0001439222-20-000039.txt : 20200430 0001439222-20-000039.hdr.sgml : 20200430 20200430094720 ACCESSION NUMBER: 0001439222-20-000039 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 79 CONFORMED PERIOD OF REPORT: 20200331 FILED AS OF DATE: 20200430 DATE AS OF CHANGE: 20200430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AGIOS PHARMACEUTICALS, INC. CENTRAL INDEX KEY: 0001439222 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-36014 FILM NUMBER: 20833580 BUSINESS ADDRESS: STREET 1: 88 SIDNEY STREET CITY: CAMBRIDGE STATE: MA ZIP: 02139 BUSINESS PHONE: 617-649-8600 MAIL ADDRESS: STREET 1: 88 SIDNEY STREET CITY: CAMBRIDGE STATE: MA ZIP: 02139 FORMER COMPANY: FORMER CONFORMED NAME: AGIOS PHARMACEUTICALS INC DATE OF NAME CHANGE: 20080703 10-Q 1 agio-20200331.htm 10-Q agio-20200331
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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 March 31, 2020
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)

Delaware26-0662915
(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)
(617649-8600
(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 classTrading symbol(s)Name of each exchange on which registered
Common Stock, Par Value $0.001 per shareAGIONasdaq 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 filerAccelerated 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 April 24, 2020: 68,889,380


AGIOS PHARMACEUTICALS, INC.
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2020
TABLE OF CONTENTS
 
Page
No.
Item 1.
Item 2.
Item 3.
Item 4.
Item 1A.
Item 5.
Item 6.



PART I. FINANCIAL INFORMATION
Item 1.  Financial Statements (Unaudited)
AGIOS PHARMACEUTICALS, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share and per share data)
March 31,
2020
December 31,
2019
Assets
Current assets:
Cash and cash equivalents$89,093  $80,931  
Marketable securities 439,528  483,946  
Accounts receivable, net11,813  8,952  
Collaboration receivable – related party2,577  1,539  
Collaboration receivable – other2,033  1,928  
Royalty receivable – related party3,300  2,900  
Inventory 9,778  7,331  
Prepaid expenses and other current assets29,152  24,177  
Total current assets587,274  611,704  
Marketable securities84,503  152,929  
Operating lease assets91,440  93,643  
Property and equipment, net33,840  31,472  
Financing lease assets881  993  
Other assets1,800    
Total assets$799,738  $890,741  
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$18,707  $21,896  
Accrued expenses39,631  53,142  
Deferred revenue – related party4,748  10,933  
Operating lease liabilities6,466  6,642  
Financing lease liabilities306  273  
Total current liabilities69,858  92,886  
Deferred revenue, net of current portion – related party  50,580  
Operating lease liabilities, net of current portion104,010  106,074  
Financing lease liabilities, net of current portion571  673  
Total liabilities174,439  250,213  
Stockholders’ equity:
Preferred stock, $0.001 par value; 25,000,000 shares authorized; no shares issued or outstanding at March 31, 2020 and December 31, 2019
    
Common stock, $0.001 par value; 125,000,000 shares authorized; 68,789,925 and 68,401,105 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively
69  68  
Additional paid-in capital2,181,517  2,156,363  
Accumulated other comprehensive income74  202  
Accumulated deficit(1,556,361) (1,516,105) 
Total stockholders’ equity625,299  640,528  
Total liabilities and stockholders’ equity$799,738  $890,741  
See accompanying Notes to Condensed Consolidated Financial Statements.
1

AGIOS PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Operations
(Unaudited)

Three Months Ended March 31,
(In thousands, except share and per share data)
20202019
Revenues:
Product revenue, net$22,674  $9,138  
Collaboration revenue – related party60,097  17,919  
Collaboration revenue – other993  970  
Royalty revenue – related party3,334  2,200  
Total revenue87,098  30,227  
Cost and expenses:
Cost of sales533  334  
Research and development91,256  95,585  
Selling, general and administrative38,501  31,791  
Total cost and expenses130,290  127,710  
Loss from operations(43,192) (97,483) 
Interest income, net2,936  4,405  
Net loss$(40,256) $(93,078) 
Net loss per share – basic and diluted$(0.59) $(1.59) 
Weighted-average number of common shares used in computing net loss per share – basic and diluted68,608,279  58,453,918  

See accompanying Notes to Condensed Consolidated Financial Statements.
2

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


Three Months Ended March 31,
(In thousands)
20202019
Net loss$(40,256) $(93,078) 
Other comprehensive (loss) income
Unrealized (loss) gain on available-for-sale securities(128) 1,687  
Comprehensive loss$(40,384) $(91,391) 

See accompanying Notes to Condensed Consolidated Financial Statements.

