AGENUS INC annual report, FY2016

Agenus Inc. — FY2016 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2016. This is an annual report, not a standalone fourth-quarter filing; selected Q4 results are included below. Agenus is a clinical-stage immuno-oncology company developing antibody therapies, cancer vaccines and vaccine adjuvants.

Financial performance and condition

Metric	FY2016	FY2015
Revenue	$22.6 million	$24.8 million
Research and development expense	$95.0 million	$70.4 million
General and administrative expense	$33.1 million	$28.4 million
Operating loss	$107.5 million	$80.7 million
Net loss	$127.0 million	$87.9 million
Net loss per common share, basic and diluted	$1.46	$1.13
Net cash used in operating activities	$80.0 million	$47.2 million

Revenue decreased primarily because deferred-revenue amortization fell to $3.5 million from $9.2 million, partly offset by higher Incyte development-cost reimbursements. Incyte accounted for 87% of 2016 revenue, versus 95% in 2015. R&D spending rose 35%, mainly reflecting antibody-program development, third-party services, increased headcount and depreciation.

• Liquidity: Cash, cash equivalents and short-term investments were $76.4 million at year-end, down from $171.7 million. Current assets were $91.3 million and current liabilities were $40.9 million.
• Debt: Principal outstanding was $114.1 million; the balance-sheet carrying value, including accrued non-cash interest and other adjustments, was approximately $130.7 million. Net interest expense was $17.3 million, up from $6.6 million.
• Equity: Stockholders’ deficit was $39.1 million, compared with positive equity of $70.7 million a year earlier. Accumulated deficit was $905.3 million.
• Q4 2016: Revenue was $5.6 million, net loss was $26.1 million, and operating cash use was $16.0 million.

Material changes and developments

• Losses and operating cash use increased substantially year over year as Agenus expanded R&D and advanced its pipeline. Cash and investments declined by $95.2 million.
• Three antibody candidates—CTLA-4, GITR and OX40—entered clinical trials during 2016. A Phase 1/2 study of anti-GITR began in June; a Phase 1/2 anti-OX40 study began in November. Agenus expected its anti-PD-1 candidate to enter the clinic in the first half of 2017.
• In February 2017, Incyte amended its collaboration: GITR and OX40 converted from shared-cost profit-share programs to royalty-bearing programs, with Agenus eligible for flat 15% royalties. A TIGIT program reverted to Agenus with a reciprocal 15% royalty arrangement. Agenus received $20 million in accelerated milestones and became eligible for up to $510 million in potential future milestones across the collaboration.
• In a related February 2017 stock purchase, Incyte bought 10 million Agenus shares at $6 each, investing $60 million and bringing its ownership to approximately 18.1%. The filing describes approximately $80 million of combined net proceeds and milestone receipts from the February transactions.
• GSK filed for approval of its QS-21-containing shingles vaccine in the U.S., EU and Canada in 2016. Potential GSK product launches were anticipated in 2018, subject to regulatory approval. Agenus had monetized much of the related shingles and malaria royalty stream to service royalty-backed notes.

Outlook, risks and unusual items

• Management said year-end resources, together with approximately $80 million from the February 2017 Incyte transactions, were expected to fund operations through the first half of 2018. Agenus expects continued losses and may need additional financing; future funding may not be available on favorable terms or at all.
• Management planned to initiate an AutoSynVax clinical trial in the first half of 2017 and to pursue combination trials using its CTLA-4 and PD-1 antibodies. These are plans, not assurances of trial initiation or success.
• The randomized Phase 2 Prophage-plus-pembrolizumab study in newly diagnosed glioblastoma was being conducted by the NCI and collaborating sites. Separately, an Alliance-sponsored Prophage-plus-bevacizumab recurrent-glioma study was closed after an interim analysis found it unlikely to show a survival advantage over bevacizumab alone.
• Prophage had not achieved marketing approval outside Russia, where commercialization was unsuccessful. Reported clinical results include a single-arm newly diagnosed glioblastoma study; they should not be treated as confirmatory evidence of efficacy.
• The $100 million royalty-backed notes accrue interest at 13.5% compounded quarterly. Interest may capitalize if pledged GSK royalties are insufficient; principal and interest repayment depend on future GSK vaccine approvals and sales. Certain put, make-whole and default obligations are guaranteed by Agenus and could adversely affect liquidity.
• Other key risks include dependence on Incyte and other partners, early-stage clinical and regulatory uncertainty, competition, manufacturing and trial-enrollment risks, patent protection, and further capital needs. The company reported no material legal proceedings and no off-balance-sheet arrangements.
• KPMG issued an unqualified audit opinion on the financial statements and internal controls. Management concluded disclosure controls and internal control over financial reporting were effective at December 31, 2016.

Investor facts to verify

• Cash runway and burn rate against the first-half-2018 liquidity estimate, including actual cash received and use of the February 2017 Incyte proceeds.
• Clinical-trial initiation, enrollment, safety and efficacy updates for CTLA-4, GITR, OX40, PD-1, AutoSynVax and the NCI Prophage study.
• Incyte’s development progress, manufacturing transfer, milestone eligibility and the practical value of potential royalties.
• Regulatory and commercial progress for GSK’s shingles and malaria vaccines, and the resulting repayment schedule and exposure under the royalty-backed notes.
• Debt carrying value versus principal, accrued interest, contractual obligations, and potential dilution from equity issuance, options and warrants.