Agios Pharmaceuticals A Buy For Tibsovo, Mitapivat (NASDAQ:AGIO)

Agios Pharmaceuticals (AGIO) is ramping sales of its approved cancer therapy Tibsovo quite nicely. It also has an impressive pipeline of potential therapies. Agios specializes in metabolic pathways, including developing proprietary technology to study the pathways. It has discovered targets within the pathways and develops drugs that treat those targets. This is a precision medicine approach that, for investors, means Agios has the capability to develop a nearly unlimited number of therapies over time. I believe that, with a little bit of luck, it will develop into a major pharmaceutical company and bring generous returns for long-term investors. The stock price is quite reasonable right now, with the main risk being future failures in the pipeline.

I will review the company’s Q2 results with a focus on Tibsovo revenue. Then, I will focus on Mitapivat, which is the most likely next major driver of value. I will also recap the rest of the pipeline before summing all that against the current stock value.

Data by YCharts

Agios Q2 2020 results

Agios Q2 2020 results were delivered on July 30. Revenue was $37.3 million, down 51% sequentially from $87.1 million and up 42% from $26.2 million year-earlier. Revenue fluctuations are usually because of collaboration accounting. More fundamental now that Agios is a commercial-stage company is Tibsovo revenue; see that analysis below. GAAP net income was negative $90.5 million, down sequentially from negative $40.3 million and up from negative $109.9 million year-earlier. GAAP diluted EPS was negative $1.31, down sequentially from negative $0.59 and up from negative $1.87 year-earlier.

Losses are not unusual for years even after a small pharmaceutical company starts making commercial sales. Not only is revenue invested in further drug development and sales capabilities, but new capital is usually thrown into the mix, if investors will provide it. Cost of sales was minimal in Q2 at $0.7 million, but $90.9 million was invested in R&D. $36 million was spent on general & administrative expense. I would like to see tighter ship in G&A, but I consider R&D spend likely to pay for itself somewhere down the road.

Most importantly, Agios ended the quarter with $794 million in cash and equivalents. That might be enough to finance R&D until revenue ramps to the breakeven point. If not, there will be dilution at some point in the future to raise cash. Also, Idhifa royalty rights and milestone payments have been sold to Royalty Pharma, so do not count Idhifa royalty revenue from Bristol-Myers Squibb (BMY) going forward.

Tibsovo ramp and potential label expansion

I was a bit worried in early 2019 when Tibsovo revenue got off to a slow ramp:

Quarter

Tibsovo$ millions

Q3 2018

$4.5

Q4 2018

9.4

Q1 2019

9.1

Q2 2019

13.7

Q3 2019

17.4

Q4 2019

19.6

Q1 2020

22.7

Q2 2020

27.6

(Source: Data from Agios, table compiled by author)

Biotech investors sometimes expect approved drugs, particularly cancer drugs, to move towards blockbuster status quickly. Even at the latest run rate, Tibsovo has only recently broken into the $100 million per year run rate. Psychology has likely been further dampened by the low rate of royalties for Agios’ first approved therapy, Idhifa. In Q2 2020, that was only $3.3 million.

Although Tibsovo was originally approved in 2018 for relapsed or refractory AML (acute myeloid leukemia) with an IDH1 mutation, the label was extended to newly diagnosed IDH1 AML in 2019. It is still undergoing geographic expansion for those labels. A robust program is underway to extend the label to other cancers with IDH1 mutations:

A screenshot of a cell phone Description automatically generated

(Source: Agios pipeline page)

The IDH1 mutation occurs in cancers throughout the human body. The old classification of cancers by organ or tissue type are not so important now that we understand the importance of mutations. In theory, an agent against IDH1 mutations could be broadly applicable to any cancer driven by that mutation. While $27.6 million may not seem like a lot compared to the cost of ongoing clinical trials and pipeline development, it may be just a way station toward much higher revenue.

The Tibsovo for AML application in Europe should get a CHMP opinion by year-end 2020. Growth of Tibsovo in the U.S. remains strong as the prescriber base broadens and frontline approval ramps. There are about 10,000 newly diagnosed IDH1/2 newly diagnosed AML patients in the US and EU combined annually. The Tibsovo plus Vidaza (azacitidine) Phase 3 trial should complete enrollment by year-end 2020.

Mitapivat

Mitapivat (AG-348) is a therapy for PK (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. Phase 2 trial preliminary results for patients with thalassemia also showed positive increases in hemoglobin levels. Phase 3 trials should complete enrollment soon, with top line data due for PKD in mid-2021. Mitapivat has also reported positive preliminary Phase 1 data in sickle cell disease. It has received Orphan Drug designation from the FDA. While it is used to treat a rare disease, Mitapivat should get orphan drug pricing, and so, deliver significant revenue.

Rest of Agios’ pipeline

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 Squibb is collaborating on AG-270.

Vorasidenib is a Pan-IDH inhibitor. In Q2 2020 Agios presented updated data from the Phase 1 dose-escalation study of vorasidenib in IDH-mutant non-enhancing glioma at ASCO. Vorasidenib demonstrated prolonged disease control and encouraging preliminary activity, and a favorable safety profile. Recently, Agios initiated the registration-enabling Phase 3 INDIGO study of vorasidenib in Grade 2 non-enhancing glioma with an IDH mutation.

AG-946 is a second-generation PKR activator. So, if it works, it could be an improvement on Mitapivat. It is still in preclinical activity, but a Phase 1 study is planned to start this quarter, which means in September.

Conclusion

At the August 31 closing price of $41.01, Agios had a market capitalization of $2.7 billion. The price range in this past year has been quite wide, from a low of $27.77 to a high of $56.75, indicating that the market is having issues with pricing the stock. This is doubtless because of prior expectations that Idhifa and Tibsovo revenue would ramp faster, plus the usual uncertainty about pipeline therapies.

Looking down the road, I see Tibsovo likely to continue to ramp meaningfully. Depending on how far label expansion goes, it could still become a billion-per-year therapy. Mitapivat should get orphan drug pricing if approved for PKD, so that could ramp into the hundreds of millions of dollars, and much higher if it becomes a sickle cell therapy. Vorasidenib might be seen as simply replacing Tibsovo and extending patent protection, but it also might be able to show activity with a broader array of IDH tumors than Tibsovo. That would also create meaningful revenue expansion. While any future revenue estimates come with caveats about data, regulatory approval, and market acceptance, I see revenue ramping over time and more novel drugs coming out of the Agios platform. For long-term investors, that should produce good results.

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.

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