AGIOS PHARMACEUTICALS, INC. 10-Q

Item 1. Financial Statements (Unaudited) AGIOS PHARMACEUTICALS, INC. Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except share and per share data) September 30, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 122,449 $ 203,126 Marketable securities 605,231 816,892 Accounts receivable, net 1,818 — Other receivable 3,774 4,378 Inventory 5,176 — Prepaid expenses and other current assets 46,487 39,835 Total current assets 784,935 1,064,231 Marketable securities 298,352 266,375 Operating lease assets 67,692 75,124 Property and equipment, net 25,438 28,923 Financing lease assets — 183 Other non-current assets 3,903 2,900 Total assets $ 1,180,320 $ 1,437,736 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 10,415 $ 16,700 Accrued expenses 29,756 31,967 Operating lease liabilities 13,342 10,828 Financing lease liabilities 83 331 Total current liabilities 53,596 59,826 Operating lease liabilities, net of current portion 75,499 85,659 Other non-current liabilities 1,055 276 Total liabilities 130,150 145,761 Stockholders’ equity: Preferred stock, $ 0.001 par value; 25,000,000 shares authorized; no shares issued or outstanding at September 30, 2022 and December 31, 2021 — — Common stock, $ 0.001 par value; 125,000,000 shares authorized; 71,110,442 shares issued and 54,894,031 shares outstanding at September 30, 2022, and 70,550,631 shares issued and 54,334,220 shares outstanding at December 31, 2021 71 71 Additional paid-in capital 2,374,755 2,334,348 Accumulated other comprehensive loss ( 15,083 ) ( 1,198 ) Treasury stock, at cost ( 16,216,411 shares at September 30, 2022 and December 31, 2021) ( 802,486 ) ( 802,486 ) Accumulated deficit ( 507,087 ) ( 238,760 ) Total stockholders’ equity 1,050,170 1,291,975 Total liabilities and stockholders’ equity $ 1,180,320 $ 1,437,736 See accompanying Notes to Condensed Consolidated Financial Statements. 1 Table of Contents AGIOS PHARMACEUTICALS, INC. Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, (In thousands, except share and per share data) 2022 2021 2022 2021 Revenues: Product revenue, net $ 3,516 $ — $ 7,430 $ — Milestone revenue — — 2,500 — Total revenue 3,516 — 9,930 — Operating expenses: Cost of sales $ 517 $ — $ 1,291 $ — Research and development 64,966 64,000 209,612 183,674 Selling, general and administrative 29,123 27,152 88,902 89,917 Total operating expenses 94,606 91,152 299,805 273,591 Loss from operations ( 91,090 ) ( 91,152 ) ( 289,875 ) ( 273,591 ) Royalty income from gain on sale of oncology business 4,443 1,996 9,851 3,996 Interest income, net 3,818 256 6,305 504 Other income, net 1,082 4,641 5,392 11,165 Net loss from continuing operations ( 81,747 ) ( 84,259 ) ( 268,327 ) ( 257,926 ) Net (loss) income from discontinued operations, net of tax — ( 4,507 ) — 1,957,268 Net (loss) income $ ( 81,747 ) $ ( 88,766 ) $ ( 268,327 ) $ 1,699,342 Net loss from continuing operations per share - basic and diluted $ ( 1.49 ) $ ( 1.48 ) $ ( 4.90 ) $ ( 4.13 ) Net (loss) income from discontinued operations per share - basic and diluted $ — $ ( 0.08 ) $ — $ 31.31 Net (loss) income per share - basic and diluted $ ( 1.49 ) $ ( 1.56 ) $ ( 4.90 ) $ 27.19 Weighted-average number of common shares used in computing net loss per share from continuing operations, net (loss) income from discontinued operations and net (loss) income per share – basic and diluted 54,844,579 57,048,175 54,734,301 62,503,087 See accompanying Notes to Condensed Consolidated Financial Statements. 2 Table of Contents AGIOS PHARMACEUTICALS, INC. Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2022 2021 2022 2021 Net (loss) income $ ( 81,747 ) $ ( 88,766 ) $ ( 268,327 ) $ 1,699,342 Other comprehensive loss Unrealized loss on available-for-sale securities ( 4,581 ) ( 54 ) ( 13,885 ) ( 303 ) Comprehensive (loss) income $ ( 86,328 ) $ ( 88,820 ) $ ( 282,212 ) $ 1,699,039 See accompanying Notes to Condensed Consolidated Financial Statements. 3 Table of Contents AGIOS PHARMACEUTICALS, INC. Condensed Consolidated Statements of Stockholders' Equity (Unaudited) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive (Loss) Income Accumulated Deficit Treasury Stock Total Stockholders’ Equity (in thousands, except share amounts) Shares Amount Shares Amount Balance at December 31, 2021 70,550,631 $ 71 $ 2,334,348 $ ( 1,198 ) $ ( 238,760 ) ( 16,216,411 ) $ ( 802,486 ) $ 1,291,975 Common stock issued under stock incentive plan and ESPP 442,646 — 1,289 — — — — 1,289 Stock-based compensation expense — — 15,510 — — — — 15,510 Other comprehensive loss — — — ( 6,547 ) — — — ( 6,547 ) Net loss — — — — ( 94,774 ) — — ( 94,774 ) Balance at March 31, 2022 70,993,277 $ 71 $ 2,351,147 $ ( 7,745 ) $ ( 333,534 ) ( 16,216,411 ) $ ( 802,486 ) $ 1,207,453 Common stock issued under stock incentive plan and ESPP 38,515 — 15 — — — — — 