Why Agios Pharmaceuticals Inc. Shares Flopped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Agios Pharmaceuticals (NASDAQ: AGIO  ) , a clinical-stage biopharmaceutical company focused on developing therapies aimed at cancer metabolism and inborn errors of metabolism, plunged as much as 12% after reporting its first-quarter earnings results before the opening bell.

So what: For the quarter, Agios produced $8.4 million in revenue compared to $6.3 million in the prior-year period, which was comprised of amortized deferred revenue from a collaboration with Celgene (NASDAQ: CELG  ) . The boost from last year came from Celgene's extension of its collaborative drug discovery agreement in Dec. through April 2015. As is also to be expected with more clinical work ongoing, research and development expenses rose, which pushed its net loss to $12.2 million, or $0.39 per share, from $7.2 million in the year-ago quarter. Agios ended the quarter with $167.3 million in cash and cash equivalents, down $26.6 million from the sequential fourth quarter; but it does anticipate $95 million in net proceeds from a share offering that was recently completed. By comparison, Wall Street was expecting a slightly narrower loss of $0.37 per share.

Now what: Short-sellers have been looking for any reason to get a good hold of Agios after its phenomenal run higher, and today's EPS miss could be it, at least over the short term. The two key points investors should focus on here, though, are Agios' cash position, which it believes will equal more than $200 million by year's end and sustain the company through mid-2017, and the ongoing development of AG-221, its blood cancer drug. Even though AG-221 has only been studied in phase 1 trials, the early results, including three complete responses and two partial responses, were astounding. There's obviously a long development process still ahead, but these early results from AG-221 signify possible blockbuster potential if everything continues to run smoothly. Agios is a company I'd strongly suggest you add to your watchlist.

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