Agenus Only Gets A Mosquito-Sized Bite of the New And Heralded Malaria Vaccine

LEXINGTON, Mass. ( TheStreet) --A new, experimental malaria vaccine from GlaxoSmithKline ( GSK) is great news for the children of Africa, not so much for Agenus ( AGEN).

Glaxo's malaria vaccine halved the risk of African children getting the mosquito-borne disease in a large clinical trial. Bill Gates and other global health officials heralded the vaccine trial results as an unprecedented achievement that will save countless lives.

Investors read the news and sent shares of Agenus soaring by as much as 60% to $4.43 Tuesday based on a misguided notion that the cash-burning, money-losing drug maker will profit off its small part in developing the Glaxo malaria vaccine.

That's not likely to happen. Indeed, Agenus makes the immune system-boosting ingredient that's part of the Glaxo malaria vaccine. And Agenus will receive low single-digit royalty on sales of the malaria vaccine.

Which is where Agenus' party ends. Glaxo wants to be perceived as a good global citizen, so it's basically giving away the malaria vaccine. The exact cost of the vaccine hasn't been disclosed but $10 per course of treatment is the rumored price tag.

Glaxo has pledged to price the malaria vaccine as low as possible. "We're not going to make any money from this project," said Glaxo CEO Andrew Witty, according to Reuters.

In 2009, Agenus, then known as Antigenics, disclosed that its royalty rate for the QS21 adjuvant under the Glaxo agreement ranged from $1.5% to 6%, depending on the vaccine, but was generally in the low-single digits.

If Glaxo is pledged to generate no profit from the malaria vaccine, it’s probably safe to assume that Agenus' royalty is on the low end, or 1.5%. That means for every $10 treatment course sold, Agenus' share would come to 15 cents.

Malaria kills about 800,000 people every year. If 1 million people were vaccinated with the vaccine, Glaxo sales would total $10 million; Agenus' share would be $150,000.

The World Health Organization reports 225 million cases of malaria in 2010. If every infected person had been vaccinated to prevent infection in the first place, Glaxo's malaria vaccine could theoretically generate $2.25 billion in sales.

Agenus' share of that blockbuster vaccine would be just $34 million.

If we split the difference and assume Glaxo's malaria vaccine sales total $1 billion -- that's vaccinating 100 million people -- Agenus' take is $15 million.

Glaxo believes the vaccine could reach the market in 2015. Tack on an additional 2-3 years and Agenus' $15 million in QS21 adjuvant royalties is worth about $2 per share today.

Agenus shares are more recently trading up 72 cents, or 26%, to $3.44.

Agenus boosters will point to the malaria vaccine as a positive first step. Another 15 drugs containing QS21 are in clinical trials, which could bring in additional royalty revenue if they're successfully developed and approved.

True enough, but the royalty rates on those other products is still low and the development risk is high. And as Xconomy points out today, a competitor is developing an easier-to-manufacture version of the QS21 adjuvant.

Agenus' long internal effort to develop a cancer vaccine, Oncophage, has been a bust and the company is in constant need of cash.

Bravo to Glaxo for its work to bring a much-needed malaria vaccine to the children of Africa. Agenus gets a hearty handshake for its contribution to the project but this effort is not worth anywhere close to a 60% jump in the company's stock price.

--Written by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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