Quarterly Report (10-q)

Date : 08/01/2019 @ 1:57PM
Source : Edgar (US Regulatory)
Stock : Agios Pharmaceuticals Inc (AGIO)
Quote : 36.31  0.27 (0.75%) @ 10:59PM

Quarterly Report (10-q)

AGIOS PHARMACEUTICALS 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-36014
AGIOS PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware 26-0662915
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
88 Sidney Street, Cambridge, Massachusetts
02139
(Address of Principal Executive Offices) (Zip Code)
(617) 649-8600
(Registrant’s Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol(s) Name of each exchange on which registered
Common Stock, Par Value $0.001 per share AGIO Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer ☐  
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No    ☒
Number of shares of the registrant’s Common Stock, $0.001 par value, outstanding on July 26, 2019: 58,752,886


AGIOS PHARMACEUTICALS, INC.
FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019
TABLE OF CONTENTS
 
Page
No.
Item 1.
Item 2.
Item 3.
Item 4.
Item 1A.
Item 6.



PART I. FINANCIAL INFORMATION
Item 1.  Financial Statements (Unaudited)
AGIOS PHARMACEUTICALS, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(Unaudited)
June 30,
2019
December 31,
2018
Assets
Current assets:
Cash and cash equivalents $ 83,580  $ 70,502 
Marketable securities 411,810  514,800 
Accounts receivable, net 7,147  5,076 
Collaboration receivable – related party 2,524  2,462 
Collaboration receivable – other 2,222  670 
Royalty receivable – related party 2,700  2,234 
Inventory 4,659  869 
Prepaid expenses and other current assets 19,063  17,167 
Total current assets 533,705  613,780 
Marketable securities 128,649  220,119 
Operating lease assets 98,500  — 
Property and equipment, net 23,016  24,320 
Other non-current assets —  238 
Total assets $ 783,870  $ 858,457 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 15,435  $ 17,880 
Accrued expenses 49,218  42,147 
Deferred revenue – related party 18,454  32,710 
Operating lease liabilities 6,397  — 
Deferred rent —  766 
Total current liabilities 89,504  93,503 
Deferred revenue, net of current portion – related party 51,616  59,809 
Operating lease liabilities, net of current portion 110,073  — 
Deferred rent, net of current portion —  17,608 
Total liabilities 251,193  170,920 
Stockholders’ equity:
Preferred stock, $0.001 par value; 25,000,000 shares authorized; no shares issued or outstanding at June 30, 2019 and December 31, 2018
—  — 
Common stock, $0.001 par value; 125,000,000 shares authorized; 58,749,186 and 58,218,653 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively
59  58 
Additional paid-in capital 1,839,710  1,794,283 
Accumulated other comprehensive income (loss)  490  (2,171)
Accumulated deficit (1,307,582) (1,104,633)
Total stockholders’ equity 532,677  687,537 
Total liabilities and stockholders’ equity $ 783,870  $ 858,457 
See accompanying Notes to Condensed Consolidated Financial Statements.
1

AGIOS PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(Unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Revenues:
Product revenue, net $ 13,727  $ —  $ 22,865  $ — 
Collaboration revenue – related party 8,979  26,401  26,898  33,746 
Collaboration revenue – other 812  12,440  1,782  12,440 
Royalty revenue – related party 2,703  1,573  4,903  2,990 
Total revenue 26,221  40,414  56,448  49,176 
Cost and expenses:
Cost of sales  303  —  637  — 
Research and development  107,389  86,730  202,974  164,954 
Selling, general and administrative 32,390  26,633  64,181  51,183 
Total cost and expenses 140,082  113,363  267,792  216,137 
Loss from operations  (113,861) (72,949) (211,344) (166,961)
Interest income  3,990  4,204  8,395  7,391 
Net loss  $ (109,871) $ (68,745) $ (202,949) $ (159,570)
Net loss per share – basic and diluted  $ (1.87) $ (1.19) $ (3.46) $ (2.81)
Weighted-average number of common shares used in computing net loss per share – basic and diluted  58,722,244  57,721,786  58,589,167  56,713,795 

See accompanying Notes to Condensed Consolidated Financial Statements.
2

AGIOS PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(Unaudited)


Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Net loss $ (109,871) $ (68,745) $ (202,949) $ (159,570)
Other comprehensive income (loss)
Unrealized gain (loss) on available-for-sale securities 974  245  2,661  (1,009)
Comprehensive loss $ (108,897) $ (68,500) $ (200,288) $ (160,579)

See accompanying Notes to Condensed Consolidated Financial Statements.

3

AGIOS PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share amounts)
(Unaudited)
Common Stock Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
Shares Amount
Balance at December 31, 2018 58,218,653  $ 58  $ 1,794,283  $ (2,171) $ (1,104,633) $ 687,537 
Common stock issued under stock incentive plan and ESPP 441,168  6,002  —  —  6,003 
Stock-based compensation expense —  —  18,108  —  —  18,108 
Other comprehensive income —  —  —  1,687  —  1,687 
Net loss —  —  —  —  (93,078) (93,078)
Balance at March 31, 2019 58,659,821  $ 59  $ 1,818,393  $ (484) $ (1,197,711) $ 620,257 
Common stock issued under stock incentive plan and ESPP 89,365  $ —  $ 2,770  $ —  $ —  $ 2,770 
Stock-based compensation expense —  —  18,547  —  —  18,547 
Other comprehensive income —  —  —  974  —  974 
Net loss —  —  —  —  (109,871) (109,871)
Balance at June 30, 2019 58,749,186  $ 59  $ 1,839,710  $ 490  $ (1,307,582) $ 532,677 

Common Stock Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
Shares Amount
Balance at December 31, 2017 48,826,153  $ 49  $ 1,174,904  $ (1,389) $ (798,061) $ 375,503 
Issuance of common stock for follow-on offering 8,152,986  516,198  —  —  516,206 
Common stock issued under stock incentive plan and ESPP 562,474  12,331  —  —  12,332 
Stock-based compensation expense —  —  14,522  —  —  14,522 
Other comprehensive loss —  —  —  (1,254) —  (1,254)
Cumulative effect of ASC 606 —  —  —  —  39,456  39,456 
Net loss —  —  —  —  (90,825) (90,825)
Other —  —  (346) —  —  (346)
Balance at March 31, 2018 57,541,613  $ 58  $ 1,717,609  $ (2,643) $ (849,430) $ 865,594 
Common stock issued under stock incentive plan and ESPP 391,423  $ —  $ 9,638  $ —  $ —  $ 9,638 
Stock-based compensation expense —  —  16,455  —  —  16,455 
Other comprehensive income —  —  —  245  —  245 
Net loss —  —  —  —  (68,745) (68,745)
Other —  —  (45) —  —  (45)
Balance at June 30, 2018 57,933,036  $ 58  $ 1,743,657  $ (2,398) $ (918,175) $ 823,142 

See accompanying Notes to Condensed Consolidated Financial Statements.
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AGIOS PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Six Months Ended June 30,
2019 2018
Operating activities
Net loss  $ (202,949) $ (159,570)
Adjustments to reconcile net loss to net cash used in operating activities: 
Depreciation 4,042  3,464 
Stock-based compensation expense 36,655  30,977 
Net accretion of premium and discounts on investments (2,019) (1,291)
(Gain) loss on disposal of property and equipment —  (20)
Non-cash operating lease expense 4,208  — 
Changes in operating assets and liabilities:
Accounts receivable, net (2,071) — 
Collaboration receivable – related party (62) (16,878)
Collaboration receivable – other (1,552) (440)
Royalty receivable – related party (466) (351)
Inventory (3,790) — 
Prepaid expenses and other current and non-current assets (2,517) 2,413 
Accounts payable (1,874) (6,198)
Accrued expenses 7,071  (7,841)
Deferred revenue – related party (22,449) (10,644)
Operating lease liabilities (3,649) — 
Deferred rent —  (16)
Net cash used in operating activities  (191,422) (166,395)
Investing activities
Purchases of marketable securities (144,231) (592,664)
Proceeds from maturities and sales of marketable securities 343,372  331,666 
Purchases of property and equipment (3,309) (2,793)
Net cash provided by (used in) investing activities  195,832  (263,791)
Financing activities
Payment of public offering costs, net of reimbursements —  (391)
Proceeds from public offering of common stock, net of commissions —  516,206 
Net proceeds from stock option exercises and employee stock purchase plan 8,668  21,970 
Net cash provided by financing activities  8,668  537,785 
Net change in cash and cash equivalents 13,078  107,599 
Cash and cash equivalents at beginning of the period 70,502  102,724 
Cash and cash equivalents at end of the period $ 83,580  $ 210,323 
Supplemental disclosure of non-cash investing and financing transactions
Additions to property and equipment in accounts payable and accrued expenses $ 535  $ 1,365 
Proceeds from stock option exercises in other current assets $ 112  $ — 
Operating lease liabilities arising from obtaining operating lease assets $ 42,856  $ — 
See accompanying Notes to Condensed Consolidated Financial Statements.
5

