mgnx-20201231

This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include statements that may relate to our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, in particular, under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Annual Report on Form 10-K. Forward-looking statements can often be identified by the use of terminology such as "subject to", "believe", "anticipate", "plan", "expect", "intend", "estimate", "project", "may", "will", "should", "would", "could", "can", the negatives thereof, variations thereon and similar expressions, or by discussions of strategy.

We are a biopharmaceutical company focused on developing and commercializing innovative antibody-based therapeutics designed to modulate the human immune response for the treatment of cancer. In December 2020, the U.S. Food and Drug Administration (FDA) approved MARGENZA (margetuximab-cmkb), a human epidermal growth factor receptor 2 (HER2) receptor antagonist indicated, in combination with chemotherapy, for the treatment of adult patients with metastatic HER2-positive breast cancer who have received two or more prior anti-HER2 regimens, at least one of which was for metastatic disease. We expect to launch MARGENZA in collaboration with our commercialization partner, Eversana Life Science Services, LLC (EVERSANA), in March 2021. In addition, we have a pipeline of product candidates in human clinical testing, including eight immuno-oncology programs, that have been created primarily using our proprietary, antibody-based technology platforms. We believe our product candidates have the potential to have a meaningful effect on treating patients' unmet medical needs as monotherapy or, in some cases, in combination with other therapeutic agents.

We are developing product candidates that target various tumor-associated antigens. These include tumor-associated antigens that have been well characterized, such as HER2, which is expressed on some breast, gastroesophageal and other cancer types. Other product candidates that we are developing, with our collaboration partners in certain cases, target tumor-associated antigens against which there are currently no approved products, such as B7-H3, a molecule in the B7 family of immune regulator proteins widely expressed by several different tumor types, and ADAM9, a cell surface protein over-expressed in several solid tumor types. We are also developing molecules that target programmed cell death protein 1 (PD-1), a protein that is important in the regulation of the immune system’s response to cancer. Monoclonal antibodies that inhibit PD-1 have been approved by the FDA for the treatment of numerous cancers. Our clinical pipeline includes an anti-PD-1 monoclonal antibody that we have out-licensed to a partner, for which a Biologics License Application (BLA) filed with the FDA is subject to a Prescription Drug User Fee Act (PDUFA) target action date of July 25, 2021, and two bispecific DART product candidates that co-engage PD-1 and LAG-3, or PD-1 and CTLA-4. We are also developing a bispecific DART molecule that engages CD3 on immune effector cells to kill CD123-expressing cancer cells in certain hematological malignancies, including acute myeloid leukemia (AML).

Margetuximab is an Fc-engineered, monoclonal antibody that targets the HER2 oncoprotein. HER2 is expressed by tumor cells in breast, gastroesophageal and other solid tumors. Similar to trastuzumab, margetuximab inhibits tumor cell proliferation, reduces shedding of the HER2 extracellular domain and mediates antibody-dependent cellular cytotoxicity (ADCC). However, through our Fc Optimization technology, margetuximab has been engineered to enhance the engagement of the immune system. In vitro, the modified Fc region of margetuximab increases binding to the activating Fc receptor FCGR3A (CD16A) and decreases binding to the inhibitory Fc receptor FCGR2B (CD32B). These changes lead to greater in vitro ADCC and natural killer (NK) cell activation. The clinical significance of in vitro data is unknown.

HER2 is a protein found on the surface of some cancer cells that promotes growth and is associated with aggressive disease and poor prognosis. Approximately 15-20% of breast cancer cases are HER2-positive, representing approximately 45,000 new cases annually in the U.S. according to the American Cancer Society Breast Cancer Facts & Figures 2019-2020. Monoclonal antibody-based therapies targeting HER2 have greatly improved outcomes of patients with HER2-positive breast cancer and are now standard of care in both early- and late-stage disease. Ongoing HER2 blockade is recommended for patients who have relapsed or refractory HER2-positive disease; after progression occurs during treatment with other HER2-directed therapies, the need for additional agents in later lines remains.

Based on these results in second-line patients who were refractory to trastuzumab, in September 2019, we initiated the MAHOGANY study, a Phase 2/3 registration-directed clinical trial to evaluate, in Module A, margetuximab in combination with retifanlimab, an anti-PD-1 monoclonal antibody, in patients with tumors that are both HER2 IHC3-positive and PD-L1 positive. This approach is designed as a chemotherapy-free regimen that engages both innate and adaptive immunity for the treatment of patients with GC or GEJ cancer in the first-line setting. The primary outcome measure for efficacy in Module A is ORR per RECIST. We expect to obtain initial data in the first half of 2021 to enable a decision whether to enroll additional patients into the study to support a potential accelerated approval of the U.S. in the future.

Flotetuzumab is an investigational bispecific, humanized DART molecule that recognizes both CD123 and CD3. CD123, the interleukin-3 receptor alpha chain, has been reported to be over-expressed on cancer cells in a wide range of hematological malignancies, including AML and myelodysplastic syndrome (MDS). CD3 is expressed on immune effector cells, such as T cells. Flotetuzumab is designed to engage and redirect T cells to kill CD123-expressing malignant cells. The molecule is being evaluated in a clinical study of up to 200 AML patients who are refractory to induction therapy or relapse within six months of a complete remission (CR). This study is intended to support registration in the U.S. The FDA has granted Orphan Drug Designation to flotetuzumab for the treatment of AML.

AML is a hematopoietic malignancy characterized by uncontrolled clonal proliferation of neoplastic myeloid precursors and differentiation arrest that prevent normal bone marrow hematopoiesis. AML is thought to arise in and be perpetuated by a small population of leukemic stem cells (LSCs) that generally resist conventional chemotherapeutic agents. LSCs are characterized by high levels of CD123 expression that is low or absent in the corresponding hematopoietic progenitors and stem cell populations in normal human bone marrow. Flotetuzumab was designed to redirect T lymphocytes, specialized white blood cells of the human immune system, to kill CD123-expressing cells. To achieve this, the DART molecule combines an arm that recognizes CD123 on the target cells with a portion of an antibody recognizing CD3, an activating protein expressed by T cells.

Retifanlimab is an investigational monoclonal antibody targeting PD-1. Marketed antibodies targeting this checkpoint molecule have shown clinical efficacy in the treatment of various tumors by releasing the "brakes" of the immune system and help to restore the immune system's ability to detect and kill tumor cells. In 2017, we licensed retifanlimab to Incyte Corporation (Incyte) under a global collaboration and license agreement, although we retain the right to develop the molecule in combination with product candidates from our pipeline. In January 2021, Incyte announced that the FDA had accepted for Priority Review its BLA for retifanlimab as a potential treatment for adult patients with locally advanced or metastatic squamous cell carcinoma of the anal canal (SCAC) who have progressed on, or who are intolerant of, platinum-based chemotherapy. The PDUFA target action date for retifanlimab is July 25, 2021. In addition, Incyte has stated it is pursuing development of retifanlimab as monotherapy in potentially registration-enabling studies in patients with MSI-high endometrial cancer and Merkel cell carcinoma.

As presented in November 2018, in the SCCHN dose expansion cohort, confirmed partial responses were observed in 6 of 18 (33%) of patients evaluable for response who had not previously received anti-PD-1 or anti-PD-L1 therapy. For the subset of patients with B7-H3 tumor expression ≥ 10%, 6 of 15 (40%) had confirmed partial responses. ORRs ranging from 13% to 16% have previously been reported in SCCHN patients treated with anti-PD-1 agents alone. The combination of enoblituzumab and an anti-PD-1 monoclonal antibody demonstrated acceptable tolerability, with any adverse event ≥ Grade 3 occurring in 27.1% of patients as of the October 12, 2018 data cut-off date. The rate of immune-related adverse events experienced in the trial was comparable to that historically observed by others in patients who received pembrolizumab as monotherapy.

Anti-tumor activity of tebotelimab as monotherapy was observed in evaluable patients across several of the tumor types in the selected dose expansion cohorts. ORRs, including both confirmed and unconfirmed responses, and DCR, comprising both confirmed objective responses and stable disease, were observed as follows: triple negative breast cancer (17% ORR, 4 of 23 patients; 39% DCR, 9 of 23 patients), epithelial ovarian cancer (9% ORR, 2 of 23 patients; 52% DCR, 12 of 23 patients) and NSCLC (checkpoint inhibitor naïve: 21% ORR, 3 of 14 patients; 64% DCR, 9 of 14 patients; and post anti-PD-1: 13% ORR, 2 of 15 patients; 53% DCR, 8 of 15 patients). Response to tebotelimab monotherapy was associated with LAG-3 expression and an IFN-γ gene signature at baseline. The overall safety profile of tebotelimab in the Phase 1 study, including the incidence of immune-mediated adverse events, appeared generally consistent with anti-PD-1 antibody monotherapy with respect to event type and frequency.

Immune effector cell activation and LAG-3, PD-1 and PD-L1 expression has been shown to be enhanced in vitro by Fc-engineered margetuximab. An expansion cohort of patients with advanced HER2-positive tumors is being treated with margetuximab plus tebotelimab to evaluate whether Fc-engineering can enhance tumor responsiveness to checkpoint blockade and improve clinical outcomes in patients. In November 2020, updated data was presented from the ongoing combination study of tebotelimab and margetuximab in patients with advanced HER2-positive neoplasms. In this study, 41 patients had been enrolled. As of the October 5, 2020 data cut-off, there were 28 response-evaluable patients. Evidence of antitumor activity was observed among refractory patients with various HER2-positive tumor types, including eight objective responses (six

confirmed) observed in multiple advanced HER2-positive tumor types. The ORR (including unconfirmed responses) was 28.6%, while 64.3% of response-evaluable patients experienced a decrease in target lesion tumor burden. The duration of response for confirmed responders was 4.21–8.97 months, with three patients remaining on treatment as of the data cut-off. Of particular interest, a majority of responding patients had a baseline PD-L1 combined positive score (CPS) ≤ 1. All responding patients carried the less favorable CD16A-158F allotype (i.e., V/F or F/F). Evaluation of baseline LAG-3 and PD-1 mRNA expression and potential association with clinical response analyses are ongoing, and will be important for defining patient enrichment biomarker strategies for further development. The combination of tebotelimab and margetuximab was generally well tolerated, with a safety profile consistent with that of tebotelimab monotherapy. Enrollment in HER2-positive tumor-specific cohorts is ongoing.

In December 2020, data was presented from the ongoing tebotelimab Phase 1 dose expansion study in patients with relapsed/refractory diffuse large B-cell lymphoma (DLBCL). LAG-3 has been shown to be highly expressed in DLBCL and has emerged as a therapeutic target of interest in this population, while PD-1-targeted therapy has yielded modest efficacy. There remains significant unmet need for patients with relapsed/refractory (R/R) DLBCL. In this study, 20 DLBCL patients were enrolled, half of whom were chimeric antigen receptor (CAR) T cell therapy experienced. As of the October 23, 2020 data cut-off, there were 13 response-evaluable patients. A preliminary ORR of 53.8% (7 of 13 patients) was observed, including responses in five of seven CAR T cell-naïve patients and in two of six CAR T cell experienced patients, the latter of whom both had complete responses. A preliminary duration of response of up to 168 days was observed, with six of seven ongoing responses as of the cut-off date. In the study, baseline LAG-3 expression appeared to associate with clinical response, with additional analyses ongoing. Tebotelimab was generally well-tolerated among heavily pre-treated R/R DLBCL patients, with manageable infusion-related reactions and no evidence of tumor lysis syndrome. The most common TRAE was pyrexia, which occurred in three (15%) patients. A single Grade 3 TRAE of anemia was observed.

Under our November 2018 license and collaboration agreement with Zai Lab, we also licensed to them the right to develop and commercialize tebotelimab in mainland China, Hong Kong, Macau and Taiwan. In February 2020, Zai Lab dosed the first patient with niraparib, a PARP (poly [ADP-ribose] polymerase) inhibitor, in the Phase 1b proof-of-concept, China-only study, in combination with tebotelimab. In April 2020, Zai Lab initiated a study of tebotelimab in combination with brivanib in a Phase 1 proof-of-concept China-only dose escalation and expansion trial in patients with advanced hepatocellular carcinoma (HCC). The dose escalation phase to determine the recommended Phase 2 dose of tebotelimab as monotherapy and in combination with brivanib was completed, with related data presented in late 2020. In November 2020, Zai Lab enrolled the first patient in a Phase 1 proof-of-concept clinical trial in China of tebotelimab as second-line therapy for melanoma patients after treatment with checkpoint inhibitors.

Preliminary evidence of anti-tumor activity by MGC018 has been observed, particularly in patients with advanced metastatic castration-resistant prostate cancer (mCRPC). Reductions in PSA levels of ≥ 50% were observed in five of seven mCRPC patients treated, including one with substantial regression of bone disease. Six mCRPC patients had bone only disease, and one patient with measurable peripheral disease had a 29% reduction in target lesions that did not qualify as a response per RECIST. Four PSA responders remained on therapy as of the data cut-off. Patients with mCRPC had received a median of four therapies prior to MGC018, including taxane chemotherapy (six patients) and next-generation hormonal agents (six patients were treated with both abiraterone and enzalutamide, and one with abiraterone only).

In September 2020, data from the Phase 1 dose escalation study of MGD019 were reported. Forty-three patients were enrolled in the study within a dose range of 0.03 – 10.0 mg/kg, administered every three weeks initially, in a population of heavily pre-treated patients representing a broad range of different types (23) of solid tumors. A total of 28 patients were treated at doses ≥ 3.0 mg/kg administered every three weeks initially. Of the 18 evaluable patients who received doses ≥ 3.0 mg/kg as of the July 21, 2020 cut-off date, four objective responses were reported, including a confirmed complete response in mCRPC, confirmed partial responses in microsatellite stable colorectal cancer (MSS CRC) and metastatic type AB thymoma, and an unconfirmed partial response in serous fallopian tube carcinoma. MGD019 was well-tolerated in patients who received less than 10 mg/kg. The most common TRAEs observed were pruritus (23.3%), arthralgia (18.6%), fatigue (18.6%), rash (18.6%), nausea (16.3%) and infusion-related reaction (16.3%). Several Grade 3 adverse events were observed at the 10.0 mg/kg level; however, none were considered dose limiting.

We are developing MGD014 under a contract awarded to us in September 2015 by the National Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutes of Health (contract number HHSN272201500032C). This DART molecule was designed to target the envelope protein of human immunodeficiency virus (HIV) infected cells (Env) and T cells, via their CD3 components, to redirect the immune system's T cells to kill HIV-infected cells. MGD014 could be used independently or become a key part of a "shock-and-kill" strategy in conjunction with HIV latency-reversing agents currently under development. MGD014 is our first clinical DART molecule designed to target virus-infected cells. A Phase 1 dose escalation study of MGD014 is ongoing.

Cancer is a broad group of diseases in which cells divide and grow in an uncontrolled manner, forming malignancies that can invade other parts of the body. In normal tissues, the rates of new cell growth and cell death are tightly regulated and kept in balance. In cancerous tissues, this balance is disrupted as a result of mutations, causing unregulated cell division or proliferation that leads to tumor formation and growth. While tumors can grow slowly or rapidly, the dividing cells will nevertheless accumulate, and the normal organization of the tissue will become disrupted. Cancers subsequently can spread throughout the body by processes known as invasion and metastasis. Once cancer spreads to sites beyond the primary tumor, it generally becomes more difficult to treat and may be incurable. Cancer cells that arise in the lymphatic system and bone marrow are referred to as hematological malignancies. Cancer cells that arise in other tissues or organs are referred to as solid tumors. Cancer can arise in virtually any part of the body, with the most common types arising in the prostate gland, breast, lung, colon and skin. Cancer is the second leading cause of death in the United States, exceeded only by heart disease. An increasing number of people are also living longer with cancer.

We apply our understanding of disease biology, immune-mediated mechanisms and next generation antibody technologies to design specifically targeted antibody-based product candidates based on our DART and Fc Optimization platforms. Through these platforms we have designed antibody-based product candidates that have the potential to improve on standard treatments by having one or more of the following attributes: (1) multiple specificities; (2) increased abilities to interact with the body's immune system to fight tumors; (3) capacity to bind more avidly to antigen targets: (4) increased potency; (5) reduced immunogenicity or (6) the ability to target and kill cancer cells that are resistant to standard treatments. Moreover, these technology platforms are complementary and can be combined to address the complex biology of cancer.

