Agenus Inc. (AGEN -6.75%) announced its third-quarter results on Thursday. Shares of the biotech promptly fell by more than 11% in early trading. Why would anyone fret over Agenus' financial results? They shouldn't.
Sure, Agenus reported ugly numbers in its third-quarter update. The company lost $40.8 million during the quarter. Agenus' revenue was piddling, less than $4.5 million stemming partially from collaboration agreements.
Who cares? I'm serious. We're talking about a biotech that has yet to have a product on the market. It should have nearly nonexistent revenue. It should be losing money. That comes with the territory.
And that $40.8 million loss didn't come from Agenus spending money like it's going out of style. The biotech's research and development costs did increase by 17% compared to the third quarter of 2015. General and administrative expenses jumped more than 25% year over year. However, those increases aren't unusual for a biotech with multiple products in development.
The biggest change from the prior-year period related to nearly $11 million from a non-cash contingent consideration fair value adjustment. That might sound like mumbo-jumbo if you're not an accountant. Basically, the term describes a way for a buyer and seller to bridge their differences in opinion over the value of an asset by providing "earnouts" based on the future value of the asset. Agenus employed this approach in its acquisitions of 4-Antibody and PhosImmune as well as with its licensing of QS-21 Stimulon, an adjuvant that enhances the body's immune response to vaccines.
The one number worth fretting over
Investors' concern might be justified in one number in Agenus' quarterly results: the biotech's cash position. Agenus reported cash, cash equivalents, and short-term investments of $95.4 million as of Sept. 30. That's down from $123.3 million at the end of the second quarter.
Agenus will need to raise more cash soon. That probably means another public stock offering, which would result in diluting the value of existing shares. Investors should brace themselves for this likelihood.
However, this shouldn't be a surprise to anyone who has kept up with Agenus. The company has previously stated that its cash stockpile should carry it through the first half of 2017. Nothing in the third-quarter results changed that outlook.
It's still all about the pipeline
What really matters for Agenus investors isn't financial results. The biotech's pipeline remains the reason to love (or hate) this stock.
QS Stimulon could be a winner for Agenus. GlaxoSmithKline (GSK -0.43%) licensed the adjuvant for its shingles and malaria vaccines. The malaria vaccine, Mosquirix, received a positive opinion from European Union regulators last year. However, the World Health Organization has required additional studies to be conducted before expanding use of Mosquirix.
Glaxo recently submitted a Biologics License Application (BLA) for its shingles vaccine, Shingrix. The vaccine should have pretty good odds of winning approval in 2017. If approved, peak annual sales could approach $1 billion. That would be good for both Glaxo and Agenus.
Agenus has high expectations for Prophage, an experimental vaccine for glioblastoma multiforme (a highly malignant type of brain cancer). A third party-sponsored clinical study of Prophage combined with a checkpoint antagonist should begin soon.
Speaking of checkpoint antagonists, Agenus' pipeline is loaded with them. The biotech has a couple of early stage candidates and several others in pre-clinical testing.
If investors want something to fret about with regards to Agenus, worry about how all of these clinical studies will go. Bite your fingernails over whether or not Glaxo's Shingrix wins approval. Stew about the stock dilution probably coming in the next few months. But Agenus' third-quarter results? No worries here.