory milestones and $330.0 million in commercial milestones. We receive tiered royalties of 15% to 24% on any global net sales, other than with respect to ZYNYZ (see Note 6. Royalty Monetization Arrangement for further information), and we have the option to co-promote retifanlimab with Incyte. We retain the right to develop our pipeline assets in combination with retifanlimab, with Incyte commercializing retifanlimab and us commercializing our asset(s), if any such potential combinations are approved. We also have an agreement with Incyte under which we performed development and manufacturing services for Incyte's clinical needs of retifanlimab and another agreement under which we are entitled to manufacture a portion of Incyte’s global commercial supply of retifanlimab (Incyte Commercial Supply Agreement).\n\n•Gilead. In October 2022, we and Gilead entered into an exclusive option and collaboration agreement (Gilead Agreement) to develop and commercialize MGD024 and create bispecific cancer antibodies using our DART platform and undertake their early development under a maximum of two separate bispecific cancer target research programs. Under the Gilead Agreement, we will continue the ongoing phase 1 trial for MGD024 according to a development plan, during which Gilead will have the right to exercise an option granted to Gilead to obtain an exclusive license to develop and commercialize MGD024 and other bispecific antibodies of ours that bind CD123 and CD3 (CD123 Option). The agreement also granted Gilead the right, within its first two years, to nominate a bispecific cancer target set for up to two research programs conducted by us and to exercise separate options to obtain an exclusive license for the development, commercialization and exploitation of molecules created under each research program (Research Program Option). As part of the Gilead Agreement, Gilead paid us a non-refundable upfront payment of $60.0 million and we will be eligible to receive up to $1.7 billion in target nomination, option fees, and development, regulatory and commercial milestones, assuming Gilead exercises the CD123 Option and Research Program Option, successfully develops and commercializes MGD024 or other CD123 products developed under the agreement, and products result from the two additional research programs. Assuming exercise of the CD123 Option, we will also be eligible to receive tiered, low double-digit royalties on worldwide net sales of MGD024 (or other CD123 products developed under the agreement) and assuming exercise of the Research Program Option, a flat royalty on worldwide net sales of any products resulting from the two research programs. In 2023, Gilead nominated the first of the two research programs contemplated in the Gilead Agreement (First Research Program) and paid us a $15.7 million nomination fee. We granted Gilead a research license, and the parties agreed on a research plan for the First Research Program under which we will provide research and development services. In January 2024, the parties amended the Gilead Agreement to revise certain matters related to intellectual property in the performance of the research plans under the agreement. In June 2024, Gilead paid us variable consideration totaling $3.3 million upon achievement of a research plan\n\n20\n\nmilestone. In September 2025, Gilead nominated the second of the two research programs contemplated in the Gilead Agreement (Second Research Program) and we granted Gilead a research license. Gilead also exercised their exclusive option to obtain a license to exploit the research molecule and research product with respect to the Second Research Program. Gilead is obligated to pay us a total of $25.0 million related to the nomination and option exercise.\n\nCritical Accounting Estimates\n\nOur critical accounting estimates are policies which require the most significant judgments and estimates in the preparation of our consolidated financial statements. A summary of our critical accounting estimates is presented in Part II, Item 7, \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. There have been no material changes with respect to our critical accounting estimates during the three months ended March 31, 2026.\n\nResults of Operations\n\nRevenue\n\nThe following represents a comparison of our revenue for the three months ended March 31, 2026 and 2025 (dollars in millions):\n\nThree Months Ended March 31,Increase/(Decrease)\n\n20262025\n\nCollaborative and other agreements$0.6 $6.6 $(6.0)(91)%\n\nContract manufacturing 14.0 6.2 7.8 126 %\n\nRoyalty revenue6.2 0.4 5.8 N/A\n\nTotal revenue$20.8 $13.2 $7.6 58 %\n\nThe increase in revenue of $7.6 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 was primarily due to:\n\n•an increase of $7.8 million in contract manufacturing revenue due to higher production volume in 2026; and\n\n•an increase of $5.8 million in royalty revenue recognized due to higher sales of ZYNYZ.\n\nThese increases were partially offset by:\n\n•a decrease of $6.0 million in collaborative and other agreements.\n\nRevenue from collaborative and other agreements may vary substantially from period to period depending on the progress made by our collaborators with their product candidates and the timing of milestones achieved under current agreements, and whether we enter into additional collaboration agreements.\n\nCost of Manufacturing Services\n\nCost of manufacturing services was $9.5 million and $5.4 million for the three months ended March 31, 2026 and 2025, respectively. Cost of manufacturing services includes process development costs and costs to produce bulk drug substance for our contract development and manufacturing customers. We expect cost of manufacturing services to vary from period to period based on the agreed-upon manufacturing schedule.