MacroGenics
Annual Report 2018

Plain-text annual report

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, 2018 OR ☐☐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)9704 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 ☑ 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 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filingrequirements for the past 90 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 tobe submitted 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 tosubmit and 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 bestof the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to thisForm 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 ☑Accelerated 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 29, 2018, the lastbusiness day of the registrant's most recently completed second fiscal quarter, was approximately$842.5 million based on the closing price of the registrant'scommon stock on the Nasdaq Global Select Market on that date. Exclusion of shares held by any person should not be construed to indicate that such personpossesses the power, direct or indirect, to direct or cause the direction of management or policies of the registrant, or that such person is controlled by orunder common control with the registrant.The number of shares of the registrant's common stock outstanding on February 22, 2019 was 48,780,321. DOCUMENTS INCORPORATED BY REFERENCEPortions of MacroGenics, Inc.'s definitive proxy statement for the 2019 annual meeting of stockholders are incorporated by reference into Part III of thisAnnual Report.MACROGENICS, INC.ANNUAL REPORT ON FORM 10-KTABLE OF CONTENTSPART IItem 1BusinessItem 1ARisk FactorsItem 1BUnresolved Staff CommentsItem 2PropertiesItem 3Legal ProceedingsItem 4Mine Safety Disclosures PART IIItem 5Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesItem 6Selected Financial DataItem 7Management's Discussion and Analysis of Financial Condition and Results of OperationsItem 7AQuantitative and Qualitative Disclosures about Market RiskItem 8Financial Statements and Supplementary DataItem 9Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9AControls and ProceduresItem 9BOther Information PART IIIItem 10Directors, Executive Officers and Corporate GovernanceItem 11Executive CompensationItem 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13Certain Relationships and Related Transactions, and Director IndependenceItem 14Principal Accountant Fees and Services PART IVItem 15Exhibits and Financial Statement SchedulesItem 16Form 10-K Summary SignaturesFORWARD-LOOKING STATEMENTSThis 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, futurerevenues or performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, inparticular, under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations". Forward-looking statements can often be 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 currentexpectations and various assumptions. We believe there is a reasonable basis for our expectations and beliefs, but they are inherently uncertain. We may notrealize our expectations, and our beliefs may not prove correct. Actual results could differ materially from those described or implied by such forward-lookingstatements. The following uncertainties and factors, among others (including those set forth under "Risk Factors"), could affect future performance and causeactual results to differ materially from those matters expressed in or implied by forward-looking statements:•our plans to develop and commercialize our product candidates;•the outcomes of our ongoing and planned clinical trials and the timing of those outcomes, including when clinical trials will be initiated orcompleted, and when data will be reported or regulatory filings made;•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 potential benefits and future operation of our existing collaborations;•our ability to recover the investment in our manufacturing capabilities;•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 andbeliefs. You should not place undue reliance on forward-looking statements. We cannot guarantee future results, events, levels of activity, performance orachievements. Except as required by law, we do not undertake and specifically decline any obligation to update, republish or revise forward-lookingstatements to reflect future events or circumstances or to reflect the occurrences of unanticipated events.PART IITEM 1. BUSINESS Except 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®, TRIDENTTM and the phrase"Breakthrough Biologics, Life-Changing Medicines" are our trademarks or registered trademarks. The other trademarks, trade names and service marksappearing in this report are the property of their respective owners.OverviewWe are a clinical-stage biopharmaceutical company focused on discovering and developing innovative antibody-based therapeutics designed tomodulate the human immune response for the treatment of cancer. We currently have a pipeline of product candidates in human clinical testing, includingnine immuno-oncology programs, that have been created primarily using our proprietary antibody-based technology platforms.We are developing product candidates that target various tumor-associated antigens, including HER2. We currently have a franchise of threeproduct candidates in clinical trials that target B7-H3, a molecule in the B7 family of immune regulator proteins. B7-H3 is widely expressed by a number ofdifferent tumor types and may play a key role in regulating the immune response to various types of cancer. There are no currently approved therapeuticagents directed against B7-H3. We are also developing a franchise of three molecules that target programmed cell death protein 1 (PD-1). This protein isimportant in the regulation of the immune system’s response to cancer, and monoclonal antibodies that inhibit PD-1 have been approved by the U.S. Foodand Drug Administration (FDA) for the treatment of numerous cancers. Within our PD-1 franchise, in addition to an anti-PD-1 monoclonal antibody thatwe’ve out-licensed to a partner, we are also developing two bispecific DART product candidates that engage PD-1 and LAG-3, as well as PD-1 and CTLA-4. We have created our product candidates based on the following antibody-based technologies:•Fc Optimization platform, which introduces certain mutations into the Fc domain of a monoclonal antibody in order to modulate antibodyinteraction with immune effector cells to enhance the killing of cancer cells;•Multi-specific platforms, which enable us to design antibodies that have the ability to bind to two (in the case of our bispecific DART productcandidates) or more distinct targets; and•Antibody drug conjugate (ADC) platforms, which we have licensed from collaboration partners, and which link monoclonal antibodies thatspecifically target cytotoxins to cancer cells that are designed to trigger cell death in the cancer cell.Our Pipeline of Immuno-Oncology Product CandidatesThe table below depicts the current status of product candidates that are in clinical development and for which we retain all or some commercialrights:(a) MGC018 is an ADC based on a duocarmycin payload with cleavable peptide linker that was licensed from Synthon Biopharmaceuticals.(b) MacroGenics retains rights to develop its pipeline assets in combination with MGA012 and to manufacture a portion of global clinical and commercial supply needs of MGA012. Incyte designates this molecule as“INCMGA0012”.1MargetuximabMargetuximab is an investigational monoclonal antibody that targets HER2-expressing tumors, including certain types of breast andgastroesophageal cancers. HER2 is critical for the growth of many types of tumors. Using our Fc Optimization platform, we have engineered the constantregion (Fc region) of margetuximab to increase its ability to kill tumor cells through an Fc-dependent mechanism, including antibody dependent cell-mediated cytotoxicity (ADCC).HER2-positive Metastatic Breast Cancer. In February 2019, we announced positive results from SOPHIA, our Phase 3 clinical trial of margetuximabin HER2-positive metastatic breast cancer patients. The SOPHIA clinical trial met the trial’s first primary endpoint of prolongation of progression-freesurvival (PFS) in patients treated with the combination of margetuximab plus chemotherapy compared to trastuzumab plus chemotherapy. Patients in themargetuximab arm experienced a 24% risk reduction in PFS compared to patients in the trastuzumab arm (HR=0.76, p=0.033). Notably, approximately 85%of patients in the study were carriers of the CD16A (FcγRIIIa) 158F allele, which has been previously associated with diminished clinical response totrastuzumab and other antibodies. In this pre-specified subpopulation, patients in the margetuximab arm experienced a 32% risk reduction in PFS comparedto patients in the trastuzumab arm (HR=0.68, p=0.005). Results of the SOPHIA study have been submitted for presentation later this year at a major scientificconference. Follow-up for determination of the impact of therapy on the sequential second primary endpoint of overall survival (OS) is ongoing, as pre-specified in the study protocol and recommended by the trial’s independent Data Safety Monitoring Committee. The FDA has granted Fast Track designationfor the investigation of margetuximab for treatment of patients with metastatic or locally advanced HER2 positive breast cancer who have previously beentreated with anti-HER2-targeted therapy. We anticipate submitting a Biologics License Application (BLA) to the FDA for margetuximab on the basis of thePFS results in the second half of 2019.The SOPHIA study enrolled 536 patients at approximately 200 trial sites across North America, Europe and Asia. The study evaluated margetuximabin a Phase 3 clinical trial in patients with advanced HER2-positive breast cancer who had received at least two prior lines of anti-HER2-directed therapy inthe metastatic setting, or in the case of having received (neo)adjuvant pertuzumab, at least one prior line of anti-HER2-directed therapy in the metastaticsetting, and who have received at least one and no more than three prior lines of therapy overall in the metastatic setting. Patients were treated with eithermargetuximab or trastuzumab in combination with one of four chemotherapy agents (capecitabine, eribulin, gemcitabine or vinorelbine). All study patientshad previously received trastuzumab and pertuzumab, and approximately 90% had previously received ado-trastuzumab emtansine. The combination ofmargetuximab and chemotherapy demonstrated acceptable safety and tolerability, comparable overall to that of trastuzumab and chemotherapy.Gastric Cancer. We are also evaluating margetuximab in a Phase 2 clinical trial in patients with HER2-positive gastric or gastroesophageal junctioncancer in combination with an anti-PD-1 monoclonal antibody. The Phase 2 clinical trial seeks to characterize the safety, tolerability, maximum tolerateddose, and antitumor activity of this combination. Enrolled patients had relapsed or refractory advanced HER2-positive gastric or gastroesophageal junctioncancer with disease progression after or resistance to treatment with trastuzumab plus chemotherapy. The 25 patients in the most recently enrolled expansioncohort had HER2-positive gastric carcinoma that was 3+ by immunohistochemistry. Patients in the study were enrolled irrespective of programmed death-ligand 1 (PD-L1) expression status.As of a January 8, 2019 data cut-off date, objective responses were observed in 18 of 55 HER2-positive (as indicated by a 3+ score on animmunohistochemistry test) response-evaluable gastric cancer patients, including 14 confirmed and 4 unconfirmed. The objective response rate (ORR) forthis population was 32.7%, with a disease control rate (DCR) (which includes partial responses and stable disease) of 69.1%. Median PFS was 4.7 months. Inthe subset of these patients who were also PD-L1 positive, objective responses were observed in 12 of 23 (52.2%) patients, with a DCR of 82.6% and PFS of4.14 months. As of the data cut-off date, the study was ongoing with 13 gastric cancer patients remaining on therapy. The median OS had not been reached ineither of these groups. Acceptable tolerability was observed in the safety population of 95 patients, 92 of whom were treated at the recommended Phase 2dose of 15 mg/kg for margetuximab and 200mg for the anti-PD-1 monoclonal antibody, both on an every three week schedule of administration. Grade 3 orhigher treatment-related adverse events occurred in 17.9% of patients, the most common of which was infusion-related reaction (3.2%). Following up onthese results, during the first quarter of 2019, we discussed development plans with the FDA for a proposed Phase 2/3 registration-directed study ofmargetuximab in combination with MGA012, an anti-PD-1 monoclonal antibody. This approach is designed to coordinately engage both innate andadaptive immunity with a chemotherapy-free regimen for the treatment of patients with gastric cancer in the first line setting. We expect to initiate this studyin the second half of 2019. We also plan to evaluate the merits of combining margetuximab with chemotherapy and MGA012 or MGD013, a PD-1 x LAG-3bispecific DART molecule, in a randomized, controlled study.In November 2018, we licensed the right to develop and commercialize margetuximab in mainland China, Hong Kong, Macau and Taiwan to ZaiLab Limited (Zai Lab). Zai Lab will lead clinical development in its territory by leveraging its2regulatory and clinical development expertise and broad regional network of investigators. In 2010, we licensed the right to develop and commercializemargetuximab in South Korea to Green Cross Corporation (GC Pharma).B7-H3 FranchiseWe are developing multiple 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 no currentlyapproved therapeutic agents directed against B7-H3. We have three clinical product candidates directed against B7-H3: enoblituzumab, MGD009 andMGC018.Enoblituzumab. The most advanced product candidate in our B7-H3 franchise, enoblituzumab, is a monoclonal antibody that targets B7-H3 and hasbeen enhanced using our Fc Optimization platform.We conducted a Phase 1 clinical study of the combination of enoblituzumab and an anti-PD-1 monoclonal antibody to evaluate the combination inpatients with B7-H3-expressing melanoma, squamous cell carcinoma of the head and neck (SCCHN), non-small cell lung cancer (NSCLC) and urothelialcancer. A total of 133 patients were treated in the study and the data cut-off date was October 12, 2018.In the SCCHN dose expansion cohort, of the response-evaluable patients who had not previously received anti-PD-1 or anti-PD-L1 therapy, 6 of 18(33.3%) had confirmed partial responses (PRs). For the subset of patients with B7-H3 tumor expression ≥ 10%, 6 of 15 (40.0%) had confirmed PRs. Objectiveresponse rates ranging from 13% to 16% have previously been reported in SCCHN patients treated with anti-PD-1 alone. In the NSCLC dose expansioncohort, of the response-evaluable patients who had not previously received anti-PD-1 or anti-PD-L1 therapy and who were PD-L1 negative (i.e., PD-L1 ≤ 1%),5 of 14 (35.7%) had confirmed PRs. Objective response rates ranging from 8% to 17% have previously been reported in PD-L1 negative NSCLC patientstreated with anti-PD-1 alone. The combination of enoblituzumab and an anti-PD-1 monoclonal antibody demonstrated acceptable tolerability in patientstreated to date, with any adverse event ≥ Grade 3 occurring in 27.1% of patients. The rate of immune-related adverse events experienced in the trial wascomparable to that observed in patients who received anti-PD-1 as monotherapy. Based on these results, we intend to commence a Phase 2 study ofenoblituzumab in combination with MGA012, an anti-PD-1 monoclonal antibody, in patients with SCCHN beginning in the second half of 2019.MGD009. MGD009 is one of several clinical-stage molecules developed using our proprietary bispecific DART platform, which is described ingreater detail below. Unlike standard monoclonal antibodies, DART molecules are bispecific, which means they can be directed against two differentbiological targets, and therefore lend themselves to a variety of different applications. MGD009 is a DART molecule that is designed to target both B7-H3expressed on tumor cells as well as CD3, which is expressed on normal T cells. In preclinical models, MGD009 has re-directed T cells to reduce or eliminateB7-H3 expressing tumors. We are conducting a Phase 1 clinical trial of MGD009 in patients with B7-H3 positive tumors and in a separate study thatcombines MGD009 and MGA012. In December 2018, the FDA imposed a partial clinical hold on these studies, which was subsequently lifted in January 2019. The partial clinicalhold was initiated following our reporting to the FDA of hepatic adverse events on the MGD009 monotherapy trial. Although these events had beenotherwise uncomplicated and short-lived in duration, we communicated to the FDA our plans to amend the then existing MGD009 studies with additionalsupportive care to mitigate these events. The FDA placed the trials on partial clinical hold, pending review of additional details regarding such events andsatisfactory review of the then planned amendments to the study protocols and related documents. Under the partial clinical hold, which was lifted in January2019, no new patients were permitted to be enrolled in either study, although then-current study participants were permitted to continue to receive drug attheir pre-assigned dose.MCG018. Our third B7-H3-directed molecule is MGC018, an ADC that is designed to target solid tumors expressing B7-H3. We initiated a Phase 1dose escalation study of MGC018 in the fourth quarter of 2018.PD-1 FranchiseWe are pursuing multiple approaches for targeting PD-1. Marketed antibodies targeting this checkpoint molecule have shown clinical efficacy in thetreatment of various tumors by releasing the "brakes" on the immune system which is often seen when tumors evade detection by the immune system.MGA012. MGA012 is an anti-PD-1 monoclonal antibody we licensed to Incyte Corporation (Incyte) in 2017 under a global collaboration andlicense agreement, although we retain the right to develop the molecule in combination with product candidates from our pipeline. Incyte is pursuingdevelopment of MGA012 through registration-directed studies in MSI-high endometrial cancer, Merkel cell carcinoma and anal cancer, with initial dataanticipated in 2020, in the case of MSI-high endometrial cancer and Merkel cell carcinoma, and 2021, in the case of anal cancer. Incyte is also pursuingdevelopment of MGA012 in combination with multiple product candidates from its pipeline. We are currently studying MGA012 in3combination with two of our DART molecules, MGD009 and MGD007, and we intend to commence additional studies of MGA012 in combination withother product candidates from our own pipeline.MGD013. Monoclonal antibodies that target the immune checkpoints PD-1 and lymphocyte-activation gene 3 (LAG-3) have shown enhancedclinical antitumor activity when given in combination. Recognizing the therapeutic potential of dual checkpoint blockade, we have engineered MGD013, afirst-in-class bispecific DART molecule, to bind PD-1 and LAG-3 concomitantly or independently and disrupt these non-redundant inhibitory pathways tofurther restore exhausted T-cell function. We anticipate that MGD013, if approved, could be used for the treatment of a wide range of cancers, including bothsolid tumors and hematological malignancies. We have established the dose and schedule for MGD013 administration and initiated dose expansion in up tonine tumor types in a Phase 1 study. We expect to present data from this ongoing study in 2019.MGD019. Approved monoclonal antibodies that target the immune checkpoints PD-1 and cytotoxic T-lymphocyte-associated protein 4 (CTLA-4)have shown enhanced clinical antitumor activity when given in combination in various cancers, including renal cell carcinoma and NSCLC with high tumormutational burden. MGD019, a bispecific DART molecule in our pipeline, was designed to enable co-blockade of two immune checkpoint molecules co-expressed on T cells, PD-1 and CTLA-4. We are currently evaluating MGD019 in a Phase 1 dose escalation study.FlotetuzumabFlotetuzumab is a bispecific, humanized DART molecule that recognizes both CD123 and CD3. CD123, the Interleukin-3 receptor alpha chain, hasbeen reported to be over-expressed on cancer cells in a wide range of hematological malignancies, including acute myeloid leukemia (AML) andmyelodysplastic syndrome (MDS). AML and MDS are thought to arise in and be perpetuated by a small population of leukemic stem cells (LSCs) thatgenerally resist conventional chemotherapeutic agents. LSCs are characterized by high levels of CD123 expression that is low or absent in the correspondinghematopoietic progenitors and stem cell populations in normal human bone marrow. Flotetuzumab was designed to redirect T lymphocytes to kill CD123-expressing cells. To achieve this, the DART molecule combines an arm that recognizes CD123 on the target cancer cells, with a portion of an antibodyrecognizing CD3, an activating protein expressed by normal T cells, which are specialized white blood cells in the human immune system.In December 2018, we presented data from our Phase 1 dose expansion study of flotetuzumab in relapsed/refractory patients with AML. In this study,we enrolled 31 patients at the recommended Phase 2 dose of 500 ng/kg/day by continuous infusion with a lead-in dosing strategy. The goal of the expansioncohort study was to evaluate the safety and preliminary anti-leukemic activity of flotetuzumab, optimize delivery and supportive care, including themanagement of cytokine release syndrome, and to define the pharmacokinetic and pharmacodynamic activity of flotetuzumab. In the study, flotetuzumabdemonstrated anti-leukemic activity in patients with relapsed/refractory AML. In 27 response evaluable patients, the ORR was 26% (7 of 27 patients), with acomposite complete response rate (combining both complete responses (CRs) and complete responses with incomplete hematological improvement (CRi)) of19% (5 of 27 patients). Notably, in primary refractory patients, an extremely challenging population to treat, the ORR was 35% (6 of 17 patients) with aCR/CRi rate of 29% (5 out of 17 patients). The median duration of response for the patients that experienced a CR (three patients), a CRi (two patients) and amorpohologic leukemia-free state (one patient) was 3.1 months. The most common treatment-related adverse event was infusion-related reaction/cytokinerelease syndrome, which occurred in 93% (29 of 31) of patients. Grade 3 or greater infusion-related reaction/cytokine release syndrome was observed in 13%(4 of 31) of patients. We plan to enroll additional patients in this ongoing study and announce data in 2019. We also intend to study flotetuzumab incombination with MGA012 in a future clinical trial. The FDA granted orphan drug designation to flotetuzumab for the treatment of AML. Our collaborator, Les Laboratoires Servier and Institut deRecherches Servier (collectively, Servier) has development and commercialization rights outside North America, Japan, Korea and India forflotetuzumab (S80880).Other DART MoleculesMGD007. An additional CD3-targeting DART molecule, MGD007, recognizes glycoprotein A33 (gpA33), which is expressed on gastrointestinaltumors, including more than 95% of human colon cancers, and CD3 and is being tested in patients with colorectal cancer in a Phase 1 clinical study incombination with MGA012. In late 2018, our collaborator, Servier, notified us that it declined to exercise its option to gain development andcommercialization rights for MGD007 in its territories.MGD014. MGD014 is a DART molecule that targets the envelope protein of human immunodeficiency virus (HIV) infected cells (Env) and T cells,via their CD3 component, to redirect the immune system's T cells to kill HIV-infected cells. DART molecules could be used independently or become a keypart of a "shock-and-kill" strategy in conjunction with HIV latency-reversing agents currently under development. MGD014 is our first clinical DARTmolecule designed to target virus-infected cells. A Phase 1 dose escalation study of MGD014 is ongoing. We are developing MGD014 under contract number4HHSN272201500032C awarded to us in September 2015 by the National Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutesof Health.Our DART molecules that redirect T cells against cancer or other targets, including MGD007, MGD009, flotetuzumab and MGD014, aremanufactured using a conventional antibody platform without the complexity of having to genetically modify T cells from individual patients, as would berequired by approaches such as chimeric antigen receptor (CAR) T cells.Our Investment in R&DWe continue to invest in our clinical-stage programs, advance additional preclinical product candidates, primarily using our proprietary technologyplatforms, and expand the potential of our platforms using our antibody and protein engineering expertise. We develop new therapeutic product candidatesinternally using our proprietary platforms and also in collaboration with other biopharmaceutical companies, when such relationships are advantageous forstrategic or financial reasons. These arrangements have allowed us to expand and accelerate the breadth of our product candidates and also have generated asignificant portion of the funding we have received to date. We also have our own manufacturing facilities intended to meet later-stage clinical and futurepotential commercial requirements. Our StrategyOur goal is to be a fully integrated biotechnology company leading in the discovery, development and commercialization of breakthroughbiologics for the treatment of patients with cancer.Key elements of our strategy are as follows:•Oncology focus, science driven. We create therapeutic biological products primarily to treat various types of cancers, including both solidtumors and hematological malignancies. Our proprietary DART and Fc Optimization technology platforms are particularly useful for targetingand harnessing specific elements of the human immune system, allowing us to design molecules that (1) directly target cancer cells andenhance the ability of the immune system to destroy those cells, (2) re-direct effector cells to attack tumors or (3) affect mechanisms thatregulate the immune response to cancer, either by stimulating pathways that enhance this response or by blocking pathways that inhibit thisresponse, 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. We believethat cancers are sufficiently complex that effective treatments must simultaneously affect more than one pathway. We believe that we are well-positioned, particularly through the adaptability of our DART platform, to be able to create and develop therapeutic molecules designed tosimultaneously 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 grow andestablish all necessary functions from early-stage research through commercialization in at least the United States. At our current stage ofdevelopment as a company, we have established early-stage discovery, process development, clinical development and clinical-stagemanufacturing functions, we have completed the build-out of a facility that will support commercial manufacturing, and we intend to build aU.S.-based sales and marketing infrastructure as our development pipeline matures.We have a broad portfolio of product candidates and we are not dependent upon the success of any one of them for the overall success of thecompany. We continue to augment our pipeline through the discovery and development of new product candidates, primarily throughutilization of our internal scientific expertise and strategically seeking external collaborations that can augment our own skills. In 2018, weadvanced three programs into clinical development. Our goal is to continue to advance one or more programs into clinical development peryear to ensure a robust pipeline and to replace product candidates that fail to progress.•Leveraging collaborations. 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 upon anyone of these collaborations, but in many cases we have rights to receive sales royalties and other significant financial payments if the partneredproduct candidates achieve certain development and sales milestones. We endeavor to establish collaborations that preserve our right toparticipate in future commercialization, for example by securing co-promotion or profit-sharing rights under certain circumstances.5•Investments in talent and culture. One of our most valuable assets is the quality of our employee base. We invest significant effort in selectingand retaining high caliber, talented individuals who reflect our values. As we continue to grow, we continue to seek and develop employeeswho are strongly committed to delivering life-changing medicines for unmet medical needs through a collaborative work environment.Our Therapeutic Area Focus: CancerCancer is a broad group of diseases in which cells divide and grow in an uncontrolled manner, forming malignancies that can invade other parts ofthe 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 is disruptedas a result of mutations, causing unregulated cell growth that leads to tumor formation and growth. While tumors can grow slowly or rapidly, the dividingcells will nevertheless accumulate, and the normal organization of the tissue will become disrupted. Cancers subsequently can spread throughout the body byprocesses known as invasion and metastasis. Once cancer spreads to sites beyond the primary tumor, it generally becomes more difficult to treat and may beincurable. Cancer cells that arise in the lymphatic system and bone marrow are referred to as hematological malignancies. Cancer cells that arise in othertissues or organs are 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 solidtumors and hematologic malignancies.Cancer is the second leading cause of death in the United States, exceeded only by heart disease. An increasing number of people are also livinglonger with cancer. The American Cancer Society has estimated that by January 2026, the population of cancer survivors in the United States will increase toalmost 20.3 million people.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 we have designed antibody-basedproduct candidates that have the potential to improve on standard treatments by having one or more of the following attributes: (1) multiple specificities; (2)increased abilities to interact with the body's immune system to fight tumors; (3) capacity to bind more avidly to antigen targets: (4) increased potency; (5)reduced immunogenicity or (6) the ability to target cancer cells that are resistant to standard treatments. Moreover, these technology platforms arecomplementary and can be combined.DART and TRIDENT Platforms: Our Proprietary Approach to Engineer Multi-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 bispecific. An example of a bispecific 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 antibody aremono-specific and are able to target only a single type structural component of an antigen. For many years, researchers have sought to create recombinantmolecules that are capable of targeting two antigens or epitopes (i.e., specific part of an antigen bound by the antibody) within the same molecule. Thechallenges in creating such molecules have been the instability of the resulting bispecific molecules and their inherently short half-lives, as well as theinefficiencies in manufacturing these compounds. We believe our DART platform has overcome these engineering challenges by incorporating proprietarycovalent di-sulfide linkages and particular amino acid sequences that efficiently pair the chains of the DART molecule. This is designed to provide astructure with enhanced manufacturability, long-term structural6stability and the ability to tailor the half-lives of the DART molecules to their clinical needs. This engineered antibody-like protein has a compact and stablestructure and enables the targeting of two different antigens with a single recombinant molecule.The DART platform has been specifically engineered to accommodate virtually any variable region sequence with predictable expression, foldingand antigen recognition. We believe our multi-specific platforms may provide a significant advantage over current biological interventions in cancer,autoimmune disorders and infectious disease by enabling a range of modalities, including those described below.We have also advanced beyond our DART platform to establish a TRIDENT platform, which reflects the continuing evolution of our multi-specificantibody-based targeting expertise. Built on the DART module, the trivalent TRIDENT platform incorporates in an Ig-like format an additional domaincapable of engaging an independent antigen. With the inclusion of a third targeting arm, TRIDENT molecules enable a broader range of mechanisms ofaction than bispecific targeting, allowing, for instance, the engagement of multiple antigens on a single or on different cells or enabling enhanced targetselectivity by modulating the avidity of one of two antigens.Our DART and TRIDENT platforms enable us to design multi-specific molecules that seek to exploit different mechanisms of action, includingthose set forth below.7• Redirected T cell activation and killing. In this version of the DART molecule, we are enabling thecancer-fighting properties of the immune effector cells, such as T lymphocytes to: (1) recognize andbind to structures expressed on a cancer cell (e.g., CD123, the first specificity in the example on theright), (2) enable the recruitment of all types of cytotoxic, or cell killing, T cells, irrespective of theirability 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 cell activation, expansion, and cellkilling mechanisms to destroy a cancer cell. The outcome is that any of the body's T cells, in theory,could be recruited to destroy a cancer cell and thus, are not limited to the small numbers of specific Tcells that might have been generated in response to cancer to kill tumor cells. Furthermore, since any Tcell could be recruited for this killing process, only small amounts of a DART molecule are required totrigger this potent immune response. Additionally, the compact structure of the DART protein makes itwell suited for maintaining cell-to-cell contact, which we believe contributes to the high level of targetcell killing. Similarly, DART molecules targeting CD3 and a viral antigen can be used to recruit T cellsto eliminate cells infected by a virus, such as HIV-infected cells.• Targeting of multiple co-inhibitory receptors or checkpoints, such as those involved in inhibiting Tcell responses. The immune system generally prevents the development of autoimmune phenomena byregulating activated immune cells that have responded to non-self or foreign antigens. This negativefeedback loop is triggered by the interactions of co-inhibitory receptors, or checkpoint molecules,expressed on the immune cells with ligands expressed by other cells, such as antigen-presenting cells.This phenomenon is exploited by cancer, whereby tumor cells express checkpoint ligands that blockthe development of an immune response against the tumor. Antibodies that block the interaction ofcheckpoint molecules with their ligands have been shown to significantly improve the clinicaloutcomes of patients with certain advanced cancers. Because of the diversity of immune checkpointpathways, blockade of a single axis, while clinically significant, as shown in the case of the blockadeof the PD-1/PD-L1 axis with pembrolizumab or nivolumab, will not benefit all patients. In fact,combinations of checkpoint inhibitors, such as nivolumab and ipilimumab, a CTLA-4 blocker, haveresulted in significantly enhanced benefit compared to ipilimumab or nivolumab alone. We believethat DART molecules targeting two immunoregulatory pathways, such as two checkpoints in a singlemolecule, could afford the clinical benefit of the combination together with the potential forsynergistic activity, as well as significant advantages in manufacturing, simplified clinicaldevelopment, and enhanced patient convenience.• Enhanced effector cell selectivity. T lymphocytes with lytic effector function belong preferentially tothe CD8 lineage, while CD4-positive T cells preferentially provide immune regulatory function, suchas the secretion of cytokines or the differentiation into regulatory T cells. Greater selectivity in therecruitment of effector T cells is an example of the range of applications of our TRIDENT technology.By encoding a CD8 recognition arm in addition to the CD3- and tumor antigen-specific arms, ourTRIDENT technology allows the preferential engagement of CD8-positive T lymphocytes andredirects them against tumor cells. This strategy allows for retention of lytic effector function, whilelimiting the CD4 cell engagement and associated effects, such as inflammatory cytokine release.