3

AGIOS PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
(in thousands, except share amounts)SharesAmount
Balance at December 31, 201968,401,105  $68  $2,156,363  $202  $(1,516,105) $640,528  
Common stock issued under stock incentive plan and ESPP388,820  1  5,464  —  —  5,465  
Stock-based compensation expense—  —  19,690  —  —  19,690  
Other comprehensive loss—  —  —  (128) —  (128) 
Net loss—  —  —  —  (40,256) (40,256) 
Balance at March 31, 202068,789,925  $69  $2,181,517  $74  $(1,556,361) $625,299  


Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
(in thousands, except share amounts)SharesAmount
Balance at December 31, 201858,218,653  $58  $1,794,283  $(2,171) $(1,104,633) $687,537  
Common stock issued under stock incentive plan and ESPP441,168  1  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, 201958,659,821  $59  $1,818,393  $(484) $(1,197,711) $620,257  

See accompanying Notes to Condensed Consolidated Financial Statements.
4

AGIOS PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
(In thousands)20202019
Operating activities
Net loss$(40,256) $(93,078) 
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation2,474  2,005  
Stock-based compensation expense19,690  18,108  
Net accretion of premium and discounts on investments126  (1,131) 
Non-cash operating lease expense2,203  2,085  
Changes in operating assets and liabilities:
Accounts receivable, net(2,861) 721  
Collaboration receivable – related party(1,038) 143  
Collaboration receivable – other(105) (970) 
Royalty receivable – related party(400) 34  
Inventory(2,447) (1,459) 
Prepaid expenses and other current and non-current assets(6,774) (2,173) 
Accounts payable(2,009) (4,939) 
Accrued expenses(14,967) (5,097) 
Deferred revenue – related party(56,765) (15,391) 
Operating lease liabilities(2,229) (2,129) 
Net cash used in operating activities(105,358) (103,271) 
Investing activities
Purchases of marketable securities(54,911) (77,421) 
Proceeds from maturities and sales of marketable securities167,501  210,811  
Purchases of property and equipment(4,455) (2,038) 
Net cash provided by investing activities108,135  131,352  
Financing activities
Payments on financing lease obligations(80)   
Net proceeds from stock option exercises and employee stock purchase plan5,465  4,860  
Net cash provided by financing activities5,385  4,860  
Net change in cash and cash equivalents8,162  32,941  
Cash and cash equivalents at beginning of the period80,931  70,502  
Cash and cash equivalents at end of the period$89,093  $103,443  
Supplemental disclosure of non-cash investing and financing transactions
Additions to property and equipment in accounts payable and accrued expenses$5,444  $727  
Proceeds from stock option exercises in other current assets$  $1,149  
Operating lease liabilities arising from obtaining operating lease assets$  $  
Financing lease liabilities arising from obtaining financing lease assets$  $  
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 creating differentiated, small molecule medicines for patients in the areas of hematologic malignancies, solid tumors and rare genetic diseases, or RGDs. To address these focus areas, 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 March 31, 2020, the condensed consolidated statements of operations, comprehensive loss and stockholders' equity for the three months ended March 31, 2020 and 2019, and the condensed consolidated statements of cash flows for the three months ended March 31, 2020 and 2019 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 March 31, 2020, our results of operations and stockholders' equity for the three months ended March 31, 2020 and 2019, and cash flows for the three months ended March 31, 2020 and 2019. The financial data and the other financial information disclosed in these notes to the condensed consolidated financial statements related to the three-month periods are also unaudited. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any other future annual or interim period. The condensed consolidated balance sheet data as of December 31, 2019 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. 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, 2019 that was filed with the Securities and Exchange Commission, or the SEC, on February 19, 2020.
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.
Use of estimates
The preparation of our condensed consolidated financial statements requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis we evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including sales, expenses, reserves and allowances, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods. Actual results may differ from these estimates.
Liquidity
As of March 31, 2020, we had cash, cash equivalents and marketable securities of $613.1 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
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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
Significant accounting policies
