Agenus: Out Of Favor Immuno-Oncology Pioneer Powers On

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About: Agenus Inc. (AGEN)
by: Out of Ignorance
Summary

At the close of Q1 2019, Agenus had a hefty accumulated deficit exceeding $1.1 billion compared to a current market cap of ~$366 million.

Along the way, Agenus has accumulated a nice portfolio of immuno-oncology assets.

Agenus' various partnership deals support its valuation by validating its technology and strengthening its finances.

Watch out for B.E.S.T. monetization or as some might say financial engineering; it is on its way.

Agenus' liquidity should be solid for a year or more.

In my never-ending search for a biotech that presents asymmetric potential in terms of reward compared to cost, I recently took a closer look at one of my watch list biotechs, Agenus, Inc. (AGEN). I found a company that has trudged the long and lonesome road as it continues its quest to break out from the pack of cancer therapeutic candidates.

At the close of Q1, 2019, Agenus had a hefty accumulated deficit exceeding $1.1 billion compared to a current market cap ~$366 million

Agenus has been slogging the biotech byways since its 1994 founding by co-founder and current CEO Garo H. Armen, Ph.D. Its 2000 IPO of 3.5 million shares at a share price of $18 generated $63 million less expenses. Since that time, its share count has risen while its share price has fallen off per the chart below:

Chart Data by YCharts

The initial price drop was no doubt exacerbated by the general market turmoil greeting the new millennium; in recent years, short interest has played its part in stressing the share price. In the chart above, the price and count are adjusted for the one for six reverse stock split that Agenus endured in 2011 in order to maintain its NASDAQ listing.

In order to progress to its current prominence as hereafter described in more detail, Agenus has amassed an accumulated deficit of >$1.1 billion as per its Q1, 2019, 10-Q (p. 8) reflecting recurring losses over its lifetime. The 10-Q further sets out the following as its funding mechanisms for this deficit:

As of March 31, 2019, we had an accumulated deficit of $1.2 billion. Since our inception, we have successfully financed our operations through the sale of equity and assets, notes, corporate partnerships, and interest income. We believe that, based on our current plans and activities, our cash on-hand will be sufficient to satisfy our liquidity requirements for more than one year from when these financial statements were issued. We continue to monitor the likelihood of success of our key initiatives and are prepared to discontinue funding of such activities if they do not prove to be feasible, restrict capital expenditures and/or reduce the scale of our operations.

The 10-Q immediately proceeds to set out its program for securing future liquidity needs:

...[to] be determined primarily by the success of our operations with respect to the progression of our product candidates and key development and regulatory events in the future. Potential sources of additional funding include: (1) pursuing collaboration, out-licensing and/or partnering opportunities for our portfolio programs and product candidates with one or more third parties, (2) renegotiating third party agreements, (3) selling assets, (4) securing additional debt financing and/or (5) selling equity securities. Our ability to address our future liquidity needs will largely be determined by the success of our product candidates and key development and regulatory events and our decisions in the future.

Despite these concentrated efforts to build value over the years, Agenus has a current market cap of ~$366 million. Sad to say there are dozens of development stage biotechs in equally or more parlous straits. Glad to say, as will be discussed, Agenus has superior prospects of improving its lot.

Along the way, Agenus has accumulated a nice portfolio of immuno-oncology assets

Agenus' long years of labor have generated more than just deficits; it also has accumulated a multi-pronged immuno-oncology [I-O] pipeline. As noted by CEO Armen during its Q1, 2019 earnings CC, it has:

...checkpoint modulating antibodies, neoantigen vaccines, adjuvants, and adoptive cell therapy approaches, both with TCR and CAR-T therapies all of which exists in-house.

According to COO Buell, Agenus is looking for a productive 2019; it includes trials that may result in BLA filings that could be as early as 2020. Both trials are in second line cervical cancer, including a PD-1 monotherapy trial and a combination trial of PD-1 and CTLA-4.

Apparently, these trials are enrolling more quickly than expected leading to the possibility of clinical data by the end of 2019. Beyond its first generation CTLA-4 molecule, Agenus has developed a second generation CTLA-4 molecule which it expects to broaden the reach of its combination strategies. Agenus expects clinical readouts on this by the end of 2019 which will potentially pave the way for an ex-US monetization.

COO Buell touts Agenus:

...product discovery and product development focus[ed] ... on achieving high responses and durable responses. This means we are focused on shorter trials, lower costs trial and more rapid product development registrations as well as combination product registrations. Our opportunities for combinations also includes combinations with our checkpoint antibodies, our bispecifics, our cell therapies and our vaccines. Our access to these combination agents is a major advantage, which helps our ability to rapidly deliver on our high impact strategy.

She also notes that Agenus' combination of I-O building blocks, together with its GMP manufacturing capabilities, allow it to build its pipeline quickly and at lower cost.

A significant and bold recent Agenus move was its October 2017 formation of AgenTus as a independent wholly owned cell therapy company. Over the intervening year, AgenTus has built up a team of 39 employees and a pipeline of five TCR candidates and two CAR-T candidates. It is on track this year to file INDs for a proprietary allogeneic cell format and an autologous TCR for patients with cancer.

On its website, Agenus features the following graphic under the caption "pipeline-at-a-glance".

Agenus pipeline-at-a-glance

In evaluating this pipeline for current investors, it is important to recognize that Agenus has already monetized a number of these assets as described in the section below.