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 to theirtargets and the molecule's half-life in the blood circulation after delivery to a patient. Furthermore, when an Fc domain is coupled with a DART molecule,additional changes can be included that can modulate the DART molecule's engagement with different immune cells.We are developing specific product candidates using this technology, including flotetuzumab, MGD009, MGD007, MGD013, MGD019 andMGD014, among others.Fc Optimization Platform: Our Proprietary Approach to Enhance Immune-Mediated Cancer Cell Killing8To 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 the killingof 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 FcγRs, on immuneeffector cells found within the innate immune system. By engineering Fc regions to bind with an increased affinity to the activating FcγRs and with a reducedaffinity to the inhibitory FcγRs, we have been able to impart a more effective immune response and improve effector functions, such as ADCC. This is anotherexample 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, wehave licenses to use transgenic mice that express human FcγRs. These mice can be used for in vivo testing of antibodies that incorporate Fc domain variants,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 preclinical data demonstrating that these Fc variants have substantially improved the activity of these antibodies. In addition,clinical data from our Phase 3 SOPHIA study of margetuximab demonstrated an improvement in activity over that of trastuzumab, an analog monoclonalantibody with a wild-type, non-engineered Fc domain.Our CollaborationsWe pursue a balanced approach between product candidates that we develop ourselves and those that we develop with our collaborators. Under ourstrategic collaborations to date, we have received significant non-dilutive funding and continue to have rights to additional funding upon completion ofcertain research, achievement of key product development milestones and royalties and other payments upon the commercial sale of products. Each of ourcollaborations has a unique set of terms and conditions.Intellectual PropertyWe strive to protect the proprietary technologies that we believe are important to our business, including seeking and maintaining patents intendedto protect, for example, the composition of matter of our product candidates, their methods of use, the technology platforms used to generate them, relatedtechnologies and/or other aspects of the inventions that are important to our business. We also rely on trade secrets, confidentiality and invention assignmentagreements and careful monitoring of our proprietary information to protect aspects of our business that are not amenable to, or that we do not considerappropriate 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 innovation andin-licensing opportunities to develop, strengthen and maintain our proprietary positions. We currently use multiple industry-standard patent monitoringsystems to monitor new United States Patent and Trademark Office (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. Inaddition, the coverage claimed in a patent application can be significantly reduced before the9patent is issued, and its scope can be reinterpreted by the courts after issuance. Consequently, we do not know whether any of our product candidates will beprotectable or remain protected by enforceable patents. We cannot predict whether the patent applications we are currently pursuing will issue as patents inany particular jurisdiction or whether the claims of any issued patents will provide sufficient proprietary protection from competitors. Any patents that wehold 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 product candidatesor use of our technology platforms. It may be necessary for us to use the patented or proprietary technology of third parties to commercialize our productcandidates, in which case we would be required to obtain a license from these third parties on commercially reasonable terms, or our business could beharmed, possibly materially. For example, certain patents held by third parties cover Fc engineering methods and mutations in Fc regions to enhance thebinding of Fc regions to Fc receptors on immune cells. Although we believe that these patents are not infringed, invalid, and unenforceable, should a courtfind that they cover margetuximab or enoblituzumab and we are unable to invalidate them, or if licenses for them are not available on commerciallyreasonable terms, our business could be harmed, 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 priority ofinventions covered by pending patent applications. Moreover, we may have to participate in interference proceedings declared by the USPTO to determinepriority of invention. In the ordinary course of business we participate in post-grant challenge proceedings, such as oppositions, that challenge thepatentability 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, 2018, we held 79 patents in the United States with 50 patent applications pending and 428 patents in other countries of theworld with 687 patent applications pending. In addition to patents and patent applications generally providing protection for various aspects of our FcOptimization, DART, and TRIDENT platforms, we have patent and patent applications for the composition of matter of each of our clinical pipeline productcandidates and, in some cases, we also have other patents and patent application related to various aspects of the technology underlying these productcandidates 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 following timeframes:Product CandidateExpiration Datemargetuximab2029 enoblituzumab2031 flotetuzumab2034 MGD0072034* MGD0092036* MGA0122036* MGD0132036* MGD0192036* MGC0182037* * 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 extension cannotextend 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 approved drug maybe extended. Similar provisions are available in Europe and other jurisdictions to extend the term of a patent that covers an approved drug. In the future, ifand when our pharmaceutical product candidates receive FDA approval, we expect to apply for patent term extensions on patents covering those products.We intend to seek patent term extensions to any of our issued patents in any jurisdiction where these are available, however there is no guarantee that theapplicable authorities, including the FDA in the United States, will agree with our assessment of whether such extensions should be granted, and even ifgranted, the length of such extensions.10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 allows biosimilars tobe brought to market without conducting the full suite of clinical trials typically required of originators. Under the ACA, a manufacturer may submit anapplication for licensure of a biologic product that is "biosimilar to" or "interchangeable with" a previously approved biological product or "referenceproduct." The "biosimilar" application must include specific information demonstrating biosimilarity based on data derived from: (1) analytical studies, (2)animal studies, and (3) a clinical study or studies that are sufficient to demonstrate safety, purity, and potency in one or more appropriate conditions of use forwhich the reference product is licensed, except that FDA may waive some of these requirements for a given application. Under this new statutory scheme, anapplication for a biosimilar product may not be submitted to the FDA until four years after the date of first licensure. The FDA may not approve a biosimilarproduct until 12 years from the date on which the reference product was first licensed. The law does not change the duration of patents granted on biologicalproducts. Even if a product is considered to be a reference product eligible for exclusivity, another company could market a competing version of thatproduct if the FDA approves a full BLA for such product containing the sponsor's own preclinical data and data from adequate and well-controlled clinicaltrials to demonstrate the safety, purity and potency of their product. There have been recent proposals to repeal or modify the ACA and it is uncertain howany of those proposals, if approved, would affect these provisions.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 not beable to meaningfully protect our trade secrets. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchersand other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreementsprovide that all confidential information concerning our business or financial affairs developed or made known to the individual during the course of theindividual's relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, theagreements provide that all inventions conceived by the individual, and which are related to our current or planned business or research and development ormade during normal working hours, on our premises or using our equipment or proprietary information, are our exclusive property. In many cases ourconfidentiality and other agreements with consultants, outside scientific collaborators, sponsored researchers and other advisors require them to assign orgrant us licenses to inventions they invent as a result the work or services they render under such agreements or grant us an option to negotiate a license touse 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. The licensestypically 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 facilities located in Rockville, Maryland. For our antibodyproduct candidates, we have supplemented our drug substance manufacturing capacity through an arrangement with AGC Biologics, Inc. (AGC, formerlyCMC Biologics, Inc.), a contract manufacturing organization, and plan to commercially produce margetuximab at AGC assuming approval of margetuximab.We have also completed the build-out of a manufacturing suite at our headquarters building in Rockville, Maryland, which has been designed to increase ourinternal capacity to manufacture more drug substance lots, at larger scale and in full compliance with current Good Manufacturing Practices (cGMP) to beable to sell commercial product, when and if approved by the FDA . In addition, we currently rely on and will continue to rely on contract fill-finish serviceproviders, 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 to maintainsufficient inventory to supply the market until an alternative source of supply can be implemented. However, in the event of an extended failure of a supplier,it is possible that we could experience an interruption in supply until we established new sources or, in some cases, implemented alternative processes.11Production processes for biological therapeutic products are complex, highly regulated, and vary widely from product to product. Shifting or addingmanufacturing 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 contract manufacturingorganization, or extraordinary unplanned increases in demand, we could experience an interruption in supply of certain products or product shortages untilproduction 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 approved productsin the United States. We have not yet established a sales, marketing or product distribution infrastructure. We believe that it will be possible for us to accessthe United States oncology market through a specialty sales force. Subject to receiving marketing authorization in the United States, we expect to commencecommercialization via our then-in-place sales and marketing organizations. We believe that these organizations will be able to serve the oncologycommunity in treating the patient populations for which our oncology product candidates are being developed. Outside the United States, we expect to enterinto 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 work byusing next-generation antibody technology platforms to address specific cancer targets. In particular, margetuximab is directed against HER2 and severalcompanies have cancer therapeutics directed against HER2 marketed or in development, such as F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc.(Roche), particularly through its affiliate, Genentech, Inc., as well as Puma Biotechnology, Inc., Daiichi Sankyo Company, Limited, Seattle Genetics Inc. andSynthon Biopharmaceuticals. Market competition may limit the utilization of margetuximab as a therapeutic, even if market approval and adequatereimbursement is obtained, and competition among development-stage programs for patients enrolling in clinical trials for HER2-directed therapies maydelay expected timelines for our clinical trials.In addition, the immuno-oncology field is competitive, with treatments currently approved and on the market or in development for various tumortypes and patient populations from a variety of different companies such as Merck & Co., Inc. (Merck), The Bristol-Myers Squibb Company (BMS), andRoche, all of which have significantly greater resources than we do. Many of our pipeline programs, if successful, will likely face significant competitionboth by therapeutics that are already being marketed as well as those that will be approved for marketing before our programs. In particular, we aredeveloping a franchise of PD-1-directed product candidates, which includes a monoclonal antibody that we've outlicensed and two DART molecules. Merck,BMS, Roche, AstraZeneca plc, Pfizer Inc. and Regeneron Pharmaceuticals, Inc. all have approved products that target either the PD-1 receptor or its ligand,PD-L1, and there are several other companies that have anti-PD-1 or anti-PD-L1 antibodies in clinical development, all of which would compete with our PD-1-directed programs.Finally, several companies are also developing therapeutics that work by targeting multiple specificities using a single recombinant molecule.Amgen Inc. has obtained marketing approval for one product that works by targeting antigens both on immune effector cell populations and those expressedon certain cancer cells, and has other product candidates in development that use this mechanism. In addition, other companies are developing newtreatments for cancer that utilize multi-specific approaches, including Abbvie Inc., Affimed Therapeutics AG Corporation, Eli Lilly and Company, GenmabA/S, Merus B.V., Regeneron, Roche, Xencor, Inc. and Zymeworks, Inc.Many of our competitors have significantly greater financial, manufacturing, marketing, drug development, technical and human resources than wedo. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among asmaller number of our competitors. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborativearrangements with large and established companies. These competitors also compete with us in recruiting and retaining top qualified scientific andmanagement personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary 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 to cancerpatients continues to evolve as more scientific and medical information becomes available. These changes in medical care relate to pharmaceutical products,but are also affected by other factors, and such changes can positively or negatively affect the prospects of our product candidates as well as those of ourcompetitors.12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, or the standards of care for cancer patientschange while our clinical trials are ongoing. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we mayobtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, ourability to compete may be affected in many cases by insurers or other third party payors seeking to encourage the use of biosimilar products. Biosimilarproducts are expected to become available over the coming years. For example, a trastuzumab biosimilar has been approved in the U.S. by FDA.The most common methods of treating patients with cancer are surgery, radiation and drug therapy. There are a variety of available drug therapiesmarketed for cancer. Many of these approved drugs are well established therapies and are widely accepted by physicians, patients and third party payors. Inmany cases, these drugs are administered in combination to enhance efficacy. While our product candidates may compete with many existing drug and othertherapies, to the extent an approved drug is ultimately used in combination with or as an adjunct to these therapies, our product candidates will not becompetitive with the approved drug.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, theresearch, development, testing, manufacture, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, import and exportof pharmaceutical products such as those we are developing. The processes for obtaining regulatory approvals in the United States and in foreign countries,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 (biologics). The FDA subjectsbiologics to extensive pre- and post-market regulation. The Public Health Service Act, the Federal Food, Drug, and Cosmetic Act (FDCA) and other federaland 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 comply withapplicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending BLAs,withdrawal of approvals, clinical holds, warning letters, product recalls, product seizures, total or partial suspension of production or distribution,injunctions, fines, civil penalties, or criminal penalties.Preclinical 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 preclinical and clinical testingto establish it is pure, potent and safe.Preclinical studies include laboratory evaluation of product chemistry, formulation and toxicity, pharmacology, as well as animal trials to assess thecharacteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirementsincluding FDA's good laboratory practice (GLP) regulations and the U.S. Department of Agriculture's regulations implementing the Animal Welfare Act. Afterlaboratory analysis and preclinical testing in animals, we file an Investigational New Drug (IND) application with the FDA to begin human testing. An INDsponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature, anda proposed clinical trial protocol, among other things, to the FDA as part of an IND application. Certain preclinical tests, such as animal tests of reproductivetoxicity and carcinogenicity, may continue even after the IND application is submitted. An IND application automatically becomes effective 30 days afterreceipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the clinical trial ona clinical 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 application may not result in the FDA allowing clinical trials to commence.Clinical Development. Clinical trials involve the administration of the IND to human subjects (healthy volunteers or patients) under the supervisionof a qualified investigator. Clinical trials must be conducted: (i) in compliance with all applicable federal regulations and guidance, including thosepertaining to good clinical practice (GCP) standards that are meant to protect the rights, safety, and welfare of human subjects and to define the roles ofclinical trial sponsors, investigators, and monitors; as well as (ii) under protocols detailing, among other things, the objectives of the trial, the parameters tobe used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol involving testing of a new drug in the United States (whether inpatients or healthy volunteers) must be included in the IND application submission, and FDA must be notified of subsequent protocol amendments. Inaddition, the protocol must be reviewed and approved by an institutional review board (IRB) and all study subjects must provide informed consent prior toparticipating in the study. Typically, each institution participating in the clinical trial will require review of the protocol before any clinical trial commencesat that13institution. Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health (NIH) for publicdissemination on their ClinicalTrials.gov website. Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDAand 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 FDArequirements or presents an unacceptable risk to the clinical trial subjects. An IRB may also require the clinical trial at the site to be halted, either temporarilyor 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 the targetdisease or condition or healthy volunteers, to evaluate its safety, determine a safe dosage range, and identify side effects. In Phase 2, the drug is given to alarger group of subjects with the target condition to further evaluate its safety and gather preliminary evidence of efficacy. Phase 3 studies typically lastmultiple years for oncology indications. In Phase 3, the drug is given to a large group of subjects with the target disease or condition (several hundred toseveral thousand), often at multiple geographical sites, to confirm its effectiveness, monitor side effects, and collect data to support drug approval. In somecases, FDA may require post-market studies, known as Phase 4 studies, to be conducted as a condition of approval in order to gather additional informationon the drug's effect in various populations and any side effects associated with long-term use. Depending on the risks posed by the drugs, other post-marketrequirements may be imposed. Only a small percentage of investigational drugs complete all three phases and obtain marketing approval.Product Approval. After completion of the required clinical testing, a BLA can be prepared and submitted to the FDA. FDA approval of the BLA isrequired before marketing of the product may begin in the United States. The BLA must include the results of preclinical, clinical and other testing and acompilation of data relating to the product's chemistry, manufacture and controls. The cost of preparing and submitting a BLA is substantial. Under federallaw, the submission of most BLAs is additionally subject to a substantial application user fee, and annual product and establishment user fees 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 substantive review,and the review period under the Prescription Drug User Fee Act begins. The standard for reviewing a BLA is whether the product is safe, pure and potent,which has been interpreted to include that the product is safe and effective and has a favorable benefit-risk profile. FDA's current performance goals call forFDA to complete review of 90 percent of standard (non-priority) BLAs within 10 months of receipt and within six months for priority BLAs, which is 12months and eight months, respectively, if the 60-day review of the initial application is included in the timeline. In addition, the FDA has developedapproaches intended to make certain qualifying products available to patients rapidly - Priority Review, Breakthrough Therapy, Accelerated Approval, andFast Track. While the timelines for approval under these pathways may be shorter, there are requirements and conditions associated with each pathway, andthere can be no assurance that any of our investigational products will be able to meet the conditions or requirements necessary to receive any suchdesignation or be able to receive the review or approval benefits associated with such designations.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 cGMPs issatisfactory. FDA also reviews the proposed labeling submitted with the BLA and typically requires changes in the labeling 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 the FDAto reconsider the application. If and when those deficiencies have been addressed to the FDA's satisfaction in a resubmission of the BLA, the FDA will issuean approval letter. The FDA has committed to reviewing 90 percent of resubmissions within two or six months from receipt depending on the type ofinformation included.An approval letter authorizes commercial marketing of the drug for the approved indication or indications and the other conditions of use set out inthe approved prescribing information. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained orproblems are identified following initial marketing.14As a condition of BLA approval, the FDA may require substantial post-approval testing and surveillance to monitor the drug's safety or efficacy andmay impose other conditions, including labeling restrictions that can materially affect the potential market and profitability of the product. As a condition ofapproval, or after approval, the FDA also may require submission of a risk evaluation and mitigation strategy (REMS) to mitigate any identified or suspectedserious risks. The REMS may include medication guides, physician communication plans, assessment plans, and elements to assure safe use, such asrestricted 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. Therealso are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as newapplication 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 the medicalcommunity, including industry-supported scientific and educational activities. The FDA and other agencies actively enforce the laws and regulationsprohibiting the promotion for uses not consistent with the approved labeling, and a company that is found to have improperly promoted off-label uses orotherwise not to have met applicable promotion rules may be subject to significant liability under both the FDCA and other statutes, including the FalseClaims 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 during whichthe FDA inspects manufacturing facilities to assess compliance with cGMPs. Changes to the manufacturing process are strictly regulated and often requireprior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMPs and imposereporting 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 theconditions established in an approved application, including changes in indications, labeling, product formulation or manufacturing processes or facilities,require submission and FDA approval of a new BLA or BLA supplement, in some cases before the change may be implemented. A BLA supplement for a newindication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing BLAsupplements 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. Laterdiscovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes,or failure to comply with regulatory requirements, or failure of Phase 4 studies to meet their specified endpoints, may result in revisions to the approvedlabeling to add new safety information, the need to conduct additional post-market studies or clinical trials to assess new safety risks, imposition ofdistribution 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 (PDMA) which regulates thedistribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states.Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability indistribution.15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 exclusivity for reference products in order to preserve incentives for future innovation, and outlines statutory criteria for science-based biosimilarapproval standards that take into account patient safety considerations. Under this framework, exclusivity protects innovator products by prohibiting others,for a period of 12 years, from being granted FDA approval based in part on reliance on or reference to the innovator's data in their application to the FDA. Thelaw does not change the duration of patents granted on biological products. There are regular legislative proposals to rescind or reduce the biologicsexclusivity provisions of the ACA and it is uncertain whether or if any of those proposals may be approved, and if approved, how exclusivity for biologicswould be affected.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, including theCenters for Medicare and Medicaid Services, other divisions of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General), theU.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 of theSocial Security Act and the False Claims Act, and in addition our activities may be affected by the privacy regulations issued under the Health InsurancePortability and Accountability Act, as amended, and similar state laws.International RegulationIn addition to regulations in the United States, we and our collaborators, may be subject to a variety of foreign regulations governing clinical trials,drug registration, commercial sales and distribution of our product candidates outside the United States. These regulations can vary between jurisdictions andcan be more onerous than regulations in the United States. Whether or not we obtain FDA approval for a product candidate, we must obtain approval from thecomparable regulatory authorities of foreign countries or economic areas, such as the European Union (EU) before we may commence clinical trials or marketproducts in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing andreimbursement vary greatly from place to place, and the time to approval may be longer or shorter than that required for FDA approval.Certain countries outside of the United States have a process that requires the submission of a clinical trial application (CTA) much like an IND priorto the commencement of human clinical trials. In Europe, for example, a CTA must be submitted to the competent national health authority and toindependent ethics committees in each country in which a company intends to conduct clinical trials. Once the CTA is approved in accordance with acountry’s requirements, clinical trial development may proceed in that country. In all cases, the clinical trials must be conducted in accordance with GCP,and other applicable regulatory requirements. A separate CTA must be submitted for each clinical trial to be conducted.In the EU, for example, to obtain regulatory approval of an investigational medicinal product, we must submit a marketing authorisation application(MAA). The content of the MAA is similar to that of a New Drug Application or BLA filed in the United States, with the exception of, among other things,EU-specific document requirements. Under the EU regulatory system, a company may submit marketing authorisation applications either under a centralisedor decentralised procedure. Under the centralised procedure in the EU, a MAA is submitted to the European Medicines Agency (EMA) where it will beevaluated by the Committee for Medicinal Products for Human Use (CHMP). The maximum timeframe for a CHMP evaluation of an MAA that has beenvalidated is 210 days, excluding time taken by an applicant to respond to questions. A favorable opinion on the application by the CHMP will typicallyresult in the granting of the marketing authorisation by the European Commission within 67 days of receipt of the opinion. Generally, the entire reviewprocess takes approximately 13-14 months. Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product isexpected to be of a major public health interest, particularly from the point of view of therapeutic innovation. In this circumstance, the EMA ensures that theopinion of the CHMP is given within 150 days, excluding time taken by an applicant to respond to questions.As in the United States, we or our collaborators may apply for designation of a product as an orphan drug for the treatment of a specific indication inthe EU before the MAA is made. Orphan drugs in Europe enjoy certain benefits, including up to 10 years of exclusivity for the approved indication unlessanother applicant can show that its product is safer, more effective or otherwise clinically superior to the orphan designated product. The PRIority MEdicines(PRIME) initiative was established by the EMA to help promote and foster the development of new medicines in the EU that demonstrate potential for amajor therapeutic advantage in areas of unmet medical need. Benefits from the PRIME designation include early confirmation of potential for acceleratedassessment, early dialogue and increased interaction with relevant regulatory committees to discuss development options, scientific advice at keydevelopment milestones, and proactive regulatory support from the EMA.16 If we, or our collaborators, fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension orwithdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.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 depend inpart on the availability of adequate reimbursement from third-party payors, including government health administrative authorities, managed care providers,private health insurers, and other organizations. Third-party payors are increasingly examining the medical necessity and cost effectiveness of medicalproducts and services in addition to safety and efficacy and, accordingly, significant uncertainty exists as to the reimbursement status of newly approvedtherapeutics. Third-party reimbursement adequate to enable us to realize an appropriate return on our investment in research and product development maynot 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 over privatesector purchases in the U.S., federal law requires pharmaceutical manufacturers to pay prescribed rebates on certain Medicaid-reimbursed drugs to enablethem to be eligible for reimbursement under certain public healthcare programs such as Medicaid and Medicare Part B. Various states have adopted furthermechanisms that seek to control drug prices, including by disfavoring certain higher priced drugs or by seeking supplemental rebates from manufacturers.Managed care has also become a potent force in the market place that increases downward pressure on the prices of pharmaceutical products.