In June 2016, the Financial Accounting Standards Board, or FASB issued Accounting Standards Update, or ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which introduces new guidance for the accounting for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The guidance is effective for fiscal years beginning after December 31, 2019, including interim periods within those years.
In the quarter ended March 31, 2020, we adopted ASU 2016-13, which eliminated the concept of other-than-temporary impairments and required credit losses on debt securities to be recorded through an allowance for credit losses instead of as a reduction in the amortized cost basis of the securities. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. Based upon our analysis, the adoption of this final rule did not have a material impact on the financial statements. There have been no other material changes to the significant accounting policies previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.
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. Accounting Standards Codification, or 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 March 31, 2020:
(In thousands)Level 1Level 2Level 3Total
Cash equivalents$54,853  $19,979  $  $74,832  
Total cash equivalents54,853  19,979    74,832  
Marketable securities:
U.S. Treasuries  163,878    163,878  
Government securities  100,492    100,492  
Corporate debt securities  259,661    259,661  
Total marketable securities  524,031    524,031  
Total cash equivalents and marketable securities$54,853  $544,010  $  $598,863  
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 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 March 31, 2020.
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There have been no changes to the valuation methods during the three months ended March 31, 2020. We evaluate transfers between levels at the end of each reporting period. We have no financial assets or liabilities that were classified as Level 3 at any point during the three months ended March 31, 2020.
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. Unrealized gains are included as a component of accumulated other comprehensive income 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. Unrealized losses are evaluated for impairment under ASC 326, Financial Instruments - Credit Losses, to determine if the impairment is credit-related or noncredit-related. Credit-related impairment is recognized as an allowance on the balance sheet with a corresponding adjustment to earnings, and noncredit related impairment is recognized in other comprehensive income, net of taxes. 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 months ended March 31, 2020 and 2019.
Marketable securities at March 31, 2020 consisted of the following:
(In thousands)Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Current:
U.S. Treasuries$141,490  $835  $  $142,325  
Government securities89,008  256  (21) 89,243  
Corporate debt securities208,596  82  (718) 207,960  
Total Current439,094  1,173  (739) 439,528  
Non-current:
U.S. Treasuries21,282  271    21,553  
Government securities11,260  4  (15) 11,249  
Corporate debt securities52,329  72  (700) 51,701  
Total Non-current84,871  347  (715) 84,503  
Total marketable securities$523,965  $1,520  $(1,454) $524,031  
Marketable securities at December 31, 2019 consisted of the following:
(In thousands)Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Current:
U.S. Treasuries178,721  58  (38) 178,741  
Government securities80,228  17  (16) 80,229  
Corporate debt securities224,928  139  (91) 224,976  
Total Current483,877  214  (145) 483,946  
Non-current:
U.S. Treasuries35,296  3  (13) 35,286  
Government securities17,587  14  (10) 17,591  
Corporate debt securities99,913  239  (100) 100,052  
Total Non-current152,796  256  (123) 152,929  
Total marketable securities$636,673  $470  $(268) $636,875  
As of March 31, 2020 and December 31, 2019, 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.
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As of March 31, 2020 and December 31, 2019, we held 92 and 113 debt securities, respectively, that were in an unrealized loss position for less than one year. We did not record an allowance for credit losses as of March 31, 2020 and December 31, 2019 related to these securities. The aggregate fair value of debt securities in an unrealized loss position at March 31, 2020 and December 31, 2019 was $224.0 million and $345.7 million, respectively. There were no individual securities that were in a significant unrealized loss position as of March 31, 2020 and December 31, 2019. Given our intent and ability to hold such 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 impaired as of March 31, 2020 and December 31, 2019.
5. Inventory
Inventory, which consists of commercial supply of TIBSOVO®, consists of the following:
(In thousands)March 31,
2020
December 31,
2019
Raw materials$180  $180  
Work-in-process8,589  6,808  
Finished goods1,009  343  
Total inventory$9,778  $7,331  

