AGIOS PHARMACEUTICALS, INC. 10-Q

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 September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019, 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, 2019 filed with the SEC on February 19, 2020. 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, the sufficiency of our cash for future operations and business activity disruption due to the COVID-19 pandemic. Words such as “anticipate,” “believe,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “predict,” “project,” “strategy,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” “vision” 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, 2019. 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 transforming 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. Hematologic malignancies and solid tumors 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 acute myeloid leukemia, or AML, myelodysplastic syndromes, or MDS, and cholangiocarcinoma. We hold worldwide development and commercial rights to ivosidenib and have licensed certain development and commercialization rights to ivosidenib to CStone in mainland China, Hong Kong, Macau, Taiwan, and Singapore. 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. The FDA has approved TIBSOVO® (ivosidenib) for the treatment of adult patients with R/R AML and a susceptible IDH1 mutation and for the treatment of 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. In December 2018, we submitted a marketing authorization application, or MAA to the European Medicines Agency, or EMA for TIBSOVO® for the treatment of adult patients with IDH1 mutant-positive R/R AML. In October 2020, we announced the withdrawal of the MAA based on feedback from the EMA's Committee for Medicinal Products for Human Use (CHMP) that the available clinical data from our single arm, uncontrolled Phase 1 trial did not sufficiently support a positive benefit-risk balance for the proposed indication. The FDA granted orphan drug designation for ivosidenib for the treatment of cholangiocarcinoma, 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, and granted Breakthrough Therapy designation for ivosidenib for the treatment of adult patients with relapsed or refractory MDS with a susceptible IDH1 mutation as detected by an FDA-approved test. Celgene, in collaboration with us, is developing enasidenib for the treatment of IDH2 mutant-positive hematologic malignancies. Enasidenib is an orally available, selective, potent inhibitor of the mutated IDH2 protein, making it a highly targeted therapeutic candidate for the treatment of patients with cancers that harbor IDH2 mutations, including those with AML, who have a historically poor prognosis. The FDA has granted Celgene approval of IDHIFA® (enasidenib) for the treatment of 20 Table of Contents adult patients with R/R AML and an IDH2 mutation. 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. On June 11, 2020 we sold our tiered, sales-based royalty rights on worldwide net sales of IDHIFA®, 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. Our pre-commercial clinical cancer product candidates are vorasidenib, AG-270, and AG-636. We are developing vorasidenib for the treatment of IDH mutant-positive low grade 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 percent of all cancers. AG-270 is an orally available selective potent inhibitor of MAT2A. On March 25, 2020, Celgene declined to exercise its right to opt into co-development and co-commercialization for AG-270, our MAT2A inhibitor development program, under the 2016 Agreement. In the first quarter of 2020, we made the decision to cease the internal development of AG-636 for the treatment of hematologic malignancies, including lymphoma due to limited enrollment in our phase 1 trial in lymphoma. AG-636 is an inhibitor of the metabolic enzyme dihydroorotate dehydrogenase, or DHODH, licensed by us from Aurigene Discovery Technologies Limited, or Aurigene. 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 and other hemolytic anemias. 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 an orally available small molecule and 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 and sickle cell disease, or SCD. We have worldwide development and commercial rights to mitapivat and expect to fund the future development and commercialization costs related to this program. The FDA and EMA granted orphan drug designations for mitapivat for the treatment of patients with PK deficiency, and the FDA granted orphan drug designation for mitapivat for the treatment of patients with thalassemia. We are also developing AG-946, a next-generation PKR activator, for the potential treatment of hemolytic anemias. In addition to the aforementioned development programs, we are seeking to advance a number of early-stage discovery programs in the areas of hematological malignancies, solid tumors, and RGDs. 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, stock-based compensation, and the liability related to the sale of future revenue. 