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 over otherswithin a therapeutic class. Payers also set other criteria to govern the uses of a drug that will be deemed medically appropriate and therefore reimbursed orotherwise covered.FacilitiesOur headquarters building, located in Rockville, Maryland, currently houses laboratory and office space and we recently completed the build-out ofa suite for manufacturing at commercial quantities and scale. This space is occupied under a lease that expires in 2027 and may be extended for up to twoadditional seven-year terms. We also have a smaller-scale manufacturing facility in Rockville. The lease for a portion of that facility expires in March 2023and may be extended for a five-year term, and the lease for the remainder of that facility expires in December 2019 and may be extended for up to twoadditional five-year terms. Finally, we have additional laboratory and office space in Rockville under two leases that each expire in 2020, and each of thoseleases may be extended for a five-year term.We also lease office and laboratory space in Brisbane, California under a lease that expires in November 2023.EmployeesAs of February 22, 2019, we had 364 full-time employees, 307 of whom were primarily engaged in research and development activities and 61 ofwhom 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 not currently aparty 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 they areelectronically filed with or furnished to the Securities and Exchange Commission (SEC): annual reports on Form 10-K, quarterly reports on Form 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 the SecuritiesExchange Act of 1934, as amended. All such filings are available through our website free of charge. In addition, the SEC makes available at its website(www.sec.gov), free of charge, reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.17ITEM 1A. RISK FACTORS Our business, 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 preclinical or clinical development. Clinical drug development is expensive, time consuming and uncertain and wemay 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 regulation bythe U.S. Food and Drug Administration (FDA) and non-U.S. regulatory authorities, which regulations differ from country to country. We are not permitted tomarket our product candidates in the United States or in other countries until we receive approval of a Biologics License Application (BLA) from the FDA ormarketing approval from applicable regulatory authorities outside the United States. Our product candidates are in various stages of development and aresubject to the risks of failure inherent in drug development. Based on our recently announced positive top-line results for the first primary endpoint of ourSOPHIA study, we intend to submit a BLA for the approval of margetuximab in the second half of 2019. Obtaining approval of a BLA can be a lengthy,expensive and uncertain process, and as a company we have no experience with the preparation of a BLA submission or any other application for marketingapproval. In addition, failure to comply with FDA and non-U.S. regulatory requirements may, either before or after product approval, if any, subject ourcompany to administrative or judicially imposed 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, manufacturing facilities 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 preclinical studies and clinical trialsthat will be required for regulatory approval varies depending on the product candidate, the disease or condition that the product candidate is designed toaddress, and the regulations applicable to any particular drug candidate. Regulatory agencies can delay, limit or deny approval of a product candidate formany reasons, including:•a product candidate may not be deemed safe or effective;•the results may not confirm the positive results from earlier preclinical studies or clinical trials;•regulatory agencies may not find the data from preclinical 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.18Any delay in obtaining or failure to obtain required approvals could materially adversely affect our ability to generate revenue from the particular productcandidate, which likely would result in significant harm to our financial position and adversely impact our stock price. Furthermore, any regulatory approvalto market a product may be subject to limitations on the indicated uses for which we may market the product. These limitations may limit the sizeIf 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, flotetuzumab, MGD009, MGC018, MGA012, MGD013,MGD019, MGD007 and MGD014 and anticipate initiating or continuing clinical trials for these product candidates as monotherapies or in combination withother product candidates in 2019. In addition, our collaborators are currently enrolling patients in clinical trials for MGA012, which is being developed byIncyte Corporation. The commencement of new clinical trials could be substantially delayed or prevented by several factors, 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 other clinicaltrial 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 is planned;•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 terms or clinical trial protocols with prospective sites or clinical researchorganizations (CROs) the terms of which can be subject to extensive negotiation and may vary significantly among different sites or CROs; and•delay or failure to obtain institutional review board (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 IRBs forre-examination, which may impact the costs, timing or successful completion of a clinical trial. Our clinical trials may be suspended or terminated at any timeby 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 anumber of factors, including:19•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 have responsibilityfor the clinical development of any of our product candidates.For example, in December 2018, the FDA imposed a partial clinical hold on our Phase 1 monotherapy study of MGD009, as well as on acombination study of MGD009 and MGA012. The partial clinical hold was initiated following our reporting to the FDA of hepatic adverse events on theMGD009 monotherapy trial. Although these events had been otherwise uncomplicated and short-lived in duration, we communicated to the FDA our plans toamend the then existing MGD009 studies with additional supportive care to mitigate these events. The FDA placed the trials on partial clinical hold, pendingreview of additional details regarding such events and satisfactory review of the then planned amendments to the study protocols and related documents. Under the partial clinical hold, which was lifted in January 2019, no new patients were permitted to be enrolled in either study, although then-current studyparticipants were permitted to continue to receive drug at their pre-assigned dose. Any failure or significant delay in completing clinical trials for our productcandidates would adversely affect our ability to obtain regulatory approval and our commercial prospects and ability to generate product revenue will bediminished.The results of previous clinical trials may not be predictive of future results, and interim or top line data may be subject to change or qualification basedthe complete analysis of data. In addition, the results of our current and planned clinical trials may not satisfy the 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 preclinical testing. Success in early clinical trialsdoes not mean that future larger registration clinical trials will be successful because product candidates in later-stage clinical trials may fail to demonstratesufficient safety and efficacy to the satisfaction of the FDA and non-U.S. regulatory authorities despite having progressed through initial clinical trials. Anumber of companies in the pharmaceutical industry, including those with greater resources and experience than us, have suffered significant setbacks inadvanced clinical trials, even after obtaining promising results in earlier clinical trials.We may publicly disclose topline or interim data from time to time, which is based on a preliminary analysis of then-available data, and the resultsand related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. Forexample, we recently announced top line data for the SOPHIA trial of margetuximab for the treatment of certain metastatic breast cancer patients. We makeassumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully andcarefully evaluate all data. As a result, the topline results that we report may differ from future results of the same studies, or different conclusions orconsiderations may qualify such results, once additional data have been received and fully evaluated. Top line data also remain subject to audit andverification procedures that may result in the final data being materially different from the preliminary data we previously published. In addition, theachievement of one primary endpoint for a trial does not guarantee that additional co-primary endpoints or secondary endpoints will be achieved. Forexample, the achievement by margetuximab of its first sequential endpoint for progression-free survival events in the SOPHIA trial does not indicate whetherthe second sequential endpoint of overall survival will be achieved. We currently expect to receive final overall survival results in 2020. Failure to meet thesecond sequential endpoint of overall survival in the SOPHIA trial may have an adverse effect on our ability to obtain or retain regulatory approval ofmargetuximab in the U.S. or in other jurisdictions.Further, our product candidates may not be approved even if they achieve their primary endpoints in Phase 3 clinical trials or registration trials. Forexample, we recently announced top line data for the SOPHIA trial in which margetuximab achieved its first primary endpoint. The FDA or other non-U.S.regulatory authorities may disagree with our trial design for SOPHIA or other trials, and our interpretation of data from preclinical studies and clinical trials.In particular, the FDA may not view our data as being clinically meaningful or statistically persuasive. In addition, any of these regulatory authorities maychange requirements for the approval of a product candidate even after reviewing and providing comments or advice on a protocol for a pivotal Phase 3clinical trial. Any of these regulatory authorities may also approve a product candidate for fewer or more limited indications than we request or may grantapproval contingent on the performance of costly post-marketing clinical trials. The FDA or other non-U.S. regulatory authorities may not approve thelabeling claims that we believe would be necessary or desirable for the successful commercialization 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.20Our products in development are based on new technologies, such as Fc Optimization, DART molecules and TRIDENT molecules. Given thenovelty of our technologies, we intend to work closely with the FDA and other regulatory authorities to perform the requisite scientific analyses andevaluation of our methods to obtain regulatory approval for our product candidates. The validation process takes time and resources, may requireindependent third-party analyses, and may not be accepted by the FDA and other regulatory authorities. For some of our product candidates that are based onthese technology platforms, the regulatory approval path and requirements may not be clear or evolve as more data becomes available for this productcandidates, which could add significant delay and expense. Delays or failure to obtain regulatory approval of any of the product candidates that we developwould 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 our limitedresources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable orfor 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 to datehave resulted in a pipeline of product candidates directed at various cancers, as well as autoimmune disorders and infectious diseases, we may not be able todevelop product candidates that are safe and effective. Even if we are successful in continuing to build our pipeline, the potential product candidates that weidentify may not be suitable for clinical development, including as a result of being shown to have harmful side effects or other characteristics that indicatethat they are unlikely to be products that will receive marketing approval and achieve market acceptance. If we do not continue to successfully develop andbegin to commercialize product candidates, we will face difficulty in obtaining product revenues in future periods, which could result in significant harm toour 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 have greatercommercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.Our spending on current and future research and development programs and product candidates for specific indications may not yield any commerciallyviable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuablerights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous forus 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 requirements ofother countries regarding safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, andregulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countriesand may require additional preclinical studies or clinical trials or additional administrative review periods, which could result in significant delays,difficulties and costs for us. In addition, our failure to obtain regulatory approval in any country may delay or have negative effects on the process forregulatory approval in other countries. We do not have any product candidates approved for sale in any jurisdiction, including international markets, and wedo not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international marketsor to obtain and maintain required approvals, our target market will be reduced and our ability to realize the full market potential of our products will beharmed.Our product candidates may have undesirable side effects which may delay or prevent further clinical development or marketing approval, or, if approvalis received, require them to be 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 preclinical development. Ongoing or futuretrials of our product candidates may not support the conclusion that one or more of these product candidates have acceptable safety profiles. The results offuture clinical or preclinical trials may show that our product candidates cause undesirable or unacceptable side effects, which could interrupt, delay or haltclinical trials, and result in delay of, or failure to obtain, marketing approval from the FDA and other regulatory21authorities, or result 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 by suchproducts::•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 trials orchange 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, and third-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. Thedegree 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 for particulardiseases;•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, our abilityto supply our product candidates for clinical trials or, if approved, for commercial sale could be delayed or halted entirely.22The process of manufacturing our product candidates is extremely susceptible to product loss due to a variety of factors, including but not limited tocontamination, equipment failure or improper 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 manufacturing processes could result inreduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our product candidatesor in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period oftime to investigate and remedy the contamination. Any adverse developments affecting manufacturing operations for our product candidates, if any areapproved, may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our products.We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediationefforts or seek more costly manufacturing alternatives.We have limited experience in large-scale or commercial manufacturing, and there can be no assurance that we will be able to effectively manufactureclinical or commercial quantities of our products.In 2018, we completed the build-out of our commercial-scale current Good Manufacturing Practice (cGMP) manufacturing facility, which isintended to support future clinical and, if any are approved by the FDA, commercial production of our and our collaborators’ product candidates. Althoughsome of our employees have experience in the manufacturing of pharmaceutical products from prior employment at other companies, we as a company do nothave experience in large-scale or commercial manufacturing. Designing and building a manufacturing facility is time-consuming, expensive, and we may notrealize the benefit of this investment. As a manufacturer of pharmaceutical products, we are required to demonstrate and maintain compliance with cGMPswhich include requirements related to production processes, quality control and assurance and recordkeeping. Furthermore, establishing and maintainingmanufacturing operations requires a reallocation of other resources, particularly the time and attention of certain of our senior management. Any failure ordelay in our manufacturing capabilities could adversely impact the clinical development or commercialization of our or our collaborators’ productcandidates.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 cGMP requirements, as set out in statute, regulations and guidance. We may encounter difficulties in achievingquality control and quality assurance and may experience shortages in qualified personnel. We are subject to inspections by the FDA and comparableagencies 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 themanufacture, fill-finish, packaging, or storage of our product candidates as a result of a failure of our facilities or the facilities or operations of third parties tocomply with regulatory requirements or pass any regulatory authority inspection could significantly impair our ability to develop and commercialize ourproduct candidates, including leading to significant delays in the availability of drug product for our clinical trials or the termination or hold on a clinicaltrial, or the delay or prevention of a filing or approval of marketing applications for our product candidates. Significant noncompliance could also result inthe imposition of sanctions, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approvals for our productcandidates, 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 may not be permitted to market our product candidatesand/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 our ownor through collaborations, we will not be successful in commercializing margetuximab, if approved, or our product candidates.We currently have no marketing, sales and distribution infrastructure and we have limited sales and marketing experience within our organization. Ifmargetuximab or any of our other 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 third partyoutside of the United States. Both of these options would be expensive and time consuming, and would require a significant allocation of resources,including the time and attention of our management. In addition, we would need to devote resources to the development and maintenance of policies toensure compliance with various health care laws related to sales and marketing of pharmaceutical products. 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 distribution capabilitieswould adversely impact the commercialization of our products.23With respect to certain of our existing and future product candidates, we have entered into collaboration or other licensing arrangements with thirdparty collaborators that have direct sales forces and established distribution systems. To the extent that we enter into additional collaboration agreements, ourproduct revenue may be lower than if we directly marketed or sold any approved products. In addition, any revenue we receive will depend in whole or inpart upon the efforts of these third party collaborators, which may not be successful and are generally not within our control. If we are unable to enter intoadditional arrangements on acceptable terms or at all, we may not be able to successfully commercialize certain approved products. If we are not successful incommercializing approved products, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and wemay 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 developing therapeuticsthat will compete with other drugs and therapies that currently exist or are being developed. Products we may develop in the future are also likely to facecompetition from other drugs and therapies, some of which we may not currently be aware. We have competitors both in the United States andinternationally, 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, obtaining regulatoryapprovals, recruiting patients and manufacturing pharmaceutical products. These companies also have significantly greater research and marketingcapabilities than we do and may also have products that have been approved or are in late stages of development, and collaborative arrangements in ourtarget markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery anddevelopment of novel compounds or to in-license novel compounds that could make the product candidates that we develop obsolete. As a result of all ofthese factors, our competitors may succeed in obtaining patent protection and/or FDA approval or discovering, developing and commercializing products inour field before we do.Specifically, there are a large number of companies developing or marketing treatments for cancer, including many major pharmaceutical andbiotechnology companies. These treatments consist both of small molecule drug products, as well as biologic therapeutics that work by using next-generation antibody technology platforms to address specific cancer targets. In addition, several companies are developing therapeutics that work bytargeting 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, more effective,have fewer 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 a strongmarket 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 third partypayors seeking to encourage the use of biosimilar products. Biosimilar products are expected to become available over the coming years. For example,certain HER2 biosimilar products are approved in certain countries and others may be approved prior to margetuximab. Even if our product candidatesachieve marketing approval, they may be priced at a significant premium over competitive biosimilar products if any have been approved 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. In addition,the biopharmaceutical industry is characterized by rapid technological change. If we fail to stay at the forefront of technological change, we may be unable tocompete effectively. Technological advances or products developed by our competitors may render our technologies or product candidates obsolete, lesscompetitive or not economical.Reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance. If there is not sufficient reimbursement forour 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 as privatehealth insurers and health maintenance organizations, decide which drugs they will reimburse and establish payment levels and, in some cases, utilizationmanagement strategies, such as tiered formularies and prior authorization. We cannot be certain that reimbursement will be available for any products that wedevelop or that the reimbursement level will be adequate to allow us to operate profitably. Also, we cannot be certain that reimbursement policies will notreduce the demand for, or the price paid for, our products. Our ability to commercialize our24products may depend, in part, on the extent to which reimbursement for the products will be available from government authorities and third-party payors. Ifreimbursement for our products is not available or is available on a limited basis, or if the reimbursement amount for our products is inadequate, we may notbe able to successfully commercialize any of our approved products.Actual or anticipated changes to the laws and regulations governing the health care system may have a negative impact on cost and access to healthinsurance coverage and reimbursement of healthcare items and services.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 payors inthe United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs,improving quality and/or expanding access to healthcare. In the United States, the pharmaceutical industry has been a particular focus of these efforts and hasbeen significantly affected by major legislative initiatives, including the Patient Protection and Affordable Care Act (ACA), which became law in 2010.While it is difficult to assess the impact of the ACA in isolation, either in general or on our business specifically, it is widely thought that the ACA increasesdownward pressure on pharmaceutical reimbursement, which could negatively affect market acceptance of, and the price we may charge for, any products wedevelop that receive regulatory approval. Further, the United State and foreign governments regularly consider reform measures that affect healthcarecoverage and costs. Such reforms may include changes to the coverage and reimbursement of healthcare services and products. In particular, there have beenrecent judicial and Congressional challenges to the ACA, which could have an impact on coverage and reimbursement for healthcare services covered byplans authorized by the ACA, and we expect there will be additional challenges and amendments to the ACA in the future.In September 2017, members of the United States Congress introduced legislation with the announced intention to repeal major provisions of theACA. Although it is unclear whether such legislation will ultimately become law, executive or legislative branch attempts to repeal, reform or to repeal andreplace the ACA will likely continue. In addition, various other healthcare reform proposals have also emerged at the federal and state level. In addition,recent changes to United States tax laws could negatively impact the ACA. We cannot predict what healthcare initiatives, if any, will be implemented at thefederal or state level, however, government and other regulatory oversight and future regulatory and government interference with the healthcare systemscould adversely impact our business and results of operations.We expect to experience pricing pressures in connection with the sale of any products that we develop, due to the trend toward managed healthcare,the increasing influence of health maintenance organizations and additional legislative proposals.Inadequate funding for the FDA, the Securities and Exchange Commission (SEC) and other government agencies could hinder their ability to hire andretain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwiseprevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact ourbusiness.The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels,ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory and policy changes. Average review times at the agencyhave fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely,including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary governmentagencies, which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certainregulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. If aprolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, whichcould have a material adverse effect on our business. Further, future government shutdowns could impact our ability to access the public markets and obtainnecessary capital in order to properly capitalize and continue our operations.If any product liability lawsuits are successfully brought against us or any of our collaborators, we may incur substantial liabilities and may be required tolimit 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 an evengreater risk if product candidates are approved by regulatory authorities and introduced commercially. Product liability claims may be brought against us orour collaborators by participants enrolled in our clinical trials, patients, health care providers or others using, administering or selling any of our futureapproved products. If we cannot25successfully defend ourselves against any such claims, we may incur substantial liabilities. Regardless of their merit or eventual outcome, liability claimsmay 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 safety andquality of our products. We could be adversely affected if we are subject to negative publicity. We could also be adversely affected if any of our products orany similar products distributed by other companies prove to be, or are asserted to be, harmful to patients. Because of our dependence upon consumerperceptions, any adverse publicity associated with illness or other adverse effects resulting from patients’ use or misuse of our products or any similarproducts 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 a reasonablecost to protect us against losses that could have a material adverse effect on our business. A successful product liability claim or series of claims broughtagainst us, particularly if judgments exceed any insurance coverage we may have, could decrease our cash resources and adversely affect our 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 regulations affectinggovernment 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 (FAR) and NIH-NIAID-specific regulations supplemental to the FAR, whichcomprehensively regulate the procurement, formation, administration and performance of government contracts; business ethics and public integrityobligations, which govern conflicts of interest and the hiring of former government employees, restrict the granting of gratuities and funding of lobbyingactivities and incorporate other requirements such as the Anti-Kickback Act, the Procurement Integrity Act, and the False Claims Act; export and importcontrol laws and regulations; and laws, regulations and executive orders restricting the use and dissemination of sensitive information we may receivepursuant to our performance of the government contract. U.S. government agencies routinely audit and investigate government contractors for compliancewith applicable laws and standards. If we are audited, such audit could result in disallowance of expected cost reimbursement, or if such audit were to uncoverimproper or illegal activities, we could be subject to civil and criminal penalties, administrative sanctions, including suspension or debarment fromgovernment contracting and significant reputational harm.Comprehensive tax reform legislation could adversely affect our business and financial condition.On December 22, 2017, Public Law no. 115-97 (the Tax Act) was signed into law. The Tax Act introduced significant changes to the InternalRevenue Code of 1986, as amended. The Tax Act, among other things, contains significant changes to corporate taxation, including reduction of thecorporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings(except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income in respect of losses arising intaxable years beginning26after 2017 and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated,immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many businessdeductions and credits.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 no productsapproved for commercial sale, and to date we have not generated any revenue or profit from product sales. We may never achieve or sustain profitability.We are a clinical-stage biopharmaceutical company. We have incurred significant losses since our inception. As of December 31, 2018, ouraccumulated deficit was approximately $490.3 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 to commercializeany approved products, and add infrastructure and personnel to support our product development efforts and operations as a public company. The net lossesand negative cash flows incurred to date, together with expected future losses, have had, and likely will continue to have, an adverse effect on ourstockholders' deficit and working capital. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability togenerate revenue.Because of the numerous risks and uncertainties associated with pharmaceutical product development and commercialization, we are unable toaccurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. For example, our expenses couldincrease if we are required by the FDA to perform trials in addition to those that we currently expect to perform, or if there are any delays in completing ourcurrently planned clinical trials or in the development of any of our product candidates. Our expenses would significantly increase to the extent we build outa sales force and other commercially relevant functions to support the commercialization of margetuximab, if approved, or any of our other productcandidates.To become and remain profitable, we must succeed in developing and commercializing products with significant market potential. This will requireus to be successful in a range of challenging activities for which we are only in the preliminary stages, including developing product candidates, obtainingregulatory approval for them, and manufacturing, marketing and selling those products for which we may obtain regulatory approval. We may never succeedin these activities and may never generate revenue from product sales that is significant enough to achieve profitability. Even if we achieve profitability inthe future, we may not be able to sustain profitability in subsequent periods. Our failure to become or remain profitable would depress our market value andcould impair our ability to raise capital, expand our business, develop other product candidates, or continue our operations. A decline in the value of ourcompany 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 and commercializing pharmaceutical products, includingconducting preclinical studies and clinical trials, is expensive. In order to obtain such regulatory approval, we will be required to conduct clinical trials foreach indication for each of our product candidates. We will continue to require additional funding beyond what was raised in our public offerings andthrough our collaborations and license agreements to complete the development and commercialization of our product candidates and to continue toadvance the development of our other product candidates, and such funding may not be available on acceptable terms or at all. Although it is difficult topredict our funding requirements, based upon our current operating plan, we anticipate that our cash, cash equivalents and marketable securities as ofDecember 31, 2018, combined with the net proceeds from our February 2019 offering of common stock and proceeds from collaboration payments weanticipate receiving, will enable us to fund our operations into 2021, assuming all of our programs and collaborations advance as currently contemplated.Because successful development of our product candidates is uncertain, we are unable to estimate the actual funds we will require to complete research anddevelopment 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, preclinical 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;27•the costs of 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 any paymentswe may be required to make in connection with the licensing, filing, defense and enforcement of any patents or other intellectual propertyrights;•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 arrangements intowhich 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 finance futurecash needs primarily through a combination of public or private equity offerings, debt financings, strategic collaborations, and grant funding. If sufficientfunds on acceptable terms are not available when needed, or at all, we could be forced to significantly reduce operating expenses and delay, scale back oreliminate 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, ifavailable at all, may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring additional debt,making capital expenditures, or declaring dividends. If we raise additional funds through collaborations, strategic alliances, or licensing arrangements withthird parties, we may have to relinquish valuable rights to our technologies, product candidates, or future revenue streams, or grant licenses on terms that arenot favorable to us. We cannot assure you that we will be able to obtain additional funding if and when necessary. If we are unable to obtain adequatefinancing on a timely basis, we could be required to delay, scale back or eliminate one or more of our development programs or grant rights to develop andmarket 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, (NOLs) and federal tax credits is currently limited, and may be limited further, under Sections382 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 over their lowest ownershippercentage in a testing period, which is typically three years or since the last ownership change. We are already subject to Section 382 limitations due toacquisitions we made in 2002 and 2008. As of December 31, 2018, we had federal and state NOL carryforwards of $415.6 million and research anddevelopment tax credit carryforwards of $52.3 million available. Future changes in stock ownership may also trigger an ownership change and, consequently,another Section 382 limitation. Any limitation may result in expiration of a portion of the net operating loss or tax credit carryforwards before utilizationwhich would reduce our gross deferred income tax assets and corresponding valuation allowance. As a result, if we earn net taxable income, our ability to useour pre-change NOL carryforwards and tax credit carryforwards to reduce United States federal income tax may be subject to limitations, which couldpotentially 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 maintainany 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, for example, LesLaboratoires Servier and Institut de Recherches Servier (collectively, Servier), Green Cross Corporation (GC Pharma), Incyte Corporation, Zai Lab Limitedand F. Hoffman La Roche28Ltd and Hoffman-La Roche, Inc (Roche). These collaborations also have provided us with important funding for our development programs and technologyplatforms and we expect to receive additional funding under these collaborations in the future. Our existing therapeutic collaborations, and any futurecollaborations we enter into, may pose a 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 elect notto continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators' strategic focus oravailable 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 be commercializedunder 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 product candidates orproducts, 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 not commitsufficient 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 capital topursue further development or commercialization of the applicable product candidates. For example, each of our collaboration and licenseagreements may be terminated for convenience upon the completion of a specified notice 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. For example,Servier recently informed us that they did not intend to exercise the option to continue development of MGD007. If we do not receive the funding we expectunder these agreements, our development of our technology platforms and product candidates could be delayed and we may need additional resources todevelop product candidates and our technology platforms. All of the risks relating to product development, regulatory approval and commercializationdescribed 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. 