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Edited Transcript of MGNX earnings conference call or presentation 26-Feb-19 9:30pm GMT

Q4 2018 MacroGenics Inc Earnings Call

Rockville May 6, 2019 (Thomson StreetEvents) -- Edited Transcript of MacroGenics Inc earnings conference call or presentation Tuesday, February 26, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* James Karrels

MacroGenics, Inc. - Senior VP, CFO & Secretary

* Scott Koenig

MacroGenics, Inc. - CEO, President & Director

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Conference Call Participants

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* Christopher N. Marai

Nomura Securities Co. Ltd., Research Division - MD & Senior Analyst of Biotechnology

* Earl DeSouza

H.C. Wainwright & Co, LLC, Research Division - Associate

* Ishmael Izakiel Gyimah Asante

Morgan Stanley, Research Division - Research Associate

* John Christopher Barrett

SVB Leerink LLC, Research Division - Associate

* Jonathan Miller

Evercore ISI Institutional Equities, Research Division - Associate

* Minh Vong

SunTrust Robinson Humphrey, Inc., Research Division - Associate

* Reni John Benjamin

Raymond James & Associates, Inc., Research Division - Senior Biotechnology Analyst

* Stephen Douglas Willey

Stifel, Nicolaus & Company, Incorporated, Research Division - Director

* Yigal Dov Nochomovitz

Citigroup Inc, Research Division - Director

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Presentation

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Operator [1]

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Good afternoon. We will begin the MacroGenics 2018 Fourth Quarter and Full Year Corporate Progress and Financial Results Conference Call in just a moment. (Operator Instructions)

At this point, I will turn the call over to Jim Karrels, Senior Vice President and Chief Financial Officer of MacroGenics.

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James Karrels, MacroGenics, Inc. - Senior VP, CFO & Secretary [2]

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Thank you, Operator. Good afternoon and welcome to MacroGenics' conference call to discuss our fourth quarter and full year 2018 financial and operational results. For anyone who has not had the chance to review our results, we issued a press release this afternoon outlining today's announcements, which is available under the Investors tab on our website, at www.macrogenics.com.

You can also listen to this conference call via webcast on our website, where it will be archived for 30 days beginning approximately two hours after the call is completed.

I would like to alert listeners that today's discussion will include statements about the Company's future expectations, plans and prospects that constitute forward-looking statements for purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our annual, quarterly and current reports filed with the SEC.

In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change, except to the extent required by applicable law.

And now I'd like to turn the call over to Dr. Scott Koenig, MacroGenics' President and Chief Executive Officer.

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [3]

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Thank you, Jim. I'd like to welcome everyone participating via conference call and webcast today. Thank you for joining us.

We have had an eventful fourth quarter and early 2019, and I will be providing an update on what was accomplished on several fronts, as well as some upcoming events. But before I do so, let me first turn the call back to Jim, who will review our financial results for the quarter.

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James Karrels, MacroGenics, Inc. - Senior VP, CFO & Secretary [4]

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Thank you, Scott.

This afternoon we reported financial results for the year ended December 31, 2018, which highlight our strong financial position as well as the progress we have made over the past year and this most recent quarter.

As described in our release, MacroGenics had research and development expenses of $190.8 million for the year ended December 31, 2018, compared to $147.2 million for the year ended December 31, 2017. This increase is primarily due to the continued enrollment in multiple ongoing studies, including the SOPHIA Phase III study of margetuximab; increased development in manufacturing costs related to MGA012, of which $22 million was offset by revenue recognized from our collaborator, Incyte Corporation; as well as increased headcount to support our expanded manufacturing and development activities.

We had general and administrative expenses of $40.5 million for the year ended December 31, 2018, compared to $32.7 million for the year ended December 31, 2017. This increase was primarily due to increased labor-related costs, including stock-based compensation expense; patent-related expenses; and information technology-related expenses.

We recorded total revenue, consisting primarily of revenue from collaborative agreements, of $60.1 million for the year ended December 31, 2018, compared to $157.2 million (sic) [$157.7 million] for the 12 months ended December 31, 2017. This increase was primarily due to the $150 million upfront payment recognized under the Incyte agreement in 2017, compared to $41 million recognized in 2018 under the Incyte agreement. Revenue from collaborative agreements includes the recognition of deferred revenue from payments received in previous periods as well as payments received during the year.

For the year ended December 31, 2018, we had a net loss of $171.5 million, compared to a net loss of $19.6 million for the 12 months ended December 31, 2017.

Our cash, cash equivalents and marketable securities as of December 31, 2018, were $232.9 million, which compared to $305.1 million as of December 31, 2017. Cash, cash equivalents and marketable securities as of December 31, 2018, did not include the $25 million, less foreign withholding tax of $2.5 million, representing the upfront payment from Zai Lab received in early 2019 or the $118.5 million net proceeds from the follow-on offering we recently completed.

We anticipate that our cash, cash equivalents and marketable securities as of December 31, 2018, combined with the estimated net proceeds from our recently completed equity offering as well as proceeds from collaboration payments we anticipate receiving, will enable us to fund our operations into 2021, assuming all of the company's programs and collaborations advance as currently contemplated.

And now I'll turn the call back to Scott.

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [5]

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Thank you, Jim.

The most important news for the company has been our recent announcement regarding the positive top line results of our pivotal Phase III trial in HER2-positive metastatic breast cancer with margetuximab, our novel immune-optimized anti-HER2 antibody which has an Fc domain engineered to enhance engagement and activation of the immune system.

