Earnings Call Transcript - AKBA Q3 2022

Operator, Operator

Good day and thank you for standing by. Welcome to Akebia's Third Quarter 2022 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. I would now like to hand the conference over to your first speaker today, Mercedes Carrasco, Senior Director of Corporate Communications. Please go ahead.

Mercedes Carrasco, Senior Director of Corporate Communications

Thank you, and welcome to Akebia's third quarter 2022 financial results and business updates conference call. Please note that a press release was issued earlier today, Thursday, November 3, 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 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 November 3, 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, Chief Executive Officer

Thanks, Mercedes, and thank you all for joining us this afternoon. Since our last update, our team has been laser focused on work that aligns with Akebia's three strategic pillars. First, we're working to drive Auryxia revenue, while managing costs. And this quarter, we are pleased to again report an increase in net revenue for Auryxia over the third quarter of 2021. Second, we continue to support vadadustat globally. I'll provide more color on the regulatory review processes for vadadustat as a treatment for anemia due to CKD. Our third pillar is to thoughtfully invest in our pipeline. I'm pleased with the progress we've made with respect to our pipeline, particularly as it pertains to our work in the area of HIF based science. But today, I'll just say a few words about our next steps in continuing to explore vadadustat as a treatment for acute respiratory distress syndrome. We recognize that we won't have the opportunity to invest in that pipeline and build that long term value unless we continue to drive financial stability today. Now Dave will share more specific details about the financial results, but there are two important headlines in Q3. First, as I previously noted, we continue to see a year-over-year increase in Auryxia net product revenue, which is driven by an increase in net price per pill. Second, our team has and is continuing to work to bring down operating costs. We reported a decrease in operating expenses compared to Q2 '22, as well as versus the prior year quarter. Driving Auryxia revenue and managing expenses positions Akebia to make strategic decisions about our future. As we think about potential catalysts to add value, our most immediate is clearly vadadustat. As we reported last quarter, we regained the rights to vadadustat from Otsuka in the United States, Europe, China, Russia, Canada, Australia, the Middle East and certain other territories. Akebia assumed full responsibility for the marketing authorization application or MAA submitted to the European Medicines Agency last October and in the United Kingdom, Switzerland and Australia through the Access Consortium. We're excited about the value of potential approval of vadadustat in these markets could bring to Akebia. Now based on a typical review timeline for an MAA, we're targeting a potential approval by the end of next quarter. We're eager to bring vadadustat to patients impacted by anemia due to chronic kidney disease. While our team is leading the regulatory process, we do not expect to commercialize vadadustat in Europe without a partner. Our process for identifying a partner for Europe is well underway. In the U. S. we recently submitted a formal dispute resolution request, referred to as an FDRR with the FDA to appeal the issuance of the CRL for vadadustat in March of 2022. The FDRR focuses on the favorable balance of the benefits and risks of vadadustat for the treatment of anemia due to CKD in adult patients on dialysis. We've always believed that vadadustat delivered a favorable balance of benefits and risks as a treatment for anemia due to CKD and continue to believe in the unmet need. Now clinicians often publicly discuss the unmet need as we heard again late last month during a cardiovascular and renal drug advisory committee meeting. Moreover, patients continue to share their experiences related to the burden of the disease. As we reported last quarter, we completed the end of review conference, which was beneficial to refine the issues for the dispute. Again, both the end of review conference and the FDRR narrowed on the dialysis patient population. The FDRR focuses on the benefits and risks of vadadustat in light of safety concerns expressed by the FDA in the CRL related to the rate of adjudicated thromboembolic events driven by vascular access thrombosis for vadadustat compared to the active comparator and the risk of drug induced liver injuries. Based on the typical FDRR process, Akebia expects to receive a response to its submission from the FDA by the end of this year. And of course, we'll share that outcome with you. It will be important for our long-term planning to have clarity on a potential path towards approval for vadadustat in the US. In the meantime, we continue to explore other potential opportunities for the product that we believe could bring significant value. Recall, in our last update we reported data related to vadadustat as a treatment for ARDS. ARDS is a condition with few therapeutic options approved for intervention and a mortality rate for serious ARDS that can be over 40% according to multiple studies. We were encouraged by the data from a Phase 2 investigator-sponsored clinical study evaluating vadadustat for the prevention and treatment of ARDS in subjects with COVID-19 and hypoxemia. Since that time, we've continued discussions on the design and timing of starting a follow-on placebo-controlled study in a broad ARDS population. We're working closely with UT Health Houston and the team that conducted the Phase 2 study and incorporating FDA feedback on a protocol into the design. As I've said, our financial stability is critical as we invest thoughtfully in our pipeline. To that end, I'd like to complement our team for their ongoing resilience. The team is committed to the three pillars that will drive our future. They're working to deliver near-term value through Auryxia and vadadustat, as well as create long-term value opportunities for Akebia. And with that, I'll turn to Dave to provide more details on our financial picture.