Because cancer cells have developed ways to escape the immune system, we have created DART molecules, which are alternative antibody-like structures with more potent immune properties than the parent antibody molecules from which they are derived. The two variable regions of an antibody are mono-specific and are able to target only a single type structural component of an antigen. For many years, researchers have sought to create recombinant molecules that are capable of targeting two antigens or epitopes (i.e., specific part of an antigen bound by the antibody) within the same molecule. The challenges in creating such molecules have been the instability of the resulting bispecific molecules and their inherently short half-lives, as well as the inefficiencies in manufacturing these compounds. We believe our DART platform has overcome these engineering challenges by incorporating proprietary covalent di-sulfide linkages and particular amino acid sequences that efficiently pair the chains of the DART molecule. This is designed to provide a structure with enhanced manufacturability, long-term structural stability and the ability to tailor the half-lives of the DART molecules to their clinical needs. This engineered antibody-like protein has a compact and stable structure and enables the targeting of two different antigens with a single recombinant molecule.


•Redirected T cell activation and killing. In this version of the DART molecule, we are engaging the cancer-fighting properties of the immune effector cells, such as T lymphocytes to: (1) recognize and bind to proteins expressed on a cancer cell, or tumor associated antigens (e.g., CD123), (2) enable the recruitment of all types of cytotoxic, or cell killing, T cells, irrespective of their ability to recognize cancer cells (e.g., CD3, a common component of the T cell antigen receptor) and (3) trigger T cell activation, expansion, and cell killing mechanisms to destroy a cancer cell. The outcome is that any of the body's T cells, in theory, could be recruited to destroy a cancer cell and thus, are not limited to the small numbers of specific T cells that might have been generated in response to cancer to kill tumor cells. Furthermore, given the design of a DART molecule, since any T cell could be recruited for this killing process, relatively small amounts of a DART molecule may be required to trigger this potent immune response. Additionally, the compact structure of the DART protein makes it well suited for maintaining cell-to-cell contact, which we believe contributes to the high level of target cell killing. Our DART molecules that redirect T cells against cancer or other targets, including flotetuzumab, are manufactured using a conventional antibody platform without the complexity of having to genetically modify T cells from individual patients, as would be required by approaches such as CAR T cells. We have continued to evolve our bispecific platform with the introduction of a next-generation CD3-engaging DART technology designed to recruit, engage and activate T cells to kill tumor target cells with reduced release of pro-inflammatory cytokines. This next-generation CD3 DART platform is aimed at addressing cytokine-release syndrome, the most frequent and often dose-limiting adverse event associated with CD3-engaging molecules. We believe the next-generation CD3 DART platform could expand the therapeutic window of CD3-engaing DART molecules and further increase their potential application in oncology.
• Targeting of multiple co-inhibitory receptors or checkpoints, such as those involved in inhibiting T cell responses. The immune system generally prevents the development of autoimmune phenomena by regulating activated immune cells that have responded to non-self or foreign antigens. This negative feedback loop is triggered by the interactions of co-inhibitory receptors, or checkpoint molecules, expressed on the immune cells with ligands expressed by other cells, such as antigen-presenting cells. This phenomenon is exploited by cancer, whereby tumor cells express checkpoint ligands that block the development of an immune response against the tumor. Antibodies that block the interaction of checkpoint molecules with their ligands have been shown to significantly improve the clinical outcomes of patients with certain advanced cancers. Because of the diversity of immune checkpoint pathways, blockade of a single axis, while clinically significant, as shown in the case of the blockade of the PD-1/PD-L1 axis with pembrolizumab or nivolumab, will not benefit all patients. In fact, combinations of checkpoint inhibitors, such as nivolumab and ipilimumab, a CTLA-4 blocker, have resulted in significantly enhanced benefit compared to ipilimumab or nivolumab alone. We believe that DART molecules targeting two immunoregulatory pathways, such as two checkpoints in a single molecule, could afford the clinical benefit of the combination together with the potential for synergistic activity, as well as significant advantages in manufacturing, simplified clinical development, and enhanced patient convenience.

Throughout our company's history, we have entered into collaborations with other biopharmaceutical companies and plan to continue to do so. We enter into collaborations when there is a strategic advantage to us and when we believe the financial terms of the collaboration are favorable for meeting our short-term and long-term strategic objectives. We are not dependent upon any one of these collaborations, but in many cases we have rights to receive sales royalties and other significant financial payments if the partnered product candidates achieve certain development and sales milestones. We endeavor to establish collaborations that preserve our right to participate in future commercialization, for example by securing co-promotion or profit-sharing rights under certain circumstances.

Our success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business. In addition, there is cost and risk to our business in defending and enforcing our patents, maintaining our licenses to use intellectual property owned by third parties and preserving the confidentiality of our trade secrets and operating without infringing the valid and enforceable patents and other proprietary rights of third parties. We also rely on know-how, continuing technological innovation and in-licensing opportunities to develop, strengthen and maintain our proprietary positions. We currently use multiple industry-standard patent monitoring systems to monitor new United States Patent and Trademark Office (USPTO) filings for any applications by third parties that may infringe on our patents.

The patent positions of biopharmaceutical companies like us are generally uncertain and involve complex legal, scientific and factual questions. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted by the courts after issuance. Consequently, we do not know whether any of our product candidates will be protectable or remain protected by enforceable patents. We cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient proprietary protection from competitors. Any patents that we hold may be challenged, narrowed, circumvented or invalidated by third parties.

A third party may hold patents or other intellectual property rights that are important to or necessary for the development of our product candidates or use of our technology platforms. It may be necessary for us to use the patented or proprietary technology of third parties to commercialize our product candidates, in which case we would be required to obtain a license from these third parties on commercially reasonable terms, or our business could be harmed, possibly materially. For example, certain patents held by third parties cover Fc engineering methods and mutations in Fc regions to enhance the binding of Fc regions to Fc receptors on immune cells. Although we believe that these patents are not infringed, invalid, and unenforceable, should a court find that they cover margetuximab or enoblituzumab and we are unable to invalidate them, or if licenses for them are not available on commercially reasonable terms, our business could be harmed, perhaps materially.

The Hatch-Waxman Act permits a patent term extension for FDA-approved drugs, including biological products, of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and other jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our pharmaceutical product candidates receive FDA approval, we have applied or expect to apply for patent term extensions on patents covering those products. We intend to seek, and are seeking, patent term extensions to our issued patents in any jurisdiction where these are available, however there is no guarantee that the applicable authorities, including the FDA in the United States, will agree with our assessment of whether such extensions should be granted, and even if granted, the length of such extensions.

The Patient Protection and Affordable Care Act, as amended by the Healthcare and Education Affordability Reconciliation Act (collectively the ACA) created a regulatory scheme authorizing the FDA to approve biosimilars via an abbreviated licensure pathway. In many cases, this allows biosimilars to be brought to market without conducting the full suite of clinical trials typically required of originators. Under the ACA, a manufacturer may submit an application for licensure of a biologic product that is "biosimilar to" or "interchangeable with" a previously approved biological product or "reference product." The "biosimilar" application must include specific information demonstrating biosimilarity based on data derived from: (1) analytical studies, (2) animal studies, and (3) a clinical study or studies that are sufficient to demonstrate safety, purity, and potency in one or more appropriate conditions of use for which the reference product is licensed, except that FDA may waive some of these requirements for a given application. Under this new statutory scheme, an application for a biosimilar product may not be submitted to the FDA until four years after the date of first licensure. The FDA may not approve a biosimilar product until 12 years from the date on which the reference product was first licensed. The law does not change the duration of patents granted on biological products. Even if a product is considered to be a reference product eligible for exclusivity, another company could market a competing version of that product if the FDA approves a full BLA for such product containing the sponsor's own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. There have been recent proposals to repeal or modify the ACA and it is uncertain how any of those proposals, if approved, would affect these provisions.

We also rely on trade secret protection for our confidential and proprietary information. Although we take steps to protect our proprietary information and trade secrets, including through contractual means with our employees and consultants, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. Thus, we may not be able to meaningfully protect our trade secrets. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information concerning our business or financial affairs developed or made known to the individual during the course of the individual's relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual, and which are related to our current or planned business or research and development or made during normal working hours, on our premises or using our equipment or proprietary information, are our exclusive property. In many cases our confidentiality and other agreements with consultants, outside scientific collaborators, sponsored researchers and other advisors require them to assign or grant us licenses to inventions they invent as a result the work or services they render under such agreements or grant us an option to negotiate a license to use such inventions.

We currently manufacture drug substance for most of our clinical trials at our manufacturing facilities located in Rockville, Maryland. We also rely on contract manufacturers, primarily Byondis, for production of our ADC candidates. We have supplemented our drug substance manufacturing capacity through an arrangement with AGC Biologics, Inc. (AGC, formerly CMC Biologics, Inc.), a contract manufacturing organization, and are commercially producing margetuximab at AGC. We also intend to commercially produce material for our and our partner’s product candidates, when and if approved by the FDA. In addition, we currently rely on and will continue to rely on contract fill-finish service providers, primarily Ajinomoto Bio-Pharma Services and Baxter Healthcare Corporation, to fulfill our fill-finish needs for our current and future product candidates.

MARGENZA is currently our only approved product in the U.S. In November 2020, we partnered with EVERSANA, a pioneer of next-generation commercial services to the global life sciences industry, to commercialize margetuximab in the U.S. by leveraging their integrated commercial services. Under the terms of the agreement, we maintain ownership of margetuximab, including all manufacturing, regulatory and development responsibilities for the product. EVERSANA received a co-exclusive right to conduct approved commercialization activities. EVERSANA will utilize its internal capabilities to support sales and marketing, market access, channel management services, data and analytics, medical affairs, and other patient access related services; we will book MARGENZA sales. We and EVERSANA equally share in funding EVERSANA’s commercialization expenses. In exchange for co-funding these expenses, EVERSANA will earn future revenue share payments which shall be capped at 125% of EVERSANA’s cumulative service fees. The term of the agreement is five years following the date of FDA approval, subject to predefined termination provisions.

We cannot market or promote a new product in a country until a marketing application has been approved by the appropriate regulatory authority for that jurisdiction. Subject to receiving marketing authorization in a jurisdiction, we believe we will be able to commercialize in that market through arrangements with third-party commercial partners. Other than through our arrangement with EVERSANA for MARGENZA, we have not established a sales, marketing or distribution capabilities. If we are unable to enter into third-party commercial arrangements for other product candidates with respect to the United States, we believe that we could potentially put in place an appropriately sized organization to commercialize our approved product or products. Outside the United States, our strategy is to enter into arrangements with third-party commercial partners for any of our product candidates that obtain marketing approval.

In addition, the immuno-oncology field is competitive, with treatments currently approved and on the market or in development for various tumor types and patient populations from a variety of different companies such as Merck & Co., Inc. (Merck), The Bristol-Myers Squibb Company (BMS), and Roche, all of which have significantly greater resources than we do. Many of our pipeline programs, if successful, will likely face significant competition both by therapeutics that are already being marketed as well as those that will be approved for marketing before our programs. In particular, we are developing PD-1-directed product candidates, including a monoclonal antibody that we have outlicensed and two DART molecules. Merck, BMS, Roche, AstraZeneca, Pfizer Inc., Merck KGaA, and Regeneron Pharmaceuticals, Inc. all have approved products that target either the PD-1 receptor or its ligand, PD-L1, and there are several other companies that have anti-PD-1 or anti-PD-L1 antibodies in clinical development, all of which would compete with our PD-1-directed programs. In addition, these and other companies are developing product candidates directed against other immuno-oncology targets that we are pursuing through our bispecific approaches.

Many of our competitors have significantly greater financial, manufacturing, marketing, drug development, technical and human resources than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining top qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

The key competitive factors affecting the success of all of our therapeutic product candidates, if approved, are likely to be their efficacy, safety, dosing convenience, price, the effectiveness of companion diagnostics in guiding the use of related therapeutics, the level of generic or biosimilar competition and the availability of reimbursement from government and other third-party payors. In addition, the standard of medical care provided to cancer patients continues to evolve as more scientific and medical information becomes available. These changes in medical care relate to pharmaceutical products, but are also affected by other factors, and such changes can positively or negatively affect the prospects of our product candidates as well as those of our competitors.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are more effective, have fewer or less severe effects, are more convenient or are less expensive than any products that we may develop, or the standards of care for cancer patients change while our clinical trials are ongoing. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or other third party payors seeking to encourage the use of biosimilar products. Biosimilar products are expected to become available over the coming years. For example, trastuzumab biosimilars have been approved in the U.S. by FDA.

All of our current product candidates are subject to regulation in the United States by the FDA as biological products (biologics). The FDA subjects biologics to extensive pre- and post-market regulation. The Public Health Service Act, the Federal Food, Drug, and Cosmetic Act (FDCA) and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of biologics. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending BLAs, withdrawal of approvals, clinical holds, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, or criminal penalties.

Preclinical studies include laboratory evaluation of product chemistry, formulation and toxicity, pharmacology, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements including FDA's good laboratory practice (GLP) regulations and the U.S. Department of Agriculture's regulations implementing the Animal Welfare Act. After laboratory analysis and preclinical testing in animals, we file an Investigational New Drug (IND) application with the FDA to begin human testing. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature, and a proposed clinical trial protocol, among other things, to the FDA as part of an IND application. Certain preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue even after the IND application is submitted. An IND application automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the clinical trial on a clinical hold or agrees on an alternate approach with us. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND application may not result in the FDA allowing clinical trials to commence.

Clinical Development. Clinical trials involve the administration of the investigational drug to human subjects (healthy volunteers or patients) under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with all applicable federal regulations and guidance, including those pertaining to good clinical practice (GCP) standards that are meant to protect the rights, safety, and welfare of human subjects and to define the roles of clinical trial sponsors, investigators, and monitors; as well as (ii) under protocols detailing, among other things, the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol involving testing of a new drug in the United States (whether in patients or healthy volunteers) must be included in the IND application submission, and FDA must be notified of subsequent protocol amendments. In addition, the protocol must be reviewed and approved by an institutional review board (IRB) and all study subjects must provide informed consent prior to participating in the study. Typically, each institution participating in the clinical trial will require review of the protocol before any clinical trial commences at that institution. Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health (NIH) for public dissemination on their ClinicalTrials.gov website. Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and there are additional, more frequent reporting requirements for suspected unexpected serious adverse events.

Clinical trials to support BLAs for marketing approval are typically conducted in three pre-approval phases, but the phases may overlap or be combined, particularly in testing for oncology indications. In Phase 1, testing is conducted in a small group of subjects who may be patients with the target disease or condition or healthy volunteers, to evaluate its safety, determine a safe dosage range, and identify side effects. In Phase 2, the drug is given to a larger group of subjects with the target condition to further evaluate its safety and gather preliminary evidence of efficacy. Phase 3 studies typically last multiple years for oncology indications. In Phase 3, the drug is given to a large group of subjects with the target disease or condition (several hundred to several thousand), often at multiple geographical sites, to confirm its effectiveness, monitor side effects, and

The FDA has 60 days from its receipt of a BLA to determine whether the application will be accepted for filing based on the FDA's threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins a substantive review, and the review period under the PDUFA begins. The standard for reviewing a BLA is whether the product is safe, pure and potent, which has been interpreted to include that the product is safe and effective and has a favorable benefit-risk profile. FDA's current performance goals call for FDA to complete review of 90 percent of standard (non-priority) BLAs within 10 months of filing and within six months for priority BLAs, which is 12 months and eight months, respectively, if the 60-day review of the initial application is included in the timeline. In addition, the FDA has developed approaches intended to make certain qualifying products available to patients rapidly - Priority Review, Breakthrough Therapy, Accelerated Approval, and Fast Track. While the timelines for approval under these pathways may be shorter, there are requirements and conditions associated with each pathway, and there can be no assurance that any of our investigational products will be able to meet the conditions or requirements necessary to receive any such designation or be able to receive the review or approval benefits associated with such designations.

All aspects of pharmaceutical manufacture must conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA during which the FDA inspects manufacturing facilities to assess compliance with cGMPs. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMPs and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality control to maintain compliance with cGMPs.

Approval of Biosimilars. The ACA authorized the FDA to approve biosimilars via a separate, abbreviated pathway. In many cases, this allows biosimilars to be brought to market without conducting the full suite of clinical trials typically required of originators. The law establishes a period of 12 years of exclusivity for reference products in order to preserve incentives for future innovation, and outlines statutory criteria for science-based biosimilar approval standards that take into account patient safety considerations. Under this framework, exclusivity protects innovator products by prohibiting others, for a period of 12 years, from being granted FDA approval based in part on reliance on or reference to the innovator's data in their application to the FDA. The law does not change the duration of patents granted on biological products. There are regular legislative proposals to rescind or reduce the biologics exclusivity provisions of the ACA and it is uncertain whether or if any of those proposals may be approved, and if approved, how exclusivity for biologics would be affected.

