Expert Financial Analysis and Reporting

Overview of Report

I found the Agenus R&D day to be extremely interesting as it showcased the impressive immunotherapy technology base of Agenus. Presentations by management and key opinion leaders went into great detail on the Company’s core Prophage cancer vaccine and checkpoint modulator technologies. I have included bullet points on remarks that most interested me about their comments. I am not going to try to replicate these presentations, but rather my aim is to just provide an overview. I would encourage readers to listen to the entire presentation on the Agenus website. http://investor.agenusbio.com/event/webcast/agenus-research-and-development-day

Investment Importance

I was especially impressed by remarks from key opinion leaders in immuno-oncology from Northwestern University and Johns Hopkins. They voiced great excitement about the potential role of autologous cancer cell vaccines in immuno-oncology. Two companies closely involved in such products are Agenus with its heat shock protein cancer vaccine Prophage and the dendritic cell cancer vaccines of Northwest Biotherapeutics (DCVax-L and DCVax Direct). Of course, I have buys on both.

As those of you who have followed my work appreciate, I have been an analyst voice in the wilderness arguing that cancer vaccines could play an important, even starring, role in immuno-oncology. I know of no analyst at a major brokerage firm who has written a report on Agenus and Northwest. Most have been scared off by the long list of cancer vaccine trial failures over the past decade. While investors have been quick to become excited (rightfully so) about the potential of CAR-T cell therapy and checkpoint modulators, autologous cancer vaccines have been the Rodney Dangerfield of immuno-oncology. The view of the promise of cancer vaccines in immuno-oncology, especially in combination with checkpoint modulators, seems to be changing from indifference to excitement on the part of scientists and the investment community attention will inevitably follow.

Key Takeaways in Regard to Cancer Vaccines

With the above introduction, you can see how excited I am to have respected, academic, key opinion leaders from Northwestern University and Johns Hopkins come forth with opinions that support my thesis. I think we have reached a watershed in the way that investors look at cancer vaccines. Here are key takeaways from those opinion leaders:

• Tumors are extremely heterogeneous in that the mutations within a tumor can vary markedly from the central location of the tumor and the metastases. They can even vary within individual tumor lesions.
• The ideal product would target neoantigens that are mutations present in the tumor lesions, but not in normal tissue. Neoantigens are newly formed, evolving antigens that are associated with cancers.
• The ideal cancer drug would target hopefully all tumor antigens. If a drug targets just one antigen, the tumor cells with that antigen may be killed but the tumor cells without that antigen will continue to flourish.
• The ideal delivery system for immunotherapy is the immune system of individuals which are able to display HLA-bound neoantigens that trigger an immune response. This is what the autologous treatments of Agenus’ Prophage and Northwest’s DCVax do.
• Monoclonal antibodies and targeted therapies are the overwhelming focus of current cancer research. However, they predetermine and target just one antigen that may or may not be present in the tumor lesions. Even if tumor cells with that antigen are eliminated, the tumor lesions without that antigen will continue to grow.
• There is great excitement about combining cancer vaccines with checkpoint modulators. Over the coming years, I think that we will see a great deal of clinical activity and collaborations based on this approach.

Investment Thesis for Agenus

I think that Agenus has put together a cutting edge model for an immuno-oncology focused company and of course, immuno-oncology is one of the most dynamic areas of research into the world pharmaceutical industry. It has a leading edge antibody drug development capability with its 4-Antibody subsidiary that makes it a leading player in developing checkpoint modulators. It also has over 20 years’ experience in cancer vaccines. It is also building strong bioinformatics capabilities that will be important for effective use of its immuno-oncology drugs.

I beleive that Agenus is in the process of gaining the respect of both scientists and investors. I see it as being viewed similarly to Celldex and in this regard I note that Celldex has a market capitalization of about $2.2 billion versus Agenus’ $485 million. This gap could be closed in coming years. I also see the excitement with combining Prophage with checkpoint modulators as having the potential to excite investors as much as CAR-T technology that has driven the market valuations of Juno and Kite to $3.8 billion and $2.1 billion respectively.