15 Stock-based compensation expense — — 11,165 — — — — 11,165 Other comprehensive loss — — — ( 2,757 ) — — — ( 2,757 ) Net loss — — — — ( 91,806 ) — — ( 91,806 ) Balance at June 30, 2022 71,031,792 $ 71 $ 2,362,327 $ ( 10,502 ) $ ( 425,340 ) ( 16,216,411 ) $ ( 802,486 ) $ 1,124,070 Common stock issued under stock incentive plan and ESPP 78,650 — 1,272 — — — — 1,272 Stock-based compensation expense — — 11,156 — — — — 11,156 Other comprehensive loss — — — ( 4,581 ) — — — ( 4,581 ) Net loss — — — — ( 81,747 ) — — ( 81,747 ) Balance at September 30, 2022 71,110,442 $ 71 $ 2,374,755 $ ( 15,083 ) $ ( 507,087 ) ( 16,216,411 ) $ ( 802,486 ) $ 1,050,170 4 Table of Contents Common Stock Additional Paid-In Capital Accumulated Other Comprehensive (Loss) Income Accumulated Deficit Treasury Stock Total Stockholders’ Equity (in thousands, except share amounts) Shares Amount Shares Amount Balance at December 31, 2020 69,293,920 $ 69 $ 2,242,801 $ 105 $ ( 1,843,475 ) — $ — $ 399,500 Common stock issued under stock incentive plan and ESPP 518,285 1 7,346 — — — — 7,347 Stock-based compensation expense — — 14,854 — — — — 14,854 Other comprehensive loss — — — ( 108 ) — — — ( 108 ) Net income — — — — 1,874,325 — — 1,874,325 Disposition of oncology business — — 712 — — — — 712 Balance at March 31, 2021 69,812,205 $ 70 $ 2,265,713 $ ( 3 ) $ 30,850 — $ — $ 2,296,630 Common stock issued under stock incentive plan and ESPP 592,577 — 25,673 — — — — 25,673 Stock-based compensation expense — — 14,885 — — — — 14,885 Repurchase of common stock — — — — — ( 10,493,968 ) ( 529,047 ) ( 529,047 ) Other comprehensive loss — — — ( 141 ) — — — ( 141 ) Net loss — — — — ( 86,217 ) — — ( 86,217 ) Disposition of oncology business — — 33 — — — — 33 Balance at June 30, 2021 70,404,782 $ 70 $ 2,306,304 $ ( 144 ) $ ( 55,367 ) ( 10,493,968 ) $ ( 529,047 ) $ 1,721,816 Common stock issued under stock incentive plan and ESPP 110,554 1 4,008 — — — — 4,009 Stock-based compensation expense — — 12,148 — — — — 12,148 Repurchase of common stock — — — — — ( 5,306,184 ) ( 254,391 ) ( 254,391 ) Other comprehensive loss — — — ( 54 ) — — — ( 54 ) Net loss — — — — ( 88,766 ) — — ( 88,766 ) Balance at September 30, 2021 70,515,336 $ 71 $ 2,322,460 $ ( 198 ) $ ( 144,133 ) ( 15,800,152 ) $ ( 783,438 ) $ 1,394,762 See accompanying Notes to Condensed Consolidated Financial Statements. 5 Table of Contents AGIOS PHARMACEUTICALS, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, (In thousands) 2022 2021 Operating activities Net (loss) income $ ( 268,327 ) $ 1,699,342 Less: Net income from discontinued operations — 1,957,268 Net loss from continuing operations ( 268,327 ) ( 257,926 ) Adjustments to reconcile net loss from continuing operations to net cash used in operating activities: Depreciation and amortization 6,750 7,038 Stock-based compensation expense 37,831 41,887 Net amortization of premium (accretion of discount) on marketable securities 721 5,326 Loss on disposal of property and equipment 29 9 Non-cash operating lease expense 7,432 7,129 Changes in operating assets and liabilities: Accounts receivable, net ( 1,818 ) — Inventory ( 5,176 ) — Other receivables 604 ( 6,990 ) Prepaid expenses and other current and non-current assets ( 7,655 ) ( 19,249 ) Accounts payable ( 4,628 ) ( 3,337 ) Accrued expenses and other current liabilities ( 2,211 ) ( 2,667 ) Operating lease liabilities ( 7,646 ) ( 5,315 ) Other non-current liabilities 779 — Net cash used in operating activities - continuing operations ( 243,315 ) ( 234,095 ) Net cash used in operating activities - discontinued operations — ( 89,132 ) Net cash used in operating activities ( 243,315 ) ( 323,227 ) Investing activities Purchases of marketable securities ( 782,218 ) ( 951,411 ) Proceeds from maturities and sales of marketable securities 947,296 492,911 Purchases of property and equipment ( 4,768 ) ( 1,239 ) Net cash provided by (used in) investing activities - continuing operations 160,310 ( 459,739 ) Net cash provided by investing activities - discontinued operations — 1,802,936 Net cash provided by investing activities 160,310 1,343,197 Financing activities Payments on financing lease obligations ( 248 ) ( 773 ) Purchase of treasury stock — ( 783,438 ) Net proceeds from stock option exercises and employee stock purchase plan 2,576 37,029 Net cash provided by (used in) financing activities - continuing operations 2,328 ( 747,182 ) Net cash provided by financing activities - discontinued operations — — Net cash provided by (used in) financing activities 2,328 ( 747,182 ) Net change in cash and cash equivalents ( 80,677 ) 272,788 Cash and cash equivalents at beginning of the period 203,126 127,436 Cash and cash equivalents at end of the period $ 122,449 $ 400,224 6 Table of Contents Supplemental disclosure of non-cash investing and financing transactions Additions to property and equipment in accounts payable and accrued expenses $ 21 $ 486 Financing lease liabilities arising from obtaining financing lease assets $ — $ 511 Cash taxes paid $ 1,940 $ 8,916 See accompanying Notes to Condensed Consolidated Financial Statements. 