Agios Strikes Metabolic Immuno-Oncology Deal With Celgene

Agios Pharmaceuticals, Inc. (NASDAQ:AGIO) came up with several important corporate announcements. The company announced an agreement with Celgene Corporation (NASDAQ:CELG) , focusing on metabolic immuno-oncology while amending certain rights from their 2010 collaboration agreement. Agios also updated the financial guidance for 2016 following the metabolic immuno-oncology collaboration.

We expect investors to react positively to the news.

Terms of the Metabolic Immuno-Oncology Deal

Agios and Celgene announced a new global strategic collaboration focused on metabolic immuno-oncology for the discovery, development and commercialization of novel therapies utilizing Agios’ innovative cellular metabolism research platform. The collaboration aims to discover novel metabolic pathways and their modulators that affect the metabolic state of immune cells, which may serve as potent anticancer therapies. In addition, Agios will focus on discovering molecular markers in order to identify patients who are most likely to respond to therapies.

The new deal will see Agios receiving a $200 million upfront cash payment for an initial four-year research term with Celgene having the option to extend the research term for up to two years for a pre-specified fee. While Agios will lead exploratory research, drug discovery and early development, the agreement gives Celgene the right to designate collaboration programs at the pre-clinical stage, with Celgene having an option on each program through phase I dose escalation for at least a $30 million fee.

For metabolic immuno-oncology programs, Celgene and Agios will enter into a global co-development and co-commercialization agreement under which costs and profits will be split equally. Agios is eligible for up to $169 million in clinical and regulatory milestone payments for each program. Celgene will get a one-time chance to decide on a metabolic immuno-oncology program for which costs and profits will be split 65% by Celgene and 35% by Agios. Agios will receive up to $209 million in clinical and regulatory milestone payments for this particular program.

Now if any inflammation or autoimmune programs are generated as a result of the collaboration, Celgene will have the option to enter into an exclusive global license agreement including leading worldwide development and commercialization. For any such licensed product, Agios may receive up to $386 million in clinical, regulatory and commercial milestone payments plus double-digit tiered royalties on net sales.

Notably, Agios and Celgene will alternate leadership for all 50/50 programs in the U.S. with Agios making the first program selection while Celgene will lead ex-U.S. development and commercialization for all programs. Celgene will lead worldwide development and commercialization for the 65/35 program.

Agios Gains Global Rights to AG-120

Both Agios and Celgene also agreed to amend certain rights under their 2010 collaboration with Agios gaining full global development and commercialization rights to AG-120 (a first-in-class, oral, potent inhibitor of mutant isocitrate dehydrogenase 1 (IDH1)). Previously, Agios held only the U.S. rights to AG-120.

We note that Agios had entered into a discovery and development collaboration and license agreement focused on targeting cancer metabolism with Celgene in Apr 2010.

Neither party will have financial or other obligations to each other related to AG-120 as of Aug 15, 2016. There are no other changes to the existing IDH partnership (AG-221 and AG-881) between Agios and Celgene.

However, two cancer metabolism programs that were discovered under the 2010 agreement, including a program focused on MTAP (methylthioadenosine phosphorylase) deleted cancers, will advance under the structure of the new research collaboration.

All other cancer metabolism programs discovered at Agios following the expiration of the discovery phase of the 2010 agreement on Apr 14, 2016, will be wholly owned by the company.

2016 Guidance Updated

Agios updated the financial guidance for 2016 following the new metabolic immuno-oncology collaboration. As a result of an upfront payment of $200 million related to the new collaboration, Agios’ pro forma cash balance as of Mar 31, 2016, stands at $556 million.

Agios now expects to end 2016 with cash, cash equivalents and marketable securities of more than $390 million (previous guidance: cash, cash equivalents and marketable securities of more than $180 million). While the updated cash guidance takes into account full ownership of AG-120 (as of Aug 15, 2016), it does not include any potential milestone payment.

The company expects that its cash, cash equivalents and marketable securities will be sufficient to fund its operating expenses and capital expenditure requirements through mid 2018.

Agios is a Zacks Rank #3 (Hold) stock. A couple of better-ranked stocks in the health care sector are ANI Pharmaceuticals, Inc. (NASDAQ:ANIP) and Retrophin, Inc. (NASDAQ:RTRX) , each sporting a Zacks Rank #1 (Strong Buy).