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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 September 30, 2022
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 October 28, 2022: 54,944,856


Table of Contents    
AGIOS PHARMACEUTICALS, INC.
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
 
Page
No.
Item 1.
Item 2.
Item 3.
Item 4.
Item 1A.
Item 6.



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)
September 30,
2022
December 31,
2021
Assets
Current assets:
Cash and cash equivalents$122,449 $203,126 
Marketable securities605,231 816,892 
Accounts receivable, net1,818  
Other receivable3,774 4,378 
Inventory 5,176  
Prepaid expenses and other current assets46,487 39,835 
Total current assets784,935 1,064,231 
Marketable securities298,352 266,375 
Operating lease assets67,692 75,124 
Property and equipment, net25,438 28,923 
Financing lease assets 183 
Other non-current assets3,903 2,900 
Total assets$1,180,320 $1,437,736 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$10,415 $16,700 
Accrued expenses29,756 31,967 
Operating lease liabilities13,342 10,828 
Financing lease liabilities83 331 
Total current liabilities53,596 59,826 
Operating lease liabilities, net of current portion75,499 85,659 
Other non-current liabilities1,055 276 
Total liabilities130,150 145,761 
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 capital2,374,755 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’ equity1,050,170 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)
2022202120222021
Revenues:
Product revenue, net$3,516 $ $7,430 $ 
Milestone revenue  2,500  
Total revenue3,516  9,930  
Operating expenses:
Cost of sales$517 $ $1,291 $ 
Research and development64,966 64,000 209,612 183,674 
Selling, general and administrative29,123 27,152 88,902 89,917 
Total operating expenses94,606 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, net3,818 256 6,305 504 
Other income, net1,082 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 diluted54,844,579 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)
2022202120222021
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 StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
(Loss) Income
Accumulated
Deficit
Treasury StockTotal
Stockholders’
Equity
(in thousands, except share amounts)SharesAmountSharesAmount
Balance at December 31, 202170,550,631 $71 $2,334,348 $(1,198)$(238,760)(16,216,411)$(802,486)$1,291,975 
Common stock issued under stock incentive plan and ESPP442,646 — 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, 202270,993,277 $71 $2,351,147 $(7,745)$(333,534)(16,216,411)$(802,486)$1,207,453 
Common stock issued under stock incentive plan and ESPP38,515 — 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, 202271,031,792 $71 $2,362,327 $(10,502)$(425,340)(16,216,411)$(802,486)$1,124,070 
Common stock issued under stock incentive plan and ESPP78,650 — 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, 202271,110,442 $71 $2,374,755 $(15,083)$(507,087)(16,216,411)$(802,486)$1,050,170 
4

Table of Contents    
Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
(Loss) Income
Accumulated
Deficit
Treasury StockTotal
Stockholders’
Equity
(in thousands, except share amounts)SharesAmountSharesAmount
Balance at December 31, 202069,293,920 $69 $2,242,801 $105 $(1,843,475) $ $399,500 
Common stock issued under stock incentive plan and ESPP518,285 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, 202169,812,205 $70 $2,265,713 $(3)$30,850  $ $2,296,630 
Common stock issued under stock incentive plan and ESPP592,577 — 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, 202170,404,782 $70 $2,306,304 $(144)$(55,367)(10,493,968)$(529,047)$1,721,816 
Common stock issued under stock incentive plan and ESPP110,554 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, 202170,515,336 $71 $2,322,460 $(198)$(144,133)(15,800,152)$(783,438)$1,394,762 
See accompanying Notes to Condensed Consolidated Financial Statements.
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AGIOS PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
(In thousands)20222021
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 amortization6,750 7,038 
Stock-based compensation expense37,831 41,887 
Net amortization of premium (accretion of discount) on marketable securities721 5,326 
Loss on disposal of property and equipment29 9 
Non-cash operating lease expense7,432 7,129 
Changes in operating assets and liabilities:
Accounts receivable, net(1,818) 
Inventory(5,176) 
Other receivables604 (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 liabilities779  
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 securities947,296 492,911 
Purchases of property and equipment(4,768)(1,239)
Net cash provided by (used in) investing activities - continuing operations160,310 (459,739)
Net cash provided by investing activities - discontinued operations 1,802,936 
Net cash provided by investing activities160,310 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 plan2,576 37,029 
Net cash provided by (used in) financing activities - continuing operations2,328 (747,182)
Net cash provided by financing activities - discontinued operations  
Net cash provided by (used in) financing activities2,328 (747,182)
Net change in cash and cash equivalents(80,677)272,788 
Cash and cash equivalents at beginning of the period203,126 127,436 
Cash and cash equivalents at end of the period$122,449 $400,224 
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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.
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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 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
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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.
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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 not 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.

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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® recorded 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.
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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 1Level 2Level 3Total
Cash equivalents$39,314 $43,946 $ $83,260 
Total cash equivalents39,314 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 securities125,827  (2,387)123,440 
Corporate debt securities405,159  (3,336)401,823 
Total Current611,716 15 (6,500)605,231 
Non-current:
U.S. Treasuries16,381  (551)15,830 
Government securities190,206 2 (5,392)184,816 
Corporate debt securities100,363  (2,657)97,706 
Total Non-current306,950 2 (8,600)298,352 
Total marketable securities$918,666 $17 $(15,100)$903,583 
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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 securities17,764 1 (10)17,755 
Corporate debt securities530,490 3 (429)530,064 
Total Current817,363 4 (475)816,892 
Non-current:
U.S. Treasuries40,607  (23)40,584 
Government securities148,820  (470)148,350 
Corporate debt securities77,675  (234)77,441 
Total Non-current267,102  (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 not 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-process4,397  
Finished goods779  
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)2022202120222021
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 
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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 
202318,126 
202418,660 
202519,507 
202620,151 
202720,755 
Thereafter3,479 
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 
20234,329
20244,459
20251,101
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 costs7,716 5,980 
Accrued professional fees2,242 2,335 
Accrued other4,051 3,834 
Total accrued expenses$29,756 $31,967 
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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)2022202120222021
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 AdjustmentsGovernment RebatesReturnsTotal
Balance at December 31, 2021$ $ $ $ 
Current provisions relating to sales in the current year298 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