Agenus Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Agenus is a clinical-stage immuno-oncology company developing antibody, vaccine, adjuvant and cell-therapy programs. Financial amounts below are in U.S. dollars; millions unless otherwise noted.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Total revenue | $79.9 million | $1.6 million |
| Research and development expense | $40.1 million | $29.4 million |
| General and administrative expense | $10.8 million | $8.9 million |
| Operating income (loss) | $26.2 million | $(41.7) million |
| Net income (loss) | $17.4 million | $(54.3) million |
| Net income (loss) attributable to common stockholders | $18.5 million | $(54.2) million |
| Net income (loss) per share, diluted | $0.12 | $(0.53) |
| Cash provided by (used in) operating activities | $76.6 million | $(40.3) million |
- Revenue included $70.9 million of research and development revenue, $0.4 million of grant revenue and $8.6 million of non-cash royalty revenue. Gilead collaboration revenue was $70.3 million, including $65.5 million from recognition of an upfront license fee.
- The reported profit and operating cash inflow were substantially affected by the Gilead transaction and revenue-recognition timing. Operating cash flow included a $56.6 million increase in deferred revenue; it should not be read as recurring operating cash generation. No gross margin is presented in the filing.
- Cash and cash equivalents were $158.3 million at quarter-end, up $105.3 million from December 31, 2018. Management stated that cash on hand was expected to fund liquidity requirements for more than one year from issuance of the financial statements.
- Debt principal was $14.1 million, including $14.0 million of 2015 subordinated notes due February 2020. The net liability for sold future royalties and milestones was $210.9 million; related Q1 non-cash interest expense was $9.3 million. Total interest expense, net, was $9.1 million.
- Current assets were $179.1 million and current liabilities were $105.5 million. Stockholders’ deficit was $119.3 million. The company had an accumulated deficit of approximately $1.2 billion.
Material changes and transactions
- Compared with Q1 2018, revenue rose sharply and the company reported operating and net income instead of losses, primarily reflecting the Gilead collaboration; this does not establish recurring profitability.
- In January 2019, Gilead paid $120.0 million upfront and invested $30.0 million in Agenus common stock at $2.70 per share. Agenus also received a $7.5 million milestone payment in March. The agreements cover development and commercialization of up to five immuno-oncology therapies, with up to $1.7 billion in potential aggregate fees and milestones, plus potential royalties. Most potential payments remain contingent.
- Gilead received worldwide rights to AGEN1423 (now GS-1423), and options over AGEN1223 and AGEN2373. The FDA accepted the AGEN1423 IND in March. Agenus planned to file INDs for the option programs in mid-2019.
- R&D expense increased 36%, mainly from third-party services and antibody-program activity, AgenTus Therapeutics costs, and increased headcount. G&A expense increased 21%.
- Agenus issued 11.1 million shares to Gilead. Common shares outstanding were 134.2 million at March 31, versus 120.0 million at December 31, 2018. The filing reports diluted weighted-average shares of 148.6 million for Q1 2019.
- The company adopted the new lease accounting standard on January 1, 2019, recording operating lease right-of-use assets of $5.7 million and lease liabilities at adoption. Adoption had no reported impact on the income statement or cash flows.
Outlook, commentary and risks
- Agenus reported no formal financial guidance. It expects significant losses over coming years as it funds research, clinical development, regulatory work and potential commercialization preparation. Management may reduce spending or scale operations if initiatives are not feasible and identified partnering or financing sources may not be available on favorable terms.
- The company shifted its intended first-approval strategy from lung cancer to cervical cancer, citing competition and data affecting the prospects for accelerated approval. It was advancing its anti-CTLA-4 and anti-PD-1 combination in second-line cervical cancer. The filing described potential BLA filings in 2020 and commercialization in 2021 as aggressive, uncertain objectives; a confirmatory trial had not yet been initiated.
- Key risks include clinical-trial, enrollment, safety, efficacy and regulatory uncertainty; dependence on Gilead, Incyte and other partners; competition; manufacturing and supply constraints; intellectual-property and litigation exposure; and the need for further capital. Agenus cautioned that clinical-stage programs may not succeed or produce meaningful revenue.
- The HCR royalty agreement carries a potential approximately $25.9 million payment in 2021 if neither specified Shingrix sales threshold is met: 2019 sales above $1.0 billion or 2020 sales above $1.75 billion. GSK reported 2018 Shingrix sales above $1.0 billion, which does not itself satisfy either stated threshold.
- The company had launched a proposed security-token offering but had not sold any tokens as of the filing. It cautioned that proceeds, liquidity and a trading market were uncertain, and that token-related regulatory and technology risks remained.
- Management said disclosure controls and procedures were effective at quarter-end and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of reported revenue and cash flow reflects nonrecurring Gilead upfront consideration and deferred-revenue accounting, versus ongoing collaboration services or other recurring sources.
- Progress and timing of the planned AGEN1223 and AGEN2373 IND filings, Gilead’s option decisions, and any milestones actually achieved.
- Enrollment, trial results and regulatory progress for the cervical-cancer programs, including the status and timing of a confirmatory study and any proposed BLA filing.
- Cash use and runway as clinical and manufacturing spending continues, alongside the February 2020 maturity of the $14.0 million subordinated notes and potential HCR payment obligations.
- Shingrix sales against the HCR thresholds and the effect of royalty-sale accounting, including the associated non-cash interest expense and liability estimates.
- Potential dilution from equity issuance, convertible preferred stock, outstanding options and warrants, and any future financing or token issuance.