Earnings Call Transcript - AKBA Q2 2022

Mercedes Carrasco, Senior Director of Corporate Communications

Thank you, and welcome to Akebia's Second Quarter 2022 Financial Results and Business Update Conference Call. Please note that a press release was issued earlier today, Thursday, August 4, detailing our second quarter financial results, and that release is available on our Investors section of our website. For your convenience, a replay of today's call will also be available on our website shortly after we conclude. Joining me for today's call, we have John Butler, Chief Executive Officer; Steve Burke, Chief Medical Officer; and Dave Spellman, Chief Financial Officer. Before we begin, 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 August 4 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 to the original date of this call, and except as required by law, we do not undertake any obligation to update or revise these statements. With that, I'd like to introduce our CEO, John Butler.

John Butler, CEO

Thanks, Mercedes, and thank you all for joining us. Our team has spent the quarter working to make notable progress to align with our refined strategic focus and reshape Akebia. As you all know, in May, we outlined the strategic pillars for Akebia in the wake of the unexpected CRL for vadadustat from the FDA. We are working to first, drive Auryxia revenue and identify cash management opportunities with the objective to enable Akebia to manage the company with existing cash resources and ongoing cash from operations. Second, support our partners selling and seeking approval for vadadustat globally. This includes potential EMA approval and European launch through a new partner as well as evaluate the path for potential U.S. approval. And third, thoughtfully invest in our pipeline of internal assets and assess other strategic growth opportunities. Now let's begin with Auryxia, our existing commercial product. Today, we are reporting a 32% revenue growth for Auryxia over the same quarter last year and a 5% increase over the first quarter of 2022. We believe the progress on Auryxia revenue growth is critical for our success moving forward. Despite challenges in the dialysis centers, our commercial team has delivered increased net revenue again this quarter. We've increased our 2022 Auryxia revenue guidance to $170 million to $175 million, raising both the top and bottom end of the guidance range by $5 million. In addition to revenue growth, we've taken significant steps towards reducing our cost structure. I'm equally pleased and impressed with how our team has responded to that challenge. We're working efficiently and prioritizing the most critical business initiatives that we believe will drive value. Dave will talk through specific cost management processes and savings that we've realized in Q2. Now shifting to our second pillar, advancement of vadadustat globally. We continue to believe in the potential of vadadustat as an oral treatment for patients with anemia due to chronic kidney disease. We're pleased to have successfully regained the rights to vadadustat from Otsuka in the United States, Europe, China, Russia, Canada, Australia, the Middle East, and certain other territories. Vadadustat is currently under review by the EMA. From day one of the EMA process, we worked very closely with our former partner on the initial Marketing Authorization Application, or MAA, and we're well positioned to assume full responsibility for the MAA. The review is proceeding on the expected timeline with a potential approval early next year. To note, vadadustat is also under review in the United Kingdom, Switzerland, and Australia through the Access Consortium. Our team is working through the review processes in these markets and we're excited about the value of potential approval of vadadustat in these markets could bring to Akebia as well as to the patients who are impacted by anemia due to chronic kidney disease. While our team is executing the regulatory process, we do not believe we would commercialize vadadustat in Europe without a partner. To that end, we've begun a process for identifying a partner for Europe. In the U.S., last quarter, we noted that we would engage with the FDA to determine a path for potential approval for vadadustat. We completed the end-of-review conference with the agency, the first step in the process. We felt it was a constructive dialogue. We've not yet received minutes from the meeting, so we will not be discussing any details from the meeting at this time. Now on to our third pillar. Earlier today, we shared data from a Phase II investigator-sponsored clinical study evaluating vadadustat for the prevention and treatment of ARDS in subjects with COVID-19 and hypoxemia. We're extremely pleased with the study UT Health Houston ran and thank them for their leadership. We also want to thank the patients who participated in the study as well as their families. While vadadustat did not meet the primary endpoint in the study, we're still very excited about the data and believe that vadadustat has the potential to impact ARDS broadly, a condition with few therapeutic options approved for intervention. To design our development plan, we plan to spend more time analyzing the full data set and also consult additional experts and ultimately speak to the FDA. But today, we believe vadadustat as a potential treatment for ARDS might be an important addition to our pipeline. Of course, this could be even more valuable now that we've resecured full rights to vadadustat in the U.S. and Europe. And with that, let me pass it over to Steve to provide more details on the study.

