MacroGenics
Annual Report 2015

Plain-text annual report

MACROGENICS INC FORM 10-K (Annual Report) Filed 02/29/16 for the Period Ending 12/31/15 Address Telephone CIK 9640 MEDICAL CENTER DRIVE Rockville, MD 20850 301-251-5172 0001125345 Symbol MGNX SIC Code Fiscal Year 2834 - Pharmaceutical Preparations 12/31 http://www.edgar-online.com © Copyright 2016, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.  UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark One)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2015OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-36112MACROGENICS, INC.(Exact name of registrant) Delaware 06-1591613(State of organization) (I.R.S. Employer Identification Number)9640 Medical Center Drive, Rockville, Maryland 20850(Address of principal executive offices and zip code) (301) 251-5172(Registrant's telephone number)Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which RegisteredCommon stock, par value $0.01 per share The NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes R No ☐ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.Yes  No  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past90 days.Yes  No  Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submitand post such files).Yes  No  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of theregistrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See thedefinitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer RAccelerated filer ☐Non-accelerated filer Smaller reporting company  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes   No  The aggregate market value of the registrant's common stock, par value $0.01 per share, held by non-affiliates of the registrant on June 30, 2015, the last businessday of the registrant's most recently completed second fiscal quarter, was approximately $1.05 billion based on the closing price of the registrant's common stockon the NASDAQ Global Select Market on that date. Exclusion of shares held by any person should not be construed to indicate that such person possesses thepower, direct or indirect, to direct or cause the direction of management or policies of the registrant, or that such person is controlled by or under common controlwith the registrant.The number of shares of the registrant's common stock outstanding on February 22, 2016 was 34,526,106. DOCUMENTS INCORPORATED BY REFERENCEPortions of MacroGenics, Inc.'s definitive proxy statement for the 2016 annual meeting of stockholders are incorporated by reference into Part III of this AnnualReport.MACROGENICS, INC.ANNUAL REPORT ON FORM 10-KTABLE OF CONTENTS PART I Item 1Business Item 1ARisk Factors Item 1BUnresolved Staff Comments Item 2Properties Item 3Legal Proceedings Item 4Mine Safety Disclosures PART II Item 5Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6Selected Financial Data Item 7Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7AQuantitative and Qualitative Disclosures about Market Risk Item 8Financial Statements and Supplementary Data Item 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9AControls and Procedures Item 9BOther Information PART III Item 10Directors, Executive Officers and Corporate Governance Item 11Executive Compensation Item 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13Certain Relationships and Related Transactions, and Director Independence Item 14Principal Accountant Fees and Services PART IV Item 15Exhibits and Financial Statement Schedules SIGNATURES FORWARD-LOOKING STATEMENTS This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the SecuritiesExchange Act of 1934. Forward-looking statements include statements that may relate to our plans, objectives, goals, strategies, future events, future revenues orperformance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, in particular, underthe headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations". Forward-looking statements can oftenbe identified by the use of terminology such as "subject to", "believe", "anticipate", "plan", "expect", "intend", "estimate", "project", "may", "will", "should","would", "could", "can", the negatives thereof, variations thereon and similar expressions, or by discussions of strategy. All forward-looking statements, including, without limitation, our examination of historical operating trends, are based upon our current expectations andvarious assumptions. We believe there is a reasonable basis for our expectations and beliefs, but they are inherently uncertain. We may not realize our expectations,and our beliefs may not prove correct. Actual results could differ materially from those described or implied by such forward-looking statements. The followinguncertainties and factors, among others (including those set forth under "Risk Factors"), could affect future performance and cause actual results to differmaterially from those matters expressed in or implied by forward-looking statements: •our plans to develop and commercialize our product candidates; •our ongoing and planned clinical trials; •the timing of and our ability to obtain and maintain regulatory approvals for our product candidates; •our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; •our ability to enter into new collaborations or to identify additional products or product candidates with significant commercial potential that areconsistent with our commercial objectives; •the rate and degree of market acceptance and clinical utility of our products; •our commercialization, marketing and manufacturing capabilities and strategy; •significant competition in our industry; •costs of litigation and the failure to successfully defend lawsuits and other claims against us; •economic, political and other risks associated with our international operations; •our ability to receive research funding and achieve anticipated milestones under our collaborations; •our ability to protect and enforce patents and other intellectual property; •costs of compliance and our failure to comply with new and existing governmental regulations including, but not limited to, tax regulations; •loss or retirement of key members of management; •failure to successfully execute our growth strategy, including any delays in our planned future growth; and •our failure to maintain effective internal controls.Consequently, forward-looking statements speak only as of the date that they are made and should be regarded solely as our current plans, estimates and beliefs.You should not place undue reliance on forward-looking statements. We cannot guarantee future results, events, levels of activity, performance or achievements.Except as required by law, we do not undertake and specifically decline any obligation to update, republish or revise forward-looking statements to reflect futureevents or circumstances or to reflect the occurrences of unanticipated events.PART IITEM 1. BUSINESSExcept as otherwise indicated herein or as the context otherwise requires, references in this annual report on Form 10-K to "MacroGenics," the"company," "we," "us" and "our" refer to MacroGenics, Inc. and its consolidated subsidiaries. MacroGenics, the MacroGenics logo, DART, Trident andthe phrase "Breakthrough Biologics, Life-Changing Medicines" are our trademarks or registered trademarks. The other trademarks, trade names andservice marks appearing in this report are the property of their respective owners.OverviewWe are a biopharmaceutical company focused on discovering and developing innovative antibody-based therapeutics for the treatment of cancerprimarily by modulating the human immune system, as well as various autoimmune disorders and infectious diseases. We currently have a pipeline ofproduct candidates in human clinical testing, primarily as treatments for different types of cancers, which have been created primarily using ourproprietary technology platforms. We believe our programs have the potential to have a meaningful effect on treating patients' unmet medical needs asmonotherapy or, in some cases, in combination with other therapeutic agents.Our most advanced clinical product candidate is margetuximab, a monoclonal antibody directed against human epidermal growth factor receptor2, or HER2, that has been enhanced using our proprietary "Fc Optimization" platform described in greater detail below. The HER2 protein is expressed bycertain breast, gastroesophageal, bladder and other cancers. We have commenced a Phase 3 clinical trial studying margetuximab in patients with HER2positive metastatic breast cancer that has progressed despite treatment with other HER2-directed therapeutic agents. We anticipate that a successfuloutcome from this Phase 3 clinical trial would allow us to seek approval of the product from the U.S. Food and Drug Administration, or FDA. We are alsoconducting a Phase 1b/2 clinical trial by treating patients with HER2-positive gastroesophageal cancer with margetuximab in combination withpembrolizumab, an immune checkpoint inhibitor molecule that plays a critical role in modulation of the immune system's response to cancer.We are also developing several product candidates targeting B7-H3, a protein in the B7 family of immune regulator proteins. B7-H3 is widelyexpressed by a number of different tumor types and may play a key role in regulating the immune response to various types of cancer. There are nocurrently approved therapeutic agents directed against B7-H3. We have two clinical product candidates directed against B7-H3, enoblituzumab andMGD009, and we also have ongoing research efforts underway to advance an antibody-drug conjugate, or ADC, directed against B7-H3. Our mostadvanced candidate in this franchise, enoblituzumab, is a monoclonal antibody that has also been enhanced using our Fc Optimization platform.Enoblituzumab is being evaluated clinically in three studies – as monotherapy, in combination with pembrolizumab and in combination with ipilimumab,another immune system checkpoint inhibitor – in each case, across multiple tumor types.MGD009 is one of five molecules developed using our proprietary Dual-Affinity Re-Targeting, or DART, platform, which is described ingreater detail below. Unlike standard antibodies, DART molecules can be directed against two different biological targets and therefore lend themselvesto a variety of different applications. MGD009, for example, is directed to both B7-H3 expressed on tumor cells as well as CD3, a protein expressed bynormal T cells, which are specialized white blood cells in the human immune system. In pre-clinical models, MGD009 has re-directed T cells to reduce oreliminate B7-H3 expressing tumors. We are currently conducting a Phase 1 clinical trial with MGD009 in patients with B7-H3 positive tumors.Three additional DART molecules, MGD006, MGD007 and MGD011, are also currently in Phase 1 clinical testing and use the same approachof targeting CD3 and a specific tumor antigen known to be expressed on certain cancers. MGD006 is being tested in patients with relapsed and refractoryacute myeloid leukemia (AML) and myelodysplastic syndrome (MDS) and MGD007 is being tested in patients with colorectal cancer. Our collaborationpartner, Les Laboratoires Servier and Institut de Recherches Servier, or, collectively, Servier, has development and commercialization rights outsideNorth America, Japan, Korea and India for MGD006 and has an option to gain similar rights with regards to MGD007. The clinical program for MGD011is being advanced by our collaboration partner, Janssen Biotech, Inc., or Janssen, and is being studied in a variety of B cell hematological malignancies.These four DART molecules that redirect T cells against cancer targets are manufactured using a conventional antibody platform without the complexityof having to genetically modify T cells from individual patients, as would be required by approaches such as chimeric antigen receptor (CAR) T cells.Our fifth clinical-stage DART molecule, MGD010, has a different mechanism of action than the other DART molecules currently indevelopment. MGD010 targets two proteins expressed by B cells, which are specialized white blood cells that play a role in modulating the humanimmune system's inflammatory response. We believe that MGD010 may be able to reduce the harmful inflammatory effects seen in a variety ofautoimmune and inflammatory disorders by modulating the function of human B cells while avoiding their depletion. MGD010 is currently being studiedin a Phase 1a clinical trial with normal, healthy volunteers.We continue to invest in our clinical-stage programs, advance additional pre-clinical product candidates, primarily using our proprietarytechnology platforms, and expand the potential of our platforms using our antibody and protein engineering expertise. We develop new therapeuticproduct candidates internally using our proprietary platforms and also in partnership with other biopharmaceutical companies, when such relationships areadvantageous for strategic or financial reasons. These arrangements have allowed us to expand and accelerate the breadth of our product candidates andalso have generated a significant portion of the funding we have received to date. We also have our own manufacturing facility, primarily for generationof earlier-stage clinical trial material, and have been investing in expanding our manufacturing capacity to meet later-stage clinical and commercialrequirements.We estimate that in 2015, 2014 and 2013, we spent approximately $98.3 million, $70.2 million and $46.6 million on research and developmentactivities, respectively.Our StrategyPrimary ObjectivesOur goal is to be a fully integrated biotechnology company leading in the discovery, development and commercialization of breakthroughbiologics for the treatment of patients with cancer, as well as various autoimmune disorders and infectious diseases.Key elements of our strategy are as follows:•Therapeutic focus, science driven. We create therapeutic biological products primarily to treat various types of cancers, including bothsolid tumors and hematological malignancies. Our proprietary DART and Fc Optimization technology platforms are particularly useful fortargeting and harnessing specific elements of the human immune system, allowing us to design molecules that (1) directly target cancer cellsand enhance the ability of the immune system to destroy those cells, (2) re-direct effector cells to attack tumors or (3) affect mechanismsthat regulate the immune response to cancer, either by stimulating pathways that enhance this response or by blocking pathways that inhibitthis response, including checkpoint molecules. This field of scientific discovery, broadly known as immuno-oncology, has been developingrapidly in the last few years, and most therapeutic products to date are largely focused on affecting individual biological pathways. Webelieve that cancers are sufficiently complex that effective treatments must simultaneously affect more than one pathway. We believe thatwe are well-positioned, particularly through the adaptability of our DART platform, to be able to create and develop therapeutic moleculesdesigned to simultaneously target more than one pathway.This same flexibility in our platforms allows us to create therapeutic molecules that may be useful for other unmet medical needs beyondcancer, such as for autoimmune disorders and infectious diseases. Our core strategic focus is on development of cancer therapeutics, but wemay also opportunistically pursue such possibilities when they arise.•Fully integrated with a deep pipeline. Our objective is to be a fully-integrated biotechnology company, and we intend to continue to growand establish all necessary functions from early-stage research through commercialization in at least the United States. At our current stageof development as a company, we have established early-stage discovery, process development, clinical development and clinical-stagemanufacturing functions, and we intend to build commercial manufacturing as well as U.S.-based sales and marketing infrastructure as ourdevelopment pipeline matures.We believe we have a broad portfolio of product candidates and we are not dependent upon the success of any one of them for the overallsuccess of the company. We continue to augment our pipeline through the discovery and development of new product candidates, primarilythrough utilization of our internal scientific expertise and strategically seeking external collaborations that can augment our own skills. In2014 and 2015, we advanced five programs into clinical development. Our goal is to continue to advance one or more programs intoclinical development per year to ensure a robust pipeline and to replace product candidates that fail to progress.•Leveraging partnerships. Throughout our company's history, we have entered into collaborations with other biopharmaceutical companiesand intend to continue to do so. We enter into collaborations when there is a strategic advantage to us to do so and when we believe thefinancial terms of the collaboration are favorable for meeting our short-term and long-term strategic objectives. We are not dependent uponany one of these collaborations, but in many cases we have the rights to significant financial payments if the product candidates that are thesubjects of the collaborations achieve development and sales milestones. We have also used these collaborations to provide funding forresearch, to maintain a broader portfolio of product candidates, and to obtain rights to expand in the future, for example by securing co-promotion and profit-sharing rights under certain circumstances.•Investments in talent and culture. One of our most valuable assets is the quality of our employee base. We invest significant effort inselecting and retaining high caliber, talented individuals who reflect our values of teamwork, initiative, innovation, corporate responsibilityand integrity. As we continue to grow, we continue to seek and develop employees who are strongly committed to delivering life-changingmedicines for unmet medical needs through a collaborative work environment.Core Therapeutic Areas We TargetCancerCancer is a broad group of diseases in which cells divide and grow in an uncontrolled fashion, forming malignancies that can invade other partsof the body. In normal tissues, the rates of new cell growth and cell death are tightly regulated and kept in balance. In cancerous tissues, this balance isdisrupted as a result of mutations, causing unregulated cell growth that leads to tumor formation and growth. While tumors can grow slowly or rapidly,the dividing cells will nevertheless accumulate and the normal organization of the tissue will become disrupted. Cancers subsequently can spreadthroughout the body by processes known as invasion and metastasis. Once cancer spreads to sites beyond the primary tumor, it may be incurable. Cancercells that arise in the lymphatic system and bone marrow are referred to as hematological malignancies. Cancer cells that arise in other tissues or organsare referred to as solid tumors. Cancer can arise in virtually any part of the body, with the most common types arising in the prostate gland, breast, lung,colon and skin. We believe that our platforms position us very well strategically to actively develop approaches for the treatment of both solid tumors andhematologic malignancies.Cancer is the second leading cause of death in the United States, exceeded only by heart disease, and accounts for almost one of every fourdeaths. The American Cancer Society estimates that in 2016 there will be approximately 1.7 million new cases of cancer and approximately 590,000deaths from cancer. The National Institutes of Health estimates that based on growth and aging of the U.S. population, medical expenditures for cancer inthe year 2020 are projected to reach at least $158 billion (in 2010 dollars), representing an increase of 27% over 2010.Autoimmune DisordersAutoimmune disorders, including rheumatoid arthritis, Crohn's disease, systemic lupus erythematosus and multiple sclerosis, collectively affectmore than 20 million people in the United States. Autoimmune disorders involve self-reactivity and destruction by T cells, B cells and antibodies due to alack of self-tolerance. Anti-inflammatory therapies, such as tumor necrosis factor inhibitors, have been able to improve diseases like rheumatoid arthritis. However, in addition to T cells, more evidence indicates that B cells play an important role in many common autoimmune and allergic disorders byinitiating and amplifying the pathological disease processes. Current B cell targeted therapies either cause depletion of B cells, thus limiting theirapplicability due to the potential for infections (e.g., rituximab), or exhibit a delayed onset of action and limited efficacy across patient populations (e.g.,belimumab).Infectious DiseasesThere are a wide variety of infectious diseases, and the epidemiology for each varies significantly with the type of pathogen and patients who areaffected. However, in order to avoid being recognized as foreign by the human immune system, many infectious agents have found ways to evadedetection. In this way, they may behave similarly, at a biological level, to certain types of cancer. Accordingly, our expertise in designing protein-basedtherapeutics that are designed to activate the human immune system to eliminate foreign substances may have applicability to various types of infectiousdiseases, and we explore those possibilities opportunistically.Our Product CandidatesThe table below depicts the current status of product candidates that are in or near human clinical development and for which we retain all orsome commercial rights:Oncology·Margetuximab is an antibody that targets human epidermal growth factor receptor 2, or HER2-expressing tumors, including certain types ofbreast and gastroesophageal cancers. HER2 is critical for the growth of many types of tumors. Using our Fc Optimization platform, we haveengineered the constant region, or Fc region, of margetuximab to increase its ability to kill tumor cells through an Fc-dependent mechanism,including antibody dependent cell-mediated cytotoxicity, or ADCC. Our Phase 1 data for margetuximab demonstrated that anti-tumor activityhad been observed at a range of doses tested, including the lowest dose level of margetuximab, even in patients who were heavily pre-treated(frequently with other anti-HER2 agents). In 2015, we commenced a Phase 3 clinical trial with margetuximab, which we call SOPHIA, inpatients with metastatic breast cancer expressing HER2 at the 3+ level by immunohistochemistry (IHC) or 2+ level by IHC with geneamplification who have failed therapy with other HER2-directed therapeutic agents. We also have commenced an exploratory Phase 1b/2clinical trial combining margetuximab with pembrolizumab in patients with HER2-positive gastric or gastroesophageal junction cancer, and weare currently enrolling a Phase 2a clinical trial in patients with lower levels of HER2 expression.·Enoblituzumab (which we also refer to as MGA271) is an antibody that targets B7-H3. We engineered enoblituzumab to utilize the same FcOptimization enhancements that we incorporated in margetuximab to target B7-H3 that is over-expressed on differentiated tumor cells, cancerstem cells and supporting tumor vasculature and underlying tissues. We are currently evaluating enoblituzumab in an ongoing Phase 1 clinicaltrial as monotherapy in multiple dose expansion cohorts, including patients with melanoma (who have failed prior therapy with checkpointinhibitors), renal cell carcinoma, triple-negative breast carcinoma, squamous cell carcinoma of the head and neck and a cohort of patients withlung or bladder carcinoma that have particularly intense expression of B7-H3. In 2015, we also initiated two Phase 1 clinical trials, onecombining enoblituzumab with ipilimumab and a second combining enoblituzumab with pembrolizumab.·MGD006 is a DART molecule that targets both CD123 and CD3. CD123, the Interleukin-3 receptor alpha chain, is expressed on leukemia andleukemic stem cells, but only at very low levels or not at all on normal hematopoietic stem cells. T cells, which express CD3, can destroy tumorcells. In pre-clinical studies, we have demonstrated the ability of MGD006 to recruit, activate, and expand T cell populations to eliminateleukemia cells. We are currently enrolling patients in the United States in a Phase 1 clinical trial of MGD006 in patients with AML or MDS andare in the process of expanding the trial to patients in Europe. Under the terms of our collaboration with Servier, Servier has the exclusive rightto develop and commercialize MGD006 in all countries outside North America, Japan, Korea and India, and MacroGenics retains exclusiverights in those countries.·MGD007 is a DART molecule that targets both the glycoprotein A33 (gpA33) and CD3, and has an Fc domain, which is designed to provideextended pharmacokinetic properties and convenient intermittent dosing. gpA33 is expressed on gastrointestinal tumors, including more than95% of human colon cancers. We have demonstrated that this molecule is able to mediate T cell killing of gpA33-expressing cancer cells andcancer stem cells in pre-clinical experiments. We are currently enrolling patients suffering from colorectal cancer in a Phase 1 clinical trial ofMGD007. Under the terms of our collaboration with Servier, Servier has an option to obtain exclusive rights to develop and commercializeMGD007 in all countries outside North America, Japan, Korea and India. If the option is exercised, MacroGenics would still retain exclusiverights in those countries.·MGD011 is a DART molecule that targets both CD19 and CD3 and is being developed for the treatment of B cell hematological malignancies.CD19, a lymphocyte-specific marker expressed from early B-lymphocyte development through mature memory B cells, is highly represented inB cell malignancies. This makes it attractive for targeted interventions. MGD011 is designed to redirect T cells, via their CD3 component, toeliminate CD19-expressing cells found in many hematological malignancies. MGD011 has been engineered to address half-life challengesposed by other programs targeting CD19 and CD3. Like MGD007, this product candidate has an Fc domain, which allows for extendedpharmacokinetic properties and convenient dosing at a once-a-week or longer interval. Under our collaboration and license agreement, Janssen isleading the development of this product candidate, subject to our options to co-promote the product in the United States and Canada and toinvest in later-stage development in exchange for a United States and Canada profit-share. Janssen initiated human clinical trials in 2015 for avariety of B cell hematological malignancies, including diffuse-large B cell lymphoma, follicular lymphoma, mantle-cell lymphoma, chroniclymphocytic leukemia and acute lymphoblastic leukemia. ·MGD009 is the second molecule in our B7-H3 franchise. This DART molecule recognizes B7-H3 and CD3, and has an Fc domain, which isdesigned to provide extended pharmacokinetic properties. We have demonstrated that this molecule is able to mediate T cell killing of cancercells in pre-clinical experiments. We are currently enrolling patients in a Phase 1 clinical trial of MGD009 in patients across a variety of differentsolid tumors. ·MGD013 is a pre-clinical DART molecule that is intended to enable the co-blockade of two immune checkpoint molecules, PD-1 and LAG-3,which are co-expressed on T cells, with a single agent. MGD013 recognizes both PD-1 and LAG-3 on T cells and has a serum half-lifeconsistent with that of monoclonal antibodies. We anticipate that MGD013 could be used for the treatment of a wide range of cancers, includingboth solid tumors and hematological malignancies.Autoimmune Disorders·MGD010 is a DART molecule designed to address limitations of existing B cell-targeted therapies by binding to the CD32B and CD79Bproteins found on human B cells. In pre-clinical studies, this DART molecule modulated the function of human B cells without B cell depletion.In normal conditions, B cells utilize CD32B as one of the key checkpoints or negative regulators to ensure that tolerance to self is maintainedand autoimmune disease does not occur. MGD010 is designed to further exploit this mechanism by triggering this inhibitory "immunecheckpoint" loop. We believe this molecule preferentially blocks those B cells that are activated to produce the pathogenic antibodies thatpromote the autoimmune process. MGD010 is currently being evaluated in a Phase 1a clinical trial with normal healthy volunteers. Under theterms of a collaboration agreement with respect to MGD010, Takeda Pharmaceutical Company Limited, or Takeda, has the option to furtherdevelop the program after completion of Phase 1a clinical development and, if that option is exercised, we would retain the right to co-promotethe product in the United States and to invest in Phase 3 development in exchange for a North America profit-share.·Teplizumab is an anti-CD3 monoclonal antibody being developed for the treatment of type 1 diabetes. Teplizumab has been engineered to alterthe function of the T cells that mediate the destruction of the insulin-producing beta cells of the islets of the pancreas. Teplizumab potentiallyrepresents an advance in the treatment of type 1 diabetes by addressing the underlying disorder, rather than treating the symptoms throughinsulin replacement therapy. Teplizumab is currently being evaluated in a Phase 2 clinical trial, called At-Risk, for the prevention or delay ofonset of type 1 diabetes in patients determined to be at very high risk for developing the disease. This clinical trial is being sponsored by theNational Institute of Diabetes and Digestive and Kidney Diseases. We are actively seeking a collaborator for further development of teplizumab.Infectious Diseases·MGD014 is a DART molecule that targets the envelope protein of human immunodeficiency virus, or HIV-infected cells (Env) and CD3-expressing T cells. We are developing MGD014 under contract number HHSN272201500032C awarded to us in September 2015 by theNational Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutes of Health. MGD014 is our first DART moleculetargeting an infectious agent that is planned for clinical testing. The work under this contract will build on pre-clinical studies published in 2015demonstrating that DART molecules targeting the Env and T cells, via their CD3 component, are able to redirect the immune system's T cells tokill HIV-infected cells. DART molecules could be used independently or become a key part of a "shock-and-kill" strategy in conjunction withHIV latency-reversing agents currently under development.Our Platforms and Technology ExpertiseWe apply our understanding of disease biology, immune-mediated mechanisms and next generation antibody technologies to design specificallytargeted antibody-based product candidates based on our DART and Fc Optimization platforms. Through these platforms and utilization of ourproprietary cancer stem-like cell, or CSLC, technology, we have designed antibody-based product candidates that have the potential to improve onstandard treatments by having one or more of the following attributes: (1) multiple specificities; (2) increased abilities to interact with the body's immunesystem to fight tumors; (3) capacity to bind more avidly to antigen targets: (4) increased potency; (5) reduced immunogenicity or (6) the ability to targetcancer cells that are resistant to standard treatments. Moreover, these technology platforms are complementary and can be combined.DART Platform: Our Proprietary Approach to Engineer Bi-Specific AntibodiesWe use our DART platform to create derivatives of antibodies with the ability to bind to two distinct targets instead of a single one found intraditional monoclonal antibodies. DART product candidates are therefore bi-specific. An example of a bi-specific molecule is illustrated below: Because cancer cells have developed ways to escape the immune system, we have created DART molecules, which are alternative antibody-likestructures with more potent immune properties than the parent antibody molecules from which they are derived. The two variable regions of an antibodyare mono-specific and are able to target only a single type structural component of an antigen. For many years, researchers have sought to createrecombinant molecules that are capable of targeting two antigens or epitopes (i.e., specific part of an antigen bound by the antibody) within the samemolecule. The challenges in creating such molecules have been the instability of the resulting bi-specific molecules and their inherently short half-lives, aswell as the inefficiencies in manufacturing these compounds. We believe our DART platform has overcome these engineering challenges byincorporating proprietary covalent di-sulfide linkages and particular amino acid sequences that efficiently pair the chains of the DART molecule. This isdesigned to provide a structure with enhanced manufacturability, long-term structural stability and the ability to tailor the half-lives of the DARTmolecules to their clinical needs. This engineered antibody-like protein has a compact and stable structure and enables the targeting of two differentantigens with a single recombinant molecule.The DART platform has been specifically engineered to accommodate virtually any variable region sequence with predictable expression,folding and antigen recognition. To date, we have produced over 100 different DART molecules and have completed numerous in vitro and in vivo proof-of-principle studies on many of these molecules.We believe our DART platform may provide a significant advantage over current biological interventions in cancer, autoimmune disorders andinfectious disease by enabling a range of modalities, including those described below. • Redirected T cell activation and killing . In this version of the DARTmolecule, we are enabling the cancer-fighting properties of the immuneeffector cells, such as T lymphocytes to: (1) recognize and bind tostructures expressed on a cancer cell (e.g., CD123, the first specificity in theexample on the right), (2) enable the recruitment of all types of cytotoxic,or cell killing, T cells, irrespective of their ability to recognize cancer cells(e.g., CD3, a common component of the T cell antigen receptor, is thesecond specificity in the example on the right) and (3) trigger T cellactivation, expansion, and cell killing mechanisms to destroy a cancer cell.The outcome is that any of the body's T cells, in theory, could be recruitedto destroy a cancer cell and thus, are not limited to the small numbers ofspecific T cells that might have been generated in response to cancer to killtumor cells. Furthermore, since any T cell could be recruited for this killingprocess, only small amounts of a DART molecule are required to triggerthis potent immune response. Additionally, the compact structure of theDART protein makes it well suited for maintaining cell-to-cell contact,which we believe contributes to the high level of target cell killing.Similarly, DART molecules targeting CD3 and a viral antigen can be usedto recruit T cells to eliminate cells infected by a virus, such as HIV-infectedcells. • Modulation of receptor signaling . In another configuration of the DARTmolecule, we have taken advantage of the two different specificitiesengineered in a DART structure to bind not only to particular cells involvedin autoimmune processes, such as autoimmune B cells, but also to usurp theimmune checkpoint signaling pathways programmed within the cells toimpede the pathogenic autoimmune responses. Our MGD010 productcandidate targets both CD32B, a co-inhibitory molecule, and CD79B, partof the B cell antigen receptor complex, two proteins expressed on theimmune system's B cells. Using a single DART molecule, we attempt topromote the interaction of these two receptors, a step required to interrupt the B cell activation and immune response that single antibodies directedagainst CD32B, CD79B or both cannot accomplish independently. • Simultaneous targeting of multiple co-inhibitory receptors or checkpoints,such as those involved in inhibiting T cell responses and B cell responses.The immune system generally prevents the development of autoimmunephenomena by regulating activated immune cells that have responded tonon-self or foreign antigens. This negative feedback loop is triggered by theinteractions of co-inhibitory receptors, or checkpoint molecules, expressedon the immune cells with ligands expressed by other cells, such as antigen-presenting cells. This phenomenon is exploited by cancer, whereby tumorcells express checkpoint ligands that block the development of an immuneresponse against the tumor. Antibodies that block the interaction ofcheckpoint molecules with their ligands have been shown to significantlyimprove the clinical outcomes of patients with advanced cancers. Becauseof the diversity of immune checkpoint pathways, blockade of a single axis,while clinically significant, as shown in the case of the blockade of the PD-1/PD-L1 axis with pembrolizumab or nivolumab, will not benefit allpatients. In fact, combinations of checkpoint inhibitors, such as nivolumaband ipilimumab, a CTLA-4 blocker, have resulted in significantly enhancedbenefit compared to ipilimumab alone. We believe that DART moleculestargeting two immunoregulatory pathways, such as two checkpoints in asingle molecule, could afford the clinical benefit of the combinationtogether with the potential for synergistic activity, as well as significantadvantages in manufacturing, simplified clinical development, andenhanced patient convenience. • Agonistic receptor signaling. Ligands can initiate cell signaling byclustering their cell surface receptors, a process also known as receptordimerization or oligomerization. The DART platform lends itself well totriggering signals via direct, ligand-independent oligomerization of cellsurface receptors. An example of such an application is the surfaceoligomerization by DART molecules directed against the death receptor 5or DR5, a molecule known to be expressed by tumors whose signal cantrigger death of the cancer cell by a process termed apoptosis. Crucial tothis effect is our ability to design high valency, or multivalent, DARTmolecules, capable of binding multiple binding sites, In addition to the ability to tailor a DART molecule's valency, we have the capacity to modify the strength by which the binding sites attach totheir targets and the molecule's half-life in the blood circulation after delivery to a patient. Furthermore, when an Fc domain is coupled with a DARTmolecule, additional changes can be included that can modulate the DART molecule's engagement with different immune cells.We have developed proof-of-concept pre-clinical data and are developing specific product candidates using this technology, including MGD006,MGD007, MGD010, MGD011 and MGD009, among others. We have been able to produce DART molecules in both bacterial and mammalianexpression systems.At our R&D Day in October 2015, we presented our Trident platform, which reflects the continuing evolution of the multi-specific antibody-based targeting expertise we developed in creating our DART platform. Built on the DART module, the tri-specific Trident platform incorporates in anIg-like format an additional domain capable of engaging an independent antigen. With the inclusion of a third targeting arm, Trident molecules enable abroader range of mechanisms of action than bi-specific targeting, allowing, for instance, the engagement of multiple antigens on a single or on differentcells or enabling enhanced target selectivity by modulating the avidity of one of two antigens.Fc Optimization Platform: Our Proprietary Approach to Enhance Immune-Mediated Cancer Cell KillingTo enhance the body's immune ability, we developed our Fc Optimization platform which introduces certain mutations into the Fc region of anantibody and is able to modulate antibody interaction with immune effector cells. Such interaction enhances the body's immune ability to mediate thekilling of cancer cells through ADCC.ADCC The Fc region mediates the function of IgG antibodies by binding to different activating and inhibitory receptors, referred to as Fc g Rs, onimmune effector cells found within the innate immune system. By engineering Fc regions to bind with an increased affinity to the activating Fc g Rs andwith a reduced affinity to the inhibitory Fc g Rs, we have been able to impart a more effective immune response and improve effector functions, such asADCC. This is another example in which small changes in antibody structure can confer improvements on normal immune processes.We have established a proprietary platform to engineer, screen, identify and test antibodies' Fc regions with customizable activity. In particular,we have licenses to use transgenic mice that express human Fc g Rs. These mice can be used for in vivo testing of antibodies that incorporate Fc domainvariants, including those antibodies intended for cancer therapy.To date, we have successfully incorporated our Fc variants in two of our clinical-stage antibody product candidates, margetuximab andenoblituzumab. We have pre-clinical data demonstrating that these Fc variants have substantially improved the activity of these antibodies.Cancer Stem-like Cell Technology: Our Proprietary Approach to Discover Cancer TargetsOur CSLC technology provides new approaches to discover and identify cancer targets that are not susceptible to current cancer therapies. Wehave generated over 2,700 monoclonal antibodies that we have screened by IHC for lower-binding to normal, non-malignant tissues. Cancer stem cellsrepresent important potential targets in oncology drug development because they are theorized to be the basis for tumor re-growth, metastasis andresistance to much standard chemotherapy.Our CollaborationsWe pursue a balanced approach between product candidates that we develop ourselves and those that we develop with our collaborators. Underour current strategic collaborations, we have received significant non-dilutive funding to date and continue to have rights to additional funding uponcompletion of certain research, achievement of key product development milestones and royalties and other payments upon the commercial sale ofproducts. Each of our collaborations has a unique set of terms and conditions, but in general, they fall into two categories:·MacroGenics-Created Programs . We have a number of collaborations relating to product candidates that we have created from our internalresearch efforts. These include Janssen for MGD011; Servier for MGD006 and MGD007; Takeda for MGD010 and Green Cross Corp., or GreenCross, for margetuximab. In the case of these product candidates, we entered into collaborations because we believed that our partner couldfurther enable development of the program or provide additional capabilities and funding to supplement MacroGenics' investment, or both. Weobtained financial terms that we believed were beneficial to us and retained commercial rights for multiple major markets or options to othercommercial rights. For example, under the Janssen and Takeda agreements, we have the option to co-promote products in the United States aswell as an option to share in profits in the United States (and, under the Janssen agreement, Canada) if we invest in late-stage development. Under the Servier agreement, we retain full commercialization and development rights in the United States, Canada, Mexico, Japan, South Koreaand India, and regain worldwide rights if Servier opts not to continue co-developing MGD007. Under the Green Cross agreement, we retain fullcommercialization rights worldwide except for South Korea.·Joint Research Programs. We have several programs under which collaborators have sought to utilize some aspect of our protein engineeringplatforms with new product concepts that are jointly directed, sometimes employing a collaborator's own proprietary technology. Thesecollaborations give us the ability to expand the breadth of our potential products, develop greater scientific expertise and obtain additionalfunding for research. Pfizer, Inc. and Boehringer Ingelheim GmbH, or Boehringer, are currently advancing projects in their own pipelines basedon these types of programs, and Gilead Sciences, Inc., or Gilead, and Takeda also have the potential to request development of new productcandidates under these types of programs. With these collaborators, we have more limited development or commercial rights related to theproduct candidates that may emerge from joint research programs.Intellectual PropertyWe strive to protect the proprietary technologies that we believe are important to our business, including seeking and maintaining patentsintended to protect, for example, the composition of matter of our product candidates, their methods of use, the technology platforms used to generatethem, related technologies and/or other aspects of the inventions that are important to our business. We also rely on trade secrets, confidentiality andinvention assignment agreements and careful monitoring of our proprietary information to protect aspects of our business that are not amenable to, or thatwe do not consider appropriate for, patent protection.Our success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for commercially importanttechnology, inventions and know-how related to our business. In addition, there is cost and risk to our business in defending and enforcing our patents,maintaining our licenses to use intellectual property owned by third parties and preserving the confidentiality of our trade secrets and operating withoutinfringing the valid and enforceable patents and other proprietary rights of third parties. We also rely on know-how, continuing technological innovationand in-licensing opportunities to develop, strengthen and maintain our proprietary positions. We currently use multiple industry-standard patentmonitoring systems to monitor new United States Patent and Trademark Office, or USPTO, filings for any applications by third parties that may infringeon our patents.The patent positions of biopharmaceutical companies like us are generally uncertain and involve complex legal, scientific and factual questions.In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted by thecourts after issuance. Consequently, we do not know whether any of our product candidates will be protectable or remain protected by enforceablepatents. We cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether theclaims of any issued patents will provide sufficient proprietary protection from competitors. Any patents that we hold may be challenged, narrowed,circumvented or invalidated by third parties.A third party may hold patents or other intellectual property rights that are important to or necessary for the development of our productcandidates or use of our technology platforms. It may be necessary for us to use the patented or proprietary technology of third parties to commercializeour product candidates, in which case we would be required to obtain a license from these third parties on commercially reasonable terms, or our businesscould be harmed, possibly materially. For example, certain patents held by third parties cover Fc engineering methods and mutations in Fc regions toenhance the binding of Fc regions to Fc receptors on immune cells. Although we believe that these patents are invalid, if they cover margetuximab orenoblituzumab and we are unable to invalidate them, or if licenses for them are not available on commercially reasonable terms, our business could beharmed, perhaps materially.Because patent applications in the United States and certain other jurisdictions can be maintained in secrecy for 18 months or potentially evenlonger, and because publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain of the priorityof inventions covered by pending patent applications. Moreover, we may have to participate in interference proceedings declared by the USPTO todetermine priority of invention. In the ordinary course of business we participate in post-grant challenge proceedings, such as oppositions, that challengethe patentability of third party patents. Such proceedings could result in substantial cost, even if the eventual outcome is favorable to us.Pipeline Patent ProtectionAs of December 31, 2015, we held 78 patents in the United States with 60 patent applications pending and 202 patents in other countries of theworld with 206 patent applications pending. In addition to patents and patent applications generally providing protection for various aspects of our FcOptimization, DART, Trident and Cancer Stem-Like Cell platforms, we have patent and patent applications for the composition of matter of each of ourclinical pipeline product candidates and, in some cases, we also have other patents and patent application related to various aspects of the technologyunderlying these product candidates or their methods of use.Patent terms may be adjusted or extended, as described in greater detail below, in certain circumstances. However, assuming no adjustments orextensions, the primary composition of matter patent for each of our clinical pipeline product candidates is expected to expire in the followingtimeframes:Product CandidateExpiration Datemargetuximab2029enoblituzumab2031MGD0062034*MGD0072034*MGD0092036*MGD0112035*MGD0102034** pendingPatent Term Extension and Reference Product ExclusivityThe Hatch-Waxman Act permits a patent term extension for FDA-approved drugs, including biological products, of up to five years beyond theexpiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. Patent extensioncannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approveddrug may be extended. Similar provisions are available in Europe and other jurisdictions to extend the term of a patent that covers an approved drug. Inthe future, if and when our pharmaceutical product candidates receive FDA approval, we expect to apply for patent term extensions on patents coveringthose products. We intend to seek patent term extensions to any of our issued patents in any jurisdiction where these are available, however there is noguarantee that the applicable authorities, including the FDA in the United States, will agree with our assessment of whether such extensions should begranted, and even if granted, the length of such extensions.The Patient Protection and Affordable Care Act, as amended by the Healthcare and Education Affordability Reconciliation Act, collectively theACA, created a regulatory scheme authorizing the FDA to approve biosimilars via an abbreviated licensure pathway. In many cases, this allowsbiosimilars to be brought to market without conducting the full suite of clinical trials typically required of originators. Under the ACA, a manufacturermay submit an application for licensure of a biologic product that is "biosimilar to" or "interchangeable with" a previously approved biological product or"reference product." The "biosimilar" application must include specific information demonstrating biosimilarity based on data derived from: (1) analyticalstudies, (2) animal studies, and (3) a clinical study or studies that are sufficient to demonstrate safety, purity, and potency in one or more appropriateconditions of use for which the reference product is licensed, except that FDA may waive some of these requirements for a given application. Under thisnew statutory scheme, an application for a biosimilar product may not be submitted to the FDA until four years after the date of first licensure. The FDAmay not approve a biosimilar product until 12 years from the date on which the reference product was first licensed. The law does not change the durationof patents granted on biological products. Even if a product is considered to be a reference product eligible for exclusivity, another company could marketa competing version of that product if the FDA approves a full BLA for such product containing the sponsor's own pre-clinical data and data fromadequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. Furthermore, recent legislation has proposedthat the 12 year exclusivity period for each a reference product may be reduced to seven years.Trade SecretsWe also rely on trade secret protection for our confidential and proprietary information. Although we take steps to protect our proprietaryinformation and trade secrets, including through contractual means with our employees and consultants, third parties may independently developsubstantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. Thus, we may notbe able to meaningfully protect our trade secrets. It is our policy to require our employees, consultants, outside scientific collaborators, sponsoredresearchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. Theseagreements provide that all confidential information concerning our business or financial affairs developed or made known to the individual during thecourse of the individual's relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case ofemployees, the agreements provide that all inventions conceived by the individual, and which are related to our current or planned business or researchand development or made during normal working hours, on our premises or using our equipment or proprietary information, are our exclusive property. Inmany cases our confidentiality and other agreements with consultants, outside scientific collaborators, sponsored researchers and other advisors requirethem to assign or grant us licenses to inventions they invent as a result the work or services they render under such agreements or grant us an option tonegotiate a license to use such inventions.In-Licensed Intellectual PropertyWe have entered into patent and know-how license agreements that grant us the rights to use certain technologies related to biologicalmanufacturing for our clinical product candidates. We anticipate using these technologies for future product candidates. These licensors have businessesdedicated to licensing this type of technology and we anticipate that licenses to use these technologies for our future products will be available. Thelicenses typically include yearly maintenance payments and sales royalties, and may also include upfront payments or milestone payments.ManufacturingWe currently manufacture our drug substance for our clinical trials at our manufacturing facility located in Rockville, Maryland, For ourantibody product candidates, we have supplemented our drug substance manufacturing capacity through an arrangement with CMC Biologics, Inc., orCMC, a contract manufacturing organization, and plan to commercially produce margetuximab at CMC assuming the success of the Phase 3 SOPHIAclinical trial on the expected timeline. We have leased a building in Rockville, Maryland, at which we intend to build a suite to increase our internalcapacity to manufacture more drug substance lots, at larger scale and in full compliance with current Good Manufacturing Practices (cGMP) to be able tosell commercial product. In addition, we currently rely on and will continue to rely on contract fill-finish service providers, primarily Ajinomoto Althea,Inc. and Baxter Healthcare Corporation, to fulfill our fill-finish needs for our current and future product candidates.Most of the principal materials we use in our manufacturing operations are available from more than one source. However, we obtain certain rawmaterials principally from only one source. In the event one of these suppliers was unable to provide the materials or product, we generally seek tomaintain sufficient inventory to supply the market until an alternative source of supply can be implemented. However, in the event of an extended failureof a supplier, it is possible that we could experience an interruption in supply until we established new sources or, in some cases, implemented alternativeprocesses.Production processes for biological therapeutic products are complex, highly regulated, and vary widely from product to product. Shifting oradding manufacturing capacity can be a very lengthy process requiring significant capital expenditures, process modifications, and regulatory approvals.Accordingly, if we were to experience extended plant shutdowns at one of our own facilities, extended failure of a contract supplier or contractmanufacturing organization, or extraordinary unplanned increases in demand, we could experience an interruption in supply of certain products or productshortages until production could be resumed or expanded.CommercializationWe cannot market or promote a new product until a marketing application has been approved by the FDA. We currently have no approvedproducts in the United States. We have not yet established a sales, marketing or product distribution infrastructure. We believe that it will be possible forus to access the United States oncology market through a specialty sales force. Subject to receiving marketing authorization in the United States, weexpect to commence commercialization via our then-in-place sales and marketing organizations. We believe that these organizations will be able to servethe oncology community in treating the patient populations for which our oncology product candidates are being developed. Outside the United States, weexpect to enter into arrangements with third-party commercial partners for any of our product candidates that obtain marketing approval.CompetitionThere are a large number of companies developing or marketing treatments for cancer and autoimmune disorders, including many majorpharmaceutical and biotechnology companies. These treatments consist both of small molecule drug products, as well as biologic therapeutics that workby using next-generation antibody technology platforms to address specific cancer targets. In particular, margetuximab is directed against HER2 andseveral companies have cancer therapeutics directed against HER2 marketed or in development, such as F. Hoffmann-La Roche Ltd., particularly throughits affiliate, Genentech, Inc., as well as Puma Biotechnology, Inc., Merrimack Pharmaceuticals, Inc. and Oncothyreon Inc. Market competition may limitthe utilization of margetuximab as a therapeutic, even if market approval and adequate reimbursement is obtained, and competition among development-stage programs for patients enrolling in clinical trials for HER2-directed therapies may delay expected timelines for our clinical trials. In addition, theimmuno-oncology field is competitively crowded, with treatments currently approved and on the market or in development for various tumor types andpatient populations from a variety of different companies such as Bristol Myers Squibb Company, F. Hoffmann-La Roche Ltd. and Merck & Co., Inc.Several companies are also developing therapeutics that work by targeting multiple specificities using a single recombinant molecule. Amgen Inc. hasobtained marketing approval for at least one product that works by targeting antigens both on immune effector cell populations and those expressed oncertain cancer cells, and has other product candidates in development that use this mechanism. In addition, other companies are developing newtreatments for cancer and autoimmune diseases that enhance the Fc regions of antibodies to create more potent antibodies, including F. Hoffmann-LaRoche Ltd. and Xencor, Inc.Many of our competitors have significantly greater financial, manufacturing, marketing, drug development, technical and human resources thanwe do. