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1 1 MacroGenics, Inc. IR Presentation template Healthcare [SA, JA, sector] Sector Spring 2017 Senior Analyst: Austin Gasparini Junior Analysts: Donavon Young, Anuraag Gopaluni

2 2 Recommendation and Company Summary A clinical-stage biopharmaceutical company focused on discovering and developing innovative antibody-based therapeutics for the treatment of cancer, as well as various autoimmune disorders and infectious diseases Core scientific expertise is in the field of protein engineering and product candidates have been created primarily through the company s proprietary protein engineering platforms, including its Dual-Affinity Re-Targeting, or DART, and Fc Optimization platforms These platforms are generally focused on the creation of antibodies, antibody derivatives, and antibody-like molecules for use as therapeutic agents. Recommendation Summary Company (Ticker) Current Trading Price ( ) Recommendation MGNX $21.50 BUY Target Price $33.88 Upside Potential 57.6% Relative Price Performance of MGNX vs. Russell 2000 Key Statistics Current Price (as of ) $21.50 Market Cap $743.9 mm 52- Week Range $ $33.30 EV (LTM) $466.9 mm Revenue (LTM) $91.9 mm Net Income (LTM) ($59.0) mm EPS (LTM) ($1.69)

3 Industry Definition and Key Players Biotechnology: Biopharmaceuticals The exploitation of biological processes for industrial and other purposes Companies in this industry primarily use living organisms or molecular and cellular techniques to provide chemicals, food and services that meet human needs Major Companies AbbVie Inc. NYSE: ABBV Market Cap.: $101.48B Amgen Inc. NASDAQ: AMGN Market Cap.: $118.62B Gilead Sciences NASDAQ: GILD Market Cap.: $98.04B Genentech, 12.2% Monsanto, 4.9% Other, 30.1% AbbVie, 13.2% Monsanto Company NYSE: MON Market Cap.: $44.68B Biogen, Inc. NASDAQ: BIIB Market Cap.: $63.69B Celgene Corporation NASDQ: CELG Market Cap.: $76.67B Amgen, 16.6% Gilead, 23.0% Sources: IBISWorld, S&P Global Equity Research Report March

4 Industry Trends Support Future Growth Global cancer spending is projected to increase over the next 20 years, providing revenue growth opportunities throughout the industry Specialty drugs account for ~33% of total drug spending despite accounting for <1% of drug prescriptions and costs continue to increase An aging population will increase overall healthcare spending, as a large portion of the highest healthcare spenders are aged 65+ Industry Rating POSITIVE Spending PMPY Population (millions) Specialty Drug Spending Per Member Per Year (PMPY) $400 $300 $200 $100 $- US Population Projections (in millions) % 16.1% 19.3% 20.0% Years Years 20.2% >65 Years <65 Years Sources: IBISWorld, FiercePharma 4

5 Revenue Generation Model and Competitive Position 1 Revenue Generation 3 4 Development of antibody producing pharmaceutical based on proprietary protein engineering platforms Clinical testing of pharmaceutical through three stages and a final application to the FDA for approval Commercialization with third party manufacturing and distribution Competitive Positioning The company has developed two proprietary protein engineering platforms entitled Dual-Affinity Re- Targeting (DART ) and Fc Optimization The Fc Optimization in particular allows the manipulation of antibody potency in the body and has shown to be more effective than drugs without modification technology Additionally, the company s leading Margetuximab product line is applicable to numerous cancer types and provides diversity for the drug line Sources: Company Website, S&P Global Equity Research Report March

6 6 Collaborations Demonstrate Strength Margetuximab Product Line Looks Promising Remains a Viable Acquisition Target

7 Investment Thesis #1 Collaborations Demonstrate Strength Pfizer Boehring Ingelheim Servier Takeda Janssen NIAID/NIH Janssen Ø Collaboration history includes: Janssen Biotech, Pfizer, NIAID/NIH, Servier, and Boehringer Ingelheim Ø Latest collaborations with Janssen alone in 2014 and 2016 could provide up to $1.4 billion in milestone payments plus up to double-digit royalty payments if the MGD011 product line becomes commercialized Multiple collaborations with established and reputable firms demonstrates the effectiveness of management and the strength of the company s pipeline Ø These licensing partnerships take away much of the burden of R&D costs for the company and allows it to retain the possibility of stable future cash flows via royalties Sources: Gen Eng News, MacroGenics website, Washington Business Journal 7