In addition to regulations in the United States, we and our collaborators, may be subject to a variety of foreign regulations governing clinical trials, drug registration, commercial sales and distribution of our product candidates outside the United States. These regulations can vary between jurisdictions and can be more onerous than regulations in the United States. Whether or not we obtain FDA approval for a product candidate, we must obtain approval from the comparable regulatory authorities of foreign countries or economic areas, such as the European Union (EU) before we may commence clinical trials or market products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time to approval may be longer or shorter than that required for FDA approval.

In the EU, for example, to obtain regulatory approval of an investigational medicinal product, we must submit a marketing authorisation application (MAA). The content of the MAA is similar to that of a New Drug Application or BLA filed in the United States, with the exception of, among other things, EU-specific document requirements. Under the EU regulatory system, a company may submit marketing authorisation applications either under a centralised or decentralised procedure. Under the centralised procedure in the EU, a MAA is submitted to the European Medicines Agency (EMA) where it will be evaluated by the Committee for Medicinal Products for Human Use (CHMP). The maximum timeframe for a CHMP evaluation of an MAA that has been validated is 210 days, excluding time taken by an applicant to respond to questions. A favorable opinion on the application by the CHMP will typically result in the granting of the marketing authorisation by the European Commission within 67 days of receipt of the opinion. Generally, the entire review process takes approximately 13-14 months. Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a major public health interest, particularly from the point of view of therapeutic innovation. In this circumstance, the EMA ensures that the opinion of the CHMP is given within 150 days, excluding time taken by an applicant to respond to questions.

As in the United States, we or our collaborators may apply for designation of a product as an orphan drug for the treatment of a specific indication in the EU before the MAA is made. Orphan drugs in Europe enjoy certain benefits, including up to 10 years of exclusivity for the approved indication unless another applicant can show that its product is safer, more effective or otherwise clinically superior to the orphan designated product. The PRIME initiative was established by the EMA to help promote and foster the development of new medicines in the EU that demonstrate potential for a major therapeutic advantage in areas of unmet medical need. Benefits from the PRIME designation include early confirmation of potential for accelerated assessment, early dialogue and increased interaction with relevant regulatory committees to discuss development options, scientific advice at key development milestones, and proactive regulatory support from the EMA.

Drug prices have become a subject of increased focus in recent years. Although there are currently no direct government price controls over private sector purchases in the U.S., federal law requires pharmaceutical manufacturers to pay prescribed rebates on certain government or Medicaid-reimbursed drugs to enable them to be eligible for reimbursement under certain public healthcare programs such as Medicaid and Medicare Part B. Various states have adopted further mechanisms that seek to control drug prices, including by disfavoring certain higher priced drugs or by seeking supplemental rebates from manufacturers. Managed care has also become a potent force in the market place that increases downward pressure on the prices of pharmaceutical products.

As of December 31, 2020, we had 370 full-time employees, 314 of whom were primarily engaged in research, development and manufacturing activities, and 73 of whom had an M.D. and/or Ph.D. Our employees are critically important to the achievement of our company’s mission and goals. We periodically conduct employee engagement surveys to understand our employees’ perspectives and endeavor to address, improve, or build on how we work together in response to these perspectives. We face significant competition for experienced and talented individuals in our area due to the growth of local companies. We monitor our compensation, benefits, and exit interview data and make changes as needed to enable the ongoing recruitment and selection of talented new employees, as well as to retain existing talent. We strive to offer our employees an intellectually challenging and diverse work environment, opportunities to expand their knowledge and skills and receive feedback on performance, and for career advancement. Our Living Values, which focus on patients, honest and transparent communications, innovation, ethics, collaboration, our sense of urgency and getting results, set the tone for how we work together.

Our website address is www.macrogenics.com. We post links to our website to the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (SEC): annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and any amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended. All such filings are available through our website free of charge. In addition, the SEC makes available at its website (www.sec.gov), free of charge, reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

The discussion below addresses material factors, of which we are currently aware, that could have a material and adverse effect on our business, results of operations and financial condition. Many of the following risks and uncertainties are, and will be, exacerbated by the COVID-19 pandemic and any worsening of the global business and economic environment as a result. These risk factors and other forward-looking statements that relate to future events, expectations, trends and operating periods involve certain factors that are subject to change, and important risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties should not be considered a complete discussion of all the risks and uncertainties we may face and although the risks are organized by headings and each risk is discussed separately, many are interrelated.

Our business depends on the successful development, regulatory approval and commercialization of our products and product candidates, such as MARGENZA, for which in December 2020 we obtained FDA approval, in combination with chemotherapy, for the treatment of adult patients with metastatic HER2-positive breast cancer who have received two or more prior anti-HER2 regimens, at least one of which was for metastatic disease. MARGENZA is our first product approved for sale and we expect MARGENZA will be available to patients in the U.S. in March 2021. We have invested a significant portion of our efforts and financial resources in the development of our products and product candidates, including MARGENZA. The success of our products and product candidates depends on many factors, including but not limited to:

MARGENZA’s market acceptance depends significantly on the medical community’s determination of clinical benefit and safety compared to alternative therapies available both now and in the future. Several new therapies for the treatment of HER2-positive breast cancer have recently been approved. Certain of these therapies may have or may be perceived to have greater efficacy benefits than MARGENZA in clinical trials. Competition from recently approved therapies may adversely impact the market acceptance of MARGENZA. In addition, market acceptance and the medical community determination of clinical benefit may depend significantly on the pending results of the final Overall Survival (OS) endpoint data from the SOPHIA trial, which MARGENZA result may not be favorable compared to trastuzumab, or, even if favorable compared to trastuzumab, may not be statistically significant, clinically meaningful or favorable when compared to other available or future therapies.

In addition, the potential market opportunity for MARGENZA is difficult to precisely estimate. Our internal estimates of the potential market opportunity for MARGENZA include several key assumptions based on our industry knowledge, industry publications, third-party research reports, assessment of competition, and other surveys. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions. If any of these assumptions proves to be inaccurate, then the actual market for MARGENZA could be smaller than our estimates of our potential market opportunity. If the actual market for MARGENZA is small, and/or smaller than we expect, our product revenue may be limited and it may be more difficult for us to achieve or maintain profitability.

For commercialization of any or all of our product candidates, we will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel, If we are unable to, or decide not to, further develop internal sales, marketing, and commercial distribution capabilities for any or all of our products, we will likely pursue additional collaborative arrangements regarding the sales and marketing of our products. However, there can be no assurance that we will be able to establish or maintain such collaborative arrangements, or if we are able to do so, that they will have effective sales forces. Any revenue we receive will depend upon the efforts of such third parties. We would have little or no control over the marketing and sales efforts of such third parties, and our revenue from product sales may be lower than if we had commercialized our products ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts for our products.

The life sciences industry is highly competitive and subject to rapid and significant technological change. Our approved product, MARGENZA, competes with, and our product candidates under development (if approved) will compete with, drugs and therapies that currently exist or are being developed. We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, universities and other research institutions. Many of our competitors have significantly greater financial, manufacturing, marketing, drug development, technical and human resources than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have significantly greater research and marketing capabilities than we do and may also have products that have been approved or are in late stages of development, and collaborative arrangements in our target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the product candidates that we develop obsolete. As a result of all of these factors, our competitors may succeed, or may have succeeded, in obtaining patent protection and/or FDA approval or discovering, developing and commercializing products in our field before we do.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours. For example, Daiichi Sankyo Inc.'s product ENHERTU® (fam-trastuzumab deruxtecan-nxki) and Seagen’s product TUKYSATM (tucatinib) both recently launched in the United States in patient populations that potentially compete with the patient population for MARGENZA. This could result in, or has resulted in, our competitors establishing a strong market position before we are able to enter the market. In addition, both ENHERTU and TUKYSA demonstrated greater efficacy results than MARGENZA in clinical trials. In addition, our ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of biosimilar products. For example, certain HER2 biosimilar products are approved in certain countries, including the United States, and others may be approved prior to commercialization of, or market acceptance of, MARGENZA. MARGENZA and product candidates, if approved, may be priced at a significant premium over competitive biosimilar products.

The research, testing, manufacturing, labeling, approval, selling, marketing and distribution of drug products are subject to extensive regulation by the FDA and non-U.S. regulatory authorities, which regulations differ from country to country. We are not permitted to market our product candidates in the United States or in other countries until we receive approval of a Biologics License Application (BLA) from the FDA or marketing approval from applicable regulatory authorities outside the United States. Our product candidates are in various stages of development and are subject to the risks of failure inherent in drug development. For example, in December 2020, the FDA approved the BLA for MARGENZA. MARGENZA is our first product approved for sale in any jurisdiction. In addition, our collaborator Incyte submitted a BLA for retifanlimab in January 2021. Obtaining approval of a BLA can be a lengthy, expensive and uncertain process. In addition, failure to comply with FDA and non-U.S. regulatory requirements may, either before or after product approval, subject our company or our collaborators to administrative or judicially imposed sanctions, including:

We and our collaborators are subject to extensive ongoing obligations and continued regulatory review from applicable regulatory agencies with respect to any product obtaining regulatory approval, including MARGENZA, such as continued adverse event reporting requirements and post-marketing commitments, all of which may result in significant expense and limit our and our collaborators' ability to commercialize our current and any future approved products. For example, the FDA's approval of MARGENZA included a requirement that we provide to the FDA the data from the final overall survival endpoint from our SOPHIA study, when available. Unfavorable overall survival results could result in the withdrawal of approval of MARGENZA or the inclusion of unfavorable safety information in our product labeling, or diminished market opportunity or acceptance, which could seriously harm our business. Moreover, in connection with MARGENZA’s approval, the labeling and advertising and promotion of MARGENZA are subject to additional regulatory requirements, which could entail significant expense and could negatively impact the potential commercialization of MARGENZA. In addition, the use of MARGENZA may uncover additional adverse events that limit or prevent MARGENZA’s widespread use or that force us to withdraw MARGENZA from the market, and any problems with MARGENZA or any violation of ongoing regulatory obligations could result in restrictions on MARGENZA, including its withdrawal from the market. To the extent other product candidates or those of our partners are approved by the FDA, we or our collaborators may be subject to similar post-marketing obligations.

We and the manufacturers of our current and any future approved products are also required, or will be required, to comply with current Good Manufacturing Practices, or cGMP, regulations, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Further, regulatory agencies must approve these manufacturing facilities before they can be used to manufacture our products and product candidates, and these facilities are subject to ongoing regulatory inspections. In addition, regulatory agencies subject an approved product, its manufacturer and the manufacturer’s facilities to continual review and inspections, including periodic unannounced inspections. The subsequent discovery of previously unknown problems with our current or any future approved products, including adverse events of unanticipated severity or frequency, or problems with the facilities where our current or any future approved products are manufactured, may result in restrictions on the marketing of our current or any such future approved products, up to and including withdrawal of the affected product from the market. If our manufacturing facilities, our collaborators' manufacturing facilities, or those of our respective suppliers, fail to comply with applicable regulatory requirements, such noncompliance could result in regulatory action and additional costs to us.

We are either currently enrolling patients in clinical trials or anticipate initiating or continuing clinical trials for molecules that include margetuximab, enoblituzumab, flotetuzumab, retifanlimab, tebotelimab,MGC018, MGD014, and MGD019, as monotherapies or in combination with other product candidates in 2021. In addition, Incyte Corporation is currently enrolling patients in clinical trials for retifanlimab, and other collaborators outside the United States are developing our product candidates and enrolling patients in clinical trials. We anticipate our collaborators will initiate or continue clinical trials including our other product candidates. The continuation, modification, or commencement of existing or new clinical trials could be substantially delayed or prevented by several factors, including:

Clinical failure can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we or any of our current and future collaborators may decide, or regulators may require us, to conduct additional clinical or preclinical testing. Success in early clinical trials does not mean that future larger registration clinical trials will be successful because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and non-U.S. regulatory authorities despite having progressed through initial clinical trials. A number of companies in the pharmaceutical industry, including those with greater resources and experience than us, have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier clinical trials.

We may publicly disclose top line or interim data from time to time, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. For example, in October 2019 we announced second interim overall survival data for the SOPHIA trial of margetuximab for the treatment of certain metastatic breast cancer patients. The top line or interim results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Top line and interim data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. In addition, the achievement of one primary endpoint for a trial does not guarantee that additional co-primary endpoints or secondary endpoints will be achieved. For example, the achievement by margetuximab of its first sequential endpoint for progression-free survival events in the SOPHIA trial does not indicate whether the second sequential endpoint of overall survival will be achieved. In particular, the second interim overall survival analysis, based on 270 events, did not show statistically significant results. We currently expect to receive final overall survival analysis in the second half of 2021, and such results may not show statistical significance. Failure to achieve statistical significance in this second sequential endpoint of overall survival in the SOPHIA trial may have an adverse effect on our ability to obtain or retain regulatory approval of margetuximab in the U.S. or in other jurisdictions.

Our products in development are based on our technology platforms, including Fc Optimization, DART and TRIDENT technologies. Given the novelty of these technologies, we intend to work closely with the FDA and other regulatory authorities to perform the requisite scientific analyses and evaluation of our methods to obtain regulatory approval for our product candidates. Even though MARGENZA, which incorporates an Fc variation created using our Fc Optimization platform, was approved by the FDA, there is no assurance that the FDA will approve future product candidates using such technology. The validation process takes time and resources, may require independent third-party analyses, and may not be accepted by the FDA and other regulatory authorities. For some of our product candidates that are based on these technology platforms, the regulatory approval path and requirements may not be clear or evolve as more data becomes available for this product candidates, which could add significant delay and expense. Delays or failure to obtain regulatory approval of any of the product candidates that we develop would adversely affect our business.

A key element of our strategy is to use and expand our technology platforms to build a pipeline of product candidates and progress several of these product candidates through clinical development for the treatment of a variety of different types of diseases. Although our research and development efforts to date have resulted in a pipeline of product candidates directed at various cancers, as well as autoimmune disorders and infectious diseases, we may not be able to develop product candidates that are safe and effective. Even if we are successful in continuing to build our pipeline, the potential product candidates that we identify may not be suitable for initial or continued clinical development, including as a result of being shown to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance. If we do not continue to successfully develop and begin to commercialize product candidates, we will face difficulty in obtaining product revenues in future periods, which could result in significant harm to our financial position and adversely affect our stock price.

Because we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights.

In order to market any products outside of the United States, we and our current and potential collaboration partners must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and may require additional preclinical studies or clinical trials or additional administrative review periods, which could result in significant delays, difficulties and costs for us. In addition, our failure to obtain regulatory approval in any country may delay or have negative effects on the process for regulatory approval in other countries. Although we obtained FDA approval or MARGENZA in December 2020, we do not have any product candidates approved for sale in any international market. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, our target market will be reduced and our ability to realize the full market potential of our products will be harmed.

Although all of our product candidates have undergone or will undergo safety testing, not all adverse effects of drugs can be predicted or anticipated. Unforeseen side effects from any of our product candidates could arise either during clinical development or after the approved product has been marketed. Ongoing or future trials of our product candidates may not support the conclusion that one or more of these product candidates have acceptable safety profiles. The results of future clinical or preclinical trials may show that our product candidates cause undesirable or unacceptable side effects, which could interrupt, delay or halt clinical trials, and result in delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities, or result in marketing approval from the FDA and other regulatory authorities with restrictive label warnings or potential product liability claims.

MARGENZA is currently manufactured by a third party, and we are currently manufacturing retifanlimab and other product candidates for ourselves and our collaborators. The process of manufacturing MARGENZA and our product candidates for ourselves and our collaborators is extremely susceptible to delays or product loss due to a variety of factors, including but not limited to contamination, equipment failure, improper installation or operation of equipment, vendor or operator error, inconsistency in yields, variability in product characteristics, difficulties in scaling the production process, and vendor supply chain disruptions or fluctuations. Even minor deviations from manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in MARGENZA and our product candidates or in the manufacturing facilities in which MARGENZA and our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. Any adverse developments affecting manufacturing operations for MARGENZA and our product candidates, if any are approved, may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our products. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. In addition, if we fail to supply required quantities of MARGENZA and a product candidate for one of our collaborators, our collaborator may terminate our agreement.

We currently have two current Good Manufacturing Practice (cGMP) manufacturing facilities located in Rockville, Maryland, one of which is a commercial scale facility which is intended to support future clinical and commercial production of our and our collaborators’ product candidates. Although some of our employees have experience in the manufacturing of pharmaceutical products from prior employment at other companies, we as a company have limited experience in large-scale manufacturing and no experience in commercial manufacturing. The design and build of a large scale manufacturing facility was time-consuming and expensive, and we may not realize the benefit of this investment. As a manufacturer of pharmaceutical products, we are required to demonstrate and maintain compliance with cGMPs which include requirements related to production processes, quality control and assurance and recordkeeping. Furthermore, establishing and maintaining manufacturing operations requires a reallocation of other resources, particularly the time and attention of certain of our senior management. Any failure or delay in our manufacturing capabilities could adversely impact the clinical development or commercialization of our or our collaborators’ product candidates.