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentratedamong a smaller number of our competitors. Smaller or early stage companies may also prove to be significant competitors, particularly throughcollaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining top qualifiedscientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologiescomplementary to, or necessary for, our programs.The key competitive factors affecting the success of all of our therapeutic product candidates, if approved, are likely to be their efficacy, safety,dosing convenience, price, the effectiveness of companion diagnostics in guiding the use of related therapeutics, the level of generic or biosimilarcompetition and the availability of reimbursement from government and other third-party payors. In addition, the standard of medical care provided tocancer patients continues to evolve as more scientific and medical information becomes available. These changes in medical care relate to pharmaceuticalproducts, but are also affected by other factors, and such changes can positively or negatively affect the prospects of our product candidates as well asthose of our competitors.Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are more effective, havefewer or less severe effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA orother regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing astrong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or other thirdparty payors seeking to encourage the use of biosimilar products. Biosimilar products are expected to become available over the coming years. Forexample, certain products that are trastuzumab biosimilars may be approved in the U.S. prior to margetuximab, if approved.The most common methods of treating patients with cancer are surgery, radiation and drug therapy. There are a variety of available drugtherapies marketed for cancer. Many of these approved drugs are well established therapies and are widely accepted by physicians, patients and thirdparty payors. In many cases, these drugs are administered in combination to enhance efficacy. While our product candidates may compete with manyexisting drug and other therapies, to the extent they are ultimately used in combination with or as an adjunct to these therapies, our product candidates willnot be competitive with them.Government Regulation and Product ApprovalGovernment authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things,the research, development, testing, manufacture, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, import andexport of pharmaceutical products such as those we are developing. The processes for obtaining regulatory approvals in the United States and in foreigncountries, along with subsequent compliance with applicable statutes and regulations, require the expenditure of substantial time and financial resources.FDA RegulationAll of our current product candidates are subject to regulation in the United States by the FDA as biological products, or biologics. The FDAsubjects biologics to extensive pre- and post-market regulation. The Public Health Service Act, the Federal Food, Drug, and Cosmetic Act and otherfederal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval,labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of biologics. Failure to complywith applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pendingBiologics License Applications, or BLAs, withdrawal of approvals, clinical holds, warning letters, product recalls, product seizures, total or partialsuspension of production or distribution, injunctions, fines, civil penalties, or criminal penalties.Pre-clinical Studies . Drug development in our industry is complex, challenging and risky; failure rates are high. Product development cycles arelong - approximately 10 to 15 years from discovery to market. A potential new biological product must undergo many years of pre-clinical and clinicaltesting to establish it is pure, potent and safe.Pre-clinical studies include laboratory evaluation of product chemistry, formulation and toxicity, pharmacology, as well as animal trials to assessthe characteristics and potential safety and efficacy of the product. The conduct of the pre-clinical tests must comply with federal regulations andrequirements including FDA's good laboratory practice (GLP) regulations and USDA's regulations implementing the Animal Welfare Act. Afterlaboratory analysis and pre-clinical testing in animals, we file an Investigational New Drug Application (IND) with FDA to begin human testing. An INDsponsor must submit the results of the pre-clinical tests, together with manufacturing information, analytical data, any available clinical data or literature,and a proposed clinical trial protocol, among other things, to the FDA as part of an IND application. Certain pre-clinical tests, such as animal tests ofreproductive toxicity and carcinogenicity, may continue even after the IND is submitted. An IND automatically becomes effective 30 days after receipt bythe FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the clinical trial on aclinical hold or agrees on an alternate approach with us. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before theclinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence. Clinical Development . Clinical trials involve the administration of the investigational new drug to human subjects (healthy volunteers orpatients) under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with all applicable federal regulations andguidance, including those pertaining to good clinical practice, or GCP, standards that are meant to protect the rights, safety, and welfare of human subjectsand to define the roles of clinical trial sponsors, investigators, and monitors; as well as (ii) under protocols detailing, among other things, the objectives ofthe trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol involving testing of a new drug in theUnited States (whether in patients or healthy volunteers) must be included in the IND submission, and FDA must be notified of subsequent protocolamendments. In addition, the protocol must be reviewed and approved by an institutional review board (IRB), and all study subjects must provideinformed consent prior to participating in the study. Typically, each institution participating in the clinical trial will require review of the protocol beforeany clinical trial commences at that institution. Information about certain clinical trials must be submitted within specific timeframes to the NationalInstitutes of Health, or NIH, for public dissemination on their ClinicalTrials.gov website. Progress reports detailing the results of the clinical trials must besubmitted at least annually to the FDA and there are additional, more frequent reporting requirements for suspected unexpected serious adverse events.A study sponsor might choose to discontinue a clinical trial or a clinical development program for a variety of reasons. The FDA may impose atemporary or permanent clinical hold, or other sanctions, if it believes that the clinical trial either is not being conducted in accordance with FDArequirements or presents an unacceptable risk to the clinical trial subjects. An IRB may also require the clinical trial at the site to be halted, eithertemporarily or permanently, for failure to comply with the IRB's requirements, or may impose other conditions.Clinical trials to support BLAs for marketing approval are typically conducted in three pre-approval phases, but the phases may overlap or becombined, particularly in testing for oncology indications. In Phase 1, testing is conducted in a small group of subjects who may be patients with thetarget disease or condition or healthy volunteers, to evaluate its safety, determine a safe dosage range, and identify side effects. In Phase 2, the drug isgiven to a larger group of subjects with the target condition to further evaluate its safety and gather preliminary evidence of efficacy. Phase 3 studiestypically last multiple years for oncology indications. In Phase 3, the drug is given to a large group of subjects with the target disease or condition (severalhundred to several thousand), often at multiple geographical sites, to confirm its effectiveness, monitor side effects, and collect data to support drugapproval. In some cases, FDA may require post-market studies, known as Phase 4 studies, to be conducted as a condition of approval in order to gatheradditional information on the drug's effect in various populations and any side effects associated with long-term use. Depending on the risks posed by thedrugs, other post-market requirements may be imposed. Only a small percentage of investigational drugs complete all three phases and obtain marketingapproval.Product Approval . After completion of the required clinical testing, a BLA can be prepared and submitted to the FDA. FDA approval of theBLA is required before marketing of the product may begin in the United States. The BLA must include the results of pre-clinical, clinical and othertesting and a compilation of data relating to the product's chemistry, manufacture and controls. The cost of preparing and submitting a BLA is substantial.Under federal law, the submission of most BLAs is additionally subject to a substantial application user fee, and annual product and establishment userfees also apply. These fees are typically increased annually.The FDA has 60 days from its receipt of a BLA to determine whether the application will be accepted for filing based on the FDA's thresholddetermination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins a substantivereview, and the review period under the Prescription Drug User Fee Act begins. The standard for reviewing a BLA is whether the product is safe, pureand potent, which has been interpreted to include that the product is safe and effective and has a favorable benefit-risk profile. FDA's current performancegoals call for FDA to complete review of 90 percent of standard (non-priority) BLAs within 10 months of receipt and within six months for priorityBLAs, which is 12 months and eight months, respectively, if the 60-day review of the initial application is included in the timeline.The FDA may refer applications for novel products or products that present difficult questions of safety or efficacy to an advisory committee,typically a panel that includes outside clinicians and other experts, for review, evaluation and a recommendation as to whether sufficient data exist in theapplication to support product approval. The FDA is not bound by the recommendation of an advisory committee, but it generally follows suchrecommendations.Before approving a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA willtypically inspect the facility or the facilities at which the drug is manufactured. FDA will not approve the product unless compliance with current goodmanufacturing practices (cGMPs) is satisfactory. FDA also reviews the proposed labeling submitted with the BLA and typically requires changes in thelabeling text.After the FDA evaluates the BLA and the manufacturing and testing facilities, it issues either an approval letter or a complete response letter.Complete response letters generally outline the deficiencies in the submission and delineate the additional testing or information needed in order for theFDA to reconsider the application. If and when those deficiencies have been addressed to the FDA's satisfaction in a resubmission of the BLA, the FDAwill issue an approval letter. The FDA has committed to reviewing 90 percent of resubmissions within two or six months from receipt depending on thetype of information included.An approval letter authorizes commercial marketing of the drug for the approved indication or indications and the other conditions of use set outin the approved prescribing information. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained orproblems are identified following initial marketing.As a condition of BLA approval, the FDA may require substantial post-approval testing and surveillance to monitor the drug's safety or efficacyand may impose other conditions, including labeling restrictions that can materially affect the potential market and profitability of the product. As acondition of approval, or after approval, the FDA also may require submission of a risk evaluation and mitigation strategy, or REMS, to mitigate anyidentified or suspected serious risks. The REMS may include medication guides, physician communication plans, assessment plans, and elements toassure safe use, such as restricted distribution methods, patient registries, or other risk minimization tools.Other U.S. Post-Marketing Regulatory Requirements . Once a BLA is approved, a product will be subject to certain post-approval requirements,including those relating to advertising, promotion, adverse event reporting, recordkeeping, and cGMPs, as well as registration, listing, and inspection.There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, aswell as new application fees for supplemental applications with clinical data.FDA regulates the content and format of prescription drug labeling, advertising, and promotion, including direct-to-consumer advertising andpromotional Internet communications. FDA also establishes parameters for permissible non-promotional communications between industry and themedical community, including industry-supported scientific and educational activities. The FDA and other agencies actively enforce the laws andregulations prohibiting the promotion for uses not consistent with the approved labeling, and a company that is found to have improperly promoted off-label uses or otherwise not to have met applicable promotion rules may be subject to significant liability under both the FDCA and other statutes,including the False Claims Act. See "Other Healthcare Laws and Compliance Requirements" below for more information.All aspects of pharmaceutical manufacture must conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors arerequired to register their establishments with FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA duringwhich the FDA inspects manufacturing facilities to assess compliance with cGMPs. Changes to the manufacturing process are strictly regulated and oftenrequire prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMPs andimpose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly,manufacturers must continue to expend time, money and effort in the areas of production and quality control to maintain compliance with cGMPs.Products may be marketed only for the approved indications and in accordance with the provisions of the approved labeling. Changes to some ofthe conditions established in an approved application, including changes in indications, labeling, product formulation or manufacturing processes orfacilities, require submission and FDA approval of a new BLA or BLA supplement, in some cases before the change may be implemented. A BLAsupplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures andactions in reviewing BLA supplements as it does in reviewing BLAs.Manufacturers are subject to requirements for adverse event reporting and submission of periodic reports following FDA approval of a BLA.Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturingprocesses, or failure to comply with regulatory requirements, or failure of Phase 4 studies to meet their specified endpoints, may result in revisions to theapproved labeling to add new safety information, the need to conduct additional post-market studies or clinical trials to assess new safety risks, imposition of distribution or other restrictions under a REMS program, or recall of the product and withdrawal of the BLA.Noncompliance with postmarket requirements can result in one or more of the following consequences:• Restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;• Warning letters;• Holds on post-approval clinical trials;• Refusal of the FDA to approve pending BLAs or supplements to approved BLAs, or suspension or revocation of product license approvals;• Product seizure or detention, or refusal to permit the import or export of products; or• Injunctions or the imposition of civil or criminal penalties.In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, whichregulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drugdistributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements toensure accountability in distribution.Approval of Biosimilars . The ACA authorized the FDA to approve biosimilars via a separate, abbreviated pathway. In many cases, this allowsbiosimilars to be brought to market without conducting the full suite of clinical trials typically required of originators. The law establishes a period of 12years of data exclusivity for reference products in order to preserve incentives for future innovation and outlines statutory criteria for science-basedbiosimilar approval standards that take into account patient safety considerations. Under this framework, data exclusivity protects the data in theinnovator's regulatory application by prohibiting others, for a period of 12 years, from granting FDA approval based in part on reliance on or reference tothe innovator's data in their application to the FDA. The law does not change the duration of patents granted on biological products.Other Healthcare Laws and Compliance RequirementsIn the United States, our activities are potentially subject to regulation by federal, state, and local authorities in addition to the FDA, includingthe Centers for Medicare and Medicaid Services, other divisions of the U.S. Department of Health and Human Services (e.g., the Office of InspectorGeneral), the U.S. Department of Justice and individual U.S. Attorney offices within the Department of Justice, and state and local governments.For example, certain financial interactions with healthcare professionals may be subject to the anti-kickback and fraud and abuse provisions ofthe Social Security Act and the False Claims Act, and in addition our activities may be affected by the privacy regulations issued under the HealthInsurance Portability and Accountability Act, as amended, and similar state laws.International RegulationIn addition to regulations in the United States, a variety of foreign regulations govern clinical trials, commercial sales, distribution of productcandidates and other areas outlined above. These regulations can vary between jurisdictions and can be more onerous than regulations in the UnitedStates. Penalties for violating such regulations also exist in these jurisdictions.. The approval process varies from country to country and the time toapproval may be longer or shorter than that required for FDA approval.Pharmaceutical Coverage, Pricing, and ReimbursementIn the United States and other countries, sales of any future products for which we receive regulatory approval for commercial sale will dependin part on the availability of adequate reimbursement from third-party payors, including government health administrative authorities, managed careproviders, private health insurers, and other organizations. Third-party payors are increasingly examining the medical necessity and cost effectiveness ofmedical products and services in addition to safety and efficacy and, accordingly, significant uncertainty exists as to the reimbursement status of newlyapproved therapeutics. Third-party reimbursement adequate to enable us to realize an appropriate return on our investment in research and productdevelopment may not be available for our products.Drug prices have become a subject of increased focus in recent years. Although there are currently no direct government price controls overprivate sector purchases in the U.S., federal law requires pharmaceutical manufacturers to pay prescribed rebates on certain Medicaid-reimbursed drugs toenable them to be eligible for reimbursement under certain public healthcare programs such as Medicaid and Medicare Part B. Various states haveadopted further mechanisms that seek to control drug prices, including by disfavoring certain higher priced drugs or by seeking supplemental rebates frommanufacturers. Managed care has also become a potent force in the market place that increases downward pressure on the prices of pharmaceuticalproducts.Public and private healthcare payers control costs and influence drug pricing through a variety of mechanisms, including through negotiatingdiscounts with the manufacturers and through the use of tiered formularies and other mechanisms that provide preferential access to certain drugs overothers within a therapeutic class. Payers also set other criteria to govern the uses of a drug that will be deemed medically appropriate and thereforereimbursed or otherwise covered.FacilitiesOur headquarters are currently located in Rockville, Maryland, where we occupy office and laboratory space under two leases that each expireon January 31, 2020, and each of those leases may be extended for a five-year term. Our manufacturing facility is also located in Rockville under leasefrom the same landlord. The lease for a portion of that facility expires on March 31, 2018 and may be extended for a five-year term, and the lease for theremainder of that facility expires on December 31, 2019. In 2016, we plan to relocate our headquarters to another location in Rockville, Maryland, underthe terms of a lease that will expire in 2023 and may be extended for up to two additional seven-year terms. This new facility will allow for theconsolidation of more of our operations as well as provide space for expansion of our manufacturing capacity. Our leases for our current headquarters willcontinue and we plan to use them for additional staff and may sublease excess capacity to the extent available.We also lease office and laboratory space in South San Francisco under a lease that expires on February 28, 2018.EmployeesAs of February 22, 2016, we had 269 full-time employees, 226 of whom were primarily engaged in research and development activities and 56of whom had an M.D. or Ph.D. degree.Legal ProceedingsFrom time to time we may be involved in various disputes and litigation matters that arise in the ordinary course of business. We are notcurrently a party to any material legal proceedings.Available InformationOur website address is www.macrogenics.com. We post links to our website to the following filings as soon as reasonably practicable after theyare electronically filed with or furnished to the Securities and Exchange Commission, or the SEC: Annual Reports on Form 10-K, quarterly reports onForm 10-Q, current reports on Form 8-K, proxy statements, and any amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934, as amended. All such filings are available through our website free of charge. Our filings may also be read and copied atthe SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may beobtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site at www.sec.gov that contains reports, proxy and informationstatements, and other information regarding issuers that file electronically with the SEC. ITEM 1A. RISK FACTORSOur business and results of operations are subject to numerous risks, uncertainties and other factors that you should be aware of, some of which aredescribed below.Any of the risks, uncertainties and other factors described below could have a materially adverse effect on our business, financial condition or results ofoperations and could cause the trading price of our common stock to decline substantially.Risks Related to Our Business and the Development and Commercialization of Our Product Candidates.All of our product candidates are in pre-clinical or clinical development. Clinical drug development is expensive, time consuming and uncertain andwe may ultimately not be able to obtain regulatory approvals for the commercialization of some or all of our product candidates.The research, testing, manufacturing, labeling, approval, selling, marketing and distribution of drug products are subject to extensive regulationby the U.S. Food and Drug Administration, or FDA, and non-U.S. regulatory authorities, which regulations differ from country to country. We are notpermitted to market our product candidates in the United States or in other countries until we receive approval of a Biologics License Application, orBLA, from the FDA or marketing approval from applicable regulatory authorities outside the United States. Our product candidates are in various stagesof development and are subject to the risks of failure inherent in drug development. We have not submitted an application for or received marketingapproval for any of our product candidates. We have limited experience in conducting and managing the clinical trials necessary to obtain regulatoryapprovals, including approval by the FDA. Obtaining approval of a BLA can be a lengthy, expensive and uncertain process. In addition, failure to complywith FDA and non-U.S. regulatory requirements may, either before or after product approval, if any, subject our company to administrative or judiciallyimposed sanctions, including:•restrictions on our ability to conduct clinical trials, including full or partial clinical holds on ongoing or planned trials;•restrictions on the products, manufacturers or manufacturing process;•warning letters;•civil and criminal penalties;•injunctions;•suspension or withdrawal of regulatory approvals;•product seizures, detentions or import bans;•voluntary or mandatory product recalls and publicity requirements;•total or partial suspension of production;•imposition of restrictions on operations, including costly new manufacturing requirements; and•refusal to approve pending BLAs or supplements to approved BLAs or analogous marketing approvals outside the United States.The FDA and foreign regulatory authorities also have substantial discretion in the drug approval process. The number of pre-clinical studies andclinical trials that will be required for regulatory approval varies depending on the product candidate, the disease or condition that the product candidate isdesigned to address, and the regulations applicable to any particular drug candidate. Regulatory agencies can delay, limit or deny approval of a productcandidate for many reasons, including:•a product candidate may not be deemed safe or effective;•the results may not confirm the positive results from earlier pre-clinical studies or clinical trials;•regulatory agencies may not find the data from pre-clinical studies and clinical trials sufficient;•regulatory agencies might not approve or might require changes to our manufacturing processes or facilities; or•regulatory agencies may change their approval policies or adopt new regulations.Any delay in obtaining or failure to obtain required approvals could materially adversely affect our ability to generate revenue from theparticular product candidate, which likely would result in significant harm to our financial position and adversely impact our stock price. Furthermore,any regulatory approval to market a product may be subject to limitations on the indicated uses for which we may market the product. These limitationsmay limit the size of the market for the product.If clinical trials for our product candidates are prolonged, delayed or stopped, we may be unable to obtain regulatory approval and commercialize ourproduct candidates on a timely basis, which would require us to incur additional costs and delay our receipt of any product revenue.We are currently enrolling patients in clinical trials for margetuximab, enoblituzumab, MGD006, MGD007, MGD009 and MGD010 andanticipate initiating or continuing clinical trials for these product candidates and others in 2016. In addition, our collaborators are currently enrollingpatients in clinical trials for MGD011 and teplizumab. The commencement of new clinical trials could be substantially delayed or prevented by severalfactors, including:•further discussions with the FDA or other regulatory agencies regarding the scope or design of our clinical trials;•the limited number of, and competition for, suitable sites to conduct our clinical trials, many of which may already be engaged in otherclinical trial programs, including some that may be for the same indication as our product candidates;•any delay or failure to obtain regulatory approval or agreement to commence a clinical trial in any of the countries where enrollment isplanned;•inability to obtain sufficient funds required for a clinical trial;•clinical holds on, or other regulatory objections to, a new or ongoing clinical trial;•delay or failure to manufacture sufficient supplies of the product candidate for our clinical trials;•delay or failure to reach agreement on acceptable clinical trial agreement terms or clinical trial protocols with prospective sites or clinicalresearch organizations, CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different sites orCROs; and •delay or failure to obtain institutional review board, or IRB, approval to conduct a clinical trial at a prospective site.The completion of our clinical trials could also be substantially delayed or prevented by several factors, including:•slower than expected rates of patient recruitment and enrollment;•failure of patients to complete the clinical trial;•unforeseen safety issues, including severe or unexpected drug-related adverse effects experienced by patients, including possible deaths;•lack of efficacy during clinical trials;•termination of our clinical trials by one or more clinical trial sites;•inability or unwillingness of patients or clinical investigators to follow our clinical trial protocols;•inability to monitor patients adequately during or after treatment by us and/or our CROs; and•the need to repeat or terminate clinical trials as a result of inconclusive or negative results or unforeseen complications in testing.Changes in regulatory requirements and guidance may also occur and we may need to significantly amend clinical trial protocols to reflect thesechanges with appropriate regulatory authorities. Amendments may require us to renegotiate terms with CROs or resubmit clinical trial protocols to IRBsfor re-examination, which may impact the costs, timing or successful completion of a clinical trial. Our clinical trials may be suspended or terminated atany time by the FDA, other regulatory authorities, the IRB overseeing the clinical trial at issue, any of our clinical trial sites with respect to that site, or us,due to a number of factors, including:•failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;•unforeseen safety issues or any determination that a clinical trial presents unacceptable health risks;•lack of adequate funding to continue the clinical trial due to unforeseen costs or other business decisions; and•upon a breach or pursuant to the terms of any agreement with, or for any other reason by, current or future collaborators that haveresponsibility for the clinical development of any of our product candidates.Any failure or significant delay in completing clinical trials for our product candidates would adversely affect our ability to obtain regulatoryapproval and our commercial prospects and ability to generate product revenue will be diminished.The results of previous clinical trials may not be predictive of future results, and the results of our current and planned clinical trials may not satisfythe requirements of the FDA or non-U.S. regulatory authorities.Clinical failure can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we or any of ourcurrent and future collaborators may decide, or regulators may require us, to conduct additional clinical or pre-clinical testing. Success in early clinicaltrials does not mean that future larger registration clinical trials will be successful because product candidates in later-stage clinical trials may fail todemonstrate sufficient safety and efficacy to the satisfaction of the FDA and non-U.S. regulatory authorities despite having progressed through initialclinical trials. A number of companies in the pharmaceutical industry, including those with greater resources and experience than us, have sufferedsignificant setbacks in advanced clinical trials, even after obtaining promising results in earlier clinical trials.Further, our product candidates may not be approved even if they achieve their primary endpoints in Phase 3 clinical trials or registration trials.The FDA or other non-U.S. regulatory authorities may disagree with our trial design and our interpretation of data from pre-clinical studies and clinicaltrials. In addition, any of these regulatory authorities may change requirements for the approval of a product candidate even after reviewing and providingcomments or advice on a protocol for a pivotal Phase 3 clinical trial. In addition, any of these regulatory authorities may also approve a product candidatefor fewer or more limited indications than we request or may grant approval contingent on the performance of costly post-marketing clinical trials. TheFDA or other non-U.S. regulatory authorities may not approve the labeling claims that we believe would be necessary or desirable for the successfulcommercialization of our product candidates.We use new technologies in the development of our product candidates and the FDA and other regulatory authorities have not approved products thatutilize these technologies.Our products in development are based on new technologies, such as Fc Optimization, DART and Trident molecules and CSLCs. Given thenovelty of our technologies, we intend to work closely with FDA and other regulatory authorities to perform the requisite scientific analyses andevaluation of our methods to obtain regulatory approval for our product candidates. It is possible that the validation process may take time and resources,require independent third-party analyses or not be accepted by the FDA and other regulatory authorities. For some of our product candidates that arebased on these technology platforms, the regulatory approval path and requirements may not be clear or evolve as more data becomes available for thisproduct candidates, which could add significant delay and expense. Delays or failure to obtain regulatory approval of any of the product candidates thatwe develop would adversely affect our business. We may not be successful in our efforts to use and expand our technology platforms to build a pipeline of product candidates. We may expend ourlimited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be moreprofitable or for which there is a greater likelihood of success.A key element of our strategy is to use and expand our technology platforms to build a pipeline of product candidates and progress these productcandidates through clinical development for the treatment of a variety of different types of diseases. Although our research and development efforts todate have resulted in a pipeline of product candidates directed at various cancers, as well as autoimmune disorders and infectious diseases, we may not beable to develop product candidates that are safe and effective. Even if we are successful in continuing to build our pipeline, the potential productcandidates that we identify may not be suitable for clinical development, including as a result of being shown to have harmful side effects or othercharacteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance. If we do notcontinue to successfully develop and begin to commercialize product candidates, we will face difficulty in obtaining product revenues in future periods,which could result in significant harm to our financial position and adversely affect our stock price.Because we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specificindications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to havegreater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable marketopportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield anycommercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we mayrelinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have beenmore advantageous for us to retain sole development and commercialization rights.Even if we obtain FDA approval of any of our product candidates, we may never obtain approval or commercialize our products outside of the UnitedStates, which would limit our ability to realize their full market potential.In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirementsof other countries regarding safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries,and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary amongcountries and may require additional pre-clinical studies or clinical trials or additional administrative review periods, which could result in significantdelays, difficulties and costs for us. In addition, our failure to obtain regulatory approval in any country may delay or have negative effects on the processfor regulatory approval in other countries. We do not have any product candidates approved for sale in any jurisdiction, including international markets,and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements ininternational markets or to obtain and maintain required approvals, our target market will be reduced and our ability to realize the full market potential ofour products will be harmed. Our product candidates may have undesirable side effects which may delay or prevent marketing approval, or, if approval is received, require them tobe taken off the market, require them to include safety warnings or otherwise limit their sales.Although all of our product candidates have undergone or will undergo safety testing, not all adverse effects of drugs can be predicted oranticipated. Unforeseen side effects from any of our product candidates could arise either during clinical development or, if approved by regulatoryauthorities, after the approved product has been marketed. All of our product candidates are still in clinical or pre-clinical development. While our clinicaltrials for our initial product candidates to date have demonstrated a favorable safety profile, the results from future trials may not support this conclusion.The results of future clinical or pre-clinical trials may show that our product candidates cause undesirable or unacceptable side effects, which couldinterrupt, delay or halt clinical trials, and result in delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities, orresult in marketing approval from the FDA and other regulatory authorities with restrictive label warnings or potential product liability claims.If any of our product candidates receives marketing approval and we or others later identify undesirable or unacceptable side effects caused bysuch products:•regulatory authorities may require us to take our approved product off the market;•regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians andpharmacies;•we may be required to change the way the product is administered, impose other risk-management measures, conduct additional clinical trialsor change the labeling of the product;•we may be subject to limitations on how we may promote the product;•sales of the product may decrease significantly;•we may be subject to litigation or product liability claims; and•our reputation may suffer.Any of these events could prevent us, our collaborators or our potential future partners from achieving or maintaining market acceptance of theaffected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating significantrevenue from the sale of our products. Even if approved, if any of our product candidates do not achieve broad market acceptance among physicians, patients, the medical community, andthird-party payors our revenue generated from their sales will be limited.The commercial success of our product candidates will depend upon their acceptance among physicians, patients and the medical community.The degree of market acceptance of our product candidates will depend on a number of factors, including:•limitations or warnings contained in the approved labeling for a product candidate;•changes in the standard of care for the targeted indications for any of our product candidates;•limitations in the approved clinical indications for our product candidates;•demonstrated clinical safety and efficacy compared to other products;•lack of significant adverse side effects;•sales, marketing and distribution support;•availability and extent of reimbursement from managed care plans and other third-party payors;•timing of market introduction and perceived effectiveness of competitive products;•the degree of cost-effectiveness of our product candidates;•availability of alternative therapies at similar or lower cost, including generic and over-the-counter products;•the extent to which the product candidate is approved for inclusion on formularies of hospitals and managed care organizations;•whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy forparticular diseases;•adverse publicity about our product candidates or favorable publicity about competitive products;•convenience and ease of administration of our products; and•potential product liability claims.If any of our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, patients and the medicalcommunity, we may not generate sufficient revenue from these products, and we may not become or remain profitable. In addition, efforts to educate themedical community and third-party payors on the benefits of our product candidates may require significant resources and may never be successful. The manufacture of our product candidates is complex, and we may encounter difficulties in production. If we encounter any such difficulties, ourability to supply our product candidates for clinical trials or, if approved, for commercial sale could be delayed or halted entirely.The process of manufacturing our product candidates is extremely susceptible to product loss due to contamination, equipment failure orimproper installation or operation of equipment, vendor or operator error, contamination and inconsistency in yields, variability in product characteristics,and difficulties in scaling the production process. Even minor deviations from normal manufacturing processes could result in reduced production yields,product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our product candidates or in the manufacturingfacilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate andremedy the contamination. Any adverse developments affecting manufacturing operations for our product candidates, if any are approved, may result inshipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our products. We may also haveto take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seekmore costly manufacturing alternatives.Our manufacturing facilities are subject to significant government regulations and approvals, which are often costly and could result in adverseconsequences to our business if we fail to comply with the regulations or maintain the approvals.We must comply with the FDA's current Good Manufacturing Practice, or cGMP, requirements, as set out in statute, regulations and guidance.We may encounter difficulties in achieving quality control and quality assurance and may experience shortages in qualified personnel. We are subject toinspections by the FDA and comparable agencies in other jurisdictions to confirm compliance with applicable regulatory requirements. See "Other U.S.Post-Marketing Regulatory Requirements" above for additional information. Any failure to follow cGMP or other regulatory requirements or delay,interruption or other issues that arise in the manufacture, fill-finish, packaging, or storage of our product candidates as a result of a failure of our facilitiesor the facilities or operations of third parties to comply with regulatory requirements or pass any regulatory authority inspection could significantly impairour ability to develop and commercialize our product candidates, including leading to significant delays in the availability of drug product for our clinicaltrials or the termination or hold on a clinical trial, or the delay or prevention of a filing or approval of marketing applications for our product candidates.Significant noncompliance could also result in the imposition of sanctions, including fines, injunctions, civil penalties, failure of regulatory authorities togrant marketing approvals for our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products,operating restrictions and criminal prosecutions, any of which could damage our reputation. If we are not able to maintain regulatory compliance, we maynot be permitted to market our product candidates and/or may be subject to product recalls, seizures, injunctions, or criminal prosecution.We currently have no marketing, sales or distribution infrastructure. If we are unable to develop sales, marketing and distribution capabilities on ourown or through collaborations, we will not be successful in commercializing our product candidates.We currently have no marketing, sales and distribution infrastructure and we have limited sales and marketing experience within ourorganization. If any of our product candidates are approved, we intend to establish a sales and marketing organization with technical expertise andsupporting distribution capabilities to commercialize our product candidates in the United States and, potentially, to outsource this function to a thirdparty outside of the United States. Both of these options would be expensive and time consuming. These costs may be incurred in advance of anyapproval of our product candidates. In addition, we may not be able to engage a sales force in the United States that is sufficient in size or has adequateexpertise in the medical markets that we intend to target. Any failure or delay in the development of our internal sales, marketing and distributioncapabilities would adversely impact the commercialization of our products.With respect to certain of our existing and future product candidates, we have entered into collaboration or other licensing arrangements withthird party collaborators that have direct sales forces and established distribution systems. To the extent that we enter into additional collaborationagreements, our product revenue may be lower than if we directly marketed or sold any approved products. In addition, any revenue we receive willdepend in whole or in part upon the efforts of these third party collaborators, which may not be successful and are generally not within our control. If weare unable to enter into additional arrangements on acceptable terms or at all, we may not be able to successfully commercialize certain approvedproducts. If we are not successful in commercializing approved products, either on our own or through collaborations with one or more third parties, ourfuture product revenue will suffer and we may incur significant additional losses.We face significant competition and if our competitors develop and market products that are more effective, safer or less expensive than our productcandidates, our commercial opportunities will be negatively impacted.The life sciences industry is highly competitive and subject to rapid and significant technological change. We are currently developingtherapeutics that will compete with other drugs and therapies that currently exist or are being developed. Products we may develop in the future are alsolikely to face competition from other drugs and therapies, some of which we may not currently be aware. We have competitors both in the United Statesand internationally, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies,universities and other research institutions. Many of our competitors have significantly greater financial, manufacturing, marketing, drug development,technical and human resources than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtainingregulatory approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have significantly greater research andmarketing capabilities than we do and may also have products that have been approved or are in late stages of development, and collaborativearrangements in our target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily toaccelerate discovery and development of novel compounds or to in-license novel compounds that could make the product candidates that we developobsolete. As a result of all of these factors, our competitors may succeed in obtaining patent protection and/or FDA approval or discovering, developingand commercializing products in our field before we do.Specifically, there are a large number of companies developing or marketing treatments for cancer and autoimmune disorders, including manymajor pharmaceutical and biotechnology companies. These treatments consist both of small molecule drug products, as well as biologic therapeutics thatwork by using next-generation antibody technology platforms to address specific cancer targets. In addition, several companies are developingtherapeutics that work by targeting multiple specificities using a single recombinant molecule. See "Competition" above for additional information.Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, moreeffective, have fewer or less severe effects, are more convenient or are less expensive than any products that we may develop. Our competitors also mayobtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitorsestablishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurersor other third party payors seeking to encourage the use of biosimilar products. Biosimilar products are expected to become available over the comingyears. For example, certain HER2 biosimilar products are approved in certain countries and others may be approved prior to margetuximab. Even if ourproduct candidates achieve marketing approval, they may be priced at a significant premium over competitive biosimilar products if any have beenapproved by then.Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with largeand established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishingclinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Inaddition, the biopharmaceutical industry is characterized by rapid technological change. If we fail to stay at the forefront of technological change, we maybe unable to compete effectively. Technological advances or products developed by our competitors may render our technologies or product candidatesobsolete, less competitive or not economical.Reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance. If there is not sufficient reimbursementfor our products, it is less likely that our products will be widely used.Even if our product candidates are approved for sale by the appropriate regulatory authorities, market acceptance and sales of these products willdepend on reimbursement policies and may be affected by future healthcare reform measures. Government authorities and third-party payors, such asprivate health insurers and health maintenance organizations, decide which drugs they will reimburse and establish payment levels and, in some cases,utilization management strategies, such as tiered formularies and prior authorization. We cannot be certain that reimbursement will be available for anyproducts that we develop or that the reimbursement level will be adequate to allow us to operate profitably. Also, we cannot be certain that reimbursementpolicies will not reduce the demand for, or the price paid for, our products. If reimbursement is not available or is available on a limited basis, or if thereimbursement amount is inadequate, we may not be able to successfully commercialize any of our approved products.The United States and several foreign jurisdictions are considering, or have already enacted, a number of legislative and regulatory proposals tochange the healthcare system in ways that could affect our ability to sell any of our future approved products profitably. Among policy makers and payorsin the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcarecosts, improving quality and/or expanding access to healthcare. In the United States, the pharmaceutical industry has been a particular focus of theseefforts and has been significantly affected by major legislative initiatives, including the Patient Protection and Affordable Care Act, as amended by theHealthcare and Education Affordability Reconciliation Act, collectively the ACA, which became law in 2010. While it is difficult to assess the impact ofthe ACA in isolation, either in general or on our business specifically, it is widely thought that the ACA increases downward pressure on pharmaceuticalreimbursement, which could negatively affect market acceptance of, and the price we may charge for, any products we develop that receive regulatoryapproval. We expect to experience pricing pressures in connection with the sale of any products that we develop, due to the trend toward managedhealthcare, the increasing influence of health maintenance organizations and additional legislative proposals.If any product liability lawsuits are successfully brought against us or any of our collaborators, we may incur substantial liabilities and may berequired to limit commercialization of our product candidates.We face an inherent risk of product liability lawsuits related to the testing of our product candidates in seriously ill patients, and will face aneven greater risk if product candidates are approved by regulatory authorities and introduced commercially. Product liability claims may be broughtagainst us or our collaborators by participants enrolled in our clinical trials, patients, health care providers or others using, administering or selling any ofour future approved products. If we cannot successfully defend ourselves against any such claims, we may incur substantial liabilities. Regardless of theirmerit or eventual outcome, liability claims may result in:•decreased demand for our future approved products;•injury to our reputation;•withdrawal of clinical trial participants;•termination of clinical trial sites or entire trial programs;•increased regulatory scrutiny;•significant litigation costs;•substantial monetary awards to or costly settlement with patients or other claimants;•product recalls or a change in the indications for which they may be used;•loss of revenue;•diversion of management and scientific resources from our business operations; and•the inability to commercialize our product candidates.If any of our product candidates are approved for commercial sale, we will be highly dependent upon consumer perceptions of us and the safetyand quality of our products. We could be adversely affected if we are subject to negative publicity. We could also be adversely affected if any of ourproducts or any similar products distributed by other companies prove to be, or are asserted to be, harmful to patients. Because of our dependence uponconsumer perceptions, any adverse publicity associated with illness or other adverse effects resulting from patients' use or misuse of our products or anysimilar products distributed by other companies could have a material adverse impact on our financial condition or results of operations. We currently hold $20 million in product liability insurance coverage in the aggregate, with a per incident limit of $20 million, which may not beadequate to cover all liabilities that we may incur. We may need to increase our insurance coverage when we begin the commercialization of our productcandidates. Insurance coverage is becoming increasingly expensive. As a result, we may be unable to maintain or obtain sufficient insurance at areasonable cost to protect us against losses that could have a material adverse effect on our business. A successful product liability claim or series ofclaims brought against us, particularly if judgments exceed any insurance coverage we may have, could decrease our cash resources and adversely affectour business, financial condition and results of operation.The contract with the National Institute of Allergy and Infectious Diseases (NIAID) makes us a government contractor. Laws and regulationsaffecting government contracts may make it more costly and difficult for us to successfully conduct our business. We must comply with numerous laws and regulations relating to the procurement, formation, administration and performance of governmentcontracts. Failure to comply with these laws could result in significant civil and criminal penalties. Among the most significant government contractingregulations that may affect our business are: the Federal Acquisition Regulation, or FAR, and NIH-NIAID-specific regulations supplemental to the FAR,which comprehensively regulate the procurement, formation, administration and performance of government contracts; business ethics and publicintegrity obligations, which govern conflicts of interest and the hiring of former government employees, restrict the granting of gratuities and funding oflobbying activities and incorporate other requirements such as the Anti-Kickback Act, the Procurement Integrity Act, and the False Claims Act; exportand import control laws and regulations; and laws, regulations and executive orders restricting the use and dissemination of sensitive information we mayreceive pursuant to our performance of the government contract. U.S. government agencies routinely audit and investigate government contractors forcompliance with applicable laws and standards. If we are audited, such audit could result in disallowance of expected cost reimbursement, or if such auditwere to uncover improper or illegal activities, we could be subject to civil and criminal penalties, administrative sanctions, including suspension ordebarment from government contracting and significant reputational harm. Risks Related to Our Financial Position and Need for Additional CapitalWe have incurred significant losses since inception and anticipate that we will continue to incur losses for the foreseeable future. We have noproducts approved for commercial sale, and to date we have not generated any revenue or profit from product sales. We may never achieve or sustainprofitability.We are a clinical-stage biopharmaceutical company. We have incurred significant losses since our inception. As of December 31, 2015, ouraccumulated deficit was approximately $234.2 million. We expect to continue to incur losses for the foreseeable future, and we expect these losses toincrease as we continue our research and development of, and seek regulatory approvals for, our product candidates, prepare for and begin tocommercialize any approved products, and add infrastructure and personnel to support our product development efforts and operations as a publiccompany. The net losses and negative cash flows incurred to date, together with expected future losses, have had, and likely will continue to have, anadverse effect on our stockholders' deficit and working capital. The amount of future net losses will depend, in part, on the rate of future growth of ourexpenses and our ability to generate revenue.Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict thetiming or amount of increased expenses or when, or if, we will be able to achieve profitability. For example, our expenses could increase if we arerequired by the FDA to perform trials in addition to those that we currently expect to perform, or if there are any delays in completing our currentlyplanned clinical trials or in the development of any of our product candidates.To become and remain profitable, we must succeed in developing and commercializing products with significant market potential. This willrequire us to be successful in a range of challenging activities for which we are only in the preliminary stages, including developing product candidates,obtaining regulatory approval for them, and manufacturing, marketing and selling those products for which we may obtain regulatory approval. We maynever succeed in these activities and may never generate revenue from product sales that is significant enough to achieve profitability. Even if we achieveprofitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure to become or remain profitable would depress ourmarket value and could impair our ability to raise capital, expand our business, develop other product candidates, or continue our operations. A decline inthe value of our company could also cause you to lose all or part of your investment.We will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not available, may require us todelay, scale back, or cease our product development programs or operations.We are advancing our product candidates through clinical development. Developing pharmaceutical products, including conducting pre-clinicalstudies and clinical trials, is expensive. In order to obtain such regulatory approval, we will be required to conduct clinical trials for each indication foreach of our product candidates. We will continue to require additional funding beyond what was raised in our public offerings and through ourcollaborations and license agreements to complete the development and commercialization of our product candidates and to continue to advance thedevelopment of our other product candidates, and such funding may not be available on acceptable terms or at all. Although it is difficult to predict ourfunding requirements, based upon our current operating plan, we anticipate that our cash and cash equivalents as of December 31, 2015, combined withthe proceeds from collaboration payments we anticipate receiving, will enable us to fund our operations into 2018, assuming all of our collaborationprograms advance as currently contemplated. Because successful development of our product candidates is uncertain, we are unable to estimate the actualfunds we will require to complete research and development and to commercialize our product candidates.Our future funding requirements will depend on many factors, including but not limited to:•the number and characteristics of other product candidates and indications that we pursue; •the scope, progress, timing, cost and results of research, pre-clinical development, and clinical trials;•the costs, timing and outcome of seeking and obtaining FDA and non-U.S. regulatory approvals;•the costs associated with manufacturing our product candidates and establishing sales, marketing, and distribution capabilities;•our ability to maintain, expand, and defend the scope of our intellectual property portfolio, including the amount and timing of anypayments we may be required to make in connection with the licensing, filing, defense and enforcement of any patents or other intellectualproperty rights;•our need and ability to hire additional management, scientific, and medical personnel;•the effect of competing products that may limit market penetration of our product candidates;•our need to implement additional internal systems and infrastructure, including financial and reporting systems; and•the economic and other terms, timing of and success of our existing collaborations, and any collaboration, licensing, or other arrangementsinto which we may enter in the future, including the timing of receipt of any milestone or royalty payments under these agreements.Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we expect to financefuture cash needs primarily through a combination of public or private equity offerings, debt financings, strategic collaborations, and grant funding. Ifsufficient funds on acceptable terms are not available when needed, or at all, we could be forced to significantly reduce operating expenses and delay,scale back or eliminate one or more of our development programs or our business operations.Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish substantial rights.To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, andthe terms of these new securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing,if available at all, may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring additionaldebt, making capital expenditures, or declaring dividends. If we raise additional funds through collaborations, strategic alliances, or licensingarrangements with third parties, we may have to relinquish valuable rights to our technologies, product candidates, or future revenue streams, or grantlicenses on terms that are not favorable to us. We cannot assure you that we will be able to obtain additional funding if and when necessary. If we areunable to obtain adequate financing on a timely basis, we could be required to delay, scale back or eliminate one or more of our development programs orgrant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.Our ability to use our net operating loss carryforwards and other tax attributes may be limited.Our ability to utilize our federal net operating losses, or NOLs, and federal tax credits is currently limited, and may be limited further, underSections 382 and 383 of the Internal Revenue Code of 1986, as amended. The limitations apply if an ownership change, as defined by Section 382,occurs. Generally, an ownership change occurs when certain shareholders increase their aggregate ownership by more than 50 percentage points overtheir lowest ownership percentage in a testing period, which is typically three years or since the last ownership change. We are already subject toSection 382 limitations due to acquisitions we made in 2002 and 2008. As of December 31, 2015, we had federal and state NOL carryforwards of $165.6million and research and development tax credit carryforwards of $29.3 million available. Future changes in stock ownership may also trigger anownership change and, consequently, another Section 382 limitation. Any limitation may result in expiration of a portion of the net operating loss or taxcredit carryforwards before utilization which would reduce our gross deferred income tax assets and corresponding valuation allowance. As a result, if weearn net taxable income, our ability to use our pre-change net operating loss carryforwards and tax credit carryforwards to reduce United States federalincome tax may be subject to limitations, which could potentially result in increased future cash tax liability to us. Risks Related to Our Dependence on Third PartiesOur existing therapeutic collaborations are important to our business, and future collaborations may also be important to us. If we are unable tomaintain any of these collaborations, or if these collaborations are not successful, our business could be adversely affected.We have limited capabilities for drug development and do not yet have any capability for sales, marketing or distribution. We have entered intocollaborations with other companies that we believe can provide such capabilities, including our collaboration and license agreements with JanssenBiotech, Inc., or Janssen, Takeda Pharmaceutical Company Ltd., or Takeda, Les Laboratoires Servier and Institut de Recherches Servier, or collectivelyServier, Gilead Sciences, Inc., or Gilead, Boehringer Ingelheim GmbH, or Boehringer, Pfizer, Inc., or Pfizer, and Green Cross Corp., or Green Cross.These collaborations also have provided us with important funding for our development programs and technology platforms and we expect to receiveadditional funding under these collaborations in the future. Our existing therapeutic collaborations, and any future collaborations we enter into, may posea number of risks, including the following:•collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;•collaborators may not perform their obligations as expected;•collaborators may not pursue development and commercialization of any product candidates that achieve regulatory approval or may electnot to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators' strategicfocus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities;•collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a productcandidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;•collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products orproduct candidates if the collaborators believe that competitive products are more likely to be successfully developed or can becommercialized under terms that are more economically attractive than ours;•product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own productcandidates or products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates;•a collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may notcommit sufficient resources to the marketing and distribution of such product or products;•disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course ofdevelopment, might cause delays or termination of the research, development or commercialization of product candidates, might lead toadditional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive;•collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as toinvite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;•collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and •collaborations may be terminated for the convenience of the collaborator and, if terminated, we could be required to raise additional capitalto pursue further development or commercialization of the applicable product candidates. For example, each of our collaboration and licenseagreements with Janssen, Takeda, Servier, Gilead, and Boehringer may be terminated for convenience upon the completion of a specifiednotice period.If our therapeutic collaborations do not result in the successful development and commercialization of products or if one of our collaboratorsterminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do notreceive the funding we expect under these agreements, our development of our technology platforms and product candidates could be delayed and wemay need additional resources to develop product candidates and our technology platforms. All of the risks relating to product development, regulatoryapproval and commercialization described in this report also apply to the activities of our program collaborators.Additionally, subject to its contractual obligations to us, if one of our collaborators is involved in a business combination, the collaborator mightdeemphasize or terminate the development or commercialization of any product candidate licensed to it by us. If one of our collaborators terminates itsagreement with us, we may find it more difficult to attract new collaborators.For some of our product candidates, we may in the future determine to collaborate with additional pharmaceutical and biotechnology companiesfor development and potential commercialization of therapeutic products. We face significant competition in seeking appropriate collaborators. Ourability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator's resources andexpertise, the terms and conditions of the proposed collaboration and the proposed collaborator's evaluation of a number of factors. These factors mayinclude the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, thepotential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, thepotential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to suchownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternativeproduct candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be moreattractive than the one with us for our product candidate.Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent businesscombinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. If we are unable to reachagreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate,reduce or delay one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketingactivities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertakedevelopment or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available tous on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary developmentand commercialization activities, we may not be able to further develop our product candidates or bring them to market or continue to develop ourtechnology platforms and our business may be materially and adversely affected.We may also be restricted under existing collaboration agreements from entering into future agreements on certain terms with potentialcollaborators. Aside from our agreement with Green Cross, subject to certain specified exceptions, each of our existing therapeutic collaborations containsa restriction on our engaging in activities that are the subject of the collaboration with third parties for specified periods of time. Independent clinical investigators and CROs that we engage to conduct our clinical trials may not devote sufficient time or attention to our clinicaltrials or be able to repeat their past success.We expect to continue to depend on independent clinical investigators and CROs to conduct our clinical trials. CROs may also assist us in thecollection and analysis of data. There is a limited number of third-party service providers that specialize or have the expertise required to achieve ourbusiness objectives. Identifying, qualifying and managing performance of third-party service providers can be difficult, time consuming and cause delaysin our development programs. These investigators and CROs will not be our employees and we will not be able to control, other than by contract, theamount of resources, including time, which they devote to our product candidates and clinical trials. If independent investigators or CROs fail to devotesufficient resources to the development of our product candidates, or if their performance is substandard, it may delay or compromise the prospects forapproval and commercialization of any product candidates that we develop. In addition, the use of third-party service providers requires us to disclose ourproprietary information to these parties, which could increase the risk that this information will be misappropriated. Further, the FDA requires that wecomply with standards, commonly referred to as current Good Clinical Practice, or GCP, for conducting, recording and reporting clinical trials to assurethat data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial subjects are protected. Failure of clinicalinvestigators or CROs to meet their obligations to us or comply with GCP procedures could adversely affect the clinical development of our productcandidates and harm our business.Failure of our third-party contractors to successfully develop and commercialize companion diagnostics for use with our product candidates couldharm our ability to commercialize our product candidates.We plan to develop companion diagnostics for our product candidates where appropriate. We expect that, at least in some cases, the FDA andsimilar regulatory authorities outside the United States may require the development and regulatory approval of a companion diagnostic as a condition toapproving our product candidates. We do not have experience or capabilities in developing or commercializing diagnostics and plan to rely in large parton third parties to perform these functions.In most cases, we will likely outsource the development, production and commercialization of companion diagnostics to third parties. Byoutsourcing these companion diagnostics to third parties, we become dependent on the efforts of our third party contractors to successfully develop andcommercialize these companion diagnostics. Our contractors:•may not perform their obligations as expected;•may encounter production difficulties that could constrain the supply of the companion diagnostic;•may have difficulties gaining acceptance of the use of the companion diagnostic in the clinical community;•may not commit sufficient resources to the marketing and distribution of such product; and•may terminate their relationship with us.If any companion diagnostic for use with one of our product candidates fails to gain market acceptance, our ability to derive revenues from salesof such product candidate could be harmed. If our third party contractors fail to commercialize such companion diagnostic, we may not be able to enterinto arrangements with another diagnostic company to obtain supplies of an alternative diagnostic test for use in connection with such product candidateor do so on commercially reasonable terms, which could adversely affect and delay the development or commercialization of such product candidate. We expect to contract with third parties for the manufacture of our product candidates for clinical testing in the future and expect to continue to do sofor commercialization. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates orproducts or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.We currently have a manufacturing facility located in Rockville, Maryland. We manufacture drug substance at this facility that we use forresearch and development purposes and for clinical trials of our product candidates. We believe we currently have capacity to produce Phase 2 materialfor our antibody product candidates and clinical material for our DART therapeutics, but our current facility will be insufficient to support our needs forour Phase 3 clinical trials for our antibody product candidates and for commercial quantities of such candidates. We do not have experience inmanufacturing products at commercial scale. We have plans to expand our manufacturing capacity at a newly leased facility, but that expansion will betime-consuming, costly and will not be ready in time for the anticipated commercial launch of margetuximab, assuming the success of the Phase 3SOPHIA clinical trial.We have entered into agreements with contract manufacturing organizations to supplement our clinical supply and internal capacity as weadvance our product candidate pipeline. We expect to use third parties for the manufacture of certain of our product candidates for clinical testing, as wellas for commercial manufacture of some of our product candidates that receive marketing approval and that are not manufactured by one of our third partycollaborators. We plan eventually to enter into long-term supply agreements with several manufacturers for commercial supplies. We may be unable toreach agreement with any of these contract manufacturers, or to identify and reach arrangements on satisfactory terms with other contract manufacturers,to manufacture any of our product candidates. Additionally, the facilities used by any contract manufacturer to manufacture any of our product candidatesmust be the subject of a satisfactory inspection before the FDA and other regulatory authorities approve a BLA or marketing authorization for the productcandidate manufactured at that facility. We will depend on these third-party manufacturing partners for compliance with the FDA's requirements for themanufacture of our finished products. If our manufacturers cannot successfully manufacture material that conforms to our specifications and the FDA andother regulatory authorities' cGMP requirements, our product candidates will not be approved or, if already approved, may be subject to recalls.Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured the product candidates ourselves,including:•the possibility of a breach of the manufacturing agreements by the third parties because of factors beyond our control;•the possibility of termination or nonrenewal of the agreements by the third parties before we are able to arrange for a qualified replacementthird-party manufacturer; and•the possibility that we may not be able to secure a manufacturer or manufacturing capacity in a timely manner and on satisfactory terms inorder to meet our manufacturing needs.Any of these factors could cause the delay of approval or commercialization of our product candidates, cause us to incur higher costs or preventus from commercializing our product candidates successfully. Furthermore, if any of our product candidates are approved and contract manufacturers failto deliver the required commercial quantities of finished product on a timely basis and at commercially reasonable prices, and we are unable to find one ormore replacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality and on a timelybasis, we would likely be unable to meet demand for our products and could lose potential revenue. It may take several years to establish an alternativesource of supply for our product candidates and to have any such new source approved by the FDA or any other relevant regulatory authorities.We intend to design and build a manufacturing facility that could support future commercial production of our product candidates, if and when anyare commercialized. We have no experience in large-scale or commercial manufacturing, and there can be no assurance that we will be able to buildour manufacturing facility or, if built, we will be able to manufacture commercial products.We intend to expand our manufacturing capacity to support future commercial production and have entered into a lease near our currentheadquarters for this purpose. Although some of our employees have experience in the manufacturing of pharmaceutical products from prior employmentat other companies, we as a company have no prior experience in large-scale or commercial manufacturing. Designing and building a manufacturingfacility will be time-consuming and expensive, and we may experience delays or cost overruns. In addition, government approvals would be required forus to operate a manufacturing facility and can be time-consuming to obtain. As a manufacturer of pharmaceutical products, we also would be required todemonstrate and maintain compliance with current Good Manufacturing Practices, or cGMPs, which include requirements related to productionprocesses, quality control and assurance and recordkeeping. Furthermore, establishing commercial manufacturing operations may require a reallocation ofother resources, particularly the time and attention of our senior management. Any failure or delay in the development of our commercial manufacturingcapabilities could adversely impact the commercialization of our product candidates. Risks Related to Our Intellectual PropertyOur commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. Other entities may have orobtain patents or proprietary rights that could limit our ability to make, use, sell, offer for sale or import our future approved products or impair ourcompetitive position. For example, certain patents held by third parties cover Fc engineering methods and mutations in Fc regions to enhance the bindingof Fc regions to Fc receptors on immune cells. Although we believe that these patents are invalid, if they cover margetuximab or enoblituzumab and weare unable to invalidate their patents, or if licenses for them are not available on commercially reasonable terms, our business could be harmed, perhapsmaterially.Patents that we may ultimately be found to infringe could be issued to third parties. Third parties may have or obtain valid and enforceablepatents or proprietary rights that could block us from developing product candidates using our technology. Our failure to obtain a license to anytechnology that we require may materially harm our business, financial condition and results of operations. Moreover, our failure to maintain a license toany technology that we require may also materially harm our business, financial condition, and results of operations. Furthermore, we would be exposedto a threat of litigation.In the pharmaceutical industry, significant litigation and other proceedings regarding patents, patent applications, trademarks and otherintellectual property rights have become commonplace. The types of situations in which we may become a party to such litigation or proceedings include:•we or our collaborators may initiate litigation or other proceedings against third parties seeking to invalidate the patents held by those thirdparties or to obtain a judgment that our products or processes do not infringe those third parties' patents;•if our competitors file patent applications that claim technology also claimed by us or our licensors, we or our licensors may be required toparticipate in interference or opposition proceedings to determine the priority of invention, which could jeopardize our patent rights andpotentially provide a third party with a dominant patent position; •if third parties initiate litigation claiming that our processes or products infringe their patent or other intellectual property rights, we and ourcollaborators will need to defend against such proceedings; and•if a license to necessary technology is terminated, the licensor may initiate litigation claiming that our processes or products infringe ormisappropriate their patent or other intellectual property rights and/or that we breached our obligations under the license agreement, and weand our collaborators would need to defend against such proceedings.These lawsuits would be costly and could affect our results of operations and divert the attention of our management and scientific personnel.There is a risk that a court would decide that we or our collaborators are infringing the third party's patents and would order us or our collaborators to stopthe activities covered by the patents. In that event, we or our collaborators may not have a viable alternative to the technology protected by the patent andmay need to halt work on the affected product candidate or cease commercialization of an approved product. In addition, there is a risk that a court willorder us or our collaborators to pay the other party damages. An adverse outcome in any litigation or other proceeding could subject us to significantliabilities to third parties and require us to cease using the technology that is at issue or to license the technology from third parties. We may not be able toobtain any required licenses on commercially acceptable terms or at all. Any of these outcomes could have a material adverse effect on our business.The pharmaceutical and biotechnology industries have produced a significant number of patents, and it may not always be clear to industryparticipants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by thecourts, and the interpretation is not always uniform or predictable. If we are sued for patent infringement, we would need to demonstrate that our productsor methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Provinginvalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome thepresumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and divertmanagement's time and attention in pursuing these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing thepatent rights of others, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court. Patentlitigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do notobtain a license, develop or obtain non-infringing technology, fail to defend an infringement action successfully or have infringed patents declaredinvalid, we may incur substantial monetary damages, encounter significant delays in bringing our product candidates to market and be precluded frommanufacturing or selling our product candidates.The cost of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able tosustain the cost of such litigation and proceedings more effectively than we can because of their substantially greater resources. Uncertainties resultingfrom the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in themarketplace. Patent litigation and other proceedings may also absorb significant management time.If we are unable to obtain and enforce patent protection for our product candidates and related technology, our business could be materially harmed.Issued patents may be challenged, narrowed, invalidated or circumvented. In addition, court decisions may introduce uncertainty in theenforceability or scope of patents owned by biotechnology companies. The legal systems of certain countries do not favor the aggressive enforcement ofpatents, and the laws of foreign countries may not allow us to protect our inventions with patents to the same extent as the laws of the United States.Because patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing, or in some casesnot at all, and because publications of discoveries in scientific literature lag behind actual discoveries, we cannot be certain that we were the first to makethe inventions claimed in our issued patents or pending patent applications, or that we were the first to file for protection of the inventions set forth in ourpatents or patent applications. As a result, we may not be able to obtain or maintain protection for certain inventions. Therefore, the enforceability andscope of our patents in the United States and in foreign countries cannot be predicted with certainty and, as a result, any patents that we own or licensemay not provide sufficient protection against competitors. We may not be able to obtain or maintain patent protection from our pending patentapplications, from those we may file in the future, or from those we may license from third parties. Moreover, even if we are able to obtain patentprotection, such patent protection may be of insufficient scope to achieve our business objectives.Our strategy depends on our ability to identify and seek patent protection for our discoveries. This process is expensive and time consuming, andwe may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner or in all jurisdictionswhere protection may be commercially advantageous. Despite our efforts to protect our proprietary rights, unauthorized parties may be able to obtain anduse information that we regard as proprietary. The issuance of a patent does not ensure that it is valid or enforceable, so even if we obtain patents, theymay not be valid or enforceable against third parties. In addition, the issuance of a patent does not give us the right to practice the patented invention.Third parties may have blocking patents that could prevent us from marketing our own patented product and practicing our own patented technology.Third parties may also seek to market biosimilar versions of any approved products. Alternatively, third parties may seek approval to market their ownproducts similar to or otherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents, including byfiling lawsuits alleging patent infringement. In any of these types of proceedings, a court or agency with jurisdiction may find our patents invalid and/orunenforceable. Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processessufficient to achieve our business objectives.The patent position of pharmaceutical or biotechnology companies, including ours, is generally uncertain and involves complex legal and factualconsiderations. The standards which the United States Patent and Trademark Office, or USPTO, and its foreign counterparts use to grant patents are notalways applied predictably or uniformly and can change. There is also no uniform, worldwide policy regarding the subject matter and scope of claimsgranted or allowable in pharmaceutical or biotechnology patents. The laws of some foreign countries do not protect proprietary information to the sameextent as the laws of the United States, and many companies have encountered significant problems and costs in protecting their proprietary informationin these foreign countries. Outside the United States, patent protection must be sought in individual jurisdictions, further adding to the cost anduncertainty of obtaining adequate patent protection outside of the United States. Accordingly, we cannot predict whether additional patents protecting ourtechnology will issue in the United States or in foreign jurisdictions, or whether any patents that do issue will have claims of adequate scope to providecompetitive advantage. Moreover, we cannot predict whether third parties will be able to successfully obtain claims or the breadth of such claims. Theallowance of broader claims may increase the incidence and cost of patent interference proceedings, opposition proceedings, and/or reexaminationproceedings, the risk of infringement litigation, and the vulnerability of the claims to challenge. On the other hand, the allowance of narrower claims doesnot eliminate the potential for adversarial proceedings, and may fail to provide a competitive advantage. Our issued patents may not contain claimssufficiently broad to protect us against third parties with similar technologies or products, or provide us with any competitive advantage.We may become involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming and unsuccessful.Even after they have issued, our patents and any patents which we license may be challenged, narrowed, invalidated or circumvented. If ourpatents are invalidated or otherwise limited or will expire prior to the commercialization of our product candidates, other companies may be better able todevelop products that compete with ours, which could adversely affect our competitive business position, business prospects and financial condition.The following are examples of litigation and other adversarial proceedings or disputes that we could become a party to involving our patents orpatents licensed to us:•we or our collaborators may initiate litigation or other proceedings against third parties to enforce our patent rights;•third parties may initiate litigation or other proceedings seeking to invalidate patents owned by or licensed to us or to obtain a declaratoryjudgment that their product or technology does not infringe our patents or patents licensed to us;•third parties may initiate opposition or reexamination proceedings challenging the validity or scope of our patent rights, requiring us or ourcollaborators and/or licensors to participate in such proceedings to defend the validity and scope of our patents;•there may be a challenge or dispute regarding inventorship or ownership of patents currently identified as being owned by or licensed to us;•the U.S. Patent and Trademark Office may initiate an interference between patents or patent applications owned by or licensed to us andthose of our competitors, requiring us or our collaborators and/or licensors to participate in an interference proceeding to determine thepriority of invention, which could jeopardize our patent rights; or•third parties may seek approval to market biosimilar versions of our future approved products prior to expiration of relevant patents ownedby or licensed to us, requiring us to defend our patents, including by filing lawsuits alleging patent infringement.These lawsuits and proceedings would be costly and could affect our results of operations and divert the attention of our managerial andscientific personnel. There is a risk that a court or administrative body would decide that our patents are invalid or not infringed by a third party'sactivities, or that the scope of certain issued claims must be further limited. An adverse outcome in a litigation or proceeding involving our own patentscould limit our ability to assert our patents against these or other competitors, affect our ability to receive royalties or other licensing consideration fromour licensees, and may curtail or preclude our ability to exclude third parties from making, using and selling similar or competitive products. Any of theseoccurrences could adversely affect our competitive business position, business prospects and financial condition. The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequatelyprotect our rights or permit us to gain or keep our competitive advantage. For example:•others may be able to develop a platform that is similar to, or better than, ours in a way that is not covered by the claims of our patents;•others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of our patents;•we might not have been the first to make the inventions covered by patents or pending patent applications;•we might not have been the first to file patent applications for these inventions;•any patents that we obtain may not provide us with any competitive advantages or may ultimately be found invalid or unenforceable; or•we may not develop additional proprietary technologies that are patentable.If we fail to comply with our obligations under our intellectual property licenses with third parties, we could lose license rights that are important toour business.We are currently party to various intellectual property license agreements. These license agreements impose, and we expect that future licenseagreements may impose, various diligence, milestone payment, royalty, insurance and other obligations on us. For example, we have entered into patentand know-how license agreements that grant us the right to use certain technologies related to biological manufacturing to manufacture our clinicalproduct candidates. These licenses typically include an obligation to pay yearly maintenance payments and royalties on sales, and may also includeupfront and milestone payments. If we fail to comply with our obligations under the licenses, the licensors may have the right to terminate their respectivelicense agreements, in which event we might not be able to market any product that is covered by the agreements. Termination of the license agreementsor reduction or elimination of our licensed rights may result in our having to negotiate new or reinstated licenses with less favorable terms, which couldadversely affect our competitive business position and harm our business.If we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be adversely affected.In addition to patent protection, we also rely on other proprietary rights, including protection of trade secrets, and other proprietary information.To maintain the confidentiality of trade secrets and proprietary information, we enter into confidentiality agreements with our employees, consultants,collaborators and others upon the commencement of their relationships with us. These agreements require that all confidential information developed bythe individual or made known to the individual by us during the course of the individual's relationship with us be kept confidential and not disclosed tothird parties. Our agreements with employees and our personnel policies also provide that any inventions conceived by the individual in the course ofrendering services to us shall be our exclusive property. However, we may not obtain these agreements in all circumstances, and individuals with whomwe have these agreements may not comply with their terms. Thus, despite such agreement, such inventions may become assigned to third parties. In theevent of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningfulprotection, particularly for our trade secrets or other confidential information. To the extent that our employees, consultants or contractors use technologyor know-how owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions. Tothe extent that an individual who is not obligated to assign rights in intellectual property to us is rightfully an inventor of intellectual property, we mayneed to obtain an assignment or a license to that intellectual property from that individual, or a third party or from that individual's assignee. Suchassignment or license may not be available on commercially reasonable terms or at all.Adequate remedies may not exist in the event of unauthorized use or disclosure of our proprietary information. The disclosure of our tradesecrets would impair our competitive position and may materially harm our business, financial condition and results of operations. Costly and timeconsuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to maintain trade secret protection couldadversely affect our competitive business position. In addition, others may independently discover or develop our trade secrets and proprietaryinformation, and the existence of our own trade secrets affords no protection against such independent discovery.As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously or concurrently employed atresearch institutions and/or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject toclaims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their formeremployers, or that patents and applications we have filed to protect inventions of these employees, even those related to one or more of our productcandidates, are rightfully owned by their former or concurrent employer. Litigation may be necessary to defend against these claims. Even if we aresuccessful in defending against these claims, litigation could result in substantial costs and be a distraction to management.Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to theUSPTO and various foreign patent offices at various points over the lifetime of our patents and/or applications. We have systems in place to remind us topay these fees, and we rely on our outside counsel to pay these fees when due. Additionally, the USPTO and various foreign patent offices requirecompliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employreputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by othermeans in accordance with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in abandonmentor lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur,it could have a material adverse effect on our business. In addition, we are responsible for the payment of patent fees for patent rights that we havelicensed from other parties. If any licensor of these patents does not itself elect to make these payments, and we fail to do so, we may be liable to thelicensor for any costs and consequences of any resulting loss of patent rights.If we do not obtain protection under the Hatch-Waxman Amendments and similar foreign legislation for extending the term of patents covering eachof our product candidates, our business may be materially harmed.Depending upon the timing, duration and conditions of FDA marketing approval of our product candidates, one or more of our U.S. patents maybe eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product ascompensation for effective patent term lost during product development and the FDA regulatory review process. However, we may not receive anextension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicablerequirements. Moreover, the length of the extension could be less than we request. If we are unable to obtain patent term extension or the term of any suchextension is less than we request, the period during which we can enforce our patent rights for that product will be shortened and our competitors mayobtain approval to market competing products sooner. As a result, our revenue from applicable products could be reduced, possibly materially.Risks Related to Legal Compliance MattersIf we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected.Our research and development involves, and may in the future involve, the use of potentially hazardous materials and chemicals. Our operationsmay produce hazardous waste products. Although we believe that our safety procedures for handling and disposing of these materials comply with thestandards mandated by local, state and federal laws and regulations, the risk of accidental contamination or injury from these materials cannot beeliminated. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerousenvironmental, health and workplace safety laws and regulations and fire and building codes, including those governing laboratory procedures, exposureto blood-borne pathogens, use and storage of flammable agents and the handling of biohazardous materials. Although we maintain workers' compensationinsurance as prescribed by the States of Maryland and California to cover us for costs and expenses we may incur due to injuries to our employeesresulting from the use of these materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance forenvironmental liability or toxic tort claims that may be asserted against us. Additional federal, state and local laws and regulations affecting ouroperations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these lawsor regulations. If we market products in a manner that violates healthcare fraud and abuse laws, or if we violate government price reporting laws, we may be subjectto civil or criminal penalties.In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal healthcare laws commonlyreferred to as "fraud and abuse" laws have been applied in recent years to restrict certain marketing practices in the pharmaceutical industry. These lawsinclude false claims and anti-kickback statutes.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federalgovernment or knowingly making, or causing to be made, a false statement to get a claim paid. The federal healthcare program anti-kickback statuteprohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing,leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand andprescribers, purchasers and formulary managers on the other. Although there are several statutory exemptions and regulatory safe harbors protectingcertain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended toinduce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. In addition, under theSunshine Act provisions of the ACA, pharmaceutical manufacturers are subject to federal reporting and disclosure requirements with regard to paymentsor other transfers of value made to physicians and teaching hospitals. Most states also have statutes or regulations similar to the federal anti-kickback lawand federal false claims laws, which may apply to items such as pharmaceutical products and services reimbursed by private insurers. Some state lawsalso prohibit certain gifts to healthcare providers, require pharmaceutical companies to report payments to healthcare professionals, and/or requirecompanies to adopt compliance programs or codes of conduct. Administrative, civil and criminal sanctions may be imposed under these federal and statelaws.Over the past few years, a number of pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety ofpromotional and marketing activities, such as: providing free trips, free goods, sham consulting fees and grants and other monetary benefits to prescribers;reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in off-labelpromotion; and submitting inflated best price information to the Medicaid Rebate Program to reduce liability for Medicaid rebates. At such time, if ever,as we market any of our future approved products and these products are paid for by governmental programs, it is possible that some of our businessactivities could also be subject to challenge under one or more of these "fraud and abuse" laws.We are subject to the U.S. Foreign Corrupt Practices Act and other anti-corruption laws. If we fail to comply with these laws, we could be subject tocivil or criminal penalties, other remedial measures, and legal expenses, which could adversely affect our business, results of operations and financialcondition.Our operations are subject to anti-corruption laws, including the U.S. Foreign Corrupt Practices Act, or FCPA, and other anti-corruption lawsthat apply in countries where we do business. The FCPA and these other laws generally prohibit us and our employees and intermediaries from bribing,being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other businessadvantage. We and our commercial partners operate in a number of jurisdictions that pose a risk of potential FCPA violations, and we participate incollaborations and relationships with third parties whose actions could potentially subject us to liability under the FCPA or other anti-corruption laws.There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws. If we violate provisions ofthe FCPA or other anti-corruption laws or are subject to an investigation or audit pursuant to these laws, we may be subject to criminal and civil penalties,disgorgement and other sanctions and remedial measures and legal expenses, which could have an adverse impact on our business, financial condition andresults of operations.Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements andinsider trading.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply withFDA regulations, to provide accurate information to the FDA or other agencies, to comply with federal and state health care fraud and abuse laws andregulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and businessarrangements in the health care industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing andother abusive practices. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which couldresult in regulatory sanctions and serious harm to our reputation. We have adopted a code of conduct, but it is not always possible to identify and deteremployee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks orlosses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations.If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significantimpact on our business, including the imposition of significant fines or other sanctions. Risks Relating to Employee Matters and Managing GrowthOur future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.We are highly dependent on the research and development, clinical and business development expertise of Scott Koenig, M.D., Ph.D., ourPresident and Chief Executive Officer, as well as the other members of our senior management, scientific and clinical team. Although we have enteredinto employment agreements with certain of our executive officers, each of them may terminate their employment with us at any time. The loss of theservices of our executive officers or other key employees could impede the achievement of our research, development and commercialization objectivesand seriously harm our ability to successfully implement our business strategy.Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. Inaddition, we will need to expand and effectively manage our managerial, operational, financial, development and other resources in order to successfullypursue our research, development and commercialization efforts for our existing and future product candidates. Furthermore, replacing executive officersand key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with thebreadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize products. Competition to hire from thislimited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition amongnumerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinicalpersonnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assistus in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other thanus and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable tocontinue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.We will need to grow our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.As of February 22, 2016, we had 269 full-time employees. As our development and commercialization plans and strategies develop, we expectto expand our employee base for managerial, operational, sales, marketing, financial and other resources. Future growth would impose significant addedresponsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. Also, ourmanagement may need to divert a disproportionate amount of their attention away from our day-to-day activities and devote a substantial amount of timeto managing these growth activities. We may not be able to effectively manage the expansion of our operations which may result in weaknesses in ourinfrastructure, give rise to operational errors, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Ourexpected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of existingand additional product candidates. If our management is unable to effectively manage our expected growth, our expenses may increase more thanexpected, our ability to generate and/or grow revenue could be reduced and we may not be able to implement our business strategy. Our future financialperformance and our ability to commercialize our product candidates and compete effectively with others in our industry will depend, in part, on ourability to effectively manage any future growth. Risks Relating to Our Common StockOur stock price may be volatile and fluctuate substantially, which may subject us to securities class action litigation.Our stock price is likely to be volatile. The stock market has experienced significant volatility, particularly with respect to pharmaceutical,biotechnology, and other life sciences company stocks. The volatility of pharmaceutical, biotechnology, and other life sciences company stocks often doesnot relate to the operating performance of the companies represented by the stock.In the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against thecompany that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit and divertthe time and attention of our management, which could seriously harm our business.Provisions of our charter, bylaws, third-party agreements and Delaware law may make an acquisition of us or a change in our management moredifficult.Certain provisions of our restated certificate of incorporation and amended and restated bylaws that became effective upon the completion of ourIPO could discourage, delay, or prevent a merger, acquisition, or other change in control that stockholders may consider favorable, including transactionsin which you might otherwise receive a premium for your shares. These provisions also could limit the price that investors might be willing to pay in thefuture for shares of our common stock, thereby depressing the market price of our common stock. Stockholders who wish to participate in thesetransactions may not have the opportunity to do so. Furthermore, since our board of directors is responsible for appointing the members of ourmanagement team, these provisions could prevent or frustrate attempts by our stockholders to replace or remove our management by making it moredifficult for stockholders to replace members of our board of directors. These provisions:•allow the authorized number of directors to be changed only by resolution of our board of directors;•establish a classified board of directors, providing that not all members of the board of directors be elected at one time;•authorize our board of directors to issue without stockholder approval blank check preferred stock that, if issued, could operate as a "poisonpill" to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that is not approved by our board of directors;•require that stockholder actions must be effected at a duly called stockholder meeting and prohibit stockholder action by written consent;•establish advance notice requirements for stockholder nominations to our board of directors or for stockholder proposals that can be actedon at stockholder meetings;•limit who may call stockholder meetings; and•require the approval of the holders of 75% of the outstanding shares of our capital stock entitled to vote in order to amend certain provisionsof our restated certificate of incorporation and restated bylaws.Furthermore, in the ordinary course of our business, from time to time we discuss and enter into collaborations, licenses and other transactionswith various third parties, including other pharmaceutical companies and biotechnology companies. When we deem it appropriate, our agreements withsuch third parties may include standstill provisions. These standstill provisions, several of which may be in force from time-to-time, typically prohibitsuch parties from acquiring our securities for a period of time, which may discourage such parties from acquiring MacroGenics even if doing so would bebeneficial to our stockholders.In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General CorporationLaw, which may, unless certain criteria are met, prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, frommerging or combining with us for a prescribed period of time. This provision could have the effect of delaying or preventing a change of control, whetheror not it is desired by or beneficial to our stockholders. Future issuances of our common stock or rights to purchase common stock pursuant to our equity incentive plans could result in additional dilutionof the percentage ownership of our stockholders and could cause our share price to fall.As of December 31, 2015, we had options to purchase 4,146,064 shares outstanding under our equity compensation plans. We are alsoauthorized to grant equity awards, including stock options, to our employees, directors and consultants, covering up to 1,575,235 shares of our commonstock, pursuant to our equity compensation plans. We plan to register the number of shares available for issuance or subject to outstanding awards underour equity compensation plans. ITEM 1B.UNRESOLVED STAFF COMMENTS Not applicable. ITEM 2.PROPERTIES We lease approximately 200,000 square feet of manufacturing, office and laboratory space in Rockville, Maryland under five leases that have terms thatexpire between 2018 and 2022 unless renewed. We also lease office and laboratory space in South San Francisco, California under a lease that expires in 2018. We believe that our properties are generally in good condition, well maintained, suitable and adequate to carry on our business. We believe our capital resourcesare sufficient to lease any additional facilities required to meet our expected growth needs. ITEM 3.LEGAL PROCEEDINGS In the ordinary course of business, we are involved in various legal proceedings, including, among others, patent oppositions, patent revocations, patentinfringement litigation and other matters incidental to our business. We are not currently a party to any material legal proceedings. ITEM 4.MINE SAFETY DISCLOSURES Not applicable.PART II ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES Market InformationOur common stock has been listed on the NASDAQ Global Select Market under the symbol "MGNX" since October 10, 2013. Prior to that date, therewas no public trading market for our common stock. Shares sold in our initial public offering, or IPO, on October 9, 2013 were priced at $16.00 per share.On February 22, 2016, the closing price for our common stock as reported on the NASDAQ Global Select Market was $17.51. The following table setsforth the high and low intra-day sale prices per share of our common stock as reported on the NASDAQ Global Select Market for the periods indicated. High Low 2015 First Quarter $39.90 $29.50 Second Quarter $38.37 $26.68 Third Quarter $39.90 $20.29 Fourth Quarter $36.11 $19.67 2014 First Quarter $41.00 $27.06 Second Quarter $31.11 $17.96 Third Quarter $22.90 $18.25 Fourth Quarter $39.90 $17.31 ShareholdersAs of February 22, 2016, we had 34,526,106 shares of common stock outstanding held by approximately 98 holders of record, which include shares heldby a broker, bank or other nominee. We have never declared or paid any cash dividends. We do not anticipate declaring or paying cash dividends for theforeseeable future. Instead, we will retain our earnings, if any, for the future operation and expansion of our business.Performance GraphThe following graph compares the performance of our common stock to the performance of the NASDAQ Composite Index (U.S.) and the NASDAQBiotechnology Index since October 10, 2013 (the first date that shares of our common stock were publicly traded). The comparison assumes a $100 investment onOctober 10, 2013 in our common stock, the stocks comprising the NASDAQ Composite Index, and the stocks comprising the NASDAQ Biotechnology Index, andassumes reinvestment of the full amount of all dividends, if any. Historical stockholder return is not necessarily indicative of the performance to be expected forany future periods.Comparison of Cumulative Total ReturnAmong MacroGenics, Inc., the NASDAQ Composite Index and the NASDAQ Biotechnology IndexThe performance graph shall not be deemed to be incorporated by reference by means of any general statement incorporating by reference this Form 10-Kinto any filing under the Securities Act of 1933, as amended or the Exchange Act, except to the extent that we specifically incorporate such information byreference, and shall not otherwise be deemed filed under such acts.ITEM 6.SELECTED FINANCIAL DATA The consolidated statement of operations and comprehensive income (loss) data for the years ended December 31, 2015, 2014 and 2013 and theconsolidated balance sheet data as of December 31, 2015 and 2014 presented below have been derived from our audited consolidated financial statements andfootnotes included elsewhere in this Annual Report on Form 10-K. The consolidated statement of operations and comprehensive income (loss) data for the yearsended December 31, 2012 and 2011 and the consolidated balance sheet data as of December 31, 2013, 2012 and 2011 have been derived from our auditedconsolidated financial statements which are not included herein. Historical results are not necessarily indicative of future results. The following data should beread in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financialstatements and related notes included elsewhere in this Annual Report on Form 10-K. Year Ended December 31, 2015 2014 2013 2012 2011 (in thousands, except share and per share data) Consolidated Statement of Operations and ComprehensiveIncome (Loss): Total revenues $100,854 $47,797 $58,035 $63,826 $57,207 Cost and expenses: Research and development 98,271 70,186 46,582 45,433 41,089 General and administrative 22,765 15,926 11,087 10,188 10,869 Total costs and expenses 121,036 86,112 57,669 55,621 51,958 Income (loss) from operations (20,182) (38,315) 366 8,205 5,249 Other income (expense) 42 2 (627) 157 1,467 Net income (loss) (20,140) (38,313) (261) 8,362 6,716 Other comprehensive income (loss): Unrealized loss on investments (5) - - - - Comprehensive income (loss) $(20,145) $(38,313) $(261) $8,362 $6,716 Basic and diluted net income (loss) per common share $(0.63) $(1.40) $(0.04) $0.00 $0.00 Basic and diluted weighted average number of common shares 31,801,645 27,384,990 6,847,697 1,083,276 1,025,602 As of December 31, 2015 2014 2013 2012 2011 (in thousands) Consolidated Balance Sheet Data: Cash, cash equivalents and investments $339,049 $157,591 $116,481 $47,743 $55,218 Total assets 359,269 173,886 125,782 53,747 62,681 Deferred revenue 18,497 30,720 27,403 44,080 54,890 Convertible preferred stock - - - 2,947 2,947 Total stockholders' equity (deficit) 313,337 121,286 78,914 (8,237) (17,484)ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations should be read together with our selected consolidated financial data and theconsolidated financial statements and related notes included elsewhere herein. This discussion contains forward-looking statements that involve risks anduncertainties. As a result of many factors, such as those set forth under the section entitled "Risk Factors", "Forward-Looking Statements" and elsewhere herein,our actual results may differ materially from those anticipated in these forward-looking statements. Overview We are a biopharmaceutical company focused on discovering and developing innovative antibody-based therapeutics for the treatment of cancer as wellas various autoimmune disorders and infectious diseases. We currently have a pipeline of product candidates in human clinical testing, primarily against differenttypes of cancers, which have been created primarily using our proprietary technology platforms. We believe our programs have the potential to have a meaningfuleffect on treating patients' unmet medical needs as monotherapy or, in some cases, in combination with other therapeutic agents. We commenced active operations in 2000, and have since devoted substantially all of our resources to staffing our company, business planning, raisingcapital, developing our technology platforms, identifying potential product candidates, undertaking pre-clinical studies and conducting clinical trials. We have notgenerated any revenues from the sale of any products to date. We have financed our operations primarily through the public and private offerings of our securities,collaborations, government grants and government contracts. Although it is difficult to predict our funding requirements, based upon our current operating plan,we anticipate that our cash, cash equivalents and investments as of December 31, 2015, combined with collaboration payments we anticipate receiving, will enableus to fund our operations into 2018, assuming all of our collaboration programs advance as currently contemplated. Through December 31, 2015, we had an accumulated deficit of $234.2 million. We expect that over the next several years this deficit will increase as weincrease our expenditures in research and development in connection with our ongoing activities with several clinical trials. Strategic Collaborations and Licenses We pursue a balanced approach between product candidates that we develop ourselves and those that we develop with our collaborators. Under ourcurrent strategic collaborations, we have received significant non-dilutive funding to date and continue to have rights to additional funding upon completion ofcertain research, achievement of key product development milestones, or royalties and other payments upon the commercial sale of products. Our most significantstrategic collaborations include the following: • Janssen . In December 2014, we entered into a collaboration and license agreement with Janssen for the development and commercialization ofMGD011, a product candidate that incorporates our proprietary DART technology to simultaneously target CD19 and CD3 for the potentialtreatment of B-cell hematological malignancies. We contemporaneously entered into an agreement with Johnson & Johnson Innovation – JJDC, Inc.