AGIOS PHARMACEUTICALS, INC. quarterly report, Q1 FY2015

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Agios Pharmaceuticals, Inc. — Q1 2015 Form 10-Q

Reporting period: Three months ended March 31, 2015. Agios is a clinical-stage biopharmaceutical company developing medicines for cancer and rare genetic metabolic disorders. It had no product sales; substantially all revenue to date came from its Celgene collaboration.

Financial position and results

  • Revenue: $34.2 million, versus $8.4 million in Q1 2014, up 307%. Revenue was collaboration revenue, not product sales.
  • Profitability: Net loss was $5.0 million, or $0.13 per share, compared with a $12.2 million loss, or $0.39 per share, a year earlier. Operating loss was $5.2 million. No income tax provision was recorded.
  • Expenses: R&D was $32.4 million, up 86%; G&A was $7.0 million, up 111%. Revenue exceeded operating expenses in neither period; product gross margin is not applicable because there were no product sales.
  • Cash flow: Operating activities used $25.6 million, compared with $27.0 million in Q1 2014. Investing activities provided $45.0 million, mainly from marketable-security maturities and sales; financing activities provided $1.8 million. Cash and cash equivalents increased $21.2 million.
  • Liquidity: At March 31, cash and cash equivalents were $35.3 million and marketable securities totaled $404.7 million, or approximately $440.0 million combined. Current assets were $364.1 million and current liabilities $36.4 million. Stockholders’ equity was $426.8 million. The filing reports no debt balance.
  • Other metrics: Accumulated deficit was $171.9 million. Stock-based compensation was $5.1 million. Property and equipment purchases were $3.8 million, with an additional $6.6 million of equipment additions in accounts payable and accrued expenses.

Material changes and unusual items

  • The 2015 revenue increase reflects the July 2014 amendment to the Celgene collaboration and revised revenue accounting, including $15.8 million recognized when Celgene exercised its option for an ex-U.S. AG-120 license.
  • A revised estimate of effort for AG-221 development services added $5.1 million of revenue. Together with $3.8 million recorded as a reduction of R&D expense, the change reduced Q1 net loss by $8.9 million, or $0.24 per share. This is a significant non-recurring estimate effect on the reported comparison.
  • Celgene reimbursements for certain third-party AG-221 costs were reported as a reduction of R&D expense; reported Q1 reimbursement was approximately $4.4 million.
  • Celgene exercised its final one-year extension of the 2010 collaboration discovery phase, through April 2016. Agios received the $20.0 million extension payment in May 2015, after quarter-end.
  • After quarter-end, Agios selected AG-881 for clinical development and entered new worldwide Celgene agreements. The agreements provide a $10.0 million initial payment, up to $70.0 million in milestones, and equal sharing of worldwide development costs and product profits or losses, subject to specified exceptions.

Outlook, management commentary and risks

  • Management expected Q1-end cash, cash equivalents and marketable securities, anticipated interest, the May $20.0 million payment and expected Celgene reimbursements to fund operating and capital requirements until at least late 2017. The filing also identifies the $10.0 million AG-881 initial payment as a funding source in its risk discussion.
  • Agios expected expenses and operating losses to increase as it advances AG-221, AG-120, AG-881 and AG-348, expands research programs and grows its workforce. It stated that future milestone and collaboration revenue may fluctuate significantly and that timing and amounts are uncertain.
  • Planned development included a Celgene-led global Phase 3 study of AG-221 in relapsed/refractory AML in the second half of 2015; AG-120 combination trials in the second half of 2015 and a registration-enabling Phase 3 study in the first half of 2016; and initiation of AG-881 clinical development in Q2 2015. These are forward-looking plans, not reported outcomes.
  • AG-348’s Phase 1 studies in healthy volunteers had met their primary endpoints; management expected final multiple-dose results in June 2015 and planned a Phase 2 patient study in the first half of 2015.
  • Key risks include clinical efficacy, safety and enrollment uncertainty; regulatory and manufacturing delays; reliance on Celgene, CROs and contract manufacturers; uncertain access to future financing; competition; and intellectual-property risks. Management noted that only Celgene collaborations were a committed potential external funding source, with payments dependent on performance and milestones.
  • The company reported no off-balance-sheet arrangements. Vendor obligations under cancelable agreements were up to $40.7 million at March 31. Management concluded disclosure controls were effective; no material change in internal control over financial reporting was reported for the quarter.

Most important facts for investors to verify

  1. How much of reported collaboration revenue and the improved loss reflects the AG-120 license, the AG-221 estimate revision and cost reimbursements, rather than recurring operating economics.
  2. Whether the May 2015 $20.0 million extension payment and the AG-881 agreement’s $10.0 million initial payment were received as expected, and how the collaboration’s cost-sharing terms affect future cash needs.
  3. Progress, safety, efficacy and enrollment in the lead-candidate trials, along with the timing and scope of the stated Phase 2, Phase 3 and AG-881 clinical plans.
  4. Whether the projected funding runway through late 2017 remains supportable as development spending grows and contingent Celgene payments or reimbursements vary.
  5. Potential dilution and equity-plan overhang: 4.6 million stock options were outstanding at March 31, 2015, and 1.2 million shares were available for future issuance under equity plans.