Expert Financial Analysis and Reporting

Reason for This Report
Agenus (AGEN) just issued an update on a phase II trial of Prophage G-100 combined with current standard of care in newly diagnosed glioblastoma patients that showed median overall survival (OS) of 23.3 months. There was no control group in the study but data from recent trials suggests that OS with standard of care (SOC) approximates16.2 months. Standard of care is surgical resection followed by regiment made up of the cancer drug temozolomide and radiation.

This data suggests an improvement of 7.1 months in OS with Prophage G-100 versus SOC. As discussed in this report, an improvement in OS of four to five months is considered a significant advance for drugs like Prophage that are being tested in aggressive cancers such as glioblastoma. Importantly, temozolomide was approved for newly diagnosed glioblastoma on the basis of only a 2.5 month improvement in OS.

This was a small, non-randomized multi-center phase II trial with 46 patients and it is not infrequently the case that promising results in small phase II trials are not replicated in larger phase III trials. Despite this caveat, this is a very encouraging signal of efficacy. Also, it is important for investors to understand that the phase III trial in newly diagnosed glioblastoma is still in the planning stages so that results are several years away.

There has previously been a similar strong signal of efficacy in a trial of Prophage G-200 in recurrent glioblastoma; almost all patients die or have their disease recur in a three to four year period and about one-half die within 18 months. This earlier trial showed an improvement in OS of 2.5 months. Avastin was approved in the recurrent setting even though it showed no improvement in OS; the basis of its approval was shrinkage in tumor size in a small number of patients. A NCI sponsored randomized, placebo-controlled phase II trial involving 222 patients is now underway in recurrent glioblastoma. If results substantiate a meaningful improvement in OS, this could be the basis for approval as early as 2015 or 2016.

The conventional wisdom on Wall Street is that cancer vaccines don’t work. This is based on a long string of failed attempts to develop such products. The only cancer vaccine that has been approved is Provenge which showed a 4.5 month improvement in OS in metastatic prostate cancer. I sometimes feel like Don Quixote tilting at windmills when I write positively on cancer vaccines. Others are enormously skeptical.

However, I remain undaunted. We have seen signals of efficacy similar to Prophage in three other glioblastoma cancer vaccines: Northwest Biotherapeutics (NWBO) DC Vax-L, ImmunoCellular’s (IMUC) ICT-107 and Celldex’s (CLDX) rindopepimut. It may be the case that encouraging findings in these three other products occurred by chance and that each product will fail in phase III trials. This seems to be what most people think, but I am much more hopeful.

Let me anticipate the next question. Which of these products will win out if all are successfully developed in glioblastoma and approved? There is not enough data for me to try to answer this question. However, I think that past experience suggests that each product might work in some patients and not in others and that they would be used sequentially or in combination. I think that they would likely all do well in glioblastoma from a commercial standpoint if they are approved.

The really important point, however, is that cancer vaccine technology would be validated and would suggest applications in a broad, broad range of tumors. Cancer vaccines might be seen as a major advance in cancer therapy and each of these small companies would be viewed as leaders in the field. It is possible/probable that each would be acquired by Big Pharma companies before their products were ever introduced.

Investment Thesis for Agenus
Let me touch now on the investment thesis for Agenus. In my initiation report, I pointed out that Agenus has a broad portfolio of products in development. One of the two most important in the near term is the MAGE A-3 vaccine for metastatic melanoma and non-small cell lung cancer. This is a Glaxo (GSK) product that used Agenus’ QS-21 as an adjuvant. However, the most important Agenus asset is probably the Prophage programs in newly diagnosed and recurrent glioblastoma, which remain wholly owned by Agenus.

The recent failure of the MAGE A-3 vaccine to reach one of its co-primary endpoints of disease free survival in metastatic melanoma touched off a sharp decrease in the price of Agenus. I pointed out at the time that there are several ways for investors to win with Agenus and I think that the recent news on Prophage in newly diagnosed glioblastoma illustrates this as the previous price decline was essentially reversed with the news on Prophage. The stock closed at $3.71 before the news on MAGE A-3 on September 5, 2013 was announced and the news caused the stock to decline to close at $2.84 the next day. The report on Prophage on September 17 led to an inter-day high of $3.68. However, the announcement later that day of a financing then drove the stock back to $2.98 or so.

