The following discussion of our financial condition and results of operations should be read with our unaudited condensed consolidated interim financial statements as of
We are a biopharmaceutical company committed to applying our scientific leadership in the field of cellular metabolism to transform the lives of patients with cancer and inborn errors of metabolism, or IEMs, which are a subset of orphan genetic metabolic diseases. Metabolism is a complex biological process involving the uptake and assimilation of nutrients in cells to produce energy and facilitate many of the processes required for cellular division and growth. We believe that dysregulation of normal cellular metabolism plays a crucial role in many diseases, including certain cancers and IEMs. We singularly focus our efforts on using cellular metabolism, an unexploited area of biological research with disruptive potential, as a platform for developing potentially transformative small molecule medicines for cancer and IEMs.
The lead product candidates in our most advanced programs are aimed at druggable targets which have undergone rigorous validation processes. Our most advanced cancer product candidates, AG-221 and AG-120, which target mutant isocitrate dehydrogenase 2 and 1, or IDH2 and IDH1, respectively, have demonstrated strong proof of concept in preclinical models. In
We are leveraging our expertise in metabolic pathways to discover, validate, develop and commercialize a pipeline of novel drug candidates with a focus in cancer. In
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Since inception, our operations have focused on organizing and staffing our company, business planning, raising capital, assembling our core capabilities in cellular metabolism, identifying potential product candidates, undertaking preclinical studies and conducting a clinical trial. To date, we have financed our operations primarily through funding received from our collaboration agreement with Celgene, private placements of our preferred stock, and the initial public offering, or IPO, of our common stock and concurrent private placement of common stock to an affiliate of Celgene, completed on
Since inception, we have incurred significant operating losses. Our net losses were
Financial Operations Overview
To date, we have not generated any revenue from product sales and do not expect to generate any revenue from product sales in the near future. All of our revenue to date has been derived from our collaboration with Celgene and funding from research grant agreements. Under our Celgene collaboration we are recognizing revenue related to the upfront license fee of
In the future, we will seek to generate revenue from a combination of product sales and upfront payments, extension payments, milestone payments, and royalties on future product sales in connection with our Celgene collaboration, or other strategic relationships.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts, and the development of our product candidates, which include:
• employee-related expenses including salaries, benefits, and stock-based compensation expense; • expenses incurred under agreements with third parties, including contract research organizations, or CROs, that conduct research and development, including both preclinical and clinical activities, on our behalf as well as the cost of consultants; • the cost of lab supplies and acquiring, developing, and manufacturing preclinical and clinical study materials; and • facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other operating costs.
Research and development costs are expensed as incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed.
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The following summarizes our most advanced current research and development programs.
AG-221: Lead IDH2 Program
AG-221 is an orally available, selective, potent inhibitor of the mutated IDH2 protein, making it a highly targeted therapeutic candidate for the treatment of patients with cancers that harbor IDH2 mutations, including those with AML. Based on our established preclinically-based target profiling, as well as preclinical in vitro and in vivo efficacy data, there is a clear rationale to develop AG-221 in defined target populations that harbor an IDH2 mutation.
We have conducted exploratory pharmacology studies to develop a model of IDH2 mutant-induced tumorigenesis and to characterize the binding, inhibition, and selectivity of AG-221. We have demonstrated in in vitro experiments and in in vivo models that exposure to AG-221 reduces 2HG levels to those found in normal cells, reverses 2HG-induced histone hypermethylation, and induces differentiation in multiple leukemia cell models. Targeted inhibition of the IDH2 mutant also reversed the differentiation block in both TF-1 leukemia cells and primary AML cells derived from patients.
During 2013, we successfully completed IND-enabling studies on AG-221. The molecule has excellent pharmacological properties with a wide therapeutic index. In
The mechanism of response is consistent with preclinical studies, including substantial reduction of plasma 2HG levels, as well as evidence of cellular differentiation and normalization of cell counts in the bone marrow and blood. This differentiation effect is distinct from that seen with traditional chemotherapeutics commonly used to treat AML.
