Agenus Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2018. Agenus is a clinical-stage immuno-oncology company developing antibody, vaccine, adjuvant, and cell-therapy programs.
Financial highlights
| Metric | Q3 2018 | Nine months 2018 | Prior comparable period |
|---|---|---|---|
| Total revenue | $12.8 million | $30.3 million | Q3 2017: $3.4 million; nine months 2017: $34.5 million |
| Operating loss | $26.1 million | $84.4 million | Q3 2017: $31.7 million; nine months 2017: $73.8 million |
| Net loss | $33.7 million | $113.2 million | Q3 2017: $36.8 million; nine months 2017: $85.7 million |
| Net loss per share | $0.29 | $1.04 | Q3 2017: $0.37; nine months 2017: $0.88 |
| Research and development expense | $29.9 million | $88.6 million | Q3 2017: $25.8 million; nine months 2017: $84.3 million |
| Cash used in operating activities | Not separately stated for the quarter in the cash flow statement | $95.3 million | Nine months 2017: $68.4 million |
At September 30, 2018, cash and cash equivalents were $46.2 million, down $14.0 million from year-end 2017. Current assets were $67.6 million and current liabilities $58.2 million. Debt principal outstanding was $14.1 million, chiefly $14.0 million of 8% subordinated notes due February 2020. The balance sheet also included a net $207.2 million liability related to monetized future royalties and milestones. Stockholders’ deficit was $131.4 million.
Revenue included $11.9 million of non-cash GSK royalty revenue recognized despite royalty rights having been sold to HCR. Research and development revenue was $18.4 million for the nine months, compared with $34.5 million in 2017; 2018 included Incyte milestones and services and a $4.0 million Merck milestone. Reported periods are not fully comparable because Agenus adopted ASC 606 in 2018.
Material changes and financing
- Q3 revenue rose year over year, including $6.5 million of non-cash GSK royalty revenue and a $5.0 million Incyte milestone. Nine-month revenue declined, while nine-month operating and net losses increased.
- R&D expense increased 5% for the nine months, reflecting antibody-program spending and AgenTus Therapeutics activity, partly offset by lower costs following closure of the Basel facility. General and administrative expense rose 15% to $27.6 million.
- In January, Agenus received $190.0 million gross from HCR for all rights to GSK QS-21 royalties and used $161.9 million to redeem the related royalty-backed notes. The redemption generated a $10.8 million early-extinguishment loss. HCR’s transaction is accounted for as a liability and generated $14.7 million of non-cash interest expense in the nine-month period.
- In September, XOMA paid $15.0 million for a portion of future Incyte and Merck royalties and milestones. Agenus retained 67% of future royalties and 90% of future milestones covered by the agreement.
- Equity sales generated $41.3 million net during the first nine months. After quarter-end, Agenus received approximately $3.6 million from ATM sales and approximately $39.9 million net from an October preferred-stock financing convertible into 18.459 million common shares.
Outlook, risks, and unusual items
Management said the September 30 cash balance, October funding, and anticipated additional funding were expected to support liquidity into the second quarter of 2019. Nevertheless, the filing states that substantial doubt exists about the company’s ability to continue as a going concern for twelve months from issuance of the financial statements. Potential funding avenues include partnering or out-licensing, asset sales, debt, and equity financing; management also may reduce spending or operations.
Agenus shifted its strategy for a first approval 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 company described a possible BLA filing as early as 2020 and plans to advance additional candidates into clinical development over the next 9–12 months, but emphasized that timelines are aggressive and uncertain. Clinical success, enrollment, partner decisions, manufacturing, regulatory review, and access to capital remain significant risks.
Other material risks include reliance on Incyte and other collaborators, early-stage pipeline uncertainty, competition in immuno-oncology, patent and manufacturing risks, and potential HCR rebate exposure of approximately $25.9 million in 2021 if specified GSK sales thresholds are not met. 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 cash burn, new financing, and prospective partnerships will support operations beyond the stated second-quarter 2019 runway.
- Progress and funding needs for the cervical cancer program, clinical enrollment, and the stated development timelines.
- GSK vaccine sales against HCR’s milestone and rebate thresholds, and the assumptions underlying royalty-liability interest expense.
- Incyte and Merck program progress, future milestones and royalties, and the effect of the XOMA royalty sale on potential receipts.
- Dilution from the October preferred shares, ATM issuance, outstanding options and warrants, and other registered or potentially issuable shares.