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, 2019. Financial Operations Overview Impact of COVID-19 on our Business The spread of SARS-CoV-2 and the resulting disease COVID-19 has caused an economic downturn on a global scale, as well as significant volatility in the financial markets. In March 2020 the World Health Organization declared COVID-19 a pandemic. As of September 30, 2020, we have not experienced a significant financial or supply chain impact directly related to the pandemic but ha ve experienced some disruptions to clinical operations, including timelines to complete patient enrollment 21 Table of Contents in some of our clinical trials , as further described below . In this time of uncertainty as a result of the C OVID-19 pandemic, we are continuing to serve our customers while taking precautions to provide a safe work environment for our employees and customers. In March 2020, we established and implemented a work from home policy for our employees. In April 2020, we made internal resource allocation decisions in order to deliver on key business objectives and to increase our financial flexibility, including, pausing the development of certain preclinical research programs, delaying the start of certain longer-term clinical studies, limiting staff hiring, reducing the number of contract workers, and delaying or limiting information technology and facilities infrastructure projects. In June 2020, we implemented Phase 1 of our return to work program, which enabled all of our lab-based employees and related support personnel to return to our Cambridge office, and in September 2020 we began implementing Phase 2 of our return to work program by opening our Cambridge office to an additional, limited number of employees who prefer to work onsite. Our field-based employees engage with healthcare providers and other third parties remotely and, where local regulations allow, on a limited in-person basis. We are conducting our return to work program under strict guidelines as required by federal, state, and local authorities. We have been monitoring our supply chain network for disruptions due to the COVID-19 pandemic, and our third-party manufacturers remain largely unaffected, with any campaign delays experienced to date being limited to a few days in duration. Although global shipping continues to be disrupted due to the pandemic, we have not experienced a supply impact and have accrued additional safety stock of TIBSOVO® in order to further mitigate risk. As the pandemic continues to unfold, the extent of the pandemic’s effect on our operational and financial performance will depend in large part on future developments, which cannot be predicted with confidence at this time. Future developments include changes in the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, the impact on governmental programs and budgets, the development of treatments or vaccines, and the resumption of widespread economic activity. Any prolonged material disruption of our employees, suppliers, manufacturing, or customers could negatively impact our consolidated financial position, consolidated results of operations and consolidated cash flows. As a result, we may have to take further actions that we determine are in the best interests of our employees or as required by federal, state, or local authorities. 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, conducting clinical trials, establishing a commercial infrastructure and marketing our approved products. To date, we have financed our operations primarily through commercial sales of TIBSOVO® funding received from our various collaboration agreements discussed above, 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 $229.7 million and $309.1 million for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, we had an accumulated deficit of $1.7 billion. We expect to continue to incur significant expenses and net losses until such time we are able to report profitable results. Our net losses may fluctuate significantly from year to year. We expect that we will continue to incur significant expenses as we continue to advance and expand clinical development activities for our lead programs: ivosidenib, vorasidenib, mitapivat, AG-270, and AG-946; 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. Revenue Our wholly owned product, TIBSOVO®, received approval from the FDA on July 20, 2018 for the treatment of adult patients with R/R AML with susceptible IDH1 mutation. 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, or collectively, the Customers. These 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®. We also recognize collaboration revenue from our agreements with Celgene and CStone, and royalty revenue from Celgene on sales of IDHIFA®. 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 Celgene, a wholly-owned subsidiary of BMS, to RPI for $255.0 million. Due to our continued involvement in the generation of these royalties through our co-promote right, we are treating the sale of these royalties as a liability and will continue to recognize royalty revenue on sales of IDHIFA®. 