Akebia Therapeutics, Inc. quarterly report, Q3 FY2016

Akebia Therapeutics, Inc. — Q3 2016 Form 10-Q

Reporting period: Quarter and nine months ended September 30, 2016. Akebia is a clinical-stage biopharmaceutical company developing HIF-based therapies. It had no approved products and generated no product revenue.

Financial results and position

Amounts below are in U.S. dollars; financial statement amounts are in millions except per-share data.

Metric	Q3 2016	Q3 2015	Nine months 2016	Nine months 2015
Revenue	None	None	None	None
Research and development expense	$31.2	$15.6	$82.4	$28.8
General and administrative expense	$4.9	$4.1	$16.1	$12.7
Total operating expenses / operating loss	$36.2	$19.7	$98.4	$41.5
Net loss	$36.3	$19.5	$97.9	$40.9
Basic and diluted net loss per share	$0.96	$0.68	$2.61	$1.62

Research and development spending drove the increase in losses, primarily reflecting vadadustat Phase 3 development. Q3 R&D rose $15.6 million year over year; nine-month R&D rose $53.6 million.
No meaningful operating margin is available because the company reported no revenue.
At September 30, cash and cash equivalents were $65.8 million and available-for-sale securities were $95.5 million, totaling approximately $161.3 million. Cash and securities were $138.5 million at December 31, 2015.
Nine-month operating cash use was $37.8 million, compared with $29.5 million in 2015. Investing cash use was $9.6 million; financing provided $63.4 million, primarily from common-stock issuance. Cash increased $16.1 million during the period.
Current assets were $165.1 million; current liabilities were $26.1 million. Total liabilities were $68.4 million, including $40.0 million of long-term deferred collaboration revenue. Stockholders’ equity was $100.7 million.
The filing reports no material conventional debt; capital-lease obligations had a present value of approximately $17,000. Separate contractual commitments are substantial, including $423.9 million remaining under the Quintiles clinical-trial contract and $22.0 million under other R&D contracts.

Material changes and business developments

Vadadustat Phase 3 development expanded: PRO₂TECT for non-dialysis CKD patients was underway, and INNO₂VATE for dialysis-dependent patients began in August 2016. The company plans approximately 3,100 and 2,600 patients, respectively; full INNO₂VATE enrollment was expected by early 2018.
The PRO₂TECT independent monitoring committee recommended continuing the studies without modification after its September 2016 meeting.
The company estimated Phase 3 costs of $80,000–$85,000 per patient, or approximately $456–$484.5 million for both programs. It stated that available funds were not expected to complete the programs.
R&D expense growth was largely attributable to vadadustat development: $49.3 million of the nine-month increase and $14.6 million of the Q3 increase, per management’s analysis.
Common shares outstanding increased to 38.3 million at September 30 from 30.7 million at year-end 2015. The company raised approximately $61.0 million net in a January follow-on offering and $2.2 million net through its ATM program in Q3.

Outlook, risks and contingencies

Management expected the $161.3 million of cash and securities to fund its current operating plan through Q2 2017, but said it would need additional financing to complete vadadustat Phase 3 development. The company intended to seek a geographic collaboration for Europe and other markets outside the United States; success was not assured.
The filing states that, if the going-concern accounting standard had been adopted at September 30, management would have concluded substantial doubt existed about the company’s ability to continue as a going concern within one year after the filing date. The company anticipated substantial losses for the next four to five years.
Management anticipated an NDA submission for vadadustat in 2019 only if Phase 3 results supported the earlier findings. A Phase 1 study of AKB-6899 was expected to begin in 2017. These are forward-looking estimates, not guarantees.
MTPC’s Asia collaboration provides up to $100 million in upfront and development payments, including $40 million received in January 2016, and up to approximately $250 million in additional milestones plus tiered royalties. The $40 million remained deferred revenue; revenue recognition was expected to begin in 2017, subject to performance and accounting criteria. If Japanese patients are not included in the global trials, $20 million may fund local development or be refunded.
Key risks include clinical-trial efficacy, safety, enrollment, regulatory and manufacturing outcomes; dependence on vadadustat; financing and dilution; reliance on CROs and contract manufacturers; competition; and intellectual-property disputes. Phase 2b had a higher incidence of serious adverse events in the vadadustat group, with renal-related events most common, though the filing reported no safety signal in other cited study summaries.
A purported securities class action concerning alleged IPO disclosures about the Phase 2b study remained pending; Akebia said it intended to defend the claims. Patent proceedings included a favorable European revocation of a FibroGen patent, which FibroGen appealed, while other patent outcomes remained uncertain.
Operating lease commitments totaled $31.0 million, with rent expense rising as additional office and lab space was occupied. The company reported no off-balance-sheet arrangements and no material changes to contractual obligations from its prior annual filing.

Important facts for investors to verify

Actual cash burn, remaining ATM capacity, and financing or collaboration progress relative to the stated Q2 2017 runway.
Enrollment pace, trial costs, regulatory alignment, safety updates, and milestone timing for PRO₂TECT and INNO₂VATE.
Whether Japanese patients participate in the global trials and the resulting treatment of the $20 million MTPC funding condition.
Subsequent clinical results, including the planned data on vadadustat in dialysis patients with inadequate response to rESAs, and progress toward the AKB-6899 Phase 1 study.
Developments in the securities litigation and patent proceedings, including appeals and potential effects on commercialization rights.