AG-221 has been well-tolerated to date, with no dose-limiting toxicities reported. Within the 22 patients enrolled as of
We are encouraged by the degree of clinical activity and tolerability observed in the first two cohorts of patients (30 mg and 50 mg twice daily). Preliminary analysis of pharmacokinetics at the 30 mg and 50 mg dose levels demonstrated excellent oral AG-221 exposure and a mean plasma half-life of greater than 40 hours. As the maximum tolerated dose has not been reached for AG-221, the dose escalation portion of the trial continues. Given the long half-life observed, we have expanded the trial to include once daily dosing cohorts, beginning with 100 mg. We expect to report on the dose-escalation portion of the ongoing Phase 1 study of AG-221 at the 19th
We intend to conduct subsequent trials in patients with other cancers carrying an IDH2 mutation and in combination with other anti-cancer agents. We plan to pursue additional clinical studies, evaluating both single-agent as well as combination therapy in patients with serious and life-threatening hematological and solid tumors that harbor an IDH2 mutation, in the most efficient manner as we seek to establish the safety and effectiveness of AG-221. The potential regulatory pathway (i.e., conventional or accelerated approval) will be determined by data emerging from the early development program.
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AG-120: Lead IDH1 Program
AG-120 is an orally available, selective, potent inhibitor of the mutated IDH1 protein, making it a highly targeted therapeutic candidate for the treatment of patients with cancers that harbor IDH1 mutations. Importantly, mutations in IDH1 have been identified in difficult to treat cancers such as chondrosarcoma and cholangiocarcinoma where both the treatment options and prognosis for patients are poor. These are indications where the standard of care treatment options are limited, thus providing an opportunity for more rapid development of an IDH1 mutant inhibitor. Based on our preclinical in vitro and in vivo efficacy data, there is a clear rationale to develop AG-120 in defined target populations that harbor an IDH1 gene mutation. We have successfully filed an IND for AG-120 that has been accepted by the
Celgene has the exclusive option to license development and commercialization rights to AG-120 outside
AG-348: Pyruvate Kinase Deficiency Program
AG-348 is an orally available, potent small molecule activator of PKR enzyme, an isoform of PK that when mutated leads to PK deficiency. Preclinical in vitro data demonstrate that these activators can significantly enhance both the activity and the stability of the majority of the common PKR mutants. This degree of enzyme activation leads to a meaningful correction of the metabolic imbalance normally found within mutant cells. Red blood cells have been obtained from patients with severe and moderate PK deficiency where ex vivo studies have demonstrated enzyme activation and metabolic improvement. We have successfully completed IND-enabling studies and filed an IND for AG-348 that has been accepted by the
We believe the clinical and regulatory strategy for our PK deficiency program has well-established primary and secondary endpoints similar to that of other approved medicines developed for the treatment of other anemias.
We have retained worldwide development and commercial rights to AG-348 and expect to fund the future development and commercialization costs related to this program.
Other Research and Platform Programs
Other research and platform programs include activities related to exploratory efforts, target validation, lead optimization for our validated programs and our proprietary metabolomics platform.
We track our internal and external research and development costs on a program-by-program basis. We use our employee and infrastructure resources across multiple research and development programs, and we allocate internal employee-related and infrastructure costs, as well as certain third party costs, to each of these programs based on the personnel resources allocated to such program. Our research and development expenses, by major program for the three months ended
Three Months Ended March 31, (in thousands) 2014 2013 AG-221 (IDH2)
$ 3,348 $ 2,486AG-120 (IDH1) 3,613 2,734 AG-348 (PK deficiency) 3,143 1,200 Other research and platform programs 7,303 5,042 Total research and development expenses $ 17,407 $ 11,46217
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The successful development of our product candidates is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of these product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from
• establishing an appropriate safety profile with IND-enabling toxicology studies; • successful enrollment in, and completion of clinical trials; • receipt of marketing approvals from applicable regulatory authorities; • establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers; • obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates; • launching commercial sales of the products, if and when approved, whether alone or in collaboration with others; and • continuing acceptable safety profile of the products following approval.
A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect research and development costs to increase significantly for the foreseeable future as our product candidate development programs progress. However, we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in executive, finance, accounting, business development, legal and human resources functions. Other significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters and fees for accounting and consulting services.