7 Table of Contents 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 transforming patients’ lives through leadership in the field of cellular metabolism, with the goal of creating differentiated, small molecule medicines for rare and genetically defined diseases, or GDDs. With a history of focused study on cellular metabolism, we have a deep and mature understanding of this biology, which is involved in the healthy functioning of nearly every system in the body. We accelerate the impact of our portfolio by cultivating connections with patient communities, healthcare professionals, partners and colleagues to discover, develop and deliver potential therapies for GDDs. We are located in Cambridge, Massachusetts. The lead product candidate in our GDD portfolio, PYRUKYND® (mitapivat), is an activator of both wild-type and mutant pyruvate kinase, or PK, enzymes for the potential treatment of hemolytic anemias. On February 17, 2022, the U.S. Food and Drug Administration, or FDA, approved PYRUKYND® for the treatment of hemolytic anemia in adults with PK deficiency in the United States. In June 2021, we submitted a marketing authorization application, or MAA, to the European Medicines Agency, or EMA, for the treatment of adults with PK deficiency in the European Union, or EU. In September 2022, the Committee for Medicinal Products for Human Use of the EMA, or CHMP, adopted a positive opinion recommending the granting of a marketing authorization for PYRUKYND®. In October 2022, we submitted a marketing authorization application in Great Britain for PYRUKYND® under the European Commission Decision Reliance Procedure. We expect to receive a decision from both the EU and Great Britain regulatory authorities by the end of 2022. In addition, we are currently evaluating PYRUKYND® in clinical trials for the treatment of thalassemia, sickle cell disease, or SCD, and in pediatric patients with PK deficiency. We are also developing AG-946, a novel PK activator, for the potential treatment of lower-risk myelodysplastic syndrome, hemolytic anemias and other indications. In addition to the aforementioned development programs, we continue to prioritize investment in advancing our late lead-optimization research. We believe this combination of assets represents an attractive portfolio of programs that aligns with our strategy and core expertise in non-malignant hematology and inborn errors of metabolism, and leaves room for continued growth of our pipeline. We are subject to risks common to companies in our industry including, but not limited to, uncertainties relating to conducting clinical research and development, the manufacture and supply of products for clinical and commercial use, obtaining and maintaining regulatory approvals and pricing and reimbursement for our products, market acceptance, managing global growth and operating expenses, availability of additional capital, competition, obtaining and enforcing patents, stock price volatility, dependence on collaborative relationships and third-party service providers, dependence on key personnel, potential litigation, product liability claims and government investigations. Sale of our Oncology Business to Servier On March 31, 2021, we completed the sale of our oncology business to Servier Pharmaceuticals, LLC, or Servier, which represented a discontinued operation. The transaction included the sale of our oncology business, including TIBSOVO®, our clinical-stage product candidates vorasidenib, AG-270 and AG-636, and our oncology research programs for a payment of approximately $ 1.8 billion in cash at the closing, subject to certain adjustments, and a payment of $ 200.0 million in cash, if, prior to January 1, 2027, vorasidenib is granted new drug application, or NDA, approval from the FDA with an approved label that permits vorasidenib’s use as a single agent for the adjuvant treatment of patients with Grade 2 glioma that have an isocitrate dehydrogenase 1 or 2 mutation (and, to the extent required by such approval, the vorasidenib companion diagnostic test is granted an FDA premarket approval), as well as a royalty of 5 % of U.S. net sales of TIBSOVO® from the close of the transaction through loss of exclusivity, and a royalty of 15 % of U.S. net sales of vorasidenib from the first commercial sale of vorasidenib through loss of exclusivity. Servier also acquired our co-commercialization rights for Bristol Myers Squibb’s IDHIFA® and the right to receive a $ 25.0 million potential milestone payment under our prior collaboration agreement with 8 Table of Contents