Overview

Argos Therapeutics (ARGS) is an immuno-oncology company focused on the development and commercialization of individualized immunotherapies for the treatment of cancer and infectious diseases based on its proprietary precision immunotherapy technology platform called Arcelis.

The company's most advanced product candidate is rocapuldencel-T, which Argos Therapeutics is developing for the treatment of metastatic renal cell carcinoma, or mRCC, and other cancers. Argos Therapeutics is currently conducting a pivotal Phase 3 clinical trial of rocapuldencel-T plus sunitinib or another therapy for the treatment of newly diagnosed mRCC under a special protocol assessment, or SPA, with the Food and Drug Administration, or FDA. The company refer to this trial as the ADAPT trial. The company dosed the first patient in the ADAPT trial in May 2013 and completed enrollment of the ADAPT trial in July 2015. In February 2017, the independent data monitoring committee, or the IDMC, for the ADAPT trial recommended that the trial be discontinued for futility based on its planned interim data analysis. The IDMC concluded that the study was unlikely to demonstrate a statistically significant improvement in overall survival in the combination treatment arm, utilizing the intent-to-treat population at the pre-specified number of 290 events (deaths), the primary endpoint of the study. Notwithstanding the IDMC’s recommendation, the company determined to continue to conduct the trial while the company analyzed interim data from the trial. Following a meeting with the FDA, the company now plan to continue the ADAPT trial until at least the pre-specified number of 290 events occurs, which the company expect will occur in the first half of 2018. The company also plan to continue to analyze interim data from the trial and to submit to the FDA a protocol amendment to increase the pre-specified number of events for the primary analysis of overall survival in the trial beyond 290 events. The company believe that extending its evaluation of rocapuldencel-T beyond 290 events in the trial could enhance its ability to observe rocapuldencel-T’s expected delayed treatment effect. The FDA has agreed to review its planned protocol amendment, and the company expect to continue its discussions with the FDA regarding its development program for rocapuldencel-T. If the company agree with the FDA on an amended protocol that increases the pre-specified number of events for the primary analysis, the SPA for the ADAPT trial would no longer be in effect. In addition to the ADAPT trial, Argos Therapeutics is also currently supporting an investigator-initiated Phase 2 trial of rocapuldencel-T in patients with early stage RCC. Subject to its obtaining sufficient financing, the company plan to support an investigator-initiated Phase 2 trial of rocapuldencel-T in bladder cancer and a Phase 2 trial of rocapuldencel-T in combination with a checkpoint inhibitor in mRCC.

Argos Therapeutics is developing AGS-004, its second Arcelis-based product candidate, for the treatment of HIV. Argos Therapeutics has completed Phase 1 and Phase 2 trials funded by government grants and a Phase 2b trial that was funded in full by the National Institutes of Health, or NIH, and the National Institute of Allergy and Infectious Diseases, or NIAID. Argos Therapeutics is currently supporting an ongoing investigator-initiated clinical trial of AGS-004 in adult HIV patients evaluating the use of AGS-004 in combination with vorinostat, a latency reversing drug, for HIV eradication, and plan to support an investigator-initiated Phase 2 clinical trial of AGS-004 evaluating AGS-004 for long-term viral control in pediatric patients provided that results from its ongoing trial in adult HIV patients are favorable and government funding is available.

On March 3, 2017, the company entered into a payoff letter with Horizon Technology Finance Corporation and Fortress Credit Co LLC, or the Lenders, under its venture loan and security agreement, or the Loan Agreement, pursuant to which the company paid, on March 6, 2017, a total of $23.1 million to the Lenders, representing the principal balance and accrued interest outstanding under the Loan Agreement in repayment of its outstanding obligations under the Loan Agreement. In addition, the company issued to the Lenders five year warrants to purchase an aggregate of 100,000 shares of common stock at an exercise price of $1.30 per share in consideration of the Lenders acceptance of $23.1 million as payment in full. Upon the payment of the $23.1 million and the issuance of the warrants pursuant to the payoff letter, all of its outstanding indebtedness and obligations to the Lenders under the Loan Agreement were paid in full, and the Loan Agreement and the notes thereunder were terminated.

