MacroGenics, Inc. (NASDAQ:MGNX) was a big winner during the session on Wednesday, with the company announcing that it has struck a deal with billion-dollar biotechnology company Incyte Corporation (NASDAQ:INCY).
The latter will pay MacroGenics $150 million up front and has earmarked a further $770 million for future milestone and royalty payments, in return for access to MacroGenics’ lead PD-1 asset, a drug called MGA012.
For those not familiar with Incyte, the company has a portfolio of already approved and established oncology assets that are currently used widely to treat a variety of solid tumor cancers. However, over the last few years, some of its competitors (like Bristol-Myers Squibb and Merck) have gained an edge in the market by using PD-1 drugs as a booster type asset, combined with their respective oncology portfolio components.
Incyte has been trying to do the same and, to this aim, picked up a PD-1 asset from a Chinese company last year. However, on the back of clinical testing, the asset was shown to about a number of side effects and, based on these side effects, it now looks as though it’s not going to be suitable for the task that Incyte is asking of it.
So, as a sort of replacement asset, Incyte has picked up MacroGenics’ drug and is now looking to test it out as a combination therapy with its own oncology portfolio. MacroGenics has retained the rights to the drug for other combo and mono uses, so the deal is a strong one for the company long term.
Markets have recognized this fact and are trading up on MacroGenics heading into the latter half of the week. At the close of play in the US on Wednesday, the company was trading for a 17% premium to its preannouncement market capitalization. Early morning activity on Thursday has added a couple more percentage points to this and there is a good chance we will see a continuation of the strength during the US session today.
Another notable mover midweek was PTC Therapeutics, Inc. (NASDAQ:PTCT). Unlike with MacroGenics, however, this one isn’t a positive shift. The company announced on Wednesday that the FDA has issued a complete letter (CRL) on its application for a drug called ataluren.
PTC has been trying to get this drug approved in a target indication of the treatment of nonsense mutation dystrophinopathies, which are muscle diseases associated with DMD, and which have very little in the way of treatment options available to patients on the market as things stand.
According to the press release that outlined the CRL, the FDA doesn’t feel that the application has substantial evidence of efficacy in this target population and, unfortunately, he’s going to need to conduct more trials before it resubmits to the agency in the US. In the biotechnology space, and especially at the smaller end of the sector, capital burn is a huge risk factor and the necessity for additional clinical trials means that PTC is probably going to have to raise money near term in order to fund the collection of additional data.
When a company raises money, it generally does so by issuing equity, which is almost always dilutive to current shareholders.
And that’s the problem here – shareholders aren’t generally too concerned if a development program is going to take a couple of extra months before it reaches completion.
What they are bothered about, however, is the dilution that they are going to experience on the back of them having to fund the trials.
With this said, the necessity for additional trials is not 100% confident. PTC announced in its most recent press release that management intends to submit a formal dispute resolution request next week, and the outcome of this dispute resolution request may change the picture near term.
Regardless, however, and not unexpectedly, markets are looking at the development as unfavorable for the company’s prospects going forward and trading down on PTC as a result.
It’s now all about how the dispute resolves. If the company can get things back on track, then we will likely see a swift recovery. If the FDA reiterates its additional data requirement, however, chances are the stock will trade flat to down for the foreseeable future.