Akebia Therapeutics, Inc. quarterly report, Q2 FY2016

Akebia Therapeutics, Inc. — Q2 2016 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2016. Akebia is a clinical-stage biopharmaceutical company developing HIF-based therapies, led by vadadustat for anemia associated with chronic kidney disease (CKD). It has no approved products and has generated no product revenue.

Financial results and liquidity

Metric	Q2 2016	Q2 2015	Six months 2016	Six months 2015
Revenue	None reported	None reported	None reported	None reported
Research and development expense	$30.9 million	$6.5 million	$51.1 million	$13.2 million
General and administrative expense	$5.3 million	$4.4 million	$11.1 million	$8.6 million
Operating loss	$(36.2) million	$(10.9) million	$(62.2) million	$(21.8) million
Net loss	$(35.8) million	$(10.7) million	$(61.6) million	$(21.4) million
Basic and diluted loss per share	$(0.95)	$(0.40)	$(1.65)	$(0.92)

Margins are not meaningful because the company reported no revenue. The year-over-year increase in R&D expense was primarily driven by Phase 3 vadadustat costs: $21.9 million in Q2 and $34.3 million for the six-month period. Management expects losses and operating expenses to rise as development continues.

At June 30, 2016, cash and cash equivalents were $46.2 million and available-for-sale securities were $142.5 million, totaling $188.6 million. Total current assets were $192.5 million; current liabilities were $20.9 million. Total liabilities were $62.3 million, including $40.0 million of deferred collaboration revenue. No financial borrowings are reported. Accumulated deficit was $223.0 million.

Six-month operating cash use was $9.5 million, versus $20.5 million in 2015. The 2016 figure included a $40.0 million increase in deferred revenue from Mitsubishi Tanabe and a roughly $10.5 million increase in payables, accruals and other liabilities; it therefore should not be read as the underlying cash burn alone. Investing activities used $55.2 million, largely reflecting purchases of marketable securities, while financing provided $61.1 million, mainly from the January stock offering. Cash and cash equivalents declined $3.6 million; cash plus securities increased from $138.5 million at year-end 2015 to $188.6 million.

Akebia said available cash and securities were expected to fund its current operating plan through Q2 2017, but not to complete both Phase 3 programs. Management stated that it expects to need additional funding. The filing notes that, if the going-concern accounting standard had been adopted at June 30, management believed it would have concluded substantial doubt existed about the company’s ability to continue as a going concern one year after filing.

Material changes and business developments

Vadadustat’s global Phase 3 PRO₂TECT program in non-dialysis CKD patients began dosing in December 2015. The dialysis-dependent INNO₂VATE program began in August 2016, after the quarter; full enrollment was anticipated by early 2018.
Planned enrollment was approximately 3,100 patients in PRO₂TECT and 2,600 in INNO₂VATE. Estimated Phase 3 cost was $80,000–$85,000 per patient, or approximately $456.0–$484.5 million for both programs.
Q2 R&D expense rose $24.4 million year over year, largely because of the Phase 3 program. Six-month R&D expense rose $37.9 million. G&A increased by $0.9 million in Q2 and $2.5 million for six months, including higher headcount and commercial-planning costs.
In January 2016, Akebia received approximately $61.0 million net from a follow-on offering of 7.25 million shares. It also established a $75 million at-the-market offering in May; no shares were sold under it in Q2. Common shares outstanding were 38.0 million at June 30, up from 30.7 million at December 31, 2015.
The Mitsubishi Tanabe agreement covers Japan and certain Asian countries and provides for up to $100 million in upfront and development payments, including $40 million received in January 2016, plus up to approximately $250 million in milestones and tiered royalties. The $40 million remained deferred revenue; Akebia expected to begin recognizing revenue in 2017 when the Phase 3 program scope was agreed with Japanese regulators. If Japanese patients are not included in either global Phase 3 program, $20 million may fund local Japanese development or be refunded.

Outlook, risks and contingencies

Management anticipated submitting a vadadustat NDA in 2019 if Phase 3 results support prior findings. It expected data in hyporesponsive dialysis patients by 2017. AKB-6899 Phase 1 completion was anticipated in late 2017.
Akebia intended to seek a geographic collaboration for Europe and other markets outside the United States to help fund vadadustat’s Phase 3 program; the filing cautions that no such transaction is assured. The company also disclosed the potential for equity dilution or financing on unfavorable terms.
A Quintiles contract covered the Phase 3 programs, with approximately $443.2 million of remaining contract costs at June 30, 2016 and estimated performance through Q3 2019. Other R&D contracts had approximately $13.9 million of remaining costs. These commitments are significant relative to reported liquidity.
A purported securities class action concerning the IPO and alleged statements about the Phase 2b vadadustat study had been remanded to Massachusetts state court; Akebia said it would defend the claims. The filing does not provide a clear estimate of potential loss.
Patent proceedings remain material: a FibroGen European patent was revoked, subject to appeal; other European patent oppositions and Akebia’s own European patent opposition remained unresolved. Adverse outcomes could affect commercialization rights, particularly in Europe.
Key business risks include Phase 3 safety or efficacy shortfalls, enrollment or regulatory delays, reliance on CROs and contract manufacturers, competition, reimbursement and market acceptance, and the need to raise substantial additional capital. The filing also identifies a higher incidence of serious adverse events in the vadadustat arm of its Phase 2b non-dialysis study, with renal-related events most common.
After quarter-end, Akebia entered a lease amendment for additional laboratory space, with rent of approximately $35,000 per month expected to begin around December 2016 and a five-year term.

Important facts for investors to verify

Whether the stated cash runway through Q2 2017 remains valid as Phase 3 enrollment and costs progress, and how Akebia plans to fund the programs beyond that date.
Actual Phase 3 enrollment, timelines, per-patient costs and any changes to protocol or regulatory requirements.
Whether Japanese patients are included in the global trials and the resulting treatment of the $20 million contingent funding amount.
Whether a new geographic collaboration or ATM financing is secured, and the terms and dilution implications.
Progress and safety findings in PRO₂TECT and INNO₂VATE, including the implications of the Phase 2b serious adverse-event imbalance.
Developments in the securities litigation and patent proceedings, including any potential financial or commercialization impact.