Akebia Therapeutics, Inc. Q3 FY2020 Earnings Call

Good morning, ladies and gentlemen, and welcome to the Akebia Therapeutics' Third Quarter Financial Results and Business Update Conference Call. As a reminder, this call is being recorded. I would now like to introduce your host for today's event, Kristen Sheppard, Senior Vice President of Investor Relations.

Thank you and welcome to Akebia's third quarter fiscal 2020 financial results and business update conference call. My name is Kristen Sheppard, Senior Vice President of Investor Relations at Akebia. Thank you so much for joining us to discuss Akebia's top-line data for INNO2VATE, our global Phase III program of our product candidate, vadadustat, for the treatment of anemia due to chronic kidney disease in adult dialysis-dependent patients. Please note that the press release detailing our results for the third quarter was issued earlier this morning and is available on our Investor Relations website. For your convenience, a replay of today's call will also be available on our website shortly after we conclude today's call. Joining me for today's call is John Butler, our Chief Executive Officer, and David Spellman, our Chief Financial Officer. Before we begin, I'd like to remind everyone that this call includes forward-looking statements. Each forward-looking statement contained in this call is subject to risks and uncertainties that could cause actual results to differ materially from those described in these statements. Additional information regarding these factors is described in the forward-looking statements section of the press release we issued this morning, as well as in the risk factors and management's discussion and analysis sections of our most recent quarterly and annual reports filed with the SEC. The forward-looking statements on this call speak only as of the original date of this call, and we do not undertake any obligation to update or revise any of these statements. With that, I'd like to introduce our CEO, John Butler. John?

