Biotech startups going after blockbusters always have the set up to be nail-biters, edge-of-your-seat type investments. So much so, in fact, that the latest installment of "phase 3 on verge of approval with cash running out" drama is almost run-of-the-mill, as we've heard it all before a hundred times. Agenus (AGEN), however has a 20-year history of tragicomedy and last minute saves on another level. The end of 2013 looks set to make the story either a skin-of-our-teeth success for the biotech history books, or else just another gaffe in a sorry Wall Street slapstick.
Oncophage to Prophage, Antigenics to Agenus, the botch ups of the early days
Taking this story from the beginning, Agenus, then Antigenics, had the good (or perhaps bad?) fortune of going public in February 2000, just one month before the Nasdaq peaked. It raised $66M in an IPO priced at $18 a share, cushioned its cash reserves to $109M, and watched its stock explode along with the rest of the Nasdaq until March 9 when it reached a split-adjusted close of $315. At the time it was developing a cancer vaccine called Oncophage for melanoma, its leading pipeline candidate and the source of most of its expenses of $42M (page 2) up to that point.
From there the tragicomedy that was Antigenics began.
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Having priced its IPO just one month before the last secular bull market in stocks ended, it had to first weather that catastrophe. Then for the next 6 years it kept on trudging along moving Oncophage down the clinical pipeline and into two phase 3 trials, one for melanoma and the other for kidney cancer. What happened during the melanoma trial in particular was a total farce. After receiving fast track designation together with orphan drug status and initiating the international phase 3 trial in 2002, the study did not even qualify as registrational because Antigenics could not manufacture the autologous vaccine for 30% of patients in the study, a whopping 40% if only the vaccine arm is counted. Of 215 patients assigned to the vaccine arm of the trial, only 133 even received vaccine. Sure enough, the trial failed, not only for these technical reasons, but because the trial was "underpowered to detect medically relevant endpoints" in the words of one of the researchers. After $225M (page 28) being spent on its development, Antigenics closed up shop on Oncophage, trying to figure out what to do next. For starters, the company changed its name to Agenus in an attempt to shed the past and start anew.
But the Oncophage story doesn't end there. As it turns out, when researchers looked deeper into patient subsets of the failed trials, they found that Oncophage actually had pretty good data for patients in earlier stage cancers. Unfortunately, that ship had sailed. Agenus did not have the cash or the credibility to raise it in order to launch a new phase 3 for earlier stage cancers. Investors were mad and tired and would not have taken lightly to shouldering the costs of yet another expensive Oncophage phase 3.
But as the saying goes, God does not close a door without opening a window. Just one month before AGEN's ignominious fall from grace on news of the Oncophage failure on March 23, 2006, the FDA received a filing from one Dr. Andrew Parsa on February 16 to conduct a phase 1/2 trial using Oncophage (technical name HSPPC-96) on patients with recurrent glioblastoma multiforme, the deadliest form of brain cancer.
Not only that, but Dr. Parsa secured funding from the National Cancer Institute in the amount of $21M (0.4% of the NCI's annual budget) to fund the trials, with Agenus retaining all the rights to Oncophage, a true have your cake and eat it too scenario. The only financial and technical responsibility assigned to Agenus regarding the new trials was to successfully manufacture the vaccine for each patient. Agenus took on the challenge, but not wanting to jinx itself with its previous failure to manufacture a whopping 40% of the required batches, the company changed the name of the vaccine to Prophage.
One scientific word about how Prophage functions before the story continues. Since the antigens in any one person's cancer are unique, there is no one-size-fits-all cancer antigen that can be targeted by a drug and attacked. Therefore, Prophage makes use of heat shock proteins [HSPs] that form complexes with a cancer's antigens. These complexes are then isolated in vitro from the patient's resected tumor, combined with vaccine, and reinjected. Think of HSPs like an antigen mold that fits the cancer like a glove.
Dr. Parsa's phase 2 trial is theoretically large enough at 222 patients to be registrational in and of itself, assuming positive results and Agenus successfully manufacturing the vaccine for all patients. Approval at phase 2 is rare but it does occur 15% of the time as recently happened with Onyx's (ONXX) now famous Kyprolis in a 250 patient phase 2 trial. Though I am not on the FDA board, I suspect incidence has a lot to do with whether a drug is approved after a large phase 2 trial or not. Kyprolis treats multiple myeloma with an incidence of 5.9 per 100,000, meaning 250 is a lot of patients to enroll for a disease so rare. The incidence of GBM is even less than that at 3 per 100,000 and GBM is much deadlier. Given that, this Prophage phase 2 trial is enrolling proportionally more patients to incidence than Kyprolis did.
Prophage for recurrent GBM already has interim results on 40 patients out of a planned 222 as of April reported as follows. Median overall survival for the vaccine arm was 47.6 weeks versus 32.8 control. Six month survival was 93% vs 68% control. There were reports of significant levels of tumor-specific killer T cells and natural killer cells in the vaccine group as well. And so far, there have been no adverse grade III or IV side effects. Data collection is ongoing as enrollment progresses since the trial is open label, and more should be published by the end of the year. One more important implication of these data is that - so far so good and keep your fingers crossed - Agenus is manufacturing Prophage successfully for each patient, a detail that should not be overlooked given the past.
What else has Agenus been up to since the Oncophage debacle?