22 Table of Contents 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®. Based on our policy to expense costs associated with the manufacturing of our products prior to regulatory approval, certain of the manufacturing costs associated with product shipments of TIBSOVO® recorded during the three and nine months ended September 30, 2020 and three and nine months ended September 30, 2019, respectively, were expensed prior to July 20, 2018 and, therefore, are not included in costs of sales during the three and nine months ended September 30, 2020 and three and nine months ended September 30, 2019, respectively. 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 to commercialize these product candidates. We are also unable to positively predict when future net cash inflows will commence from TIBSOVO® (ivosidenib), vorasidenib, mitapivat, AG-270, AG-946 or any of our other product candidates. This is due to the numerous risks and uncertainties associated with developing medicines, including the uncertainty of: • establishing an appropriate safety profile with an investigational new drug application, or IND, and/or new drug application, or NDA, enabling toxicology and clinical trials; • 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 The timing of trial and site initiations, enrollment and data readouts may be impacted depending on the duration, scope and severity of the COVID-19 pandemic : Ivosidenib (mutant IDH1 inhibitor) • 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. This trial has completed enrollment. • 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. The trial has completed enrollment. 23 Table of Contents • 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. The trial is enrolling patients. Although we experienced disruptions related to the COVID-19 pandemic, we expect to complete enrollment in 2021. • 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. The trial is currently enrolling patients, although we experienced disruptions related to the COVID-19 pandemic. • 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. The trial recently reopened enrollment of its relapsed or refractory MDS arm. Although we experienced disruptions related to the COVID-19 pandemic, we expect to complete enrollment in 2021. • 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. The trial has completed enrollment. • 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 trial has completed enrollment. The primary endpoint of the trial was met and, although we experienced disruptions related to the COVID-19 pandemic, we expect to file an sNDA with the FDA for TIBSOVO® in cholangiocarcinoma in the first quarter of 2021. • A phase 1 multi-center, open-label clinical trial of ivosidenib in patients with advanced IDH1 mutant-positive solid tumors, including glioma. The trial has completed enrollment. • A perioperative study with ivosidenib and vorasidenib in low grade glioma to further investigate their effects on brain tumor tissue. The trial has completed enrollment. 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. The trial has completed enrollment. • The above mentioned perioperative study with ivosidenib and vorasidenib in low grade glioma to further investigate their effects on brain tumor tissue. The trial has completed enrollment. • INDIGO, a registration-enabling phase 3 clinical trial of vorasidenib in low-grade (grade 2) glioma with an IDH1 or IDH 2 mutation. The trial is enrolling patients, although we experienced disruptions related to the COVID-19 pandemic. Mitapivat: PK Activator • 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. This trial has completed enrollment. • ACTIVATE-T, a single arm, global, pivotal trial of mitapivat in regularly-transfused patients with PK deficiency. The trial has completed enrollment. Although we experienced disruptions related to the COVID-19 pandemic, we expect to report topline data from the trial in the first quarter of 2021. • ACTIVATE, a 1:1 randomized, placebo-controlled, global, pivotal trial of mitapivat in patients with PK deficiency who do not receive regular transfusions. The trial has completed enrollment. Although we experienced disruptions related to the COVID-19 pandemic, we expect to report topline data from the trial by the end of 2020. • A phase 2, open-label safety and efficacy clinical trial of mitapivat in adult patients with non-transfusion-dependent thalassemia. The trial has completed enrollment. • In collaboration with the National Institutes of Health, or NIH, we are evaluating mitapivat in a phase 1 trial in patients with sickle cell disease pursuant to a cooperative research and development agreement. The trial is ongoing and enrolling patients, although the NIH experienced disruptions related to the COVID-19 pandemic. AG-270: Targeting MAT2A for the treatment of MTAP-deleted cancers • A phase 1 trial in multiple tumor types carrying an MTAP deletion. The first part of the trial, is a dose-escalation of AG-270 and is complete. The next phase of development consists of two arms evaluating AG-270 in combination with taxanes. One arm of the study will test AG-270 in combination with docetaxel in MTAP-deleted non-small cell lung 24 Table of Contents