Steve Burke, Chief Medical Officer

Thanks, John. In 2020, we made the decision to support the study as we believe stabilizing HIF with vadadustat could lessen the severity of lung injury in patients with COVID-19. In animal models of acute lung injury, knocking out or inhibiting HIF worsens lung injury and, conversely, stabilizing HIF with prolyhydroxylase inhibitors like vadadustat lessens the severity of lung injury. That thinking was shared by the team at UT Health Houston, including Dr. Holger Eltzschig, Head of Anesthesiology, who's published extensively on acute lung injury models and HIF stabilization. Dr. Eltzschig contacted Ben Johnson, Head of Emergency Medicine, assembled an expert and committed team across five hospitals in Houston, and conducted the study under an investigator IND after extensive consultation with FDA. The study was a Phase II randomized double-blind placebo-controlled trial. The trial measures the proportion of patients who had scores of 6, 7, or 8 on the National Institute of Allergy and Infectious Disease ordinal scale or NIAID-OS at day 7 and day 14, with day 14 being the primary endpoint. This is defined as requiring noninvasive ventilation or high-flow oxygen devices. Devon is a requirement for invasive mechanical ventilation or ECMO, or it is death. As outlined in our press release, at day 14, the proportion of subjects with a score of 6, 7, or 8 was 13.3% for vadadustat versus 16.9% for placebo with a relative risk of 0.79 and 94% probability that vadadustat was superior to placebo. In a prespecified analysis at day 7, the proportion of subjects with a score of 6, 7, or 8 was 25.4% for vadadustat versus 29.7% for placebo with a relative risk of 0.86 and 97% probability that vadadustat was superior to placebo. This means that the trial failed to meet its primary superiority threshold of greater than 95% probability. However, a smaller proportion of subjects in the vadadustat group had a score of 6, 7, or 8, demonstrating a 94% probability of benefit at day 14 and a 97% probability of benefit at day 7. These data are encouraging, particularly for ARDS more broadly since the mechanisms underlying the benefit are not specific to COVID-19. We believe vadadustat has the potential to prevent the worsening of ARDS due to diverse insults and are interested in further exploring vadadustat in this acute care setting. We're working closely with UT Health Houston to publish the data, and we will work to determine the next steps for this exciting program. And now I'll hand it over to Dave for a financial overview.

David Spellman, CFO

Thank you, Steve, and good afternoon, everyone. The backbone of our long-term plan is the continued growth of Auryxia. As John mentioned, our team demonstrated again this quarter that we are focused on increasing net product revenue from Auryxia. Our expense management can be seen this quarter with a significant decrease in operating expenses even before we realize the full savings of our restructuring, which we believe will continue to impact our operating expenses this year. We decreased costs significantly versus the first quarter across almost all areas of our business. It is a major focus of the team. As our revenues grow and our expense bases covered, we will, in a measured way reinvest in our pipeline. That pipeline prioritization and specific allocations of funds into our operating plan will come over the coming months and quarters. Subsequent to the quarter ended, we collected a $55 million cash settlement from our former partner, Otsuka, which was paid following the termination of the collaboration agreements. We proceeded to use $25 million of those funds to pay down a portion of our debt with Pharmakon, which we expect will save us over 30% of our expected interest expense over the terminal loan. I will now turn to some important selected financial results for the quarter, beginning with revenue. Total revenue was $126.8 million for the second quarter of 2022 compared to $52.9 million for the second quarter of 2021. As John mentioned, we're pleased to report revenue growth for Auryxia, where net product revenue was $43.7 million for the second quarter of 2022 compared with $33 million for Q2 2021, a 32.4% increase. Compared to Q1 2022, Auryxia net product revenue increased by 5.4%. License, collaboration, and other revenue was $73.5 million for the second quarter of 2022 compared to $20 million for Q2 2021. The increase in revenue reflects the payment of $55 million that Otsuka paid to Akebia in July under the terms of our termination and settlement agreement. In addition, the company recognized $15.5 million related to previously deferred revenue and $9.6 million of noncash consideration related to Otsuka's obligations to complete certain clinical activities. Regarding expenses, the cost of goods sold was $18.6 million for the second quarter of 2022 compared to $52.5 million in Q2 of 2021. The decrease compared to the prior year was primarily due to a $30.3 million noncash charge related to an increase to the liability for excess purchase commitments during Q2 2021. Research and development expenses were $26 million for the second quarter of 2022 compared to $37.2 million for the second quarter of 2021. The decrease was primarily due to lower headcount-related costs as a result of the reduction in force and decreased costs of clinical studies. Selling, general and administrative expenses were $32.8 million for the second quarter of 2022 compared to $41.7 million for the second quarter of 2021. The decrease was primarily due to decreased headcount-related costs related to the reduction in force and lower marketing expense as a result of discontinuing launch preparations. In connection with our previously announced workforce reductions, this quarter includes a $14.5 million restructuring charge primarily related to one-time termination benefits and contractual termination benefits. Regarding our cash position, we ended the second quarter with $143.9 million, which does not include the approximate $55 million cash that was collected from Otsuka in July and does not reflect Akebia's approximately $25 million repayment made to Pharmakon last month. Given our cash position, if Auryxia revenues continue to grow and we are successful in implementing our cost reduction measures, we believe our existing cash resources as well as cash from operations will fund the company's current operating plan for the next several years. To summarize, we believe the progress we've made is significant, and we continue to implement our plan. As our team prepares for a potential European approval, the potential revenues through royalties or other partnering value we may realize would be an upside to the plan articulated today. Auryxia revenues continue to grow and we have several exciting opportunities to build on. We look forward to sharing more in the quarters to come. With that, we'll open the line for questions.