8 8 Collaborations with Janssen Margetuximab Product Line Looks Promising Remains a Viable Acquisition Target

9 Investment Thesis #2 Margetuximab Product Line is Promising HER2 Protein Ø Ø Ø Ø Ø Margetuximab is an Fc-optimized monoclonal antibody that targets the human epidermal growth factor receptor 2, or HER2 HER2 is expressed in metastatic breast, esophageal, and other solid tumor cancers which makes it a key marker for therapy In Q the SOPHIA (Phase III) study was initiated for breast cancer Also in collaboration with Merck to combine margetuximab and Merck s pembrolizumab to treat HER-2 positive gastric cancer (currently in Phase 1b/2) Treatments for HER-2 positive gastric cancer patients are extremely limited Margetuximab remains clinically successful and has the potential to treat two different types of cancer Sources: MacroGenics IR, Mayo Clinic, Columbia University Medical Center 9

10 10 Collaborations Demonstrate Strength Margetuximab Product Line Looks Promising Remains a Viable Acquisition Target

11 Investment Thesis #3 MacroGenics Remains a Viable Acquisition Target Deal Size (millions of USD) Average Biopharma M&A Deal Size Per Year $1,000 $800 $600 $400 $200 $0 $371.3 $607.7 $827.6 $684.6 $ Average Premium Paid for a US Biopharmaceutical Company Over $100 million Ø Global biopharma needs an estimated $60 billion in additional sales by 2020 to maintain stable revenue growth (around 5% targeted) Ø Biopharma companies collectively have around $75 billion in cash on hand;; a record amount Ø Average biopharma deal value in 2015 was $684.6 million, and average premium paid was 36% which would roughly price MacroGenics at $823 million 100% 80% 60% 40% 20% 86% 59% 60% 47% 37% 36% MacroGenics perfectly fits the profile as an acquisition target for larger biopharma firms seeking external revenue growth opportunities Sources: Morgan Stanley Research, EvaluatePharma, HBM Partners 11

12 12 Outputs: Discounted Cash Flow Analysis WACC Calculation: Risk-Free Rate 2.23% Equity Risk Premium 4.51% Size Premium 1.77% Beta 2.51 Cost of Equity 15.3% Cost of Debt N/A WACC 15.3% Forecasted Revenue % growth 4.0% 0.0% 59.6% 24.9% 20.5% COGS (excl. D&A) (99.2) (99.2) (114.6) (124.8) (135.4) % of Revenue % % 75.11% 65.51% 58.97% Gross Profit (3.6) (3.6) % Margin -3.8% -3.8% 24.9% 34.5% 41.0% Exit Multiple Method Revenue Multiple 13.72x Undiscounted TEV $3, Discounted TEV $1, DCF Value $1, Equity Value $1, Share Price $47.02 Implied Growth Rate 13.75% Valuation Output 1 yr. Price Target $47.02 Current Price $21.50 Upside Potential 118.7% Recommendation BUY Key Point Because the company is entirely funded through equity (resulting in a large WACC) and has little cash flow, a DCF model is not the most appropriate valuation method

13 Valuation: Comparable Company Analysis Comparable Company Analysis LTM data ( ) Company Ticker EV Market Cap Revenue R&D Net Income PRR EV/Revenue 13 MacroGenics, Inc. MGNX (59.0) 6.09x 5.08x NewLink Genetics Corp. NLNK (85.0) 4.85x 11.83x Array BioPharma Inc. ARRY 1, , (100.0) 8.71x 9.04x Agenus Inc. AGEN (116.0) 3.59x 13.72x Belllicum BLCM (69.0) 8.59x x Pharmaceuticals, Inc. Celldex Therapeutics Inc. CLDX (129.0) 3.93x 18.91x *all in millions of USD, except per share data PRR (Price-to- Research Ratio) LTM R&D $ Implied Price Target $29.88 Upside (Downside) % 39.0% EV/Revenue LTM Revenue $91.90 Implied Price Target $38.87 Upside (Downside) % 80.8% Key Point Small biopharmaceutical companies tend to be unprofitable, making metrics based on top line values and R&D expenses the most informative Median 4.85x 13.72x 75 th Percentile 8.47x 17.61x *Excluding outliers

