Akebia Therapeutics, Inc. Q3 FY2023 Earnings Call

Good day and thank you for standing by. Welcome to the Akebia Therapeutics' Third Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your speaker today, Ms. Mercedes Carrasco. Please go ahead.

Thank you and welcome to Akebia's third quarter 2023 financial results and business update conference call. Please note that a press release was issued earlier today, Wednesday, November 8th, detailing our third quarter financial results, and that release is available on the Investors section of our website. For your convenience, a replay of today's call will also be available on our website after we conclude. Joining me for today's call, we have John Butler, Chief Executive Officer; and Ellen Snow, Chief Financial Officer. I'd like to remind everyone that this call includes forward-looking statements. Each forward-looking statement on this call is subject to risks and uncertainties that could cause actual results to differ materially from those described in these statements. Additional information describing these risks is included in the financial results press release that we issued on November 8th as well as in the risk factors and management discussion and analysis section of our most recent annual and quarterly reports filed with the SEC. The forward-looking statements on this call speak only as of the original date of this call, and except as required by law, 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?

Thanks, Mercedes. For those who have been following our story over the past couple of years and have witnessed all of our team's efforts, it gives me great pleasure to talk to you about Akebia's future today with an extremely important and hard-fought catalyst in our sights. As we've reported, the FDA set a user fee goal date, or PDUFA date, of March 27th, 2024, for vadadustat, our oral HIF-PH inhibitor to treat anemia due to chronic kidney disease, or CKD, in patients on dialysis. That's less than five months away. Our team has been working diligently towards the US approval for vadadustat. We completed the formal dispute process and engaged with the FDA during an end-of-dispute Type A meeting. We then resubmitted our NDA for vadadustat in September. Our resubmission included post-marketing safety data from tens of thousands of patients in Japan where vadadustat is approved and has been on the market for more than three years. Based on the new data and the resubmission, the FDA assigned a six-month review cycle in line with our prior expectations. Today, they are actively engaged in the review. I just returned from the American Society of Nephrology Kidney Week last week. I was excited to see how much innovation is happening for patients with kidney disease, including multiple products introduced since the meeting last year. I had the pleasure of having many conversations with key medical experts, and I can say unequivocally that these physicians are very excited about the role vadadustat and HIF can play in the treatment of patients with CKD. They were very happy to share thoughts on where the greatest patient need exists as well as areas for future research. For our part, we're confident in our path forward and continue to believe in the benefit vadadustat can deliver to patients. If approved, we're eager to bring vadadustat to market in the US as an alternative oral treatment to deliver on our commitment to patients, our partners, and the broader kidney community. Before I speak to the potential commercial opportunity for vadadustat in the US, I want to again applaud our regulatory team for their productive interactions with the FDA over the past year and timely completion of the resubmission. I also want to thank our partner, Mitsubishi Tanabe Pharma Corporation, or MTPC, who markets vadadustat in Japan and was instrumental in collecting the safety data included in the resubmission as part of their typical post-marketing vigilance in Japan. Now, with the regulatory resubmission in our rearview mirror, we're now shifting our focus to the vadadustat launch phase that we expect next year if vadadustat is approved. In the international markets, vadadustat is approved in 36 countries. Since our last call, vadadustat has been approved in Australia and Taiwan. Work is underway by our partner to bring vadadustat to market in Europe in 2024, which will generate future royalties and potential milestones for Akebia. That said, a US launch of vadadustat would represent our most significant commercial opportunity. With approval, we have the potential to target an approximately $1 billion market based on estimates that approximately 88% of the nearly 550,000 patients on dialysis would be treated with an erythropoiesis-stimulating agent, or ESA, for anemia. These are the injectables that are the standard-of-care. It's important to highlight that we are already well prepared for a potential launch and have identified important tailwinds that we believe will contribute to our success. First, we have our commercial product supply ready to go, awaiting the final label post potential approval. Second, we also have an experienced commercial sales organization actively calling on dialysis centers. We believe there is approximately a 96% overlap between Auryxia prescribers and potential vadadustat prescribers. Importantly, we'll also benefit from our partnership with CSL Vifor, which enables potential access to 60% of the treatment centers through its collaboration with Fresenius Medical Care and other small and medium-sized providers. While we do expect to invest appropriately in the vadadustat launch to reflect the significant opportunity based on our initial preparedness from 2022 and our existing infrastructure, we expect that investment in 2024 to be incremental compared to our current OpEx. Now, it's critical to also understand the unique payment landscape in dialysis. Medications used to treat most dialysis patients in the US are reimbursed as part of a bundled payment made to providers. Included in the bundled payment are funds for an ESA treatment used to manage anemia. To promote innovative drug use for patients in that prospective payment system, CMS implemented a transitional add-on payment adjustment, or TDAPA. For the two years post TDAPA designation, the TDAPA payment would cover the cost of vadadustat if a physician prescribes their product. The overall bundled payment does not change. Now, while we continue to work on post TDAPA payment policy, it's important to recognize that today almost 90% of dialysis patients are treated for anemia, and there are significant dollars in the current bundle payment for the treatment of anemia. We expect to have vadadustat commercially available quickly following a potential approval but expect minimal initial revenue to be generated in those first months. After the six-month TDAPA application process anticipated to be complete by October of 2024, we anticipate the product would be reimbursed and widely available and accessible to patients. As I mentioned earlier, we will have a strong tailwind from our CSL Vifor relationship, which will provide Akebia with potential access to up to 60% of the dialysis market through CSL Vifor's collaboration with Fresenius Kidney Care and several small to midsized providers with whom they contract. Akebia will receive two-thirds of the profit associated with vadadustat sales in those centers, net of certain prespecified costs, and Vifor will keep one-third of the profits. Akebia will retain 100% of the economics in markets not covered by our contract, predominantly any sales to non-dialysis centers. Now, we're also fortunate to be supported through this launch by the robust cash flows from Auryxia. Today, we reported Auryxia net product revenue of $40.1 million in the third quarter. We've guided to $170 million to $175 million net product revenue for the year, and I expect we'll come in around $170 million. We expect Auryxia revenue to grow in 2024 as we exit unfavorable payer contracts, incrementally expand our commercial and medical footprint, and gain broader access to providers from their interest in learning about vadadustat if it's approved. Lastly, we were able to delay the cash payments associated with our Pharmakon debt service until October of 2024, which provides us with additional flexibility to invest in the launch of vadadustat as well as other growth opportunities for the company. And to provide more information on our revenue and other financials, I'd now like to turn the call over to Ellen Snow, our Chief Financial Officer. Ellen?

