Akebia Therapeutics, Inc. quarterly report, Q3 FY2021

Akebia Therapeutics, Inc. — Q3 2021 Form 10-Q

Reporting period: Three and nine months ended September 30, 2021. Figures below are unaudited; dollar amounts are in millions unless otherwise stated.

Business context

Akebia develops and commercializes kidney-disease therapies. Auryxia (ferric citrate) is its U.S. commercial product. Vadadustat, an oral treatment candidate for anemia due to chronic kidney disease (CKD), is marketed in Japan as Vafseo and was under U.S. FDA review. The FDA accepted Akebia’s NDA in May 2021 and set a March 29, 2022 PDUFA target date. Otsuka submitted an EU marketing application in October 2021.

Financial performance

Metric	Q3 2021	Q3 2020	Nine months 2021	Nine months 2020
Product revenue	$36.8	$34.4	$100.1	$94.3
License, collaboration and other revenue	$12.0	$25.6	$53.9	$144.3
Total revenue	$48.8	$60.0	$154.0	$238.6
Cost of goods sold	$15.9	$30.3	$103.0	$232.7
Operating loss	$(54.9)	$(58.1)	$(199.2)	$(291.0)
Net loss	$(59.5)	$(60.0)	$(212.2)	$(296.5)
Net loss per share	$(0.34)	$(0.42)	$(1.30)	$(2.18)

• Margins: Gross margin on total revenue, calculated as revenue less cost of goods sold, was approximately 32.7% in Q3 2021 and 33.1% for the first nine months of 2021. Comparisons are affected by inventory and intangible-asset charges described below.
• Cash flow: Operating cash outflow was $190.2 for the first nine months, versus $79.6 in 2020. Investing activities provided $39.9, principally from securities maturities; financing activities provided $128.3, including $44.8 from the royalty transaction and $82.8 from common-stock issuance. Cash, cash equivalents and restricted cash declined $21.9 to $209.2.
• Liquidity: Cash and cash equivalents were $207.2 at September 30; current assets were $330.1 and current liabilities $189.2. Management said resources were expected to fund the current operating plan for at least 12 months from the filing date, but additional funding would be needed beyond that period.
• Debt and royalty financing: The company had drawn $100.0 in secured term loans; long-term debt, net, was $97.2. It also recorded a $51.1 net liability for sold future royalties. The royalty liability’s effective interest rate was 19.2% at September 30.

Material changes versus comparable periods

• Q3 total revenue fell 18.7%, while nine-month revenue fell 35.5%, primarily because Otsuka cost-sharing revenue declined after completion of vadadustat’s global Phase 3 program. Akebia expected Otsuka collaboration revenue to continue declining in the near term.
• Auryxia product revenue increased 6.9% in Q3 and 6.2% for the first nine months. Management attributed the nine-month increase to higher unit sales and improved payer mix, partly offset by COVID-19 impacts; Q3 growth also reflected lower volume rebates and improved payer mix.
• Nine-month net loss narrowed by $84.3, substantially reflecting the absence of the $115.5 Auryxia intangible-asset impairment recorded in 2020, along with lower R&D costs after Phase 3 completion. Q3 net loss was nearly unchanged.
• Q3 product cost of goods sold included a $6.0 reduction in the excess-purchase-commitment liability. For the first nine months of 2021, product cost of goods sold included $21.6 of non-cash inventory step-up charges, $15.4 of non-cash excess-commitment charges and $7.1 of inventory write-downs.
• Shares outstanding rose to 174.6 million from 148.1 million at December 31, 2020, reflecting equity issuance and equity awards.

Outlook, risks and unusual items

• Management expected continued operating losses and significant expenses. U.S. vadadustat approval, if obtained, would bring significant additional commercialization costs; timely approval and related milestones were identified as important to cash runway.
• Vadadustat’s Phase 3 PRO₂TECT program met efficacy endpoints but did not meet its primary cardiovascular safety endpoint in non-dialysis patients. Management remained cautious about U.S. and European approval for that population. The FDA had not planned an advisory committee meeting when it accepted the NDA, but approval was not assured.
• COVID-19 continued to adversely affect CKD patients, access to healthcare providers and clinical-trial enrollment. The company expected a negative effect on revenue growth for the foreseeable future and noted potential supply-chain and operating impacts.
• Auryxia remains subject to Medicare Part D restrictions: it is not covered for the IDA indication, and prior authorization applies to the hyperphosphatemia indication. Akebia and CMS agreed to dismiss their litigation in October 2021; the restrictions remained in place.
• All disclosed Auryxia ANDA patent litigation had been settled by September 2021. The settlements generally permit generic entry beginning March 20, 2025, subject to FDA approval, or earlier in specified circumstances. Akebia reduced its excess-purchase-commitment liability partly in light of this timing.
• Manufacturing commitments remain substantial: approximately $110.6 for Auryxia supply through the relevant contract terms with BioVectra and Siegfried, plus vadadustat supply commitments to certain manufacturers. The filing also reported a $71.2 excess-purchase-commitment liability.
• Disclosure controls were deemed ineffective because a material weakness in inventory controls had not been remediated as of September 30, 2021. Management had implemented additional controls and planned continued remediation.
• Two putative shareholder class actions relating to the Keryx merger were consolidated in New York; Akebia denied wrongdoing and said it could not estimate potential losses. The filing also described ongoing vadadustat patent disputes and other legal proceedings.

Most important facts for investors to verify

• FDA review progress, the March 29, 2022 action date, and the implications of the PRO₂TECT safety result for any U.S. label.
• Cash burn, the stated 12-month operating-plan runway, funding needs beyond that period, and compliance with Pharmakon liquidity and Auryxia-sales covenants.
• Auryxia sales trends, reimbursement restrictions, COVID-19 effects, and the potential impact and timing of generic competition.
• Inventory valuation, excess supply commitments, manufacturing quality and supply obligations, and remediation of the inventory-control material weakness.
• Vadadustat collaboration revenue and royalties, HCR repayment/cap mechanics, and the timing and availability of potential regulatory or sales milestones.
• Developments in the merger-related shareholder actions and material patent proceedings.