Agenus (NASDAQ:AGEN), a small-cap cancer immunotherapy and vaccine company, has started to claw its way back from a steep downturn that began last April. Specifically, the drugmaker's shares have spiked by a healthy 29% over just the past three trading sessions. 

Even so, the biotech's stock is still down by 38% for the year and the equity remains well off its 52-week highs -- despite this week's monstrous rally. Should investors buy into this rally? Let's take a deeper dive into this promising clinical-stage biotech to find out.

A female cancer patient in a hospital bed discussing her chart with a male doctor.


Agenus at a glance

Agenus sports two main value drivers at the moment:

  • An antibody engine focusing on the discovery and development of novel checkpoint inhibitors to treat an array of solid tumors. This platform has formed the basis of licensing deals with both Incyte Corporation (NASDAQ:INCY) and Merck & Co. (NYSE:MRK)
  • A cancer vaccine platform based on the company's proprietary vector systems that employ heat shock proteins. As an earlier offshoot, this vaccine program also contributed the QS-21 adjuvant to the development of GlaxoSmithKline's (NYSE:GSK) shingles vaccine, Shingrix.      

Of these two platforms, Agenus' spate of checkpoint inhibitor assets is currently the most important from a valuation standpoint. Checkpoint inhibitors, after all, have been validated across numerous malignancies as both monotherapies and in combination settings with other anti-cancer agents, whereas cancer vaccines have largely failed to live up to expectations in the clinic so far.   

Where do things stand now with this lead platform? Agenus sports two fully owned checkpoint inhibitors, CTLA-4 (AGEN1884) and PD-1 (AGEN2034), which are currently in mid-stage trials for cervical cancer and other undisclosed solid tumors. If everything goes as planned, Agenus hopes to have these two biologic therapies on the market by late 2020 or early 2021. 

Agenus' partnered checkpoint inhibitors that include the GITR (INCAGN1876) and OX40 (INCAGN1949) agonists being developed with Incyte, and another undisclosed antibody with Merck, are all presently in early-stage clinical trials. As a result, these partnered drugs probably won't enter the market for at least another three years. 

Is Agenus a buy?

While this week's rally has been impressive, Agenus' underlying story really hasn't changed all that much since the start of the year. First off, this recent upswing appears to be mainly the result of Glaxo's Shingrix getting off to a better-than-expected start. Agenus should thus be in line for some much-needed milestone payments from this program starting next year.

As an important side note, Agenus has been raking in additional milestone payments from both Incyte and Merck. Merck, for instance, recently doled out $4 million to Agenus for the initiation of an early-stage trial. 

All that being said, Agenus' still faces the same two headwinds that have weighed heavily on its share price all year. With $43 million left in the bank at the end of Q2 and a quarterly cash burn of about $25 million, Agenus is less than three quarters away from running out of funds -- even with these milestone payments from its various partners. Agenus will therefore have to keep diluting shareholders for the foreseeable future. 

Secondly, the checkpoint inhibitor space is beyond saturated at this point. Apart from the fact that Merck's Keytruda has stated to gobble up the lion's share of this market, there are scores of other checkpoint inhibitors either on the market already or in late-stage development right now. How Agenus' antibody platform can compete in this jam-packed marketplace remains an open question.

The headline here is that Agenus' rock-bottom valuation is arguably well deserved at this stage. The company doesn't have the financial resources necessary to see it all the way through to becoming a full-fledged commercial operation, and even when that pivotal event occurs, there's no guarantee that it will be able to carve out a profitable niche. That's why this speculative biotech stock is arguably only well suited for investors comfortable with high levels of risk.