29For some of our product candidates, we may in the future determine to collaborate with additional pharmaceutical and biotechnology companies fordevelopment and potential commercialization of therapeutic products. We face significant competition in seeking appropriate collaborators. Our ability toreach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the termsand conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. These factors may include the design orresults of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subjectproduct candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, theexistence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits ofthe challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similarindications that may be available to collaborate on and whether such a collaboration could be more attractive 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, reduceor delay one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, orincrease our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development orcommercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptableterms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development andcommercialization activities, we may not be able to further develop our product candidates or bring them to market or continue to develop our technologyplatforms 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 GC Pharma, subject to certain specified exceptions, each of our existing therapeutic collaborations contains arestriction on our engaging in activities that are the subject of the collaboration with third parties for specified periods of time.Independent clinical investigators and contract research organizations (CROs) that we engage to conduct our clinical trials may not devote sufficient timeor attention to our clinical trials 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 delays inour development programs. These investigators and CROs will not be our employees and we will not be able to control, other than by contract, the amount ofresources, including time, which they devote to our product candidates and clinical trials. If independent investigators or CROs fail to devote sufficientresources to the development of our product candidates, or if their performance is substandard, it may delay or compromise the prospects for approval andcommercialization of any product candidates that we develop. In addition, the use of third-party service providers requires us to disclose our proprietaryinformation to these parties, which could increase the risk that this information will be misappropriated. Further, the FDA requires that we comply withstandards, commonly referred to as current Good Clinical Practice (GCP) for conducting, recording and reporting clinical trials to assure that data andreported results are credible and accurate and that the rights, integrity and confidentiality of trial subjects are protected. Failure of clinical investigators orCROs to meet their obligations to us or comply with GCP procedures could adversely affect the clinical development of our product candidates and harm ourbusiness.Failure of third-party contractors to successfully develop and commercialize companion diagnostics for use with our product candidates could harm ourability to commercialize our product candidates.We plan to develop companion diagnostics for our product candidates where appropriate. At least in some cases, the FDA and similar regulatoryauthorities outside the United States may request or require the development and regulatory approval of a companion diagnostic as a condition to approvingone or more of our product candidates, including, for example, margetuximab. We do not have experience or capabilities in developing or commercializingdiagnostics and plan to rely in large part on 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;30•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 sales ofsuch product candidate could be harmed. If our third party contractors fail to commercialize such companion diagnostic, we may not be able to enter intoarrangements with another diagnostic company to obtain supplies of an alternative diagnostic test for use in connection with such product candidate or do soon 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 some of our product candidates for clinical testing in the future and expect to do so forcommercialization. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or suchquantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.We currently have two cGMP manufacturing facilities located in Rockville, Maryland, one of which was completed in 2018 and is designed toincrease our internal capacity to manufacture more drug substance lots, at larger scale and in full compliance with cGMP to support future clinical andcommercial production of our and our collaborators’ product candidates. We manufacture drug substance at these facilities that we use for research anddevelopment purposes and for clinical trials of our and our collaborators’ product candidates. Although we believe we currently have capacity to produce allof the material required for our and our collaborators’ clinical trials, we may not be able to do so in the future, and may rely on arrangements with thirdparties. Our current facilities may be insufficient to support our needs for our Phase 3 clinical trials for our antibody product candidates and for commercialquantities of such candidates. We do not have experience in manufacturing products at commercial scale.We have entered into agreements with contract manufacturing organizations to supplement our clinical supply and internal capacity as we advanceour product candidate pipeline. We expect to use third parties for the manufacture of certain of our product candidates for clinical testing, as well as forcommercial manufacture of some of our product candidates that receive marketing approval and that are not manufactured by one of our third partycollaborators. We have entered into two long-term supply agreements with manufacturers for commercial supply, and may in the future enter into one or moreadditional supply agreements for our product candidates. We may be unable to reach agreement with any of these contract manufacturers, or to identify andreach arrangements on satisfactory terms with other contract manufacturers, to manufacture any of our product candidates. Additionally, the facilities used byany contract manufacturer to manufacture any of our product candidates must be the subject of a satisfactory inspection before the FDA and other regulatoryauthorities approve a BLA or marketing authorization for the product candidate manufactured at that facility. We will depend on these third-partymanufacturing partners for compliance with the FDA’s requirements for the manufacture of our finished products. If our manufacturers cannot successfullymanufacture material that conforms to our specifications and the FDA and other regulatory authorities’ cGMP requirements, our product candidates will notbe 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 in orderto 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 prevent usfrom commercializing our product candidates successfully. Furthermore, if any of our product candidates are approved and contract manufacturers fail todeliver the required commercial quantities of finished product on a timely basis and at commercially reasonable prices, and we are unable to find one or morereplacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality and on a timely basis,we would likely be unable to meet demand for our products and could lose potential revenue. It may take several years to establish an31alternative source of supply for our product candidates and to have any such new source approved by the FDA or any other relevant regulatory authorities.A disruption in our computer networks, including those related to cybersecurity, could adversely affect our financial performance.We rely on our computer networks and systems, some of which are managed by third parties, to manage and store electronic information (includingsensitive data such as confidential business information and personally identifiable data relating to employees, customers and other business partners), and tomanage or support a variety of critical business processes and activities. We may face threats to our networks from unauthorized access, security breaches andother system disruptions. Despite our security measures, our infrastructure may be vulnerable to external or internal attacks. Any such security breach maycompromise information stored on our networks and may result in significant data losses or theft of sensitive or proprietary information. In addition, acybersecurity attack could result in other negative consequences, including disruption of our internal operations, increased cybersecurity protection costs,lost revenue, regulatory actions or litigation. Any disruption could also have a material adverse impact on our operations. We have not experienced anyknown attacks on our information technology systems that have resulted in any material system failure, accident or security breach to date.Risks Related to Our Intellectual PropertyOur commercial success depends significantly on our ability to operate without infringing the valid 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 or obtainpatents or proprietary rights that could limit our ability to make, use, sell, offer for sale or import our future approved products or impair our competitiveposition. For example, certain patents held by third parties cover Fc engineering methods and mutations in Fc regions to enhance the binding of Fc regions toFc receptors on immune cells. Although we believe that these patents are not infringed, and/or are invalid and/or unenforceable, if a court should find thatthey cover margetuximab or enoblituzumab and we are unable to invalidate such patents, or if licenses for them are not available on commercially reasonableterms, our business could be harmed, perhaps materially.Patents that we may ultimately be found to infringe could be issued to third parties. Third parties may have or obtain valid and enforceable patentsor proprietary rights that could block us from developing product candidates using our technology. Our failure to obtain a license to any technology that werequire may materially harm our business, financial condition and results of operations. Moreover, our failure to maintain a license to any technology that werequire may also materially harm our business, financial condition, and results of operations. Furthermore, we would be exposed to a threat of litigation.In the pharmaceutical industry, significant litigation and other proceedings regarding patents, patent applications, trademarks and other intellectualproperty 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 we andour 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. Thereis 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 stop theactivities covered by the patents. In that event, we or our collaborators may not have a viable alternative to the technology protected by the patent and mayneed to halt work on the affected product candidate or cease commercialization of an approved product. In addition, there is a risk that a court will order32us or our collaborators to pay the other party damages. An adverse outcome in any litigation or other proceeding could subject us to significant liabilities tothird 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 to obtain anyrequired 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 the courts,and the interpretation is not always uniform or predictable. If we are sued for patent infringement, we would need to demonstrate that our products or methodseither 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. Proving invalidity isdifficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validityenjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and divert management’s time and attention inpursuing these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may berequired to seek a license, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. Wemay not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to defend an infringement action successfully or have infringed patents declared invalid, we may incur substantial monetarydamages, encounter significant delays in bringing our product candidates to market and be precluded from manufacturing 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 resulting fromthe initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.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. Becausepatent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing, or in some cases not at all, andbecause publications of discoveries in scientific literature lag behind actual discoveries, we cannot be certain that we were the first to make the inventionsclaimed in our issued patents or pending patent applications, or that we were the first to file for protection of the inventions set forth in our patents or patentapplications. As a result, we may not be able to obtain or maintain protection for certain inventions. Therefore, the enforceability and scope of our patents inthe United States and in foreign countries cannot be predicted with certainty and, as a result, any patents that we own or license may not provide sufficientprotection against competitors. We may not be able to obtain or maintain patent protection from our pending patent applications, from those we may file inthe future, or from those we may license from third parties. Moreover, even if we are able to obtain patent protection, such patent protection may be ofinsufficient 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, and wemay 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 jurisdictions whereprotection may be commercially advantageous. Despite our efforts to protect our proprietary rights, unauthorized parties may be able to obtain and useinformation that we regard as proprietary.The issuance of a patent does not ensure that a court or agency finds or will find the patent valid or enforceable, so even if we obtain patents, they may not bevalid 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 mayhave blocking patents that could prevent us from marketing our own patented product and practicing our own patented technology. Third parties may alsoseek to market biosimilar versions of any approved products. Alternatively, third parties may seek approval to market their own products similar to orotherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents, including by filing lawsuits alleging patentinfringement. In any of these types of proceedings, a court or agency with jurisdiction may find our patents invalid and/or unenforceable. Even if we havevalid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our businessobjectives.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 (USPTO) and its foreign counterparts use to grant patents are not alwaysapplied predictably or uniformly and can change. There is also no uniform, worldwide policy regarding the subject matter and scope of claims granted orallowable in pharmaceutical or33biotechnology patents. The laws of some foreign countries do not protect proprietary information to the same extent as the laws of the United States, andmany companies have encountered significant problems and costs in protecting their proprietary information in these foreign countries. Outside the UnitedStates, patent protection must be sought in individual jurisdictions, further adding to the cost and uncertainty of obtaining adequate patent protectionoutside of the United States. Accordingly, we cannot predict whether additional patents protecting our technology will issue in the United States or in foreignjurisdictions, or whether any patents that do issue will have claims of adequate scope to provide competitive advantage. Moreover, we cannot predictwhether third parties will be able to successfully obtain claims or the breadth of such claims. The allowance of broader claims may increase the incidence andcost of patent interference proceedings, opposition proceedings, and/or reexamination proceedings, the risk of infringement litigation, and the vulnerabilityof the claims to challenge. On the other hand, the allowance of narrower claims does not eliminate the potential for adversarial proceedings, and may fail toprovide a competitive advantage. Our issued patents may not contain claims sufficiently broad to protect us against third parties with similar technologies orproducts, 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 been 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, reexamination or inter partes review 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 USPTO may initiate an interference between patents or patent applications owned by or licensed to us and those of our competitors,requiring us or our collaborators and/or licensors to participate in an interference proceeding to determine the priority of invention, which couldjeopardize our patent rights; or•third parties may seek approval to market biosimilar versions of our future approved products prior to expiration of relevant patents owned by orlicensed 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 and scientificpersonnel. There is a risk that a court or administrative body would decide that our patents are invalid or not infringed by a third party’s activities, or that thescope of certain issued claims must be further limited. An adverse outcome in a litigation or proceeding involving our own patents could limit our ability toassert our patents against these or other competitors, affect our ability to receive royalties or other licensing consideration from our licensees, and may curtailor preclude our ability to exclude third parties from making, using and selling similar or competitive products. Any of these occurrences could adverselyaffect 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;34•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 to ourbusiness.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 patent andknow-how license agreements that grant us the right to use certain technologies related to biological manufacturing to manufacture our clinical productcandidates. These licenses typically include an obligation to pay yearly maintenance payments and royalties on sales, and may also include upfront andmilestone payments. If we fail to comply with our obligations under the licenses, the licensors may have the right to terminate their respective licenseagreements, in which event we might not be able to market any product that is covered by the agreements. Termination of the license agreements or reductionor elimination of our licensed rights may result in our having to negotiate new or reinstated licenses with less favorable terms, which could adversely affectour 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. Tomaintain 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 by theindividual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to thirdparties. Our agreements with employees and our personnel policies also provide that any inventions conceived by the individual in the course of renderingservices to us shall be our exclusive property. However, we may not obtain these agreements in all circumstances, and individuals with whom we have theseagreements may not comply with their terms. Thus, despite such agreement, such inventions may become assigned to third parties. In the event ofunauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection,particularly for our trade secrets or other confidential information. To the extent that our employees, consultants or contractors use technology or know-howowned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions. To the extent that anindividual who is not obligated to assign rights in intellectual property to us is rightfully an inventor of intellectual property, we may need to obtain anassignment or a license to that intellectual property from that individual, or a third party or from that individual’s assignee. Such assignment or license maynot 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 trade secretswould impair our competitive position and may materially harm our business, financial condition and results of operations. Costly and time consuminglitigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to maintain trade secret protection could adverselyaffect our competitive business position. In addition, others may independently discover or develop our trade secrets and proprietary information, and theexistence 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 former employers,or that patents and applications we have filed to protect inventions of these employees, even those related to one or more of our product candidates, arerightfully owned by their former or concurrent employer. Litigation may be necessary to defend against these claims. Even if we are successful in defendingagainst 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 the USPTOand various foreign patent offices at various points over the lifetime of our patents and35/or applications. We have systems in place to remind us to pay these fees, and we rely on our outside counsel to pay these fees when due. Additionally, theUSPTO and various foreign patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions during thepatent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be curedby payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are situations in whichnoncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevantjurisdiction. 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 patentfees for patent rights that we have licensed from other parties. If any licensor of these patents does not itself elect to make these payments, and we fail to doso, we may be liable to the licensor 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 each ofour 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 may beeligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-WaxmanAmendments. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensationfor effective patent term lost during product development and the FDA regulatory review process. However, we may not receive an extension if we fail toapply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, thelength of the extension could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is less than werequest, the period during which we can enforce our patent rights for that product will be shortened and our competitors may obtain approval to marketcompeting 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 be eliminated.If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health andworkplace safety laws and regulations and fire and building codes, including those governing laboratory procedures, exposure to blood-borne pathogens, useand storage of flammable agents and the handling of biohazardous materials. Although we maintain workers’ compensation insurance as prescribed by theStates of Maryland and California to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of these materials,this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claimsthat may be asserted against us. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incursubstantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or 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 subject tocivil or criminal penalties.In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal healthcare laws commonly referredto as “fraud and abuse” laws have been applied in recent years to restrict certain marketing practices in the pharmaceutical industry. These laws include falseclaims 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 federally financedhealthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers,purchasers and formulary managers on the other. Although there are several statutory exemptions and regulatory safe harbors protecting certain commonactivities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing,purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. In addition, under the Sunshine Act provisionsof the ACA, pharmaceutical manufacturers with one or more products for which payment is available under a federal health care program36are subject to federal reporting and disclosure requirements with regard to payments or other transfers of value made to physicians and teaching hospitals.Most states also have statutes or regulations similar to the federal anti-kickback law and federal false claims laws, which may apply to items such aspharmaceutical products and services reimbursed by private insurers. Some state laws also prohibit certain gifts to healthcare providers, requirepharmaceutical companies to report payments to healthcare professionals, and/or require companies to adopt compliance programs or codes of conduct.Administrative, civil and criminal sanctions may be imposed under these federal and state laws.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, aswe market any of our future approved products and these products are paid for by governmental programs, it is possible that some of our business activitiescould 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 to civil orcriminal penalties, other remedial measures, and legal expenses, which could adversely affect our business, results of operations and financial condition.Our operations are subject to anti-corruption laws, including the U.S. Foreign Corrupt Practices Act, (FCPA) and other anti-corruption laws thatapply in countries where we do business. The FCPA and these other laws generally prohibit us and our employees and intermediaries from bribing, beingbribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. Weand our commercial partners operate in a number of jurisdictions that pose a risk of potential FCPA violations, and we participate in collaborations andrelationships with third parties whose actions could potentially subject us to liability under the FCPA or other anti-corruption laws. There is no assurance thatwe will be completely effective in ensuring our compliance with all applicable anti-corruption laws. If we violate provisions of the 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 othersanctions and remedial measures and legal expenses, which could have an adverse impact on our business, financial condition and results of operations.Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insidertrading.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDAregulations, to provide accurate information to the FDA or other agencies, to comply with federal and state health care fraud and abuse laws and regulations,to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in thehealth care industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices.Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctionsand serious harm to our reputation. We have adopted a code of conduct, but it is not always possible to identify and deter employee misconduct, and theprecautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us fromgovernmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are institutedagainst us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, includingthe 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., our Presidentand Chief Executive Officer, as well as the other members of our senior management, scientific and clinical team. Although we have entered into employmentagreements with certain of our executive officers, each of them may terminate their employment with us at any time. The loss of the services of our executiveofficers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our abilityto 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 officers andkey employees may be difficult and37may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required tosuccessfully develop, gain regulatory approval of and commercialize products. Competition to hire from this limited pool is intense, and we may be unable tohire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companiesfor similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. Inaddition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development andcommercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting oradvisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, ourability 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, 2019, we had 364 full-time employees. As our development and commercialization plans and strategies develop, we expect toexpand 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 time tomanaging 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 than expected,our ability to generate and/or grow revenue could be reduced and we may not be able to implement our business strategy. Our future financial performanceand our ability to commercialize our product candidates and compete effectively with others in our industry will depend, in part, on our ability to effectivelymanage 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 and fluctuate substantially. The stock market has recently experienced significant volatility, particularlywith respect to pharmaceutical, biotechnology, and other life sciences company stocks. The volatility of pharmaceutical, biotechnology, and other lifesciences company stocks often does not relate to the operating performance of the companies represented by the stock. Some of the factors that may cause themarket price of our common stock to fluctuate include:•results and timing of our clinical trials and clinical trials of our competitors’ products;•failure or discontinuation of any of our development programs;•issues in manufacturing our product candidates or future approved products;•issues in designing or constructing our commercial manufacturing facilities;•regulatory developments or enforcement in the United States and foreign countries with respect to our product candidates or our competitors’products;•competition from existing products or new products that may emerge;•developments or disputes concerning patents or other proprietary rights;•introduction of technological innovations or new commercial products by us or our competitors;•announcements by us, our collaborators or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations orcapital commitments;•changes in estimates or recommendations by securities analysts, if any cover our common stock;•fluctuations in the valuation of companies perceived by investors to be comparable to us;•public concern over our product candidates or any future approved products;•threatened or actual litigation;•future or anticipated sales of our common stock;38•share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;•additions or departures of key personnel;•changes in the structure of health care payment systems in the United States or overseas;•failure of any of our product candidates, if approved, to achieve commercial success;•economic and other external factors or other disasters or crises;•period-to-period fluctuations in our financial condition and results of operations, including the timing of receipt of any milestone or otherpayments under commercialization or licensing agreements;•general market conditions and market conditions for biopharmaceutical stocks; and•overall fluctuations in U.S. equity markets.In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigationagainst the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit anddivert the 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 more difficult.Certain provisions of our restated certificate of incorporation and amended and restated bylaws could discourage, delay, or prevent a merger,acquisition, or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium foryour shares. These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock, therebydepressing the market price of our common stock. Stockholders who wish to participate in these transactions may not have the opportunity to do so.Furthermore, since our board of directors is responsible for appointing the members of our management team, these provisions could prevent or frustrateattempts by our stockholders to replace or remove our management by making it more difficult 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 acted on atstockholder 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 provisions ofour 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 transactions withvarious third parties, including other pharmaceutical companies and biotechnology companies. When we deem it appropriate, our agreements with such thirdparties may include standstill provisions. These standstill provisions, several of which may be in force from time-to-time, typically prohibit such parties fromacquiring our securities for a period of time, which may discourage such parties from acquiring MacroGenics even if doing so would be beneficial to ourstockholders.In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law,which may, unless certain criteria are met, prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from mergingor combining with us for a prescribed period of time. This provision could have the effect of delaying or preventing a change of control, whether or not it isdesired by or beneficial to our stockholders.39ITEM 1B. UNRESOLVED STAFF COMMENTSNone.ITEM 2. PROPERTIESWe lease approximately 200,000 square feet of manufacturing, office and laboratory space in Rockville, Maryland under five leases that have termsthat expire between 2019 and 2027 unless renewed. We also lease office and laboratory space in Brisbane, CA which is leased until 2023. We believe thatour properties are generally in good condition, well maintained, suitable and adequate to carry on our business. We believe our capital resources aresufficient to lease any additional facilities required to meet our expected growth needs.ITEM 3. LEGAL PROCEEDINGSIn the ordinary course of business, we are involved in various legal proceedings, including, among others, patent oppositions, patent revocations,patent infringement litigation and other matters incidental to our business. We are not currently a party to any material legal proceedings.ITEM 4. MINE SAFETY DISCLOSURESNot applicable.40PART IIITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIESMarket InformationOur common stock is listed on the Nasdaq Global Select Market under the symbol "MGNX". As of February 22, 2019, we had 48,780,321 shares ofcommon stock outstanding held by approximately 75 holders of record, which include shares held by a broker, bank or other nominee. We have neverdeclared or paid any cash dividends. We do not anticipate declaring or paying cash dividends for the foreseeable future. Instead, we will retain our earnings,if any, for the future operation and expansion of our business.Performance GraphThe following graph compares the five-year cumulative total return of our common stock with the Nasdaq Composite Index (U.S.) and the NasdaqBiotechnology Index. The comparison assumes a $100 investment on December 31, 2013 in our common stock, the stocks comprising the NasdaqComposite Index, and the stocks comprising the Nasdaq Biotechnology Index, and assumes reinvestment of the full amount of all dividends, ifany. Historical stockholder return is not necessarily indicative of the performance to be expected for any future periods.The performance graph shall not be deemed to be incorporated by reference by means of any general statement incorporating by reference this Form10-K into any filing under the Securities Act of 1933, as amended or the Exchange Act, except to the extent that we specifically incorporate such informationby reference, and shall not otherwise be deemed filed under such acts.41ITEM 6. SELECTED FINANCIAL DATAThe consolidated statement of operations and comprehensive loss data for the years ended December 31, 2018, 2017 and 2016 and the consolidatedbalance sheet data as of December 31, 2018 and 2017 presented below have been derived from our audited consolidated financial statements and footnotesincluded elsewhere in this Annual Report on Form 10-K. The consolidated statement of operations and comprehensive loss data for the years endedDecember 31, 2015 and 2014 and the consolidated balance sheet data as of December 31, 2016, 2015 and 2014 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 shouldbe read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidatedfinancial statements and related notes included elsewhere in this Annual Report on Form 10-K. Year Ended December 31, 20182017201620152014 (in thousands, except share and per share data)Consolidated Statement of Operations andComprehensive Loss:Total revenues$60,121 $157,742 $91,880 $100,854 $47,797 Costs and expenses: Research and development190,827 147,232 122,091 98,271 70,186 General and administrative40,500 32,653 29,831 22,765 15,926 Total costs and expenses231,327 179,885 151,922 121,036 86,112 Loss from operations(171,206)(22,143)(60,042)(20,182)(38,315)Other income (expense)(247)2,517 1,514 42 2 Net loss(171,453)(19,626)(58,528)(20,140)(38,313)Other comprehensive loss: Unrealized gain (loss) on investments58 21 (77)(5)— Comprehensive loss$(171,395)$(19,605)$(58,605)$(20,145)$(38,313)Basic and diluted net loss per common share$(4.19)$(0.54)$(1.69)$(0.63)$(1.40)Basic and diluted weighted average number of commonshares40,925,318 36,095,080 34,685,274 31,801,645 27,384,990 As of December 31, 20182017201620152014 (in thousands)Consolidated Balance Sheet Data:Cash, cash equivalents and marketable securities$232,863 $305,121 $284,982 $339,049 $157,591 Total assets332,130 373,883 311,263 359,269 173,886 Deferred revenue40,722 20,839 14,306 18,497 30,720 Total stockholders' equity242,877 299,238 268,751 313,337 121,286 42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 including, but not limited to, those set forth under the sections entitled "Risk Factors" and "Forward-LookingStatements", our actual results may differ materially from those anticipated in such forward-looking statements.OverviewWe are a biopharmaceutical company focused on discovering and developing innovative antibody-based therapeutics to modulate the humanimmune response for the treatment of cancer. We currently have a pipeline of product candidates in human clinical testing that have been created primarilyusing our proprietary technology platforms. We believe our programs have the potential to have a meaningful effect on treating patients' unmet medicalneeds 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, developing ourtechnology platforms, identifying potential product candidates, undertaking preclinical studies, conducting clinical trials, developing collaborations,business planning and raising capital. We have not generated any revenues from the sale of any products to date. We have financed our operations primarilythrough the public and private offerings of our securities, collaborations with other biopharmaceutical companies, and government grants and contracts. Although it is difficult to predict our funding requirements, based upon our current operating plan, we anticipate that our cash, cash equivalents andmarketable securities as of December 31, 2018, combined with the net proceeds from our February 2019 offering of common stock and proceeds fromcollaboration payments we anticipate receiving, will enable us to fund our operations into 2021 based on our current business plan.Through December 31, 2018, we had an accumulated deficit of $490.3 million. We expect that over the next several years this deficit will increaseas we increase our expenditures in research and development in connection with our ongoing activities with several clinical trials. Strategic CollaborationsWe pursue a balanced approach between product candidates that we develop ourselves and those that we develop with our collaborators. Under ourstrategic collaborations to date, we have received significant non-dilutive funding and continue to have rights to additional funding upon completion ofcertain research, achievement of key product development milestones and royalties and other payments upon the commercial sale of products. Our currentstrategic collaborations include the following:•Incyte. In October 2017, we entered into an exclusive global collaboration and license agreement with Incyte Corporation (Incyte) for MGA012,an investigational monoclonal antibody that inhibits programmed cell death protein 1 (PD-1). Incyte has obtained exclusive worldwide rightsfor the development and commercialization of MGA012 in all indications, while we retain the right to develop our pipeline assets incombination with MGA012. The transaction closed in the fourth quarter of 2017 and we received a $150.0 million upfront payment from Incyteupon the closing.Under the terms of the collaboration, Incyte will lead global development of MGA012. Assuming successful development andcommercialization by Incyte, we could receive development and regulatory milestones of up to approximately $420.0 million, of which we'vealready received $15.0 million, and up to $330.0 million in commercial milestones. If commercialized, we would be eligible to receive tieredroyalties of 15% to 24% on any global net sales and we have the option to co-promote with Incyte. We retain the right to develop our pipelineassets in combination with MGA012, with Incyte commercializing MGA012 and MacroGenics commercializing our asset(s), if any suchpotential combinations are approved. We also have an agreement with Incyte under which we are to perform development and manufacturingservices for Incyte's clinical needs of MGA012. In addition, we retain the right to manufacture a portion of both companies' global commercialsupply needs of MGA012 subject to a separate commercial supply agreement.43•Servier. In September 2012, we entered into an agreement with Les Laboratoires Servier and Institut de Recherches Servier (collectively,Servier) to develop and commercialize three DART molecules in all countries other than the United States, Canada, Mexico, Japan, South Koreaand India. In February 2014, Servier exercised its option to develop and commercialize flotetuzumab, for which we received a $15.0 millionlicense option fee. As of December 31, 2018, Servier had terminated its option to license MGD007 and the third DART molecule. We received a$20.0 million upfront option fee upon execution of the agreement. In addition, we will be eligible to receive up to approximately $308.5million in additional clinical, development, regulatory and sales milestone payments if Servier successfully develops, obtains regulatoryapproval for, and commercializes flotetuzumab. 