Celgene Corporation, and following the sale Servier will conduct certain clinical development activities within the IDHIFA® development program. We recorded income from royalties of approximately $ 4.4 million and $ 2.0 million on U.S. net sales of TIBSOVO® by Servier in the royalty income from gain on sale of oncology business line item within the condensed consolidated statements of operations, for the three months ended September 30, 2022 and 2021, respectively, and $ 9.9 million and $ 4.0 million for the nine months ended September 30, 2022 and 2021, respectively. As discussed below in Note 12, Subsequent Events , on October 27, 2022, we sold our rights to the royalty on U.S. net sales of TIBSOVO® to entities affiliated with Sagard Healthcare Partners, or Sagard, for $ 131.8 million. We retained our rights to the potential milestone payment and royalties from Servier if vorasidenib is approved by the FDA. Basis of presentation The condensed consolidated balance sheet as of September 30, 2022, the condensed consolidated statements of operations, comprehensive (loss) income and stockholders' equity for the three and nine months ended September 30, 2022 and 2021, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021 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 September 30, 2022, our results of operations and stockholders' equity for the three and nine months ended September 30, 2022 and 2021, and cash flows for the nine months ended September 30, 2022 and 2021. The financial data and the other financial information disclosed in these notes to the condensed consolidated financial statements related to the three and nine-month periods are also unaudited. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other future annual or interim period. The condensed consolidated balance sheet data as of December 31, 2021 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, 2021 that was filed with the Securities and Exchange Commission, or SEC, on February 24, 2022. 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. Reclassifications Certain amounts in prior periods have been reclassified to reflect the impact of the discontinued operations treatment of the oncology business in order to conform to the current period presentation. 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 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 any variant strains of the virus and the actions taken to contain the pandemic 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 March 31, 2021, we completed the sale of our oncology business to Servier, and received approximately $ 1.8 billion in cash at closing. In connection with the sale, on March 25, 2021, we announced that our Board of Directors authorized the repurchase of up to $ 1.2 billion of our outstanding shares of common stock, or the Repurchase Program, using the proceeds from the sale of our oncology business to Servier. On March 31, 2021, in connection with the Repurchase Program, we entered into a definitive share repurchase agreement with Bristol-Myers Squibb Company, or BMS, to repurchase 7.1 million shares of our common stock held by certain subsidiaries of BMS for an aggregate purchase price of $ 344.5 million, or $ 48.38 per share. This repurchase was completed on April 5, 2021. Further, on April 2, 2021, in connection with the Repurchase Program, we entered into a Rule 10b5-1 repurchase plan pursuant to which we could repurchase up to $ 600.0 million of shares of our common stock. 9 Table of Contents On October 5, 2021, we terminated our Rule 10b5-1 share repurchase program and on October 13, 2021 we entered into a Rule 10b-18 repurchase plan that allows us to conduct open market repurchases over time up to our remaining authorization. We have not repurchased any shares of common stock in fiscal year 2022 and as of December 31, 2021 we repurchased approximately 9.1 million shares of common stock for $ 458.0 million, or $ 50.35 per share, under the Rule 10b5-1 repurchase plan. As of September 30, 2022, we have no t repurchased any shares under the Rule 10b-18 repurchase plan. In total, as of September 30, 2022, we repurchased 16.2 million shares of common stock for $ 802.5 million, or $ 49.49 per share, under the Repurchase Program. We have paused our share repurchases for the foreseeable future. As of September 30, 2022, we had cash, cash equivalents and marketable securities of $ 1.0 billion. 