Good morning, everyone. Our priority continues to be focused on strengthening our balance sheet as we enter a potential launch year, marked this quarter by a favorable loan amendment, which strengthened our cash position for 2024. The Pharmakon loan amendment extends the maturity date of our loan to March of 2025 from November 2024 and defers Akebia's quarterly principal payments until October 31st, 2024, at which time the company will begin making monthly principal payments through the date of maturity. The favorable modification to payment terms enables us to strategically invest in the vadadustat launch activities, while also continuing to maximize Auryxia revenue for the remainder of the year and into 2024. Our cash and cash equivalents and restricted cash as of September 30th, 2023, totaled $48.2 million, which, with cash from operations, we expect to fund planned operations for at least the next 12 months. Contributing to our cash position, total revenues were $42 million for the third quarter of 2023. Net product revenues from the sale of Auryxia were $40.1 million for the third quarter of 2023 compared to $42 million for the third quarter of 2022. The decrease is primarily due to a reduction in volume and the impact of shifting payer mix, partially caused by contracting dynamics and a decline in the phosphate binder market. The decline was partially offset by price increases in January of 2023 and July of 2023. While our quarterly revenue was down from last quarter and compared to the third quarter of 2022, this is a similar trend to what we saw last year, and we'll still expect strong fourth quarter. And thus, as John mentioned, we believe Auryxia's net product revenue will be around $170 million for the full 2023. We are committed to both maximizing our current business opportunities and pursuing growth initiatives to create value for our shareholders. While Auryxia is now a mature brand nearing loss of exclusivity in March of 2025, we expect relatively stable volume next year while benefiting from higher pricing due to exiting certain payer contracts over the next year. In addition, we continue to work to understand the potential impact and opportunity we could realize when phosphate binders enter the bundle in 2025. As we look to our cost structure, we continue to focus on cost containment. Cost of goods sold, or COGS, was $18 million for the third quarter of 2023 compared to $38.3 million for the third quarter of 2022. COGS reflects the cost of Auryxia, including a noncash intangible amortization charge of $9 million per quarter through the fourth quarter of 2024 and third-party royalties. The decrease was primarily due to a noncash charge related to the excess purchase commitments recorded in 2022 and a reduction in inventory write-downs and lower volume of sales resulting in reduced product costs for 2023. R&D expenses were $13.3 million for the third quarter of 2023 compared to $28 million for the third quarter of 2022. The decrease was primarily due to a reduction in spending on vadadustat development, including clinical trial costs and curtailment of outsourced contract services. SG&A expenses were $22.7 million for the third quarter of 2023 compared to $31.9 million for the third quarter of 2022, primarily as a result of the reduction in headcount-related costs, the benefits realized from the assignment of the Boston lease in May of 2023, and a targeted cutback in Auryxia marketing and promotional expenses that were offset by some one-time nonrecurring expenses. Net loss was $14.5 million for the third quarter of 2023 compared to a net loss of $54.1 million for the third quarter of 2022. We continue to find ways of operating more efficiently, placing an increased scrutiny on all areas of our operating expenses. We are deliberate about managing expenses and our efforts to further extend our cash runway until the potential launch of vadadustat here in the US. Revenue from Auryxia continues to provide cash for operations, and we are excited that we have a PDUFA date of March 27th, 2024. The entire leadership team remains energized and focused on delivering an alternative oral treatment to patients if approved by the FDA. With that, we will now open the call for questions.

