Akebia Therapeutics, Inc. (NASDAQ:AKBA) Q3 2023 Earnings Call Transcript

Akebia Therapeutics, Inc. (NASDAQ:AKBA) Q3 2023 Earnings Call Transcript November 8, 2023

Akebia Therapeutics, Inc. beats earnings expectations. Reported EPS is $-0.08, expectations were $-0.09.

Operator: 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. [Operator Instructions] 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.

Mercedes Carrasco: Thank you. 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?

John Butler: 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, you know it gives me great pleasure to talk to you about Akebia’s future today with an extremely important and hard fought catalyst in our sites. 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 to 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’s approved in 36 countries. Since our last call, vadadustat has been approved in Australia and Taiwan. Work is underway by our partner, basis to bring [indiscernible] 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, we believe will contribute to our success. First, we have our commercial product supply ready to go, awaiting 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 two years post TDAPA designation, the TDAPA payment would cover the cost of vadadustat if a physician prescribe 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 [indiscernible]. 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 will 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 Pharmacon 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?

Ellen Snow: Good morning everyone. Our priority continues to be focused on strengthening our balance sheet as we enter a potential launch year, marched 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 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 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 onetime 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. Operator?

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question will come from Allison Bratzel of Piper Sandler. Your line is open. Pardon me, Allison Bratzel, your line is open. You may ask your question. [Operator Instructions]

John Butler: Chris, why don’t we move to the next question? We’ll come back to Ally.

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

Julian Harrison: 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 of vadadustat prescribers is likely significant. So, I was just wondering if you could talk more about how you plan to leverage that?

John Butler: Julian, thanks for your questions. So, we often get asked about the experience in Japan and what there is to learn. And it’s tough to really point to much because it’s such a different market. For one thing, of course, the product is available for dialysis patients and non-dialysis patients. For another there are, I think, it’s five HIF-PHIs that are available on the market in Japan. So, you have a very different commercial dynamic there as well. But what we have seen is kind of steady adoption of the HIF-PHIs into the market. So, as we would expect to see with a new class, it’s taken some time for it to kind of move into normal use. But I think we’re seeing that become more and more common now across Japan. Of course, when there’s five companies promoting the product, you do have a lot more kind of share of voice across that class.

But it’s just — again, as we said, we’ve always wanted the non-dialysis market opportunity as well, right? And that is where you’re seeing more of the use and more of the focus from all of the companies, but you’re seeing dialysis adoption as well. And then your second question was about the overlap. And — this is you can go back to 2018 when we closed the transaction with Keryx and created a commercial company in Akebia, it was with the express desire to pick up that leverage, right? The idea that we have this commercial organization in place that’s already calling on nephrologists in dialysis centers has deep relationships with them. Of course, we didn’t hope for this two-year delay on when we’d be able to take advantage of that leverage.

But we think gets extraordinarily important. We have a very experienced sales organization. As I said, I think we’ll need to incrementally increase that group. But we’ll do that quickly, and Auryxia will benefit from that as much as vadadustat will. But when you look at any of your presence at ASN or any other kind of marketing opportunity, you basically get the leverage of having two products in the market. And I think it’s important also, and I kind of referenced this in my prepared remarks that when vadadustat is approved, assuming vadadustat is approved, physicians will be very interested in talking to reps about that new product. Remember, it is an eight or nine-year-old product, it’s not quite as easy to get access to physicians. With that access, they obviously have the opportunity to talk about Auryxia as well.

And in my past, I’ve seen significant organic growth from the more mature product when you have the opportunity to improve your access to the people who write the prescriptions, and I think that will be an important point of leverage.

Julian Harrison: Excellent. Thanks very much.

John Butler: Thank you, Julian.

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