Just to quickly recap those results, the SOPHIA clinical trial has the primary endpoint of prolongation of progression-free survival in patients treated with a combination of margetuximab plus chemotherapy compared to trastuzumab plus chemotherapy. Patients in the margetuximab arm experienced a 24% risk reduction in PFS compared to patients in the trastuzumab arm, with an associated P value of 0.033.

Approximately 85% of the patients in the study were carriers of the CD16A-158F (inaudible), which has been previously associated with diminished clinical response to HERCEPTIN and other antibodies. In this prespecified sub-population, patients in the margetuximab arm experienced a 32% risk reduction in PFS compared to patients in the trastuzumab arm, with a P value of 0.005.

The combination of margetuximab and chemotherapy demonstrated acceptable safety and tolerability compared, overall, to that of trastuzumab and chemotherapy. These results offer the potential of a new treatment option for patients living with HER2-positive metastatic breast cancer, a devastating disease for which there are currently no FDA-approved therapies in this setting.

This is the first example of an Fc-enhanced monoclonal antibody shown to be clinically superior in a Phase III clinical study to an antibody analog with a wild-type Fc domain, and I believe these results provide important new insight regarding the importance of the immune system in mediating the clinical activity of anti-HER2 antibodies like margetuximab.

Our hope is that this approach to Fc modification will not only help patients with breast cancer, but potentially other types of cancer as well. We believe this is possible not only by studying margetuximab in HER2-driven cancers, including breast and gastric, but also by advancing enoblituzumab, into which we've incorporated the same Fc mutations and for which we reported encouraging clinical data last quarter. But more on that in a few minutes.

As noted in our earlier announcement, it is too early to evaluate the sequential secondary primary endpoint to overall survival, as OS events continue to accrue in the study population.

We plan to meet with the FDA in the first half of 2019 and anticipate submitting a biologics licensing application to the FDA on the basis of the PFS results in the second half of 2019. We have already submitted an abstract containing previously disclosed as well as additional results to the ASCO meeting in June. In this regard, we are currently reviewing options and strategies for commercialization, assuming margetuximab receives FDA approval in this indication.

We are also evaluating margetuximab in a Phase II clinical trial in patients with HER2-positive gastric or gastroesophageal junction cancer, in combination with anti-PD-1 mAb. In January 2019, data demonstrating encouraging anti-tumor activity and acceptable safety and tolerability were presented at the ASCO GI Symposium. In this trial, the objective response rate for this population for the HER2 IHC 3+ gastric cancer population was 32.7%, with a disease control rate which includes partial responses in stable disease of 69.1%. Median progression-free survival was 4.7 months.

Following up on these results, during the first quarter of 2019 MacroGenics discussed our development plans with the FDA for a proposed registration directive study of margetuximab in combination with MGA012, an anti-PD-1 mAb. This approach is designed to coordinately engage both innate and adaptive immunity with a chemotherapy-free regimen for the treatment of patients with gastric cancer in the first-line setting.

We expect to initiate this study in the second half of 2019. We also plan to evaluate the merits of combining margetuximab with chemotherapy in MGA012 or MGD013, a PD-1 x LAG-3 DART, in a randomized controlled study. We plan to coordinate these global efforts with our partner in Greater China, Zai Lab, and hope to provide details in the coming months.

Together, we believe that the Phase III results in metastatic HER2-positive breast cancer and the Phase II results in HER2-positive gastric cancer provide validation of our Fc-optimization platform.

Next, I will discuss our franchise of B7-H3-directed product candidates. Our lead program, enoblituzumab, is currently in development in combination with anti-PD-1, also using an approach where we seek to engage both innate and adaptive immunity in a coordinated manner for cancer immunotherapy. In November 2018, encouraging data from a clinical study of the combination of enoblituzumab and an anti-PD-1 mAb were presented to the Society for Immunotherapy of Cancer annual meeting. In this study, cohorts of patients who were naive to anti-PD-1 therapy with either Squamous cell carcinoma of the head and neck or non-small cell lung cancer had objective responses at rates that benchmark favorably with data reported in prior studies in which patients were treated with anti-PD-1 monotherapy.

The combination of enoblituzumab and an anti-PD-1 mAb demonstrated acceptable safety and tolerability in patients treated to date. Encouraged by these results, we intend to commence a Phase II study of enoblituzumab in combination with MGA012 in patients with Squamous cell carcinoma of the head and neck beginning in the second half of 2019. I look forward to telling you more about this study as we get closer.

Our second drug candidate in our B7-H3 franchise is MGD009, a bispecific DART molecule that is designed to target both B7-H3 expressed on tumor cells as well as CD3, which is expressed on normal T cells. MacroGenics is conducting a Phase I clinical study with MGD009 as monotherapy and in a separate study that combines MGD009 and MGA012.

In December of 2018, the FDA imposed a partial clinical hold on the company's Phase I monotherapy study of MGD009, as well as on a combination study of MGD009 and MGA012. The partial clinical hold was lifted in January 2019. We expect to have both the monotherapy and combo studies enrolling new patients very soon.

MGC018, a (inaudible) B7-H3-directed molecule, is an antibody drug conjugate that targets solid tumors expressing B7-H3. MGC018 is in a Phase I delta escalation trial, which was initiated in the fourth quarter of 2018.

I will now turn to our PD-1-directed franchise, where we are making tremendous steps forward in advancing these programs. We have 3 PD-1-directed programs in the clinic: MGA012, MGD013, and MGD019. The first and most advanced, MGA012, is licensed to Incyte Corporation, although we retain the rights to develop it in combination with our pipeline programs.

