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Is Agenus Inc. (AGEN) a Buy?

Cory Renauer, The Motley Fool

Harnessing the power of the immune system to fight cancer is a big deal and Agenus Inc. (NASDAQ: AGEN) looks like a great way to follow the trend. This stock trades like a small-cap biotech, but a couple of candidates coming through its pipeline could help push annual revenue past the $1 billion mark. Plus, by this time next year, the company could have half a dozen or so new candidates in clinical trials.

Developing new cancer therapies is a risky business. Let's look at the case for and against Agenus Inc. to see if this tiny stock with big ambition is worth the trouble. 

Scientist looking into a microscope.

Image source: Getty Images.

The case for Agenus Inc.

This company's lead candidates target PD-1 and CTLA-4, which are well understood immune checkpoints that cancer cells exploit to evade detection. If they're eventually approved, Agenus will join a club that includes Bristol-Myers Squibb (NYSE: BMY) and Merck & Co. (NYSE: MRK). Merck's PD-1 inhibitor Keytruda is on pace to rack up $6 billion in sales this year, and Bristol's drug from the same class finished the first quarter on pace to hit $6 billion, as well.

Bristol's CTLA-4 inhibitor Yervoy is a few years older than megablockbuster PD-1 drugs, but it's hardly crossed the $1 billion in annual sales threshold. Yervoy's difficult to tolerate and its addressable patient population is currently limited to patients with advanced-stage melanoma and kidney cancer. AstraZeneca's attempts with its own CTLA-4 candidate haven't gone so well, which means there's a great deal of room for improvement.

Agenus' lead candidate AGEN1884 is a CTLA-4 inhibitor in two combination studies, one with Merck's Keytruda and another with the company's own PD-1 inhibitor AGEN2034. Even though drugs from this class generate billions, the company's market cap is a sprightly $375 million at recent prices, and there's a lot more coming through the company's early-stage pipeline than these two candidates.

Agenus could begin clinical trials with a next-generation CTLA-4 inhibitor and several bispecific antibodies, which are single molecules that can act on multiple targets. The company also has a recently amended collaboration agreement with a deep-pocketed partner, Incyte Corporation (NASDAQ: INCY). The larger biotech is funding studies with other checkpoint inhibitors that Agenus developed, leaving the company eligible for a 15% royalty rate if they eventually succeed.

Incyte upped its equity stake to around 18.1% of outstanding Agenus stock following the amendment. That could make Agenus an obvious buyout target if positive data starts rolling in.

Investors will need to wait for the Incyte collaboration to mature, but GlaxoSmithKline has already started cutting royalty checks for use of Agenus' proprietary vaccine booster. Sales of the British pharma's new shingles vaccine Shingrix are already rolling in, and a malaria vaccine that also uses Agenus' technology isn't far behind.

Scientist mixing something in a flask.

Image source: Getty Images.

The case against Agenus Inc.

The company's oncology ambitions are impressive, but Agenus hasn't been terribly forthcoming with efficacy data for its lead candidates. Management recently boasted of more than 100 patients treated with AGEN1884, AGEN2014, or both, but we haven't seen much data. Last June, the company highlighted one clinical response observed during a 16 patient safety study with AGEN1884, but that's the only efficacy data for its wholly owned candidates that the company's published so far. 

Agenus finally will present available efficacy data for its candidates at the annual meeting of the American Society of Clinical Oncologists this June. Since AGEN1884 and AGEN2014 would run straight into some entrenched competition if approved, Agenus needs to show us some impressive response data from early studies so far. Hopefully, Agenus just has been holding its cards close because if the data fails to impress, the stock could slide.

After burning through $54.3 million in the first quarter, Agenus finished March with just $52.3 million in cash and cash equivalents on its balance sheet. There were some one-time charges during the period, but it looks like another value-diluting share offering could be right around the corner.

Take it easy

Diverse development pipelines are a great way to mitigate risk, but it looks Agenus has eyes bigger than its checkbook. In addition to the slew of activity I already have mentioned, management intends to begin clinical trials with a cellular therapy in 2019 and run several more combination studies with its checkpoint inhibitors and a cancer vaccine.

I was a much bigger fan of Agenus over a year ago before it started getting so ambitious. If the company couldn't depend on significant royalties from Glaxo, I'd suggest looking elsewhere. At the stock's current price, though, it looks like the market still isn't expecting much from the company's development pipeline. With several chances to provide a nice surprise to the upside in the years ahead, Agenus stock still looks like a cautious buy at recent prices.

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.