AGIOS PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Overview and Basis of Presentation
References to Agios
Throughout this Quarterly Report on Form 10-Q, “we,” “us,” and “our,” and similar expressions, except where the context requires otherwise, refer to Agios Pharmaceuticals, Inc. and its consolidated subsidiaries, and “our Board of Directors” refers to the board of directors of Agios Pharmaceuticals, Inc.
Overview
We are a biopharmaceutical company committed to the fundamental transformation of patients’ lives through scientific leadership in the field of cellular metabolism and adjacent areas of biology, with the goal of making transformative, first- or best-in-class medicines for the treatment of cancer and rare genetic diseases, or RGDs. To address both cancer and RGDs, we take a systems biology approach to deeply understand disease states, drive the discovery and validation of novel therapeutic targets, and define patient selection strategies, thereby increasing the probability that our experimental medicines will have the desired therapeutic effect. We are located in Cambridge, Massachusetts.
Basis of presentation
The condensed consolidated balance sheet as of June 30, 2019, the condensed consolidated statements of operations, comprehensive loss and stockholders' equity for the three and six months ended June 30, 2019 and 2018, and the condensed consolidated statements of cash flows for the six months ended June 30, 2019 and 2018 are unaudited. The unaudited condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of our management, reflect all adjustments, which include only normal recurring adjustments, necessary to fairly state our financial position as of June 30, 2019, our results of operations and stockholders' equity for the three and six months ended June 30, 2019 and 2018, and cash flows for the six months ended June 30, 2019 and 2018. The financial data and the other financial information disclosed in these notes to the condensed consolidated financial statements related to the three and six-month periods are also unaudited. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any other future annual or interim period. The year-end condensed consolidated balance sheet data was derived from our audited financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles, or U.S. GAAP. Accordingly, the condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018 that was filed with the Securities and Exchange Commission, or the SEC, on February 14, 2019.
Our condensed consolidated financial statements include our accounts and the accounts of our wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared in conformity with U.S. GAAP.
Liquidity
As of June 30, 2019, we had cash, cash equivalents and marketable securities of $624.0 million. Although we have incurred recurring losses and expect to continue to incur losses for the foreseeable future, we expect our cash, cash equivalents and marketable securities will be sufficient to fund current operations for at least the next twelve months from the issuance date of these financial statements.
2. Summary of Significant Accounting Policies
Leases
In February 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2016-02, Leases (Topic 842) , which was codified as Accounting Standards Codification, or ASC, 842, Leases , and amended through subsequent ASUs. We adopted ASC 842 effective January 1, 2019 using the modified retrospective transition approach and elected the package of practical expedients, both provided for under ASU 2018-11, Leases (Topic 842): Targeted Improvements . The package of practical expedients allows us not to reassess whether contracts are or contain leases, lease classification, and whether initial direct costs qualify for capitalization. Additionally, as an accounting policy, we have chosen not to separate the non-lease components from the lease components for our building leases and, instead, accounted for non-lease and lease components as a single component.
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Impact of Adoption of ASC 842
Upon adoption of ASC 842 on January 1, 2019, we recorded operating lease assets of $59.9 million and operating lease liabilities of $77.3 million. The adoption of ASC 842 did not have a material impact on our condensed consolidated statements of operations. Prior periods are presented in accordance with ASC 840, Leases .
Leases Accounting Policy
We determine if an arrangement is a lease at inception. An arrangement is determined to contain a lease if the contract conveys the right to control the use of an identified property, plant, or equipment for a period of time in exchange for consideration. If we can benefit from the various underlying assets of a lease on their own or together with other resources that are readily available, or if the various underlying assets are neither highly dependent on nor highly interrelated with other underlying assets in the arrangement, they are considered to be a separate lease component. In the event multiple underlying assets are identified, the lease consideration is allocated to the various components based on each of the component’s relative fair value.
Operating lease assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the leasing arrangement. Operating lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, in determining the operating lease liabilities we use an estimate of our incremental borrowing rate. The incremental borrowing rate is determined using two alternative credit scoring models to estimate our credit rating, adjusted for collateralization. The calculation of the operating lease assets includes any lease payments made and excludes any lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
For operating leases, we record operating lease assets and liabilities in our consolidated balance sheets. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Short-term leases, or leases that have a lease term of 12 months or less at commencement date, are excluded from this treatment and are recognized on a straight-line basis over the term of the lease.
Recent accounting pronouncements
Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.
3. Fair Value Measurements
We record cash equivalents and marketable securities at fair value. ASC 820, Fair Value Measurements and Disclosures , establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, directly or indirectly, for substantially the full term of the asset or liability.
Level 3 – Unobservable inputs that reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.
The following table summarizes our cash equivalents and marketable securities measured at fair value on a recurring basis as of June 30, 2019 (in thousands):
Level 1 Level 2 Level 3 Total
Cash equivalents $ 27,012  $ 10,995  $ —  $ 38,007 
Marketable securities:
Certificates of deposit —  240  —  240 
U.S. Treasuries —  186,449  —  186,449 
Government securities —  87,368  —  87,368 
Corporate debt securities —  266,402  —  266,402 
Total cash equivalents and marketable securities $ 27,012  $ 551,454  $ —  $ 578,466 
Cash equivalents and marketable securities have been initially valued at the transaction price and subsequently, at the end of each reporting period, valued utilizing third-party pricing services or other market observable data. The pricing services utilize
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industry standard valuation models, including both income and market-based approaches, and observable market inputs to determine value. After completing our validation procedures, we did not adjust or override any fair value measurements provided by the pricing services as of June 30, 2019.
There have been no changes to the valuation methods during the six months ended June 30, 2019. We evaluate transfers between levels at the end of each reporting period. There were no transfers between Level 1 and Level 2 during the six months ended June 30, 2019. We have no financial assets or liabilities that were classified as Level 3 at any point during the six months ended June 30, 2019.
4. Marketable Securities
Our marketable securities are classified as available-for-sale pursuant to ASC 320, Investments – Debt and Equity Securities , and are recorded at fair value, with unrealized gains and losses included as a component of accumulated other comprehensive income (loss) in the condensed consolidated balance sheets and statements of stockholders’ equity and a component of total comprehensive loss in the condensed consolidated statements of comprehensive loss, until realized. Realized gains and losses are included in investment income on a specific-identification basis. There were no material realized gains or losses on marketable securities for the three and six months ended June 30, 2019 and 2018.
Marketable securities at June 30, 2019 consisted of the following (in thousands):
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Current:
Certificates of deposit $ 240  $ —  $ —  $ 240 
U.S. Treasuries 186,295  211  (57) 186,449 
Government securities 54,836  20  (34) 54,822 
Corporate debt securities 170,255  148  (104) 170,299 
Non-current:
Government securities 32,575  19  (48) 32,546 
Corporate debt securities 95,657  491  (45) 96,103 
Total marketable securities $ 539,858  $ 889  $ (288) $ 540,459 
Marketable securities at December 31, 2018 consisted of the following (in thousands):
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Current:
Certificates of deposit $ 960  $ —  $ (4) $ 956 
U.S. Treasuries 231,101  (228) 230,880 
Government securities 75,335  —  (121) 75,214 
Corporate debt securities 208,233  —  (483) 207,750 
Non-current:
U.S. Treasuries 12,202  (125) 12,081 
Government securities 70,177  10  (188) 69,999 
Corporate debt securities 139,082  12  (1,055) 138,039 
Total marketable securities $ 737,090  $ 33  $ (2,204) $ 734,919 
As of June 30, 2019 and December 31, 2018, we held both current and non-current investments. Investments classified as current have maturities of less than one year. Investments classified as non-current are those that: (i) have a maturity of greater than one year, and (ii) we do not intend to liquidate within the next twelve months, although these funds are available for use and, therefore, are classified as available-for-sale.
As of June 30, 2019 and December 31, 2018, we held 79 and 242 debt securities, respectively, that were in an unrealized loss position for less than one year. The aggregate fair value of debt securities in an unrealized loss position at June 30, 2019 and December 31, 2018 was $175.5 million and $639.3 million, respectively. There were no individual securities that were in a significant unrealized loss position as of June 30, 2019 and December 31, 2018. Given our intent and ability to hold such
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securities until recovery, and the lack of significant change in the credit risk of these investments, we do not consider these marketable securities to be other-than-temporarily impaired as of June 30, 2019 and December 31, 2018.
5. Inventory
Inventory, which consists of commercial supply of TIBSOVO® (ivosidenib), consists of the following (in thousands):
June 30,
2019
December 31,
2018
Raw materials $ 180  $ — 
Work-in-process 4,392  788 
Finished goods 87  81 
Total inventory $ 4,659  $ 869 

6. Leases
On April 11, 2019, we entered into an agreement to lease approximately 13,000 square feet of office space located at 38 Sidney Street, Cambridge, Massachusetts, or the 38 Sidney Lease, with Thirty-Eight Sidney Street, LLC. The initial term of the 38 Sidney Lease commenced on May 1, 2019 and expires on February 29, 2028. At the end of the lease term, we have the option to extend the 38 Sidney Lease for two consecutive terms of five years at fair market rent at the time of the extension. The 38 Sidney Lease provides us with the right to lease additional space within the 38 Sidney Street building and also includes rent escalation clauses and a tenant improvement allowance of $1.0 million.
In connection with the 38 Sidney Lease, we also amended our existing building leases at 88 Sidney Street, Cambridge, Massachusetts and at 64 Sidney Street, Cambridge, Massachusetts to extend the initial terms of those leases by approximately three years through February 29, 2028. The amendments also provide us with the right to lease additional space at the 64 Sidney Street building. Our existing extension options for the 88 Sidney Street building and 64 Sidney Street building continue as set forth in the existing leases for those buildings.
Our building leases are comprised of office and laboratory space under non-cancelable operating leases. These lease agreements have remaining lease terms of nine years and contain various clauses for renewal at our option. The renewal options were not included in the calculation of the operating lease assets and the operating lease liabilities as the renewal option is not reasonably certain of being exercised. The lease agreements do not contain residual value guarantees. Operating lease costs for the three and six months ended June 30, 2019 were $3.8 million and $6.8 million, respectively, and cash paid for amounts included in the measurement of operating lease liabilities for the three and six months ended June 30, 2019 were $3.2 million and $6.3 million, respectively.
We have not entered into any material short-term leases or financing leases as of June 30, 2019.
As of June 30, 2019, undiscounted minimum rental commitments under non-cancelable leases, for each of the next five years and total thereafter were as follows (in thousands):
Remaining 2019 $ 5,695 
2020 14,015 
2021 14,380 
2022 16,773 
2023 18,126 
2024 18,660 
Thereafter 63,891 
$ 151,540 
In arriving at the operating lease liabilities as of June 30, 2019, we applied the weighted-average incremental borrowing rate of 5.7% over a weighted-average remaining lease term of 8.7 years.
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As of June 30, 2019, the following represents the difference between the remaining undiscounted minimum rental commitments under non-cancelable leases and the operating lease liabilities (in thousands):
Undiscounted minimum rental commitments $ 151,540 
Present value adjustment using incremental borrowing rate (35,070)
Operating lease liabilities $ 116,470 
As of December 31, 2018, minimum rental commitments under non-cancelable leases, for each of the next five years and total thereafter were as follows (in thousands):
2019 $ 12,759 
2020 13,135 
2021 13,473 
2022 15,552 
2023 17,145 
Thereafter 19,223 
$ 91,287 
7. Accrued Expenses
Accrued expenses consist of the following (in thousands):
June 30,
2019
December 31,
2018
Accrued compensation $ 10,541  $ 20,843 
Accrued research and development costs 30,189  14,777 
Accrued professional fees 6,357  5,441 
Accrued other 2,131  1,086 
Total accrued expenses $ 49,218  $ 42,147 