Agenus' various partnership deals support its valuation by validating its technology and strengthening its finances

Over its lifetime, Agenus (fka Antigenics) has entered into a series of key agreements with established pharma players. One such group with a lengthy pedigree extending to before 2006 (p. 13) is its series of agreements with GlaxoSmithKline (GSK) concerning the important adjuvant (qs-21).

The Glaxo qs-21 adjuvant deals have provided significant revenue to Agenus for a long time, most recently reflected in a 1/8/18 $230 million royalty monetization deal with HealthCare Royalty Partners [HCR]. The HCR/Agenus qs-21 deal was used to pay off a prior qs-21 secured financing to Oberland Capital with remainder to be used towards its registrational studies with anti-CTLA-4 and anti-PD-1 for planned BLA filings in 2019 and 2020.

In 2014, Agenus entered into a collaboration with Merck for "the discovery and development of therapeutic antibodies to immune checkpoints for the treatment of cancer". In 2015, it entered into the first of a complicated series of deals with Incyte (NASDAQ:INCY) (pp. 5-6) "to discover, develop and commercialize novel immuno-therapeutics using [its] ...antibody platforms."

Per Agenus' 2018 10-K, as of 12/31/18, taking into account its outstanding royalty arrangements, "[it] remain[s] eligible to receive up to $450 million and $85.5 million in potential development, regulatory and commercial milestones from Incyte and Merck, respectively."

With Agenus' older deals substantially parceled out, its December 2018 announcement of its Gilead deal was good news indeed. Closed in January 2019, this deal delivered an upfront payment of $120 million together with an investment in Agenus of $30 million.

Its Gilead deals establish a license to Agenus' bispecific antibody, AGEN1423 (now GS-1423), together with options and licenses to Agenus' bispecific antibody, AGEN1223, and its monospecific antibody, AGEN2373. The license gives Gilead, at its cost, full rights to develop and commercialize reserving to Agenus milestones of up to $552 million and tiered royalties of up to mid teens.

The two option licenses have Agenus separately developing the subject molecules up to phase 1b. Upon Agenus delivery to Gilead of a complete phase 1b data package, Gilead has a 90-day option exercise right for $50 million as to each, with potential $520 million milestones and tiered royalties.

In the aggregate, these Gilead deals are potentially transformative for Agenus with potential payouts in the billions. Whether they turn out to be, in fact, depends to a large extent on whether Gilead develops these molecules to their fullest extent.

On the accomplishment front, COO Buell notes that Agenus':

...earlier innovations have been important catalysts for at least one blockbuster product for our partners. Sales of GSK's Shingrix vaccine powered with our QS-21 [adjuvant] has achieved over $1 billion in revenues in its first year of launch, it's expected to reach $1.3 billion in revenues this year. Also, this year, GSK announced the launch of a large trial with the QS-21 containing vaccine, Mosquirix, the first ever malaria vaccine. The global burden of malaria is immense, and more than 400,000 people dies each year.

Watch out for B.E.S.T. monetization or as some might say financial engineering; it is on its way

During its lengthy and productive lifetime, Agenus has always worked its finances to the very edge. It has been favored with meaningful collaborations with major companies calling for extended payouts. In order to minimize more dilutive and risky financings, it has monetized its revenue streams with the various deals as described above.

Of late, it has been working on a new form of monetization of otherwise illiquid assets. It names this prospective program "BEST", an acronym for "Biotech Electronic Security Token". This program potentially allows Agenus to monetize as yet unpartnered assets before FDA approval; Agenus has put out a PDF describing this program portions of which I set out below:

Agenus

This PDF also goes on to describe the economics of the BEST program as follows:

Economics of Agenus

CEO Armen discusses the BEST program during Agenus' Q1 2019, earnings CC, without helping out at all in terms of projecting cash to be received or timing of issuance. He did state an intent to complete the offering by the end of the year but without providing any detail on its size.

Agenus' liquidity should be solid for a year or more

During Agenus' earnings CC, its financial report by its VP of Finance Christine Klaskin has to set a record for brevity. It included the following, in its entirety:

Thank you, Garo. We ended the first quarter of 2019 with a cash balance of $158 million. This compares to a $53 million balance at December 31, 2018. For the first quarter ended March 31, 2019, we reported net income of $17 million or $0.14 per share compared to a net loss for same period in 2018 of $54 million, or $0.53 per share. In this first quarter, we recognized revenue of $80 million which includes revenue from our transaction with Gilead and non-cash royalties earned.

I'll now turn the call back to Garo.

If one turns to its earnings press release, one can find the following glimpse of quarterly expenses (first column Q1, 2019, second column Q1, 2018):

With cash expenses of ~$50 million, cash on hand will extend for the balance of the year. Whatever take there is on the BEST offering or on any collaboration deal that may be in the offing will extend into 2020.

Conclusion

Agenus' has had a distinguished, albeit at times financially challenging, past as an I-O pioneer. It has not labored in vain over these long years. Rather, it has acquired a string of building blocks, plus an unparalleled expertise, in this most potentially lucrative corner of the biotech universe.

Agenus has nettlesome characteristics as exemplified by its perfunctory financial report for Q1 2019. Accordingly, I am carefully sizing my exposure to this name below a threshold where it can cause serious distress. I am optimistic that this modest position will provide outsized reward as the years unfold.

Disclosure: I am/we are long AGEN AND GILD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I may buy or sell shares in AGEN or GILD over the next 72 hours.