Thank you, Kristen. And thank you all for joining us today. We held an investor briefing webcast two short weeks ago to go over the newly presented data in detail. My comments in today's call will be mainly focused on our regulatory submission for the potential US approval of vadadustat for the treatment of anemia due to CKD. I'll then turn the call over to Dave to review the financial results for the quarter, and we'll conclude with some Q&A. So with that, let's get started. Akebia has made significant progress this year, and I'm proud of our team's resilience, performance, and their unwavering commitment to kidney patients and the community that we serve, especially given the challenges presented by the ongoing global COVID-19 pandemic. Our team is leading Akebia through the most dynamic period in its history. Importantly, we believe we're positioning Akebia to deliver on a strategy that will build long-term value for our shareholders. We recently completed our pre-NDA meeting with the FDA. Following this important milestone, we remain on track to submit to the FDA our NDA for vadadustat as early as possible next year. A key component of this NDA is the positive data from our global Phase III INNO2VATE program in dialysis, which we first announced in May and then shared more recently at ASN Kidney Week. These data were clear and consistent across both efficacy and safety. The data showed that vadadustat achieved both the primary and key secondary efficacy endpoints as well as the primary and key secondary safety endpoints of the program. More specifically, the data showed vadadustat achieved and maintained patients in the target hemoglobin range while minimizing excursions above that target range. In addition, vadadustat achieved superiority to darbepoetin alfa on key secondary safety endpoints that included expanded MACE, cardiovascular MACE, cardiovascular mortality, and all-cause mortality. We believe these data underscore vadadustat's potential as a new oral standard of care for treating patients with anemia due to chronic kidney disease or CKD on dialysis, marking a significant milestone for Akebia and we believe an even more significant milestone for people on dialysis and their care teams. Based on our pre-NDA meeting, we remain confident that the INNO2VATE results place us on a straightforward path to advance vadadustat to potential approval for the treatment of anemia due to CKD in patients on dialysis, and we're on track to complete an NDA submission as early as possible in 2021. Upon approval, we believe we have a significant opportunity to advance our mission and help address the unmet needs of the 500,000 plus adult patients with anemia due to CKD on dialysis in the US, including both incident and prevalent dialysis patients. We believe this could translate into a potential $2 billion market opportunity in the US alone. We're equally excited about vadadustat's opportunity in dialysis beyond the US market, and we're working in close collaboration with Otsuka to prepare a Marketing Authorization Application or MAA for submission to the European Medicines Agency next year following our NDA. We look forward to leveraging our renal expertise and existing nephrology-focused commercial organization to support a strong vadadustat launch in dialysis upon approval. We believe we are also well positioned with our partner Otsuka who shares in the launch costs and responsibilities and the unique reimbursement system in the US dialysis market that encourages the adoption of innovative therapies. These go-to-market strategies, coupled with the unique reimbursement structure, represent opportunities to meaningfully enhance the potential of bringing vadadustat to patients on dialysis as quickly as possible, subject to regulatory approval. A great example of this is where our team is already supporting the commercialization of vadadustat in its first major market, Japan, under the trade name VAFSEO. I'd like to pause here and say how incredibly rewarding it has been for all of us to see the promise of vadadustat realized in Japan, where it's commercially available with a broad label to treat adult patients both on dialysis and not on dialysis. MTPC, our partner in Japan, and Akebia worked hard to achieve this goal, and we look forward to future commercial success in this market and potentially others. This is a nice segue to say that I'm very pleased with the strength of our MTPC partnership, as well as our more extensive collaboration with Otsuka. I'm encouraged by the confidence and enthusiasm they continue to demonstrate in both vadadustat and Akebia. While our highest priority in 2021 remains submitting our NDA, we're continuing to execute across many different work streams focused on areas such as medical affairs, scientific communications, disease state education, patient services, and manufacturing to ensure commercial readiness upon approval. Together with our partner Otsuka, we recently launched a comprehensive campaign designed to increase awareness and education of anemia due to CKD among healthcare providers, all with the goal of improving the management of this disease for patients. Again, there's a significant unmet need among patients with anemia due to CKD, and we see a promising opportunity in vadadustat to advance the standard of care for patients on dialysis. As Dave will discuss, we're pleased to be doing all of this from a place of financial strength, with a cash runway that extends beyond the expected US launch of vadadustat. While our commercial team executes on pre-commercialization activities, our medical team continues to support vadadustat's potential with a robust publication plan. In addition to all of the data presentations at ASN, we look forward to the publication of the full INNO2VATE data in a prestigious peer-reviewed publication, as well as many other publications moving forward. I'd also like to touch on our non-dialysis opportunity. The non-dialysis indication will also be part of our NDA submission. A pre-NDA meeting confirms that, as we expected, the FDA will need to review our global Phase III data to determine whether it's sufficient to support approval of vadadustat for the treatment of anemia due to CKD in adult patients not on dialysis. So we are being appropriately cautious in our outlook for approval in the non-dialysis indication, and we suggest you should be as well. Importantly, based on all of our regulatory interactions, including the pre-NDA meeting, we believe this review issue in non-dialysis will not impact the potential approval of vadadustat for the treatment of adult patients with anemia due to CKD on dialysis. In summary, given the strength of our dialysis data, we remain confident that subject to approval vadadustat has the potential to be a new oral standard of care to help address the unmet needs of adult patients with anemia due to CKD on dialysis, and that this is currently a $2 billion market opportunity in the US alone. Together with our collaborator Otsuka, we look forward to bringing this innovative therapy to patients on dialysis globally, if approved. Now I'll turn the call over to our CFO, Dave Spellman, who I believe many of you know. Dave joined Akebia back in July and brings with him an extensive background in commercial companies. We are very excited to have him on board. Dave?