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 Accounts receivable, net Our trade accounts receivable arise from product sales and represent amounts due from specialty distributors and specialty pharmacy providers in the U.S. We monitor the financial performance and creditworthiness of our customers so that we can properly assess and respond to changes in their credit profile. We reserve against these receivables for estimated losses that may arise from a customer’s inability to pay. Amounts determined to be uncollectible are charged or written-off against the reserve. Inventory Inventory is stated at the lower of cost or estimated net realizable value on a first-in, first-out basis. Prior to the regulatory approval of our product candidates, we incur expenses for the manufacture of drug product that could potentially be available to support the commercial launch of those products. Until the date at which regulatory approval has been received or is otherwise considered probable, we record all such costs as research and development expenses. Upon approval of our wholly owned product, PYRUKYND® , by the FDA on February 17, 2022 for the treatment of hemolytic anemia in adults with PK deficiency in the United States, we began to capitalize inventories of PYRUKYND® . Revenue recognition Under Accounting Standards Codification 606, Revenue from Contracts with Customers , or ASC 606, revenue is recognized 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. To determine revenue recognition for arrangements that have been determined to be within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether each promised good or service is distinct. We will then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Product Revenue We generate product revenue from sales of PYRUKYND® to a limited number of specialty distributors and specialty pharmacy providers, or collectively, the Customers. These Customers subsequently resell PYRUKYND® 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 PYRUKYND®. The performance obligation related to the sale of PYRUKYND® 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. 10 Table of Contents 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 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 include 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. Cost of sales Cost of sales consists primarily of manufacturing costs of PYRUKYND® . 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 PYRUKYND® r ecorded during the three and nine months ended September 30, 2022 were expensed prior to February 17, 2022 and, therefore, are not included in costs of sales during the three and nine months ended September 30, 2022 . 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, 2021. Recent accounting pronouncements Other accounting standards that have been issued by the Financial Accounting Standards Board or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption. 3. Fair Value Measurements We record cash equivalents and marketable securities at fair value. ASC 820, Fair Value Measurements and Disclosures , establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). The hierarchy consists of three levels: Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 – Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, directly or indirectly, for substantially the full term of the asset or liability. Level 3 – Unobservable inputs that reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date. 11 Table of Contents The following table summarizes our cash equivalents and marketable securities measured at fair value and by level on a recurring basis as of September 30, 2022: (In thousands) Level 1 Level 2 Level 3 Total Cash equivalents $ 39,314 $ 43,946 $ — $ 83,260 Total cash equivalents 39,314 43,946 — 83,260 Marketable securities: U.S. Treasuries — 95,798 — 95,798 Government securities — 308,256 — 308,256 Corporate debt securities — 499,529 — 499,529 Total marketable securities — 903,583 — 903,583 Total cash equivalents and marketable securities $ 39,314 $ 947,529 $ — $ 986,843 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 observable market 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 September 30, 2022. There have been no changes to the valuation methods during the nine months ended September 30, 2022, and we had no financial assets or liabilities that were classified as Level 3 at any point during the nine months ended September 30, 2022. 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 loss in the condensed consolidated balance sheets and statements of stockholders’ equity and a component of total comprehensive loss in the condensed consolidated statements of comprehensive (loss) income, 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 condensed consolidated balance sheets 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 nine months ended September 30, 2022 or 2021. Marketable securities at September 30, 2022 consisted of the following: (In thousands) Amortized Cost Unrealized Gains Unrealized Losses Fair Value Current: U.S. Treasuries $ 80,730 $ 15 $ ( 777 ) $ 79,968 Government securities 125,827 — ( 2,387 ) 123,440 Corporate debt securities 405,159 — ( 3,336 ) 401,823 Total Current 