(JJDC), an affiliate of Janssen, under which JJDC agreed to purchase 1,923,077 new shares of our common stock for proceeds of $75.0million. Upon closing, we received a $50.0 million upfront payment from Janssen as well as the $75.0 million investment in our commonstock. Janssen is leading the development of this product candidate, subject to our options to co-promote the product in the United States and Canadaand to invest in later-stage development in exchange for a United States and Canada profit-share. Janssen initiated a human clinical trial in 2015 fora variety of B-cell hematological malignancies, including diffuse-large B cell lymphoma, follicular lymphoma, mantle-cell lymphoma, chroniclymphocytic leukemia and acute lymphoblastic leukemia. The initiation of this trial triggered a $10.0 million milestone payment to us. Assumingsuccessful development and commercialization, we could receive up to an additional $565.0 million in clinical, regulatory and commercializationmilestone payments. If commercialized, we would be eligible to receive low double-digit royalties on any global net sales. •Takeda. In May 2014, we entered into a license and option agreement with Takeda for the development and commercialization of MGD010, aproduct candidate that incorporates our proprietary DART technology to simultaneously engage CD32B and CD79B, which are two B-cell surfaceproteins. Upon execution of the agreement, Takeda made a non-refundable payment of $15.0 million to us. Takeda has an option to obtain anexclusive worldwide license for MGD010 following the completion of a pre-defined Phase 1a study, which was initiated in March 2015. Initiation ofthis study resulted in a $3.0 million milestone payment from Takeda. If Takeda exercises its option, it will assume responsibility for futuredevelopment and pay us a license fee of $15.0 million. Assuming successful development and commercialization of MGD010, we are eligible toreceive up to an additional $468.5 million in development, regulatory and sales milestone payments. If commercialized, we would receive lowdouble-digit to high-teen royalties on any global net sales and have the option to co-promote MGD010 with Takeda in the United States. Finally, wemay elect to fund a portion of Phase 3 clinical development in exchange for a North American profit share. In September 2014, we entered into a research collaboration and license option agreement with Takeda. Under the terms of this agreement, Takedareceived an option to obtain an exclusive worldwide license for up to four product candidates and will fund all research and development activitiesrelated to the selected programs, including reimbursement of our expenses. Assuming successful development and commercialization by Takeda, wecould receive up to approximately $400.0 million in program initiation, pre-clinical, clinical, regulatory and commercialization milestone paymentsfor each potential product candidate. If commercialized, we would receive low double-digit to high-teen royalties on any global net sales and havethe option to co-promote each product candidate with Takeda in the United States. Finally, we may elect to fund a portion of Phase 3 clinicaldevelopment of each product candidate in exchange for a North American profit share. Takeda terminated its option to license the first programunder this research collaboration agreement in 2015 and retains an option for three others. • Servier. In November 2011, we entered into a collaboration agreement with Servier under which we granted Servier an option to obtain an exclusivelicense to develop and commercialize enoblituzumab in certain countries. In October 2015, Servier notified us that they would not exercise thisoption and this agreement terminated. Through December 31, 2015, we received a $20.0 million option grant fee and a $10.0 million milestonepayment under this agreement. In September 2012, we entered into a license agreement with Servier and granted it options to obtain three separate exclusive licenses to develop andcommercialize DART molecules, consisting of those designated by us as MGD006 and MGD007, as well as a third DART molecule, in all countriesother than the United States, Canada, Mexico, Japan, South Korea and India. We received a $20.0 million upfront option fee. In addition, we becameeligible to receive up to approximately $1.0 billion in additional license fees and clinical, development, regulatory and sales milestone payments ifServier exercises all three of its options and successfully develops, obtains regulatory approval for, and commercializes a product under each license.Additionally, assuming exercise of its options, Servier may share Phase 2 and Phase 3 development costs and would be obligated to pay us lowdouble-digit to mid-teen royalties on product sales in its territories. In February 2014, Servier exercised its option to develop and commercialize MGD006, for which we received a $15.0 million license option fee. Wealso received two $5.0 million milestone payments from Servier in connection with the IND applications for MGD006 and MGD007 clearing the 30-day review period by the U.S. Food and Drug Administration (FDA). •Boehringer . In October 2010, we entered into an agreement with Boehringer Ingelheim International GmbH (Boehringer) to discover, develop andcommercialize multiple DART molecules that were to be evaluated during a five-year period that ended in October 2015. We granted Boehringer anexclusive worldwide, royalty-bearing license and received an upfront payment of $15.0 million. Through December 31, 2015, we received a total of$14.0 million in milestone payments from Boehringer. We have the potential to earn additional development, regulatory and sales milestonepayments that can reach up to approximately $205.0 million for each of the two ongoing programs under this agreement. Boehringer would berequired to pay us mid single-digit royalties on product sales. Financial Operations Overview Revenues Our revenue consists primarily of collaboration revenue, including amounts recognized relating to upfront nonrefundable payments for licenses or optionsto obtain future licenses, research and development funding and milestone payments earned under our collaboration and license agreement with our strategiccollaborators, including Janssen, Takeda, Servier and Boehringer. In addition, we have earned revenues through several grants and/or contracts with the U.S.government and other research institutions on behalf of the U.S. government, primarily with respect to research and development activities related to infectiousdisease product candidates. Research and Development Expense Research and development expenses consist of expenses incurred in performing research and development activities. These expenses include conductingpre-clinical experiments and studies, clinical trials, manufacturing efforts and regulatory filings for all product candidates, and other indirect expenses in support ofour research and development activities. We capture research and development expense on a program-by-program basis for our product candidates that are inclinical development and recognize these expenses as they are incurred. The following are items we include in research and development expenses: •Employee-related expenses such as salaries and benefits; •Employee-related overhead expenses such as facilities and other allocated items; •Stock-based compensation expense to employees and consultants engaged in research and development activities; •Depreciation of laboratory equipment, computers and leasehold improvements; •Fees paid to consultants, subcontractors, clinical research organizations (CROs) and other third party vendors for work performed under our pre-clinical and clinical trials including but not limited to investigator grants, laboratory work and analysis, database management, statistical analysis,and other items; •Amounts paid to vendors and suppliers for laboratory supplies; •Costs related to manufacturing clinical trial materials, including vialing, packaging and testing; •License fees and other third party vendor payments related to in-licensed product candidates and technology; and •Costs related to compliance with regulatory requirements. It is difficult to determine with certainty the duration and completion costs of our current or future pre-clinical programs and clinical trials of our productcandidates, or if, when or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatoryapproval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs and timing of clinical trials anddevelopment of our product candidates will depend on a variety of factors, including the uncertainties of future clinical trials and pre-clinical studies, uncertaintiesin clinical trial enrollment rate and significant and changing government regulation. In addition, the probability of success for each product candidate will dependon numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much tofund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate's commercialpotential. General and Administrative Expense General and administrative expenses consist of salaries and related benefit costs for employees in our executive, finance, legal and intellectual property,business development, human resources and other support functions, travel expenses and other legal and professional fees. Other Income (Expense) Other income (expense) consists of interest income earned on our cash, cash equivalents and investments, offset by other expenses, including changes inthe fair market value of the preferred stock warrant liability prior to our IPO in 2013. Critical Accounting Policies and Significant Judgments and Estimates Our management's discussion and analysis of financial conditions and results of operations is based on our consolidated financial statements, which havebeen prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financialstatements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assetsand liabilities as of the date of the balance sheets and the reported amount of the revenue and expenses recorded during the reporting period. We base our estimateson historical experience and on various other assumptions that we believe to be reasonable. We review and evaluate these estimates on an on-going basis. Theseassumptions and estimates form the basis for making judgments about the carrying values of assets and liabilities and amounts that have been recorded as revenuesand expenses. Actual results and experiences may differ from these estimates. The results of any material revisions would be reflected in the consolidated financialstatements prospectively from the date of the change in estimate. While a summary of significant accounting policies is described fully in Note 2 in our consolidated financial statements, we believe that the followingaccounting policies are the most critical to assist you in fully understanding and evaluating our financial results and any affect the estimates and judgments we usedin preparing our consolidated financial statements. Revenue Recognition We enter into collaboration and license agreements with collaborators for the development of monoclonal antibody-based therapeutics to treat cancer andother complex diseases. The terms of these agreements contain multiple deliverables which may include (i) licenses, or options to obtain licenses, to ourtechnological platforms, such as our Fc engineering and DART technologies, (ii) rights to future technological improvements, (iii) research and developmentactivities to be performed on behalf of the collaborative partner or as part of the collaboration, and (iv) the manufacture of pre-clinical or clinical materials for thecollaborative partner. Payments to us under these agreements may include nonrefundable license fees, option fees, exercise fees, payments for research anddevelopment activities, payments for the manufacture of pre-clinical or clinical materials, license maintenance payments, payments based upon the achievement ofcertain milestones and royalties on product sales. Other benefits to us from these agreements include the right to sell products resulting from the collaborativeefforts of the parties in specific geographic territories. We follow the provisions of the Financial Accounting Standards Board (FASB) Accounting StandardsCodification (ASC) Topic 605-25, Revenue Recognition–Multiple-Element Arrangements, and ASC Topic 605-28, Revenue Recognition–Milestone Method , inaccounting for these agreements. In order to account for these agreements, we must identify the deliverables included within the agreement and evaluate whichdeliverables represent separate units of accounting based on the achievement of certain criteria, including whether the delivered element has stand-alone value tothe collaborator. The consideration received is allocated among the separate units of accounting, and the applicable revenue recognition criteria are applied to eachof the separate units. As of December 31, 2015, we had two types of agreements: 1) exclusive development and commercialization licenses to use our technology and/orcertain other intellectual property to develop compounds against specified targets, which we refer to as exclusive licenses; and 2) option/research agreements tosecure on established terms development and commercialization licenses to therapeutic product candidates to collaborator-selected targets developed by us duringan option period, which we refer to as right-to-develop agreements. Exclusive Licenses The deliverables under an exclusive license agreement generally include the exclusive license to our technology with respect to a specified antigen target,and may also include deliverables related to rights to future technological improvements, research and pre-clinical development activities to be performed onbehalf of the collaborator. In some cases we may have an option to participate in the co-development of product candidates that result from such agreements. Generally, exclusive license agreements contain nonrefundable terms for payments and, depending on the terms of the agreement, provide that we will (i)at the collaborator's request, provide research and pre-clinical development services at negotiated prices which are generally consistent with what other third partieswould charge, (ii) earn payments upon the achievement of certain milestones, (iii) earn royalty payments, and (iv) in some cases grant us an option to participate inthe development and commercialization of products that result from such agreements. Royalty rates may vary over the royalty term depending on our intellectualproperty rights and whether we exercise any co-development and co-commercialization rights. We do not directly control when any collaborator will achieve milestones or become liable for royalty payments. In determining the separate units of accounting, management evaluates whether the exclusive license has stand-alone value from the undelivered elementsto the collaborator based on the consideration of the relevant facts and circumstances for each arrangement. Factors considered in this determination include theresearch and development capabilities of the collaborator and the availability of technology platform and product research expertise in the general marketplace. Inaddition, we consider whether or not (i) the collaborator could use the license for its intended purpose without the receipt of the remaining deliverables, (ii) thevalue of the license was dependent on the undelivered items and (iii) the collaborator or other vendors could provide the undelivered items. If we conclude that thelicense has stand-alone value and therefore will be accounted for as a separate unit of accounting, we then determine the estimated selling prices of the license andall other units of accounting based on market conditions, similar arrangements entered into by third parties, and entity-specific factors such as the terms of ourprevious collaboration agreements, recent pre-clinical and clinical testing results of therapeutic product candidates that use our technology platforms, our pricingpractices and pricing objectives, the likelihood that technological improvements will be made, the likelihood that technological improvements made will be usedby our collaborators and the nature of the research services to be performed on behalf of our collaborators and market rates for similar services. The upfrontpayment is recognized upon delivery of the license if facts and circumstances dictate that the license has stand-alone value from the undelivered elements. Upfront payments on exclusive licenses are deferred if facts and circumstances dictate that the license does not have stand-alone value, and revenue isthen recognized throughout the period of performance. We reassess the period of performance over which we recognize deferred upfront license fees and makeadjustments as appropriate. In the event a collaborator elects to discontinue development of a specific product candidate under a single target license, but retains itsright to use our technology to develop an alternative product candidate to the same target or a target substitute, we would cease amortization of any remainingportion of the upfront fee until there is substantial pre-clinical activity on another product candidate and its remaining period of substantial involvement can beestimated. In the event that a single target license were to be terminated, we would recognize as revenue any portion of the upfront fee that had not previously beenrecorded as revenue, but was classified as deferred revenue, at the date of such termination or through the remaining substantial involvement in the wind down ofthe agreement. We recognize revenue related to research and pre-clinical development services that represent separate units of accounting as they are performed, as longas there is persuasive evidence of an arrangement, the fee is fixed or determinable, and collection is reasonably assured. We recognize revenue related to the rightsto future technological improvements over the estimated term of the applicable license. We typically perform research activities and pre-clinical development services, including generating and engineering product candidates, on behalf of ourlicensees during the early evaluation and pre-clinical testing stages of drug development under our exclusive licenses. We record amounts received for researchmaterials produced or services performed as revenue from collaborative agreements. Our license agreements have milestone payments which for reporting purposes are aggregated into three categories: (i) development milestones, (ii)regulatory milestones, and (iii) sales milestones. Development milestones are typically payable when a product candidate initiates or advances into differentclinical trial phases. Regulatory milestones are typically payable upon submission for marketing approval with the FDA or other countries' regulatory authorities oron receipt of actual marketing approvals for the compound or for additional indications. Sales milestones are typically payable when annual sales reach certainlevels. At the inception of each agreement that includes milestone payments, we evaluate whether each milestone is substantive and at risk to both parties on thebasis of the contingent nature of the milestone. This evaluation includes an assessment of whether (a) the consideration is commensurate with either (1) ourperformance to achieve the milestone, or (2) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from our performanceto achieve the milestone, (b) the consideration relates solely to past performance and (c) the consideration is reasonable relative to all of the deliverables andpayment terms within the arrangement. We evaluate factors such as the scientific, regulatory, commercial and other risks that must be overcome to achieve therespective milestone, the level of effort and investment required to achieve the respective milestone and whether the milestone consideration is reasonable relativeto all deliverables and payment terms in the arrangement in making this assessment. Non-refundable development and regulatory milestones that are expected to be achieved as a result of our efforts during the period of substantialinvolvement are considered substantive and are recognized as revenue upon the achievement of the milestone, assuming all other revenue recognition criteria aremet. Milestones that are not considered substantive because we did not contribute effort to the achievement of such milestones are generally achieved after theperiod of substantial involvement and are recognized as revenue upon achievement of the milestone, as there are no undelivered elements remaining and nocontinuing performance obligations, assuming all other revenue recognition criteria are met. Right-to-Develop Agreements Our right-to-develop agreements provide collaborators with an exclusive option to obtain licenses to develop and commercialize in specified geographicterritories product candidates developed by us under agreed upon research and pre-clinical development programs. The product candidates resulting from eachprogram are all directed to a specific target selected by the collaborator. Under these agreements, fees may be due to us (i) at the inception of the arrangement(referred to as "upfront" fees or payments), (ii) upon the selection of a target for a program, (iii) upon the exercise of an option to acquire a development andcommercialization license, referred to as exercise fee, for a program, or (iv) some combination of all of these fees. The accounting for right-to-develop agreements is dependent on the nature of the options granted to the collaborative partner. Options are consideredsubstantive if, at the inception of a right-to-develop agreement, we are at risk as to whether the collaborative partner will choose to exercise the options to securedevelopment and commercialization licenses. Factors that are considered in evaluating whether options are substantive include the overall objective of thearrangement, the benefit the collaborator might obtain from the agreement without exercising the options, the cost to exercise the options relative to the totalupfront consideration, and the additional financial commitments imposed on the collaborator as a result of exercising the options. For right-to-develop agreements where the options to secure development and commercialization licenses to a product program are consideredsubstantive, we do not consider the development and commercialization licenses to be a deliverable at the inception of the agreement. For those right-to-developagreements where the options to secure development and commercialization licenses are considered substantive, we have deferred the upfront payments receivedand recognize this revenue over the period during which the collaborator could elect to exercise options for development and commercialization licenses. Theseperiods are specific to each collaboration agreement. If a collaborator selects a target for a product program, any substantive option fee is deferred and recognizedover the life of the option. If a collaborator exercises an option and acquires a development and commercialization license to a product program, we attribute theexercise fee to the development and commercialization license. Upon exercise of an option to acquire a development and commercialization license, we would also attribute any remaining deferred option fee, inaddition to the consideration received for the license upon exercise of the option, to the development and commercialization license. We then apply the multiple-element revenue recognition criteria to the development and commercialization license and other deliverables, if any, to determine the appropriate revenuerecognition method. This method is consistent with our accounting policy for upfront payments on exclusive licenses (discussed above). In the event a right-to-develop agreement were to be terminated, we would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue, but wasclassified as deferred revenue, at the date of such termination. For right-to-develop agreements where the options to secure development and commercialization licenses to product programs are not consideredsubstantive, we consider the development and commercialization licenses to be a deliverable at the inception of the agreement and apply the multiple-elementrevenue recognition criteria to determine the appropriate revenue recognition. All of our right-to-develop agreements have been determined to contain substantiveoptions. We do not directly control when any collaborator will exercise its options for development and commercialization licenses. Research and Development Expense and related Accrued Expenses As part of the process of preparing our consolidated financial statements, we may be required to estimate accrued expenses. In order to obtain reasonableestimates, we review open contracts and purchase orders. In addition, we communicate with applicable personnel in order to identify services that have beenperformed, but for which we have not yet been invoiced. In most cases, our vendors provide us with monthly invoices in arrears for services performed. Weconfirm our estimates with these vendors and make adjustments as needed. The following are examples of our accrued expenses: Fees paid to CROs for services performed on clinical trials;Fees paid to investigator sites for performance on clinical trials; andFees paid for professional services. The majority of expenses related to clinical trials performed by our CROs are dependent on the successful enrollment of patients. These expenses canvary from site to site and contract to contract. We base our estimated accruals on the time period over which the services are to be performed and the level of effortto be expended in each period based on the estimated enrollment of patients in each trial. We will adjust accordingly should the estimates vary from the actualexpenses. However, we do not anticipate that our payment of actual expenses will differ materially from our estimates. Income Taxes Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and aremeasured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The effect on deferred tax assets andliabilities of a change in tax rates is recognized as income in the period that such tax rate changes are enacted. The measurement of a deferred tax asset is reduced,if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. Financial statementrecognition of a tax position taken or expected to be taken in a tax return is determined based on a more-likely-than-not threshold of that position being sustained.If the tax position meets this threshold, the benefit to be recognized is measured as the largest amount that is more than 50% likely to be realized upon ultimatesettlement. Our policy is to record interest and penalties related to uncertain tax positions as a component of income tax expense. We recorded net deferred tax assets of $104.4 million as of December 31, 2015, which have been fully offset by a valuation allowance due touncertainties surrounding our ability to realize these tax benefits. The deferred tax assets are primarily comprised of federal and state tax net operating loss (NOL)carryforwards and research and development tax credit carryforwards. As of December 31, 2015, we had federal and state NOL carryforwards of $165.6 millionand research and development tax credit carryforwards of $29.3 million available. The federal NOL carryforwards will begin to expire at various dates starting in2020. We are already subject to Section 382 limitations due to acquisitions we made in 2002 and 2008. Future changes in stock ownership may also trigger anownership change and, consequently, another Section 382 limitation. Any limitation may result in expiration of a portion of the net operating loss or tax creditcarryforwards before utilization which would reduce our gross deferred income tax assets and corresponding valuation allowance. As a result, if we earn nettaxable income, our ability to use our pre-change net operating loss carryforwards and tax credit carryforwards to reduce United States federal income tax may besubject to limitations, which could potentially result in increased future cash tax liability to us. Stock-Based Compensation We recognize stock-based compensation expense in accordance with the provisions of ASC Topic 718, Compensation—Stock Compensation . The fairvalue of stock-based payments is estimated, on the date of grant, using a Black-Scholes model. The resulting fair value is recognized on a straight-line basis overthe requisite service period, which is generally the vesting period of the option. The use of a Black-Scholes model requires us to apply judgment and makeassumptions and estimates that include the following: ·Fair Value of Common Stock – Before our entry into the public market on October 10, 2013, our Board of Directors determined the fair value of thecommon stock. The Board of Directors made determinations of fair value based, in part, upon contemporaneous valuations to determine fair value.The contemporaneous valuations were performed in accordance with applicable methodologies, approaches and assumptions of the technicalpractice-aid issued by the American Institute of Certified Public Accountants Practice Aid entitled Valuation of Privately-Held Company EquitySecurities Issued as Compensation .·Expected Volatility – Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) oris expected to fluctuate (expected volatility) during a period. As we do not yet have sufficient history of our own volatility, we have identified severalpublic entities of similar size, complexity and stage of development and estimate volatility based on the volatility of these companies.·Expected Dividend Yield – We have never declared or paid dividends and have no plans to do so in the foreseeable future.·Risk-Free Interest Rate – This is the U.S. Treasury rate for the week of each option grant during the year, having a term that most closely resemblesthe expected life of the option.·Expected Term – This is the period of time that the options granted are expected to remain unexercised. Options granted have a maximum term of tenyears and we have estimated the expected life of the option term to be 6.25 years. We use a simplified method to calculate the average expected term.·Expected Forfeiture Rate – The forfeiture rate is the estimated percentage of options granted that is expected to be forfeited or canceled on an annualbasis before becoming fully vested. We estimate the forfeiture rate based on turnover data with further consideration given to the class of theemployees to whom the options were granted. Results of Operations for the Years Ended December 31, 2015 and 2014 Revenue The following represents a comparison of our revenue for the years ended December 31, 2015 and 2014: Year Ended December 31, Increase/(Decrease)  2015 2014 (dollars in millions) Revenue from collaborative agreements $99.4 $47.3 $52.1 110%Revenue from government agreements 1.5 0.5 1.0 200%Total revenue $100.9 $47.8 $53.1 111% The increase in collaboration revenue of $52.1 million for the year ended December 31, 2015 compared to 2014 is primarily due to the $72.3 million inrevenue recognized under the Janssen agreement, partially offset by decreases in revenue recognition related to the Servier DART, Gilead, Boehringer, and GreenCross agreements. Revenue under the Servier DART agreement included two milestones payments totaling $10.0 million in 2014, whereas no such milestoneswere recognized in 2015. We received reimbursement under the Gilead agreement during part of 2014, but not in 2015 as the research and development periodended in 2014. Revenue under the Boehringer agreement decreased in 2015 because the development period, and therefore the related revenue recognition period,was completed in September 2015, and revenue from the Green Cross agreement decreased from 2014 to 2015 due to additional revenue recorded in 2014 relatedto a material modification to the agreement. Revenue from government agreements increased for the year ended December 31, 2015 compared to 2014 primarily due to revenue from the NIAIDcontract and increased activity on the Dengue virus grant. Research and Development Expense The following represents a comparison of our research and development expense for the years ended December 31, 2015 and 2014: Year Ended December 31, Increase/(Decrease) 2015 2014 (dollars in millions) Margetuximab $41.2 $19.3 $21.9 113%Enoblituzumab 11.9 13.6 (1.7) (13%)MGD006 3.0 3.5 (0.5) (14%)MGD007 3.9 4.0 (0.1) (3%)MGD009 4.0 4.2 (0.2) (5%)MGD010 7.6 3.9 3.7 95%MGD011 1.7 5.1 (3.4) (67%)Pre-clinical immune checkpoint programs 9.0 1.3 7.7 592%Other pre-clinical and clinical programs, collectively 16.0 15.3 0.7 5%Total research and development expense $98.3 $70.2 $28.1 40% During the year ended December 31, 2015 our research and development expense increased by $28.1 million compared to 2014. This increase was dueprimarily to the initiation of SOPHIA, a margetuximab Phase 3 study, and a Phase 1b/2 study of margetuximab in combination with pembrolizumab, increasedactivity in our pre-clinical immune checkpoint programs, including MGD013, and the initiation of a Phase 1a study of MGD010. General and Administrative Expense The following represents a comparison of our general and administrative expense for the years ended December 31, 2015 and 2014: Year Ended December 31, Increase/(Decrease) 2015 2014 (dollars in millions) General and administrative expense $22.8 $15.9 $6.9 44%General and administrative expense increased for the year ended December 31, 2015 by $6.9 million compared to 2014 primarily due to an increase inlabor-related costs, including stock-based compensation expense and information technology-related expenses.Other Income (Expense) The increase in other income for the year ended December 31, 2015 compared to 2014 is primarily due to interest income earned on investments. Results of Operations for the Years Ended December 31, 2014 and 2013 Revenue The following represents a comparison of our research and development revenue for the years ended December 31, 2014 and 2013: Year Ended December 31, Increase/(Decrease) 2014 2013 (dollars in millions) Revenue from collaborative agreements $47.3 $56.7 $(9.4) (17)%Revenue from government agreements 0.5 1.3 (0.8) (59)%Total revenue $47.8 $58.0 $(10.2) (18)%The decrease in collaboration revenue of $9.4 million for the year ended December 31, 2014 compared to 2013 is primarily due to a decrease in revenuerecognition related to the Servier enoblituzumab agreement as the revenue related to the upfront fee was substantially recognized prior to 2014 and a decrease inrevenue recognition related to the Servier DART agreement as the estimated development period, and therefore the revenue recognition period of previouslydeferred revenues, was extended. Additionally, we received less reimbursement under the Gilead agreement as the research and development period ended in 2014,and we recognized revenue under the Pfizer agreement in 2013, but the development period, and therefore the related revenue recognition period, was completed inJanuary 2014. These decreases were partially offset by the addition of our collaborations with Takeda, which resulted in $8.0 million in revenue recognized in2014. Revenue from government agreements decreased in the year ended December 31, 2014 compared to 2013 due to less activity on the Dengue virus grant. Research and Development Expense The following represents a comparison of our research and development expense for the years ended December 31, 2014 and 2013: Year Ended December 31, Increase/(Decrease) 2014 2013 (dollars in millions) Margetuximab $19.3 $6.2 $13.1 211%Enoblituzumab 13.6 7.1 6.5 92%MGD006 3.5 8.7 (5.2) (60)%MGD007 4.0 3.5 0.5 14%MGD010 3.9 2.6 1.3 50%MGD011 5.1 3.5 1.6 46%Other pre-clinical and clinical programs, collectively 20.8 15.0 5.8 39%Total research and development expense $70.2 $46.6 $23.6 51%During the year ended December 31, 2014 our research and development expense increased by $23.6 million compared to 2013. This increase was dueprimarily to the initiation of clinical manufacturing activities for two product candidates, preparations for the margetuximab Phase 3 study, expansion of theenoblituzumab Phase 1 study and preparations for the MGD007 Phase 1 study. These increases were partially offset by decreased manufacturing costs forMGD006 and reimbursement from Servier for MGD006 which is recorded as a reduction in research and development expense. General and Administrative Expense The following represents a comparison of our general and administrative expense for the years ended December 31, 2014 and 2013: Year Ended December 31, Increase/(Decrease) 2014 2013 (dollars in millions) General and administrative expense $15.9 $11.1 $4.8 44%General and administrative expense increased for the year ended December 31, 2014 by $4.8 million compared to 2013 primarily due to an increase instock-based compensation expense and increased insurance, professional fees and other costs associated with public company operations in 2014.Other Income (Expense) The change to other income for the year ended December 31, 2014 from other expense of $626,813 for the year ended December 31, 2013 is primarilydue to the change in the fair market value of the preferred stock warrant liability in 2013 (which was settled in connection with our IPO). Liquidity and Capital Resources We have financed our operations primarily through the private placements of convertible preferred stock, the public and private offerings of our commonstock, upfront fees, milestone payments, annual maintenance payments and license option fees from collaborators and reimbursement through government grantsand contracts. Through December 31, 2015 we have received $151.3 million from the sale of convertible preferred stock and warrants. We have also raised a totalof $376.5 million from public and private offerings of our common stock. As of December 31, 2015, we had $339.0 million in cash, cash equivalents and investments. In addition to our existing cash, cash equivalents andinvestments, we are eligible to receive additional reimbursement from our collaborators for certain research and development services rendered, additionalmilestone and opt-in payments and grant revenue. However, our ability to receive these milestone payments is dependent upon our ability to successfully completespecified research and development activities and is therefore uncertain at this time. Funding Requirements We have not generated any revenue from product sales to date and do not expect to do so until such time as we obtain regulatory approval of andcommercialize one or more of our product candidates. As we are currently in the clinical trial stage of development, it will be some time before we expect toachieve this and it is uncertain that we ever will. We expect that we will continue to increase our operating expenses in connection with ongoing as well asadditional clinical trials and pre-clinical development of product candidates in our pipeline. We expect to continue our collaboration arrangements and will look foradditional collaboration opportunities. We also expect to continue our efforts to pursue additional grants and contracts from the U.S. government in order to furtherour research and development. Although it is difficult to predict our funding requirements, based upon our current operating plan, we anticipate that our existingcash, cash equivalents and investments as of December 31, 2015, as well as other collaboration payments we anticipate receiving, will enable us to fund ouroperations into 2018, assuming all of our programs advance as currently contemplated. Cash Flows The following table represents a summary of our cash flows for the years ended December 31, 2015, 2014 and 2013: Year Ended December 31, 2015 2014 2013 (dollars in millions) Net cash provided by (used in): Operating activities $(13.7) $(32.8) $(14.2)Investing activities (152.1) (3.6) (3.0)Financing activities 204.4 77.4 85.9 Net increase in cash and cash equivalents $38.6 $41.1 $68.7 Operating Activities Net cash used in operating activities reflects, among other things, the amounts used to run our clinical trials and pre-clinical activities. The differencebetween net cash used in operating activities during the years ended December 31, 2015 and 2014 was primarily due to revenue under the Janssen agreementpartially offset by more spending on margetuximab and MGD010 clinical trials and our pre-clinical immune checkpoint programs. The difference between netcash used in operating activities during the years ended December 31, 2014 and 2013 was primarily due to the initiation of clinical manufacturing activities for twoproduct candidates, preparations for the margetuximab Phase 3 study and expansion of the enoblituzumab Phase 1 study in 2014. Investing Activities Net cash used in investing activities during the year ended December 31, 2015 is primarily due to investing our cash in marketable securities and makingleasehold improvements to our facilities. Net cash used in investing activities during the years ended December 31, 2014 and 2013 is primarily due to theacquisition of additional lab equipment needed to further our research and development activities. Financing Activities Net cash provided by financing activities for the year ended December 31, 2015 includes net proceeds from the JJDC investment, the follow-on equityoffering, and cash from stock option exercises. Net cash provided by financing activities for the year ended December 31, 2014 includes net proceeds from thefollow-on equity offering and cash from stock option exercises. Net cash provided by financing activities for the year ended December 31, 2013 includes netproceeds from our IPO and cash from stock option exercises.Contractual Obligations and Contingent Liabilities The following table represents future minimum operating lease payments under non-cancelable operating leases as of December 31, 2015: Total Less than 1year 1 to 3 years 3 to 5 years More than 5years (in millions) Operating Leases $27.8 $6.1 $10.5 $5.9 $5.2 Our current obligations and contingent liabilities are limited to the operating leases at our facilities in Rockville, Maryland and South San Francisco,California. In July 2008, we acquired Raven Biotechnologies (Raven). The Raven purchase agreement provides for certain contingent payments that are based on theachievement of development and commercialization activities for product candidates derived from the acquired Raven technology. We are required to make aonetime payment of $5.0 million to the former Raven stockholders upon the initiation of patient dosing in the first Phase 2 clinical trial of any product derivedfrom the Raven cancer stem cell program. No payment shall be made if the Phase 2 trial start date has not occurred on or before July 15, 2018. Other considerationincludes a percentage of revenue (excluding consideration for research and development, equity and certain cost reimbursements) we may receive for each licenseof a product candidate derived from the Raven cancer stem cell program. The revenue percentage in each case is based upon the execution date of the subjectlicense. No consideration is owed for licenses executed after July 16, 2018. There is additional contingent consideration of one time payments of $8.0 million and$12.0 million, which depend upon the achievement of a specified level of sales of a product derived from the Raven cancer stem cell program. At our solediscretion, each payment can be made in cash, common stock or a combination thereof. The contractual obligations table does not include any potential future payments we may be required to make under the purchase agreement with Raven.Due to the uncertainty of the achievement and timing of the events requiring payment under that agreement, the amounts to be paid by us are not fixed ordeterminable at this time. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements, as defined under the rules and regulations of the Securities and Exchange Commission. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our primary objective when considering our investment activities is to preserve capital in order to fund our operations. We also seek to maximize incomefrom our investments without assuming significant risk. Our current investment policy is to invest principally in deposits and securities issued by the U.S.government and its agencies, Government Sponsored Enterprise agency debt obligations, corporate debt obligations and money market instruments. As ofDecember 31, 2015, we had cash, cash equivalents and investments of $339.0 million. Our primary exposure to market risk is related to changes in interest rates. Due to the short-term maturities of our cash equivalents and marketable securities and the low risk profile of our marketable securities, an immediate 100 basispoint change in interest rates would not have a material effect on the fair market value of our cash equivalents and marketable securities. We have the ability tohold our marketable securities until maturity, and we therefore do not expect a change in market interest rates to affect our operating results or cash flows to anysignificant degree.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is set forth on pages F-1 - F-24. ITEM 9.CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Our management, including our principal executive and principal financial officers, has evaluated the effectiveness of our disclosure controls andprocedures as of December 31, 2015. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to bedisclosed in this annual report on Form 10-K has been appropriately recorded, processed, summarized and reported within the time periods specified in theSecurities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our principalexecutive and principal financial officers, to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive and principalfinancial officers have concluded that our disclosure controls and procedures are effective at the reasonable assurance level. Changes in Internal Control Our management, including our principal executive and principal financial officers, has evaluated any changes in our internal control over financialreporting that occurred during the quarterly period ended December 31, 2015, and has concluded that there was no change that occurred during the quarterly periodended December 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Management Report on Internal Control over Financial Reporting The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control overfinancial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, orunder the supervision of, the Company's principal executive and principal financial officers and effected by the Company's board of directors, management andother personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles and includes those policies and procedures that: pertain to the management of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of theCompany; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations ofmanagement and directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets thatcould have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systemsdetermined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2015. In makingthis assessment, the Company's management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013framework) (COSO) in Internal Control-Integrated Framework. Based on our assessment, management believes that, as of December 31, 2015, the Company'sinternal control over financial reporting is effective based on those criteria. The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited by Ernst & Young, LLP, an independentregistered public accounting firm, as stated in their report which is included herein.ITEM 9B. OTHER INFORMATION None.Report of Ernst & Young LLP,Independent Registered Public Accounting Firm,Regarding Internal Control Over Financial ReportingThe Board of Directors and StockholdersMacroGenics, Inc. We have audited MacroGenics, Inc.'s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). MacroGenics,Inc.'s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal controlover financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express anopinion on the company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control overfinancial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate. In our opinion, MacroGenics, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on theCOSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets ofMacroGenics, Inc. as of December 31, 2015 and 2014, and the related consolidated statements of operations and comprehensive loss, stockholders' equity (deficit)and cash flows for each of the three years in the period ended December 31, 2015 of MacroGenics, Inc. and our report dated February 29, 2016 expressed anunqualified opinion thereon. /s/ Ernst & Young LLPMcLean, VirginiaFebruary 29, 2016PART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEWe incorporate herein by reference the relevant information concerning directors, executive officers and corporate governance to be included in ourdefinitive proxy statement for the 2016 annual meeting of stockholders (the "2016 Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION We incorporate herein by reference the relevant information concerning executive compensation to be included in the 2016 Proxy Statement. ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERSWe incorporate herein by reference the relevant information concerning security ownership of certain beneficial owners and management to be includedin the 2016 Proxy Statement. ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEWe incorporate herein by reference the relevant information concerning certain other relationships and related transactions to be included in the 2016Proxy Statement. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESWe incorporate herein by reference the relevant information concerning principal accountant fees and services to be included in the 2016 ProxyStatement.PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a) The following documents are filed as part of this Annual Report on Form 10-K: (1)Consolidated Financial Statements: Report of Ernst & Young LLP, Independent Registered Public Accounting FirmF-2Consolidated Balance SheetsF-3Consolidated Statements of Operations and Comprehensive LossF-4Consolidated Statements of Stockholders' EquityF-5Consolidated Statements of Cash FlowsF-6Notes to Consolidated Financial StatementsF-7 (2)Financial Statement Schedules: All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financialstatements or the notes thereto. (3)Exhibits The exhibits filed as part of this Annual Report on Form 10-K are set forth on the Exhibit Index immediately following our consolidated financial statements. TheExhibit Index is incorporated herein by reference.SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized: MacroGenics, Inc. By:/s/ Scott Koenig Scott Koenig, M.D., Ph.D. President and CEO and Director Pursuant to the requirements of the Securities Act of 1934, as amended, this Report has been signed by the following persons on behalf of the registrantand in the capacities and on the dates indicated: Signature Title Date /s/ Scott Koenig President and CEO and Director February 29, 2016Scott Koenig, M.D., Ph.D. (Principal Executive Officer) /s/ James Karrels Senior Vice President, Chief Financial February 29, 2016James Karrels Officer and Secretary (Principal Financial Officer) /s/ Lynn Cilinski Vice President, Controller and Treasurer February 29, 2016Lynn Cilinski (Principal Accounting Officer) /s/ Paulo Costa Director February 29, 2016Paulo Costa /s/ Matthew Fust Director February 29, 2016Matthew Fust /s/ Kenneth Galbraith Director February 29, 2016Kenneth Galbraith /s/ Edward Hurwitz Director February 29, 2016Edward Hurwitz /s/ David Stump, M.D. Director February 29, 2016David Stump, M.D. