Akebia Therapeutics, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Akebia is a clinical-stage biopharmaceutical company developing HIF-based therapies. It had no approved products and generated no product revenue.
Financial performance and liquidity
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | $20.2 million | $6.7 million |
| General and administrative expense | $5.8 million | $4.2 million |
| Total operating expenses | $26.0 million | $10.9 million |
| Net loss | $25.8 million; $0.70 per share | $10.7 million; $0.53 per share |
| Comprehensive loss | $25.8 million | $10.7 million |
| Net cash from (used in) operating activities | $17.4 million | $(8.3) million |
| Cash and cash equivalents plus available-for-sale securities | $217.0 million at March 31, 2016 | $138.5 million at December 31, 2015 |
Research and development costs rose primarily because of the PRO 2 TECT Phase 3 program, which added $12.5 million, partly offset by $1.1 million lower spending on the completed dialysis Phase 2 study. Higher G&A reflected increased staffing and compensation, commercial planning, and legal costs. No meaningful operating margin is applicable because the company had no revenue.
Q1 operating cash flow was positive mainly because of the $40.0 million Mitsubishi Tanabe payment recorded as deferred revenue—not operating profitability. Financing provided $61.2 million, primarily from the January follow-on offering; investing used $85.0 million, largely reflecting purchases of marketable securities. Cash and cash equivalents alone were $43.4 million. The filing reports no material debt; it discloses $32.3 million of future minimum lease payments and a $22,000 present value of capital lease payments.
Material changes and business developments
- Akebia sold 7.25 million common shares at $9.00 per share in January 2016, receiving approximately $61.0 million net. Shares outstanding increased to 37.9 million at quarter-end from 30.7 million at year-end 2015.
- The Mitsubishi Tanabe collaboration generated a $40.0 million upfront/development payment in January, classified as long-term deferred revenue. The agreement provides for up to $350 million in total payments, including up to $250 million in additional milestones, plus tiered royalties from the low teens to 20% on sales in Japan and certain Asian countries. If Japanese patients are excluded from both global Phase 3 programs, $20 million of the payment would fund local development or be refunded.
- Total assets were $221.4 million and stockholders’ equity was $167.8 million at March 31, 2016; accumulated deficit was $187.2 million. There were no significant income-tax provisions or benefits.
Outlook, risks, and contingencies
- Management expected available cash and securities to fund its current operating plan through at least Q2 2017, but stated these resources would not fund completion of both vadadustat Phase 3 programs. The runway estimate depends on assumptions and additional capital will be needed.
- Management planned to start INNO 2 VATE, the Phase 3 program in dialysis-dependent CKD patients, in 2016, with full enrollment anticipated by early 2018. PRO 2 TECT, the non-dialysis Phase 3 program, began dosing in December 2015. The company anticipated an NDA submission in 2019 if Phase 3 results support prior findings. It planned to begin AKB-6899 Phase 1 studies in 2016 and anticipated completing the study in late 2017.
- Akebia estimated Phase 3 costs of $80,000–$85,000 per patient and planned to enroll about 3,100 PRO 2 TECT and 2,600 INNO 2 VATE patients—an estimated total program cost of $456.0–$484.5 million. Remaining Quintiles contract costs were approximately $238.8 million through Q3 2019; other R&D contract costs were approximately $13.7 million and were generally modifiable or cancellable.
- The company intended to seek another geographic collaboration to help fund Phase 3 development; there was no assurance it could secure a partner or other financing. Further equity financing could dilute shareholders, while inadequate funding could delay, reduce, or end development programs.
- Key risks include clinical, regulatory, enrollment, manufacturing, reimbursement, and commercialization uncertainty; dependence on vadadustat; reliance on CROs and contract manufacturers; and intellectual-property disputes. A securities class action alleging IPO-related misstatements about the Phase 2b study was remanded to Massachusetts state court in April 2016. Akebia said it considered the claims meritless and had not accrued a loss because the outcome and potential loss could not be estimated.
- In a European opposition, FibroGen’s ’823 patent was revoked in March 2016, subject to FibroGen’s appeal. Japanese patent claims were amended and, as amended, did not cover vadadustat or pyridine carboxamide compounds. Other European patent oppositions remained unresolved; adverse outcomes could affect commercialization rights.
- Management concluded disclosure controls were effective at the reasonable-assurance level. The filing reported no material changes in internal control over financial reporting and no off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether enrollment, timing, and safety and efficacy results in PRO 2 TECT and INNO 2 VATE remain consistent with the stated development plan.
- Whether cash burn and the Q2 2017 runway estimate remain achievable, and how the company intends to fund Phase 3 costs beyond existing resources.
- Whether Mitsubishi Tanabe funding conditions are met, including the treatment of the potential $20 million local-development funding or refund.
- Progress toward an additional geographic collaboration and the terms, if any, of future financing.
- Developments in the securities litigation and patent proceedings, including FibroGen’s appeal and the unresolved European oppositions.