Agenus Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019; filed November 7, 2019. Agenus is a clinical-stage immuno-oncology company developing antibody, vaccine, adjuvant, and cell-therapy programs. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $19.9 | $12.8 | $115.5 | $30.3 |
| Research and development expense | $46.1 | $29.9 | $131.5 | $88.6 |
| General and administrative expense | $11.5 | $9.2 | $33.7 | $27.6 |
| Operating loss | $35.9 | $26.1 | $50.9 | $84.4 |
| Net loss | $46.3 | $33.7 | $80.7 | $113.2 |
| Net loss per common share | $0.33 | $0.29 | $0.58 | $1.04 |
- Nine-month revenue included $65.5 million of Gilead license-fee revenue, $14.2 million of deferred revenue recognized, and $30.1 million of non-cash royalty revenue associated with royalties sold to HCR. The royalty revenue is non-cash to Agenus; the royalties are remitted to HCR.
- Q3 revenue included $12.2 million of non-cash royalty revenue. Q3 research and development revenue was $5.8 million and other revenue was $2.0 million.
- R&D expense increased 48% year over year for the nine-month period, principally from antibody-program third-party services, AgenTus Therapeutics activity, and higher personnel costs. G&A increased 22%, primarily with higher personnel and other costs.
- Net interest expense was $29.6 million for the nine months, up from $16.5 million, largely reflecting non-cash interest on the HCR royalty transaction. The HCR liability, net of transaction costs, was $210.1 million; its current portion was $38.1 million. Agenus reported a 21.1% estimated effective annual interest rate over the agreement’s life and a 19.1% prospective rate.
- Cash and cash equivalents were $93.3 million at September 30, 2019, versus $53.1 million at year-end 2018. Current assets were $107.2 million and current liabilities $132.9 million. Stockholders’ deficit was $204.9 million.
- Operating cash flow was positive $13.1 million for the nine months, versus cash use of $95.3 million in 2018. The company reported a $62.6 million increase in deferred revenue, while non-cash royalty revenue and non-cash interest expense were also significant adjustments. Investing cash use was $3.6 million; financing provided $30.1 million, mainly from the Gilead equity investment.
- Debt principal was $14.1 million, including $14.0 million of 8% subordinated notes due February 2020. The balance sheet classified $13.8 million of debt as current at September 30, 2019.
Material changes and business developments
- Compared with 2018, nine-month revenue rose substantially, mainly due to the Gilead collaboration and higher non-cash royalty revenue. Despite higher R&D and G&A costs, the nine-month net loss narrowed; the Q3 net loss widened year over year.
- Under agreements that closed in January 2019, Gilead paid $120 million upfront, invested $30 million in Agenus common stock, and paid $22.5 million in 2019 milestones. Agenus reported up to $1.7 billion in potential aggregate fees and milestones. Gilead has worldwide rights to GS-1423 and options on two other programs; future payments and royalties depend on development and commercial events.
- Agenus reported that INDs for GS-1423, AGEN1223, and AGEN2373 had been filed and all three programs were in clinical development. Agenus remains responsible for developing the two option programs through the option decision points.
- Common shares issued increased to 137.4 million from 120.0 million at December 31, 2018. Gilead’s $30 million stock purchase was for 11.1 million shares at $2.70 per share.
Outlook, risks, and unusual items
- Liquidity and going concern: Management expected cash resources plus anticipated license fees and milestones to fund operations into Q2 2020, but stated that additional capital would be required through and beyond that point. The filing disclosed substantial doubt about the company’s ability to continue as a going concern for one year after filing unless it obtains significant capital through transactions or other financing. Possible measures include partnering, out-licensing, asset sales, debt or equity financing, spending reductions, and scaling back operations.
- Commercial and clinical plans: Agenus said its first commercial product launches were planned as early as H1 2021 and that it was on track to file its first BLA in 2020 for its CTLA-4/PD-1 combination in second-line cervical cancer. The filing cautions that timelines are aggressive, patient accrual and regulatory review may cause delays, and a confirmatory trial required for accelerated approval had not yet been initiated.
- Potential milestone sources: Management expected additional milestones during 2020 based on Shingrix sales trends and clinical-program progress. The filing reported that the Shingrix sales threshold that avoided a potential $25.9 million payment to HCR had recently been achieved. Other milestone and royalty receipts remain contingent on partner performance and defined events.
- Key risks: Continued operating losses and dependence on new financing; clinical, regulatory, manufacturing, and commercialization uncertainty; reliance on Gilead, Incyte, GSK, and other partners; competitive pressure; possible dilution from equity issuance; and foreign-currency, intellectual-property, data-security, and operational risks. The filing also notes that Gilead may terminate agreements for convenience on 90 days’ notice.
- Other items: Adoption of the new lease standard added operating lease assets and liabilities; operating lease liabilities totaled $9.6 million at quarter-end. A further operating lease with approximately $12.5 million of future minimum payments was expected to commence in Q1 2020 and was not included in the balance sheet at September 30. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during Q3.
Important facts for investors to verify
- Whether Agenus secured sufficient financing or partnership proceeds to address the stated cash runway, going-concern uncertainty, and February 2020 note maturity.
- Actual cash burn and the extent to which reported operating cash flow depends on deferred customer payments and non-cash accounting entries.
- Clinical-trial enrollment, confirmatory-trial initiation, regulatory progress, and support for the targeted 2020 BLA and potential H1 2021 launch.
- Achievement and timing of Gilead, GSK/Shingrix, and other partner milestones, options, royalties, and payments; these amounts are not assured.
- Future share issuance, conversion of preferred stock, and exercise of outstanding options and warrants, including the resulting dilution.
- Updates to the HCR royalty liability and interest estimates, and the payment and lease commitments disclosed in the filing.