611,716 15 ( 6,500 ) 605,231 Non-current: U.S. Treasuries 16,381 — ( 551 ) 15,830 Government securities 190,206 2 ( 5,392 ) 184,816 Corporate debt securities 100,363 — ( 2,657 ) 97,706 Total Non-current 306,950 2 ( 8,600 ) 298,352 Total marketable securities $ 918,666 $ 17 $ ( 15,100 ) $ 903,583 12 Table of Contents Marketable securities at December 31, 2021 consisted of the following: (In thousands) Amortized Cost Unrealized Gains Unrealized Losses Fair Value Current: U.S. Treasuries $ 269,109 $ — $ ( 36 ) $ 269,073 Government securities 17,764 1 ( 10 ) 17,755 Corporate debt securities 530,490 3 ( 429 ) 530,064 Total Current 817,363 4 ( 475 ) 816,892 Non-current: U.S. Treasuries 40,607 — ( 23 ) 40,584 Government securities 148,820 — ( 470 ) 148,350 Corporate debt securities 77,675 — ( 234 ) 77,441 Total Non-current 267,102 — ( 727 ) 266,375 Total marketable securities $ 1,084,465 $ 4 $ ( 1,202 ) $ 1,083,267 As of September 30, 2022 and December 31, 2021, 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 September 30, 2022 and December 31, 2021, we held 257 and 294 debt securities, respectively, that were in an unrealized loss position for less than one year. We did no t record an allowance for credit losses as of September 30, 2022 and December 31, 2021 related to these securities. The aggregate fair value of debt securities in an unrealized loss position at September 30, 2022 and December 31, 2021 was $ 881.6 million and $ 950.5 million, respectively. There were no individual securities that were in a significant unrealized loss position as of September 30, 2022 and December 31, 2021. We regularly review the securities in an unrealized loss position and evaluate the current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions. We do not consider these marketable securities to be impaired as of September 30, 2022 and December 31, 2021. 5. Inventory Inventory, which consists of commercial supply of PYRUKYND®, consisted of the following: (In thousands) September 30, 2022 December 31, 2021 Raw materials $ — $ — Work-in-process 4,397 — Finished goods 779 — Total inventory $ 5,176 $ — 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 approximately five 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 options are not reasonably certain of being exercised. The lease agreements do not contain residual value guarantees. The components of lease expense and other information related to leases were as follows: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2022 2021 2022 2021 Operating lease costs $ 3,807 $ 3,807 $ 11,420 $ 11,423 Cash paid for amounts included in the measurement of operating lease liabilities $ 4,420 $ 3,614 $ 12,610 $ 10,773 13 Table of Contents We have not entered into any material short-term leases or financing leases as of September 30, 2022. In arriving at the operating lease liabilities as of September 30, 2022 and December 31, 2021, we applied the weighted-average incremental borrowing rate of 5.7 % for both periods over a weighted-average remaining lease term of 5.4 years and 6.2 years, respectively. As of September 30, 2022, undiscounted minimum rental commitments under non-cancelable leases, for each of the next five years and total thereafter were as follows: (In thousands) Remaining 2022 $ 2,950 2023 18,126 2024 18,660 2025 19,507 2026 20,151 2027 20,755 Thereafter 3,479 Undiscounted minimum rental commitments $ 103,628 Interest ( 14,787 ) Operating lease liabilities $ 88,841 We provided our landlord a standby letter of credit of $ 2.9 million as security for our leases. We are not required to maintain any cash collateral for the standby letter of credit. In August 2021, we entered into a long-term sublease agreement for 13,000 square feet of the office space at 38 Sidney Street, Cambridge, Massachusetts, with the term of the lease running through December 2024. In April 2022, we entered into a long-term sublease agreement for 27,000 square feet of the office space at 64 Sidney Street, Cambridge, Massachusetts, with the term of the lease running through April 2025. We recorded operating sublease income of $ 1.0 million and $ 2.7 million for the three and nine months ended September 30, 2022, respectively, in other income, net in the condensed consolidated statements of operations. We received a security deposit from our sublessee of approximately $ 1.1 million which is recorded within other non-current assets on our condensed consolidated balance sheet. As of September 30, 2022, the future minimum lease payments to be received under the long-term sublease agreements were as follows: (In thousands) Remaining 2022 $ 1,063 2023 4,329 2024 4,459 2025 1,101 Total $ 10,952 7. Accrued Expenses Accrued expenses consisted of the following: (In thousands) September 30, 2022 December 31, 2021 Accrued compensation $ 15,747 $ 19,818 