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageNumber Report of Ernst & Young LLP, Independent Registered Public Accounting FirmF-2 Consolidated Balance Sheets at December 31, 2015 and December 31, 2014F-3 Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2015, 2014 and 2013F-4 Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 2015, 2014 and 2013F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013F-6 Notes to Consolidated Financial StatementsF-7F - 1Report of Ernst & Young LLP,Independent Registered Public Accounting Firm,on the Audited Consolidated Financial Statements The Board of Directors and StockholdersMacroGenics, Inc. We have audited the accompanying consolidated balance sheets of MacroGenics, Inc. as of December 31, 2015 and 2014, and the related consolidatedstatements of operations and comprehensive loss, stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2015.These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based onour audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide areasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of MacroGenics, Inc. atDecember 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, inconformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the Standards of the Public Company Accounting Oversight Board (United States), MacroGenics Inc.'s internalcontrol over financial reporting as of December 31, 2015, based on criteria established in Internal Control—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 29, 2016 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP McLean, Virginia February 29, 2016 F - 2MACROGENICS, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except share and per share data) December 31, 2015 2014 Assets Current assets: Cash and cash equivalents $196,172 $157,591 Marketable securities 142,877 – Accounts receivable 1,224 2,935 Prepaid expenses 1,806 4,211 Other current assets 305 – Total current assets 342,384 164,737 Restricted cash — 300 Property and equipment, net 14,841 6,785 Other assets 2,044 2,064 Total assets $359,269 $173,886 Liabilities and stockholders' equity Current liabilities: Accounts payable $2,967 $1,669 Accrued expenses 11,708 7,930 Lease exit liability 2,020 1,642 Deferred revenue 5,866 14,248 Other liabilities 727 1,605 Total current liabilities 23,288 27,094 Lease exit liability, net of current portion 2,693 6,364 Deferred rent liability 7,320 2,670 Deferred revenue, net of current portion 12,631 16,472 Total liabilities 45,932 52,600 Stockholders' equity: Common stock, $0.01 par value – 125,000,000 shares authorized, 34,345,754 and 27,995,638 shares outstanding atDecember 31, 2015 and 2014, respectively 343 280 Treasury stock, at cost; no shares at December 31, 2015 and 865 shares at December 31, 2014 — (19)Additional paid-in capital 547,185 335,071 Accumulated other comprehensive loss (5) – Accumulated deficit (234,186) (214,046)Total stockholders' equity 313,337 121,286 Total liabilities and stockholders' equity $359,269 $173,886 See accompanying notes.F - 3MACROGENICS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(In thousands, except share and per share data) Year Ended December 31, 2015 2014 2013 Revenues: Revenue from collaborative agreements $99,368 $47,264 $56,753 Revenue from government agreements 1,486 533 1,282 Total revenues 100,854 47,797 58,035 Costs and expenses: Research and development 98,271 70,186 46,582 General and administrative 22,765 15,926 11,087 Total costs and expenses 121,036 86,112 57,669 Income (loss) from operations (20,182) (38,315) 366 Other income (expense) 42 2 (627)Net loss (20,140) (38,313) (261) Other comprehensive loss: Unrealized loss on investments (5) - - Comprehensive loss $(20,145) $(38,313) $(261) Basic and diluted net loss per common share $(0.63) $(1.40) $(0.04)Basic and diluted weighted average number of common shares 31,801,645 27,384,990 6,847,697 See accompanying notes.F - 4MACROGENICS, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)(In thousands, except share amounts) Additional Accumulated Total Preferred Stock Common Stock Treasury Stock Paid-In Accumulated Other Stockholders' Shares Amount Shares Amount Shares Amount Capital Deficit ComprehensiveIncome Equity(Deficit) Balance, December31, 2012 294,720,231 $2,948 1,098,914 $10 14,381 $(58) $164,334 $(175,472) $— $(8,238)Share-basedcompensation — — — — — — 862 — – 862 Issuance ofcommon stock,net of offeringcosts — — 5,750,000 58 — — 83,565 — – 83,623 Conversion ofpreferred stock tocommon stock (294,720,231) (2,948) 17,060,634 171 — — 4,637 — – 1,860 Stock optionexercise — — 1,268,049 13 — — 1,055 — – 1,068 Net loss — — — — — — — (261) – (261)Balance, December31, 2013 — — 25,177,597 252 14,381 (58) 254,453 (175,733) – 78,914 Share-basedcompensation — — — — — — 3,244 — – 3,244 Issuance ofcommon stock,net of offeringcosts — — 2,250,000 22 — — 76,694 — – 76,716 Stock plan relatedactivity — — 568,041 6 865 (19) 738 — – 725 Retirement oftreasury stock — — — — (14,381) 58 (58) — – — Net loss — — — — — — — (38,313) – (38,313)Balance, December31, 2014 — — 27,995,638 280 865 (19) 335,071 (214,046) – 121,286 Share-basedcompensation – – – – – – 7,847 – – 7,847 Issuance ofcommon stock,net of offeringcosts – – 5,976,827 60 – – 203,407 – – 203,467 Stock plan relatedactivity – – 373,289 3 925 (29) 908 – – 882 Retirement oftreasury stock – – – – (1,790) 48 (48) – – – Unrealized loss oninvestments – – – – – – – – (5) (5)Net loss – – – – – – – (20,140) – (20,140)Balance, December31, 2015 — $– 34,345,754 $$343 — $— $547,185 $(234,186) $(5) $313,337 See accompanying notes.F - 5MACROGENICS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Year Ended December 31, 2015 2014 2013 Operating activities Net loss $(20,140) $(38,313) $(261)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 2,863 1,822 1,193 Share-based compensation 7,847 3,244 862 Fair value adjustment of warrant liability — — 626 Changes in operating assets and liabilities: Accounts receivable 1,711 (931) 42 Prepaid expenses 2,405 (3,239) (834)Restricted cash 300 105 — Other assets (285) (1,179) (375)Accounts payable (163) (1,500) (570)Accrued expenses 3,545 4,346 2,347 Lease exit liability (3,293) (1,439) (629)Deferred revenue (12,223) 3,317 (16,676)Deferred rent 4,650 (234) 103 Other liabilities (878) 1,242 — Net cash used in operating activities (13,661) (32,759) (14,172) Cash flows from investing activities Purchases of marketable securities (142,910) – – Purchases of property and equipment (9,197) (3,572) (2,961)Net cash used in investing activities (152,107) (3,572) (2,961) Cash flows from financing activities Proceeds from issuance of common stock, net of offering costs 203,467 76,716 84,771 Proceeds from stock option exercises 911 744 1,100 Purchase of treasury stock (29) (19) — Net cash provided by financing activities 204,349 77,441 85,871 Net change in cash and cash equivalents 38,581 41,110 68,738 Cash and cash equivalents at beginning of period 157,591 116,481 47,743 Cash and cash equivalents at end of period $196,172 $157,591 $116,481 Noncash financing activities: Conversion of preferred stock $— $— $2,947 See accompanying notes.F - 6MACROGENICS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. Organization and Nature of Operations MacroGenics, Inc. (the Company) was incorporated in Delaware on August 14, 2000. The Company is a clinical-stage biopharmaceutical companyfocused on discovering and developing innovative monoclonal antibody-based therapeutics for the treatment of cancer, as well as various autoimmune disordersand infectious diseases. The Company generates its pipeline of product candidates from its proprietary suite of next-generation antibody technology platformswhich it believes improve the performance of monoclonal antibodies and antibody-derived molecules. These product candidates, which the Company has identifiedthrough its understanding of disease biology and immune-mediated mechanisms, may address disease-specific challenges which are not currently being met byexisting therapies.2. Summary of Significant Accounting Policies Basis of Presentation and Principles of ConsolidationThe consolidated financial statements include the accounts of MacroGenics, Inc. and its wholly owned subsidiary, MacroGenics UK Limited. Allintercompany accounts and transactions have been eliminated in consolidation. The Company currently operates in one operating segment. Operating segments aredefined as components of an enterprise about which separate discrete information is available for the chief operating decision maker, or decision making group, indeciding how to allocate resources and assessing performance. The Company views its operations and manages its business in one segment, which is developingmonoclonal antibody-based therapeutics for cancer, autoimmune and infectious diseases.Use of Estimates The preparation of the financial statements in accordance with generally accepted accounting principles (GAAP) requires the Company to make estimatesand judgments in certain circumstances that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets andliabilities. In preparing these consolidated financial statements, management has made its best estimates and judgments of certain amounts included in the financialstatements, giving due consideration to materiality. On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition, fairvalues of assets, stock-based compensation, income taxes, pre-clinical study and clinical trial accruals and other contingencies. Management bases its estimates onhistorical experience or on various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ from these estimates. Cash, Cash Equivalents and Marketable Securities The Company considers all investments in highly liquid financial instruments with a maturity of 90 days or less at the date of purchase to be cashequivalents. Cash and cash equivalents includes investments in money market funds with commercial banks and financial institutions, securities issued by the U.S.government and its agencies, Government Sponsored Enterprise agency debt obligations and corporate debt obligations. Cash equivalents are stated at amortizedcost, plus accrued interest, which approximates fair value.The Company carries marketable securities classified as available-for-sale at fair value as determined by prices for identical or similar securities at thebalance sheet date. Marketable securities consist of Level 2 financial instruments in the fair-value hierarchy. The Company records unrealized gains and losses as acomponent of other comprehensive loss within the statements of operations and comprehensive loss and as a separate component of stockholders' equity. Realizedgains or losses on available-for-sale securities are determined using the specific identification method and the Company includes net realized gains and losses inother income (expense).At each balance sheet date, the Company assesses available-for-sale securities in an unrealized loss position to determine whether the unrealized loss isother-than-temporary. The Company considers factors including: the significance of the decline in value compared to the cost basis, underlying factors contributingto a decline in the prices of securities in a single asset class, the length of time the market value of the security has been less than its cost basis, the security'srelative performance versus its peers, sector or asset class, expected market volatility and the market and economy in general. The Company also evaluates whetherit is more likely than not that it will be required to sell a security prior to recovery of its fair value. An impairment loss is recognized at the time the Companydetermines that a decline in the fair value below its cost basis is other-than-temporary. There were no unrealized losses at December 31, 2015 that the Companydetermined to be other-than-temporary.Accounts ReceivableAccounts receivable that management has the intent and ability to collect are reported in the consolidated balance sheets at outstanding amounts, less anallowance for doubtful accounts. The Company writes off uncollectible receivables when the likelihood of collection is remote.The Company evaluates the collectability of accounts receivable on a regular basis. The allowance, if any, is based upon various factors including thefinancial condition and payment history of customers, an overall review of collections experience on other accounts and economic factors or events expected toaffect future collections experience. No allowance was recorded as of December 31, 2015 or 2014, as the Company has a history of collecting on all outstandingaccounts.F - 7Restricted Cash The Company was required to maintain certificates of deposit that served as collateral for corporate credit card accounts. $300,000 was classified asrestricted cash on the consolidated balance sheet at December 31, 2014. The restriction was released during the year ended December 31, 2015.Fair Value of Financial Instruments The Company's financial instruments consist of cash and cash equivalents, marketable securities, accounts receivable, accounts payable and accruedexpenses . The carrying amount of accounts receivable, accounts payable and accrued expenses are generally considered to be representative of their respective fairvalues because of their short-term nature. The Company accounts for recurring and non-recurring fair value measurements in accordance with the FinancialAccounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures (ASC 820). ASC 820 defines fairvalue, establishes a fair value hierarchy for assets and liabilities measured at fair value, and requires expanded disclosures about fair value measurements. The ASC820 hierarchy ranks the quality of reliability of inputs, or assumptions, used in the determination of fair value and requires assets and liabilities carried at fair valueto be classified and disclosed in one of the following three categories:•Level 1 – Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets and liabilities. •Level 2 – Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can includequoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in inactive markets. Related inputscan also include those used in valuation or other pricing models, such as interest rates and yield curves that can be corroborated by observablemarket data. •Level 3 – Fair value is determined by inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant andsubjective judgments to be made by a reporting entity – e.g., determining an appropriate adjustment to a discount factor for illiquidity associatedwith a given security.The Company evaluates financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at whichto classify them each reporting period. This determination requires the Company to make subjective judgments as to the significance of inputs used in determiningfair value and where such inputs lie within the ASC 820 hierarchy.Financial assets measured at fair value on a recurring basis were as follows (in thousands): Fair Value Measurements at December 31, 2015 Quoted PricesinActive MarketsforIdentical Assets SignificantOtherObservableInputs SignificantUnobservableInputs Total Level 1 Level 2 Level 3 Assets: Money market funds $62,353 $62,353 $- $- U.S Treasury securities 9,348 - 9,348 - Government-sponsored enterprises 41,202 - 41,202 - Corporate debt securities 137,928 - 137,928 - Total assets measured at fair value (a) $250,831 $62,353 $188,478 $- Fair Value Measurements at December 31, 2014 Quoted PricesinActive MarketsforIdentical Assets Significant OtherObservableInputs SignificantUnobservableInputs Total Level 1 Level 2 Level 3 Assets: Money market funds 26,046 26,046 — — Restricted cash 300 300 — — Total assets measured at fair value $26,346 $26,346 $— $— (a) Total assets measured at fair value at December 31, 2015 includes approximately $108.0 million reported in cash and cash equivalents on the balance sheet.The fair value of Level 2 securities is determined from market pricing and other observable market inputs for similar securities obtained from variousthird-party data providers. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data.F - 8Concentration of Credit RiskFinancial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, marketablesecurities and accounts receivable. We maintain our cash and money market funds with financial institutions that are federally insured. While balances deposited inthese institutions often exceed Federal Deposit Insurance Corporation limits, we have not experienced any losses on related accounts to date. Our investmentpolicy limits investments to certain types of debt securities issued by the U.S. government, its agencies and institutions with investment-grade credit ratings andplaces restrictions on maturities and concentration by type and issuer. The counterparties are various corporations, financial institutions and government agenciesof high credit standing.For the years ended December 31, 2015, 2014 and 2013, the Company's collaboration revenue relates to agreements with Janssen Biotech, Inc. (Janssen),Takeda Pharmaceutical Company Limited (Takeda), Les Laboratoires Servier and Institut de Recherches Servier (collectively, Servier), Gilead Sciences, Inc.(Gilead), Boehringer Ingelheim GmbH (Boehringer), and Green Cross Corp. (Green Cross). Other revenue is related to contracts and research grants receivedfrom U.S. government agencies. The majority of the outstanding receivables are due from the Company's collaborators and U.S. government agencies.The following table includes those collaborators that represent more than 10% of total revenue earned in the periods indicated: Year Ended December 31, 2015 2014 2013Janssen 71.7% * *Servier * 36.4% 51.6%Boehringer 12.4% 28.6% 24.8%Takeda * 16.8% *Gilead * 11.4% 13.8%The following table includes those collaborators that represent more than 10% of accounts receivable at the date indicated: December 31, 2015 2014Janssen 39.0% *U.S. government 20.0 % *Servier 14.0 % 33.3%Takeda 14.0% *Eli Lilly 13.0% *Boehringer * 21.2 %Green Cross * 17.9 %* Balance is less than 10%Property and EquipmentProperty and equipment are stated at cost. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removedfrom the accounts and any resulting gain or loss is credited or charged to operations. Repairs and maintenance costs are expensed as incurred. Depreciation iscomputed using the straight-line method over the following estimated useful lives: Computer equipment3 yearsSoftware3 yearsFurniture10 yearsLaboratory and office equipment5 yearsLeasehold improvementsShorter of lease term or useful lifeImpairment of Long-Lived Assets The Company assesses the recoverability of its long-lived assets in accordance with the provisions of ASC 360, Property, Plant and Equipment . ASC360 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may notbe recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flowsexpected to be generated by the asset or asset group. If carrying value exceeds the sum of undiscounted cash flows, the Company then determines the fair value ofthe underlying asset group. Any impairment to be recognized is measured by the amount by which the carrying amount of the asset group exceeds the estimatedfair value of the asset group. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. As of December 31, 2015 and2014, the Company determined that there were no impaired assets and had no assets held-for-sale.Income Taxes Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and aremeasured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The effect on deferred tax assets andliabilities of a change in tax rates is recognized as income in the period that such tax rate changes are enacted. The measurement of a deferred tax asset is reduced,if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. Financial statementrecognition of a tax position taken or expected to be taken in a tax return is determined based on a more-likely-than-not threshold of that position being sustained.If the tax position meets this threshold, the benefit to be recognized is measured as the largest amount that is more likely than not to be realized upon ultimatesettlement. The Company's policy is to record interest and penalties related to uncertain tax positions as a component of income tax expense.F - 9Revenues Revenue RecognitionThe Company enters into collaboration and license agreements with collaborators for the development of monoclonal antibody-based therapeutics to treatcancer and other complex diseases. The terms of these agreements contain multiple deliverables which may include (i) licenses, or options to obtain licenses, to theCompany's technological platforms, such as its Fc Optimization and Dual-Affinity Re-Targeting (DART) technologies, (ii) rights to future technologicalimprovements, (iii) research and development activities to be performed on behalf of the collaborator or as part of the collaboration, and (iv) the manufacture ofpre-clinical or clinical materials for the collaborator. Payments to the Company under these agreements may include nonrefundable license fees, option fees,exercise fees, payments for research and development activities, payments for the manufacture of pre-clinical or clinical materials, license maintenance payments,payments based upon the achievement of certain milestones and royalties on product sales. Other benefits to the Company of these agreements include the right tosell products resulting from the collaborative efforts of the parties in specific geographic territories. The Company follows the provisions of the FASB ASC Topic605-25, Revenue Recognition – Multiple-Element Arrangements , and ASC Topic 605-28, Revenue Recognition–Milestone Method , in accounting for theseagreements. In order to account for these agreements, the Company must identify the deliverables included within the agreement and evaluate which deliverablesrepresent separate units of accounting based on the achievement of certain criteria, including whether the delivered element has stand-alone value to thecollaborator. The consideration received is allocated among the separate units of accounting, and the applicable revenue recognition criteria are applied to each ofthe separate units.For the periods presented, the Company had the following two types of agreements: 1) exclusive development and commercialization licenses to use theCompany's technology and/or certain other intellectual property to develop compounds against specified targets (referred to herein as exclusive licenses); and 2)option/research agreements to secure on established terms, development and commercialization licenses to therapeutic product candidates to collaborator-selectedtargets developed by the Company during an option period (referred to herein as right-to-develop agreements).There are no performance, cancellation, termination or refund provisions in any of the arrangements that contain material financial consequences to theCompany.Exclusive LicensesThe deliverables under an exclusive license agreement generally include the exclusive license to the Company's DART technology with respect to aspecified antigen target, and may also include deliverables related to rights to future technological improvements, research and pre-clinical development activitiesto be performed on behalf of the collaborator. In some cases the Company may have an option to participate in the co-development of product candidates thatresult from such agreements.Generally, exclusive license agreements contain nonrefundable terms for payments and, depending on the terms of the agreement, provide that theCompany will (i) at the collaborator's request, provide research and pre-clinical development services at negotiated prices which are generally consistent with whatother third parties would charge, (ii) earn payments upon the achievement of certain milestones, (iii) earn royalty payments, and (iv) in some cases grant theCompany an option to participate in the development and commercialization of products that result from such agreements. Royalty rates may vary over the royaltyterm depending on the Company's intellectual property rights and whether the Company exercises any co-development and co-commercialization rights.The Company does not directly control when any collaborator will achieve milestones or become liable for royalty payments.When entering into a new collaboration arrangement or materially modifying an existing arrangement, the Company must identify the deliverablesincluded within the agreement and evaluate which deliverables represent separate units of accounting based on the achievement of certain criteria, includingwhether the delivered element has stand-alone value to the collaborator. The selling prices of deliverables under an arrangement may be derived using third-partyevidence (TPE), or a best estimate of selling price (BESP), if vendor specific objective evidence (VSOE) is not available. The objective of BESP is to determinethe price at which the Company would transact a sale if the element within the license agreement was sold on a standalone basis. Establishing BESP involvesmanagement's judgment and considers multiple factors, including market conditions, company-specific factors, and factors contemplated in negotiating theagreements, as well as internally developed models that include assumptions related to market opportunity, discounted cash flows, estimated development costs,probability of success and the time needed to commercialize a product candidate pursuant to the license. In validating the BESP, management considers whetherchanges in key assumptions used to determine the BESP will have a significant effect on the allocation of the arrangement consideration between the multipledeliverables. Deliverables under the arrangement are separate units of accounting if (i) the delivered item has value to the customer on a standalone basis and (ii) ifthe arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item is considered probable andsubstantially within the Company's control. The arrangement consideration that is fixed or determinable at the inception of the arrangement is allocated to theseparate units of accounting based on their relative selling prices. The appropriate revenue recognition model is applied to each element and revenue is accordinglyrecognized as each element is delivered. Management exercises significant judgment in determining whether a deliverable is a separate unit of accounting.In determining the separate units of accounting, the Company evaluates whether the exclusive license has standalone value to the collaborator based onconsideration of the relevant facts and circumstances for each arrangement. Factors considered in this determination include the research and developmentcapabilities of the collaborator and the availability of relevant research expertise in the marketplace. In addition, the Company considers whether or not (i) thecollaborator could use the license for its intended purpose without the receipt of the remaining deliverables, (ii) the value of the license was dependent on theundelivered items and (iii) the collaborator or other vendors could provide the undelivered items. If the Company concludes that the license has stand-alone valueand therefore will be accounted for as a separate unit of accounting, the Company then determines the estimated selling prices of the license and all other units ofaccounting based on market conditions, similar arrangements entered into by third parties, and entity-specific factors such as the terms of the Company's previouscollaboration agreements, recent pre-clinical and clinical testing results of therapeutic product candidates that use the Company's technology platforms, theCompany's pricing practices and pricing objectives, the likelihood that technological improvements will be made, the likelihood that technological improvementsmade will be used by the Company's collaborators and the nature of the research services to be performed on behalf of its collaborators and market rates for similarservices. Total arrangement consideration is then allocated to each of the units of accounting using the relative-selling-price method. If facts and circumstancesdictate that the exclusive license does not have stand-alone value, then the related payments are deferred and revenue is recognized throughout the period ofperformance.F - 10Management reassesses the period of performance over which the Company recognizes deferred upfront license fees and makes adjustments asappropriate in the period in which a change in the estimated period of performance is identified. In the event a collaborator elects to discontinue development of aspecific product candidate under a single target license, but retains its right to use the Company's technology to develop an alternative product candidate to thesame target or a target substitute, the Company would cease amortization of any remaining portion of the upfront fee until there is substantial pre-clinical activityon another product candidate and its remaining period of substantial involvement can be estimated. In the event that a single target license were to be terminated,the Company would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue, but was classified as deferred revenue, atthe date of such termination or through the remaining substantial involvement in the wind down of the agreement.Upfront payments on exclusive licenses may be recognized upon delivery of the license if facts and circumstances dictate that the license has stand-alonevalue from the undelivered elements, which generally include rights to future technological improvements, research services and the manufacture of pre-clinicaland clinical materials.The Company recognizes revenue related to research and pre-clinical development services that represent separate units of accounting as they areperformed, as long as there is persuasive evidence of an arrangement, the fee is fixed or determinable, and collection is reasonably assured. The Companyrecognizes revenue related to the rights to future technological improvements over the estimated term of the applicable license. The Company typically performs research activities and pre-clinical development services, including generating and engineering product candidates, onbehalf of its licensees during the early evaluation and pre-clinical testing stages of drug development under its exclusive licenses. The Company records amountsreceived for research materials produced or services performed as revenue from collaborative agreements.The Company's license agreements have milestone payments which for reporting purposes are aggregated into three categories: (i) developmentmilestones, (ii) regulatory milestones, and (iii) sales milestones. Development milestones are typically payable when a product candidate initiates or advances intodifferent clinical trial phases. Regulatory milestones are typically payable upon submission for marketing approval with the U.S. Food and Drug Administration(FDA) or other countries' regulatory authorities or on receipt of actual marketing approvals for the compound or for additional indications. Sales milestones aretypically payable when annual sales reach certain levels.At the inception of each agreement that includes milestone payments, the Company evaluates whether each milestone is substantive and at risk to bothparties on the basis of the contingent nature of the milestone. This evaluation includes an assessment of whether (i) the consideration is commensurate with either(a) the entity's performance to achieve the milestone, or (b) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting fromthe entity's performance to achieve the milestone, (ii) the consideration relates solely to past performance and (iii) the consideration is reasonable relative to all ofthe deliverables and payment terms within the arrangement. The Company evaluates factors such as the scientific, regulatory, commercial and other risks that mustbe overcome to achieve the respective milestone, the level of effort and investment required to achieve the respective milestone and whether the milestoneconsideration is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment.Non-refundable development and regulatory milestones that are expected to be achieved as a result of the Company's efforts during the period ofsubstantial involvement are considered substantive and are recognized as revenue upon the achievement of the milestone, assuming all other revenue recognitioncriteria are met. Milestones that are not considered substantive because the Company does not contribute effort to the achievement of such milestones are generallyachieved after the period of substantial involvement and are recognized as revenue upon achievement of the milestone, as there are no undelivered elementsremaining and no continuing performance obligations, assuming all other revenue recognition criteria are met. Right-to-Develop Agreements The Company's right-to-develop agreements provide collaborators with an exclusive option to obtain licenses to develop and commercialize in specifiedgeographic territories product candidates developed by the Company under agreed upon research and pre-clinical development product programs. The productcandidates resulting from each program are all directed to a specific target selected by the collaborator. Under these agreements, fees may be due to the Company(i) at the inception of the arrangement (referred to as "upfront" fees or payments), (ii) the selection of a target for a program, (iii) upon the exercise of an option toacquire a development and commercialization license (referred to as exercise fees or payments earned) for a program, or (iv) some combination of all of these fees.The accounting for right-to-develop agreements is dependent on the nature of the options granted to the collaborator. Options are considered substantiveif, at the inception of a right-to-develop agreement, the Company is at risk as to whether the collaborator will choose to exercise the options to secure developmentand commercialization licenses. Factors that are considered in evaluating whether options are substantive include the overall objective of the arrangement, thebenefit the collaborator might obtain from the agreement without exercising the options, the cost to exercise the options relative to the total upfront consideration,and the additional financial commitments imposed on the collaborator as a result of exercising the options.F - 11For right-to-develop agreements where the options to secure development and commercialization licenses to a product program are consideredsubstantive, the Company does not consider the development and commercialization licenses to be a deliverable at the inception of the agreement, and thereforedefers any upfront payments received and recognizes this revenue over the period during which the collaborator could elect to exercise options for developmentand commercialization licenses. These periods are specific to each collaboration agreement. If a collaborator selects a target for a product program, any substantiveoption fee is deferred and recognized over the life of the option. For right-to-develop agreements that include multiple deliverables, the Company determines theselling prices of deliverables under the arrangement using TPE or a BESP, if VSOE is not available. The objective of BESP is to determine the price at which theCompany would transact a sale if the element within the right-to-develop agreement was sold on a standalone basis. Establishing BESP involves management'sjudgment and considers multiple factors, including market conditions and company-specific factors, including those factors contemplated in negotiating theagreements, as well as internally developed models that include assumptions related to market opportunity, discounted cash flows, estimated development costs,probability of success and the time needed to commercialize a product candidate pursuant to the right-to-develop agreement. In validating the BESP, managementconsiders whether changes in key assumptions used to determine the BESP will have a significant effect on the allocation of the arrangement considerationbetween the multiple deliverables. Deliverables under the arrangement are separate units of accounting if (i) the delivered item has value to the customer on astandalone basis and (ii) if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item isconsidered probable and substantially within the Company's control. The arrangement consideration that is fixed or determinable at the inception of thearrangement is allocated to the separate units of accounting based on their relative selling prices. The appropriate revenue recognition model is applied to eachelement and revenue is accordingly recognized as each element is delivered. Management exercises significant judgment in determining whether a deliverable is aseparate unit of accounting.If a collaborator exercises an option and acquires a development and commercialization license to a product program, the Company attributes the exercisefee to the development and commercialization license. The Company determines the selling price of the option license, upon exercise, through management's bestestimate using the process for an exclusive license as described above.Upon exercise of an option to acquire a development and commercialization license, the Company would also attribute any remaining deferred option fee,in addition to the consideration received for the license upon exercise of the option, to the development and commercialization license. The Company then appliesthe multiple-element revenue recognition criteria to the development and commercialization license and other deliverables, if any, to determine the appropriaterevenue recognition method. This model is consistent with the Company's accounting policy for upfront payments on exclusive licenses (discussed above). In theevent a right-to-develop agreement were to be terminated, the Company would recognize as revenue any portion of the upfront fee that had not previously beenrecorded as revenue, but was classified as deferred revenue, at the date of such termination. The Company's right-to-develop agreements have been determined tocontain substantive options.For right-to-develop agreements where the options to secure development and commercialization licenses to product programs are not consideredsubstantive, the Company considers the development and commercialization licenses to be a deliverable at the inception of the agreement and applies the multiple-element revenue recognition criteria to determine the appropriate revenue recognition. The Company does not directly control when any collaborator will exerciseits options for development and commercialization licenses.Research and Development Costs Research and development expenditures are expensed as incurred. Research and development costs primarily consist of employee related expenses,including salaries and benefits, expenses incurred under agreements with contract research organizations, investigative sites and consultants that conduct theCompany's clinical trials, the cost of acquiring and manufacturing clinical trial materials and other allocated expenses, license fees for and milestone paymentsrelated to in-licensed products and technologies, stock-based compensation expense, and costs associated with non-clinical activities and regulatory approvals.Right-to-develop agreements may contain cost-sharing provisions whereby the Company and the collaborator share the cost of research and developmentactivities. Reimbursement of research and development expenses received in connection with these agreements is recorded as a reduction of such expenses.Comprehensive LossComprehensive loss represents net loss adjusted for the change during the periods attributed to unrealized gains and losses on available-for-sale securities.Comprehensive loss equals net loss for the years ended December 31, 2014 and 2013 as there were no unrealized gains or losses in those years.Stock-based Compensation Stock-based payments are accounted for in accordance with the provisions of ASC 718, Compensation – Stock Compensation . The fair value of stock-based payments is estimated, on the date of grant, using the Black-Scholes model. The resulting fair value is recognized ratably over the requisite service period,which is generally the vesting period of the option.For all time-vesting awards granted, expense is amortized using the straight-line attribution method. For awards that contain a performance condition,expense is amortized using the accelerated attribution method. Recognition of stock-based compensation expense is based on the value of the portion of stock-based awards that is ultimately expected to vest during the period.The Company utilizes the Black-Scholes model for estimating fair value of its stock options granted. Option valuation models, including the Black-Scholes model, require the input of highly subjective assumptions, and changes in the assumptions used can materially affect the grant-date fair value of an award.These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility and the expected life of the award.F - 12Net Income (Loss) Per Share Basic income (loss) per common share is determined by dividing income (loss) attributable to common stockholders by the weighted-average number ofcommon shares outstanding during the period, without consideration of common stock equivalents. Diluted income (loss) per share is computed by dividing theearnings (loss) attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period. The treasury stockmethod is used to determine the dilutive effect of the Company's stock option grants.Basic and diluted loss per common share is computed as follows (in thousands except share and per share data): Year Ended December 31, 2015 2014 2013 Numerator: Net loss used for calculation of basic and diluted EPS $(20,140) $(38,313) $(261) Denominator: Weighted average shares outstanding, basic 31,801,645 27,384,990 6,847,697 Effect of dilutive securities: Stock options and restricted stock units - - - Weighted average shares outstanding, diluted 31,801,645 27,384,990 6,847,697 Net loss per share, basic and diluted $(0.63) $(1.40) $(0.04)The following common stock equivalents were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive: Year Ended December 31, 2015 2014 2013Effect of converted preferred stock — — 13,189,920Stock options 1,955,398 2,094,904 2,313,970Recently Issued Accounting StandardsIn May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09) as modified by ASU No. 2015-14, Revenuefrom Contracts with Customers: Deferral of the Effective Date (ASU 2014-14). ASU 2014-09 will eliminate transaction- and industry-specific revenue recognitionguidance under current GAAP and replace it with a principle-based approach for determining revenue recognition. ASU 2014-09 will require that companiesrecognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about thenature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments andassets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017 andinterim periods therein. Early adoption at the original effective date, for interim and annual reporting periods beginning after December 15, 2016, will bepermitted. The new standard may be adopted either retrospectively or on a modified retrospective basis whereby the new standard would be applied to newcontracts and existing contracts with remaining performance obligations as of the effective date, with a cumulative catch-up adjustment recorded to beginningretained earnings at the effective date for existing contracts with remaining performance obligations. Management is currently assessing what effect the adoptionof ASU 2014-09 will have on the Company's consolidated financial statements and accompanying notes.In November 2015, the FASB issued ASU No. 2015-17, Income Taxes, Balance Sheet Classification of Deferred Taxes (ASU 2015-17). ASU 2015-17requires entities to present deferred tax assets and deferred tax liabilities as noncurrent on a classified balance sheet. ASU 2015-17 is effective for annual andinterim reporting periods after December 15, 2016 and companies are permitted to apply ASU 2015-17 either prospectively or retrospectively. Early adoption ofASU 2015-17 is permitted. The Company has elected to early adopt ASU 2015-17 on a prospective basis in the first quarter of 2016. The adoption will have noeffect on the Company's consolidated financial statements due to the full valuation allowance recognized against deferred tax assets.The Company has evaluated all other ASUs issued through the date the consolidated financials were issued and believes that the adoption of these will nothave a material impact on the Company's consolidated financial statements.3. InvestmentsAvailable-for-sale investments as of December 31, 2015 were as follows (in thousands): AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses FairValue U.S. Treasury securities $9,354 $1 $(6) $9,349 Government-sponsored enterprises 22,055 1 (9) 22,047 Corporate debt securities 111,473 42 (34) 111,481 Total $142,882 $44 $(49) $142,877 All of the Company's available-for-sale investments held at December 31, 2015 had maturity dates of less than one year, and all available-for-sale investments inan unrealized loss position as of December 31, 2015 were in a loss position for less than twelve months.F - 134. Property and EquipmentProperty and equipment consists of the following (in thousands): December 31, 2015 2014 Computer equipment $3,069 $2,596 Software 1,801 1,683 Furniture and office equipment 919 751 Lab equipment 17,306 13,917 Leasehold improvements 11,936 5,193 Property and equipment 35,031 24,140 Less accumulated depreciation (20,190) (17,355)Property and equipment, net $14,841 $6,785 Property and equipment balance at December 31, 2015 includes approximately $1.7 million in assets that were purchased in 2015 but were not paid for byyear end. Depreciation expense for the years ended December 31, 2015, 2014 and 2013 was $3.2 million, $1.8 million and $1.2 million, respectively.5. Stockholders' EquityDuring 2002 and 2003, the Company issued a total of 34,239,374 shares of Series A-1 and Series A-2 convertible preferred stock (Series A preferredstock) for $1.00 per share resulting in net proceeds of approximately $34.0 million.In October 2004, the Company entered into a series of transactions raising $30.3 million, net of related offering costs of approximately $238,000, fromthe sale of 71,401,237 shares of its Series B convertible preferred stock (Series B preferred stock). In connection with the Series B preferred stock offering,13,604,016 shares of common stock were allocated to holders of Series A-1 preferred stock as an anti-dilution measure.In May 2006, the Company raised $44.9 million, net of related offering costs of $101,246, from the sale of 110,952,217 shares of its Series C convertiblepreferred stock (Series C preferred stock). In connection with the Series C preferred stock offering, 10,003,300 shares of common stock were allocated to holdersof Series B preferred stock as an anti-dilution measure.In July 2008, the Company issued 12,466,039 shares of its Series D convertible preferred stock (Series D preferred stock) in exchange for all of theoutstanding capital stock and convertible notes payable of Raven Biotechnologies, Inc. (Raven). Subsequently, in March 2011 a settlement was reached with theformer Raven stockholders bringing the total Series D preferred stock issued in connection with the Raven acquisition to 14,446,227 shares.In September 2008, the Company raised $24.8 million, net of related offering costs of $156,788 from the sale of 38,337,678 shares of its Series D-2convertible preferred stock (Series D-2 preferred stock). The Company also issued preferred stock warrants for the purchase of 2,875,327 shares of Series D-2preferred stock. The preferred stock warrants were exercisable at any time prior to September 2018, but expired upon an IPO, and had a stated exercise price of$0.65 per warrant. On May 16, 2010, the Company exercised a put notice to Eli Lilly in accordance with the Series D-2 preferred stock purchase agreement,resulting in the issuance of 6,916,110 shares of Series D-2 preferred stock and a warrant to purchase 518,708 additional shares of Series D-2 preferred stock. OnJanuary 11, 2011, the Company raised gross proceeds of $12.0 million from the sale of 18,427,388 shares of its Series D-2 preferred stock.Due to certain provisions in the Series D-2 convertible preferred stock warrant agreement, these warrants were required to be classified as a liability.Management believed that the circumstances requiring cash settlement of the award were remote. The Series D-2 preferred stock warrant liability was recorded atfair value and has been adjusted to fair value at the end of each reporting period using the Option-Pricing Method, with changes in value recorded as "Otherincome (expense)" in the accompanying consolidated statements of operations and comprehensive income (loss). Prior to the Company's IPO in October 2013, allthe preferred stock warrants were exercised and subsequently were converted into shares of common stock in connection with the IPO.Dividends were noncumulative and accrued on the Series A, Series B, Series C, Series D and Series D-2 preferred stock at a rate of $0.08, $0.0341,$0.0324 and $0.0522 per annum, respectively, and were payable when and as declared by the Board of Directors. Dividends had to be declared so that the Series A,Series B, Series C and Series D preferred stock were paid in like-kind and participated equally to those of the Series D-2 preferred and common stock. Nodividends had been declared prior to the conversion of the preferred stock to common stock in connection with the IPO.The Company's Series A-1, Series A-2, Series B, Series C, Series D and Series D-2 preferred stock were initially convertible into 1.506, 1.00, 1.14, 1.00,1.00 and 1.00 shares, respectively, of common stock at the option of the holder. The conversion ratio of certain series of preferred stock was subject to change inthe event specified dilutive transactions occurred, which included the Company's IPO. There were no anti-dilution protections for the Series A-2 preferred stockand no adjustment to the Series A-1 preferred stock conversion price was to be made if a common stock issuance was at a price per share greater than theconversion price of the Series C preferred stock. Upon consummation of the Company's IPO in October 2013, all outstanding shares of preferred stockautomatically converted to shares of the Company's common stock at the applicable conversion ratios then in effect. The conversion price was $12.39, $18.77,$6.95, $7.70, $12.20 and $12.20 for each share of Series A-1, A-2, Series B, Series C, Series D and Series D-2 convertible preferred stock, respectively.F - 14In connection with preparing for its IPO in October 2013, the Company's Board of Directors and stockholders approved a 1-for-18.7739 reverse stocksplit of the Company's common stock. The reverse stock split became effective on September 26, 2013. All share and per share amounts in the consolidatedfinancial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this reverse stock split, including reclassifying anamount equal to the reduction in par value of common stock to additional paid-in capital. In addition, in September 2013, the Company's Board of Directors andstockholders approved an amendment of the Company's certificate of incorporation to, among other things, change the definition of a designated public offering toremove the per share price requirement. The amended and restated certificate of incorporation also changed the authorized number of shares of common stockfrom 425,000,000 to 125,000,000, and authorized 5,000,000 shares of undesignated preferred stock with a par value of $0.01 per share. There were no shares ofundesignated preferred stock issued or outstanding as of December 31, 2015 or 2014.On October 16, 2013, the Company completed its IPO, in which 5,000,000 shares of the Company's common stock were sold at a price of $16.00 pershare. Additionally, the underwriters of the Company's IPO exercised the full amount of their over-allotment option resulting in the sale of an additional 750,000shares of the Company's common stock at a price of $16.00 per share. The Company received proceeds of $83.8 million from the IPO, net of underwritingdiscounts and commissions and other offering expenses. Upon consummation of the IPO, all outstanding shares of preferred stock automatically converted tocommon stock at the applicable conversion ratios then in effect.In February 2014, the Company completed a follow-on equity offering, in which the Company sold 1,800,000 shares of its common stock at a price of$36.50 per share. Additionally, the underwriters of the offering exercised the full amount of their over-allotment option resulting in the sale of an additional450,000 shares of the Company's common stock at a price of $36.50 per share. The Company received proceeds of $76.7 million from this offering, net ofunderwriting discounts and commissions and other offering expenses.In January 2015, the Company's stock purchase agreement and investor agreement, each with Johnson & Johnson Innovation – JJDC, Inc. (JJDC) becameeffective (See Note 9 for additional information). Under these agreements, JJDC purchased 1,923,077 new shares of the Company's common stock at a price of$39.00 per share, representing proceeds of $75.0 million.In July 2015, the Company completed a follow-on equity offering, in which the Company sold 3,525,000 shares of its common stock at a price of $37.00per share. Additionally, the underwriters of the offering exercised the full amount of their over-allotment option resulting in the sale of an additional 528,750shares of the Company's common stock at a price of $37.00 per share. The Company received net proceeds of $141.0 million from this offering, net ofunderwriting discounts and commissions and other estimated offering expenses.6. Stock-based CompensationThe Company's 2000 Stock Option and Incentive Plan (2000 Plan) allowed for the grant of awards in respect of an aggregate of 150,297 shares of theCompany's common stock in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock and restricted stock unitsand other performance awards. The 2000 Plan has expired, and no further awards may be issued under the plan. Any shares of common stock subject to awardsunder the 2000 Plan that expire, terminate, or are otherwise surrendered, canceled, forfeited or repurchased without having been fully exercised, or resulting in anycommon stock being issued, will become available for issuance under the 2013 Stock Incentive Plan (2013 Plan) up to a specified number of shares. As ofDecember 31, 2015, under the 2000 Plan, there were options to purchase an aggregate of 19,571 shares of common stock outstanding at a weighted averageexercise price of $0.81 per share.Effective February 2003, the Company implemented the 2003 Equity Incentive Plan (2003 Plan), and it was amended and approved by the Company'sstockholders in 2005. The 2003 Plan originally allowed for the grant of awards in respect of an aggregate of 2,051,644 shares of the Company's common stock.Between 2006 and 2012, the maximum number of shares of common stock authorized to be issued by the Company under the 2003 Plan was increased to4,336,730. Stock options granted under the 2003 Plan may be either incentive stock options as defined by the Internal Revenue Code (IRC), or non-qualified stockoptions.Upon the completion of the IPO, the 2003 Plan was terminated, and no further awards may be issued under the plan. Any shares of common stock subjectto awards under the 2003 Plan that expire, terminate, or are otherwise surrendered, canceled, forfeited or repurchased without having been fully exercised, orresulting in any common stock being issued, will become available for issuance under the 2013 Plan, up to a specified number of shares. As of December 31,2015, under the 2003 Plan, there were options to purchase an aggregate of 1,649,193 shares of common stock outstanding at a weighted average exercise price of$1.72 per share.In October 2013, the Company implemented the 2013 Plan. The 2013 Plan provides for the grant of stock options and other stock-based awards, as wellas cash-based performance awards. The aggregate number of shares of common stock initially available for issuance pursuant to awards under the 2013 Plan was1,960,168 shares. The number of shares of common stock reserved for issuance will automatically increase on January 1 of each year from January 1, 2014through and including January 1, 2023, by the lesser of (a) 1,960,168 shares, (b) 4.0% of the total number of shares of common stock outstanding on December 31of the preceding calendar year, or (c) the number of shares of common stock determined by the Board of Directors. During the year ended December 31, 2015, themaximum number of shares of common stock authorized to be issued by the Company under the 2013 Plan was increased to 4,087,098. If an option expires orterminates for any reason without having been fully exercised, if any shares of restricted stock are forfeited, or if any award terminates, expires or is settled withoutall or a portion of the shares of common stock covered by the award being issued, such shares are available for the grant of additional awards. However, any sharesthat are withheld (or delivered) to pay withholding taxes or to pay the exercise price of an option are not available for the grant of additional awards. As ofDecember 31, 2015, under the 2013 Plan, there were options to purchase an aggregate of 2,477,300 shares of common stock outstanding at a weighted averageexercise price of $27.13 per share.F - 15The following stock-based compensation amounts were recognized for the periods indicated (in thousands): Year Ended December 31, 2015 2014 2013 Research and development $3,623 $1,562 $507 General and administrative 4,224 1,682 355 Total stock-based compensation expense $7,847 $3,244 $862 Employee Stock OptionsThe fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model using the assumptions in the followingtable: Year Ended December 31, 2015 2014 2013 Expected dividend yield 0% 0% 0%Expected volatility 73% - 75% 67% 53% - 67%Risk-free interest rate 1.6% - 2.1% 1.8% - 2.3% 1.2% - 2.2%Expected term6.25 years 6.25 years 7 yearsExpected Dividend Yield – The Company has never declared or paid dividends and has no plans to do so in the foreseeable future.Expected Volatility – Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or isexpected to fluctuate (expected volatility) during a period. As the Company does not yet have sufficient history of its own volatility, the Company has identifiedseveral public entities of similar size, complexity and stage of development and estimates volatility based on the volatility of these companies.Risk-Free Interest Rate – This is the U.S. Treasury rate for the week of each option grant during the year, having a term that most closely resembles theexpected life of the option.Expected Term – This is the period of time that the options granted are expected to remain unexercised. Options granted have a maximum term