Akebia Therapeutics, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020; unaudited. Akebia is a kidney-disease biopharmaceutical company. Auryxia is marketed in the U.S.; vadadustat is a late-stage CKD-anemia candidate and was approved and launched in Japan as VAFSEO in 2020. The filing was signed November 5, 2020.
Financial performance and position
Amounts below are in millions of dollars unless stated otherwise.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Product revenue | $34.4 | $30.0 | $94.3 | $82.2 |
| License, collaboration and other revenue | $25.6 | $62.0 | $144.3 | $183.2 |
| Total revenue | $60.0 | $92.0 | $238.6 | $265.4 |
| Operating loss | $(58.1) | $(55.9) | $(291.0) | $(191.4) |
| Net loss | $(60.0) | $(54.6) | $(296.5) | $(185.2) |
| Net loss per share, basic and diluted | $(0.42) | $(0.46) | $(2.18) | $(1.57) |
- Q3 revenue fell 34.8%, principally because Otsuka collaboration revenue declined as Phase 3 studies reached readouts and close-out activities began. Auryxia product revenue rose 14.6% in Q3 and 14.7% year to date, primarily on higher unit sales.
- Nine-month reported cost of goods sold was $232.7 million, including a $115.5 million Auryxia intangible-asset impairment. Revenue less reported cost of goods sold was $5.9 million (2.5% of revenue), versus $158.3 million (59.6%) in 2019; this comparison includes impairment and other purchase-accounting and inventory charges.
- R&D expense declined to $180.9 million for nine months from $242.6 million, mainly due to lower vadadustat Phase 3 costs. SG&A increased to $113.6 million from $104.5 million. Interest expense contributed to the year-over-year increase in net loss.
- Nine-month operating cash use was $79.6 million, versus $165.3 million in 2019. Investing used $99.7 million, mainly purchases of securities; financing provided $201.2 million, mainly equity issuance. Cash, cash equivalents and restricted cash ended at $171.7 million.
- At September 30, cash and cash equivalents were $169.3 million and available-for-sale securities were $100.0 million, totaling $269.3 million in liquidity. Current assets were $391.0 million and current liabilities $181.5 million. Total assets were $676.1 million; stockholders’ equity was $318.0 million.
- Long-term debt had $80.0 million principal outstanding and a $76.6 million carrying value, net of discount and issuance costs. The loan bears floating interest at three-month LIBOR plus 7.50%, subject to stated floor and cap, and is secured by specified assets including Auryxia-related assets and cash.
- Common shares outstanding rose from 121.7 million at year-end 2019 to 143.3 million at September 30, 2020. Equity offerings generated $198.9 million net proceeds during the nine-month period.
Material developments, outlook and risks
- Vadadustat: INNO2VATE in dialysis-dependent patients met efficacy endpoints and its primary MACE safety non-inferiority endpoint (HR 0.96; 95% CI 0.83–1.11). PRO2TECT in non-dialysis patients met efficacy endpoints but did not meet its primary MACE safety endpoint (HR 1.17; 95% CI 1.01–1.36). Management planned to file a U.S. NDA as early as possible in 2021 for both populations, while expressing caution about potential approval for non-dialysis patients. An October 2020 pre-NDA meeting and an intended European application were reported.
- Vadadustat was approved in Japan in June and launched by MTPC in August. The approval triggered a $15 million milestone, received in Q3; Akebia also began recognizing Japanese VAFSEO royalties. The company paid $10 million relating to a potential priority review voucher, but assignment and use for its planned NDA remained subject to a definitive agreement.
- Management said available cash resources were expected to fund the current operating plan beyond the anticipated U.S. vadadustat launch, assuming approval. The company remains loss-making, expects significant expenses and states it will require additional capital for expanded development and commercial activities; funding may not be available on acceptable terms.
- Auryxia forecasts were reduced amid CMS’s continued exclusion of the IDA indication from Medicare Part D and prior-authorization requirements for the hyperphosphatemia indication. These factors contributed to the $115.5 million impairment and an increase in the excess-purchase-commitment liability to $41.0 million. Specific Auryxia lots were written down after a GMP validation issue; a limited voluntary recall occurred in Q2.
- Auryxia generic patent cases include settlements with Par, Teva/Watson and Lupin providing for potential licensed U.S. generic entry beginning March 20, 2025, subject to FDA approval and specified conditions. Litigation with other generic applicants remained. The CMS coverage challenge continued after the First Circuit affirmed denial of preliminary relief; the underlying dispute remained unresolved.
- COVID-19 had not caused a significant adverse impact to date, according to management, but could affect CKD patient demand, payer mix, sales, clinical work and third-party supply. The company also flagged manufacturing, reimbursement, regulatory, competition, patent and financing risks.
- Pharmakon loan covenants include quarterly minimum Auryxia net sales beginning Q4 2020 and an annual minimum liquidity threshold beginning in 2021. No default was reported at September 30, 2020.
- Management reported disclosure controls were not effective because of an unremediated material weakness in inventory controls, including inventory reconciliation, costing validation and expiry/reserve assessment. Remediation work was ongoing.
Important facts for investors to verify
- FDA’s assessment of PRO2TECT’s missed safety endpoint and the regulatory path, timing and potential label for vadadustat, especially in non-dialysis patients.
- Whether Auryxia sales, payer access and inventory needs support forecasts, and whether additional impairment or purchase-commitment charges arise.
- Progress on Auryxia manufacturing-quality remediation, recall implications and the reliability of inventory controls.
- Cash burn, collaboration funding and milestone/royalty receipts, capital needs, and compliance with Pharmakon’s sales and liquidity covenants.
- Outcomes and timing of Auryxia generic litigation and settlements, CMS coverage litigation, and other material legal proceedings.
- Whether the inventory-control material weakness is remediated and disclosure controls become effective.