Agios Pharmaceuticals, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; balance-sheet comparisons are to December 31, 2019. Agios is a biopharmaceutical company developing and commercializing medicines for cancers and rare genetic diseases. Its marketed product is TIBSOVO (ivosidenib); it also earns collaboration and royalty revenue. Unless noted otherwise, financial figures below are in millions of dollars.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Total revenue | $87.1 | $30.2; up $56.9, or about 188% |
| Product revenue | $22.7 | $9.1; up about 148%, primarily from higher TIBSOVO sales volume |
| Related-party collaboration revenue | $60.1 | $17.9; up $42.2 |
| Related-party royalty revenue | $3.3 | $2.2 |
| Operating expenses | $130.3 | $127.7; broadly stable |
| Research and development | $91.3 | $95.6; down $4.3 |
| Selling, general and administrative | $38.5 | $31.8; up $6.7 |
| Operating loss | $(43.2) | $(97.5) |
| Net loss | $(40.3) | $(93.1) |
| Net loss per share, basic and diluted | $(0.59) | $(1.59) |
| Net cash used in operating activities | $(105.4) | $(103.3) |
| Cash, cash equivalents and marketable securities | $613.1 at March 31 | $717.8 at December 31, 2019 |
The smaller net loss principally reflects higher revenue, not a reduction in operating costs. Product revenue less reported cost of sales of $0.5 million was $22.1 million; total revenue less cost of sales was $86.6 million, though collaboration revenue makes that figure an incomplete measure of product economics. Interest income, net, was $2.9 million, down from $4.4 million.
Current assets were $587.3 million and current liabilities were $69.9 million at quarter-end. Total assets were $799.7 million, total liabilities $174.4 million, and stockholders’ equity $625.3 million. The filing reports no borrowings; liabilities include operating and financing leases, with total lease liabilities of about $111.4 million. Management said available cash and securities should fund operations for at least 12 months from issuance of the statements; its more specific forecast, including anticipated product and royalty revenue, interest and collaboration expense reimbursements but excluding additional collaboration-related payments, extends through the end of June 2022.
Operating cash use exceeded net loss, with cash flow affected by working-capital movements, including a $56.8 million reduction in related-party deferred revenue. Investing activities provided $108.1 million, mainly from marketable-security maturities and sales exceeding purchases; financing activities provided $5.4 million, mainly from employee equity plans. Cash and cash equivalents rose $8.2 million during the quarter.
Material changes and notable items
- The $42.2 million increase in related-party collaboration revenue was primarily tied to an updated estimate of future costs to complete a Celgene research performance obligation under the 2016 agreement. The company recognized $59.2 million from ongoing related-party R&D services in the quarter. This estimate-driven increase is an important consideration when assessing revenue sustainability.
- R&D expense declined primarily because ivosidenib clinical costs were lower, including comparison with $3.2 million of trial-initiation milestones in Q1 2019 and reduced activity in certain studies. SG&A rose mainly from higher workforce-related costs, including stock-based compensation.
- Celgene declined to extend the research term of the 2016 collaboration agreement and declined its option to enter a development and commercialization agreement for AG-270/MAT2A. In April, it also notified Agios it would not select a program for continued development under that agreement. Agios said research services would be completed by May 17, 2020; the company is no longer eligible for milestones under the agreement.
- Agios halted internal development of AG-636 because of limited enrollment and planned to wind down the study during 2020. The company amended its CStone license to add Singapore to the territory for ivosidenib.
- After quarter-end, on April 30, 2020, Agios entered into an at-the-market sales agreement allowing it, but not obligating it, to sell up to $250 million of common stock. Any sales could dilute shareholders.
Outlook, commentary and risks
- COVID-19 had not caused a significant direct financial or supply-chain impact as of April 30, 2020, but had disrupted clinical operations and enrollment. Agios reported that enrollment in the AGILE Phase 3 trial and the ivosidenib MDS study was expected to complete in 2021; it also expected delays at INDIGO trial sites and paused new enrollment in the mitapivat sickle-cell study.
- Agios expected topline results from the mitapivat ACTIVATE-T and ACTIVATE trials between the end of 2020 and mid-2021, citing pandemic-related challenges accessing clinical sites. It expected to file an FDA supplemental application for TIBSOVO in cholangiocarcinoma between late 2020 and mid-2021.
- Agios planned to begin a Phase 1 study of AG-946 in healthy volunteers in mid-2020. Management expected expenses to rise as it continued TIBSOVO commercialization and advanced clinical and research programs, although it had paused some preclinical work, delayed certain longer-term studies, limited hiring and reduced contract-worker use to increase financial flexibility.
- The company expects continuing losses and significant expenses. Funding beyond its current resources may be needed; collaboration payments and reimbursements are uncertain, and the filing identifies no committed external funding source beyond collaboration agreements. Additional equity financing could dilute shareholders; debt or new collaborations could impose restrictions or require rights concessions.
- Principal risks include clinical-trial delays or failures, regulatory and commercialization uncertainty, product safety and competition, dependence on Celgene/BMS and CStone, manufacturing and supply-chain reliance, and potential COVID-19 effects on trials, operations and capital markets. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of the sharp increase in collaboration revenue reflects the one-time change in estimated remaining work, and what revenue is expected after Celgene’s research agreement ends?
- Whether TIBSOVO sales growth continues and how rebates, chargebacks, returns and other variable-consideration reserves affect net revenue.
- Whether cash burn and management’s June 2022 runway estimate remain consistent with trial timelines, commercialization costs and collaboration reimbursements.
- Whether COVID-19-related enrollment and data-readout delays affect the stated clinical and regulatory milestones.
- Whether Agios sells shares under the $250 million ATM agreement and the resulting dilution.
- Whether CStone and Celgene/BMS continue to meet their development and payment obligations, and whether Agios replaces collaboration support for programs it retains.