of tenyears. The Company estimates the expected life of the option term to be 6.25 years. The Company uses a simplified method to calculate the average expected term.In addition to the assumptions above, the Company estimates the forfeiture rate based on turnover data with further consideration given to the class of theemployees to whom the options were granted. The forfeiture rate is the estimated percentage of options granted that is expected to be forfeited or canceled on anannual basis before becoming fully vested.The following table summarizes stock option and restricted stock unit (RSU) activity for 2015: Shares Weighted-AverageExercise Price Weighted-AverageRemainingContractualTerm(Years) AggregateIntrinsic Value(in thousands) Outstanding, December 31, 2014 3,572,116 $11.40 7.3 Granted 987,680 31.59 Exercised (374,214) 2.45 Forfeited or expired (39,518) 23.44 Outstanding, December 31, 2015 4,146,064 16.90 7.4 $59,344 December 31, 2015: Exercisable 1,992,951 7.94 5.7 46,012 Vested and expected to vest 3,894,148 16.50 7.3 57,267 During 2015, 2014 and 2013 the Company issued 374,214, 568,906 and 1,268,049 net shares of common stock, respectively, in conjunction with stockoption exercises and RSU lapses. The Company received cash proceeds from the exercise of stock options of approximately $0.9 million, $0.7 million and $1.1million during 2015, 2014 and 2013, respectively. The weighted-average grant-date fair value of options granted during 2015, 2014 and 2013 was $20.90, $17.41 and $6.91 per share, respectively. Thetotal intrinsic value of options exercised during 2015, 2014 and 2013 was approximately $10.9 million, $14.5 million and $5.4 million, respectively. The total fairvalue of stock options which vested during 2015, 2014 and 2013 was $7.3 million, $3.0 million and $0.5 million, respectively. As of December 31, 2015, the totalunrecognized compensation expense related to non-vested stock options and RSUs, net of related forfeiture estimates, was $30.5 million, which the Companyexpects to recognize over a weighted-average period of approximately four years.F - 167. Income TaxesFor the years ended December 31, 2015, 2014 and 2013 there was no provision for income taxes due to taxable losses generated, fully offset by avaluation allowance.The significant components of the Company's deferred income tax assets (liabilities) were as follows (in thousands): December 31, 2015 2014 Deferred income tax assets: Federal U.S. net operating loss carryforward $57,949 $55,358 State net operating loss carryforward 3,907 3,723 Research and development credit, net 10,278 7,177 Orphan drug credit, net 19,284 19,287 Deferred rent 2,947 4,069 Deferred revenue 6,632 3,989 Depreciation 1,597 1,337 Other 2,532 962 Gross deferred income tax assets 105,126 95,902 Valuation allowance (104,399) (94,297)Net deferred income tax assets 727 1,605 Deferred income tax liabilities: Prepaid expenditures (727) (1,605)Gross deferred income tax liabilities (727) (1,605)Net deferred income tax asset/(liability) $— $— The Company recognizes valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. In assessing thelikelihood of realization, management considers (i) future reversals of existing taxable temporary differences; (ii) future taxable income exclusive of reversingtemporary difference and carryforwards; (iii) taxable income in prior carryback years if carryback is permitted under applicable tax law; and (iv) tax planningstrategies. The Company's net deferred income tax asset is not more likely than not to be utilized due to the lack of sufficient sources of future taxable income andcumulative book losses which have resulted over the years. The net increase in the valuation allowance in 2015 is due to the fact the Company generated researchand development and orphan drug credits and NOL carryforwards which increased the net deferred tax asset.As of December 31, 2015, the Company has U.S. federal and state NOL carryforwards of approximately $165.6 million that will expire in various yearsbeginning in 2020 through 2035. In addition, the Company has U.S. federal tax credits of $29.3 million which will expire in various years beginning in 2020through 2035.The use of the Company's U.S. federal NOL and tax credit carryforwards in future years are restricted due to changes in the Company's ownership and taxattributes acquired through the Company's acquisitions. As of December 31, 2015, $13.5 million of the Company's US Federal NOLs are limited for use over theyears 2016 – 2028 in which a range of such amounts could be utilized on an annual basis of $0.2 million to $1.4 million. The remaining $152.1 million of NOLs isnot limited and can be offset against future taxable income. Additionally, approximately $14.7 million of NOLs will be recognized as a benefit through additional-paid-in-capital when realized. Further, despite the NOL and credit carryforwards, the Company may have a future tax liability due to an alternative minimum taxor state tax requirements in which net operating losses do not exist.The reconciliation of the reported estimated income tax benefit to the amount that would result by applying the U.S. federal statutory tax rate to the netincome is as follows (in thousands): Year Ended December 31, 2015 2014 2013 United States federal tax at statutory rate $(7,049) $(13,410) $(91)State taxes (net of federal benefit) (897) (1,608) 609 Deferred income tax adjustments 661 — (855)Deferred state blended rate adjustments (493) 3,034 (344)Research credit, net (3,296) (2,228) (226)Transaction cost deduction — (379) — Transaction cost deduction - prior year adjustment — (564) — Orphan drug credit, net (106) (139) (843)Other permanent items (25) (382) 3 Equity-based compensation 1,102 756 241 Fair value adjustment of preferred stock warrant liability — — 219 Change in valuation allowance 10,103 14,920 1,287 Income tax expense/(benefit) $— $— $— F - 17A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands): Year Ended December 31, 2015 2014 2013 Beginning balance $2,047 $1,708 $1,592 Increases/(decreases) for current year tax positions 357 242 116 Increases/(decreases) for prior year tax positions 21 97 — Decreases as a result of expiration of statute of limitations — — — Ending balance $2,425 $2,047 $1,708 As of December 31, 2015 and 2014, of the total gross unrecognized tax benefits, approximately $2.0 million and $1.7 million would favorably impact theCompany's effective income tax rate, respectively. Although, due to the Company's determination that the deferred income tax asset would not more likely than notbe realized, a valuation allowance would be recorded, therefore, zero net impact would result within the Company's effective income tax rate. The Company'suncertain income tax position liability has been recorded to deferred income taxes to offset the tax attribute carryforward amounts.For the years ended December 31, 2015, 2014 and 2013, the Company has not recognized any interest or penalties related to the uncertain income taxpositions due to the fact such position is related to tax attribute carryforwards which have not yet been utilized. The Company does not expect its unrecognizedincome tax position to significantly decrease within the next twelve months.The Company's U.S. Federal and state income tax returns from 2001 forward remain open to examination due to the carryover of unused net operatinglosses and tax credits.8. Lease Exit Liability On July 16, 2008, the Company acquired Raven Biotechnologies, Inc. (Raven), a private South San Francisco-based company focused on thedevelopment of monoclonal antibody therapeutics for treating cancer. Raven was considered a development-stage enterprise as defined in ASC 915, DevelopmentStage Entities . In connection with the acquisition, the Company issued 12,466,039 shares of its Series D convertible preferred stock in exchange for all of theoutstanding capital stock and convertible notes payable of Raven.The Company undertook restructuring activities related to the acquisition of Raven. These restructuring activities included reductions in staffing levelsand the intended exit of leased facilities. All severance-related payments were completed in the year ended December 31, 2009. In connection with theserestructuring activities, as part of the cost of acquisition, the Company established a restructuring liability attributed to an existing operating lease. The terms of theoperating lease extend into 2018.Changes in the lease exit liability are as follows (in thousands): Accrual balance at December 31, 2013 $$9,445 Principal payments (1,439)Accrual balance at December 31, 2014 8,006 Principal payments and other adjustments (3,293)Accrual balance at December 31, 2015 $$4,713 During 2015, the Company corrected an immaterial error attributed to the estimated lease term that resulted in a reduction of research and developmentexpense of $1.9 million.Future principal payments to be made under the lease agreement as of December 31, 2015 are as follows (in thousands):2016 $2,020 2017 2,281 2018 412 Total $4,713 The purchase agreement provides for a specified total of certain contingent milestones that are based on the achievement of certain product sales derivedfrom the acquired Raven technology. Also, a onetime payment of $5.0 million will be made to the Raven stockholders upon the initiation of patient dosing in thefirst Phase 2 clinical trial of any product derived from the Raven "Cancer Stem Cell Program." No payment shall be made if the Phase 2 trial start date has notoccurred on or before July 15, 2018. Other consideration includes a percentage of revenue (excluding consideration for research and development and equity)received by the Company for license of a product derived from the Raven "Cancer Stem Cell Program" and a onetime payment ranging from $8.0 million to $12.0million dependent upon a specified level of sales of products derived from the Raven "Cancer Stem Cell Program."The contingent consideration will be accounted for as additional purchase price and recorded as incremental in-process research and development expensewhen it is deemed probable that the contingencies will be attained. No additional amounts have been recorded during the years ended December 31, 2015, 2014,and 2013.F - 189. Collaboration and Other Agreements Janssen Biotech, Inc.In December 2014, the Company entered into a collaboration and license agreement with Janssen for the development and commercialization of MGD011(also known as JNJ-64052781), a product candidate that incorporates the Company's proprietary DART technology to simultaneously target CD19 and CD3 for thepotential treatment of B-cell hematological malignancies. The Company contemporaneously entered into an agreement with JJDC under which JJDC agreed topurchase 1,923,077 new shares of the Company's common stock for proceeds of $75.0 million. Upon closing the transaction in January 2015, the Companyreceived a $50.0 million upfront payment from Janssen as well as the $75.0 million investment in the Company's common stock. Under the collaboration and license agreement, the Company granted an exclusive license to Janssen to develop and commercialize MGD011. Followingthe Company's submission of the Investigational New Drug (IND) application, Janssen became fully responsible for the development and commercialization ofMGD011. Assuming successful development and commercialization, the Company could receive up to $205.0 million in clinical milestone payments, $220.0million in regulatory milestone payments and $150.0 million in sales milestone payments. The Company determined that each potential future clinical andregulatory milestone is substantive. Although the sales milestones are not considered substantive, they will be recognized upon achievement of the milestone(assuming all other revenue recognition criteria have been met) because there are no undelivered elements that would preclude revenue recognition at that time. The Company may elect to fund a portion of late-stage clinical development in exchange for a profit share in the U.S. and Canada. If commercialized, theCompany would be eligible to receive low double-digit royalties on any global net sales and has the option to co-promote the molecule with Janssen in the UnitedStates.The Company evaluated the collaboration and license agreement with Janssen and determined that it is a revenue arrangement with multiple deliverables,or performance obligations. The Company's substantive performance obligations under the collaboration and license agreement include the delivery of anexclusive license and research and development services during the pre-clinical research period (through the filing of the IND for MGD011). The Companyevaluated the collaboration and license agreement with Janssen and determined that the license and pre-clinical research and development activities representedone unit of accounting, and thus the total arrangement consideration was allocated using the relative selling price method to the deliverables. After identifying thedeliverables included within the arrangement, the Company determined its best estimate of selling price for each of the deliverables. The best estimate of sellingprice for the exclusive license was determined using a discounted cash flow model that includes level 3 fair value measurements. The best estimate of selling pricefor the research and development services was determined using third party evidence of other similar research and development arrangements, which are level 2fair value measurements.The Company evaluated the stock purchase agreement and the collaboration and license agreement as one arrangement and determined that the stockpurchase price of $39.00 per share exceeded the fair value of the common stock by $12.3 million. This excess was recognized in the same manner as the upfrontpayment. Of the total arrangement consideration of $125.0 million, the Company allocated $62.7 million to equity (representing the fair value of common stockpurchased), $62.3 million to the license and pre-clinical research and development activities, and a de minimis amount to the ongoing research and developmentactivities. The Company submitted the IND and therefore met its performance obligation during the year ended December 31, 2015.In July 2015, Janssen dosed the first patient in an open-label Phase 1 study of MGD011 which triggered a $10.0 million milestone to the Company. During the year ended December 31, 2015, the Company recognized revenues of approximately $72.3 million under the agreement.Takeda In May 2014, the Company entered into a license and option agreement with Takeda for the development and commercialization of MGD010, a productcandidate that incorporates the Company's proprietary DART technology to simultaneously engage CD32B and CD79B, which are two B-cell surfaceproteins. MGD010 is being developed for the treatment of autoimmune disorders. Upon execution of the agreement, Takeda made a non-refundable payment of$15.0 million to the Company. Takeda has an option to obtain an exclusive worldwide license for MGD010 following the completion of a pre-defined Phase 1astudy. The Company will lead all product development activities until that time. If Takeda exercises its option, it will assume responsibility for future developmentand pay the Company a license fee of $15.0 million. Assuming successful development and commercialization of MGD010, the Company is eligible to receive upto $93.0 million in clinical and regulatory milestone payments and $375.5 million in sales milestone payments. If commercialized, the Company would receive lowdouble-digit to high-teen royalties on any global net sales and has the option to co-promote MGD010 with Takeda in the United States. Finally, the Company mayelect to fund a portion of Phase 3 clinical development in exchange for a North American profit share. The Company evaluated the license and option agreement with Takeda and has determined that it is a revenue arrangement with multiple deliverables, orperformance obligations. The Company's substantive performance obligations under the license and option agreement include exclusivity, research anddevelopment services through the Phase 1a study and delivery of a future license for an initial research compound. The Company concluded that the MGD010option is substantive and that the license fee payable upon exercise of the option is not a deliverable at the inception of the arrangement as there is considerableuncertainty that the option would be exercised. The Company determined that each potential future clinical and regulatory milestone is substantive. Although salesmilestones are not considered substantive, they are still recognized upon achievement of the milestone (assuming all other revenue recognition criteria have beenmet) because there are no undelivered elements that would preclude revenue recognition at that time. The Company determined that these performanceobligations represent a single unit of accounting, because the exclusivity clause does not have stand-alone value to Takeda without the Company's technicalexpertise and development through the pre-defined Phase 1a study.After identifying the deliverables included within the arrangement, the Company determined its best estimate of selling price. The Company allocated$10.0 million to the exclusivity clause to its technology and the research and development services and $5.0 million to the exclusive license for the initial researchcompound. The Company's determination of best estimate of selling price for the research and development services relied upon other similar transactions. TheCompany relied upon the income approach (e.g., future cash flows) to determine the value of the license of the to-be-delivered compound along with other similarlicense transactions with differing indications but similar stage of development. The portion of the up-front fee allocated to the MGD010 option is beingrecognized over an initial 24-month period, which represents the expected period of development through the completion of a pre-defined Phase 1a study. Theportion of the up-front fee allocated to the license for the initial research compound was deferred until the research collaboration and license option agreement wasexecuted and the license delivered.F - 19The Company recognized revenue of approximately $8.0 million and $3.0 million under the MGD010 agreement during the years ended December 31,2015 and 2014, respectively. Revenue recognized during the year ended December 31, 2015 included a $3.0 million milestone payment received upon initiation ofa Phase 1a trial of MGD010. At December 31, 2015, $2.1 million of revenue was deferred under this agreement, all of which was current. At December 31, 2014,$7.1 million of revenue was deferred under this agreement, $5.0 million of which was current and $2.1 million of which was non-current. In September 2014, the Company and Takeda executed a research collaboration and license option agreement, which formalized the license for the initialresearch compound contemplated in the May 2014 arrangement. Under the terms of the agreement, Takeda may identify up to three additional compounds, whichwill be subject to separate research and development plans. The Company determined that it could recognize the entire license fee allocated to this agreement as(1) the executed contract constituted persuasive evidence of an arrangement, (2) the delivery of the license occurred and the Company had no current or futureperformance obligations, (3) the total consideration for the license was fixed and known at the time of its execution and there were not any extended payment termsor rights of return, and (4) the cash was received. The Company is also entitled to receive reimbursements for research and development services provided toTakeda with respect to the initial research compound under a separate research plan. The Company recognized revenue of approximately $1.3 million and $5.0million under this agreement during the years ended December 31, 2015 and 2014, respectively. Revenue during the year ended December 31, 2014 includes the$5.0 million license fee.Takeda terminated its option to license the first program under this research collaboration agreement in 2015 and retains an option for three others. Gilead In January 2013, the Company entered into an agreement with Gilead for the research, development and commercialization of up to four DARTmolecules. The time period for Gilead's exercise of three of the four options has expired. The Company received an initial $7.5 million license fee for the firstDART molecule, and is eligible to receive an additional license fee of $7.5 million for the one remaining DART molecule if it is selected by Gilead. The Companyis further entitled to receive up to an additional $20.0 million in pre-clinical milestones and up to $247.5 million in additional clinical, regulatory and salesmilestones if Gilead exercises its remaining option and achieves all of the requisite milestones. The Company determined that any remaining licenses are conditional deliverables, which are substantive options that were not granted with a substantialdiscount. The Company determined that each potential future clinical, development and regulatory milestone is substantive. Although sales milestones are notconsidered substantive, they are still recognized upon achievement of the milestone (assuming all other revenue recognition criteria have been met) because thereare no undelivered elements that would preclude revenue recognition at that time. Gilead also provides funding for the Company's internal and external researchcosts under the agreement. Additionally, Gilead would be obligated to pay the Company high single-digit to low double-digit royalties on product sales. The Company evaluated the research collaboration agreement with Gilead and determined that it is a revenue arrangement with multiple deliverables, orperformance obligations. The Company's substantive performance obligations under this research collaboration include a license to its technology and research anddevelopment services. The Company concluded that the deliverables do not have stand-alone value and therefore, represent a combined single unit of accounting.Due to the lack of stand-alone value for the license and research and development services, the combined unit of accounting (the upfront payment and the expectedresearch and development reimbursements) was recognized ratably over a period of 21 months, which represented the expected development period.The Company and Gilead have also agreed to establish a joint research committee to facilitate the governance and oversight of the parties' activities underthe agreements. Management considered whether participation on the joint committee may be a deliverable and determined that it was not a deliverable. Hadmanagement considered participation on the joint committee as a deliverable, it would not have had a material impact on the accounting for the arrangement. The Company did not recognize any revenue under this agreement for the year ended December 31, 2015. The Company recognized revenues ofapproximately $5.5 million and $8.0 million under this agreement for the years ended December 31, 2014 and 2013, respectively. There was no deferred revenueunder this agreement at December 31, 2015 or 2014. No milestones have been achieved under this agreement. Servier In November 2011, the Company entered into a right-to-develop collaboration agreement with Servier under which the Company granted Servier anoption to obtain an exclusive license to develop and commercialize enoblituzumab. In October 2015, Servier notified the Company that they would not exercisethis option and this agreement terminated.Upon execution of the agreement, Servier made a nonrefundable payment of $20.0 million to the Company. The Company's substantive performanceobligations under this research collaboration include an exclusivity clause to its technology, technical, scientific and intellectual property support to the researchplan and participation on an executive committee and a research and development committee. The Company determined that these performance obligationsrepresent a single unit of accounting, since the license does not have stand-alone value to Servier without the Company's technical expertise and committeeparticipation. As such, the initial upfront payment was deferred and was being recognized ratably over the initial 27-month period, which represented the expectedperiod of development and the Company's participation on the research and development committee. During 2014, the Company determined that the developmentperiod will last longer than originally estimated, and prospectively adjusted its period of recognition of the upfront payment to a 42-month period.During the years ended December 31, 2015, 2014 and 2013 the Company recognized revenue of $0.1 million, $0.7 million and $21.3 million,respectively, under this agreement. Revenue recognized during the year ended December 31, 2013 included a $10.0 million substantive milestone paymentreceived upon dosing the first patient in a Phase 1 dose expansion cohort trial of enoblituzumab.At December 31, 2014, $0.1 million of revenue remained deferred under this agreement, all of which was current. There was no deferred revenue underthis agreement at December 31, 2015.F - 20In September 2012, the Company entered into a second right-to-develop collaboration agreement with Servier and granted it options to obtain threeseparate exclusive licenses to develop and commercialize DART molecules, consisting of those designated by the Company as MGD006 (also known as S80880)and MGD007, as well as a third DART molecule, in all countries other than the United States, Canada, Mexico, Japan, South Korea and India.Upon execution of the agreement, Servier made a nonrefundable payment of $20.0 million to the Company. In addition, the Company will be eligible toreceive up to $65.0 million in license fees, $98.0 million in clinical milestone payments, including $5.0 million upon IND acceptance for each of MGD006,MGD007 and a third DART molecule, $300.0 million in regulatory milestone payments and $630.0 million in sales milestone payments if Servier exercises all ofthe options and successfully develops, obtains regulatory approval for, and commercializes a product under each license. In addition to these milestones, theCompany and Servier will share Phase 2 and Phase 3 development costs. The Company has determined that each potential future clinical and regulatory milestoneis substantive. Although sales milestones are not considered substantive, they are still recognized upon achievement of the milestone (assuming all other revenuerecognition criteria have been met) because there are no undelivered elements that would preclude revenue recognition at that time. Under this agreement, Servierwould be obligated to pay the Company from low double-digit to mid-teen royalties on net product sales in its territories.The Company evaluated the research collaboration agreement with Servier and determined that it is a revenue arrangement with multiple deliverables, orperformance obligations. The Company concluded that each option is substantive and that the license fees for each option are not deliverables at the inception ofthe arrangement and were not issued with a substantial discount. The Company's substantive performance obligations under this research collaboration include anexclusivity clause to its technology, technical, scientific and intellectual property support to the research plan and participation on an executive committee and aresearch and development committee. The Company determined that the performance obligations with respect to the pre-clinical development represent a singleunit of accounting, since the license does not have stand-alone value to Servier without the Company's technical expertise and committee participation. As such,the initial upfront license payment was deferred and initially recognized ratably over a 29-month period, which represented the expected development period.During 2014, the Company and Servier further refined the research plan related to the three DART molecules and as such, the development period wasextended. Based on this revised development period, the Company prospectively adjusted its period of recognition of the upfront payment to a 75-month period.The impact of this change in accounting estimate reduced revenue that would have been recognized in 2014 by $3.7 million.During 2014, Servier exercised its exclusive option to develop and commercialize MGD006. As a result of the exercise, the Company received a $15.0million payment from Servier for its license to develop and commercialize MGD006 in its territories. Upon exercise of the option, the Company evaluated itsperformance obligations with respect to the license for MGD006. The Company's substantive performance obligations under this research collaboration include anexclusive license to its technology, technical, scientific and intellectual property support to the research plan and participation on an executive committee and aresearch and development committee. The Company determined that the performance obligations with respect to the clinical development represent a single unit ofaccounting, since the license does not have stand-alone value to Servier without the Company's technical expertise and committee participation. As such, the $15.0million license fee was deferred and is being recognized ratably over a period of 82 months, which represents the expected development period for MGD006. Inaccordance with the agreement, the Company and Servier will share costs incurred to develop MGD006. Reimbursement of research and development expensesreceived in connection with this collaborative cost-sharing agreement is recorded as a reduction to research and development expense. During the years endedDecember 31, 2015 and 2014 the Company recorded approximately $0.5 million and $1.0 million as an offset to research and development costs under thiscollaboration arrangement, respectively. No such offset was recorded in 2013. During the years ended December 31, 2015, 2014 and 2013 the Company recognized revenue of $3.5 million, $16.7 million, and $8.6 million,respectively, under this agreement. Revenue during the year ended December 31, 2014 includes two $5.0 million milestone payments from Servier upon theachievement of clinical milestones related to the IND applications for MGD006 and MGD007 clearing the 30-day review period by the U.S. FDA. No milestoneswere recognized under this agreement during the years ended December 31, 2015 or 2013.At December 31, 2015, $14.4 million of revenue was deferred under this agreement, $3.3 million of which was current and $11.1 million of which wasnon-current. At December 31, 2014, $17.7 million of revenue was deferred under this agreement, $3.3 million of which was current and $14.4 million of whichwas non-current. Boehringer In October 2010 the Company entered into a collaboration and license agreement with Boehringer to discover, develop and commercialize multipleDART molecules that were to be evaluated during a five-year period that ended in October 2015. Under the terms of the agreement, the Company grantedBoehringer an exclusive, worldwide, royalty-bearing, license under its intellectual property to research, develop, and market DART molecules generated under theagreement.Upon execution of the agreement, the Company received an upfront payment of $15.0 million. The Company subsequently received three annualmaintenance payments. These maintenance payments were being recognized over the estimated period of development. The Company has the potential to earnadditional milestone payments of approximately $34.0 million related to pre-clinical and clinical development, $88.5 million related to regulatory milestones and$82.5 million related to sales milestones for each of the two ongoing programs under this agreement. The Company determined that each potential future pre-clinical, clinical and regulatory milestone is substantive. Although sales milestones are not considered substantive, they are still recognized upon achievement ofthe milestone (assuming all other revenue recognition criteria have been met) because there are no undelivered elements that would preclude revenue recognition atthat time. Boehringer would be required to pay the Company mid-single digit royalties on product sales.The Company determined that the deliverables under the Boehringer agreement include the license, the research and development services to beperformed by the Company, and the co-promotion/manufacturing services. The Company concluded that the co-promotional activities were optional and weresubject to further negotiation upon reaching regulatory approval. As such, the co-promotional period is not included in the expected obligation period to performservices.F - 21The Company concluded that the undelivered element of research and development services had fair value. The Company concluded that the license doesnot have value on a standalone basis (e.g. absent the provision of the research and development services) and therefore does not represent a separate unit ofaccounting. The Company concluded that because the drug candidate has not yet been developed, the license is of no value to Boehringer without the ensuingresearch and development activities using the DART technology, which is proprietary to the Company. Likewise, Boehringer could not sell the license to anotherparty (without the Company agreeing to provide the research and development activities for the other party). Therefore, the upfront license fee and research anddevelopment services were treated as a combined unit of accounting and recognized over the expected obligation period associated with the research anddevelopment services through October 2015, which represented the estimated period of development.The Company and Boehringer also agreed to establish a joint research committee to facilitate the governance and oversight of the parties' activities underthe agreements. Management considered whether participation on the joint committee may be a deliverable and determined that it was not a deliverable. However,had management considered participation on the joint committee as a deliverable, it would not have had a material impact on the accounting for the arrangement asthe period of participation in this committee matched the obligation period for the research and development services.The Company recognized revenues of approximately $12.5 million, $13.7 million and $14.4 million during the years ended December 31, 2015, 2014 and2013, respectively, under this agreement. Revenue recognized in the years ended December 31, 2015, 2014 and 2013 included milestone payments of $5.0 million,$2.0 million and $5.0 million, respectively, for the achievement of clinical milestones. At December 31, 2015, no revenue was deferred under this agreement. AtDecember 31, 2014, $5.8 million of revenue was deferred under this agreement, all of which was current.Pfizer In October 2010, the Company entered into a three year agreement with Pfizer, Inc. (Pfizer) to discover, develop and commercialize up to two DARTmolecules. The Company granted Pfizer a non-exclusive worldwide, royalty-bearing license and received an upfront payment of $5.0 million and has receivedmilestone payments and funding for the Company's internal and external research costs under the agreement.The Company is eligible to receive milestone payments of approximately $17.0 million related to pre-clinical and clinical development and $195.0million related to commercialization and sales milestones for the DART program licensed under this agreement. The Company has determined that each potentialfuture technical and development milestone is substantive. Although sales milestones are not considered substantive, they are still recognized upon achievement ofthe milestone (assuming all other revenue recognition criteria have been met) because there are no undelivered elements that would preclude revenue recognition atthat time. Pfizer is responsible for all pre-clinical and clinical development costs for the program. In addition, Pfizer is required to pay the Company mid-singledigit to low-teen royalties on product sales. Under this collaboration, one DART program is currently being pursued and the Company completed its researchobligations under this program in January 2014.The Company evaluated the research collaboration agreement with Pfizer and determined that it is a revenue arrangement with multiple deliverables, orperformance obligations. The Company's substantive performance obligations under this research collaboration include an exclusive license to its technology,research and development services and manufacturing services. The Company concluded that the manufacturing services were optional and were subject to furthernegotiation upon reaching regulatory approval. As such, the manufacturing services are not included in the expected obligation period to perform services.The Company determined that it had fair value of the undelivered element of the research and development services. However, the Company concludedthat the license does not have value on a standalone basis (e.g. absent the provision of the research and development services) and therefore does not represent aseparate unit of accounting. Facts that were considered included the development of the candidate noting that because the drug candidate has not yet beendeveloped, the license is of no value to Pfizer without the ensuing research and development activities using the DART technology, which is proprietary to theCompany. Likewise, Pfizer could not sell the license to another party (without the Company agreeing to provide the research and development activities for theother party). Therefore, the upfront license fee and research and development services were treated as a combined unit of accounting and recognized over theexpected obligation period associated with the research and development services through January 2014, which represented the estimated period of development.The $5.0 million upfront payment received by the Company is non-refundable; therefore, there is no right of return for the license. The Companyrecognized revenue associated with this non-refundable up-front license fee through the expected obligation period associated with the research and developmentservices, which ended in January 2014.The Company and Pfizer also agreed to establish a joint research committee to facilitate the governance and oversight of the parties' activities under theagreements. Management considered whether participation on the joint committee may be a deliverable and determined that it was not a deliverable because it is aparticipating right and not an obligation of the Company. However, had management considered participation on the joint committee as a deliverable, it would nothave had a material impact on the accounting for the arrangement.The Company recognized revenues of approximately $0.5 million, $0.1 million and $3.5 million during the years ended December 31, 2015, 2014 and2013, respectively. Included in the 2015 revenues are milestone payments totaling $0.5 million.As of December 31, 2015 and December 31, 2014, there was no remaining deferred revenue under this agreement.F - 22Green Cross In June 2010, the Company entered into a collaboration agreement with Green Cross for the development of the Company's anti-HER2 antibodymargetuximab. This arrangement grants Green Cross an exclusive license to conduct specified Phase 1 and Phase 2 clinical trials and commercialize margetuximabin South Korea. In March 2014, the Company and Green Cross entered into an amendment to the original agreement, causing the terms of the original agreement tobe materially modified.Upon execution of the amendment, the Company became eligible to receive reimbursement for costs incurred for Phase 2 and Phase 3 clinical trials up to$5.5 million as well as clinical development and commercial milestone payments of up to $2.5 million. The Company determined that each potential clinicaldevelopment and commercial milestone is substantive. The Company is also entitled to receive royalties on net sales of margetuximab in South Korea. TheCompany and Green Cross have formed a joint steering committee to coordinate and oversee activities on which the companies collaborate under the agreement.The Company evaluated the collaboration agreement with Green Cross and determined that it is a revenue arrangement with multiple deliverables orperformance obligations. As a result of the material modification to the arrangement in March 2014, the Company reassessed the entire arrangement in accordancewith the guidance provided by ASC 605-25, Multiple Element Arrangements (Revenue Recognition) as the original agreement was accounted for prior to adoptingASU 2009-13 . The Company's substantive performance obligations under this agreement include an exclusive license to its technologies, research anddevelopment services, and participation in a joint steering committee. The Company concluded that the license and the reimbursements for research anddevelopment services do not have value on a standalone basis and therefore do not represent a separate unit of accounting.The initial $1.0 million upfront payment received by the Company upon execution of the original agreement is non-refundable; as such, there is no rightof return for the license. Therefore, the upfront license fee and participation on the joint steering committee were treated as a combined unit of accounting and willbe recognized over the term of the agreement through June 2020. Further, due to the fact the research and development services are not deemed to have stand-alonevalue, revenue for those services will be recognized over the entire term of the agreement (through June 2020). As a result of reassessing the arrangement inaccordance with ASC 605-25, the Company was required to record an adjustment on the date of the material modification to reflect the revenue that would haveresulted had the entity applied the requirements of ASC 605-25 from the inception of the agreement. As a result, the Company recorded an additional $1.3 millionof revenue during 2014.The Company recognized revenues of approximately $0.5 million, $1.7 million and $0.1 million under this agreement during the years ended December31, 2015, 2014 and 2013, respectively. No milestones were achieved under this agreement during the years ended December 31, 2015, 2014 and 2013.At December 31, 2015, $2.0 million of revenue was deferred under this agreement, $0.4 million of which was current and $1.6 million of which was non-current. At December 31, 2014, there was a $0.5 million unbilled receivable balance under this agreement, which is included in other assets on the consolidatedbalance sheet. NIAID ContractThe Company entered into a contract with the National Institute of Allergy and Infectious Diseases (NIAID), effective as of September 15, 2015, toperform product development and to advance up to two DART molecules, including MGD014. Under this contract, the Company will develop these productcandidates for Phase 1/2 clinical trials as therapeutic agents, in combination with latency reversing treatments, to deplete cells infected with humanimmunodeficiency virus (HIV) infection. This contract includes a base period of $7.5 million to support development of MGD014 through IND applicationsubmission with the FDA, as well as up to $17.0 million in additional development funding via NIAID options. Should NIAID fully exercise such options, theCompany could receive total payments of up to $24.5 million. The total potential period of performance under the award is from September 15, 2015 throughSeptember 14, 2022. The Company recognized $0.2 million in revenue under this contract during the year ended December 31, 2015.10. Commitments and Contingencies Operating Leases The Company leases manufacturing, office and laboratory space in Rockville, Maryland under five leases that have terms that expire between 2018 and2022 unless renewed. This includes a seven-year lease executed in July 2015 for additional space that the Company intends to use as mixed-use office, laboratoryand manufacturing space. Under the terms of the lease, which commenced on January 1, 2016, the Company received an assignment fee from the former tenantand a tenant improvement allowance from the landlord totaling $5.1 million, which has been recorded as deferred rent and will be recognized over the lease term. The Company also leases office and laboratory space in South San Francisco under a lease that expires on February 28, 2018.All of the leases contain rent escalation clauses and certain leases contain rent abatements. For financial reporting purposes, rent expense is charged tooperations on a straight-line basis over the term of the lease. As of December 31, 2015 and 2014, the Company had recorded a deferred rent liability of $7.3million and $2.7 million, respectively. Rent expense for the years ended December 31, 2015, 2014 and 2013 was $0.9 million, $2.0 million and $2.7 million,respectively.F - 23Future minimum lease payments under noncancelable operating leases as of December 31, 2015 are as follows (in thousands):2016 $6,130 2017 6,314 2018 4,210 2019 3,803 2020 2,142 Thereafter 5,210 $27,809 ContingenciesFrom time to time, the Company may be subject to various litigation and related matters arising in the ordinary course of business. The Company does notbelieve it is currently subject to any material matters where there is at least a reasonable possibility that a material loss may be incurred.11. Employee Benefit PlanOn September 25, 2002, the Company established the MacroGenics 401(k) Plan (the Plan) for its employees under Section 401(k) of the IRC. Under thisPlan, all employees at least 21 years of age are eligible to participate in the Plan, starting on the first day of each month. Employees may contribute up to 100% oftheir salary, subject to government maximums.Employees are 100% vested in their contributions to the Plan. The Company's contribution to the Plan, as determined by the Board of Directors, isdiscretionary. The Company's contributions to the Plan totaled $0.4 million, $0.3 million and $0.3 million for the years ended December 31, 2015, 2014 and 2013,respectively.12. Quarterly Financial Information (unaudited) 1 st Quarter 2 nd Quarter 3 rd Quarter 4 th Quarter (in thousands, except per share data) 2015 Revenue $71,279 $6,716 $14,681 $8,178 Net income (loss) 45,129 (21,376) (15,442) (28,451)Net income (loss) per share, basic $1.53 $(0.71) $(0.46) $(0.83)Net income (loss) per share, diluted $1.42 $(0.71) $(0.46) $(0.83) 2014 Revenue $14,719 $9,220 $18,382 $5,476 Net loss (3,108) (12,259) (3,928) (19,018)Net loss per share, basic and diluted $(0.12) $(0.44) $(0.14) $(0.68)F - 24EXHIBIT INDEXExhibitNo. Description 3.1 Restated Certificate of Incorporation of the Company and Certificate of Correction to the Restated Certificate of Incorporation of the Company(incorporated by reference to Exhibits 3.1 and 3.3, respectively, to the Company's Current Report on Form 8-K filed on October 18, 2013) 3.2 Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-1 (File No.333-190994) filed by the Company on October 1, 2013) 4.1 Specimen Stock Certificate (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-1 (File No. 333-190994) filed bythe Company on October 9, 2013) 4.2† Investor Agreement by and between Johnson and Johnson Innovation-JJDC, Inc. and the Company, dated December 19, 2014 (incorporated byreference to Exhibit 4.3 to the Company's Annual Report on Form 10-K filed on March 3, 2015) 10.1 Form of Indemnification Agreement (incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-1 (File No. 333-190994)filed by the Company on October 1, 2013) 10.2† Option for a License Agreement by and between the Company and Les Laboratoires Servier and Institut de Recherches Servier, dated September19, 2012 (incorporated by reference to Exhibit 10.20 to the Registration Statement on Form S-1 (File No. 333-190994) filed by the Company onOctober 4, 2013) 10.3† License and Option Agreement, by and between Takeda Pharmaceutical Company Limited and the Company, dated May 22, 2014 (incorporatedby reference to Exhibit 10.28 to the Company's Quarterly Report on Form 10-Q filed on August 5, 2014) 10.4† Collaboration and License Agreement by and between Janssen Biotech, Inc. and the Company, dated December 19, 2014 (incorporated byreference to Exhibit 10.25 to the Company's Annual Report on Form 10-K filed on March 3, 2015) 10.5+ Company 2000 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-1 (File No.333-190994) filed by the Company on September 4, 2013) 10.6+ Form of Incentive Stock Option Agreement under 2000 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.2 to theRegistration Statement on Form S-1 (File No. 333-190994) filed by the Company on September 4, 2013) 10.7+ Company 2003 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-1 (File No. 333-190994)filed by the Company on September 4, 2013) 10.8+ Form of Incentive Stock Option Agreement under 2003 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the RegistrationStatement on Form S-1 (File No. 333-190994) filed by the Company on September 4, 2013) 10.9+ Company 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-1 (File No. 333-190994)filed by the Company on October 1, 2013) 10.10+ Form of Incentive Stock Option Agreement under 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.6 to the RegistrationStatement on Form S-1 (File No. 333-190994) filed by the Company on October 1, 2013) 10.11+ Form of Nonstatutory Stock Option Agreement under 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.7 to the RegistrationStatement on Form S-1 (File No. 333-190994) filed by the Company on October 1, 2013) 10.12+ Form of Restricted Stock Units Grant Notice under 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company'sQuarterly Report on Form 10-Q filed on May 6, 2015) 10.13+ 2013 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.27 to the Registration Statement on Form S-1 (File No. 333-190994)filed by the Company on October 1, 2013) 10.14+ Employment Agreement between the Company and Scott Koenig, M.D., Ph.D. 10.15+ Employment Agreement between the Company and James Karrels 10.16+ Employment Agreement between the Company and Atul Saran (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report onForm 10-Q filed on May 6, 2015) 23.1 Consent of Ernst & Young, LLP, Independent Registered Public Accounting Firm 31.1 Rule 13a-14(a) Certification of Principal Executive Officer 31.2 Rule 13a-14(a) Certification of Principal Financial Officer 32.1 Section 1350 Certification of Principal Executive Officer 32.2 Section 1350 Certification of Principal Financial Officer 101.INS XBRL Instance Document 101.SCH XBRL Schema Document 101.CAL XBRL Calculation Linkbase Document 101.DEF XBRL Definition Linkbase Document 101.LAB XBRL Labels Linkbase Document 101.PRE XBRL Presentation Linkbase Document †Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment granted by the SEC.+ Indicates management contract or compensatory plan.EXHIBIT 10.14 EMPLOYMENT AGREEMENTTHIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the 9th day of October, 2013, by and between MacroGenics, Inc., aMaryland corporation, including its successors and assigns, (the "Employer" or "Company"), and Scott Koenig ("Executive").NOW, THEREFORE, in consideration of the promises and the respective undertakings of Employer and Executive set forth below, Employer andExecutive hereby agree as follows:1. Employment . Employer hereby employs Executive, and Executive hereby accepts such employment and agrees to perform services for Employer,for the period and on the other terms and subject to the conditions set forth in this Agreement.2. Employment at Will . Executive is employed "at-will" which means that Executive's employment is not for any defined term and may beterminated by either Executive or the Company at any time, with or without cause, for any or no reason, subject to the notice provisions herein.3. Position and Duties .3.01. Service with Employer . Employer hereby employs Executive in an executive capacity with the title of President and Chief ExecutiveOfficer and Executive hereby accepts such employment and undertakes and agrees to serve in such capacity. Subject to the overall policy directives of the Boardof Directors (the "Board") and applicable law, in Executive's capacity as President and Chief Executive Officer, Executive shall have such powers, perform suchduties and fulfill such responsibilities as are typically associated with such position in other similarly situated companies.3.02. Performance of Duties . Executive agrees to: (i) devote substantially all of Executive's business time, attention and efforts to thebusiness and affairs of Employer while employed; and (ii) adhere to all Employer's written employment policies and procedures as shall be in force from time totime. Executive shall report directly to the Board.3.03. Outside Activities . During the Term, Executive shall not: (i) except as set forth below, accept other employment; (ii) except as setforth below, render or perform services for compensation to any Person (as hereinafter defined) other than Employer; (iii) serve as an officer or on the board ofdirectors (or similar governing body) of any entity other than Employer, whether or not for compensation; or (iv) engage in any other business, enterprise oractivity that will require any effort on the part of Executive that, in the sole discretion of Employer, could reasonably be expected to materially detract from theability of Executive to perform Executive's duties to Employer pursuant to this Agreement; provided , however , Executive may engage in the activities set forth inSchedule A hereto or described in clause (iii) or (iv) above if prior to engaging in such activity, Executive has disclosed such activity to the Board and receivedwritten approval to engage in such activity from the Board. Executive may engage in personal investments without disclosure to or written approval from theBoard provided Executive is not required or expected to serve as a board member, advisor or consultant and Executive shall, at any time, own beneficially less than2% of the outstanding securities of any issuer and such personal investment shall not otherwise interfere with Executive's performance of duties hereunder and/orthe provisions of Executive's written agreements with Employer.3.04. Executive Representations . Executive represents that Executive is not subject to any restrictive covenant, confidentiality agreement,or any other agreement that would prevent Executive from accepting employment with Employer, and based on the information provided to Employer byExecutive, Employer accepts such representation.4. Compensation .4.01. Base Salary . Employer shall pay to Executive an annual base salary for all services to be rendered by Executive under thisAgreement of $463,500 (the "Base Salary"), which Base Salary shall be paid in accordance with Employer's normal payroll schedule, procedures and policies(which schedule, procedures and policies may be modified from time to time) and subject to applicable deductions as required by law. Employer shall reviewExecutive's salary on an annual basis and may, in its discretion, consider and declare from time to time increases in the Base Salary that it pays Executive. Anyand all increases in Executive's salary pursuant to this section shall cause the level of Base Salary to be increased by the amount of each such increase for purposesof this Agreement. The increased level of Base Salary as provided in this section shall become the level of Base Salary for the remainder of the term of thisAgreement unless there is a further increase in Base Salary as provided herein.4.02. Annual Bonus . Executive shall also be eligible to receive, in addition to the Base Salary, an annual bonus having a target amountequal to 55% of Executive's Base Salary ("Target Bonus"), with the actual amount being determined by the Compensation Committee of the Board in its discretiontaking into account the Company's performance and Executive's individual performance. In order to receive a Target Bonus, Executive must be employed byEmployer on the date the bonus is paid.4.03. Accelerated Vesting of Certain Options Upon Occurrence of a Change in Control . Upon the occurrence of a Change in Control eachoutstanding stock option held by Executive that was granted by the Company to Executive prior to the date of an initial public offering of the Company's commonstock shall, to the extent not previously vested, become fully vested.(a)For purposes of this Agreement, " Change of Control " means: "Change of Control" means, and shallbe deemed to have occurred, if:(i)any Person, excluding (i) employee benefit plans of the Company or any of its Affiliates, is orbecomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, which Rules shall apply forpurposes of this clause (a) whether or not the Company is subject to the Exchange Act), directly or indirectly, of Companysecurities representing more than fifty percent (50%) of the combined voting power of the Company's then outstandingsecurities ("Voting Power");(ii)the Company consummates a merger, consolidation, share exchange, division or otherreorganization or transaction of the Company (a "Fundamental Transaction") with any other corporation, other than aFundamental Transaction that results in the voting securities of the Company outstanding immediately prior theretocontinuing to represent (either by remaining outstanding or by being converted into voting securities of the survivingentity) at least fifty percent (50%) of the combined Voting Power immediately after such Fundamental Transaction of (i)the Company's outstanding securities, (ii) the surviving entity's outstanding securities, or (iii) in the case of a division, theoutstanding securities of each entity resulting from the division;(iii)the stockholders of the Company approve a plan of complete liquidation or winding‑up of theCompany or the consummation of the sale or disposition (in one transaction or a series of transactions) of all orsubstantially all of the Company's assets; or(iv)during any period of 24 consecutive months, individuals who at the beginning of such periodconstituted the Board (including for this purpose any new director whose election or nomination for election by theCompany's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who weredirectors at the beginning of such period or whose appointment, election or nomination was previously so approved orrecommended) cease for any reason to constitute at least a majority of the Board.4.04. Participation in Benefit Plans . Executive shall be entitled to participate in all employee benefit plans or programs offered to othersenior executives from time to time (to the extent that Executive meets the requirements for each such plan or program), including participation in any healthinsurance plan, disability insurance plan, dental plan, eye care plan, 401(k) plan, life insurance plan, or other similar plans (all such benefits, the "Benefit Plans").4.05. Expenses . Employer shall reimburse Executive for all ordinary and necessary business expenses reasonably incurred by him in theperformance of Executive's duties under this Agreement, subject to the presentment and approval of appropriate itemized expense statements, receipts, vouchers orother supporting documentation in accordance with Employer's normal policies for expense verification in effect from time to time.4.06. Vacation . Executive shall be entitled to no less paid vacation than the other senior executives, pursuant to Employer's standardvacation policies, and shall be guaranteed a minimum of four weeks of paid vacation per year. Executive may carry over up to a maximum of 200 hours of annualleave (including sick pay) at any time, and any unused vacation time beyond that will be forfeited.4.07. Total Compensation . Executive shall not receive any other compensation or benefits other than as provided in Sections 4.01 through4.06 hereof.5. Payments Upon Termination .5.01. Voluntary Resignation without Good Reason . Executive may terminate Executive's employment by providing Employer with 30days' advance written notice. If Executive terminates Executive's employment (other than for good reason or by reason of Disability) (i) Employer shall pay toExecutive the Accrued Obligations (as defined below), (ii) Executive's participation in the Benefit Plans shall terminate as of the Termination Date, and (iii)Employer shall have no other obligations to Executive under this Agreement, other than those provided in this Section 5.01.