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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023
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: 001-36112
MACROGENICS, INC.
(Exact name of registrant as specified in its charter)

Delaware | 06-1591613
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)
9704 Medical Center Drive Rockville, Maryland | 20850
(Address of principal executive offices) | (Zip code)

301-251-5172
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common Stock, par value $0.01 per share | MGNX | Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during 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 filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be 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 to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "accelerated filer," "large accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer | ☐ | Accelerated filer | ☐
Non-accelerated filer | ☒ | Smaller reporting company | ☒
Emerging growth company | ☐ |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 5, 2023, 61,838,893 shares of the registrant's common stock, par value $0.01 per share, were outstanding.

TABLE OF CONTENTS

PART I. | FINANCIAL INFORMATION
Item 1. | Financial Statements
| Consolidated Balance Sheets at March 31, 2023 (unaudited) and December 31, 2022
| Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2023 and March 31, 2022 (unaudited)
| Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2023 and March 31, 2022 (unaudited)
| Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and March 31, 2022 (unaudited)
| Notes to Consolidated Financial Statements (unaudited)
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. | Quantitative and Qualitative Disclosures about Market Risk
Item 4. | Controls and Procedures
PART II. | OTHER INFORMATION
Item 1. | Legal Proceedings
Item 1A. | Risk Factors
Item 6. | Exhibits
| Signatures

FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include statements that may relate to our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, in particular, under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report on Form 10-Q. 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 current expectations and various assumptions. We believe there is a reasonable basis for our expectations and beliefs, but they are inherently uncertain. We may not realize our expectations, and our beliefs may not prove correct. Actual results could differ materially from those described or implied by such forward-looking statements. The following uncertainties and factors, among others (including those set forth under "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2022 and "Part II, Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q), could affect future performance and cause actual 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 or completed, enrollment of trials, and when data will be reported or regulatory filings will be made;
•the timing of and our ability to obtain and maintain regulatory approvals for our product candidates and the labeling for any approved products;
•our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
•our ability to raise additional capital through the capital markets or through one or more corporate partnerships, equity offerings, debt financings, collaborations, licensing arrangements or asset sales;
•our expectations regarding product candidates currently being developed by our collaborators;
•our ability to enter into new collaborations or to identify additional products or product candidates with significant commercial potential that are consistent 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 and our expectations regarding the outcome of any regulatory or legal proceedings;
•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;
•our failure to maintain effective internal controls; and
•the severity and duration of the impact of a global pandemic on our business, operations, clinical programs, manufacturing, financial results and other aspects of our business.
Consequently, forward-looking statements speak only as of the date that they are made and should be regarded solely as our current plans, estimates and beliefs. You should not place undue reliance on forward-looking statements. We cannot guarantee future results, events, levels of activity, performance or achievements. Except as required by law, we do not undertake and specifically decline any obligation to update, republish or revise forward-looking statements to reflect future events or circumstances or to reflect the occurrences of unanticipated events.

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
+-
MACROGENICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

| March 31, 2023 |  | December 31, 2022
| (unaudited) |  |
Assets |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 224,264 |  |  | $ | 108,884 |
Marketable securities | 17,392 |  |  | 45,462 |
Accounts receivable | 36,160 |  |  | 56,222 |
Inventory, net | 1,409 |  |  | 1,451 |
Prepaid expenses and other current assets | 9,718 |  |  | 10,161 |
Total current assets | 288,943 |  |  | 222,180 |
Property, equipment and software, net | 26,783 |  |  | 29,575 |
Operating lease right-of-use assets | 26,394 |  |  | 27,335 |
Other non current assets | 1,378 |  |  | 1,378 |
Total assets | $ | 343,498 |  |  | $ | 280,468 |
Liabilities and stockholders' equity |  |  |
Current liabilities: |  |  |
Accounts payable | $ | 3,759 |  |  | $ | 4,899 |
Accrued expenses and other current liabilities | 28,188 |  |  | 28,998 |
Deferred revenue | 9,249 |  |  | 9,988 |
Lease liabilities | 4,418 |  |  | 4,726 |
Total current liabilities | 45,614 |  |  | 48,611 |
Liability related to future royalties | 100,222 |  |  | — |
Deferred revenue, net of current portion | 58,006 |  |  | 59,480 |
Lease liabilities, net of current portion | 30,130 |  |  | 30,106 |
Other non current liabilities | 258 |  |  | 258 |
Total liabilities | 234,230 |  |  | 138,455 |
Stockholders' equity: |  |  |
Common stock, $0.01 par value -- 125,000,000 shares authorized, 61,838,565 and 61,701,467 shares outstanding at March 31, 2023 and December 31, 2022, respectively | 618 |  |  | 617 |
Additional paid-in capital | 1,240,345 |  |  | 1,235,095 |
Accumulated other comprehensive income (loss) | 8 |  |  | (5) |
Accumulated deficit | (1,131,703) |  |  | (1,093,694) |
Total stockholders' equity | 109,268 |  |  | 142,013 |
Total liabilities and stockholders' equity | $ | 343,498 |  |  | $ | 280,468 |

See notes to consolidated financial statements.
1

MACROGENICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
(in thousands, except share and per share data)

|  |  | Three Months Ended March 31,
|  |  |  |  | 2023 |  | 2022
Revenues: |  |  |  |  |  |  |
Collaborative and other agreements |  |  |  |  | $ | 16,686 |  |  | $ | 7,093 |
Product sales, net |  |  |  |  | 3,490 |  |  | 3,580 |
Contract manufacturing |  |  |  |  | 3,615 |  |  | — |
Royalty revenue |  |  |  |  | 422 |  |  | — |
Government agreements |  |  |  |  | 283 |  |  | 428 |
Total revenues |  |  |  |  | 24,496 |  |  | 11,101 |
Costs and expenses: |  |  |  |  |  |  |
Cost of product sales |  |  |  |  | 113 |  |  | 48 |
Cost of manufacturing services |  |  |  |  | 3,410 |  |  | — |
Research and development |  |  |  |  | 45,872 |  |  | 61,438 |
Selling, general and administrative |  |  |  |  | 13,527 |  |  | 16,253 |
Total costs and expenses |  |  |  |  | 62,922 |  |  | 77,739 |
Loss from operations |  |  |  |  | (38,426) |  |  | (66,638) |
Interest and other income |  |  |  |  | 1,073 |  |  | 195 |
Interest expense |  |  |  |  | (656) |  |  | — |
Net loss |  |  |  |  | (38,009) |  |  | (66,443) |
Other comprehensive loss: |  |  |  |  |  |  |
Unrealized gain (loss) on investments |  |  |  |  | 13 |  |  | (222) |
Comprehensive loss |  |  |  |  | $ | (37,996) |  |  | $ | (66,665) |
Basic and diluted net loss per common share |  |  |  |  | $ | (0.61) |  |  | $ | (1.08) |
Basic and diluted weighted average common shares outstanding |  |  |  |  | 61,809,817 |  |  | 61,324,163 |

See notes to consolidated financial statements.
2

MACROGENICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited)
(in thousands, except share amounts)

| Common Stock |  |  |  | Additional Paid-In Capital |  | Accumulated Deficit |  | Accumulated Other Comprehensive Income (Loss) |  | Total Stockholders' Equity
| Shares |  | Amount |  |  |  |  |  |  |  |
Balance, December 31, 2022 | 61,701,467 |  |  | $ | 617 |  |  |  |  |  |  | $ | 1,235,095 |  |  | $ | (1,093,694) |  |  | $ | (5) |  |  | $ | 142,013 |
Share-based compensation | — |  |  | — |  |  |  |  |  |  | 4,788 |  |  | — |  |  | — |  |  | 4,788 |
Issuance of common stock, net of offering costs | 95,000 |  |  | 1 |  |  |  |  |  |  | 616 |  |  | — |  |  | — |  |  | 617 |
Stock plan related activity | 42,098 |  |  | — |  |  |  |  |  |  | (154) |  |  | — |  |  | — |  |  | (154) |
Unrealized loss on investments | — |  |  | — |  |  |  |  |  |  | — |  |  | — |  |  | 13 |  |  | 13 |
Net loss | — |  |  | — |  |  |  |  |  |  | — |  |  | (38,009) |  |  | — |  |  | (38,009) |
Balance, March 31, 2023 | 61,838,565 |  |  | $ | 618 |  | $ | — |  |  |  |  |  | $ | 1,240,345 |  | $ | — |  | $ | (1,131,703) |  | $ | — |  | $ | 8 |  | $ | — |  | $ | 109,268 |

| Common Stock |  |  |  | Additional Paid-In Capital |  | Accumulated Deficit |  | Accumulated Other Comprehensive Income (Loss) |  | Total Stockholders' Equity
| Shares |  | Amount |  |  |  |  |  |  |  |
Balance, December 31, 2021 | 61,307,428 |  |  | $ | 613 |  |  |  |  |  |  | $ | 1,213,002 |  |  | $ | (973,936) |  |  | $ | (61) |  |  | $ | 239,618 |
Share-based compensation | — |  |  | — |  |  |  |  |  |  | 5,224 |  |  | — |  |  | — |  |  | 5,224 |
Stock plan related activity | 25,646 |  |  | — |  |  |  |  |  |  | 37 |  |  | — |  |  | — |  |  | 37 |
Unrealized gain on investments | — |  |  | — |  |  |  |  |  |  | — |  |  | — |  |  | (222) |  |  | (222) |
Net loss | — |  |  | — |  |  |  |  |  |  | — |  |  | (66,443) |  |  | — |  |  | (66,443) |
Balance, March 31, 2022 | 61,333,074 |  |  | $ | 613 |  |  |  |  |  |  | $ | 1,218,263 |  |  | $ | (1,040,379) |  |  | $ | (283) |  |  | $ | 178,214 |

