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Agios: A Targeted Pharmaceutical Stairway To Value

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About: Agios Pharmaceuticals, Inc. (AGIO)
by: William Meyers
William Meyers
Long only, tech, biotech, research analyst
Summary

Agios sales revenue has been less than spectacular, but is ramping.

Tibsovo near cholangiocarcinoma label expansion.

Mitapivat for PK deficiency could be the next approved drug.

Agios Pharmaceuticals (AGIO) has been a commercial pharmaceutical company for over a year now, following first revenues from royalties from a drug licensed to Celgene, now Bristol-Myers (BMY), and from its wholly owned cancer therapy Tibsovo. The stock price has been volatile, probably because investors expected revenue more in line with cancer blockbusters. It peaked back in May 2015 at well over $100 per share, had a more recent peak in May 2018 at $94.90, then slumped to a 52-week low of in October 2019, $28.36. This experience has brought into question the value of highly-targeted cancer therapies for investors. This article will examine the prospects of Agios, its current revenue generator Tibsovo, and its approach to creating pipeline value.

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Q3 results and Tibsovo revenue ramp

For now the key factor is that Agios is a long way from achieving break even. Agios Q3 2019 operating expenses greatly exceeded revenue. For that matter G&A expense exceeded revenue, and R&D expense, at $135 million, swamped it. It will take a considerable revenue ramp just to cover the current level of costs.

Revenue in Q3 was $26.0 million, down 1% sequentially from $26.2 million, and up 71% from $15.2 million year-earlier. Net loss was $106.2 million compared to a loss of $94.7 million year-earlier. Diluted EPS were negative $1.81, up sequentially from negative $1.87, and down from negative $1.63 year-earlier.

Cash (including equivalents & securities) ended at $541 million, down sequentially from $624 million. There was no debt. On November 13 Agios completed a $256 million public stock offering. Generally speaking, Agios has not had a problem raising cash through stock offerings, but each new stock offering dilutes the shares of existing shareholders. With a cash burn of $83 million in Q3, if that remains the run rate, and likely having about $714 million at the end of Q4, Agios now has about 2 years worth of cash available. In Q3 Agios guided to having cash that could last to the end of 2020, longer if milestone payments are achieved. The November cash raise would add to that runway. That might be long enough to reach cash-flow break even, but further dilution is possible.

Revenue in Q3 had three components: $2.7 million in Idhifa royalties from Celgene; $5.5 million in collaboration revenue; and Tibsovo net sales of $17.4 million. The following table shows Tibsovo sales since it was launched:

Tibsovo sales revenue

quarter

$ millions

Q3 2019

4.5

Q4 2018

9.4

Q1 2019

9.1

Q2 2019

13.7

Q3 2019

17.4

The good news is revenues are trending up, but so far there is no danger of Tibsovo becoming a blockbuster soon, or even covering Agios operating costs, or repaying R&D development costs. However, this might change with successful label expansions.

Tibsovo label expansion opportunities

Tibsovo (ivosidenib) is a small molecule inhibitor of IDH1. When mutated IDH1 is associated with cancer. The prevalence of cancers with IDH1 mutations varies with the cancer types. For instance, AML rates are in the 10% range. The value of expanding the label depends not just on the number of patients with addressable mutations for a given cancer type, but on the availability and effectiveness of other therapies. There are also combination therapy opportunities, where adding Tibsovo to a currently approved agent may increase efficacy.

The first FDA approval for Tibsovo was for AML (acute myeloid leukemia) having an IDH1 mutation when the cancer has progressed to be relapsing or refractory. An obvious step would be moving up to treat newly diagnosed AML. In May 2019 Agios announced FDA approval for Tibsovo for newly-diagnosed AML for patients not eligible for intensive chemotherapy. AML can occur at any age, but mainly it is a disease of older people, and older people may be frail or have other sicknesses that make it difficult for them to endure intensive chemotherapy. However, Tibsovo is not a magic bullet. In the Phase 1 trial used to obtain the label expansion, the Complete Response rate was 28.6%, with another 14% reaching complete response with partial blood improvement. 58% of patients were in remission 1 year after treatment. Under the label granted, Tibsovo can be the first therapy used for any AML patient with an IDH1 mutation who is over 75 year old and not eligible for intensive chemo.

Cholangiocarcinoma, or bile duct cancer, is next on the list for Tibsovo label expansion. In September Agios released data from its Phase 3 cholangiocarcinoma trial, again focused on cancers with IDH1 mutations. Tibsovo reduced the risk of disease progression or death by 63% compared to placebo. Agios announced it would submit the supplemental new drug application for this by the end of 2019, but as I write is a bit behind on that timeline. While the number of patients in the target group is small, having a second indication beyond AML approved would seem to indicate that Tibsovo could provide benefit and get approved for a larger number of cancer types.