The rescuing of Oncophage/Prophage from the dustbin of oncological history by Dr. Parsa is not the only encouraging news for Agenus of late. Keeping in line with its HSP approach to vaccines, HerpV is a genital herpes vaccine that uses HSP protein antigen complexes taken from the coat of infected cells. As all antigens of genital herpes are identical, this is an off-the-shelf rather than autologous product using synthetically manufactured genital herpes antigens.
Genital herpes is anything but a rare disease like GBM. It affects 60M Americans according to the CDC, and while it is not deadly, it is more than just a minor nuisance to those affected. HerpV is not designed to cure the disease as the herpes virus cannot be eradicated from the body since it encodes itself directly into a person's DNA after infection. What HerpV is designed to do is drastically lower if not eliminate viral shedding, basically symptomatic outbreaks that make the virus contagious. If that can be done, the virus cannot spread at easily upon sexual contact, if at all. Equally importantly, those who have the disease would not have to suffer the painful and embarrassing symptoms.
This phase II trial is fully enrolled at 75 and will test for viral shedding with swabs of the genital area before and after vaccine. Phase 2 data will be available in Q4 of this year. Phase 1 results showed activation of CD4+ and CD8+ T cells against the virus in the vaccine arm but not in the placebo arm. The phase 2 trial was fully enrolled in only 4 months at only 5 enrollment centers, so assuming positive results and initiation of phase 3, enrollment should be completed quickly. There are, after all, 60 million people to choose from.
HerpV is perhaps the most consequential pipeline candidate for Agenus, as the patient base is huge and the potential revenues are blockbuster. But HerpV is important for two other reasons. First, success would have positive implications for its HSP approach in vaccines, with good tidings for Prophage as well as significant investor attention. Secondly, HerpV employs Agenus' QS-21 Stimulon vaccine adjuvant, which itself is being employed in partnership with GlaxoSmithKline (GSK) in 4 trials phase 3 trials, 17 in total.
QS-21 Stimulon, Agenus' dessert Root Beer Float
A lot of attention is being given to QS-21 Stimulon lately, a vaccine adjuvant that is taken from the extract of the Quillaja saponaria tree, a compound also found in sarsaparilla, which provides the flavoring in root beer. This attention is due to Glaxo's MAGE A-3 vaccine for melanoma wrapping up a very large phase 3 trial for that disease at 1,349 patients as well as the largest trial ever conducted for non small cell lung cancer at 2,300 patients. Agenus is paying nothing for these trials and will instead receive a royalty of 4.5% on sales from Glaxo. Both of the vaccines attack the MAGE A-3 antigen that is expressed in 66% of melanomas and 35% of non small cell lung cancers. Learning from Agenus' prior failure with Prophage due to accepting late stage cancer patients, Glaxo only accepted early stage patients for both trials with a high level of MAGE A-3 expression.
Glaxo has indicated topline results will be available by next quarter for melanoma and Q1 2014 for NSCLC. As QS-21 is Agenus' "root beer float," it is important not to overemphasize the importance of these trials for the company. Royalties will be slow in coming, in addition to the fact that Agenus has signed away 20% of the 4.5% royalties to creditors in exchange for debt forgiveness. Success will not bring the company significantly closer to profitability, but it will give it plenty of attention as the first real success in a 20-year history of failure.
Glaxo's two other phase 3's that employ QS-21 are for malaria and herpes zoster, the former of which should have results by next quarter, but revenues will be a pittance at 1.6% after debt restructuring and the estimated cost of the vaccine will be $2 a shot for African babies. Success with malaria would, however, turn Glaxo and Agenus into biotech rockstars, as malaria takes more human life than any other infectious disease on the planet. Success won't be a financial panacea to the company, but it would be great for the human race.
In a sense, the financial impact of QS-21 has already been felt in providing Agenus with some much-needed breathing room by appeasing its creditors.
The cash picture and bottom line
Agenus has had an average cash burn rate of $7M over the last 4 quarters. With balance sheet cash at $13.5M, there is more than enough cash to bring the company through the QS-21 Stimulon results. The main importance, therefore, of QS-21 will be to help it finance at higher prices, which it will have to do soon anyway.
The only trials Agenus is fully funding are for HerpV. Otherwise, its expenses are mainly administrative and vaccine manufacturing for the Prophage trials. If MAGE A-3 fails, AGEN may be cut to half its value, but the money will eventually be raised to continue the manufacturing for Prophage and the HerpV program, where the real money for the company is. If MAGE A-3 succeeds, AGEN could double in value, though the resulting pop would quickly reach overbought levels as again, the Agenus' real potential value is in Prophage and HerpV, not QS-21, notwithstanding the fact that HerpV itself employs QS-21.
Bottom line, Agenus has come a long way since wasting away $225M on Oncophage and botching the manufacturing in its own phase 3 trial. It is now a much more mature company that has learned from its mistakes, and thanks to Dr. Andrew Parsa, the NCI, and Glaxo, it is still alive and kicking, much wiser for the wear, and has written down $29M of its long term debt (81% of its debt load) in one quarter using QS-21 as collateral.
2014 will mark the 20 year anniversary of Agenus' inception as a company. By then we will know the results of Glaxo's MAGE A-3 NSCLC and melanoma QS-21 vaccines, malaria, Prophage phase 2 (possibly registrational) and HerpV phase 2. That's a whole lot of nail biting over the next 3 quarters.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. (More...)
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