cancer and the other arm will test AG-270 in combination with nab-paclitaxel and gemcitabine in MTAP-deleted pancreatic ductal adenocarcinoma. Both combination arms are enrolling patients, although we experienced disruptions related to the COVID-19 pandemic. AG-636: Targeting DHODH for the treatment of hematologic malignancies • A phase 1 dose-escalation trial of AG-636 in subjects with advanced lymphoma. In the first quarter of 2020, we made the decision to halt internal development of AG-636, due to limited enrollment in this trial, and will wind down the trial during 2020. AG-946: Next-generation PKR Activator • A phase 1 trial of AG-946 in healthy volunteers and in patients with SCD. The trial is currently enrolling healthy volunteers, although we experienced disruptions related to the COVID-19 pandemic. 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 the potential commercialization of our product candidates. 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 Certain prior-year amounts have been reclassified to conform with current presentation. Comparison of the three and nine months ended September 30, 2020 and 2019 Total Revenue Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2020 2019 2020 2019 Revenues: Product revenue, net $ 31,716 $ 17,422 $ 81,971 $ 40,287 Collaboration revenue – related party 1,206 5,516 67,038 32,414 Collaboration revenue – other 1,101 420 2,786 2,202 Royalty revenue – related party 683 2,666 7,356 7,569 Total revenue $ 34,706 $ 26,024 $ 159,151 $ 82,472 Total Revenue - Third Quarter of 2020 vs. Third Quarter of 2019 - The increase in total revenue of $8.7 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily due to an increase in product revenue of $14.3 million, partially offset by a decrease in collaboration revenue - related party of $4.3 million. The increase in product revenue was driven by increased sales volume of TIBSOVO®. The decrease in collaboration revenue - related party was due to the completion of the performance obligation under the 2016 Agreement in the second quarter of 2020. Total Revenue - Nine Months ended September 30, 2020 vs. Nine Months ended September 30, 2019 - The increase in total revenue of $76.7 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily due to an increase in in product revenue of $41.7 million and an increase in collaboration revenue - related party of $34.6 million. The increase in collaboration revenue - related party for the nine months ended September 30, 2020 was primarily due to our updated estimate of the future costs that would be incurred from on-going research and development services to complete one of our performance obligations under the 2016 Agreement that is recognized over time using an input 25 Table of Contents method, due to Celgene’s decision to decline extending the research term in the first quarter of 2020. The increase in product revenue was primarily the result of increased sales volume of TIBSOVO®. Total Operating Expenses Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2020 2019 2020 2019 Cost and expenses: Cost of sales $ 638 $ 393 $ 1,846 $ 1,030 Research and development 89,555 101,672 271,728 304,646 Selling, general and administrative 34,840 33,019 109,292 97,200 Total Operating Expenses $ 125,033 $ 135,084 $ 382,866 $ 402,876 Total Operating Expenses - Third Quarter of 2020 vs. Third Quarter of 2019 - The decrease in total operating expenses of $10.1 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily due a decrease in research and development expenses of $12.1 million which is described below under Research and Development Expenses. Cost of sales has increased moderately in 2020 as we have depleted our finished goods inventory that was expensed prior to receiving FDA approval of TIBSOVO®. Total Operating Expenses - Nine Months ended September 30, 2020 vs. Nine Months ended September 30, 2019 - The decrease in total operating expenses of $20.0 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily due to a decrease in research and development expenses of $32.9 million which is described below under Research and Development Expenses partially offset by an increase in selling, general and administrative expense of $12.1 million due to higher personnel costs, including stock-based compensation expense, related to additional hiring for our workforce. Cost of sales has increased moderately in 2020 as we have depleted our finished goods inventory that was expensed prior to receiving FDA approval of TIBSOVO®. Research and Development Expenses Our research and development expenses, by major program, are outlined in the table below: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2020 2019 2020 2019 Enasidenib (IDH2 inhibitor) $ 250 $ 1,060 $ 875 $ 3,351 Ivosidenib (IDH1 inhibitor) 13,187 19,826 40,029 60,301 Vorasidenib (AG-881) (Pan IDH inhibitor) 5,056 6,346 13,017 14,404 Mitapivat (PKR activator) 10,634 11,726 31,410 32,906 AG-270 (MAT2A inhibitor) 1,355 2,221 4,864 8,074 AG-636 (DHODH inhibitor) discontinued 473 1,721 2,441 7,060 AG-946 (Next-Gen PKR activator) 2,357 1,910 7,195 4,140 Other research and platform