Earnings Call Transcript - AKBA Q2 2023

Operator, Operator

Good day and welcome to Akebia's Second Quarter 2023 Financial Results Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session and instructions will be given at that time. As a reminder, this call is being recorded. I would now like to introduce your host for today, Mercedes Carrasco, Senior Director of Corporate Communications and Investor Relations. You may begin.

Mercedes Carrasco, Senior Director of Corporate Communications and Investor Relations

Thank you, and welcome to Akebia's second quarter 2023 financial results and business updates conference call. Please note that a press release was issued earlier today, Friday, August 25th, detailing our second 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; Dr. Steve Burke, Chief Medical 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 issued on August 25th 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 any of these statements. As described in the press release, we intend to file an amendment to our 2022 annual report on Form 10-K to reflect corrections to our previously issued financial statements due to recently identified accounting errors related to the recording and reporting of return reserves for Auryxia as well as our second quarter Form 10-Q. Please note that comments made during this call regarding the company's financials reflect revised financial statements for the years ended December 31st, 2022, 2021, and 2020, and the first quarter of 2023. With that, I'd like to introduce our CEO, John Butler.

John Butler, CEO

Thanks, Mercedes, and thanks, everyone, for joining us. It's a pleasure to be here with you today. While this is a little later than we expected to be together, the extra time spent was necessary. We're very pleased that the revisions to our financial statements that we had to work through are not material and they don't impact the value of the company. You'll hear from Ellen shortly, but I want to thank her and her team for the work done over the past several weeks that helped to ensure we are best positioned to maximize value as we approach several important catalysts. First, let's focus on the operational progress that we've made over the past few months, working towards the potential approval of our second product for patients with kidney disease, vadadustat. We are now on a clear path to potentially gain US approval for vadadustat as a treatment for anemia due to chronic kidney disease in adult patients on dialysis. In fact, as we shared earlier, we've received the minutes from our recent end of dispute Type A meeting with the FDA, which reflect our productive discussion with the agency and support our optimism that we will resubmit our new drug application for vadadustat by the end of this quarter. With that timing for resubmission, we would expect a decision from the FDA on the vadadustat NDA in March of 2024. We have Dr. Steve Burke here to answer any questions about our interactions with the FDA or our timeline for NDA resubmission at the end of the call. I'll also discuss initial plans for an anticipated launch next year, if approved. What's especially encouraging for our team at Akebia is that the momentum in the US regulatory discussions follows tangible progress in markets around the globe. Vadadustat is approved in 34 countries. In the past quarter alone, the European Commission, the United Kingdom Medicines and Healthcare Products Regulatory Agency, and Swiss Agency for Therapeutic Products approved Vafseo vadadustat for the treatment of symptomatic anemia associated with CKD in adults on chronic maintenance dialysis in the EU, United Kingdom, and Switzerland, respectively. Further, Akebia expects a regulatory opinion on vadadustat in Australia this year. I want to credit our team who assumed responsibility for the regulatory processes outside the US mid-last year and worked efficiently to secure local approvals to help enable Akebia to deliver a new therapeutic option to patients in need. To that end, we had previously discussed our priority was to secure a partner in Europe who would bring Vafseo to market. Here again, we met our objective and signed a license agreement with Medice. Medice is a fully integrated pharmaceutical company based in Germany with a strategic focus on the dialysis market. The license agreement grants Medice the exclusive rights to market and sell Vafseo in the European Economic Area, the United Kingdom, Switzerland, and Australia for the treatment of anemia in patients with CKD. The agreement included an upfront payment of $10 million. Additionally, we're eligible for commercial milestone payments up to an aggregate of $100 million and tiered royalty