Akebia Therapeutics, Inc. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Amounts below are in millions of dollars unless stated otherwise. Akebia is a clinical-stage biopharmaceutical company; vadadustat, its lead candidate for anemia associated with chronic kidney disease (CKD), was in Phase 3 development. The company had no product sales.
Financial performance and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Collaboration revenue | $41.3 | $0 | $90.7 | $0 |
| Research and development expense | $58.7 | $31.2 | $162.5 | $82.4 |
| General and administrative expense | $6.7 | $4.9 | $19.4 | $16.1 |
| Operating loss | $(24.2) | $(36.2) | $(91.3) | $(98.4) |
| Net loss | $(23.1) | $(36.3) | $(89.2) | $(97.9) |
| Basic and diluted loss per share | $(0.49) | $(0.96) | $(2.11) | $(2.61) |
| Cash used in operating activities | — | — | $(39.8) | $(37.8) |
Collaboration revenue came from Otsuka agreements: Q3 included approximately $22.5 million under the U.S. agreement and $18.8 million under the EU agreement. Nine-month revenue was approximately $60.0 million and $30.7 million, respectively. Akebia expected to begin recognizing MTPC collaboration revenue when clinical supply deliveries began, anticipated in Q4 2017. Product gross margin was not applicable because there were no product sales.
At September 30, 2017, cash and cash equivalents were $89.6 million and available-for-sale securities were $240.1 million, for total cash, cash equivalents and securities of $329.7 million, versus $260.3 million at December 31, 2016. The company reported total assets of $338.6 million, liabilities of $238.7 million, stockholders’ equity of $99.9 million and an accumulated deficit of $386.3 million. Liabilities included $205.7 million of deferred revenue, current and long-term; the filing does not report material conventional borrowings. Capital lease obligations were minimal. Nine-month investing cash outflow of $169.0 million largely reflected purchases of marketable securities, while financing provided $111.0 million, principally from equity issuance.
Changes versus comparable periods
- Collaboration revenue began in 2017 following Otsuka agreements; no collaboration revenue was recognized in the 2016 comparison periods.
- Q3 R&D expense rose $27.5 million, mainly from the vadadustat Phase 3 program, Japan studies and FO 2 RWARD/TRILO 2 GY activities. Nine-month R&D rose $80.2 million, primarily reflecting Phase 3 and other clinical development, plus $4.4 million in Janssen license and warrant costs.
- Despite higher operating expenses, the operating loss narrowed year over year in both comparison periods, supported by collaboration revenue. Net loss also narrowed; the per-share loss benefited in part from a higher weighted-average share count following equity issuance.
- Total cash, cash equivalents and securities increased from year-end 2016, supported by equity and collaboration funding. Cash and cash equivalents alone declined as funds were shifted into available-for-sale securities.
Outlook, risks and unusual items
- Management expected existing cash resources and committed collaboration funding to support the current operating plan into Q2 2019. The company cautioned that assumptions may prove incorrect, funding may not arrive as expected, and additional capital will be needed for further development and pipeline expansion.
- Management estimated remaining aggregate costs for the vadadustat global Phase 3 program at $450–$480 million. PRO 2 TECT and INNO 2 VATE were designed to enroll up to approximately 6,700 patients, with enrollment and completion influenced by major adverse cardiovascular event rates. Top-line results were expected in 2019; U.S. and European marketing applications were anticipated in 2019 if results were favorable.
- Other stated plans included FO 2 RWARD results in the second half of 2018, initiation of the TRILO 2 GY Phase 3 dosing study in late 2017 or early 2018, and an IND submission for AKB-5169 targeted for 2018.
- Collaborator funding is important to the plan. Otsuka’s U.S. and EU agreements include development cost sharing, while MTPC is expected to begin receiving clinical supply. Future milestones and royalties are contingent and may never be received. Vifor’s U.S. dialysis-channel arrangement depends on FDA approval, inclusion in bundled reimbursement and a $20 million milestone payment.
- Clinical, regulatory and commercial risks include Phase 3 safety or efficacy outcomes, enrollment delays, regulatory requirements, competition, reimbursement and market acceptance. Akebia relies on external CROs and manufacturers. Remaining Quintiles contract costs were approximately $293.8 million, including $32.9 million of October 2017 change orders; other R&D contract costs were approximately $43.8 million.
- Intellectual-property proceedings remain relevant. A hearing concerning Akebia’s European ‘005 patent was scheduled for May 2018; FibroGen appealed certain European patent revocations. The filing says the ultimate scope and outcome of the proceedings are uncertain.
- Control and reporting issue: Management concluded disclosure controls and procedures were not effective as of September 30, 2017 because of a material weakness in controls over CRO cash advances and related R&D expense and collaboration revenue recognition. Remediation was underway but was not yet considered effective. The company also corrected an immaterial prior-period error affecting R&D expense and Otsuka revenue.
- The company planned to adopt the new revenue recognition standard on January 1, 2018 and was assessing its effect, including possible changes in timing of collaboration revenue recognition.
Important facts for investors to verify
- Whether enrollment, safety monitoring and the projected 2019 data and filing timelines for PRO 2 TECT and INNO 2 VATE remain on track, and whether the estimated Phase 3 cost range changes.
- Actual cash burn, timing and amount of collaboration cost-share receipts, and whether the stated runway into Q2 2019 remains achievable.
- Progress and testing results for remediation of the material weakness, and any further corrections to expense or collaboration revenue recognition.
- Whether MTPC clinical supply deliveries and related revenue recognition began as expected, and how adoption of the 2018 revenue standard affects reported revenue and deferred revenue.
- Developments in the European patent proceedings, regulatory requirements, reimbursement conditions and competing HIF-PH inhibitor programs.
- Potential dilution from equity financing and outstanding awards; common shares outstanding were 47.2 million at September 30, 2017.