I think that the potential for Prophage more than justifies buying the stock at current prices. However, there is also the potential that new data from the RTS,S malaria trial and the phase II trial of HerpV in genital herpes could provide a new boost to the stock as results are expected before the end of the year.

I also advised in my last note not to write off the MAGE A-3 vaccine just yet. The trial in metastatic melanoma did not hit one of the two co-primary endpoints of disease free survival. However, the Independent Data Monitoring Committee unanimously recommended that the trial continue to the second co-primary endpoint. This is PFS in a prospectively identified sub-population in the trial that has a unique gene signature or profile. Results in this sub-population will be reported in 2015. There will also be OS data from the melanoma trial and results from the use of MAGE A-3 in non-small cell lung cancer reported in 2014. There are good arguments that PFS could be reached in non-small cell lung cancer. Refer to my report written on September 5, 2013 for a more detailed discussion.

Late Breaking News on Financing
Agenus just announced that it has issued 2.2 million shares and 650,000 warrants exercisable at $3.75 to raise $6.5 million. The Company had $13 million at the end of 2Q 2013 and has a current burn rate of $4 to $5 million per quarter. This new cash infusion suggests a year end cash balance of about $9 million assuming no new cash infusions. Agenus is clearly looking at the prospects for partnering HerpV or Prophage in late 2013 or early 2014 to make a meaningful contribution to covering the cash burn in 2014 and beyond.

Agenus now has 30.0 million shares outstanding, 3.7 million options, 3.3 million warrants and 0.5 million shares underlying non-vested shares and convertible preferred stock. Not all of the options and warrants are likely to be exercised, but for the sake of conservatism, let’s assume that they are. In this case, Agenus would have 37.5 million fully diluted shares outstanding. Based on this and the recent price of $2.98 the fully diluted market capitalization is $112 million.

Update on Trial of Prophage in Newly Diagnosed Glioblastoma
Agenus reported updated data from a phase II trial in 46 patients with newly diagnosed glioblastoma treated with a combination of Prophage G-100 and standard of care. The principal endpoints of the trial that investors focus on are median overall survival (OS) and median progression free survival (PFS). For those not familiar with statistics, the median is the numerical value separating the higher half of a data sample from the lower half. The median of a finite list of numbers can be found by arranging all the observations from lowest value to highest value and determining the middle number, e.g., the median of the series of five numbers 1, 4, 5, 8 and 9 is 5.

This phase II trial included 46 patients and the primary endpoint is median overall survival (OS). At this most recent look, the median overall survival was 23.3 months and the median progression free survival (PFS) was 17.8 months. In this report I focus on OS because this is the primary endpoint of this trial and will almost certainly be the primary endpoint if a phase III trial is conducted. Because this trial was not randomized with some patients given standard of care, patients treated with Prophage cannot be directly compared to a control group receiving standard of care. To put the results in perspective, we must look at results obtained with standard of care in other trials.

The standard of care in glioblastoma is surgical resection followed by a regimen of radiation and temozolomide. This was first defined in the Stupp trial whose results were published in the March 10, 2005 issue of the New England Journal of Medicine. The data from that trial showed that median overall survival for surgery followed by radiation and temozolomide was 14.6 months. This compared to 12.1 months in the group that only received surgery followed by radiation, the previous SOC. The accepted OS for SOC became 14.6 months, but this has since been revised upward.

In a May 9, 2009 issue of the Lancet, data on a subset of patients in the Stupp trial was presented. These were patients who underwent gross total resection that was enhanced by gadolinium imaging followed by radiation and temozolomide. In this group, OS was 18.8 months and this became accepted as the expected result for standard of care. Quite recently, Roche and the RTOG completed two large trials comparing Avastin added to standard of care in glioblastoma (more of this later). The median overall survival was 15.7 and 16.7 months for standard of care in these trials. Because the Avastin trials were very large trials that enrolled 637 patients in one trial and 921 in a second, I think that they are more accurate in defining OS for standard of care.