The one thing that investors should consider is that many large biotechnology and pharmaceutical firms are far behind in the checkpoint modulator and cancer vaccine space. If they were to acquire Agenus, they could vault to a leadership position. I see a parallel with the Bristol-Myers Squibb decision to acquire Medarex in 2009 for $2.1 billion which led to Bristol becoming the leading factor in the development of checkpoint modulators. My most likely scenario for Agenus is that it is acquired within the next three years and potentially at a Medarex type of valuation.

I must raise a note of caution to temper my enthusiasm. We are still largely dealing with theoretical biology when it comes to predicting great things for cancer vaccines and their combination with checkpoint modulators. The clinical results seen with Prophage and DCVax-L of Northwest have been based on open label trials. Their results were encouraging when viewed against historical results, but until we have seen comparable results in large controlled trials, a great degree of caution is warranted. Northwest will report results on a 348 patient phase 3 trial of DCVax-L in newly diagnosed glioblastoma in mid-2016 which will be an important event.

Agenus R&D Day; Some Background

The Agenus R&D day was a tour de force showcasing the comprehensive technology of the Company which in my opinion makes it leading player in immuno-oncology. Agenus did not recently stumble into immuno-oncology. It has roots reaching back over 20 years when Garo Armen founded the Company in 1994 to develop heat shock protein-based cancer vaccines, which evolved into its Prophage personalized anti-cancer vaccines. Like most pioneers, Agenus has a lot of scars on its back and had some desperate moments in the aftermath of failed trials for Prophage in melanoma and renal cell carcinoma.

The Company’s founder and CEO, Garo Armen, has shown the tenacity that is so characteristic and necessary for mangers of successful biotechnology companies. Building on the intellectual foundation afforded by the 20 year development effort for Prophage, he has had the vision and courage to put together a Company that can be held out as the model for an immuno-oncology/ immunotherapy company. His acquisition of 4-Antiibody in early 2014 put the Company in the forefront in the race to develop checkpoint modulator drugs which looks to be a perfect complement to Prophage.

The checkpoint modulators have been the hottest drugs on the planet in recent years. Bristol-Myers Squibb’s Opdivo and Merck’s Keytruda have produced dramatic results in a subset of patients who had failed all other therapeutic options. The mechanism of action of checkpoint modulators is to block one of the major biological weapons used by tumors to avoid attack by the immune system. Tumors can secrete proteins (ligands) that bind to receptor sites on T-cells which are designed by nature to turn off a T-cell response after an immune challenge has been successfully handled by the immune system. Tumors have high jacked this biological pathway to turn off or block the immune system’s attempt to eradicate the tumor. At least this is what the first generation of checkpoint modulators does. There are many other checkpoint modulators with different function but this is beyond the scope of this paper.

There is an enormous amount of research going on that seeks to combine checkpoint modulators with other forms of oncology drugs. The thinking is that by turning up the immune system response the checkpoints will be synergistic with other forms of cancer therapy and also with each other. In the presentation, there were distinguished professors from Northwestern university and Johns Hopkins who were involved with this effort. Both pointed to cancer vaccines as being highly synergistic with checkpoint modulators.

For those who have followed my work, you will understand those cancer vaccines (and me) have been ridiculed by many analysts and investors. This stems from a long series of failed clinical trials involving numerous different approaches to boost the immune response against cancer. To date, only the cancer vaccine Provenge of Dendreon has been approved for marketing although Amgen’s T-Vec just received a 22 to 1 vote from an FDA advisory panel recommending that the drug be approved. However, failed clinical trials don’t necessarily mean that the technology has failed. Interestingly, GVAX of Cell Genesis failed in its phase 3 trial, However, Johns Hopkins has continued to study the product and in this meeting reported some very encouraging results in a small 30 patient pancreatic cancer trial in which it was combined with a checkpoint modulator.

