Business context and reporting period
Akebia Therapeutics, Inc. is a kidney-disease biopharmaceutical company. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2019. Auryxia is its marketed U.S. product; vadadustat was in global Phase 3 development for anemia due to CKD. Comparisons with 2018 are affected by the December 2018 Keryx merger: consolidated Auryxia product sales and related costs began being recorded after the merger.
Key financial metrics
Amounts below are in millions of dollars, except per-share data.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $92.0 | $53.2 | $265.4 | $147.9 |
| Net product revenue | $30.0 | — | $82.2 | — |
| Operating loss | $(55.9) | $(27.8) | $(191.4) | $(88.0) |
| Net loss | $(54.6) | $(26.0) | $(185.2) | $(83.5) |
| Basic and diluted loss per share | $(0.46) | $(0.46) | $(1.57) | $(1.54) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(165.3) | $(23.8) |
Q3 cost of goods sold was $38.3 million, including $9.1 million of acquired-intangible amortization; nine-month cost of goods sold was $107.2 million, including $27.3 million of amortization. Product cost of goods sold included purchase-accounting inventory step-up charges of $18.0 million in Q3 and $51.6 million for the nine months. The filing does not provide a clear normalized product margin excluding these items. Research and development expense was $74.5 million in Q3 and $242.6 million for the nine months; selling, general and administrative expense was $34.2 million and $104.5 million, respectively.
At September 30, cash and cash equivalents were $122.9 million and available-for-sale securities were $22.7 million, totaling $145.6 million. Current assets were $299.0 million and current liabilities $223.1 million. Total assets were $795.2 million, total liabilities $327.7 million, and stockholders’ equity $467.6 million. The balance sheet showed no debt at September 30; the $15.0 million revolving-credit balance outstanding at December 31, 2018 had been repaid. Nine-month cash and restricted cash increased $18.1 million, despite $165.3 million used in operations, primarily as securities matured or were sold.
Material changes versus the prior comparable period
- Nine-month revenue rose $117.6 million, including $82.2 million of Auryxia sales not recorded in the consolidated 2018 comparison because of the merger. Collaboration, license and other revenue increased $35.4 million to $183.2 million.
- Operating and net losses widened substantially, reflecting the addition of Auryxia-related costs and amortization, increased R&D and commercial expenses, and the inventory fair-value step-up. Nine-month R&D increased $38.6 million and SG&A increased $72.6 million.
- Cash and securities fell from $321.6 million at December 31, 2018 to $145.6 million at September 30, 2019, largely as investments were liquidated to fund operations. Accounts receivable rose to $29.7 million from $16.7 million.
- Otsuka’s share of current global development costs increased from 52.5% to 80% in Q2 2019. Akebia recognized $26.1 million of additional estimated funding under this option as of September 30.
Outlook, risks and unusual items
- Management expected cash resources, collaborator funding and the anticipated $100 million Pharmakon term loan to support its current operating plan into Q1 2021. However, the filing states that an ASC 205-40 analysis found “substantial doubt” about the company’s ability to meet obligations through the 12 months after issuance, in part because certain anticipated milestone receipts are outside the company’s control for that analysis. Additional financing may be needed.
- After quarter-end, Akebia signed a Pharmakon agreement for up to $100 million in two tranches, subject to conditions: an $80 million first tranche was scheduled for November 25, 2019, and an optional $20 million tranche was available through December 31, 2020. The loans carry interest at three-month LIBOR plus 7.50%, subject to specified floor and cap, and are secured by certain assets including Auryxia-related assets. Covenants include minimum Auryxia sales beginning Q4 2020 and minimum liquidity beginning 2021. Akebia also terminated its SVB facility after quarter-end and paid a $0.8 million termination fee.
- Vadadustat Phase 3 enrollment was completed in Q3; the two global trials enrolled 7,436 subjects. The company cited remaining external CRO costs of $95 million to $120 million and warned costs could rise with safety events, protocol changes or delays. Regulatory approval and commercial success remain uncertain.
- MTPC submitted a Japanese new drug application for vadadustat in July, triggering a $10 million milestone recognized in the nine-month results. Otsuka and MTPC collaboration revenue remains a major revenue and funding source; future milestones and royalties are uncertain.
- CMS’s Medicare Part D coverage decision excludes Auryxia when used for the IDA indication and requires prior authorization for Medicare prescriptions to confirm use for the covered hyperphosphatemia indication. Akebia filed suit in October 2019 seeking to reverse these decisions; management said the restrictions adversely affected and could continue to affect sales.
- Auryxia inventory was $200.9 million, including $84.9 million classified in other assets as long-term inventory. The company recorded $6.0 million of inventory write-downs over nine months and warned further write-downs may be needed if sales underperform.
- Akebia had substantial minimum Auryxia drug-substance purchase commitments: approximately $135.7 million with BioVectra through 2026 and $66.3 million with Siegfried through 2021. It also disclosed pending patent litigation against generic applicants; a settlement gives Par a license to market a generic, subject to FDA approval, beginning March 20, 2025, or earlier in certain circumstances. Other generic cases remained pending.
- Fexeric was not marketed in the EU; its authorization was due to cease to be valid on December 23, 2019 unless marketing commenced. Other material uncertainties include merger integration, clinical and regulatory risks, intellectual-property disputes, reimbursement, manufacturing dependence and the possibility of further capital needs.
Important facts for investors to verify
- Whether and when the Pharmakon first tranche funded, whether the optional tranche is drawn, and compliance with debt covenants and collateral obligations.
- Actual cash burn, collaborator funding and the assumptions supporting management’s projected runway, given the stated substantial doubt and dependence on financing and milestone events.
- Auryxia prescription, net-sales and payer trends, including the effects of Medicare prior authorization, the CMS litigation and generic competition.
- Vadadustat Phase 3 results, safety and regulatory timelines, and remaining trial costs; Japan’s application outcome and any related milestone receipts.
- Inventory use and recoverability, manufacturing commitments, and any resulting write-downs or supply constraints.
- Developments in generic patent litigation, the Par settlement, other legal proceedings and Fexeric’s EU authorization.