Accrued research and development costs 7,716 5,980 Accrued professional fees 2,242 2,335 Accrued other 4,051 3,834 Total accrued expenses $ 29,756 $ 31,967 14 Table of Contents 8. Product Revenue We sell PYRUKYND®, our wholly owned product, to the Customers. The Customers subsequently resell PYRUKYND® 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 PYRUKYND®. The performance obligation related to the sale of PYRUKYND® 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. Product revenue, net, were as follows: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2022 2021 2022 2021 Product revenue, net $ 3,516 $ — $ 7,430 $ — 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 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 include 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 nine months ended September 30, 2022: (In thousands) Contractual Adjustments Government Rebates Returns Total Balance at December 31, 2021 $ — $ — $ — $ — Current provisions relating to sales in the current year 298 474 83 855 Adjustments relating to prior years — — — — Payments/returns relating to sales in the current year ( 235 ) ( 119 ) — ( 354 ) Payments/returns relating to sales in the prior years — — — — Balance at September 30, 2022 $ 63 $ 355 $ 83 $ 501 15 Table of Contents Total revenue-related reserves above, included in our condensed consolidated balance sheets, are summarized as follows: (In thousands) September 30, 2022 December 31, 2021 Reduction of accounts receivable $ 53 $ — Component of accrued expenses 448 — Total revenue-related reserves $ 501 $ — The following table presents changes in our contract assets during the nine months ended September 30, 2022: (In thousands) December 31, 2021 Additions Deductions September 30, 2022 Contract assets (1) Accounts receivable, net $ — $ 8,285 $ ( 6,467 ) $ 1,818 (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. 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 share 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 September 30, 2022, the total number of shares reserved under the 2007 Plan and the 2013 Plan was 12,967,465 , and we had 5,268,971 shares available for future issuance under the 2013 Plan. Stock options The following table presents stock option activity for the nine months ended September 30, 2022: Number of Stock Options Weighted-Average Exercise Price Outstanding at December 31, 2021 4,798,826 $ 58.51 Granted 1,829,973 28.89 Exercised ( 5,476 ) 13.18 Forfeited/Expired ( 714,236 ) 63.40 Outstanding at September 30, 2022 5,909,087 $ 48.81 Exercisable at September 30, 2022 3,478,806 $ 57.97 Vested and expected to vest at September 30, 2022 5,909,087 $ 48.81 At September 30, 2022, there was approximately $ 45.3 million of total unrecognized compensation expense related to unvested stock option awards, which we expect to recognize over a weighted-average period of approximately 2.8 years. Restricted stock units The following table presents RSU activity for the nine months ended September 30, 2022: Number of Stock Units Weighted-Average Grant Date Fair Value Unvested shares at December 31, 2021 1,002,924 $ 51.51 Granted 856,708 31.19 Vested ( 395,691 ) 53.40 Forfeited ( 199,564 ) 41.02 Unvested shares at September 30, 2022 1,264,377 $ 38.85 16 Table of Contents As of September 30, 2022, there was approximately $ 31.6 million of total unrecognized compensation expense related to RSUs, which we expect to recognize over a weighted-average period of approximately 1.9 years. Performance-based stock units The following table presents PSU activity for the nine months ended September 30, 2022: Number of Stock Units Weighted-Average Grant Date Fair Value Unvested shares at December 31, 2021 234,059 $ 54.28 Granted 337,243 30.33 Vested ( 53,777 ) 54.28 Forfeited ( 35,190 ) 45.20 Unvested shares at September 30, 2022 482,335 $ 38.19 Stock-based compensation expense associated with these PSUs is recognized if the underlying performance condition is considered probable of achievement using our management’s best estimates. As of September 30, 2022, there was no unrecognized compensation expense related to PSUs with performance-based vesting criteria that are considered probable of achievement, and $ 18.4 million of total unrecognized compensation expense related to PSUs with performance-based vesting criteria that are considered not probable of achievement. Market-based stock units The following table presents market-based stock unit, or MSU, activity for the nine months ended September 30, 2022: Number of Stock Units Weighted-Average Grant Date Fair Value Unvested shares at December 31, 2021 42,695 $ 41.50 Granted — — Unvested shares at September 30, 2022 42,695 $ 41.50 The fair value of MSUs are estimated using a Monte Carlo simulation model. Assumptions and estimates utilized in the model include