The cancer vaccine/ checkpoint modulator combination could become the next hot area in oncology. I believe that this approach probably has more promise than CAR-T technology. Cancer vaccines can address a broad range of cancer antigens as opposed to just one for CAR-T. So who is at the forefront of this race? It is those vaccines that can present multiple antigens to the immune system. Foremost among such products are the Prophage heat shock proteins of Agenus and the dendritic cell cancer vaccines of Northwest Biotherapeutics. I would point out that Celldex’s rindopepimut targets just one antigen the EGFRvIII mutation on glioblastoma tumor cells and Provenge also just targets just one antigen.

Robert Stein, Chief Scientific Officer of Agenus

• The acquisition of 4-Antibody earlier this year brought with it extremely sophisticated technology to develop antibody based drugs against checkpoint targets. This was validated by collaborations with Merck and Incyte based on this technology.
• It was very obvious to me and a source of concern when Dr. Stein came to Agenus that he was less than enthusiastic about Prophage. However results of the phase 2 trial of Prophage in newly diagnosed glioblastoma and promising data concerning the potential of combining Prophage with checkpoint modulators has made him into an enthusiast.
• Each tumor is different and each immune system is different. In the age of immuno-oncology, it will be important to identify the genetics and other biomarkers for each individual tumor. Agenus is building this capability.
• Each patient’s tumor needs to be individually addressed. Prophage does this by capturing antigens from lysed tumor tissue obtained during resection. These antigens are specific to the tumor.

Dr. Charles Drake, Associate Professor of Oncology, Urology and Immunology at the Johns Hopkins School of Medicine.

• Many patients don’t benefit from a single checkpoint modulator. Only about 30% have a response, but that response can be profound. He has looked at several combinations with other classes of oncology drugs.
• He found that when checkpoint modulators were combined with tyrosine kinase inhibitors (targeted therapy) that the efficacy results were additive, not synergistic. However, serious adverse events were exacerbated with an occurrence rate of 80%. He said that checkpoint modulators brought out the worst in tyrosine kinase inhibitors. The combination was toxic.
• Radiation therapy combined with checkpoint modulators don’t do well in mice models. However, he said that radiation therapy combined with cancer vaccines in a mouse model looks better that radiation combined with checkpoint modulators.
• GVAX was a cancer vaccine that was developed by Cell Genesis and was judged to have failed a phase 3 trial in colorectal cancer. Johns Hopkins has continued to work with this vaccine and found that GVAX combined with checkpoint inhibitors did very well in mouse models.
• He did a small trial in third line pancreatic cancer in which 15 patients were treated with checkpoint modulators alone and 15 were treated with checkpoint modulator plus GVAX. The combination was judged to be meaningfully superior.
• He is enthusiastic about combining checkpoint modulators with cancer vaccines,

Dr. Orin Bloch, Professor of Neurological Surgery, Northwestern University

• Dr. Bloch has taken over from his mentor Dr. Andy Parsa, who died unexpectedly a month ago at the age of 48. Dr. Parsa has been the foremost academic advocate for the use Prophage to treat glioblastoma. Without Dr. Parsa, the Prophage program would have been shelved for lack of funds. He raised the money through government grants to keep the program running. Dr. Bloch carries forward Dr. Parsa’s enthusiasm for Prophage.
• Glioblastoma is incredibly immunosuppressive which hinders the ability of immunotherapies to stimulate the immune system and hence their effectiveness. Glioblastoma hides behind the blood brain barrier, but immune cells can infiltrate the tumor.
• Despite these challenges, Prophage has shown strong signals of efficacy against both recurrent and newly diagnosed glioblastoma. This is probably due to its broad presentation of antigens specific to the tumor.
• In the recent Prophage trial in newly diagnosed glioblastoma, there was a clear signal that low PD-L1 expression correlates with prolonger survival. Checkpoint modulators block PD-L1.
• There is a synergy between peripheral immune status (degree of PD-L1 expression) and vaccine efficacy. This strongly suggests that combing Prophage with PD-1 inhibitors like Opdivo and Keytruda will be highly synergetic.
• He is eager to study Prophage in combination with numerous checkpoint inhibitors.

