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MacroGenics (NASDAQ:MGNX) made its public debut on Thursday, October 10. Shares of the clinical stage biopharmaceutical company ended their first day with gains of 56.2% at $24.99 per share.

The offering marks another hugely successful offering of a biopharmaceutical company, focused on cancer drugs, this year.

As MacroGenics has no working products yet, I find it extremely difficult attaching a fair valuation to the business at the moment, and therefore remain on the sidelines.

The Public Offering

MacroGenics is a clinical stage biopharmaceutical company focusing on the discovery and development of monoclonal antibody based therapeutics for the treatment of cancer and autoimmune diseases.

MacroGenics aims to generate a pipeline of product candidates from its proprietary suite of next-generation antibody technology platforms. These product candidates may address specific challenges of diseases not being met by existing therapies.

The company creates differentiated molecules which are directed to novel cancer targets, known as "bio-betters", which are drugs to improve upon marketed medicines.

MacroGenics sold 5.0 million shares for $16 apiece, thereby raising $80 million in gross proceeds. All shares were sold by the company, with no shares being offered by selling shareholders.

Initially, bankers and the firm set an initial price range of $14-$16 per share. Shares were eventually sold at the high end of the initial public price range. On top of that, MacroGenics boosted the size of the offering by a quarter, to 5 million shares.

Some 22% of the total shares were offered in the public offering. At Friday's closing price of $26.10 per share, the firm is valued at $600 million.

The major banks that brought the company public were Bank of America/Merrill Lynch (NYSE:BAC), Leerink Swann, Stifel, Lazard and Wedbush PacGrow Life Sciences.

Valuation

MacroGenics' technology platforms and antibody engineering expertise has lead to a few promising product candidates and into several strategic collaborations. The tie-ups provide funding and leverage to use the expertise of partners, to further help the development of product candidates.

MacroGenics has three key technologies. The company has developed the DART platform to target anti-gens. MacroGenics also developed the Fc Optimization platform to enhance the body's immune system through antibody-dependent cellular cytotoxity, in which antibodies and immune cells aim to destroy target cells. The final platform is the cancer stem-like cell (CSLC) platform to identify cancer targets shared by both tumor-initiating cells.

The company has a few key partnerships with Servier, Gilead Sciences (GILD), Boehringer and Pfizer (PFE). Through these collaborations, the company has received $106 million in non-equity funding to date.

At the moment MacroGenics has two oncology product candidates in the clinical development phase. These are Margetuximab and MGA271, both developed to target ranges of tumors. Margetuximab is currently in Phase 2a clinical trials, while a Phase 3 potential registration trial is anticipated in the second half of 2014. MGA271 is currently in a Phase 1 clinical trial, with the Phase 2 clinical trial anticipated in 2015.

For the year of 2012, MacroGenics generated annual revenues of $63.8 million, up 11.6% on the year before. Net earnings rose by 24.5% to $83.6 million.

For the first six months of 2013, MacroGenics generated revenues of $22.9 million, down 39.7% on the year before. As a result of the revenue declines, MacroGenics reported a net loss of $3.7 million compared to a $7.9 million profit a year earlier.

The company operates with $33.8 million in cash and equivalents. MacroGenics operates without the assumption of debt. Factoring in the gross proceeds of $80 million from the offering, and MacroGenics will operate with a net cash position of around a $100 million.

With the equity in the business being valued around $600 million, operating assets are valued around $500 million. This values operating assets of the firm at 7.8 times revenues being generated in 2012, and 60 times earnings for that year.

Investment Thesis

As noted above, the offering of MacroGenics has been a success. The company priced the offering at $16 per share, some 6.7% above the midpoint of the original preliminary offering range.

Shares have seen even more upside, rising to $26.10 per share, some 74.0% above the midpoint of the preliminary offering range.

It is understandable why investors are upbeat about prospects for the firm. The company has many candidates in its pipeline, collaborations with large established pharmaceutical companies and it has also developed new technologies, like DARTS, to develop even more potential candidates.

Add to that the modest profits last year, and relative modest losses so far in 2013, and it is understandable why investors are willing to give the company a chance. Potential milestone payments are large as well, as MacroGenics could receive upto $1.4 billion in milestone payments from Servier, in two separate agreements with the firm.

Note that the public offering proceeds might be used rather fast, as the company aims to use some $70 million to fund the clinical development for Margetuximab and MGA271.

After another hugely successful cancer research offering, the market has valued MacroGenics at around $600 million, quite a bit for a firm with merely 159 employees at the moment.

I find it extremely difficult to attach fair probabilities of a successful product development to Macrogenic's products. Even then, much of the valuation is driven by the potential market size for the firm's products.

I remain on the sidelines, not being able to make a good estimate of the company's value at the moment.

Source: MacroGenics - Cancer IPOs Remain The Hottest Thing In Town