We anticipate that our general and administrative expenses will increase in the future to support continued research and development activities, potential commercialization of our product candidates and increased costs of operating as a public company. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other expenses. Additionally, we anticipate increased costs associated with being a public company including expenses related to services associated with maintaining compliance with exchange listing and
Critical Accounting Policies and Estimates
Our critical accounting policies are those policies which require the most significant judgments and estimates in the preparation of our consolidated financial statements. Management has determined that our most critical accounting policies are those relating to revenue recognition, income taxes, accrued research and development expenses and stock-based compensation. There have been no significant changes to our critical accounting policies discussed in the Annual Report on Form 10-K for the year ended
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Results of Operations
Comparison of Three Months Ended
The following table summarizes our results of operations for the three months ended
Three Months Ended March 31, (in thousands) 2014 2013 Dollar Change % Change Total revenue
$ 8,411 $ 6,268$ 2,143 34 % Operating expenses: Research and development 17,407 11,462 5,945 52 General and administrative 3,288 1,852 1,436 78 Loss from operations (12,284 ) (7,046 ) (5,238 ) 74 Interest income 36 8 28 350 Provision for income taxes - (190 ) 190 100 Net loss $ (12,248 ) $ (7,228 ) $ (5,020 )69 %
Revenue. Revenue increased by
Research and development expense. Research and development expense increased by
$2.1 millionof costs related to external phase 1 clinical studies, IND-enabling preclinical studies and manufacturing activities for our lead product candidates targeting IDH1 and PK deficiency; • approximately $0.8 millionof costs related to other early research and platform programs; and • approximately $0.6 millionfor external phase 1 clinical studies and manufacturing activities for our lead product candidate targeting IDH2.
We incurred approximately
• additional personnel costs of
$1.8 millionprimarily from additional hires increasing our internal headcount by 17%; and • approximately $0.2 millionfor facilities and other related expenses, $0.3 millionfor milestone payments payable under a collaboration agreement, and $0.1 millionfor research materials related to our expanded research efforts.
General and administrative expense. General and administrative expenses increased by
• additional personnel costs of
$0.7 millionprimarily from additional hires increasing our internal headcount by 44%; • an increase of $0.5 millionin professional service costs related to being a public company; • an increase of $0.2 millioncertain operating expenses, including travel and facility costs.
Interest income. Interest income increased
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Provision for income tax. The provision for income taxes decreased by
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, and through
In addition to our existing cash, cash equivalents and marketable securities, we are eligible to earn a significant amount of milestone and other payments under our collaboration agreement with Celgene, including
The following table provides information regarding our cash flows for the three months ended
Three Months Ended, March 31, (in thousands) 2014 2013 Net cash used in operating activities
$ (27,040 ) $ (11,981 )Net cash (used in) provided by investing activities (12,265 ) 4,036 Net cash provided by financing activities 582 25 Net decrease in cash and cash equivalents $ (38,723 ) $ (7,920 )
Net Cash Used in Operating Activities
The use of cash in all periods resulted primarily from funding our net losses adjusted for non-cash charges and changes in components of working capital. Net cash used in operating activities was
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Celgene agreement exercised in
Net Cash (Used in) Provided by Investing Activities
Net cash used in investing activities was
Net Cash Provided by Financing Activities
Net cash provided by financing activities was
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research, development and clinical trials of, and seek marketing approval for, our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution to the extent that such sales, marketing and distribution are not the responsibility of Celgene or other collaborators. Furthermore, we expect to continue to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.
We expect that our existing cash, cash equivalents and marketable securities, the
• the scope, progress, results and costs of drug discovery, preclinical development, laboratory testing and clinical trials for our product candidates; • the success of our collaboration with Celgene; • whether Celgene exercises its remaining option to extend the discovery phase under our collaboration agreement which would trigger an extension payment to us; • the extent to which we acquire or in-license other medicines and technologies; • the costs, timing and outcome of regulatory review of our product candidates; • the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; and • our ability to establish and maintain additional collaborations on favorable terms, if at all.
Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of medicines that we do not expect to be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.
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Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. We do not have any committed external source of funds, other than our collaboration with Celgene. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Off-balance Sheet Arrangements
We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable
During the three months ended