We must comply with the FDA’s cGMP requirements, as set out in statute, regulations and interpreted through guidance. We may encounter difficulties in achieving quality control and quality assurance and may experience shortages in qualified personnel. We are subject to inspections by the FDA and comparable agencies in other jurisdictions to confirm compliance with applicable regulatory requirements. See “Other U.S. Post-Marketing Regulatory Requirements” above for additional information. Any failure to follow cGMP or other regulatory requirements or delay, interruption or other issues that arise in the manufacture, fill-finish, packaging, or storage of our product or product candidates as a result of a failure of our facilities or the facilities or operations of third parties to comply with regulatory requirements or pass any regulatory authority inspection could significantly impair our ability to develop and commercialize our product or product candidates, including leading to significant delays in the availability of drug product for sale and our clinical trials or the termination or hold on a clinical trial, or the delay or prevention of a filing or approval of marketing applications for our product candidates. Significant noncompliance could also result in the imposition of sanctions, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approvals for our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could damage our reputation or negatively impact a product’s commercial success. If we are not able to maintain regulatory compliance, we may not be permitted to market our product candidates and/or may be subject to product recalls, seizures, injunctions, or criminal prosecution.

Market acceptance and sales of our products and product candidates, if approved for sale by the appropriate regulatory authorities, may depend on reimbursement policies and may be affected by future healthcare reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs they will reimburse and establish payment levels and, in some cases, utilization management strategies, such as tiered formularies and prior authorization. We cannot be certain that reimbursement will be available for our products or any products that we develop or that the reimbursement level will be adequate to allow us to operate profitably. Also, we cannot be certain that reimbursement policies will not reduce the demand for, or the price paid for, our products. Our ability to commercialize our products may depend, in part, on the extent to which reimbursement for the products will be available from government authorities and third-party payors. If reimbursement for our products is not available or is available on a limited basis, or if the reimbursement amount for our products is inadequate, we may not be able to successfully commercialize any of our approved products.

payors often follow CMS’s decisions regarding coverage and reimbursement to a substantial degree. However, one third-party payor’s determination to provide coverage for a product candidate does not assure that other payors will also provide coverage for the product candidate. Further, no uniform policy for coverage and reimbursement exists in the United States, and coverage and reimbursement can differ significantly from payor to payor. As a result, the coverage and reimbursement determination process is often time-consuming and costly. This process may require us to provide scientific and clinical information to support the coverage or reimbursement of our products to each third-party payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.

As federal and state governments implement additional health care cost containment measures, including measures to lower prescription drug pricing, we cannot be sure that MARGENZA and our product candidates, if approved, will be covered, or remain covered, by private or public payors, and if covered, whether the reimbursement will be perceived by product purchasers as adequate. Health reform actions by federal and state governments and health plans may put additional downward pressure on pharmaceutical pricing and health care costs, which could negatively impact coverage and reimbursement for MARGENZA and our product candidates, if approved, our revenue, and our ability to compete with other marketed products and to recoup the costs of our research and development.

Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. Further, such payors are increasingly challenging the price, examining the medical necessity and reviewing the cost effectiveness of medical products . There may be especially significant delays in obtaining coverage and reimbursement for newly approved drugs. Third-party payors may limit coverage to specific products and product candidates on an approved list, known as a formulary, which might not include all FDA-approved drugs for a particular indication. We may need to conduct expensive pharmaco-economic studies to demonstrate the medical necessity and cost effectiveness of our products. Nonetheless, our products may not be considered medically necessary or cost effective. We cannot be sure that coverage and reimbursement will be available for any approved product that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Further, coverage policies and third-party payor reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained, less favorable coverage policies and reimbursement rates may be implemented in the future.

The United States and several foreign jurisdictions are considering, or have already enacted, a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell any of our future approved products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs through lowering prescription drug prices, improving quality and/or expanding access to healthcare. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives, including the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the ACA), which became law in 2010. While it is difficult to assess the impact of the ACA in isolation, either in general or on our business specifically, it is widely thought that the ACA increases the likelihood of downward pressure on pharmaceutical reimbursement, which could negatively affect market acceptance of, and the price we may charge for, any products we develop that receive regulatory approval. Further, the United State and foreign governments regularly consider additional reform measures that affect healthcare coverage and costs. Such reforms may include changes to the coverage and reimbursement of healthcare services and products. In particular, there have been recent executive, judicial and Congressional challenges to the ACA, which could have an impact on coverage and reimbursement for healthcare services covered by plans authorized by the ACA.

While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the ACA have been signed into law. The Tax Cuts and Jobs Act of 2017, or Tax Act, included a provision which repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” The United States Supreme Court is currently reviewing the constitutionality of the ACA, although it is unclear when a decision will be made. Although the U.S. Supreme Court has yet ruled on the constitutionality of the ACA, on January 28, 2021, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the Affordable Care Act marketplace. The executive order also instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or

Further, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. For example, on November 20, 2020, CMS issued an interim final rule implementing former President Trump’s Most Favored Nation executive order, which would tie Medicare Part B payments for certain physician-administered drugs to the lowest price paid in other economically advanced countries, effective January 1, 2021. On December 28, 2020, the United States District Court in Northern California issued a nationwide preliminary injunction against implementation of the interim final rule. However, it is unclear whether the Biden administration will work to reverse these measures or pursue similar policy initiatives. Further, it is possible that additional governmental action is taken in response to the COVID-19 pandemic.

With respect to MARGENZA and any of our other product candidates that are approved for commercial sale, we are, and will be, highly dependent upon physician and patient perceptions of us and the safety and quality of our products. We could be adversely affected if we are subject to negative publicity. We could also be adversely affected if any of our products or any similar products distributed by other companies prove to be, or are asserted to be, harmful to patients. Because of our dependence upon consumer perceptions, any adverse publicity associated with illness or other adverse effects resulting from patients’ use or misuse of our products or any similar products distributed by other companies could have a material adverse impact on our financial condition or results of operations.

As of December 31, 2020, we hold $20 million in product liability insurance coverage in the aggregate, with a per incident limit of $20 million, which may not be adequate to cover all liabilities that we may incur. We may need to increase our insurance coverage when we begin the commercialization of our product candidates. Insurance coverage is becoming increasingly expensive. As a result, we may be unable to maintain or obtain sufficient insurance at a reasonable cost to protect us against losses that could have a material adverse effect on our business. A successful product liability claim or series of claims brought against us, particularly if judgments exceed any insurance coverage we may have, could decrease our cash resources and adversely affect our business, financial condition and results of operation.

We must comply with numerous laws and regulations relating to the procurement, formation, administration and performance of government contracts. Failure to comply with these laws could result in significant civil and criminal penalties. Among the most significant government contracting regulations that may affect our business are: the Federal Acquisition Regulation (FAR) and NIH-NIAID-specific regulations supplemental to the FAR, which comprehensively regulate the procurement, formation, administration and performance of government contracts; business ethics and public integrity obligations, which govern conflicts of interest and the hiring of former government employees, restrict the granting of gratuities and funding of lobbying activities and incorporate other requirements such as the Anti-Kickback Act, the Procurement Integrity Act, and the False Claims Act; export and import control laws and regulations; and laws, regulations and executive orders restricting the use and dissemination of sensitive information we may receive pursuant to our performance of the government contract. U.S. government agencies routinely audit and investigate government contractors for compliance with applicable laws and standards. If we are audited, such audit could result in disallowance of expected cost reimbursement, or if such audit were to uncover improper or illegal activities, we could be subject to civil and criminal penalties, administrative sanctions, including suspension or debarment from government contracting and significant reputational harm.

The continued spread of the COVID-19 pandemic has had, and may continue to have, a material impact on our clinical trials, preclinical studies, commercialization efforts, manufacturing and development of our product candidates and other aspects of our business, staff, and operations, which in turn may impact our financial condition, results of operations and liquidity. For instance, the COVID-19 pandemic impaired the ability to enroll patients in clinical trials, continue ongoing clinical trials or activate clinical trial sites, and MARGENZA commercialization, due to, for example, heightened exposure to COVID-19 if an outbreak occurs in a specific geography, the shifting of healthcare resources toward the pandemic or the closing of or limiting of access to clinical facilities, and reduced or non-existent in-person access to physicians and health care centers. Furthermore, patients may be unable or unwilling to enroll in our clinical trials or be unable to comply with clinical trial protocols if COVID-19 related restrictions impede patient movement or interrupt healthcare services. Government-imposed quarantines and other restrictions may also require us to temporarily suspend activity at our clinical sites. The COVID-19 pandemic may also negatively affect the operations of third-party CROs that we rely upon to carry out our clinical trials, or the operations of other service providers, which could result in delays or disruptions in the supply of our product candidates or other aspects of our business or that of our collaborators. Any negative impact the COVID-19 pandemic has had, or will have, on patient enrollment or treatment or the timing and execution of our clinical trials could cause delays to our clinical trial activities, which could adversely affect our ability to seek and obtain regulatory approval for and to commercialize any approved product candidates, increase our operating expenses and have a material adverse effect on our business and financial results. In particular, enrollment of our registrational path trial of flotetuzumab has been slower than expected due to the COVID-19 pandemic.

Further, the COVID-19 pandemic has increased the risk that a portion of the workforce, including ours, may suffer illness or otherwise be unable to work due to close contact related precautions. There has been limited business impact from COVID-19 related absences, but there can be no assurance that there will not be additional or significant employee COVID-19 related absences with negative business impact in the future. We have maintained an on-site workforce and implemented stay-at-home orders consistent with the requirements of the jurisdictions in which we operate, with arrangements such as remote work and flexible schedules for certain functions, as well as other measures intended to reduce the risks to our employees from the impact of the pandemic while maintaining our operations.

The extent to which the COVID-19 pandemic impacts our business, staff, operations, financial condition, results of operations and liquidity, or those of our collaborators, will largely depend on future developments, which are highly uncertain and cannot be predicted, such as the duration of the pandemic, new information that may emerge concerning the severity of COVID-19 or the effectiveness of actions to contain COVID-19 or treat its impact, among others. We cannot presently predict the scope and severity of any potential government or business shutdowns or disruptions. If we or any of the third parties with whom we engage experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively affected, which could have a material adverse impact on our business, financial condition and results of operations.

We have incurred significant losses since our inception. As of December 31, 2020, our accumulated deficit was approximately $771.8 million. We expect to continue to incur losses for the foreseeable future, and we expect these losses to increase as we continue our research and development of, and seek regulatory approvals for, our product candidates, prepare for and begin to commercialize any approved products, and add infrastructure and personnel to support our product development efforts and operations as a public company. The net losses and negative cash flows incurred to date, together with expected future losses, have had, and likely will continue to have, an adverse effect on our stockholders' deficit and working capital. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue.

To become and remain profitable, we must succeed in developing and commercializing products with significant market potential. For example, revenues from MARGENZA may not be sufficient to enable us to reach profitability. In order to commercialize any additional product candidates, we will need to be successful in a range of challenging activities for which we are only in the preliminary stages, including developing product candidates, obtaining regulatory approval for them, and manufacturing, marketing and selling approved products and product candidates for which we may obtain regulatory approval. We may never succeed in these activities and may never generate revenue from product sales that is significant enough to achieve profitability. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure to become or remain profitable would depress our market value and could impair our ability to raise capital, expand our business, develop other product candidates, or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

We are advancing our product candidates through clinical development and are commercializing MARGENZA in collaboration with EVERSANA. Developing and commercializing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. In order to obtain such regulatory approval, we will be required to conduct clinical trials for each indication for each of our product candidates. We will continue to require additional funding beyond what was raised in our public offerings and through our collaborations and license agreements to complete the development and commercialization of our product candidates and to continue to advance the development of our other product candidates, and such funding may not be available on acceptable terms or at all. Although it is difficult to predict our funding requirements, based upon our current operating plan, we anticipate that our cash, cash equivalents and marketable securities as of December 31, 2020, combined with anticipated and potential collaboration payments, will enable us to fund our operations into 2023, assuming all of our programs and collaborations advance as currently contemplated. Because successful commercialization of MARGENZA and development of our product candidates is uncertain, we are unable to estimate the actual funds we will require to commercialize MARGENZA and complete research, development and clinical testing to commercialize our product candidates.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available at all, may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise additional funds through collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, MARGENZA, product candidates, or future revenue streams, or grant licenses on terms that are not favorable to us. We cannot assure you that we will be able to obtain additional funding if and when necessary. If we are unable to obtain adequate financing on a timely basis, we could be required to delay, scale back or eliminate one or more of our development programs or grant rights to develop and market MARGENZA or product candidates that we would otherwise prefer to develop and market ourselves.

Our ability to utilize our federal net operating losses (NOLs) and federal tax credits is currently limited, and may be limited further, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended. The limitations apply if an ownership change, as defined by Section 382, occurs. Generally, an ownership change occurs when certain shareholders increase their aggregate ownership by more than 50 percentage points over their lowest ownership percentage in a testing period, which is typically three years or since the last ownership change. We are already subject to Section 382 limitations due to acquisitions we made in 2002 and 2008. As of December 31, 2020, we had federal and state NOL carryforwards of $648 million and federal research and development tax credits of $69.6 million available. Future changes in stock ownership may also trigger an ownership change and, consequently, another Section 382 limitation. Any limitation may result in expiration of a portion of the net operating loss or tax credit carryforwards before utilization which would reduce our gross deferred income tax assets and corresponding valuation allowance. As a result, if we earn net taxable income, our ability to use our pre-change NOL carryforwards and tax credit carryforwards to reduce United States federal income tax may be subject to limitations, which could potentially result in increased future cash tax liability to us.

If our therapeutic collaborations do not result in the successful development and commercialization of products or if one of our collaborators terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. For example, in January 2020 our arrangement terminated with Les Laboratoires Servier and Institut de Recherches Servier (collectively, Servier), to which we had previously granted exclusive options to obtain three separate exclusive licenses to develop and commercialize DART molecules. All of the risks relating to product development, regulatory approval and commercialization described in this Annual Report on Form 10-K also apply to the activities of our program collaborators.

For MARGENZA and our product candidates, we may in the future determine to collaborate with additional pharmaceutical and biotechnology companies for development and potential commercialization. We face significant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. These factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for MARGENZA or the subject product candidate, the costs and complexities of manufacturing and delivering MARGENZA or such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative products, product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for MARGENZA or our product candidate.

Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of MARGENZA or a product candidate, reduce or delay one or more of our other development programs, delay the commercialization of MARGENZA or a product candidate or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop MARGENZA or our product candidates or bring them to market or continue to develop our technology platforms and our business may be materially and adversely affected.

We expect to continue to depend on independent clinical investigators and CROs to conduct our clinical trials. CROs may also assist us in the collection and analysis of data. There is a limited number of third-party service providers that specialize or have the expertise required to achieve our business objectives. Identifying, qualifying and managing performance of third-party service providers can be difficult, time consuming and cause delays in our development programs. These investigators and CROs will not be our employees and we will not be able to control, other than by contract, the amount of resources, including time, which they devote to our product candidates and clinical trials. If independent investigators or CROs fail to devote sufficient resources to the development of our product candidates, or if their performance is substandard, it may delay or compromise the prospects for approval and commercialization of any product candidates that we develop. In addition, the use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated. Further, the FDA requires that we comply with standards, commonly referred to as current Good Clinical Practice (GCP) for conducting, recording and reporting clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial subjects are protected. Failure of clinical investigators or CROs to meet their obligations to us or comply with GCP procedures could adversely affect the clinical development of our product candidates and harm our business.

We currently have two cGMP manufacturing facilities located in Rockville, Maryland, one of which was completed in 2018 and is designed to increase our internal capacity to manufacture more drug substance lots, at larger scale and in full compliance with cGMP to support future clinical and commercial production of our and our collaborators’ product candidates. We manufacture drug substance lots at these facilities that we use for research and development purposes and for clinical trials of our and our collaborators’ product candidates. Although we believe we currently have capacity to produce all of the material required for our and our collaborators’ clinical trials, we may not be able to do so in the future, and may rely on arrangements with third parties. Our current facilities may also be insufficient to support our needs for commercial quantities of MARGENZA and such candidates, and we may rely on arrangements with third parties. We have limited experience in manufacturing products at commercial scale.