At the November 2018 SITC meeting, Incyte presented encouraging initial anti-tumor and safety and tolerability data in non-small cell lung cancer, cervical cancer, endometrial cancer and soft tissue sarcoma. Incyte is pursuing development of MGA012 through 3 monotherapy registration-directed studies, with initial data anticipated in 2020, in the case of MSI-high endometrial cancer and Merkel cell carcinoma, and in 2021, in the case of anal cancer. In addition, both Incyte and MacroGenics are each studying MGA012 with combination studies.

I'll remind listeners that under the terms of our agreement with Incyte, MacroGenics is eligible to receive up to $420 million in potential development and regulatory milestones and up to $330 million in potential commercial milestones. If MGA012 is approved and commercialized, MacroGenics would be eligible to receive royalties tiered from 15% to 24% of future sales of MGA012 by Incyte.

Our second checkpoint molecule is MGD013, a first-in-class DART molecule that provides co-blockade of 2 immune checkpoint molecules expressed on T cells, PD-1 and LAG-3, for the potential treatment of a range of solid tumors and hematological malignancies. MacroGenics' Phase I delta expansion study in up to 9 tumor types is ongoing, and the company expects to present data from this study in 2019.

MGD019, another checkpoint DART molecule, is designed to provide co-blockade of both PD-1 and CTLA-4 on T cells. MGD019 is currently enrolling patients in a Phase I delta escalation study.

The next program I will discuss is flotetuzumab, a bispecific humanized DART molecule that recognizes both CD123 and CD3. In December 2018, MacroGenics presented both updated clinical data as well as gene signature data from its completed acute myeloid leukemia dose expansion cohort in 2 oral presentations at the American Society of Hematology annual meeting. In this study, flotetuzumab demonstrated anti-leukemic activity and acceptable tolerability in patients with relapsed/refractory AML, with a higher response rate observed in primary refractory patients, an extremely challenging population to treat.

MacroGenics plans to enroll additional patients in this ongoing study and announce data in 2019. We are collaborating with Servier on this program, and under the terms of the agreement Servier has development and commercialization rights outside North America, Japan, Korea and India for flotetuzumab.

Finally, on the corporate level, we have also been busy. In November, we announced a collaboration and license agreement with Zai Lab Limited. Under the terms of this agreement, we have licensed to Zai Lab the right to develop and commercialize margetuximab, MGD013, and an undisclosed preclinical Trident-finding molecule in mainland China, Hong Kong, Macau and Taiwan. Zai Lab will lead clinical development in its territory by leveraging its regulatory and clinical development expertise and broad regional network of investigators.

Under our agreement with Zai Lab, we received an upfront payment of $25 million, less foreign withholding, in January 2019 and are eligible to receive up to $140 million in potential development- and regulatory-based milestone payments. In addition, Zai Lab has agreed to pay us double-digit royalties on annual net sales of the assets, which may be subject to adjustment in specified circumstances.

As Jim noted earlier, we completed a follow-on offering of 6,325,000 shares of our common stock, raising $118.5 million, net of underwriting discounts and commissions and estimated offering expenses. This puts MacroGenics in a strong financial position to continue to advance our multiple programs in the clinic, as well as begin our preparations for the potential commercialization or margetuximab.

This has been a busy and, indeed, transformational period for MacroGenics, as we have not only advanced a number of our very exciting clinical programs, but have also begun the process of evolving MacroGenics into a commercial pharmaceutical company with a rich pipeline of innovative molecules in development.

And now we'd be glad to address any questions that callers may have. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Debjit Chattopadhyay, with H.C. Wainwright.

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Earl DeSouza, H.C. Wainwright & Co, LLC, Research Division - Associate [2]

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Earl DeSouza, in for Debjit. So the first question we had is given the validation of the Fc-modified NK cell activation hypothesis, how do you see the enoblituzumab franchise playing out? For example, which becomes more important, the monoclonal antibody or the variance or, more importantly, the ADC, assuming the ADC retains most of the advantages of Fc modification? And would moving to earlier lines of therapy be more efficacious?

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [3]

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Thank you very much Earl for that question. We are obviously very encouraged by the recent data in SOPHIA with the Fc modification in margetuximab. With regard to enoblituzumab, we are seeing at least initially similar principles being upheld that we observed with margetuximab.

As noted before, the Fc modifications we've incorporated dramatically increase innate immunity through ADCC and other Fc-mediated functions, but we have observed that by incorporating these changes we can also promote T cell-specific immunity. This has been observed both in clonal expansion of particular clonal types that -- both novel as well as previous clones that were observed before treatment. We are going to have some updates on our Phase I study with margetuximab illustrating the importance of generating these T cell-specific responses in an upcoming scientific meeting.

So, with regard to enoblituzumab, we think that that same principle will be upheld: increasing innate immunity as well as generating T cell-specific responses.

For many of these tumors, particularly at later stage, the generation of specific immunity, even in these circumstances where these patients may have impaired immune systems, is a very important principle for treating these patients and their cancers, because we believe that the long-sustained therapeutic benefits will come from specific immunity being promoted.

With regard to how we see this franchise evolving with regard to B7-H3 specificity, we see opportunities to combine these molecules together, irrespective of their mechanism of action. So in the case of an ADC where we can promote killing of tumors and debulking, that does not remove the opportunity to also through the DART bispecific or through enoblituzumab to generate better immune responses.

