Agenus (NASDAQ:AGEN) is a development-stage biotechnology company specializing in immune system related therapies. It has a small capitalization ($190 million at $3.03 per share) and all caveats that apply to small cap stocks apply here.
A major difference between Agenus and typical development-stage biotech small caps is that it has a variety of therapies in human clinical trials, three major platforms, and more than one major pharmaceutical partner. A GlaxoSmithKline (NYSE:GSK) malaria vaccine that includes an Agenus component, QS-21 Stimulon, has had successful Phase III trial results and is expected to receive European Union approval some time in 2015 (but approvals are never guaranteed in advance). That event would make Agenus a commercial-stage company.
Agenus may be a potential takeover target due to its intellectual property and relatively small market capitalization. There is no specific news of takeover inquiries at the time this article is written.
While its heat-shock protein and vaccine adjuvant may prove valuable beyond the malaria vaccine, this article will focus on (1) the competition in HSV (herpes simplex virus) vaccines and (2) the potential of the CPM (checkpoint modulator, aka immune checkpoint) platform.
Herpes Vaccine Competition
Any successful competition could detract from Agenus's value, so investors should be aware of it. I'll briefly review that status of each of the HSV (herpes simplex vaccine contenders), from least to most advanced.
Admedus (OTC:AMEUF) published a press release of Phase I results for its herpes vaccine in February of 2014, followed later by promotional articles by "Proactive Investors." Taken at face value, the reported 95% T-cell response rate (19 of 20 patients) and meeting a safety endpoint do warrant a Phase 1b or Phase II trial. Note that in contrast to the Agenus vaccine, which is for patients infected with herpes, the patients tested by Admedus did not have herpes infections. The vaccine is meant to be preventative, not curative. It is a DNA vaccine, like those being developed by Inovio (NYSEMKT:INO), although the developer, Ian Frazer, is best known for his successful development of VLP (virus-like particle) vaccines.
Vical (NASDAQ:VICL) is developing DNA vaccines for several indications. Its Oncept vaccine for Canine Melanoma, a collaboration with Merial, has been approved by the U.S. Dept. of Agriculture. It has partnerships with Astellas Pharma for CMV (cytomegalovirus) in late stage studies. For HSV it initiated a Phase I/II study in December of 2013. Results are expected in mid-2015. Its vaccine is intended to treat both infected individuals and to prevent infections of naive patients. The patients in the study have HSV-2 and a history of genital lesion recurrences. In addition to establishing safety, the primary endpoint will be a 30% reduction in viral shedding from baseline. The trial will have about 156 subjects.
Genocea Biosciences (NASDAQ:GNCA) , which in November arranged for a $27.0 million loan from Hercules Technology Growth Capital, has a relatively wide pipeline of helper T-cell enabled candidates. The Genocea Atlas platform identifies T-cell antigens (traditional vaccines engage B cells). Its GEN-004 vaccine for initiated a Phase 2 study in Q3 2014. Competing with Agenus is GEN-003 for HSV-2, "a protein subunit vaccine designed to mount responses from both the T and B cell arms of the immune system, which is believed to be critical to achieving long-term control of this chronic infection. GEN-003 includes the antigens ICP4 and gD2, as well as the proprietary adjuvant Matrix-M™." The Phase 1/2a data for GEN-003 revealed a 42% reduction in genital lesion rates at 12 months and a 40% reduction in viral shedding from baseline. A second Phase 2 study was initiated in July 2014.
Agenus's Phase 2 data for its HSV-2 vaccine, HerpV was presented in June 2014. Agenus uses a heat-shock protein along with viral antigens as the basis of its vaccine, a novel approach. It is also conducting clinical trials for heat-shock based vaccines in Glioma (a brain cancer) and melanoma. HerpV also includes its QS-21 Stimulon adjuvant. "More than half of those vaccinated developed a robust anti-HSV cytotoxic T-cell immune response, and in those patients there was a statistically significant 75% reduction in viral load (P<0.001)." For the patient population as a whole the reduction of viral load was 34% with a 15% reduction in viral shedding.
The Vical and Admedus vaccines don't have sufficient data yet for meaningful comparison. The Genocea vaccine showed a 40% reduction in shedding, considerably better than the 15% reduction shown by HerpV. On the other hand that was from a smaller study which did not report reduction in viral load, where HerpV got very good results.
On the whole Agenus is ahead mainly in timing, but it could lose that lead if it does not initiate a Phase 3 trial fairly soon. What Agenus would need is sufficiently good data for FDA approval. If it got that, then Genocea would need somewhat better data to get into the competition.
