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3 Big Reasons Agios Pharmaceuticals, Inc. Has Plunged 38% in 2016

By Sean Williams - Jul 3, 2016 at 4:05PM

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Drug safety and competitive concerns hold back Agios in the first half of 2016.

Image source: Getty Images.

What: Shares of Agios Pharmaceuticals ( AGIO -4.56% ), a clinical-stage biopharmaceutical company focused on the development of cancer therapeutics and drugs to treat metabolic disorders, have plunged 38% year to date, according to data from S&P Global Market Intelligence. There appear to be three main reasons for the substantial dip in the company's valuation in 2016.

So what: The first issue for Agios can be traced back to the beginning of the year, where investor sentiment turned strongly against the biotech industry. Uncertain markets tend to push investors out of riskier names, such as Agios, a company with no approved products or revenue. Although the stock market has rebounded well from its 2016 lows, the biotech industry remains among the worst-performing industries this year.

Secondly, safety concerns have plagued Agios Pharmaceuticals lately. At the European Hematology Association's annual meeting three weeks prior, Agios delivered preliminary results from its single- and multiple-dose escalating phase 1 study involving AG-519 in healthy volunteers. AG-519 is an oral second pyruvate kinase-R activator being examined for multiple metabolic disorders. In the phase 1 study, one subject receiving AG-519 in the 375 mg dose experienced a grade 2 thrombocytopenia, or low blood platelet count, which returned to normal a week after stopping treatment. Thrombocytopenia can be a worrisome side effect, and investors pounded Agios to the tune of 15% on the day of this data release.

Competition is also a concern. Agios' lead compounds are its IDO-inhibitors AG-221 and AG-120. While these developing drugs are moving into later-stage trials, Agios' competitors could have the opportunity to beat it to market with acute myeloid leukemia drugs of their own. This could potentially include Roche and AbbVie with Venetoclax and Seattle Genetics with SGN-CD33.

Image source: Getty Images.

Now what: For Agios' IDO-inhibiting drugs to realize their full sales potential, they'll really have to stand out against Venetoclax and other potential competitors. Between AG-120 and AG-221, I believe the IDH-2 mutant inhibitor AG-221 may prove to be superior. In earlier-stage data we learned that relapsed-refractory AML patients given AG-221 had a 37% response rate, which would certainly be good enough to consider AG-221 as a standard-of-care AML treatment.

Agios also has deep pockets and big support in its corner from Celgene ( CELG ), which has chosen to license AG-221, as well as AG-881, an earlier-stage pan-IDH mutant inhibitor. The licensing of AG-221 brought Agios the ability to earn up to $120 million in milestone payments and tiered royalties on net sales of the drug. Celgene, for its part through collaborations, has been "outsourcing" the costs of clinical studies and choosing only the best to move forward. The fact that Celgene chose to exercise its option with AG-221 bodes well for its future.

Agios is definitely not an investment for those investors with a weak stomach. If its IDO-mutant drugs fail to meet the mark in later-stage trials, Agios could have a long way to fall. The best plan here might be to hold off on investing in Agios until after we have the aforementioned late-stage data in hand. You could be giving up the initial phase 3 pop if the data is good with this strategy, but you'll also save yourself the pain of a failed study. You'd also have the opportunity to benefit over the long run from an increase in sales and future drug development.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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