See notes to consolidated financial statements.
3

MACROGENICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

| Three Months Ended March 31,
| 2023 |  | 2022
Cash flows from operating activities |  |  |
Net loss | $ | (38,009) |  |  | $ | (66,443) |
Adjustments to reconcile net loss to net cash used in operating activities: |  |  |
Depreciation and amortization expense | 2,983 |  |  | 2,913 |
Amortization of premiums and discounts on marketable securities | (372) |  |  | 334 |
Stock-based compensation | 4,833 |  |  | 5,274 |
Non-cash royalty revenue | (90) |  |  | — |
Non-cash interest expense | 656 |  |  | — |
Changes in operating assets and liabilities: |  |  |
Accounts receivable | 20,062 |  |  | (4,520) |
Inventory | 42 |  |  | (210) |
Prepaid expenses and other current assets | 443 |  |  | 6,457 |
Non-cash lease expense | 941 |  |  | — |
Other non current assets | — |  |  | 801 |
Accounts payable | (1,148) |  |  | (11,920) |
Accrued expenses and other current liabilities | (677) |  |  | (543) |
Lease liabilities | (284) |  |  | (1,119) |
Deferred revenue | (2,213) |  |  | 11,280 |
Net cash used in operating activities | (12,833) |  |  | (57,696) |
Cash flows from investing activities |  |  |
Purchases of marketable securities | (17,296) |  |  | (54,077) |
Proceeds from sale and maturities of marketable securities | 45,750 |  |  | 37,010 |
Purchases of property, equipment and software | (359) |  |  | (1,415) |
Net cash provided by (used in) investing activities | 28,095 |  |  | (18,482) |
Cash flows from financing activities |  |  |
Proceeds from issuance of common stock, net of offering costs | 616 |  |  | — |
Proceeds from stock option exercises and ESPP purchases | 5 |  |  | 37 |
Taxes paid related to net share settlement of equity awards | (158) |  |  | — |
Net proceeds from sale of future royalties | 99,655 |  |  | — |
Net cash provided by financing activities | 100,118 |  |  | 37 |
Net change in cash and cash equivalents | 115,380 |  |  | (76,141) |
Cash and cash equivalents at beginning of period | 108,884 |  |  | 123,469 |
Cash and cash equivalents at end of period | $ | 224,264 |  |  | $ | 47,328 |
Supplemental Cash Flow Information |  |  |
Property, equipment and software included in accounts payable or accruals | $ | 177 |  |  | $ | 151 |

See notes to consolidated financial statements.
4

MACROGENICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Nature of Operations
Description of the business
MacroGenics, Inc. (the Company) is incorporated in the state of Delaware. The Company is a biopharmaceutical company focused on developing and commercializing innovative antibody-based therapeutics designed to modulate the human immune response for the treatment of cancer. The Company has a pipeline of product candidates being evaluated in clinical trials sponsored by MacroGenics or its collaborators. These product candidates include multiple oncology programs, some of which were created primarily using the Company’s proprietary, antibody-based technology platforms. The Company believes our product candidates have the potential, if approved for marketing by regulatory authorities, to have a meaningful effect on treating patients' unmet medical needs as monotherapy or, in some cases, in combination with other therapeutic agents. In March 2021, the Company and its commercialization partner commenced U.S. marketing of MARGENZA (margetuximab-cmkb), a human epidermal growth factor receptor 2 (HER2) receptor antagonist indicated, in combination with chemotherapy, for the treatment of adult patients with metastatic HER2-positive breast cancer who have received two or more prior anti-HER2 regimens, at least one of which was for metastatic disease.
Liquidity
The Company’s multiple product candidates currently under development will require significant additional research and development efforts that include extensive preclinical studies and clinical testing, and regulatory approval prior to commercial use.
The future success of the Company is dependent on its ability to identify and develop its product candidates, and ultimately upon its ability to attain profitable operations. The Company has devoted substantially all of its financial resources and efforts to research and development and general and administrative expense to support such research and development. Net losses and negative cash flows have had, and will continue to have, an adverse effect on the Company’s stockholders’ equity and working capital, and accordingly, its ability to execute its future operating plans.
As a biotechnology company, the Company has primarily funded its operations with proceeds from the sale of its common stock in equity offerings, revenue from its multiple collaboration agreements, and contracts from the National Institute of Allergy and Infectious Diseases (NIAID). Management regularly reviews the Company’s available liquidity relative to its operating budget and forecast to monitor the sufficiency of the Company’s working capital. The Company plans to meet its future operating requirements by generating revenue from current and future strategic collaborations or other arrangements, product sales and royalties. The Company anticipates continuing to draw upon available sources of capital, including equity and debt instruments, to support its product development activities. If the Company is unable to enter into new arrangements or to perform under current or future agreements or obtain additional capital, the Company will assess its capital resources and may be required to delay, reduce the scope of, or eliminate one or more of its product research and development programs or clinical studies, reduce other operating expenses, and/or downsize its organization. Based on the Company’s most recent cash flow forecast, the Company believes its current resources are sufficient to fund its operating plans for a minimum of twelve months from the date that this Quarterly Report on Form 10-Q was filed.
Similar to the other risk factors pertinent to the Company's business, geopolitical tensions, including the ongoing military conflict between Russia and Ukraine and the related sanctions imposed against Russia, and related global slowdown of economic activity, decades-high inflation, rising interest rates, adverse events involving financial institutions or the financial services industry and a potential recession in the United States might unfavorably impact the Company's ability to generate such additional funding. Given the uncertainty in the rapidly changing market and economic conditions related to these uncertainties, the Company will continue to evaluate the nature and extent of the impact of these uncertainties on its business and financial position.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. The financial statements include all adjustments (consisting only of normal recurring adjustments) that the management of the Company believes are necessary for a fair presentation of the periods presented. These interim financial results are not necessarily indicative of results expected for the full fiscal year or for any subsequent interim period.
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The accompanying unaudited interim consolidated financial statements include the accounts of MacroGenics, Inc. and its wholly owned subsidiaries, MacroGenics UK Limited and MacroGenics Limited. All intercompany accounts and transactions have been eliminated in consolidation. These consolidated financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company's 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 24, 2022.
2. Summary of Significant Accounting Policies
During the three months ended March 31, 2023, the Company adopted the following significant accounting policies in addition to those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Liability related to the sale of future royalties and related interest expense
The Company assesses the relevant accounting criteria under the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 470, Debt (ASC 470) to determine whether the upfront payment received from the purchaser should be accounted for as debt or deferred income depending on the facts and circumstances. If the criteria in ASC 470 is met, the Company accounts for net proceeds from sales of its rights to receive future royalty payments as a liability that is amortized using the effective interest method over the term of the arrangement. The liability related to future royalties is presented net of unamortized issuance costs on the consolidated balance sheets. Interest expense on the liability related to future royalties is recognized using the effective interest rate method over the life of the arrangement. The Company calculates an effective interest rate which will amortize its related obligation to zero over the anticipated repayment period. The liability related to future royalties and the related interest expense are based on the Company’s current estimates of future royalties expected to be received over the life of the arrangement, which the Company determines by using internal sales projections and external information from market data sources, which are considered Level 3 inputs. The Company periodically assesses the expected payments and to the extent the Company’s estimates of future royalty payments are greater or less than previous estimates or the estimated timing of such payments is materially different than previous estimates, the Company will adjust the effective interest rate and recognize related non-cash interest expense on a prospective basis. Non-cash amortization is reflected as interest expense in the consolidated statements of operations and comprehensive loss.
Recent Accounting Pronouncements
There were no new accounting pronouncements that were issued or became effective since the issuance of the Company’s 2022 Annual Report on Form 10-K that had, or are expected to have, a material impact on its consolidated financial position, results of operations or cash flows.
3. Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents, marketable securities, accounts receivable, accounts payable and accrued expenses. The carrying amount of accounts receivable, accounts payable and accrued expenses are generally considered to be representative of their respective fair values because of their short-term nature. The Company accounts for recurring and non-recurring fair value measurements in accordance with 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 fair value measurements. The ASC 820 hierarchy ranks the quality of reliability of inputs, or assumptions, used in the determination of fair value and requires assets and liabilities carried at fair 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 include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in inactive markets. Related inputs can also include those used in valuation or other pricing models, such as interest rates and yield curves that can be corroborated by observable market data.
•Level 3 - Fair value is determined by inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgments to be made by a reporting entity - e.g., determining an appropriate adjustment to a discount factor for illiquidity associated 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 at which to classify them each reporting period. This determination requires the Company to make subjective judgments as to the significance of inputs used in determining fair value and where such inputs lie within the ASC 820 hierarchy. There were no transfers between levels during the periods presented.
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Financial assets measured at fair value on a recurring basis were as follows (in thousands):

| Fair Value Measurements at March 31, 2023
| Total |  | Level 1 |  | Level 2
Assets: |  |  |  |  |
Money market funds | $ | 52,843 |  |  | $ | 52,843 |  |  | $ | — |
Government-sponsored enterprises | 28,879 |  |  | — |  |  | 28,879 |
Corporate debt securities | 11,187 |  |  | — |  |  | 11,187 |
Total assets measured at fair value(a) | $ | 92,909 |  |  | $ | 52,843 |  |  | $ | 40,066 |

| Fair Value Measurements at December 31, 2022
| Total |  | Level 1 |  | Level 2
Assets: |  |  |  |  |
Money market funds | $ | 41,564 |  |  | $ | 41,564 |  |  | $ | — |
Government-sponsored enterprises | 32,811 |  |  | — |  |  | 32,811 |
Corporate debt securities | 17,626 |  |  | — |  |  | 17,626 |
Total assets measured at fair value(b) | $ | 92,001 |  |  | $ | 41,564 |  |  | $ | 50,437 |

(a) Total assets measured at fair value at March 31, 2023 includes approximately $75.5 million reported in cash and cash equivalents on the consolidated balance sheet.
(b) Total assets measured at fair value at December 31, 2022 includes approximately $46.5 million reported in cash and cash equivalents on the consolidated balance sheet.
4. Marketable Securities
The following tables summarize the Company's marketable debt securities (in thousands):

| March 31, 2023 |  |  |  |  |  |  |  |  |  |
| Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value |  |  |  |  |  |  |  |  |  |
Government-sponsored enterprises | $ | 13,168 |  |  | $ | 8 |  |  | $ | — |  |  | $ | 13,176 |  |  |  |  |  |  |  |  |  |  |
Corporate debt securities | 4,216 |  |  | — |  |  | — |  |  | 4,216 |  |  |  |  |  |  |  |  |  |  |
Total | $ | 17,384 |  |  | $ | 8 |  |  | $ | — |  |  | $ | 17,392 |  |  |  |  |  |  |  |  |  |  |

| December 31, 2022
| Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value
Government-sponsored enterprises | $ | 32,812 |  |  | $ | 5 |  |  | $ | (7) |  |  | $ | 32,810 |
Corporate debt securities | 12,655 |  |  | 1 |  |  | (4) |  |  | 12,652 |
Total | $ | 45,467 |  |  | $ | 6 |  |  | $ | (11) |  |  | $ | 45,462 |

All available-for-sale marketable debt securities held as of March 31, 2023 and December 31, 2022 had contractual maturities of less than one year. All of the Company's available-for-sale marketable debt securities in an unrealized loss position as of December 31, 2022 were in a loss position for less than twelve months. Unrealized losses on available-for-sale debt securities as of December 31, 2022 were not significant and were primarily due to changes in interest rates, including market credit spreads, and not due to increased credit risks associated with specific securities. Accordingly, no allowance for credit losses related to the Company's available-for-sale debt securities was recorded for any periods presented. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.
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5. Inventory, Net
All of the Company's inventory relates to the manufacturing of MARGENZA. The following table sets forth the Company's net inventory (in thousands):

| March 31, 2023 |  | December 31, 2022
Work in process | $ | 206 |  |  | $ | 409 |
Finished goods | 1,203 |  |  | 1,042 |
Total inventory, net | $ | 1,409 |  |  | $ | 1,451 |