14 Identified Key Risk Areas MacroGenics faces five key risk areas: The vast majority of drugs in a pipeline do not get approved or move past early clinical trials The company has never turned a profit and is unlikely to do so in the near future unless a pipeline drug becomes approved Cash balance is always a problem due to significant R&D expenses If the company cannot continue to fund through equity offerings, debt issuance may be warranted and the company could face difficulty paying off the debt There has been legislative discussion of capping drug prices, which would impact growth prospects Sources: Wall Street Journal, Company 10-K 14

15 15 Recommendation Summary Recommendation Summary Company (Ticker) Current Trading Price ( ) Recommendation BUY MGNX $21.50 BUY Target Price $33.88 Upside Potential 57.6% Valuation Summary Method Price Weight Discounted Cash Flow Exit Multiple Method $ % Comparable Company Analysis PRR $ % EV/Revenue $ % Target Price $33.88 Margetuximab product line is promising and has the potential to provide stable future cash flow via treatment for two separate cancer types Multiple collaborations with established organizations demonstrate the strength of MacroGenics pipeline and its sustainability as a smaller firm A strong pipeline and the current biopharmaceutical environment present MacroGenics as a valuable acquisition target for deep-pocketed larger firms seeking external growth

16 Appendix 16

17 Margetuximab Sales Forecast Calculations/Assumptions Amounts in USD (Unless Otherwise Stated) Number of Patients Calculation of # of Patients US Population (mn.) EU5 Population Germany France Italy Spain U.K Total US HER2 Patients 62,169 62,549 63,120 63,690 64,070 64,641 65,021 65,591 65,972 66,542 EU HER2 Patients 60,838 61,219 61,219 61,599 61,599 61,409 61,599 61,789 61,979 61,979 Total # of Patients 123, , , , , , , , , , US Target Patients Diagnosis Rate 95% Compliance Rate 95% Effective # of Patients 56,108 56,451 56,966 57,480 57,824 58,338 58,681 59,196 59,539 60,054 EU Target Patients Diagnosis Rate 95% Compliance Rate 95% Effective # of Patients 54,907 55,250 55,250 55,593 55,593 55,421 55,593 55,765 55,936 55,936

18 Margetuximab Sales Forecast Calculations/Assumptions Margetuximab Revenue % Market Share 0% 0% 1.5% 2.5% 3.5% 5.0% 5.0% 5.0% 5.0% 5.0% Revenue - US (mm) $- $- $62 $105 $148 $213 $214 $216 $217 $219 Revenue - EU (mm) $- $- $36 $61 $85 $121 $122 $122 $123 $123 Global Revenue $- $- $99 $166 $233 $334 $336 $338 $340 $342 RAV - Global Revenue $- $- $57 $95 $134 $193 $193 $195 $196 $197 Pricing Estimates U.S. Pricing (Comparable Drugs) Perjeta $71,000 Herceptin $54,000 Kadcyla $94,000 Annual Cost of Treatment (EU) $73,000 E.U. Pricing Discount to U.S. 60% Annual Cost of Treatment (EU) $43,800 Sources: Subject Matter Expert - Christian Chabaneix Revenue (millions of USD) $400 $350 $300 $250 $200 $150 $100 $50 $- Margetuximab (Breast Cancer Application) Global Revenue Projections RAV - Global Revenue Global Revenue *RAV uses a 57.6% probability of success 18

19 Historical Balance Sheet Cash And Equivalents Short Term Investments Accounts Receivable Other Recievables Total Receivables Prepaid Exp Other Current Assets Total Current Assets Gross Property, Plant & Equipment Accumulated Depreciation (14.3) (15.5) (17.4) (20.2) (25.8) Net Property, Plant & Equipment Long-term Investments Accounts Receivable Long-Term Other Long-Term Assets Total Assets Accounts Payable Accrued Exp Unearned Revenue, Current Other Current Liabilities Total Current Liabilities Unearned Revenue, Non-Current Other Non-Current Liabilities Total Liabilities Pref. Stock, Convertible Pref. Stock, Other Total Pref. Equity Common Stock Additional Paid In Capital Retained Earnings (175.5) (175.7) (214.0) (234.2) (292.7) Treasury Stock (0.1) (0.1) Comprehensive Inc. and Other (0.1) Total Common Equity (11.3) Minority Interest Total Equity (8.3) Total Liabilities and Equity

