Agenus Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2013. The filing was signed November 8, 2013. Agenus is a biotechnology company developing immunotherapies for cancer and infectious diseases, including QS-21 Stimulon, HerpV and Prophage vaccines.
Financial performance and position
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Total revenue | $736,000 | $869,000 | $2.65 million | $14.87 million |
| Operating loss | $6.81 million | $4.54 million | $18.75 million | $2.51 million |
| Net loss | $7.32 million | $5.73 million | $24.30 million | $5.88 million |
| Net loss attributable to common stockholders | $7.37 million | $5.93 million | $27.40 million | $6.48 million |
| Basic and diluted loss per share | $0.24 | $0.24 | $0.99 | $0.28 |
- Research and development expense was $3.89 million in Q3 and $9.76 million for the nine months; general and administrative expense was $3.58 million and $11.11 million, respectively. Management attributed increased R&D costs mainly to HerpV activity and personnel bonuses; higher G&A reflected compensation and corporate professional fees.
- Cash and cash equivalents were $30.20 million at September 30, 2013, versus $21.47 million at December 31, 2012. Net cash used in operating activities was $13.99 million for the nine months, compared with $4.29 million provided in the prior-year period. Investing activities used $0.30 million; financing activities provided $23.02 million.
- Current assets were $30.88 million and current liabilities $9.65 million. The company reported $10.2 million of debt principal outstanding. Debt carrying values on the balance sheet differ from principal and include discounts.
- Accumulated deficit was $643.3 million. A $19.6 million contingent royalty consideration liability was recorded, valued using Level 3 inputs and dependent in part on uncertain regulatory approval probabilities.
Material changes and unusual items
- Nine-month revenue fell to $2.65 million from $14.87 million. The 2012 comparison included $12.8 million of revenue from amended license agreements, including expanded GSK rights and a non-core technology royalty buyout; management said those one-time receipts were not indicative of future revenue.
- In April 2013, Agenus exchanged $39.0 million principal of 8% senior secured convertible notes, including accrued interest, for $10.0 million cash, 2.5 million common shares and rights to 20% of certain QS-21 revenue interests and a 0.5% royalty on HerpV net sales. The exchange produced a $3.3 million loss on extinguishment and eliminated $5.6 million of noncontrolling interest.
- The cash payment was financed with a $5.0 million Silicon Valley Bank senior secured loan at 6.75% and $5.0 million of senior subordinated notes at 10%. Scheduled principal payments of approximately $278,000 per month began in November 2013, with remaining principal due in April 2015. The secured loan includes restrictive covenants and default provisions.
- During the nine months, equity sales generated net proceeds of $23.1 million, including approximately $13.6 million from at-the-market sales and $9.5 million from a September registered offering. Common shares issued increased to 35.27 million from 24.65 million at year-end 2012.
- In February, Series A preferred shares were exchanged for Series A-1 shares with a lower annual dividend rate, in return for 666,666 common shares. The share issuance resulted in a $2.9 million deemed dividend to preferred holders.
Outlook, programs and risks
- Management said cash at quarter-end, anticipated equity proceeds and potential licensing, supply or collaboration proceeds were expected to satisfy liquidity needs through 2014. Agenus expected to seek additional funding before exhausting cash and may pursue licensing, renegotiations, asset sales, debt or equity financing. It warned that financing may not be available on acceptable terms or at all and that failure to raise capital could threaten continued operations.
- No specific financial guidance was provided. The company expected continued significant losses and additional R&D spending; it could not reliably estimate the cost or timing of completing programs or when material operating cash inflows might begin. It said it could curtail programs, capital spending or operations to preserve liquidity.
- After quarter-end, in November 2013, Agenus announced top-line Phase 2 HerpV results showing a statistically significant reduction in viral shedding after the initial three injections. Booster-period and final results were expected in the first half of 2014; the filing cautions that reduced shedding may not translate into clinical benefit.
- Management cited encouraging interim results for the Prophage G-100 glioma study, but follow-up and further trials are needed. A randomized Phase 2 G-200 study with bevacizumab was recruiting; it is not designed to provide evidence sufficient for a biologics license application.
- QS-21 revenue depends substantially on partners’ development, approvals and commercialization. The company noted that its composition-of-matter patent for QS-21 had expired in virtually all territories and that it relies on narrower patent rights, know-how and confidential information. Other principal risks include clinical and regulatory uncertainty, manufacturing and supply constraints, competition, limited resources, dilution, and secured-debt covenants.
- Management reported disclosure controls and procedures were effective at quarter-end and no material change in internal control over financial reporting during the nine months.
Investor verification priorities
- Verify cash burn, financing access and the basis for management’s liquidity expectation through 2014; compare subsequent cash use and capital raises with the stated plan.
- Review debt amortization, covenants, collateral, default triggers and the economic cost of the note exchange, including the continuing QS-21 and HerpV revenue interests assigned to former noteholders.
- Track final HerpV Phase 2 results, including booster data, and whether viral-shedding changes demonstrate meaningful clinical benefit.
- Monitor Prophage trial follow-up, regulatory requirements, manufacturing success rates and any partnering or commercialization developments.
- Assess how much future QS-21 revenue remains after the assigned revenue interest and whether licensees advance programs toward approval and launch.