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Agenus: Attractive Entry Level after Recent Pullback

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Today, we’re taking a close look at Agenus (AGEN). This year, the stock has fluctuated widely, falling from $3.88 in February to about $2.12 in August. Let’s review Agenus’s attractiveness as an investment opportunity by considering its fundamentals, financial health, and technicals.

What is Agenus?

Agenus is a clinical-stage biotechnology company that concentrates on developing therapeutics for cancer. The company’s lead product candidates are AGEN2034 and AGEN1884, which are being developed to treat patients with advanced solid tumors.

Agenus has one fully owned Phase II asset and four fully owned pre-clinical candidates. The company has a market cap of $365 million, and it trades at about $2.66 per share.

Agenus’s fundamental outlook 

Agenus is advancing novel immuno-oncology therapies from its proprietary platforms. These platforms provide the company with a deliberate balance between its wholly owned and partnered pipeline of novel therapies. Notably, these therapies are designed to expand the benefit of immuno-oncology for patients with cancer.

Agenus’s lead drugs are its anti–CTLA-4 human IgG1 monoclonal antibody, AGEN1884, and its programmed cell death 1 antagonist, AGEN2034. These drugs are in clinical trials as monotherapies and in combination for patients with metastatic and advanced solid tumors.

AGEN2034 is currently being observed in a Phase 2 trial (also known as NCT03894215) in patients with cervical cancer. According to ClinicalTrials.gov, NCT03894215 is a Phase 2, open-label, non-randomized, multicenter, single-arm study of AGEN2034 as a monotherapy and in combination with AGEN1884.

This trial’s initial goal was to demonstrate a statistically significant improvement in Objective Response Rate (ORR) with AGEN2034-based treatment. To reach statistical significance, the study required the enrollment of 200 patients.

Agenus expects that adding AGEN1884 to AGEN2034 in cervical cancer patients could increase ORR to 20%–25% from about 14%. The trial currently enrolls patients with a data readout anticipated by 2020. Moreover, Agenus plans to submit BLA to the FDA for AGEN2034 in the second half of 2020.

I believe that updates regarding its lead candidates could be a solid catalyst that might move the stock upward significantly. Moreover, any positive updates on progress concerning their wholly owned and partnered pipeline could send the stock higher.

Liquidity and Agenus stock

On June 30, Agenus had cash and cash equivalents of $121.6 million and total debt of $239.8 million, bringing its total net debt to $118.2 million. Cash used to run the company’s operations during the first half of 2019 totaled roughly $41 million.

Based on that spending, I expect Agenus’s cash on hand to be sufficient for at least 12 months. The company’s management expects its cash and cash equivalents would be sufficient to maintain the company’s operations into the second quarter of 2020.

Technical outlook for AGEN

Looking at the daily chart, we can see what is going on with AGEN. The stock is floating around $2.50—the key area to watch in terms of providing support for price action.

If the stock can hold above $3.00 and start to climb, it wouldn’t surprise me to see the stock soar close to its previous high, around $3.20. If the stock drops below its technical support at $2.50, there is a high probability that the shares could be locked in the $2.00–$2.50 range. 

Agenus stock analysis
Source: Think or Swim

Options analysis

Options traders expect huge moves in Agenus stock. The implied volatility for the options at the $3.00 strike price, which expires on November 15, stands at 84%. This means that investors expect an event that could cause huge movement in one direction or the other. 

Looking at its November 15, 2019, options, we see a bid/ask for the $3.00 call option of $0.05/$0.20, and a bid/ask for the $3.00 put option of $0.25/$0.65. Keep in mind that the options strike should be closest to the previous AGEN closing price of $2.66. We can calculate the expected price move using the mid prices of these options:

0.45 ($3.00 put) + 0.125 ($3.00 call) = 0.575/$2.66 = 21.6%

As you can see above, the options imply that the stock could rise or fall by about 22% by the November expirations from the $3.00 strike price, using the long straddle strategy. This would place the stock in a trading range of $2.08$3.24 by the expiration date.

Moreover, the calls at the $3.00 strike price outweigh the put options about four to one, with 2,662 open calls to 740 open puts. A buyer of the calls would need the stock to rise to $3.20 by the expiration date, a gain of about 20% from the stock’s current price.

Risks for AGEN investors

I think the main risk for Agenus arises from the prospects of AGEN2034. The value of the company as a whole significantly depends on the success of its drug. It’s possible that future trials might not reiterate those results. If the AGEN2034 program were to fail, the stock is likely to plunge significantly.

Additionally, there is competition risk, as Bristol-Myers Squibb, Merck, Novartis, AstraZeneca, Pfizer, and others are developing competing drugs.

Finally, the company is well-funded for now. However, it may need to raise more capital to maintain its operations, which may cause another dilution of shareholders’ equity.

My recommendation for AGEN

I believe that at these levels of $2.66 per share, AGEN is a “buy.” According to TipRanks, AGEN is a “moderate buy” with an average price target of $5.00, representing an 87% upside. 

However, investors should be careful when purchasing the stock at its current levels. It’s a good idea to use limit orders to avoid negative surprises in a volatile stock like Agenus.

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