Akebia Therapeutics, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Figures are in millions except per-share data. Akebia is a kidney-disease biopharmaceutical company developing vadadustat and commercializing Auryxia, following its December 2018 merger with Keryx. Comparisons with 2018 are affected by the merger: Akebia began reporting Auryxia sales only after the merger closed.
Key financial results
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $100.8 | $48.8 | $173.5 | $94.7 |
| Auryxia product revenue | $29.1 | Not reported by Akebia | $52.2 | Not reported by Akebia |
| Operating loss | $(59.5) | $(35.7) | $(135.5) | $(60.2) |
| Net loss | $(58.2) | $(34.1) | $(130.6) | $(57.5) |
| Net loss per share | $(0.49) | $(0.60) | $(1.11) | $(1.09) |
| Cash used in operating activities | Not provided quarterly | Not provided quarterly | $(176.3) | $(11.3) |
- Q2 collaboration, license and other revenue was $71.7 million, up $22.9 million year over year. Six-month collaboration, license and other revenue was $121.3 million, up $26.5 million.
- Q2 research and development expense was $85.7 million, up $13.8 million; selling, general and administrative expense was $36.1 million, up $23.5 million. Six-month expenses were $168.0 million and $70.4 million, respectively.
- Q2 cost of goods sold was $37.7 million, including $19.0 million of purchase-accounting inventory step-up and $9.1 million of acquired-intangible amortization. For the first half, cost of goods sold was $68.9 million, including $33.6 million of inventory step-up and $18.2 million of amortization. These items materially burdened reported product economics.
- At June 30, cash and cash equivalents were $87.2 million and available-for-sale securities were $49.6 million, totaling $136.8 million. Cash, cash equivalents and restricted cash were $89.7 million. Cash plus securities declined from $321.6 million at year-end 2018.
- Total assets were $823.5 million; current assets $316.4 million; current liabilities $185.6 million; and stockholders’ equity $519.4 million. Inventory was $209.4 million, including $87.3 million classified in other assets.
- No debt was outstanding at June 30; the $40 million SVB revolving facility had approximately $23.9 million of borrowing-base availability. The company reported that defaults had occurred under the facility as of June 30; SVB waived the existing defaults on July 31, and Akebia later guaranteed the subsidiary’s obligations and pledged substantially all personal property other than intellectual property.
Material changes and operating developments
- Reported revenue increased substantially, reflecting Auryxia sales after the Keryx merger and higher collaboration revenue. For context, Keryx reported Auryxia U.S. net sales of $24.1 million in Q2 2018 and $44.7 million in the first half of 2018 in its pre-merger filings; those amounts are not included in Akebia’s 2018 comparative revenue above.
- Auryxia’s average net sales price was approximately 52% of wholesale acquisition cost in Q2 and 51% for the first half, after rebates, chargebacks, fees and other deductions. Reserves for product revenue allowances totaled $22.7 million at June 30.
- Otsuka increased its share of specified global vadadustat development costs from 52.5% to 80% in Q2 under the funding option; Akebia estimated additional funding of at least $63.7 million, creditable against future payments. Akebia recognized $10.6 million under that provision by June 30.
- In July 2019, MTPC filed a Japanese new drug application for vadadustat, triggering a $10 million milestone, received in Q3 2019. Akebia had recognized the milestone as revenue in Q2 after deeming it probable and satisfying the relevant performance obligations.
Outlook, risks and contingencies
- Management said cash resources, including committed collaborator funding, were expected to support the current operating plan into Q3 2020. Separately, its required ASC 205-40 analysis concluded that substantial doubt exists about the company’s ability to meet obligations for the next 12 months, because certain projected proceeds, including a future MTPC approval milestone, could not be included in that analysis. Additional financing may be required and may not be available on acceptable terms.
- Akebia expected significant continuing losses and spending, especially for vadadustat’s global Phase 3 program and Auryxia commercialization. It estimated remaining external CRO costs for the PROTECT and INNO2VATE trials at $125 million to $150 million, subject to potential increases.
- Commercial and reimbursement risks include Medicare Part D prior authorization for Auryxia prescriptions to ensure use for the covered hyperphosphatemia indication; CMS had not covered the IDA indication. Management was discussing restoration of IDA coverage. Auryxia also faces generic competition: multiple ANDA patent suits were consolidated for pretrial proceedings, and a settlement with Par provided for licensed generic entry beginning March 20, 2025, subject to FDA approval and specified conditions.
- Fexeric was not being marketed in the EU; its authorization would cease to be valid after December 23, 2019 unless marketing commenced by then. The company was pursuing commercialization opportunities.
- Other significant exposures include clinical and regulatory uncertainty for vadadustat, reliance on contract manufacturers and CROs, long-term Auryxia supply purchase commitments, patent disputes, and shareholder litigation related to the merger and earlier Auryxia supply disclosures. The filing states that loss ranges for shareholder suits could not be reasonably estimated.
- Quarterly operating cash use was not separately presented in the supplied filing text; the six-month cash use was $176.3 million. The filing attributes the increase in cash use mainly to timing of Phase 3, inventory and merger-liability payments.
Important facts for investors to verify
- Whether subsequent filings show cash runway, financing actions and collaborator funding sufficient to address the disclosed substantial doubt.
- Vadadustat Phase 3 progress, safety and cardiovascular outcomes, regulatory submissions and the status of MTPC’s Japanese application.
- Auryxia sales trends, gross-to-net deductions, inventory utilization and any further inventory write-downs or purchase-commitment impacts.
- Developments in Medicare coverage for Auryxia’s IDA indication and the terms and regulatory status of generic litigation settlements.
- Compliance with the amended SVB facility, including the guaranty, collateral restrictions and liquidity requirements.