Prior to U.S. Food and Drug Administration (FDA) approval of MARGENZA in December 2020, the cost of materials and expenses associated with the manufacturing of MARGENZA were recorded as research and development expense. Subsequent to FDA approval, the Company began capitalizing inventory costs related to the manufacture of MARGENZA. The inventory balance as of March 31, 2023 and December 31, 2022 is net of a reserve of $4.9 million for unsaleable inventory. These reserves are reflected in cost of product sales during the period they are recorded.
6. Royalty Monetization Arrangement
On March 8, 2023, the Company entered into a Purchase and Sale Agreement (Royalty Purchase Agreement) with DRI Healthcare Acquisitions LP (DRI), a wholly owned subsidiary of DRI Healthcare Trust, for the sale to DRI of the Company’s single-digit royalty interest on global net sales of TZIELD (teplizumab-mzwv) (the DRI Transaction) under the Company’s Asset Purchase Agreement dated May 7, 2018, as amended (the Asset Purchase Agreement), with Provention Bio, Inc. (Provention). The Company retains its other economic interests related to TZIELD, including future potential development, regulatory, and commercial milestones.
Under the terms of the Royalty Purchase Agreement, the Company received $100.0 million from DRI for its single-digit royalty interest on global net sales of TZIELD under the Asset Purchase Agreement. The Company will have the right to receive a 50% share of the royalty on global net sales above a certain annual threshold. In addition, the Company may also receive up to $50.0 million from DRI upon the occurrence of pre-specified events tied to the advancement of TZIELD for the treatment of newly diagnosed type 1 diabetes. The Company may also receive an additional $50.0 million milestone from DRI if TZIELD achieves a certain level of net sales.
The $100.0 million proceeds received from DRI under the Royalty Purchase Agreement were recorded as a liability for future royalties, net of transaction costs of $0.3 million, which will be amortized over the term of the arrangement using the effective interest rate method. The Company accounted for the Royalty Purchase Agreement as a financing arrangement because the Company has significant continuing involvement in the delivery of future royalty payments to DRI and other existing obligations under the Asset Purchase Agreement. Royalty revenue will be recognized as earned on net sales of TZIELD, and the Company will record the royalty payments to DRI as a reduction of the liability when paid. The aggregate future estimated payments, less the $99.7 million of net proceeds, will be recorded as interest expense over the term of the arrangement. As such payments are made to DRI, the balance of the liability will be effectively repaid over the life of the Royalty Purchase Agreement. The Company will estimate the payments to be made to DRI over the term of the Royalty Purchase Agreement based on forecasted royalties and will calculate the effective interest rate required to discount such payments back to the liability balance. Over the course of the Royalty Purchase Agreement, the actual effective interest rate will be affected by the amount and timing of net royalty revenue recognized and changes in forecasted revenue. On a quarterly basis, the Company will reassess the effective interest rate and adjust the rate prospectively as necessary.
Changes to the liability related to future royalties were as follows for the three months ended March 31, 2023 (in thousands):

Liability related to future royalties - beginning balance |  | $ | — |
Proceeds from sale of future royalties |  | 100,000 |
Deferred transaction costs |  | (344) |
Non-cash royalty revenue payable to DRI |  | (90) |
Non-cash interest expense recognized |  | 656 |
Liability related to future royalties - ending balance |  | $ | 100,222 |

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7. Stockholders' Equity
In November 2020, the Company entered into a sales agreement (Sales Agreement) with an agent to sell, from time to time, shares of its common stock having an aggregate sales price of up to $100.0 million through an “at the market offering” (ATM Offering) as defined in Rule 415 under the Securities Act of 1933, as amended. The Company sold 3,622,186 shares of common stock resulting in net proceeds of approximately $98.2 million through December 31, 2021 under the Sales Agreement. In April 2021, the Company entered into Amendment No. 1 to the Sales Agreement which increased the amount of the Company’s common stock that can be sold by the Company through its agent under the ATM Offering, from an aggregate offering price of up to $100.0 million to an aggregate offering price of up to $300.0 million. In March 2023, the Company terminated the Sales Agreement and entered into a new sales agreement with an agent to sell, from time to time, shares of its common stock having an aggregate sales price of up to $100.0 million through an ATM Offering. During the three months ended March 31, 2023, the Company sold 95,000 shares of common stock at a weighted average price per share of $6.60, resulting in net proceeds of approximately $0.6 million, net of offering expenses.
8. Revenue
Collaborative and Other Agreements
Incyte Corporation
Incyte License Agreement
In 2017, the Company entered into an exclusive global collaboration and license agreement with Incyte Corporation (Incyte), which was amended in March 2018, April 2022 and July 2022, for retifanlimab, an investigational monoclonal antibody that inhibits programmed cell death protein 1 (PD-1) (Incyte License Agreement). Incyte has obtained exclusive worldwide rights for the development and commercialization of retifanlimab in all indications, while the Company retains the right to develop its pipeline assets in combination with retifanlimab. Under the terms of the Incyte License Agreement, Incyte paid the Company an upfront payment of $150.0 million in 2017. MacroGenics will manufacture a portion of Incyte’s global commercial supply of retifanlimab. In March 2023, the FDA approved Incyte's Biologics License Application (BLA) for ZYNYZ (retifanlimab-dlwr) for the treatment of adults with metastatic or recurrent locally advanced Merkel cell carcinoma. Incyte has stated it is pursuing development of retifanlimab in potentially registration-enabling studies, including in patients with squamous cell carcinoma of the anal canal, MSI-high endometrial cancer and non-small cell lung cancer. Incyte is also pursuing development of retifanlimab in combination with multiple product candidates from its pipeline.
Under the terms of the Incyte License Agreement, as amended, Incyte will lead global development of retifanlimab. Assuming successful development and commercialization by Incyte in multiple indications, the Company could receive up to a total of $435.0 million in development and regulatory milestones and up to $330.0 million in commercial milestones. From the inception of the Incyte License Agreement through March 31, 2023, the Company has recognized $115.0 million in development milestones under the Incyte License Agreement, including $15.0 million received following the FDA approval of ZYNYZ. The Company is also eligible to receive tiered royalties of 15% to 24% on global net sales. The Company retains the right to develop its pipeline assets in combination with retifanlimab, with Incyte commercializing retifanlimab and the Company commercializing its asset(s), if any such potential combinations are approved. In addition, the Company retains the right to manufacture a portion of both companies' global commercial supply needs of retifanlimab, subject to the separate commercial supply agreement.
The Company evaluated the Incyte License Agreement under the provisions of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606) at inception and identified the following two performance obligations under the agreement: (i) the license of retifanlimab and (ii) the performance of certain clinical activities through a brief technology transfer period. The Company determined that the license and clinical activities are separate performance obligations because they are capable of being distinct and are distinct in the context of the contract. The license has standalone functionality as it is sublicensable, Incyte has significant capabilities in performing clinical trials, and Incyte is capable of performing these activities without the Company's involvement; the Company performed the activities during the transfer period as a matter of convenience. The Company determined that the transaction price of the Incyte License Agreement at inception was $154.0 million, consisting of the consideration to which the Company was entitled in exchange for the license and an estimate of the consideration for clinical activities to be performed. The transaction price was allocated to each performance obligation based on their relative standalone selling price. The standalone selling price of the license was determined using the adjusted market assessment approach considering similar collaboration and license agreements. The
9

