As QS-21 is Agenus' "root beer float," it is important not to overemphasize the importance of these trials for the company… If MAGE A-3 fails, AGEN may be cut to half its value, but the money will eventually be raised to continue the manufacturing for Prophage and the HerpV program, where the real money for the company is. If MAGE A-3 succeeds, AGEN could double in value, though the resulting pop would quickly reach overbought levels as again, the Agenus' real potential value is in Prophage and HerpV, not QS-21, notwithstanding the fact that HerpV itself employs QS-21.
Given the partial failure of GlaxoSmithKline's (GSK) MAGE A-3 vaccine containing QS-21 and the wild gyrations AGEN has made over QS-21 and Prophage news of late, I feel a follow-up is warranted.
A stock like Agenus is a rarity for its size. It is a veritable smörgåsbord of opportunity for both short term traders and long term investors alike. It is a rarity because most development stage biotech companies are make-or-break on one or two drug candidates. The curve is usually binary with only one or two quarters in the slot. Either you hit the jackpot or you lose almost everything. Agenus is different from most early stage biotechs on this metric because with Agenus, you have almost 30 quarters in total. Add to that the fact that it seems Agenus shareholders have overly itchy trigger fingers, it looks like there's a lot of dumb money invested in the stock that overreacts to news, creating very decent short term opportunities for traders who are more intimately aware of the financial implications of specific developments for the company.
Agenus has so many candidates in its pipeline that it can look like Big Pharma in this regard. These are the "quarters" in the slot machine analogy. Where dumb money comes in is that many AGEN holders seem unaware of the value of any given pull of the lever. For example, take QS-21 Stimulon. This is Agenus' vaccine adjuvant licensed out as a key component in 21 clinical development programs. These include programs for various cancers, Alzheimer's disease, various infectious diseases, and most recently as of September 26, nicotine addiction (which makes 22) with possible venture into peanut and shellfish allergies among other things.
Agenus is not footing any of the regulatory costs for pushing QS-21 through any of these clinical trials, except in cases where it is using the adjuvant in one of its own candidates. Royalties for any given success of a QS-21 vaccine are a pittance, and in many cases 20% of any possible future royalties were signed away to creditors in order to write off debt. Not to mention, there is a 10 year limit on royalties in many of these QS-21 agreements. Any given success or failure of QS-21 alone should have a negligible effect on the stock, but we have seen, with the partial failure of Glaxo's QS-21 MAGE A-3 vaccine mentioned above that news hit the stock badly when word came out on September 5. AGEN went from $3.69 on September 4 to a low of $2.45 on the 5th. That's a 34% drop for what would have been a 4.5% royalty minus 20% to creditors for a rare form of skin cancer gene expression for 10 years.
Then, less than two weeks later on September 17, Agenus reports positive results on its large 222-patient Phase II trial for its Prophage treatment of newly diagnosed glioblastoma, which it has been working on for 20 years, owns the full rights to and would be a huge money maker if and when approved. Prophage demonstrates a 160% increase in progression-free survival versus standard of care, and AGEN climbs all the way back to $3.68 that day, right where it left off before Glaxo's MAGE A-3 news. Agenus then uses the opportunity to announce a registered direct offering worth $6.5M, finance and issue some shares. The stock falls sharply again all the way down to $2.85, where it closed on September 5 following the bad news with Glaxo.
Then QS-21 made the news again when Glaxo announced positive results for its malaria vaccine. Then a totally irrational and enormous move upward ensued. Why irrational? Agenus' royalty for malaria, even if approved, would be 1.5% from Glaxo, and the vaccine would be distributed by the UN for $2 a shot, and it's far from certain the UN would even take it on. A malaria vaccine is great, but financially it's a drop in the bucket for Agenus, and yet the stock rockets back up again to $3.49 from a previous close of $2.78, a 25% move.
None of these moves make any fundamental sense. There is a lot of dumb money here that hasn't looked at the money Agenus can expect from any given deal. Each success is treated with wild enthusiasm even if it would mean little financially for the company. Failure is devastating even if its material impact is small. And news that really should be blockbuster, such as a large 222 patient Phase II trial for one of the deadliest cancer known to man demonstrating a 160% increase in progression free survival over standard of care, is treated virtually the same by investors as a malaria vaccine in terms of stock price movements? This is just off the wall.
With this in mind, my advice on how to play AGEN is as follows, for those who can stomach the volatility and control their emotions. Stake a position and divide it into short term and long term at whatever proportions you can handle. For the short term trade, being that dumb money seems infatuated with the latest QS-21 development and that there are 21 QS-21 licensing deals out there, some are bound to fail and others succeed. On a QS-21 success, sell the rally and buy back when the euphoria is over and investors come back to their senses realizing that a 1.5% royalty on a $2 vaccine is not Eldorado. On a QS-21 failure like MAGE A-3, buy the dip and sell when investors come back to their senses realizing that losing a potential 4.5% royalty for 10 years is not the end of the world.
For the long term portion of the position, watch for upcoming December results for Agenus' 75-patient Phase II trial for HerpV, its genital herpes vaccine that Agenus owns full rights to that would be an enormous boost for the company. HerpV is designed to reduce viral shedding, which basically means symptoms, and genital herpes affects a CDC-estimated 60M Americans, quite a market. It makes MAGE A-3 QS-21 royalties look like a drop in the ocean. It is also the only trials that Agenus is fully funding out of pocket. (It also contains QS-21 for those who love good QS-21 news.)
If the Phase II fails, back up the truck and turn eyes to the recent Prophage 222-patient Phase II success, which for whatever reason has not had much of an effect on the stock yet. Normally, I wouldn't advise putting money on a Phase II to be predictive of Phase III results. However, glioblastoma is a different case. 222 is an enormous patient base for this particular disease, for which Phase III trials are often in the 300-400 patient range. Of the 15 open Phase III studies listed on clinicaltrials.gov for glioblastoma right now, the average patient enrollment is 302. The median is 236. 222 is not far off from that at all. If the trial were much smaller I'd be skeptical, but it seems to me that Agenus can replicate Phase II results in a future Phase III for Prophage given sample size, and from there approval is likely, or at least a reasonable possibility.
As for the sizes of Phase II glioblastoma trials, the average of the 108 open studies is 82 patients. The median is 60. Prophage is the 5th largest Phase II trial being conducted right now. This thing is big, and it has already succeeded.
Agenus could use some stock price stability by smart money smoothing out the dumb money gyrations and taking home the profit every time a QS-21 report hits the wire.