As of June 30, 2017, the company had cash and cash equivalents of $9.3 million and working capital of $7.4 million. The company do not currently have sufficient cash resources to pay its obligations as they become due. In March 2017, the company announced that its board of directors approved a workforce action plan designed to streamline operations and reduce operating expenses. The company recognized $1.1 million in severance costs and $2.6 million in stock-based compensation expense from the acceleration of stock options for the employees associated with the workforce reduction. As of June 30, 2017, the company had paid approximately $0.8 million in severance costs associated with the workforce reduction contemplated by the plan and anticipate paying an additional $0.3 million, primarily during the third and fourth quarters of 2017, related to the plan. The company expect that the workforce reduction will decrease its annual operating costs by $5.7 million once the plan is fully implemented. Argos Therapeutics has also initiated discussions with Saint-Gobain Performance Plastics Corporation, or Saint-Gobain, Invetech Pty Ltd, or Invetech, and Medpace, Inc., or Medpace, regarding the fees that the company owe them, including potentially the conversion by them of some or all of the outstanding fees into a convertible note or equity of its company. Additionally, in June 2017, the company issued a secured convertible note to Pharmstandard International S.A., or Pharmstandard, a collaborator and its largest shareholder, in the aggregate principal amount of $6.0 million. In an at-the-market offering under its sales agreement with Cowen in June 2017, the Company has raised proceeds of $4.9 million through the issuance of common stock as of August 3, 2017, of which $4.6 million was raised subsequent to June 30, 2017. However, even taking these measures into account, the company do not have sufficient cash resources to pay all of its accrued obligations in full or to continue its business operations beyond September 2017. Therefore, the company will need to raise additional capital by the end of September 2017 in order to continue to operate its business beyond that time. Alternatively, the company may seek to engage in one or more potential transactions, such as the sale of its company, a strategic partnership with one or more parties or the licensing, sale or divestiture of some of its assets or proprietary technologies, but there can be no assurance that the company will be able to enter into such a transaction or transactions on a timely basis or on terms that are favorable to it. Under these circumstances, the company may instead determine to dissolve and liquidate its assets or seek protection under the bankruptcy laws. If the company decide to dissolve and liquidate its assets or to seek protection under the bankruptcy laws, it is unclear to what extent the company will be able to pay its obligations, and, accordingly, it is further unclear whether and to what extent any resources will be available for distributions to stockholders.

Argos Therapeutics has devoted substantially all of its resources to its drug development efforts, including advancing its Arcelis precision immunotherapy technology platform, conducting clinical trials of its product candidates, protecting its intellectual property and providing general and administrative support for these operations. Argos Therapeutics has not generated any revenue from product sales and, to date, have funded its operations primarily through public offerings of its common stock and warrants, a venture loan, private placements of common stock, preferred stock and warrants, convertible debt financings, government contracts, government and other third party grants and license and collaboration agreements. From inception in May 1997 through June 30, 2017, Argos Therapeutics has raised a total of $501.1 million in cash, including:

• $337.7 million from the sale of its common stock, convertible debt, warrants and preferred stock;
• $32.9 million from the licensing of its technology;
• $105.5 million from government contracts, grants and license and collaboration agreements; and
• $25.0 million from the Loan Agreement with the Lenders.

Argos Therapeutics has incurred losses in each year since its inception in May 1997. The company's net loss was $74.8 million for the year ended December 31, 2015, $53.0 million for the year ended December 31, 2016 and $32.6 million for the six months ended June 30, 2017. As of June 30, 2017, the company had an accumulated deficit of $364.6 million. Substantially all of its operating losses have resulted from costs incurred in connection with its development programs and from general and administrative costs associated with its operations.

If Argos Therapeutics is able to raise the capital necessary to continue the development of its product candidates, including rocapuldencel-T and AGS-004, the company anticipate that its expenses will increase substantially if and as we:

• continue its ongoing ADAPT trial of rocapuldencel-T for the treatment of mRCC or initiate other clinical trials of rocapuldencel-T for the treatment of mRCC;
• continue to support ongoing investigator-initiated clinical trials of rocapuldencel-T and AGS-004;
• support planned investigator-initiated clinical trials of rocapuldencel-T and AGS-004;
• initiate and conduct additional clinical trials of rocapuldencel-T and AGS-004 for the treatment of cancers and HIV;
• seek regulatory approvals for its product candidates that successfully complete clinical trials;
• lease, build out and equip a facility for the commercial manufacture of its products based on its Arcelis precision immunotherapy technology platform;
• establish a sales, marketing and distribution infrastructure to commercialize products for which the company may obtain regulatory approval;
• maintain, expand and protect its intellectual property portfolio;
• continue its other research and development efforts;
• hire additional clinical, quality control, scientific and management personnel; and
• add operational, financial and management information systems and personnel, including personnel to support its product development and commercialization efforts.

Argos Therapeutics has no external sources of funds other than its contract with the NIH and NIAID, as described under the section entitled NIH Funding below. The company do not expect to generate significant additional funds or product revenue unless and until the company successfully complete development, obtain marketing approval and commercialize its product candidates, either alone or in collaboration with third parties, which the company expect will take a number of years and is subject to significant uncertainty. Accordingly, the company will need to raise additional capital prior to the commercialization of rocapuldencel-T, AGS-004 or any of its other product candidates if the company determine to continue its business operation. Until such time, if ever, as the company can generate substantial product revenues, the company expect to seek to finance its operating activities through a combination of equity offerings, debt financings, government contracts, government and other third party grants or other third party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. However, the company may be unable to raise additional funds through these means when needed, on favorable terms or at all.