Thank you, John and good morning everyone. After completing my first full quarter as Akebia's Chief Financial Officer, I'd just like to say how inspiring it's been to be part of a company and more so, a tightly knit community of really talented people pursuing a deeply held mission to better the lives of people impacted by kidney disease. I'm excited to be here, and I'm looking forward to speaking with all of you as we continue to advance both Akebia and our vadadustat development program. With that, I'll jump right into the quarter's results. Total revenue for the third quarter of 2020 was $60 million, compared to $92 million for the third quarter of 2019. The decline versus the prior period was driven by lower collaborative revenue consistent with the company advancing the vadadustat development program in completing both INNO2VATE and PRO2TECT studies. As you may know, 80% of our Phase III vadadustat development costs are reimbursed by our collaborator Otsuka, and these corresponding payments are recorded as collaborative revenue. So as these costs decline, so will the corresponding payments. Separately, on a note, subject to the terms of our collaboration agreements with Otsuka, Akebia has the potential to receive development and regulatory milestone payments from Otsuka upon approval of vadadustat in both the US and Europe. As John mentioned, the third quarter marks the first commercial availability of vadadustat under the trade name VAFSEO in Japan. I'm pleased to report that since launching in late August, we recorded $373,000 in royalty revenue related to the sale of VAFSEO by Mitsubishi Tanabe, our collaboration partner in Japan. We're pleased with this early commercial performance and continue to believe that Japan represents a meaningful growth opportunity for vadadustat. In terms of Akebia's commercial performance, net product revenue for Auryxia, ferric citrate, increased 14.6% to $34.4 million for the third quarter of 2020 compared with $30.0 million for the third quarter of 2019. While this is encouraging performance, we remain cautious in our planning for Auryxia revenue due to the fundamental impact that CMS' non-coverage decision continues to have on our business as well as uncertainty from COVID-19. Cost of goods sold associated with the manufacture of Auryxia was $30.3 million for the three months ended September 30, 2020, and includes the impact of $9.9 million in noncash inventory writedowns, largely related to a previously disclosed manufacturing quality issue with Auryxia. Moving to our research and development expenses, R&D expenses were $46.9 million for the third quarter of 2020 compared to $74.5 million for the third quarter of 2019. As I just mentioned, the decline here was primarily driven by a decrease in costs consistent with the company completing the INNO2VATE and PRO2TECT studies. Selling, general and administrative expenses were $40.2 million for the third quarter of 2020 compared to $34.2 million for the third quarter of 2019. The increase was primarily a result of higher professional service fees related to some of the pre-commercial activities currently underway to support vadadustat's introduction in the US, subject to approval. We expect to continue to focus our investments in our potential market opportunity with vadadustat in patients on dialysis, where we see significant potential to help patients and drive future growth. For our bottom line, the company reported a net loss of $60 million for the third quarter of 2020 as compared to a net loss of $54.6 million for the third quarter of 2019. Turning to our capital position, we ended the third quarter of 2020 in a strong financial position with cash, cash equivalents, and available-for-sale securities of $269.3 million. We expect our cash resources to fund our current operating plan beyond the expected US launch of vadadustat, assuming regulatory approval. Lastly, we ended the quarter with approximately 143 million shares outstanding. With that, we'll open the line for questions.

Our first question comes from Chris Raymond with Piper Sandler. Your line is open.

Hi. This is Ally Bratzel on for Chris this morning. Thanks for taking the question. So just first on the regional PRO2TECT base analysis. I think we have been expecting the PRO2TECT data cuts would all be pretty specified. It's our understanding that for the regional MACE analysis presented at ASN, rescaling age from a dichotomous to a continuous variable increased the power, but that change wasn't actually pre-specified in the strat plan. So just hoping you could talk about how you get comfort that FDA will accept the non-pre-classified analysis? And then also, just from your prepared remarks, it sounds like FDA is mainly interested in global rather than regional base analysis and pre-dialysis. So maybe just help us understand if we heard that right? And could you expand on that?

Sure, Ally. Thanks for the question. When it comes to the continuous ages continuous variable analysis, it's important to recognize that age was a pre-specified part of the model. The SAP had dichotomous looking at kind of old versus young, if you want to call it; over 65 old. Now using the continuous age as a continuous variable is a tool to give you more specificity. It is actually the way it's normally run. If you look at it as a dichotomous variable, you have a hazard ratio of 1.06 and a top end at 1.29, which are not meaningfully different. This is safety data, and ultimately what you're demonstrating there is that you're not increasing cardiovascular risk. I want to ensure that you're interpreting correctly what I said. We have confidence in this analysis and what we're going to put in front of the FDA on non-dialysis, but we absolutely recognize that we missed the primary safety endpoint. Given that, there's clearly significant risk, and we think it's best for you all to approach it that way as well. What I think is an important message today is that the dialysis data, based on our pre-NDA meeting and every regulatory interaction that we've had, they look at that as a separate population with a separate risk-benefit. Given the data we presented in INNO2VATE, we feel very confident in our path forward for dialysis.

Okay. Thanks. And maybe just one more question. Now that you've had the pre-NDA meeting with the FDA, have your thoughts on the chances for an Adcom for vadadustat changed? And just maybe clarify, in your view, is this at all dependent or even related to the approval decision for roxadustat in non-dialysis and pre-dialysis next month?

