Akebia Therapeutics, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Unaudited consolidated results. Akebia develops and commercializes kidney-disease therapies: Auryxia is marketed in the U.S.; vadadustat remained in global Phase 3 development for U.S. and other markets and was approved in Japan in June 2020 as VAFSEO.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $90.1m | $100.8m | $178.6m | $173.5m |
| Auryxia product revenue | $30.7m | $29.1m | $59.9m | $52.2m |
| License, collaboration and other revenue | $59.4m | $71.7m | $118.7m | $121.3m |
| Operating loss | $(173.8)m | $(59.5)m | $(232.9)m | $(135.5)m |
| Net loss | $(175.8)m | $(58.2)m | $(236.5)m | $(130.6)m |
| Net loss per share, basic and diluted | $(1.28) | $(0.49) | $(1.78) | $(1.11) |
| Operating cash used | — | $(52.4)m | $(176.3)m |
Liquidity and debt: At June 30, cash and cash equivalents were $245.4m and available-for-sale securities were $49.9m, or $295.3m combined. Current assets were $449.1m and current liabilities $195.8m. Long-term debt, net of discount and issuance costs, was $76.3m; principal outstanding was $80.0m. The loan bears interest at three-month LIBOR plus 7.50%, subject to a 2.00% floor and 3.35% cap. Total liabilities were $374.9m; accumulated deficit was $1.03bn.
Margins and unusual charges: The filing reports total cost of goods sold of $174.6m in Q2, including a $115.5m Auryxia intangible-asset impairment. Reported operating results therefore include a substantial non-cash impairment; the filing does not provide a normalized margin measure. Product cost of goods sold also included inventory write-downs and purchase-commitment charges.
Material changes and key developments
- Q2 revenue declined $10.7m year over year as Otsuka collaboration revenue fell, partly offset by higher Auryxia sales, an MTPC regulatory milestone and $4.0m of vadadustat validation-product revenue. Six-month revenue increased $5.2m, mainly reflecting higher Auryxia product revenue.
- Auryxia sales rose year over year, attributed primarily to increased units sold. Management said it had not seen a significant COVID-19 effect on sales through June, but could not predict future demand or payer-mix effects.
- The $115.5m Auryxia intangible impairment followed a reduced revenue forecast, attributed primarily to CMS’s removal of Medicare Part D coverage for the IDA indication and prior-authorization requirements for the hyperphosphatemia indication. The asset’s estimated useful life was shortened from nine to seven years.
- Akebia recorded an additional $11.0m charge for excess BioVectra purchase commitments, increasing the associated liability to $41.5m. It also wrote down approximately $10.1m of inventory over the first half, primarily involving lots that did not conform to FDA GMP validation guidance; a limited voluntary recall of specific lots was initiated.
- Research and development expense fell to $52.8m in Q2 and $134.1m for the first half, primarily as external vadadustat Phase 3 costs declined following INNO2VATE top-line results and as PRO2TECT neared completion. SG&A was $35.5m for Q2 and $73.5m for the first half.
- Cash from financing included $198.9m net proceeds from equity issuance: $56.7m from ATM sales in Q1 and $142.4m from a May public offering. Shares outstanding increased from 121.7m at year-end 2019 to 143.1m at June 30, 2020.
Outlook, risks and contingencies
- Management stated cash resources were expected to fund the current operating plan beyond the anticipated U.S. vadadustat launch, assuming approval, and beyond 12 months from filing. It also said additional capital will be required for development and commercial activities and may not be available on acceptable terms.
- At the filing date, Akebia expected PRO2TECT top-line results in early September 2020 and said it expected R&D expense to decrease in 2020 as the Phase 3 program advanced toward completion, while significant R&D spending would continue. Management expected SG&A in 2020 to be relatively consistent with 2019 and forecast Auryxia cost of goods sold to decrease with quality and process improvements.
- Management reported positive top-line INNO2VATE results in dialysis-dependent patients: vadadustat met the prespecified non-inferiority efficacy endpoints versus darbepoetin alfa and met the primary MACE safety non-inferiority endpoint (HR 0.96; 95% CI 0.83–1.11). These results do not establish U.S. approval; PRO2TECT results were still pending.
- Japan approval triggered a $15.0m MTPC milestone, recognized in Q2 and received in Q3 2020. Potential future milestone and royalty payments from collaborators remain dependent on development, regulatory and commercial outcomes.
- Loan covenants include a minimum Auryxia net-sales threshold beginning Q4 2020 and a minimum liquidity threshold beginning in 2021. The debt is secured by specified assets, including Auryxia-related assets and cash. No default was reported at June 30.
- COVID-19 risks include restricted access to dialysis clinics and healthcare providers, potential sales and supply-chain disruption, and delays to other clinical trials. Management said manufacturing partners were operating near normal levels at the time.
- Akebia disclosed a material weakness in inventory-related internal controls; remediation was in progress but the weakness was not considered remediated as of June 30. The filing also describes litigation over CMS coverage, Auryxia generic ANDAs and patents, and other matters. Certain generic settlements permit launch from March 20, 2025, subject to FDA approval and specified circumstances.
- Significant supply commitments remain for Auryxia: approximately $127.0m with BioVectra through 2026 and $51.8m with Siegfried through 2021. Further risks include Auryxia reimbursement and generic competition, vadadustat clinical and regulatory outcomes, manufacturing quality, and potential further impairment of Auryxia assets.
Important facts for investors to verify
- PRO2TECT results and subsequent U.S. regulatory plans, including whether the full Phase 3 safety and efficacy package supports an NDA.
- Whether the Auryxia sales forecast, Medicare coverage dispute and inventory quality issues lead to further revenue pressure, write-downs or impairment.
- Cash burn and funding runway relative to collaboration receipts, commercialization costs, and the timing and terms of any additional financing.
- Compliance with Pharmakon’s Auryxia sales and liquidity covenants, as well as the impact of secured-debt terms and interest expense.
- Progress and effectiveness of inventory-control remediation, and outcomes of the CMS, generic-drug and other material legal proceedings.