Agios Pharmaceuticals(AGIO) - 2022 Q4 - Annual Report

Business Overview Company Profile and Strategy Agios Pharmaceuticals refocused on rare diseases after selling its oncology business for approximately $1.8 billion, aiming for cash-flow positivity by 2026 with its lead product PYRUKYND® and a refined research strategy - On March 31, 2021, the company sold its oncology business to Servier for approximately $1.8 billion in cash, plus potential $200.0 million milestone and royalties on TIBSOVO® and vorasidenib sales[21] - In October 2022, Agios sold TIBSOVO® royalty rights for $127.9 million, retaining vorasidenib milestone and royalty rights[23] - The company's 2026 strategic vision includes establishing a hematology franchise with PYRUKYND® approvals, portfolio expansion, and achieving cash-flow positivity[31] - In May 2022, the company restructured its research to focus on late-stage programs and in-licensing, reducing 45 roles and projecting annual cost savings of $40-$50 million from 2023-2026[24][26] Development Pipeline Agios's pipeline, focused on cellular metabolism and hematology, is led by PYRUKYND® for PK deficiency, thalassemia, and sickle cell disease, alongside AG-946 for MDS and a preclinical PKU program PYRUKYND® (mitapivat) PYRUKYND®, an oral PK activator, received 2022 approvals for PK deficiency and is in pivotal trials for thalassemia, sickle cell disease, and pediatric PK deficiency - PYRUKYND® received marketing approval in the U.S. (Feb 2022), EU (Nov 2022), and Great Britain (Dec 2022) for adults with PK deficiency[52] PYRUKYND® Clinical Trial Status | Trial Name | Indication | Phase | Status / Next Milestone | | :--- | :--- | :--- | :--- | | ENERGIZE | Non-transfusion-dependent Thalassemia | 3 | Enrolling; expect to complete enrollment by mid-year 2023 | | ENERGIZE-T | Transfusion-dependent Thalassemia | 3 | Enrolling; expect to complete enrollment by mid-year 2023 | | RISE UP | Sickle Cell Disease (SCD) | 2/3 | Phase 2 fully enrolled; data and Phase 3 initiation decision expected by mid-year 2023 | | ACTIVATE-kids / kidsT | Pediatric PK Deficiency | 3 | Enrolling; expect to enroll at least half of patients by year-end 2023 | AG-946 and Other Programs Agios is developing AG-946 for LR MDS with Phase 2a enrollment expected by year-end 2023, and plans an IND filing for a PKU PAH stabilizer by year-end 2023 - A Phase 2a study of AG-946 in adults with LR MDS is underway, with enrollment expected to complete by year-end 2023[55] - The company plans to file an IND for its PAH stabilizer program for PKU by year-end 2023[56] Intellectual Property Agios protects its PK activator program, including PYRUKYND® and AG-946, with 11 issued U.S. and 190 foreign patents expiring from 2030 to 2042 - As of February 1, 2023, the PK activator program patent portfolio includes 11 issued U.S. patents and 190 issued foreign patents[59] - Patents covering the PK activator program have statutory expiration dates ranging from at least 2030 to 2042, with potential for extensions[60] Competition Agios faces intense competition in rare diseases, particularly for hemolytic anemias and PKU, from major pharmaceutical companies and developers of gene therapies and other PK activators - Key competitors include BMS, BioMarin, bluebird bio, Merck, Novartis, Pfizer, Rocket Pharma, and Vertex[67] - Specific competitive threats include gene therapies for PK deficiency (Rocket Pharma) and SCD (Vertex), and a PKR activator from Novo Nordisk for hemolytic anemias[68] Manufacturing and Supply Agios relies entirely on third-party contract manufacturers for all supply, with redundant raw material and API sources for PYRUKYND® but no redundant finished drug product supply - The company relies on third parties for all manufacturing and has no plans to establish its own facilities[73] - For PYRUKYND®, Agios has redundant supply for raw materials and API but not for the final drug product, though it maintains a safety stock[75] Government Regulation Agios's products are subject to extensive government regulation, including rigorous testing, manufacturing, and approval processes, with the regulatory landscape impacted by healthcare reforms like the U.S. Inflation Reduction Act - The U.S. drug approval process involves preclinical testing, IND filing, Phase 1-3 clinical trials for safety and efficacy, and NDA submission to the FDA[78] - The Inflation Reduction Act of 2022 (IRA) will impact Medicare pricing through negotiations for high-cost drugs starting in 2026 and inflation-based rebates, potentially affecting future profitability[149][150] - In the EU, marketing authorization can be obtained via centralized, decentralized, or mutual recognition procedures, with the centralized procedure compulsory for orphan drugs like PYRUKYND®[160][161] Human Capital As of December 31, 2022, Agios had 393 U.S.