So as you will hear and as I noted earlier, we are looking forward to initiating a registration-type study, first starting with a Phase II study of enoblituzumab combined with our anti-PD-1 molecule, MGA012, that we are -- which we licensed to Incyte. We're also looking at the possibility of combining that with chemotherapy and also looking at this in earlier lines of therapy. So we're going to take advantage of these different mechanisms to optimize the treatment for patients.

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Earl DeSouza, H.C. Wainwright & Co, LLC, Research Division - Associate [4]

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Great. Thanks. For flotetuzumab, why do you have activity in refractory as opposed to relapsed patients? Can you drastically reduce the CRS events with further schedule tinkering?

And I think a third part, for also flotetuzumab, what would be the dose when used in combination with an anti-PD-1?

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [5]

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Excellent 3 questions. So with regard to the effects we're seeing in refractory preferentially as opposed to relapse, I think the data set is still a little small. We are extremely encouraged by the ability to treat this refractory population, which has been resistant to most other conventional as well as newer therapies. So being able to treat this population is a great start.

With regard to how we are looking at treating the relapsed population as well as patients in earlier lines of therapy, we actually have seen responses in relapsed patients, as well. But we may have an opportunity to expand on the activity of flotetuzumab by combining with specific agents. For example, as we had shown a little over a year ago, by combining with anti-PD-1 we can enhance the activity of flotetuzumab in killing tumors quite dramatically. And this is consistent with the observation that patients treated with flotetuzumab will upregulate PD-L1 on the AML BLA. So as you know, this combination study is planned to start later this year.

In addition, we have combined flotetuzumab with other agents, such as hypomethylating agents and other chemotherapies, and have found that there is synergy in the anti-tumor response with those combinations.

So in the future as we move forward with this, we will be looking at various combination therapies to promote the best anti-tumor activity.

With regard to your question regarding CRS, as we noted after the ASH Meeting in December we instituted some minor modifications during the first week of dosing, where we more slowly increased the dosing of patients before we reached the targeted dose of 500 nanograms per kilogram. It's a little too early to announce that this is an absolute success, but having looked at the data recently of the initial patients treated with this regimen we are very encouraged where this is going. And we hope -- we expect to update you later this year with regard to a fuller data set treating larger numbers of patients, mostly with refractory disease but some relapsed patients, as well.

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Operator [6]

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Our next question comes from the line of Christopher Marai, with Nomura.

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Christopher N. Marai, Nomura Securities Co. Ltd., Research Division - MD & Senior Analyst of Biotechnology [7]

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Scott, just a question regarding the margetuximab, both in breast cancer and maybe in gastric. Given the results of the Phase III, just having a little bit of time to digest that further, have you guys thought about further development of that in additional clinical trials, whether it's new indications with respect to HER2 positivity or also just different lines of therapy, earlier, for instance, in breast cancer or additional studies beyond the ongoing gastric PD-1 pivotal study?

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [8]

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Thanks very much, Chris. Yes, obviously by having these results in hand as well as the studies in gastric cancer and the update we presented at ASCO GI meeting, we are forging ahead with our development plan.

So in the context of breast cancer, we've had extended interest for various investigator-sponsored trials, including those in a neoadjuvant setting as well as combination studies of margetuximab with other HER2-directed agents. And we're considering these and anticipate starting these probably later this year.

With regard to the plans for gastric, as I noted earlier, we had a very successful meeting with the FDA very recently, where we discussed various opportunities to combine margetuximab with other agents in our portfolio. As noted previously, we conducted our studies in second line in combination with pembrolizumab, but we had approached the FDA discussing the opportunity in upfront treatment for gastric cancer either with MGA012, the anti-PD-1; MGD013, our PD-1 x LAG-3 bispecific DART molecule; as well as combinations of these molecules with chemotherapy. And with the feedback from the FDA, we have a plan that we are beginning to implement and protocols that we're writing up now and anticipate this study to start later this year. And so stay tuned for the details about the design of that trial.

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Operator [9]

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Our next question comes from Jonathan Miller, with Evercore ISI.

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Jonathan Miller, Evercore ISI Institutional Equities, Research Division - Associate [10]

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Congrats again on all the SOPHIA data and all your other recent updates. I have a question about your financial guidance, to start with. Despite your recent raise and collaboration with Zai Labs, you're still somewhat bandwidth limited. And it seems like you've got a lot of trials contemplated, a lot of things started. So what's your capacity now to advance not just your existing opportunities, but new indications, advance the early pipeline? How much more bandwidth do you have now? And what can you bite off with that?

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [11]

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Jon, great question. As you know, one of the principles about MacroGenics is continually to organically grow the company through the terrific discovery efforts of our research organization and take opportunities where we can complement mechanisms of action where combining these molecules can enhance immunity by different mechanisms.

So in this vein, noting that we have currently 9 molecules in clinical development and at least 4 or more molecules in sort of later-stage preclinical development, we obviously have to set certain priorities to the organization. And in this vein, as I've noted, we would like to obviously advance the later-stage programs further. And so in the context of margetuximab, we are planning this Phase II/III development plan for gastric cancer. For enoblituzumab, we're similarly advancing a Phase II/III study planned for head and neck cancer.

But we are going to continue to support the Phase I development but highlight, in particular, the development of MGD013, given it's now in expansion in 9 different tumor types; and flotetuzumab, getting data as monotherapy and the opportunity to combine these molecules. Once some of these other earlier Phase I studies declare themselves, we may be able to augment those programs forward. But right now our plan is to get through the Phase I development of these programs.