Thank you. Our first question will come from Allison Bratzel of Piper Sandler. Your line is open.

Chris, why don't we move to the next question? We'll come back to Ally.

Thank you. The next question will come from Julian Harrison of BTIG. Your line is open.

Hi, congrats on the recent progress and thank you for taking my question. First, both vadadustat and daprodustat have been on the market in Japan for several years now. So, I guess I'm curious if there's anything from the experience there that informs you about how the two drugs should coexist in the US going forward? And then it sounds like the cross-selling opportunity between Auryxia and potential vadadustat prescribers is likely significant. So, I was just wondering if you could talk more about how you plan to leverage that?

Thank you for your questions. We often receive inquiries about the experience in Japan and what insights we can gain. It's challenging to draw direct comparisons because the market is quite different. For instance, the product is available for both dialysis and non-dialysis patients, and there are five HIF-PHIs currently on the market in Japan, leading to a unique commercial dynamic. However, we have noticed consistent adoption of the HIF-PHIs in that market, which, as anticipated for a new drug class, took some time to gain traction. We are now seeing it become more prevalent throughout Japan. With five companies promoting these products, there is significantly more visibility in that category. We have always recognized the value of the non-dialysis market, which is where we observe increasing usage and attention from all companies, as well as adoption in dialysis settings. Regarding your second question about overlap, when we completed the transaction with Keryx in 2018, our goal was to leverage our commercial organization, which already had established relationships with nephrologists in dialysis centers. While we've faced a delay in taking full advantage of this leverage, we believe it remains crucial. Our sales team is experienced, and we plan to gradually expand this group quickly, benefiting both Auryxia and vadadustat. Any marketing presence at ASN or similar events will allow us to leverage having two products. It is also important to note that once vadadustat is approved, we anticipate that physicians will be eager to engage with our representatives regarding this new product. Since Auryxia has been on the market for around eight or nine years, accessing physicians is a bit more challenging. However, this access will provide us the opportunity to discuss Auryxia as well. In my experience, significant organic growth for more established products often comes from improved access to prescribers, which will be a key advantage for us.

Excellent. Thanks very much.

Thank you, Julian.

Thank you. Our next question will come from Ed Arce of H.C. Wainwright & Co. Your line is open.

