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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-36014
AGIOS PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware26-0662915
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
88 Sidney Street, Cambridge, Massachusetts
02139
(Address of Principal Executive Offices)(Zip Code)
(617649-8600
(Registrant’s Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, Par Value $0.001 per shareAGIONasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filer☐  Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No    ☒
Number of shares of the registrant’s Common Stock, $0.001 par value, outstanding on July 24, 2020: 69,110,084


Table of Contents
AGIOS PHARMACEUTICALS, INC.
FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020
TABLE OF CONTENTS
 
Page
No.
Item 1.
Item 2.
Item 3.
Item 4.
Item 1A.
Item 5.



Table of Contents
PART I. FINANCIAL INFORMATION
Item 1.  Financial Statements (Unaudited)
AGIOS PHARMACEUTICALS, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share and per share data)
June 30,
2020
December 31,
2019
Assets
Current assets:
Cash and cash equivalents$295,858  $80,931  
Marketable securities 494,270  483,946  
Accounts receivable, net12,023  8,952  
Collaboration receivable – related party2,537  1,539  
Collaboration receivable – other1,827  1,928  
Royalty receivable – related party1,650  2,900  
Inventory 11,231  7,331  
Prepaid expenses and other current assets26,959  24,177  
Total current assets846,355  611,704  
Marketable securities4,285  152,929  
Operating lease assets89,208  93,643  
Property and equipment, net33,925  31,472  
Financing lease assets793  993  
Other assets1,575    
Total assets$976,141  $890,741  
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$15,461  $21,896  
Accrued expenses41,911  53,142  
Deferred revenue – related party  10,933  
Operating lease liabilities6,672  6,642  
Financing lease liabilities309  273  
Total current liabilities64,353  92,886  
Deferred revenue, net of current portion – related party  50,580  
Operating lease liabilities, net of current portion101,874  106,074  
Financing lease liabilities, net of current portion491  673  
Liability related to the sale of future revenue, net of debt issuance costs250,958    
Total liabilities417,676  250,213  
Stockholders’ equity:
Preferred stock, $0.001 par value; 25,000,000 shares authorized; no shares issued or outstanding at June 30, 2020 and December 31, 2019
    
Common stock, $0.001 par value; 125,000,000 shares authorized; 69,058,696 and 68,401,105 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
69  68  
Additional paid-in capital2,203,599  2,156,363  
Accumulated other comprehensive income1,636  202  
Accumulated deficit(1,646,839) (1,516,105) 
Total stockholders’ equity558,465  640,528  
Total liabilities and stockholders’ equity$976,141  $890,741  
See accompanying Notes to Condensed Consolidated Financial Statements.
1

Table of Contents
AGIOS PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Operations
(Unaudited)

Three Months Ended June 30,Six Months Ended June 30,
(In thousands, except share and per share data)
2020201920202019
Revenues:
Product revenue, net$27,581  $13,727  $50,255  $22,865  
Collaboration revenue – related party5,735  8,979  65,832  26,898  
Collaboration revenue – other692  812  1,685  1,782  
Royalty revenue – related party3,339  2,703  6,673  4,903  
Total revenue37,347  26,221  124,445  56,448  
Cost and expenses:
Cost of sales675  303  1,208  637  
Research and development90,917  107,389  182,173  202,974  
Selling, general and administrative35,951  32,390  74,452  64,181  
Total cost and expenses127,543  140,082  257,833  267,792  
Loss from operations(90,196) (113,861) (133,388) (211,344) 
Interest income, net1,769  3,990  4,705  8,395  
Non-cash interest expense for the sale of future revenue(2,051)   (2,051)   
Net loss$(90,478) $(109,871) $(130,734) $(202,949) 
Net loss per share – basic and diluted$(1.31) $(1.87) $(1.90) $(3.46) 
Weighted-average number of common shares used in computing net loss per share – basic and diluted68,958,091  58,722,244  68,784,109  58,589,167  

See accompanying Notes to Condensed Consolidated Financial Statements.
2

Table of Contents
AGIOS PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)


Three Months Ended June 30,Six Months Ended June 30,
(In thousands)
2020201920202019
Net loss$(90,478) $(109,871) $(130,734) $(202,949) 
Other comprehensive income
Unrealized gain on available-for-sale securities1,562  974  1,434  2,661  
Comprehensive loss$(88,916) $(108,897) $(129,300) $(200,288) 

See accompanying Notes to Condensed Consolidated Financial Statements.

