Agenus Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2019. Amounts are in U.S. dollars; financial statements are unaudited. Agenus is a clinical-stage immuno-oncology company developing antibody, vaccine, adjuvant and cell-therapy programs.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $15.7 million | $15.9 million | $95.6 million | $17.5 million |
| Operating loss | $41.1 million | $16.6 million | $14.9 million | $58.3 million |
| Net loss | $51.9 million | $25.2 million | $34.4 million | $79.5 million |
| Net loss per share | $0.38 | $0.24 | $0.24 | $0.76 |
- Q2 revenue included $9.3 million of non-cash royalty revenue from QS-21 royalties sold to HCR, $4.4 million of research and development revenue and $2.1 million of other revenue. Six-month revenue included $65.5 million from recognition of the Gilead upfront license fee and $17.9 million of non-cash royalty revenue.
- Research and development expense increased 55% in Q2 to $45.2 million and 45% for the six months to $85.4 million, mainly reflecting antibody-program costs, AgenTus activity and higher personnel expenses. General and administrative expense rose 20% in Q2 to $11.4 million and 21% for the six months to $22.2 million.
- Six-month operating cash flow was positive $40.9 million, compared with cash used of $70.8 million in 2018. The filing attributes the improvement principally to deferred revenue and other non-cash adjustments; operating cash flow does not indicate recurring operating profitability.
- Cash and cash equivalents were $121.7 million at June 30, up from $53.1 million at year-end 2018, but down $36.6 million from March 31, 2019. The filing’s quarterly cash-flow table and six-month cash-flow statement present different period views; the latter reports $40.9 million of cash provided by operations for the six months.
- Current assets were $138.9 million and current liabilities $121.7 million. The company reported $14.1 million of debt principal, including $14.0 million of 2015 subordinated notes due February 2020. The net liability associated with the sale of future royalties and milestones was $211.7 million.
- The balance sheet showed a $161.6 million stockholders’ deficit and accumulated deficit of $1.2 billion. Common shares outstanding were 137.3 million at June 30, compared with 120.0 million at December 31, 2018.
Material changes and transactions
- Under its Gilead collaboration, Agenus received $120 million cash upfront and Gilead invested $30 million in Agenus equity in January 2019. Agenus recognized $74.1 million of collaboration revenue in the first half, including the $65.5 million license fee. A $7.5 million milestone was received in March; a further $7.5 million milestone was triggered in July, after quarter-end.
- Six-month revenue rose sharply year over year due to Gilead license revenue; Q2 revenue was roughly flat year over year. Q2 losses widened as R&D spending and net interest expense increased. Six-month net loss improved versus 2018, partly reflecting the Gilead fee and the prior-year debt-extinguishment loss.
- Interest expense was $18.9 million for the first half, including non-cash interest associated with HCR. The estimated effective annual interest rate over the HCR agreement’s life increased to 20.2% (prospective rate 18.5%).
- Agenus adopted the new lease accounting standard on January 1, 2019, recording operating lease assets and liabilities; adoption did not affect the income statement or cash flows.
Outlook, commentary and key risks
- Management estimated that June 30 cash would fund operations into the second quarter of 2020, but said additional capital is needed to finance operations through and beyond that period. The company stated that substantial doubt exists about its ability to continue as a going concern for one year after filing unless it obtains significant additional financing. Management cited potential collaboration or licensing deals, asset sales, debt financing and equity issuance, as well as possible spending reductions.
- Management was targeting a BLA filing for its CTLA-4/PD-1 programs in second-line cervical cancer in 2020 and possible first commercial launches as early as late 2020. These are targets, not assurances; the filing notes aggressive timelines, patient-enrollment and regulatory uncertainties, and that a confirmatory trial had not yet been initiated.
- Gilead collaboration terms include potential aggregate milestones of up to $1.7 billion, subject to development and commercial events. Gilead may terminate agreements for convenience on 90 days’ notice. Agenus remains responsible for developing option programs to decision points and bears specified costs before any option exercise.
- Potential HCR obligations include an approximately $25.9 million payment in 2021 if neither specified Shingrix sales threshold is met. The 2015 notes mature in February 2020. Both obligations may pressure liquidity.
- Key risks include ongoing clinical-stage losses and financing dependence; clinical, regulatory and enrollment setbacks; reliance on collaborators and contract manufacturers; competition and intellectual-property disputes; foreign-currency exposure; and potential dilution from equity offerings, options and convertible securities. The company said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Agenus secures sufficient financing to address the stated going-concern uncertainty and cash needs beyond Q2 2020.
- Cash burn and the composition and repeatability of operating cash flow, particularly the effect of Gilead deferred revenue and non-cash items.
- Clinical-trial progress, enrollment, confirmatory-trial plans and regulatory milestones supporting the targeted 2020 BLA timeline.
- Gilead’s development decisions, option exercises and any milestone receipts; distinguish potential collaboration payments from realized revenue or cash.
- Shingrix sales against HCR thresholds, the possible 2021 rebate, HCR financing costs and the February 2020 notes maturity.
- Potential dilution from available equity issuance capacity, outstanding options and preferred shares, and the status of the proposed token offering, for which no token sales had closed as of filing.