With regard to new programs, as we and our partner, ImmunoGen, have announced, we are planning towards the end of the year to begin a Phase I study of a second ADC in our portfolio targeting ADAM9. Future molecules from the preclinical development efforts will be announced in future years, but right now this is sort of what we can afford with the capital we have available to us.

Obviously, as you know, we have been historically quite successful at bringing in nondilutive capital through partnerships. Over the past 4.5 to 5 years, actually since the IPO, we have brought in $450 million of nondilutive capital through these various partnerships. And our business development team is very active at seeking new partnerships, both on assets we have in our portfolio but also now with our platforms where not only there's been interest in our DART and Trident technology, but increased interest in our Fc-optimization technology, as well.

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Jonathan Miller, Evercore ISI Institutional Equities, Research Division - Associate [12]

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Great. Thank you very much. One further question, specifically on flotetuzumab and the CD123 program. You may have noticed recently that a competitor molecule was put on a partial clinical hold because of some deaths, with toxicities that are pretty familiar from these sorts of targets and those sorts of modalities of action. Is there any read-through from the competitor clinical hold to flotetuzumab? And how do you approach the toxicity profile of DARTs relative to competitor molecules of similar mechanisms of action?

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [13]

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Jon, thanks very much for the question. And obviously, we look at all molecules being used to treat these patients with AML. We hope to be successful.

With regard to the cytokine release and the deaths associated with the recent molecule from Zencore, as you know, when we started our first DART molecule, which was flotetuzumab, in the clinic, one of our major concerns was the expression pattern of CD123 on normal tissues, particularly on monocyte macrophages, plasmacytoids, dendritic cells, some endothelial cells and other cells, as well. And so we selected a short-acting version of this molecule so that we could shut off the dosing of patients if they would experience side effect (inaudible), including cytokine release.

As a result of our long and thoughtful development plan for the use of flotetuzumab, we have instituted support initiatives that can mitigate in a large way the cytokine release associated with this disease. And while a majority of the patients have experienced cytokine release, the grade of the cytokine release have dropped significantly by these various measures that we have implemented.

And as I noted earlier in the call, we have also instituted more recently even further dose escalation during the first week of treatment, which has further improved the safety profile of this drug.

So, while you can never guarantee what the outcome is going to be with a given patient and that they may experience, we feel we have implemented the best conditions for treating these patients so that the drug will be both safe and efficacious.

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Operator [14]

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Our next question comes from the line of David Lebowitz, with Morgan Stanley.

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Ishmael Izakiel Gyimah Asante, Morgan Stanley, Research Division - Research Associate [15]

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This is Ishmael, on for David. Building on one of the more recent questions, could you discuss how the recent results of the Phase III SOPHIA trial might inform your plans of designing the Phase II or Phase III or impact in any way the checkpoints in gastric cancer?

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [16]

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Thank you, Ishmael. And with regard to that, obviously we were very encouraged with the results of the combination of margetuximab and a chemotherapeutic regimen in these patients that, a, we could obviously get a good clinical outcome. But as importantly, we were prompting the induction of specific immunity even in the presence of chemotherapy.

And so as I described earlier to you, we will be implementing studies where we can continue to enhance T cell-specific immunity by incorporating combinations of margetuximab with anti-PD-1 MGA012 and also exploring combinations of margetuximab with MGD013, our PD-1 x LAG-3, in gastric cancer, given that not only does one see increases of PD-L1, but in a large number of these patients increases of LAG-3.

As I indicated earlier, we're also looking at the potential of combining those 2 molecules with chemotherapy, as well. And so, therefore, having the insights from the breast cancer study that marge plus chemo can still allow for the promoting specific immunity, we think we can further enhance that in our gastric cancer study.

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Operator [17]

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Our next question comes from the line of Stephen Willey, with Stifel.

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Stephen Douglas Willey, Stifel, Nicolaus & Company, Incorporated, Research Division - Director [18]

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Scott, I just guess with respect with margetuximab, I know that you've stated an interest in independently being responsible for U.S. commercialization, and I think on the last call you had talked about perhaps entertaining some collaborative options maybe outside of the U.S. Just curious if you can maybe -- I know it's still kind of pretty early with respect to the top line data disclosure, but if you'd be willing to maybe just kind of characterize the level of strategic interest you may have received thus far? And whether or not any kind of collaboration that may or may not take place, if you would also look to maybe offset some of the gastric cancer development costs via some kind of cost-sharing arrangement?

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [19]

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Steve, thanks very much for the question. As I said earlier, prior to even having the data we had outreached to a large number of organizations, both large pharmaceutical companies, biotech companies, as well as regional players, who had interest in this mechanism of action in breast cancer, in particular. What I can say is, is that since the announcement the response has been quite strong. Not only have the initial parties continued to show interest, but there's been an expanded network of companies that have come to us and are interested in finding out more details under confidentiality with us. So that process is continuing.

As I noted earlier, at the time of the announcement of the data, the plans for commercialization were put in place for the U.S. just to be prepared, irrespective of whether we were going to do it ourselves or a partner was going to come in to do it along with us or even independently. And so we are absolutely open to all options there in helping to find the right organization that can best commercialize this molecule for breast cancer, but additionally support other studies in breast cancer as well as the gastric cancer studies. And so we do hope to find such a party that can check all the boxes there, including offset some of the costs for the gastric studies, going forward.

Obviously, the relationship with Zai Lab, which we executed in December, a significant portion of the gastric cancer studies will be subsumed by Zai Labs.

