Agenus (NASDAQ:AGEN), a small-cap cancer-immunotherapy company, might be gearing up for a jaw-dropping 2018. Wall Street's current consensus price target on the company's shares, after all, implies a healthy 284% upside potential going forward.

What's all the excitement about? Besides the recent Food and Drug Administration (FDA)-approval of GlaxoSmithKline's shingles vaccine, Shingrix, which contained Agenus' QS-21 Stimulon adjuvant, this tiny biotech company sports a rich pipeline of checkpoint antibodies that may turn it into a major player in the rapidly growing field of immuno-oncology. As proof, Agenus has already struck research partnerships with industry heavyweights Incyte Corp. (NASDAQ:INCY) and Merck (NYSE:MRK) to develop a handful of its checkpoint modulators in various malignancies. 

Hand flipping wood blocks, showing the change from 2017 to 2018.

Image Source: Getty Images.

With these promising tailwinds in mind, now is the perfect time to consider whether Agenus is set to have its best year yet. Let's dig deeper to find out. 

Are better days ahead?

According to Agenus management's recent corporate presentation, the company now has brought four checkpoint-inhibitor programs (AGEN1884, INCAGN1876, INCAGN1949, and AGEN2034) into the clinic, including two via its partnership with Incyte. That's an impressive track record for a company that's really only been in the checkpoint-inhibitor space for about three years, at this point. 

Even so, the market obviously isn't convinced that Agenus can make good on its immuno-oncology strategy. The company's market cap of $387 million, after all, implies that the market is assigning a present net value to each of the biotech's clinical-stage checkpoint inhibitors of something along the lines of $50 million to $70 million, after accounting for the company's other clinical assets.

That's a rock-bottom valuation in light of how well Bristol-Myers Squibb's (NYSE:BMY) Opdivo and Merck's Keytruda have performed from a sales standpoint. During the first six months of 2017, for example, these two game-changing cancer drugs generated nearly $4 billion in combined sales. 

What's the problem? Agenus, unfortunately, is a latecomer to the checkpoint-inhibitor game. As it stands right now, the biotech will have to compete against a stacked field that includes titans of the industry like AstraZeneca, Bristol, Pfizer, Roche, and of course, its own partner, Merck.

Making matters worse, the checkpoint-inhibitor field has turned into a medical gold rush of sorts. There are a whopping 683 clinical trials at present assessing the anti-cancer properties of just PD-1 inhibitors.  

Is Agenus a diamond in the rough? 

Agenus, by its own estimates, doesn't expect to have a checkpoint on the market until 2020, at the earliest. That extended timeline isn't favorable for Agenus' near-term outlook, unfortunately. 

With its net loss expected to continue to climb this year due to rising clinical costs, Agenus is going to have to start relying on dilutive financing in a big way moving forward. The company has been losing nearly $30 million per quarter in the past year, and its last stated cash position was a mere $70.1 million.

To its credit, Agenus did just strike an important royalty licensing deal with HealthCare Royalty Partners that's set to yield $28 million in net proceeds. But the company still won't have anywhere near enough cash to see it all the way to a regulatory filing for one of its checkpoint inhibitors. 

Bottom line, Agenus may have no other choice but to dilute its current shareholder base in a significant manner over the next two to three years. Investors, therefore, will need to decide if they are willing to take that chance for a company that appears to be banking mostly on "me-too" drugs to create shareholder value.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.