(a)For purposes of this Agreement, " Accrued Obligations " means: (i) Executive's earned and unpaidBase Salary through the Termination Date; (ii) reimbursement for any reimbursable business expenses incurred by Executivethrough the Termination Date in accordance with Section 4.05; and (iii) Executive's accrued but unused vacation time as of theTermination Date. The amounts payable pursuant to clauses (i) and (iii) hereof shall be paid no later than sixty (60) days followingExecutive's Termination Date.(b)For purposes of this Agreement, " Termination Date " means: the effective date of Executive's"separation from service" as defined in Section 409A of the Internal Revenue Code of 1986, as amended (the "Code")..5.02. Termination by Employer For Cause . If Executive is terminated for Cause: (i) Employer shall pay to Executive the AccruedObligations, (ii) Executive's participation in the Benefit Plans shall terminate as of the Termination Date, and (iii) Employer shall have no further obligations toExecutive under this Agreement, other than those provided in this Section 5.02. For purposes of this Agreement, " Cause " means: (a) Executive's failure tosubstantially perform Executive's duties with the Company (if Executive has not cured such failure to substantially perform, if curable, within thirty (30) days afterExecutive's receipt of written notice thereof from the Board that specifies the conduct constituting Cause under this clause (a)); (b) Executive's willful misconduct,or gross negligence in the performance of Executive's duties hereunder; (c) the conviction of Executive, or the entering by Executive of a guilty plea or plea of nocontest with respect to, any crime that constitutes a felony or involves fraud, dishonesty or moral turpitude; (d) Executive's commission of an act of fraud,embezzlement or misappropriation against the Company; (e) Executive's material breach of the fiduciary duty owed by Executive to Company; (f) Executive'sengaging in any improper conduct that has or is likely to have an adverse economic or reputational impact on the Company; or (g) Executive's material breach ofthis Agreement.5.03. Termination by Employer Without Cause or by Executive for Good Reason . If Executive is terminated by Employer without Causeor by Executive for Good Reason: (i) Employer shall pay to Executive the Accrued Obligations, (ii) Executive shall be entitled to receive the Severance Benefits(as defined below in Section 5.05 and subject to the conditions described therein and in Section 5.06), and (iii) Employer shall have no further obligations toExecutive under this Agreement, other than those provided in this Section 5.03. For purposes of this Agreement, " Good Reason " means the occurrence of any ofthe following events (without Executive's consent):(i)a material adverse change in Executive's functions, duties, or responsibilities with the Companywhich change would cause Executive's position to become one of materially lesser responsibility, importance, or scope (itbeing understood and agreed that Executive's ceasing to be Chief Executive Officer of a publicly held company shallconstitute "Good Reason" under this clause (i); or(ii)a material breach of this Agreement by the Company.Notwithstanding the foregoing, no such event shall constitute "Good Reason" unless (a) Executive shall have given written notice of such event to the Companywithin ninety (90) days after the initial occurrence thereof, (b) the Company shall have failed to cure the condition constituting Good Reason within thirty (30)days following the delivery of such notice (or such longer cure period as may be agreed upon by the parties), and (c) Executive terminates employment withinthirty (30) days after expiration of such cure period.5.04. Termination by Employer due to Executive's Disability . If Executive's employment is terminated by reason of Disability (as definedbelow): (i) Employer shall pay to Executive the Accrued Obligations, (ii) Executive's participation in the Benefit Plans shall terminate as of the Termination Date(except to the extent Executive is eligible for continued disability benefits under the applicable Employer plan), and (iii) Employer shall have no further obligationsto Executive under this Agreement, other than those provided in this Section 5.04. For purposes of this Agreement, " Disability " means Executive beingdetermined to be totally disabled by the Social Security Administration or Executive's inability to engage in any substantial gainful activity by reason of anymedically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less thantwelve months.5.05. Severance Benefits : "Severance Benefits" means:(a)The payment to Executive of the Severance Amount in substantially equal installments over two years(with the first payment commencing on the first payroll date following the Termination Date), in accordance with Employer'spayroll practices in effect as of the Effective Date ("Severance Period"), provided that in the event such payroll practices change,in accordance with such new payroll practices, but only if any such change in payroll practices does not result in a payment beingaccelerated or delayed by more than thirty (30) days. Severance Amount means the product of (i) two and (ii) the sum ofExecutive's Base Salary and Target Bonus in effect immediately prior to the Date of Termination.(b)The continuation of Executive's participation in the Company's medical, dental, and vision benefitplans at the same premium cost to Executive as charged to Executive immediately prior to the Termination Date for a period oftwelve (12) months immediately following the Termination Date, or if earlier, until Executive obtains other employment whichprovides the same type of benefit; provided , however , that (a) it is understood and agreed that such continued medical, dental andvision benefits may at the election of the Company be provided by Executive electing the continuation of such coverage pursuantto COBRA with the Company reimbursing Executive for COBRA premiums to the extent required so that Executive's premiumcost for the coverage in effect for Executive prior to the Termination Date is substantially the same as immediately prior to theTermination Date, and (b) if the Company determines, in its reasonable judgment, that providing medical, dental, and/or visionbenefits in accordance with the preceding provisions of this Section 5.05(b) would result in a violation of applicable law, theimposition of any penalties under applicable law, or adverse tax consequences for participants covered by the Company's medical,dental, and/or vision plans, the Company may terminate such coverage (or reimbursement) with respect to Executive and insteadpay to Executive taxable cash payments at the same time and in the same amounts as the Company would have paid as premiums(or as COBRA premium reimbursements) to provide such coverage. (c)With respect to each stock option granted by the Company to Executive that is outstanding as of theTermination Date and is not fully vested as of the date of the Termination Date, Executive shall become vested as of the dateExecutive provides the Company with the Irrevocable Release provided for in this Section 5.05 within the period prescribedtherein with respect to 50% (100% if the Termination Date occurs upon or within two years after the occurrence of a Change inControl) of the shares with respect to which the stock option is not vested as of the Termination Date. 5.06 Required Delivery of Irrevocable Release; Compliance with Section 6 Obligations . Notwithstanding the provisions of Section 5.05, asa condition to entitlement to the Severance Benefits, Executive must provide to the Company an Irrevocable Release not later than the sixtieth day afterthe Date of Termination. In the event Executive fails to provide an Irrevocable Release to the Company within such sixty day period, the Company willimmediately cease to pay or provide any further Severance Benefits, no accelerated vesting of stock options pursuant to Section 5.05(c) shall occur, andExecutive shall be obligated to immediately repay to the Company all previously paid or provided Severance Benefits. "Irrevocable Release" means aconfidential separation agreement and release of claims, in form and substance substantially similar to the attached Exhibit A that has been executed byExecutive, delivered to the Company, and become irrevocable by Executive. In addition, in the event that Executive breaches the obligations underSection 6 of this Agreement at any time during the Severance Period, Executive will cease to be entitled to any further Severance Benefits.6. Promises and Covenants Regarding Confidential Information and Goodwill; Inventions and Assignment; Restrictive Covenants . 6.01. Confidential Information and Goodwill . In consideration of Executive's promises and covenants contained in this Agreement,including Executive's promise and covenant not to disclose Confidential Information, Employer will provide Executive with Confidential Information. In furtherconsideration of Executive's promises and covenants contained in this Agreement, including Executive's promise and covenant to utilize the Goodwill exclusivelyfor the benefit of Employer, Employer will allow Executive to receive Confidential Information concerning the Company's customers, labs, vendors and employeesand, to the extent required to fulfill Executive's duties, the Company will permit Executive to represent the Company on its behalf with such persons. To the extentthat Executive's duties involve sales or customer relations, the Company will permit Executive to utilize the Goodwill in Executive's sales efforts and will providesales support to Executive similar to that which it provides to its sales representatives.6.02. Duties . While employed by Company, Executive shall perform the duties required of Executive hereunder and shall devoteExecutive's best efforts and exclusive business time, energy and skill to performing such duties; not make any disparaging remarks regarding Company to anyperson with whom Company has business relations, including any employee or vendor of Company; use the Goodwill solely for the benefit of Company; and notinterfere in such Goodwill, either during or following Executive's employment with Company.6.03. Delivery of Company Property . Executive recognizes that all documents, magnetic media and other tangible items which containConfidential Information are the property of Company exclusively. Upon request by Company or termination of Executive's employment with Company,Executive shall promptly return to Company all Confidential Information and Company Property within Executive's possession and control, and shall refrain fromtaking any Confidential Information or Company Property or allowing any Confidential Information or Company Property to be taken from Company; andimmediately return to Company all information pertaining to Company or Company Property in Executive's possession.6.04. Promise and Covenant Not to Disclose . The parties acknowledge that Company is the sole and exclusive owner of ConfidentialInformation, and that Company has legitimate business interests in protecting Confidential Information. The parties further acknowledge that Company hasinvested, and continues to invest, considerable amounts of time and money in obtaining, developing, and preserving the confidentiality of Confidential Informationand that, by reason of the trust relationship arising between Executive and Company, Executive owes Company a fiduciary duty to preserve and protectConfidential Information from all unauthorized disclosure and unauthorized use. Executive shall not, directly or indirectly, disclose Confidential Information toany third party (except to Executive's attorneys, the Company's personnel, other persons designated in writing by the Company, or except as otherwise provided bylaw) or use Confidential Information for any purpose other than for the direct benefit of Company while in Company's employ and thereafter.6.05. Inventions and Assignment . Executive agrees that he will promptly disclose to the Company any and all Company Inventions andthat Executive hereby irrevocably assigns to the Company all ownership rights in and to any and all Company Inventions. During Executive's employment or atany time thereafter, upon request of the Company, Executive will sign, execute and deliver any and all documents or instruments, including, without limitation,patent applications, declarations, invention assignments and copyright assignments, and will take any other action which the Company shall deem necessary toperfect in the Company trademark, copyright or patent rights with respect to Inventions, or to otherwise protect the Company's trade secrets and proprietaryinterests.. The term " Inventions " means discoveries; developments; trade secrets; processes; formulas; data; lists; software programs; graphics; artwork; logos,and all other works of authorship, ideas, concepts, know-how, designs, and techniques, whether or not any of the foregoing is or are patentable, copyrightable, orregistrable under any intellectual property laws or industrial property laws in the United States. The term " Company Inventions " means all Inventions that (a)relate to the business or proposed business of the Company or any of its predecessors or that are discovered, developed, created, conceived, reduced to practice,made, learned or written by Executive, either alone or jointly with others, in the course of Executive's employment; (b) utilize, incorporate or otherwise relate toConfidential Information; or (c) are discovered, developed, created, conceived, reduced to practice, made, or written by him using property or equipment of theCompany or any of its predecessors. Executive agrees to promptly and fully communicate in writing to the Company (to such department or officer of theCompany and in accordance with such procedures as the Company may direct from time to time) any and all Company Inventions. Executive acknowledges andagrees that any work of authorship by Executive or others comprising Company Inventions shall be deemed to be a "work made for hire," as that term is defined inthe United States Copyright Act (17 U.S.C. § 101 (2000)). To the extent that any such work of authorship may not be deemed to be a work made for hire,Executive hereby irrevocably assigns any ownership rights Executive may have in and to such work to the Company. This Agreement does not apply to anyInventions Executive made before Executive's employment with the Company. To clearly establish Executive's rights, Executive has listed on Exhibit B anyInventions, whether or not patentable or copyrightable and whether or not reduced to practice, made by him prior to Executive's employment with the Companythat are owned by Executive (" Prior Inventions "), together with the approximate dates of their creation. If no such list is attached, Executive represents that thereare no Prior Inventions.6.06. Other Promises and Covenants .(a)During Executive's employment with Company and for a period of 2 years following termination ofemployment for any reason or the Severance Period (the "Non-Competition Period"), Executive shall not either directly orindirectly, on Executive's own or another's behalf, engage in or assist others in any of the following activities (except on behalf ofCompany):(i)(whether as principal, agent, partner or otherwise) engage in, own, manage, operate, control,finance, invest in, participate in, or otherwise carry on, or be employed by, associated with, or in any manner connectedwith, lend such Executive's name to, lend Executive's credit to, or render services or advice to a Competing Businessanywhere in the Geographic Area;(ii)provide or develop any products, technology or services that are the same or SubstantiallySimilar to the products, technology and services provided or developed by the Company or any of its Affiliates;(iii)induce or attempt to induce any customer, agent, supplier, licensee, or business relation of theCompany or any of its Affiliates to cease doing business with the Company or any of its Affiliates, or in any way interferewith the relationship between any customer, supplier, licensee, or business relation of the Company or any of its Affiliates;or(iv)on behalf of a Competing Business, solicit or attempt to solicit the business or patronage of anyPerson who is a customer or agent of the Company or any of its Affiliates, whether or not Executive had personal contactwith such Person.(b)During Executive's employment with Company and for a period of two years following termination ofemployment for any reason (the "Non-Solicitation Period"), Executive shall not either directly or indirectly, on Executive's own oranother's behalf, engage in or assist others in any of the following activities:(i)solicit, encourage, or take any other action which is intended to induce any employee,independent contractor or agent of the Company or any of its Affiliates to terminate Executive's employment or otherbusiness relationship with the Company or such Affiliate;(ii)in any way interfere in any manner with the employment or other business relationship betweenthe Company and/or any of its Affiliates, on the one hand, and any employee, independent contractor or agent of theCompany or such Affiliate, on the other hand; or(iii)employ, or otherwise engage as an employee, independent contractor or otherwise, anyindividual who was an employee, independent contractor, agent or was otherwise affiliated with the Company or any of itsAffiliates from the period beginning one year prior to the date on which Executive became employed and continuingthrough the expiration of the Non-Solicitation Period.provided , however , that nothing set forth in this Section 6 shall prohibit Executive from owning, as a passive investment, not in excess of five percent (5%) in theaggregate of any class of capital stock of any corporation if such stock is publicly traded and listed on any national or regional stock exchange or reported on theNasdaq Stock Market.6.07. Definitions . For purposes hereof:(a)"Affiliate" means, with respect to any Entity, any Entity that, directly or indirectly through one or moreintermediaries, controls, is controlled by or under common control with, such Entity.(b)"Agreement" means this Employment Agreement.(c)"Company Business" means the research, development, testing and/or marketing/sales ofpharmaceutical products or processes that are, rely on, target or rely upon (a) CD3 (when targeted individually), (b) HER2, (c) B7-H3, (d) CD123, (e) gpA33, (f) CD32b and CD79b (when jointly targeted), (g) any other undisclosed target either being developedby Employer or the subject of a collaboration between Employer and a third party, or (h) any effort to develop diabodies similar tothe Company's "DART" technology including DART conjugates.(d)"Company Property" means all physical materials, documents, information, keys, computer softwareand hardware, including laptop computers and mobile or handheld scheduling computers, manuals, data bases, product samples,tapes, magnetic media, technical notes and any other equipment or items which Company provides for or to Executive or whichotherwise belongs to the Company, and those documents and items which Executive may develop or help develop while inCompany's employ, whether or not developed during regular working hours or on Company's premises. The term "CompanyProperty" shall include the original of such materials, any copies thereof, any notes derived from such materials, and anyderivative work of such materials.(e)"Competing Business" means any other Entity engaged in the Company Business, other than theCompany and its Affiliates.(f)"Confidential Information" means the trade secrets and other information of Company, including butnot limited to (i) the customer lists, customer contact information, customer purchase information, pricing information, strategicand marketing plans, compilations of customer information, names of employees, contracts with third parties, training, financialand marketing books, sales projections, internal employer databases, reports, manuals and information including informationrelated to Company, its Affiliates or its customers, including those documents and items which any employee may develop or helpdevelop while in the employ of the Company or any of its Affiliates, whether or not developed during regular working hours or onthe premises of the Company or such Affiliate; (ii) the identity, skills, personnel file information, performance appraisals andcompensation of job applicants, employees, contractors, and consultants; (iii) specialized training; (iv) source code, scripts, userscreens, reports or any other information pertaining to the internal information technology or network of the Company and/or itsAffiliates, including the proprietary database system commonly referred to as the Office System; and (v) information related toinventions owned by the Company or any of its Affiliates or licensed from third parties; and unless the context requires otherwise,the term " Confidential Information " includes the original of such materials, any copies thereof, any notes derived from suchmaterials, and any derivative work of such materials. The term " Confidential Information " does not include (1) information thatwas or becomes generally available publicly other than through disclosure by Executive, or (2) is required to be disclosed to anygovernmental agency or self-regulatory body or is otherwise required to be disclosed by law. Unless the context requiresotherwise, the term "Confidential Information" shall include the original of such materials, any copies thereof, any notes derivedfrom such materials, and any derivative work of such materials.(g)"Entity " means and includes any person, partnership, association, corporation, limited liabilitycompany, trust, unincorporated organization or any other business entity or enterprise.(h)"Geographic Area" mean those states in which the Company or any of its subsidiaries conductsbusiness or in which its products are being sold or marketed at the time of the termination of Executive's employment.(i)"Goodwill" means the value of the relationships between the Company and its agents, customers,vendors, labs, and employees.(j)"Substantially Similar" means substantially similar in function or capability or otherwise competitive tothe products or services being developed, manufactured or sold by the Company during and/or at the end of Executive'semployment, or are marketed to substantially the same type of user or customer as that to which the products and services of theCompany are marketed or proposed to be marketed.6.08. Acknowledgements Regarding Other Promises and Covenants . With regard to the promises and covenants set forth herein, Executiveacknowledges and agrees that:(a)the restrictions are ancillary to an otherwise enforceable agreement including the provisions of thisAgreement regarding the disclosure, ownership and use of the Confidential Information and Goodwill of Company;(b)the limitations as to time, geographical area, and scope of activity to be restricted are reasonable andacceptable to Executive, and do not impose any greater restraint than is reasonably necessary to protect the Goodwill and otherlegitimate business interests of Company;(c)the performance by Executive, and the enforcement by Company, of such promises and covenants willcause no undue hardship on Executive;(d)the time periods covered by the promises and covenants will not include any period(s) of violation of,or any period(s) of time required for litigation brought by Company to enforce any such promise or covenant, it being understoodthat the extension of time provided in this paragraph may not exceed two (2) years.6.09. Duty to Give Notice of Agreement . During employment by Company and the period of any post-employment obligation applicablehereunder, Executive shall provide written notice to any prospective employer of Executive's obligations under this Agreement, and shall provide a true copyhereof to such prospective employer at the outset of any communications about employment.6.10. Independent Elements . The parties acknowledge that the promises and covenants contained in Section 6 above are essentialindependent elements of this Agreement and that, but for Executive agreeing to comply with them, Company would not employ Executive. Accordingly, theexistence or assertion of any claim by Executive against Company, whether based on this Agreement or otherwise, shall not operate as a defense to Company'senforcement of the promises and covenants in Section 6. An alleged or actual breach of the Agreement by Company will not be a defense to enforcement of anysuch promise or covenant, or other obligations of Executive to Company. The promises and covenants in Section 6 will remain in full force and effect whetherExecutive is terminated by Company or voluntarily resigns.6.11. Remedies for Breach of Agreement . Executive acknowledges that Executive's breach of any promise or covenant contained inSection 6 will result in irreparable injury to Company and that Company's remedies at law for such a breach will be inadequate. Accordingly, Executive agrees andconsents that Company, in addition to all other remedies available at law and in equity, shall be entitled to both preliminary and permanent injunctions to preventand/or halt a breach or threatened breach by Executive of any such promise or covenant, and Executive waives the requirement of the posting of any bond inconnection with such injunctive relief. Executive further acknowledges and agrees that the promises and covenants contained in Section 6 are enforceable,reasonable, and valid.7. Miscellaneous .7.01. Governing Law; Arbitration(a)This Agreement is made under and shall be governed by and construed in accordance with the laws ofMaryland, without regard to its conflicts of law principles.(b)With respect to claims by the Company against Executive related to Executive's threatened or actualbreach of Section 6 of this Agreement, each Party hereby irrevocably agrees that all actions or proceedings concerning suchdisputes may be brought by the Company in (a) the United States District Court for the District of Maryland; or (b) in any court ofthe State of Maryland sitting in Montgomery County, provided that the United States District Court lacks subject matterjurisdiction over such action or proceeding. Executive consents to jurisdiction of and venue in the courts in the State of Marylandset forth in this Section, and hereby waives to the maximum extent permitted by applicable law any objection which Executivemay have based on improper venue or forum non conveniens .(c)Except to the extent provided for in subsection (b) above, the Company and Executive agree that anyclaim, dispute or controversy arising under or in connection with this Agreement, or otherwise in connection with Executive'semployment by the Company or termination of his employment (including, without limitation, any such claim, dispute orcontroversy arising under any federal, state or local statute, regulation or ordinance or any of the Company's employee benefitplans, policies or programs) shall be resolved solely and exclusively by binding, confidential, arbitration. The arbitration shall beheld in Rockville, MD (or at such other location as shall be mutually agreed by the parties). The arbitration shall be conducted inaccordance with the Commercial Rules of the American Arbitration Association (the " AAA ") in effect at the time of thearbitration, including the Expedited Procedures. All fees and expenses of the arbitration, including a transcript if either requests,shall be borne equally by the parties. Each party is responsible for the fees and expenses of its own attorneys, experts, witnesses,and preparation and presentation of proofs and post-hearing briefs (unless the party prevails on a claim for which attorney's feesare recoverable under law). In rendering a decision, the arbitrator shall apply all legal principles and standards that would governif the dispute were being heard in court. This includes the availability of all remedies that the parties could obtain in court. Inaddition, all statutes of limitation and defenses that would be applicable in court, will apply to the arbitration proceeding. Thedecision of the arbitrator shall be set forth in writing, and be binding and conclusive on all parties. Any action to enforce or vacatethe arbitrator's award shall be governed by the Federal Arbitration Act, if applicable, and otherwise by applicable state law. Ifeither the Company or Executive improperly pursues any claim, dispute or controversy against the other in a proceeding other thanthe arbitration provided for herein, the responding party shall be entitled to dismissal or injunctive relief regarding such action andrecovery of all costs, losses and attorney's fees related to such action.7.02. Entire Agreement . This Agreement and the documents referenced herein contain the entire agreement of the parties relating to theemployment of Executive by Employer and the ancillary matters discussed herein and supersedes all prior agreements, negotiations and understandings withrespect to such matters, including, without limitation, any term sheet between the parties hereto with respect to such matters, and the parties hereto have made noagreements, representations or warranties relating to such employment or ancillary matters which are not set forth herein.7.03. Withholding Taxes . Employer may withhold from any compensation and Benefits payable under this Agreement all federal, state,city or other taxes as shall be required pursuant to any law or governmental regulation or ruling.7.04. Golden Parachute Limit . Notwithstanding any other provision of this Agreement, in the event that any portion of the SeveranceBenefits or any other payment or benefit received or to be received by Executive (whether pursuant to the terms of this Agreement or any other plan, arrangementor agreement) (collectively, the " Total Benefits ") would be subject to the excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, asamended (the "Code") (the " Excise Tax "), the Total Benefits shall be reduced to the extent necessary so that no portion of the Total Benefits is subject to theExcise Tax; provided, however, that no such reduction in the Total Benefits shall be made if by not making such reduction, Executive's Retained Amount (ashereinafter defined) would be more than ten percent (10%) greater than Executive's Retained Amount if the Total Benefits are so reduced. All determinationsrequired to be made under this Section 7.04 shall be made by tax counsel selected by the Company and reasonably acceptable to Executive (" Tax Counsel "),which determinations shall be conclusive and binding on Executive and the Company absent manifest error. All fees and expenses of Tax Counsel shall be bornesolely by the Company. Prior to any reduction in Executive's Total Benefits pursuant to this Section 7.04, Tax Counsel shall provide Executive and the Companywith a report setting forth its calculations and containing related supporting information. In the event any such reduction is required, the Total Benefits shall bereduced in the following order: (i) the Severance Amount (in reverse order of payment), (iii) any portion of the Total Benefits that are not subject to Section 409Aof the Code (other than Total Benefits resulting from any accelerated vesting of equity awards), (iv) other Total Benefits that are subject to Section 409A of theCode in reverse order of payment, and (v) Total Benefits that are not subject to Section 409A and arise from any accelerated vesting of any equity awards. "Retained Amount" shall mean the present value (as determined in accordance with sections 280G(b)(2)(A)(ii) and 280G(d)(4) of the Code) of the Total Benefitsnet of all federal, state and local taxes imposed on Executive with respect thereto.7.05. Compliance With Section 409A . This Agreement is intended to comply with the requirements of Section 409A of the Code(including the exceptions thereto), to the extent applicable, and shall be interpreted and administered accordingly. If any provision contained in this Agreementconflicts with the requirements of Section 409A of the Code (or the exemptions intended to apply under this Agreement), this Agreement shall be deemed to bereformed to comply with the requirements of Section 409A of the Code (or applicable exemptions thereto). Notwithstanding anything to the contrary herein, forpurposes of determining Executive's entitlement to the Severance Benefits under Section 5 hereof, (a) Executive's employment shall not be deemed to haveterminated unless and until Executive incurs a "separation from service" as defined in Section 409A of the Code, and (b) the effective date of any termination orresignation of employment (or any similar term) shall be the effective date of Executive's separation from service. Reimbursement of any expenses provided for inthis Agreement shall be made in accordance with the Company's policies (as applicable) with respect thereto as in effect from time to time (but in no event laterthan the end of calendar year following the year such expenses were incurred) and in no event shall (i) the amount of expenses eligible for reimbursementhereunder during a taxable year affect the expenses eligible for reimbursement in any other taxable year or (ii) the right to reimbursement be subject to liquidationor exchange for another benefit. Notwithstanding anything to the contrary herein, if a payment or benefit under this Agreement is due to a "separation fromservice" for purposes of the rules under Treas. Reg. § 1.409A-3(i)(2) (payments to specified employees upon a separation from service) and Executive isdetermined to be a "specified employee" (as determined under Treas. Reg. § 1.409A-1(i)), such payment shall, to the extent necessary to comply with therequirements of Section 409A of the Code, be made on the later of (x) the date specified by the foregoing provisions of this Agreement or (y) the date that is six (6)months after the date of Executive's separation from service (or, if earlier, the date of Executive's death). Any installment payments that are delayed pursuant tothe provisions of this section shall be accumulated and paid in a lump sum on the first day of the seventh month following Executive's separation from service (or,if earlier, upon Executive's death) and the remaining installment payments shall begin on such date in accordance with the schedule provided in this Agreement. To the extent permitted by Section 409A, each payment hereunder shall be deemed to be a separate payment for purposes of Section 409A of the Code.7.06. Amendments . No amendment or modification of the terms of this Agreement shall be valid unless made in writing and signed byboth Executive and Employer.7.07. Severability; Reformation . Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to beeffective and valid under applicable Law but if any provision of this Agreement is held to be invalid, illegal or unenforceable under any applicable Law or rule, thevalidity, legality and enforceability of the other provisions of this Agreement will not be affected or impaired thereby. If any provision of this Agreement is foundinvalid, illegal or unenforceable because it is too broad in scope, too lengthy in duration or violates any Law or regulation, it shall be reformed by limiting itsscope, limiting its duration or construing it to avoid such violation (as the case may be) while giving the greatest effect to the intent of the parties as is legallypermissible.7.08. No Waiver . No waiver of any provision of this Agreement shall in any event be effective unless the same shall be in writing andsigned by the party against whom such waiver is sought to be enforced, and any such waiver shall be effective only in the specific instance and for the specificpurpose for which given.7.09. Assignment; No Third Party Beneficiary . This Agreement is a personal service contract, and shall not be assignable by Executive. This Agreement shall be assignable by Employer to any successor to the business of Employer, without the written consent of Executive; provided, however, thatthe assignee or transferee is the successor to all or substantially all of the business assets of Employer and such assignee or transferee expressly assumes all theobligations, duties, and liabilities of Employer set forth in this Agreement. Any purported assignment of this Agreement in violation of this Section 7.09 shall benull and void. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, and noother Person shall have any right, benefit or obligation hereunder.7.10. Counterparts; Facsimile Signatures . This Agreement may be executed in separate counterparts, each of which will be an original andall of which taken together shall constitute one and the same agreement, and any party hereto may execute this Agreement by signing any such counterpart. Afacsimile signature by any party on a counterpart of this Agreement shall be binding and effective for all purposes. Such party shall subsequently deliver to theother party an original, executed copy of this Agreement; provided, however, that a failure of such party to deliver an original, executed copy shall not invalidateExecutive's or its signature.7.11. Notices . All notices and other communications relating to this Agreement will be in writing and will be deemed to have been givenwhen personally delivered, three (3) days following mailing by certified or registered mail, return receipt requested, and one (1) Business Day following delivery toa reliable overnight courier or immediately following transmission by electronic facsimile. All notices to Employer shall be addressed and delivered to:MacroGenics, Inc. 9640 Medical Center Dr. Rockville, MD 20850With a copy to:Matthew D. Keiser Arnold & Porter, LLP 555 Twelfth Street, NW Washington, DC 2004 (telephone) 202-942-6398 (fax) 202-942-5999or to such other address and facsimile number as designated by Employer in a written notice to Executive. All notices to Executive shall be addressed anddelivered to:Dr. Scott Koenig xxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxx Facsimile No.: (xxx) xxx-xxxxor to such other address and facsimile number as Executive has designated in a written notice to Employer.7.12. Interpretation . The headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaningor interpretation of this Agreement.7.13. Cumulative Remedies . The rights and remedies of the parties hereunder are cumulative and not exclusive of any rights or remediesany party hereto may otherwise have.7.14. Expenses Relating to this Agreement . Each party shall pay its or Executive's own expenses incident to the negotiation, preparationand execution of this Agreement.IN WITNESS WHEREOF, Executive and Employer have executed this Employment Agreement as of the date set forth in the first paragraph."EMPLOYER" MacroGenics, Inc. By: /s/ Edward Hurwitz Date: 10/9/2013 Name: Edward Hurwitz Title: Chairman of the Compensation Committee "EXECUTIVE" /s/ Scott Koenig Date: 10/9/2013 Scott KoenigSchedule A - Permitted Outside ActivitiesPursuant to Section 3.03 of the Employment Agreement, Executive has disclosed and the Board has approved his participation in the following outside activities:1.Board of Directors, Applied Genetic Technologies Corporation (AGTC)2.Board of Directors, Biotechnology Industry Organization (BIO)3.Board of Directors, Children's National Medical Center4.Board of Directors, Children's Research InstituteEXHIBIT ACONFIDENTIAL SEPARATION AGREEMENT AND GENERAL RELEASEPursuant to the Employment Agreement by and between ______ ("Executive") and MacroGenics, Inc. (the "Company"), in order for Executive to receivethe Severance Amount therein, Executive is required to enter into this Separation Agreement and General Release (this "Release").NOW, THEREFORE, in consideration of the foregoing, of the mutual promises herein contained, of other good and valuable consideration, thesufficiency and receipt of which are hereby acknowledged by the Parties, it is agreed as follows:1. As of the Termination Date, and at all times forward, Executive will not hold himself out to any person or entity as being an employee, officer,representative, or agent of the Company.2. In exchange for the considerations provided for in this Agreement including the receipt of the Severance Amount, Executive hereby completely,irrevocably, and unconditionally releases and forever discharges the Company, and any of its affiliated companies, and each and all of their officers, agents,directors, supervisors, employees, representatives, and their successors and assigns, and all persons acting by, through, under, for, or in concert with them , or anyof them , in any and all of their capacities (hereinafter individually or collectively, the "Released Parties") , from any and all charges, complaints, claims, andliabilities of any kind or nature whatsoever, known or unknown, suspected or unsuspected (hereinafter referred to as "claim" or "claims") which Executive at anytime heretofore had or claimed to have or which Executive may have or claim to have regarding events that have occurred as of the Effective Date of thisAgreement, including, without limitation , those based on: any employee welfare benefit or pension plan governed by the Employee Retirement Income SecurityAct as amended (hereinafter "ERISA") (provided that this release does not extend to any vested retirement benefits of Executive under Company's 401(k) SafeHarbor Plan); the Civil Rights Act of 1964, as amended (race, color, religion, sex and national origin discrimination and harassment) ; the Civil Rights Act of 1966(42 U.S.C. § 1981) (discrimination) ; the Age Discrimination in Employment Act of 1967 (hereinafter "ADEA"), as amended; the Older Workers BenefitProtection Act, as amended; the Americans With Disabilities Act (hereinafter "ADA"), as amended; § 503 of the Rehabilitation Act of 1973; the Fair LaborStandards Act, as amended (wage and hour matters); the Family and Medical Leave Act, as amended, (family leave matters), Article 49B of the Maryland Code(discrimination), any other federal, state, or local laws or regulations regarding employment discrimination or harassment, wages, insurance, leave, privacy or anyother matter; any negligent or intentional tort; any contract, policy or practice (implied, oral, or written); or any other theory of recovery under federal, state, orlocal law, and whether for compensatory or punitive damages, or other equitable relief, including, but not limited to, any and all claims which Executive may nowhave or may have had, arising from or in any way whatsoever connected with Executive's employment or contacts , with Company or any other of the ReleasedParties.Executive acknowledges, understands and agrees that Executive has been paid in full for all hours that Executive has worked for the Company and thatExecutive has been paid any and all compensation or bonuses which have been earned by Executive through the date of execution of this Agreement. Executiveacknowledges, understands and agrees that Executive has not been denied any leave requested under the FMLA or applicable state leave laws and that, to theextent applicable, Executive has been returned to Executive's job, or an equivalent position, following any FMLA or state leave taken pursuant to the FMLA orstate laws. Executive acknowledges, understands and agrees that Executive has reported to the Employer's management personnel any work related injury orillness that occurred up to and including Executive's last day of employment. Executive acknowledges, understands, and agrees that Executive has no knowledgeof any actions or inactions by any of the Released Parties or by Executive that Executive believes could possibly constitute a basis for a claimed violation of anyfederal, state, or local law, any common law or any rule promulgated by an administrative body.3. To the extent permitted by law, Executive agrees that he will not cause or encourage any future legal proceedings to be maintained or institutedagainst any of the Released Parties. To the extent permitted by law, Executive agrees that he will not accept any remedy or recovery arising from any charge filedor proceedings or investigation conducted by the EEOC or by any state or local human rights or employment rights enforcement agency relating to any of thematters released in this Agreement.4. Older Workers Benefit Protection Act /ADEA Waiver4.01. Executive acknowledges that Company has advised him in writing to consult with an attorney of his choice before signing thisAgreement, and Executive has been given the opportunity to consult with an attorney of his choice before signing this Agreement.4.02. Executive acknowledges that he has been given the opportunity to review and consider this Agreement for a full twenty-one daysbefore signing it , and that, if he has signed this Agreement in less than that time, he has done so voluntarily in order to obtain sooner the benefits of thisAgreement.4.03. Executive further acknowledges that he may revoke this Agreement within seven (7) days after signing it, provided that thisAgreement will not become effective until such seven (7) day period has expired. To be effective, any such revocation must be in writing and delivered toCompany's principal place of business by the close of business on the seventh (7th) day after signing the Agreement and must expressly state Executive's intentionto revoke this Agreement. Provided that Executive does not timely revoke this Agreement, the eighth (8th) day following Executive's execution hereof shall bedeemed the "Effective Date" of this Agreement.4.04. The Parties also agree that the release provided by Executive in this Agreement does not include a release for claims under the ADEAarising after the date Executive signs this Agreement.5. Executive shall promptly turn over to the Company any and all documents, files, computer records, or other materials belonging to, or containingconfidential or proprietary information obtained from, the Company that are in Executive's possession, custody, or control, including any such materials that maybe at Executive's home.6. Executive acknowledges that, during the course of Executive's employment with Company, Executive has acquired or been exposed to theCompany's confidential information and trade secrets, including, but not limited to, business plans, marketing plans, financial data, proprietary technology, andcustomer and client lists and asset information ("Confidential Information"). Executive agrees hereafter to maintain the confidentiality of the ConfidentialInformation , to refrain from disclosing any Confidential Information to anyone , to refrain from using the Confidential Information on his own behalf or on behalfof anyone other than the Company , and to comply with any confidentiality or non-disclosure agreement Executive has executed.7. The Parties agree that they will keep absolutely confidential, and not make any future disclosures to anyone except that the Parties may disclosethis Agreement:7.01. to enforce this Agreement; and/or7.02. to an attorney; and/or7.03. tax advisor or attorney in connection with a tax matter; and/or7.04. to the United States Internal Revenue Service, or state or local tax authority upon its request for tax purposes; and/or7.05. as required by court order or otherwise required by law or in response to valid legal process; provided that the Parties may makedisclosure to attorneys, accountants, tax advisors, and family members only if such persons agree to keep the information confidential; and provided further thatbefore providing information pursuant to a court order or other legal requirement, the Party providing such information shall promptly notify the other Party, and tothe extent possible will comply with the court order or other legal requirement in ways that preserve confidentiality .8. Executive agrees that Executive will not publicly make or publish any adverse, disparaging, untrue, or misleading statement or comment about theCompany or any of its officers, directors, employees, or agents. The Company agrees to instruct its directors, officers, and senior management not to publiclymake or publish any adverse, disparaging, untrue, or misleading statement or comment about Executive.9. Executive agrees to answer questions that the Company may have from time to time regarding matters that Executive worked on and to cooperatewith the Company, upon request, to assist in the investigation, prosecution or defense of any claim, grievance, investigation, or audit by or against the Company. The Company agrees to reimburse Executive for any reasonable and necessary out-of-pocket expenses he incurs as a result of such cooperation.10. This Agreement shall not in any way be construed as an admission by the Company of any acts of unlawful conduct, wrongdoing ordiscrimination against Executive, and the Company specifically disclaims any liability to Executive on the part of itself, its employees, or its agents. ThisAgreement shall not in any way be construed as an admission by Executive of any acts of unlawful conduct, wrongdoing or discrimination against the Company,and Executive specifically disclaims any liability to Company on the part of himself or his agents.11. This Agreement shall be binding upon Executive and upon Executive's heirs, administrators, representatives, executors, successors, and assigns,and shall inure to the benefit of the Company, and its representatives, executors, successors, and assigns. This Agreement shall be binding upon the Company andupon the Company's assigns and shall inure to the benefit of Executive and his heirs, administrators, representatives, executors, successors, and assigns.12. This Agreement and its Exhibits sets forth the entire agreement between the Company and Executive and , except as expressly provided for in thisAgreement, fully supersedes any and all prior agreements or understandings between the Company and Executive pertaining to the subject matter hereof, exceptthat Executive's obligations in Section 6 of the Employment Agreement between Executive and the Company shall remain in full force and effect. In reaching thisAgreement, neither the Company nor Executive has relied upon any representation or promise except those set forth herein. If any provision, or portion of aprovision, of this Agreement is held to be invalid or unenforceable for any reason, the remainder of the Agreement shall remain in full force and effect, as if suchprovision, or portion of such provision, had never been contained herein. The unenforceability or invalidity of a provision of the Agreement in one jurisdictionshall not invalidate or render that provision unenforceable in any other jurisdiction.13. This Agreement cannot be amended, modified, or supplemented in any respect except by written agreement entered into and signed by the Parties.14. This Agreement shall be governed by the laws of the State of Maryland without giving effect to conflict of laws principles, and Executiveconsents to exclusive personal jurisdiction in the state and federal courts of the State of Maryland for any proceeding arising out of or relating to this Agreement. The language of all parts of the Agreement shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against any of the Parties.15. Executive acknowledges that he has read each and every section of this Agreement and that he understands his rights and obligations under thisAgreement. Executive acknowledges that the Company has advised him in writing to consult with an attorney of his choice before signing this Agreement, andthat Executive has been given the opportunity to consult with an attorney of his choice before signing this Agreement.16. This Agreement may be signed in counterparts, each of which shall be considered an original for all purposes , and all of which taken togethershall constitute one and the same written agreement .IN WITNESS WHEREOF, the Company, has caused this Agreement to be executed by its duly authorized officer, and Executive has executed thisAgreement, on the date(s) set forth below. Executive_______________________________________/DateMacroGenics, Inc.By:____________________________________Name: /DateTitle:EXHIBIT B LIST OF PRIOR INVENTIONSTitleDateBrief Description _______________ No Inventions. [initial if none]_______________ Additional sheets attached. [initial if additional sheets, and state how many]Date: Signature NameEXHIBIT 10.15 EMPLOYMENT AGREEMENTTHIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the 9 th day of October, 2013, by and between MacroGenics, Inc., aMaryland corporation, including its successors and assigns, (the "Employer" or "Company"), and James Karrels ("Executive").NOW, THEREFORE, in consideration of the promises and the respective undertakings of Employer and Executive set forth below, Employer andExecutive hereby agree as follows:1. Employment . Employer hereby employs Executive, and Executive hereby accepts such employment and agrees to perform services for Employer,for the period and on the other terms and subject to the conditions set forth in this Agreement.2. Employment at Will . Executive is employed "at-will" which means that Executive's employment is not for any defined term and may beterminated by either Executive or the Company at any time, with or without cause, for any or no reason, subject to the notice provisions herein.3. Position and Duties .3.01. Service with Employer . Employer hereby employs Executive in an executive capacity with the title of Chief Financial Officer andExecutive hereby accepts such employment and undertakes and agrees to serve in such capacity. Subject to the overall policy directives of the Board of Directors(the "Board") and applicable law, in Executive's capacity as Chief Financial Officer, Executive shall have such powers, perform such duties and fulfill suchresponsibilities as are typically associated with such position in other similarly situated companies.3.02. Performance of Duties . Executive agrees to: (i) devote substantially all of Executive's business time, attention and efforts to thebusiness and affairs of Employer while employed; and (ii) adhere to all Employer's written employment policies and procedures as shall be in force from time totime. Executive shall report directly to the President and CEO.3.03. Outside Activities . During the Term, Executive shall not: (i) except as set forth below, accept other employment; (ii) except as setforth below, render or perform services for compensation to any Person (as hereinafter defined) other than Employer; (iii) serve as an officer or on the board ofdirectors (or similar governing body) of any entity other than Employer, whether or not for compensation; or (iv) engage in any other business, enterprise oractivity that will require any effort on the part of Executive that, in the sole discretion of Employer, could reasonably be expected to materially detract from theability of Executive to perform Executive's duties to Employer pursuant to this Agreement; provided , however , Executive may engage in the activities describedin clause (iii) or (iv) above if prior to engaging in such activity, Executive has disclosed such activity to the Board and received written approval to engage in suchactivity from the Board. Executive may engage in personal investments without disclosure to or written approval from the Board provided Executive is notrequired or expected to serve as a board member, advisor or consultant and Executive shall, at any time, own beneficially less than 2% of the outstanding securitiesof any issuer and such personal investment shall not otherwise interfere with Executive's performance of duties hereunder and/or the provisions of Executive'swritten agreements with Employer.3.04. Executive Representations . Executive represents that Executive is not subject to any restrictive covenant, confidentiality agreement,or any other agreement that would prevent Executive from accepting employment with Employer, and based on the information provided to Employer byExecutive, Employer accepts such representation.4. Compensation .4.01. Base Salary . Employer shall pay to Executive an annual base salary for all services to be rendered by Executive under thisAgreement of $312,300 (the "Base Salary"), which Base Salary shall be paid in accordance with Employer's normal payroll schedule, procedures and policies(which schedule, procedures and policies may be modified from time to time) and subject to applicable deductions as required by law. Employer shallreview Executive's salary on an annual basis and may, in its discretion, consider and declare from time to time increases in the Base Salary that it pays Executive. Any and all increases in Executive's salary pursuant to this section shall cause the level of Base Salary to be increased by the amount of each such increase forpurposes of this Agreement. The increased level of Base Salary as provided in this section shall become the level of Base Salary for the remainder of the term ofthis Agreement unless there is a further increase in Base Salary as provided herein.4.02. Annual Bonus . Executive shall also be eligible to receive, in addition to the Base Salary, an annual bonus having a target amountequal to 35% of Executive's Base Salary ("Target Bonus"), with the actual amount being determined by the Compensation Committee of the Board in its discretiontaking into account the Company's performance and Executive's individual performance. In order to receive a Target Bonus, Executive must be employed byEmployer on the date the bonus is paid.4.03. Accelerated Vesting of Certain Options Upon Occurrence of a Change in Control . Upon the occurrence of a Change in Control eachoutstanding stock option held by Executive that was granted by the Company to Executive prior to the date of an initial public offering of the Company's commonstock shall, to the extent not previously vested, become fully vested.