LORIKEET And LINNET Trials Will Spur Advances Amid Liquidity Risks

Key Takeaways

• Future revenue growth potential hinges on successful trial outcomes and product approvals in ongoing and upcoming clinical studies.
  
• A robust pipeline and financial sustainability support continued R&D efforts, reinforcing prospects for growth if new treatments prove effective.
  
• Rising R&D costs, potential liquidity risks, and strategic shifts in program development highlight financial and operational challenges for MacroGenics.

Catalysts

A clinical-stage biopharmaceutical company, discovers, develops, manufactures, and commercializes antibody-based therapeutics to treat cancer in the United States.

• Completion of enrollment in the LORIKEET Phase 2 trial for lorigerlimab, with anticipated updates in the second half of 2025, could drive investor expectations for future revenue growth if promising clinical results are obtained.
  
• Initiation of the LINNET Phase 2 study in mid-2025, targeting unmet needs in ovarian and gynecologic cancers, positions MacroGenics for potential future earnings improvement if successful trial outcomes lead to product approvals.
  
• The promising clinical development of MGC026, an ADC targeting B7-H3, with potential dose expansion planned for 2025, suggests future revenue potential if the treatment shows efficacy and safety in solid tumors.
  
• The ongoing Phase 1 trial for MGC028 and the anticipated IND submission for MGC030 in 2026 indicate a robust pipeline that could enhance revenue and earnings if these drugs prove effective and secure regulatory approval.
  
• The $201.7 million cash balance, anticipated to support operations into the second half of 2026, underscores the company’s ability to sustain its R&D activities, enhancing future revenue potential from successful product development.

MacroGenics Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MacroGenics's revenue will decrease by 28.7% annually over the next 3 years.
• Analysts are not forecasting that MacroGenics will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate MacroGenics's profit margin will increase from -44.7% to the average US Biotechs industry of 16.8% in 3 years.
• If MacroGenics's profit margin were to converge on the industry average, you could expect earnings to reach $9.1 million (and earnings per share of $0.14) by about April 2028, up from $-67.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 50.1x on those 2028 earnings, up from -1.4x today. This future PE is greater than the current PE for the US Biotechs industry at 19.6x.
• Analysts expect the number of shares outstanding to grow by 0.73% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.1%, as per the Simply Wall St company report.

MacroGenics Future Earnings Per Share Growth

Risks

• MacroGenics reported a net loss of $67 million for the year-ended December 31, 2024, compared to a net loss of $9.1 million for 2023, which could impact future earnings and overall financial health.
  
• The company's research and development expenses increased to $177.2 million in 2024 from $166.6 million in 2023, indicating rising costs that could pressure net margins and profitability.
  
• MacroGenics is exploring alternatives for partnering its vobra duo program after deciding not to pursue further internal development, which reflects uncertainty in generating future revenue from this asset.
  
• The company anticipates that its cash reserves and future partner payments will support operations only until the second half of 2026, indicating potential liquidity risks and dependency on successful future collaborations or funding.
  
• The ongoing clinical trials and development of new candidates are subject to the usual risks associated with clinical research, including unpredictable outcomes and approval challenges, which could impact future revenue streams.

Valuation

• The analysts have a consensus price target of $5.8 for MacroGenics based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $8.0, and the most bearish reporting a price target of just $2.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $54.3 million, earnings will come to $9.1 million, and it would be trading on a PE ratio of 50.1x, assuming you use a discount rate of 7.1%.
• Given the current share price of $1.52, the analyst price target of $5.8 is 73.8% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.