Why Agios Pharmaceuticals Inc Stock Skyrocketed Today

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What happened

Agios Pharmaceuticals (NASDAQ: AGIO) is up 23% at 1:03 p.m. ET after announcing that its partner,Celgene (NASDAQ: CELG), plans to submit an application to the Food and Drug Administration for enasidenib by the end of the year.

So what

Enasidenib, which used to go by its codename AG-221, is used to treat patients with relapsed and/or refractory acute myeloid leukemia who have a mutated isocitrate dehydrogenase-2 (IDH2) gene. When IDH2 is mutated, it promotes the uncontrolled growth, which is inhibited by enasidenib.

Celgene, which licensed the drug from Agios, will ask for FDA approval based on a phase 1/2 trial that enrolled multiple cohorts of patients at different stages of disease development. The FDA will give accelerated approvals based on a phase 2 trial in a limited number of patients if the data show the drug is clearly working. Companies then have to follow up with another confirmatory study, but at least they can sell the drug while waiting for that extra data.

Now what

The initial data from the phase 1/2 trial has been positive, with enasidenib helping about 40% of patients, but Celgene and Agios Pharmaceuticals haven't released data from the final 30% or so of the patients enrolled in the trial. Assuming enasidenib helps the final patients as much as it did the earlier patients, Celgene should be able to get the FDA's blessing.

While Agios Pharmaceticals has to share profits from enasidenib with Celgene, investors should feel more confident with the endorsement from the more-stable, larger biotech. Smaller drug companies will sometimes gamble with marginal data hoping for an accelerated approval because it results in quicker revenue. Celgene doesn't need the earlier money to survive, so investors can assume the big biotech thinks the data are good enough to gain approval.

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Brian Orelli has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Celgene. The Motley Fool has the following options: short October 2016 $95 puts on Celgene. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.