Our analysis concludes Agenus Inc. (NASDAQ:AGEN) offers the best risk/reward in the life sciences industry because:

1. AGEN will file a BLA in 2H2020 for a second line cervical cancer (“CC”) therapy that, if approved, should generate $150MM to $200MM/year in revenues just in its label just in the United States. AGEN’s CC therapy has demonstrated a 26% ORR where the next best therapy (Keytruda from Merck (NYSE:MRK)) showed a 14% ORR. At $4.00/share, AGEN has a market cap of roughly $700MM (with ~$100MM cash and ~$50MM debt) which is equal to ~3 – 4X potential FY2022/2023 US CC related revenues. The rest of world (“ROW”) revenue opportunity for the subject AGEN CC therapy is slightly higher than the US. The FDA has already agreed to “fast-track” the subject AGEN BLA filing. Our analysis concludes AGEN’s enterprise value is a fraction of the value of this combo-therapy in the US by itself (completely excluding ROW and AGEN’s enormous pipeline).

While the author is not an expert in the science, it appears an AGEN combo compound type approach will become more common. Since AGEN will only be the second company to own FDA approved PD-1 & CTLA-4 products, it offers AGEN the chance to be highly “innovative” in its pricing strategies as suggested by AGEN’s CEO before. AGEN has validated manufacturing facilities.

2. The imminent BLA filing alluded to above is for a PD-1/CTLA-4 “combination therapy.” Concurrent with this BLA filing, AGEN will file a BLA for its PD-1 molecule (as a mono therapy) in CC that matched Keytruda’s ORR at 14%. Merck’s Keytruda, a PD-1 therapy, is one of the top selling therapies in the world recording $11.1Billion in FY2019 worldwide revenues. While AGEN will not file a BLA for a CTLA-4 mono therapy, should the FDA approve a wide label for AGEN’s CTLA-4 combination, it is technically possible AGEN’s CTLA-4 candidate will be the second CTLA-4 mono therapy approved in the United States. At a minimum, AGEN will have a roadmap to a CTLA-4 approval. Yervoy, the only FDA approved CTLA-4 from Bristol Myers Squibb (NYSE:BMY) does about $1.5Billion/year/revenues. There are only 3 PD-1’s approved by the FDA in the United States and literally only 1 CTLA-4 compound approved by the FDA. The collective market for these therapies is approximately $20Billion/year as follows:

Agenus Competing therapies

SOURCES:

Merck Q4 2019 Press Release

Bristol Myers Squibb Q4 2019 Press Releases

Regeneron Q1 2020 Form 10Q Footnote 2

Simply put, with approval of these BLAs, AGEN has numerous roadmaps to begin to participate more aggressively in this $20Billion/year market and joins a list of elite pharmaceutical enterprises with valuations in the billions of dollars.

3. AGEN is building a “next-generation” CTLA-4 candidate called AGEN1181. To put the scale of a potential next generation CTLA-4 in perspective, the 2018 Nobel Prize in Medicine was awarded for the discovery of the first CTLA-4 and PD-1. AGEN1181 is producing incredible clinical results early in its Phase 1 trial including an ultra-rare complete response, 1 partial response and a net 70%+ disease control rate for the first 22 patients enrolled to date (NOTE: the 70%+ is “to date” as to be “official” the patient must be stable for 1 year and it has not been an entire year yet). In plain English, tumors are not getting larger in 70% of patients tested to date. Hospitals participating in the AGEN1181 Phase 1 trial have opted to keep patients enrolling, when most other trials were put on hold during the COVID-19 crisis (because AGEN1181 is helping their sickest patients at the most risk). AGEN’s patients are being treated with AGEN1181 at a 1 mg dose. BMY’s Yervoy has 4 complete responses in over 1,000 applications but at a much higher dose (generally speaking the lower the dose the better/safer for the patient).

AGEN has a patient with ovarian cancer who has been “disease steady” for 14 months with AGEN1181. This is considered almost as rare as 1181’s complete response. To be crystal clear the author is not an expert on the science.

4. AGEN has a total of 14 INDs (plus 1 in-process) in various stages of development that all could transition into billion dollar + products. FTSV is clearly not an apples to apples comparison to AGEN, but FTSV was acquired for $5Billion with 4 somewhat similar INDs (in layman’s terms). One of AGEN’s compounds was included in GlaxoSmithKline’s (NYSE:GSK) SHINGRIX therapy that has generated billions and billions of dollars in revenues for GSK.