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.•Zai Lab. In November 2018, we entered into a collaboration and license agreement with Zai Lab Limited (Zai Lab) under which Zai Labobtained regional development and commercialization rights in mainland China, Hong Kong, Macau and Taiwan for (i) margetuximab, animmune-optimized anti-HER2 monoclonal antibody, (ii) MGD013, a bispecific DART molecule designed to provide coordinate blockade ofPD-1 and LAG-3 for the potential treatment of a range of solid tumors and hematological malignancies, and (iii) an undisclosed multi-specificTRIDENT molecule in preclinical development. Zai Lab will lead clinical development in its territory.Under the terms of the agreement, Zai Lab paid us an upfront payment of $25.0 million less foreign withholding tax of $2.5 million, which wasreceived in January 2019. Assuming successful development and commercialization of margetuximab, MGD013 and the TRIDENT molecule,we could receive up to $140.0 million in development and regulatory milestones. In addition, Zai Lab would pay us double-digit royalties onannual net sales of the assets, which may be subject to adjustment in specified circumstances. Financial Operations OverviewRevenueOur revenue consists primarily of collaboration revenue, including amounts recognized relating to upfront nonrefundable payments for licenses oroptions to obtain future licenses, research and development funding and milestone payments earned under our collaboration and license agreements with ourstrategic collaborators. In addition, we have earned revenues through several grants and/or contracts with the U.S. government and other research institutionson behalf of the U.S. government, primarily with respect to research and development activities related to infectious disease product candidates.Research and Development ExpenseResearch and development expense consists of expenses incurred in performing research and development activities. These expenses includeconducting preclinical experiments and studies, clinical trials, manufacturing efforts and regulatory filings for all product candidates, and other indirectexpenses in support of our research and development activities. We capture research and development expense on a program-by-program basis for ourproduct candidates that are in clinical development and recognize these expenses as they are incurred. The following are items we include in research anddevelopment expense:•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 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 ourpreclinical and clinical trials including, but not limited to, investigator grants, laboratory work and analysis, database management, statisticalanalysis, 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 preclinical programs and clinical trials of ourproduct candidates, or if, when or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtainregulatory approval. We may never succeed in44achieving regulatory approval for any of our product candidates. The duration, costs and timing of clinical trials and development of our product candidateswill depend on a variety of factors, including the uncertainties of future clinical trials and preclinical studies, uncertainties in clinical trial enrollment ratesand significant and changing government regulation. In addition, the probability of success for each product candidate will depend on numerous factors,including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund eachprogram 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 ExpensesGeneral and administrative expenses consist of salaries and related benefit costs for employees in our executive, finance, legal and intellectualproperty, business development, human resources, information technology 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 marketable securities, offset by other expenses.Critical Accounting Policies and Significant Judgments and EstimatesOur management's discussion and analysis of financial conditions and results of operations is based on our consolidated financial statements, whichhave been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidatedfinancial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities as of the date of the balance sheets and the reported amount of the revenue and expenses recorded during the reportingperiod. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. We review and evaluate theseestimates on an on-going basis. These assumptions and estimates form the basis for making judgments about the carrying values of assets and liabilities andamounts that have been recorded as revenues and expenses. Actual results and experiences may differ from these estimates. The results of any materialrevisions would be reflected in the consolidated financial statements 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 thefollowing accounting policies are the most critical to assist you in fully understanding and evaluating our financial results and the effect of the estimates andjudgments we used in preparing our consolidated financial statements.Revenue RecognitionBeginning January 1, 2018, we recognize revenue under Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customersand all related amendments (collectively ASC 606) when our customer obtains control of promised goods or services, in an amount that reflects theconsideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine arewithin the scope of ASC 606, management performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performanceobligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v)recognize revenue when (or as) we satisfy a performance obligation. We recognize as revenue the amount of the transaction price that is allocated to therespective performance obligation when (or as) the performance obligation is satisfied.We enter into licensing agreements that are within the scope of ASC 606, under which we may license rights to research, develop, manufacture andcommercialize our product candidates to third parties. The terms of these arrangements typically include payment to us of one or more of the following: non-refundable, upfront license fees; reimbursement of certain costs; customer option exercise fees; development, regulatory and commercial milestonepayments; and royalties on net sales of licensed products. We may also enter into development and manufacturing service agreements with our collaborators.For each arrangement that results in revenues, we identify all performance obligations, which may include a license to intellectual property andknow-how, research and development activities, transition activities and/or manufacturing services. In order to determine the transaction price, in addition toany upfront payment, management estimates the amount of variable consideration at the outset of the contract either utilizing the expected value or mostlikely amount method, depending on the facts and circumstances relative to the contract. We constrain (reduce) the estimates of variable consideration suchthat it is45probable that a significant reversal of previously recognized revenue will not occur. When determining if variable consideration should be constrained,management considers whether there are factors outside our control that could result in a significant reversal of revenue. In making these assessments,management considers the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required.Once the estimated transaction price is established, amounts are allocated to the performance obligations that have been identified. The transactionprice is generally allocated to each separate performance obligation on a relative standalone selling price basis. We must develop assumptions that requirejudgment to determine the standalone selling price in order to account for these agreements. To determine the standalone selling price, management’sassumptions may include (i) the probability of obtaining marketing approval for the product candidate, (ii) estimates regarding the timing and the expectedcosts to develop and commercialize the product candidate, and (iii) estimates of future cash flows from potential product sales with respect to the productcandidate. Standalone selling prices used to perform the initial allocation are not updated after contract inception. We do not include a financing componentto its estimated transaction price at contract inception unless we estimate that certain performance obligations will not be satisfied within one year.Amounts received prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets. Amountsnot expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.Licenses. If the license to our intellectual property is determined to be distinct from the other promises or performance obligations identified in thearrangement, we recognize revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and when (or as)the customer is able to use and benefit from the license. In assessing whether a promise or performance obligation is distinct from the other promises, weconsider factors such as the research, development, manufacturing and commercialization capabilities of the licensee and the availability of the associatedexpertise in the general marketplace. In addition, we consider whether the licensee can benefit from a promise for its intended purpose without the receipt ofthe remaining promise, whether the value of the promise is dependent on the unsatisfied promise, whether there are other vendors that could provide theremaining promise, and whether it is separately identifiable from the remaining promise. For licenses that are combined with other promises, managementutilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied overtime or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. We evaluate the measure ofprogress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. The measure of progress, and therebyperiods over which revenue should be recognized, are subject to estimates by management and may change over the course of the research and developmentand licensing agreement. Such a change could have a material impact on the amount of revenue we record in future periods.Research, Development and/or Manufacturing Services. The promises under our agreements may include research and development ormanufacturing services to be performed by us on behalf of the counterparty. If these services are determined to be distinct from the other promises orperformance obligations identified in the arrangement, we recognize the transaction price allocated to these services as revenue over time based on anappropriate measure of progress when the performance by us does not create an asset with an alternative use and we have an enforceable right to payment forthe performance completed to date. If these services are determined not to be distinct from the other promises or performance obligations identified in thearrangement, we recognize the transaction price allocated to the combined performance obligation as the related performance obligations are satisfied.Customer Options. If an arrangement contains customer options, we evaluate whether the options are material rights because they allow the customerto acquire additional goods or services for free or at a discount. If the customer options are determined to represent a material right, the material right isrecognized as a separate performance obligation at the outset of the arrangement. We allocate the transaction price to material rights based on the relativestandalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option. Amountsallocated to a material right are not recognized as revenue until, at the earliest, the option is exercised. If the options are deemed not to be a material right,they are excluded as performance obligations at the outset of the arrangement.Milestone Payments. At the inception of each arrangement that includes development milestone payments, management evaluates whether themilestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method.If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone paymentsthat are not within our control or the licensee's control, such as regulatory approvals, are not considered probable of being achieved until those approvals arereceived. We evaluate factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to46achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significantrevenue reversal would not occur. At the end of each subsequent reporting period, management reevaluates the probability of achievement of all milestonessubject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis,which would affect revenues and earnings in the period of adjustment.Royalties. For arrangements that include sales-based royalties which are the result of a customer-vendor relationship and for which the license isdeemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when theperformance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied. To date, we have not recognized anyroyalty revenue resulting from any of our licensing arrangements.We analyze our collaboration arrangements to assess whether such arrangements involve joint operating activities performed by parties who are bothactive participants in the activities and are both exposed to significant risks and rewards dependent on the commercial success of such activities. Sucharrangements generally are within the scope of ASC 808, Collaborative Arrangements (ASC 808). While ASC 808 defines collaborative arrangements andprovides guidance on income statement presentation, classification, and disclosures related to such arrangements, it does not address recognition andmeasurement matters, such as (1) determining the appropriate unit of accounting or (2) when the recognition criteria are met. Therefore, the accounting forthese arrangements is either based on an analogy to other accounting literature or an accounting policy election by management. We account for certaincomponents of the collaboration agreement that are reflective of a vendor-customer relationship (e.g., licensing arrangement) based on an analogy to ASC606. We account for other components based on a reasonable, rational and consistently applied accounting policy election. Reimbursements from thecounter-party that are the result of a collaborative relationship with the counter-party, instead of a customer relationship, such as co-development activities,are recorded as a reduction to research and development expense as the services are performed.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 obtainreasonable estimates, we review open contracts and purchase orders. In addition, we communicate with applicable personnel in order to identify services thathave been performed, but for which we have not yet been invoiced. In most cases, our vendors provide us with monthly invoices in arrears for servicesperformed. We confirm our estimates with these vendors and make adjustments as needed. The following are examples of our accrued expenses:•Fees paid to clinical research organizations (CROs) for services performed on clinical trials;•Fees paid to investigator sites for performance on clinical trials;•Fees paid for professional services; and•Development expenses incurred by our collaborators that we share. The majority of expenses related to clinical trials performed by our CROs are dependent on the successful enrollment of patients. These expensescan vary 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 levelof effort to be expended in each period based on the estimated enrollment of patients in each trial. We also receive estimates from our collaborators when weare sharing development expenses. We use these estimates to record an increase or decrease in research and development expense, depending on how muchwe have each spent during the period. We will adjust accordingly should the estimates vary from the actual expenses. However, we do not anticipate that ouractual 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 assetsand liabilities 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 isreduced, 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. Financialstatement recognition 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 positionbeing 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 berealized upon ultimate settlement. Our policy is to record interest and penalties related to uncertain tax positions as a component of income tax expense. 47We recorded net deferred tax assets of $172.5 million as of December 31, 2018, 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, 2018, we had federal and state NOL carryforwards of $415.6million. Of these NOLs, $237.8 million will expire in various years beginning in 2025 through 2037. $177.8 million of NOLs were generated post December31, 2017 and carryforward indefinitely. As of December 31, 2018, we had research and development tax credit carryforwards of $52.3 million available,which will begin to expire at various dates starting in 2022. 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 an ownership change and, consequently, another Section 382 limitation. Any limitation may result inexpiration of a portion of the net operating loss or tax credit carryforwards before utilization which would reduce our gross deferred income tax assets andcorresponding valuation allowance. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards and taxcredit carryforwards to reduce United States federal income tax may be subject to limitations, which could potentially result in increased future cash taxliability to us. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the Tax Act) was signed into law making significant changes to the Internal RevenueCode, which included how the U.S. imposes income tax on multinational corporations. Key changes in the Tax Act which are relevant to us, and generallyeffective January 1, 2018, include a flat corporate income tax rate of 21% to replace the marginal rates that range from 15% to 35% and the elimination of thecorporate alternative minimum tax. The Tax Act also imposes limits on executive compensations and interest expense deductions, while permitting theimmediate expensing for the cost of new investments in certain property acquired after September 27, 2017.On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 (SAB 118) to address the application of U.S. generally acceptedaccounting principles (GAAP) in situations when a registrant does not have the necessary information available, prepared, or analyzed (includingcomputations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. SAB 118 allows registrants to include aprovisional amount to account for the implications of the Tax Act where a reasonable estimate can be made and requires the completion of the accounting nolater than one year from the date of the enactment of the Tax Act, or December 22, 2018. We recognized the provisional tax impacts related to the re-measurement of our U.S. deferred tax assets and liabilities to 21% in 2017 and included these amounts in our consolidated financial statements for the yearended December 31, 2017. This change in value of these deferred tax assets and liabilities was offset by a corresponding change in valuation allowance, thusno tax expense or benefit was recorded. We completed our evaluation of the effects of the Tax Act during the fourth quarter of 2018, and the provisionalamounts we accounted for in our December 31, 2017 provision were finalized with no adjustments.Stock-Based Compensation We recognize stock-based compensation expense in accordance with the provisions of ASC Topic 718, Compensation—Stock Compensation. Thefair value 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-linebasis over the requisite service period, which is generally the vesting period of the option. The use of a Black-Scholes model requires us to apply judgmentand make assumptions 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 ofthe common stock. The Board of Directors made determinations of fair value based, in part, upon contemporaneous valuations to determine fairvalue. The contemporaneous valuations were performed in accordance with applicable methodologies, approaches and assumptions of thetechnical practice-aid issued by the American Institute of Certified Public Accountants Practice Aid entitled Valuation of Privately-HeldCompany Equity Securities 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)or is expected to fluctuate (expected volatility) during a period. As we do not yet have sufficient history of our own volatility, we have identifiedseveral public 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.48•Expected Term – This is the period of time that the options granted are expected to remain unexercised. Options granted have a maximum term often years and we have estimated the expected life of the option term to be 6.25 years. We use a simplified method to calculate the averageexpected term.•Expected Forfeiture Rate – 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. We estimate the forfeiture rate based on turnover data with further consideration given to the class ofthe employees to whom the options were granted.Recent Accounting PronouncementsSee Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements for information under the caption "RecentlyIssued Accounting Standards."Results of Operations for the Years Ended December 31, 2018 and 2017 Revenue The following represents a comparison of our revenue for the years ended December 31, 2018 and 2017:Year Ended December 31,Increase/(Decrease)20182017(dollars in millions)Revenue from collaborative agreements$58.6 $155.5 $(96.9)(62)%Revenue from government agreements1.5 2.2 (0.7)(32)%Total revenue$60.1 $157.7 $(97.6)(62)%The decrease of $96.9 million in revenue from collaborative agreements for the year ended December 31, 2018 compared to the year endedDecember 31, 2017 was primarily due to:• The $150.0 million upfront payment recognized under the Incyte agreement during the year ended December 31, 2017;•Revenue recognized under the Incyte clinical supply agreement of $22.2 million and the Incyte license agreement of $18.8 million during theyear ended December 31, 2018; and•Recognition of $4.0 million in revenue under an agreement with F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc. (Roche) and $6.1million under an agreement with Provention Bio, Inc. (Provention) during the year ended December 31, 2018 (see Note 8 of the Notes to theConsolidated Financial Statements for additional information about these agreements).Research and Development Expenses The following represents a comparison of our research and development expenses for the years ended December 31, 2018 and 2017:Year Ended December 31,Increase/(Decrease)20182017(dollars in millions)Margetuximab$68.4 $48.2 $20.2 42 %MGA01228.6 13.8 $14.8 107 %Enoblituzumab15.8 21.8 $(6.0)(28)%Flotetuzumab (a)14.4 6.3 $8.1 129 %MGD01310.3 5.7 $4.6 81 %MGD0098.9 3.9 $5.0 128 %MGC0187.0 10.1 $(3.1)(31)%MGD0076.7 6.2 $0.5 8 %MGD0195.5 6.6 $(1.1)(17)%Other immune modulator programs6.4 6.3 $0.1 2 %Discovery and other pipeline programs, collectively18.8 18.3 0.5 3 %Total research and development expenses$190.8 $147.2 $43.6 30 %49(a) Expenses are shown net of reimbursements from collaborator.Research and development expenses were $190.8 million for the year ended December 31, 2018 compared to $147.2 million for the year endedDecember 31, 2017. The increase of $43.6 million was primarily attributable to:•Increased clinical trial costs related to our ongoing margetuximab Phase 3 SOPHIA study;•Increased manufacturing costs related to the clinical supply of margetuximab;•Increased clinical trial costs related to completing enrollment in a first acute myeloid leukemia (AML) dose expansion cohort of our Phase 1flotetuzumab study in 2018 and continued enrollment in an additional cohort expansion of this study;•Increased clinical trial costs related to the Phase 1 study of MGD009 as monotherapy and in combination with MGA012;•Increased development and manufacturing costs related to the clinical supply of MGA012 for Incyte's clinical trials and our trials of MGA012 incombination with DART molecules; •Clinical trial costs related to our MGD013 Phase 1 study initiated in the second half of 2017; and•Increased headcount to support expanded manufacturing and development activities.These increases were partially offset by:•Reduced clinical trial costs related to our enoblituzumab studies; and•Reduced clinical trial costs for MGA012, as the monotherapy trial was transferred to Incyte in 2018.General and Administrative Expenses The following represents a comparison of our general and administrative expenses for the years ended December 31, 2018 and 2017:Year Ended December 31,Increase/(Decrease)20182017(dollars in millions)General and administrative expenses$40.5 $32.7 $7.8 24 %General and administrative expenses increased for the year ended December 31, 2018 by $7.8 million compared to 2017 primarily due to an increasein labor-related costs, including stock-based compensation expense, patent expenses and information technology-related expenses.Other Income (Expense)The change to other expense for the year ended December 31, 2018 from other income for the year ended December 31, 2017 is primarily due therevaluation of the warrants we received as consideration under the Provention license agreement of $4.2 million.Results of Operations for the Years Ended December 31, 2017 and 2016 Revenue The following represents a comparison of our revenue for the years ended December 31, 2017 and 2016:Year Ended December 31,Increase/(Decrease)20172016(dollars in millions)Revenue from collaborative agreements$155.5 $86.6 $68.9 80 %Revenue from government agreements2.2 5.3 (3.1)(58)%Total revenue$157.7 $91.9 $65.8 72 %Revenue from collaborative agreements for the year ended December 31, 2017 includes the $150.0 million upfront payment recognized under theIncyte agreement. Revenue from collaborative agreements for the year ended December 31, 2016 includes the $75.0 million upfront payment recognizedunder our MGD015 agreement with Janssen Biotech, Inc. (Janssen). The remaining change in revenue from collaborative agreements is primarily due to a$2.0 million milestone payment from50Pfizer, Inc. in 2016 and a decrease in revenue recognized under the our MGD010 agreement with Takeda Pharmaceutical Company, Limited (Takeda) of $2.1million for the year ended December 31, 2017 compared to 2016.Revenue from government agreements decreased for the year ended December 31, 2017 compared to 2016 primarily due to lower costs incurredunder our cost plus fixed fee contract with the National Institute of Allergy and Infectious Diseases.Research and Development Expenses The following represents a comparison of our research and development expenses for the years ended December 31, 2017 and 2016:Year Ended December 31,Increase/(Decrease)20172016(dollars in millions)Margetuximab$48.2 $35.4 $12.8 36 %Enoblituzumab21.8 18.0 3.8 21 %Flotetuzumab (a)6.3 3.8 2.5 66 %MGD0076.2 3.6 2.6 72 %MGD0093.9 3.3 0.6 18 %MGD0103.6 7.8 (4.2)(54)%MGA01213.8 9.3 4.5 48 %MGD0135.7 8.7 (3.0)(34)%MGC01810.1 3.5 6.6 189 %MGD0196.6 4.8 1.8 38 %Other immune modulator programs6.3 1.5 4.8 320 %Discovery and other pipeline programs, collectively14.7 22.4 (7.7)(34)%Total research and development expenses$147.2 $122.1 $25.1 21 %(a) Expenses are shown net of reimbursements from collaborator.During the year ended December 31, 2017, our research and development expenses increased by $25.1 million compared to 2016. This increase wasprimarily due to the continued enrollment in our various clinical trials, including two margetuximab studies, multiple enoblituzumab studies, and theflotetuzumab and MGD007 Phase 1 studies. Also contributing to the increase was the initiation of the Phase 1 clinical trial of MGA012 in late 2016, as wellas Investigational New Drug (IND)-enabling activities for both MGC018 and MGD019. These increases were partially offset by decreased spending onMGD010 due to the completion of a Phase 1 study and decreased spending on MGD013, as IND-enabling activities ended and the dose escalation studybegan in 2017.General and Administrative Expenses The following represents a comparison of our general and administrative expenses for the years ended December 31, 2017 and 2016:Year Ended December 31,Increase/(Decrease)20172016(dollars in millions)General and administrative expenses$32.7 $29.8 $2.9 10 %General and administrative expenses increased for the year ended December 31, 2017 by $2.9 million compared to 2016 primarily due to an increasein labor-related costs, including stock-based compensation expense, and information technology-related expenses, partially offset by lower patent expenses.Other IncomeThe increase in other income for the years ended December 31, 2017 and 2016 is primarily due to an increase in interest income earned onmarketable securities.51Liquidity and Capital ResourcesWe have historically financed our operations primarily through public and private offerings of equity, upfront fees, milestone payments and licenseoption fees from collaborators and reimbursement through government grants and contracts. As of December 31, 2018, we had $232.9 million in cash, cashequivalents and marketable securities. In addition to our existing cash, cash equivalents and marketable securities, we are eligible to receive additionalreimbursement from our collaborators, including under various government grants or contracts, 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 tosuccessfully complete specified research and development activities and is therefore uncertain at this time.Funding RequirementsWe 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 for 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 togenerate revenue from product sales and it is uncertain that we ever will. We expect that we will continue to increase our operating expenses in connectionwith ongoing as well as additional clinical trials and preclinical development of product candidates in our pipeline. We expect to continue our collaborationarrangements and will look for additional collaboration opportunities. We also expect to continue our efforts to pursue additional grants and contracts fromthe U.S. government in order to further our research and development. Although it is difficult to predict our funding requirements, based upon our currentoperating plan, we anticipate that our existing cash, cash equivalents and marketable securities as of December 31, 2018, combined with the net proceedsfrom our February 2019 offering of common stock and other collaboration payments we anticipate receiving, will enable us to fund our operations into 2021,assuming all of our programs and collaborations advance as currently contemplated.Cash FlowsThe following table represents a summary of our cash flows for the years ended December 31, 2018, 2017 and 2016:Year Ended December 31,201820172016(dollars in millions)Net cash provided by (used in):Operating activities$(153.2)$14.4 $(43.7)Investing activities56.6 77.9 (70.2)Financing activities105.0 35.3 1.9 Net increase (decrease) in cash and cash equivalents$8.4 $127.6 $(112.0)Operating Activities Net cash provided by or used in operating activities reflects, among other things, the amounts used to advance our clinical trials and preclinicalactivities, and cash used for capital expenditures. The principal use of cash in operating activities for all periods presented was to fund our net loss, adjustedfor non-cash items, with the year ended December 31, 2017 benefiting from the $150.0 million upfront payment from Incyte, resulting in cash provided byoperations. Cash used for operating activities during the year ended December 31, 2016 benefited from the $75.0 million upfront payment received fromJanssen.Investing ActivitiesNet cash provided by investing activities during the years ended December 31, 2018 and December 31, 2017 is primarily due to maturities ofmarketable securities, partially offset by purchases of marketable securities and making leasehold improvements to our facilities, including the build out of amanufacturing suite at our headquarters building in Rockville, Maryland. Net cash used in investing activities during the year ended December 31, 2016 isprimarily due to investing our cash in marketable securities and making leasehold improvements to our facilities. Financing ActivitiesNet cash provided by financing activities for the year ended December 31, 2018 reflects net cash proceeds from our securities offering ofapproximately $103.3 million, and cash from stock option exercises and the purchase of shares under our employee stock purchase plan. Net cash providedby financing activities for the year ended December 31, 2017 reflects net cash proceeds from our securities offerings of approximately $34.2 million and cashfrom stock option exercises and the52purchase of shares under our employee stock purchase plan. Net cash provided by financing activities for the year ended December 31, 2016 includes cashfrom stock option exercises. Contractual Obligations and Contingent LiabilitiesOur current obligations and contingent liabilities are limited to the operating leases at our facilities in Rockville, Maryland and Brisbane,California. The following table represents future minimum operating lease payments under non-cancelable operating leases as of December 31, 2018:TotalLess than 1 year1 to 3 years3 to 5 yearsMore than 5 years(in millions)Operating Leases$39.1 $6.3 $9.5 $9.5 $13.8 Off-Balance Sheet ArrangementsWe 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 RISKOur primary objective when considering our investment activities is to preserve capital in order to fund our operations. We also seek to maximizeincome from our investments without assuming significant risk. Our current investment policy is to invest principally in deposits and securities issued by theU.S. government and its agencies, Government Sponsored Enterprise agency debt obligations, corporate debt obligations and money market instruments. Asof December 31, 2018, we had cash, cash equivalents and marketable securities of $232.9 million. Our primary exposure to market risk is related to changesin interest rates. Due to the short-term maturities of our cash equivalents and marketable securities and the low risk profile of our marketable securities, animmediate 100 basis point 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 to hold our marketable securities until maturity, and we therefore do not expect a change in market interest rates to affect our operatingresults or cash flows to any significant degree.