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Biotech Stock Mailbag: All You Need to Know About Hep C Drugs

Stocks in this article: CLDX GILD BMY AGEN

The "new" Agenus investor story is QS-21, an adjuvant added to vaccines to boost immune response. Agenus shares have soared to more than $6 from $2 at the beginning of the year, mainly because of hype around QS-21 and its inclusion in 15 vaccines under clinical development. Most notable are three GlaxoSmithKline (GSK) vaccines or immunotherapies in late-stage clinical trials for malaria, non-small cell lung cancer and melanoma; all contain Agenus' QS-21.

Agenus' stock really took off in early March after the company announced an amended QS-21 agreement with Glaxo, giving the latter "first right to negotiate for the purchase of the company or certain of our assets," according to an Agenus regulatory filing.

Naturally, buzz among retail investors reached a fever pitch on empty speculation that Glaxo was going to buy Agenus. The deal hasn't happened yet, and I have doubts it will ever take place. Without the takeover buzz, Agenus is overvalued.

Glaxo is obligated to pay a mid-single-digit royalty to Agenus on sales of any QS-21-containing vaccine/immunotherapy that is approved and marketed. Glaxo's malaria vaccine looks to be effective but the company has already stated that it will be giving it away. Malaria is a problem in Africa, not so much in the U.S. or Europe. Results from late-stage studies of Glaxo's melanoma and lung cancer immunotherapies have not been released.

Why would Glaxo buy Agenus, presumably at a premium to its current $145 million market value, when it can more cheaply pay a 5% royalty on sales of products? Doesn't make much sense to me, although I admit Glaxo has a history of making stupid acquisitions -- the $700 million spent to buy Sirtris comes to mind.

Agenus' patent to purified QS-21 expired in 2008 and other vaccine adjuvants, including those similar to QS-21, are already in clinical development. Glaxo even has its own adjuvant known as MPL under development. These competitors raise questions about the long-term future of QS-21.

Here's what I'd like to see happen with Agenus, given the company's long history of drug-development futility: Link founder and CEO Garo Armen's compensation to QS-21 royalties. Right now, Armen makes $464,000 a year -- an outrageously high salary for a guy responsible for a minus 70% shareholder return over the past five years. Agenus, formerly Antigenics, has shed 97% of its value since 2000.

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