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, 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)

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 24, 2020: 69,110,084

AGIOS PHARMACEUTICALS, INC.

FORM 10-Q

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020

TABLE OF CONTENTS

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019	2
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2020 and 2019	3
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30, 2020 and 2019	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	29
PART II. OTHER INFORMATION		30
Item 1A.	Risk Factors	30
Item 5.	Exhibits	65
	Signatures	66

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)	June 30, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	295,858	$	80,931
Marketable securities	494,270		483,946
Accounts receivable, net	12,023		8,952
Collaboration receivable – related party	2,537		1,539
Collaboration receivable – other	1,827		1,928
Royalty receivable – related party	1,650		2,900
Inventory	11,231		7,331
Prepaid expenses and other current assets	26,959		24,177
Total current assets	846,355		611,704
Marketable securities	4,285		152,929
Operating lease assets	89,208		93,643
Property and equipment, net	33,925		31,472
Financing lease assets	793		993
Other assets	1,575		—
Total assets	$	976,141	$	890,741
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	15,461	$	21,896
Accrued expenses	41,911		53,142
Deferred revenue – related party	—		10,933
Operating lease liabilities	6,672		6,642
Financing lease liabilities	309		273
Total current liabilities	64,353		92,886
Deferred revenue, net of current portion – related party	—		50,580
Operating lease liabilities, net of current portion	101,874		106,074
Financing lease liabilities, net of current portion	491		673
Liability related to the sale of future revenue, net of debt issuance costs	250,958		—
Total liabilities	417,676		250,213
Stockholders’ equity:
Preferred stock, $0.001 par value; 25,000,000 shares authorized; no shares issued or outstanding at June 30, 2020 and December 31, 2019	—		—
Common stock, $0.001 par value; 125,000,000 shares authorized; 69,058,696 and 68,401,105 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	69		68
Additional paid-in capital	2,203,599		2,156,363
Accumulated other comprehensive income	1,636		202
Accumulated deficit	(1,646,839)		(1,516,105)
Total stockholders’ equity	558,465		640,528
Total liabilities and stockholders’ equity	$	976,141	$	890,741

See accompanying Notes to Condensed Consolidated Financial Statements.

1

AGIOS PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except share and per share data)	2020		2019		2020		2019
Revenues:
Product revenue, net	$	27,581	$	13,727	$	50,255	$	22,865
Collaboration revenue – related party	5,735		8,979		65,832		26,898
Collaboration revenue – other	692		812		1,685		1,782
Royalty revenue – related party	3,339		2,703		6,673		4,903
Total revenue	37,347		26,221		124,445		56,448
Cost and expenses:
Cost of sales	675		303		1,208		637
Research and development	90,917		107,389		182,173		202,974
Selling, general and administrative	35,951		32,390		74,452		64,181
Total cost and expenses	127,543		140,082		257,833		267,792
Loss from operations	(90,196)		(113,861)		(133,388)		(211,344)
Interest income, net	1,769		3,990		4,705		8,395
Non-cash interest expense for the sale of future revenue	(2,051)		—		(2,051)		—
Net loss	$	(90,478)	$	(109,871)	$	(130,734)	$	(202,949)
Net loss per share – basic and diluted	$	(1.31)	$	(1.87)	$	(1.90)	$	(3.46)
Weighted-average number of common shares used in computing net loss per share – basic and diluted	68,958,091		58,722,244		68,784,109		58,589,167

See accompanying Notes to Condensed Consolidated Financial Statements.

2

AGIOS PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2020		2019		2020		2019
Net loss	$	(90,478)	$	(109,871)	$	(130,734)	$	(202,949)
Other comprehensive income
Unrealized gain on available-for-sale securities	1,562		974		1,434		2,661
Comprehensive loss	$	(88,916)	$	(108,897)	$	(129,300)	$	(200,288)

See accompanying Notes to Condensed Consolidated Financial Statements.

3

AGIOS PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited)

	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total Stockholders’ Equity
(in thousands, except share amounts)	Shares	Amount
Balance at December 31, 2019	68,401,105	$	68	$	2,156,363	$	202	$	(1,516,105)	$	640,528
Common stock issued under stock incentive plan and ESPP	388,820	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, 2020	68,789,925	$	69	$	2,181,517	$	74	$	(1,556,361)	$	625,299
Common stock issued under stock incentive plan and ESPP	268,771	$	—	$	1,652	$	—	$	—	$	1,652
Stock-based compensation expense	—	—		20,430		—		—		20,430
Other comprehensive income	—	—		—		1,562		—		1,562
Net loss	—	—		—		—		(90,478)		(90,478)
Balance at June 30, 2020	69,058,696	$	69	$	2,203,599	$	1,636	$	(1,646,839)	$	558,465

	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total Stockholders’ Equity
(in thousands, except share amounts)	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	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, 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

See accompanying Notes to Condensed Consolidated Financial Statements.

