Akebia Therapeutics, Inc. — Q1 2017 Form 10-Q
Business context and reporting period
Reports the three months ended March 31, 2017. Akebia is a clinical-stage biopharmaceutical company developing HIF-based therapeutics. Its lead candidate, oral vadadustat, was in Phase 3 development for anemia associated with chronic kidney disease (CKD). The company had no approved products and generated no product-sale revenue.
Key financial metrics
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Collaboration revenue | $20.9 million | None |
| Research and development expense | $60.0 million | $20.2 million |
| General and administrative expense | $5.8 million | $5.8 million |
| Operating loss | $45.0 million | $26.0 million |
| Net loss | $44.5 million | $25.8 million |
| Basic and diluted net loss per share | $1.15 | $0.70 |
| Cash from operating activities | Used $9.5 million | Provided $17.4 million |
At March 31, cash and cash equivalents were $87.3 million and available-for-sale securities were $164.6 million, totaling $251.8 million. Current assets were $255.1 million and current liabilities were $133.5 million. Total liabilities were $228.6 million, principally deferred collaboration revenue; the filing reports no material debt. Cash, cash equivalents and securities totaled $260.3 million at December 31, 2016. The quarter’s $100.1 million decrease in cash alone largely reflected purchases of available-for-sale securities; the combined cash-and-securities balance decreased by about $8.5 million.
No product gross margin was reported; the company had no product sales. The filing reports an accumulated deficit of $341.7 million and no significant income tax provision or benefit. The present value of capital-lease payments was approximately $11,000.
Material changes versus the prior comparable period
- Collaboration revenue of $20.9 million was recognized under the U.S. Otsuka agreement; none was recognized in Q1 2016. Revenue was recognized over performance of development services, and $136.4 million remained deferred at quarter-end.
- R&D expense rose $39.8 million, primarily from the vadadustat Phase 3 program ($33.0 million increase in vadadustat-related costs), the $3.4 million fair value of a warrant issued under the Janssen agreement, and higher headcount and related costs. The Janssen agreement also generated a $1.0 million license fee.
- Net loss widened by $18.7 million. Operating cash flow shifted from $17.4 million provided to $9.5 million used; the prior-year period included a $40.0 million increase in deferred revenue.
- Stock-based compensation increased to $5.4 million from $1.3 million, including the $3.4 million Janssen warrant charge.
Outlook, management commentary, risks and unusual items
- Management said March-end cash and securities, together with committed collaboration funding, were expected to fund the current operating plan into Q1 2019. The company cited at least $373 million of committed collaborator funding; $73 million was received from Otsuka in April 2017. Management cautioned that timing and sufficiency depend on assumptions, milestones and continued partner funding, and that additional capital will be needed for further development.
- In April 2017, Akebia entered an Otsuka agreement for Europe and other territories. Otsuka was expected to pay at least $208 million, including $73 million on signing and at least $135 million in development funding, and Akebia received the $73 million in April. The agreement also provides potential milestones and tiered royalties.
- Management expected the vadadustat PRO 2 TECT and INNO 2 VATE Phase 3 programs to enroll approximately 5,700 patients, with a cap that could bring total enrollment to 6,300. Estimated external CRO costs were $504.0 million to $535.5 million. Akebia planned another Phase 3 study in hemodialysis patients in the second half of 2017 and anticipated U.S. and European marketing applications in 2019, subject to trial results and regulatory review.
- Vadadustat’s development, safety and regulatory outcomes remain uncertain; enrollment delays, trial results, manufacturing or CRO performance, and the need for additional studies could increase costs or delay approval. The company depends on collaborators and third-party manufacturers and CROs, and has no commercial sales infrastructure.
- Japan development funding from MTPC depends in part on whether Japanese patients can join the global Phase 3 program or a separate local program is required. Akebia expected this determination after Japanese Phase 2 results and consultation with Japan’s regulator, anticipated in the second half of 2017.
- Patent proceedings remain a risk, including an appeal by FibroGen of European patent revocations and unresolved oppositions to other European patents. The company’s 2015 securities class action was dismissed with prejudice in February 2017; the plaintiff did not appeal.
- The Janssen agreement provided a research-term license to HIF compounds, including preclinical AKB-5169 for inflammatory bowel disease. Akebia planned further preclinical work toward a possible IND application in 2018. It also planned further evaluation of AKB-6899.
- The company adopted the new stock-compensation forfeiture accounting in Q1; the filing reports a $0.2 million cumulative reduction to retained earnings. It planned to adopt the new revenue-recognition standard in 2018 and was assessing potential effects on collaboration revenue timing.
Important facts for investors to verify
- Whether the Phase 3 vadadustat trials meet enrollment, safety and efficacy objectives, and whether the anticipated 2019 filing timeline remains achievable.
- Actual cash burn and whether collaborator funding, including Otsuka’s quarterly development payments and MTPC funding, arrives as expected.
- How the Japan development scenario affects MTPC payments, study requirements and timing.
- Whether clinical-trial costs, including the Quintiles commitment, remain within management’s estimates and whether additional financing is required.
- Developments in patent appeals and oppositions, particularly the European proceedings that could affect commercialization rights.
- The accounting and timing of collaboration revenue under the planned 2018 revenue-standard adoption, and any changes to deferred revenue or performance obligations.