NIH Funding

In September 2006, the company entered into a multi-year research contract with the NIH and NIAID to design, develop and clinically test an autologous HIV immunotherapy capable of eliciting therapeutic immune responses. Argos Therapeutics has used funds from this contract to develop AGS-004, including to fund in full its Phase 2b clinical trial of AGS-004. On June 29, 2016, a contract modification was agreed to that extended the NIH and NIAID’s commitment under the contract to July 31, 2018. Argos Therapeutics has agreed to a statement of work under the contract, and are obligated to furnish all the services, qualified personnel, material, equipment, and facilities not otherwise provided by the U.S. government needed to perform the statement of work.

Under this contract, as amended, the NIH and NIAID have committed to fund up to a total of $39.8 million, including reimbursement of direct expenses and allocated overhead and general and administrative expenses of up to $38.4 million and payment of other specified amounts totaling up to $1.4 million upon its achievement of specified development milestones. This amount includes a September 2014 modification of the contract under which the NIH and NIAID agreed to fund up to an additional $500,000 to cover a portion of the manufacturing costs of the planned Phase 2 clinical trial of AGS-004 for long-term viral control in pediatric patients. The NIH’s commitment under the contract extends to July 31, 2018. Since September 2010, Argos Therapeutics has received reimbursement of its allocated overhead and general and administrative expenses at provisional indirect cost rates equal to negotiated provisional indirect cost rates agreed to with the NIH and NIAID in September 2010. These provisional indirect cost rates are subject to adjustment based on its actual costs pursuant to the agreement with the NIH and NIAID and may result in additional payments to it from the NIH and NIAID to reflect its actual costs since September 2010.

Argos Therapeutics has recorded revenue of $38.0 million through June 30, 2017 under the NIH and NIAID contract. This contract is the only arrangement under which Argos Therapeutics has generated substantial revenue. As of June 30, 2017, there was up to $1.8 million of potential revenue remaining to be earned under the agreement with the NIH and NIAID.

Development and Commercialization Agreements

An important part of its business strategy is to enter into arrangements with third parties for the development and commercialization of its product candidates.

Pharmstandard. In August 2013, in connection with the purchase of shares of its series E preferred stock by Pharmstandard, the company entered into an exclusive royalty-bearing license agreement with Pharmstandard. Under this license agreement, the company granted Pharmstandard and its affiliates a license, with the right to sublicense, to develop, manufacture and commercialize rocapuldencel-T and other products for the treatment of human diseases, which are developed by Pharmstandard using its individualized immunotherapy platform, in the Russian Federation, Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Ukraine and Uzbekistan, which the company refer to as the Pharmstandard Territory. The company also provided Pharmstandard with a right of first negotiation for development and commercialization rights in the Pharmstandard Territory to specified additional products the company may develop.

Under the terms of the license agreement, Pharmstandard licensed it rights to clinical data generated by Pharmstandard under the agreement and granted it an option to obtain an exclusive license outside of the Pharmstandard Territory to develop and commercialize improvements to its Arcelis technology generated by Pharmstandard under the agreement, a non-exclusive worldwide royalty-free license to Pharmstandard improvements to manufacture products using its Arcelis technology and a license to specified follow-on licensed products generated by Pharmstandard outside of the Pharmstandard Territory, each on terms to be negotiated upon its request for a license. In addition, Pharmstandard agreed to pay it pass-through royalties on net sales of all licensed products in the low single digits until it has generated a specified amount of aggregate net sales. Once the net sales threshold is achieved, Pharmstandard will pay it royalties on net sales of specified licensed products, including rocapuldencel-T, in the low double digits below 20%. These royalty obligations last until the later of the expiration of specified licensed patent rights in a country or the twelfth anniversary of the first commercial sale in such country on a country by country basis and no further royalties on specified other licensed products. After the net sales threshold is achieved, Pharmstandard has the right to offset a portion of the royalties Pharmstandard pays to third parties for licenses to necessary third party intellectual property against the royalties that Pharmstandard pays to it.

The agreement will terminate upon expiration of the royalty term, upon which all licenses will become fully paid up perpetual exclusive licenses. Either party may terminate the agreement for the other party’s uncured material breach or if specified conditions occur relating to the other party’s insolvency or bankruptcy and the company may terminate the agreement if Pharmstandard challenges or assists a third party in challenging specified patent rights of the company. If Pharmstandard terminates the agreement upon its material breach or bankruptcy, Pharmstandard is entitled to terminate its licenses to improvements generated by Pharmstandard, upon which the company may come to rely for the development and commercialization of rocapuldencel-T and other licensed products outside of the Pharmstandard Territory, and Pharmstandard is entitled to retain its licenses from it and to pay it substantially reduced royalty payments following such termination.

