Agios Pharmaceuticals, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. Agios is a clinical-stage biopharmaceutical company developing medicines for cancer and rare genetic metabolic disorders. It had no product sales; substantially all revenue to date came from its Celgene collaboration.
Financial position and results
- Revenue: $34.2 million, versus $8.4 million in Q1 2014, up 307%. Revenue was collaboration revenue, not product sales.
- Profitability: Net loss was $5.0 million, or $0.13 per share, compared with a $12.2 million loss, or $0.39 per share, a year earlier. Operating loss was $5.2 million. No income tax provision was recorded.
- Expenses: R&D was $32.4 million, up 86%; G&A was $7.0 million, up 111%. Revenue exceeded operating expenses in neither period; product gross margin is not applicable because there were no product sales.
- Cash flow: Operating activities used $25.6 million, compared with $27.0 million in Q1 2014. Investing activities provided $45.0 million, mainly from marketable-security maturities and sales; financing activities provided $1.8 million. Cash and cash equivalents increased $21.2 million.
- Liquidity: At March 31, cash and cash equivalents were $35.3 million and marketable securities totaled $404.7 million, or approximately $440.0 million combined. Current assets were $364.1 million and current liabilities $36.4 million. Stockholders’ equity was $426.8 million. The filing reports no debt balance.
- Other metrics: Accumulated deficit was $171.9 million. Stock-based compensation was $5.1 million. Property and equipment purchases were $3.8 million, with an additional $6.6 million of equipment additions in accounts payable and accrued expenses.
Material changes and unusual items
- The 2015 revenue increase reflects the July 2014 amendment to the Celgene collaboration and revised revenue accounting, including $15.8 million recognized when Celgene exercised its option for an ex-U.S. AG-120 license.
- A revised estimate of effort for AG-221 development services added $5.1 million of revenue. Together with $3.8 million recorded as a reduction of R&D expense, the change reduced Q1 net loss by $8.9 million, or $0.24 per share. This is a significant non-recurring estimate effect on the reported comparison.
- Celgene reimbursements for certain third-party AG-221 costs were reported as a reduction of R&D expense; reported Q1 reimbursement was approximately $4.4 million.
- Celgene exercised its final one-year extension of the 2010 collaboration discovery phase, through April 2016. Agios received the $20.0 million extension payment in May 2015, after quarter-end.
- After quarter-end, Agios selected AG-881 for clinical development and entered new worldwide Celgene agreements. The agreements provide a $10.0 million initial payment, up to $70.0 million in milestones, and equal sharing of worldwide development costs and product profits or losses, subject to specified exceptions.
Outlook, management commentary and risks
- Management expected Q1-end cash, cash equivalents and marketable securities, anticipated interest, the May $20.0 million payment and expected Celgene reimbursements to fund operating and capital requirements until at least late 2017. The filing also identifies the $10.0 million AG-881 initial payment as a funding source in its risk discussion.
- Agios expected expenses and operating losses to increase as it advances AG-221, AG-120, AG-881 and AG-348, expands research programs and grows its workforce. It stated that future milestone and collaboration revenue may fluctuate significantly and that timing and amounts are uncertain.
- Planned development included a Celgene-led global Phase 3 study of AG-221 in relapsed/refractory AML in the second half of 2015; AG-120 combination trials in the second half of 2015 and a registration-enabling Phase 3 study in the first half of 2016; and initiation of AG-881 clinical development in Q2 2015. These are forward-looking plans, not reported outcomes.
- AG-348’s Phase 1 studies in healthy volunteers had met their primary endpoints; management expected final multiple-dose results in June 2015 and planned a Phase 2 patient study in the first half of 2015.
- Key risks include clinical efficacy, safety and enrollment uncertainty; regulatory and manufacturing delays; reliance on Celgene, CROs and contract manufacturers; uncertain access to future financing; competition; and intellectual-property risks. Management noted that only Celgene collaborations were a committed potential external funding source, with payments dependent on performance and milestones.
- The company reported no off-balance-sheet arrangements. Vendor obligations under cancelable agreements were up to $40.7 million at March 31. Management concluded disclosure controls were effective; no material change in internal control over financial reporting was reported for the quarter.
Most important facts for investors to verify
- How much of reported collaboration revenue and the improved loss reflects the AG-120 license, the AG-221 estimate revision and cost reimbursements, rather than recurring operating economics.
- Whether the May 2015 $20.0 million extension payment and the AG-881 agreement’s $10.0 million initial payment were received as expected, and how the collaboration’s cost-sharing terms affect future cash needs.
- Progress, safety, efficacy and enrollment in the lead-candidate trials, along with the timing and scope of the stated Phase 2, Phase 3 and AG-881 clinical plans.
- Whether the projected funding runway through late 2017 remains supportable as development spending grows and contingent Celgene payments or reimbursements vary.
- Potential dilution and equity-plan overhang: 4.6 million stock options were outstanding at March 31, 2015, and 1.2 million shares were available for future issuance under equity plans.