Akebia Therapeutics, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Financial statements are unaudited. Akebia develops and commercializes kidney-disease therapies. Its marketed product is Auryxia; vadadustat was in global Phase 3 development during the quarter.
Key financial metrics
Amounts are in millions, except per-share data and percentages.
| Metric | Q1 2020 | Q1 2019 | Change / context |
|---|---|---|---|
| Product revenue, net | $29.2 | $23.1 | Up $6.1 (26%); company attributed growth mainly to increased units sold. |
| License, collaboration and other revenue | $59.3 | $49.6 | Up $9.7, mainly higher Otsuka collaboration revenue. |
| Total revenue | $88.5 | $72.7 | Up $15.8 (22%). |
| Cost of goods sold | $27.7 | $31.3 | Down $3.5, primarily due to a lower acquisition inventory fair-value step-up charge. |
| Operating expenses | $119.9 | $117.4 | Up $2.5; R&D declined slightly while SG&A increased. |
| Operating loss | $(59.1) | $(76.0) | Loss narrowed $16.8. |
| Net loss | $(60.7) | $(72.4) | Loss narrowed $11.7; 2019 included a $2.8 tax benefit. |
| Net loss per share, basic and diluted | $(0.47) | $(0.62) | Weighted-average shares were 128.4 million and 117.1 million, respectively. |
| Net cash used in operating activities | $(89.6) | $(137.9) | Lower use, with working-capital timing and clinical-program payments affecting both periods. |
| Cash, cash equivalents and restricted cash at period-end | $117.8 | $65.2 | Q1 2020 cash and cash equivalents on the balance sheet were $115.4 million. |
- Margins: Revenue less reported cost of goods sold was approximately $60.8 million, or 68.7% of revenue, versus approximately $41.4 million, or 57.0%, in Q1 2019. This is an arithmetic gross margin measure, not a separately reported company metric; collaboration revenue makes it less comparable to a conventional product gross margin.
- Liquidity: Current assets were $340.8 million and current liabilities $214.2 million at March 31, 2020. Accounts receivable was $104.9 million, up from $38.9 million at year-end 2019. The company attributed much of the cash decline to $49.5 million of Otsuka receipts arriving in April rather than March.
- Debt: Term-loan principal was $80.0 million; carrying value, net of discount and issuance costs, was $76.1 million. The loan is secured by specified assets, bears a floating rate based on three-month LIBOR plus 7.50% subject to stated floor and cap, and has covenants including minimum Auryxia sales beginning in Q4 2020 and a minimum liquidity threshold beginning in 2021.
- Equity financing: The company raised approximately $56.7 million net through its at-the-market offering during the quarter, issuing about 8.0 million shares. Shares outstanding rose from 121.7 million at December 31, 2019 to 130.3 million at March 31, 2020.
Material changes versus Q1 2019
- Auryxia sales increased, while collaboration revenue also rose, driven by Otsuka U.S. and international agreements.
- R&D expense declined $1.1 million to $81.2 million; vadadustat external costs fell as the Phase 3 studies progressed, partly offset by increased headcount and other costs. SG&A rose $3.7 million to $38.0 million, mainly from headcount and consulting.
- Product cost of goods sold fell $3.5 million, including a decrease in the non-cash fair-value inventory step-up charge from $14.6 million to $11.2 million.
- Operating cash use improved, but remained substantial. The company reported an accumulated deficit of $854.8 million and stated it had never been profitable.
Outlook, commentary and risks
- Runway and funding: Management said cash resources were expected to support the current operating plan well into 2021, including an anticipated $15 million MTPC regulatory milestone if vadadustat is approved in Japan. Management also said cash resources were sufficient for at least the next 12 months from filing. These are estimates subject to clinical, regulatory, spending and financing uncertainties; additional capital may be needed.
- Pipeline: The filing, signed May 5, 2020, reports that INNO₂VATE top-line results were announced in Q2 2020, after the reporting period. The studies met their reported non-inferiority efficacy and primary cardiovascular safety endpoints versus darbepoetin alfa in dialysis patients. PRO₂TECT top-line data were still expected in mid-2020. These subsequent developments are not Q1 financial results, and NDD-CKD results and regulatory review remained important milestones.
- COVID-19: Akebia reported no significant adverse financial or operational impact through the quarter, but cited uncertainty around demand, payer mix, customer orders, supply and clinical trials. In-person customer interactions had been suspended; the company noted COVID-related delays to enrollment in some new trials, while continuing remote monitoring and visits.
- Auryxia reimbursement and competition: CMS’s Medicare Part D coverage decision for the IDA indication and prior-authorization requirement for the hyperphosphatemia indication were described as adversely affecting sales. The company’s appeal was pending. Multiple generic applicants were litigating Auryxia patents; the filing reports a Par settlement and a post-quarter Teva/Watson settlement, each providing for a potential generic launch from March 20, 2025, subject to FDA approval and specified earlier-entry conditions.
- Unusual items and controls: Akebia expensed $10 million paid to Vifor Pharma in connection with a Priority Review Voucher arrangement; final assignment terms for use with vadadustat had not been agreed. Disclosure controls were deemed ineffective because of an unremediated material weakness in inventory controls, including inventory reconciliations, costing validation and expiry/reserve assessments. No significant legal-dispute loss liability was recorded at March 31, 2020, although litigation outcomes could not be predicted.
- Other commitments: Auryxia supply contracts include minimum purchase commitments of approximately $135.3 million with BioVectra through 2026 and $53.3 million with Siegfried through 2021. The filing also reports substantial clinical and other R&D contract costs and dependence on third-party manufacturers and research organizations.
- Guidance: No numerical full-year revenue or earnings guidance is provided. Management expected collaboration revenue to decline in the near term as major vadadustat studies approached completion; it expected 2020 R&D expense to decrease, while continuing to incur significant development costs, and SG&A to be relatively consistent with 2019.
Most important facts for investors to verify
- Timing and outcome of PRO₂TECT results, regulatory submissions and approvals, and whether the reported INNO₂VATE results translate into approval and commercial uptake.
- Actual Auryxia demand, payer mix, Medicare prior-authorization effects, and the status and outcomes of CMS and generic-patent proceedings.
- Cash runway assumptions, timing of collaboration receipts and milestones, future financing needs, and compliance with Pharmakon loan covenants.
- Remediation and independent testing of the inventory-control material weakness, including the reliability and valuation of inventory.
- COVID-19 effects on trials, supply continuity, sales and receivable collections, as well as the terms and eventual use or resale of the Priority Review Voucher.