What happened

Shares of the small-cap biotech Agenus (NASDAQ:AGEN) rose by as much as 11.2% yesterday on over four times the average daily volume. As a result, the stock is now up by a whopping 44% for the year.

What's going on? Investors appear to be warming up to the possibility that Agenus' broad pipeline of anti-cancer checkpoint inhibitors might be deeply undervalued. The company, after all, has licensing deals with both Incyte and Merck to develop checkpoint antibodies for a range of solid tumors. 

Man in a business suit pointing to an upward trending graph.

Image Source: Getty Images.

So what

Agenus stock has been one of the few big biotech winners in February so far -- even though the company hasn't released much in terms of news flow. This move higher seems to be backed by a solid change in sentiment toward the company's prospects at actually transforming into a leading immuno-oncology company.

Now what

The downside is that Agenus isn't expected to file for a regulatory approval for one of its checkpoint antibodies until 2019 at the earliest. That's particularly problematic because there are literally hundreds of similar therapies in development, at the moment.

Stated simply, Agenus may turn out to be developing nothing more than so-called "me-too" drugs with limited commercial upside potential. In that case, the biotech's present market cap of around $480 million is probably unwarranted. That's not to say that Agenus can't eventually strike gold with its checkpoint-inhibitor pipeline, but there's also the very real chance that the market will be saturated with competitors within the next two to three years.

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.