We have entered into agreements with contract manufacturing organizations to supplement our clinical supply and internal capacity as we commercialize MARGENZA and advance our product candidate pipeline. MARGENZA is currently manufactured by third parties. In the future, we may transition some of the manufacturing of MARGENZA to our internal facilities. We may use third parties for the manufacture of some of our product candidates for clinical testing, as well as for commercial manufacture of some of our product candidates that receive marketing approval and that are not manufactured by us or one of our third party collaborators. We have entered into supply agreements with manufacturers for commercial supply and may in the future enter into one or more additional supply agreements for our product candidates. We may be unable to reach agreement with any of these contract manufacturers, or to identify and reach arrangements on satisfactory terms with other contract manufacturers, to manufacture any of our product candidates. Additionally, the facilities used by any contract manufacturer to manufacture any of our product candidates must be the subject of a satisfactory inspection before the FDA and other regulatory authorities approve a BLA or marketing authorization for the product candidate manufactured at that facility. We will depend on these third-party manufacturing partners for compliance with the FDA’s requirements for the manufacture of our finished products. If our manufacturers cannot successfully manufacture material that conforms to our specifications and the FDA and other regulatory authorities’ cGMP requirements, our product candidates will not be approved or, if already approved, may be subject to recalls.

Any of these factors could cause adversely impact the commercialization of MARGENZA and the delay of approval or commercialization of our product candidates, cause us to incur higher costs or prevent us from commercializing our product candidates successfully. Furthermore, if contract manufacturers fail to deliver the required commercial quantities of finished product on a timely basis and at commercially reasonable prices, and we are unable to find one or more replacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality and on a timely basis, we would likely be unable to meet demand for our products and could lose potential revenue. It may take several years to establish an alternative source of supply for MARGENZA or our product candidates and to have any such new source approved by the FDA or any other relevant regulatory authorities.

Commercialization collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the commercialization of MARGENZA or a product candidate, reduce the scope of any sales or marketing activities, or increase our expenditures and undertake or commercialization activities at our own expense. If in the future we elect to fund and undertake commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations to commercialize our product candidates and do not have sufficient funds or expertise to undertake the necessary commercialization activities, we may not be able to commercialize our product candidates or bring them to market or continue and our business may be materially and adversely affected.

Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches can create system disruptions or shutdowns or the unauthorized disclosure of confidential information. In addition, due to the COVID-19 pandemic a significant portion of our employees have been working remotely, either from home or elsewhere. If personal information or protected health information is improperly accessed, tampered with or disclosed as a result of a security breach, we may incur significant costs to notify and mitigate potential harm to the affected individuals, and we may be subject to sanctions and civil or criminal penalties if we are found to be in violation of the privacy or security federal or state laws protecting confidential personal information. In addition, a cybersecurity breach could hurt our reputation, subject us to liability claims or regulatory penalties for compromised personal information and could have a material adverse effect on our business, financial condition and results of operations. In order to reduce such risks, our information security program employs a policy-driven information systems security architecture based on National Institute of Standards and Technology (NIST) Cybersecurity Framework and references the NIST 800-53 guidelines for risk-based assessments and implementation of information security controls. The program is managed by dedicated Information Security personnel with the primary mission to implement, maintain, and improve the capabilities and practices to ensure the confidentiality, integrity, and availability of the sensitive information it maintains.  

Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. Other entities may have or obtain patents or proprietary rights that could limit our ability to make, use, sell, offer for sale or import our future approved products or impair our competitive position. For example, certain patents held by third parties cover Fc engineering methods and mutations in Fc regions to enhance the binding of Fc regions to Fc receptors on immune cells. Although we believe that these patents are not infringed, and/or are invalid and/or unenforceable, if a court should find that they cover MARGENZA or enoblituzumab and we are unable to invalidate such patents, or if licenses for them are not available on commercially reasonable terms, our business could be harmed, perhaps materially.

These lawsuits would be costly and could affect our results of operations and divert the attention of our management and scientific personnel. There is a risk that a court would decide that we or our collaborators are infringing the third party’s patents and would order us or our collaborators to stop the activities covered by the patents. In that event, we or our collaborators may not have a viable alternative to the technology protected by the patent and may need to halt work on the affected product candidate or cease commercialization of an approved product. In addition, there is a risk that a court will order us or our collaborators to pay the other party damages. An adverse outcome in any litigation or other proceeding could subject us to significant liabilities to third parties and require us to cease using the technology that is at issue or to license the technology from third parties. We may not be able to obtain any required licenses on commercially acceptable terms or at all. Any of these outcomes could have a material adverse effect on our business.

The pharmaceutical and biotechnology industries have produced a significant number of patents, and it may not always be clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform or predictable. If we are sued for patent infringement, we would need to demonstrate that our products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and divert management’s time and attention in pursuing these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to defend an infringement action successfully or have infringed patents declared invalid, we may incur substantial monetary damages, encounter significant delays in bringing our product candidates to market and be precluded from manufacturing or selling our product candidates.

Issued patents may be challenged, narrowed, invalidated or circumvented. In addition, court decisions may introduce uncertainty in the enforceability or scope of patents owned by biotechnology companies. The legal systems of certain countries do not favor the aggressive enforcement of patents, and the laws of foreign countries may not allow us to protect our inventions with patents to the same extent as the laws of the United States. Because patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because publications of discoveries in scientific literature lag behind actual discoveries, we cannot be certain that we were the first to make the inventions claimed in our issued patents or pending patent applications, or that we were the first to file for protection of the inventions set forth in our patents or patent applications. As a result, we may not be able to obtain or maintain protection for certain inventions. Therefore, the enforceability and scope of our patents in the United States and in foreign countries cannot be predicted with certainty and, as a result, any patents that we own or license may not provide sufficient protection against

The issuance of a patent does not ensure that a court or agency finds or will find the patent valid or enforceable, so even if we obtain patents, they may not be valid or enforceable against third parties. In addition, the issuance of a patent does not give us the right to practice the patented invention. Third parties may have blocking patents that could prevent us from marketing our own patented product and practicing our own patented technology. Third parties may also seek to market biosimilar versions of any approved products. Alternatively, third parties may seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or agency with jurisdiction may find our patents invalid and/or unenforceable. Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives.

The patent position of pharmaceutical or biotechnology companies, including ours, is generally uncertain and involves complex legal and factual considerations. The standards which the United States Patent and Trademark Office (USPTO) and its foreign counterparts use to grant patents are not always applied predictably or uniformly and can change. There is also no uniform, worldwide policy regarding the subject matter and scope of claims granted or allowable in pharmaceutical or biotechnology patents. The laws of some foreign countries do not protect proprietary information to the same extent as the laws of the United States, and many companies have encountered significant problems and costs in protecting their proprietary information in these foreign countries. Outside the United States, patent protection must be sought in individual jurisdictions, further adding to the cost and uncertainty of obtaining adequate patent protection outside of the United States. Accordingly, we cannot predict whether additional patents protecting our technology will issue in the United States or in foreign jurisdictions, or whether any patents that do issue will have claims of adequate scope to provide competitive advantage. Moreover, we cannot predict whether third parties will be able to successfully obtain claims or the breadth of such claims. The allowance of broader claims may increase the incidence and cost of patent interference proceedings, opposition proceedings, and/or reexamination proceedings, the risk of infringement litigation, and the vulnerability of the claims to challenge. On the other hand, the allowance of narrower claims does not eliminate the potential for adversarial proceedings, and may fail to provide a competitive advantage. Our issued patents may not contain claims sufficiently broad to protect us against third parties with similar technologies or products, or provide us with any competitive advantage.

These lawsuits and proceedings would be costly and could affect our results of operations and divert the attention of our managerial and scientific personnel. There is a risk that a court or administrative body would decide that our patents are invalid or not infringed by a third party’s activities, or that the scope of certain issued claims must be further limited. An adverse outcome in a litigation or proceeding involving our own patents could limit our ability to assert our patents against these or other competitors, affect our ability to receive royalties or other licensing consideration from our licensees, and may curtail or preclude our ability to exclude third parties from making, using and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition.

We are currently party to various intellectual property license agreements. These license agreements impose, and we expect that future license agreements may impose, various diligence, milestone payment, royalty, insurance and other obligations on us. For example, we have entered into patent and know-how license agreements that grant us the right to use certain technologies related to biological manufacturing to manufacture our clinical product candidates. These licenses typically include an obligation to pay yearly maintenance payments and royalties on sales, and may also include upfront and milestone payments. If we fail to comply with our obligations under the licenses, the licensors may have the right to terminate their respective license agreements, in which event we might not be able to market any product that is covered by the agreements. Termination of the license agreements or reduction or elimination of our licensed rights may result in our having to negotiate new or reinstated licenses with less favorable terms, which could adversely affect our competitive business position and harm our business.

In addition to patent protection, we also rely on other proprietary rights, including protection of trade secrets, and other proprietary information. To maintain the confidentiality of trade secrets and proprietary information, we enter into confidentiality agreements with our employees, consultants, collaborators and others upon the commencement of their relationships with us. These agreements require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. Our agreements with employees and our personnel policies also provide that any inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. However, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. Thus, despite such

agreement, such inventions may become assigned to third parties. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information. To the extent that our employees, consultants or contractors use technology or know-how owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions. To the extent that an individual who is not obligated to assign rights in intellectual property to us is rightfully an inventor of intellectual property, we may need to obtain an assignment or a license to that intellectual property from that individual, or a third party or from that individual’s assignee. Such assignment or license may not be available on commercially reasonable terms or at all.

As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously or concurrently employed at research institutions and/or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers, or that patents and applications we have filed to protect inventions of these employees, even those related to one or more of our product candidates, are rightfully owned by their former or concurrent employer. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to the USPTO and various foreign patent offices at various points over the lifetime of our patents and/or applications. We have systems in place to remind us to pay these fees, and we rely on our outside counsel or our agents to pay these fees when due. Additionally, the USPTO and various foreign patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on our business. In addition, we may be responsible for the payment of patent fees for patent rights that we license from other parties. If any licensor of these patents does not itself elect to make these payments, and we fail to do so, we may be liable to the licensor for any costs and consequences of any resulting loss of patent rights.

Depending upon the timing, duration and conditions of FDA marketing approval of our product candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. However, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for that product will be shortened and our competitors may obtain approval to market competing products sooner. As a result, our revenue from applicable products could be reduced, possibly materially,

Our research and development involves, and may in the future involve, the use of potentially hazardous materials and chemicals. Our operations may produce hazardous waste products. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards mandated by local, state and federal laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations and fire and building codes, including those governing laboratory procedures, exposure to blood-borne pathogens, use and storage of flammable agents and the handling of biohazardous materials. Although we maintain workers’ compensation insurance as prescribed by the States of Maryland and California to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of these materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations.

In the United States, our operations, and those of our collaborators, are subject to regulation by various local, state, federal authorities in addition to the FDA, including but not limited to, the Centers for Medicare & Medicaid Services (“CMS”), other divisions of HHS (such as the Office of Inspector General, Office for Civil Rights and the Health Resources and Service Administration), the U.S. Department of Justice (“DOJ”) and individual U.S. Attorney offices within the DOJ, and state and local governments. We and our collaborators are or may be subject to broadly applicable “fraud and abuse” laws , such as false claims, anti-kickback laws, transparency laws, and privacy and security laws.. Federal false claims laws, including the federal civil False Claims Act, prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, or causing to be made, a false statement to get a claim paid.

The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Although there are several statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the federal anti-kickback statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Our practices, or those of our collaborators, may not in all cases meet all of the criteria for protection under a statutory exception or regulatory safe harbor.

The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits, among other things, knowingly and willfully executing, or attempting to execute, a scheme or artifice to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private), willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false, fictitious or fraudulent statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal anti-kickback statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

Over the past few years, a number of pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety of promotional and marketing activities, such as: providing free trips, free goods, improper consulting fees and grants and other monetary benefits to prescribers; reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in off-label promotion; and submitting inflated best price information to the Medicaid Rebate Program to reduce liability for Medicaid rebates. At such time as we or our collaborators market MARGENZA or any of our future approved products and these products are paid for by governmental programs, it is possible that some of our business activities could also be subject to challenge under one or more of these “fraud and abuse” laws.

We and our collaborators may also be subject to data privacy and security regulations by both the federal government and the states in which we conduct our business, as well as foreign jurisdictions. In the United States, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, impose requirements on “covered entities,” including certain healthcare providers, health plans, and healthcare clearinghouses, and their respective “business associates” that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity as well as their covered subcontractors relating to the privacy, security and transmission of individually identifiable health information.

Further, in order to distribute products commercially in the United States, we or our collaborators must also comply with state laws that require the registration of manufacturers and wholesale distributors of pharmaceutical products in a state, including, in certain states, manufacturers, and distributors who ship products into the state even if such manufacturers or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, track, and report gifts, compensation and other remuneration made to physicians and other healthcare providers, clinical trials and other activities, and/or register their sales representatives, as well as to prohibit pharmacies and other healthcare entities from providing certain physician prescribing data to pharmaceutical companies for use in sales and marketing, and to prohibit certain other sales and marketing practices.

If our operations, or those of our collaborators marketing, distributing or commercializing any of our products on our behalf, are found to be in violation of any of the federal and state healthcare laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including without limitation, civil, criminal and/or administrative penalties, damages, fines, disgorgement, exclusion from participation in government programs, such as Medicare and Medicaid, injunctions, private “qui tam” actions brought by individual whistleblowers in the name of the government, or refusal to allow us to enter into government contracts, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. We and our commercial partners operate in a number of jurisdictions that pose a risk of potential FCPA violations, and we participate in collaborations and relationships with third parties whose actions could potentially subject us to liability under the FCPA or other anti-corruption laws. There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws. If we violate provisions of the FCPA or other anti-corruption laws or are subject to an investigation or audit pursuant to these laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures and legal expenses, which could have an adverse impact on our business, financial condition and results of operations.

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, to provide accurate information to the FDA or other agencies, to comply with federal and state health care fraud and abuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the health care industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a code of conduct, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. In addition, we will need to expand and effectively manage our managerial, operational, financial, development and other resources in order to successfully pursue our commercialization of MARGENZA and research, development and commercialization efforts for our existing and future product candidates. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.

As of December 31, 2020, we had 370 full-time employees. As our development and commercialization plans and strategies develop, we may choose to expand our employee base for managerial, operational, manufacturing, sales, marketing, financial and other resources. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. Also, our management may need to divert a disproportionate amount of their attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations which may result in weaknesses in our infrastructure, give rise to operational errors, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Any such growth could require significant capital expenditures and may divert financial resources from other projects, such as the commercialization of MARGENZA and the development of existing and additional product candidates. If our management is unable to effectively manage such growth, our expenses may increase more than expected, our ability to generate and/or grow revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize MARGENZA, our product candidates and compete effectively with others in our industry will depend, in part, on our ability to effectively manage any such growth.

Certain provisions of our restated certificate of incorporation and amended and restated bylaws could discourage, delay, or prevent a merger, acquisition, or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. Stockholders who wish to participate in these transactions may not have the opportunity to do so. Furthermore, since our board of directors is responsible for appointing the members of our management team, these provisions could prevent or frustrate attempts by our stockholders to replace or remove our management by making it more difficult for stockholders to replace members of our board of directors. These provisions:

We lease a total of approximately 235,000 square feet of manufacturing, office, laboratory and warehouse space in Maryland and California. Our headquarters building in Rockville, Maryland currently houses laboratory, office and manufacturing operations to support clinical, and potentially commercial, quantities and scale. This location is occupied under a lease that expires in 2027. We also lease another space supporting smaller-scale manufacturing operations in Rockville. The lease of that space expires in December 2024. These leases and all of the leases on our other properties include one or more options to renew, with those renewal periods ranging from five to fourteen years. We believe that our properties are generally in good condition, well maintained, suitable and adequate to carry on our business. We believe our capital resources are sufficient to lease any additional facilities required to meet our expected growth needs.

We are a biopharmaceutical company focused on developing and commercializing innovative antibody-based therapeutics designed to modulate the human immune response for the treatment of cancer. In December 2020, the U.S. Food and Drug Administration (FDA) approved MARGENZA (margetuximab-cmkb), a human epidermal growth factor receptor 2 (HER2) receptor antagonist indicated, in combination with chemotherapy, for the treatment of adult patients with metastatic HER2-positive breast cancer who have received two or more prior anti-HER2 regimens, at least one of which was for metastatic disease. We expect to initiate the commercial launch of MARGENZA late in the first quarter of 2021. In addition, we have a pipeline of product candidates in human clinical testing, including eight immuno-oncology programs, that have been created primarily using our proprietary, antibody-based technology platforms. We believe our product candidates have the potential to have a meaningful effect on treating patients' unmet medical needs as monotherapy or, in some cases, in combination with other therapeutic agents.