In November 2013, the company entered into an agreement with Pharmstandard under which Pharmstandard purchased shares of its series E preferred stock. Under this agreement, the company agreed to enter into a manufacturing rights agreement for the European market with Pharmstandard and that the manufacturing rights agreement would provide for the issuance of warrants to Pharmstandard to purchase 499,788 shares of its common stock at an exercise price of $5.82 per share. As of August 9, 2017, the company had not entered into this manufacturing rights agreement or issued the warrants.

Green Cross. In July 2013, in connection with the purchase of its series E preferred stock by Green Cross, the company entered into an exclusive royalty-bearing license agreement with Green Cross. Under this agreement the company granted Green Cross a license to develop, manufacture and commercialize rocapuldencel-T for mRCC in South Korea. The company also provided Green Cross with a right of first negotiation for development and commercialization rights in South Korea to specified additional products the company may develop.

Under the terms of the license, Green Cross has agreed to pay it $500,000 upon the initial submission of an application for regulatory approval of a licensed product in South Korea, $500,000 upon the initial regulatory approval of a licensed product in South Korea and royalties ranging from the mid-single digits to low double digits below 20% on net sales until the fifteenth anniversary of the first commercial sale in South Korea. In addition, Green Cross has granted it an exclusive royalty free license to develop and commercialize all Green Cross improvements to its licensed intellectual property in the rest of the world, excluding South Korea, except that, as to such improvements for which Green Cross makes a significant financial investment and that generate significant commercial benefit in the rest of the world, Argos Therapeutics is required to negotiate in good faith a reasonable royalty that the company will be obligated to pay to Green Cross for such license. Under the terms of the agreement, Argos Therapeutics is required to continue to develop and to use commercially reasonable efforts to obtain regulatory approval for rocapuldencel-T in the United States.

The agreement will terminate upon expiration of the royalty term, which is 15 years from the first commercial sale, upon which all licenses will become fully paid up perpetual non-exclusive licenses. Either party may terminate the agreement for the other party’s uncured material breach or if specified conditions occur relating to the other party’s insolvency or bankruptcy and the company may terminate the agreement if Green Cross challenges or assists a third party in challenging specified patent rights of the company. If Green Cross terminates the agreement upon its material breach or bankruptcy, Green Cross is entitled to terminate its licenses to improvements and retain its licenses from it and to pay it substantially reduced milestone and royalty payments following such termination.

Medinet. In December 2013, the company entered into a license agreement with Medinet. Under this agreement, the company granted Medinet an exclusive, royalty-free license to manufacture in Japan rocapuldencel-T and other products using its Arcelis technology solely for the purpose of the development and commercialization of rocapuldencel-T and these other products for the treatment of mRCC. The company refer to this license as the manufacturing license. In addition, under this agreement, the company granted Medinet an option to acquire a nonexclusive, royalty-bearing license under its Arcelis technology to sell in Japan rocapuldencel-T and other products for the treatment of mRCC. The company refer to the option as the sale option and the license as the sale license.

The sale option expired on April 30, 2016. As a result, Medinet may only manufacture rocapuldencel-T and these other products for it or its designee. Argos Therapeutics has agreed to negotiate in good faith a supply agreement under which Medinet would supply it or its designee with rocapuldencel-T and these other products for development and sale for the treatment of mRCC in Japan. During the term of the manufacturing license, the company may not manufacture rocapuldencel-T or these other products for it or any designee for development or sale for the treatment of mRCC in Japan.

In consideration for the manufacturing license, Medinet paid it $1.0 million. Medinet also loaned it $9.0 million in connection with it entering into the agreement. Argos Therapeutics has agreed to use these funds in the development and manufacturing of rocapuldencel-T and the other products. Medinet also agreed to pay it milestone payments of up to a total of $9.0 million upon the achievement of developmental and regulatory milestones and $5.0 million upon the achievement of a sales milestone related to rocapuldencel-T and these products.

The company borrowed the $9.0 million pursuant to an unsecured promissory note that bears interest at a rate of 3.0 % per annum. The principal and interest under the note are due and payable on December 31, 2018. Under the terms of the note and the manufacturing license agreement, any milestone payments related to the developmental and regulatory milestones that become due will be applied first to the repayment of the loan. The first milestone with a $1.0 million payment was achieved in July 2015 and the second milestone with a $2.0 million payment was achieved in June 2016, reducing the outstanding principal of the loan as of December 31, 2016 to $6.0 million. Argos Therapeutics has the right to prepay the loan at any time. If Argos Therapeutics has not repaid the loan by December 31, 2018, then Argos Therapeutics has agreed to grant to Medinet a non-exclusive, royalty-bearing license to make and sell Arcelis products in Japan for the treatment of cancer. In such event, the amounts owing under the loan as of December 31, 2018 may constitute pre-paid royalties under the license or would be due and payable. Royalties under this license would be paid until the expiration of the licensed patent rights in Japan at a rate to be negotiated. If the company cannot agree on the royalty rate, Argos Therapeutics has agreed to submit the matter to arbitration.