6. Leases
Our building leases are comprised of office and laboratory space under non-cancelable operating leases. These lease agreements have remaining lease terms of eight 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 months ended March 31, 2020 and 2019 were $3.8 million and $3.1 million, respectively, and cash paid for amounts included in the measurement of operating lease liabilities for the three months ended March 31, 2020 and 2019 were $3.9 million and $3.1 million, respectively.
We have not entered into any material short-term leases or financing leases as of March 31, 2020.
As of March 31, 2020, undiscounted minimum rental commitments under non-cancelable leases, for each of the next five years and total thereafter were as follows:
(In thousands)
Remaining 2020$9,395  
202114,380  
202216,773  
202318,126  
202418,660  
202519,507  
Thereafter44,385  
Undiscounted minimum rental commitments$141,226  
Interest(30,750) 
Operating lease liabilities$110,476  
In arriving at the operating lease liabilities as of March 31, 2020 and December 31, 2019, we applied the weighted-average incremental borrowing rate of 5.7% for both periods over a weighted-average remaining lease term of 7.9 years and 8.2 years, respectively.
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7. Accrued Expenses
Accrued expenses consist of the following:
(In thousands)March 31,
2020
December 31,
2019
Accrued compensation$7,006  $18,982  
Accrued research and development costs18,661  21,777  
Accrued professional fees9,238  8,335  
Accrued other4,726  4,048  
Total accrued expenses$39,631  $53,142  

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.
Three Months Ended March 31,
(In thousands)20202019
Product revenue, net$22,674  $9,138  
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 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.
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The following table summarizes balances and activity in each of the product revenue allowance and reserve categories for the three months ended March 31, 2020:
(In thousands)Contractual AdjustmentsGovernment RebatesReturnsTotal
Balance at December 31, 2019$874  $1,124  $1,798  $3,796  
Current provisions relating to sales in the current year3,000  1,338  537  4,875  
Adjustments relating to prior years(3) 76    73  
Payments/returns relating to sales in the current year(2,072)     (2,072) 
Payments/returns relating to sales in the prior years(653) (677)   (1,330) 
Balance at March 31, 2020$1,146  $1,861  $2,335  $5,342  
Total revenue-related reserves above, included in our condensed consolidated balance sheets, are summarized as follows:
(In thousands)March 31,
2020
December 31,
2019
Reduction of accounts receivable$707  $540  
Component of accrued expenses 4,635  3,256  
Total revenue-related reserves$5,342  $3,796  
The following table presents changes in our contract assets during the three months ended March 31, 2020:
(In thousands)December 31,
2019
AdditionsDeductionsMarch 31,
2020
Contract assets (1)
Accounts receivable, net$8,952  $27,624  $(24,763) $11,813  
(1) Additions to contract assets relate to amounts billed to Customers for product sales and.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, 2019, 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, 2019.
Collaboration revenue
We recognize revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. In determining the appropriate amount of revenue to be recognized, 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 considered constrained and are excluded from the transaction price until those approvals are received.
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Celgene Corporation
We have entered into the following collaboration agreements, or collectively, the Collaboration Agreements, with Celgene, a wholly-owned subsidiary of Bristol-Myers Squibb Company, or BMS, 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 ends May 2020. On March 25, 2020 Celgene declined the option to extend the research agreement for up to two, or in specified cases, up to four additional one-year terms which would have required the payment of a $40.0 million extension fee. Further, on April 10, 2020 Celgene notified us that they will be declining to elect any program as a continuation program under the 2016 agreement. Celgene had designated AG-270, our inhibitor of methionine adenosyltransferase 2a, or MAT2A, as a development candidate under the 2016 Agreement. On March 25, 2020, Celgene notified us of their decision to decline their option to enter into a Development & Commercialization Agreement with respect to the MAT2A program under the 2016 Agreement which would have required the payment of a $30.0 million fee. As a result of the decisions, the research services will be fully satisfied as of May 17, 2020, no additional performance obligations remain under the 2016 Agreement and we are no longer eligible for any milestone payments for the 2016 agreement.
Collaboration revenue
During the three months ended March 31, 2020 and 2019, we recognized the following collaboration revenue:
Three Months Ended March 31,
(In thousands)20202019
Services performed that were considered performance obligations as of the modification dates
Licenses$  $  
On-going research and development services59,220  17,065  
Services performed that were not considered performance obligations as of the modification dates
Commercialization activities877  854  
Total collaboration revenue - related party$60,097  $17,919  
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The following table presents changes in our contract assets and liabilities during the three months ended March 31, 2020:
(In thousands)December 31,
2019
AdditionsDeductionsMarch 31,
2020
Contract assets
Collaboration receivable – related party (1)
$1,539  $3,332  $(2,294) $2,577  
Royalty receivable – related party (2)
2,900  3,334  (2,934) 3,300  
Contract liabilities
Deferred revenue – related party, current and net of current portions (3)
61,513  579  (57,344) 4,748  
(1) Additions to collaboration receivables - related party relate to amounts billed to Celgene for reimbursable costs incurred by us during the reporting period and unbilled amounts related to future reimbursable costs. Deductions to receivables relate to collection of receivables during the reporting period.
(2) Additions to royalty receivables - related party relate to amounts billed to Celgene during the reporting period. Deductions to receivables relate to collection of receivables during the reporting period.
(3) Additions to deferred revenue - related party relate to consideration from Celgene during the reporting period. Deductions relate to deferred revenue recognized as revenue during the reporting period.
The increase in collaboration revenue from on-going research and development services during the three months ended March 31, 2020 is primarily due to the fact that subsequent to Celgene’s decision to decline extending the research term, the Company updated its estimate of the future costs that will be incurred to complete one of its performance obligations under the 2016 collaboration Agreement that is recognized overtime using an input method.
During the three months ended March 31, 2020 and 2019, we recognized the following as revenue due to changes in the contract liability balances:
Three Months Ended March 31,
(In thousands)20202019
Amounts included in the contract liability at the beginning of the period$59,248  $16,410  
Performance obligations satisfied in previous periods  21  
As of March 31, 2020, the aggregate amount of the transaction price allocated to performance obligations that are partially unsatisfied was $10.5 million. This amount is expected to be recognized as performance obligations are satisfied through September 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 months ended March 31, 2020 and 2019, we recognized the following as royalty revenue:
Three Months Ended March 31,
(In thousands)20202019
Royalty revenue – related party$3,334  $2,200  
Milestone revenue
No milestones were achieved during the three months ended March 31, 2020 or 2019. The next potential milestone expected to be achieved under our Collaboration Agreements is the first regulatory approval of enasidenib 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. On March 2, 2020, we amended the CStone Agreement to include Singapore as part of the CStone Territory. Pursuant to the CStone Agreement, CStone will initially be responsible for the development and commercialization of ivosidenib in acute myeloid leukemia, or 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 $407.0 million in milestone payments upon the achievement of certain development, regulatory and sales milestone events. We
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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 months ended March 31, 2020 and 2019, we recognized the following collaboration revenue -other:
Three Months Ended March 31,
(In thousands)20202019
Services performed that were considered performance obligations as of the inception date
License and other services$192  $  
Services performed that were not considered performance obligations as of the inception date
Other services801  970  
Total collaboration revenue - other$993  $970  

