Agios Pharmaceuticals, Inc. — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013. Amounts below are in U.S. dollars; financial statement figures are unaudited. Agios is a clinical-stage biopharmaceutical company focused on cellular metabolism, cancer and inborn errors of metabolism. It had no product sales; substantially all reported revenue came from its Celgene collaboration.
Financial results and liquidity
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $6.27 million | $6.29 million | $12.54 million | $12.56 million |
| Research and development expense | $12.96 million | $10.46 million | $24.42 million | $20.01 million |
| General and administrative expense | $1.84 million | $1.95 million | $3.69 million | $3.93 million |
| Operating loss | $(8.53) million | $(6.12) million | $(15.57) million | $(11.39) million |
| Net loss | $(8.62) million | $(5.51) million | $(15.85) million | $(10.14) million |
| Net loss per common share | $(2.80) | $(2.18) | $(5.27) | $(4.16) |
- At June 30, cash and cash equivalents were $77.5 million and marketable securities were $21.8 million, totaling $99.3 million. Total assets were $111.3 million; accumulated deficit was $89.9 million.
- Six-month operating cash use was $27.8 million, compared with $26.5 million in 2012. Investing activities provided $13.9 million, largely reflecting proceeds from securities maturities and sales; financing activities provided $0.1 million. Cash declined $13.8 million over the period.
- The balance sheet reported no debt. Current liabilities were $37.0 million, including $25.1 million of current deferred revenue and $5.1 million of income taxes payable; another $45.1 million of deferred revenue was non-current.
- No product gross margin is reported: revenue was collaboration and grant revenue, not product sales.
Changes and notable items
- Revenue was essentially unchanged year over year, while R&D expense rose 23.8% in Q2 and 22.0% for the first half. Management attributed the increase to expanded external research and preclinical/manufacturing work, added personnel and research infrastructure. G&A declined about 6% in both comparisons, mainly due to lower external legal costs.
- Q2 and first-half net losses increased 56.4% and 56.2%, respectively. The 2013 periods included income tax expense for accrued interest and penalties related to unpaid U.S. federal income taxes; 2012 included tax benefits from carrying losses back against prior-year taxes.
- Collaboration revenue is being recognized ratably from Celgene upfront and extension consideration over an estimated six-year performance period. Agios reported no Celgene milestone or royalty payments received through June 30, 2013.
- After quarter-end, Agios completed its July 29 IPO, receiving approximately $111.1 million in net proceeds, and Celgene’s affiliate invested a further $12.8 million in a concurrent private placement. The filing says these proceeds, existing resources and anticipated collaboration reimbursements were expected to fund operations and capital needs until at least Q4 2016; this is a management estimate, not a guarantee.
- Upon the IPO, preferred stock converted into common stock. The IPO and concurrent placement, together with the conversion and reverse stock split, materially changed the company’s capital structure after quarter-end.
Outlook, risks and management commentary
- Agios expected expenses and operating losses to increase as it advanced AG-221, AG-120 and AG-348, expanded research, hired staff and incurred public-company costs. It stated that future funding needs depend on clinical, regulatory, collaboration and other factors and that additional financing may be necessary.
- AG-221’s IND was filed in June and accepted by the FDA in July; Agios said it initiated a Phase 1 study in August 2013 for patients with IDH2-mutant advanced hematologic malignancies. AG-120 was expected to enter clinical development in early 2014, and AG-348 in 2014. These were forward-looking expectations in the filing.
- Celgene’s cancer-metabolism discovery phase was scheduled to end in April 2014, with options to extend it for up to two additional years for additional funding. Celgene may elect whether to advance or license programs and may terminate the agreement, including on 90 days’ notice. The collaboration was Agios’s only committed potential external funding source.
- Key risks include clinical and regulatory failure or delay, uncertain patient enrollment and safety, dependence on third-party manufacturers and research organizations, collaboration decisions, need for additional capital and potential dilution, and intellectual-property uncertainty. The filing states Agios had no issued patents covering its proprietary technology or candidates at that time. Prior University of Pennsylvania-related lawsuits were settled in 2012.
- Management reported effective disclosure controls at June 30, 2013. The company reported no off-balance-sheet arrangements and no material change in contractual obligations during the quarter. It also disclosed exposure to interest-rate and foreign-currency fluctuations; it did not hedge foreign-exchange risk.
Important facts for investors to verify
- Whether the AG-221 Phase 1 study progressed as planned and whether AG-120 and AG-348 met the stated development timelines.
- How much collaboration funding, expense reimbursement or milestone revenue is actually received from Celgene, and whether Celgene extends the discovery period or exercises program options.
- Actual cash burn and runway against the stated Q4 2016 estimate, including spending increases, public-company costs and any subsequent financing.
- The impact of the IPO, preferred-stock conversion, equity awards and share-sale restrictions on dilution and the public float.
- Developments in federal tax payable and accrued interest and penalties, and progress in building patent protection for the pipeline and technology platform.