-based employees, with a 59% female and 31% ethnically diverse workforce, supported by a flexible work policy - As of December 31, 2022, the company had 389 full-time and 4 part-time employees[178] - The workforce is 59% female and 31% ethnically diverse, with continued emphasis on Black and Latino representation[181] - The company has a flexible work policy, with 67% of 2022 new hires choosing to work remotely[184] Risk Factors Risks Related to Product Development and Commercialization Agios's success depends on PYRUKYND® commercialization and pipeline advancement, facing risks of clinical trial failures, patient enrollment challenges, intense competition, market acceptance issues, and ongoing COVID-19 disruptions - The company's prospects are substantially harmed if it does not successfully commercialize PYRUKYND®, its first approved rare disease product[191] - The company depends heavily on its clinical product candidates, with trials facing risks of efficacy failure, side effects, or enrollment challenges, especially for orphan diseases[193][196] - The COVID-19 pandemic may continue to disrupt clinical trials, regulatory activities, and commercial infrastructure[200][201] - PYRUKYND® and other candidates face substantial competition from companies like Rocket Pharma, Vertex, Novo Nordisk, and Pfizer developing therapies for the same indications[209][223] Financial and Operational Risks As a smaller, rare disease-focused company post-oncology sale, Agios faces financial risks from historical operating losses, potential need for dilutive capital, uncertain milestone payments, cybersecurity breaches, and stringent data privacy compliance - As a smaller company focused on rare diseases after the oncology sale, Agios is more susceptible to changing market conditions[251][253] - The company has a history of operating losses, with a net loss of $231.8 million in 2022, and profitability depends on successful commercialization[18][259] - The receipt of a $200.0 million milestone payment and future royalties from Servier for vorasidenib is contingent on uncertain regulatory approval and commercial success[264][265] - The company's internal systems are vulnerable to cyber incidents, and it is subject to stringent data privacy laws (HIPAA, GDPR, CCPA) with significant non-compliance penalties[236][240] Risks Related to Third Parties and Intellectual Property Agios heavily relies on third-party CROs and CMOs, posing operational risks, and its success depends on robust intellectual property protection, facing risks of patent infringement and validity challenges - The company relies on third-party CROs for clinical trials and is responsible for their cGCP compliance, as failure could render data unreliable[269][271] - Agios depends on third-party manufacturers for all product supply, with performance failures, disruptions, or cGMP non-compliance risking development and commercialization delays[276][277][279] - Successful commercialization depends on obtaining and maintaining patent protection, which may be challenged, invalidated, or circumvented by competitors[285][291][292] Regulatory and Legal Risks Agios faces significant regulatory and legal risks, including uncertain and costly marketing approvals, pricing and reimbursement pressures intensified by healthcare reforms, and strict compliance with anti-kickback and fraud laws - The regulatory approval process is uncertain, potentially delaying or preventing commercialization, as authorities have discretion and may require additional costly trials[301][304] - Even if approved, products may face unfavorable pricing and reimbursement, intensified by the Inflation Reduction Act and other healthcare reforms, harming the business[332][338][346] - The company is subject to strict healthcare laws, including the federal Anti-Kickback Statute and False Claims Act, risking criminal sanctions, civil penalties, and reputational harm[326][327] Financial Condition and Results of Operations (MD&A) Overview of Financial Performance Agios reported a $231.8 million net loss in 2022, a shift from $1.6 billion net income in 2021 due to the oncology business sale, reflecting its rare disease focus with initial PYRUKYND® revenues and increased R&D Consolidated Statements of Operations Data (in thousands) | (In thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total Revenue | $14,240 | $— | $— | | Total Operating Expenses | $403,287 | $378,418 | $335,916 | | Net Loss from Continuing Operations | $(231,801) | $(356,510) | $(329,305) | | Net Income from Discontinued Operations, Net of Tax | $— | $1,961,225 | $1,935 | | Net (Loss) Income | $(231,801) | $1,604,715 | $(327,370) | Results of Operations (2020-2022) In 2022, total revenue reached $14.2 million from PYRUKYND® launch, R&D expenses increased to $279.9 million, and a $127.9 million gain from TIBSOVO® royalty rights reduced net loss from continuing operations to $231.8 million Revenue Breakdown (in thousands) | (In thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Product Revenue, Net | $11,740 | $— | | Milestone Revenue | $2,500 | $— | | Total Revenue | $14,240 | $— | Research and Development Expenses (in thousands) | (In thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | PK Activator (PYRUKYND®) | $83,271 | $73,999 | $48,669 | | Novel PK Activator (AG-946) | $15,747 | $10,658 | $8,378 | | Other Research and Platform Programs | $26,837 | $22,959 | $13,790 | | Indirect R&D Expenses | $154,055 | $149,357 | $149,974 | | Total R&D Expense | $279,910 | $256,973 | $220,811 | - In 2022, the company recognized a $127.9 million gain on the sale of its rights to future TIBSOVO® royalty payments to Sagard[409][460] Liquidity and Capital Resources As of December 31, 2022, Agios held $1.1 billion in cash and equivalents, bolstered by the oncology sale, with management expecting sufficient capital to reach cash-flow positivity without additional equity - As of December 31, 2022, the company had cash, cash equivalents, and marketable securities of $1.1 billion[470][492] Cash Flow Summary (in thousands) | (In thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(309,478) | $(407,320) | $(290,759) | | Net Cash Provided by Investing Activities | $243,261 | $1,248,778 | $75,746 | | Net Cash Provided by (Used in) Financing Activities | $2,350 | $(765,768) | $261,518 | - The company expects existing cash and anticipated revenues will enable it to execute its operating plan to cash-flow positivity without additional equity[483] Contractual Obligations As of December 31, 2022, Agios had approximately $109.4 million in contractual obligations, primarily $99.2 million for operating leases, alongside manufacturing and service arrangements Contractual Obligations (in thousands) | (In thousands) | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating Lease Obligations | $99,203 | $16,651 | $38,167 | $40,906 | $3,479 | | Manufacturing Arrangements | $904 | $301 | $603 | $— | $— | | Service Arrangements | $9,300 | $1,860 | $3,720 | $3,720 | $— | Financial Statements and Notes Consolidated Financial Statements The audited consolidated financial statements for 2022 reflect Agios's financial position, including $1.1 billion in cash and equivalents, and the reclassification of the oncology business as a discontinued operation Consolidated Balance Sheet Data (in thousands) | (In thousands) | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash, Cash Equivalents & Marketable Securities | $1,097,000 | $1,300,000 | | Total Assets | $1,238,718 | $1,437,736 | | Liabilities & Equity | | | | Total Liabilities | $137,904 | $145,761 | | Total Stockholders' Equity | $1,100,814 | $1,291,975 | Key Notes to Financial Statements Key notes detail the $1.98 billion pre-tax gain from the oncology business sale, PYRUKYND® product revenue, the $1.2 billion share repurchase program, and the $296.0 million valuation allowance against deferred tax assets - Discontinued Operations (Note 15): The March 31, 2021, sale of the oncology business to Servier resulted in a pre-tax gain of $1,989.1 million, with historical results reported separately[682][684][686] - Product Revenue (Note 8): For 2022, gross product sales were reduced by $1.5 million for adjustments, resulting in net revenue of $11.7 million[639][641] - Share Repurchase Program (Note 14): As of Dec 31, 2022, the company repurchased 16.2 million shares for $802.5 million under its $1.2 billion authorization, with the program currently paused[678][679][680] - Income Taxes (Note 11): The company maintains a full valuation allowance of $296.0 million against its deferred tax assets as of Dec 31, 2022, due to uncertainty of realization[667][670] Other Information Market for Common Equity and Shareholder Matters Agios's common stock trades on Nasdaq under "AGIO"; the company has never paid dividends and has paused its $1.2 billion share repurchase program after repurchasing $802.5 million in shares - A share repurchase program of up to $1.2 billion was authorized in March 2021, with 16.2 million shares repurchased for $802.5 million as of December 31, 2022[398][399] - The company has paused share repurchases to prioritize capital for development and business opportunities[400] Corporate Governance and Controls Management and PricewaterhouseCoopers LLP concluded that Agios's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[497] - Management and PricewaterhouseCoopers LLP concluded that the company's internal control over financial reporting was effective as of December 31, 2022[501]