On February 6, 2019, MacroGenics (MGNX) reported that the SOPHIA trial comparing margetuximab plus chemotherapy to Herceptin plus chemotherapy met the primary endpoint of progression free survival with a hazard ratio of 0.76 with an accompanying p-value of 0.033. This rather surprising result caused the stock to go up as much as 191% intraday. Clearly, investors were excited by what they saw. However, I see major problems with this program and the data that management has presented. Perhaps even more important than what was presented on the 6th is what wasn’t presented on the 6th.
In this report, which I anticipate will be the first in a series of reports on MacroGenics, I provide insight into the following:
- I believe MacroGenics' management is withholding critical data from investors on the SOPHIA trial, and I believe this data shows that there is very little value in this program.
- Many studies have improved progression free survival in breast cancer patients only to fail on overall survival.
- The p-value reported by MacroGenics is very sensitive to incremental data and could easily lose statistical significance as more patients are included.
At the very least, investors should demand that MacroGenics' management release the key pieces of missing data on their SOPHIA trial. When the full data set is presented, I think it will be underwhelming and result in a collapse in share price.
The most interesting aspect of the MacroGenics conference call is what was left unsaid
As a long-time observer of the biotech market, I know well that the sell side cannot be relied upon to ask relevant questions. I include the questions I think should have been answered on the call but were not.
What was the absolute difference in median progression free survival (mPFS)?
The utility of margetuximab is greatly influenced by the answer to this question. A difference of mPFS of a few weeks is far less useful to patients than a 5-month difference. When taking into consideration possible safety issues (more on that later) presented by MacroGenics product dosed at twice the dose of Herceptin, it makes the product practically worthless in my eyes. This is simply not a useful clinical tool.
The expected mPFS in this patient population can be estimated from previous trials (in similar patient populations as SOPHIA) which I have summarized below.
Your eyes aren’t deceiving you. The average difference in mPFS in these five large studies is roughly 5 WEEKS – very similar to the difference MacroGenics likely observed, and guess what? Every single one of these studies FAILED TO IMPROVE OVERALL SURVIVAL.
If the SOPHIA HR stays the same as more events are accrued and if the mPFS is similar to that observed in the trials above, I estimate margetuximab improved mPFS by 6 weeks or less. No wonder MacroGenics was reluctant to release this data on the call. Also, I believe the company has this data in their possession. They admitted as much when they stated the following on their call:
“So at this point, we are not going to give any guidance on that for competitive reasons at the least.”
There are so many problems with this statement it is difficult to know where to start. Here is why you should really question how you or the sell side analysts originally accepted this answer:
- When have you ever seen a small biotech company withhold GOOD DATA?
- Competition is IRRELEVANT at this point. The company has already said they are moving forward with a BLA filing. If there is anything they know about their competitors that would alter this plan, they should let us know ASAP.
- If MacroGenics really does believe it is in some ‘competition’, wouldn’t it be a good idea to disclose their great data as a shot across the bow to these other parties?
Withheld data is USUALLY BAD DATA. They won’t be able to keep it under wraps forever, and I certainly wouldn’t want to be a shareholder when the full data set is released.
What was the difference in response rate?
This is also data MacroGenics should have, yet they chose to say nothing about objective response rate (ORR). I operate on the assumption that if this data favored margetuximab, that we would have heard about it. After all, the entire premise behind the drug’s development is that it better engages Fc receptors leading to more antibody dependent cytotoxicity (ADC). If this is the case, response rates should be superior in the margetuximab arm. I think if they were, we would have heard about it.
How many overall survival events have occurred?
MacroGenics offered the following regarding survival, “the trending for OS has been positive in the direction of margetuximab. But we just don't have enough events to be able - to have significance here, so we'll continue to follow that.” The logical follow-up question to this is, “How many events have occurred?” No one on the call bothered to ask. This is important because the trend in survival may be driven by a very small number of events – CEO Scott Koenig hints as much in his response – and therefore very subject to change.
Why is the study STILL enrolling if you have exceeded the target enrollment of 530?