payments ranging from 10% to 30% of Medice's net sales. We believe Medice is situated to maximize the European market potential for vadadustat. They understand the unique country-by-country pricing and access dynamics related to dialysis. They are committed and driven to succeed, and we continue to support their efforts. We expect Medice to launch as soon as possible in 2024. Building on the regulatory success we've had in other markets, we're eager to advance the regulatory approval process for vadadustat in the US. An approval in the US would represent our most significant commercial market opportunity and allow us to target the 550,000 US patients with anemia due to CKD who are receiving dialysis treatment. I'll note that the resubmission is a very focused filing. As part of the resubmission, we'll submit safety data collected since our original submission in 2021, including data from two alternate dosing studies, FO2CUS and MODIFY. We'll also submit post-marketing data from Japan, where tens of thousands of patients have received the drug over the past two years. Now working through a potential launch timeline, again, we expect to resubmit the NDA by the end of the quarter. Since we're submitting data that was not in the original NDA, our expectation is that our resubmission would undergo a six-month review. This review period would commence upon submission. As such, we anticipate a new PDUFA date, likely in March of 2024. Upon potential approval, we'll quickly file for TDAPA reimbursement, which is a six-month process. After receiving TDAPA designation, we'd expect the product to be widely available for patients. We're actively preparing for a potential launch of vadadustat and are re-engaging around the commercial opportunity. Let me summarize. We estimate that approximately 88% of the nearly 550,000 patients on dialysis are treated with an erythropoiesis-stimulating agent for anemia, an injectable that is currently the standard of care. Medications used to treat dialysis patients in the US are paid for as part of a bundled payment made to dialysis providers. To promote innovative drug use for Medicare patients on dialysis, CMS created a transitional add-on payment adjustment over TDAPA. The add-on payment would cover the cost of vadadustat when a physician prescribes the drug for two years after receiving the TDAPA designation on top of the regular bundled payment. The TDAPA payment would allow providers to incorporate innovative products like vadadustat into their treatment protocols while still receiving the full bundled payment for treatment of their PPS Medicare patients. We believe that we've created a favorable environment for the adoption of the product as we prepare for a potential launch. We have a collaboration with Vifor CSL that provides access to up to 60% of the dialysis market through existing Vifor CSL relationships, which include Fresenius Kidney Care and most small to midsized providers. Vifor CSL has a relationship with Fresenius for the procurement of therapeutic products used in their network, and vadadustat would be made available through that collaboration. We believe Vifor's unique relationship and our experience in the dialysis market will create a favorable environment for pull-through within the dialysis centers. Together, we believe we are well positioned for a successful launch if vadadustat is approved. Our collaboration with Vifor CSL is a profit share, where we retain approximately two-thirds of the profit from vadadustat, net of certain pre-specified costs, with Vifor CSL keeping the remaining one-third. For the remaining 40% of the dialysis market that Vifor CSL does not have rights to sell to, we retain 100% of the economics. So one of the most common questions I get these days is on launch costs. I'll note that we are also in a strong position here. The most significant launch expense is related to people and product. But we have the commercial organization in place today with only incremental additions needed, and we already have the product on the shelf to launch as soon as we receive approval. We believe our additional costs will be truly incremental. Now to speak more about our financial position, I'm pleased to introduce Ellen Snow, who joined our team as CFO and Treasurer last month. Ellen's impact has been near immediate as she brought vast accounting and financial management expertise into the process to close the quarter and put the organization on the right footing by strengthening our product return reserves accounting process that was described in the press release filed this morning. This financial discipline will be especially important as we prepare to launch vadadustat in the US if approved.

