Agios Pharmaceuticals, Inc. — Q3 2015 Form 10-Q
Business context and reporting period. This unaudited quarterly filing covers the three and nine months ended September 30, 2015. Agios is a clinical-stage biotechnology company developing therapies for cancer and rare genetic metabolic disorders. It had no product-sales revenue; substantially all reported revenue came from its Celgene collaborations.
Key financial metrics
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Collaboration revenue | $5.5 million | $33.9 million | $52.9 million | $50.7 million |
| Research and development expense, net of reimbursements | $36.0 million | $25.5 million | $104.9 million | $65.5 million |
| General and administrative expense | $9.9 million | $5.2 million | $25.8 million | $12.6 million |
| Net income (loss) | $(40.3) million | $3.7 million | $(77.1) million | $(26.8) million |
| Basic and diluted earnings (loss) per share | $(1.07) | $0.11 basic; $0.10 diluted | $(2.06) | $(0.81) |
- Cash and liquidity: Cash and cash equivalents were $80.0 million; marketable securities totaled $327.9 million, for combined cash, equivalents and securities of approximately $408.0 million at September 30, 2015, versus $467.4 million at December 31, 2014. Current assets were $371.7 million and current liabilities $49.8 million.
- Cash flow: Nine-month operating cash use was $46.4 million, investing activities provided $107.4 million (including proceeds from securities maturities and sales, partly offset by $18.0 million of property and equipment purchases), and financing activities provided $5.1 million. Ending cash and cash equivalents were $80.0 million.
- Debt and margins: The balance sheet reports no debt. Product gross margins are not applicable because the company had no product sales.
- Equity and losses: Accumulated deficit was $244.1 million. Stock-based compensation was $22.6 million for the first nine months, compared with $6.8 million in 2014.
Material changes versus comparable periods
- Q3 collaboration revenue fell 84% year over year. The comparison is affected by the July 2014 Celgene agreement amendment, which generated substantial one-time revenue recognition in 2014. Nine-month revenue increased 4%, reflecting, among other items, recognition of license consideration for AG-120 and AG-881 in 2015.
- Q3 shifted from net income to a $40.3 million net loss; the 2014 quarter included significant amendment-related collaboration revenue. Nine-month net loss widened by $50.3 million to $77.1 million.
- Nine-month R&D expense rose 60% and G&A expense rose 105%, reflecting expanded clinical and research activity, facilities and staffing, and higher stock-based compensation. Celgene cost reimbursements reduced reported R&D expense by $16.7 million for the nine-month period.
- Property and equipment increased to $21.1 million from $6.4 million at year-end, alongside facility expansion. Total assets decreased to $449.1 million from $491.9 million.
Outlook, developments and risks
- Management expected existing cash, cash equivalents and marketable securities, interest income and anticipated Celgene expense reimbursements to fund operating and capital requirements until at least late 2017. This estimate depends on development spending, collaboration reimbursements and other assumptions; the company said additional funding would be needed thereafter and was not assured.
- Agios expected expenses and operating losses to increase as it advanced AG-221, AG-120, AG-881 and AG-348, developed AG-519, expanded research, and grew its workforce and facilities. The company cautioned it could not predict when, if ever, it would generate material product revenue.
- Clinical pipeline updates included ongoing studies of AG-221 and AG-120 in IDH-mutant cancers; phase 1 studies of AG-881 initiated in 2015; and a phase 2 first-in-patient AG-348 study initiated in June, with first patient dosed in July. The filing also described planned later-stage and combination studies. These candidates remained investigational.
- Celgene is a related party and a key collaborator and source of revenue and cost reimbursement. The 2010 collaboration discovery phase was extended through April 2016; the filing notes that extension payments would end after that period. AG-881 is subject to a worldwide collaboration with shared development costs and profits or losses.
- Material risks include clinical-trial failure, delay or enrollment challenges; regulatory approval and safety uncertainty; reliance on Celgene, CROs and third-party manufacturers; intellectual-property risks; future financing needs and possible dilution; and the possibility that collaborators may change priorities or terminate programs.
- Commitments include up to $60.7 million payable under cancellable vendor agreements. A lease amendment expanded premises to approximately 146,030 square feet; monthly base rent was scheduled to rise from about $549,000 to $727,000 beginning November 1, 2015, with later increases. The filing reported no material subsequent events and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the stated late-2017 cash runway remains achievable given clinical spending, facility costs and the timing and amount of Celgene reimbursements.
- The nature and timing of collaboration revenue, especially amendment- and license-related recognition, versus recurring reimbursement or future milestone income.
- Clinical-trial progress, safety, response durability and regulatory plans for AG-221, AG-120, AG-881 and AG-348; none had marketing approval.
- Celgene’s continuing development, funding and commercialization commitments, and the implications of the 2010 discovery phase ending in April 2016.
- Future financing needs, potential shareholder dilution, and the effect of lease and clinical-program commitments on cash consumption.