Agenus may be waiting to partner with a larger company to pursue HerpV further. It does not yet have a commercial sales organization. It is already partnered with GlaxoSmithKline for malaria, melanoma, and shingles vaccines using SQ-21. It also has good Phase 2 glioma results. It is at least possible that HerpV will be on the backburner for a while, given the cost of proceeding to Phase III. That could give Genocea a chance to catch up with a full Phase 2 trial.
Agenus prefers the term checkpoint antibodies for CPMs (checkpoint modulators), which are also called cancer checkpoint inhibitors and variations on that. The key word in checkpoint: some cancer cells are able to signal to the immune system T-cells that they are not cancer. In other words, they can pass the cancer checkpoint test despite being cancerous. There are quite a few cancer checkpoint molecules, with the PD-1 and PD-L1 pair being best-known. Appropriate antibodies can inhibit (or strengthen or modulate) the checkpoint mechanism, allowing the immune system to "see" and destroy the cancer cells despite their attempts to cloak themselves.
Bristol-Myers Squibb (NYSE:BMS) was the first to commercialize a CPM with Yervoy for melanoma, targeting the CTLA-4 checkpoint molecule. The race is on. Cancer is complicated, with a wide variety of mutations manifesting various strategies to fool the immune system. Most oncologists think this is the next frontier in cancer therapy. Combining CPMs with vaccines, in particular T-cell generating vaccines, could be the 1-2 punch that finally wipes out many forms of cancer.
Agenus came late to the CPM development game by way of acquiring 4-Antibody AG in February 2014. The fit was a very nice one, as Agenus had experience with vaccines, clinical trials, and negotiating with larger pharmaceutical companies, which 4-Antibody lacked. But 4-Antibody had its proprietary Retrocyte Display platform for discovering and optimizing fully human antibodies. 4-Antibody brought antibodies to six checkpoint targets with it. 4-Antibody shareholders received 3.3 million shares of Agenus stock and cash and contingent payments that could mount to about $40 million.
Merck (NYSE:MRK) was impressed enough to hire Agenus to use Retrocyte Display to discover and optimize antibodies against two undisclosed checkpoint targets. If successful Agenus could receive about $200 million in milestone payments and eventually a royalty if the therapies are ever commercialized.
How should investors view this technology? The naysayer argument would be that any graduate student can now manufacture monoclonal antibodies, and that the checkpoints targeted by Agenus so far are well known. The reality is that this is a tricky art. The reactions between white blood cells, other parts of the immune system, and target cells are complicated. Amplifying a checkpoint can cause the immune system to attack healthy cells as well as cancer cells.
Given Agenus's long experience in immunology, including cancer immunology, the company has the right knowledge base to carry the program forward.
CEO Garo Armen indicated during the question and answer session at the Q3 analyst call on October 31 that there is considerable interest in 4-Antibody's platform beyond Merck. Likely of the six existing antibody-checkpoint pairs, Amgen will develop a couple itself and license out the rest.
For investors the big payday is probably at least 3 years away, given the length of time required for clinical trials. But there should be many milestones along the way, starting with the malaria vaccine approval. Most of the foreseeable milestones will generate cash that will go back into the R&D budget. But a successful Phase III trial of either the herpes or the glioma vaccine would put Agenus in the big leagues.
What is Agenus worth? I would weigh the possibility that HerpV and the glioma vaccine could fail in Phase 3 trials, like Agenus's collaborations with GSK on small cell lung cancer. At the high end of expectations both HerpV and the glioma vaccine get commercialized. Merck and other CPM collaborations get commercialized. Then there might be a billion or more annual revenue while further products are tested and commercialized. If Agenus could retain control of an antigen vaccine with CPM combination with a high cure rate for a difficult cancer, the sky is the limit.
Agenus had $52.9 million in cash and no debt at the end of Q3, burning about $10 million in the quarter. Revenue is erratic, consisting mainly of milestone payments; in Q3 it was $1.6 million, in Q2 $3.1 million. Agenus had raised $56 million in new cash in Q1 by issuing stock. It seems to me that while milestone payments and new collaborations for development may reduce cash burn, further cash could need to be raised in late 2015 or early 2016.
Agenus closed on Wednesday, December 10, 2014 at $3.03 per share. That equates to a market capitalization of $190 million. That looks cheap to me compared to other clinical-stage biotechnology companies I study. The malaria milestone and royalties and Merck deal alone would justify that kind of valuation. While any bad news will of course hurt the stock price, I think there are many more opportunities for upside news.
Disclosure: The author is long AGEN, INO.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article reflects my research and analysis as an individual investor. It is journalism, not financial advice.
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