Akebia Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2018; comparisons are with the three and nine months ended September 30, 2017. Financial statement amounts below are in U.S. dollars. Akebia is a clinical-stage biopharmaceutical company; its lead candidate, vadadustat, was in Phase 3 development for anemia due to chronic kidney disease (CKD). The company had no approved products or product-sales revenue.
Key financial metrics
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Collaboration revenue | $53.2 million | $41.3 million | $147.9 million | $90.7 million |
| Research and development | $70.6 million | $58.7 million | $204.0 million | $162.5 million |
| General and administrative | $10.4 million | $6.7 million | $31.9 million | $19.4 million |
| Operating loss | $27.8 million | $24.2 million | $88.0 million | $91.3 million |
| Net loss | $26.0 million | $23.1 million | $83.5 million | $89.2 million |
| Basic and diluted loss per share | $0.46 | $0.49 | $1.54 | $2.11 |
| Net cash used in operating activities | Not stated for quarter | Not stated for quarter | $23.8 million | $39.8 million |
- Liquidity: At September 30, 2018, cash and cash equivalents were $162.4 million and available-for-sale securities were $227.7 million, totaling $390.1 million. Current assets were $397.5 million and current liabilities $177.4 million.
- Cash flows, nine months: Investing activities provided $19.9 million, primarily reflecting net security maturities and sales; financing activities provided $96.5 million, primarily from equity issuance. Cash, cash equivalents and restricted cash increased $92.6 million.
- Debt and obligations: The balance sheet reports no conventional borrowings for Akebia; capital lease payments were minimal. Deferred revenue totaled $151.5 million. Operating lease minimum payments totaled $40.7 million, and remaining CRO costs for the PROTECT and INNOVATE trials were estimated at $250–$280 million.
- Profitability: The company remained loss-making, with an accumulated deficit of $454.3 million. Traditional gross margin was not presented; the filing reports collaboration revenue and operating expenses.
Changes versus prior comparable periods
- Q3 collaboration revenue increased $11.9 million year over year, primarily from Otsuka cost-sharing arrangements. Nine-month revenue rose $57.2 million, reflecting $47.6 million more from Otsuka arrangements and $9.3 million recognized under the MTPC agreement.
- Q3 R&D expense increased $11.9 million, principally due to the global Phase 3 program, regulatory and other clinical work, and drug manufacturing; lower Japan Phase 2 and other study costs partly offset the increase. Nine-month R&D rose $41.4 million.
- Q3 G&A expense increased $3.6 million, mainly due to Keryx merger-related legal and professional fees and higher operating support costs. Nine-month G&A rose $12.5 million.
- Despite higher collaboration revenue, Q3 net loss widened by $2.9 million as operating expenses grew. Nine-month net loss narrowed by $5.7 million.
- Shares outstanding increased to 57.0 million at September 30, 2018 from 47.6 million at December 31, 2017. The company raised approximately $84.8 million net in a March 2018 public offering and approximately $10.5 million net through its ATM program during Q1.
Outlook, commentary and material risks
- Management expected existing cash, securities and committed collaboration funding to support the standalone operating plan through Q1 2020. This forecast depends on trial timing, spending assumptions and receipt of anticipated partner funding; management said additional capital would be needed for further development and pipeline expansion.
- Akebia targeted full enrollment of INNOVATE by year-end 2018 and PROTECT in 2019, with topline results expected in Q1 2020 and mid-2020, respectively, subject to major adverse cardiovascular event accrual. MTPC expected Japanese Phase 3 readouts in 2019. FO2RWARD-2 data were expected in 2019, and TRILOGY-2 was planned to start in 2019.
- Vadadustat remains unapproved and its success depends on clinical results, regulatory review, safety, enrollment, manufacturing and eventual market acceptance. A drug-interaction study found approximately two- to three-fold higher rosuvastatin exposure; further evaluation was ongoing.
- Akebia exercised the Otsuka funding option in September 2018. It is to take effect when the cost threshold is exceeded, which the company expected in Q2 2019; the option can raise Otsuka’s share of global development costs from 52.5% to 80%, with excess funding creditable against future payments under contractual limits.
- Proposed Keryx merger: The October 1, 2018 amendment retained the proposed all-stock transaction, with Keryx shareholders expected to own approximately 50.6% and Akebia shareholders 49.4% of the combined company on a fully diluted basis, including planned additional Keryx shares for Baupost. Closing was expected by year-end, subject to shareholder and other conditions; the FTC waiting period had ended. Akebia estimated about $25 million in merger costs. Certain termination scenarios could trigger a $22 million fee.
- Contingencies and subsequent disclosures: A Keryx shareholder lawsuit filed October 23, 2018 sought to enjoin the merger and alleged omissions in merger disclosures; Akebia and Keryx disputed the allegations. After quarter-end, Lupin and Teva delivered Paragraph IV notices challenging patents covering Keryx’s Auryxia; Keryx said it intended to enforce its rights. The filing describes potential business and financial effects but does not establish outcomes.
- Other significant risks include dependence on collaborators and third-party CROs/manufacturers, clinical and regulatory uncertainty, intellectual-property proceedings, dilution and integration risk from the merger, and potential limitations on use of pre-merger tax losses.
Important facts for investors to verify
- Trial enrollment progress, MACE accrual, projected readout timing and the remaining Phase 3 cost estimate of $250–$280 million.
- Whether the Keryx merger closed, final ownership and financing terms, total transaction costs, and any resolution or material development in merger litigation.
- Actual cash burn and partner funding receipts relative to the stated Q1 2020 runway, including the timing and mechanics of Otsuka’s funding option.
- Vadadustat’s subsequent clinical, safety, drug-interaction and regulatory results, and the status of required manufacturing and commercial arrangements.
- Developments in Auryxia generic patent challenges and the effect of Medicare Part D coverage requirements on Keryx and any combined company.