5. AGEN’s know how, infrastructure and credibility in immuno-oncology are evidenced via partnerships/collaborations with 4 “Big Pharmas” and 1 “Small Pharma.”

The following summarizes the primary reasons our analysis concludes AGEN, at $4.00/share or a $700MM market cap, offers one of the best risk/reward profiles in biotech:

Agenus Offers the Best Risk/Reward profile in biotech

Simply put, our analysis concludes AGEN’s downside is that only their 2 BLAs get approved which would lead to $200MM/year/revenues just in CC just in the United States. AGEN’s longer term upside is a $10Billion+ valuation if AGEN1181 is demonstrated safer & as effective than BMY’s Yervoy. Even longer term, and while perhaps a long shot, if AGEN’s combo therapies (say AGEN1181 in combo with AGEN’s PD-1) could eventually unseat Keytruda, AGEN’s potential valuation is in the hundreds of billions which means literally hundreds of dollars per share. This is demonstrated visually as follows:

AGEN potential revenuesInvestors need to remember the above schedule represents the very big picture related to only 3 of AGEN’s compounds in development. For every AGEN compound in development (15) there are 4 potential markets (like for any biotech company) including:

1. The United States

2. EU

3. China

4. Far East primarily Japan (excluding China)

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Generally speaking, and of course not all the time, but generally speaking, our analysis concludes the market for most cancer therapies is roughly the same in the United States, EU & China. Markets for cancer therapies in the Far East, primarily Japan, are roughly half that of the other three. Investors are encouraged to review G1 Therapeutics (GTHX) investor presentation (page 30) for their analysis of the more prevalent cancers by geography.

Two weeks ago AGEN announced it had entered into an agreement with Betta Pharmaceuticals (“Betta”) giving Betta the commercial rights to develop and market balstilimab (AGEN’s PD-1) and zalifrelimab (AGEN’s first generation CTLA-4) in Greater China in exchange for an upfront payment of $15MM, a $20MM investment in AGEN’s common stock, up to $100MM in other milestones and royalties on sales in China. AGEN may still partner with someone in Japan and in the EU for the same. AGEN has noted it will commercialize these 2 flagship therapies in the US themselves.

There are too many AGEN opportunities to list in this article. Andrea Poloni provides a review of AGEN’s pipeline in another Seeking Alpha article. Incidentally, one of the author’s favorite companies in biotech (from an investment opportunity perspective) is UroGen (URGN). AGEN has a partnership with URGN as well. The fact that URGN opted to partner with AGEN is another data point affirming AGEN has material credibility yet is still relatively unknown (with all due respect to AGEN) in a booming space forecast to grow considerably over the next 10 years. Collectively, these are the reasons our analysis concludes there is minimal downside in AGEN yet almost limitless upside.

The only material risk of substance is uncertainty around AGEN’s cash runway and the associated risk of further dilution. AGEN has issued 30.8MM shares of common stock YTD using shares available under an existing “at the market” agreement (shareholders have been diluted approximately 20% YTD by these issuances). Our analysis more or less concludes AGEN had no other credible choice to raise money due to the COVID-19 pandemic. AGEN’s CEO has stated publicly that he believes AGEN has ample liquidity to take it past Q1 2020 (he was asked about a 3/31/2020 date).

There have been 3 recent acquisitions of immuno-oncology companies including Gilead’s (NASDAQ:GILD) $4.9Billion acquisition of Forty Seven (FTSV), Merck’s $2.7 billion purchase of ArQule (ARQL) and Sanofi’s (NASDAQ:SNY) $2.5 Billion purchase of Synthorx (THOR). Like AGEN, none of these three companies had a product approved by the FDA. To document a formal analysis of AGEN’s advanced (and clinical/IND) pipeline versus these 3 acquired companies would take pages and include scientific language a financially astute person, like the author, does not understand. Our analysis concludes AGEN clearly has made at least twice the commercial and scientific progress than any of these 3. Investors are encouraged to review these acquisitions for themselves. Our analysis concludes none of these companies had a pipeline product with the clinical profile and outcomes like AGEN1181. Again, with a market cap of ~$700MM and likely revenues of $150 to $200 million/year within 2 years with potential gains hundred fold higher, our analysis concludes AGEN’s risk/reward profile is literally unlike any other.