4

AGIOS PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
(In thousands)	2020		2019
Operating activities
Net loss	$	(130,734)	$	(202,949)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	4,906		4,042
Stock-based compensation expense	40,120		36,655
Net accretion of premium and discounts on investments	473		(2,019)
Non-cash operating lease expense	4,435		4,208
Non-cash interest expense associated with the sale of future revenue	2,051		—
Non-cash royalty revenue	(1,650)		—
Changes in operating assets and liabilities:
Accounts receivable, net	(3,071)		(2,071)
Collaboration receivable – related party	(998)		(62)
Collaboration receivable – other	101		(1,552)
Royalty receivable – related party	1,250		(466)
Inventory	(3,900)		(3,790)
Prepaid expenses and other current and non-current assets	(4,357)		(2,517)
Accounts payable	(7,524)		(1,874)
Accrued expenses	(8,595)		7,071
Deferred revenue – related party	(61,513)		(22,449)
Operating lease liabilities	(4,149)		(3,649)
Net cash used in operating activities	(173,155)		(191,422)
Investing activities
Purchases of marketable securities	(189,601)		(144,231)
Proceeds from maturities and sales of marketable securities	328,883		343,372
Purchases of property and equipment	(8,688)		(3,309)
Net cash provided by investing activities	130,594		195,832
Financing activities
Payments on financing lease obligations	(166)		—
Net proceeds from stock option exercises and employee stock purchase plan	7,117		8,668
Proceeds from the sale of future revenue, net of issuance costs	250,537		—
Net cash provided by financing activities	257,488		8,668
Net change in cash and cash equivalents	214,927		13,078
Cash and cash equivalents at beginning of the period	80,931		70,502
Cash and cash equivalents at end of the period	$	295,858	$	83,580
Supplemental disclosure of non-cash investing and financing transactions
Additions to property and equipment in accounts payable and accrued expenses	$	3,621	$	535
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 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 June 30, 2020, the condensed consolidated statements of operations, comprehensive loss and stockholders' equity for the three and six months ended June 30, 2020 and 2019, and the condensed consolidated statements of cash flows for the six months ended June 30, 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 June 30, 2020, our results of operations and stockholders' equity for the three and six months ended June 30, 2020 and 2019, and cash flows for the six months ended June 30, 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 and six-month periods are also unaudited. The results of operations for the three and six months ended June 30, 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

On June 11, 2020, we sold our tiered, sales-based royalty rights on worldwide net sales of IDHIFA® (enasidenib), as well as our rights to receive up to $55.0 million in outstanding regulatory milestone payments from Bristol Myers Squibb, or BMS, to Royalty Pharma, or RPI, for $255.0 million. Under the 2010 Agreement, we remain eligible to receive a $25.0 million potential

6

milestone payment for the enasidenib program upon achievement of a specified ex-U.S. commercial milestone event, as well as reimbursement for costs incurred for our co-commercialization efforts and development activities.

As of June 30, 2020, we had cash, cash equivalents and marketable securities of $794.4 million, which included the $255.0 million proceeds from RPI received in the second quarter of 2020. 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

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.

Liability related to sale of future revenue

We treat the sale of future revenue to RPI as a debt financing, as we have significant continuing involvement in the generation of the cash flows. As result, we recorded the proceeds from this transaction as a liability related to the sale of future revenue to be amortized to interest expense using the effective interest rate method over the life of the arrangement.

The liability related to sale of future revenue and the related interest expense are based on our current estimates of future royalties expected to be paid over the life of the arrangement. We will periodically assess the expected royalty payments using a combination of internal projections and forecasts from external sources. To the extent our future estimates of royalty payments are greater or less than previous estimates or the estimated timing of such payments is materially different than its previous estimates, we will prospectively recognize related non-cash interest expense.

For further discussion of the sale of future revenue, refer to Note 10, Sale of Future Revenue.

Amortization of issuance costs

We treated the liability related to sale of future revenue as a debt financing. As such, the long-term liability is initially recorded at its proceeds, net of deferred costs. Issuance costs, fees directly related to the sale of future revenue, are offset against initial carrying value of the long-term liability and are amortized on a straight-line basis over the remaining patent life of the product to an operating expense.

