Agenus Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2018. Agenus is a clinical-stage immuno-oncology company developing antibody, vaccine, adjuvant, and cell-therapy programs. The financial statements are unaudited.
Financial performance and position
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Total revenue | $15.9 million | $4.2 million | $17.5 million | $31.2 million |
| Operating loss | $16.6 million | $28.9 million | $58.3 million | $42.1 million |
| Net loss | $25.2 million | $31.7 million | $79.5 million | $48.8 million |
| Net loss attributable to common stockholders | $24.7 million | $31.8 million | $78.9 million | $48.9 million |
| Basic and diluted loss per share | $0.24 | $0.32 | $0.76 | $0.51 |
- Q2 revenue included $10.5 million of research and development revenue and $5.4 million of non-cash royalty revenue. Reported R&D revenue included $4.0 million in Merck milestone revenue and, under the Incyte collaboration, $5.0 million in milestone revenue and $1.1 million for R&D services.
- For the first half, R&D expenses were $58.7 million, versus $58.5 million a year earlier; general and administrative expenses were $18.4 million, up from $15.9 million. R&D expenses increased in Q2 by 13% to $29.3 million, and G&A increased by 17% to $9.5 million.
- Cash and cash equivalents were $43.2 million at June 30, down $17.0 million from December 31, 2017. Six-month operating cash use was $70.8 million, compared with $42.2 million in 2017. Cash provided by financing activities was $56.4 million, including proceeds from the royalty transaction and equity sales.
- Current assets were $67.7 million and current liabilities were $51.3 million. Stockholders’ deficit was $113.1 million; accumulated deficit was $1.1 billion.
- Debt principal outstanding was $14.1 million at June 30 (carrying value about $13.1 million). The remaining $14.0 million 2015 subordinated notes bear 8% interest and mature in February 2020. Capital lease obligations were approximately $0.7 million.
- The company had 111.2 million common shares issued at June 30; 113.3 million shares were outstanding on August 3, 2018.
Changes versus prior periods and unusual items
- First-half revenue fell from 2017, mainly because the prior-year period included $20.0 million of accelerated Incyte milestones and higher Incyte development-cost reimbursements. Q2 revenue rose year over year, including Merck and Incyte milestones and the new non-cash royalty revenue.
- Q2 operating loss narrowed year over year, partly reflecting a $6.3 million favorable fair-value adjustment to contingent purchase-price consideration. First-half operating loss widened; the company also recorded a $10.8 million loss on early extinguishment of debt.
- In January 2018, Agenus sold HCR 100% of its rights to future GSK QS-21 royalties for $190.0 million gross proceeds. It used $161.9 million to redeem the royalty-backed notes and reported approximately $28.0 million of net proceeds. The transaction is accounted for as a liability, not a sale recognized as immediate income: royalties are reported as non-cash revenue while the liability is amortized, with non-cash interest expense. First-half non-cash royalty revenue was $5.4 million and related non-cash interest expense was $7.6 million.
- Revenue comparisons are affected by Agenus’s adoption of ASC 606 on January 1, 2018 using the modified retrospective method; 2017 results were prepared under ASC 605. The filing reports differences between the accounting methods, so reported periods are not fully comparable.
Outlook, risks, and contingencies
- Management said June 30 cash was expected to fund liquidity needs through the first quarter of 2019, assuming anticipated additional funding and current plans. Despite this, the filing disclosed substantial doubt about the company’s ability to continue as a going concern for the twelve months following issuance of the financial statements. Potential funding sources include partnering or out-licensing, asset sales, debt, and equity financing; none is assured.
- Agenus shifted its first-approval strategy from lung cancer to cervical cancer amid competition and trial data considerations. It is advancing its own CTLA-4 and PD-1 combination in second-line cervical cancer. The filing describes a possible BLA filing as early as 2020 and aims to advance additional candidates into the clinic within 12 months, but calls timelines aggressive and subject to clinical, enrollment, resource, and funding risks.
- Incyte controls development, manufacturing, and commercialization for partnered royalty-bearing programs. Agenus may receive up to $505 million in future potential milestones across the collaboration, plus royalties, but payment and commercial success are uncertain.
- Under the HCR agreement, Agenus may receive up to $40.4 million in sales-based milestone payments. It may owe HCR approximately $25.9 million in 2021 if neither specified GSK vaccine-sales threshold is met; the obligation is guaranteed and secured by substantially all Agenus assets, subject to stated exceptions.
- In July and August 2018, Agenus received approximately $4.2 million net from at-the-market sales of about 2.2 million shares. Approximately 10.6 million shares remained available under that sales agreement as of August 9, 2018.
- Key risks include clinical and regulatory failure or delays, reliance on collaborators and contract manufacturers, intense competition, need for additional capital, potential dilution, foreign-exchange exposure, and intellectual-property challenges. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Agenus secured funding or partnering proceeds sufficient to address the going-concern uncertainty and cash needs beyond Q1 2019.
- Subsequent cash burn, equity issuance, share-count changes, and remaining capacity under the at-the-market program.
- Progress, enrollment, safety, and timing for the cervical-cancer combination and other clinical programs, including any update to the stated development timelines.
- GSK vaccine sales relative to HCR’s milestone and rebate thresholds, and changes in the estimated interest rate or amortization of the HCR liability.
- Revenue-recognition effects under ASC 606 and the timing and collectability of milestone and collaboration receivables.