AGEN Background

AGEN was founded in 1994, by its current CEO Dr. Garo Armen, as a biotechnology company focused on treating cancer and infectious diseases. Five years ago, AGEN completely restructured its focus to immuno-oncology (I/O). Our analysis concludes the markets may have “gone weary” of AGEN over the years (to its detriment). Our analysis concludes AGEN’s performance has been exceptional since AGEN decided to pivot to a pure immuno-oncology concern. AGEN at any one time has between 300 & 350 employees.

On March 12, 2020 Agenus Inc. announced its flagship compound in development, a compound dubbed AGEN1181 that, in layman’s terms, is a next generation CTLA-4, and when taken alone or in combination with AGEN’s PD-1 is producing data so compelling that, if the trends continue as AGEN expects, it is very possible AGEN1181 could displace BMY’s Yervoy and Merck’s Keytruda cancer therapy. Keytruda is doing roughly $11Billion/revenue/year that is expected to double to $22.2Billion by 2025. AGEN1181’s Phase I clinical trial has already produced an ultra-rare “complete response,” 1 partial response and a shocking 70% Disease Control Rate to date (though to be clear still not for a full year). This is so impressive because, like any cancer therapy in development, patients in the AGEN1181 clinical trial have failed multiple other FDA approved treatments. Physicians participating in AGEN1181’s clinical trial insisted patient enrollment continue while COVID-19 was otherwise at its worst. Finally, AGEN’s scientific advisory board is so impressed to date, they’re expanding testing to other indications where there are limited, or no treatment options including, but not limited to:

  1. PD1 refractory non small cell lung cancer (~31,000 patients/year/US)
  2. Melanoma (~6,000 patients/year/US)
  3. Colorectal cancer (~6,000 patients/year/US)
  4. Endometrial cancer (~65,000 patients/year/US)

NOTE: US patient counts per year in the US are per Agenus May 2020 investor presentation (page 19) except for endometrial estimate (which was “Googled” by the author). Patient counts are important because cancer therapies are priced anywhere from $4,000/dose to $25,000/dose that costs $50,000 – $150,000/year per patient. For the first 3 cancers noted above Agenus estimates ~$14Billion/year by FY2024 (SOURCE: Agenus investor presentation, page 14).

Per Dr. Steven O’Day “AGEN1181’s early clinical data supports the accelerated development in prevalent indications with limited or no effective treatment options including, but not limited to, PD-1 refractory non small cell lung cancer, melanoma, colorectal cancer and endometrial cancer” should carry as much weight as any author opinion. These are the most difficult patients to source for a trial as clinicians want to be certain the therapy is not a waste of time. Incidentally, the same Dr. Steven O’Day made a like presentation about Yervoy at ASCO in FY2010. Hence Dr. O’Day is as credible as they come (please do your own due diligence on Dr. O’Day’s reputation).

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In the near term, leaving AGEN1181 completely aside, on the same date AGEN announced the FDA has agreed to “fast-track” two AGEN BLAs to be submitted in 2H2020 for a monotherapy called balstilimab (a “PD-1” candidate) and a combination therapy balstilimab and zalifrelimab (a “CTLA-4” candidate) used for the treatment of patients with relapsed or refractory metastatic cervical cancer. With an ORR of 26% dwarfing the next like therapy, assuming the BLAs are approved by the FDA, it is very reasonable to conclude AGEN could generate at least $200MM in revenues/year beginning in 2H2021. The following is a simple overview of how AGEN’s combo therapy performed in the clinical trial (including against Merck’s Keytruda also known as pembrolizumab):

Agenus clinical trial resultsOf course there is never a “sure thing” when submitting a BLA to the FDA, our analysis concludes approval is likely because AGEN’s combo ORR is 26% and included 4 patients with “complete responses” of 55 tested. No like therapy comes close.