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Stephen Douglas Willey, Stifel, Nicolaus & Company, Incorporated, Research Division - Director [20]

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Got it. And then just with respect to the proposed gastric cancer trial design, I know it's still a bit of a work in progress, but maybe you can just kind of walk through the decision regarding whether or not margetuximab gets combined with either MGA012 or MGD013 and how much of that decision is going to be driven by economics (i.e., the lack of costs or the lack of revenue sharing with Incyte on MGD013), how much of it is driven, I guess, by just biology at this point, and to what extent the Phase I data from the dose expansion cohorts might also be driving that decision.

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [21]

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Thanks for that question. I can say that the decision is totally independent of revenue. We feel that the economics that would come out of any successful drug for gastric cancer, whether with MGA012 or MGD013, will be sufficient for the organizations. This is all being driven by the biology and the responses by the patients.

And so in this vein, our plans right now is to conduct Phase II studies of significant size so that we can decide which therapy results in the best outcome. So totally independent of the revenue being generated.

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Operator [22]

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Our next question comes from the line of Jonathan Chang, with SVB Leerink.

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John Christopher Barrett, SVB Leerink LLC, Research Division - Associate [23]

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This is John Barrett on for Jonathan Chang. Based on your continued conversations and diligence with physicians now that they've had some time to digest the results, can you gauge their view of the data? And have you gotten a sense of what PFS benefit they would need to see in order to drive commercial uptake for margetuximab?

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [24]

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Thanks for the question, John. We've only had a very modest outreach to some of the investigators here. Obviously, there was a comment on our original press release from Hope Rugo, who knew the results and was very encouraged by the data set. But it's too early to make comment on the benefits. And obviously, this will be ultimately a question that both the key opinion leaders as well as the FDA will come to the conclusions about the clinical benefit there.

I would say that after the data came out as reported, we had increased interest for more ISTs from very notable institutions who are experts in breast cancer. So from that vantage point, we're very encouraged by those responses. But it's just too early to understand how broadly the drugs will be used, and we'll have to wait to see the update.

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John Christopher Barrett, SVB Leerink LLC, Research Division - Associate [25]

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Great. Thank you. And could you provide some additional detail on any trial amendments that were implemented for MGD009, the trials, following the lifting of the partial clinical hold?

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [26]

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Sure. Thanks, John, for that question. As I noted on previous calls and through our distribution of our press releases, we had made some dosing modifications at the request of the FDA, a slight reduction in dose, as well as a plan that we had proposed to them even before we had heard from them of looking prophylactically at during the first infusion of MGD009 to give anti-cytokines, including on one arm, for example, tocilizumab, as a way to reduce the initial cytokine release, which we saw and believe in a large part was due to the cause for elevated LFT. So those changes are being incorporated in our protocols. And as I noted earlier, we expect to start enrolling patients shortly.

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Operator [27]

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Our next question comes from Yigal Nochomovitz, with Citigroup.

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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [28]

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On the first-line gastric study which you're working on with the FDA, it was interesting that you mentioned that those studies may include chemo, too, because I guess I was under the impression that the goal is to do a chemo-free regimen. So I'm just wondering, was that something that the FDA snuck in there, that they want to see chemo in the front-line setting? Or is that just, is that part of the game plan for front-line, more generally?

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [29]

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Excellent question, Yigal. So this, in fact, was promoted prompted by us. We're looking at sort of very broadly of how to best treat patients in a front-line setting. In fact, we will initiate likely the first studies without chemotherapy, establish a response and safety of those combinations initially. And then that can continue on to a Phase III if the data is significant and suggests a response rate and long-term benefit in the front-line patients.

But given that, as I pointed out earlier, that, for instance, marge and chemo worked very well in the latest setting and still allowed for generation of specific immune responses in patients with breast cancer, so did we feel that it would be incumbent on us to see if we could have further enhancement of the response rate by including a chemotherapy arm combined with the other agents, as well.

So again this will be a step-wise approach, that we're not doing all these things at once, will be implemented initially in a Phase II design. And then we'll be able to collapse particular groups and then move forward in a Phase III development plan with the best combination therapy for the patients.

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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [30]

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Okay. So this -- are you suggesting it might be an adaptive design of some kind? Or are these just going to be separate studies, Phase II and then move to Phase III?

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [31]

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I would call them adaptive in nature, yes.

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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [32]

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All right. And then a second one was on enoblituzumab. You've picked head and neck for the Phase II combo. Is that mainly because of better B7-H3 expression? Or lack of competitive pressures relative to lung cancer? Can you just expand on why that's the choice for the Phase II?

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [33]

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That's a conversation we've had internally, and it flips back and forth between head and neck and lung cancer, and there's no right and wrong answer on that. Obviously, there's been a lot more activity in lung cancer, with many different combinations, as you know quite well, and recent approvals in front-line lung cancer.

So therefore, we feel that the opportunity and the need for head and neck cancer, at least near term, is greater for us and can be handled by us initially. But this in no way should dispel our interest of proceeding in lung cancer and others. But again, given the size of the organization, we only can do a certain number of studies at one time.

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Yigal Dov Nochomovitz, Citigroup Inc, Research Division - Director [34]

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Okay. And then the last one is just going back to SOPHIA. Obviously, I understand you guys are filing on PFS, but I've been getting this question a lot from people over the last few weeks. So I just wanted to ask you again, and forgive me for the question. But I just want to understand, what has the FDA said on OS? And is there any expectation that you eventually would have to hit stat sig on that? Or to satisfy the agency, if it ends up just being a trend and not worse, which is -- I've heard this from Richard Pazdur with respect to other drugs, that they're fine. So where do you stand on that?

