Akebia Therapeutics, Inc. (AKBA) Q2 2022 Earnings Report, Transcript and Summary

Hello, and welcome to the Akebia Second Quarter 2022 Financial Results. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mercedes Carrasco, Senior Director of Corporate Communications. Please go ahead.

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.

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 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 1 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.

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 [indiscernible], Head of Emergency Medicine, assembled an expert and committed team across 5 hospitals in Houston and conducted the study under an investigator IND after extensive consultation with FDA. VSAT 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 [in it] is death. As outlined in our press release, at day 14, the proportion of subjects with a score of 6, 7 or 8 were 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 were 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 94% probability of benefit at day 14 and 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.

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 cost 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 the $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. 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 onetime 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. Operator?

[Operator Instructions] Your first question comes from Allison Bratzel from Piper Sandler.

And congrats on all the progress this quarter. I guess 2 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 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.

Alli, thanks very much for your questions. I think I've got them. If we miss anything, just let us know. But I'll start with the second one first, on the FDA. Again, as in the past, we said we're not going to give -- we're not going to give a play-by-play on FDA interactions. And I think that's the way we'll handle this well. Of course, if something material comes from any interaction, we'll disclose that as appropriate. Otherwise, we'll kind of give updates as the process moves forward as appropriate. So on Auryxia. So as we've pointed out, we're happy with the growth in the revenue that we're seeing for Auryxia now, particularly as you think about Q2 versus Q2. That growth is largely driven by price. Again, as we've talked about in the past, the phosphate binder market has continued to contract, which very much driven by COVID, which is still impacting the dialysis population. Keep expecting to see more of a rebound, but then you also are dealing with the staffing issues at the dialysis centers, which I think is contributing to some of the challenges in dialysis. But given the contracting strategy that we've talked about over the last couple of quarters, I guess, that strategy really is paying off on the price side. So we expect to see that continue as we've guided this year, and we'll see how the binder market continues to develop. As we think about that path to profitability, we're not thinking about dramatic increases in volume for the product to get there. We do think that there's opportunity to grow on the volume side. But that's not -- we're not kind of putting unrealistic targets, we think, within our guidance. And again, I mean, given those dynamics of the binder market, we continue to just encourage some level of caution, and we're all continuing to look at how that's going to progress. But ultimately, the path to profitability is certainly driven by continuing to deliver on the top line. But I think Dave pointed out, this is the first quarter where we're really looking to -- we really started working on decreasing our operating expenses. And I think the team did a phenomenal job of really delivering on that. But our expectation is that there is room still to continue down that path. And I think when you combine those, the continued revenue development on the top line and continued control of our expenses, really thoughtful reinvestment in the pipeline, that's what allows us to deliver the cash guidance we talked about today. I don't know, Dave, do you have anything to add to that?

No, I think that -- you hit on it.

And as we've talked about before, Alli, even -- we've talked about LOE, but we do believe there's opportunities for Auryxia beyond LOE. When you look at the Sevelamer as a comp, given the nature of the phosphate binder market. And we're all looking at how the 2025 inclusion of the binders within the bundle, which CMS did clarify in their proposed rule a couple of weeks ago, we think that creates opportunity for us as well. But we'll see how that develops and the final rule, et cetera. But LOE is meaningful, but we do think that there's opportunities for Auryxia beyond.

[Operator Instructions] 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.

Thanks, Harmony, and thanks, everyone, for joining us today. Our second quarter was marked by what I believe to be a 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.

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