Here is how we get to $200MM/year in cervical cancer revenues for AGEN:

AGEN Partners

In the last 5 years AGEN has cultivated some very profitable relationships with other commercial partners including (in no particular order):

  1. Merck
  2. Gilead (owns 11.1MM shares of AGEN or roughly 6%)
  3. UroGen (another author top pick)
  4. Incyte (NASDAQ:INCY) (owns 17.1MM shares of AGEN or roughly 10%)
  5. GlaxoSmithKline

AGEN’s Financial Position

Though AGEN’s recent financial performance is irrelevant to our forward looking analysis, below is a summary of their operations over the last 4 years:

AGEN historic financial statementsRecall AGEN has no FDA approved products so all revenues noted above had to come from partnerships. Investors are encouraged to review these for themselves because it demonstrates AGEN’s ability to “monetize” an enormous R&D infrastructure.

The following is an overview of common shares outstanding and potential dilutive securities:

AGEN fully diluted shares outstandingAs noted above there are 41.7MM shares convertible to AGEN common stock. Our analysis has concluded such a large number may have “spooked” investors. Investors should note AGEN would generate $132.7MM cash proceeds were these convertibles be exercised. AGEN could use these proceeds totalizing $132.7MM to buy back AGEN shares in the open market (aka “Treasury Stock Method”) or use the money to run AGEN operations. AGEN has 27.1MM shares issued as stock options under a traditional stock option plan. While that sounds high, because the weighted average exercise price of these options is $3.67 and AGEN trades for ~$4.00/share, the net dilution is roughly 10%.

We should also note AGEN’s CEO notes it has $0 in debt. We’ve included AGEN’s Preferred C-1 stock as “debt like” for valuation purposes. There is also an immaterial $15MM loan due a related party. Interest on these facilities is immaterial to the financial statements and valuation potential as a whole.

At the bottom of the schedule above we pool AGEN’s Preferred C-1 stock & legacy warrants into one class when we analyze AGEN’s market capitalization to enterprise valuation below to calculate the net number of convertible shares using the Treasury Stock Method that assumes proceeds from the exercise of convertible securities are used to purchase common stock in the open market. The following is a reconciliation of AGEN’s market cap to enterprise valuation at various prices per share to reflect the dilution of options & warrants at increasing prices per share:

AGEN market cap to enterprise valuationIt should be noted that the schedule above assumes AGEN was more or less cash neutral in Q2 2020. The $108MM in cash includes $92MM on hand at 3/31/2020 and adds proceeds from “at the market” stock issuances through 5/7/2020. As noted, AGEN received, or will soon receive, $35MM from Betta. The $35MM from Betta & other proceeds likely more or less covers AGEN’s Q2 2020 operating expenses. There will be a variance when AGEN files its Q2 2020 financial statements but any variance is clearly immaterial to the AGEN value proposition should AGEN’s 2 BLAs be approved. Our analysis concludes AGEN’s valuation should approximate $2Billion, or $10/share, given the likelihood of FDA approval plus the value of its arsenal of other compounds in development.

As noted, AGEN is a 25 year old company and has a complicated capitalization structure but our analysis concludes AGEN appears to have “moved heaven and earth” to avoid diluting shareholders the last 4 years through 12/31/2019. As noted, AGEN has noted it raised approximately $540MM to fund its operations over the last five years (again through 12/31/2019). AGEN raised another $35MM in Q2 2020 via Betta. We have not gone back and verified the pre-2019 claims but based on the other analysis we have done, AGEN’s claim appears reasonable. As a matter of fact, our analysis concludes AGEN has done an exceptional job minimizing shareholder dilution through the end of FY2019.

The author should also note AGEN’s CEO is taking his pay in AGEN stock versus a traditional cash paycheck. The author has reviewed 3 Form 4’s on AGEN’s website confirming AGEN’s CEO has been paid in stock.

Finally, we recommend assuming 200MM common shares are outstanding as a “round number” when investors assess potential valuation per share.

AGEN’s Liability Related to the Sale of Future Royalties

On AGEN’s 3/31/2020 balance sheet, AGEN notes a ~$220MM ($50MM current and $170 non-current) “liability related to the sale of future royalties.” By way of background, AGEN was provided $190MM from Healthcare Royalty Partners (“HRP”) back in January 2018 in exchange for the rights to AGEN’s royalties to one of its products. HRP is an extremely well respected financier in the life sciences industry. We have found that if HRP is willing to finance a royalty, an investor can count on the quality of HRP’s due diligence. On AGEN’s Q2 2019 earnings conference call (starting 53 minutes and 8 seconds), AGEN’s CEO swears up and down that AGEN does not have any cash obligation to HRP (even emphasizing the word “zero” obligation to HRP). The author recalls AGEN’s VP of Finance offering the same assurance on a different call.