We commenced active operations in 2000, and have since devoted substantially all of our resources to staffing our company, developing our technology platforms, identifying potential product candidates, undertaking preclinical studies, conducting clinical trials, developing collaborations, business planning and raising capital. We have not generated any revenues from the sale of any products to date. We have financed our operations primarily through the public and private offerings of our securities, collaborations with other biopharmaceutical companies, and government grants and contracts. Although it is difficult to predict our funding requirements, we anticipate that our cash, cash equivalents and marketable securities as of December 31, 2020, combined with anticipated and potential collaboration payments and product revenues, should enable us to fund our operations into 2023, assuming our programs and collaborations advance as currently contemplated.

In March 2020, the World Health Organization declared the outbreak of a novel strain of coronavirus (COVID-19) as a pandemic, which continues to spread throughout the world. Developments have been occurring rapidly with respect to the spread of COVID-19 and its impact on human health and businesses. To date, the COVID-19 pandemic has negatively impacted the global economy, created significant financial market volatility, disrupted global supply chains, and resulted in a significant number of infections and deaths worldwide. In addition, several national, state and local governments have placed restrictions on people from gathering in groups or interacting within a certain physical distance and in certain cases, have ordered businesses to close, limit operations or mandate that people stay at home.

To date, although there has been some negative impact on our business and operations, including, for example, slowed clinical trial enrollment, we have been able to mitigate against more severe impacts of the COVID-19 pandemic on our business and operations. However, the COVID-19 pandemic could have a more significant negative impact on our business in the future depending on the depth of the effects and the duration of the crisis. In response to the COVID-19 pandemic, we have been focused on keeping our employees safe, continuing patients on trials, and maintaining our manufacturing capabilities and research efforts. The COVID-19 pandemic is an evolving situation and we continue to monitor our business very closely to try and mitigate any potential impacts. We expect the pandemic to continue to have some near-term impact on the initiation of new studies and on clinical trial enrollment. For example, in consideration of the current COVID-19 pandemic, we delayed our planned Phase 2 study of enoblituzumab, an investigational, Fc-engineered, anti-B7-H3 monoclonal antibody, in combination with checkpoint blockade in patients with advanced head and neck cancer until the first quarter of 2021. In addition, we stopped

Notwithstanding the foregoing, we cannot precisely predict the impact that the COVID-19 pandemic will have in the future due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact to the business of potential variations or disruptions in our supply chain, and other factors identified in Part I, Item 1A. “Risk Factors” in this Form 10-K. Given these uncertainties, the COVID-19 pandemic could disrupt the business of certain of our collaborators and impact our business operations and our ability to execute on our associated business strategies and initiatives, and adversely impact our consolidated results of operations and/or our financial condition in the future. We will continue to closely monitor and evaluate the nature and extent of the impact of the COVID-19 pandemic to our business, consolidated results of operations, and financial condition.

Under the terms of the Incyte License Agreement, Incyte leads global development of retifanlimab. Assuming successful development and commercialization of retifanlimab by Incyte, we could receive total development and regulatory milestones of up to approximately $420.0 million and up to $330.0 million in commercial milestones. We received $55.0 million of the total development milestones through December 31, 2020 and an additional development milestone of $10.0 million was earned in February 2021. If retifanlimab is approved and commercialized, we would be eligible to receive tiered royalties of 15% to 24% on any global net sales and we have the option to co-promote retifanlimab with Incyte. We retain the right to develop our pipeline assets in combination with retifanlimab, with Incyte commercializing retifanlimab and us commercializing our asset(s), if any such potential combinations are approved. We also have an agreement with Incyte under which we are to perform development and manufacturing services for Incyte's clinical needs of retifanlimab (Incyte Clinical Supply Agreement) and another agreement under which we are entitled to manufacture a portion of Incyte’s global commercial supply of retifanlimab (Incyte Commercial Supply Agreement).

Under the terms of the agreement, Zai Lab paid us an upfront payment of $25.0 million less foreign withholding tax of $2.5 million. Assuming successful development and commercialization of margetuximab, tebotelimab and the TRIDENT molecule, we could receive up to $140.0 million in development and regulatory milestones, of which we have already received $4.0 million ($3.6 million net of foreign withholding tax). In addition, Zai Lab would pay us tiered royalties at percentage rates of mid-teens to 20% for net sales of margetuximab in Zai Lab’s territory, mid-teens for net sales of tebotelimab in Zai Lab’s territory and 10% for net sales of the TRIDENT molecule in Zai Lab’s territory, which may be subject to adjustment in specified circumstances.

Our management's discussion and analysis of financial conditions and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the balance sheets and the reported amount of the revenue and expenses recorded during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. We review and evaluate these estimates on an on-going basis. These assumptions and estimates form the basis for making judgments about the carrying values of assets and liabilities and amounts that have been recorded as revenues and expenses. Actual results and experiences may differ from these estimates. The results of any material revisions would be reflected in the consolidated financial statements prospectively from the date of the change in estimate.

We recognize revenue under Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers and all related amendments (collectively ASC 606) when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, management performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

For each arrangement that results in revenues, we identify all performance obligations, which may include a license to intellectual property and know-how, research and development activities, transition activities and/or manufacturing services. In order to determine the transaction price, in addition to any upfront payment, management estimates the amount of variable consideration at the outset of the contract either utilizing the expected value or most likely amount method, depending on the facts and circumstances relative to the contract. We constrain (reduce) the estimates of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur. When determining if variable consideration should be constrained, management considers whether there are factors outside our control that could result in a significant reversal of revenue. In making these assessments, management considers the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required.

Once the estimated transaction price is established, amounts are allocated to the performance obligations that have been identified. The transaction price is generally allocated to each separate performance obligation on a relative standalone selling price basis. We must develop assumptions that require judgment to determine the standalone selling price in order to account for these agreements. To determine the standalone selling price, management’s assumptions may include (i) the probability of obtaining marketing approval for the product candidate, (ii) estimates regarding the timing and the expected costs to develop and commercialize the product candidate, and (iii) estimates of future cash flows from potential product sales with respect to the product candidate. Standalone selling prices used to perform the initial allocation are not updated after contract inception. We do not include a financing component to its estimated transaction price at contract inception unless we estimate that certain performance obligations will not be satisfied within one year.

Licenses. When we grant a license to our intellectual property, we determine whether the nature of the intellectual property to which the customer will have rights is functional intellectual property (functional IP), which has significant standalone functionality, or symbolic intellectual property (symbolic IP) which does not have significant standalone functionality. Revenue from functional IP is recognized at the point in time when control of the distinct license is transferred to the customer. Revenue from symbolic IP is recognized over the access period to our intellectual property. If the license to our intellectual property is determined to be distinct from the other promises or performance obligations identified in the arrangement, we recognize revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and when (or as) the customer is able to use and benefit from the license. In assessing whether a promise or performance obligation is distinct from the other promises, we consider factors such as the research, development, manufacturing and commercialization capabilities of the licensee and the availability of the associated expertise in the general marketplace. In addition, we consider whether the licensee can benefit from a promise for its intended purpose without the receipt of the remaining promise, whether the value of the promise is dependent on the unsatisfied promise, whether there are other vendors that could provide the remaining promise, and whether it is separately identifiable from the remaining promise. For licenses that are combined with other promises, management utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. The measure of progress, and thereby periods over which revenue should be recognized, are subject to estimates by management and may change over the course of the research and development and licensing agreement. Such a change could have a material impact on the amount of revenue we record in future periods.

Research, Development and/or Manufacturing Services. The promises under our agreements may include research and development or manufacturing services to be performed by us on behalf of the counterparty. If these services are determined to be distinct from the other promises or performance obligations identified in the arrangement, we recognize the transaction price allocated to these services as revenue over time based on an appropriate measure of progress when the performance by us does not create an asset with an alternative use and we have an enforceable right to payment for the performance completed to date. If these services are determined not to be distinct from the other promises or performance obligations identified in the arrangement, we recognize the transaction price allocated to the combined performance obligation as the related performance obligations are satisfied.

Customer Options. If an arrangement contains customer options, we evaluate whether the options are material rights because they allow the customer to acquire additional goods or services for free or at a discount. If the customer options are determined to represent a material right, the material right is recognized as a separate performance obligation at the outset of the arrangement. We allocate the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option. Amounts allocated to a material right are not recognized as revenue until, at the earliest, the option is exercised. If the options are deemed not to be a material right, they are excluded as performance obligations at the outset of the arrangement.

We analyze our collaboration arrangements to assess whether such arrangements involve joint operating activities performed by parties who are both active participants in the activities and are both exposed to significant risks and rewards dependent on the commercial success of such activities. Such arrangements generally are within the scope of ASC 808, Collaborative Arrangements (ASC 808). While ASC 808 defines collaborative arrangements and provides guidance on income statement presentation, classification, and disclosures related to such arrangements, it does not address recognition and measurement matters, such as (1) determining the appropriate unit of accounting or (2) when the recognition criteria are met. Therefore, the accounting for these arrangements is either based on an analogy to other accounting literature or an accounting policy election by management. We account for certain components of the collaboration agreement that are reflective of a vendor-customer relationship (e.g., licensing arrangement) based on an analogy to ASC 606. We account for other components based on a reasonable, rational and consistently applied accounting policy election. Reimbursements from the counter-party that are the result of a collaborative relationship with the counter-party, instead of a customer relationship, such as co-development activities, are recorded as a reduction to research and development expense as the services are performed.

Research and development expenses consist of costs we incur for our own research and development activities and costs incurred by our collaborators under cost sharing arrangements. Research and development costs consist of salaries and benefits, including related stock-based compensation, laboratory supplies and facility costs, as well as fees paid to other entities that conduct certain research and development activities on our behalf, such as CROs and contract manufacturing organizations (CMOs). Research and development costs are expensed as incurred. We receive estimates from our collaborators when we are sharing development expenses, and use these estimates to record an increase or decrease in research and development expense, depending on how much we have each spent during the period.

Clinical trial expenses are a significant component of research and development expenses, and we outsource a significant portion of these costs to third parties. Third party clinical trial expenses include investigator fees, site and patient costs, CRO costs, costs for central laboratory testing, data management and CMO costs. The accrual for site and patient costs includes inputs such as estimates of patient enrollment, patient cycles incurred, clinical site activations, and other pass-through costs. These inputs are required to be estimated due to a lag in receiving the actual clinical information from third parties. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected on the consolidated balance sheets as a prepaid asset or accrued expenses. These third party agreements are generally cancelable, and related costs are recorded as research and development expenses as incurred. Non-refundable advance clinical payments for goods or services that will be used or rendered for future research and development activities are recorded as a prepaid asset and recognized as expense as the related goods are delivered or the related services are performed. When evaluating the adequacy of the accrued expenses, we analyze progress of the studies, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be made in determining the accrued balances at the end of any reporting period. Actual results could differ from the estimates made. The historical clinical accrual estimates have not been materially different from the actual costs.

Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that such tax rate changes are enacted. The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. Financial statement recognition of a tax position taken or expected to be taken in a tax return is determined based on a more-likely-than-not threshold of that position being sustained. If the tax position meets this threshold, the benefit to be recognized is measured as

We account for stock-based compensation awards in accordance with ASC Topic 718, Compensation—Stock Compensation (ASC 718). ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the consolidated statements of operations and comprehensive loss based on their grant date fair values. We estimate the grant date fair value of each option award using the Black-Scholes option pricing model. The resulting fair value is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the option. The use of a Black-Scholes model requires us to make assumptions with respect to the expected term of the option, the expected volatility of our common stock consistent with the expected term of the option, the risk-free interest rate consistent with the expected term of the option, the expected dividend yield of our common stock and the expected forfeiture rate.

As a biotechnology company, we have primarily funded our operations with proceeds from the sale of our common stock in equity offerings, revenue from our multiple collaboration agreements, and contracts and grants from NIAID. 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 December 31, 2020, anticipated and potential collaboration payments, and product revenues should enable us to fund our operations into 2023, assuming our programs and collaborations advance as currently contemplated.

Our primary objective when considering our investment activities is to preserve capital in order to fund our operations. We also seek to maximize income from our investments without assuming significant risk. Our current investment policy is to invest principally in deposits and securities issued by the U.S. government and its agencies, Government Sponsored Enterprise agency debt obligations, corporate debt obligations and money market instruments. As of December 31, 2020, we had cash, cash equivalents and marketable securities of $272.5 million. Our primary exposure to market risk is related to changes in interest rates. Due to the short-term maturities of our cash equivalents and marketable securities and the low risk profile of our marketable securities, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash equivalents and marketable securities. We have the ability to hold our marketable securities until maturity, and we therefore do not expect a change in market interest rates to affect our operating results or cash flows to any significant degree.

Our management, including our principal executive and principal financial officers, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in this Annual Report on Form 10-K has been appropriately recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Signature

Title

Date

/s/ Scott Koenig

President and CEO and Director

February 25, 2021

Scott Koenig, M.D., Ph.D.

(Principal Executive Officer)

/s/ James Karrels

Senior Vice President, Chief Financial

February 25, 2021

James Karrels

Officer and Secretary (Principal Financial Officer)

/s/ Lynn Cilinski

Vice President, Controller and Treasurer

February 25, 2021

Lynn Cilinski

(Principal Accounting Officer)

/s/ Paulo Costa

Director

February 25, 2021

Paulo Costa

/s/ Karen Ferrante, M.D.

Director

February 25, 2021

Karen Ferrante, M.D.

/s/ Kenneth Galbraith

Director

February 25, 2021

Kenneth Galbraith

/s/ Edward Hurwitz

Director

February 25, 2021

Edward Hurwitz

/s/ Scott Jackson

Director

February 25, 2021

Scott Jackson

/s/ Federica O’Brien

Director

February 25, 2021

Federica O’Brien

/s/ Jay Siegel, M.D.

Director

February 25, 2021

Jay Siegel, M.D.

/s/ David Stump, M.D.

Director

February 25, 2021

David Stump, M.D.

We have audited the accompanying consolidated balance sheets of MacroGenics, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.


Description of the Matter			As disclosed in Note 2 to the consolidated financial statements, the Company expenses research and development expenditures as incurred, which include costs relating to clinical trial activities. The Company accrues costs for clinical trial activities based upon estimates of the services received and related expenses incurred that have yet to be invoiced by the clinical research organizations (CROs), investigators, professional service providers, and other vendors providing development services (collectively, the “service providers”). The Company’s clinical trial accrual balance at December 31, 2020 is included in accrued expenses and other current liabilities of $34.2 million on the consolidated balance sheet, and the Company’s related 2020 clinical trial expenses are included in research and development costs and expenses of $193.2 million on the consolidated statement of operations and comprehensive loss for the year ended December 31, 2020.
			Auditing the Company’s accruals for clinical trial costs involved complex and subjective auditor judgment due to the significant estimation required by management in determining the progress to completion of services that have been performed by the service providers and the associated costs that will be invoiced by the service providers subsequent to the date that the consolidated financial statements are issued.
How We Addressed the Matter in Our Audit			We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls addressing the identified risks related to the Company’s process for estimating accrued clinical trial costs. For example, we tested controls over management’s review of the clinical trial expense calculations, the significant assumptions about the status of research and development services incurred, and the completeness and accuracy of the data used to calculate the estimates.
			To test the clinical trial accruals, our audit procedures included, among others, reviewing a sample of agreements with the service providers to corroborate key financial and contractual terms, and testing the accuracy and completeness of the underlying data used in the accrual computations. We also evaluated management’s estimates of the progress of a sample of clinical trials by making direct inquiries of the Company’s operations personnel that oversee the clinical trials and obtaining information directly from certain service providers about the service providers’ estimate of costs that had been incurred through December 31, 2020. To evaluate the completeness of the accruals, we also examined subsequent invoices from the service providers and cash disbursements to the service providers, to the extent such invoices were received, or payments were made prior to the date that the consolidated financial statements were issued.