David Spellman, Chief Financial Officer

Thank you, John, and good afternoon, everyone. Our cash management objectives remain clear, manage the company with existing cash resources and ongoing cash from operations. We've continued a concerted effort to maximize net product revenue, reduce operating expenses, and strengthen our balance sheet. Before I dive into the financials, I wanted to address our NASDAQ listing status. While John mentioned that we continue to identify ways to add long term value, we are working through various options to manage our NASDAQ listing. We've applied to transfer the list of our common stock to the NASDAQ capital market and as usual, we will provide material updates when available. Beginning with Auryxia net product revenue, we reported $42.2 million in the third quarter of 2022 compared to $36.8 million in the third quarter of 2021, a 14.9% increase. Total revenue was $49 million in the third quarter of 2022 compared to $48.8 million in the third quarter of 2021. Our commercial payer strategy continues to deliver top line Auryxia growth. While year on year net product revenue is up, we did report a 3.3% decrease in net product revenue from the second quarter of 2022, driven by lower inventories at our distribution partners, as well as a continued contraction in the binder market. To expand on that point, I'll note that the phosphate binder market has declined 15% since the start of COVID, including nearly 6% from Q3 2021 to Q3 of 2022. Further, you likely have heard from the earnings calls of the country's biggest dialysis providers that the overall dialysis market is challenging right now, with the COVID impact and staffing challenges having a real impact on their operations. COVID is still a very real challenge to everyone in the dialysis community. We have factored this into our long-term forecast and we are unsure when the binder market will recover or even begin to grow again. But again, because of the contracted and payer strategies previously executed, we still believe net product revenues will continue to grow through LOE, but have some headwinds with these real market related challenges. As such, we remain in a position to affirm our 2022 net product guidance of Auryxia of $170 million to $175 million. Cost of goods sold was $37.9 in the third quarter of 2022 compared to $15.9 million in the third quarter of 2021. The increase compared to the prior year period was primarily due to a $13.2 million non-cash charge related to an increase in the liability for excess purchase commitments during the third quarter of 2022 and a $6 million non-cash benefit related to a decrease in the liability for excess purchase commitments in the third quarter of 2021, which did not reoccur. License collaboration and other revenue was $6.7 million for the third quarter of 2022 compared to $12 million for the third quarter of 2021. The decrease was primarily related to a reduction in the revenue from the termination of the US and international collaboration agreements between Akebia and Otsuka in the second quarter of 2022, which was a one-time event. Just as we are committed to driving Auryxia revenue, our cross-functional teams have worked to reduce spending, particularly in the areas of SG&A expenses. Our team is committed to running the company with the cash we have on hand plus future cash flows from Auryxia sales. In the event that we do not obtain any vanity data proposals, you should see the downward trend in operating expenses continue. Research and development expenses were $27.4 million in the third quarter of 2022 compared to $40.5 million in the third quarter of 2021. The decrease compared to prior year period was primarily due to decreased headcount related costs and the reduction in force, as well as decreased clinical trial costs. Selling, general and administrative expenses were $30.9 million in the third quarter of 2022 compared to $46.4 million in the third quarter of 2021. The decrease compared to prior year period was primarily due to decreased headcount related costs as a result in the reduction in force, lower one-time legal costs, and lower marketing expenses. Last quarter, we reported our restructured debt agreement with Pharmakon, which is delivering real savings on the interest expense line. Inclusive of our first principal repayment, our debt outstanding with Pharmakon is approximately $67 million at the end of the quarter. Cash and cash equivalents as of September 30, 2022 were $144.8 million. We believe cash resources will be sufficient to fund our current operating plan for at least the next 12 months. Our operating plan includes assumptions pertaining to revenue growth and cost avoidance measures and the reduction of overhead costs resulting from the planned amendment of contractual agreements with certain supply partners and the reduction of operating expenses. We have not factored in upside related to the potential regulatory approval of vadadustat or our ability to generate additional value from vadadustat through partnerships and other transactions. Such potential catalysts could further extend our cash runway. With that, we'll open the line for questions.