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We have excluded this ~$220MM liability from our market cap to enterprise valuation adjustment noted above. This is obviously an enormous and material assumption. While the author cannot make any assurance that the obligation truly does not exist, the author has noted similar accounting treatment with like sales of future royalties by other companies. The liability appears to relate to future amounts due on future sales. Again AGEN’s CEO has noted multiple times there is no “obligation” that exists should say AGEN close its doors.

The worst possible thing that could happen is that AGEN has a ~$220MM obligation to HRP. We believe the overwhelming AGEN value proposition outweighs the risk that AGEN’s CEO & VP of Finance do not fully understand the HRP transaction.

COVID-19 impact and cash runway

As noted above, as of March 31, 2020 AGEN has the equivalent of approximately $108MM. On AGEN’s Q1 2020 earnings conference call (starting 4 minutes into the call), AGEN’s CEO noted AGEN implemented $50MM in annualized cost savings that will have minimal impact on near term goals. Specifically, AGEN’s restructuring to manage COVID-19 will not impact the BLA filings nor AGEN1181 development. AGEN also noted roughly $45MM in anticipated cash receipts from partner milestones are at risk. AGEN warned, for lack of a better word, investors not to expect cash receipts. However, later in the call AGEN’s CEO noted 2 new partnerships that would bring AGEN upfront payments were at “term sheet” status. Simply put, it appears AGEN cut annual expenses from roughly $170MM to 200MM/year to $120MM to $170MM/year and has $115MM in the bank. AGEN then announced the Betta partnership confirming 1 of the 2 partnerships “at term sheet” status.

The author also participated in a conference call with AGEN’s CEO (that is open to the public). The author asked AGEN’s CEO if AGEN’s cash runway took AGEN beyond Q1 2020. AGEN’s CEO said AGEN had enough cash to last beyond Q1 2020 (as always subject to forward looking statement disclosure).

The other relevant data point is AGEN expects to file their BLAs by the end of FY2020 and anticipates approval by 6/30/2021 (at which time AGEN will start to generate consistent product revenues). We also know AGEN has approximately $1Billion worth of PD-1 and CTLA-4 inventory. Hence our analysis concludes AGEN’s share price should increase to better reflect the value of AGEN’s inventory should AGEN need to raise money to commercialize their CC therapy.

To summarize, because AGEN is months away from 2 BLA filings that, if approved by the FDA, will allow AGEN to generate approximately $200MM/year/revenues, our analysis concludes there is minimal downside risk in AGEN’s share price. Most important, because AGEN appears well on their way to creating a “next-generation” CTLA-4 that appears on track to be as or more effective but in all cases safer than Yervoy, our analysis concludes there is considerable upside in AGEN’s valuation (and in the billions of dollars). Experts will note that if AGEN1181 is less toxic than Yervoy and maintains the same efficacy, it will be a Blockbuster in combination with AGEN’s PD-1 because it can be extended to other cancer types (because of an acceptable level of toxicity) which are multi-billion dollar markets. AGEN’s share price will probably skyrocket on news of another complete response (look at NextCure last November 2019 on its first complete response). As noted, AGEN also has a vast pipeline (some of which are still not disclosed) that could each turn into a multi-billion dollar a year product. Each of these products could compete globally offering numerous ex-US partnership opportunities. In late May 2020 AGEN presented their AGEN1181 data at a trade show and the stock practically doubled from $2.50 to almost $5/share over the next few days before settling between $3.75 & $4.25/share since. These are the reasons why our analysis concludes no like company offers a risk/reward profile like Agenus. The author’s expertise is not “day-trading” stocks like AGEN. However, the author has noted reputable investors buying AGEN. It appears the filing of the BLAs will be one catalyst to get “Wall Street’s” attention. It is also worth noting many mutual funds are prohibited from investing in stocks that trade for less than $5/share. AGEN trades for $4/share.

Tradenames used in this article are the property of their respective owners. Agenus, Inc. was not consulted in the preparation of this article.

Disclosure: I am/we are long AGEN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.



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