Akebia Therapeutics, Inc. — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. The annual report was filed March 12, 2018. Akebia is a clinical-stage biopharmaceutical company; it had no approved products and generated no product-sale revenue.
Business context and development
Akebia’s lead candidate, oral vadadustat, is a HIF prolyl-hydroxylase inhibitor in Phase 3 development for anemia associated with chronic kidney disease (CKD). The PRO 2 TECT and INNO 2 VATE programs compare vadadustat with darbepoetin alfa and include cardiovascular safety assessment based on major adverse cardiovascular events (MACE). Together, the programs are designed to enroll up to approximately 6,900 patients. Akebia also licensed preclinical HIF compound AKB-5169 for development in inflammatory bowel disease.
Financial performance and liquidity
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Collaboration revenue | $178.0 million | $1.5 million |
| Research and development expense | $230.9 million | $115.8 million |
| General and administrative expense | $27.0 million | $22.2 million |
| Operating loss | $79.9 million | $136.5 million |
| Net loss | $76.9 million | $135.7 million |
| Basic and diluted loss per share | $1.77 | $3.60 |
| Net cash from/(used in) operating activities | $(56.2) million | $57.9 million |
Collaboration revenue was principally recognized under agreements with Otsuka and Mitsubishi Tanabe Pharma Corporation (MTPC); it is not product revenue. Higher collaboration revenue substantially reduced the annual operating and net losses despite sharply higher R&D spending, chiefly for the Phase 3 program. Akebia reported a fourth-quarter net income of $12.3 million, following losses in the first three quarters, largely reflecting collaboration revenue recognition; the company remained loss-making for the full year. Profit margins are not a meaningful indicator for this precommercial business.
At year-end, cash, cash equivalents and available-for-sale securities totaled $317.8 million, up from $260.3 million. Working capital was $214.0 million; total assets were $364.2 million and stockholders’ equity was $119.3 million. The balance sheet reports $244.9 million of total liabilities, including deferred collaboration revenue and accrued expenses; no material interest-bearing debt balance is identified in the provided filing text. Cash and cash equivalents alone were $70.2 million, with $247.6 million in available-for-sale securities. The company reported $116.2 million of financing cash inflow, primarily from common-stock issuance, and a $177.3 million investing cash outflow, primarily reflecting purchases of marketable securities.
Material changes and notable items
- Collaboration revenue increased by $176.4 million year over year, while R&D expense increased by $115.1 million, including an $85.8 million increase related to PRO 2 TECT and INNO 2 VATE.
- Akebia received $125.0 million upfront under the Otsuka U.S. agreement and $73.0 million upfront under the Otsuka international agreement in connection with agreements entered in 2016 and 2017, respectively. The agreements also provide development-cost funding, potential milestones and, for international territories, royalties.
- Akebia sold $50.0 million of common stock to Vifor Pharma at $14.00 per share. The conditional Vifor license covers sales to Fresenius Kidney Care clinics and depends on FDA approval for dialysis patients, inclusion in bundled reimbursement and a $20.0 million milestone payment.
- Common shares outstanding increased from 38.6 million to 47.6 million during 2017. The company reported no cash dividends and no issuer share repurchases.
- Management identified and corrected an immaterial R&D expense and related collaboration-revenue error affecting 2016 and first-quarter 2017. A material weakness in controls over CRO cash advances and related revenue recognition, identified earlier in 2017, was reported as remediated in the fourth quarter. Management concluded year-end internal control over financial reporting and disclosure controls were effective; the auditor did not audit internal control effectiveness.
- Adoption of the new revenue standard (ASC 606) was planned for January 1, 2018 using full retrospective application. Management estimated a $3.2 million increase in 2017 MTPC revenue, with no estimated 2017 revenue effect for Otsuka; final adoption impacts could differ.
Outlook, risks and contingencies
- Management expected existing resources, including committed collaborator funding, to fund its current operating plan into the second quarter of 2019. This is an estimate based on assumptions; the filing states additional capital will be required for further development and pipeline expansion.
- As of December 31, 2017, remaining external CRO costs for PRO 2 TECT and INNO 2 VATE were estimated at $420 million to $450 million. Costs could rise if trials take longer, enrollment or site counts change, or protocols or supporting studies are added. Top-line data were anticipated in 2019, contingent on MACE accrual; a 2020 vadadustat launch was conditional on approval.
- Akebia revised the FO 2 RWARD and TRILO 2 GY study designs. It expected to initiate FO 2 RWARD in the second quarter of 2018, with results anticipated in late 2018 or early 2019, and TRILO 2 GY in late 2018 or early 2019, with results anticipated in early 2020.
- Key risks include Phase 3 efficacy and cardiovascular safety outcomes, trial timing and enrollment, regulatory approval, competition from other HIF-PH inhibitors and injectable ESAs, reimbursement and market adoption, reliance on collaborators and third-party manufacturers, and the need for additional financing. Vadadustat’s safety and efficacy claims remain unproven in Phase 3.
- Intellectual-property proceedings remain relevant. FibroGen appealed European patent revocations, and appeals were pending regarding a separate patent maintained with narrowed claims. Akebia also withdrew its appeal of its European vadadustat patent and filed a divisional application; grant and scope of the claims were uncertain.
- Operating lease payments totaled approximately $30.4 million before $0.3 million of expected sublease income. The company had no off-balance-sheet arrangements as of year-end.
Investor verification priorities
- Track PRO 2 TECT and INNO 2 VATE enrollment, MACE accrual, trial costs and the timing and interpretation of efficacy and safety results.
- Reconcile collaboration revenue recognition, deferred revenue, collaborator reimbursements and final ASC 606 adoption adjustments.
- Assess cash runway against the forecast, remaining Phase 3 costs, collaborator funding terms and the likelihood and dilution impact of future financing.
- Verify FDA and international regulatory requirements, reimbursement assumptions and commercial plans, including the conditional Vifor/Fresenius arrangement.
- Monitor patent appeals and the vadadustat divisional application, as well as manufacturing readiness and supply redundancy ahead of any potential launch.