Allison Bratzel, Analyst

And congrats on all the progress this quarter. I guess two questions from me. The first one is on Auryxia. Just based on the trends you're seeing and your expense reduction measures, could you just help us understand Auryxia's path to cash flow positivity between now and its LOE? Or I guess even beyond its LOE, if the genericization of the market goes at a similar pace to Sevelamer. And then just thinking about future trends, I guess, should we expect that improved price per pill will be much of a tailwind beyond this year? You had mentioned stabilization of the phosphate binder market. So is it your sense that volume growth could be a driver for 2023 and thereafter? So then my second question, just on FDA interactions on vadadustat. I know we're waiting for minutes. Could you just clarify how the outcome of the meeting will be communicated? Is that something we should look for on your Q3 call? Or can we get an update on the outcome of that meeting and your anticipated next steps before Q3 earnings.

John Butler, CEO

Thank you for your questions, Alli. I'll address your second question first regarding the FDA. As we've mentioned before, we won't provide detailed updates on our interactions with the FDA. We will disclose any material developments as they arise, but otherwise, we will provide updates as needed throughout the process. Now, regarding Auryxia, we are pleased with the revenue growth we’re seeing, especially when comparing Q2 to Q2. This growth is primarily driven by pricing. As noted, the phosphate binder market continues to shrink, largely due to the ongoing impacts of COVID on the dialysis population. We anticipate a rebound; however, staffing challenges at dialysis centers are also affecting the situation. Our contracting strategy from the past few quarters appears to be benefiting our pricing, and we expect that to continue as previously guided. In terms of reaching profitability, we do not anticipate significant volume increases required to achieve that. While we see potential for volume growth, we are not setting unrealistic targets in our guidance. Given the current dynamics of the binder market, we advise a cautious approach and will monitor its progress. Ultimately, our path to profitability relies on continued revenue growth. As Dave highlighted, this marks the first quarter where we have made strides in reducing operating expenses, and the team has done an excellent job in this regard. We believe there are still opportunities to further reduce expenses. By combining increased revenue with prudent expense management and thoughtful reinvestment in our pipeline, we are on track to meet our cash guidance. Dave, would you like to add anything?

David Spellman, CFO

No, I think that you hit on it.

John Butler, CEO

As we have discussed previously, we believe there are opportunities for Auryxia beyond its loss of exclusivity. When comparing it to Sevelamer, considering the phosphate binder market, we are evaluating how the inclusion of binders in the bundle in 2025, as clarified by CMS in their recent proposed rule, creates an additional opportunity for us. We will monitor how this evolves along with the final regulations. While loss of exclusivity is significant, we believe there are prospects for Auryxia beyond that.

Operator, Operator

There are no further questions at this time. I would like to turn the conference back over to your CEO, John Butler, for any closing remarks.

John Butler, CEO

Thanks, Harmony, and thanks, everyone, for joining us today. Our second quarter was marked by what I believe to be quick and impactful progress to reset and align with our new strategic pillars. Again, I'm extremely appreciative of the work our team has done to drive revenue and reduce operating costs. That work is critical as we make thoughtful decisions about how to move the company forward and deliver value. While much has changed since April, our commitment to patients remains. That's why I'm especially excited about opportunities in the quarters ahead, including the potential approval for vadadustat in Europe, and we look forward to continuing to update you in the future. Thank you.

Operator, Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.