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe information required by this item is set forth on pages F-1 - F-26.ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.ITEM 9A. CONTROLS AND PROCEDURESDisclosure Controls and ProceduresOur management, including our principal executive and principal financial officers, has evaluated the effectiveness of our disclosure controls andprocedures as of December 31, 2018. 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 ourprincipal executive and principal financial officers, to allow timely decisions regarding required disclosure. Based on that evaluation, our principalexecutive and principal financial officers have concluded that our disclosure controls and procedures are effective at the reasonable assurance level.53Changes in Internal ControlWe completed a phased implementation of a new enterprise resource planning (ERP) system during 2018, which replaced or enhanced certaininternal financial, operating and other systems that are critical to our business operations. The ERP implementation affected the processes that constitute ourinternal control over financial reporting. Management has taken steps to ensure that appropriate controls were designed and implemented as the new ERPsystem was implemented.With the exception of the ERP implementation described above, there were no changes in the Company's internal control over financial reportingthat occurred during the quarterly period ended December 31, 2018 that have materially affected, or are reasonably likely to materially effect, the Company'sinternal control over financial reporting.Management's Report on Internal Control over Financial ReportingThe management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal controlover financial 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 designedby, or under the supervision of, the Company's principal executive and principal financial officers and effected by the Company's board of directors,management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsfor external purposes in accordance 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 withgenerally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance withauthorizations of management and directors of the Company; and•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assetsthat 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. Projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore,even those systems determined 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, 2018. Inmaking this assessment, the Company's management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission(2013 framework) (COSO) in Internal Control-Integrated Framework. Based on our assessment, management believes that, as of December 31, 2018, theCompany's internal control over financial reporting is effective based on those criteria.The effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by Ernst & Young, LLP, an independentregistered public accounting firm, as stated in their report which is included herein on page 55.ITEM 9B. OTHER INFORMATIONNone.54Report of Independent Registered Public Accounting FirmTo the Shareholders and the Board of Directors of MacroGenics, Inc.Opinion on Internal Control over Financial ReportingWe have audited MacroGenics, Inc.’s internal control over financial reporting as of December 31, 2018, 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). In ouropinion, MacroGenics, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidatedbalance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements of operations and comprehensive loss, stockholders’equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and our report dated February 26, 2019,expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance 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 andevaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized 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 compliancewith the policies or procedures may deteriorate./s/ Ernst & Young LLPBaltimore, MarylandFebruary 26, 2019 55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 2019 annual meeting of stockholders (the 2019 Proxy Statement).ITEM 11. EXECUTIVE COMPENSATIONWe incorporate herein by reference the relevant information concerning executive compensation to be included in the 2019 Proxy Statement.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSWe incorporate herein by reference the relevant information concerning security ownership of certain beneficial owners and management to beincluded in the 2019 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 the2019 Proxy 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 2019 ProxyStatement.56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 - 1Consolidated Balance SheetsF - 2Consolidated Statements of Operations and Comprehensive LossF - 3Consolidated Statements of Stockholders' EquityF - 4Consolidated Statements of Cash FlowsF - 5Notes to Consolidated Financial StatementsF - 62.Financial Statement Schedules:All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in thefinancial statements or the notes thereto. 3.ExhibitsThe exhibits filed as part of this Annual Report on Form 10-K are set forth on the Exhibit Index immediately following our consolidated financialstatements. The Exhibit Index is incorporated herein by reference.ITEM 16. FORM 10-K SUMMARYNot applicable.57SIGNATURESPursuant 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 behalfby the undersigned, thereunto duly authorized: MacroGenics, Inc. By:/s/ Scott Koenig Scott Koenig, M.D., Ph.D. President and CEO and DirectorPursuant to the requirements of the Securities Act of 1934, as amended, this Report has been signed by the following persons on behalf of theregistrant and in the capacities and on the dates indicated:Signature Title Date /s/ Scott Koenig President and CEO and Director February 26, 2019Scott Koenig, M.D., Ph.D. (Principal Executive Officer) /s/ James Karrels Senior Vice President, Chief Financial February 26, 2019James Karrels Officer and Secretary (Principal Financial Officer) /s/ Lynn Cilinski Vice President, Controller and Treasurer February 26, 2019Lynn Cilinski (Principal Accounting Officer) /s/ Paulo Costa Director February 26, 2019Paulo Costa /s/ Karen Ferrante, M.D.DirectorFebruary 26, 2019Karen Ferrante, M.D. /s/ Matthew Fust Director February 26, 2019Matthew Fust /s/ Kenneth Galbraith Director February 26, 2019Kenneth Galbraith /s/ Edward Hurwitz Director February 26, 2019Edward Hurwitz /s/ Scott JacksonDirector February 26, 2019Scott Jackson /s/ Jay Siegel, M.D.Director February 26, 2019Jay Siegel, M.D. /s/ David Stump, M.D. Director February 26, 2019David Stump, M.D. 58INDEX TO CONSOLIDATED FINANCIAL STATEMENTSPageNumberReport of Ernst & Young LLP, Independent Registered Public Accounting FirmF - 1Consolidated Balance Sheets at December 31, 2018 and December 31, 2017F - 2Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2018, 2017 and 2016F - 3Consolidated Statements of Stockholders' Equity for the years ended December 31, 2018, 2017 and 2016F - 4Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016F - 5Notes to Consolidated Financial StatementsF - 6Report of Independent Registered Public Accounting FirmTo the Shareholders and the Board of Directors of MacroGenics, Inc.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of MacroGenics, Inc. (the Company) as of December 31, 2018 and 2017, the relatedconsolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period endedDecember 31, 2018, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financialstatements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2018 and 2017, and the consolidatedresults of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally acceptedaccounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sinternal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2019, expressed an unqualifiedopinion thereon.Adoption of Accounting Standards Update (ASU) No. 2014-09As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for revenue from contracts with customers in2018 due to the adoption of ASU No. 2014-09, “Revenues from Contracts with Customers,” as amended (Topic 606).Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sconsolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent withrespect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performingprocedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures thatrespond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Ouraudits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentationof the financial statements. We believe that our audits provide a reasonable basis for our opinion./s/ Ernst & Young LLPWe have served as the Company's auditor since 2006.Baltimore, MarylandFebruary 26, 2019F - 1MACROGENICS, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except share and per share data)December 31,20182017AssetsCurrent assets:Cash and cash equivalents$220,128 $211,727 Marketable securities12,735 93,394 Accounts receivable29,583 13,643 Prepaid expenses6,406 3,151 Other current assets272 383 Total current assets269,124 322,298 Property, equipment and software, net56,712 49,983 Other assets6,294 1,602 Total assets$332,130 $373,883 Liabilities and stockholders' equityCurrent liabilities:Accounts payable$4,005 $2,451 Accrued expenses33,021 38,581 Deferred revenue21,721 7,202 Deferred rent1,018 1,048 Other current liabilities175 473 Total current liabilities59,940 49,755 Deferred revenue, net of current portion19,001 13,637 Deferred rent, net of current portion10,312 11,253 Total liabilities89,253 74,645 Stockholders' equity:Common stock, $0.01 par value -- 125,000,000 shares authorized, 42,353,301 and 36,859,077 shares outstandingat December 31, 2018 and December 31, 2017, respectively 424 369 Additional paid-in capital732,727 611,270 Accumulated other comprehensive loss(3)(61)Accumulated deficit(490,271)(312,340)Total stockholders' equity242,877 299,238 Total liabilities and stockholders' equity$332,130 $373,883 See accompanying notes.F - 2MACROGENICS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(In thousands, except share and per share data) Year Ended December 31, 201820172016Revenues:Revenue from collaborative agreements$58,644 $155,516 $86,582 Revenue from government agreements1,477 2,226 5,298 Total revenues60,121 157,742 91,880 Costs and expenses: Research and development190,827 147,232 122,091 General and administrative40,500 32,653 29,831 Total costs and expenses231,327 179,885 151,922 Loss from operations(171,206)(22,143)(60,042)Other income (expense)(247)2,517 1,514 Net loss(171,453)(19,626)(58,528)Other comprehensive loss: Unrealized gain (loss) on investments58 21 (77)Comprehensive loss$(171,395)$(19,605)$(58,605)Basic and diluted net loss per common share$(4.19)$(0.54)$(1.69)Basic and diluted weighted average number of common shares40,925,318 36,095,080 34,685,274 See accompanying notes.F - 3MACROGENICS, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(In thousands, except share amounts)Common StockTreasury StockAdditionalPaid-InCapitalAccumulatedDeficitAccumulatedOtherComprehensive LossTotalStockholders'Equity SharesAmountSharesAmountBalance, December 31, 201534,345,754 $343 — $— $547,185 $(234,186)$(5)$313,337 Share-based compensation— — — — 12,165 — — 12,165 Stock plan related activity524,853 6 1,862 (39)1,887 — — 1,854 Retirement of treasury stock— — (1,862)39 (39)— — — Unrealized loss on investments— — — — — — (77)(77)Net loss— — — — — (58,528)— (58,528)Balance, December 31, 201634,870,607 349 — — 561,198 (292,714)(82)268,751 Share-based compensation— — — — 14,744 — — 14,744 Issuance of common stock, net ofoffering costs1,699,284 17 — — 34,227 — — 34,244 Stock plan related activity289,186 3 1,862 (40)1,141 — — 1,104 Retirement of treasury stock— — (1,862)40 (40)— — — Unrealized gain on investments— — — — — — 21 21 Net loss— — — — — (19,626)— (19,626)Balance, December 31, 201736,859,077 369 — — 611,270 (312,340)(61)299,238 Cumulative effect of adoption ofaccounting standards— — — — — (6,478)— (6,478)Share-based compensation— — — — 16,520 — — 16,520 Issuance of common stock, net ofoffering costs5,175,000 52 — — 103,207 — — 103,259 Stock plan related activity319,224 3 11,070 (260)1,990 — — 1,733 Retirement of treasury stock— — (11,070)260 (260)— — — Unrealized gain on investments— — — — — — 58 58 Net loss— — — — — (171,453)— (171,453)Balance, December 31, 201842,353,301 $424 — $— $732,727 $(490,271)$(3)$242,877 See accompanying notes.F - 4MACROGENICS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Year Ended December 31, 201820172016Operating activitiesNet loss$(171,453)$(19,626)$(58,528)Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization8,279 7,228 7,608 Share-based compensation16,520 14,744 12,165 Changes in operating assets and liabilities: Accounts receivable(15,941)(10,878)(1,540)Prepaid expenses(3,255)332 (1,677)Other assets(4,580)262 276 Accounts payable1,554 (1,544)2,232 Accrued expenses3,506 12,832 4,659 Deferred revenue13,405 6,533 (4,191)Deferred rent(971)6,115 (1,134)Other liabilities(298)(1,593)(3,549)Net cash provided by (used in) operating activities(153,234)14,405 (43,679)Cash flows from investing activities Purchases of marketable securities(132,750)(135,122)(347,762)Proceeds from sales and maturities of marketable securities214,348 242,401 288,894 Purchases of property, equipment and software(24,954)(29,403)(11,381)Net cash provided by (used in) investing activities56,644 77,876 (70,249)Cash flows from financing activities Proceeds from issuance of common stock, net of offering costs103,259 34244 — Proceeds from stock option exercises and ESPP purchases1,992 1,144 1,893 Purchase of treasury stock(260)(40)(39)Net cash provided by financing activities104,991 35,348 1,854 Net change in cash and cash equivalents8,401 127,629 (112,074)Cash and cash equivalents at beginning of period211,727 84,098 196,172 Cash and cash equivalents at end of period$220,128 $211,727 $84,098 Non-cash operating and investing activities: Fair value of warrants received $6,130 $— $— See accompanying notes.F - 5MACROGENICS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. Organization and Nature of OperationsMacroGenics, Inc. (the Company) is incorporated in the state of Delaware. The Company is a biopharmaceutical company focused on discoveringand developing innovative antibody-based therapeutics designed to modulate the human immune response for the treatment of cancer. The Companycurrently has a pipeline of product candidates in human clinical testing that have been created primarily using its proprietary technology platforms. TheCompany believes its programs have the potential to have a meaningful effect on treating patients' unmet medical needs as monotherapy or, in some cases, incombination with other therapeutic agents.2. Summary of Significant Accounting PoliciesBasis 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. Operatingsegments are defined as components of an enterprise about which separate discrete information is available for the chief operating decision maker, or decisionmaking group, in deciding how to allocate resources and assessing performance. The Company views its operations and manages its business in one segment,which is developing monoclonal antibody-based therapeutics for cancer, autoimmune and infectious diseases.Use of EstimatesThe preparation of the financial statements in accordance with generally accepted accounting principles (GAAP) requires the Company to makeestimates and judgments in certain circumstances that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure ofcontingent assets and liabilities. In preparing these consolidated financial statements, management has made its best estimates and judgments of certainamounts included in the financial statements, giving due consideration to materiality. On an ongoing basis, the Company evaluates its estimates, includingthose related to revenue recognition, fair values of assets, stock-based compensation, income taxes, preclinical study and clinical trial accruals and othercontingencies. Management bases its estimates on historical experience or on various other assumptions that it believes to be reasonable under thecircumstances. Actual results could differ from these estimates.Cash, Cash Equivalents and Marketable SecuritiesThe 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 bythe U.S. government and its agencies, Government Sponsored Enterprise agency debt obligations and corporate debt obligations. Cash equivalents are statedat amortized cost, 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 andlosses as a component of other comprehensive loss within the statements of operations and comprehensive loss and as a separate component of stockholders'equity. Realized gains or losses on available-for-sale securities are determined using the specific identification method and the Company includes netrealized gains and losses in other income (expense).At each balance sheet date, the Company assesses available-for-sale securities in an unrealized loss position to determine whether the unrealized lossis other-than-temporary. The Company considers factors including: the significance of the decline in value compared to the cost basis, underlying factorscontributing to 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's relative performance versus its peers, sector or asset class, expected market volatility and the market and economy in general. The Companyalso evaluates whether it 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 recognizedat the time the Company determines that a decline in the fair value below its cost basis is other-than-temporary. There were no unrealized losses atDecember 31, 2018 or 2017 that the Company determined to be other-than-temporary.F - 6Accounts ReceivableAccounts receivable that management has the intent and ability to collect are reported in the consolidated balance sheets at outstanding amounts,less an allowance 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 includingthe financial condition and payment history of customers, an overall review of collections experience on other accounts and economic factors or eventsexpected to affect future collections experience. No allowance was recorded as of December 31, 2018 or 2017, as the Company has a history of collecting onall outstanding accounts.Fair Value of Financial InstrumentsThe 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 theirrespective fair values because of their short-term nature. The Company accounts for recurring and non-recurring fair value measurements in accordance withthe Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures (ASC 820).ASC 820 defines fair value, establishes a fair value hierarchy for assets and liabilities measured at fair value, and requires expanded disclosures about fairvalue measurements. The ASC 820 hierarchy ranks the quality of reliability of inputs, or assumptions, used in the determination of fair value and requiresassets and liabilities carried at fair value to 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. Relatedinputs can also include those used in valuation or other pricing models, such as interest rates and yield curves that can be corroborated byobservable market data.•Level 3 – Fair value is determined by inputs that are unobservable and not corroborated by market data. Use of these inputs involves significantand subjective judgments to be made by a reporting entity – e.g., determining an appropriate adjustment to a discount factor for illiquidityassociated with a given security.The Company evaluates financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level atwhich to classify them each reporting period. This determination requires the Company to make subjective judgments as to the significance of inputs used indetermining fair 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 Measurement at December 31, 2018Quoted Prices inActive Markets forIdentical AssetsSignificant OtherObservable InputsSignificantUnobservableInputsTotalLevel 1Level 2Level 3Assets:Money market funds$46,257 $46,257 $— $— U.S Treasury securities12,488 — 12,488 — Corporate debt securities100,214 — 100,214 — Common stock warrants1,890 — — $1,890 Total assets measured at fair value (a)$160,849 $46,257 $112,702 $1,890 F - 7Fair Value Measurement at December 31, 2017Quoted Prices inActive Markets forIdentical AssetsSignificant OtherObservable InputsSignificantUnobservableInputsTotalLevel 1Level 2Level 3Assets:Money market funds$61,512 $61,512 $— $— U.S Treasury securities3,989 — 3,989 — Government-sponsored enterprises11,991 — 11,991 — Corporate debt securities78,418 — 78,418 — Total assets measured at fair value (b)$155,910 $61,512 $94,398 $— (a) Total assets measured at fair value at December 31, 2018 includes approximately $146.2 million reported in cash and cash equivalents on the balancesheet.(b) Total assets measured at fair value at December 31, 2017 includes approximately $62.5 million reported in cash and cash equivalents on the balancesheet.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.The fair value of Level 3 securities is determined using the Black-Scholes option-pricing model. There were no transfers between levels during the periodspresented. 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. The Company maintains its cash and money market funds with financial institutions that are federally insured. Whilebalances deposited in these institutions often exceed Federal Deposit Insurance Corporation limits, the Company has not experienced any losses on relatedaccounts to date. The Company's investment policy limits investments to certain types of debt securities issued by the U.S. government, its agencies andinstitutions with investment-grade credit ratings and places restrictions on maturities and concentration by type and issuer. The counterparties are variouscorporations, financial institutions and government agencies of high credit standing.The Company's revenue relates to agreements with various collaborators and contracts and research grants received from U.S. governmentagencies. The following table includes those collaborators that represent more than 10% of total revenue earned in the periods indicated:Year Ended December 31,201820172016Incyte Corporation (Incyte)68% 96 %—% Janssen Biotech, Inc. (Janssen)* * 85% Provention Bio, Inc. (Provention)10% —% —% The following table includes those counterparties that represent more than 10% of accounts receivable at the date indicated:December 31,20182017Zai Lab Limited (Zai Lab)76% —% Incyte16% —% F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc. (Roche)—% 73% Les Laboratoires Servier and Institut de Recherches Servier (Servier)* 12% * Balance is less than 10% F - 8Property, Equipment and SoftwareProperty, equipment and software are stated at cost. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciationor amortization are removed from the accounts and any resulting gain or loss is credited or charged to operations. Repairs and maintenance costs areexpensed as incurred. Depreciation and amortization are computed 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.ASC 360 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscountednet cash flows expected to be generated by the asset or asset group. If carrying value exceeds the sum of undiscounted cash flows, the Company thendetermines the fair value of the underlying asset group. Any impairment to be recognized is measured by the amount by which the carrying amount of theasset group exceeds the estimated fair value of the asset group. Assets to be disposed of are reported at the lower of the carrying amount or fair value, lesscosts to sell. For the years ended December 31, 2018, 2017 and 2016, the Company determined that there were no impaired assets.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 assetsand liabilities 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 isreduced, 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. Financialstatement recognition 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 positionbeing 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 berealized upon ultimate settlement. The Company's policy is to record interest and penalties related to uncertain tax positions as a component of income taxexpense.Revenues Beginning on January 1, 2018, the Company recognizes revenue under Accounting Standards Update (ASU) No. 2014-09, Revenue from Contractswith Customers and all related amendments (collectively ASC 606) when its customer obtains control of promised goods or services, in an amount thatreflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangementsthat an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii)identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations inthe contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company recognizes as revenue the amount of thetransaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.The Company enters into licensing agreements that are within the scope of ASC 606, under which it may license rights to research, develop,manufacture and commercialize its product candidates to third parties. The terms of these arrangements typically include payment to the Company of one ormore of the following: non-refundable, upfront license fees; reimbursement of certain costs; customer option exercise fees; development, regulatory andcommercial milestone payments; and royalties on net sales of licensed products. The Company may also enter into development and manufacturing serviceagreements with its collaborators.For each arrangement that results in revenues, the Company identifies all performance obligations, which may include a license to intellectualproperty and know-how, research and development activities, transition activities and/or manufacturing services. In order to determine the transaction price,in addition to any upfront payment, the Company estimates the amount of variable consideration at the outset of the contract either utilizing the expectedvalue or most likely amount method, dependingF - 9on the facts and circumstances relative to the contract. The Company constrains (reduces) the estimates of variable consideration such that it is probable thata significant reversal of previously recognized revenue will not occur. When determining if variable consideration should be constrained, managementconsiders whether there are factors outside the Company’s control that could result in a significant reversal of revenue. In making these assessments, theCompany considers the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required.Once the estimated transaction price is established, amounts are allocated to the performance obligations that have been identified. The transactionprice is generally allocated to each separate performance obligation on a relative standalone selling price basis. The Company must develop assumptions thatrequire judgment to determine the standalone selling price in order to account for these agreements. To determine the standalone selling price, theCompany’s assumptions may include (i) the probability of obtaining marketing approval for the product candidate, (ii) estimates regarding the timing andthe expected costs to develop and commercialize the product candidate, and (iii) estimates of future cash flows from potential product sales with respect tothe product candidate. Standalone selling prices used to perform the initial allocation are not updated after contract inception. The Company does notinclude a financing component to its estimated transaction price at contract inception unless it estimates that certain performance obligations will not besatisfied within one year.Amounts received prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets. Amountsnot expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.Licenses. If the license to the Company’s intellectual property is determined to be distinct from the other promises or performance obligationsidentified in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is transferred tothe customer and when (or as) the customer is able to use and benefit from the license. In assessing whether a promise or performance obligation is distinctfrom the other promises, the Company considers factors such as the research, development, manufacturing and commercialization capabilities of the licenseeand the availability of the associated expertise in the general marketplace. In addition, the Company considers whether the licensee can benefit from apromise for its intended purpose without the receipt of the remaining promise, whether the value of the promise is dependent on the unsatisfied promise,whether there are other vendors that could provide the remaining promise, and whether it is separately identifiable from the remaining promise. For licensesthat are combined with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether thecombined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes ofrecognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and relatedrevenue recognition. The measure of progress, and thereby periods over which revenue should be recognized, are subject to estimates by management andmay change over the course of the research and development and licensing agreement. Such a change could have a material impact on the amount of revenuethe Company records in future periods.Research, Development and/or Manufacturing Services. The promises under the Company’s agreements may include research and development ormanufacturing services to be performed by the Company on behalf of the counterparty. If these services are determined to be distinct from the other promisesor performance obligations identified in the arrangement, the Company recognizes the transaction price allocated to these services as revenue over timebased on an appropriate measure of progress when the performance by the Company does not create an asset with an alternative use and the Company has anenforceable right to payment for the performance completed to date. If these services are determined not to be distinct from the other promises or performanceobligations identified in the arrangement, the Company recognizes the transaction price allocated to the combined performance obligation as the relatedperformance obligations are satisfied.Customer Options. If an arrangement contains customer options, the Company evaluates whether the options are material rights because they allowthe customer to acquire additional goods or services for free or at a discount. If the customer options are determined to represent a material right, the materialright is recognized as a separate performance obligation at the outset of the arrangement. The Company allocates the transaction price to material rights basedon the relative standalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option.Amounts allocated to a material right are not recognized as revenue until, at the earliest, the option is exercised. If the options are deemed not to be a materialright, they are excluded as performance obligations at the outset of the arrangement.Milestone Payments. At the inception of each arrangement that includes development milestone payments, the Company evaluates whether themilestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method.If it is probable that a significant revenue reversal would notF - 10occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee,such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company evaluates factors such as thescientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. There isconsiderable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each subsequentreporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of theoverall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period ofadjustment.Royalties. For arrangements that include sales-based royalties which are the result of a customer-vendor relationship and for which the license isdeemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) whenthe performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied. To date, the Company has notrecognized any royalty revenue resulting from any of its licensing arrangements.The Company analyzes its collaboration arrangements to assess whether such arrangements involve joint operating activities performed by partieswho are both active participants in the activities and are both exposed to significant risks and rewards dependent on the commercial success of suchactivities. Such arrangements generally are within the scope of ASC 808, Collaborative Arrangements (ASC 808). While ASC 808 defines collaborativearrangements and provides guidance on income statement presentation, classification, and disclosures related to such arrangements, it does not addressrecognition and measurement matters, such as (1) determining the appropriate unit of accounting or (2) when the recognition criteria are met. Therefore, theaccounting for these arrangements is either based on an analogy to other accounting literature or an accounting policy election by the Company. TheCompany accounts for certain components of the collaboration agreement that are reflective of a vendor-customer relationship (e.g., licensing arrangement)based on an analogy to ASC 606. The Company accounts for other components based on a reasonable, rational and consistently applied accounting policyelection. Reimbursements from the counter-party that are the result of a collaborative relationship with the counter-party, instead of a customer relationship,such as co-development activities, are recorded as a reduction to research and development expense as the services are performed.For a complete discussion of accounting for revenue from collaborative and other agreements, see Note 8, Collaboration and Other Agreements.Research and Development CostsResearch 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 milestonepayments related to in-licensed products and technologies, stock-based compensation expense, and costs associated with non-clinical activities andregulatory approvals.Right-to-develop agreements may contain cost-sharing provisions whereby the Company and the collaborator share the cost of research anddevelopment activities. Reimbursement of research and development expenses received in connection with these agreements is recorded as a reduction ofsuch expenses.Comprehensive LossComprehensive loss represents net loss adjusted for the change during the periods attributed to unrealized gains and losses on available-for-salesecurities.Stock-based CompensationStock-based payments are accounted for in accordance with the provisions of ASC 718, Compensation – Stock Compensation. The fair value ofstock-based payments is estimated, on the date of grant, using the Black-Scholes model. The resulting fair value is recognized ratably over the requisiteservice 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 performancecondition, expense is amortized using the accelerated attribution method. Recognition of stock-based compensation expense is based on the value of theportion of stock-based awards that is ultimately expected to vest during the period.F - 11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 anaward. These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility and the expected life of the award.Net Loss Per ShareBasic loss per common share is determined by dividing loss attributable to common stockholders by the weighted-average number of commonshares outstanding during the period, without consideration of common stock equivalents. Diluted loss per share is computed by dividing the lossattributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period. The treasury stock method isused to determine the dilutive effect of the Company's stock option grants. 