AGENUS INC annual report, FY2014

Agenus Inc. — FY 2014 Form 10-K

Reporting period: Fiscal year ended December 31, 2014; the filing also presents unaudited fourth-quarter results. Agenus is an immunotherapy company with antibody, heat shock protein vaccine, and QS-21 vaccine-adjuvant programs. Its candidates were primarily preclinical or in clinical development; reported revenue was not from commercial product sales.

Financial performance and liquidity

Metric	FY 2014	FY 2013
Revenue	$7.0 million	$3.0 million
Research and development expense	$22.3 million	$13.0 million
General and administrative expense	$21.2 million	$14.5 million
Operating loss	$43.3 million	$25.0 million
Net loss	$42.5 million	$30.1 million
Net loss per common share	$0.71	$1.12
Net cash used in operating activities	$38.2 million	$19.5 million

• Revenue increased 129%, mainly from amortization of deferred revenue associated with the 4-Antibody acquisition and a milestone payment. FY 2013 also included service revenue. FY 2012 revenue of $16.0 million included sizable one-time license payments and is not a reliable recurring baseline.
• Net loss widened as R&D and G&A costs rose following the 4-Antibody acquisition and increased checkpoint-modulator development. The 2014 operating loss also included a $6.7 million fair-value charge for contingent acquisition consideration. Loss per share narrowed despite the larger net loss, as weighted-average shares rose from 29.8 million to 59.8 million.
• Fourth-quarter 2014 revenue was $1.6 million and net loss was $26.0 million, versus $0.4 million revenue and $5.8 million net loss in fourth-quarter 2013. The filing does not clearly allocate the fourth-quarter loss among specific causes.
• At year-end, cash and cash equivalents were $25.7 million and short-term investments were $14.5 million, together $40.2 million, versus $27.4 million in cash and equivalents at year-end 2013. Current assets were $42.7 million and current liabilities $9.2 million. Stockholders’ equity was $23.0 million, compared with a $4.5 million deficit.
• Year-end debt principal was $6.3 million. The company reported $20.2 million of contractual obligations, including $6.5 million of long-term debt payments and $13.7 million of operating leases. No off-balance-sheet arrangements were reported. Profit margins are not a meaningful operating measure for this development-stage business; it reported operating losses and no commercial product sales.

Material changes and significant developments

• Agenus acquired 4-Antibody AG in February 2014 for approximately $19.8 million in purchase consideration, including stock and contingent consideration. The acquisition added the Retrocyte Display antibody-discovery platform and preclinical checkpoint-modulator programs. A $20 million market-capitalization milestone was achieved in January 2015 and became payable to former 4-Antibody shareholders.
• In February 2014, Agenus raised approximately $56.0 million net in an equity offering. For FY 2014, financing activities provided $52.8 million, primarily from equity issuance; operating and investing activities used $38.2 million and $16.8 million, respectively.
• In February 2015, Incyte paid $25 million upfront under a global collaboration and purchased approximately 7.76 million Agenus shares for $35 million. The collaboration initially covers GITR, OX40, TIM-3 and LAG-3 antibodies. Agenus and Incyte share GITR and OX40 costs and profits 50:50; Incyte funds development costs for TIM-3 and LAG-3, with Agenus eligible for milestones and royalties.
• Also in February 2015, Agenus refinanced $5 million of subordinated notes and issued an additional $9 million of notes, bearing 8% interest and due in February 2018. The company stated that year-end resources plus the $60 million Incyte proceeds and $9 million of new note proceeds were expected to fund operations through the first half of 2016. This outlook is subject to execution, spending, and financing risks and should be considered alongside the $20 million milestone obligation.

Outlook, risks, and unusual items

• Management anticipated filing one or more checkpoint-modulator INDs in 2015, at least three in 2016, and beginning first clinical trials in 2016. These were plans, not assurances of timing or success.
• Prophage’s 2014 Phase 2 results in newly diagnosed glioblastoma included median overall survival of 23.8 months and median progression-free survival of 18 months, compared with historical controls. The trial was single-arm; Agenus was exploring a partner or other funding for Phase 3. The NCI-supported recurrent-glioma trial had slow enrollment, and another melanoma study had not begun enrolling.
• HerpV Phase 2 results showed a statistically significant viral-load reduction among immune responders, but Agenus stated that the magnitude might not translate into meaningful reductions in symptoms, lesions, or transmission.
• GSK reported that its shingles vaccine candidate using QS-21 met a Phase 3 primary endpoint, reducing shingles risk by 97.2% versus placebo in adults aged 50 and older. A malaria candidate had also produced positive Phase 3 results. These programs are controlled by partners; approval, launch, and royalties are uncertain. Conversely, GSK terminated a Phase 3 lung-cancer vaccine trial after it missed its primary endpoint, and its melanoma study had not met its first co-primary endpoint.
• Agenus had accumulated losses of $691.3 million and expected continued losses. Its ability to fund development depends on additional financing, partnerships, and potential partner product success. Other notable risks include early-stage clinical programs, competition, regulatory and manufacturing challenges, reliance on collaborators, debt covenants, foreign-currency exposure, and patent protection. The Russian Oncophage approval had not generated meaningful sales, and its NewVac agreement expired in 2014.
• The financial statements received an unqualified audit opinion. Management and the auditor reported effective internal control over financial reporting, but the assessment excluded 4-Antibody’s controls, covering approximately $4.2 million of assets and $1.5 million of revenue.

Key facts for investors to verify

• Whether the Incyte collaboration advances to INDs and clinical trials on the stated timetable, and how shared development costs affect Agenus’ cash use.
• Whether the $20 million 4-Antibody milestone was paid, and the resulting effect on liquidity and the stated first-half-2016 funding runway.
• Whether GSK’s and Janssen’s QS-21 programs obtain regulatory approvals, launch products, and produce royalties for Agenus.
• Whether Prophage receives a development partner or funding, and whether its encouraging historical-control comparisons are confirmed in controlled trials.
• Whether HerpV’s immune and viral-load findings translate into clinically meaningful benefit.
• Future operating cash burn, financing needs, dilution, debt service and covenant compliance; reported results show substantial recurring losses and no established commercial product revenue.