What happened

Shares of the small-cap biotech Agenus (NASDAQ:AGEN) reversed its year-long down trend by gaining a stately 20.1% last month, according to data from S&P Global Market Intelligence. What sparked this marked turnaround?

As the company didn't release any major clinical or regulatory news last month, Agenus' shares appear to have gotten a boost mainly from the stronger-than-expected launch of GlaxoSmithKline's (NYSE:GSK) shingles vaccine Shingrix.

A man celebrating while sitting in front of a laptop.

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Agenus contributed its proprietary immune adjuvant QS-21 Stimulon to the vaccine's development, making the biotech eligible to receive royalty payments from the vaccine's sales. These forthcoming royalty payments, however, have already been partly monetized via a licensing deal with HealthCare Royalty Partners that went into effect earlier this year. 

So what

Agenus is facing a serious cash crunch. The biotech, after all, has been losing over $25 million per quarter of late, which is a rather worrisome burn rate for a company that only had $43.2 million remaining in cash and cash equivalents at the end of the second quarter. As such, investors were probably right to cheer the strong commercial performance of Shingrix -- even though the company is unlikely to receive any additional milestone payments near-term due to its licensing agreement with HealthCare Royalty Partners. 

Now what

If Agenus wants to continue advancing its broad pipeline of checkpoint inhibitors toward a regulatory filing by 2020 as planned, it will undoubtedly need to raise a significant chunk of capital soon. Unfortunately, the biotech's immuno-oncology partnerships with Incyte Corp and Merck & Co. simply won't yield enough in terms of milestone payments over the next few quarters to achieve this goal. 

As a result, Agenus may have to resort to a secondary offering to shore up its balance sheet within the next three to four months at the latest. So, while this small-cap biotech could be a big winner in the long run, investors might want to wait until the company has addressed its dwindling cash position before buying shares.

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.