Agios Pharmaceuticals, Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015. Financial statements are unaudited. Amounts below are in U.S. dollars; financial statement figures are shown in millions unless noted.
Business context
Agios is a clinical-stage biopharmaceutical company developing treatments for cancer and rare genetic metabolic disorders. It had no product-sales revenue; substantially all revenue to date came from collaborations with Celgene, which is a related party. Key programs were AG-221 and AG-120 (IDH2 and IDH1 inhibitors), AG-881 (pan-IDH inhibitor), and AG-348 (pyruvate kinase deficiency).
Financial highlights
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Collaboration revenue | $13.2 | $8.4 | $47.4 | $16.8 |
| Research and development expense | $36.4 | $22.6 | $68.9 | $40.0 |
| General and administrative expense | $8.9 | $4.2 | $15.9 | $7.5 |
| Loss from operations | $(32.1) | $(18.3) | $(37.3) | $(30.6) |
| Net loss | $(31.9) | $(18.3) | $(36.9) | $(30.5) |
| Basic and diluted net loss per share | $(0.85) | $(0.54) | $(0.99) | $(0.94) |
- Liquidity: At June 30, cash and cash equivalents were $72.5 million and marketable securities totaled $361.5 million, for combined cash and investments of approximately $434.0 million. Total assets were $474.4 million; current assets were $390.2 million versus current liabilities of $45.2 million.
- Cash flow: For the first half, operating cash use was $21.6 million, investing activities provided $77.2 million (including proceeds from securities maturities and sales, partly offset by $14.7 million of property and equipment purchases), and financing provided $2.9 million. Cash and cash equivalents increased by $58.5 million to $72.5 million.
- Debt and margins: The filing reports no borrowings or debt balance. Product gross margin is not applicable because Agios had no product sales; the company reported operating and net losses.
- Other metrics: First-half stock-based compensation expense was $13.2 million. Accumulated deficit was $203.8 million. The company had $48.2 million of cancellable vendor commitments for clinical, research, and operating services at June 30.
Material changes and unusual items
- Revenue increased 57% in Q2 and 182% in the first half year over year, but the growth reflects Celgene collaboration accounting and milestones/licenses rather than product sales. The April 2015 AG-881 agreements modified the existing collaboration arrangement; Agios recognized $8.8 million of revenue for delivered AG-881 licenses in Q2. The first-half total also included revenue recognized following prior collaboration amendments and delivery of collaboration elements.
- R&D expense rose 61% in Q2 and 72% in the first half, driven by clinical and external services, increased staffing, facilities, and higher stock compensation. G&A expense more than doubled in both comparisons, with headcount and stock compensation contributing.
- In April, Agios and Celgene entered worldwide AG-881 collaboration agreements. Agios received $10 million and the companies agreed to share worldwide development costs and product profits or commercialization losses, subject to specified exceptions; Agios may also earn up to $70 million in milestones.
- Celgene paid a $20 million fee in May for its final one-year extension of the 2010 collaboration discovery phase, now scheduled to end in April 2016. The company’s cash runway estimate includes expected interest and Celgene expense reimbursements.
- A July 20, 2015 lease amendment expanded the Cambridge premises from approximately 113,220 to 146,030 square feet. Monthly base rent is to rise from approximately $549,000 to $727,000 beginning November 1, 2015, with later increases up to approximately $844,000; the tenant improvement allowance and security deposit also increased.
Outlook, management commentary, and risks
- Management expected existing cash, cash equivalents, marketable securities, interest income, and anticipated Celgene expense reimbursements to fund operating and capital needs until at least late 2017. The company also cautioned that future capital needs depend on development progress, trial costs, regulatory outcomes, and collaboration performance; additional financing may be needed and may dilute shareholders or require rights concessions.
- Agios expected R&D and G&A expenses to increase as its programs advance and operations grow. It could not reliably estimate when, or whether, product candidates would generate material cash inflows.
- Pipeline updates: AG-221 phase 1 data included investigator-assessed objective responses in 63 of 158 evaluable AML patients; Celgene and Agios planned a global registration-enabling phase 3 study and combination trials. AG-120 data showed responses in 16 of 52 evaluable AML patients, with a registration-enabling phase 3 study planned for the first half of 2016 and combination trials planned for the second half of 2015. AG-881 entered phase 1 in June. Agios initiated a phase 2 AG-348 study in June and reported dosing its first patient in July.
- Risks include clinical-trial failure or delay, adverse effects, regulatory uncertainty, dependence on Celgene and other third parties, limited product revenues, financing needs, competition, and intellectual-property challenges. Celgene collaboration payments and reimbursements are uncertain and the discovery-phase extension payments end after April 2016. Agios also noted interest-rate and foreign-currency exposure; it did not hedge foreign exchange risk.
- Management concluded disclosure controls and procedures were effective at June 30, 2015; no material change in internal control over financial reporting was reported for the quarter.
Important facts for investors to verify
- How much of reported collaboration revenue is recurring service reimbursement versus license delivery, milestone, or accounting-related recognition, and what revenue remains deferred?
- Whether clinical results for AG-221, AG-120, AG-881, and AG-348 are confirmed in larger and later-stage trials, including durability, safety, enrollment, and regulatory progress.
- Whether Celgene’s planned development activities and reimbursements occur as expected, especially as the 2010 discovery phase approaches its April 2016 end.
- Whether spending, lease expansion, and development-cost sharing change the stated late-2017 cash runway, and whether additional financing will be required.
- The potential impact of stock-based compensation and share issuance on per-share results and dilution.