Under the agreement, Argos Therapeutics has the right to revoke both the manufacturing license and the sale license to be granted to Medinet or the sale license only. If the company exercise this right, the company will be obligated to make a one-time payment to Medinet calculated based on the nonroyalty payments made to it by Medinet under the agreement, repay the outstanding amount due under the loan and assume certain obligations of Medinet, and Medinet will be obligated to assist it in transitioning the relevant rights in Japan to it or a party that the company designate. If the company exercise its revocation right with respect to the sale license only, the one-time payment will equal the total amount of nonroyalty payments. If the company exercise its revocation right with respect to the manufacturing license and the sale license, the one-time payment will equal 150% or 200% of the nonroyalty payments depending on the timing of the exercise of the revocation right.

The agreement will terminate upon expiration of the royalty term, upon which all licenses will become fully paid up, perpetual non-exclusive licenses. Either party may terminate the agreement for the other party’s uncured material breach or if specified conditions occur relating to the other party’s insolvency or bankruptcy, and the company may terminate the agreement if Medinet challenges or assists a third party in challenging specified patent rights of the company. If Medinet terminates the agreement upon its material breach or bankruptcy, Medinet is entitled to terminate its licenses to improvements and retain its royalty-bearing licenses from it.

Lummy. On April 7, 2015, the company and Lummy HK entered into a license agreement pursuant to which the company granted to Lummy HK an exclusive license under the Arcelis technology, including patents, know-how and improvements to manufacture, develop and commercialize products for the treatment of cancer in China, Hong Kong, Taiwan and Macau. Lummy HK also has a right of first negotiation with respect to a license under the Arcelis technology for the treatment of infectious diseases in China, Hong Kong, Taiwan and Macau. This agreement was subsequently amended in December 2016.

Under the terms of the license agreement, the parties will share relevant data, and the company will have a right to reference Lummy HK data for purposes of its development programs under the Arcelis technology. In addition, Lummy HK has granted to it an exclusive, royalty-free license under and to any and all Lummy HK improvements to the Arcelis technology conceived or reduced to practice by Lummy HK and Lummy HK data to develop and/or commercialize products outside China, Hong Kong, Taiwan and Macau, an exclusive, royalty-free license under and to any and all INDs and other regulatory approvals and Lummy HK trademarks used for an Arcelis-Based Product to develop and/or commercialize an Arcelis-Based Product outside China, Hong Kong, Taiwan and Macau and a non-exclusive, worldwide, royalty-free license under any Lummy HK improvements and Lummy HK data to manufacture Arcelis-Based Products anywhere in the world. Lummy HK has the right to reference its data, INDs and other regulatory filings and submissions for the purpose of developing and obtaining regulatory approval of licensed products in China, Hong Kong, Taiwan and Macau.

Pursuant to the license agreement, Lummy HK will pay it royalties on net sales and an aggregate of up to $20.5 million upon the achievement of manufacturing, regulatory and commercial milestones. The license agreement will terminate upon expiration of the last to expire royalty term for all Arcelis-Based Products, with each royalty term being the longer of the expiration of the last valid patent claim covering the applicable Arcelis-Based Product and 10 years from the first commercial sale of such Arcelis-Based Product. Either party may terminate the license agreement for the other party’s uncured material breach or if specified conditions occur relating to the other party’s insolvency or bankruptcy. The company may terminate the license agreement if Lummy HK challenges or assists a third party in challenging specified patent rights of the company. If Lummy HK terminates the license agreement upon its material breach or bankruptcy, Lummy HK is entitled to terminate the licenses it granted to it and retain its licenses from it with respect to Arcelis-Based Products then in development or being commercialized, subject to Lummy HK’s continued obligation to pay royalties and milestones with respect to such Arcelis-Based Products.

Invetech. On October 29, 2014, the company entered into a development agreement with Invetech Pty Ltd, or Invetech. The development agreement supersedes and replaces a prior agreement entered into by the parties as of July 20, 2005. Under the development agreement, Invetech has agreed to develop and provide prototypes of the automated production system to be used for the manufacture of its Arcelis-based products, or the Production Systems. Development services will be performed on a proposal by proposal basis. Invetech has agreed to defer 30% of its fees, up to $5,000,000. Under the development agreement, Argos Therapeutics is obligated to pay these deferred fees (plus interest of 7% per annum) pursuant to an installment plan (eight installments payable within the first two years after December 31, 2016). Argos Therapeutics is currently in discussions with Invetech regarding the development agreement related to the deferred fees, and the repayment of the fees, including potentially through conversion of a portion of the outstanding fees into equity or a convertible note providing for the further deferral of the fees.