standalone selling price for the agreed-upon clinical activities to be performed was determined using the expected cost approach based on similar arrangements the Company has with other parties. The potential development and regulatory milestone payments are fully constrained until the Company concludes that achievement of the milestone is probable, and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods, and as such have been excluded from the transaction price. Any consideration related to sales-based milestones and royalties will be recognized when the related sales occur, as they were determined to relate predominantly to the license granted to Incyte and, therefore, have also been excluded from the transaction price. The Company re-assesses the transaction price in each reporting period and when events whose outcomes are resolved or other changes in circumstances occur. From 2018 through March 31, 2023, it became probable that a significant reversal of cumulative revenue would not occur for development milestones totaling $115.0 million related to clinical and regulatory activities related to the further advancement of retifanlimab. 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 to Incyte in 2017. The $4.0 million allocated to the clinical activities was recognized ratably as services were performed during 2017 and 2018. The Company recognized the $15.0 million ZYNYZ approval milestone as revenue under the Incyte License Agreement during the three months ended March 31, 2023. During the three months ended March 31, 2022, no revenue was recognized under the Incyte License Agreement.
Incyte Clinical Supply Agreement
In 2018, the Company entered into an agreement with Incyte, under which the Company is to perform development and manufacturing services for Incyte’s clinical needs of retifanlimab (Incyte Clinical Supply Agreement). The Company evaluated the Incyte Clinical Supply Agreement under ASC 606 and identified one performance obligation under the agreement: to perform services related to the development and manufacturing of the clinical supply of retifanlimab. The transaction price is based on the costs incurred to develop and manufacture drug product and drug substance, and is recognized over time as the services are provided, as the performance by the Company does not create an asset with an alternative use and the Company has an enforceable right to payment for the performance completed to date. The transaction price is being recognized using the input method reflecting the costs incurred (including resources consumed and labor hours expended) related to the manufacturing services. During the three months ended March 31, 2023 and 2022, the Company recognized revenue of $1.3 million and $0.3 million, respectively, for services performed under the Incyte Clinical Supply Agreement.
Gilead Sciences, Inc
In October 2022, the Company and Gilead Sciences, Inc. (Gilead) entered into an exclusive option and collaboration agreement (Gilead Agreement) to develop and commercialize MGD024, an investigational, bispecific antibody that binds CD123 and CD3, and create bispecific cancer antibodies using the Company’s DART platform and undertake their early development under a maximum of two separate bispecific cancer target research programs. Under the agreement, the Company will continue the ongoing phase 1 trial for MGD024 accordi ng to a development plan, during which Gilead will have the right to exercise an option granted to Gilead to obtain an exclusive license under the Company’s intellectual property to develop and commercialize MGD024 and other bispecific antibodies of MacroGenics that bind CD123 and CD3 (CD123 Option). The agreement also grants Gilead the right, within its first two years, to nominate a bispecific cancer target set for up to two research programs conducted by the Company and to exercise separate options to obtain an exclusive license for the development, commercialization and exploitation of molecules created under each research program (Research Program Option).
Under the terms of the Gilead Agreement, in October 2022 Gilead paid the Company an upfront payment of $60.0 million. Assuming Gilead exercises the CD123 Option and Research Program Option and successfully develops and commercializes MGD024, or other CD123 products developed under the agreement, and products result from the two additional research programs, the Company would be eligible to receive up to $1.7 billion in target nomination, option fees, and development, regulatory and commercial milestones. Assuming exercise of the CD123 Option, the Company will also be eligible to receive tiered, low double-digit royalties on worldwide net sales of MGD024 (or other CD123 products developed under the agreement) and assuming exercise of the Research Program Option, a flat royalty on worldwide net sales of any products resulting from the two research programs.
The Company evaluated the Gilead Agreement under the provisions of ASC 606 and identified the following material promises under the agreement: (i) a license to perform any activities allocated to Gilead under the MGD024 development plan; (ii) development activities regarding MGD024, including manufacturing, research and early clinical development activities, necessary to deliver an informational package of development and clinical data, information and materials specified in the Gilead Agreement during the period in which Gilead can exercise the CD123 Option; (iii) the CD123 Option and (iv) the Research Program Option.
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The Company concluded that the license under the MGD024 developme nt plan and development activities are not distinct from one another, as the license has limited value without the Company’s performance of the development activities. Therefore, the Company determined that the development term license and development activities should be combined into a single performance obligation (Development Activities). The CD123 Option is considered a material right as the value of the exclusive license exceeds the payment to be made by Gilead if they exercise their option to obtain an exclusive license to develop and commercialize MGD024 or an alternative CD123 product, and is therefore a distinct performance obligation. The Company determined that the Research Program Option does not provide a material right, as there is no discount on its standalone selling price.
In accordance with ASC 606, the Company determined that the initial transaction price under the Gilead Agreement was $60.0 million, consisting of the upfront, non-refundable payment paid by Gilead. The CD123 Option and Research Program Option payments are excluded from the initial transaction price at contract inception along with any future development, regulatory, and commercial milestone payments (including royalties) following the CD123 Option and Research Program Option exercise. The Company will reassess the amount of variable consideration included in the transaction price every reporting period. The Company allocated the $60.0 million upfront payment in the transaction price to the Development Activities and the CD123 Option based on each performance obligation’s relative standalone selling price. The standalone selling price for the Development Activities was calculated using an expected cost-plus margin approach for the pre-option development timeline. For the standalone selling price of the CD123 Option, the Company utilized an income-based approach which included the following key assumptions: post-option development timeline and costs, forecasted revenues, discount rates and probabilities of technical and regulatory success.
The Company is recognizing revenue related to the Development Activities performance obligation over the estimated period to complete the Development Activities using an input method reflecting the costs incurred (including resources consumed and labor hours expended) related to the Development Activities. The Company will defer revenue recognition related to the CD123 Option. If Gilead exercises the CD123 Option and obtains an exclusive license, the Company will recognize revenue as it fulfills its obligations under the Gilead Agreement. If the CD123 Option is not exercised, the Company will recognize the entirety of the revenue in the period when the CD123 Option expires.
During the three months ended March 31, 2023, the Company recorded revenue of $0.4 million related to the Gilead Agreement. As of March 31, 2023, $59.5 million in revenue was deferred under this agreement, $2.1 million of which was current and $57.4 million of which was non-current. As of December 31, 2022, $59.8 million in revenue was deferred under this agreement, $1.8 million of which was current and $58.0 million of which was non-current.
Zai Lab Limited
2018 Zai Lab Agreement
In 2018, the Company entered into a collaboration and license agreement with Zai Lab Limited (Zai Lab) under which Zai Lab obtained regional development and commercialization rights in mainland China, Hong Kong, Macau and Taiwan (Zai Lab’s territory) for (i) margetuximab, an immune-optimized anti-HER2 monoclonal antibody, (ii) tebotelimab, a bispecific DART® molecule designed to provide coordinate blockade of PD-1 and LAG-3 for the potential treatment of a range of solid tumors and hematological malignancies, and (iii) an undisclosed multi-specific TRIDENT molecule in preclinical development (2018 Zai Lab Agreement). Zai Lab will lead clinical development of these molecules in its territory. Zai Lab has informed the Company that they have decided to discontinue development of tebotelimab for indications they were enrolling in their territory and is evaluating future development plans in other indications.
Under the terms of the 2018 Zai Lab Agreement, Zai Lab paid the Company an upfront payment of $25.0 million ($22.5 million after netting value-added tax withholdings of $2.5 million). Assuming successful development and commercialization of margetuximab, tebotelimab and the TRIDENT molecule, the Company could receive up to $140.0 million in development and regulatory milestones, of which the Company has earned $9.0 million through March 31, 2023. In addition, Zai Lab would pay the Company tiered royalties at percentage rates of mid-teens to 20% for net sales of margetuximab in Zai Lab’s territory, mid-teens for net sales of tebotelimab in Zai Lab’s territory and 10% for net sales of the TRIDENT molecule in Zai Lab’s territory, which may be subject to adjustment in specified circumstances.
The Company evaluated the 2018 Zai Lab Agreement under the provisions of ASC 606 and identified the following material promises under the arrangement for each of the two product candidates, margetuximab and tebotelimab: (i) an exclusive license to develop and commercialize the product candidate in Zai Lab’s territory and (ii) certain research and development activities. The Company determined that each license and the related research and development activities were not distinct from one another, as the license has limited value without the performance of the research and development activities.
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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 tebotelimab are separate performance obligations from each other because they are capable of being distinct, and are distinct in the context of the contract. The Company evaluated the promises related to the TRIDENT molecule and determined they were immaterial in context of the contract, therefore there is no performance obligation related to that molecule. The Company determined that the net $22.5 million upfront payment from Zai Lab constituted the entirety of the consideration to be included in the transaction price as of the outset of the arrangement, and the transaction price was allocated to the two performance obligations based on their relative standalone selling price. The standalone selling price of the performance obligations was determined using the adjusted market assessment approach considering similar collaboration and license agreements. The potential development and regulatory milestone payments are fully constrained until the Company concludes that achievement of the milestone is probable, and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods, and as such have been excluded from the transaction price. Any consideration related to royalties will be recognized if and when the related sales occur, as they were determined to relate predominantly to the license granted to Zai Lab and, therefore, have also been excluded from the transaction price.
The Company re-assesses the transaction price in each reporting period and when events whose outcomes are resolved or other changes in circumstances occur. From 2020 through March 31, 2023, it became probable that a significant reversal of cumulative revenue would not occur for development and regulatory milestones totaling $9.0 million. Therefore, the associated consideration, $8.1 million net of value-added tax withholdings, was added to the estimated transaction price and was recognized as revenue. D uring the three months ended March 31, 2023, no revenue was recognized, and during the three months ended March 31, 2022, $5.0 million in revenue was recognized under the 2018 Zai Lab Agreement.
2021 Zai Lab Agreement
In June 2021, the Company entered into a collaboration and license agreement with Zai Lab US LLC (collectively with Zai Lab Limited referred herein as Zai Lab) involving collaboration programs and license-only programs (collectively, the Programs) encompassing four separate immuno-oncology molecules (2021 Zai Lab Agreement). The first program covers a lead research molecule that incorporates the Company’s DART platform and binds CD3 and an undisclosed target that is expressed in multiple solid tumors (Lead Program). The second program covers a target to be designated by the Company. For these programs, Zai Lab receives commercial rights in Greater China, Japan, and Korea while the Company receives commercial rights in all other territories. Zai Lab also obtained exclusive, global licenses from the Company to develop, manufacture and commercialize two additional molecules. Zai Lab granted the Company a worldwide, royalty-free, co-exclusive license to conduct the development activities allocated to the Company. In August 2022, the Company and Zai Lab agreed to discontinue research and development of the Lead Program.
Under the terms of the 2021 Zai Lab Agreement, the Lead Program included joint research and development services by both the Company and Zai Lab. For the other programs, Zai Lab can separately negotiate and agree with the Company to perform research and development services in the future.
In connection with the execution of the 2021 Zai Lab Agreement, Zai Lab paid the Company an upfront payment of $25.0 million. Additionally, as part of the consideration for the rights granted to Zai Lab under the 2021 Zai Lab Agreement, the Company and Zai Lab entered into a stock purchase agreement whereby Zai Lab paid the Company approximately $30.0 million to purchase shares of the Company’s common stock, par value $0.01, at a fixed price of $31.30 which represented a $10.4 million premium over the share price on the stock purchase agreement date.
Assuming successful development and commercialization of the remaining Programs, the Company could receive up to approximately $680.0 million in development and regulatory milestones and $600.0 million in commercial milestones. In addition, Zai Lab would pay the Company tiered royalties at percentage rates of mid-single digits to low double digit teens on annual net sales of products in Zai Lab’s territory, which may be subject to specified royalty reduction pursuant to the 2021 Zai Lab Agreement. Per the terms of the 2021 Zai Lab Agreement, the Company may also receive reimbursements from Zai Lab for certain research and development costs incurred by the Company.
The Company evaluated the 2021 Zai Lab Agreement under the provisions of ASC 606 and identified the following material promises: (i) exclusive licenses to develop, manufacture and commercialize the products in Zai Lab’s territory for each Program and (ii) certain research and development activities for the Lead Program. The Company determined that for the Lead Program, the license is not distinct from the related research and development activities, considering the early stage of development of the molecule and the Company’s significant expertise in this area and as such, the research and development services are expected to significantly modify and customize the license. Therefore, for the Lead Program, the license and the services were combined into a single performance obligation. Since the other programs each represent distinct intellectual property and there are no other services included in the 2021 Zai Lab Agreement related to these licenses, each license is
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considered to be a distinct performance obligation. As such, there are four performance obligations included in the 2021 Zai Lab Agreement.
The Company concluded that the estimated transaction price is $40.4 million, consisting of the $25.0 million upfront payment, the $10.4 million premium related to the purchase of the Company’s common stock, and the $5.0 million estimated reimbursement by Zai Lab for research and development activities for the Lead Program. The potential milestone payments were deemed to be fully constrained until the Company concludes that achievement of the milestone is probable, and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods, and as such have been excluded from the transaction price. Any consideration related to royalties will be recognized if and when the related sales occur, as they were determined to relate predominantly to the license granted to Zai Lab and, therefore, have also been excluded from the transaction price. The Company will re-assess the transaction price in each reporting period and when events whose outcomes are resolved or other changes in circumstances occur.
The transaction price of $40.4 million was then allocated to the four performance obligations based on their relative standalone selling price. The standalone selling price of the performance obligations was not directly observable; therefore, the Company estimated the standalone selling price using an adjusted market assessment approach, representing the amount that the Company believes a market participant is willing to pay for the product or service. The estimate was based on consideration of observable inputs, such as values of other preclinical collaboration arrangements adjusted for the Company’s estimate of the probability of success for each Program.