	December 31,
	2020		2019
Assets
Current assets:
Cash and cash equivalents	$	181,131	$	126,472
Marketable securities	91,400		89,284
Accounts receivable	23,081		12,744
Prepaid expenses and other current assets	16,982		11,285
Total current assets	312,594		239,785

Property, equipment and software, net	42,225		48,211

Other assets	23,924		24,505
Total assets	$	378,743	$	312,501

Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	8,031	$	4,308
Accrued expenses and other current liabilities	34,198		27,139
Deferred revenue	4,456		10,700

Lease liabilities	3,988		3,020
Total current liabilities	50,673		45,167

Deferred revenue, net of current portion	6,926		9,153
Lease liabilities, net of current portion	25,260		27,553

Total liabilities	82,859		81,873

Stockholders' equity:
Common stock, $0.01 par value -- 125,000,000 shares authorized, 56,244,771 and 48,958,763 shares outstanding at December 31, 2020 and December 31, 2019, respectively	562		490
Additional paid-in capital	1,067,150		872,204
Accumulated other comprehensive income (loss)	(7)		16
Accumulated deficit	(771,821)		(642,082)
Total stockholders' equity	295,884		230,628
Total liabilities and stockholders' equity	$	378,743	$	312,501


	Year Ended December 31,
	2020		2019		2018
Revenues:
Revenue from collaborative and other agreements	$	97,764	$	62,024	$	58,644
Revenue from government agreements	7,119		2,164		1,477
Total revenues	104,883		64,188		60,121

Costs and expenses:
Research and development	193,201		195,309		190,827
General and administrative	42,742		46,064		40,500
Total costs and expenses	235,943		241,373		231,327

Loss from operations	(131,060)		(177,185)		(171,206)

Other income (expense)	1,321		25,374		(247)
Net loss	(129,739)		(151,811)		(171,453)

Other comprehensive loss:
Unrealized gain (loss) on investments	(23)		19		58
Comprehensive loss	$	(129,762)	$	(151,792)	$	(171,395)


Basic and diluted net loss per common share	$	(2.47)	$	(3.16)	$	(4.19)
Basic and diluted weighted average number of common shares	52,442,389		48,082,728		40,925,318


	Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
	Shares	Amount		Shares	Amount

Balance, December 31, 2017	36,859,077	$	369	—	$	—	$	611,270	$	(312,340)	$	(61)	$	299,238
Cumulative effect of adoption of accounting standards	—	—		—	—		—		(6,478)		—		(6,478)
Share-based compensation	—	—		—	—		16,520		—		—		16,520
Issuance of common stock, net of offering costs	5,175,000	52		—	—		103,207		—		—		103,259
Stock plan related activity	319,224	3		11,070	(260)		1,990		—		—		1,733
Retirement of treasury stock	—	—		(11,070)	260		(260)		—		—		—
Unrealized gain on investments	—	—		—	—		—		—		58		58
Net loss	—	—		—	—		—		(171,453)		—		(171,453)
Balance, December 31, 2018	42,353,301	424		—	—		732,727		(490,271)		(3)		242,877

Share-based compensation	—	—		—	—		19,571		—		—		19,571
Issuance of common stock, net of offering costs	6,325,000	63		—	—		118,594		—		—		118,657
Stock plan related activity	280,462	3		—	—		1,312		—		—		1,315

Unrealized gain on investments	—	—		—	—		—		—		19		19
Net loss	—	—		—	—		—		(151,811)		—		(151,811)
Balance, December 31, 2019	48,958,763	490		—	—		872,204		(642,082)		16		230,628

Share-based compensation	—	—		—	—		20,676		—		—		20,676
Issuance of common stock, net of offering costs	6,612,815	66		—	—		170,390		—		—		170,456
Stock plan related activity	673,193	6		74,632	(2,012)		5,892		—		—		3,886
Retirement of treasury stock	—	—		(74,632)	2,012		(2,012)		—		—		—
Unrealized loss on investments	—	—		—	—		—		—		(23)		(23)
Net loss	—	—		—	—		—		(129,739)		—		(129,739)
Balance, December 31, 2020	56,244,771	$	562	—	$	—	$	1,067,150	$	(771,821)	$	(7)	$	295,884


	Year Ended December 31,
	2020		2019		2018
Operating activities
Net loss	$	(129,739)	$	(151,811)	$	(171,453)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	11,957		12,306		9,160
Amortization of premiums and discounts on marketable securities	(260)		(1,461)		(881)
Share-based compensation	20,676		19,571		16,520
Changes in operating assets and liabilities:
Accounts receivable	(10,337)		16,839		(15,941)
Prepaid expenses	(5,697)		(4,878)		(3,255)

Other assets	581		(1,578)		(4,580)
Accounts payable	3,723		787		1,554
Accrued expenses and other current liabilities	6,994		(6,057)		3,208
Lease liabilities	(1,324)		2,881		—
Deferred revenue	(8,472)		(20,869)		13,405
Deferred rent	—		—		(971)
Net cash provided by (used in) operating activities	(111,898)		(134,270)		(153,234)

Cash flows from investing activities
Purchases of marketable securities	(223,745)		(264,399)		(132,750)
Proceeds from sales and maturities of marketable securities	221,866		189,330		214,348
Purchases of property, equipment and software	(5,906)		(4,289)		(24,954)
Net cash used in investing activities	(7,785)		(79,358)		56,644

Cash flows from financing activities
Proceeds from issuance of common stock, net of offering costs	170,456		118,657		103,259
Proceeds from stock option exercises and ESPP purchases	5,898		1,315		1,992
Purchase of treasury stock	(2,012)		—		(260)
Net cash provided by financing activities	174,342		119,972		104,991
Net change in cash and cash equivalents	54,659		(93,656)		8,401
Cash and cash equivalents at beginning of period	126,472		220,128		211,727
Cash and cash equivalents at end of period	$	181,131	$	126,472	$	220,128

Non-cash operating and investing activities:
Right-of-use assets modified in exchange for operating lease obligation	$	—	$	6,408	$	—
Fair value of warrants received	$	—	$	—	$	6,130

MacroGenics, Inc. (the Company) is incorporated in the state of Delaware. The Company is a biopharmaceutical company focused on developing and commercializing innovative antibody-based therapeutics designed to modulate the human immune response for the treatment of cancer. In December 2020, the U.S. Food and Drug Administration (FDA) approved MARGENZA (margetuximab-cmkb). In addition, the Company has a pipeline of product candidates in human clinical testing that have been created primarily using its proprietary, antibody-based technology platforms. The Company believes its product candidates have the potential to have a meaningful effect on treating patients' unmet medical needs as monotherapy or, in some cases, in combination with other therapeutic agents.

In December 2019, the Company entered into a sales agreement with an agent to sell, from time to time, shares of its common stock in amounts of up to $50.0 million through an “at the market offering” (ATM Offering) as defined in Rule 415 under the Securities Act of 1933, as amended. This agreement was amended in June 2020 to increase the maximum amount of the offering to $175.0 million. The shares that may be sold under the sales agreement would be issued and sold pursuant to the Company's shelf registration statement on Form S-3 that was filed with the Securities and Exchange Commission on December 23, 2019. During the year ended December 31, 2020, the Company sold 6,612,815 shares of common stock at a weighted average price per share of $26.46, resulting in net proceeds of approximately $170.5 million, net of underwriting discounts and commissions and other offering expenses.

On September 13, 2019, a securities class action complaint was filed in the U.S. District Court for the District of Maryland by Todd Hill naming the Company, its Chief Executive Officer, Dr. Koenig, and its Chief Financial Officer, Mr. Karrels, as defendants for allegedly making false and materially misleading statements regarding the Company’s SOPHIA trial. On August 17, 2020, the Employees’ Retirement System of the City of Baton Rouge and Parish of East Baton Rouge was appointed as Lead Plaintiff, and on October 16, 2020, the Lead Plaintiff filed an amended complaint. The amended complaint asserts a putative class period stemming from February 6, 2019 to June 4, 2019. The Company filed a Motion to Dismiss on November 30, 2020. Plaintiff filed an Opposition brief on January 29, 2021, to which the Company plans to file a timely reply. The Company intends to vigorously defend against this action. However, the outcome of this legal proceeding is uncertain at this time and the Company cannot reasonably estimate a range of loss, if any. Accordingly, the Company has not accrued any liability associated with this action.


Delaware						06-1591613
(State of organization)						(I.R.S. Employer Identification Number)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	MGNX	Nasdaq Global Select Market


PART I
Item 1			Business
Item 1A			Risk Factors
Item 1B			Unresolved Staff Comments
Item 2			Properties
Item 3			Legal Proceedings
Item 4			Mine Safety Disclosures

PART II
Item 5			Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6			Selected Financial Data
Item 7			Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A			Quantitative and Qualitative Disclosures about Market Risk
Item 8			Financial Statements and Supplementary Data
Item 9			Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A			Controls and Procedures
Item 9B			Other Information

PART III
Item 10			Directors, Executive Officers and Corporate Governance
Item 11			Executive Compensation
Item 12			Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13			Certain Relationships and Related Transactions, and Director Independence
Item 14			Principal Accountant Fees and Services

PART IV
Item 15			Exhibits and Financial Statement Schedules
Item 16			Form 10-K Summary
			Signatures


	PIF/ER6 (n=44)	PIF (n=27)	ER6 (n=17)
CR/CRh	25.0% (11)	33.3% (9)	11.8% (2)
CR/CRh/CRi	31.8% (14)	37.0% (10)	23.5% (4)
HSCT	57.1% (8/14)	70.0% (7/10)	25.0% (1/4)
Median Duration of Response	8.13 months (n=14)	15.2 months (n=10)	2.4 months (n=4)


Product Candidate			Expiration Date
margetuximab			2029
enoblituzumab			2031
flotetuzumab			2034
retifanlimab			2036
tebotelimab			2036*
MGD019			2036*
MGC018			2037*


☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Year Ended December 31,				Increase/(Decrease)
	2020		2019

	(dollars in millions)
Revenue from collaborative and other agreements	$	97.8	$	62.0	$	35.8	58	%
Revenue from government agreements	7.1		2.2		4.9		223	%
Total revenue	$	104.9	$	64.2	$	40.7	63	%


	Total		Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years

	(in millions)
Operating Leases	$	39.1	$	6.7	$	13.7	$	10.9	$	7.8


Report of Ernst & Young LLP, Independent Registered Public Accounting Firm			F - 1
Consolidated Balance Sheets			F - 3
Consolidated Statements of Operations and Comprehensive Loss			F - 4
Consolidated Statements of Stockholders' Equity			F - 5
Consolidated Statements of Cash Flows			F - 6
Notes to Consolidated Financial Statements			F - 7


			MacroGenics, Inc.

			By:			/s/ Scott Koenig
						Scott Koenig, M.D., Ph.D.
						President and CEO and Director


			Page Number

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm			F - 1

Consolidated Balance Sheets at December 31, 20 20 and December 31, 20 1 9			F - 3

Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 20 20 , 201 9 and 201 8			F - 4

Consolidated Statements of Stockholders' Equity for the years ended December 31, 20 20 , 201 9 and 201 8			F - 5

Consolidated Statements of Cash Flows for the years ended December 31, 20 20 , 201 9 and 201 8			F - 6

Notes to Consolidated Financial Statements			F - 7


/s/ Ernst & Young LLP

We have served as the Company's auditor since 2006.

Baltimore, Maryland
February 25, 2021


	Fair Value Measurement at December 31, 2020
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		Level 1		Level 2		Level 3
Assets:
Money market funds	$	49,004	$	49,004	$	—	$	—
U.S Treasury securities	60,623		—		60,623		—

Corporate debt securities	33,776		—		33,776		—

Total assets measured at fair value (a)	$	143,403	$	49,004	$	94,399	$	—


Computer equipment			3 years
Software			3 years
Furniture			10 years
Laboratory and office equipment			5 years
Leasehold improvements			Shorter of lease term or useful life


	Year Ended December 31,				Increase/(Decrease)
	2020		2019

	(dollars in millions)
Margetuximab	$	49.5	$	52.2	$	(2.7)	(5)	%
Flotetuzumab (a)	26.6		15.1		11.5		76	%
Tebotelimab	23.5		22.5		1.0		4	%
Retifanlimab	22.7		19.7		3.0		15	%
Enoblituzumab	14.2		20.7		(6.5)		(31)	%
MGC018	12.8		12.6		0.2		2	%
MGD019	8.6		7.0		1.6		23	%
DART molecules under HIV government contract	7.0		2.9		4.1		141	%
IMGC936	4.3		6.2		(1.9)		(31)	%
MGD024	3.3		3.5		(0.2)		(6)	%
Other programs (b)	20.7		32.9		(12.2)		(37)	%
Total research and development expenses	$	193.2	$	195.3	$	(2.1)	(1)	%


2021	$	6,726
2022	6,940
2023	6,796
2024	5,856
2025	5,084
Thereafter	7,764
Total lease payments	39,166
Present value adjustment	(9,918)
Lease liabilities	$	29,248


	Year Ended December 31,
	2020	2019	2018
Expected dividend yield	0%	0%	0%
Expected volatility	67% - 109%	74% - 76%	68% - 72%
Risk-free interest rate	0.4% - 1.8%	1.4% - 2.6%	2.4% - 3.1%
Expected term	6.25 years	6.25 years	6.25 years


	Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding, December 31, 2019	6,706,994	$	22.33	6.9
Granted	1,851,327	15.11
Exercised	(504,445)	10.56
Forfeited or expired	(795,523)	20.72
Outstanding, December 31, 2020	7,258,353	21.48		6.8	$	27,409

December 31, 2020:
Exercisable	4,660,921	22.92		5.8	13,906
Vested and expected to vest	6,973,272	21.57		6.7	26,011


	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury securities	$	60,630	$	1	$	(7)	$	60,624

Corporate debt securities	30,777		2		(3)		30,776
Total	$	91,407	$	3	$	(10)	$	91,400


	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

Government-sponsored enterprises	$	13,216	$	6	$	—	$	13,222
Corporate debt securities	76,052		20		(10)		76,062
Total	$	89,268	$	26	$	(10)	$	89,284


	Shares	Weighted-Average Grant Date Fair Value
Outstanding, December 31, 2019	452,500	$	15.32
Granted	15,000	23.68
Exercised	(210,950)	15.32
Forfeited or expired	(47,300)	15.32
Outstanding, December 31, 2020	209,250	15.92


Exhibit No.						Description

3.1						Restated Certificate of Incorporation of the Company and Certificate of Correction to the Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibits 3.1 and 3.3, respectively, to the Company's Current Report on Form 8-K filed on October 18, 2013)

3.2						Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-1 (File No. 333-190994) filed by the Company on October 1, 2013)

4.1						Specimen Stock Certificate (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-1 (File No. 333-190994) filed by the Company on October 9, 2013)

4.2						Description of Common Stock

4.3†						Investor Agreement by and between Johnson and Johnson Innovation-JJDC, Inc. and the Company, dated December 19, 2014 (incorporated by reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K filed on March 3, 2015)

10.1						Form of Indemnification Agreement (incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-1 (File No. 333-190994) filed by the Company on October 1, 2013)

10.2†						Global Collaboration and License Agreement by and between the Company and Incyte Corporation, dated October 24, 2017 (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K filed on February 27, 2018)

10.3+						Company 2003 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-1 (File No. 333-190994) filed by the Company on September 4, 2013)

10.4+						Form of Incentive Stock Option Agreement under 2003 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-1 (File No. 333-190994) filed by the Company on September 4, 2013)

10.5+						Company 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-1 (File No. 333-190994) filed by the Company on October 1, 2013)

10.6+						Form of Incentive Stock Option Agreement under 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-1 (File No. 333-190994) filed by the Company on October 1, 2013)

10.7+						Form of Nonstatutory Stock Option Agreement under 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.7 to the Registration Statement on Form S-1 (File No. 333-190994) filed by the Company on October 1, 2013)

10.8+						Form of Restricted Stock Units Grant Notice under 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on May 6, 2015)

10.9+						2016 Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-8 (File No. 333-214386) filed by the Company on November 2, 2016)

10.10+						Employment Agreement between the Company and Scott Koenig, M.D., Ph.D. (incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K filed by the Company on February 29, 2016)

10.11+						Employment Agreement between the Company and James Karrels (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K filed by the Company on February 29, 2016)

10.12+						Employment Agreement between the Company and Ezio Bonvini, M.D. (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed on May 4, 2016)

10.13+						Employment Agreement between the Company and Eric Risser (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K filed on February 28, 2017)

10.14†						Amendment No, 1 to the Global Collaboration and License Agreement by and between the Company and Incyte Corporation, dated March 15, 2018 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on May 7, 2017)

10.15#						Commercial Supply Agreement by and between AGC Biologics (f/k/a CMC ICOS Biologics, Inc.) and the Company, dated December 11, 2017

10.16#						Commercial Supply Agreement by and between Incyte Corporation and the Company, dated October 13 , 2020


10.17#						Product Commercialization Agreement by and between the Company and Eversana Life Science Service s , LLC, dated November 13, 2020