Yes. I mean, I really can't comment on roxadustat. We're all going to know what happens there in six weeks or so. Honestly, the pre-NDA meeting was a very constructive and productive meeting that confirmed everything that we had been working toward already. We are preparing for an Adcom. Frankly, we welcome an Adcom. We think that describing the benefit that patients would get from treatment with vadadustat on dialysis would be important. But that's, of course, up to the FDA. I don't think it changed our view at all. We've always been preparing for an Adcom.

Okay. Thank you.

Thank you. Our next question comes from the line of Difei Yang with Mizuho. Your line is open.

Hi. Good morning, everyone. This is Alex on for Difei. Thank you for taking the question. I'm wondering if you could comment on whether you still plan on filing for regulatory approval early next year using a Priority Review Voucher for vadadustat? And then secondly, I'm wondering if you could give us a sense of how quickly you would expect to be able to apply for TDAPA following potential approval in the dialysis setting. Thank you.

Sure. Thanks for the question. So we still have the option to use the PRV. Of course, that's not our decision alone. That's our partner's before, and we have to agree on that. Those discussions are ongoing, so we haven't made any determination yet as to whether or not we'll use that. As far as TDAPA goes, the process is you file once you have your approval. It takes a bit of time. Depending on when the approval comes, they typically process these things about once a quarter, I think, is when they grant the HCPCS code that you need to be part of TDAPA. We will be able to get a little more granular on that as we get closer to knowing exactly when approval will be. There's a clear process for how you go about getting that code you need to be part of TDAPA. It doesn't happen instantaneously on approval, and there will be some months of delay depending on when you get your approval.

Great, thank you.

Thank you. Our next question comes from the line of Ed Arce with H.C. Wainwright. Your line is open.

Hi. Good morning, everyone. This is Thomas Yip asking a couple of questions for Ed. First, a couple of questions about vadadustat for NDAs, one in dialysis patients and one in non-dialysis patients. Do you expect to file them together perhaps in the first half or second half of 2021? And following on the question on the PRV, if they are indeed filed separately, how does the PRV come into play?

Thanks for the question. It's important to note that this is one NDA. The one NDA will include both the dialysis and non-dialysis populations as part of the new drug application. The FDA can determine whether the drug is approved for both populations or just for one, so that kind of makes your second question moot. Whether we decide to use the PRV or not, along with our partner, will be determined on the one NDA. We're planning on filing as early as we can next year. We haven't guided beyond that in terms of first or second half. We're going to move quickly to get that done, so don’t look too far out at that filing.

Okay. Thanks for the clarification, and I understood. And then following on, on the pre-NDA meeting. Did the FDA request any additional analysis for the non-dialysis population? And if not, what else is needed before you can submit the NDA?

I don't think there are any specific additional analyses. There will be additional analyses that are part of the NDA. The briefing book for the pre-NDA meeting versus the NDA is dramatically different. We're still analyzing the data and doing analyses. If those support the NDA, then we'll include those.

Okay. Got it. And then one final question - first, congratulations on the launch with Mitsubishi in Japan. So we see that there's a $0.4 million of royalty revenue from investors this year already, and that was launched in August. So it's about a month of sales. How should we look at the sales royalty revenue in the fourth quarter of 2020?

Yes. Thank you for the question. It is about a month—four or five weeks of sales that are in that royalty calculation. There is some pull-through and sell-in. But as you would expect with any launch, there is some inventory build. We're not guiding to the fourth quarter amount, but hopefully, that gives you a little direction.

Okay, got it.

I think I would characterize our partner as pleased with the launch, and we are as well.

Okay. Completely understood. Once again, congratulations on the launch in Japan. Thank you for taking the questions, and we look forward to a very eventful 2021 for us.

We do as well. Thank you.

Thank you. Our next question comes from Bert Hazlett with BTIG. Your line is open.

Yeah. Thanks for taking the question. Most of mine have been addressed, but just one that's slightly different than what was just asked. In your interactions with FDA regarding the non-dialysis population, were there any other specific requirements that you got the sense would be necessary?

No, Bert. As I said, it was pretty straightforward. We got clarification on a lot of technical things, but there was nothing significant that we needed to do. The FDA understands what we were presenting, and they recognized that we will be submitting all of it together. Nothing that came out of that was a surprise or a big change for the way we were approaching things. It's being communicated as we had before.

Okay. Thanks. You've spoken a couple of different times about Vifor, Otsuka, and Mitsubishi. Can you characterize the interactions you're having with your partners in this current environment?