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.

7

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, 2020:

(In thousands)	Level 1		Level 2		Level 3		Total
Cash equivalents	$	215,368	$	13,593	$	—	$	228,961
Total cash equivalents	215,368		13,593		—		228,961
Marketable securities:
U.S. Treasuries	—		165,283		—		165,283
Government securities	—		83,653		—		83,653
Corporate debt securities	—		249,619		—		249,619
Total marketable securities	—		498,555		—		498,555
Total cash equivalents and marketable securities	$	215,368	$	512,148	$	—	$	727,516

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 June 30, 2020.

There have been no changes to the valuation methods during the six months ended June 30, 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 six months ended June 30, 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 and six months ended June 30, 2020 and 2019.

Marketable securities at June 30, 2020 consisted of the following:

(In thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Current:
U.S. Treasuries	$	164,611	$	679	$	(7)	$	165,283
Government securities	81,011		166		(23)		81,154
Corporate debt securities	247,003		861		(31)		247,833
Total Current	492,625		1,706		(61)		494,270
Non-current:
U.S. Treasuries	—		—		—		—
Government securities	2,499		—		—		2,499
Corporate debt securities	1,786		—		—		1,786
Total Non-current	4,285		—		—		4,285
Total marketable securities	$	496,910	$	1,706	$	(61)	$	498,555

8

Marketable securities at December 31, 2019 consisted of the following:

(In thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Current:
U.S. Treasuries	$	178,721	$	58	$	(38)	$	178,741
Government securities	80,228		17		(16)		80,229
Corporate debt securities	224,928		139		(91)		224,976
Total Current	483,877		214		(145)		483,946
Non-current:
U.S. Treasuries	35,296		3		(13)		35,286
Government securities	17,587		14		(10)		17,591
Corporate debt securities	99,913		239		(100)		100,052
Total Non-current	152,796		256		(123)		152,929
Total marketable securities	$	636,673	$	470	$	(268)	$	636,875

As of June 30, 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.

As of June 30, 2020 and December 31, 2019, we held 28 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 June 30, 2020 and December 31, 2019 related to these securities. The aggregate fair value of debt securities in an unrealized loss position at June 30, 2020 and December 31, 2019 was $129.7 million and $345.7 million, respectively. There were no individual securities that were in a significant unrealized loss position as of June 30, 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 June 30, 2020 and December 31, 2019.

5. Inventory

Inventory, which consists of commercial supply of TIBSOVO®, consists of the following:

(In thousands)	June 30, 2020		December 31, 2019
Raw materials	$	1,329	$	180
Work-in-process	8,679		6,808
Finished goods	1,223		343
Total inventory	$	11,231	$	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 and six months ended June 30, 2020 were $3.8 million and $7.6 million, respectively, and cash paid for amounts included in the measurement of operating lease liabilities for the three and six months ended June 30, 2020 were $3.5 million and $7.4 million, respectively. 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, 2020.

9

As of June 30, 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	$	5,886
2021	14,380
2022	16,773
2023	18,126
2024	18,660
2025	19,507
Thereafter	44,385
Undiscounted minimum rental commitments	$	137,717
Interest	(29,171)
Operating lease liabilities	$	108,546

In arriving at the operating lease liabilities as of June 30, 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 7.7 years and 8.2 years, respectively.

7. Accrued Expenses

Accrued expenses consist of the following:

(In thousands)	June 30, 2020		December 31, 2019
Accrued compensation	$	12,897	$	18,982
Accrued research and development costs	18,697		21,777
Accrued professional fees	4,393		8,335
Accrued other	5,924		4,048
Total accrued expenses	$	41,911	$	53,142

8. Product Revenue

We sell TIBSOVO®, our wholly owned product, to a limited number of specialty distributors and specialty pharmacy providers, 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 June 30,				Six Months Ended June 30,
(In thousands)	2020		2019		2020		2019
Product revenue, net	$	27,581	$	13,727	$	50,255	$	22,865

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.

10

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.

The following table summarizes balances and activity in each of the product revenue allowance and reserve categories for the six months ended June 30, 2020:

(In thousands)	Contractual Adjustments		Government Rebates		Returns		Total
Balance at December 31, 2019	$	874	$	1,124	$	1,798	$	3,796
Current provisions relating to sales in the current year	6,522		4,266		726		11,514
Adjustments relating to prior years	(3)		22		(476)		(457)
Payments/returns relating to sales in the current year	(5,522)		(1,422)		—		(6,944)
Payments/returns relating to sales in the prior years	(653)		(677</