8. Product Revenue
We sell TIBSOVO®, our wholly owned product, to a limited number of specialty distributors and specialty pharmacy providers in the U.S., or collectively, the Customers. The Customers subsequently resell TIBSOVO® to pharmacies or dispense directly to patients. In addition to distribution agreements with Customers, we enter into arrangements with healthcare providers and payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts with respect to the purchase of TIBSOVO®.
The performance obligation related to the sale of TIBSOVO® is satisfied and revenue is recognized when the Customer obtains control of the product, which occurs at a point in time, typically upon delivery to the Customer.
Reserves for Variable Consideration
Revenues from product sales are recorded at the net sales price, or transaction price, which includes estimates of variable consideration for which reserves are established and result from contractual adjustments, government rebates, returns and other allowances that are offered within the contracts with our Customers, healthcare providers, payors and other indirect customers relating to the sale of our products.
Contractual Adjustments
We generally provide Customers with discounts, including prompt pay discounts, and allowances that are explicitly stated in the contracts and are recorded as a reduction of revenue in the period the related product revenue is recognized. In addition, we receive sales order management, data and distribution services from certain Customers.
Chargebacks for fees and discounts represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to Customers who directly purchase the product from us. Customers charge us for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. These reserves are estimated using the expected value method, based upon a range of possible
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outcomes that are probability-weighted for the estimated channel mix and are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue.
Government Rebates
Government rebates consist of Medicare, TriCare, and Medicaid rebates, which we estimate using the expected value method, based upon a range of possible outcomes that are probability-weighted for the estimated payor mix. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue. For Medicare, we also estimate the number of patients in the prescription drug coverage gap for whom we will owe an additional liability under the Medicare Part D program.
Returns
We estimate the amount of product sales that may be returned by Customers and record this estimate as a reduction of revenue in the period the related product revenue is recognized. We currently estimate product return liabilities using the expected value method, based on available industry data, including our visibility into the inventory remaining in the distribution channel.
Total net product revenue from U.S. sales of TIBSOVO®, which is our only source of product revenue, was $13.7 million and $22.9 million for the three and six months ended June 30, 2019, respectively. We did not record any product revenues during the three and six months ended June 30, 2018. The following table summarizes balances and activity in each of the product revenue allowance and reserve categories for the six months ended June 30, 2019 (in thousands):
Contractual Adjustments Government Rebates Returns Total
Balance at December 31, 2018 $ 592  $ 325  $ 334  $ 1,251 
Current provisions relating to sales in the current year 3,145  820  586  4,551 
Adjustments relating to prior years —  — 
Payments/returns relating to sales in the current year (2,450) (355) —  (2,805)
Payments/returns relating to sales in the prior years (598) (230) —  (828)
Balance at June 30, 2019 $ 697  $ 560  $ 920  $ 2,177 
Total revenue-related reserves above, included in our condensed consolidated balance sheets, are summarized as follows (in thousands):
June 30,
2019
December 31,
2018
Reduction of accounts receivable $ 416  $ 326 
Component of accrued expenses 1,761  925 
Total revenue-related reserves $ 2,177  $ 1,251 
The following table presents changes in our contract assets during the six months ended June 30, 2019 (in thousands):
December 31,
2018
Additions Deductions June 30,
2019
Contract assets (1)
Accounts receivable, net $ 5,076  $ 27,395  $ (25,324) $ 7,147 
(1) Additions to contract assets relate to amounts billed to Customers for product sales during the reporting period. Deductions to contract assets primarily relate to collection of receivables during the reporting period.
9. Collaboration and License Agreements
Accounting analysis and revenue recognition
Our collaboration and license agreements typically involve us granting licenses of our intellectual property and performing research and development services in exchange of upfront fees, milestone payments and royalty payments. Since December 31, 2018, there have been no material changes to the key terms of our collaboration or license agreements. For further information on the terms and conditions of our existing collaboration and license agreements, please see the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.
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Collaboration revenue
On January 1, 2018 we adopted ASC 606, Revenue from Contracts with Customers, under the modified retrospective method. Prior to January 1, 2018, we accounted for collaboration agreements under ASC 605-25, Multiple Element Arrangements. In determining the appropriate amount of revenue to be recognized under ASC 606, we performed the following steps: (i) identified the promised goods or services in the contract; (ii) determined whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measured the transaction price, including the constraint on variable consideration; (iv) allocated the transaction price to the performance obligations; and (v) recognized revenue when (or as) we satisfied each performance obligation.
Royalty revenue
For arrangements that include sales-based royalties and sales-based milestones and in which the license is deemed to be the predominant item to which the royalties relate, we recognize royalty revenue upon the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
Milestone revenue
At each reporting period we evaluate whether milestones are considered probable of being reached and, to the extent that a significant reversal would not occur in future periods, estimate the amount to be included in the transaction price using the most likely amount method. Milestone payments that are not within our control, such as regulatory approvals, are not considered probable of being achieved and are excluded from the transaction price until those approvals are received.
Celgene Corporation
We have entered into the following collaboration agreements, or collectively, the Collaboration Agreements, with Celgene Corporation, or Celgene, which is a related party through ownership of our common stock:
In April 2010, we entered into a discovery and development collaboration and license agreement focused on cancer metabolism, or the 2010 Agreement, which was amended in October 2011 and July 2014. The discovery phase of the 2010 Agreement expired in April 2016. On August 15, 2016, we terminated the 2010 Agreement as to the program directed to the isocitrate dehydrogenase 1, or IDH1, target, for which ivosidenib was the lead development candidate. Accordingly, the sole program remaining under the 2010 Agreement is IDHIFA® (enasidenib), a co-commercialized licensed program for which Celgene leads and funds global development and commercialization activities. Under the remaining terms of the 2010 Agreement, we are eligible to receive up to $80.0 million in potential milestone payments for the enasidenib program. The potential milestone payments are comprised of: (i) up to $55.0 million in milestone payments upon achievement of specified ex-U.S. regulatory milestone events, and (ii) a $25.0 million milestone payment upon achievement of a specified ex-U.S. commercial milestone event, as well as royalties at tiered, low-double digit to mid-teen percentage rates on net sales of IDHIFA®.
In April 2015, we entered into a joint worldwide development and profit share collaboration and license agreement with Celgene, and our wholly owned subsidiary, Agios International Sarl, entered into a collaboration and license agreement with Celgene International II Sarl, or collectively, the AG-881 Agreements, to establish a worldwide collaboration focused on the development and commercialization of vorasidenib products. Under the AG-881 Agreements, we and Celgene split all worldwide development costs for vorasidenib, subject to specified exceptions. The AG-881 Agreements were terminated effective September 4, 2018, upon which we received sole global rights to vorasidenib. In connection with the termination of the AG-881 Agreements, Celgene will be eligible to receive royalties from us at a low single-digit percentage rate on worldwide net sales of products containing vorasidenib.
In May 2016, we entered into a master research and collaboration agreement with Celgene, or the 2016 Agreement, focused on metabolic immuno-oncology, or MIO. The initial four -year research term of the 2016 Agreement may be extended for up to two, or in specified cases, up to four additional one -year terms by paying a $40.0 million per year extension fee. Celgene has designated AG-270, our methionine adenosyltransferase 2a, or MAT2A, inhibitor, as a development candidate under the 2016 Agreement, and has the option, upon payment of an option exercise fee of at least $30.0 million, to participate in a worldwide 50/50 cost and profit share with us for AG-270, under which we are eligible for up to $169.0 million in potential milestone payments for the program, comprised of: (i) a $20.0 million milestone-based payment upon achievement of a specified clinical development event and (ii) up to $149.0 million in milestone-based payments upon achievement of specified regulatory milestone events. We are also eligible to receive designation, option exercise and milestone and royalty payments for other programs that may be designated for further development under the 2016 Agreement.
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Collaboration revenue
During the three and six months ended June 30, 2019 and 2018, we recognized the following collaboration revenue (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Services performed that were considered performance obligations as of the modification dates
Licenses $ —  $ 15,000  $ —  $ 15,000 
On-going research and development services 8,155  9,830  25,220  16,194 
Services performed that were not considered performance obligations as of the modification dates
Development activities —  590  —  590 
Commercialization activities 824  981  1,678  1,962 
Total collaboration revenue - related party $ 8,979  $ 26,401  $ 26,898  $ 33,746 