The development agreement requires the parties to discuss in good faith Invetech’s supply of Production Systems for use in manufacturing commercial product. Argos Therapeutics has an obligation to purchase $25.0 million worth of Production Systems, components, subsystems and spare parts for commercial use. Once that obligation has been satisfied, Argos Therapeutics has the right to have a third party supply Production Systems for use in manufacturing commercial product, provided that Invetech has a right of first refusal with respect to any offer by a third party and the company may not accept an offer from a third party unless that offer is at a price that is less than that offered by Invetech and otherwise under substantially the same or better terms. The company will own all intellectual property arising from the development services (with the exception of existing Invetech intellectual property incorporated therein-under which the company will have a license). The term of the development agreement will continue until the completion of the development of the Production Systems. The development agreement can be terminated early by either party because of a technical failure or by it without cause.

Saint-Gobain. In January 2015, the company entered into a development agreement with Saint-Gobain Performance Plastics Corporation, or Saint-Gobain, that was subsequently amended in December 2015 and 2016. Under the agreement, Saint-Gobain agreed to develop a range of disposables for use in its automated production systems to be used for the manufacture of its Arcelis-based products, which the company refer to as the Disposables. The company expect total development fees and expenses incurred under the Saint-Gobain Agreement to be approximately $7.1 million, of which $3.1 million has been paid to date and $4.0 million has been accrued as of June 30, 2017. Argos Therapeutics has also agreed separately to purchase $3.5 million in Disposables under the agreement during 2017 of which $0.8 million has been accrued as of June 30, 2017. The Saint-Gobain agreement requires the parties to execute a commercial supply agreement under which Saint-Gobain would become the exclusive supplier of Disposables for the manufacture of its products treating solid tumors for no less than fifteen years. By its terms the agreement was set to expire on March 1, 2017, but the parties have agreed to extend the term while discussions referenced below are ongoing. The agreement can be terminated by written agreement of the parties because of a material default, including the failure to execute the commercial supply agreement, or a failure to achieve a performance milestone. Argos Therapeutics is currently in discussions with Saint-Gobain regarding modification of the terms of the commercial supply agreement and payment of the development fees, including potentially through conversion of a portion of the outstanding fees into equity or a convertible note providing for the further deferral of the fees.

Cellscript. In December 2015, the company entered into a development and supply agreement with Cellscript, LLC. Under the agreement, Cellscript has agreed to develop cGMP processes for the manufacture and production of CD40L RNA, a ribonucleic acid used in the production of its Arcelis -based products, and to manufacture and produce CD40L RNA.

In consideration for these development and production services, Argos Therapeutics has agreed to pay Cellscript total fees of $4,600,000. Upon the execution of the agreement, the company made an initial payment to Cellscript of $2,000,000 through the issuance to Cellscript of 906,194 shares of its common stock. The balance of these fees are payable to Cellscript, at its option, in cash, common stock or a combination of cash and common stock upon the achievement of development milestones. Any shares of common stock issued pursuant to the agreement are subject to a lock-up period of 180 days from the date of issuance of such shares to Cellscript.

Under the terms of the agreement, Cellscript shall be the sole and exclusive manufacturer and supplier to it of CD40L RNA, and the company will make agreed upon cash payments to Cellscript for CD40L RNA produced for it during the term of the Agreement. Under the agreement, Cellscript shall also be its sole and exclusive supplier of enzymes and various kits comprising enzymes for transcription, capping and/or polyadenylation of RNA. The company will make agreed upon cash payments to Cellscript amounts for each kit that is purchased under the agreement.

The agreement will continue until the earlier of  December 31, 2017 or (ii) the effective date of a commercial supply agreement negotiated in good faith by the parties, but can be earlier terminated by either party due to a material breach or upon bankruptcy of the other party.

Manufacturing

The company currently have manufacturing suites located at its Technology Drive and Patriot Center facilities in Durham, North Carolina. The company manufacture its Arcelis-based product candidates for research and development purposes and for clinical trials at these facilities.

In January 2017, the company entered into a ten-year lease agreement with two five-year renewal options for 40,000 square feet of manufacturing and office space at the Center for Technology Innovation, or CTI, on the Centennial Campus of North Carolina State University in Raleigh, North Carolina. The company provided a security deposit in the amount of $2.4 million as security for obligations under the lease agreement, which was provided in the form of a letter of credit. The company had intended to utilize this facility to manufacture rocapuldencel-T to support submission of a biologics license application, or BLA, to the FDA and to support initial commercialization of rocapuldencel-T.

To provide for capacity expansion beyond the initial few years following potential launch of rocapuldencel-T, the company also had planned to build-out and equip a second facility, which the company refer to as the Centerpoint facility. In August 2014, the company entered into a ten-year lease agreement with renewal options. Under the lease agreement, the company agreed to lease certain land and an approximately 125,000 square-foot building to be constructed in Durham County, North Carolina. The company initially intended this facility to house its corporate headquarters and commercial manufacturing before the company entered into the lease for the CTI facility. The shell of the new facility was constructed on a build-to-suit basis in accordance with agreed upon specifications and plans and was completed in June 2015. However, the build-out and equipping of the interior of the facility was suspended as the company pursued financing arrangements to support the further build out of the facility.

