Agios Pharmaceuticals, Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017; unaudited. Agios is a clinical-stage biopharmaceutical company focused on cellular metabolism. It reported no product-sales revenue; collaboration agreements, primarily with related party Celgene, were its revenue source.
Key financial results
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Collaboration revenue | $11.3 million | $7.0 million | $21.9 million | $38.3 million |
| Research and development expense, net | $79.8 million | $50.8 million | $142.5 million | $94.8 million |
| General and administrative expense | $16.1 million | $12.6 million | $31.0 million | $23.5 million |
| Operating loss | $84.6 million | $56.5 million | $151.6 million | $80.1 million |
| Net loss | $83.1 million | $56.0 million | $149.2 million | $79.2 million |
| Net loss per share, basic and diluted | $1.78 | $1.47 | $3.35 | $2.09 |
Dollar amounts are shown as positive magnitudes for losses and expenses. The filing does not provide a gross margin measure; operating margins are not meaningful given the company’s development-stage operations and collaboration revenue.
- Balance sheet at June 30: Cash and cash equivalents of $138.7 million and marketable securities of $577.2 million, totaling $715.9 million in cash, equivalents and securities. Total assets were $760.6 million; total liabilities were $251.6 million; stockholders’ equity was $509.0 million.
- Debt and liquidity: The presented balance sheet reports no borrowings or debt. Current assets were $604.7 million versus current liabilities of $93.6 million. Deferred revenue was $179.0 million in total, largely related to Celgene.
- Cash flow, six months: Operating cash use was $133.1 million; investing cash use was $166.2 million; financing cash provided was $277.2 million. Ending cash and cash equivalents were $138.7 million. Investing cash flows included purchases and maturities/sales of marketable securities.
- Capital raise: The April 2017 public offering, including the exercised over-allotment, raised $270.2 million net from 5.81 million shares.
Material changes versus prior comparable periods
- Q2 collaboration revenue rose 63%, but first-half revenue fell 43%, chiefly because the 2016 comparison included a $25.0 million Celgene milestone for starting the IDHENTIFY Phase 3 study. No milestones were earned in the first half of 2017.
- First-half net loss widened 89%, as R&D expense rose 50% and G&A expense rose 32%. R&D growth reflected increased clinical and development activity, particularly ivosidenib, AG-348 and other research programs.
- Agios now funds ivosidenib’s development following the 2016 termination of Celgene’s IDH1 program rights; the company reported no ivosidenib R&D reimbursement in 2017, versus $9.9 million in the first half of 2016.
- Operating cash flow shifted from $138.8 million provided in the first half of 2016 to $133.1 million used in 2017. The earlier period included Celgene’s $200.0 million upfront payment and the $25.0 million milestone.
Outlook, developments and risks
- Management expected cash, cash equivalents and marketable securities at June 30, anticipated interest income and collaboration expense reimbursements to fund operating and capital requirements through at least the end of 2019, excluding additional program-specific milestones. This estimate depends on assumptions and may change.
- Management expected expenses and operating losses to increase as clinical development and commercialization preparations advance. The filing provides no profitability guidance and states that timing of material product-related cash inflows is uncertain.
- On August 1, 2017, after quarter-end, the FDA approved Celgene’s IDHIFA for adults with relapsed or refractory AML with an IDH2 mutation. Agios may receive up to $95.0 million in remaining IDHIFA milestones and tiered royalties; the filing states no royalties had yet been earned.
- Agios expected to submit an ivosidenib NDA for IDH1-mutant relapsed or refractory AML by the end of 2017, and an IND for AG-270 by year-end. These are plans, not assured outcomes.
- Celgene designated AG-270 as a development candidate in March 2017, generating an $8.0 million fee. Celgene may later opt in for a fee of at least $30.0 million, subject to the agreement’s terms. In April, Agios licensed an undisclosed cancer-metabolism target from Aurigene for a $3.0 million upfront payment, recorded as R&D expense, with up to $17.0 million in potential milestones.
- Material risks include clinical-trial failure or delay, adverse events, regulatory uncertainty, patient-enrollment and manufacturing constraints, reliance on Celgene and other third parties, competition, intellectual-property risks, and the need for future funding. Agios has no committed external funding source other than its collaborations; further equity financing could dilute shareholders.
- AG-519 development was discontinued and its IND withdrawn after FDA notification of a clinical hold related to drug-induced cholestatic hepatitis in a Phase 1 trial. Agios said this did not affect the ongoing AG-348 trial, but noted that comparable or other safety events remain a risk.
- Agios planned to adopt the new revenue-recognition standard on January 1, 2018, using the modified retrospective method; it was still assessing the impact and warned adoption could materially affect revenue recognition, disclosures and internal controls.
Important facts for investors to verify
- Whether the stated cash runway through year-end 2019 remains supportable as clinical spending, reimbursements and development plans evolve.
- Progress and outcomes for ivosidenib, AG-881, AG-348 and AG-270, including the timing and results of trials, regulatory submissions and the expected AG-270 IND.
- Commercial launch, sales, reimbursement and royalty performance for IDHIFA following FDA approval, and whether any remaining milestones are achieved.
- Celgene’s future program designations, option exercises, funding and collaboration decisions, given Agios’s dependence on the relationship for revenue and potential external funding.
- Any new safety signals, clinical holds or enrollment delays, and the final financial-reporting impact of adopting the new revenue-recognition standard.