MDS or myelodysplastic syndrome is sometimes a precursor of AML but can kill patients without progressing to AML. In December 2019 the FDA granted Breakthrough Therapy designation for Tibosovo for MDS. This was based on some earlier results and Agios reopened the MDS arm of the prior study in order to get enough patient data to get a regulatory filing, about 25 new patients. About 10,000 people in the U.S. are diagnosed with MDS each year. I do not have data on the percent with IDH1 mutations, but it is likely in the same ballpark as for AML.

Low grade glioma (brain cancer) with IDH1 is another potential target for Tibsovo and also for a related drug, vorasidenib, which is also active against IDH2. Data presented in November showed vorasidenib has improved brain penetration and retains a good safety profile. Preliminary efficacy data demonstrated tumor responses and disease control. Tibsovo was effectively a comparison arm in the study. Efficacy was about the same in both arms. Disease control rates were similar, at 90% for vorasidenib and 95% for Tibsovo. A Phase 3, placebo controlled, randomized study with vorasidenib is planned to commence in the near future.

Tibsovo is also in a Phase 3 trial, combined with azacitidine (Vidaza), for newly dosed AML patients ineligible for intensive chemotherapy. That trial is near full enrollment, so we could see results this year. Hopefully the results will be better than either agent acting alone.

In conclusion, I note that while in any given cancer type the number of patients with IDH1 mutations is a small minority, over time, with successful label expansion, Tibsovo could become a therapy approved for a large total number of patients. Extending proof of efficacy to solid cancers would be particularly important.

Mitapivat

Mitapivat (AG-348) is a therapy for pyruvate kinase deficiency, a rare genetic disease (51 cases per million population) that causes anemia and then a variety of complications. A large number of mutations may contribute to the disease, which varies greatly in severity and can lead to death. Blood transfusions are a common form of treatment. Phase 2 trial data presented in December 2019 showed mitapivat increased hemoglobin meaningfully in PKD patients. Two Phase 3 trials should complete enrollment soon. In December Phase 2 trial preliminary results for patients with thalassemia also showed positive increases in hemoglobin levels. The trial will continue.

AG-270

AG-270 is a first-in-class MAT2A inhibitor for treating MTAP-deleted tumors. Phase 1 data reported in October 2019 showed biomarker activity. In Q3 2019 Agios initiated two combination arms for the Phase 1 study, one evaluating AG-270 in combination with docetaxel in second-line non-small cell lung cancer and another in combination with nab-paclitaxel and gemcitabine in first or second-line pancreatic ductal adenocarcinoma. Bristol-Myers is collaborating on AG-270.

Agios platform and strategy

Agios Pharmaceuticals was founded to in 2008 explore therapies based on cellular metabolism. IDH1 was the first enzyme studied. In 2010 Agios began its collaboration with Celgene (now BMY). It has continued to specialize in metabolic pathways, including developing proprietary technology to study the pathways. That has led it to discover targets within the pathways and develop drugs that treat those targets. This is a precision medicine approach that, for investors, means Agios has the capability to develop a virtually unlimited number of therapies over time.

Valuing Agios

I understand investor frustration with the slow rollout of Tibsovo. On the bright side, it looks like a drug that will keep building revenue over a long period of time, until its patents expire. In time it seems likely that all AML patients with IDH1 mutations will try Tibsovo. This will be expanded to cholangiocarcinoma and then MDS. Which tumors will be prioritized after that is unclear, but I think any tumor that tests positive for IDH1 is fair game.

Vorasidenib and mitapivat potential commercialization are also on the horizon, pending FDA approval. EU approvals are also in the pipeline. As revenue flows in I expect to see the pipeline expanded as well. But all that will require a considerable cash burn. Any faltering in revenue growth could frighten investors and make it hard to raise more cash.

As I mentioned above, in the past Agios stock price has been over $100 per share, and this year it sank as low as $28.36. That is an enormous differential. It closed on January 6, 2020 at $48.49, giving it a market capitalization of over $3.2 billion. Clearly investors see a great deal of value in the future. I own the stock, and I am a long-term investor, so I am going to reserve judgment for now. I will be looking for Q4 Tibsovo revenue to continue to ramp. Even if it goes over $20 million for the first time, I would remain cautious. If it goes over $25 million, I would call that a bullish signal. We should see Q4 results towards the end of January or early February. But the real value should be over the longer, multi-year run.

Disclosure: I am/we are long AGIO, BMY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.