Akebia Therapeutics, Inc. — 2016 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2016. This is an annual report, not a standalone fourth-quarter filing. Akebia is a clinical-stage biopharmaceutical company; it had no approved products or product-sales revenue.
Business context
The company’s lead candidate, oral vadadustat, is a HIF-prolyl hydroxylase inhibitor in Phase 3 development for anemia associated with chronic kidney disease (CKD). The global PRO2TECT and INNO2VATE programs compare vadadustat with darbepoetin alfa and are designed to enroll approximately 5,700 patients. The filing also describes preclinical candidates AKB-6899 and, under a February 2017 agreement with Janssen, AKB-5169 for inflammatory bowel disease.
Key financial metrics
| Metric | FY 2016 / Dec. 31, 2016 | FY 2015 / Dec. 31, 2015 |
|---|---|---|
| Collaboration revenue | $1.5 million | None |
| Research and development expense | $115.8 million | $43.0 million |
| General and administrative expense | $22.2 million | $18.5 million |
| Operating loss | $136.5 million | $61.5 million |
| Net loss | $135.7 million | $60.7 million |
| Net loss per share, basic and diluted | $3.60 | $2.29 |
| Cash, cash equivalents and available-for-sale securities | $260.3 million | $138.5 million |
| Working capital | $182.1 million | $129.1 million |
| Total assets | $300.2 million | $142.9 million |
| Total liabilities | $232.1 million | $11.9 million |
Operating cash flow was positive $57.9 million in 2016, compared with cash used of $52.4 million in 2015. The 2016 inflow chiefly reflected a $197.3 million increase in deferred revenue, alongside higher accrued expenses; it should not be read as cash generation from product operations. Investing activities provided $12.7 million and financing activities provided $66.9 million. Financing included equity issuance; the company reported no material conventional borrowings, while capital-lease obligations were approximately $14,000. It also disclosed substantial operating-lease commitments.
No product gross margin is applicable because the company had no product sales. The filing does not provide a meaningful product-sales margin or conventional operating-profit outlook.
Material changes versus prior year
- Net loss more than doubled, increasing by $75.0 million, primarily as Phase 3 development accelerated.
- Research and development expense rose $72.8 million, principally due to vadadustat Phase 3 activity and related manufacturing; general and administrative expense increased $3.7 million.
- Liquidity increased with collaboration funding and equity financing. Common shares outstanding rose from 30.7 million at year-end 2015 to 38.6 million at year-end 2016.
- Akebia signed a U.S. collaboration with Otsuka in December 2016. The filing reports a $125 million upfront payment and, after year-end, a $33.8 million reimbursement of previously incurred development costs.
Outlook, risks and notable items
- Development plans: Management anticipated U.S. and European marketing applications for vadadustat in 2019, subject to successful Phase 3 results and regulatory review. A roughly 300-patient, three-times-weekly dialysis study and an ESA-hyporesponder study were planned for the second half of 2017, with data expected in 2018.
- Funding and trial costs: Management expected current resources, together with anticipated collaboration funding, to support its operating plan into mid-2018, but said additional funding would be needed to complete the pivotal Phase 3 programs. Estimated external CRO costs for PRO2TECT and INNO2VATE were $456.0–$484.5 million; remaining committed Quintiles costs at year-end were approximately $406.4 million. A European or other geographic collaboration was a financing objective, not a secured source of funds.
- Collaborations: Otsuka and Akebia share U.S. development and commercialization costs and, if approved, U.S. profits equally; Otsuka also has milestone obligations, while the agreement gives it an option to convert to a royalty arrangement. MTPC’s potential additional funding depends partly on whether Japanese patients enter the global Phase 3 program or a local Japan program. Akebia reported up to $250 million in additional MTPC milestones and tiered royalties.
- Clinical uncertainty: Vadadustat’s Phase 3 trials assess hemoglobin efficacy and cardiovascular safety, including major adverse cardiovascular events. In a Phase 2b study, renal-related serious adverse events were reported more often in the vadadustat arm than placebo (9.4% versus 2.8%); the company attributed the difference possibly to investigator reporting variability. Three deaths occurred in the vadadustat group, one considered possibly related by the investigator; none occurred in placebo. These small-study observations do not establish comparative risk.
- Other risks: The company depends heavily on vadadustat, third-party manufacturers and CROs, and further capital or collaboration funding. Trial enrollment, regulatory decisions, reimbursement, competition from other HIF-PH inhibitors and established anemia therapies, and intellectual-property challenges could delay or limit development or commercialization.
- Legal and unusual items: A securities class action alleging omissions concerning the Phase 2b study was dismissed with prejudice on February 21, 2017; an appeal remained possible. European patent oppositions involving Akebia’s and FibroGen’s patents remained unresolved in part; FibroGen appealed certain revocations. Akebia also entered the Janssen license agreement after year-end, with potential milestone and royalty obligations.
Important facts for investors to verify
- Progress, enrollment, safety monitoring, and results from PRO2TECT and INNO2VATE, including the MACE analyses and the basis for the anticipated 2019 filing timetable.
- Cash runway and actual cash burn after 2016; the timing and conditions of Otsuka and MTPC funding; and the company’s plan to finance the estimated Phase 3 costs.
- The Japan development scenario selected with MTPC and its effect on funding, study costs, and the potential $20 million repayment or redirection described in the filing.
- Whether reported Phase 2 renal serious adverse events and deaths are clarified by larger, longer-term clinical data.
- Final outcomes of patent proceedings, any appeal of the securities-litigation dismissal, and the terms and economics of the Otsuka, MTPC, and Janssen agreements.