Revenue related to the Lead Program license and related research and development services performance obligation was recognized over time as the research and development activities were performed. The Company utilized a cost-based input method according to costs incurred to date compared to estimated total costs. The transfer of control occurs over this time period and, in management’s judgment, is the best measure of progress towards satisfying the performance obligations. The Company recognized revenue allocated to the other programs at a point in time upon transfer of the licenses to Zai Lab in 2021. During the three months ended March 31, 2023 the Company recognized no revenue under the 2021 Zai Lab Agreement, and the Company recognized revenue of $0.3 million during the three months ended March 31, 2022 under the 2021 Zai Lab Agreement.
Provention Bio, Inc.
In 2018, the Company entered into a license agreement with Provention pursuant to which the Company granted Provention exclusive global rights for the purpose of developing and commercializing MGD010 (renamed PRV-3279), a CD32B x CD79B DART molecule being developed for the treatment of autoimmune indications (Provention License Agreement). As partial consideration for the Provention License Agreement, Provention granted the Company a warrant to purchase shares of Provention’s common stock at an exercise price of $2.50 per share. If Provention successfully develops, obtains regulatory approval for, and commercializes PRV-3279, the Company will be eligible to receive up to $65.0 million in development and regulatory milestones and up to $225.0 million in commercial milestones. As of March 31, 2023, the Company has not recognized any milestone revenue under this agreement. If commercialized, the Company would be eligible to receive single-digit royalties on net sales of the product. The license agreement may be terminated by either party upon a material breach or bankruptcy of the other party, by Provention without cause upon prior notice to the Company, and by the Company in the event that Provention challenges the validity of any licensed patent under the agreement, but only with respect to the challenged patent.
Also, in 2018, the Company entered into the Asset Purchase Agreement with Provention pursuant to which Provention acquired the Company’s interest in teplizumab (renamed PRV-031), a monoclonal antibody being developed for the treatment of type 1 diabetes. As partial consideration for the Asset Purchase Agreement, Provention granted the Company a warrant to purchase shares of Provention’s common stock at an exercise price of $2.50 per share. Under the Asset Purchase Agreement, Provention is obligated to pay the Company contingent milestone payments totaling $170.0 million upon the achievement of certain regulatory milestones. In addition, Provention is obligated to make contingent milestone payments to the Company totaling $225.0 million upon the achievement of certain commercial milestones as well as single-digit royalties on net sales of the product. In March 2023, the Company entered into a Royalty Purchase Agreement with DRI; see Note 6, Liability Related to Future Royalties, for additional information. The FDA approved the BLA for TZIELD (teplizumab-mzwv) in November 2022, and the Company recognized $60.0 million in revenue related to this regulatory milestone during the year ended December 31, 2022. In November 2022, the Company and Provention amended the Asset Purchase Agreement. Under this amendment, the milestone for first approval was split into four equal payments, the first two of which were received prior to March 31, 2023. 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 million and other consideration, for certain third-party intellectual property under agreements Provention assumed pursuant to
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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 a future 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 that they should be accounted for as a single contract and identified two performance obligations within that contract: (i) the license of MGD010 and (ii) the title to teplizumab. The Company determined that the transaction price of the Provention agreements was $6.1 million, based on the Black-Scholes valuation of the warrants to purchase a total of 2,432,688 shares of Provention's common stock. The transaction price was allocated to each performance obligation based on the number of shares of common stock the Company is entitled to purchase under each warrant. The potential development and regulatory milestone payments are fully constrained until the Company concludes that achievement of the milestone is probable and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods, and as such were excluded from the initial transaction price. Any consideration related to sales-based milestones and royalties will be recognized when the related sales occur, therefore they have also been excluded from the transaction price. The Company re-assesses the transaction price in each reporting period and when events whose outcomes are resolved or other changes in circumstances occur. The Company recognized revenue of $6.1 million when it satisfied its performance obligations under the agreements and transferred the MGD010 license and teplizumab assets to Provention in 2018. In 2019, the Company exercised the warrants on a cashless basis, and subsequently sold all the shares of Provention common stock acquired through the exercise. No shares of Provention stock were held subsequent to the sale of stock in 2019. During the year ended December 31, 2022, it became probable that a significant reversal of cumulative revenue would not occur for a regulatory milestone of $60.0 million, t herefore the associated consideration was added to the estimated transaction price and was recognized as revenue. During the three months ended March 31, 2023, the Company recognized $0.4 million in royalty revenue under these agreements based on the sales of TZIELD, and no revenue under these agreements during the three months ended March 31, 2022. As of March 31, 2023, Provention owed the Company $30.0 million related to the achieved milestone, which is included in accounts receivable on the consolidated balance sheet. This receivable was due to be paid on June 1, 2023 and September 1, 2023 under the amended Asset Purchase Agreement. Provention was acquired by Sanofi in April 2023. Sanofi accelerated the payment schedule and paid the Company the balance due subsequent to March 31, 2023.
I-Mab Biopharma
I-Mab License Agreement
In 2019, the Company entered into a collaboration and license agreement with I-Mab Biopharma (I-Mab) to develop and commercialize enoblituzumab, an immune-optimized, anti-B7-H3 monoclonal antibody that incorporates the Company's proprietary Fc Optimization technology platform (I-Mab License Agreement). I-Mab obtained regional development and commercialization rights in mainland China, Hong Kong, Macau and Taiwan (I-Mab's territory), will lead clinical development of enoblituzumab in its territories, and will participate in global studies conducted by the Company. In August 2022, I-Mab notified the Company of its intention to terminate the I-Mab License Agreement effective February 25, 2023.
Under the terms of the I-Mab License Agreement, I-Mab paid the Company an upfront payment of $15.0 million, and $5.0 million of milestone revenue has been earned from the inception of the I-Mab License Agreement through March 31, 2023.
The Company evaluated the I-Mab License Agreement under the provisions of ASC 606 and identified the following material promises under the arrangement: (i) an exclusive license to develop and commercialize enoblituzumab in I-Mab’s territories, (ii) perform certain research and development activities and (iii) conduct a chronic toxicology study. The Company determined that the license and the related research and development activities were not distinct from one another, as the license has limited value without the performance of the research and development activities. As such, the Company determined that the license and related research and development activities should be combined into a single performance obligation. The Company determined that the $15.0 million upfront payment from I-Mab constituted the entirety of the consideration to be included in the transaction price as of the outset of the arrangement for the license and related research and development activities. The Company has also determined that the chronic toxicology study is distinct from the other promises and has estimated the variable consideration of that performance obligation to be approximately $1.0 million. I-Mab paid the Company for the cost of this study as the costs were incurred and I-Mab received a one-time credit of eighty percent of the total amount of such costs against the milestone achieved during 2021. The Company reassessed the transaction price as it became probable that a significant reversal of cumulative revenue would not occur for a $5.0 million milestone ($4.5 million after netting a one-time credit as described above) related to development progress of enoblituzumab, therefore the associated consideration was added to the estimated transaction price and was recognized as revenue during 2021.
Revenue under the I-Mab License Agreement was recognized using a cost-based input method according to costs incurred to date compared to estimated total costs. The transfer of control occurs over this time period and, in management’s
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judgment, was the best measure of progress towards satisfying the performance obligations. During the three months ended March 31, 2023 the Company recognized no revenue under the I-Mab License Agreement, and during the three months ended March 31, 2022 the Company recognized revenue of $0.2 million under the I-Mab License Agreement.
I-Mab Clinical Supply Agreement
In October 2021, the Company entered into an agreement under which the Company is to perform development and manufacturing services for I-Mab’s clinical needs of enoblituzumab (I-Mab Clinical Supply Agreement). The Company evaluated this agreement under ASC 606 and identified one performance obligation under the agreement: to perform services related to the development and manufacturing of the clinical supply of enoblituzumab. The transaction price is based on the costs incurred to develop and manufacture drug product and drug substance, and is recognized over time as the services are provided, as the performance by the Company does not create an asset with an alternative use and the Company has an enforceable right to payment for the performance completed to date. The transaction price will be recognized using the input method reflecting the costs incurred (including resources consumed and labor hours expended) related to the manufacturing services. During the three months ended March 31, 2023, the Company recognized no revenue for research and development activities performed under the I-Mab Clinical Supply Agreement. During the three months ended March 31, 2022, the Company recognized $0.9 million under the agreement.
Manufacturing Services Agreement
Incyte
In January 2022, the Company entered into a Manufacturing and Clinical Supply Agreement with Incyte (Incyte Manufacturing and Clinical Supply Agreement) to provide manufacturing services to produce certain Incyte bulk drug substance over a three-year period at one of the Company’s manufacturing facilities. Under the terms of the Incyte Manufacturing and Clinical Supply Agreement, the Company received an upfront payment of $10.0 million and is eligible to receive annual fixed payments paid quarterly over the term of the contract totaling $14.4 million. The Company will also be reimbursed for materials used to manufacture product as well as other costs incurred to provide manufacturing services. In July 2022, the Company and Incyte executed an amendment to the Incyte Manufacturing and Clinical Supply Agreement which extended the term for one year and provided for an additional annual fixed payment of $5.1 million (July 2022 Incyte Amendment).
The Company evaluated the Incyte Manufacturing and Clinical Supply Agreement and the July 2022 Incyte Amendment under the provisions of ASC 606 and identified one performance obligation to provide manufacturing runs to Incyte, as and when requested by Incyte, over the term of the contract that is part of a series of goods and services. The Company determined that the transaction price consists of the upfront payment received of $10.0 million and the annual fixed payments totaling $19.5 million. The Company will recognize revenue over time on a straight-line basis as the manufacturing services are provided to Incyte, as the Company determined that its efforts in providing the manufacturing services will be incurred evenly throughout the performance period and therefore straight-line revenue recognition closely approximates the level of effort for the manufacturing services. Variable consideration relating to the reimbursed materials and other reimbursed costs incurred to manufacture product for Incyte will be allocated to the related manufacturing activities and will be recognized as revenue as those activities occur. Materials purchased by the Company to manufacture the product for Incyte are considered costs to fulfill a contract and will be capitalized and expensed as the materials are used to provide the manufacturing services.
The Company recognized revenue of $3.6 million under the Incyte Manufacturing and Clinical Supply Agreement during the three months ended March 31, 2023, and no revenue during the three months ended March 31, 2022. As of March 31, 2023, $7.8 million in revenue was deferred under this agreement, $7.1 million of which was current and $0.7 million of which was non-current.
Government Agreement
NIAID Contract
The Company entered into a contract with National Institute of Allergy and Infectious Diseases (NIAID), effective as of September 15, 2015, to perform product development and to advance up to two DART molecules, MGD014 and MGD020 (NIAID Contract). Under the NIAID Contract, the Company will develop these product candidates for Phase 1/2 clinical trials as therapeutic agents, in combination with latency reversing treatments, to deplete cells infected with human immunodeficiency virus (HIV) infection. NIAID does not receive goods or services from the Company under this contract, therefore the Company does not consider NIAID to be a customer and concluded this contract is outside the scope of ASC 606.
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Since the inception of the NIAID Contract, NIAID has exercised the two options contemplated in the original contract and executed modifications such that the total funded contract value as of March 31, 2023 is $25.1 million. In addition, the most recent modification changed the period of performance under the NIAID Contract to end in July 2023. During the three months ended March 31, 2023 and 2022, the Company recognized revenue under the NIAID Contract of $0.3 million and $0.4 million, respectively.
9. Stock-Based Compensation
Employee Stock Purchase Plan
In May 2017, the Company’s stockholders approved the 2016 Employee Stock Purchase Plan (the 2016 ESPP). The 2016 ESPP is structured as a qualified employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended (IRC), and is not subject to the provisions of the Employee Retirement Income Security Act of 1974. The Company reserved 800,000 shares of common stock for issuance under the 2016 ESPP. The 2016 ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 10% of their eligible compensation, subject to any plan limitations. The 2016 ESPP provides for six-month offering periods ending on May 31 and November 30 of each year. At the end of each offering period, employees are able to purchase shares at 85% of the fair market value of the Company’s common stock on the last day of the offering period. During the three months ended March 31, 2023, no shares of common stock were purchased under the 2016 ESPP.
Employee Stock Incentive Plans
Effective February 2003, the Company implemented the 2003 Equity Incentive Plan (2003 Plan), and it was amended and approved by the Company's stockholders in 2005. Stock options granted under the 2003 Plan may be either incentive stock options as defined by the 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 common stock subject to awards under the 2003 Plan that expire, terminate, or are otherwise surrendered, canceled, forfeited or repurchased without having been fully exercised, or resulting in any common stock being issued, will become available for issuance under the 2013 Equity Incentive Plan (2013 Plan), up to a specified number of shares. As of March 31, 2023, under the 2003 Plan, there were options to purchase an aggregate of 61,572 shares of common stock outstanding.
In October 2013, the Company implemented the 2013 Plan. The 2013 Plan provides for the grant of stock options and other stock-based awards, as well as cash-based performance awards. The number of shares of common stock reserved for issuance under the 2013 Plan will automatically increase on January 1 of each year from January 1, 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 on December 31 of the preceding calendar year, or (c) the number of shares of common stock determined by the Company's Board of Directors. During the three months ended March 31, 2023, the maximum number of shares of common stock authorized to be issued by the Company under the 2013 Plan was increased to 15,816,949. 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 award terminates, 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 the grant 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 not available for the grant of additional awards. As of March 31, 2023, there were options to purchase an aggregate of 12,778,040 shares of common stock outstanding.
The following stock-based compensation expense was recognized for the periods indicated (in thousands):

