Agios Pharmaceuticals, Inc. — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014. The interim financial statements are unaudited. Unless noted otherwise, amounts below are in millions of dollars.
Business context
Agios is a clinical-stage biopharmaceutical company focused on cancer metabolism and rare genetic metabolic disorders. It had no product-sales revenue; reported revenue was primarily from its related-party collaboration with Celgene. Lead programs were AG-221 (IDH2), AG-120 (IDH1), and AG-348 (pyruvate kinase deficiency), all in early clinical development.
Financial performance and liquidity
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Collaboration revenue | $33.9 | $6.3 | $50.7 | $18.8 |
| Research and development expense | $25.5 | $14.8 | $65.5 | $39.2 |
| General and administrative expense | $5.2 | $2.5 | $12.6 | $6.2 |
| Operating income (loss) | $3.2 | $(11.1) | $(27.4) | $(26.6) |
| Net income (loss) | $3.7 | $(11.2) | $(26.8) | $(27.0) |
| Basic earnings (loss) per share | $0.11 | $(0.52) | $(0.81) | $(3.08) |
- Q3 2014 operating and net margins were approximately 9.5% and 10.9%, respectively; these profits reflected collaboration revenue recognition from a July 2014 agreement amendment, not product sales. Nine-month operating margin was approximately negative 54%.
- Operating cash use was $51.6 million for the first nine months, versus $42.8 million a year earlier. Investing cash use was $46.0 million; financing provided $96.1 million, mainly from the April follow-on offering. Cash and cash equivalents declined $1.5 million to $70.0 million.
- At September 30, cash, cash equivalents, and marketable securities totaled $237.9 million, compared with $193.9 million at December 31, 2013. Current assets were $247.6 million and current liabilities $35.1 million. The filing reports no outstanding debt.
- Celgene collaboration receivable was $18.7 million at quarter-end and was received in October 2014. Agios also recorded $3.8 million of anticipated refundable income taxes.
- Stockholders’ equity was $207.7 million; accumulated deficit was $140.3 million. The April 2014 public offering and underwriters’ option generated $94.7 million in net proceeds during the nine-month period.
Material changes and unusual items
- In July 2014, Agios amended its Celgene collaboration agreement. Applying revised multiple-element revenue accounting, the company recognized $42.7 million of revenue from January 1 through the amendment date, including a catch-up amount related to previously delivered elements; it recognized a further $8.0 million after the amendment. Q3 revenue included $25.9 million recognized under the former guidance and upon modification, plus $8.0 million for post-modification units of accounting.
- The amendment allocated estimated consideration to a license for AG-120, development services for five Phase 1 studies, ongoing research and development, and committee participation. Revenue timing depends on performance and, for the AG-120 license allocation, Celgene’s exercise of its option.
- Celgene exercised its option for an exclusive global license to AG-221 in June 2014. The company retained U.S. rights to AG-120; Celgene may still exercise its option for rights outside the U.S.
- R&D expense rose 72% in Q3 and 67% year to date, reflecting clinical studies, manufacturing, increased staffing, and other research programs. G&A expense rose 104% in Q3 and 103% year to date, including higher personnel, stock-based compensation, professional-service, and public-company costs.
- Agios signed a seven-year lease for larger Cambridge office and laboratory space, with rent commencement no later than May 15, 2015. Disclosed minimum lease payments across new and existing leases total $33.3 million; the new lease includes an $11.2 million tenant-improvement allowance.
Outlook, commentary, and risks
- Management expected existing cash, investments, anticipated tax refunds and interest, and Celgene expense reimbursements to fund operating and capital needs until at least mid-2017. This is an estimate, not committed financing; the collaboration is the company’s only committed potential external funding source.
- Management expected significant expenses and operating losses for the foreseeable future as clinical development, discovery, staffing, and public-company costs increase. No specific revenue or earnings guidance was provided.
- AG-221: interim Phase 1 data reported in June showed investigator-assessed responses in 14 of 25 evaluable patients and stable disease in five; the dose escalation was continuing and the maximum tolerated dose had not been reached. FDA had granted orphan-drug and Fast Track designations for AML. Further trials and clinical outcomes remain uncertain.
- AG-120 Phase 1 studies began in March 2014. AG-348 Phase 1 single- and multiple-ascending-dose studies had met their stated primary endpoints, with the multiple-dose study ongoing. No candidate had marketing approval.
- Key risks include clinical failure, enrollment and safety issues, regulatory and commercialization uncertainty, reliance on Celgene and third-party research and manufacturing providers, intellectual-property protection, competition, and the need for future capital. Additional equity financing could dilute shareholders; financing or collaboration terms may be unavailable or unfavorable.
- Operating lease payments, up to $29.2 million of cancellable vendor obligations, and unhedged foreign-currency exposure to some CRO costs are disclosed. Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- How much of the reported collaboration revenue and Q3 profit arose from the one-time July accounting reassessment, and how future Celgene revenue will be recognized.
- Collection and timing of the $18.7 million AG-221 reimbursement and $3.8 million tax refund, and the assumptions underlying the stated mid-2017 cash runway.
- Updated clinical-trial data, safety, enrollment, and development timelines for AG-221, AG-120, and AG-348; early-stage results do not establish approval or commercial success.
- Celgene’s remaining options, funding and development obligations, and potential milestone, royalty, and cost-reimbursement payments.
- Growing R&D spending, share-based compensation and dilution, and the company’s long-term lease and other contractual commitments.