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [35]

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Well if Richard says it, it must be the rule and it must be the law. The reality is, is that there was no indication that we needed to have a statistically significant OS. Obviously, if we had that, that is better. But clearly, the FDA has approved drugs with trending in OS. And a result, we will continue to follow these patients and hope that the favorable response with regard to margetuximab versus trastuzumab persists. So stay tuned for that.

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Operator [36]

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Our next question comes from the line of Ren Benjamin, with Raymond James.

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Reni John Benjamin, Raymond James & Associates, Inc., Research Division - Senior Biotechnology Analyst [37]

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I have a naive SOPHIA stats question having to do with the hazard ratio. Can the hazard ratio continue to evolve since only half the events were accounted for? And from a regulatory perspective, what's the final data point that gets taken into account?

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [38]

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So not knowing the complete answer in terms of -- what's taken into account is what was predefined. And the hazard ratio as stated is the hazard ratio for the PFS. And when we hit 385 events for OS, that will be the hazard ratio for the OS events. So I think it's predefined and is at that point.

Can patients continue to be followed and an imputed hazard ratio be determined? Yes. But from what I understand, and forgive me if I'm wrong here, is that that is not being considered in the context of the review process.

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Reni John Benjamin, Raymond James & Associates, Inc., Research Division - Senior Biotechnology Analyst [39]

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Got it. And then just as far as commercialization is concerned, can you talk to us a little bit about how you're thinking about commercializing in 2020, how should we be thinking about the sales force and the like?

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [40]

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I made a little comment earlier, Ren, which is right now is that for the U.S. we're preparing what's necessary to commercialize, but we are very actively engaged looking for an appropriate partner to help us commercialize. And this could be worldwide, including U.S. Our goal right now, given that this is the only molecule, at least near term, that has the potential for commercialization, obviously if the FDA agrees with that, it's very hard to just have a separate sales force with 1 product and make it cost-effective.

So the way we're looking at that, if we find an appropriate partner and we can participate some way, and it doesn't necessarily mean adding sales, but it could be an option to doing that, as 1 example. It could be, obviously, adding expertise in the field to support this drug. We're open to many different structures here to commercialize this. So stay tuned as we get feedback from potential partners.

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Reni John Benjamin, Raymond James & Associates, Inc., Research Division - Senior Biotechnology Analyst [41]

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Got it. And then just switching gears to flotetuzumab, can you talk a little bit, Scott, about the -- obviously, we've seen the data from the gene signature at ASH, but can you talk about how you see this evolving in 2019 and any sort of changes or progress in the flotetuzumab development plan that we can anticipate for 2019?

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [42]

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Thanks, Ren, for that question. As I said earlier, I'm very encouraged by at least the initial cohort of patients that we have treated with a slower ramp-up during the first week of dosing in terms of their tolerance, the amount of drug they've received and, at least in the small number of patients, even the responses we're seeing. So the goal, as I've outlined earlier, is that we'd like to see, say, 25 patients treated, mostly refractory patients. We'd like to see that the response rates are approximating what we had observed and reported at the ASH Meeting in December.

We obviously are following with the biomarker data, as well. As we pointed out, while this biomarker data seemed to track very well with the refractory population, there were also patients with relapsed disease that also may have indications of similar biomarker changes and, therefore, would be potential prospects for treating these patients.

If the results come out and are supported by this data, we would look to expand this much further with additional patients. We would meet with the FDA and European regulatory agencies to track a registration path for monotherapy. We would also initiate the combination studies that I alluded to before in combination with our anti-PD-1 molecule, MGA012, and also consider other combinations with other chemotherapeutic agents.

So what we have indicated is that we expect the enrollment to continue quite nicely and should be able to update you in the second half of this year with regard to next steps with this program.

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Operator [43]

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Our next question comes from the line of Peter Lawson, with SunTrust Robinson Humphrey.

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Minh Vong, SunTrust Robinson Humphrey, Inc., Research Division - Associate [44]

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This is Minh, filling in for Peter. Just 2, I guess a few questions, on MGA012. I guess the first, for the Phase II study you guys are planning on initiating in gastric, I know from the ASCO GI data it looks like the PD-L1 high expressors seemed to respond a little better. Are you thinking about a trial enrolling both the PD-L1+ and negative? Or focused a little more on the PD-L1 group?

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [45]

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Thanks, [Bin], for that question. Very insightful. As we've noted and as you've noted in the data, in a small subset of patients with the 3+ gastric positive IHC for HER2, we were seeing over 50% response rate in the PD-L1+ population. So as we move forward, we're going to both look at that population as well as the broader population that does not have enough a major upregulation in PD-L1. And again, we'll let the data guide us to what the proper combinations should be.

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Minh Vong, SunTrust Robinson Humphrey, Inc., Research Division - Associate [46]

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I see. I guess a fairly quick last question on the data. So it looks like the, at least when it comes to median PFS, it seems like the broader population may do just as well, or maybe possibly even better, than the PD-L1 high expressors. And likewise, for the current overall survival. Do you think it's just, like, immaturity of the data there? Or maybe the difference isn't drastic or maybe isn't found when it comes to survival outcome?

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [47]

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So I think with regard to PFS, it's just too much of an immature data set with regard to the subset of populations, and I don't think that has any particular meaning at this point. I think that the opportunities for the PD-L1+ population have a better PFS. With larger numbers, we'll see. But I think that is certainly -- should be the case.

So with regard -- what was the second question? I'm sorry.

