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Ishan Majumdar
Ishan Majumdar
Articles (27) 

MacroGenics’ Public Offering to Raise Funds for R&D, Marketing Is a Smart Move

The company's management has gone ahead with a public offering to take advantage of the recent spike after good trial results of its key drug, margetuximab

February 13, 2019 | About:

There are dozens of listed biotech and pharmaceutical companies with scant revenues that have managed to carry out public offerings to raise funding purely for research. But few of these companies have pipelines with drugs that have managed to reach Phase 3 trials and continued to deliver promising results. MacroGenics Inc. (NASDAQ:MGNX) is a classic example of one such company. With the recent spike in its stock price, and its upcoming offering, the stock is an excellent subject of analysis.

A very promising pipeline

MacroGenics is at pivotal phase in terms of its research. The clinical stage biopharmaceutical company, which focuses on the discovery and development of antibody-based therapeutics designed to improve immune system response, for the treatment of cancer, has a promising pipeline in place. It is raising funds for commercialization as well as further research and development. MacroGenics awaits the regulatory approval of its key drug, margetuximab, in the U.S., for the treatment for metastatic breast cancer and gastroesophageal cancer.

MacroGenics is also at the late stages of the development of enoblituzumab, a form of treatment for B7-H3 positive cancers, potentially including squamous cell carcinoma of the head and neck, non-small cell lung cancer, and others. The company has another promising pipeline of drugs in oncology, which includes flotetuzumab, MGA012, MGD013, MGD019 and MGD009, all of which are in Phase 1 and need further investment in terms of R&D. Further, it has developed solid partnerships for research with the likes of Zai Labs, Green Cross, Servier and Incyte.

The current offering

As is evident from the chart, the company's lack of news coincided with a steady downward movement for the entire year. That changed in the past week, when MacroGenics saw its stock price more than double as a result of positive data around margetuximab (Zai Labs’ stock also shot up 21%).

The company's management has seized the opportunity of the higher stock price to make an equity issue to the tune of an additional 15% of the common stock of the company. It is offering 5.5 million shares through this public offering for a price of $20 per share, before underwriting discounts and commissions. In effect, the management expects to raise about $110 million before commissions and fees through this offering.

SVB Leerink, Evercore ISI, Credit Suisse and Stifel are acting as the joint book-running managers of the offering, while Nomura, SunTrust Robinson Humphrey and BTIG are acting as lead managers. H.C. Wainwright & Co. is acting as co-managers. 

The deal offering is expected to close on Feb. 15, 2019, and management has granted the underwriters a 30-day option to purchase up to an additional 15% stake in the company offered.

The upside still exists

MacroGenics has gained excellent momentum with the uptrend that began last week. The stock is now trading above its 20-day, 50-day and 200-day moving averages, but it continues to be more than 35% below its 52-week high. This leaves a significant scope for near-term upside.

Also, in terms of fundamentals, the company has a price-book ratio of 3.11 and an EV-revenue multiple of 3.16, which is certainly on the lower side. Unlike a number of its oncology peers, MacroGenics has had real revenues, which are expected to grow exponentially once the management is able to commercialize margetuximab. Given this fact, the current market price of $21 is quite reasonable, and the $20 per share offering by the company is an excellent buying proposition.

Conclusion

With a promising pipeline including a potential star like margetuximab, the management of MacroGenics has tried to make hay while the sun shines and gone for this offering after the price increase. With the fresh fund infusion, the potential revenues of the company are expected to go up significantly along with the multiples, making the stock a multi-bagger.

MacroGenics could also become an acquisition target for a giant like Roche (OTCQX:RHHBY) or Merck (NYSE:MRK). Either way, the stock is an excellent investment proposition for investors with medium-to-high risk appetite.

Disclosure: No positions. 

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About the author:

Ishan Majumdar
I am a qualified chartered accountant with a masters in management (Grande Ecole) from HEC Paris. I run a proprietary boutique financial advisory firm called Baptista Research specializing in research and valuation of listed companies.

I have over six years' experience spread across investment banks, financial advisory firms, investment funds and other corporates in many different geographies, such as France, Spain, India and others. I was a part of the LBO Financing team at BNP Paribas where I worked on deals with a combined enterprise value of over $1 billion. I have also worked in mergers and acquisitions with Credit Agricole CIB and corporate strategy with Groupe Danone SA. Over the years, I have developed a strong specialization in corporate valuations, strategy and financial analysis.

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