Ellen Snow, CFO

Thanks, John. First, let me say that I'm extremely pleased to have joined Akebia last month. I see significant potential and upside for the organization associated with the pending potential vadadustat FDA approval as well as opportunities to optimize the company's cost structure and better leverage the cash flows from Auryxia towards improving the balance sheet and creating shareholder value. I'm grateful to have a talented, hard-working, and dedicated accounting team who have worked tirelessly over the last few weeks as we identified and corrected errors in accounting. As previously announced during the second quarter close process, we identified errors related to the accruals for product returns. We concluded the errors represent a material weakness in internal controls over financial reporting and deficiencies we are working to remediate. We also intend to revise our financial statements in our 2022 annual report on Form 10-K to correct the impact of the errors, which will primarily impact the balance sheet for the affected years, including liabilities for product returns, accounts receivable, and goodwill as well as immaterial changes to prior year revenues. We expect to file our amended Form 10-K and second quarter Form 10-Q on Monday. Now let's move to our current financial position. Importantly, we believe our cash runway will fund our current operating plan for at least 12 months. Cash and cash equivalents as of June 30th, 2023, were $53.6 million. Total revenue was $56.4 million for the second quarter of 2023. Of that, $42.2 million was Auryxia net product revenue and $14.1 million was other revenue. Other revenue consists primarily of the $10 million upfront payment in connection with the Medice license agreement. Auryxia net product revenue increased 21.6% over the previous quarter. The growth was due to the timing of purchases in certain Auryxia customers and expected cyclical demand from the first quarter to the second quarter. Auryxia revenue decreased 2.5% compared to the same quarter of 2022. The decrease compared to the prior year period is due in part to the impact of the shifting payer mix and a volume decrease partially caused by the contracting dynamics and phosphate binder market erosion. We expected quarterly swings in the Auryxia revenue but had also expected the binder market to rebound. Based on our analysis, we believe the binder market is leveling, but there's evidence of a long tail impact from COVID in the dialysis community. We are in a position to affirm our 2023 net product revenue guidance of $175 million to $180 million. Our team continues a high-touch engagement with key accounts, and we continue to carefully review the trends. We remain focused on maximizing Auryxia revenue through its loss of exclusivity in March of 2025. Regarding expenses, we reported a decrease in cost of goods sold and R&D expenses compared to the second quarter of 2022. Cost of goods sold decreased slightly to $17.3 million in the second quarter of 2023 from $18.6 million in the second quarter of 2022. R&D expenses decreased from $26 million to $20.2 million, a more than 20% decrease as a result of reduced spending on vadadustat development, R&D headcount, and outsourced contract services. We have curtailed non-headcount-related expenses growth by continuing to find ways of operating more efficiently, placing increased scrutiny on all areas of operating expenses and taking measures such as reducing our office footprint with the assignment of the Seaport office lease, which was completed at the end of the second quarter. We are deliberate about managing our expenses in an effort to extend our runway, which will be achieved in part by keeping 2023 headcount relatively flat with current levels. In the time I've spent with Akebia, it's clear that everyone on the team is dedicated to managing resources while continuing to deliver on their individual and group objectives. Revenue from Auryxia continues to provide cash for operations, and our teams are motivated by the progress we've made across the business this quarter as we all work to prepare for the launch of vadadustat in the US next year, if approved. With that, let's open the line for questions.

Operator, Operator

Thank you. Our first question comes from Allison Bratzel with Piper Sandler. Your line is open.

Allison Bratzel, Analyst

Hey, good morning, and thank you for taking the questions. So first just hoping you could frame for us from high-level topics that were addressed at the Type A meeting, any remaining gating factors to resubmission for vadadustat and just your confidence that FDA will find the resubmission approvable and dialysis without the generation of additional clinical data? And then I have a follow-up.

John Butler, CEO

Sure, Ally. Thanks for the question. I mean it was, I think, the Type A meeting was pretty technical in a lot of ways. Steve is here and attended the meeting. Steve, maybe give a little color?

Stephen Burke, Chief Medical Officer

Sure. This is Steve Burke, the Chief Medical Officer. The meeting was like a pre-NDA meeting where you meet with the agency to describe how you're going to present the requested data and if that is acceptable to them. So for instance, when we finish an NDA review, we have a 120-day safety update. So we have to do another safety update. We just clarified, for instance, the window in which any new data would be collected and reported. John alluded earlier to the MODIFY FO2CUS studies, what we were going to present, what we're going to provide to them and was that acceptable, how we were going to present Japanese post-marketing surveillance data, the actual components and how it would be analyzed and things of this nature. They also had asked some questions about some additional analyses they wanted of the Phase III data. All of this is pretty modest in scope. But as John indicated, it's new data and therefore we expect they will have a six-month review clock because of that. I think we're satisfying all the requests and have really excellent clarity on what they want and expect from us and that we're able to deliver that. And there's no need for us to generate new clinical data.

Allison Bratzel, Analyst

Got it.

John Butler, CEO

Yes. I would say that it was an amazingly collaborative meeting, given that the CRL from last year, it was very focused on what we need to put through. Even going into it, most of the questions that we ask, we posed to them, they found our approach reasonable. So there's really more clarification than anything else. We feel pretty good about where things are and very much on track for our filing.

Allison Bratzel, Analyst

That's helpful. So now just hoping you could also walk us through your expectations for the vadadustat launch and how it will look like between the March PDUFA and the receipt of TDAPA designation during that time frame? And then separately, if you could just frame or compare and contrast for us whether KORSUVA's launch experience under TDAPA is a good analog for vadadustat? Any color or perspective there would be helpful. Thanks.

