Business context and reporting period
Agios Pharmaceuticals, Inc. filed this unaudited Form 10-Q for the quarter ended June 30, 2014. The clinical-stage biopharmaceutical company is developing medicines focused on cellular metabolism, cancer and inborn errors of metabolism. It had no product-sales revenue; reported revenue was primarily from its Celgene collaboration.
Financial performance and liquidity
Amounts below are in millions of dollars, except per-share data. Comparisons are with the same period in 2013.
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Collaboration revenue | $8.4 | $6.3 | $16.8 | $12.5 |
| Research and development | $22.6 | $13.0 | $40.0 | $24.4 |
| General and administrative | $4.2 | $1.8 | $7.5 | $3.7 |
| Operating loss | $(18.3) | $(8.5) | $(30.6) | $(15.6) |
| Net loss | $(18.3) | $(8.6) | $(30.5) | $(15.8) |
| Basic and diluted net loss per share | $(0.54) | $(2.80) | $(0.94) | $(5.27) |
For the six months ended June 30, operating cash use was $28.1 million (versus $27.8 million); investing cash use was $30.9 million (versus $13.9 million provided); and financing provided $95.7 million (versus $0.1 million), principally from the April follow-on offering. Cash and cash equivalents were $108.2 million at June 30; marketable securities totaled $152.9 million. Combined, these were $261.1 million, up from $193.9 million at December 31, 2013. Current liabilities were $44.6 million, including $33.6 million of current deferred collaboration revenue. The filing reports no debt balance.
Stockholders’ equity was $200.5 million and accumulated deficit was $144.0 million at June 30. The company reported no product gross margin; operating and net margins are not meaningful measures of product economics at this development stage.
Material changes versus the prior comparable period
- Q2 revenue rose 34%, reflecting recognition of Celgene collaboration consideration after Celgene extended the discovery phase through April 2015.
- Q2 R&D expense increased 74%; the company cited higher external clinical, preclinical and manufacturing costs and increased personnel costs. Q2 G&A increased 127%, mainly from hiring and public-company professional costs.
- Q2 net loss more than doubled to $18.3 million; six-month net loss increased to $30.5 million. The per-share loss comparison is affected by the major increase in shares outstanding following the 2013 IPO and conversion of preferred stock.
- The April 2014 follow-on offering, including the underwriters’ additional-share exercise in May, generated $94.7 million in net proceeds.
Outlook, management commentary, risks and unusual items
- Management expected existing cash, investments, anticipated tax refunds, interest income and collaboration expense reimbursements to fund operations and capital expenditures until at least mid-2017. This is a forecast, not a guarantee; the company expects rising expenses and may need additional financing. It cited no committed external funding source other than its Celgene collaboration.
- AG-221: Celgene exercised an exclusive global development and commercialization license in June. Agios reported objective responses in 14 of 25 evaluable patients in the phase 1 trial; dose escalation continued and four expansion cohorts were planned for the second half of 2014. These were early clinical findings, not proof of efficacy or approval.
- AG-120: Two phase 1 studies began in March 2014. Agios had elected to retain U.S. development and commercialization rights; Celgene held an option for rights outside the United States.
- AG-348: The single-ascending-dose phase 1 study was completed and met its primary endpoint; the multiple-ascending-dose study was ongoing and management reported that it had also met its primary endpoint. The company retained worldwide rights and expected to fund future development.
- The Celgene collaboration remained a key source of revenue and potential future payments. The company recognized no milestone or royalty payments through June 30; an additional $20 million discovery-phase extension payment was possible if Celgene extended the phase to April 2016.
- In July 2014, after quarter-end, Agios amended the Celgene agreement to clarify clinical-development payment timing and provide for partial reimbursement of certain split-program expansion-cohort costs, subject to stated conditions and caps. The financial-statement impact was still being evaluated.
- Principal risks include clinical-trial failure or delay, regulatory and safety uncertainty, dependence on Celgene and third-party manufacturers/CROs, potential need for further capital and shareholder dilution, and intellectual-property and commercialization risks. Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Progress, safety, durability and enrollment in the AG-221 and AG-120 trials, and whether planned trial expansions occurred.
- AG-348 trial results and the timing and cost of moving into studies in patients.
- Celgene’s decisions on remaining options, future development funding, milestones, and any additional extension payment.
- Actual cash burn versus the mid-2017 runway estimate, including the timing of reimbursements, tax refunds and further financing needs.
- The July 2014 collaboration amendment’s accounting and cash-flow effects, and future clinical and operating expense trends.