Akebia Therapeutics, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Financial statements are unaudited. Akebia is a kidney-disease biopharmaceutical company: Auryxia is its U.S.-marketed product, while vadadustat is an investigational anemia-of-CKD treatment in the U.S. and Europe and is marketed in Japan as Vafseo through a partner.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total revenue | $52.3 million | $88.5 million; down $36.2 million |
| U.S. product revenue, primarily Auryxia | $30.4 million | $29.2 million; up $1.2 million |
| License, collaboration and other revenue | $21.9 million | $59.3 million; down $37.4 million |
| Operating loss | $64.9 million | $59.1 million |
| Net loss | $69.6 million | $60.7 million |
| Basic and diluted loss per share | $0.45 | $0.47 |
| Cash and cash equivalents plus available-for-sale securities | $272.8 million at March 31, 2021 | $268.7 million at December 31, 2020 |
| Net cash used in operating activities | $70.7 million | $89.6 million |
| Long-term debt, net | $96.6 million at March 31, 2021 | $96.4 million at December 31, 2020 |
At March 31, 2021, total assets were $628.7 million, total liabilities $414.8 million and stockholders’ equity $213.9 million. The balance sheet also included a $46.9 million liability for monetized future royalties. Cash provided by financing was $74.5 million, including $44.8 million net proceeds from the royalty transaction and $29.3 million from common-stock issuance. Akebia reported 158.5 million common shares outstanding at quarter-end, compared with 148.1 million at year-end 2020.
Product cost of goods sold was $25.6 million, including $21.6 million of non-cash purchase-accounting inventory step-up charges and $5.1 million of inventory reserves associated primarily with a previously disclosed Auryxia manufacturing quality issue; an $8.9 million non-cash gain from reduced excess-purchase-commitment liabilities partly offset these costs. No separate product gross margin is reported.
Changes from the prior comparable period
- Total revenue fell mainly because Otsuka collaboration revenue declined as the global Phase 3 vadadustat program was completed in 2020. Management expected Otsuka revenue to continue decreasing in the near term.
- Research and development expense decreased to $40.6 million from $81.2 million, principally due to lower external costs for the completed Phase 3 program.
- Selling, general and administrative expense increased to $41.3 million from $38.0 million, primarily due to higher promotional spending.
- Net loss increased despite lower R&D expense, reflecting lower collaboration revenue, higher product costs and higher net other expense, including interest on the royalty financing.
- Auryxia net sales rose modestly, but management said COVID-19 continued to weigh on growth. The company also recorded substantially higher inventory reserves than in Q1 2020.
Outlook, risks and unusual items
- Vadadustat regulatory outlook: Akebia submitted a U.S. NDA in March 2021 for dialysis and non-dialysis adult patients; the submission did not include a Priority Review Voucher. The company expected an EMA application in 2021. Vadadustat is approved in Japan and MTPC began commercial sales there in August 2020.
- Key clinical uncertainty: Vadadustat met the primary cardiovascular-safety endpoint in the dialysis INNO2VATE program, but did not meet the primary MACE safety endpoint in the non-dialysis PRO2TECT program. Akebia said it remained cautious about potential U.S. and European approval for non-dialysis patients.
- Cash runway and funding: Management said cash resources were expected to fund the current operating plan for at least 12 months from the filing date, and described runway extending beyond an expected U.S. launch assuming timely approval and associated regulatory milestones. It cautioned that substantial additional funding would be needed beyond that period and that actual runway could be shorter; milestones, partner funding and additional financing are uncertain.
- Royalty monetization: Akebia received $44.8 million net from HealthCare Royalty Partners for specified MTPC-territory royalties and sales milestones, subject to a $13 million annual cap and $150 million aggregate cap. The proceeds are accounted for as a liability; the reported annual effective interest rate was 19.3%. Akebia may receive up to $5 million per year in 2021–2023 if specified sales milestones are achieved.
- Debt and covenants: The $100 million Pharmakon term loans bear floating interest at three-month LIBOR plus 7.50%, subject to stated floor and cap. They are secured by specified assets, including Auryxia-related assets and cash, and include minimum-liquidity and Auryxia-sales covenants. No default was reported at March 31, 2021.
- Auryxia supply, coverage and competition: Inventory reserves were tied to a previously disclosed manufacturing quality issue. Management also cited CMS’s continued exclusion of Auryxia for the iron-deficiency-anemia indication and prior-authorization requirements for the hyperphosphatemia indication as adverse to sales. Several generic patent settlements permit entry beginning March 20, 2025, subject to FDA approval; other litigation and approval timing remain relevant.
- COVID-19: Akebia attributed pressure on Auryxia growth to higher hospitalization and mortality in its CKD patient population, restricted access to dialysis clinics and virtual customer engagement. It warned of possible future manufacturing, clinical-enrollment and regulatory delays.
- Controls and contingencies: Management concluded disclosure controls were not effective because a material weakness in inventory controls remained unremediated at quarter-end, despite remediation work. The filing also describes ongoing patent, CMS and shareholder matters; management reported no significant legal dispute requiring a loss accrual.
Important facts for investors to verify
- FDA’s NDA filing-acceptance decision, review milestones, any requested additional analyses or studies, and the regulatory path for the PRO2TECT non-dialysis safety findings.
- Whether the planned European application proceeded and what label, restrictions or approval outcome regulators ultimately determine.
- Auryxia demand, COVID-19 effects, CMS coverage litigation, quality remediation and inventory reserves, and the timing and terms of potential generic competition.
- Actual operating cash use and financing needs against management’s conditional runway estimate; share issuance and potential dilution; and compliance with Pharmakon covenants.
- MTPC sales and the royalty-payment flow to HCR, including sales-milestone eligibility, the royalty liability’s effective-interest assumptions and when royalties may revert to Akebia.
- Evidence that inventory controls have operated effectively long enough for management to conclude the material weakness is remediated.