The following table presents changes in our contract assets and liabilities during the six months ended June 30, 2019 (in thousands):
December 31,
2018
Additions Deductions June 30,
2019
Contract assets (1)
Collaboration receivable – related party $ 2,462  $ 4,452  $ (4,390) $ 2,524 
Royalty receivable – related party 2,234  4,900  (4,434) 2,700 
Contract liabilities (2)
Deferred revenue – related party, current and net of current portions 92,519  3,705  (26,154) 70,070 
(1) Additions to contract assets relate to amounts billed to Celgene during the reporting period. Deductions to contract assets relate to collection of receivables during the reporting period.
(2) Additions to contract liabilities relate to consideration from Celgene during the reporting period. Deductions to contract liabilities relate to deferred revenue recognized as revenue during the reporting period.
During the three and six months ended June 30, 2019 and 2018, we recognized the following as revenue due to changes in the contract liability balances (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Amounts included in the contract liability at the beginning of the period $ 8,009  $ 9,932  $ 24,419  $ 15,917 
Performance obligations satisfied in previous periods —  220 —  543
As of June 30, 2019, the aggregate amount of the transaction price allocated to performance obligations that are partially unsatisfied was $75.5 million. This amount is expected to be recognized as performance obligations are satisfied through March 2023.
Royalty revenue
As the underlying performance obligation, or delivery of the enasidenib license, had been satisfied as of June 2014, royalty revenue is recognized as the related sales occur. During the three and six months ended June 30, 2019 and 2018, we recognized the following as royalty revenue (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Royalty revenue – related party $ 2,703  $ 1,573  $ 4,903  $ 2,990 
Milestone revenue
During the three months ended June 30, 2018, Celgene submitted a marketing authorization application, or MAA, to the European Medicines Agency, or EMA, for IDHIFA® for isocitrate dehydrogenase 2, or IDH2, mutant-positive relapsed or
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refractory, or R/R, acute myeloid leukemia, or AML. As a result of the filing, we recognized a $15.0 million milestone payment as collaboration revenue - related party. No other milestones were achieved during the three and six months ended June 30, 2019 or 2018. The next potential milestone expected to be achieved under our Collaboration Agreements is the first regulatory approval in any of China, Japan or a major European country, which would result in a milestone payment of $35.0 million under the 2010 Agreement.
CStone Pharmaceuticals
In June 2018, we and CStone Pharmaceuticals, or CStone, entered into an exclusive license agreement, or the CStone Agreement, to grant CStone specified intellectual property licenses to enable CStone to develop and commercialize certain products containing ivosidenib in mainland China, Hong Kong, Macau and Taiwan, or the CStone Territory. We retain development and commercialization rights for the rest of the world. Pursuant to the CStone Agreement, CStone will initially be responsible for the development and commercialization of ivosidenib in AML, cholangiocarcinoma, and, at our discretion, brain cancer indications. CStone is responsible for all costs it incurs in developing, obtaining regulatory approval of, and commercializing ivosidenib in the CStone Territory, as well as certain costs incurred by us. Pursuant to the CStone Agreement, we received an initial upfront payment in the amount of $12.0 million and are entitled to receive up to an additional $412.0 million in milestone payments upon the achievement of certain development, regulatory and sales milestone events. We will also be entitled to receive tiered royalties, ranging from 15% to 19% percent, on annual net sales, if any, of ivosidenib in the CStone Territory.
Collaboration revenue
During the three and six months ended June 30, 2019 and 2018, we recognized the following collaboration revenue - other (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Services performed that were considered performance obligations as of the inception date
License $ —  $ 12,440  $ —  $ 12,440 
Services performed that were not considered performance obligations as of the inception date
Other Services 812  —  1,782  — 
Total collaboration revenue - other $ 812  $ 12,440  $ 1,782  $ 12,440 
The following table presents changes in our contract assets during the six months ended June 30, 2019 (in thousands):
December 31,
2018
Additions Deductions June 30,
2019
Contract assets (1)
Collaboration receivable - other $ 670  $ 1,782  $ (230) $ 2,222 
(1) Additions to contract assets relate to amounts receivable from CStone. Deductions to contract assets relate to collection of receivables during the reporting period.
As of June 30, 2019, the aggregate amount of the transaction price allocated to performance obligations that are partially unsatisfied was $0.7 million.
Royalty revenue
The license was determined to be the predominant item to which sales-based royalties and sales-based milestones relate. As the license was delivered in June 2018, we will recognize royalty revenue when the related sales occur. To date, no royalties have been received under the CStone Agreement.
Milestone revenue
No milestones were earned during the three and six months ended June 30, 2019 and 2018. The next potential milestone expected to be achieved under the CStone Agreement is the dosing of the first patient in a local study in a hematological indication in mainland China. Achievement of this event will result in a milestone payment of $5.0 million.
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10. Share-Based Payments
2013 Stock Incentive Plan
In June 2013, our Board of Directors adopted and, in July 2013 our stockholders approved, the 2013 Stock Incentive Plan, or the 2013 Plan. The 2013 Plan became effective upon the closing of our initial public offering and provides for the grant of stock options and other stock-based awards. Following the adoption of the 2013 Plan, we granted no further stock options or other stock-based awards under the 2007 Stock Incentive Plan, or the 2007 Plan. Any stock options or stock-based awards outstanding under the 2007 Plan at the time of adoption of the 2013 Plan remained outstanding and effective. As of June 30, 2019, the total number of shares reserved under the 2007 Plan and the 2013 Plan was 9,475,602, and we had 2,194,806 shares available for future issuance under the 2013 Plan.
Stock options
The following table presents stock option activity for the six months ended June 30, 2019:
Number of
Stock Options
Weighted-Average
Exercise Price
Outstanding at December 31, 2018 5,416,069  $ 60.10 
Granted 1,464,728  57.08 
Exercised (181,010) 38.59 
Forfeited/Expired (356,493) 66.38 
Outstanding at June 30, 2019 6,343,294  $ 59.66 
Exercisable at June 30, 2019 3,414,953  $ 58.63 
Vested and expected to vest at June 30, 2019 6,343,294  $ 59.66 
At June 30, 2019, there was approximately $114.6 million of total unrecognized compensation expense related to unvested stock option awards, which we expect to recognize over a weighted-average period of approximately 2.8 years.
Restricted stock units
The following table presents restricted stock unit, or RSU, activity for the six months ended June 30, 2019:
Number of
Stock Units
Weighted-Average
Grant Date Fair 
Value
Unvested shares at December 31, 2018 532,144  $ 75.45 
Granted 408,707  58.46 
Vested (150,082) 69.29 
Forfeited (53,259) 72.24 
Unvested shares at June 30, 2019 737,510  $ 67.52 
As of June 30, 2019, there was approximately $37.5 million of total unrecognized compensation expense related to RSUs, which we expect to recognize over a weighted-average period of approximately 2.0 years.
Performance-based stock units
The following table presents performance-based stock unit, or PSU, activity for the six months ended June 30, 2019:
Number of
Stock Units
Weighted-Average
Grant Date Fair 
Value
Unvested shares at December 31, 2018 169,031  $ 52.67 
Granted 155,297  61.93 
Vested (167,031) 52.36 
Unvested shares at June 30, 2019 157,297  $ 62.15 
Stock-based compensation expense associated with these PSUs is recognized if the underlying performance condition is considered probable of achievement using our management’s best estimates.
As of June 30, 2019, there was approximately $9.8 million of total unrecognized compensation expense related to PSUs with performance-based vesting criteria that are not considered probable of achievement.
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Market-based stock units
The following table presents market-based stock unit, or MSU, activity for the six months ended June 30, 2019:
Number of
Stock Units
Weighted-Average
Grant Date Fair
Value
Unvested shares at December 31, 2018 —  $ — 
Granted 42,695  41.50 
Unvested shares at June 30, 2019 42,695  $ 41.50 
The fair value of MSUs are estimated using a Monte Carlo simulation model. Assumptions and estimates utilized in the model include the risk-free interest rate, dividend yield, expected stock volatility and the estimated period to achievement of the market condition. As of June 30, 2019, there was approximately $1.3 million of total unrecognized compensation expense related to MSUs, which we expect to recognize over the remaining derived service period of 1.2 years.
2013 Employee Stock Purchase Plan
In June 2013, our Board of Directors adopted, and in July 2013 our stockholders approved, the 2013 Employee Stock Purchase Plan, or the 2013 ESPP. We issued 32,410 shares and 27,377 shares during the six months ended June 30, 2019 and 2018, respectively, under the 2013 ESPP. The 2013 ESPP provides participating employees with the opportunity to purchase up to an aggregate of 327,272 shares of our common stock. As of June 30, 2019, we had 128,126 shares available for future issuance under the 2013 ESPP.
Stock-based compensation expense
Stock-based compensation expense by award type included within the condensed consolidated statements of operations is as follows (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Stock options $ 12,467  $ 13,311  $ 25,513  $ 25,783 
Restricted stock units 5,243  2,805  9,791  4,602 
Employee stock purchase plan 392  339  720  592 
Other stock awards 445  —  631  — 
Total stock-based compensation expense $ 18,547  $ 16,455  $ 36,655  $ 30,977 
Expenses related to stock options and stock-based awards were allocated as follows in the condensed consolidated statements of operations (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Research and development expense $ 10,067  $ 9,667  $ 20,109  $ 18,307 
Selling, general and administrative expense 8,480  6,788  16,546  12,670 
Total stock-based compensation expense $ 18,547  $ 16,455  $ 36,655  $ 30,977 