Due to the IDMC recommendation to discontinue the ADAPT study, Argos Therapeutics is currently reassessing its manufacturing plans. Argos Therapeutics has therefore initiated discussions with the landlord of its Centerpoint facility regarding that lease and Argos Therapeutics is currently working with the landlord to actively find another tenant for the property. The company estimate that it will take up to nine months from June 30, 2017 to exit the arrangement and terminate the operating lease.

In March 2017 the landlord of its CTI facility notified it that it was terminating the lease due to nonpayment of invoices for up-fit costs, effective immediately. The company never occupied the leased space. The company did not dispute the occurrence of the event of default or the termination of the lease and did not plan to seek to cure the default. In the termination notice, the landlord stated that the company were liable for any and all costs incurred by the landlord in re-letting the premises, any deficiency between its scheduled rent for the remainder of the term of the lease and the rent charged to the new tenant, the unamortized portion of the funded up-fit costs, rent abatement, interest at the rate of 12% per annum on the sums noted and all attorneys’ fees incurred by the landlord in enforcing the lease. The company had instructed the landlord to begin the process of re-letting the premises in order to mitigate damages. On March 31, 2017, the company entered into a Lease Termination Agreement, or the Termination Agreement, with the landlord whereby the lease was deemed terminated as of March 17, 2017. From the $2.4 million letter of credit, the landlord drew down $0.7 million to cover unpaid construction costs in March 2017 and drew down another $1.7 million in April 2017 for lease termination damages and agreed to return $0.1 million in consideration for being able to salvage some of the construction costs. Pursuant to the Lease Termination Agreement, Argos Therapeutics has no further obligations under the lease. During the six months ended June 30, 2017, the company recorded a lease termination fee of $1.6 million which is included in Restructuring costs on the statement of operations and Current portion of restructuring liability on the balance sheet. The company also recorded an impairment loss on Construction-in-progress on the property of $0.9 million.

The company expect that the company would establish both manual and automated manufacturing processes in its commercial manufacturing facilities if the company determine to build out such facilities. The company had decided to delay the implementation of its automated manufacturing process until after initial commercialization of rocapuldencel-T, and thus planned to seek marketing approval of rocapuldencel-T and, if approved, to initially commercially supply rocapuldencel-T using its manual manufacturing process. Prior to implementing commercial manufacturing of rocapuldencel-T, the company would be required to demonstrate that its commercial manufacturing facility is constructed and operated in accordance with current good manufacturing practice. The company would also be required to show the comparability between rocapuldencel-T that the company produce using the manual processes in its current facility and rocapuldencel-T produced using the manual process in its new facility.

Development Programs

The following table summarizes its development programs for rocapuldencel-T and AGS-004.

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The company hold all commercial rights to rocapuldencel-T and AGS-004 in all geographies other than rights to rocapuldencel-T in Russia and the other states comprising the Commonwealth of Independent States, which the company exclusively licensed to Pharmstandard International S.A., or Pharmstandard, rights to rocapuldencel-T for the treatment of mRCC in South Korea, which the company exclusively licensed to Green Cross Corp., or Green Cross, and rights to rocapuldencel-T in China, Hong Kong, Taiwan and Macau, which the company exclusively licensed to Lummy (Hong Kong) Co. Ltd., or Lummy HK. Argos Therapeutics has granted to MEDcell Co., Ltd., a wholly-owned subsidiary of Medinet Co. Ltd., hereinafter referred to together as “Medinet,” an exclusive license to manufacture rocapuldencel-T for the treatment of mRCC in Japan.

Rocapuldencel-T

Argos Therapeutics is developing rocapuldencel-T for the treatment of mRCC and other cancers. Argos Therapeutics is conducting the ADAPT trial of rocapuldencel-T plus sunitinib / targeted therapy for the treatment of newly diagnosed mRCC under an SPA with the FDA. The company dosed the first patient in the ADAPT trial in May 2013. In July 2015 the company completed enrollment in the ADAPT trial, enrolling 462 patients with the goal of generating 290 events for the primary endpoint of overall survival. The company enrolled these patients at 107 clinical sites in North America, Europe and Israel. Under the ADAPT trial protocol, these patients were randomized between the rocapuldencel-T plus sunitinib / targeted therapy combination arm and sunitinib / targeted therapy alone control arm on a two-to-one basis. In February 2017, the IDMC for the ADAPT trial recommended that the trial be discontinued for futility based on its planned interim data analysis. The IDMC concluded that the study was unlikely to demonstrate a statistically significant improvement in overall survival in the combination treatment arm, utilizing the intent-to-treat population at the pre-specified number of 290 events (deaths), the primary endpoint of the study. Notwithstanding the IDMC’s recommendation, the company determined to continue to conduct the trial while the company analyzed interim data from the trial. Following a meeting with the FDA, the company now plan to continue the ADAPT trial until at least the pre-specified number of 290 events occurs, which the company expect will be in the first half of 2018. The company also plan to continue to analyze interim data from the trial and to submit to the FDA a protocol amendment to increase the pre-specified number of events for the primary analysis of overall survival in the trial beyond 290 events. The company believe that extending its evaluation of rocapuldencel-T beyond 290 events in the trial could enhance its ability to observe rocapuldencel-T’s expected delayed treatment effect. The FDA has agreed to review its planned protocol amendment, and the company expect to continue its discussions with the FDA regarding its development program for rocapuldencel-T. If the company agree with the FDA on an amended protocol that increases the pre-specified number of events for the primary analysis, the SPA for the ADAPT trial would no longer be in effect.

