Akebia Therapeutics, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; filed May 9, 2019. Akebia is a kidney-disease biopharmaceutical company developing vadadustat and commercializing Auryxia following its December 2018 merger with Keryx. The comparison with Q1 2018 is not fully like-for-like: Akebia began consolidating Keryx and recording U.S. Auryxia sales on December 12, 2018.
Financial results and liquidity
Amounts below are in millions of dollars, except per-share data.
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Product revenue, net | $23.1 | — |
| License, collaboration and other revenue | $49.6 | $45.9 |
| Total revenue | $72.7 | $45.9 |
| Cost of goods sold | $31.3 | — |
| Research and development | $82.4 | $61.4 |
| Selling, general and administrative | $34.3 | $9.0 |
| Operating loss | $(76.0) | $(24.5) |
| Net loss | $(72.4) | $(23.4) |
| Net loss per share, basic and diluted | $(0.62) | $(0.48) |
| Net cash used in operating activities | $(137.9) | $(20.3) |
- Auryxia product revenue was $23.1 million. Management reported the average net selling price was about 50% of wholesale acquisition cost after rebates, fees, chargebacks and other deductions. Keryx reported $20.6 million of Auryxia net U.S. sales for Q1 2018, before the merger.
- Reported cost of goods sold included $14.6 million of purchase-accounting inventory step-up expense, $9.1 million of acquired-intangible amortization and a $1.7 million inventory write-down. Total cost of goods sold exceeded product revenue by $8.1 million; this is not a clean measure of ongoing product economics because of those acquisition-related and inventory items.
- Cash and cash equivalents were $62.7 million and available-for-sale securities were $105.3 million at March 31, totaling $168.0 million, down from $321.6 million at December 31, 2018. Current assets were $347.2 million and current liabilities were $202.6 million. Accumulated deficit was $586.8 million.
- Operating cash use was principally attributed to timing of Phase 3 program payments, inventory payments and merger-related liabilities. Investing activities provided $110.5 million, mainly from securities maturities and sales; financing activities used $14.4 million, including repayment of $15.0 million in debt.
- No debt was outstanding at quarter-end. The $40 million revolving facility had approximately $20.8 million of borrowing-base availability, but the company disclosed existing events of default and no formal waiver from Silicon Valley Bank. The company’s forecast assumes no future borrowings on the facility.
Changes versus the prior comparable period
- Total revenue rose $26.7 million, reflecting $23.1 million of Auryxia sales and a $3.6 million increase in license, collaboration and other revenue. Collaboration revenue increased under the Otsuka agreements, partly offset by the absence of $9.1 million of MTPC revenue recognized in Q1 2018; MTPC’s relevant deliverables had been completed by Q2 2018.
- R&D expense increased $21.0 million, primarily from continued enrollment and other costs in the global PROTECT and INNO2VATE Phase 3 program, manufacturing and higher headcount and consulting costs.
- SG&A increased $25.3 million, primarily due to Auryxia commercialization costs not present in the prior-year quarter.
- Net loss widened by $49.0 million. The comparison also reflects the merger-driven increase in weighted-average shares, from 48.6 million to 117.1 million.
Outlook, commentary and material risks
- Management expects cash resources, including committed collaborator research and development funding, to fund its current operating plan into the third quarter of 2020. The company cautioned that this is an estimate based on assumptions and that it could use capital sooner than expected. It expects significant expenses and losses to continue and may need additional financing.
- Akebia expected Otsuka’s share of global development costs to rise from 52.5% to 80% after the cost threshold is exceeded, which management expected in Q2 2019; this would increase collaboration revenue. The company also reported approximately $48.2 million of Q1 revenue under the Otsuka U.S. and international agreements.
- Vadadustat remained in global Phase 3 development for anemia due to CKD. Development timing, clinical outcomes, safety, regulatory approval and collaborator funding remain uncertain. Remaining external CRO costs for PROTECT and INNO2VATE were estimated at $160 million to $190 million; enrollment, safety events, protocol changes and other factors could increase costs.
- CMS had determined that Auryxia was not covered under Medicare Part D when used solely for the IDA indication. Prior authorization applies to Medicare prescriptions to establish use for the covered hyperphosphatemia indication; management said this could adversely affect prescription timing and revenue and was discussing coverage with CMS.
- Generic competition is a material risk. Akebia disclosed seven Paragraph IV notices concerning generic Auryxia applications and related patent litigation. The 30-month stays described for the first four applicants were expected to run into 2021, subject to earlier court outcomes. FDA had granted three-year exclusivity for the IDA indication through November 6, 2020, but denied the company’s request for five-year new-chemical-entity exclusivity; Akebia sought reconsideration.
- Significant Auryxia supply commitments remained: approximately $167.5 million under the BioVectra arrangement through 2026 and $77.1 million under the Siegfried arrangement through 2021. Remaining committed IQVIA costs were approximately $143.1 million, with another $71.9 million of R&D contract costs. Inventory recoverability and demand shortfalls could result in additional write-downs.
- The company disclosed merger-related shareholder litigation, Auryxia supply-related shareholder litigation, and patent disputes involving Auryxia and vadadustat. It said it could not predict outcomes or reasonably estimate possible losses for the shareholder cases.
- Fexeric was not marketed in the EU; its authorization would cease to be valid unless marketing commenced by December 23, 2019. The filing also noted post-quarter agreements and amendments: Vifor’s U.S. dialysis-channel arrangement was amended, and a revised Panion license agreement was executed. After quarter-end, Akebia considered a $10 million Japanese regulatory milestone under the MTPC agreement probable; it was not Q1 recognized revenue.
- Management said disclosure controls and procedures were effective at the reasonable-assurance level. The company adopted lease accounting guidance in Q1, recognizing operating lease assets and liabilities; adoption did not affect the statement of operations.
Most important facts for investors to verify
- Whether the projected cash runway into Q3 2020 remains supported by actual operating cash burn, Auryxia collections and collaborator funding.
- The status and terms of the SVB default events and whether the lender has waived or resolved them; the facility is not assumed in the cash forecast.
- Auryxia’s net sales trajectory, gross-to-net deductions, Medicare Part D prior-authorization effects and inventory utilization or write-down risk.
- Progress, enrollment, safety and remaining cost of vadadustat Phase 3 trials, along with the timing and effect of Otsuka’s increased cost share.
- Outcomes of Auryxia generic patent litigation and the FDA reconsideration of NCE exclusivity, as well as the material shareholder and other patent proceedings.
- Execution of the EU Fexeric commercialization plan before the December 23, 2019 authorization deadline and the company’s ability to meet substantial manufacturing commitments.