programs 9,052 9,349 23,661 29,411 Total direct research and development expenses 42,364 54,159 123,492 159,647 Compensation and related expenses 34,914 36,415 111,062 109,024 Facilities and IT related expenses & other 12,277 11,098 37,174 35,975 Total indirect research and development expenses 47,191 47,513 148,236 144,999 Total research and development expense $ 89,555 $ 101,672 $ 271,728 $ 304,646 Total Research and Development Expenses - Third Quarter of 2020 vs. Third Quarter of 2019 - The decrease in total research and development expenses of $12.1 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily due to a $6.6 million decrease in ivosidenib costs. The decrease in ivosidenib costs was primarily due to decreased trial activities for the ClarIDHy trial and decreased clinical costs driven by $1.1 million in milestones achieved by HOVON during the three months ended September 30, 2019 for the initiation of the HO150/AMLSG29 trial. 26 Table of Contents Total Research and Development Expenses - Nine Months ended September 30, 2020 vs. Nine Months ended September 30, 2019 - The decrease in total research and development expenses of $32.9 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily due to a $20.3 million decrease in ivosidenib costs, a $5.8 million decrease in other research and platform programs, and a $4.6 million decrease in AG-636 costs. The decrease in ivosidenib costs was primarily due to decreased trial activities for the ClarIDHy trial and decreased clinical costs driven by $5.3 million in milestones achieved by HOVON during the nine months ended September 30, 2019 for the initiation of the HO150/AMLSG29 trial. The decrease in other research and platform programs was primarily driven by planned decreased activity on various exploratory and discovery activities and a $4.0 million upfront payment for exploratory efforts in the second quarter of 2019. The decrease in AG-636 costs was primarily due to the decision to halt internal development of AG-636 in the first quarter of 2020 due to limited enrollment, and a $2.0 million milestone due to Aurigene upon first patient dosing within the phase 1 lymphoma trial in in the second quarter of 2019. Interest Income and Expense Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2020 2019 2020 2019 Interest income, net $ 1,115 $ 2,887 $ 5,820 $ 11,282 Non-cash interest expense for the sale of future revenue (9,767) — (11,818) — Interest Income and Non-Cash Interest Expense for the Sale of Future Revenue- Third Quarter of 2020 vs. Third Quarter of 2019 - The change in interest income, net is primarily attributable to the decrease in interest rates at the end of the first quarter of 2020, which reduced the interest rates earned by 0.50% to 1.50% from prior periods and the decrease in our outstanding marketable securities balance for the three months ended September 30, 2020. The change in non-cash interest expense for the sale of future revenue was due to the interest expense associated with the sale of future revenue recorded in the three months ended September 30, 2020. Interest Income and Non-Cash Interest Expense for the Sale of Future Revenue- Nine Months ended September 30, 2020 vs. Nine Months ended September 30, 2019 - The change in interest income, net is primarily attributable to the decrease in interest rates at the end of the first quarter of 2020, which reduced the interest rates earned by 0.50% to 1.50% from prior periods and the decrease in our outstanding marketable securities balance for the nine months ended September 30, 2020. The change in non-cash interest expense for the sale of future revenue was due to the interest expense associated with the sale of future revenue recorded in the nine months ended September 30, 2020. Loss from Operations and Net Loss Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2020 2019 2020 2019 Loss from operations $ (90,327) $ (109,060) $ (223,715) $ (320,404) Net loss (98,979) (106,173) (229,713) (309,122) Loss from Operations and Net Loss – Third Quarter of 2020 vs. Third Quarter of 2019 – The decrease in loss from operations and net loss for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily driven by higher total revenue as described above in Total Revenue and by lower total expenses as described above in Total Operating Expenses. Loss from Operations and Net Loss – Nine Months ended September 30, 2020 vs. Nine Months ended September 30, 2019 – The decrease in loss from operations and net loss for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily driven by higher total revenue as described above in Total Revenue and by lower total expenses as described above in Total Operating Expenses. Liquidity and Capital Resources Sources of liquidity Since our inception, and through September 30, 2020, we have funded our operations through commercial sales of TIBSOVO®, upfront, milestone, extension, cost reimbursement and royalty payments related to our collaboration agreements, product sales, 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. 