Operator, Operator

Thank you. At this time, we will conduct a question-and-answer session. Our first question comes from the line of Allison Braxton from PSV. Your line is open.

Allison Bratzel, Analyst

Hi, guys. Good afternoon. Thanks for the update and for taking my questions. So the first is on the Auryxia business. Now that you're through the restructuring, can you just help us understand the levers and also the timing for reaching cash flow positivity for that asset? And just kind of remind us what gives you confidence that it will have a significant post LOE revenue tail? And kind of related to that, how do you see the commercial opportunity evolving if binders are added to the bundle? And then I have a follow-up on vadadustat.

John Butler, Chief Executive Officer

Thank you for the questions. Regarding Auryxia, as Dave mentioned, we have been surprised that the binder market has not recovered. The major dialysis providers have indicated that the dialysis population is still heavily impacted by COVID, which has resulted in a high mortality rate among dialysis patients. Historically, the binder market has shown growth every quarter since I joined the industry in 1991, but we are uncertain when it will bounce back. However, the key factor for us is our revised contracting strategy, which has enabled us to maintain growth even in a stagnant volume market. We are careful about our volume expectations since we don’t know when the market will improve, but our strategy allows us to continue generating revenue. Looking ahead post loss of exclusivity, we believe there’s a chance for continued volume growth, similar to what happened with Sevelamer after its exclusivity ended. While we expect revenue to decline over time, we view it as a gradual slope rather than a sharp drop. Additionally, there’s an important factor regarding the inclusion of binders in the payment bundle. The CMS has confirmed that there will be a two-year transitional drug add-on payment adjustment period for binders starting in January 2025, which is just a couple of months before our loss of exclusivity in March 2025. This gives us a chance to negotiate contracts and convert patients currently using free goods into paying patients. There are several potential opportunities ahead, and we believe there is significant growth potential beyond just the loss of exclusivity. I hope that addresses your questions.

David Spellman, Chief Financial Officer

I think as Ali said, she was talking about our ability to drive cash flow from Auryxia. I think it really, Ali, is just continued operating expense discipline and really focused on what can actually continue to drive the revenue. And again, as John said, the contracting strategy is a big part of it and from an investment perspective, that's more an allocation of the managed markets team time. And so, as we focus the spend we're aware of where we are in the lifecycle, so the spend has reduced over the last couple of years.

Allison Bratzel, Analyst

Excellent. Thanks. And then just my second question is on vadadustat. I guess now that you have the FDA meeting minutes in hand and have submitted the dispute resolution request. It does seem to have a very narrow focus based on what you described today. Could you kind of expand on what gives you confidence that this process could lead to a US approval in a dialysis population? I guess, are there any examples of drugs that have had a successful FDRR outcome that you look to as an analog for that? And then, could you also just walk us through the cadence of updates or milestones that we can expect from the appeal process through the end of the year and then after you receive the response from the agency at year end? Like what comes next? Thanks.

