Agios Pharmaceuticals Is A Buy On Coming Revenue Ramp

Summary

• Agios sold its first successful commercial drug to Servier for $2 billion.
• Launch of second drug, Pyrukynd, is underway.
• Large cash balance and platform potential sweeten the picture.

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Agios Pharmaceuticals (NASDAQ:AGIO) has twice graduated from being a clinical stage company to being a commercial stage company in the last few years. In 2018 it received FDA approval for the cancer therapy Tibsovo. Agios then sold its entire cancer division to Servier for $2 billion in 2021. It is now focused on finding therapies for genetically defined diseases. I believe Agios, at the current price near $20.00 per share, is clearly a long-term buy. It may also be a short-term opportunity if its new drug, Pyrukynd, has a successful launch. Agios will report second-quarter results on August 4, 2022, which will give us an initial idea of how the launch is going. Longer term, development of the pipeline provides the bulk of potential.

Pyrukynd

Pyrukynd, originally mitapivat, was approved by the FDA to treat hemolytic anemia in adults with pyruvate kinase deficiency in February 2022. It binds to pyruvate kinase and activates it, which prevents the destruction of red blood cells from a failure in the glycolytic pathway. Symptoms of PK deficiency are anemia and conditions secondary to anemia. It is caused by mutations in the PKLR gene. Severity of symptoms varies with the exact mutation involved. Some of those affected require no treatment, while some may be so deficient as to die before birth or be at risk of death in childhood. Prior to Pyrukynd the only treatments were blood transfusions and bone marrow transplants. PK deficiency is rare, affecting perhaps 51 people out of one million. If that is true, there would be about 17,000 cases in the U.S. and about 400,000 cases worldwide. The annual list price of Pyrukynd is $334,880. Agios has a program to reduce out-of-pocket costs for Pyrukynd, which has orphan drug designation. It is also under regulatory review in the EU, with a decision expected before the end of 2022.

Q1 2022 Results and Cash

Agios Q1 2022 results were reported on May 5, 2022. Revenue was just $800 thousand, as Pyrukynd was approved mid-quarter and was not available for sale until the end of February. GAAP net loss was $95 million and EPS loss was $1.74. Most of the expense was for R&D, which was $70 million; the rest was for Sales, General and Administration. At the end of the quarter Agios had $1.18 billion in cash and equivalents. Guidance included that cash is expected to be sufficient to get to a cash flow positive quarter. That should mean no dilution for investors, beyond that resulting from employee stock options. On the caveat side, spending nearly $100 million per quarter means that the cash will run out unless there is a significant ramp of Pyrukynd revenue.

What to look for in Q2 results

Agios will report second quarter results on August 4, 2022. The key figure will be revenue, which represents Pyrukynd sales. Another figure to look for, if management gives it, is prescriptions written. I am not looking for a specific figure at this point. Given the high cost, reimbursement by insurers will be very important, so progress on that score is key. I do not see this as much of a Medicare issue, since seniors with PK deficiency are probably rare. But it could be a Medicaid issue. It is likely that Agios will provide Pyrukynd for free to some patients until reimbursement is in place. Since patients may live for decades once they have an effective therapy, a few quarters of free drug would be a good investment for future revenue. At the end of last quarter Agios reported there may be about 4,000 patients covered by the current U.S. label, which could lead to annual revenue of $200 to $225 million. So even if the ramp to that level is relatively quick, it will take some label expansion, and geographic expansion, to reach cash-flow break even.

Platform and Pipeline

In its latest statement about Agios research efforts, the company said it would narrow its focus. This would allow annual cost savings of between $40 and $50 million. Advanced programs are to be prioritized. This includes expanding the Pyrukynd label; the late-stage preclinical program in phenylketonuria; and BCAT inhibition for methylmalonic and propionic acidemias. It may also use cash to acquire promising therapeutic assets.

A look at the Agios pipeline page shows that Pyrukynd (listed as Mitapivat), in addition to being approved for Adult PK Deficiency, is in clinical development for seven possible label expansions, several of them to pediatric indications, but also possibly for Thalassemia and Sickle Cell Disease. I would note that these two novel indications have therapies already on the market, and many competitors in clinical trials. If approved gaining a significant share of these markets would depend on efficacy, safety, and pricing.

The only other potential therapy currently in clinical trials is another PK activator, AG-946, which would hope to be an improvement on Pyrukynd. It is already in trials for Sickle Cell Disease and anemia associated with MDS (Myelodysplastic Syndrome). There are other PK activator candidates being tested in preclinical trials.

Further towards the horizon we have the PAH and BCAT2 therapies in preclinical testing. BCAT2, or the branched-chain amino acid aminotransferase gene, encodes the BCAT enzyme that catalyzes several cell pathways involving synthesis of amino acids and appears to have other roles in metabolism. Agios’ BCAT2 inhibitor is being tested for methylmalonic acidemia and propionic acidemia. Both result from mutations and are relatively rare, so most likely would qualify for orphan drug status. PAH therapy would address PKU, or Phenylketonuria, which is more common than the acidemias but still relatively rare. It affects about 1 in 10,000 people in the U.S., which would be just 33,000. There is an approved drug on the market for PKU, pegvaliase.

Conclusion

The main risk for a company once it has a single commercial therapy is that market adoption will be south of plan. A slow ramp is a short-term risk, while failure to reach the intended market, say within 2 years, is the long-term risk. For long-term investors, the hope is that on-label sales will ramp up at a good rate, which will help preserve cash. As label and geographic expansion take place Agios could become a profitable company. As stated above, some revenue will likely be delayed while waiting for insurers, government and private, to okay reimbursement. We will not really know how well this program is working out until, say, the end of 2025. In the meantime, hopefully there will be both preclinical and clinical pipeline progress. I think Agios has proved its competence with the two therapies approved by the FDA. Note, finally, that the market capitalization is currently about $1.1 billion, roughly the same as its cash balance. That provides a level of safety not usually seen in a biotech pharma company at this stage of development. Nothing guarantees success in a pharma pipeline, but label expansion has a higher probability of success than developing an entirely new therapy. I would not be surprised if the stock price goes down short if revenue ramps too slowly for some investors. But for long-term investors, this is clearly a Buy, if it fits one’s risk appetite.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of AGIO either through stock ownership, options, or other derivatives. 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.

Comments

[BlackRider]

Thanks for the update. Long AGIO.

[Defensive Value]

WM, thank you for a fine analysis, it's now on my watch list.

[dixie]

Their pipeline appears sparse - yet, their R&D cash burn is steep. Why would this be a good investment ?