11. Loss per Share
Basic net loss per share is calculated by dividing net loss by the weighted-average shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting the weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury stock method. For purposes of the dilutive net loss per share calculation, stock options, RSUs, PSUs and MSUs for which the performance and market vesting conditions, respectively, have been met, and 2013 ESPP shares are considered to be common stock equivalents, while PSUs and MSUs with performance and market vesting conditions, respectively, that were not met as of June 30, 2019 are not considered to be common stock equivalents.
Since we had a net loss for all periods presented, the effect of all potentially dilutive securities is anti-dilutive. Accordingly, basic and diluted net loss per share was the same for all periods presented.
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The following common stock equivalents were excluded from the calculation of diluted net loss per share applicable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:
Three and Six Months Ended June 30,
2019 2018
Stock options 6,343,294  5,706,476 
Restricted stock units 737,510  438,892 
Employee stock purchase plan 33,064  21,205 
Total common stock equivalents 7,113,868  6,166,573 

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking Information
The following discussion of our financial condition and results of operations should be read with our unaudited condensed consolidated financial statements as of June 30, 2019 and for the three and six months ended June 30, 2019 and 2018, and related notes included in Part I., Item 1. of this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 14, 2019. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, forecasts and projections, and the beliefs and assumptions of our management, and include, without limitation, statements with respect to our expectations regarding our research, development and commercialization plans and prospects, results of operations, selling, general and administrative expenses, research and development expenses, and the sufficiency of our cash for future operations. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” and similar statements or variation of these terms or the negative of those terms and similar expressions are intended to identify these forward-looking statements. Readers are cautioned that these forward-looking statements are predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Among the important factors that could cause actual results to differ materially from those indicated by our forward-looking statements are those discussed under the heading “Risk Factors” in Part II, Item 1A. and elsewhere in this report, and in our Annual Report on Form 10-K for the year ended December 31, 2018. We undertake no obligation to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law.
Overview
We are a biopharmaceutical company committed to the fundamental transformation of patients’ lives through scientific leadership in the field of cellular metabolism and adjacent areas of biology, with the goal of making transformative, first- or best-in-class medicines for the treatment of cancer and RGDs. To address both cancer and RGDs, we take a systems biology approach to deeply understand disease states, drive the discovery and validation of novel therapeutic targets, and define patient selection strategies, thereby increasing the probability that our experimental medicines will have the desired therapeutic effect.
Oncology
We are developing ivosidenib for the treatment of IDH1 mutant-positive cancers. Ivosidenib is an orally available, selective, potent inhibitor of the mutated IDH1 protein, making it a highly targeted therapy for the treatment of patients with cancers that harbor IDH1 mutations, including those with AML or cholangiocarcinoma. We hold worldwide development and commercial rights to ivosidenib and have licensed certain development and commercialization rights to ivosidenib to CStone. We will fund the future development and commercialization costs related to this program with the exception of development and commercialization activities of CStone under the CStone Agreement. In July 2018, the FDA granted us approval of TIBSOVO® for the treatment of adult patients with R/R AML with a susceptible IDH1 mutation as detected by an FDA-approved test. In December 2018, we submitted an MAA to the EMA for TIBSOVO® for the treatment of adult patients with R/R AML. In May 2019, the FDA approved our supplemental new drug application, or sNDA, to update the U.S. Prescribing Information for TIBSOVO® to include patients with newly diagnosed AML with a susceptible IDH1 mutation as detected by an FDA-approved test who are at least 75 years old or who have comorbidities that preclude use of intensive induction chemotherapy. The FDA granted us fast track designation for ivosidenib for treatment of patients with previously treated, unresectable or metastatic cholangiocarcinoma with an IDH1 mutation, granted orphan drug designation for ivosidenib for the treatment of cholangiocarcinoma, and granted Breakthrough Therapy designation for ivosidenib in combination with azacitidine for the treatment of newly diagnosed AML with an IDH1 mutation in adult patients who are at least 75 years old or who have comorbidities that preclude use of intensive induction chemotherapy.
Celgene, in collaboration with us, is developing enasidenib for the treatment of IDH2 mutant-positive hematologic cancers. Enasidenib is an orally available, selective, potent inhibitor of the mutated IDH2 protein, making it a highly targeted therapy for the treatment of patients with cancers that harbor IDH2 mutations, including those with AML. In August 2017, the FDA granted Celgene approval of IDHIFA® for the treatment of adult patients with R/R AML and an IDH2 mutation. In June 2018, Celgene submitted an MAA to the EMA for IDHIFA® for IDH2 mutant-positive AML. Celgene has worldwide development and commercialization rights for IDHIFA®, and we are eligible to receive royalties at tiered low-double digit to mid-teen percentage rates on any net sales of IDHIFA® and have exercised our rights to provide up to one-third of the field-based commercialization efforts in the United States.
Our pre-commercial clinical cancer product candidates are vorasidenib, AG-270, and AG-636.
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We are developing vorasidenib for the treatment of IDH mutant-positive glioma. Vorasidenib is an orally available, selective, brain-penetrant, pan-IDH mutant inhibitor.
We are developing AG-270 for the treatment of cancers carrying a methylthioadenosine phosphorylase, or MTAP, deletion, which is present in approximately 15% of all cancers. AG-270 is an orally available selective potent inhibitor of MAT2A. Celgene has designated AG-270 as a development candidate under the 2016 Agreement, and has the option to participate in a worldwide 50/50 cost and profit share with us for the program, under which we are eligible for clinical and regulatory milestone payments.
We are developing AG-636 for the treatment of hematologic malignancies, including lymphoma. AG-636 is an inhibitor of the metabolic enzyme dihydroorotate dehydrogenase, or DHODH, licensed by us from Aurigene Discovery Technologies Limited, or Aurigene. In October 2018, we submitted an investigational new drug application, or IND, for AG-636 for the treatment of hematologic malignancies, which was accepted by the FDA in December 2018.
RGDs
The lead product candidate in our RGD portfolio, mitapivat, targets pyruvate kinase-R, or PKR, for the treatment of pyruvate kinase, or PK, deficiency. PK deficiency is a rare genetic disorder that often results in severe hemolytic anemia, jaundice and lifelong conditions associated with chronic anemia and secondary complications due to inherited mutations in the pyruvate kinase enzyme within red blood cells. Mitapivat is a potent activator of the wild-type (normal) and mutated PKR enzymes, which has resulted in restoration of adenosine triphosphate levels and a decrease in 2,3-diphosphoglycerate levels in blood sampled from patients with PK deficiency and treated ex-vivo with mitapivat. We are also developing mitapivat for the treatment of patients with thalassemia. We have worldwide development and commercial rights to mitapivat and expect to fund the future development and commercialization costs related to this program.
In addition to the aforementioned development programs, we are seeking to advance a number of early-stage discovery programs in the areas of cancer, RGDs and MIO, a developing field which aims to modulate the activity of relevant immune cells by targeting critical metabolic nodes, thereby enhancing the immune mediated anti-tumor response.
Collaboration and license agreements
Refer to Note 9, Collaboration and License Agreements , of the notes to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of the key terms of our arrangements with Celgene and CStone.
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 condensed consolidated financial statements. We have determined that our most critical accounting policies are those relating to revenue recognition, accrued research and development expenses, and stock-based compensation. Except those that have been disclosed in Note 2, Summary of Significant Accounting Policies , of the notes to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, there have been no significant changes to our existing critical accounting policies discussed in our Annual Report on Form 10-K for the year ended December 31, 2018.
Financial Operations Overview
General
Since inception, our operations have primarily 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 clinical trials. Beginning in 2018, we also began to increase our commercial activities in connection with the FDA approval of TIBSOVO® and we will continue to build out our commercial capabilities to support potential approvals of our other product candidates. To date, we have financed our operations primarily through funding received from our various collaboration agreements, private placements of our preferred stock, our initial public offering of our common stock and concurrent private placement of common stock to an affiliate of Celgene, and our follow-on public offerings.
Additionally, since inception, we have incurred significant operating losses. Our net losses were $202.9 million and $159.6 million for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, we had an accumulated deficit of $1.3 billion. We expect to continue to incur significant expenses and operating losses over the next several years. Our net losses may fluctuate significantly from year to year. We anticipate that our expenses will increase significantly as we continue to advance and expand clinical development activities for our lead programs: ivosidenib, vorasidenib, mitapivat, AG-270, and AG-636; continue to discover and validate novel targets and drug product candidates; expand and protect our intellectual property portfolio; and hire additional commercial, development and scientific personnel.
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Revenue
Upon FDA approval of TIBSOVO® in the U.S., we began generating product revenue from sales of TIBSOVO®. We sell TIBSOVO® to a limited number of specialty distributors and specialty pharmacy providers in the U.S. and these Customers subsequently resell TIBSOVO® to pharmacies or dispense directly to patients. In addition to distribution agreements with these Customers, we enter into arrangements with healthcare providers and payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts with respect to the purchase of TIBSOVO®.
We also recognize revenue from our collaborations with Celgene and CStone, and royalty revenue on sales of IDHIFA®.
In the future, we expect to continue to generate revenue from a combination of product sales, royalties on product sales, cost reimbursements, milestone payments, and upfront payments to the extent we enter into future collaborations or licensing agreements.
Cost of sales
Cost of sales consists primarily of manufacturing costs for sales of TIBSOVO®.
Research and development expenses
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, 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 and commercialize these product candidates.
We are also unable to predict when, if ever, material net cash inflows will commence from sales of our product candidates. This is due to the numerous risks and uncertainties associated with developing medicines, including the uncertainty of:
establishing an appropriate safety profile in enabling toxicology and clinical studies to support IND, and/or new drug application, or NDA;
the successful enrollment in, and completion of, clinical trials;
the receipt of marketing approvals from applicable regulatory authorities;
establishing compliant 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
maintaining an 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 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 and both preclinical and clinical activities on our behalf, and 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 the maintenance of facilities, insurance and other operating costs.
The following summarizes the clinical development activities related to our most advanced programs:
Ivosidenib
A phase 1b, multicenter, international, open-label clinical trial to evaluate safety and clinical activity of ivosidenib or enasidenib in combination with induction and consolidation therapy in patients with newly diagnosed AML with an IDH1 or IDH2 mutation who are eligible for intensive chemotherapy.
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A phase 1/2 frontline combination clinical trial, conducted by Celgene, of either ivosidenib or enasidenib in combination with VIDAZA® (azacitidine) in newly diagnosed AML patients not eligible for intensive chemotherapy.
AGILE, a global, registration-enabling phase 3 clinical trial, combining ivosidenib and VIDAZA® (azacitidine) in newly diagnosed AML patients with an IDH1 mutation who are ineligible for intensive chemotherapy.
HO150/AMLSG29, an intergroup sponsored, global, registration-enabling phase 3 trial, supported in collaboration with Celgene, combining ivosidenib or enasidenib with standard induction and consolidation chemotherapy in frontline AML patients with an IDH1 or IDH2 mutation, which initiated sites and is currently screening patients.
A phase 1 multicenter, open-label, dose-escalation and expansion clinical trial, designed to assess its safety, clinical activity and tolerability as a single agent in patients with advanced solid tumors with an IDH1 mutation, including glioma, cholangiocarcinoma, and chondrosarcoma.
A phase 1 multicenter, open-label, dose-escalation and expansion clinical trial, designed to assess its safety, clinical activity and tolerability as a single agent in patients with advanced hematologic malignancies with an IDH1 mutation.
ClarIDHy, a registration-enabling phase 3, multicenter, randomized, double-blind, placebo-controlled clinical trial of ivosidenib in previously-treated patients with nonresectable or metastatic cholangiocarcinoma with an IDH1 mutation. The primary endpoint of the trial was met and we plan to submit an sNDA to the FDA for TIBSOVO® for second-line or later IDH1 mutant-positive cholangiocarcinoma by the end of 2019.
Enasidenib
In addition to the clinical trials discussed above, enasidenib is also being evaluated by Celgene in IDHENTIFY, an international phase 3, multi-center, open-label, randomized clinical trial designed to compare the efficacy and safety of enasidenib versus conventional care regimens in patients 60 years or older with IDH2 mutant-positive AML that is refractory to or relapsed after second- or third-line therapy.
Vorasidenib
A phase 1 multi-center, open-label clinical trial of vorasidenib in patients with advanced IDH1 or IDH2 mutant-positive solid tumors, including glioma.
A perioperative study with ivosidenib and vorasidenib in low grade glioma to further investigate their effects on brain tumor tissue.
A registration-enabling phase 3 study of vorasidenib in low-grade glioma with an IDH1 or IDH2 mutation is expected to initiate by the end of 2019.
Mitapivat
DRIVE PK, a global phase 2, first-in-patient, open-label safety and efficacy clinical trial of mitapivat in adult, transfusion-independent patients with PK deficiency.
ACTIVATE-T, a single arm, global, pivotal trial of mitapivat in up to 40 regularly-transfused patients with PK deficiency.
ACTIVATE, a 1:1 randomized, placebo-controlled, global, pivotal trial of mitapivat in approximately 80 patients with PK deficiency who do not receive regular transfusions.
A phase 2, open-label safety and efficacy clinical trial of mitapivat in approximately 20 adult patients with non-transfusion-dependent thalassemia.