(a)For purposes of this Agreement, " Change of Control " means: "Change of Control" means, and shall be deemed to have occurred,if:(i)any Person, excluding (i) employee benefit plans of the Company or any of its Affiliates, is or becomes the"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, which Rules shall apply for purposes ofthis clause (a) whether or not the Company is subject to the Exchange Act), directly or indirectly, of Company securitiesrepresenting more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities("Voting Power");(ii)the Company consummates a merger, consolidation, share exchange, division or other reorganization ortransaction of the Company (a "Fundamental Transaction") with any other corporation, other than a FundamentalTransaction that results in the voting securities of the Company outstanding immediately prior thereto continuing torepresent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fiftypercent (50%) of the combined Voting Power immediately after such Fundamental Transaction of (i) the Company'soutstanding securities, (ii) the surviving entity's outstanding securities, or (iii) in the case of a division, the outstandingsecurities of each entity resulting from the division;(iii)the stockholders of the Company approve a plan of complete liquidation or winding‑up of the Company or theconsummation of the sale or disposition (in one transaction or a series of transactions) of all or substantially all of theCompany's assets; or(iv)during any period of 24 consecutive months, individuals who at the beginning of such period constituted theBoard (including for this purpose any new director whose election or nomination for election by the Company'sstockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors atthe beginning of such period or whose appointment, election or nomination was previously so approved or recommended)cease for any reason to constitute at least a majority of the Board.4.04. Participation in Benefit Plans . Executive shall be entitled to participate in all employee benefit plans or programs offered to othersenior executives from time to time (to the extent that Executive meets the requirements for each such plan or program), including participation in any healthinsurance plan, disability insurance plan, dental plan, eye care plan, 401(k) plan, life insurance plan, or other similar plans (all such benefits, the "Benefit Plans").4.05. Expenses . Employer shall reimburse Executive for all ordinary and necessary business expenses reasonably incurred by him in theperformance of Executive's duties under this Agreement, subject to the presentment and approval of appropriate itemized expense statements, receipts, vouchers orother supporting documentation in accordance with Employer's normal policies for expense verification in effect from time to time.4.06. Vacation . Executive shall be entitled to no less paid vacation than the other senior executives, pursuant to Employer's standardvacation policies, and shall be guaranteed a minimum of four weeks of paid vacation per year. Executive may carry over up to a maximum of 200 hours of annualleave (including sick pay) at any time, and any unused vacation time beyond that will be forfeited.4.07. Total Compensation . Executive shall not receive any other compensation or benefits other than as provided in Sections 4.01 through4.06 hereof.5. Payments Upon Termination .5.01. Voluntary Resignation without Good Reason . Executive may terminate Executive's employment by providing Employer with 30days' advance written notice. If Executive terminates Executive's employment (other than for good reason or by reason of Disability) (i) Employer shall pay toExecutive the Accrued Obligations (as defined below), (ii) Executive's participation in the Benefit Plans shall terminate as of the Termination Date, and (iii)Employer shall have no other obligations to Executive under this Agreement, other than those provided in this Section 5.01.(a)For purposes of this Agreement, " Accrued Obligations " means: (i) Executive's earned and unpaid Base Salary throughthe Termination Date; (ii) reimbursement for any reimbursable business expenses incurred by Executive through the TerminationDate in accordance with Section 4.05; and (iii) Executive's accrued but unused vacation time as of the Termination Date. Theamounts payable pursuant to clauses (i) and (iii) hereof shall be paid no later than sixty (60) days following Executive'sTermination Date.(b)For purposes of this Agreement, " Termination Date " means: the effective date of Executive's "separation from service"as defined in Section 409A of the Internal Revenue Code of 1986, as amended (the "Code")..5.02. Termination by Employer For Cause . If Executive is terminated for Cause: (i) Employer shall pay to Executive the AccruedObligations, (ii) Executive's participation in the Benefit Plans shall terminate as of the Termination Date, and (iii) Employer shall have no further obligations toExecutive under this Agreement, other than those provided in this Section 5.02. For purposes of this Agreement, " Cause " means: (a) Executive's failure tosubstantially perform Executive's duties with the Company (if Executive has not cured such failure to substantially perform, if curable, within thirty (30) days afterExecutive's receipt of written notice thereof from the Board that specifies the conduct constituting Cause under this clause (a)); (b) Executive's willful misconduct,or gross negligence in the performance of Executive's duties hereunder; (c) the conviction of Executive, or the entering by Executive of a guilty plea or plea of nocontest with respect to, any crime that constitutes a felony or involves fraud, dishonesty or moral turpitude; (d) Executive's commission of an act of fraud,embezzlement or misappropriation against the Company; (e) Executive's material breach of the fiduciary duty owed by Executive to Company; (f) Executive'sengaging in any improper conduct that has or is likely to have an adverse economic or reputational impact on the Company; or (g) Executive's material breach ofthis Agreement.5.03. Termination by Employer Without Cause or by Executive for Good Reason . If Executive is terminated by Employer without Causeor by Executive for Good Reason: (i) Employer shall pay to Executive the Accrued Obligations, (ii) Executive shall be entitled to receive the Severance Benefits(as defined below in Section 5.05 and subject to the conditions described therein and in Section 5.06), and (iii) Employer shall have no further obligations toExecutive under this Agreement, other than those provided in this Section 5.03. For purposes of this Agreement, " Good Reason " means the occurrence of any ofthe following events (without Executive's consent): (i)a material adverse change in Executive's functions, duties, or responsibilities with the Company which changewould cause Executive's position to become one of materially lesser responsibility, importance, or scope; or(ii)a material breach of this Agreement by the Company.Notwithstanding the foregoing, no such event shall constitute "Good Reason" unless (a) Executive shall have given written notice of such event to the Companywithin ninety (90) days after the initial occurrence thereof, (b) the Company shall have failed to cure the condition constituting Good Reason within thirty (30)days following the delivery of such notice (or such longer cure period as may be agreed upon by the parties), and (c) Executive terminates employment withinthirty (30) days after expiration of such cure period.5.04. Termination by Employer due to Executive's Disability . If Executive's employment is terminated by reason of Disability (as definedbelow): (i) Employer shall pay to Executive the Accrued Obligations, (ii) Executive's participation in the Benefit Plans shall terminate as of the Termination Date(except to the extent Executive is eligible for continued disability benefits under the applicable Employer plan), and (iii) Employer shall have no further obligationsto Executive under this Agreement, other than those provided in this Section 5.04. For purposes of this Agreement, " Disability " means Executive beingdetermined to be totally disabled by the Social Security Administration or Executive's inability to engage in any substantial gainful activity by reason of anymedically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less thantwelve months.5.05. Severance Benefits : "Severance Benefits" means:(a)The payment to Executive of the Severance Amount in substantially equal installments over one year (with the firstpayment commencing on the first payroll date that occurs at least 28 days following the Termination Date), in accordance withEmployer's payroll practices in effect as of the Effective Date ("Severance Period"), provided that in the event such payrollpractices change, in accordance with such new payroll practices, but only if any such change in payroll practices does not result ina payment being accelerated or delayed by more than thirty (30) days. Severance Amount means the sum of Executive's BaseSalary and Target Bonus in effect immediately prior to the Date of Termination provided that Target Bonus shall be included in theSeverance Amount only if the Termination Date occurs upon or within two years after a Change in Control.(b)The continuation of Executive's participation in the Company's medical, dental, and vision benefit plans at the samepremium cost to Executive as charged to Executive immediately prior to the Termination Date for a period of twelve (12) monthsimmediately following the Termination Date, or if earlier, until Executive obtains other employment which provides the same typeof benefit; provided , however , that (a) it is understood and agreed that such continued medical, dental and vision benefits may atthe election of the Company be provided by Executive electing the continuation of such coverage pursuant to COBRA with theCompany reimbursing Executive for COBRA premiums to the extent required so that Executive's premium cost for the coverage ineffect for Executive prior to the Termination Date is substantially the same as immediately prior to the Termination Date, and (b) ifthe Company determines, in its reasonable judgment, that providing medical, dental, and/or vision benefits in accordance with thepreceding provisions of this Section 5.05(b) would result in a violation of applicable law, the imposition of any penalties underapplicable law, or adverse tax consequences for participants covered by the Company's medical, dental, and/or vision plans, theCompany may terminate such coverage (or reimbursement) with respect to Executive and instead pay to Executive taxable cashpayments at the same time and in the same amounts as the Company would have paid as premiums (or as COBRA premiumreimbursements) to provide such coverage. (c)With respect to each stock option granted by the Company to Executive that is outstanding as of the Termination Dateand is not fully vested as of the date of the Termination Date, Executive shall become vested as of the date Executive provides theCompany with the Irrevocable Release provided for in this Section 5.05 within the period prescribed therein with respect to 50%(100% if the Termination Date occurs upon or within two years after the occurrence of a Change in Control) of the shares withrespect to which the stock option is not vested as of the Termination Date. 5.06 Required Delivery of Irrevocable Release; Compliance with Section 6 Obligations . Notwithstanding the provisions of Section 5.05, asa condition to entitlement to the Severance Benefits, Executive must provide to the Company an Irrevocable Release not later than the sixtieth day afterthe Date of Termination. In the event Executive fails to provide an Irrevocable Release to the Company within such sixty day period, the Company willimmediately cease to pay or provide any further Severance Benefits, no accelerated vesting of stock options pursuant to Section 5.05(c) shall occur, andExecutive shall be obligated to immediately repay to the Company all previously paid or provided Severance Benefits. "Irrevocable Release" means aconfidential separation agreement and release of claims, in form and substance substantially similar to the attached Exhibit A that has been executed byExecutive, delivered to the Company, and become irrevocable by Executive. In addition, in the event that Executive breaches the obligations underSection 6 of this Agreement at any time during the Severance Period, Executive will cease to be entitled to any further Severance Benefits.6. Promises and Covenants Regarding Confidential Information and Goodwill; Inventions and Assignment; Restrictive Covenants . 6.01. Confidential Information and Goodwill . In consideration of Executive's promises and covenants contained in this Agreement,including Executive's promise and covenant not to disclose Confidential Information, Employer will provide Executive with Confidential Information. In furtherconsideration of Executive's promises and covenants contained in this Agreement, including Executive's promise and covenant to utilize the Goodwill exclusivelyfor the benefit of Employer, Employer will allow Executive to receive Confidential Information concerning the Company's customers, labs, vendors and employeesand, to the extent required to fulfill Executive's duties, the Company will permit Executive to represent the Company on its behalf with such persons. To the extentthat Executive's duties involve sales or customer relations, the Company will permit Executive to utilize the Goodwill in Executive's sales efforts and will providesales support to Executive similar to that which it provides to its sales representatives.6.02. Duties . While employed by Company, Executive shall perform the duties required of Executive hereunder and shall devoteExecutive's best efforts and exclusive business time, energy and skill to performing such duties; not make any disparaging remarks regarding Company to anyperson with whom Company has business relations, including any employee or vendor of Company; use the Goodwill solely for the benefit of Company; and notinterfere in such Goodwill, either during or following Executive's employment with Company.6.03. Delivery of Company Property . Executive recognizes that all documents, magnetic media and other tangible items which containConfidential Information are the property of Company exclusively. Upon request by Company or termination of Executive's employment with Company,Executive shall promptly return to Company all Confidential Information and Company Property within Executive's possession and control, and shall refrain fromtaking any Confidential Information or Company Property or allowing any Confidential Information or Company Property to be taken from Company; andimmediately return to Company all information pertaining to Company or Company Property in Executive's possession.6.04. Promise and Covenant Not to Disclose . The parties acknowledge that Company is the sole and exclusive owner of ConfidentialInformation, and that Company has legitimate business interests in protecting Confidential Information. The parties further acknowledge that Company hasinvested, and continues to invest, considerable amounts of time and money in obtaining, developing, and preserving the confidentiality of Confidential Informationand that, by reason of the trust relationship arising between Executive and Company, Executive owes Company a fiduciary duty to preserve and protectConfidential Information from all unauthorized disclosure and unauthorized use. Executive shall not, directly or indirectly, disclose Confidential Information toany third party (except to Executive's attorneys, the Company's personnel, other persons designated in writing by the Company, or except as otherwise provided bylaw) or use Confidential Information for any purpose other than for the direct benefit of Company while in Company's employ and thereafter.6.05. Inventions and Assignment . Executive agrees that he will promptly disclose to the Company any and all Company Inventions andthat Executive hereby irrevocably assigns to the Company all ownership rights in and to any and all Company Inventions. During Executive's employment or atany time thereafter, upon request of the Company, Executive will sign, execute and deliver any and all documents or instruments, including, without limitation,patent applications, declarations, invention assignments and copyright assignments, and will take any other action which the Company shall deem necessary toperfect in the Company trademark, copyright or patent rights with respect to Inventions, or to otherwise protect the Company's trade secrets and proprietaryinterests.. The term " Inventions " means discoveries; developments; trade secrets; processes; formulas; data; lists; software programs; graphics; artwork; logos,and all other works of authorship, ideas, concepts, know-how, designs, and techniques, whether or not any of the foregoing is or are patentable, copyrightable, orregistrable under any intellectual property laws or industrial property laws in the United States. The term " Company Inventions " means all Inventions that (a)relate to the business or proposed business of the Company or any of its predecessors or that are discovered, developed, created, conceived, reduced to practice,made, learned or written by Executive, either alone or jointly with others, in the course of Executive's employment; (b) utilize, incorporate or otherwise relate toConfidential Information; or (c) are discovered, developed, created, conceived, reduced to practice, made, or written by him using property or equipment of theCompany or any of its predecessors. Executive agrees to promptly and fully communicate in writing to the Company (to such department or officer of theCompany and in accordance with such procedures as the Company may direct from time to time) any and all Company Inventions. Executive acknowledges andagrees that any work of authorship by Executive or others comprising Company Inventions shall be deemed to be a "work made for hire," as that term is defined inthe United States Copyright Act (17 U.S.C. § 101 (2000)). To the extent that any such work of authorship may not be deemed to be a work made for hire,Executive hereby irrevocably assigns any ownership rights Executive may have in and to such work to the Company. This Agreement does not apply to anyInventions Executive made before Executive's employment with the Company. To clearly establish Executive's rights, Executive has listed on Exhibit B anyInventions, whether or not patentable or copyrightable and whether or not reduced to practice, made by him prior to Executive's employment with the Companythat are owned by Executive (" Prior Inventions "), together with the approximate dates of their creation. If no such list is attached, Executive represents that thereare no Prior Inventions.6.06. Other Promises and Covenants .(a)During Executive's employment with Company and for a period of 18 months following termination of employment forany reason or the Severance Period (the "Non-Competition Period"), Executive shall not either directly or indirectly, onExecutive's own or another's behalf, engage in or assist others in any of the following activities (except on behalf of Company):(i)(whether as principal, agent, partner or otherwise) engage in, own, manage, operate, control, finance, invest in,participate in, or otherwise carry on, or be employed by, associated with, or in any manner connected with, lend suchExecutive's name to, lend Executive's credit to, or render services or advice to a Competing Business anywhere in theGeographic Area;(ii)provide or develop any products, technology or services that are the same or Substantially Similar to the products,technology and services provided or developed by the Company or any of its Affiliates;(iii)induce or attempt to induce any customer, agent, supplier, licensee, or business relation of the Company or any ofits Affiliates to cease doing business with the Company or any of its Affiliates, or in any way interfere with therelationship between any customer, supplier, licensee, or business relation of the Company or any of its Affiliates; or(iv)on behalf of a Competing Business, solicit or attempt to solicit the business or patronage of any Person who is acustomer or agent of the Company or any of its Affiliates, whether or not Executive had personal contact with such Person.(b)During Executive's employment with Company and for a period of two years following termination of employment forany reason (the "Non-Solicitation Period"), Executive shall not either directly or indirectly, on Executive's own or another's behalf,engage in or assist others in any of the following activities:(i)solicit, encourage, or take any other action which is intended to induce any employee, independent contractor oragent of the Company or any of its Affiliates to terminate Executive's employment or other business relationship with theCompany or such Affiliate;(ii)in any way interfere in any manner with the employment or other business relationship between the Companyand/or any of its Affiliates, on the one hand, and any employee, independent contractor or agent of the Company or suchAffiliate, on the other hand; or(iii)employ, or otherwise engage as an employee, independent contractor or otherwise, any individual who was anemployee, independent contractor, agent or was otherwise affiliated with the Company or any of its Affiliates from theperiod beginning one year prior to the date on which Executive became employed and continuing through the expiration ofthe Non-Solicitation Period.provided , however , that nothing set forth in this Section 6 shall prohibit Executive from owning, as a passive investment, not in excess of five percent (5%) in theaggregate of any class of capital stock of any corporation if such stock is publicly traded and listed on any national or regional stock exchange or reported on theNasdaq Stock Market.6.07. Definitions . For purposes hereof:(a)"Affiliate" means, with respect to any Entity, any Entity that, directly or indirectly through one or more intermediaries,controls, is controlled by or under common control with, such Entity.(b)"Agreement" means this Employment Agreement.(c)"Company Business" means the research, development, testing and/or marketing/sales of pharmaceutical products orprocesses that are, rely on, target or rely upon (a) CD3 (when targeted individually), (b) HER2, (c) B7-H3, (d) CD123, (e) gpA33,(f) CD32b and CD79b (when jointly targeted), (g) any other undisclosed target either being developed by Employer or the subjectof a collaboration between Employer and a third party, or (h) any effort to develop diabodies similar to the Company's "DART"technology including DART conjugates.(d)"Company Property" means all physical materials, documents, information, keys, computer software and hardware,including laptop computers and mobile or handheld scheduling computers, manuals, data bases, product samples, tapes, magneticmedia, technical notes and any other equipment or items which Company provides for or to Executive or which otherwise belongsto the Company, and those documents and items which Executive may develop or help develop while in Company's employ,whether or not developed during regular working hours or on Company's premises. The term "Company Property" shall includethe original of such materials, any copies thereof, any notes derived from such materials, and any derivative work of suchmaterials.(e)"Competing Business" means any other Entity engaged in the Company Business, other than the Company and itsAffiliates.(f)"Confidential Information" means the trade secrets and other information of Company, including but not limited to (i) thecustomer lists, customer contact information, customer purchase information, pricing information, strategic and marketing plans,compilations of customer information, names of employees, contracts with third parties, training, financial and marketing books,sales projections, internal employer databases, reports, manuals and information including information related to Company, itsAffiliates or its customers, including those documents and items which any employee may develop or help develop while in theemploy of the Company or any of its Affiliates, whether or not developed during regular working hours or on the premises of theCompany or such Affiliate; (ii) the identity, skills, personnel file information, performance appraisals and compensation of jobapplicants, employees, contractors, and consultants; (iii) specialized training; (iv) source code, scripts, user screens, reports or anyother information pertaining to the internal information technology or network of the Company and/or its Affiliates, including theproprietary database system commonly referred to as the Office System; and (v) information related to inventions owned by theCompany or any of its Affiliates or licensed from third parties; and unless the context requires otherwise, the term " ConfidentialInformation " includes the original of such materials, any copies thereof, any notes derived from such materials, and any derivativework of such materials. The term " Confidential Information " does not include (1) information that was or becomes generallyavailable publicly other than through disclosure by Executive, or (2) is required to be disclosed to any governmental agency or self-regulatory body or is otherwise required to be disclosed by law. Unless the context requires otherwise, the term "ConfidentialInformation" shall include the original of such materials, any copies thereof, any notes derived from such materials, and anyderivative work of such materials.(g)"Entity " means and includes any person, partnership, association, corporation, limited liability company, trust,unincorporated organization or any other business entity or enterprise.(h)"Geographic Area" mean those states in which the Company or any of its subsidiaries conducts business or in which itsproducts are being sold or marketed at the time of the termination of Executive's employment.(i)"Goodwill" means the value of the relationships between the Company and its agents, customers, vendors, labs, andemployees.(j)"Substantially Similar" means substantially similar in function or capability or otherwise competitive to the products orservices being developed, manufactured or sold by the Company during and/or at the end of Executive's employment, or aremarketed to substantially the same type of user or customer as that to which the products and services of the Company aremarketed or proposed to be marketed.6.08. Acknowledgements Regarding Other Promises and Covenants . With regard to the promises and covenants set forth herein, Executiveacknowledges and agrees that:(a)the restrictions are ancillary to an otherwise enforceable agreement including the provisions of this Agreement regardingthe disclosure, ownership and use of the Confidential Information and Goodwill of Company;(b)the limitations as to time, geographical area, and scope of activity to be restricted are reasonable and acceptable toExecutive, and do not impose any greater restraint than is reasonably necessary to protect the Goodwill and other legitimatebusiness interests of Company;(c)the performance by Executive, and the enforcement by Company, of such promises and covenants will cause no unduehardship on Executive;(d)the time periods covered by the promises and covenants will not include any period(s) of violation of, or any period(s) oftime required for litigation brought by Company to enforce any such promise or covenant, it being understood that the extension oftime provided in this paragraph may not exceed two (2) years.6.09. Duty to Give Notice of Agreement . During employment by Company and the period of any post-employment obligation applicablehereunder, Executive shall provide written notice to any prospective employer of Executive's obligations under this Agreement, and shall provide a true copyhereof to such prospective employer at the outset of any communications about employment.6.10. Independent Elements . The parties acknowledge that the promises and covenants contained in Section 6 above are essentialindependent elements of this Agreement and that, but for Executive agreeing to comply with them, Company would not employ Executive. Accordingly, theexistence or assertion of any claim by Executive against Company, whether based on this Agreement or otherwise, shall not operate as a defense to Company'senforcement of the promises and covenants in Section 6. An alleged or actual breach of the Agreement by Company will not be a defense to enforcement of anysuch promise or covenant, or other obligations of Executive to Company. The promises and covenants in Section 6 will remain in full force and effect whetherExecutive is terminated by Company or voluntarily resigns.6.11. Remedies for Breach of Agreement . Executive acknowledges that Executive's breach of any promise or covenant contained inSection 6 will result in irreparable injury to Company and that Company's remedies at law for such a breach will be inadequate. Accordingly, Executive agrees andconsents that Company, in addition to all other remedies available at law and in equity, shall be entitled to both preliminary and permanent injunctions to preventand/or halt a breach or threatened breach by Executive of any such promise or covenant, and Executive waives the requirement of the posting of any bond inconnection with such injunctive relief. Executive further acknowledges and agrees that the promises and covenants contained in Section 6 are enforceable,reasonable, and valid.7. Miscellaneous .7.01. Governing Law; Arbitration(a)This Agreement is made under and shall be governed by and construed in accordance with the laws of Maryland, withoutregard to its conflicts of law principles.(b)With respect to claims by the Company against Executive related to Executive's threatened or actual breach of Section 6of this Agreement, each Party hereby irrevocably agrees that all actions or proceedings concerning such disputes may be broughtby the Company in (a) the United States District Court for the District of Maryland; or (b) in any court of the State of Marylandsitting in Montgomery County, provided that the United States District Court lacks subject matter jurisdiction over such action orproceeding. Executive consents to jurisdiction of and venue in the courts in the State of Maryland set forth in this Section, andhereby waives to the maximum extent permitted by applicable law any objection which Executive may have based on impropervenue or forum non conveniens .(c)Except to the extent provided for in subsection (b) above, the Company and Executive agree that any claim, dispute orcontroversy arising under or in connection with this Agreement, or otherwise in connection with Executive's employment by theCompany or termination of his employment (including, without limitation, any such claim, dispute or controversy arising underany federal, state or local statute, regulation or ordinance or any of the Company's employee benefit plans, policies or programs)shall be resolved solely and exclusively by binding, confidential, arbitration. The arbitration shall be held in Rockville, MD (or atsuch other location as shall be mutually agreed by the parties). The arbitration shall be conducted in accordance with theCommercial Rules of the American Arbitration Association (the " AAA ") in effect at the time of the arbitration, including theExpedited Procedures. All fees and expenses of the arbitration, including a transcript if either requests, shall be borne equally bythe parties. Each party is responsible for the fees and expenses of its own attorneys, experts, witnesses, and preparation andpresentation of proofs and post-hearing briefs (unless the party prevails on a claim for which attorney's fees are recoverable underlaw). In rendering a decision, the arbitrator shall apply all legal principles and standards that would govern if the dispute werebeing heard in court. This includes the availability of all remedies that the parties could obtain in court. In addition, all statutes oflimitation and defenses that would be applicable in court, will apply to the arbitration proceeding. The decision of the arbitratorshall be set forth in writing, and be binding and conclusive on all parties. Any action to enforce or vacate the arbitrator's awardshall be governed by the Federal Arbitration Act, if applicable, and otherwise by applicable state law. If either the Company orExecutive improperly pursues any claim, dispute or controversy against the other in a proceeding other than the arbitrationprovided for herein, the responding party shall be entitled to dismissal or injunctive relief regarding such action and recovery of allcosts, losses and attorney's fees related to such action.7.02. Entire Agreement . This Agreement and the documents referenced herein contain the entire agreement of the parties relating to theemployment of Executive by Employer and the ancillary matters discussed herein and supersedes all prior agreements, negotiations and understandings withrespect to such matters, including, without limitation, any term sheet between the parties hereto with respect to such matters, and the parties hereto have made noagreements, representations or warranties relating to such employment or ancillary matters which are not set forth herein.7.03. Withholding Taxes . Employer may withhold from any compensation and Benefits payable under this Agreement all federal, state,city or other taxes as shall be required pursuant to any law or governmental regulation or ruling.7.04. Golden Parachute Limit . Notwithstanding any other provision of this Agreement, in the event that any portion of the SeveranceBenefits or any other payment or benefit received or to be received by Executive (whether pursuant to the terms of this Agreement or any other plan, arrangementor agreement) (collectively, the " Total Benefits ") would be subject to the excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, asamended (the "Code") (the " Excise Tax "), the Total Benefits shall be reduced to the extent necessary so that no portion of the Total Benefits is subject to theExcise Tax; provided, however, that no such reduction in the Total Benefits shall be made if by not making such reduction, Executive's Retained Amount (ashereinafter defined) would be more than ten percent (10%) greater than Executive's Retained Amount if the Total Benefits are so reduced. All determinationsrequired to be made under this Section 7.04 shall be made by tax counsel selected by the Company and reasonably acceptable to Executive (" Tax Counsel "),which determinations shall be conclusive and binding on Executive and the Company absent manifest error. All fees and expenses of Tax Counsel shall be bornesolely by the Company. Prior to any reduction in Executive's Total Benefits pursuant to this Section 7.04, Tax Counsel shall provide Executive and the Companywith a report setting forth its calculations and containing related supporting information. In the event any such reduction is required, the Total Benefits shall bereduced in the following order: (i) the Severance Amount (in reverse order of payment), (iii) any portion of the Total Benefits that are not subject to Section 409Aof the Code (other than Total Benefits resulting from any accelerated vesting of equity awards), (iv) other Total Benefits that are subject to Section 409A of theCode in reverse order of payment, and (v) Total Benefits that are not subject to Section 409A and arise from any accelerated vesting of any equity awards. "Retained Amount" shall mean the present value (as determined in accordance with sections 280G(b)(2)(A)(ii) and 280G(d)(4) of the Code) of the Total Benefitsnet of all federal, state and local taxes imposed on Executive with respect thereto.7.05. Compliance With Section 409A . This Agreement is intended to comply with the requirements of Section 409A of the Code(including the exceptions thereto), to the extent applicable, and shall be interpreted and administered accordingly. If any provision contained in this Agreementconflicts with the requirements of Section 409A of the Code (or the exemptions intended to apply under this Agreement), this Agreement shall be deemed to bereformed to comply with the requirements of Section 409A of the Code (or applicable exemptions thereto). Notwithstanding anything to the contrary herein, forpurposes of determining Executive's entitlement to the Severance Benefits under Section 5 hereof, (a) Executive's employment shall not be deemed to haveterminated unless and until Executive incurs a "separation from service" as defined in Section 409A of the Code, and (b) the effective date of any termination orresignation of employment (or any similar term) shall be the effective date of Executive's separation from service. Reimbursement of any expenses provided for inthis Agreement shall be made in accordance with the Company's policies (as applicable) with respect thereto as in effect from time to time (but in no event laterthan the end of calendar year following the year such expenses were incurred) and in no event shall (i) the amount of expenses eligible for reimbursementhereunder during a taxable year affect the expenses eligible for reimbursement in any other taxable year or (ii) the right to reimbursement be subject to liquidationor exchange for another benefit. Notwithstanding anything to the contrary herein, if a payment or benefit under this Agreement is due to a "separation fromservice" for purposes of the rules under Treas. Reg. § 1.409A-3(i)(2) (payments to specified employees upon a separation from service) and Executive isdetermined to be a "specified employee" (as determined under Treas. Reg. § 1.409A-1(i)), such payment shall, to the extent necessary to comply with therequirements of Section 409A of the Code, be made on the later of (x) the date specified by the foregoing provisions of this Agreement or (y) the date that is six (6)months after the date of Executive's separation from service (or, if earlier, the date of Executive's death). Any installment payments that are delayed pursuant tothe provisions of this section shall be accumulated and paid in a lump sum on the first day of the seventh month following Executive's separation from service (or,if earlier, upon Executive's death) and the remaining installment payments shall begin on such date in accordance with the schedule provided in this Agreement. To the extent permitted by Section 409A, each payment hereunder shall be deemed to be a separate payment for purposes of Section 409A of the Code.7.06. Amendments . No amendment or modification of the terms of this Agreement shall be valid unless made in writing and signed byboth Executive and Employer.7.07. Severability; Reformation . Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to beeffective and valid under applicable Law but if any provision of this Agreement is held to be invalid, illegal or unenforceable under any applicable Law or rule, thevalidity, legality and enforceability of the other provisions of this Agreement will not be affected or impaired thereby. If any provision of this Agreement is foundinvalid, illegal or unenforceable because it is too broad in scope, too lengthy in duration or violates any Law or regulation, it shall be reformed by limiting itsscope, limiting its duration or construing it to avoid such violation (as the case may be) while giving the greatest effect to the intent of the parties as is legallypermissible.7.08. No Waiver . No waiver of any provision of this Agreement shall in any event be effective unless the same shall be in writing andsigned by the party against whom such waiver is sought to be enforced, and any such waiver shall be effective only in the specific instance and for the specificpurpose for which given.7.09. Assignment; No Third Party Beneficiary . This Agreement is a personal service contract, and shall not be assignable by Executive. This Agreement shall be assignable by Employer to any successor to the business of Employer, without the written consent of Executive; provided, however, thatthe assignee or transferee is the successor to all or substantially all of the business assets of Employer and such assignee or transferee expressly assumes all theobligations, duties, and liabilities of Employer set forth in this Agreement. Any purported assignment of this Agreement in violation of this Section 7.09 shall benull and void. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, and noother Person shall have any right, benefit or obligation hereunder.7.10. Counterparts; Facsimile Signatures . This Agreement may be executed in separate counterparts, each of which will be an original andall of which taken together shall constitute one and the same agreement, and any party hereto may execute this Agreement by signing any such counterpart. Afacsimile signature by any party on a counterpart of this Agreement shall be binding and effective for all purposes. Such party shall subsequently deliver to theother party an original, executed copy of this Agreement; provided, however, that a failure of such party to deliver an original, executed copy shall not invalidateExecutive's or its signature.7.11. Notices . All notices and other communications relating to this Agreement will be in writing and will be deemed to have been givenwhen personally delivered, three (3) days following mailing by certified or registered mail, return receipt requested, and one (1) Business Day following delivery toa reliable overnight courier or immediately following transmission by electronic facsimile. All notices to Employer shall be addressed and delivered to:MacroGenics, Inc. 9640 Medical Center Dr. Rockville, MD 20850With a copy to:Matthew D. Keiser Arnold & Porter, LLP 555 Twelfth Street, NW Washington, DC 2004 (telephone) 202-942-6398 (fax) 202-942-5999or to such other address and facsimile number as designated by Employer in a written notice to Executive. All notices to Executive shall be addressed anddelivered to:James Karrels xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxx Facsimile No.: (xxx) xxx-xxxxor to such other address and facsimile number as Executive has designated in a written notice to Employer.7.12. Interpretation . The headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaningor interpretation of this Agreement.7.13. Cumulative Remedies . The rights and remedies of the parties hereunder are cumulative and not exclusive of any rights or remediesany party hereto may otherwise have.7.14. Expenses Relating to this Agreement . Each party shall pay its or Executive's own expenses incident to the negotiation, preparationand execution of this Agreement.IN WITNESS WHEREOF, Executive and Employer have executed this Employment Agreement as of the date set forth in the first paragraph."EMPLOYER" MacroGenics, Inc. By: /s/ Edward Hurwitz Date: 10/9/2013 Name: Edward Hurwitz Title: Chairman of the Compensation Committee "EXECUTIVE" /s/ James Karrels Date: 10/9/2013 James KarrelsEXHIBIT ACONFIDENTIAL SEPARATION AGREEMENT AND GENERAL RELEASEPursuant to the Employment Agreement by and between ______ ("Executive") and MacroGenics, Inc. (the "Company"), in order for Executive to receivethe Severance Amount therein, Executive is required to enter into this Separation Agreement and General Release (this "Release").NOW, THEREFORE, in consideration of the foregoing, of the mutual promises herein contained, of other good and valuable consideration, thesufficiency and receipt of which are hereby acknowledged by the Parties, it is agreed as follows:1. As of the Termination Date, and at all times forward, Executive will not hold himself out to any person or entity as being an employee, officer,representative, or agent of the Company.2. In exchange for the considerations provided for in this Agreement including the receipt of the Severance Amount, Executive hereby completely,irrevocably, and unconditionally releases and forever discharges the Company, and any of its affiliated companies, and each and all of their officers, agents,directors, supervisors, employees, representatives, and their successors and assigns, and all persons acting by, through, under, for, or in concert with them , or anyof them , in any and all of their capacities (hereinafter individually or collectively, the "Released Parties") , from any and all charges, complaints, claims, andliabilities of any kind or nature whatsoever, known or unknown, suspected or unsuspected (hereinafter referred to as "claim" or "claims") which Executive at anytime heretofore had or claimed to have or which Executive may have or claim to have regarding events that have occurred as of the Effective Date of thisAgreement, including, without limitation , those based on: any employee welfare benefit or pension plan governed by the Employee Retirement Income SecurityAct as amended (hereinafter "ERISA") (provided that this release does not extend to any vested retirement benefits of Executive under Company's 401(k) SafeHarbor Plan); the Civil Rights Act of 1964, as amended (race, color, religion, sex and national origin discrimination and harassment) ; the Civil Rights Act of 1966(42 U.S.C. § 1981) (discrimination) ; the Age Discrimination in Employment Act of 1967 (hereinafter "ADEA"), as amended; the Older Workers BenefitProtection Act, as amended; the Americans With Disabilities Act (hereinafter "ADA"), as amended; § 503 of the Rehabilitation Act of 1973; the Fair LaborStandards Act, as amended (wage and hour matters); the Family and Medical Leave Act, as amended, (family leave matters), Article 49B of the Maryland Code(discrimination), any other federal, state, or local laws or regulations regarding employment discrimination or harassment, wages, insurance, leave, privacy or anyother matter; any negligent or intentional tort; any contract, policy or practice (implied, oral, or written); or any other theory of recovery under federal, state, orlocal law, and whether for compensatory or punitive damages, or other equitable relief, including, but not limited to, any and all claims which Executive may nowhave or may have had, arising from or in any way whatsoever connected with Executive's employment or contacts , with Company or any other of the ReleasedParties.Executive acknowledges, understands and agrees that Executive has been paid in full for all hours that Executive has worked for the Company and thatExecutive has been paid any and all compensation or bonuses which have been earned by Executive through the date of execution of this Agreement. Executiveacknowledges, understands and agrees that Executive has not been denied any leave requested under the FMLA or applicable state leave laws and that, to theextent applicable, Executive has been returned to Executive's job, or an equivalent position, following any FMLA or state leave taken pursuant to the FMLA orstate laws. Executive acknowledges, understands and agrees that Executive has reported to the Employer's management personnel any work related injury orillness that occurred up to and including Executive's last day of employment. Executive acknowledges, understands, and agrees that Executive has no knowledgeof any actions or inactions by any of the Released Parties or by Executive that Executive believes could possibly constitute a basis for a claimed violation of anyfederal, state, or local law, any common law or any rule promulgated by an administrative body.3. To the extent permitted by law, Executive agrees that he will not cause or encourage any future legal proceedings to be maintained or institutedagainst any of the Released Parties. To the extent permitted by law, Executive agrees that he will not accept any remedy or recovery arising from any charge filedor proceedings or investigation conducted by the EEOC or by any state or local human rights or employment rights enforcement agency relating to any of thematters released in this Agreement.4. Older Workers Benefit Protection Act /ADEA Waiver4.01. Executive acknowledges that Company has advised him in writing to consult with an attorney of his choice before signing thisAgreement, and Executive has been given the opportunity to consult with an attorney of his choice before signing this Agreement.4.02. Executive acknowledges that he has been given the opportunity to review and consider this Agreement for a full twenty-one daysbefore signing it , and that, if he has signed this Agreement in less than that time, he has done so voluntarily in order to obtain sooner the benefits of thisAgreement.4.03. Executive further acknowledges that he may revoke this Agreement within seven (7) days after signing it, provided that thisAgreement will not become effective until such seven (7) day period has expired. To be effective, any such revocation must be in writing and delivered toCompany's principal place of business by the close of business on the seventh (7th) day after signing the Agreement and must expressly state Executive's intentionto revoke this Agreement. Provided that Executive does not timely revoke this Agreement, the eighth (8th) day following Executive's execution hereof shall bedeemed the "Effective Date" of this Agreement.4.04. The Parties also agree that the release provided by Executive in this Agreement does not include a release for claims under the ADEAarising after the date Executive signs this Agreement.5. Executive shall promptly turn over to the Company any and all documents, files, computer records, or other materials belonging to, or containingconfidential or proprietary information obtained from, the Company that are in Executive's possession, custody, or control, including any such materials that maybe at Executive's home.6. Executive acknowledges that, during the course of Executive's employment with Company, Executive has acquired or been exposed to theCompany's confidential information and trade secrets, including, but not limited to, business plans, marketing plans, financial data, proprietary technology, andcustomer and client lists and asset information ("Confidential Information"). Executive agrees hereafter to maintain the confidentiality of the ConfidentialInformation , to refrain from disclosing any Confidential Information to anyone , to refrain from using the Confidential Information on his own behalf or on behalfof anyone other than the Company , and to comply with any confidentiality or non-disclosure agreement Executive has executed.7. The Parties agree that they will keep absolutely confidential, and not make any future disclosures to anyone except that the Parties may disclosethis Agreement:7.01. to enforce this Agreement; and/or7.02. to an attorney; and/or7.03. tax advisor or attorney in connection with a tax matter; and/or7.04. to the United States Internal Revenue Service, or state or local tax authority upon its request for tax purposes; and/or7.05. as required by court order or otherwise required by law or in response to valid legal process; provided that the Parties may makedisclosure to attorneys, accountants, tax advisors, and family members only if such persons agree to keep the information confidential; and provided further thatbefore providing information pursuant to a court order or other legal requirement, the Party providing such information shall promptly notify the other Party, and tothe extent possible will comply with the court order or other legal requirement in ways that preserve confidentiality .8. Executive agrees that Executive will not publicly make or publish any adverse, disparaging, untrue, or misleading statement or comment about theCompany or any of its officers, directors, employees, or agents. The Company agrees to instruct its directors, officers, and senior management not to publiclymake or publish any adverse, disparaging, untrue, or misleading statement or comment about Executive.9. Executive agrees to answer questions that the Company may have from time to time regarding matters that Executive worked on and to cooperatewith the Company, upon request, to assist in the investigation, prosecution or defense of any claim, grievance, investigation, or audit by or against the Company. The Company agrees to reimburse Executive for any reasonable and necessary out-of-pocket expenses he incurs as a result of such cooperation.10. This Agreement shall not in any way be construed as an admission by the Company of any acts of unlawful conduct, wrongdoing ordiscrimination against Executive, and the Company specifically disclaims any liability to Executive on the part of itself, its employees, or its agents. ThisAgreement shall not in any way be construed as an admission by Executive of any acts of unlawful conduct, wrongdoing or discrimination against the Company,and Executive specifically disclaims any liability to Company on the part of himself or his agents.11. This Agreement shall be binding upon Executive and upon Executive's heirs, administrators, representatives, executors, successors, and assigns,and shall inure to the benefit of the Company, and its representatives, executors, successors, and assigns. This Agreement shall be binding upon the Company andupon the Company's assigns and shall inure to the benefit of Executive and his heirs, administrators, representatives, executors, successors, and assigns.12. This Agreement and its Exhibits sets forth the entire agreement between the Company and Executive and , except as expressly provided for in thisAgreement, fully supersedes any and all prior agreements or understandings between the Company and Executive pertaining to the subject matter hereof, exceptthat Executive's obligations in Section 6 of the Employment Agreement between Executive and the Company shall remain in full force and effect. In reaching thisAgreement, neither the Company nor Executive has relied upon any representation or promise except those set forth herein. If any provision, or portion of aprovision, of this Agreement is held to be invalid or unenforceable for any reason, the remainder of the Agreement shall remain in full force and effect, as if suchprovision, or portion of such provision, had never been contained herein. The unenforceability or invalidity of a provision of the Agreement in one jurisdictionshall not invalidate or render that provision unenforceable in any other jurisdiction.13. This Agreement cannot be amended, modified, or supplemented in any respect except by written agreement entered into and signed by the Parties.14. This Agreement shall be governed by the laws of the State of Maryland without giving effect to conflict of laws principles, and Executiveconsents to exclusive personal jurisdiction in the state and federal courts of the State of Maryland for any proceeding arising out of or relating to this Agreement. The language of all parts of the Agreement shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against any of the Parties.15. Executive acknowledges that he has read each and every section of this Agreement and that he understands his rights and obligations under thisAgreement. Executive acknowledges that the Company has advised him in writing to consult with an attorney of his choice before signing this Agreement, andthat Executive has been given the opportunity to consult with an attorney of his choice before signing this Agreement.16. This Agreement may be signed in counterparts, each of which shall be considered an original for all purposes , and all of which taken togethershall constitute one and the same written agreement .IN WITNESS WHEREOF, the Company, has caused this Agreement to be executed by its duly authorized officer, and Executive has executed thisAgreement, on the date(s) set forth below. Executive_______________________________________/DateMacroGenics, Inc.By:____________________________________Name: /DateTitle:EXHIBIT B LIST OF PRIOR INVENTIONSTitleDateBrief Description _______________ No Inventions. [initial if none]_______________ Additional sheets attached. [initial if additional sheets, and state how many]Date: Signature NameEXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the following Registration Statements: 1)Registration Statement (Form S-8 No. 333-192277) pertaining to the 2000 Stock Option Incentive Plan, the 2003 Equity Incentive Plan, and 2013 EquityIncentive Plan of MacroGenics, Inc.; 2)Registration Statement (Form S-8 No. 333-202470) pertaining to the 2013 Equity Incentive Plan of MacroGenics, Inc.; and 3)Registration Statement (Form S-3 No. 333-200092) of MacroGenics, Inc.of our reports dated February 29, 2016, with respect to the consolidated financial statements of MacroGenics, Inc. and the effectiveness of internal control overfinancial reporting of MacroGenics, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2015./s/ Ernst & Young LLPMcLean, VirginiaFebruary 29, 2016 EXHIBIT 31.1I, Scott Koenig, certify that: 1.I have reviewed this Annual Report on Form 10-K for the period ended December 31, 2015 of MacroGenics, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. /s/ Scott KoenigScott Koenig, M.D., Ph.D.President and Chief Executive Officer(Principal Executive Officer)Dated: February 29, 2016 EXHIBIT 31.2I, James Karrels, certify that: 1.I have reviewed this Annual Report on Form 10-K for the period ended December 31, 2015 of MacroGenics, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. /s/ James KarrelsJames KarrelsSenior Vice President and Chief Financial Officer(Principal Financial Officer)Dated: February 29, 2016 EXHIBIT 32.1Certification of Principal Executive Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)I, Scott Koenig, President and Chief Executive Officer (principal executive officer) of MacroGenics, Inc. (the “Registrant”), certify, to the best of my knowledge,based upon a review of the Annual Report on Form 10-K for the period ended December 31, 2015 of the Registrant (the “Report”), that: (1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. /s/ Scott KoenigName: Scott Koenig, M.D., Ph.D.Date: February 29, 2016EXHIBIT 32.2Certification of Principal Financial Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)I, James Karrels, Senior Vice President and Chief Financial Officer (principal financial officer) of MacroGenics, Inc. (the “Registrant”), certify, to the best of myknowledge, based upon a review of the Annual Report on Form 10-K for the period ended December 31, 2015 of the Registrant (the “Report”), that: (1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. /s/ James KarrelsName: James KarrelsDate: February 29, 2016

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