|  |  | Three Months Ended March 31,
|  |  |  |  | 2023 |  | 2022
Research and development |  |  |  |  | $ | 2,461 |  |  | $ | 2,392 |
Selling, general and administrative |  |  |  |  | 2,372 |  |  | 2,882 |
Total stock-based compensation expense |  |  |  |  | $ | 4,833 |  |  | $ | 5,274 |

Employee stock options
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model using the assumptions in the following table for options issued during the period indicated:
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| Three Months Ended March 31,
| 2023 |  | 2022
Expected dividend yield | 0% |  | 0%
Expected volatility | 92.6% -94.3% |  | 87.9% - 88.3%
Risk-free interest rate | 3.6% - 4.2% |  | 1.5% - 2.4%
Expected term | 5.88 years |  | 5.95 years

The following table summarizes stock option activity during the three months ended March 31, 2023:

| Shares |  | Weighted- Average Exercise Price |  | Weighted-Average Remaining Contractual Term (Years) |  | Aggregate Intrinsic Value (in thousands)
Outstanding, December 31, 2022 | 10,098,929 |  |  | $ | 18.58 |  |  | 6.5 |  |
Granted | 2,914,405 |  |  | 4.89 |  |  |  |  |
Exercised | (3,531) |  |  | 1.51 |  |  |  |  |
Forfeited | (87,556) |  |  | 11.46 |  |  |  |  |
Expired | (82,635) |  |  | 22.01 |  |  |  |  |
Outstanding, March 31, 2023 | 12,839,612 |  |  | $ | 15.50 |  |  | 7.1 |  | $ | 7,827 |
As of March 31, 2023: |  |  |  |  |  |  |
Exercisable | 7,048,779 |  |  | $ | 20.90 |  |  | 5.4 |  | 660 |
Vested and expected to vest | 11,763,189 |  |  | $ | 16.03 |  |  | 6.9 |  | 6,669 |

The weighted-average grant-date fair value of options granted during the three months ended March 31, 2023 and 2022 was $3.77 and $7.48, respectively. The total intrinsic value of options exercised during the three months ended March 31, 2023 was de minimis and the total intrinsic value of options exercised during the three months ended 2022 was approximately $0.3 million. The total cash received for options exercised during the three months ended March 31, 2023 and 2022 was de minimis. The total fair value of shares vested in the three months ended March 31, 2023 and 2022 was approximately $0.6 million and $5.4 million, respectively. As of March 31, 2023, the total unrecognized compensation expense related to unvested stock options, net of related forfeiture estimates, was approximately $29.2 million, which the Company expects to recognize over a weighted-average period of approximately 1.5 years.
Restricted Stock Units
The Company awards restricted stock units (RSUs) to employees. RSUs are valued based on the closing price of the Company’s common stock on the date of the grant. The fair value of RSUs is recognized and amortized on a straight-line basis over the requisite service period of the award.
The following table summarizes RSU activity during the three months ended March 31, 2023:

| Shares |  | Weighted-Average Grant Date Fair Value
Outstanding, December 31, 2022 | 415,084 |  |  | $ | 8.83 |
Granted | 656,135 |  |  | 4.82 |
Vested | (62,751) |  |  | 10.31 |
Forfeited | (27,657) |  |  | 6.94 |
Outstanding, March 31, 2023 | 980,811 |  |  | 6.11 |