27 Table of Contents On April 30, 2020, we entered into an at-the-market sales agreement, or the 2020 sales agreement, with Cowen & Company LLC, or Cowen, pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $250.0 million through Cowen pursuant to a universal shelf registration statement on Form S-3 filed with the SEC on April 30, 2020. As of September 30, 2020, $250.0 million in common stock remained available for future issuance under the 2020 sales agreement. 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 BMS, to RPI for $255.0 million. Under the 2010 Agreement, we remain eligible to receive a $25.0 million potential milestone payment for the enasidenib program. The potential milestone payment is a $25.0 million milestone payment 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. In addition to our existing cash, cash equivalents and marketable securities, we are eligible to earn milestone payments, cost reimbursements, and royalty payments under our collaboration agreements with Celgene and CStone. 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 nine months ended September 30, 2020 and 2019: Nine Months Ended September 30, (In thousands) 2020 2019 Net cash used in operating activities $ (241,362) $ (277,011) Net cash provided by investing activities 4,350 276,213 Net cash provided by financing activities 260,936 12,005 Net change in cash and cash equivalents $ 23,924 $ 11,207 Net cash used in operating activities . During the nine months ended September 30, 2020, we received $83.3 million from sales of TIBSOVO®, $7.9 million in royalty payments and $4.7 million in cost reimbursements related to our Collaboration Agreements with Celgene, $6.1 million in interest received, and $2.7 million in cost reimbursements related to our CStone Agreement. These amounts were offset by operating expenses driven by research and development costs described above in Research and Development Expenses and increased staffing needs due to our expanding operations. During the nine months ended September 30, 2019, we received $41.3 million from sales of TIBSOVO® and $14.3 million in cost reimbursements and royalty payments under our Collaboration Agreements with Celgene. These amounts were offset by increased operating expenses which relate to increases in clinical trial costs due to advancements in our most advanced product candidates, commercialization efforts, expanded facilities and increased staffing needs due to our expanding operations. Net cash provided by investing activities . Cash provided by investing activities for the nine months ended September 30, 2020 was primarily the result of higher proceeds from maturities and sales of marketable securities than purchases of marketable securities, offset by $13.9 million in purchases of property and equipment. Cash provided by investing activities for the nine months ended September 30, 2019 was primarily the result of higher proceeds from maturities and sales of marketable securities than purchases of marketable securities, offset by $5.3 million in purchases of property and equipment. Net cash provided by financing activities . Cash provided by financing activities for the nine months ended September 30, 2020 was primarily the result of net proceeds of $250.5 million from the sale of our tiered, sales-based royalty rights on worldwide net sales of IDHIFA® (enasidenib) and our ex-US regulatory milestones to RPI in June 2020, and the $10.6 million of proceeds received from stock option exercises and purchases made pursuant to our 2013 ESPP. Cash provided by financing activities for the nine months ended September 30, 2019 was primarily the result of the $12.0 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, CStone or other partners. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. 28 Table of Contents We expect that our existing cash, cash equivalents and marketable securities as of September 30, 2020, together with anticipated product revenue, anticipated interest income and anticipated expense reimbursements under our collaboration and license agreements, but excluding any additional program-specific milestone payments, will enable us to fund our operating expenses and capital expenditure requirements to the end of 2022. 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 related to approved medicines such as TIBSOVO® and IDHIFA®; • levels of product revenue from sales of TIBSOVO®; • 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; • our ability to establish and maintain additional collaborations on favorable terms, if at all; • our ability to successfully execute on our strategic plans; • operational delays due to the ongoing COVID-19 pandemic; and • the extent to which we acquire or in-license, or monitor or out-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, licensing arrangements and other nondilutive strategic transactions. We do not have any committed potential 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 contract manufacturing organization 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 nine months ended September 30, 2020, 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 our Annual Report on Form 10-K for the year ended December 31, 2019.