5,273,964 stock options (common stock equivalents) were excluded from thecalculation of diluted net loss per share for the year ended December 31, 2018 because their inclusion would have been anti-dilutive. 4,504,642 stockoptions and 3,838,060 stock options were excluded from the calculation of diluted net loss per share for the years ended December 31, 2017 and 2016,respectively, because their inclusion would have been anti-dilutive.Recently Adopted Accounting StandardsIn May 2014, the FASB issued ASC 606. The Company adopted ASC 606 on January 1, 2018 using the modified retrospective method for allcontracts that were not completed as of January 1, 2018. For contracts that were modified before the effective date, the Company reflected the aggregate effectof all modifications when identifying performance obligations and allocating transaction price in accordance with available practical expedients.Comparative prior period information continues to be reported under the accounting standards in effect for the period presented.As a result of applying the modified retrospective method to adopt the new guidance, the following adjustments were made to accounts on theconsolidated balance sheet as of January 1, 2018 (in thousands): Pre-AdoptionASC 606 AdjustmentPost-AdoptionDeferred revenue, current$7,202 $540 $7,742 Deferred revenue, net of current portion13,637 5,939 19,576 Accumulated deficit(312,340)(6,478)(318,818)The transition adjustment resulted primarily from changes in the pattern of revenue recognition for upfront fees and license grant fees.The following table shows the impact of adoption to the consolidated statement of income and balance sheet (in thousands): Year Ended December 31, 2018 As Reported Balances Without Adoptionof ASC 606 Effect of Change Higher/(Lower) Revenue from collaborative agreements $58,644 $58,104 $540 Net loss (171,453)(171,993)(540)Basic and diluted net loss per common share $(4.19)$(4.20)$0.01 As of December 31, 2018As Reported Balances Without Adoptionof ASC 606 Effect of Change Higher/(Lower) Deferred revenue, current $21,721 $22,210 $(489)Deferred revenue, net of current portion 19,001 12,573 6,428 Accumulated deficit (490,271)$(484,332)$(5,939) F - 12The following table presents changes in the Company’s contract liabilities during the year ended December 31, 2018 (in thousands): Balance at Beginning ofPeriod Additions Deductions Balance at End ofPeriod Deferred revenue (current and non-current) $27,318 $22,992 $(9,588)$40,722 During the year ended December 31, 2018, the Company recognized $9.6 million in revenue as a result of changes in the contract liability balance.In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope Modification Accounting. The new standardis intended to reduce the diversity in practice and cost and complexity when applying the guidance in Topic 718 to a change to the terms or conditions of ashare-based payment award. The new standard was effective beginning January 1, 2018. The adoption of this standard did not have a material impact on theCompany’s financial position or results of operations upon adoption.On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the Tax Act) was signed into law making significant changes to the Internal RevenueCode, which included how the U.S. imposes income tax on multinational corporations. Key changes in the Tax Act which are relevant to the Company, andgenerally effective January 1, 2018, include a flat corporate income tax rate of 21% to replace the marginal rates that range from 15% to 35% and theelimination of the corporate alternative minimum tax. The Tax Act also imposes limits on executive compensations and interest expense deductions, whilepermitting the immediate expensing for the cost of new investments in certain property acquired after September 27, 2017.On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 (SAB 118) to address the application of U.S. GAAP in situations when aregistrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accountingfor certain income tax effects of the Tax Act. SAB 118 allowed registrants to include a provisional amount to account for the implications of the Tax Actwhere a reasonable estimate can be made and required the completion of the accounting no later than one year from the date of the enactment of the Tax Act,or December 22, 2018. The Company has recognized the provisional tax impacts related to the re-measurement of its U.S. deferred tax assets and liabilities to21% in 2017 and included these amounts in its consolidated financial statements for the year ended December 31, 2017. This change in value of thesedeferred tax assets and liabilities was offset by a corresponding change in valuation allowance, thus no tax expense or benefit was recorded. The Companycompleted its evaluation of the effects of the Tax Act during the fourth quarter of 2018, and the provisional amounts the Company accounted for in itsDecember 31, 2017 provision were finalized with no adjustments. Recently Issued Accounting StandardsIn February 2016, the FASB issued ASU No. 2016-02, Leases (ASU 2016-02) that provides principles for the recognition, measurement, presentationand disclosure of leases for both lessees and lessors. ASU 2016-02 requires a lessee to recognize assets and liabilities on the balance sheet for operating leasesand changes many key definitions, including the definition of a lease. ASU 2016-02 includes a short-term lease exception for leases with an original term of12 months or less, in which a lessee can make an accounting policy election not to recognize lease assets and lease liabilities. Lessees will continue todifferentiate between finance leases (previously referred to as capital leases) and operating leases, using classification criteria that are substantially similar tothe previous guidance. Originally, entities were required to adopt ASU 2016-02 using a modified retrospective transition approach for all leases existing at,or entered into after, the date of initial application. However, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements,which now allows entities the option of recognizing the cumulative effect of applying the new standard as an adjustment to the opening balance of retainedearnings in the year of adoption while continuing to present all prior periods under previous lease accounting guidance. In July 2018, the FASB also issuedASU 2018-10, Codification Improvements to Topic 842, Leases, which clarifies how to apply certain aspects of ASU 2016-02. ASU 2016-02, ASU 2018-10and ASU 2018-11 (now commonly referred to as ASC Topic 842 (ASC 842)) is effective for the Company’s fiscal year beginning January 1, 2019. Althoughearly adoption is permitted, the Company has not elected to do so. The Company plans to elect the transition option provided under ASU 2018-11, whichwill not require adjustments to comparative periods nor require modified disclosures in those comparative periods. Upon adoption, the Company expects toelect the transition package of practical expedients permitted within the new standard, which among other things, allows the carryforward of the historicallease classification. Based on its current lease portfolio, the Company estimates that the adoption ASC 842 will result in approximately $16.0 million of rightof use assets and $28.0 million of lease liabilities being reflected on its consolidated balance sheet at the date of adoption.In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808)—Clarifying the interaction between Topic 808 andTopic 606 (ASU 2018-18). The amendments provide guidance on whether certainF - 13transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606. It also specifically (i) addresses when theparticipant should be considered a customer in the context of a unit of account, (ii) adds unit-of-account guidance in ASC 808 to align with guidance in ASC606, and (iii) precludes presenting revenue from a collaborative arrangement together with revenue recognized under ASC 606 if the collaborativearrangement participant is not a customer. The guidance will be effective for fiscal years beginning after December 15, 2019. Early adoption is permitted andshould be applied retrospectively. The Company does not anticipate the adoption of this standard will have a material impact on its consolidated financialstatements.The Company has evaluated all other ASUs issued through the date the consolidated financials were issued and believes that the adoption of thesewill not have a material impact on the Company's consolidated financial statements. 3. Marketable SecuritiesAvailable-for-sale marketable securities as of December 31, 2018 and 2017 were as follows (in thousands):December 31, 2018AmortizedCostGrossUnrealizedGainsGrossUnrealizedLossesFairValueCorporate debt securities$12,738 $— $(3)$12,735 December 31, 2017AmortizedCostGrossUnrealizedGainsGrossUnrealizedLossesFairValueU.S. Treasury securities$3,995 $— $(6)$3,989 Government-sponsored enterprises11,998 — (7)11,991 Corporate debt securities77,462 2 (50)77,414 Total$93,455 $2 $(63)$93,394 All of the Company's available-for-sale securities held at December 31, 2018 and 2017 had maturity dates of less than one year.All available-for-sale securities in an unrealized loss position as of December 31, 2018 and 2017 were in a loss position for less than twelve months. There were no unrealized losses at December 31, 2018 or 2017 that the Company determined to be other-than-temporary. The Company recorded interestincome of $2.3 million, $2.4 million and $2.3 million during the years ended December 31, 2018, 2017 and 2016, respectively, which is included in otherincome (expense) on the consolidated statements of operations and comprehensive loss. 4. Property, Equipment and SoftwareProperty, equipment and software consists of the following (in thousands):F - 14December 31,20182017Computer equipment$2,360 $2,261 Software7,011 5,111 Furniture and office equipment668 656 Lab equipment36,062 20,549 Leasehold improvements48,328 17,525 Construction in progress218 32,800 Property, equipment and software94,647 78,902 Less accumulated depreciation and amortization(37,935)(28,919)Property, equipment and software, net$56,712 $49,983 Construction in progress at December 31, 2017 consisted of the costs incurred for the build-out of a manufacturing suite at the Company'sheadquarters building in Rockville, Maryland, which was completed in mid-2018.We had $0.6 million in property, equipment and software at December 31, 2018 that was purchased in 2018 but was not paid for by year end. Property, equipment and software balance at December 31, 2017 includes approximately $9.6 million in assets that were purchased in 2017 but were not paidfor by year end. Depreciation and amortization expense related to property, equipment and software for the years ended December 31, 2018, 2017 and 2016was $9.2 million, $7.0 million and $6.8 million, respectively.5. Stockholders' Equity The Company's amended and restated certificate of incorporation authorizes 125,000,000 shares of common stock, and 5,000,000 shares ofundesignated preferred stock, both with a par value of $.01 per share. There were no shares of undesignated preferred stock issued or outstanding as ofDecember 31, 2018 or 2017.On April 26, 2017, the Company entered into a definitive agreement with an institutional healthcare investor to purchase 1,100,000 shares of itscommon stock at a purchase price of $21.50 per share in a registered direct offering. Proceeds to the Company, before deducting estimated offering expenses,were $23.7 million. The shares were offered pursuant to the Company’s effective shelf registration on Form S-3 that was filed with the SEC on November 2,2016.On May 3, 2017, the Company entered into a sales agreement with an agent to sell, from time to time, shares of its common stock having anaggregate sales price of up to $75.0 million through an “at the market offering” (ATM Offering) as defined in Rule 415 under the Securities Act of 1933, asamended. The shares that may be sold under the sales agreement would be issued and sold pursuant to the Company's shelf registration statement on Form S-3that was filed with the SEC on November 2, 2016. During the year ended December 31, 2017, the Company sold 599,284 shares of common stock resulting innet proceeds of $10.8 million related to the ATM Offering. On April 2, 2018, the Company completed a firm-commitment underwritten public offering, in which the Company sold 4,500,000 shares of itscommon stock at a price of $21.25 per share. Additionally, the underwriters of the offering exercised the full amount of their over-allotment option resultingin the sale of an additional 675,000 shares of the Company's common stock at a price of $21.25 per share. Upon closing, the Company received net proceedsof approximately $103.0 million from this offering, net of underwriting discounts and commissions and other offering expenses.6. Stock-based CompensationEmployee Stock Purchase PlanIn May 2017, the Company’s stockholders approved the 2016 Employee Stock Purchase Plan (the 2016 ESPP). The 2016 ESPP is structured as aqualified employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended, and is not subject to the provisions of theEmployee Retirement Income Security Act of 1974. The Company reserved 800,000 shares of common stock for issuance under the 2016 ESPP. The 2016ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 10% of their eligiblecompensation, subject to any plan limitations. The 2016 ESPP provides for six-month offering periods ending on May 31 and November 30 of each year. Atthe end of each offering period, employees are able to purchase shares at 85% of the fair marketF - 15value of the Company’s common stock on the last day of the offering period. During the year ended December 31, 2018, employees purchased 44,862 sharesof common stock under the 2016 ESPP for net proceeds to the Company of approximately $0.8 million.Employee Stock Option PlansEffective February 2003, the Company implemented the 2003 Equity Incentive Plan (2003 Plan), and it was amended and approved by theCompany's stockholders in 2005. Stock options granted under the 2003 Plan may be either incentive stock options as defined by the Internal Revenue Code(IRC), or non-qualified stock options. In 2013, the 2003 Plan was terminated, and no further awards may be issued under the plan. Any shares of commonstock subject to awards under the 2003 Plan that expire, terminate, or are otherwise surrendered, canceled, forfeited or repurchased without having been fullyexercised, or resulting in any common stock being issued, will become available for issuance under the 2013 Stock Incentive Plan (2013 Plan), up to aspecified number of shares. As of December 31, 2018, under the 2003 Plan, there were options to purchase an aggregate of 746,803 shares of common stockoutstanding at a weighted average exercise price of $2.03 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, aswell as cash-based performance awards. The aggregate number of shares of common stock initially available for issuance pursuant to awards under the 2013Plan was 1,960,168 shares. The number of shares of common stock reserved for issuance will automatically increase on January 1 of each year from January1, 2014 through 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 onDecember 31 of the preceding calendar year, or (c) the number of shares of common stock determined by the Board of Directors. During the year endedDecember 31, 2018, the maximum number of shares of common stock authorized to be issued by the Company under the 2013 Plan was increased to8,244,131. If an option expires or terminates for any reason without having been fully exercised, if any shares of restricted stock are forfeited, or if any awardterminates, expires or is settled without all or a portion of the shares of common stock covered by the award being issued, such shares are available for thegrant of additional awards. However, any shares that are withheld (or delivered) to pay withholding taxes or to pay the exercise price of an option are notavailable for the grant of additional awards. As of December 31, 2018, under the 2013 Plan, there were options to purchase an aggregate of 4,527,161 sharesof common stock outstanding at a weighted average exercise price of $25.56 per share.The following stock-based compensation amounts were recognized for the periods indicated (in thousands):Year Ended December 31,201820172016Research and development$7,919 $7,388 $5,778 General and administrative 8,601 7,356 6,387 Total stock-based compensation expense$16,520 $14,744 $12,165 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 thefollowing table:Year Ended December 31,201820172016Expected dividend yield0% 0% 0% Expected volatility68% - 72%67% - 68% 64% - 69% Risk-free interest rate2.4% - 3.1%1.9% - 2.3%1.2% - 2.4%Expected term6.25 years6.25 years6.25 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) oris expected to fluctuate (expected volatility) during a period. As the Company does not yet have sufficient history of its own volatility, the Company hasidentified several public entities of similar size, complexity and stage of development and estimates volatility based on the volatility of these companies.F - 16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 often 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 classof the employees to whom the options were granted. The forfeiture rate is the estimated percentage of options granted that is expected to be forfeited orcanceled on an annual basis before becoming fully vested.The following table summarizes stock option activity for 2018:SharesWeighted-AverageExercise PriceWeighted-AverageRemainingContractual Term(Years)AggregateIntrinsic Value(in thousands)Outstanding, December 31, 20174,504,642 $19.79 7.0Granted1,269,844 27.18 Options exercised(285,432)4.22 Forfeited or expired(215,090)24.43 Outstanding, December 31, 20185,273,964 22.23 6.8$7,969 December 31, 2018: Exercisable3,544,139 20.60 5.97,969 Vested and expected to vest5,086,009 22.10 6.77,969 During 2018, 2017 and 2016 the Company issued 274,362, 253,036 and 526,715 net shares of common stock, respectively, in conjunction withstock option exercises. The Company received cash proceeds from the exercise of stock options of approximately $0.9 million, $0.5 million and $1.9 millionduring 2018, 2017 and 2016, respectively.The weighted-average grant-date fair value of options granted during 2018, 2017 and 2016 was $17.90, $12.53 and $15.17 per share, respectively.The total intrinsic value of options exercised during 2018, 2017 and 2016 was approximately $5.2 million, $4.2 million and $10.8 million, respectively. Thetotal fair value of stock options which vested during 2018, 2017 and 2016 was $16.4 million, $14.6 million and $11.6 million, respectively. As ofDecember 31, 2018, the total unrecognized compensation expense related to non-vested stock options, net of related forfeiture estimates, was $24.2 million,which the Company expects to recognize over a weighted-average period of approximately 2.6 years.7. Income Taxes For the years ended December 31, 2018, 2017 and 2016 there was no provision for income taxes due to taxable losses generated, fully offset by avaluation allowance.F - 17The significant components of the Company's deferred income tax assets (liabilities) were as follows (in thousands):December 31,20182017Deferred income tax assets:Federal U.S. net operating loss carryforward$87,284 $50,346 State net operating loss carryforward22,809 7,551 Research and development credit, net29,750 21,284 Orphan drug credit, net22,580 21,708 Deferred rent3,118 3,385 Deferred revenue3,736 2,982 Depreciation— 155 Other6,854 5,847 Gross deferred income tax assets176,131 113,258 Valuation allowance(172,457)(112,453)Net deferred income tax assets3,674 805 Deferred income tax liabilities:Depreciation(1,911)— Prepaid expenditures(1,763)(805)Gross deferred income tax liabilities(3,674)(805)Net deferred income tax asset/(liability)$— $— The Company recognizes valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. In assessingthe likelihood of realization, management considers (i) future reversals of existing taxable temporary differences; (ii) future taxable income exclusive ofreversing temporary difference and carryforwards; (iii) taxable income in prior carryback years if carryback is permitted under applicable tax law; and (iv) taxplanning strategies. 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 futuretaxable income and cumulative book losses which have resulted over the years.As of December 31, 2018, the Company has U.S. federal and state net operating loss (NOL) carryforwards of approximately $415.6 million. Of theseNOLs, $237.8 million will expire in various years beginning in 2025 through 2037. $177.8 million of NOLs were generated post December 31, 2017 andcarryforward indefinitely. In addition, the Company has U.S. federal tax credits of $52.3 million which will expire in various years beginning in 2022through 2038.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 andtax attributes acquired through the Company's acquisitions. As of December 31, 2018, $13.5 million of the Company's U.S. Federal NOLs are limited for useover the years 2019 – 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 $402.1million of NOLs is not limited and can be offset against future taxable income, subject to certain limitations for newly enacted tax legislation. The Companyadopted ASU 2016-09 as of January 1, 2017. Accordingly, the Company recognized the previously unrecognized excess tax benefits of approximately $18.6million ($6.5 million tax effected) recorded as deferred tax assets with a corresponding offsetting full valuation allowance at the beginning of 2017 withoutany tax impact. F - 18The reconciliation of the reported estimated income tax benefit to the amount that would result by applying the U.S. federal statutory tax rate to thenet income is as follows (in thousands):Year Ended December 31,201820172016United States federal tax at statutory rate$(36,005)$(6,869)$(20,489)State taxes (net of federal benefit)(11,133)(735)(3,116)Deferred income tax adjustments(4,435)607 173 Deferred state blended rate adjustments— (485)(32)Deferred federal rate change reduction in corporate rate— 39,447 — Research credit, net(8,466)(8,455)(2,551)Orphan drug credit, net(872)(1,853)(571)Other permanent items148 276 145 Equity-based compensation758 2,067 1,997 Change in valuation allowance60,005 (24,000)24,444 Income tax expense/(benefit)$— $— $— A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):Year Ended December 31,201820172016Beginning balance$3,395 $2,465 $2,425 Increases for current year tax positions642 569 308 Increases/(decreases) for prior year tax positions281 361 (268)Ending balance$4,318 $3,395 $2,465 As of December 31, 2018 and 2017, of the total gross unrecognized tax benefits, approximately $4.5 million and $3.4 million would favorablyimpact the Company's effective income tax rate, respectively. Although, due to the Company's determination that the deferred income tax asset would notmore likely than not be realized, a valuation allowance would be recorded, therefore, zero net impact would result within the Company's effective income taxrate. The Company's uncertain income tax position liability has been recorded to deferred income taxes to offset the tax attribute carryforward amounts.For the years ended December 31, 2018, 2017 and 2016, the Company has not recognized any interest or penalties related to the uncertain incometax positions due to the fact such position is related to tax attribute carryforwards which have not yet been utilized. The Company does not expect itsunrecognized income 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 netoperating losses and tax credits.As more fully described in Note 2 to the consolidated financial statements, the Tax Act was signed into law making significant changes to theInternal Revenue Code on December 22, 2017. Under ASC 740, the effects of the new legislation are to be recognized in the period of enactment. As such,recognition of the tax impact of the Tax Act was required in the interim and annual periods that include December 22, 2017. As a result, the Companyrevalued the deferred tax asset as of December 31, 2017, fully offset by a valuation allowance without impact to the financial statements.8. Collaboration and Other AgreementsIncyteIn October 2017, the Company entered into an exclusive global collaboration and license agreement with Incyte for MGA012 (also known asINCMGA0012), an investigational monoclonal antibody that inhibits programmed cell death protein 1 (PD-1) (Incyte Agreement). Incyte has obtainedexclusive worldwide rights for the development and commercialization of MGA012 in all indications, while the Company retains the right to develop itspipeline assets in combination with MGA012. The Company received a $150.0 million upfront payment from Incyte when the transaction closed in thefourth quarter of 2017.F - 19Under the terms of the Incyte Agreement, Incyte will lead global development of MGA012. Assuming successful development andcommercialization by Incyte, the Company could receive up to approximately $420.0 million in development and regulatory milestones, and up to $330.0million in commercial milestones. As of December 31, 2018, the Company has recognized $15.0 million in development milestones under this agreement. Ifcommercialized, the Company would be eligible to receive tiered royalties of 15% to 24% on any global net sales. The Company retains the right to developits pipeline assets in combination with MGA012, with Incyte commercializing MGA012 and the Company commercializing its asset(s), if any such potentialcombinations are approved. In addition, the Company retains the right to manufacture a portion of both companies' global commercial supply needs ofMGA012, subject to a separate commercial supply agreement. Finally, Incyte funded the Company's activities related to the ongoing monotherapy clinicalstudy and will continue to fund certain related clinical activities. Upon the adoption of ASC 606, the Company evaluated the Incyte Agreement under the provisions of ASC 606 and identified the following twoperformance obligations under the agreement: (i) the license of MGA012 and (ii) the performance of certain clinical activities through a brief technologytransfer period. The Company determined that the license and clinical activities are separate performance obligations because they are capable of beingdistinct, and are distinct in the context of the contract. The license has standalone functionality as it is sublicensable, Incyte has significant capabilities inperforming clinical trials, and Incyte is capable of performing these activities without the Company's involvement; the Company performed the activitiesduring the transfer period as a matter of convenience. The Company determined that the transaction price of the Incyte Agreement at inception was $154.0million, consisting of the consideration to which the Company was entitled in exchange for the license and an estimate of the consideration for clinicalactivities to be performed. The transaction price was allocated to each performance obligation based on their relative standalone selling price. The standaloneselling price of the license was determined using the adjusted market assessment approach considering similar collaboration and license agreements. Thestandalone selling price for agreed-upon clinical activities to be performed was determined using the expected cost approach based on similar arrangementsthe Company has with other parties. The potential development and regulatory milestone payments are fully constrained until the Company concludes thatachievement of the milestone is probable and that recognition of revenue related to the milestone will not result in a significant reversal in amountsrecognized in future periods, and as such have been excluded from the transaction price. Any consideration related to sales-based milestones and royaltieswill be recognized when the related sales occur, as they were determined to relate predominantly to the license granted to Incyte and, therefore, have alsobeen excluded from the transaction price. The Company re-assesses the transaction price in each reporting period and when events whose outcomes areresolved or other changes in circumstances occur. During the year ended December 31, 2018, it became probable that a significant reversal of cumulativerevenue would not occur for three development milestones totaling $15.0 million related to MGA012 meeting certain clinical proof-of-concept criteria. Therefore the associated consideration was added to the estimated transaction price and was recognized as revenue.The Company recognized the $150.0 million allocated to the license when it satisfied its performance obligation and transferred the license toIncyte in December 2017. The $4.0 million allocated to the clinical activities was recognized over the period from the effective date of the agreement untilsuch time as the clinical activities were transferred to Incyte using an input method according to research and development costs incurred to date compared toestimated total research and development costs. These clinical activities were substantially completed as of June 30, 2018. Prior to the adoption of ASC 606on January 1, 2018, the accounting for this agreement did not materially differ from the accounting under ASC 606. The Company recognized revenueof $18.8 million and $151.1 million under the Incyte Agreement during the years ended December 31, 2018 and 2017, respectively. The revenue recognizedduring the year ended December 31, 2018 included milestone revenue of $15.0 million.The Company also has an agreement with Incyte, which was signed in 2018, under which the Company is to perform developmentand manufacturing services for Incyte’s clinical needs of MGA012. The Company evaluated this agreement under ASC 606 and identified one performanceobligation under the agreement - to perform services related to manufacturing the clinical supply of MGA012. The transaction price is based on the costsincurred to develop and manufacture drug product and drug substance, and is recognized over time as the services are provided, as the performance by theCompany does not create an asset with an alternative use and the Company has an enforceable right to payment for the performance completed to date.During the year ended December 31, 2018, the Company recognized revenue of $22.2 million for services performed under this agreement.ServierIn September 2012, the Company entered into a collaboration agreement with Servier and granted it exclusive options to obtain three separateexclusive licenses to develop and commercialize DART molecules, consisting of those designated by the Company as flotetuzumab (also known as MGD006or 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(Servier Agreement). During 2014, Servier exercised its exclusive option to develop and commercialize flotetuzumab. During 2016 Servier notified theCompanyF - 20that it did not intend to exercise the option for the third DART molecule, and in November 2018, Servier notified the Company that it did not intend toexercise the option for MGD007.Upon execution of the agreement, Servier made a nonrefundable payment of $20.0 million to the Company. In addition, if Servier successfullydevelops, obtains regulatory approval for, and commercializes flotetuzumab, the Company will be eligible to receive up to $22.5 million in clinicalmilestone payments, $76.0 million in regulatory milestone payments and $210.0 million in sales milestone payments. In addition to these milestones, theCompany and Servier will share Phase 2 and Phase 3 development costs. Under this agreement, Servier would be obligated to pay the Company from lowdouble-digit to mid-teen royalties on net product sales in its territories.Upon the adoption of ASC 606, the Company evaluated the Servier Agreement under the provisions of ASC 606 and concluded that Servier is acustomer prior to the exercise of any of the three options. The Company identified the following material promises under the arrangement for each of thethree molecules: (i) a limited evaluation license to conduct activities under the research plan and (ii) research and development services concluding with anoption trigger data package. The Servier Agreement also provided exclusive options for an exclusive license to research, develop, manufacture andcommercialize each subject molecule. The Company evaluated these options and concluded that the options were not issued at a significant and incrementaldiscount, and therefore do not provide material rights. As such, they are excluded as performance obligations at the outset of the arrangement. The Companydetermined that each license and the related research and development services were not distinct from one another, as the license has limited value withoutthe performance of the research and development activities. As such, the Company determined that these promises should be combined into a singleperformance obligation for each molecule, resulting in a total of three performance obligations; one for flotetuzumab, one for MGD007, and one for the thirdDART molecule.The Company determined that the $20.0 million upfront payment from Servier constituted the entirety of the consideration to be included in thetransaction price as of the outset of the arrangement, and the transaction price was allocated to the three performance obligations based on their relativestandalone selling price. The milestone payments that the Company was eligible to receive prior to the exercise of the options were excluded from thetransaction price, as all milestone amounts were fully constrained based on the probability of achievement. Two milestones were achieved in 2014 when theINDs for flotetuzumab and MGD007 were cleared by the Food and Drug Administration (FDA). Upon achievement of each milestone, the constraint related tothe $5.0 million milestone payment was removed and the transaction price was re-assessed. This variable consideration was allocated to each specificperformance obligation in accordance with ASC 606.Revenue associated with each performance obligation is being recognized as the research and development services are provided using an inputmethod according to research and development costs incurred to date compared to estimated total research and development costs. The transfer of controloccurs over this time period and, in management’s judgment, is the best measure of progress towards satisfying the performance obligation. The fulltransaction price allocated to flotetuzumab and the third DART molecule was recognized as revenue prior to the adoption of ASC 606 on January 1, 2018 asthe option periods had ended. The development period for MGD007 was estimated to be 75 months, ending in December 2018, therefore the transaction priceallocated to MGD007 was being recognized through that date. When Servier notified the Company that it was not exercising the option for MGD007 inNovember 2018, the Company recognized the remaining deferred revenue related to MGD007. Upon the adoption of