At March 31, 2023, there was $4.9 million of total unrecognized compensation cost related to unvested RSUs, which the Company expects to recognize over a remaining weighted-average period of approximately 1.6 years.
10. Commitments and Contingencies
In-licensing arrangement
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In January 2022, the Company entered into a non-exclusive license agreement with Synaffix B.V. (Synaffix) to develop, manufacture and commercialize up to three antibody-drug conjugate targets using Synaffix’s proprietary technology. The Company made an upfront payment to Synaffix upon contract execution. In March 2023, the Company and Synaffix amended the agreement, adding four additional targets. Assuming all seven targets are successfully developed and commercialized, the Company would be obligated to pay up to $2.8 billion for development, regulatory and sales milestones. Finally, pursuant to the terms of this license agreement, as amended, upon commencement of commercial sales of any products developed from these targets, the Company would be required to pay Synaffix tiered royalties in the low‑single digit percentages on net sales of the respective products. The Company may terminate this agreement at any time with 30 days’ notice to Synaffix. Amounts paid to Synaffix under this agreement are recorded as research and development expense in the consolidated statement of operations. The Company incurred $1.5 million and $1.0 million under this agreement during the three months ended March 31, 2023 and 2022, respectively.
Securities Litigation
On September 13, 2019, a securities class action complaint was filed in the U.S. District Court for the District of Maryland (District Court) by Todd Hill naming the Company, its Chief Executive Officer, Dr. Koenig, and its Chief Financial Officer, Mr. Karrels, as defendants for allegedly making false and materially misleading statements regarding the Company’s SOPHIA trial. On August 17, 2020, the Employees’ Retirement System of the City of Baton Rouge and Parish of East Baton Rouge was appointed as Lead Plaintiff, and on October 16, 2020, the Lead Plaintiff filed an amended complaint. The amended complaint asserted a putative class period stemming from February 6, 2019 to June 4, 2019. The Company filed a Motion to Dismiss on November 30, 2020. On September 29, 2021, the District Court issued an Order dismissing the case, with prejudice. On October 28, 2021 the Lead Plaintiff filed a Notice of Appeal in the Fourth Circuit. The Company did not accrue any liability associated with this action as of December 31, 2022. The 4th Circuit affirmed the District Court’s dismissal in a decision published on March 2, 2023.
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ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations is based upon our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q, which have been prepared by us in accordance with U.S. generally accepted accounting principles (GAAP), for interim periods and with Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended. This discussion and analysis should be read in conjunction with these unaudited consolidated financial statements and the notes thereto as well as in conjunction with our audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022.
Overview
We are a biopharmaceutical company focused on developing and commercializing innovative antibody-based therapeutics for the treatment of cancer. We have a pipeline of product candidates being evaluated in clinical trials sponsored by us or our collaborators in addition to several molecules in preclinical development. Our clinical product candidates include multiple oncology programs, many of which were created using our proprietary, antibody-based technology platforms. We believe our product candidates have the potential, if approved for marketing by regulatory authorities, to have a meaningful effect on treating patients' unmet medical needs as monotherapy or, in some cases, in combination with other therapeutic agents. To date, three products originating from our pipeline of proprietary or partnered product candidates have received U,S. Food and Drug Administration (FDA) approval. In March 2021, we and our commercialization partner commenced U.S. marketing of MARGENZA (margetuximab-cmkb), a human epidermal growth factor receptor 2 (HER2) receptor antagonist indicated, in combination with chemotherapy, for the treatment of adult patients with metastatic HER2-positive breast cancer who have received two or more prior anti-HER2 regimens, at least one of which was for metastatic disease. In November 2022, the FDA approved TZIELD™ (teplizumab-mzwv) to delay the onset of Stage 3 Type 1 Diabetes (T1D) in adult and pediatric patients aged 8 years and older with Stage 2 T1D. Teplizumab was acquired from us by Provention Bio, Inc. (Provention) in 2018, pursuant to an asset purchase agreement. In March 2023, the FDA approved ZYNYZ™ (retifanlimab-dlwr), a humanized monoclonal antibody targeting programmed death receptor-1 (PD-1). Retifanlimab was previously developed by us and licensed to Incyte Corporation (Incyte) pursuant to an exclusive global collaboration and license agreement in October 2017.
Our operations to date have concentrated on staffing our company, developing our technology platforms, identifying potential product candidates, undertaking preclinical studies, conducting clinical trials, developing collaborations, business planning and raising capital. We only began generating revenues from the sale of products in 2021. We have financed our operations primarily through 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, we anticipate that our cash, cash equivalents and marketable securities as of March 31, 2023, combined with anticipated and potential collaboration payments, product revenues and royalties, should enable us to fund our operations through 2025. Our expected funding requirements reflect anticipated expenditures related to the Phase 2 TAMARACK clinical trial of vobramitamab duocarmazine (vobra duo) in metastatic castration-resistant prostate cancer (mCRPC), our planned Phase 2 study of lorigerlimab in mCRPC as well as our other clinical and preclinical studies currently ongoing.
Through March 31, 2023, we had an accumulated deficit of $1.1 billion. We expect that over the next several years this deficit will increase as we continue to incur research and development expense in connection with our ongoing activities and several clinical studies.
Macroeconomic Conditions
The global economy, credit markets and financial markets have and may continue to experience significant volatility as a result of significant worldwide events, including adverse events involving financial institutions or the financial services industry, inflation and rising interest rates and geopolitical upheaval, such as Russia’s incursion into Ukraine (collectively, the Macroeconomic Conditions). These Macroeconomic Conditions have and may continue to create supply chain disruptions, inventory disruptions, and fluctuations in economic growth, including fluctuations in employment rates, inflation, energy prices and consumer sentiment. It remains difficult to assess or predict the ultimate duration and economic impact of the Macroeconomic Conditions. Prolonged uncertainty with respect to Macroeconomic Conditions could cause further economic slowdown or cause other unpredictable events, each of which could adversely affect our business, results of operations or financial condition.
Collaborations
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We pursue a balanced approach between product candidates that we develop ourselves and those that we develop with our collaborators. Under our strategic collaborations to date, we have received significant non-dilutive funding and continue to have rights to additional funding upon completion of certain research, achievement of key product development milestones and royalties and other payments upon the commercial sale of products. Our current collaborations include the following:
•Incyte. We have an exclusive global collaboration and license agreement with Incyte for retifanlimab, an investigational monoclonal antibody that inhibits PD-1 (Incyte License Agreement). Under this agreement, as amended, Incyte has obtained exclusive worldwide rights for the development and commercialization of retifanlimab in all indications, while we retain the right to develop our pipeline assets in combination with retifanlimab. We received an upfront payment of $150.0 million and milestone payments totaling $115.0 million from Incyte through March 31, 2023, including $15.0 million upon the FDA approval of ZYNYZ (retifanlimab-dlwr) in March 2023. We are eligible to receive an additional $320.0 million in development and regulatory milestones and $330.0 million in commercial milestones. We are also eligible to receive tiered royalties of 15% to 24% on any global net sales and we have the option to co-promote retifanlimab with Incyte. We retain the right to develop our pipeline assets in combination with retifanlimab, with Incyte commercializing retifanlimab and us commercializing our asset(s), if any such potential combinations are approved. We also have an agreement with Incyte under which we are to perform development and manufacturing services for Incyte's clinical needs of retifanlimab (Incyte Clinical Supply Agreement) and another agreement under which we are entitled to manufacture a portion of Incyte’s global commercial supply of retifanlimab (Incyte Commercial Supply Agreement).
•Gilead. In October 2022, we and Gilead Sciences, Inc. (Gilead) entered into an exclusive option and collaboration agreement (Gilead Agreement) to develop and commercialize MGD024 and create bispecific cancer antibodies using our DART platform and undertake their early development under a maximum of two separate bispecific cancer target research programs. Under t he Gilead Agreement, we will continue the ongoing phase 1 trial for MGD024 accordi ng to a development plan, during which Gilead will have the right to exercise an option granted to Gilead to obtain an exclusive license to develop and commercialize MGD024 and other bispecific antibodies of ours that bind CD123 and CD3 (CD123 Option). The agreement also grants Gilead the right, within its first two years, to nominate a bispecific cancer target set for up to two research programs conducted by us and to exercise separate options to obtain an exclusive license for the development, commercialization and exploitation of molecules created under each research program (Research Program Option). As part of the Gilead Agreement, Gilead paid us a non-refundable upfront payment of $60.0 million and we will be eligible to receive up to $1.7 billion in target nomination, option fees, and development, regulatory and commercial milestones, assuming Gilead exercises the CD123 Option and Research Program Option,successfully develops and commercializes MGD024 or other CD123 products developed under the agreement, and products result from the two additional research programs. Assuming exercise of the CD123 Option, w e will also be eligible to receive tiered, low double-digit royalties on worldwide net sales of MGD024 (or other CD123 products developed under the agreement) and assuming exercise of the Research Program Option, a flat royalty on worldwide net sales of any products resulting from the two research programs.
•Zai Lab. In 2018, we entered into a collaboration and license agreement with Zai Lab Limited (Zai Lab) under which Zai Lab obtained regional development and commercialization rights in mainland China, Hong Kong, Macau and Taiwan (Zai Lab’s territory) for (i) margetuximab, an immune-optimized anti-HER2 monoclonal antibody, (ii) tebotelimab, a bispecific DART molecule designed to provide coordinate blockade of PD-1 and LAG-3 for the potential treatment of a range of solid tumors and hematological malignancies, and (iii) an undisclosed multi-specific TRIDENT molecule in preclinical development (2018 Zai Lab Agreement). Zai Lab will lead clinical development in its territory. Zai Lab has informed us that they have decided to discontinue development of tebotelimab for indications they were enrolling in their territory and is evaluating future development plans in other indications.
Under the terms of the 2018 Zai Lab Agreement, Zai Lab paid us an upfront payment of $25.0 million less foreign withholding tax of $2.5 million. Assuming successful development and commercialization of margetuximab, tebotelimab and the TRIDENT molecule, we could receive up to $140.0 million in development and regulatory milestones, of which we have earned $9.0 million through March 31, 2023. In addition, Zai Lab would pay us tiered royalties at percentage rates of mid-teens to 20% for net sales of margetuximab in Zai Lab’s territory, mid-teens for net sales of tebotelimab in Zai Lab’s territory and 10% for net sales of the TRIDENT molecule in Zai Lab’s territory, which may be subject to adjustment in specified circumstances.
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In 2021, we entered into a collaboration and license agreement with Zai Lab US LLC (collectively with Zai Lab Limited referred herein as Zai Lab) involving collaboration programs and license-only programs (collectively, the Programs) encompassing four separate immuno-oncology molecules (2021 Zai Lab Agreement). The first program covers a lead research molecule that incorporates our DART platform and binds CD3 and an undisclosed target that is expressed in multiple solid tumors (Lead Program). The second program covers a target to be designated by us. For these programs, Zai Lab receives commercial rights in Greater China, Japan, and Korea while we receive commercial rights in all other territories. Zai Lab also obtained exclusive, global licenses from us to develop, manufacture and commercialize two additional molecules (license-only programs). Zai Lab granted us a worldwide, royalty-free, co-exclusive license to conduct the development activities allocated to us. In August 2022, we and Zai Lab agreed to discontinue research and development of the Lead Program.
Under the terms of the 2021 Zai Lab Agreement, the Lead Program included joint research and development services by both us and Zai Lab. For the other programs, Zai Lab can separately negotiate and agree with us to perform research and development services in the future.
In connection with the execution of the 2021 Zai Lab Agreement, Zai Lab paid us an upfront payment of $25.0 million. Additionally, as part of the consideration for the rights granted to Zai Lab under the 2021 Zai Lab Agreement, we and Zai Lab entered into a separate stock purchase agreement (Stock Purchase Agreement) whereby Zai Lab paid us approximately $30.0 million to purchase 958,467 newly issued shares of our common stock, par value $0.01, at a fixed price of $31.30 which represented a $10.4 million premium over the share price on the Stock Purchase Agreement date.
Assuming successful development and commercialization of the remaining Programs under the 2021 Zai Lab Agreement, we could receive up to $1.3 billion in development, regulatory and commercial milestones. In addition, Zai Lab would pay us tiered royalties at percentage rates of mid-single digits to low double digit teens on annual net sales of products in Zai Lab's territory, subject to specified royalty reduction pursuant to the 2021 Zai Lab Agreement. Per the terms of the 2021 Zai Lab Agreement, we may also receive reimbursements from Zai Lab for certain research and development costs incurred by us.
•Provention. In 2018, we entered into an asset purchase agreement (APA) with Provention pursuant to which Provention acquired our interest in teplizumab. Under the APA, if Provention successfully develops, obtains regulatory approval for, and commercializes teplizumab, we will be eligible to receive up to $170.0 million in regulatory milestones, and up to $225.0 million in commercial milestones. In November 2022, the FDA approved TZIELD (teplizumab-mzwv) to delay the onset of Stage 3 T1D in adult and pediatric patients aged 8 years and older with Stage 2 T1D, and we recognized $60.0 million in milestone revenue during the year ended December 31, 2022. In November 2022 we and Provention amended the APA. Under the amended APA, the $60.0 million milestone for a first approval was split into four $15 million payments, the first two of which were received prior to March 31, 2023. We are also eligible to receive single-digit royalties on net sales of TZIELD. Provention has also agreed to pay third-party obligations, including low single-digit royalties, a portion of which is creditable against royalties payable to us, aggregate milestone payments of up to approximately $1.3 million and other consideration, for certain third-party intellectual property under agreements Provention assumed pursuant to the APA. Further, Provention is required to pay us a low double-digit percentage of certain consideration to the extent it is received in connection with a grant of rights by Provention to a third party.
In March 2023, we sold our royalty interest in TZIELD to a wholly-owned subsidiary of DRI Healthcare Trust (DRI). We retain our other economic interests related to TZIELD, including future potential regulatory and commercial milestones. We received a $100.0 million upfront payment from DRI for the sale of our single-digit royalty on global net sales of TZIELD. We retain the right to receive a 50% share of the royalty on global net sales above a certain annual threshold. In addition, we are eligible to receive up to $50.0 million from DRI upon the occurrence of pre-specified events tied to the advancement of TZIELD for the treatment of newly diagnosed T1D and may also receive an additional $50.0 million if TZIELD achieves a certain level of net sales.
Critical Accounting Estimates
Our critical accounting estimates are policies which require the most significant judgments and estimates in the preparation of our consolidated financial statements. A summary of our critical accounting estimates is presented in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2022. The following accounting policies and estimates were deemed critical during the three months ended March 31, 2023:
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Liability related to the sale of future royalties and related interest expense
The liability related to future royalties is presented net of unamortized issuance costs on our consolidated balance sheets. Interest expense on the liability related to future royalties is recognized using the effective interest rate method over the life of the arrangement. We calculate an effective interest rate which will amortize our related obligation to zero over the anticipated repayment period. The liability related to future royalties and the related interest expense are based on our current estimates of future royalties expected to be received over the life of the arrangement, which we determine by using internal sales projections and external information from market data sources, which are considered Level 3 inputs. We periodically assess the expected payments and to the extent our estimates of future royalty payments are greater or less than previous estimates or the estimated timing of such payments is materially different than previous estimates, we will adjust the effective interest rate and recognize related non-cash interest expense on a prospective basis.
Results of Operations
Revenue
The following represents a comparison of our revenue for the three months ended March 31, 2023 and 2022 (dollars in millions):

|  |  | Three Months Ended March 31,
|  |  |  |  |  |  |  |  | 2023 |  | 2022 |  | Change |  | %
Collaborative and other agreements |  |  |  |  |  |  |  |  | $ | 16.7 |  |  | $ | 7.1 |  |  | $ | 9.6 |  |  | 135 | %
Product sales, net |  |  |  |  |  |  |  |  | 3.5 |  |  | 3.6 |  |  | (0.1) |  |  | (3) | %
Contract manufacturing |  |  |  |  |  |  |  |  | 3.6 |  |  | — |  |  | 3.6 |  |  | N/A
Royalty revenue |  |  |  |  |  |  |  |  | 0.4 |  |  | — |  |  | 0.4 |  |  | N/A
Government agreements |  |  |  |  |  |  |  |  | 0.3 |  |  | 0.4 |  |  | (0.1) |  |  | (25) | %
Total revenue |  |  |  |  |  |  |  |  | $ | 24.5 |  |  | $ | 11.1 |  |  | $ | 13.4 |  |  | 121 | %