In addition to the ADAPT trial, Argos Therapeutics is currently supporting an ongoing investigator-initiated Phase 2 clinical trial designed to evaluate treatment with rocapuldencel-T in patients with early stage RCC prior to nephrectomy. This trial was opened for enrollment in late 2014 and five patients were enrolled as of May 1, 2017. The company expect that a total of 10 patients will be enrolled in this trial. This trial provides the opportunity to observe the impact of rocapuldencel-T on the immune response in both the peripheral blood and in the primary tumor that is removed after rocapuldencel-T treatment, the latter as evidenced by the presence of tumor infiltrating lymphocytes in the tumor. Additionally, Argos Therapeutics has developed a protocol for a Phase 2 clinical trial of rocapuldencel-T in combination with a checkpoint inhibitor for the treatment of patients with mRCC, but initiation of this trial is subject to its obtaining financing for the trial.

Beyond renal cell carcinoma, the company plan to support an additional investigator-initiated Phase 2 clinical trial of rocapuldencel-T in muscle invasive bladder cancer subject to its obtaining financing for such support. The trial would have two phases: a pre-treatment phase and a treatment phase. In the pre-treatment phase, tumor tissue will be obtained via a transurethral resection of the bladder tumor, which will then be used to extract RNA for the manufacture of rocapuldencel-T. In the treatment phase, rocapuldencel-T will be given before tumor resection and combined with standard-of-care cytotoxic chemotherapy. Booster doses of rocapuldencel-T will continue after tumor resection. As with the neoadjuvant renal cancer trial, Argos Therapeutics has the unique opportunity to observe any meaningful impact of rocapuldencel-T on the immune response in the peripheral blood and immune responses infiltrating the primary tumor.

AGS-004

Argos Therapeutics is developing AGS-004 for the treatment of HIV and are focusing this program on the use of AGS-004 in combination with other therapies for the eradication of HIV. The company believe that by combining AGS-004 with therapies that are being developed to expose the virus in latently infected cells to the immune system, the company can potentially eradicate the virus. The current standard of care, antiretroviral drug therapy, or ART, can reduce levels of HIV in a patient’s blood, increase the patient’s life expectancy and improve the patient’s quality of life. However, ART cannot eliminate the virus, which persists in latently infected cells, remains undetectable by the immune system and can recur. In addition, ART requires daily, life-long treatment and can have significant side effects.

Argos Therapeutics is supporting an investigator-initiated clinical trial of AGS-004 in up to 12 adult HIV patients to evaluate the use of AGS-004 in combination with one of these latency reversing therapies for the eradication of HIV at the University of North Carolina. This trial is being conducted in two stages. Stage 1 of this trial has been completed and was designed to study immune response kinetics to AGS-004 in patients on continuous ART. These data were used to better define the optimal dosing strategy in combination with a latency reversing therapy in the ongoing Stage 2. The company expect that some patients in Stage 1 will rollover into Stage 2, which is studying AGS-004 in combination with one of the latency reversing drugs. The patient clinical costs for the first stage of this trial were funded by Collaboratory of AIDS Researchers for Eradication, or CARE. The NIH Division of AIDS has approved $6.6 million in funding for the second stage of this trial.

The company also plan to determine whether to conduct a trial to explore the use of AGS-004 monotherapy to provide long-term control of HIV viral load in otherwise immunologically healthy patients and eliminate their need for ART. Accordingly, if initial data from Stage 2 of the ongoing adult eradication study are favorable, government funding is available and necessary approvals are obtained, the company expect to support an investigator-initiated Phase 2 clinical trial of AGS-004 monotherapy in pediatric patients infected with HIV who have otherwise healthy immune systems and have been treated with ART since birth or shortly thereafter and, as a result, are lacking the antiviral memory T-cells to combat the virus. The commencement of this trial is subject to supportive data obtained from the adult eradication trial and approval of the protocol by the principal investigator(s), institutional review boards, the IMPAACT Network leadership and the FDA and to the agreement by the NIH to fund the trial costs not related to AGS-004 manufacturing.