John Butler, Chief Executive Officer

Thank you for the question. This is my first experience with formal dispute resolution, so I'm learning along the way. However, we have excellent support from individuals who have navigated this process before. Each dispute is unique, and the specifics are tied to the CRL, which is our main focus. From the start, we've stated that the dialysis data clearly shows the product can be used safely. We believe the concerns raised in the CRL can be addressed through dialogue, and we think having that discussion will be beneficial. The end of review conference will help tighten the focus for the formal dispute resolution, concentrating on two main issues: thromboembolic events related to dialysis access thrombosis and the potential for drug-induced liver injury. This is a very focused process. We are confident in the data, though we can't predict the FDA's decision. We look forward to continuing this process. Throughout the NDA process, we've maintained constant communication with the agency, so we won't provide updates in real-time. We expect to have a formal response from the agency by the end of the year, though the holiday season could push it into early January. However, our formal expectation is to hear back by the end of the year.

Allison Bratzel, Analyst

Got it. Thank you.

John Butler, Chief Executive Officer

Thanks, Ali.

David Spellman, Chief Financial Officer

Thanks, Ali.

Operator, Operator

Thank you. Our next question is from the line of Ed Arce from HCW. Your line is open.

Thomas Yip, Analyst

Hello, everyone. This is Thomas Yip asking a couple of questions for Ed. Thank you for the kind of questions. Perhaps first question just following up on the FDRR process. You mentioned in the press release that a response is expected by year end 2022. Can you clarify what type of response should we expect? Would it be a written response or would the future meeting be scheduled at that time?

John Butler, Chief Executive Officer

Yes, we do expect it to be a formal written response, not that there won't be lots of or potentially lots of other less formal communication during the process, I think. But once we get a written response like you get a CRL, you get a response to that formal dispute resolution document. So that's what we expect by the year end.

Thomas Yip, Analyst

Got it. Thank you. And perhaps sticking to vadadustat and ARDS, we saw some benefit in a recent study. What are your initial thoughts on the next study, specifically the primary endpoint or other key endpoints? And also, will this program going forward be partnered with UT Health?

John Butler, Chief Executive Officer

We are still determining the endpoints for the next study. The endpoint that was used in the COVID-19 study was quite solid and may serve as a model going forward, but that is still under consideration. What’s crucial is that it will focus on a broader ARDS population. The COVID study conducted by UT was well-executed and involved a younger, more elastic patient group. However, when examining the broader ARDS population, which is often caused by conditions like pneumonia and sepsis, there is a significantly higher mortality rate. We believe that in this broader context, you may observe a more pronounced treatment effect. We are still finalizing details, but we are inclined to move in that direction. We are considering collaborating with UT Health for this study, although that has not been officially confirmed yet. They did an excellent job with the initial study, and while we are not formally partnered with them, we are eager to potentially work together on this next trial.

Thomas Yip, Analyst

Okay. Thank you so much for the clarification. And thank you again for taking the questions. Looking forward to updates on the FDRR.

John Butler, Chief Executive Officer

Thanks, Thomas.

Operator, Operator

Thank you. I would now like to turn it back to John for closing remarks.

John Butler, Chief Executive Officer

Thanks, Chris, and thank you all again for joining us this afternoon. As I said in the past, a lot has changed for Akebia since April, but I believe we've been thoughtful and deliberate in our efforts to stabilize from a financial standpoint and in our work to plan for the future of Akebia. As we near the close of 2022, we anticipate that we'll have more clarity on regulatory processes and other initiatives that could enable us to potentially add long-term value to the company. We look forward to providing updates as we can. Thanks everyone.

Operator, Operator

Thank you for participation in today's conference. This does conclude the program. You may now disconnect.