Hi John and Melanie. Thanks for taking my question. And sorry I missed past weekend in Philadelphia. Three questions for me. Firstly, on the launch. Just wanted to ask, prior to the TDAPA, which you expect in October of next year, what kind of activities will you be focused on those first six months as you prepare for meaningful sales ramp? And then once you do get the TDAPA, could you just review again the sort of perspective from the dialysis centers on the financial incentives that would be in place once TDAPA is designated? Secondly, I wanted to ask about pricing, especially relative to GSK and what your thoughts there, if you can share anything? And then lastly, I just wanted to ask again about the addressable market. I think you said in your prepared remarks it was 550,000 or 575,000, and there's a small percentage that does not take any medications for anemia. So, I just wanted to tie that down a little better. Thanks again.

Thank you for the question, Ed. I apologize for missing you last week and hope you enjoyed the meeting as much as I did. To address your question about the addressable market, there are approximately 550,000 dialysis patients, and around 90% of them are currently on an ESA. There is a small percentage of patients who may not need immediate treatment due to late-stage kidney function or when starting dialysis with some residual function, leaving around 500,000 patients eligible for treatment. Historically, the market has grown at a rate of 2% to 5% annually over the last 30 years; however, COVID-19 has disrupted that trend. You can see this disruption reflected in the phosphate binder market, which is just beginning to recover. Regarding the launch, it’s understandably frustrating to wait six months for the TDAPA designation from CMS, expected around July. This period is crucial for dialysis providers to prepare to integrate a new product into their protocols. Additionally, our commercial team will communicate about the product, which will have an approved label. Physicians will need to be educated about it, making these early conversations essential. Our medical organization will collaborate closely with dialysis providers to ensure proper usage protocols in dialysis centers. We might see some revenue from small experience trials conducted by some providers, but it is important to manage expectations about significant revenue during this period. Preparation in the next six months will be critical for maximizing the two-year TDAPA period. On the dialysis center side, most patients are Medicare beneficiaries, with nearly 90% of all dialysis patients falling under the prospective payment system (PPS). However, with the introduction of Medicare Advantage, the proportion of patients enrolled in it has rapidly increased to about 40% to 50%. This creates challenges as each provider has different contracts, complicating the available payments for those patients. For the 50% of patients who are under the PPS system, the TDAPA designation ensures that vadadustat will be reimbursed based on the ASP. Essentially, dialysis centers will bill for vadadustat costs, and CMS will reimburse based on that ASP. The fixed bundled payment for the next year is projected to be around $280 per dialysis session, which includes the cost attributed to ESAs. This arrangement gives dialysis providers confidence that they will be reimbursed for vadadustat, allowing them to consider it a cost-effective solution alongside an innovative product. Regarding pricing, we are not ready to discuss specific figures for vadadustat just yet. The pricing environment for ESAs has seen a notable decline over recent years. Observations of wholesale costs of other products, like daprodustat from GSK, suggest an average annual cost near $8,000 based on their Phase 3 study data. We believe there's potential for premium pricing, especially during the TDAPA period, and we have no indication that contract pricing will be significantly lower than that. This will inform our approach as we strategize our pricing for the vadadustat launch.

Great. Thanks, John. That’s very helpful.

Thank you, Ed. Were we able to get Ally back, Chris?

Yes. And again, we have Allison Bratzel of Piper Sandler. Your line is open.

Looks like we have luckily multiple ways of communicating these things. So, Ally emailed Mercedes her questions. Mercedes will play Ally today.

I'll jump in. Thank you very much, Chris. Let's start with the current cash burn and runway guidance. Ellen, can you discuss the runway guidance regarding the cash situation, particularly in light of the loan agreement and its potential impact?

Yes. Thank you. We don't provide OpEx guidance. But that said, Auryxia continues to contribute meaningful cash to fund operations, and we have a disciplined approach to spending and continue to streamline and become more efficient in our operations. We're extremely happy with where we landed on our Pharmakon amendment and giving us the opportunity to invest incrementally costs to support the vadadustat launch, and we believe we have sufficient cash to fund operations well through 2024.