3

Table of Contents
AGIOS PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
(Loss) Income
Accumulated
Deficit
Total
Stockholders’
Equity
(in thousands, except share amounts)SharesAmount
Balance at December 31, 201968,401,105  $68  $2,156,363  $202  $(1,516,105) $640,528  
Common stock issued under stock incentive plan and ESPP388,820  1  5,464  —  —  5,465  
Stock-based compensation expense—  —  19,690  —  —  19,690  
Other comprehensive loss—  —  —  (128) —  (128) 
Net loss—  —  —  —  (40,256) (40,256) 
Balance at March 31, 202068,789,925  $69  $2,181,517  $74  $(1,556,361) $625,299  
Common stock issued under stock incentive plan and ESPP268,771  $—  $1,652  $—  $—  $1,652  
Stock-based compensation expense—  —  20,430  —  —  20,430  
Other comprehensive income—  —  —  1,562  —  1,562  
Net loss—  —  —  —  (90,478) (90,478) 
Balance at June 30, 202069,058,696  $69  $2,203,599  $1,636  $(1,646,839) $558,465  


Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
(Loss) Income
Accumulated
Deficit
Total
Stockholders’
Equity
(in thousands, except share amounts)SharesAmount
Balance at December 31, 201858,218,653  $58  $1,794,283  $(2,171) $(1,104,633) $687,537  
Common stock issued under stock incentive plan and ESPP441,168  1  6,002  —  —  6,003  
Stock-based compensation expense—  —  18,108  —  —  18,108  
Other comprehensive income—  —  —  1,687  —  1,687  
Net loss—  —  —  —  (93,078) (93,078) 
Balance at March 31, 201958,659,821  $59  $1,818,393  $(484) $(1,197,711) $620,257  
Common stock issued under stock incentive plan and ESPP89,365  $—  $2,770  $—  $—  $2,770  
Stock-based compensation expense—  —  18,547  —  —  18,547  
Other comprehensive income—  —  —  974  —  974  
Net loss—  —  —  —  (109,871) (109,871) 
Balance at June 30, 201958,749,186  $59  $1,839,710  $490  $(1,307,582) $532,677  