AG-270
A phase 1 trial in multiple tumor types carrying an MTAP deletion. The first part of the trial is a single agent dose-escalation phase in which cohorts of patients will receive ascending doses of AG-270 to determine the pharmacokinetics, pharmacodynamics, and optimal dose and schedule. The next phase of development will evaluate AG-270 in combination with taxanes in two areas of high unmet need. One arm of the study will test AG-270 in combination with docetaxel in MTAP-deleted non-small cell lung cancer and another arm will test AG-270 in combination with nab-paclitaxel and gemcitabine in MTAP-deleted pancreatic ductal adenocarcinoma.
AG-636
A phase 1 study of AG-636 in subjects with advanced lymphoma.
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Other research and platform programs
Other research and platform programs include activities related to exploratory efforts, target validation and lead optimization for our discovery and follow-on programs, and our proprietary metabolomics platform.
Selling, general and administrative expenses
Selling, general and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in executive, finance, business development, commercial, legal and human resources functions. Other significant costs include facility-related 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 selling, general and administrative expenses will increase in the future to support continued research and development, and commercialization activities, including activities related to the commercialization of TIBSOVO®, the potential commercialization of our product candidates, and the build-out of a limited commercial infrastructure in the European Union, or EU. 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.
Results of Operations
Comparison of the three and six months ended June 30, 2019 and 2018
The following table summarizes our results of operations for the three and six months ended June 30, 2019 and 2018 ($ in thousands):
Three Months Ended June 30 Six Months Ended June 30
($ in thousands) 2019 2018 $ Change % Change 2019 2018 $ Change % Change
Product revenue, net $ 13,727  $ —  $ 13,727  N/A    $ 22,865  $ —  $ 22,865  N/A   
Collaboration revenue – related party 8,979  26,401  (17,422) (66) % 26,898  33,746  (6,848) (20) %
Collaboration revenue – other 812  12,440  (11,628) (93) % 1,782  12,440  (10,658) (86) %
Royalty revenue – related party 2,703  1,573  1,130  72  % 4,903  2,990  1,913  64  %
Total revenue 26,221  40,414  (14,193) (35) % 56,448  49,176  7,272  15  %
Cost and expenses:
Cost of sales 303  —  303  N/A    637  —  637  N/A   
Research and development 107,389  86,730  20,659  24  % 202,974  164,954  38,020  23  %
Selling, general and administrative 32,390  26,633  5,757  22  % 64,181  51,183  12,998  25  %
Loss from operations (113,861) (72,949) (40,912) 56  % (211,344) (166,961) (44,383) 27  %
Interest income 3,990  4,204  (214) (5) % 8,395  7,391  1,004  14  %
Net loss $ (109,871) $ (68,745) $ (41,126) 60  % $ (202,949) $ (159,570) $ (43,379) 27  %
Product Revenue. Product revenue for the three and six months ended June 30, 2019 was due to the recognition of net product revenue from the sale of our first commercial product, TIBSOVO®, which was approved for sale in the U.S. on July 20, 2018.
Collaboration Revenue. The decrease in collaboration revenue - related party for the three months ended June 30, 2019 is primarily due to recognition of a milestone payment of $15.0 million in 2018. The decrease in collaboration revenue - related party for the six months ended June 30, 2019 is primarily related to the recognition of the milestone payment in 2018, offset by revenue recognized in 2019 upon satisfaction of our research and development activities under our Collaboration Agreements with Celgene.
Collaboration revenue - other consists of revenue generated under the CStone Agreement. The decrease is collaboration revenue - other is primarily due to revenue recognized in June 2018 relating to the delivery of the license to CStone. Revenue recognized for the three and six months ended June 30, 2019 consists of revenue recognized upon satisfaction of other services under the CStone Agreement.
Royalty Revenue . In addition to product revenue and collaboration revenue, we recognized royalty revenue on Celgene's net sales of IDHIFA® under the 2010 Agreement.
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Cost of Sales. Cost of sales for the three and six months ended June 30, 2019 relate to manufacturing costs associated with TIBSOVO® sales. Based on our policy to expense costs associated with the manufacture of our products prior to regulatory approval, certain of the TIBSOVO® costs were expensed prior to July 20, 2018, and therefore are not included in costs of sales during the current period.
Research and Development Expense . We use our employee and infrastructure resources across multiple research and development programs, and we allocate internal employee-related and infrastructure costs, including stock-based compensation and facilities costs, as well as certain third-party costs, net of reimbursements from Celgene, to our research and development programs based on the personnel resources allocated to such program.
Our allocated research and development expenses, by major program, are outlined in the table below ($ in thousands):
Three Months Ended June 30 Six Months Ended June 30
2019 2018 $ Change % Change 2019 2018 $ Change % Change
Ivosidenib (IDH1m inhibitor) $ 35,367  $ 34,716  $ 651  % $ 71,439  $ 65,223  $ 6,216  10  %
Enasidenib (IDH2m inhibitor)  1,181  3,108  (1,927) (62) % 2,966  5,647  (2,681) (47) %
Vorasidenib (Brain-penetrant IDHm inhibitor) 9,114  3,797  5,317  140  % 14,461  7,478  6,983  93  %
Mitapivat (PKR activator) 20,837  14,604  6,233  43  % 40,193  27,719  12,474  45  %
AG-270 (MAT2A inhibitor) 6,541  5,908  633  11  % 12,034  11,936  98  %
AG-636 (DHODH inhibitor) 5,879  3,204  2,675  83  % 9,638  3,204  6,434  201  %
Other research and platform programs 28,470  21,393  7,077  33  % 52,243  43,747  8,496  19  %
Total research and development expenses, net $ 107,389  $ 86,730  $ 20,659  24  % $ 202,974  $ 164,954  $ 38,020  23  %
The changes in research and development expense depicted in the table above were primarily attributable to the following:
Ivosidenib costs for the six months ended June 30, 2019 increased primarily as a result of increased clinical costs related to the initiation of the HO150/AMLSG29 trial, which was initiated in the first quarter of 2019, and our AGILE study.
Vorasidenib costs for the three and six months ended June 30, 2019 increased due to start-up costs related to our planned phase 3 study of vorasidenib in low-grade glioma with an IDH1 mutation, which is expected to initiate by the end of 2019.
Mitapivat costs for the three and six months ended June 30, 2019 increased as a result of continuing enrollment in the ACTIVATE-T trial, which we initiated in April 2018, the ACTIVATE trial, which we initiated in June 2018, and the phase 2 study of mitapivat in thalassemia, which we initiated in December 2018.
AG-636 costs for the six months ended June 30, 2019 increased primarily as a result of a $2.0 million milestone due to Aurigene upon first patient dosing within the phase 1 lymphoma study.
The increase in the costs of other research and platform programs include activities related to exploratory efforts, target validation and lead optimization for our discovery and follow-on programs, and our proprietary metabolomics platform.
Selling, General and Administrative Expense. Selling, general and administrative expense increased during the three and six months ended June 30, 2019 primarily due to commercial costs for TIBSOVO®, including costs related to the sNDA, and personnel costs, including stock-based compensation expense, related to our workforce.
Interest Income. The change in interest income is primarily attributable to the change in our outstanding marketable securities and changes in interest rates earned on our marketable securities.
Liquidity and Capital Resources
Sources of liquidity
Since our inception, and through June 30, 2019, we have funded our operations through commercial sales of TIBSOVO®, upfront, milestone, extension, cost reimbursement and royalty payments related to our collaboration agreements, proceeds received from our issuance of preferred stock, our initial public offering and concurrent private placement of common stock to an affiliate of Celgene, and our follow-on public offerings.
In addition to our existing cash, cash equivalents and marketable securities, we are eligible to earn a significant amount of milestone payments, cost reimbursements, and royalty payments under our Collaboration Agreements with Celgene and the
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CStone Agreement, and designation fees, license option fees and extension fees under our Collaboration Agreements with Celgene. Our ability to earn the milestone payments, cost reimbursements and royalty payments, and the timing of earning these amounts are dependent upon the timing and outcome of our development, regulatory and commercial activities, and is uncertain at this time. Our right to payments under our collaboration agreements with Celgene and CStone are our only committed potential external source of funds.
Cash flows
The following table provides information regarding our cash flows for the six months ended June 30, 2019 and 2018 (in thousands):
Six Months Ended June 30,
2019 2018
Net cash used in operating activities $ (191,422) $ (166,395)
Net cash provided by (used in) investing activities 195,832  (263,791)
Net cash provided by financing activities 8,668  537,785 
Net change in cash and cash equivalents $ 13,078  $ 107,599 
Net cash used in operating activities . During the six months ended June 30, 2019, we received $22.7 million from sales of TIBSOVO® and $8.8 million in cost reimbursements and royalty payments under our Collaboration Agreements with Celgene. These amounts were offset by increased operating expenses that relate to increases in clinical study costs due to advancements in our most advanced product candidates, commercialization efforts, expanded facilities and increased staffing needs due to our expanding operations.
During the six months ended June 30, 2018, we received $8.9 million in cost reimbursements related to our Collaboration Agreements with Celgene. This amount was offset by increased operating expenses which relate to increases in clinical study costs due to advancements in our most advanced product candidates, expanded facilities and increased staffing needs due to our expanding operations.
Net cash provided by (used in) investing activities . Cash provided by investing activities for the six months ended June 30, 2019 was primarily the result of higher proceeds from maturities and sales of marketable securities than purchases of marketable securities, offset by $3.3 million in purchases of property and equipment. Cash used in investing activities for the six months ended June 30, 2018 was primarily the result of higher purchases of marketable securities than proceeds from maturities and sales of marketable securities, and $2.8 million in purchases of property and equipment.
Net cash provided by financing activities . Cash provided by financing activities for the six months ended June 30, 2019 was primarily the result of the $8.7 million of proceeds received from stock option exercises and purchases made pursuant to our 2013 ESPP. Cash provided by financing activities for the six months ended June 30, 2018 was the result of the $516.2 million of net proceeds received from our January 2018 follow-on public offering, after underwriting discounts and commissions, as well as $22.0 million of proceeds received from stock option exercises and purchases made pursuant to our 2013 ESPP.
Funding requirements
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue to commercialize TIBSOVO®, and continue the research, development and clinical trials of, and seek additional marketing approvals for, our product candidates. If we obtain additional marketing approval for any of our other product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of Celgene or other collaborators. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations.
We expect that our existing cash, cash equivalents and marketable securities as of June 30, 2019 together with anticipated product and royalty revenue, anticipated interest income and anticipated expense reimbursements under our collaboration agreements, but excluding any additional program-specific milestone payments, will enable us to fund our operating expenses and capital expenditure requirements through at least the end of 2020. Our future capital requirements will depend on many factors, including:
the scope, progress, results and costs of drug discovery, preclinical development, laboratory testing and clinical trials for our product candidates;
the success of, and developments regarding, our collaborations;
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
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the costs, timing and outcome of regulatory review of our product candidates;
the costs associated with preparation for the potential commercial launch of one or more of our product candidates, including the build-out of a limited commercial infrastructure in the EU;
commercialization expenses relating to approved medicines such as TIBSOVO® and IDHIFA®;
the levels of product revenue from sales of TIBSOVO® or royalties on sales of IDHIFA®;
our ability to establish and maintain additional collaborations on favorable terms, if at all; and
the extent to which we acquire or in-license other medicines and technologies.
Until such time, if ever, as we can generate substantial product revenue, 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 collaborations. 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 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 or on attractive terms, 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 SEC rules.
Contractual Obligations
We have entered into agreements in the normal course of business with CROs for clinical trials and CMOs for supply manufacturing and with vendors for preclinical research studies and other services and products for operating purposes. These contractual obligations are cancelable at any time by us, generally upon prior written notice to the vendor.
During the six months ended June 30, 2019, except for the minimum rental commitments disclosed in Note 6, Leases , to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q, there were no significant changes to our contractual obligations and commitments described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report on Form 10-K for the year ended December 31, 2018.
Item 3.  Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk related to changes in interest rates. As of June 30, 2019 and December 31, 2018, we had cash, cash equivalents and marketable securities of $624.0 million and $805.4 million, respectively, consisting primarily of investments in certificates of deposit, U.S. Treasuries, government securities and corporate debt securities. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are primarily in short-term marketable securities. Our marketable securities are subject to interest rate risk and could fall in value if market interest rates increase. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, we do not believe an immediate and uniform 100 basis point change in interest rates would have a material effect on the fair market value of our investment portfolio.
We are also exposed to market risk related to changes in foreign currency exchange rates. We have contracts with CROs located in Asia and Europe that are denominated in foreign currencies, and we are subject to fluctuations in foreign currency rates in connection with these agreements. We do not currently hedge our foreign currency exchange rate risk. As of June 30, 2019 and December 31, 2018, we had minimal or no liabilities denominated in foreign currencies.
Item 4.  Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures.
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Based on that evaluation of our disclosure controls and procedures as of June 30, 2019, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of such date are effective at the reasonable assurance level. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports it files or submits under the Exchange Act is accumulated and communicated to its management, including its principal executive officer and principal financial officer, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
No change in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, occurred during the fiscal quarter ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION

Item 1A. Risk Factors
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained herein, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of our management are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. The risks described are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. These risk factors restate and supersede the risk factors set forth under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant losses since inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.
Since inception, we have incurred significant operating losses. Our net losses were $346.0 million, $314.7 million and $198.5 million for the years ended December 31, 2018, 2017, and 2016, respectively, and $202.9 million for the six months ended June 30, 2019. As of June 30, 2019, we had an accumulated deficit of $1.3 billion. To date, we have generated only modest revenue from sales of TIBSOVO® and royalties on sales of IDHIFA®. The FDA approved IDHIFA® for the treatment of adult patients with R/R AML and an IDH2 mutation, and approved TIBSOVO® for the treatment of adult patients with R/R AML with a susceptible IDH1 mutation and the treatment of adult patients with newly diagnosed AML with a susceptible IDH1 mutation who are at least 75 years old or who have comorbidities that preclude use of intensive induction chemotherapy.. We have not obtained marketing approval for any of our other product candidates, which are in preclinical or clinical development stages. We have financed our operations primarily through private placements of our preferred stock, our initial public offering and the concurrent private placement, our follow-on public offerings and our collaboration agreements with Celgene focused on cancer metabolism and metabolic immuno-oncology. We have devoted substantially all of our efforts to research and development. Although we may from time to time report profitable results, we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. The net losses we incur may fluctuate significantly from quarter to quarter. We anticipate that our expenses will increase substantially if and as we:
initiate and continue clinical trials for our products and product candidates, including: enasidenib, ivosidenib, vorasidenib, mitapivat, AG-270 and AG-636;
continue our research and preclinical development of our product candidates;
seek to identify additional product candidates;
seek marketing approvals for our product candidates that successfully complete clinical trials;
establish and maintain a sales, marketing and distribution infrastructure to commercialize any medicines for which we have or may obtain marketing approval;
require the manufacture of larger quantities of product candidates for clinical development and, potentially, commercialization;
maintain, expand and protect our intellectual property portfolio;
hire additional clinical, quality control and scientific personnel;
add additional personnel to support our product development and planned future commercialization efforts and our operations;
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add equipment and physical infrastructure to support our research and development; and
acquire or in-license other medicines and technologies.
To become and remain profitable, we must develop and eventually commercialize one or more medicines with significant market potential. This will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of our product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those medicines for which we may obtain marketing approval and satisfying any post-marketing requirements. Notwithstanding the extent to which we may succeed in these activities we may never generate revenues that are significant or large enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company could also cause our stockholders to lose all or part of their investment.
We will need substantial additional funding. If we are unable to raise capital when needed, we would be forced to delay, reduce or eliminate our product development programs or commercialization efforts.
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, initiate and continue clinical trials of, seek marketing approvals for, and potentially commercialize our product candidates, to the extent that such expenses are not the responsibility of Celgene or other collaborators. For example, we have incurred and expect to continue to incur expenses related to the commercialization of TIBSOVO®, and expect to incur expenses in connection with the buildout of a limited commercial infrastructure in the EU. 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 as of June 30, 2019, together with anticipated product and royalty revenue, anticipated interest income and anticipated expense reimbursements under our collaboration agreements, but excluding any additional program-specific milestone payments, will enable us to fund our operating expenses and capital expenditure requirements through at least the end of 2020. Our estimate as to how long we expect our existing cash and cash equivalents to be available to fund our operations is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Further, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned. Our future capital requirements will depend on many factors, including:
the scope, progress, results and costs of drug discovery, preclinical development, laboratory testing and clinical trials for our product candidates;
the success of, and developments regarding, our collaborations;
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;
commercialization expenses relating to approved medicines such as TIBSOVO® and IDHIFA®;
levels of product revenue from sales of TIBSOVO® and royalties on sales IDHIFA®;
the cost associated with preparation for the potential commercial launch of one or more of our product candidates, including the build-out of a limited commercial infrastructure in the EU;
our ability to establish and maintain additional collaborations on favorable terms, if at all; and
the extent to which we acquire or in-license other medicines and technologies.
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 additional marketing approvals and achieve product sales. In addition, TIBSOVO®, IDHIFA®, or other product candidates, if approved, may not achieve commercial success. Even if we succeed in developing and commercializing one or more of our product candidates, we may never achieve sufficient sales revenue to achieve or maintain profitability. 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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Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
Until such time, if ever, as we can generate substantial product revenue, 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 collaborations, which are limited in scope and duration. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interests 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 require us to enter into agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. In addition, securing financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates.
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.
Our short operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
We were incorporated in the second half of 2007 and commenced operations in late 2008. Our operations to date have been primarily limited to organizing and staffing our company, business planning, raising capital, acquiring and developing our technology, identifying potential product candidates, undertaking preclinical and clinical studies of our product candidates, and establishing a commercial infrastructure. All of our product candidates are still in preclinical and clinical development, with the exception of TIBSOVO® and IDHIFA®. We have not yet demonstrated our ability to successfully complete any large-scale or pivotal clinical trials. Typically, it takes about 10 to 15 years to develop one new medicine from the time it is discovered to when it is available for treating patients, assuming that it successfully completes all stages of research and development and achieves marketing approval, all of which is highly uncertain. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history.
We may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors that may adversely affect our ability to successfully commercialize our products and product candidates. We are in the early stages of transitioning from a company with solely a research focus to a company capable of supporting commercial activities and we have not yet demonstrated our ability to conduct large-scale sales and marketing activities necessary for successful commercialization. We may not be successful in such a transition.
We expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.
Risks Related to the Discovery, Development, and Commercialization of our Product Candidates
We do not know whether we will be able to develop any medicines of commercial value, based on our approach to the discovery and development of product candidates that target cellular metabolism.
Our scientific approach focuses on using our proprietary technology to identify key metabolic enzymes in cancer, RGDs, or other diseased cells in the laboratory and then using these key enzymes to screen for and identify product candidates targeting cellular metabolism and adjacent areas of biology. We are also focused on metabolic immuno-oncology, an emerging field of cancer research focused on altering the metabolic state of immune cells to enhance the body’s immune response to cancer.
Our focus on using our proprietary technology to screen for and identify product candidates targeting cellular metabolism and adjacent areas of biology may not result in the discovery and development of commercially viable medicines to treat cancer or RGDs. Any medicines that we develop may not effectively correct metabolic pathways or alter the metabolic state of immune cells. If we are able to develop a product candidate that targets cellular metabolism in preclinical studies, we may not succeed in demonstrating safety and efficacy of the product candidate in human clinical trials. In addition, even if we obtain marketing approval for one of our product candidates, we can provide no assurance that commercialization of such product candidate will be successful.
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We may not be successful in our commercialization of TIBSOVO®. If we do not successfully commercialize TIBSOVO® for the treatment of adult patients with R/R AML with a susceptible IDH1 mutation, our future prospects may be substantially harmed.
In July 2018, the FDA approved TIBSOVO® for the treatment of adult patients with R/R AML with a susceptible IDH1 mutation, and in May 2019, the FDA approved TIBSOVO® for the treatment of adult patients with newly diagnosed AML with a susceptible IDH1 mutation who are at least 75 years old or who have comorbidities that preclude use of intensive induction chemotherapy. We are still evaluating ivosidenib in other clinical trials. Our ability to generate product revenue from TIBSOVO® will depend heavily on our successful development and commercialization of the product.
The development and commercialization of TIBSOVO® (ivosidenib) could be unsuccessful if:
TIBSOVO® becomes no longer accepted as safe, efficacious, and cost-effective for the treatment of adult patients with R/R AML with a susceptible IDH1 mutation in the medical community and by third-party payors;
we fail to maintain the necessary financial resources and expertise to manufacture, market and sell TIBSOVO®;
we fail to continue to develop and implement effective marketing, sales and distribution strategies and operations for the development and commercialization of TIBSOVO®;
we fail to continue to develop, validate and maintain a commercially viable manufacturing process for TIBSOVO® that is compliant with current good manufacturing practices;
we fail to successfully obtain third party reimbursement and generate commercial demand that results in sales of TIBSOVO®;
we encounter any third party patent interference, derivation, inter partes review, post-grant review, reexamination or patent infringement claims with respect to ivosidenib;
we fail to comply with regulatory and legal requirements applicable to the sale of TIBSOVO®;
competing drug products are approved for the same indications as TIBSOVO®;
new significant safety risks are identified;
ivosidenib does not demonstrate acceptable safety and efficacy in current or future clinical trials, or otherwise does not meet applicable regulatory standards for approval in indications other than for the treatment of adult patients with R/R AML with a susceptible IDH1 mutation.
If we experience significant delays or an inability to successfully develop and commercialize TIBSOVO® (ivosidenib), our business would be materially harmed.
The failure to maintain the CStone Agreement or the failure of CStone to perform its obligations under the CStone Agreement, could negatively impact our business.
In June 2018, we entered into the CStone Agreement for the development and commercialization of ivosidenib, either as monotherapy or in combination with other therapies, in the CStone Territory. Pursuant to the CStone Agreement, CStone will be responsible for the development and commercialization of ivosidenib in the CStone Territory. Our ability to generate royalty and milestone revenue under the CStone Agreement is dependent on CStone’s performance of its obligations under the agreement. We cannot control the amount and timing of resources that CStone will dedicate to these efforts.