Thank you, Ellen. And then just to build on the question on potential pricing for vadadustat. How might you be thinking about pricing once the TDAPA period ends?

That's a significant question. As we discussed regarding TDAPA, there is a two-year period where you're not included in the dialysis bundle. Once TDAPA concludes, CMS assesses the overall utilization of products previously covered under TDAPA and redistributes those funds across all dialysis sessions provided. For a product used by a very small patient population, this presents a challenge, as it doesn't furnish enough cash for dialysis providers who may have only one or two patients on the medication. Fortunately, vadadustat benefits from the fact that 90% of dialysis patients require treatment for anemia, and there are already substantial funds within the bundle for this purpose. Therefore, the pricing strategy and the transition to the post-TDAPA policy appear more manageable in this context. However, it’s worth noting that the post-TDAPA policies may not foster long-term innovation. As part of the kidney care partner coalition, we are focusing on improving how innovation is integrated into patient treatment. We plan to continue advocating with lawmakers and CMS to ensure that funding corresponds with patient needs, presenting a real opportunity for us. In light of the current environment, you will need to adjust the pricing established during the TDAPA period to align with the future bundle considerations. We will evaluate our pricing strategy moving forward, but I anticipate that post-TDAPA contracting will need to be more competitive unless the policy changes. We'll keep you updated as developments occur, but that’s our current perspective.

Great. And on vadadustat, can you help us frame the base case expectation on the label, particularly any differences compared vadadustat and whether that will matter for uptake?

So, obviously, we haven't started labeling discussions with FDA yet. I mean they're early in their review. But we do think that there are significant differences between the compounds. We know that FDA does frequently have a desire to have class labeling, but there are certain areas that we really believe that the data doesn't support that. So, we've really tried to address those particular areas as aggressively as we can and as clearly as we can, maybe it's a better word, in our draft labeling to the FDA. But of course, we will obviously work with the agency to have the product approved, and there's a point where negotiation ends and you take what you get. But from a compound perspective, we really do think that these are very different products. And some of the areas, like the four months not using the product until a patient has been on for four months. If you look at the MACE data from INNO2VATE from incident patients and from the 1,000 patients who became dialysis patients during treatment, there's no increase in MACE risk seen in that data. So, we've incorporated that into our resubmission. I feel very strongly about that, and that's the kind of conversation we're looking forward to having with the agency.

Thanks. And then finally, just on the Auryxia side once more, Ellen had provided good commentary on volume expectations for next year. Just curious if that factors in any impact from the availability of tenapanor? Or more broadly, how should we be thinking about the competitive set for Auryxia moving forward?

Yes. The way we view tenapanor, after years in this field and as a patient advocate, is quite promising. Auryxia is a valuable product, and so is tenapanor. However, neither fully normalizes patients' phosphorus levels. We understand the significant link between phosphorus levels and mortality in dialysis patients. Therefore, managing phosphorus levels more aggressively is advantageous for patients, and I believe tenapanor can help achieve this, as indicated in its labeling as an add-on therapy. I did not mention this as a factor in driving Auryxia sales, but increased interest in phosphorus management from physicians will likely arise, especially with the Ardelyx team promoting tenapanor. Achieving a reduction in average phosphorus levels from six to five or even four and a half would greatly improve patient outcomes. Ultimately, a heightened emphasis on phosphate binders or phosphate control will only benefit Auryxia.

Thank you. I'm seeing no further questions in the queue. I would now like to turn the conference back to John Butler for closing remarks.

Thanks Chris and thanks, everyone, for your questions. We're now nearly through 2023, and I just want to reiterate how well-positioned we believe Akebia is to close the year. Our team is committed to our strategic objectives. We're eager to bring vadadustat to patients in the US if approved, and work to ensure vadadustat is available globally through our commercial partnerships. We'll advance our pipeline and grow our revenue in the years ahead. We believe our efforts will help create sustained value for our shareholders while continuing towards our purpose to better the lives of people impacted by kidney disease. Thanks everyone for joining us today. I look forward to updating you in the future.

This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.