20 Forecasted Balance Sheet 20 Cash And Equivalents Short Term Investments Accounts Receivable Other Recievables Total Receivables Prepaid Exp Other Current Assets Total Current Assets Gross Property, Plant & Equipment Accumulated Depreciation (22.4) (19.1) (13.7) (7.0) 1.1 Net Property, Plant & Equipment Long-term Investments Accounts Receivable Long-Term Other Long-Term Assets Total Assets Accounts Payable Accrued Exp Unearned Revenue, Current Other Current Liabilities Total Current Liabilities Unearned Revenue, Non-Current Other Non-Current Liabilities Total Liabilities Pref. Stock, Convertible Pref. Stock, Other Total Pref. Equity Common Stock Additional Paid In Capital Retained Earnings (316.6) (340.4) (334.7) (309.3) (263.7) Treasury Stock Comprehensive Inc. and Other (0.1) (0.1) (0.1) (0.1) (0.1) Total Common Equity Minority Interest Total Equity Total Liabilities and Equity

21 Historical Income Statement Revenue % growth -9.1% -17.6% 111.1% -8.9% COGS (excl. D&A) (45.4) (46.6) (70.2) (98.3) (122.1) % of Revenue 71.21% 80.31% % 97.39% % Gross Profit (22.4) 2.6 (30.2) % Margin 28.8% 19.7% -46.8% 2.6% -32.9% SG&A (10.2) (11.1) (15.9) (22.8) (29.8) % of Revenue 15.97% 19.12% 33.32% 22.56% 32.46% EBITDA (38.3) (20.1) (60.0) % Margin 12.8% 0.6% -80.2% -20.0% -65.3% Depreciation Amort. of Intangibles Total D&A Other Operating Expenses Total Operating Expenses (9.2) (9.9) (14.1) (19.9) (22.2) Operating Income (EBIT) (36.5) (17.3) (52.4) % Margin 14.3% 2.6% -76.3% -17.1% -57.0% Interest Expense Interest Income Net Interest Inc. (Exp) Other Non-Operating Income 0.2 (0.6) EBT Excl. Unusual Items (36.5) (17.2) (50.9) % Margin 14.6% 1.6% -76.3% -17.1% -55.4% Unusual Items EBT Incl. Unusual Items (36.5) (17.2) (50.9) 21 Income Tax Expense Earnings from Cont. Ops (36.5) (17.2) (50.9) Earnings from Discounted Ops Extraord Item & Acct. Change Net Income to Company (36.5) (17.2) (50.9) Minority Int. in Earnings Net Income (36.5) (17.2) (50.9) % Margin 14.6% 1.6% -76.3% -17.1% -55.4% EPS $0.00 $0.12 $(1.33) $(0.54) $(1.47)

22 Forecasted Income Statement Revenue % growth 4.0% 0.0% 59.6% 24.9% 20.5% COGS (excl. D&A) (99.2) (99.2) (114.6) (124.8) (135.4) % of Revenue % % 75.11% 65.51% 58.97% Gross Profit (3.6) (3.6) % Margin -3.8% -3.8% 24.9% 34.5% 41.0% SG&A (23.6) (23.6) (37.7) (47.0) (56.7) % of Revenue 24.68% 24.68% 24.68% 24.68% 24.68% EBITDA (27.2) (27.2) % Margin -28.5% -28.5% 0.2% 9.8% 16.3% Depreciation Amort. of Intangibles Total D&A Other Operating Expenses Total Operating Expenses (20.2) (20.2) (32.3) (40.3) (48.6) Operating Income (EBIT) (23.9) (23.9) % Margin -25.0% -25.0% 3.7% 13.3% 19.9% Interest Expense Interest Income Net Interest Inc. (Exp) Other Non-Operating Income EBT Excl. Unusual Items (23.9) (23.9) % Margin -25.0% -25.0% 3.7% 13.3% 19.9% Unusual Items EBT Incl. Unusual Items (23.9) (23.9) Income Tax Expense Earnings from Cont. Ops (23.9) (23.9) Earnings from Discounted Ops Extraord Item & Acct. Change Net Income to Company (23.9) (23.9) Minority Int. in Earnings Net Income (23.9) (23.9) % Margin -25.0% -25.0% 3.7% 13.3% 19.9% EPS $(0.64) $(0.59) $0.13 $0.53 $