the risk-free interest rate, dividend yield, expected stock volatility and the estimated period to achievement of the market condition. As of September 30, 2022, there was no remaining unrecognized compensation expense related to MSUs. 2013 Employee Stock Purchase Plan In June 2013, our Board of Directors adopted, and in July 2013 our stockholders approved, the 2013 Employee Stock Purchase Plan, or the 2013 ESPP. We issued and sold 104,867 and 94,888 shares of common stock during the nine months ended September 30, 2022 and 2021, respectively, under the 2013 ESPP. The 2013 ESPP provides participating employees with the opportunity to purchase up to an aggregate of 1,854,545 shares of our common stock. As of September 30, 2022, we had 1,289,780 shares of common stock available for future issuance under the 2013 ESPP. Stock-based compensation expense Stock-based compensation expense by award type included within the condensed consolidated statements of operations is as follows: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2022 2021 2022 2021 Stock options $ 5,864 $ 7,214 $ 17,720 $ 24,399 Restricted stock units 5,115 4,735 16,512 16,724 Performance-based stock units — — 2,919 — Employee stock purchase plan 177 199 680 764 Total stock-based compensation expense $ 11,156 $ 12,148 $ 37,831 $ 41,887 17 Table of Contents Expenses related to stock options and stock-based awards were allocated as follows in the condensed consolidated statements of operations: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2022 2021 2022 2021 Research and development expense $ 4,628 $ 5,607 $ 16,207 $ 19,002 Selling, general and administrative expense 6,528 6,541 21,624 22,885 Total stock-based compensation expense $ 11,156 $ 12,148 $ 37,831 $ 41,887 10. Loss per Share Basic net loss per share is calculated by dividing net loss by the weighted-average shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting the weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury stock method. For purposes of the dilutive net loss per share calculation, stock options, RSUs, PSUs and MSUs for which the performance and market vesting conditions, respectively, have been deemed probable, and 2013 ESPP shares are considered to be common stock equivalents, while PSUs and MSUs with performance and market vesting conditions, respectively, that were not deemed probable as of September 30, 2022 are not considered to be common stock equivalents. We utilize the control number concept in the computation of diluted earnings per share to determine whether potential common stock equivalents are dilutive. The control number used is net loss from continuing operations. The control number concept requires that the same number of potentially dilutive securities applied in computing diluted earnings per share from continuing operations be applied to all other categories of income or loss, regardless of their anti-dilutive effect on such categories. Since we had a net loss from continuing operations for all periods presented, no dilutive effect has been recognized in the calculation of income from discontinued operations per share. Basic and diluted net loss per share was the same for all periods presented. The following common stock equivalents were excluded from the calculation of diluted net loss per share applicable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect: Three and Nine Months Ended September 30, 2022 2021 Stock options 5,909,087 5,032,591 Restricted stock units 1,264,377 1,081,482 Performance-based stock units — — Employee stock purchase plan shares 10,503 7,470 Total common stock equivalents 7,183,967 6,121,543 11. Income Taxes We recorded no provision for income taxes for the three months ended September 30, 2022 and a provision of $ 3.9 million for the three months ended September 30, 2021, and recorded no provision for income taxes for the nine months ended September 30, 2022 and $ 16.8 million for the nine months ended September 30, 2021. The tax provision for the nine months ended September 30, 2021 was recorded within discontinued operations as it related to the income tax impact on the sale of our oncology business to Servier. There is no income tax expense recorded in continuing operations for the three and nine months ended September 30, 2022 and 2021. Cash taxes paid were $ 1.9 million and $ 8.9 million for the nine months ended September 30, 2022 and 2021, respectively. 12. Subsequent Events On October 27, 2022, we entered into an agreement with entities affiliated with Sagard Healthcare Partners, or Sagard, and sold our rights to the royalty on U.S. net sales of TIBSOVO® for $ 131.8 million. This royalty was part of the consideration for our March 31, 2021 sale of our oncology business to Servier. We received payment from Sagard on October 27, 2022. 18 Table of Contents