John Castle, Senior Director, Bioinformatics at Agenus & 4-Antibody

• Each cancer is different as Dr. Stein explained. As importantly, each immune system is different in the way that it can present antigens. Consequently, there is a need for individualized vaccines.
• The genome can be sequenced in one lab in a week for a few thousand dollars and the cost is coming down rapidly. It will in the not too different future be possible to routinely screen for mutations that are linked to cancer.
• Tumor mutations are often unique to the tumor. The cases in which one antigen presents a highly effective target for treating cancer are the exceptions rather than the rule. Examples of highly effective drugs with a single target are Gleevec for chronic myeloid leukemia (targets an enzyme that allows CML cells to grow); Rituxan for non-Hodgkin’s lymphoma (targets CD-20 on B-cell surfaces) and CAR-T for acute lymphocytic leukemia (targets CD-19 on B-cell surfaces) are the exceptions.
• Despite the problems with having a cancer drug target just one antigen, current cancer research is still highly focused on having a lab to identify an antigen that is important in cancer call growth and develop a targeted therapy or monoclonal antibody against it.
• Prophage overcomes the single antigen approach as it captures all of the antigens in the tumor and importantly presents these antigens to the immune system through the patient’s own MHC-1 and MHC-2.
• Bioinformation will play a very important role in immuno-oncology by following key biomarkers that provide information on whether the therapy is having an effect and therefore provided  basis for keeping a patient therapy as immunotherapy can sometimes take months to show an effect. The lack of biomarkers was the downfall of Provenge as physicians could not determine for many months if Provenge was having an effect.
• Dr. Castle turned down a job as head of bioinformatics at Bristol-Myers Squibb to come to Agenus.

Dr. Robert Burns, CEO of 4-Antibody, former CEO of Celldex when it was spun out of Medarex

• Once scientists have identified a cancer target, 4-Antibody can use its Retrocyte technology to create antibody drug candidates, validate their efficacy and make cell lies that can manufacture the antibody drug.
• Dr. Burns joined 4-Antibody in 2010 and reshaped its antibody development capabilities into targeting checkpoint modulators.
• He talked to big pharma about acquiring 4-Antibody, but felt were just looking for a drug or two and were not interested in the platform. He saw that Agenus shared his vision and saw great synergy with the Prophage program. The companies met in late 2013 and consummated a deal in early 2014.
• He has brought to 4-Antibody and Agenus, people with valuable experience at Medarex and Genmab, which were pioneers in the development on antibody based drugs.
• Making antibodies is a commodity, but making an antibody drug is not.
• The Retrocyte technology of 4-Antibody uses newer mammalian display. It more closely mirrors the procedure by which mammalian B-cells put together the four components of an antibody and then express the antibody on the cell surface, just like the immune system.
• They recently acquired a yeast display technology to further broaden their antibody development capability.
• They are working to create bispecific antibodies that combine checkpoint modulator activities.

Garo Armen, CEO of Agenus

As CEO, most of Dr. Armen’s comments were introductory remarks for other speakers. He did make an important comment on the new Glaxo shingles vaccine which uses Agenus’s proprietary QS-21 adjuvant which was one of the few reference to this important product area during the day.  Dr. Armen noted that there are 370 million people in the developed world who are the target population for GSK’s new shingles vaccine. The only currently approved vaccine for singles is Merck’s Zostavax which sells for a list price of about $225 per vial at retail. There are lots of discounts and rebates involved so that Merck might receive anything from $150 to $175 per vial. Let’s say it is $150. If so, the worldwide addressable market is $56 billion. Agenus will receive about a 2% royalty on sales.

This is not to say that all of these patients will get the Glaxo vaccine, Shingles occurs in 1 of 3 patients who have had chicken pox and those who will get shingles cannot be predicted. Many patients will figure that they are among the 2 of 3 who will not get the disease.