See accompanying Notes to Condensed Consolidated Financial Statements.
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AGIOS PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
(In thousands)20202019
Operating activities
Net loss$(130,734) $(202,949) 
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation4,906  4,042  
Stock-based compensation expense40,120  36,655  
Net accretion of premium and discounts on investments473  (2,019) 
Non-cash operating lease expense4,435  4,208  
Non-cash interest expense associated with the sale of future revenue2,051    
Non-cash royalty revenue(1,650)   
Changes in operating assets and liabilities:
Accounts receivable, net(3,071) (2,071) 
Collaboration receivable – related party(998) (62) 
Collaboration receivable – other101  (1,552) 
Royalty receivable – related party1,250  (466) 
Inventory(3,900) (3,790) 
Prepaid expenses and other current and non-current assets(4,357) (2,517) 
Accounts payable(7,524) (1,874) 
Accrued expenses(8,595) 7,071  
Deferred revenue – related party(61,513) (22,449) 
Operating lease liabilities(4,149) (3,649) 
Net cash used in operating activities(173,155) (191,422) 
Investing activities
Purchases of marketable securities(189,601) (144,231) 
Proceeds from maturities and sales of marketable securities328,883  343,372  
Purchases of property and equipment(8,688) (3,309) 
Net cash provided by investing activities130,594  195,832  
Financing activities
Payments on financing lease obligations(166)   
Net proceeds from stock option exercises and employee stock purchase plan7,117  8,668  
Proceeds from the sale of future revenue, net of issuance costs250,537    
Net cash provided by financing activities257,488  8,668  
Net change in cash and cash equivalents214,927  13,078  
Cash and cash equivalents at beginning of the period80,931  70,502  
Cash and cash equivalents at end of the period$295,858  $83,580  
Supplemental disclosure of non-cash investing and financing transactions
Additions to property and equipment in accounts payable and accrued expenses$3,621  $535  
Proceeds from stock option exercises in other current assets$  $112  
Operating lease liabilities arising from obtaining operating lease assets$  $42,856  
See accompanying Notes to Condensed Consolidated Financial Statements.
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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 the fundamental transformation of 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. We are located in Cambridge, Massachusetts.
Basis of presentation
The condensed consolidated balance sheet as of June 30, 2020, the condensed consolidated statements of operations, comprehensive loss and stockholders' equity for the three and six months ended June 30, 2020 and 2019, and the condensed consolidated statements of cash flows for the six months ended June 30, 2020 and 2019 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 June 30, 2020, our results of operations and stockholders' equity for the three and six months ended June 30, 2020 and 2019, and cash flows for the six months ended June 30, 2020 and 2019. The financial data and the other financial information disclosed in these notes to the condensed consolidated financial statements related to the three and six-month periods are also unaudited. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any other future annual or interim period. The condensed consolidated balance sheet data as of December 31, 2019 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, 2019 that was filed with the Securities and Exchange Commission, or the SEC, on February 19, 2020.
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.
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 sales, 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 the actions taken to contain it 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 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 Bristol Myers Squibb, or BMS, to Royalty Pharma, or RPI, for $255.0 million. Under the 2010 Agreement, we remain eligible to receive a $25.0 million potential
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milestone payment for the enasidenib program 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.
As of June 30, 2020, we had cash, cash equivalents and marketable securities of $794.4 million, which included the $255.0 million proceeds from RPI received in the second quarter of 2020. 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
Significant accounting policies
In June 2016, the Financial Accounting Standards Board, or FASB issued Accounting Standards Update, or ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which introduces new guidance for the accounting for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The guidance is effective for fiscal years beginning after December 31, 2019, including interim periods within those years.
In the quarter ended March 31, 2020, we adopted ASU 2016-13, which eliminated the concept of other-than-temporary impairments and required credit losses on debt securities to be recorded through an allowance for credit losses instead of as a reduction in the amortized cost basis of the securities. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. Based upon our analysis, the adoption of this final rule did not have a material impact on the financial statements.
Liability related to sale of future revenue
We treat the sale of future revenue to RPI as a debt financing, as we have significant continuing involvement in the generation of the cash flows. As result, we recorded the proceeds from this transaction as a liability related to the sale of future revenue to be amortized to interest expense using the effective interest rate method over the life of the arrangement.
The liability related to sale of future revenue and the related interest expense are based on our current estimates of future royalties expected to be paid over the life of the arrangement. We will periodically assess the expected royalty payments using a combination of internal projections and forecasts from external sources. To the extent our future estimates of royalty payments are greater or less than previous estimates or the estimated timing of such payments is materially different than its previous estimates, we will prospectively recognize related non-cash interest expense.
For further discussion of the sale of future revenue, refer to Note 10, Sale of Future Revenue.
Amortization of issuance costs
We treated the liability related to sale of future revenue as a debt financing. As such, the long-term liability is initially recorded at its proceeds, net of deferred costs. Issuance costs, fees directly related to the sale of future revenue, are offset against initial carrying value of the long-term liability and are amortized on a straight-line basis over the remaining patent life of the product to an operating expense.
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, 2019.
Recent accounting pronouncements
Other accounting standards that have been issued by the FASB 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. Accounting Standards Codification, or 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.
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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.
The following table summarizes our cash equivalents and marketable securities measured at fair value on a recurring basis as of June 30, 2020:
(In thousands)Level 1Level 2Level 3Total
Cash equivalents$215,368  $13,593  $  $228,961  
Total cash equivalents215,368  13,593    228,961  
Marketable securities:
U.S. Treasuries  165,283    165,283  
Government securities  83,653    83,653  
Corporate debt securities  249,619    249,619  
Total marketable securities  498,555    498,555  
Total cash equivalents and marketable securities$215,368  $512,148  $  $727,516  
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 market observable 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 June 30, 2020.
There have been no changes to the valuation methods during the six months ended June 30, 2020. We evaluate transfers between levels at the end of each reporting period. We have no financial assets or liabilities that were classified as Level 3 at any point during the six months ended June 30, 2020.
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 income 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, 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 balance sheet 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 six months ended June 30, 2020 and 2019.
Marketable securities at June 30, 2020 consisted of the following:
(In thousands)Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Current:
U.S. Treasuries$164,611  $679  $(7) $165,283  
Government securities81,011  166  (23) 81,154  
Corporate debt securities247,003  861  (31) 247,833  
Total Current492,625  1,706  (61) 494,270  
Non-current:
U.S. Treasuries        
Government securities2,499      2,499  
Corporate debt securities1,786      1,786  
Total Non-current4,285      4,285  
Total marketable securities$496,910  $1,706  $(61) $498,555  
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Marketable securities at December 31, 2019 consisted of the following:
(In thousands)Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Current:
U.S. Treasuries$178,721  $58  $(38) $178,741  
Government securities80,228  17  (16) 80,229  
Corporate debt securities224,928  139  (91) 224,976  
Total Current483,877  214  (145) 483,946  
Non-current:
U.S. Treasuries35,296  3  (13) 35,286  
Government securities17,587  14  (10) 17,591  
Corporate debt securities99,913  239  (100) 100,052  
Total Non-current152,796  256  (123) 152,929  
Total marketable securities$636,673  $470  $(268) $636,875  
As of June 30, 2020 and December 31, 2019, 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 June 30, 2020 and December 31, 2019, we held 28 and 113 debt securities, respectively, that were in an unrealized loss position for less than one year. We did not record an allowance for credit losses as of June 30, 2020 and December 31, 2019 related to these securities. The aggregate fair value of debt securities in an unrealized loss position at June 30, 2020 and December 31, 2019 was $129.7 million and $345.7 million, respectively. There were no individual securities that were in a significant unrealized loss position as of June 30, 2020 and December 31, 2019. Given our intent and ability to hold such securities until recovery, and the lack of significant change in the credit risk of these investments, we do not consider these marketable securities to be impaired as of June 30, 2020 and December 31, 2019.
5. Inventory
Inventory, which consists of commercial supply of TIBSOVO®, consists of the following:
(In thousands)June 30,
2020
December 31,
2019
Raw materials$1,329  $180  
Work-in-process8,679  6,808  
Finished goods1,223  343  
Total inventory$11,231  $7,331  