John Butler, CEO

Thank you for the question, Ally. It's important to note that while we plan to make the product available after the launch and before receiving the TDAPA designation, it will primarily be accessible for dialysis providers to buy and establish their protocols. We do not anticipate widespread use until the TDAPA designation is granted, allowing for reimbursement outside of the bundle. Therefore, any revenue we might see would likely be quite limited, with significant uptake occurring once we secure TDAPA. The question regarding KORSUVA is also significant, and I appreciate you bringing it up. The launch of KORSUVA presents a different scenario and opportunity compared to vadadustat for several reasons. KORSUVA has been approved specifically for pruritus, or severe itching, which affects a small patient population. Its average published pricing is around $135 per dialysis session, while the bundle currently only includes $0.25 for BENADRYL to address pruritus. Therefore, the $135 would be reimbursed on a cost basis. However, when we talk to physicians about their willingness to use the product, they express concerns about the lack of mechanisms to use it benefitably for patients once TDAPA is over. Considering bundled payments of roughly $280 per dialysis session against the $135 for KORSUVA creates a financial concern for physicians. As a result, many patients who could benefit are not receiving the treatment. This is why we have been advocating for CMS to establish a sustained add-on payment beyond TDAPA, but we haven’t had much success. In contrast, there is existing financial support in the bundle for ESAs today, and while our pricing may be higher than ESAs, it certainly won’t be $135 per dialysis session, with those funds remaining available in the bundle after TDAPA. Our pricing might have to be adjusted post-TDAPA, but it’s important to note that anemia treatment will continue, even if it’s not the case for pruritus. Thus, TDAPA represents a positive opportunity for us, in contrast to the challenges we face with KORSUVA.

Allison Bratzel, Analyst

That's super helpful. Thank you.

John Butler, CEO

Thanks, Ally.

Operator, Operator

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

Ed Arce, Analyst

Great. Hello, everyone. Thanks for taking my questions. First, I just wanted to ask again on the Type A meeting. John, you and I have talked about this a number of times since the letter in May. Specifically about the two issues from the CRL, the thrombotic events and the risk of thrombosis. I wanted to get your thoughts on how those meeting minutes, now that you have them in hand, are fully aligned with the path that was offered in that letter from Dr. Stein back in May. And then I have a follow-up.

John Butler, CEO

Yes. I think I can say unequivocally that they're fully aligned. I mean I think we have, as I said, and Steve, you can kind of give more detail on this. A lot of that meeting is kind of how you're going to present the data. It's more technical. We had questions about our labeling and I want to submit that. I mean that's always a good sign. There was nothing to indicate in that meeting that there was anything misaligned with the letter that we received from Dr. Stein. As I've said all along, I think that letter describes the guardrails and the path for us and for the division. I think that was reflected in the discussions. It was a very collaborative discussion. It's fair to say you never are quite sure what you're going to get when you go into those meetings. I think we were quite pleased with the quality of the focus on the issues and the collaborative nature of the discussion, which makes us feel quite good about our path forward.

Ed Arce, Analyst

Great. And then I'd like to ask if you could remind us of the objective of having the MODIFY and FO2CUS studies included in the resubmission.

John Butler, CEO

Yes. So for this resubmission, that's an important question. Obviously, we think the MODIFY and FO2CUS studies will be quite helpful in securing three times weekly dosing in our label after our initial approval, but it's clear they won't be looking at that three times weekly dosing regimen for this initial approval. The reason for adding the MODIFY and FO2CUS data is to add all of your safety data to your filing, which we have to do in '21 when we originally filed, and now we simply have to update all of the safety data that we have. They won't be considering efficacy from those studies at all, while we know that they were successful, and we think we're expecting they'll support our three times weekly filing. We're working to publish them quickly; it won't be in the label.

Ed Arce, Analyst

Okay. Great. Actually, if I could squeeze one more in, question on Auryxia, probably for Ms. Snow. Given that the half-year net sales is now about $78 million and you're reaffirming your guidance of $175 million to $180 million for the full year, I'm just wondering if you could help us understand what gives you the confidence to reach that guidance, especially given what you described as a decline in the phosphate binder market. Thanks.