23.1						Consent of Ernst & Young, LLP, Independent Registered Public Accounting Firm

31.1						Rule 13a-14(a) Certification of Principal Executive Officer

31.2						Rule 13a-14(a) Certification of Principal Financial Officer

32.1						Section 1350 Certification of Principal Executive Officer

32.2						Section 1350 Certification of Principal Financial Officer

101.INS						XBRL Instance Document

101.SCH						XBRL Schema Document

101.CAL						XBRL Calculation Linkbase Document

101.DEF						XBRL Definition Linkbase Document

101.LAB						XBRL Labels Linkbase Document

101.PRE						XBRL Presentation Linkbase Document

104						Cover Page Interactive Data (formatted as Inline XBRL and contained in Exhibit 101 filed herewith)


"Affiliate"			any company, partnership or other entity which directly or indirectly through one or more intermediaries controls or is controlled by, or is under common control with a Party. For the purpose of this definition control means the direct or indirect beneficial ownership of more than fifty percent (50%) of the voting share capital in such company, partnership or entity or the legal power to control the general management and policies of such company, partnership or entity;
"Agreement"			this Agreement including all Appendices and any amendments to the foregoing made in accordance with this Agreement;
"Appendix" or "Appendices"			one or more of the Appendices to this Agreement;
“Applicable Laws”			all applicable ordinances, rules, regulations, laws, guidelines, requirements and court orders of any kind whatsoever of any national (e.g., the FDA, EPA, etc,), supra-national (e.g., the European Commission, the Council of the European Union, or the European Medicines Agency), regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity of the US or EU applicable to the Services;
“Authority Submission”			has the meaning set out in Clause 8.3;
"Batch"			BDS that is intended to be of uniform character and quality, within specific limits, and is produced in one cell culture run using the Cell Line at a specified bioreactor scale, and such purification, analytical and further processing steps as described in a Work Statement applicable to the BDS harvested from that run resulting in one lot of BDS;


“Batch Price”			the price payable for each Batch as initially described in the Appendix Two and as may be amended by agreement between the Parties or by operation of Clause 7;
“Binding Batch”			has the meaning set out in Clause 5.8;
“BLA”			a Biologics License Application and any amendments or supplements thereto filed with the FDA pursuant to 21 C.F.R. Part 601 or any other application required for the purpose of marketing and selling a biological product filed with a Regulatory Authority outside the United States, including with respect to the EU a Marketing Authorization Application;


“Bulk Drug Substance or BDS”			means the Product in bulk, as expressed by the Cell Line and harvested and purified in bulk from a cell culture run pursuant to the applicable Process;
"Business Day" “Calendar Day” “Calendar Quarter”			any day which is not a Saturday, a Sunday or a U.S. public holiday; any day; a 3-month period beginning on January 1, April 1, July 1, or October 1 of each year;
“Calendar Year”			a period of time commencing on January 1 and ending on the following December 31; provided that the first Calendar Year of the Term shall begin on the Effective Date and end on the first December 31 thereafter, and the last Calendar Year during the Term shall end upon the expiration of the Term;
“Campaign”			a series of Batches manufactured consecutively in accordance with the Process;
“Cancellation Fee” "Cell Line"			has the meaning set out in Clause 5.10; the mammalian cell line [***] and any progeny clone of the foregoing cell line(s);
"Certificate of Analysis"			CMC’s standard form certificate of analysis confirming that Product to which the certificate relates meets the
			Specification and such other criteria as identified on the certificate;
“Certificate of Compliance”			means a document, signed by an authorized representative of CMC, attesting that a particular Batch was manufactured in accordance with cGMP and other Applicable Laws;
"cGMP"			Current Good Manufacturing Practices as promulgated under each of the following as in effect on the Effective Date and as amended or revised after the Effective Date: (a) the U.S. Food, Drug & Cosmetics Act (21 U.S.C. § 301 et seq.) and related U.S. regulations, including 21 Code of Federal Regulations (Chapters 210, 211, 600 and 610) and other FDA regulations, policies, or guidelines in effect at a particular time for the manufacture, testing and quality control of investigational drugs; (b) EudraLex Volume 4; (c) the ICH guide Q7 “ICH Good Manufacturing Practice Guide for Active Pharmaceutical Ingredients;” and (d) any other laws, regulations and statutes set forth by a Government Authority applicable to the manufacture of compounds and products by CMC under this Agreement;


“Change in Control”			in relation to a body corporate, the occurrence of an event or circumstance where a person who is not presently able to do any of the following things becomes able to do one of the following things (whether directly or indirectly or through one or more intervening persons, companies or trusts): (a) control the composition of more than one half of the body's board of directors; (b) be in a position to cast, or control the casting of, more than one half of the maximum number of votes that might be cast at a general meeting of the members of the body; or (c) hold or have a beneficial interest in more than onehalf of the issued share capital of the body;
"CMC Facility"			CMC’s manufacturing facility in Bothell, Washington or another facility agreed on by the Parties in writing;
“CMC Failure”			has the meaning set out in Clause 13.3;


"CMC Intellectual Property Rights"			Intellectual Property rights and CMC Know-How owned by CMC and used in the Services;
"CMC Know-How"			all information, techniques, trade secrets, data and technical information known to CMC which is not of general public knowledge, other than provided to CMC by Customer, or developed during the Services;
“Commencement Date”			in respect of a cGMP Batch the date on which (i) [*], or (ii) [*]; whichever is the earlier;
"Commercial Quality Agreement" (QAg)”			the agreement between the Parties defining the quality responsibilities, including cGMP standards, regarding the performance of the Services;
“Commercially Reasonable Efforts”			with respect to CMC, such level of efforts and resources required to carry out an obligation under this Agreement in a sustained manner consistent with the efforts normally used by companies that provide manufacturing and related services in the biopharmaceutical industry, as applicable, of comparable size and resources to CMC, for a similar activity with respect to the scope of Services to be provided under this Agreement;
“Committee Member”			has the meaning set out in Clause 4.9;
"Confidential Information"			means all information disclosed by, or on behalf of, the Disclosing Party to Recipient Party relating to this Agreement and includes: (I) information disclosed in writing, orally or by any other means; (II) information disclosed before, after or on the date of this Agreement; and (iii) information relating to the Disclosing Party’s operations, processes, plans, intentions, production information, know how, data, formulae, expertise, methodology, drawings, specifications, design rights, trade secrets, market opportunities


			and business affairs, and any new and novel combinations thereof;
"Customer Intellectual Property Rights"			Intellectual Property rights and Customer Know-How owned by Customer or licensed to Customer by a Third Party covering any aspect of the Services, Cell Line, BDS or materials, techniques or processes used in the Services;
"Customer Know- How"			all information, techniques, trade secrets, data and technical information known to Customer in connection with the Cell Line, Customer Materials, Process and Product which are (i) not known to CMC prior to being provided to CMC by or on behalf of Customer; or (ii) not of general public knowledge;
"Customer Materials"			the Cell Line, vectors, plasmids and all other materials and equipment supplied by Customer, its Affiliate or agent to CMC or made available to CMC by or on behalf of Customer or purchased by CMC on behalf of Customer;
"Defect"			has the meaning in Clause 6.4;
"Defect Notice"			has the meaning in Clause 6.4;
"Deliverables"			the data, results and materials generated from the performance of the Services including Drug History Record and Product;
"Delivery" or "Delivered"			has the meaning in Clause 6.2;
“Delivery Date” “Disputed Deliverable”			means, as applicable, the date a Batch is to be delivered or is actually Delivered; has the meaning in Clause 6.9;
“Drug History Record”			all lot disposition documentation relevant to a cGMP Batch to be provided to Customer with the Product from that cGMP Batch, including but not limited to manufacturing batch records, Certificates of Compliance and Certificates of Analysis;


"Effective Date"			the date set forth on page 3 as the effective date of this Agreement;
“EMA”			European Medicines Agency or any successor agency;
"Exceptional Batches"			has the meaning in Clause 5.7;
“Existing Agreement” “Facility Modification” “Facility Modification Notice” "FDA”			the Master Services Agreement between the Parties dated June 4, 2014; has the meaning set out in Clause 4.8; has the meaning set out in Clause 4.8; means the United States Food and Drug Administration, or its successor agency;
“Firm Order”			has the meaning set out in Clause 5.3.1;
"Forecast"			has the meaning set out in Clause 5.1;
“Fundamental Change”			means a Change of Control, merger, acquisition or change of management of CMC or Affiliates;
"Group"			in respect of the relevant Party, its Affiliates and holding companies and the Affiliates of those holding companies;
"Intellectual Property"			all intellectual property rights, including, without limitation, patents, supplementary protection certificates, petty patents, utility models, trademarks, database rights, rights in designs, copyrights (whether or not any of these are registered or capable of being registered) and including all applications and the right to apply for registered protection of the foregoing and all inventions, trade secrets, know- how, techniques and confidential information and other proprietary knowledge and information, and all rights and forms of protection of a similar nature or having equivalent or similar effect to any of these which may subsist anywhere in the world, in each case for their full term and together with any renewals or extensions;


"Joint Steering Committee”			has the meaning set out in Clause 4.9;
"Minimum Volumes”			the minimum number of Batches that must be ordered per Calendar Year by Customer as stipulated in Clause 5.3.4;
"Non-Fault Delays"			has the meaning set out in Clause 4.1;
“Order”			a Firm Order or a Semi-Firm Order;
“Other Customers” "Permitted Recipients"			has the meaning set out in Clause 5.12; (a) the directors, officers, employees, Testing Laboratories or professional advisers who are required, on a strict need to know basis, in the course of their duties to receive and consider the Confidential Information of the other Party for the purpose of enabling the relevant Party to perform its obligations under this this Agreement; and (b) in communications with existing or prospective licensees, sublicensees or collaborators, and consultants and advisors of each Party in connection with transactions or prospective transactions or pursuant to the conduct of such Party’s business; provided that in the case of (a) and (b), such Persons are under obligations of confidence no less onerous than those set out in Clause 10 imposed on the recipient Party;
“Person(s)”			any individual, partnership, joint venture, limited liability company, corporation, firm, trust, association, unincorporated organization, governmental authority or agency, or any other entity not specifically listed herein;
“PPQ-Batches”			the process performance qualification batches required for registration of the Product.
"Process"			the method for manufacture, harvesting and purification of the Product as defined in Customer approved manufacturing batch records;
"Product"			Customer’s biologic known as margetuximab manufactured in Batch form as Bulk Drug Substance;
"Project Manager”			has the meaning set out in Clause 4.9;


"Project Team" “Purchase Order”			has the meaning set out in Clause 4.10; has the meaning set out in Clause 5.6.1;
“Quality Release(d)”			certification by CMC’s Quality Department that a Batch of BDS complies with its Specifications as confirmed by release testing;
"Raw Materials"			media, resins, chemicals, solvents, filters, membranes, disposable analytical test kits, disposable bags, and other items consumed for the manufacture of Products in accordance with this Agreement as well as any subcontracted analytical testing performed by Testing Laboratories during the performance of the Services;
“Recall”			any action to withdraw from supply or distribution or to recover title to or possession of quantities of Product sold or shipped to third parties (including, without limitation, the voluntary withdrawal of Product from the market or correction) or the detention or destruction of any Product by any Regulatory Authorities;
“Regulatory Approval”			the approval, license or authorization of the applicable Regulatory Authority necessary for commercialization of the Product, including approval of a Biologics License Application or Market Authorization Application for the Product;
“Regulatory Approval Submission” “Regulatory Obligations"			the earlier of the first submission of a Biologics License Application or Market Authorization Application for the Product; those mandatory regulatory requirements applicable in Europe and the United States of America and Canada to the manufacture of cGMP Product for human use;
“Regulatory Authority”			the FDA in the United States or any health regulatory authority in another country in Europe and Canada that is a counterpart to the FDA and holds responsibility for allowing development of the Product and/or granting Regulatory Approval for a Product, including the EMA, and any successor(s) thereto;
“Release For Further Processing”			has the meaning set out in Clause 6.11;


“Representative(s)			has the meaning set out in Clause 4.10;
"Semi-Firm Order"			has the meaning set out in Clauses 5.3.2 and 5.3.3;
"Services"			manufacturing of the Product by CMC and all activities to be conducted by CMC related to the manufacturing of the Product under this Agreement;
“Shipping Company” "Shipping Guidelines"			a shipping company or other agent designated by Customer to receive a Delivery on behalf of Customer; the storage and transport guidelines for the Product that are determined by mutual written agreement of the Parties;
“Slot”			in respect of CMC’s cGMP manufacturing suite the period of time the suite is reserved in preparation for and the performance of a Batch;
"Specification"			the specification for the Product as defined in Appendix 1 or as may otherwise be agreed between the Parties or modified in accordance with Clause 4.5 which includes (i) specifications for BDS and Raw Materials, (ii) manufacturing, testing and packaging instructions and specifications for Product in accordance with the Process, (iii) storage and shipping requirements, and (iv) any other technical information necessary to manufacture a Batch;
"Standard Operating Procedures" or "SOPs"			the standard operating procedures of CMC which define CMC's methods of performing activities applicable to the Services;
“Storage Cost”			has the meaning set out in Clause 7.8;
“Supply Failure”			has the meaning set out in Clause 5.17;
“Term”			the Initial Term (as defined in Clause 14.1) and all Additional Terms (as defined in Clause 14.1);
"Testing Laboratories"			the Third Parties listed in the Quality Agreement which shall conduct testing or provide other services to support Quality Release;
“Timelines”			collectively and individually the dates to manufacture Product and render other Services to Deliver Product according to the Forecast and/or each accepted Commencement Date and Delivery Date;


“Third Party(ies)”			any person, company, organization or entity other than CMC, Customer or their Affiliates;
“Work Statement”			the Work Statement #1 effective between the Parties, dated [*], and all amendments thereto and the subsequent agreement between the Parties, effective [*].


Definition:			Clause:
Binding Batches Reserve Payment Producer Price Index			5.8 7.1 7.3


Signed on behalf of CMC ICOS BIOLOGICS, INC. By : /s/ Gustavo Mahler Name : Gustavo Mahler, Ph.D. Position : CEO & President			) ) ) ) ) ) ) ) )
Signed on behalf of MACROGENICS, INC. by: /s/ Scott Koenig Name : Scott Koenig, MD, Ph.D. Position : President & CEO			) ) ) ) ) ) ) ) ) ) ) )


TERM			SECTION
Affiliate			Collaboration Agreement
Agreement			Preamble
Annual Global Commercial Supply Forecast			4.3.b.i (1)
Approved CMO			9.1
Auditee			8.5
Auditor			8.5
Batch Price			7.1
Binding Portion			4.3(e)
Annual Product Review			8.16
Business Day			Collaboration Agreement
Calendar Quarter			Collaboration Agreement
Calendar Year			Collaboration Agreement
CMC			8.9
CMC Development Budget			6.1
CMC Development Plan			Preamble
Collaboration Agreement			Preamble
Collaborator			Collaboration Agreement
Collaborator Combination Studies			Collaboration Agreement
Commercially Reasonable Efforts			Collaboration Agreement
Compound			Collaboration Agreement
Confidential Information			Collaboration Agreement
“Control” or “Controlled”			Collaboration Agreement
Deficiency Notice			5.2
Development			Collaboration Agreement
Discretionary Specification Change			8.3(b)
Effective Date			Preamble
FDA			Collaboration Agreement
Finance Subcommittee			2.3
Funded Collaborator Combination Studies			7.1(a)(i)
GAAP			Collaboration Agreement
“Good Clinical Practices” or “GCP”			Collaboration Agreement
“Good Laboratory Practices” or “GLP”			Collaboration Agreement
Governmental Authority			Collaboration Agreement
Incyte			Preamble
Incyte Combination Studies			Collaboration Agreement
Incyte Facility			9.1
IND			Collaboration Agreement
Information			Collaboration Agreement


TERM			SECTION
Insolvency Event			13.2(b)
JMC			Collaboration Agreement
JPT			2.1
Know-How			Collaboration Agreement
Losses			Collaboration Agreement
MacroGenics			Preamble
MacroGenics Draft Production Schedule Update			4.2(a)
MacroGenics Combination Studies			Collaboration Agreement
Manufacturing Technology Transfer			9.1
Manufacturing Transition Plan			9.1
Monoclonal Antibody			Collaboration Agreement
Monotherapy Studies			Collaboration Agreement
Non-Conforming Licensed Compound			5.2
Notified Law			8.1(c)
Order			Collaboration Agreement
Party, Parties			Preamble
Phase I Study			Collaboration Agreement
Phase II Study			Collaboration Agreement
Phase III Study			Collaboration Agreement
Pipeline Asset			Collaboration Agreement
Pivotal Study			Collaboration Agreement
Prior CDA			Collaboration Agreement
Product			Collaboration Agreement
Production Schedule			3.1(c)
Quality Assurance Measures			8.4(b)
Reconciliation Report			7.1(f)
Regulatory Approval Application			Collaboration Agreement
Regulatory Authority			Collaboration Agreement
Required Specification Change			8.3(a)
Regulatory Submission			8.9
Response Notice			5.3
Rolling Forecast			4.1(a)
Term			13.1
Territory			Collaboration Agreement
Third Party			Collaboration Agreement