Agios Pharmaceuticals, Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. Amounts are in U.S. dollars; financial figures below are in millions unless otherwise stated.
Business context
Agios is a biopharmaceutical company focused on cancer and rare genetic diseases. The quarter marked the start of U.S. sales of its wholly owned product TIBSOVO (ivosidenib), approved by the FDA in July 2018 for adults with relapsed or refractory AML with a susceptible IDH1 mutation. Revenue also came from Celgene collaborations and IDHIFA royalties.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Total revenue | $15.2 | $11.4 | $64.4 | $33.2 |
| Operating expenses | $114.4 | $90.4 | $330.5 | $263.9 |
| Loss from operations | $(99.2) | $(79.0) | $(266.1) | $(230.7) |
| Net loss | $(94.7) | $(77.1) | $(254.2) | $(226.4) |
| Net loss per share, basic and diluted | $(1.63) | $(1.59) | $(4.45) | $(4.94) |
- Q3 revenue included $4.5 million of TIBSOVO product sales, $8.7 million of related-party collaboration revenue and $2.0 million of related-party royalty revenue. Nine-month revenue also included $12.4 million of other collaboration revenue, principally associated with the CStone agreement.
- Research and development expense was $82.6 million in Q3 and $247.5 million for nine months. Sales, general and administrative expense was $31.1 million and $82.3 million, respectively. Q3 TIBSOVO cost of sales was $0.7 million; some manufacturing costs incurred before FDA approval had already been expensed as R&D.
- For the nine months, operating cash flow was $(230.2) million, investing cash flow $(261.0) million and financing cash flow $545.0 million. Financing included $516.2 million of net proceeds from the January 2018 public offering. Cash and cash equivalents rose to $156.5 million from $102.7 million at year-end.
- Cash, cash equivalents and marketable securities totaled $878.4 million at September 30, 2018, versus $567.8 million at December 31, 2017. Total liabilities were $168.9 million, primarily deferred collaboration revenue and other operating liabilities; the balance sheet reports no borrowings.
- Agios reported an accumulated deficit of $1.0 billion. Overall operating and net margins were negative; the filing does not present a meaningful product-level gross margin for this early commercial period.
Material changes versus the prior comparable period
- Revenue increased 34% in Q3 and 94% for the first nine months, reflecting TIBSOVO launch sales, higher IDHIFA royalties, collaboration revenue and the CStone agreement.
- Net loss widened 23% in Q3 and 12% for the nine-month period. R&D expense rose 13% and 15%, respectively, while SG&A rose 78% and 70%, largely as Agios built commercial capabilities for TIBSOVO. Nine-month SG&A also reflected performance-based stock compensation recognized upon FDA approval.
- Interest income increased to $4.5 million in Q3 and $11.9 million for nine months, attributed to higher investment balances following the January offering.
- Agios adopted ASC 606 on January 1, 2018 using the modified retrospective method. Compared with prior revenue accounting, adoption increased reported net loss by $2.3 million for Q3 and $6.1 million for the nine-month period.
Outlook, management commentary and risks
- Management expected existing cash, cash equivalents and marketable securities, together with anticipated product and royalty revenue, interest income and collaboration reimbursements, to fund operations and capital needs through at least the end of 2020, excluding additional program-specific milestones. The company cautioned that this estimate depends on assumptions and spending could exceed expectations.
- Agios expected expenses and operating losses to continue rising as it commercialized TIBSOVO and advanced ivosidenib, AG-881, mitapivat, AG-270 and AG-636. Management stated that the company expected cash resources to cover at least the next twelve months from issuance of the financial statements.
- Planned milestones included an EMA application for TIBSOVO in IDH1-mutant relapsed or refractory AML in Q4 2018, an FDA supplemental application for newly diagnosed patients not eligible for standard treatment by the end of January 2019, and continued enrollment in pivotal mitapivat trials. The filing also described a planned phase 2 mitapivat trial in thalassemia in Q4 2018.
- In September 2018, Agios and Celgene terminated their AG-881 collaboration, giving Agios sole global rights. The companies would share specified development costs through December 31, 2018; Celgene may receive low-single-digit royalties on worldwide net sales. Agios also disclosed a restriction on its development of AG-881 in hematologic indications for a specified period.
- Key risks include clinical-trial and regulatory uncertainty, commercial uptake and reimbursement for TIBSOVO, dependence on collaborators and third-party manufacturers, potential adverse safety findings, competition, and the possibility that additional financing may be required. Agios also noted interest-rate exposure in its investment portfolio and foreign-currency exposure on certain contracts; it did not hedge foreign-currency risk.
Important facts for investors to verify
- Whether TIBSOVO sales and net revenue grow after launch, and how rebates, chargebacks, discounts and returns affect reported revenue.
- Whether the stated cash runway through at least the end of 2020 remains supportable as commercialization and clinical-development costs evolve.
- Progress and results for the planned TIBSOVO regulatory submissions and ongoing pivotal or late-stage trials, including mitapivat and ivosidenib.
- Whether Celgene and CStone meet their development and commercial obligations, and the timing and likelihood of potential milestones, reimbursements and royalties.
- The financial and development impact of the AG-881 rights transition, including the collaboration’s cost-sharing period, royalty terms and indication restrictions.