The following table presents changes in our contract assets during the three months ended March 31, 2020:
(In thousands)December 31,
2019
AdditionsDeductionsMarch 31,
2020
Contract assets (1)
Collaboration receivable - other$1,928  $993  $(888) $2,033  
(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 March 31, 2020, the aggregate amount of the transaction price allocated to performance obligations that are partially unsatisfied was $0.5 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 months ended March 31, 2020 and 2019. 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 solid tumor indication in mainland China. Achievement of this event will result in a milestone payment of $5.0 million.
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 incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, or RSUs, performance-based stock units, or PSUs, and other stock-based awards to employees, non-employees and non-employee directors. Following the adoption of the 2013 Plan, we granted no further stock options or other awards under the 2007 Stock Incentive Plan, or the 2007 Plan. Any options or awards outstanding under the 2007 Plan at the time of adoption of the 2013 Plan remain outstanding and effective. As of March 31, 2020, the total number of shares reserved under the 2007 Plan and the 2013 Plan was 11,030,628, and we had 2,708,920 shares available for future issuance under the 2013 Plan.
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Stock options
The following table presents stock option activity for the three months ended March 31, 2020:
Number of
Stock Options
Weighted-Average
Exercise Price
Outstanding at December 31, 20196,201,485  $58.61  
Granted792,048  51.09  
Exercised(133,256) 25.84  
Forfeited/Expired(110,904) 69.00  
Outstanding at March 31, 20206,749,373  $58.20  
Exercisable at March 31, 20203,874,135  $59.71  
Vested and expected to vest at March 31, 20206,749,373  $58.20  
At March 31, 2020, there was approximately $104.0 million of total unrecognized compensation expense related to unvested stock option awards, which we expect to recognize over a weighted-average period of approximately 2.7 years.
Restricted stock units
The following table presents RSU activity for the three months ended March 31, 2020:
Number of
Stock Units
Weighted-Average
Grant Date Fair 
Value
Unvested shares at December 31, 2019766,953  $63.44  
Granted744,447  51.38  
Vested(192,870) 70.54  
Forfeited(27,655) 66.70  
Unvested shares at March 31, 20201,290,875  $