John Butler, CEO

Yes, thanks for the question. Over the past couple of years, we have observed that the sales dynamics show a significant increase from September to December. While we anticipated our pricing to be slightly higher, our payer mix has shifted more towards Part D than we expected. Therefore, my expectations are leaning towards the lower end of our guidance range. Additionally, one of the major dialysis providers has recently restricted our sales representatives from meeting face-to-face with patients, relying solely on virtual interactions until last month. We believe that in-person engagement can enhance the effectiveness of our sales efforts, which we expect will be beneficial moving forward. There are also several other factors at play. Although the binder market remains under pressure, we see signs of it stabilizing. Patients still require treatment, which presents an opportunity as they enter the pipeline. We anticipate the launch of a competitive product in the latter half of this year, focusing heavily on phosphate control. This could create a positive environment for all involved. Overall, despite my current leanings towards the lower end of the guidance range, there are multiple factors that support our projections. Earlier in the year, I was more optimistic about reaching the higher end.

Ed Arce, Analyst

Great. That's very helpful. Thanks so much.

John Butler, CEO

Thank you, Ed.

Operator, Operator

Thank you. Our next question comes from Julian Harrison with BTIG. Your line is open.

Julian Harrison, Analyst

Hi. Good morning. Congrats on the progress and thank you for taking my questions. First, just on the three times weekly dosing regimen, again, you studied in FO2CUS. I'm curious if you could talk more about your strategy there and how soon a potential label for vadadustat may be amended with this dosing regimen?

John Butler, CEO

Sure. So thanks, Julian, for the question. Welcome to the call. So three times weekly is very helpful for treating patients in the dialysis center. You give them the dose during your dialysis session; you ensure compliance from the patient; you don't have to send them home with the drug. We've always felt that this was something that was important and something that we could potentially add to the label that we never expected to have it in the label at launch. We will publish the data. We expect it to be presented at the ASN meeting in October from FO2CUS. FO2CUS was the large study that really looked at that three times weekly dosing. Once we have our NDA approved in March, of course, as we've been talking about and expect, then we'll have a conversation with the FDA about supplemental NDA where we'll submit for three times weekly dosing. When you think about the low-hanging fruit for product adoption initially, it's home patients where daily dosing works just fine. I would say patients who are on the highest doses of ESAs where they're having the risk of exposure to high doses of ESAs and added costs as well to the dialysis provider. Even though those might be in-center patients, I think they'd be willing to dose them once a day and send them home with the drug or rely on the publication and choose to use three times weekly dosing. Of course, we wouldn't be promoting the three times weekly dosing until it's in our label, but that's certainly something that physicians can choose to do with the data that supports it. As I said, we will start to have the three times weekly dosing regimen added to our label as quickly as we can.

Julian Harrison, Analyst

Okay. Got it. Thanks. That's helpful. And then earlier in the call, you gave a great overview on your current commercial preparations. Sorry if I missed it, but I was just curious if you're talking at all about how much you're manufacturing at risk ahead of potential approval of vadadustat.

John Butler, CEO

Yes. Thanks for that question, Julian. As I mentioned, the two biggest costs are people and product, and product is a significant one. Remember, we had product on the shelf ready to launch back last year. Our quality team has done a magnificent job of continuing to generate data, and we're able to push out the expiry date on that product to four years. So the product that's on the shelf today will support our launch. We don't have to do any incremental manufacturing and incur that incremental cost to be ready to launch the drug. That drug is also going to support Medice and the European launch as well.

Julian Harrison, Analyst

Excellent. Great to hear. Thanks again.

John Butler, CEO

Thanks so much, Julian.

Operator, Operator

Thank you. There are no further questions. I'd like to turn the call over to John Butler for closing remarks.

John Butler, CEO

Thanks, Michelle. We are extremely pleased with the progress we've made last quarter as we made significant strides towards our purpose to better the lives of people impacted by kidney disease. We're preparing for very near-term potential catalysts. Most immediately, the resubmission of the vadadustat NDA next month. With this momentum, we believe we are now poised to disrupt the market for the anemia of CKD in dialysis patients if vadadustat is approved. Everyone at Akebia is excited to be in that position and remains motivated by our potential to help patients. The team is focused on the work we need to do in the very near future to get us there. I look forward to continuing to update you as we move through resubmission, acceptance, and ultimately, potential approval and launch of vadadustat in the US. Thank you all for joining us today.

Operator, Operator

Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone have a great day. Goodbye.