Akebia Therapeutics, Inc. quarterly report, Q2 FY2015

Akebia Therapeutics, Inc. — Q2 2015 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2015. Akebia is a clinical-stage biopharmaceutical company developing therapies based on HIF biology, primarily for kidney-disease anemia. It has no approved products and has generated no product revenue.

Financial results and position

Metric	Q2 2015	Q2 2014	First half 2015	First half 2014
Revenue	No product revenue	No product revenue	No product revenue	No product revenue
Research and development expense	$7.2 million	$5.5 million	$14.7 million	$11.7 million
General and administrative expense	$3.7 million	$2.3 million	$7.1 million	$6.1 million
Total operating expense / operating loss	$10.9 million	$7.8 million	$21.8 million	$17.7 million
Net loss	$10.7 million	$7.6 million	$21.4 million	$17.3 million
Basic and diluted net loss per share	$0.40	$0.39	$0.92	$9.48
Net cash used in operating activities	Not provided by quarter	$20.5 million	$12.7 million

Margins: Not meaningful because the company reported no revenue. At June 30, cash and cash equivalents were $76.2 million and available-for-sale securities were $76.5 million, totaling $152.8 million. Total current assets were $155.0 million; current liabilities were $5.9 million. Total liabilities were $5.9 million, including an $18,000 capital-lease obligation; the filing reports no material debt balance. Accumulated deficit was $122.1 million.

First-half financing provided $64.8 million, primarily from the April follow-on offering, which yielded approximately $64.6 million net proceeds from 8.36 million shares sold at $8.25 per share. Cash and cash equivalents increased by $43.5 million during the half. There were 28.88 million common shares outstanding at July 31, 2015.

Material changes versus prior comparable periods

• Q2 net loss increased $3.1 million year over year; first-half net loss increased $4.1 million. Operating expenses increased by $3.0 million in Q2 and $4.0 million in the first half.
• Management attributed higher R&D expense principally to AKB-6899 development, clinical and regulatory work, staffing and consulting, and patent costs. Lower stock compensation and reduced drug-manufacturing costs partly offset increases.
• G&A growth reflected higher personnel, professional, facilities and commercial-planning costs. First-half operating cash use rose $7.8 million year over year.
• First-half 2014 net loss per share was affected by $86.9 million of preferred-stock accretion before the IPO; the comparable net loss itself was $17.3 million.
• April 2015 follow-on financing increased shares outstanding and substantially bolstered liquidity.

Outlook, risks and notable items

• Management expected to begin a Phase 3 program for AKB-6548 in non-dialysis CKD patients in 2015, with enrollment targeted before year-end following ongoing U.S. and European regulatory discussions. It anticipated an NDA submission by 2019 if Phase 3 results supported filing.
• Results from the Phase 2 dialysis study were expected in Q3 2015; assuming positive results, management expected to begin a dialysis-patient Phase 3 program in 2016.
• AKB-6899 was in preclinical development. The company planned an IND filing and Phase 1 studies, and expected ophthalmology proof-of-concept work to conclude in early 2016.
• Management stated in MD&A that existing cash and investments were expected to fund its projected operating requirements into Q4 2016; the financial-statement note separately says resources would fund the current plan for at least the next 12 months. Actual runway depends on spending, study design, timing and access to financing.
• The company expects continuing and increasing losses and may need additional capital. Delayed or expanded trials, regulatory requirements, enrollment challenges, manufacturing dependencies and inability to obtain financing could delay, reduce or end development.
• AKB-6548 is the company’s principal clinical-stage asset. Although management reported positive Phase 2b results and no overall safety signal, the study had a higher incidence of serious adverse events in the treatment group, most commonly renal-related; further clinical evidence is uncertain.
• Intellectual-property proceedings pose risk to commercialization abroad. Akebia’s European patent covering AKB-6548 was under appeal; it was also challenging FibroGen patents in Europe and Japan. The Japanese Patent Office issued a preliminary decision finding challenged claims invalid, but the outcome remained uncertain. European proceedings could affect the ability to commercialize in the region.
• Other notable exposures include approximately $9.2 million of remaining R&D contract costs (contracts can generally be modified or cancelled), future operating and capital lease payments of $1.4 million, and no reported off-balance-sheet arrangements. A July 2015 subsidiary was formed to represent Akebia before EU regulators; AKB-6548 was assigned the name vadadustat.
• Management reported disclosure controls effective at the reasonable-assurance level and no material change in internal control over financial reporting during the quarter.

Investor verification priorities

• Track Phase 3 design, regulatory-agency feedback, enrollment timing and the dialysis Phase 2 readout against the stated milestones.
• Assess the nature and follow-up of serious adverse events in the Phase 2b study and how later trials address safety.
• Reconcile the stated cash runway: the MD&A projects into Q4 2016, while the note gives a minimum of the next 12 months; monitor quarterly cash use and financing needs.
• Review dilution from the follow-on offering and future equity compensation, and evaluate the company’s ability to raise capital on acceptable terms.
• Follow European and Japanese patent proceedings, including the scope and enforceability of Akebia’s patents and any surviving third-party claims.
• Monitor clinical-trial costs, cancellable R&D commitments, third-party manufacturing capacity, and the ability to secure reimbursement and dialysis-provider access if a product is approved.