How Good are the Results?
I think that with some confidence we can assume that SOC or surgical resection followed by radiation and temozolomide leads to OS of about 16.2 months which is the average shown in the two Avastin trials. Prophage G-100 is showing OS of 23.3 months which is a 7.1 months improvement in OS relative to standard of care. So, is that good or bad? Investigators generally consider a 4 to 5 month improvement in OS as being a significant advance. For example, the recently introduced Zytiga and Xtandi showed a 4 to 5 month improvement in OS in metastatic prostate cancer. In the previously reported Stupp trial, the improvement in OS attributable to temozolomide in glioblastoma was 2.5 months.

Viewed against these drugs, the 7.1 month improvement in OS demonstrated by Prophage in this patient group was extremely impressive. Of course, the next question is what this might mean in terms of commercial success? Following their introduction less than three years ago, Zytiga and Xtandi sales should reach about $1.5 billion and $400 million respectively in 2013. Because prostate cancer is more prevalent than glioblastoma, this only means that clinicians considered the OS results as significant and quickly incorporated them into their practices. However, temozolomide with a meager OS improvement of 2.5 months in glioblastoma went on to achieve peak sales of over $1 billion. This provides more insight on potential in glioblastoma.

Reported OS for Prophage Could Improve from 23.3 Months
In the current trial of 46 patients, 13 patients have died. Of the remaining patients who are alive, 9 are beyond 23.3 months of survival and 24 have not yet reached 24 months. Remember that median overall survival of 23.3 months means that of the 13 patients who have died, the median patient died at 23.3 months. This statistic changes with each additional death in the trial.

The history of immunotherapy is that it takes a while to take effect. It also seems to be the case that patients who respond to the therapy can experience some very long survivals. This was shown in the phase I trials of Northwest Biotherapeutics’ DC Vax-L and Immunotherapeutics ICT-107 in their phase I trials. This was also seen with Bristol-Myers Squibb’s (BMY) checkpoint inhibitor Yervoy. If this holds true with Prophage, I would expect to see the OS improve as more patients in the trial die. My expectation is that OS will improve from 23.3 months.

Prophage Results in Recurrent Glioblastoma are Also Encouraging
Agenus has previously reported encouraging results for Prophage G-200 in recurrent glioblastoma. In 2012, results from a trial of 40 patients given Prophage were reported. There was no control group in the trial, but results were compared to that for 86 consecutive patients not enrolled in the Prophage G-200 trial who were treated with alternative therapies during the study period.

The OS for Prophage was 10.9 months and the OS for the surrogate control group was 7.5 months for an improvement of 2.4 months. How good is this? One way of looking at this is that temozolomide only produced a 2.5 month improvement in newly diagnosed glioblastoma in which patients have a much longer expected survival time than those who suffer recurrences.

Another way of viewing these results is to look at Avastin, which is approved for recurrent glioblastoma. The package label for Avastin for recurrent glioblastoma states the following. The effectiveness of Avastin is based on improvement in the objective response (shrinking the size of the tumor). There is no data showing improvement in OS or PFS. There were two trials that supported approval; one showed an objective response of 19.6% in patients and the other showed 25.9%.

If the Prophage phase II results in recurrent glioblastoma hold up, the improvement in OS of 2.5 months would be a major advance over Avastin which has shown no improvement. Prophage G-200 is currently in a phase II trial involving 222 patients. If the results are positive, this could be the basis for approval in 2015 or 2106 and would likely be the first cancer vaccine approved in glioblastoma.

More on the Recent Avastin Trials in Newly Diagnosed Glioblastoma
Roche recently reported results in two large phase III trials of Avastin in newly diagnosed glioblastoma. RTOG 0825 was a 978 patient trial with 637 randomized patients. There was no improvement of OS which was 15.7 months for Avastin as compared to 16.1 months for SOC. PFS of 10.7 months was an improvement versus 7.3 months for SOC. In the second trial, AVAglia there were 921 patients enrolled. The OS of 16.7 months for Avastin was the same as the 16.7 months seen with SOC. PFS was 10.6 months for Avastin versus 6.2 months for SCO.

Avastin has shown very modest efficacy, if any, first in recurrent glioblastoma and now in newly diagnosed glioblastoma. I would be shocked if the FDA approves it for newly diagnosed glioblastoma.