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 eight 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 option is not reasonably certain of being exercised. The lease agreements do not contain residual value guarantees. Operating lease costs for the three and six months ended June 30, 2020 were $3.8 million and $7.6 million, respectively, and cash paid for amounts included in the measurement of operating lease liabilities for the three and six months ended June 30, 2020 were $3.5 million and $7.4 million, respectively. Operating lease costs for the three and six months ended June 30, 2019 were $3.8 million and $6.8 million, respectively, and cash paid for amounts included in the measurement of operating lease liabilities for the three and six months ended June 30, 2019 were $3.2 million and $6.3 million, respectively.
We have not entered into any material short-term leases or financing leases as of June 30, 2020.
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As of June 30, 2020, undiscounted minimum rental commitments under non-cancelable leases, for each of the next five years and total thereafter were as follows:
(In thousands)
Remaining 2020$5,886  
202114,380  
202216,773  
202318,126  
202418,660  
202519,507  
Thereafter44,385  
Undiscounted minimum rental commitments$137,717  
Interest(29,171) 
Operating lease liabilities$108,546  
In arriving at the operating lease liabilities as of June 30, 2020 and December 31, 2019, we applied the weighted-average incremental borrowing rate of 5.7% for both periods over a weighted-average remaining lease term of 7.7 years and 8.2 years, respectively.
7. Accrued Expenses
Accrued expenses consist of the following:
(In thousands)June 30,
2020
December 31,
2019
Accrued compensation$12,897  $18,982  
Accrued research and development costs18,697  21,777  
Accrued professional fees4,393  8,335  
Accrued other5,924  4,048  
Total accrued expenses$41,911  $53,142  

8. Product Revenue
We sell TIBSOVO®, our wholly owned product, to a limited number of specialty distributors and specialty pharmacy providers, or collectively, the Customers. The 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®.
The performance obligation related to the sale of TIBSOVO® 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.
Three Months Ended June 30,Six Months Ended June 30,
(In thousands)2020201920202019
Product revenue, net$27,581  $13,727  $50,255  $22,865  
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.
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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 for fees 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 consist of 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 six months ended June 30, 2020:
(In thousands)Contractual AdjustmentsGovernment RebatesReturnsTotal
Balance at December 31, 2019$874  $1,124  $1,798  $3,796  
Current provisions relating to sales in the current year6,522  4,266  726  11,514  
Adjustments relating to prior years(3) 22