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Minh Vong, SunTrust Robinson Humphrey, Inc., Research Division - Associate [48]

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And then, I guess, minimal overall survival was probably, like, (inaudible).

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [49]

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Overall survival, yes. So we're extremely encouraged by the overall survival results, having not even reached that for the 3+ positive population. And again, as I pointed out, as we enhance the specific immune responses by these various combination therapies, we think that that will continue to improve and prevail. But we'll let the data speak for itself.

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Minh Vong, SunTrust Robinson Humphrey, Inc., Research Division - Associate [50]

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Gotcha. Thank you. I guess one last quick one. So I know you guys have retained the rights to use MGA012 in combinations with your pipeline. Is there any, I guess, preclusion with the indications that you may pursue that, for example, Incyte's going to monotherapy with (inaudible) and endometrial and Merkel and then anal later? But is there any preclusion in the indications that you may pursue and it overlapping with Incyte's monotherapy?

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [51]

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No. In fact, it's the nature of the relationship. A very strong relationship with Incyte. But we have decided that if we want to pursue similar tumor indications or, actually, similar molecules targeting the same targets, we're both free to do so.

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James Karrels, MacroGenics, Inc. - Senior VP, CFO & Secretary [52]

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We just can't [pursue] monotherapy.

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [53]

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We just -- we can't do monotherapy alone. It's only as combination.

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Operator [54]

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(Operator Instructions) We have a follow-up question from the line of Stephen Willey, with Stifel.

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Stephen Douglas Willey, Stifel, Nicolaus & Company, Incorporated, Research Division - Director [55]

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So Scott, just to clarify on the proposed gastric development program, this is going to be gastric-specific, right? There's no intention here to also look at gastroesophageal?

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [56]

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Steve, we are considering gastroesophageal. So stay tuned there. Certainly, gastric will there. But for instance, having a 3+ positive population with gastroesophageal certainly could be included in the study, as well.

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Stephen Douglas Willey, Stifel, Nicolaus & Company, Incorporated, Research Division - Director [57]

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Got it. And then, just curious if there's anything incremental to say on 007. I know you guys are still dose escalating this with MGA012. I believe Servier had declined to pick up the option on this asset some time late last year. Just curious as to kind of what happens now in that Phase I trial.

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [58]

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Thanks for that question, Steve. Our obligations to Servier was to provide them with the initial data from the first dosing regimens, whereas you know we had a lot of challenges with regard to the side effects that were on target, specifically, the nausea, vomiting and diarrhea, because of the expression of gpA33 in the normal colon, small intestine and stomach. That was the data set that they used to make their decision, going forward.

Having continued to advance that program, we have been able to implement a dosing regimen and support that has not completely eliminated but certainly has mitigated some of the severe side effects of the drug. And we're continuing to gingerly dose escalate. We expect to reach the targeted dose very shortly, and then our plan is to expand into approximately 25 patients. And as I've said previously, if that data set suggests both a tolerability as well as evidence of activity that is doing better than the late-line patients currently have available to them, then we will continue the program. If not, we will stop that program.

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Stephen Douglas Willey, Stifel, Nicolaus & Company, Incorporated, Research Division - Director [59]

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Great. Thanks. And then just 1 last follow-up, for Jim, just housekeeping. Does the Zai Lab payment, is that going to get amortized? Or is that going to be a lump sum that hits in 1Q?

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James Karrels, MacroGenics, Inc. - Senior VP, CFO & Secretary [60]

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It will be amortized, Steve.

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Operator [61]

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We have a follow-up question from the line of Ren Benjamin, with Raymond James.

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Reni John Benjamin, Raymond James & Associates, Inc., Research Division - Senior Biotechnology Analyst [62]

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Just 1 for Jim, as well. With all these clinical studies that are starting, Jim, how should we be thinking about R&D in terms of 2019? Is it roughly in line with 2018 since SOPHIA is winding down? Or should we be materially higher? Just any color would be great.

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James Karrels, MacroGenics, Inc. - Senior VP, CFO & Secretary [63]

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Well, as SOPHIA winds down, the other studies will be coming up. So I'd say flattish. We're not giving specific guidance. The only guidance we are giving is that our cash runway takes us into 2021. But I would expect R&D to generally be flattish.

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Reni John Benjamin, Raymond James & Associates, Inc., Research Division - Senior Biotechnology Analyst [64]

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Got it. And then just 1 last one for Scott, if you don't mind. With enoblituzumab, I know in January you had mentioned that there were 18, or so, responses; 4 were unconfirmed. Scott, have they been confirmed subsequently? Or when might we find out an update from that study?

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [65]

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For enoblituzumab?

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Reni John Benjamin, Raymond James & Associates, Inc., Research Division - Senior Biotechnology Analyst [66]

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Yes, I think it was the -- yes.

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [67]

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Well, no. Enoblituzumab, all the data from the combination studies with pembro in head and neck and lung were all confirmed. So I don't know which -- maybe it was gastric, maybe it was the gastric study from the new cohort that the patients weren't followed long enough to confirm that. I think that's what you're probably remembering. But enoblituzumab, all those patients, the 33% response rate in the head and neck and 35%-ish response rate in the lung cancer, those were all confirmed responses.

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Operator [68]

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This concludes the question-and-answer session. I'll now turn the call back to Dr. Koenig for closing remarks.

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Scott Koenig, MacroGenics, Inc. - CEO, President & Director [69]

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I'd just like to thank everyone again for joining us, and let you know that we look forward to continuing to advance our programs in the coming months and providing updates on our progress.

Have a great day.

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Operator [70]

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Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone, have a great day.