We are subject to a number of other risks associated with our dependence on the CStone Agreement with respect to ivosidenib in the CStone Territory, including:
CStone may fail to comply with applicable regulatory guidelines with respect to developing, manufacturing or commercializing ivosidenib, which could adversely impact future development or potential sales of ivosidenib in the CStone Territory or elsewhere;
We and CStone could disagree as to future development plans and CStone may delay, fail to commence or stop future clinical trials or other development;
There may be disputes between CStone and us, including disagreements regarding the CStone Agreement, that may result in the delay of or failure to achieve developmental, regulatory and sales objectives that would result in milestone or royalty payments, the delay or termination of any future development or commercialization of ivosidenib in the CStone Territory, and/or costly litigation or arbitration that diverts our management’s attention and resources;
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CStone may fail to provide us with timely and accurate information regarding development, sales and marketing activities or supply forecasts, which could adversely impact our ability to comply with our obligations to CStone, as well as our ability to generate accurate financial forecasts; and
Business combinations or significant changes in CStone’s business strategy may adversely affect CStone’s ability or resources available to perform its obligations under the CStone Agreement.
The CStone Agreement is also subject to early termination, including through CStone’s right under certain circumstances to terminate upon advance notice to us. If the CStone Agreement is terminated early, we may not be able to find another collaborator for the further development and commercialization of ivosidenib in the CStone Territory on acceptable terms, or at all, and we may be unable to pursue continued development and commercialization of ivosidenib in the CStone Territory on our own.
We may not be successful in our efforts to identify or discover potential product candidates.
A key element of our strategy is to identify and test compounds that target cellular metabolism and adjacent areas of biology in a variety of different types of cancer and RGDs, as well as in immune cells for the treatment of cancer. A significant portion of the research that we are conducting involves new compounds and drug discovery methods, including our proprietary technology. The drug discovery that we are conducting using our proprietary technology may not be successful in identifying compounds that are useful in treating cancer or RGDs. In addition, our efforts in the emerging field of metabolic immuno-oncology may not be as successful as our efforts to date in cancer metabolism and RGDs. Furthermore, our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for a number of reasons, including:
the research methodology used may not be successful in identifying appropriate biomarkers or potential product candidates; or
potential product candidates may, on further study, be shown to have harmful side effects or other characteristics that indicate that they are unlikely to be medicines that will receive marketing approval and achieve market acceptance.
Research programs to identify new product candidates require substantial technical, financial and human resources. We may choose to focus our efforts and resources on a potential product candidate that ultimately proves to be unsuccessful.
If we are unable to identify suitable compounds for preclinical and clinical development, we will not be able to generate incremental product revenue in future periods, which likely would result in significant harm to our financial position and adversely impact our stock price.
We depend heavily on the success of our clinical product candidates. Clinical trials of our product candidates may not be successful. If we or our collaborators are unable to commercialize our product candidates or experience significant delays in doing so, our business will be materially harmed.
We have invested a significant portion of our efforts and financial resources in the identification of our products and most advanced programs, which are TIBSOVO® (ivosidenib), IDHIFA® (enasidenib), and vorasidenib for the treatment of hematological and solid tumors, mitapivat for the treatment of PK deficiency, and AG-270 for the treatment of MTAP deleted cancers. The FDA approved IDHIFA® and TIBSOVO® for the treatment of adult patients with R/R AML with an IDH2 or IDH1 mutation, respectively. In June 2018, Celgene submitted an MAA to the EMA for IDHIFA® for IDH2 mutant-positive R/R AML. In December 2018, we submitted an MAA to the EMA for TIBSOVO® for the treatment of adult patients with IDH1 mutant-positive R/R AML. We plan to submit an sNDA for TIBSOVO® for second line or later IDH1 mutant-positive cholangiocarcinoma to the FDA by the end of 2019. Other than TIBSOVO®, IDHIFA®, vorasidenib, mitapivat, AG-270 and AG-636, we have not commenced clinical trials for any of our other product candidates. Our ability to generate product revenue will depend heavily on the successful development and eventual commercialization of our product candidates.
The success of ivosidenib and our other product candidates will depend on many factors, including the following:
successful enrollment in, and completion of, clinical trials;
safety, tolerability and efficacy profiles that are satisfactory to the FDA, the EMA or any comparable foreign regulatory authority for marketing approval;
timely receipt of marketing approvals from applicable regulatory authorities;
establishing both clinical and commercial manufacturing capabilities or making arrangements with third-party manufacturers;
the performance of any collaborators;
obtaining and maintaining patent and trade secret protection and non-patent exclusivity for our medicines;
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launching commercial sales of the medicines, if and when approved, whether alone or in collaboration with others;
acceptance of the medicines, if and when approved, by patients, the medical community and third-party payors;
effectively competing with other therapies;
continuing acceptable safety profile for the medicines following approval;
enforcing and defending intellectual property rights and claims; and
achieving desirable medicinal properties for the intended indications.
Many of these factors are beyond our control, including clinical development, the regulatory submission process, potential threats to our intellectual property rights and the manufacturing, marketing and sales efforts of any collaborator. If we or any collaborators do not achieve one or more of these factors in a timely manner or at all, we or such collaborators could experience significant delays or an inability to successfully commercialize our most advanced product candidates, which would materially harm our business.
If clinical trials of products or product candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.
We, and any collaborators, are not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining marketing approval from the FDA. Foreign regulatory authorities, such as the EMA, impose similar requirements. Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. The FDA has approved IDHIFA® and TIBSOVO® for the treatment of adult patients with R/R AML and an IDH2 or IDH1 mutation, respectively. In June 2018 Celgene submitted an MAA to the EMA for IDHIFA® for IDH2 mutant-positive AML and, in December 2018, we submitted an MAA to the EMA for TIBSOVO® for the treatment of adult patients with IDH1 mutant-positive R/R AML. We plan to submit an sNDA for TIBSOVO® for second line or later IDH1 mutant-positive cholangiocarcinoma to the FDA by the end of 2019. However, we can provide no assurance that we will successfully submit such sNDA, or any NDA for any of our other product candidates, or that any MAA, NDA or sNDA submitted by us or Celgene will receive regulatory approval on the timeframe we expect, or at all.
Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. The clinical development of our product candidates is susceptible to the risk of failure inherent at any stage of product development, including failure to demonstrate efficacy in a clinical trial or across a broad population of patients, the occurrence of adverse events that are severe or medically or commercially unacceptable, failure to comply with protocols or applicable regulatory requirements and determination by the FDA or any comparable foreign regulatory authority that a product candidate may not continue development or is not approvable. For instance, in December 2016, we withdrew our IND for AG-519, our second PKR activator, following verbal notification of a clinical hold from the FDA relating to a previously disclosed case of drug-induced cholestatic hepatitis which occurred in our phase 1 clinical trial of AG-519 in healthy volunteers. Although these decisions and this hepatic adverse event finding do not affect our ongoing clinical trials for mitapivat, our first PKR activator, we cannot provide any assurances that there will not be similar or other treatment-related severe adverse events in our other clinical trials of mitapivat, that our other trials will not be placed on clinical hold in the future, or that patient recruitment for our other trials will not be adversely impacted.
It is possible that even if one or more of our product candidates has a beneficial effect, that effect will not be detected during clinical evaluation as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis of our clinical trials. Conversely, as a result of the same factors, our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any. Similarly, in our clinical trials we may fail to detect toxicity of or intolerability caused by our product candidates, or mistakenly believe that our product candidates are toxic or not well-tolerated when that is not in fact the case.
Any inability to successfully complete preclinical and clinical development could result in additional costs to us, or any collaborators, and impair our ability to generate revenue from product sales, regulatory and commercialization milestones and royalties. Moreover, if we or our collaborators are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we or our collaborators are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we or our collaborators may:
be delayed in obtaining marketing approval for our product candidates;
not obtain marketing approval at all;
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obtain approval for indications or patient populations that are not as broad as intended or desired;
obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;
be subject to additional post-marketing testing requirements; or
have the medicine removed from the market after obtaining marketing approval.
Our failure to successfully complete clinical trials of our product candidates and to demonstrate the efficacy and safety necessary to obtain regulatory approval to market any of our product candidates would significantly harm our business.
If we, or any collaborators, experience any of a number of possible unforeseen events in connection with clinical trials of our product candidates, potential clinical development, marketing approval or commercialization of our product candidates could be delayed or prevented.
We or our collaborators may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including:
regulators or institutional review boards may not authorize us, our collaborators or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
we or our collaborators may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
clinical trials of our product candidates may produce negative or inconclusive results, and we or our collaborators may decide, or regulators may require us, to conduct additional clinical trials, including testing in more subjects, or abandon product development programs;
the number of patients required for clinical trials of our product candidates may be larger than we anticipate; enrollment in these clinical trials, which may be particularly challenging for some of the orphan diseases we target in our RGD programs, may be slower than we anticipate; or participants may drop out of these clinical trials at a higher rate than we anticipate;
third-party contractors used by us or our collaborators may fail to comply with regulatory requirements or meet their contractual obligations in a timely manner, or at all;
we or our collaborators might have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks;
regulators, institutional review boards, or the data safety monitoring board for such trials may require that we, our collaborators or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;
the cost of clinical trials of our product candidates may be greater than anticipated;
the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and
our product candidates may have undesirable side effects or other unexpected characteristics, causing us, our collaborators or our investigators, regulators or institutional review boards to suspend or terminate the trials.
Product development costs for us, or any collaborators, will increase if we, or they, experience delays in testing or purs