Akebia Therapeutics, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Financial amounts below are in U.S. dollars; figures are in millions unless otherwise noted. Akebia is a clinical-stage biopharmaceutical company developing HIF-based therapies. Its lead candidate, vadadustat, was in Phase 3 development for anemia due to chronic kidney disease (CKD). The company had no approved products and no product-sale revenue.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Collaboration revenue | $45.9 | $20.9 |
| Research and development expense | $61.4 | $60.0 |
| General and administrative expense | $9.0 | $5.8 |
| Operating loss | $(24.5) | $(45.0) |
| Net loss | $(23.4) | $(44.5) |
| Basic and diluted loss per share | $(0.48) | $(1.15) |
| Net cash used in operating activities | $(20.3) | $(9.5) |
Q1 2018 collaboration revenue comprised approximately $9.1 million from MTPC, $19.6 million from Otsuka’s U.S. agreement, $17.0 million from Otsuka’s international agreement, and $0.3 million for other MTPC services. Revenue was recognized under collaboration arrangements, not from product sales.
At March 31, 2018, cash and cash equivalents were $158.2 million and available-for-sale securities were $234.9 million, totaling $393.0 million. Current assets were $437.0 million and current liabilities were $151.4 million. Total liabilities were $245.6 million, including $170.2 million of deferred revenue. The balance sheet reports no material borrowings; lease commitments are disclosed separately. Accumulated deficit was $394.2 million.
Operating cash use rose from the prior-year quarter, primarily reflecting clinical-development spending and working-capital movements. Investing activities provided $12.4 million, principally from investment maturities and sales net of purchases. Financing activities provided $95.9 million, mainly from equity issuance. The company completed a follow-on offering of 8.5 million shares in March, receiving approximately $84.8 million net, and raised about $10.5 million net through its ATM program during the quarter.
Material changes versus Q1 2017
- Collaboration revenue increased $25.1 million, reflecting revenue from Otsuka’s international agreement and MTPC revenue recognition, as well as increased recognition under Otsuka arrangements.
- Net loss narrowed by $21.1 million, largely because collaboration revenue increased; operating expenses rose $4.6 million. R&D expense increased $1.4 million, while G&A increased $3.2 million.
- Operating cash use increased by $10.8 million. The year-ago quarter included a substantial working-capital benefit from Otsuka-related receivables.
- Cash and securities increased from $317.8 million at December 31, 2017 to $393.0 million at March 31, 2018, substantially supported by the March equity offering.
- Akebia adopted ASC 606 using full retrospective application. The filing states there was no Q1 2017 revenue impact; the December 31, 2017 short-term deferred-revenue balance was reduced by $3.2 million compared with the previously reported amount.
Outlook, operating plans, and risks
- Management expected existing cash, cash equivalents, securities, and committed collaboration funding to support the current operating plan into Q1 2020. This estimate depends on assumptions, clinical progress, and receipt of partner funding; additional capital will be needed for further development and pipeline expansion.
- Akebia targeted full enrollment of the PROTECT and INNO2VATE Phase 3 trials by year-end 2018 and top-line results in 2019, subject to major adverse cardiovascular event accrual. The trials were designed to enroll up to approximately 6,900 patients. Estimated remaining external CRO costs were $380–$410 million.
- The company expected to initiate FO2RWARD-2 in Q2 2018, with top-line data in the first half of 2019, and TRILOGY-2 in late 2018 or early 2019, with data expected in early 2020. MTPC’s Japan Phase 3 program was underway, with readouts expected in 2019. Subject to approvals, Akebia planned a potential vadadustat launch in 2020.
- Akebia continued to expect significant losses and increasing expenses. Development and commercialization depend on clinical results, regulatory approval, manufacturing and enrollment execution, reimbursement and market acceptance, and continued collaborator support. No assurance was given that milestones, approvals, or forecast timelines would be achieved.
- Key exposures include dependence on vadadustat and third-party CROs and manufacturers; clinical, cardiovascular-safety and regulatory risks; competition from other HIF-prolyl hydroxylase inhibitors and established ESAs; financing needs and possible future dilution; and patent disputes. The company disclosed ongoing European patent proceedings involving FibroGen and its own vadadustat patent strategy.
- Outstanding commitments included approximately $237.1 million of remaining IQVIA contract costs for PROTECT and INNO2VATE work and $51.4 million under other R&D contracts. The filing also disclosed $29.4 million of future net operating lease payments. A subsequent April 2018 lease amendment added approximately 19,805 square feet, with rent expected to begin after the stated rent-free period.
- Management reported disclosure controls and procedures were effective at the reasonable-assurance level as of March 31, 2018. The filing reported no material change in internal control over financial reporting other than implementation controls related to ASC 606 adoption.
Important facts for investors to verify
- Whether PROTECT and INNO2VATE enroll and accrue cardiovascular events on schedule, and whether 2019 data expectations remain achievable.
- Whether collaboration funding and the stated cash runway remain adequate as development spending proceeds; monitor cash burn, receivables, deferred revenue, and any additional financing.
- How ASC 606 judgments and proportional-performance estimates affect collaboration revenue, deferred revenue, and future reported results.
- Clinical, regulatory, manufacturing, reimbursement, competitive, and intellectual-property developments that could affect vadadustat’s approval prospects or commercial opportunity.
- The effects of equity issuance and equity compensation on share count and dilution; common shares outstanding increased from 47.6 million at year-end 2017 to 56.9 million at March 31, 2018.