The increase in revenue of $13.4 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to:
•recognition of $15.0 million in milestone payments under the Incyte License Agreement during the three months ended March 31, 2023; and
•$3.6 million recognized under the Incyte Manufacturing and Clinical Supply Agreement.
These increases were partially offset by a decrease of $5.0 million in revenue recognized under the 2018 Zai Lab Agreement.
Revenue from collaborative and other agreements may vary substantially from period to period depending on the progress made by our collaborators with their product candidates and the timing of milestones achieved under current agreements, and whether we enter into additional collaboration agreements.
Cost of Product Sales
Cost of product sales for all periods presented consists primarily of product royalties and fill finish costs. Product sold during these periods consisted of drug product that was previously charged to research and development expense prior to FDA approval of MARGENZA, which favorably impacted our gross margin. We expect cost of product sales to continue to be positively impacted as we sell through this drug product.
Cost of Manufacturing Services
Cost of manufacturing services consists of the costs to provide manufacturing services to produce certain Incyte bulk drug substance under the Incyte Manufacturing and Clinical Supply Agreement. We did not begin the manufacturing services until the second quarter of 2022, therefore there are no such costs during the three months ended March 31, 2022.
Research and Development Expense
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The following represents a comparison of our research and development expense for the three months ended March 31, 2023 and 2022 (dollars in millions):

| Three Months Ended March 31, |  |
| 2023 |  | 2022 |  | Change |  | % |  |  |  |  |  |  |  |
Vobramitamab duocarmazine | $ | 9.1 |  |  | $ | 16.5 |  |  | $ | (7.4) |  |  | (45) | % |  |  |  |  |  |  |  |
Antibody-drug conjugates (ADCs) (a) | 9.1 |  |  | 3.1 |  |  | 6.0 |  |  | 194 | % |  |  |  |  |  |  |  |
Lorigerlimab | 7.6 |  |  | 5.0 |  |  | 2.6 |  |  | 52 | % |  |  |  |  |  |  |  |
Margetuximab | 5.3 |  |  | 8.2 |  |  | (2.9) |  |  | (35) | % |  |  |  |  |  |  |  |
Next-generation T-cell engagers (a) | 2.9 |  |  | 4.0 |  |  | (1.1) |  |  | (28) | % |  |  |  |  |  |  |  |
Tebotelimab | 2.6 |  |  | 4.2 |  |  | (1.6) |  |  | (38) | % |  |  |  |  |  |  |  |
Flotetuzumab | 2.3 |  |  | 5.1 |  |  | (2.8) |  |  | (55) | % |  |  |  |  |  |  |  |
MGD024 | 1.6 |  |  | 1.3 |  |  | 0.3 |  |  | 23 | % |  |  |  |  |  |  |  |
Enoblituzumab | 1.5 |  |  | 4.9 |  |  | (3.4) |  |  | (69) | % |  |  |  |  |  |  |  |
IMGC936 | 0.8 |  |  | 2.4 |  |  | (1.6) |  |  | (67) | % |  |  |  |  |  |  |  |
DART molecules under HIV government contract | 0.5 |  |  | 0.9 |  |  | (0.4) |  |  | (44) | % |  |  |  |  |  |  |  |
Retifanlimab | 0.3 |  |  | 1.5 |  |  | (1.2) |  |  | (80) | % |  |  |  |  |  |  |  |
Other programs (a) | 2.3 |  |  | 4.3 |  |  | (2.0) |  |  | (47) | % |  |  |  |  |  |  |  |
Total research and development expense | $ | 45.9 |  |  | $ | 61.4 |  |  | $ | (15.5) |  |  | (25) | % |  |  |  |  |  |  |  |

(a) Includes research and discovery projects, as well as early preclinical molecules and molecules not advanced to clinical development.
Our research and development expense for the three months ended March 31, 2023 decreased by $15.5 million compared to the three months ended March 31, 2022 primarily due to:
•decreased vobra duo development costs;
•decreased development, manufacturing and clinical trial costs related to enoblituzumab;
•decreased SOPHIA-related clinical trial costs related to margetuximab;
•decreased development, manufacturing and clinical trial costs related to flotetuzumab (due to discontinuance of our company-sponsored trial); and
•decreased development, manufacturing and clinical trial costs related to tebotelimab.
These decreases were partially offset by:
•increased development of a non-disclosed ADC Investigational New Drug candidate; and
•increased development costs related to lorigerlimab.
There are uncertainties associated with our research and development expenses for future quarters which are impacted by multiple variables, including timing of wind down activities for recently closed studies and current and expected expenditures associated with our vobra duo TAMARACK study.
Selling, General and Administrative Expense
Selling, general and administrative expenses decreased by $2.7 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to decreased consulting expenses, legal fees and other professional services.
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Liquidity and Capital Resources
Cash Flows
The following table represents a summary of our cash flows for the three months ended March 31, 2023 and 2022:

| Three Months Ended March 31,
| 2023 |  | 2022
| (dollars in millions)
Net cash provided by (used in): |  |  |
Operating activities | $ | (12.8) |  |  | $ | (57.7) |
Investing activities | 28.1 |  |  | (18.5) |
Financing activities | 100.1 |  |  | — |
Net change in cash and cash equivalents | $ | 115.4 |  |  | $ | (76.2) |

Operating Activities
Net cash used in operating activities consists of our net loss adjusted for non-cash items such as depreciation and amortization expense and stock-based compensation and changes in working capital. Net cash used in operating activities for the three months ended March 31, 2023 benefited from the $15.0 million in milestones received from Incyte under the Incyte License Agreement and $15.0 million received from Provention related to the TZIELD approval milestone. Net cash used in operating activities for the three months ended March 31, 2022 benefited from the $11.2 million received from Incyte under the Incyte Manufacturing and Clinical Supply Agreement.
Investing Activities
Net cash provided by investing activities during the three months ended March 31, 2023 is primarily due to maturities of marketable securities, partially offset by purchases of marketable securities. Net cash used in investing activities during the three months ended March 31, 2022 is primarily due to purchases of marketable securities, partially offset by maturities of marketable securities.
Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2023 includes net cash proceeds from our Royalty Purchase Agreement with DRI of $99.7 million.
Our multiple product candidates currently under development will require significant additional research and development efforts that include extensive preclinical studies and clinical testing, and regulatory approval prior to commercial use. Our future success is dependent on our ability to identify and develop our product candidates, and ultimately upon our ability to attain profitable operations. We have devoted substantially all of our financial resources and efforts to research and development and general and administrative expense to support such research and development. Net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital, and accordingly, our ability to execute our future operating plans.
As a biotechnology company, we have primarily funded our operations with proceeds from the sale of our common stock in equity offerings, revenue from our multiple collaboration agreements, and contracts and grants from the National Institute of Allergy and Infectious Diseases. Management regularly reviews our available liquidity relative to our operating budget and forecast to monitor the sufficiency of our working capital, and anticipates continuing to draw upon available sources of capital, including equity and debt instruments, to support our product development activities. There can be no assurances that new sources of capital will be available to us on commercially acceptable terms, if at all. Also, any future collaborations, strategic alliances and marketing, distribution or licensing arrangements may require us to give up some or all rights to a product or technology at less than its full potential value. If we are unable to enter into new arrangements or to perform under current or future agreements or obtain additional capital, we will assess our capital resources and may be required to delay, reduce the scope of, or eliminate one or more of our product research and development programs or clinical studies, and/or downsize our organization. Although it is difficult to predict our funding requirements, we anticipate that our cash, cash equivalents and marketable securities as of March 31, 2023 combined with anticipated and potential collaboration payments, product revenues and royalties, should enable us to fund our operations through 2025. Our expected funding requirements reflect anticipated expenditures related to the Phase 2 TAMARACK clinical trial of vobra duo in mCRPC, our planned Phase 2
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study of lorigerlimab in mCRPC as well as our other clinical and preclinical studies currently ongoing.
Material Cash Requirements
During the three months ended March 31, 2023, there were no significant changes to our material cash requirements, including contractual and other obligations, as presented in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Under SEC rules and regulations, because we are considered to be a “smaller reporting company," we are not required to provide the information required by this item in this Quarterly Report on Form 10-Q.

ITEM 4. | CONTROLS AND PROCEDURES

Disclosure Controls and Procedures
Our management, including our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2023. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in our periodic reports filed with the SEC (such as this Quarterly Report on Form 10-Q) has been appropriately recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Based on their evaluation of our disclosure controls and procedures as of March 31, 2023, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective at the reasonable assurance level.
Changes in Internal Control
There were no changes in our internal control over financial reporting during the three months ended March 31, 2023 that materially affected, or are reasonably likely to materially effect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, we are or may be involved in various legal or regulatory proceedings, claims or class actions related to alleged patent infringements and other intellectual property rights, or alleged violation of commercial, corporate, securities, labor and employment, and other matters incidental to our business. We do not currently, however, expect such legal proceedings to have a material adverse effect on our business, financial condition or results of operations. However, depending on the nature and timing of a given dispute, an eventual unfavorable resolution could materially affect our current or future results of operations or cash flows.
See Note 10, Commitments and Contingencies, to the consolidated financial statements of this Quarterly Report on Form 10-Q for more information.

Item 1A. | Risk Factors

There have been no material changes in the risk factors described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022.
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Item 6. | Exhibits

10.1+* | Purchase and Sale Agreement by and between the Company and DRI Healthcare Acquisitions LP, dated M arch 8, 2023.
31.1* | Rule 13a-14(a) Certification of Principal Executive Officer
31.2* | Rule 13a-14(a) Certification of Principal Financial Officer
32.1** | Section 1350 Certification of Principal Executive Officer
32.2** | Section 1350 Certification of Principal Financial Officer
101.INS | XBRL Instance Document
101.SCH | XBRL Schema Document
101.CAL | XBRL Calculation Linkbase Document
101.DEF | XBRL Definition Linkbase Document
101.LAB | XBRL Labels Linkbase Document
101.PRE | XBRL Presentation Linkbase Document
104 | Cover Page Interactive Data (formatted as Inline XBRL and contained in Exhibit 101 filed herewith)

+ Portions of this document (indicated by “[***]” have been omitted because they are not material and are the type that MacroGenics, Inc. treats as private and confidential.
* Filed herewith
** Furnished herewith

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| MACROGENICS, INC.
| BY: | /s/ Scott Koenig
|  | Scott Koenig, M.D., Ph.D.
|  | President and Chief Executive Officer
|  | (Principal Executive Officer)
| BY: | /s/ James Karrels
|  | James Karrels
|  | Senior Vice President and Chief Financial Officer
|  | (Principal Financial Officer)
Dated: May 9, 2023 |  |