Agenus Inc. — Q1 2018 Form 10-Q
Business context and reporting period
Clinical-stage immuno-oncology company developing antibody therapies, cancer vaccines, adjuvants and cell therapies. This unaudited report covers the three months ended March 31, 2018; comparisons are with Q1 2017 unless stated otherwise.
Key financial metrics
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Revenue | $1.6 million | $27.0 million |
| Research and development expense | $29.4 million | $32.6 million |
| General and administrative expense | $8.9 million | $7.8 million |
| Operating loss | $41.7 million | $13.3 million |
| Net loss | $54.3 million | $17.1 million |
| Net loss per common share | $0.53 | $0.18 |
| Cash used in operating activities | $40.2 million | $14.8 million |
| Cash and cash equivalents | $52.3 million | $60.2 million at Dec. 31, 2017 |
Revenue and operating performance: Q1 2018 revenue primarily reflected Incyte collaboration activity and deferred revenue; Incyte R&D cost reimbursements were about $1.2 million versus $6.3 million. Q1 2017 revenue included a $20.0 million accelerated milestone payment. Comparability is also affected by adoption of ASC 606: the company reported Q1 2018 revenue of $1.6 million under ASC 606 and disclosed $2.2 million on an ASC 605 basis.
Expenses and unusual items: R&D expense fell 10%, reflecting the 2017 Basel facility closure and other reductions, partly offset by higher antibody-program costs. G&A rose 15%, primarily from personnel and headcount. A $10.8 million debt-extinguishment loss and a $5.0 million fair-value charge for contingent purchase-price obligations contributed to the larger loss. Net interest expense declined to $2.8 million from $4.6 million.
Liquidity and debt: In January, Agenus received $190.0 million gross from selling to HCR its rights to future GSK QS-21 royalties, and used $161.9 million to redeem the royalty-backed notes. Remaining debt principal was $14.1 million (approximately $12.9 million net carrying amount). The royalty-sale liability was $191.1 million net at quarter end; it is accounted for as a liability and accreted as interest expense. Current assets were $65.2 million and current liabilities $30.2 million. Accumulated deficit was $1.1 billion; stockholders’ deficit was $113.2 million. No profit margins were reported.
Material changes, outlook and risks
- Management said available cash was expected to fund operations through Q1 2019, based on current plans and anticipated additional funding. The filing nevertheless disclosed substantial doubt about the company’s ability to continue as a going concern for twelve months from issuance. Management cited potential partnering or out-licensing, asset sales, debt or equity financing, and possible spending reductions as options.
- The company shifted its first-approval strategy from lung cancer to cervical cancer because of competition and clinical data considerations; it was advancing its own CTLA-4/PD-1 combination in second-line cervical cancer. Management cautioned that the impact on timelines and costs had not been fully evaluated. Plans to file multiple INDs within 12–18 months and a commercial organization target of 2020 were aspirational, not assured.
- Incyte has exclusive development and commercialization decision-making for partnered royalty-bearing programs. Agenus may receive up to $510 million in future collaboration milestones, but their achievement and resulting royalties are uncertain. The filing also describes potential dependence on collaborators for development and commercialization.
- Under the HCR agreement, Agenus may receive up to $40.35 million if specified GSK vaccine sales milestones are met. It may owe HCR approximately $25.9 million in 2021 if neither specified 2019 nor 2020 sales threshold is reached; the obligation is guaranteed and secured by substantially all Agenus assets, subject to stated exceptions.
- The company cited clinical, regulatory, manufacturing, competition, intellectual-property, collaboration and financing risks. It remains loss-making and expects significant future R&D spending. Foreign-currency exposure, mainly Swiss franc and British pound, is not hedged with derivatives.
- After quarter end, Agenus received approximately $3.2 million net from April at-the-market stock sales and terminated the sales agreement on May 7, 2018.
Important facts for investors to verify
- Cash runway assumptions, actual subsequent financing, and the going-concern disclosure.
- Clinical progress, trial enrollment, safety and efficacy data, and the revised cervical-cancer strategy and timelines.
- GSK vaccine sales against HCR milestone and rebate thresholds, and the future royalty-liability accretion.
- Incyte program execution and any milestone, royalty or partnering developments.
- Revenue comparability under ASC 606 versus ASC 605 and the recurring cash-burn trend.