ASC 606 on January 1, 2018, thepattern of revenue recognition for the upfront fee and the accounting for the milestones received in 2014 changed, but there was no material impact torevenue recognized during the year ended December 31, 2018. During the years ended December 31, 2018, 2017 and 2016 the Company recognized revenueof $1.9 million, $1.1 million and $1.1 million, respectively, related to the MGD007 option. At December 31, 2018, no revenue related to the MGD007 optionwas deferred. The deferred revenue balance related to the MGD007 option as of December 31, 2017, prior to the adoption of ASC 606, was $1.1 million, all ofwhich was current.As discussed above, in 2014, Servier exercised its option to obtain a license to develop and commercialize flotetuzumab in its territories and paidthe Company a $15.0 million license grant fee. Upon exercise, the Company's contractual obligations include (i) granting Servier an exclusive license to itsintellectual property, (ii) technical, scientific and intellectual property support to the research plan and (iii) participation on an executive committee and aresearch and development committee. Under the terms of the Servier Agreement, the Company and Servier will share costs incurred to develop flotetuzumabduring the license term. Due to the fact that both parties share costs and are exposed to significant risks and rewards dependent on the commercial success ofthe product, the Company determined that the arrangement is a collaborative arrangement within the scope of ASC 808. The arrangement consists of twocomponents; the license of flotetuzumab and the research and development activities, including committee participation, to support the research plan. Underthe provisions of ASC 808, the Company has determined that it will use ASC 606 by analogy to recognize the revenue related to the license. The Companyevaluated its performance obligation to provide Servier with an exclusive license to develop and commercialize flotetuzumab and determined that itstransaction price is equal to the license grant fee payment of $15.0 million and Servier consumes the benefits of the license over time as the research anddevelopment activities areF - 21performed. Therefore, the Company will recognize the transaction price over the development period, using an input method according to research anddevelopment costs incurred to date compared to estimated total research and development costs. The additional potential clinical, regulatory and salesmilestones are fully constrained and have been excluded from the transaction price. Prior to the adoption of ASC 606 on January 1, 2018, the Company recognized the license grant fee over the expected period of development on astraight-line basis. The deferred revenue balance related to the flotetuzumab license grant fee as of December 31, 2017, prior to the adoption of ASC 606, was$7.4 million. The adoption of ASC 606 increased that balance by approximately $6.4 million. The adoption of ASC 606 increased revenue recognizedduring the year ended December 31, 2018 by $0.1 million, and it will increase the revenue to be recognized in the future as the pattern of revenue recognitionhas changed. During the years ended December 31, 2018, 2017 and 2016 the Company recognized revenue of $1.2 million, $1.4 million, and $2.2 million,respectively, related to the flotetuzumab license grant fee. At December 31, 2018, $12.6 million of revenue related to the flotetuzumab license grant fee wasdeferred, $0.9 million of which was current and $11.7 million of which was non-current.The research and development activities component of the arrangement is not analogous to ASC 606, therefore the Company will follow its policyto record expense incurred as research and development expense and reimbursements received from Servier will be recognized as an offset to research anddevelopment expense on the consolidated statement of operations and comprehensive loss during the development period. During the three years endedDecember 31, 2018, 2017 and 2016 the Company recorded approximately $6.0 million, $3.2 million and $2.6 million, respectively, as an offset to researchand development expense under this collaborative arrangement. Zai LabIn November 2018, the Company entered into a collaboration and license agreement with Zai Lab (Zai Lab Agreement) under which Zai Labobtained regional development and commercialization rights in mainland China, Hong Kong, Macau and Taiwan for (i) margetuximab, an immune-optimized anti-HER2 monoclonal antibody, (ii) MGD013, a bispecific DART molecule designed to provide coordinate blockade of PD-1 and LAG-3 for thepotential treatment of a range of solid tumors and hematological malignancies, and (iii) an undisclosed multi-specific TRIDENT molecule in preclinicaldevelopment. Zai Lab will lead clinical development of these molecules in its territory.Under the terms of the Zai Lab Agreement, Zai Lab paid the Company an upfront payment of $25.0 million, less foreign withholding tax of$2.50 million, which was received in January 2019. Assuming successful development and commercialization of margetuximab, MGD013 and the TRIDENTmolecule, the Company could receive up to $140.0 million in development and regulatory milestones. In addition, Zai Lab would pay the Company double-digit royalties on annual net sales of the assets, which may be subject to adjustment in specified circumstances.The Company evaluated the Zai Lab Agreement under the provisions of ASC 606 and identified the following material promises under thearrangement for each of the two product candidates, margetuximab and MGD013: (i) an exclusive license to develop and commercialize the productcandidate in Zai Lab’s territory and (ii) certain research and development activities. The Company determined that each license and the related research anddevelopment activities were not distinct from one another, as the license has limited value without the performance of the research and developmentactivities. As such, the Company determined that these promises should be combined into a single performance obligation for each product candidate.Activities related to margetuximab and MGD013 are separate performance obligations from each other because they are capable of being distinct, and aredistinct in the context of the contract. The Company evaluated the promises related to the TRIDENT molecule and determined they were immaterial incontext of the contract, therefore there is no performance obligation related to that molecule. The Company determined that the $25.0 million (less foreignwithholding tax of $2.5 million) upfront payment from Zai Lab constituted the entirety of the consideration to be included in the transaction price as of theoutset of the arrangement, and the transaction price was allocated to the two performance obligations based on their relative standalone selling price. Thestandalone selling price of the performance obligations was determined using the adjusted market assessment approach considering similar collaboration andlicense agreements. The potential development and regulatory milestone payments are fully constrained until the Company concludes that achievement ofthe milestone is probable, and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in futureperiods, and as such have been excluded from the transaction price. Any consideration related to royalties will be recognized when the related sales occur, asthey were determined to relate predominantly to the license granted to Zai Lab and, therefore, have also been excluded from the transaction price. TheCompany re-assesses the transaction price in each reporting period and when events whose outcomes are resolved or other changes in circumstances occur. Due to the relatively short-term nature of the recognition period, the revenue associated with the MGD013 performance obligation is being recognized on astraight-line basis as the Company performs research and developmentF - 22activities under the agreement. The fixed consideration related to the margetuximab performance obligation is also being recognized on a straight-line basisas the Company performs research and development activities under the agreement. Straight-line recognition is materially consistent with the pattern ofperformance of the research and development activities of each product candidate. The variable consideration related to the margetuximab performanceobligation will be recognized upon certain regulatory achievements. During the year ended December 31, 2018, the Company recognized revenue of $1.3million related to the Zai Lab Agreement. At December 31, 2018, $21.1 million of revenue was deferred under this agreement, $16.1 million of which wascurrent.RocheIn December 2017, the Company entered into a research collaboration and license agreement with Roche to jointly discover and develop novelbispecific molecules to undisclosed targets (Roche Agreement). During the research term, both companies will leverage their respective platforms, includingthe Company's DART platform and Roche's CrossMAb and DutaFab technologies to select a bispecific format and lead product candidate. Roche would thenfurther develop and commercialize any such product candidate. Each company will be responsible for their own expenses during the research period.Under the terms of the Roche Agreement, Roche received rights to use certain of the Company’s intellectual property rights to exploit collaborationcompounds and products, and paid the Company an upfront payment of $10.0 million which was received in January 2018. The Company will also beeligible to receive up to $370.0 million in potential milestone payments and royalties on future sales. As of December 31, 2018, the Company has notrecognized any milestone revenue under this agreement.Upon the adoption of ASC 606, the Company evaluated the Roche Agreement under the provisions of ASC 606 and identified the followingpromises under the agreement: (i) the non-exclusive, non-transferable, non-sublicensable license to the Company's intellectual property and (ii) theperformance of certain activities during the research period. The Company determined that the license is capable of being distinct, but is not distinct in thecontext of the contract because it has limited value to Roche without the research activities required to be performed by the Company. Therefore, theCompany concluded that there is one performance obligation under the agreement. The Company determined that the transaction price of the RocheAgreement was $10.0 million. The potential milestone payments are fully constrained and have been excluded from the transaction price. Any considerationrelated to sales-based royalties will be recognized when the related sales occur as they were determined to relate predominantly to the license granted toRoche and therefore have also been excluded from the transaction price.The $10.0 million transaction price is being recognized over the expected research period, which is 30 months, using a cost-based input method tomeasure performance. Prior to the adoption of ASC 606 on January 1, 2018, the accounting for this agreement did not materially differ from the accountingunder ASC 606. The Company recognized revenue under this agreement of $4.0 million during the year ended December 31, 2018. At December 31, 2018,$6.0 million of revenue was deferred under this agreement, $4.0 million of which was current and $2.0 million of which was non-current. At December 31,2017, $10.0 million of revenue was deferred under this agreement, $4.0 million of which was current and $6.0 million of which was non-current. ProventionIn May 2018, the Company entered into a license agreement with Provention pursuant to which the Company granted Provention exclusive globalrights for the purpose of developing and commercializing MGD010 (renamed PRV-3279), a CD32B x CD79B DART molecule being developed for thetreatment of autoimmune indications (Provention License Agreement). As partial consideration for the Provention License Agreement, Provention grantedthe Company a warrant to purchase shares of Provention’s common stock at an exercise price of $2.50 per share. The warrant expires on May 7, 2025. IfProvention successfully develops, obtains regulatory approval for, and commercializes PRV-3279, the Company will be eligible to receive up to $65.0million in development and regulatory milestones and up to $225.0 million in commercial milestones. As of December 31, 2018, the Company has notrecognized any milestone revenue under this agreement. If commercialized, the Company would be eligible to receive single-digit royalties on net sales ofthe product. The license agreement may be terminated by either party upon a material breach or bankruptcy of the other party, by Provention without causeupon prior notice to the Company, and by the Company in the event that Provention challenges the validity of any licensed patent under the agreement, butonly with respect to the challenged patent. Also in May 2018, the Company entered into an asset purchase agreement with Provention pursuant to which Provention acquired the Company’sinterest in teplizumab (renamed PRV-031), a monoclonal antibody being developed for the treatment of type 1 diabetes (Asset Purchase Agreement). Aspartial consideration for the Asset Purchase Agreement, Provention granted the Company a warrant to purchase shares of Provention’s common stock at anexercise price of $2.50 perF - 23share. The warrant expires on May 7, 2025. If Provention successfully develops, obtains regulatory approval for, and commercializes PRV-031, the Companywill be eligible to receive up to $170.0 million in regulatory milestones and up to $225.0 million in commercial milestones. If commercialized, the Companywould be eligible to receive single-digit royalties on net sales of the product. Provention has also agreed to pay third-party obligations, including low single-digit royalties, a portion of which is creditable against royalties payable to the Company, aggregate milestone payments of up to approximately $1.3 millionand other consideration, for certain third-party intellectual property under agreements Provention is assuming pursuant to the Asset Purchase Agreement.Further, Provention is required to pay the Company a low double-digit percentage of certain consideration to the extent it is received in connection with afuture grant of rights to PRV-031 by Provention to a third party.The Company evaluated the Provention License Agreement and Asset Purchase Agreement under the provisions of ASC 606 and determined thatthey should be accounted for as a single contract and identified two performance obligations within that contract: (i) the license of MGD010 and (ii) the titleto teplizumab. The Company determined that the transaction price of the Provention agreements was $6.1 million, based on the Black-Scholes valuation ofthe warrants to purchase a total of 2,432,688 shares of Provention's common stock. The transaction price was allocated to each performance obligation basedon the number of shares of common stock the Company is entitled to purchase under each warrant. The potential development and regulatory milestonepayments are fully constrained until the Company concludes that achievement of the milestone is probable and that recognition of revenue related to themilestone will not result in a significant reversal in amounts recognized in future periods, and as such have been excluded from the transaction price. Anyconsideration related to sales-based milestones and royalties will be recognized when the related sales occur, therefore they have also been excluded from thetransaction price. The Company re-assesses the transaction price in each reporting period and when events whose outcomes are resolved or other changes incircumstances occur.The Company recognized revenue of $6.1 million when it satisfied its performance obligations and transferred the MGD010 license and teplizumabassets to Provention in May 2018. The warrants are reported in other assets on the balance sheet at December 31, 2018 and will be revalued at each reportingperiod until exercised or the warrants lapse. The Company revalued the warrants based on current Black-Scholes parameters as of December 31, 2018, andrecorded a decrease of $4.2 million in other assets. This revaluation is reflected in other income (expense) on the consolidated statements of operations andcomprehensive loss for the year ended December 31, 2018.Janssen In December 2014, the Company entered into a collaboration and license agreement with Janssen for the development and commercialization ofMGD011 (also known as JNJ-64052781 or duvortuxizumab), a product candidate that incorporates the Company's proprietary DART technology tosimultaneously target CD19 and CD3 for the potential treatment of B-cell hematological malignancies (MGD011 Agreement). The Companycontemporaneously entered into an agreement with JJDC under which JJDC agreed to purchase 1,923,077 new shares of the Company's common stock forproceeds of $75.0 million. Upon closing the transaction in January 2015, the Company received a $50.0 million upfront payment from Janssen as well as the$75.0 million investment in the Company's common stock. In August 2017, Janssen notified the Company that they were terminating the MGD011Agreement. No revenue was recognized under the MGD011 Agreement during the years ended December 31, 2017 and 2018. The Company recognizedrevenue of $2.0 million during the year ended December 31, 2016.In May 2016, the Company entered into a collaboration and license agreement with Janssen, a related party through ownership of the Company'scommon stock, for the development and commercialization of MGD015, a product candidate that incorporates the Company's proprietary DART technologyto simultaneously target CD3 and an undisclosed tumor target for the potential treatment of various hematological malignancies and solid tumors (MGD015Agreement). Under the MGD015 Agreement, the Company granted an exclusive license to Janssen to develop and commercialize MGD015. The Companyreceived a $75.0 million upfront payment from Janssen upon closing the transaction, which was recognized as revenue in 2016. In January 2018, Janssennotified the Company that they were terminating the MGD015 Agreement. No revenue was recognized under the MGD015 Agreement during the year endedDecember 31, 2018. The Company recognized revenue of $0.6 million and $75.8 million during the years ended December 31, 2017 and 2016, respectively.The revenue under both the MGD011 and MGD015 Agreements was fully recognized prior to the adoption of ASC 606.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.F - 24NIAID does not receive goods or services from the Company under this contract, therefore the Company does not consider NIAID to be a customer andconcluded this contract is outside the scope of ASC 606.This contract includes a base period of $7.5 million to support development of MGD014 through IND application submission with the FDA, as wellas up to $17.0 million in additional development funding via NIAID options. Should NIAID fully exercise such options, the Company could receive totalpayments of up to $24.5 million. The total potential period of performance under the award is from September 15, 2015 through September 14, 2022. Duringthe year ended December 31, 2017, NIAID exercised the first option in the amount of $10.8 million. The Company recognized revenue of $1.3 million, $1.7million and $5.1 million under this contract during the years ended December 31, 2018, 2017 and 2016, respectively.9. 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 2019and 2027 unless renewed. During the year ended December 31, 2017, the Company entered into an agreement to sublease a portion of the space it leases. Asof December 31, 2018, the Company will receive $1.1 million in future payments under this sublease. The Company also leases office and laboratory space inBrisbane, California under a lease that expires in November 2023.The Rockville leases include a lease executed in July 2015 for space that the Company uses as its headquarters with office, laboratory, andmanufacturing 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. During 2017, the Company executed a lease amendment for its headquartersbuilding which extends the term of the lease to August 2027, restructures the rent due under the lease, and provides for an additional tenant improvementallowance from the landlord of $7.5 million. The assignment fee and tenant improvement allowances have been recorded as deferred rent and are beingrecognized over the new lease term.All of the leases contain rent escalation clauses and certain leases contain rent abatements. For financial reporting purposes, rent expense is chargedto operations on a straight-line basis over the term of the lease. As of December 31, 2018 and 2017, the Company had recorded a deferred rent liability of$11.3 million and $12.3 million, respectively. Rent expense for the years ended December 31, 2018, 2017 and 2016 was $4.4 million, $3.1 million and $3.0million, respectively.Future minimum lease payments under noncancelable operating leases as of December 31, 2018 are as follows (in thousands):2019$6,323 20204,757 20214,724 20224,865 20234,680 Thereafter13,786 $39,135 ContingenciesFrom time to time, the Company may be subject to various litigation and related matters arising in the ordinary course of business. The Companydoes not believe it is currently subject to any material matters where there is at least a reasonable possibility that a material loss may be incurred.10. Employee Benefit PlanIn 2002, the Company established the MacroGenics 401(k) Plan (the Plan) for its employees under Section 401(k) of the IRC. Under this Plan, allemployees 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.F - 25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 $1.3 million, $1.1 million and $1.0 million for the years ended December 31, 2018, 2017 and2016, respectively.11. Quarterly Financial Information (unaudited)1st Quarter2nd Quarter3rd Quarter4th Quarter(in thousands, except per share data)2018Revenue$4,695 $18,834 $20,798 $15,794 Net loss(49,536)(43,244)(34,029)(44,644)Net loss per share, basic and diluted$(1.34)$(1.03)$(0.81)$(1.06)2017 Revenue$2,055 $1,666 $1,663 $152,359 Net income (loss)(37,655)(40,654)(47,043)105,727 Net income (loss) per share, basic$(1.08)$(1.14)$(1.28)$2.87 Net income (loss) per share, diluted$(1.08)$(1.14)$(1.28)$2.80 12. Subsequent EventIn February 2019, the Company completed a follow-on equity offering, in which the Company sold 5,500,000 shares of its common stock at a priceof $20.00 per share. Additionally, the underwriters of the offering exercised the full amount of their over-allotment option resulting in the sale of anadditional 825,000 shares of the Company’s common stock at a price of $20.00 per share. The Company received net proceeds of $118.5 million from thisoffering, net of underwriting discounts and commissions and other estimated offering expenses.F - 26EXHIBIT INDEXExhibitNo.Description3.1 Restated Certificate of Incorporation of the Company and Certificate of Correction to the Restated Certificate of Incorporation of theCompany (incorporated by reference to Exhibits 3.1 and 3.3, respectively, to the Company's Current Report on Form 8-K filed onOctober 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 by the 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 by reference 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, datedSeptember 19, 2012 (incorporated by reference to Exhibit 10.20 to the Registration Statement on Form S-1 (File No. 333-190994) filedby the Company on October 4, 2013)10.3†Global Collaboration and License Agreement by and between the Company and Incyte Corporation, dated October 24,2017 (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K filed on February 27, 2018)10.4+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)10.5+Form of Incentive Stock Option Agreement under 2003 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to theRegistration Statement on Form S-1 (File No. 333-190994) filed by the Company on September 4, 2013)10.6+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)10.7+Form of Incentive Stock Option Agreement under 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.6 to theRegistration Statement on Form S-1 (File No. 333-190994) filed by the Company on October 1, 2013)10.8+Form of Nonstatutory Stock Option Agreement under 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.7 to theRegistration Statement on Form S-1 (File No. 333-190994) filed by the Company on October 1, 2013)10.9+Form of Restricted Stock Units Grant Notice under 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to theCompany's Quarterly Report on Form 10-Q filed on May 6, 2015)10.10+2016 Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-8 (File No. 333-214386) filed by the Company on November 2, 2016)10.11+Employment Agreement between the Company and Scott Koenig, M.D., Ph.D. (incorporated by reference to Exhibit 10.14 to theCompany's Annual Report on Form 10-K filed by the Company on February 29, 2016)10.12+Employment Agreement between the Company and James Karrels (incorporated by reference to Exhibit 10.15 to the Company's AnnualReport on Form 10-K filed by the Company on February 29, 2016)10.13+Employment Agreement between the Company and Jon Wigginton, M.D. (incorporated by reference to Exhibit 10.1 to the Company'sQuarterly Report on Form 10-Q filed on May 4, 2016)10.14+Restricted Stock Units Grant Notice and Agreement between the Company and Jon Wigginton, M.D. (incorporated by reference toExhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on May 4, 2016)10.15+Employment Agreement between the Company and Ezio Bonvini, M.D. (incorporated by reference to Exhibit 10.3 to the Company'sQuarterly Report on Form 10-Q filed on May 4, 2016)10.16+Employment Agreement between the Company and Eric Risser (incorporated by reference to Exhibit 10.16 to the Company's AnnualReport on Form 10-K filed on February 28, 2017)10.17†Amendment No, 1 to the Global Collaboration and License Agreement by and between the Company and Incyte Corporation, datedMarch 15, 2018 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on May 7, 2017)10.18†First Amendment to Option for a License Agreement by and between the Company and Les Laboratoires Servier and Institut deRecherches Servier, dated June 14, 201710.19†Second Amendment to Option for a License Agreement by and between the Company and Les Laboratoires Servier and Institut deRecherches Servier, dated March 1, 201823.1 Consent of Ernst & Young, LLP, Independent Registered Public Accounting Firm31.1 Rule 13a-14(a) Certification of Principal Executive Officer31.2 Rule 13a-14(a) Certification of Principal Financial Officer32.1 Section 1350 Certification of Principal Executive Officer32.2 Section 1350 Certification of Principal Financial Officer101.INSXBRL Instance Document101.SCHXBRL Schema Document101.CALXBRL Calculation Linkbase Document101.DEFXBRL Definition Linkbase Document101.LABXBRL Labels Linkbase Document101.PREXBRL 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.THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL ISMARKED WITH [***] AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.AMENDMENT N°1 TOOPTION FOR A LICENSE AGREEMENT THIS AMENDMENT N°1 (hereinafter referred to as the “Amendment N°1”) entered into as of the 14th day of June, 2017 (the“Amendment N°1 Effective Date”) by and between MacroGenics, Inc. a Delaware corporation having a place of business at 9704Medical Center Drive, Rockville, MD, USA 20850 (“MacroGenics”), and Les Laboratoires Servier, a company organized andexisting under the laws of France, having a principal office located at 50 rue Carnot 92284 Suresnes (“LLS”) and Institut deRecherches Servier, a company organized and existing under the laws of France, having a principal office located at 3 rue de laRepublique - 92150 Suresnes - France (“IdRS”) and LLS and IdRS hereinafter collectively referred to as “Servier”).MacroGenics and Servier are each referred to herein by name or as a “Party” or, collectively, as “Parties.”WHEREAS, Servier and MacroGenics are parties to the Option for a License Agreement, dated September 19, 2012 (hereinafterreferred to as the “Agreement”), which set forth notably the terms and conditions of an option grant and an exclusive license to enableServier to research, develop and commercialize DARTS mentioned in the Agreement, upon exercise of the exclusive option by Servierwith respect to such DARTS;WHEREAS, Servier and MacroGenics wish to execute an Amendment N°1 to the Agreement, in accordance with Section 16.10 ofthe Agreement, in order to provide for alternate terms with respect to certain of the Parties’ rights and obligations under Section 7.1.1of the AgreementNOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Partiesagree to the following terms and conditions:All capitalized terms used in this Amendment N°1 but not otherwise defined herein, shall have the meanings ascribed to such terms inthe Agreement.THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL ISMARKED WITH [***] AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.1. TRANSFER OF MACROGENICS MANUFACTURING KNOW-HOW FOR [***]Section 7.1.1 of the Agreement is hereby amended to add the following as the second sentence of such Section:“Notwithstanding the foregoing, for the [***] designated as [***] which is included in the [***], upon a decision of the JointManufacturing Committee (“JMC”) (a subcommittee of the JSC established in accordance with Section 2.5.3) and on a schedule anda product comparability plan agreed upon by the JMC, MacroGenics shall disclose (and provide copies, as applicable) to eitherServier or a Third Party manufacturer that is mutually acceptable to both Parties, all MacroGenics Know-How necessary or useful toenable Servier or such Third Party manufacturer (as appropriate) to Manufacture applicable Licensed Product included in the [***]based on a manufacturing process determined by MacroGenics.”2. TERMThis Amendment N°1 shall be effective on the Amendment N°1 Effective Date and ends at the expiration of the Agreement.3. OTHER TERMS AND CONDITIONS OF THE AGREEMENTAll other terms and conditions of the Agreement not modified by the Amendment N°1 shall remain unaltered and given fullforce and effect.[Remainder of page intentionally blank]THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL ISMARKED WITH [***] AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.IN WITNESS WHEREOF, the Parties, intending to be legally bound, have caused this Amendment to be executed by their respectiveduly authorized representatives as of the Amendment Effective Date.MACROGENICS, INC. By: [***] Name: [***] Title: [***] LES LABORATOIRES SERVIER By: [***] Name: [***] Title: [***] By: [***] Name: [***] Title: [***] INSTITUT DE RECHERCHES SERVIER By: [***] Name: [***] Title: [***] THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL ISMARKED WITH [***] AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.SECOND AMENDMENT to OPTION FOR A LICENSE AGREEMENTThis Second Amendment entered into on the date of last signature to this First Amendment by and between MacroGenics, Inc. aDelaware corporation having a principal office located at 9704 Medical Center Drive, Rockville, MD 20850 (“MacroGenics”) ″), andLes Laboratoires Servier, a company organized and existing under the laws of France, having a principal office located at 50 rueCarnot 92284 Suresnes (“LLS”) and Institut de Recherches Servier, a company organized and existing under the laws of France,having a principal office located at 3 rue de la République - 92150 Suresnes - France (“IdRS”) and LLS and IdRS hereinaftercollectively referred to as “Servier”). MacroGenics and Servier are each referred to herein by name or as a “Party” or, collectively, as“Parties.”WHEREAS, Servier and MacroGenics executed an Option for a License Agreement on September 19, 2012, as amended on 14 June2017 (the “Agreement”);WHEREAS, the Parties wish to further amend the Agreement as set forth below;NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the partiesagree to the following terms and conditions:1. All capitalized terms used in this Second Amendment, but not otherwise defined herein, shall have the meanings ascribed to suchterms in the Agreement.2. Article 1.64(b) shall be deleted in its entirety and replaced with the following:“with respect to each of the A33 Program [***].”3. This Second Amendment and the Agreement constitute the entire agreement of the parties and supersedes any and all prioragreements, written or oral, between Servier and MacroGenics relating to the subject matter of this First Amendment and theAgreement and neither may be amended unless agreed to in writing by both parties.[Signature page follows]THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL ISMARKED WITH [***] AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.IN WITNESS WHEREOF, the parties, intending to be legally bound, have caused this First Amendment to be executed by theirrespective duly authorized representative.MacroGenics, Inc.Les LaboratoiresName: [***] Name: [***] [***] Title: [***] Title: [***] Date: [***] Date: [***] Institut de Recherches Servier Name: [***] Title: [***] Date: [***] 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 2013Equity Incentive Plan of MacroGenics, Inc.;2.Registration Statements (Form S-8 No. 333-202470, Form S-8 No. 333-209812 and Form S-8 No. 333-217620) pertaining to the 2013 EquityIncentive Plan of MacroGenics, Inc.;3.Registration Statement (Form S-8 No. 333-214386) pertaining to the 2016 Employee Stock Purchase Plan of MacroGenics, Inc.;4.Registration Statement (Form S-3 ASR No. 333-214385) of MacroGenics, Inc.;5.Registration Statement (Form S-8 No. 333-223682) pertaining to the 2013 Equity Incentive Plan of MacroGenics, Inc.of our reports dated February 26, 2019, with respect to the consolidated financial statements of MacroGenics, Inc. and the effectiveness of internal controlover financial reporting of MacroGenics, Inc. included in this Annual Report (Form 10-K) of MacroGenics, Inc. for the year ended December 31, 2018./s/ Ernst & Young LLPBaltimore, MarylandFebruary 26, 2019 EXHIBIT 31.1I, Scott Koenig, certify that:1.I have reviewed this Annual Report on Form 10-K for the period ended December 31, 2018 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 tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial 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 definedin Exchange 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 madeknown to us by 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 designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements 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 conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based onsuch evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalentfunctions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financialinformation; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting./s/ Scott KoenigScott Koenig, M.D., Ph.D.President and Chief Executive Officer(Principal Executive Officer)Dated: February 26, 2019 EXHIBIT 31.2I, James Karrels, certify that:1.I have reviewed this Annual Report on Form 10-K for the period ended December 31, 2018 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 tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial 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 definedin Exchange 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 designedunder our supervision, to ensure that material information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularly during the period in which this report isbeing prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements 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 ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalentfunctions)a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financialinformation; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting./s/ James KarrelsJames KarrelsSenior Vice President and Chief Financial Officer(Principal Financial Officer)Dated: February 26, 2019 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 myknowledge, based upon a review of the Annual Report on Form 10-K for the period ended December 31, 2018 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; and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant./s/ Scott Koenig Name: Scott Koenig, M.D., Ph.D.Date: February 26, 2019 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 ofmy knowledge, based upon a review of the Annual Report on Form 10-K for the period ended December 31, 2018 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; and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant./s/ James Karrels Name: James KarrelsDate: February 26, 2019 

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