Akebia Therapeutics, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Akebia is a kidney-disease biopharmaceutical company. Its commercial product is Auryxia; vadadustat is marketed in Japan and under FDA review in the United States. Financial amounts below are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Total revenue | $52.9 | $90.1 | $105.2 | $178.6 |
| Product revenue, net | $33.0 | $30.7 | $63.4 | $59.9 |
| License, collaboration and other revenue | $20.0 | $59.4 | $41.9 | $118.7 |
| Operating loss | $(79.3) | $(173.8) | $(144.3) | $(232.9) |
| Net loss | $(83.0) | $(175.8) | $(152.6) | $(236.5) |
| Net loss per share, basic and diluted | $(0.51) | $(1.28) | $(0.97) | $(1.78) |
- Product revenue grew about 7% in Q2 and 6% in the first half, primarily on higher Auryxia unit sales; management said COVID-19 continued to weigh on growth.
- Collaboration revenue fell sharply as the global Phase 3 vadadustat program concluded, reducing cost-share revenue from Otsuka. First-half 2020 also included a $15.0 million MTPC regulatory milestone.
- Cost of goods sold was $52.5 million in Q2, exceeding product revenue. It included a $30.3 million non-cash charge for excess Auryxia purchase commitments. The filing reports product gross profit as not applicable; product revenue less reported product cost of goods sold was negative.
- Research and development expense declined to $37.2 million in Q2 and $77.8 million for the first half, mainly due to lower vadadustat Phase 3 costs. SG&A rose to $41.7 million in Q2 and $83.0 million in the first half, primarily due to marketing and personnel costs.
- Operating cash use was $133.9 million for the first half, versus $52.4 million a year earlier. Cash, cash equivalents and restricted cash ended the period at $249.0 million; cash and cash equivalents on the balance sheet were $247.0 million. Investing activities provided $39.9 million, mainly from securities maturities; financing activities provided $111.8 million, including equity and royalty-sale proceeds.
- Current assets were $331.1 million and current liabilities $165.6 million at June 30. Long-term debt, net, was $96.9 million; the separate royalty-sale liability, net, was $49.1 million. Management said available cash would fund its current operating plan for at least 12 months from filing, while noting additional capital will be required beyond that period.
Material changes and notable items
- Net losses improved year over year, but comparability is substantially affected by the $115.5 million Auryxia intangible-asset impairment recorded in Q2 2020. Lower R&D spending also reduced the 2021 loss; lower collaboration revenue and higher interest expense partly offset those effects.
- In February 2021, Akebia received $44.8 million net from HCR in exchange for specified future vadadustat royalties and sales milestones in MTPC’s territory. The proceeds are recorded as a liability and accounted for as debt financing; the stated effective interest rate was 19.3% at June 30.
- Akebia raised $66.7 million net through ATM stock sales during the first half and reported 169.7 million shares outstanding at June 30, up from 148.1 million at year-end. The cover page reports 174.5 million shares outstanding as of July 30.
- The excess Auryxia purchase-commitment liability was $77.1 million at June 30, versus $55.8 million at year-end. A routine forecast update produced a $30.3 million Q2 charge; the first-quarter Siegfried agreement amendment had generated a $9.0 million non-cash benefit.
- In June, Akebia licensed praliciguat from Cyclerion, paid $3.0 million upfront, and expensed the payment as R&D. Additional development and regulatory milestones could total up to $222.0 million, plus commercial milestones and royalties.
Outlook, risks and contingencies
- The FDA accepted the vadadustat NDA in May 2021, assigned standard review, and set a PDUFA target action date of March 29, 2022. Akebia expected to submit an EU marketing application in 2021. The filing notes FDA was not then planning an advisory committee meeting.
- Vadadustat met the primary efficacy endpoint in the Phase 3 PRO2TECT program but did not meet its primary cardiovascular-safety endpoint in non-dialysis patients. Management remained cautious about potential approval for that population in the U.S. and Europe. INNO2VATE results in dialysis patients met reported efficacy and safety endpoints.
- Management expected Otsuka collaboration revenue to continue declining in the near term as Phase 3 close-out work proceeds. It expected R&D expense to remain lower than 2020 in the near term, but significant R&D spending to continue; SG&A was expected to increase modestly from 2020.
- Management expects COVID-19 to continue to negatively affect revenue growth, with risks to patient demand, in-person sales access, trial enrollment and third-party supply. Manufacturing partners were operating near normal at the time of filing, but future disruption remained possible.
- Key commercial and financing risks include Medicare’s continued noncoverage of Auryxia for its IDA indication, prior authorization for its hyperphosphatemia indication, potential generic competition, and the need for additional financing. Auryxia generic settlements generally provide for U.S. generic entry beginning March 20, 2025, subject to FDA approval and possible earlier-entry provisions; Mylan litigation and its approval stay were separate and remained unresolved in the filing.
- Akebia’s $100 million secured Pharmakon term loans carry a floating rate of three-month LIBOR plus 7.50%, subject to stated floor and cap, and include minimum liquidity and Auryxia net-sales covenants. The company reported no loan defaults as of June 30.
- Disclosure controls were not effective because a material weakness in inventory controls remained unremediated. Management said remediation actions were underway and targeted completion during 2021, subject to successful testing.
- Legal matters include the CMS coverage challenge, patent disputes concerning vadadustat and Auryxia generics, and shareholder litigation relating to the Keryx merger. The company said it could not reasonably estimate possible losses for the merger-related lawsuits.
Important facts for investors to verify
- Progress and outcome of FDA review of vadadustat by the March 29, 2022 target date, especially the implications of PRO2TECT’s cardiovascular-safety result for non-dialysis patients.
- Auryxia sales trends, payer mix and COVID-19 effects, along with the impact of CMS coverage restrictions and generic-entry litigation or settlements.
- Future operating cash burn and financing needs, including whether management’s stated cash runway assumptions and potential regulatory milestones are achieved.
- Changes in the $77.1 million excess purchase-commitment liability, inventory valuation and supply obligations, and whether the inventory-control material weakness is remediated.
- Terms and cash-flow effects of the HCR royalty arrangement, Pharmakon debt covenants, and any dilution from additional equity issuance.