Investors may be surprised to know that the SOPHIA study is still recruiting according to clinicaltrials.gov. It would be helpful to know how many more patients will be enrolled as the study has enrolled more patients than its target of 530 enrollees. It would also be helpful to know *why* MacroGenics first stopped:
And then restarted enrollment:
There are many reasons why a company might extend its enrollment beyond its goals, and few of them favor investors. Finally, investors should demand a good explanation as to why the expanded access program is no longer active.
What percentage of patients enrolled in the study have been censored for the purposes of calculating mPFS? Was it equal in both arms?
Patients censored for the purposes of calculating PFS curves can have a large impact on the HR if one includes them assuming progression at the last visit. If you don’t think the FDA will conduct this analysis, you are fooling yourself.
Can you show us a table of baseline characteristics?
This is important to see so that one might determine whether the presumably very marginal improvement in mPFS is attributable to baseline imbalances or differences in the chemotherapy backbone selected between the groups. Again, MacroGenics likely has this data and has elected not to share it at this point.
A great many studies have improved progression free survival in breast cancer patients only to fail on overall survival
Breast cancer chemotherapy is notorious for creating improvements in progression free survival that fail to result in improvements in overall survival. I summarized several examples of studies in metastatic breast cancer patients that improved mPFS. Note that the improvements in mPFS were in some cases profound and highly statistically significant. Also note that these studies failed to produce improvements in overall survival.
The p-value reported by MacroGenics is very sensitive to incremental data and could easily lose statistical significance as more patients are included
It is time for some mathematics. One of the very few pieces of incremental information about SOPHIA provided by MacroGenics is the fact that 85% of the population harbored the F allele of FcIII receptor, and in that patient population, the HR was 0.68 with an accompanying p-value of 0.005. Per MacroGenics' corporate presentation, we know the PFS analysis was conducted when there were 257 events. 85% of 257 is 218 which means 39 non-F allele patients were enrolled in the trial. Assume these non-F allele patients are evenly distributed at approximately 20 per arm. How is it that the inclusion of a mere 20 patients per arm can influence the HR to 0.76 from 0.68 and alter the p-value from 0.005 to 0.033? This is proof that the HR and accompanying p-value are very sensitive to a small number of events from which we can conclude the following: i) the absolute difference in mPFS is small, otherwise it would not be subject to such undue influence by 39 patients; ii) the hazard ratio for the non-F allele population is likely greater than 1, indicating possible harm in this population; and iii) MacroGenics longs, if they believe the data to be an accurate representation of biological reality, better hope that not many more non-F allele patients were enrolled.
Valuation and Price Target
MacroGenics reported net cash of around $240M at the end of September 2018. Assuming a cash burn of approximately $35M per quarter and net proceeds of $103M from its February 12th stock offering, we arrive at a Q1 pro forma cash balance of $273M, or $5.71/share.
The most recent stock offering increased the amount of shares outstanding by 5.5M to a total of 47.8M. Accordingly, at $21.70/share, MacroGenics' market cap amounts to $1,037M (corresponding to $765M in Enterprise Value).
I believe, that given its limited value proposition, margetuximab is a NPV neutral product, if ever approved. Even in oncology, an approved product doesn't necessarily pave the road to riches. Investors in companies like Merrimack (MACK) or Puma Biotechnology (PBYI) would probably agree.
Bulls might argue that the antibody platform might be of value. However, the market currently isn't assigning a lot of value to antibody platform companies without attractive late stage assets (see Pieris Pharmaceuticals (PIRS), Molecular Partners, etc.). I believe the underlying reason is the fact that any value creation of the platform is offset by the continued high cash burn (approximately $140M/year in the cash of MacroGenics).
For all those reasons, I believe that MacroGenics should trade around projected Q1 net cash of $5.71/share and assign it a price target of $6 (or 72% downside).
There are only two reasons to take chemotherapy – symptom improvement or increased survival. I think it is very likely based on the data presented above that margetuximab will not improve overall survival and may even fail show a statistically significant difference in progression free survival when the study is complete. If either or both of these are the case, sales of margetuximab, should it be approved, will be dismal and the market capitalization added in response to the February 6th press release will evaporate.
Disclosure: I am/we are short MGNX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.