\n\n21\n\nResearch and Development Expense\n\nThe following represents a comparison of our research and development expense for the three months ended March 31, 2026 and 2025 (dollars in millions):\n\nThree Months Ended March 31,Increase/(Decrease)\n\n20262025\n\nLorigerlimab$7.5 $8.9 $(1.4)(16)%\n\nMGC0266.8 6.0 0.8 13 %\n\nMGC0286.4 3.9 2.5 64 %\n\nNext-generation T-cell engagers4.6 2.3 2.3 100 %\n\nMGC0303.9 2.5 1.4 56 %\n\nMGD0242.8 2.2 0.6 27 %\n\nVobramitamab duocarmazine (vobra duo)0.4 8.3 (7.9)(95)%\n\nPreclinical antibody-drug conjugates (ADCs)0.1 1.8 (1.7)(94)%\n\nOther programs (a)2.5 3.8 (1.3)(34)%\n\nTotal research and development expense$35.0 $39.7 $(4.7)(12)%\n\n(a) Includes discontinued projects.\n\nThe decrease in our research and development expense for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 was primarily due to:\n\n•decreased vobra duo costs due to the decision to discontinue further internal development of that program; and\n\n•decreased development costs related to certain pre-clinical ADCs.\n\nThese decreases were partially offset by:\n\n•increased clinical trial costs related to MGC028; and\n\n• increased development costs related to certain next generation T-cell engagers.\n\nThere are uncertainties associated with our research and development expenses for future quarters which are impacted by multiple variables, including timing of wind down activities for recently closed studies and current and expected expenditures associated with our ongoing clinical studies.\n\nGeneral and Administrative Expense\n\nFor the three months ended March 31, 2026 and 2025, general and administrative expenses were $9.7 million and $10.7 million, respectively.\n\n22\n\nLiquidity and Capital Resources\n\nCash Flows\n\nThe following table represents a summary of our cash flows for the three months ended March 31, 2026 and 2025:\n\nThree Months Ended March 31,\n\n20262025\n\n(dollars in millions)\n\nNet cash provided by (used in):\n\nOperating activities$(35.8)$(46.9)\n\nInvesting activities45.3 9.9 \n\nFinancing activities(0.2)(0.3)\n\nNet change in cash and cash equivalents$9.3 $(37.3)\n\nOperating Activities\n\nNet cash used in operating activities consists of our net loss adjusted for non-cash items such as depreciation and amortization expense and stock-based compensation and changes in working capital.\n\nInvesting Activities\n\nNet cash provided by investing activities during the three months ended March 31, 2026 and 2025 is primarily due to maturities of marketable securities, partially offset by purchases of marketable securities and purchases of property, equipment and software.\n\nFinancing Activities\n\nNet cash used in financing activities during the three months ended March 31, 2026 and 2025 primarily includes taxes related to net share settlement of equity awards.\n\nOur multiple product candidates currently under development will require significant additional research and development efforts that include extensive preclinical studies and clinical testing, and regulatory approval prior to commercial use. Our future success is dependent on our ability to identify and develop our product candidates, and ultimately upon our ability to attain profitable operations. We have devoted substantially all of our financial resources and efforts to research and development and general and administrative expense to support such research and development. Net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital, and accordingly, our ability to execute our future operating plans.\n\nAs a biotechnology company, we have primarily funded our operations with proceeds from the sale of our common stock in equity offerings and revenue from our multiple collaboration agreements. Management regularly reviews our available liquidity relative to our operating budget and forecast to monitor the sufficiency of our working capital, and anticipates continuing to draw upon available sources of capital, including equity and debt instruments, to support our product development activities. There can be no assurances that new sources of capital will be available to us on commercially acceptable terms, if at all. Also, any future collaborations, strategic alliances and marketing, distribution or licensing arrangements may require us to give up some or all rights to a product or technology at less than its full potential value. If we are unable to enter into new arrangements or to perform under current or future agreements or obtain additional capital, we will assess our capital resources and may be required to delay, reduce the scope of, or eliminate one or more of our product research and development programs or clinical studies, and/or downsize our organization. Although it is difficult to predict our funding requirements, we anticipate that our cash, cash equivalents and marketable securities as of March 31, 2026, combined with the $60.0 million received from Sagard in May 2026, and the anticipated $122.5 million proceeds (before transaction fees and expenses and subject to customary adjustments), expected upon closing, from the sale of our manufacturing operations to Bora, as well as projected and anticipated future payments from our partners, and anticipated savings from our ongoing cost-reduction initiatives, supports our cash runway through 2028. We have implemented, and will continue to evaluate and execute, various cost-saving measures that are intended to extend our financial runway while continuing to progress our pipeline.\n\n23\n\nMaterial Cash Requirements\n\nDuring the three months ended March 31, 2026, there were no significant changes to our material cash requirements, including contractual and other obligations, as presented in Part II, Item 7, \"Management’s Discussion and Analysis of Financial Condition and Results of Operations\" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025."}