Sure, Bert. Thanks for the question. We are incredibly pleased with the partners that we've chosen. I'll point to Otsuka most directly since we have the most interaction with them. We are working side-by-side with them on the NDA. We're leading the NDA; they'll be leading the MAA, but we are aligned from a strategy standpoint. Otsuka representatives were on the pre-NDA call with us as well. Our strategy is aligned, and they've been great to work with throughout. In Mitsubishi, we have fewer day-to-day interactions with them, but they've been great through the process.

Okay. Thank you.

Thanks, Bert.

Thank you. Our next question comes from the line of Chad Messer with Needham & Company. Your line is open.

Hi, everyone. This is Gil on for Chad. Thank you for taking our question. Although you might have addressed this already, with the FDA feedback, is there any indication that the FDA would be looking at additional studies in non-dialysis that they would ask you to do? I mean, there are no previous studies performed against the FDA, not this large. So it's a valid kind of direction.

Well, I'm not sure I understood exactly the question, but I will say that there was no indication nor do I expect there to be in a pre-NDA meeting that any additional studies would be necessary. That would be extraordinary for a pre-NDA meeting. But I'm not sure I understood the characterization of that comparison question.

It's just because the active control in your study is different than, let's say, studies made in roxadustat in non-dialysis dependent.

Yes. The program we did, we did with the guidance of the FDA. This is what they asked for and what we're providing. We think the results show why they want that direct comparison. We'll see how things roll out here. We're certainly comfortable with the program we've done, and we are cautious about our ability to obtain approval in non-dialysis. We're pleased with the package we're able to put together based on the data.

All right. Thank you for answering our questions, and good luck with all the upcoming milestones.

Thank you. Thanks very much.

Thank you. Our next question comes from the line of Kennen MacKay with RBC Capital Markets. Your line is open.

Hey, guys. Thanks for taking our questions. This is Victor Ma on for Kennen. We had a couple of questions. So first, on the ASM presentation for PRO2TECT study, we're just trying to better understand the US versus ex-US differences in cardiovascular events. Other than just the treatment hemoglobin range of 10 to 11 versus 10 to 12, is there anything else that stood out to you from the data? Did you see any correlation between the patients who achieved higher hemoglobin outside of that range and they had higher cardiovascular events? I guess we're just trying to better understand what could be driving this difference between US and ex-US patients.

It's a great question. The geographic analysis was a pre-specified analysis, and that's why it was performed—to show that there's a different hemoglobin target in the US versus the rest of the world. The data shows that the difference in MACE was driven by patients treated to a target range of 10 to 12 outside the US. We performed a post-hoc analysis looking at patients who achieved the hemoglobin level during the primary efficacy endpoint of under 11 versus over 11, and you saw that same effect. If they were managed to a lower hemoglobin range of 10 to 11, which is the target in the US, there was no increased cardiovascular risk. All the increased cardiovascular risk showed up when you treated patients with higher hemoglobin. It leads us to the conclusion that if you treat patients to a hemoglobin target of 10 to 11, you don't increase the cardiovascular risk. That's the argument we'll present to the FDA with the NDA.

Okay. Super helpful. Just to follow up on that, I think I'm looking at the curves in the US, the pre-specified sub IP analysis done in the US. There's a split happening between the curves for vadadustat and the control around week 120. Could you comment on maybe why the curves are splitting at that point? Or is there anything you saw that could be driving that?

No, I mean, the important thing is that they come back together again. If they maintained a split, that would draw concern. It shows that they don’t maintain separation, and that’s why you can conclude there’s no increased cardiovascular risk in that population.

Got it. I was just thinking in terms of duration of exposure of the drug could be maybe driving the cardiovascular events or that's—correct me if I'm wrong if something like that is happening.

No, it's not. You wouldn't see it come back together again if that were the case. The ends start to get smaller, and you see that separation. But the fact that they come back together when the ends are even smaller demonstrates and all statistics support that there is no increased cardiovascular risk in that population.

Okay. Got it. Thank you so much, and congrats on the progress.

Thank you. Appreciate it.

Thank you. I'm showing no further questions in the queue now. I would now like to turn the call back over to Mr. John Butler for closing remarks.

Thank you, Tawanda, and thanks to everyone for joining us this morning. We look forward to continuing to update you on Akebia's progress. Thanks. Have a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.