Shares of Argos Therapeutics (NSDQ: ARGS), a development stage biotech company for personalized cancer treatments, fell sharply Feb. 22 after the company announced it would halt its phase 3 trial of its Rocapuldencel-T drug in combination with Sunitinib for treating metastatic renal cell carcinoma (kidney cancer) in children. Unfortunately, the combination was no better than Sunitinib alone, offering no increase in patient survival rates. The announcement came out of the blue as the company recently said the trial was proceeding well.

Argos develops cancer treatments that use dendritic cells, a specialized cell in the immune system that can be coaxed into making person-specific antibodies aimed at killing cancer cells. This type of therapy has been successful in small groups of patients and attracted much attention in medical circles. Unfortunately, as Argos and others have experienced, reality has not matched expectations.

What makes Argos different than its peers is the Arcelis platform, its proprietary method of coaxing the cells into manufacturing the antibodies. According to Argos, the main problem with dendritic-cell-mediated therapies was mass producing them. Arcelis was supposed to solve that problem by eliminating the need for cumbersome bedside procedures to create the antibodies.As far as we can tell, Arcelis was supposed to put dendritic-cell-mediated immunotherapy in a glass vial that could be stored on a shelf until needed, and this manufacturing method is the only reason Argos may have some value, assuming someone decides to buy the company to obtain its intellectual property. As it stands, it’s too early in this process to know, as there are more questions than answers. Argos has a lot to figure out about the failed trial. Still, the biggest question remains: What good is a mass production scheme if the intended treatment doesn’t help patients any more than what’s already available?

As of Sept. 30, Argos had $70 million of cash on its balance sheet but also $88 million in liabilities. This was not considered a problem because at the time the drug trial seemed to be going well. Clearly, things have changed. In short, it’s possible that the company may eventually become insolvent without another round of fund raising and that will be extremely difficult to do thanks to a shaky clinical trial and the current budgetary pressures on governments and the private sector.

With no leading drug prospects and not enough cash on its balance sheet to cover expenses indefinitely, Argos is in a deep hole and may be unable to continue operations based on an analysis of its most recent balance sheet.
Argos has been changed to a ‘Hold’ until we have more information about its plans to respond to this latest setback. —Jim Pearce and Joe Duarte

The Value of 2U’s Online Education Just Went Up
Online educational platform developer 2U (NSDQ: TWOU) has moved modestly higher after its fourth-quarter earnings report. Quarterly revenue came in at $57.4 million, up more than 30% over the previous year, beating both guidance and estimates. The company’s net loss also narrowed year-over-year from 7 cents to 5 cents, again beating 2U’s own projections and analyst estimates. Results were also positive on a full-year basis, as revenue rose 37% to $205.9 million, while the company’s net loss narrowed from 34 cents per share in 2015 to just 10 cents.

For 2017, 2U expects revenue to range between $267.6 million and $269.8 million with an adjusted net loss of 11 cents to 15 cents. The revenue growth expected in the first quarter isn’t quite as impressive, with the forecast calling for $63.6 million to $64 million. I suspect that’s why investors didn’t respond more enthusiastically to the earnings report.

The first-quarter forecast, though, is probably on the conservative side, as 2U recently announced several new program partnerships, ranging from an MBA program developed with Dayton’s School of Business and a masters of information and cybersecurity program with UC Berkeley. In all, 2U has at least seven new programs in development, which is no small expense because one of 2U’s attractions is that it bears most of the upfront development costs for the school’s online programs. In return, through long-term contracts, 2U gets the bulk of the tuition revenue that the programs generate, so absorbing those upfront costs can pay off.

Those investments could be especially lucrative considering the funding environment American colleges and universities face. Federal funding overtook state funding as the main source of public funds for colleges and universities in 2010. With a Republican-controlled Congress, the current level of funding for those schools may or may not fall, but it almost certainly won’t rise.

That could leave public institutions in a bind, especially as Education Secretary Betsy DeVos has said she would like to see an emphasis on federal funding for Christian schools. If that becomes a priority, the money would have to come from somewhere because the overall size of the funding pie isn’t growing. That financial reality will make partnering with 2U particularly attractive for public schools.

It’s tough for schools to find a better alternative to 2U’s online programs, which produce similar educational results as those for on-campus students. Schools also like that 2U relieves them of the financial burden of developing online programs, freeing up money for other programs and limiting the school’s financial risk. For investors, because 2U claims most of the tuition revenue, the company can clean up fast if the programs it helps create are popular with students.

Buy 2U up to $45.
—Benjamin Shepherd