Akebia Therapeutics Inc

NASDAQ:AKBA

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the Akebia Therapeutics Third Quarter 2023 Financial Results Conference Call. [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, executive]

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 8, 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 8 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, executive]

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 sight. As we've reported, the FDA set a user fee goal date, or PDUFA date, of March 27, 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 5 months away. Our team has been working diligently towards the U.S. 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 3 years. Based on the new data and the resubmission, the FDA assigned a 6-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 U.S. 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 U.S., 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 is approved in 36 countries. Since our last call, vadadustat has been approved in Australia and Taiwan. Work is underway by our partner Medice  to bring Vafseo, vadadustat, to market in Europe in 2024, which will generate future royalties and potential milestones for Akebia.

That said, a U.S. 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 '24 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 U.S. 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 2 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 month. After the 6-month TDAPA application process anticipated to be complete by October of '24, 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 2/3 of the profit associated with vadadustat sales in those centers, net of certain prespecified costs, and Vifor will keep 1/3 of the profits. Akebia will retain 100% of the economics in markets not covered by our contract, predominantly any sales to DaVita.

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 Pharmakon 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, executive]

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 31, 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 30, 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 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 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 '22. 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 operating expenses. We are deliberate about managing expenses in our efforts to further extend our cash runway until the potential launch of vadadustat here in the U.S. Revenue from Auryxia continues to provide cash for operations, and we are excited that we have a PDUFA date of March 27, 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?

[Operator]

[Operator Instructions]

Our first question will come from Allison Bratzel of Piper Sandler.

[John Butler, executive]

Chris, why don't we move to the next question? We'll come back to Ally.

[Operator]

The next question will come from Julian Harrison of BTIG.

[Julian Harrison, analyst]

Congrats on the recent progress. 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 2 drugs should coexist in the U.S. going forward? And then it sounds like the cross-selling opportunity between Auryxia and potential vadadustat prescribers is likely significant. So I was just wondering if you could talk more about how you plan to leverage that?

[John Butler, executive]

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 nondialysis patients. For another, there are, I think, it's 5 HIF-PHIs that are available on the market in Japan. So you have a very different kind of 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 5 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 nondialysis 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 I mean 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 expressed 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 2-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 2 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, Auryxia is an 8- or 9-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.

[Operator]

Our next question will come from Ed Arce of H.C. Wainwright & Co.

[Antonio Arce, analyst]

Three questions for me. Firstly, on the launch, just wanted to ask, prior to the TDAPA, which you expect in October of next year, what kind of activities will you be focused on those first 6 months as you prepare for meaningful sales ramp? And then once you do get the TDAPA, could you just review again the sort of perspective from the dialysis centers on the financial incentives that would be in place once TDAPA is designated?

Secondly, I wanted to ask about pricing, especially relative to GSK and what your thoughts there, if you can share anything?

And then lastly, just wanted to ask again about the addressable market. I think you said in your prepared remarks, it was 550,000 or 575,000, and there's a small percentage that do not take any medications for anemia. So just wanted to tie that down a little better.

[John Butler, executive]

Sure, Ed. Thank you for the questions. Sorry, I missed you last weekend. I hope you enjoyed the meeting as much as I did. So just the last one first. So there's about 550,000 dialysis patients, and about 90% -- 88% are on an ESA today. So there's always that small percentage of patients who aren't -- don't need to be treated, very late stage or early and their hemoglobins are still -- some start dialysis with a little bit of residual kidney function, so they don't necessarily need to start an ESA right away. So -- but that's still about 0.5 million patients that are eligible. We used to be able to say that the market was growing by 2% to 5% a year religiously for the last 30 years that I've been in, it, but of course, COVID has changed that, really thrown on its head. You've seen that with the phosphate binder market that it hasn't quite started to recover. It's starting to, but not quite there.

So your question is about launch. So prior to TDAPA, it's actually -- I mean it's frustrating, obviously, to have to wait 6 months for CMS to provide that TDAPA designation, and you'll see that come in, I think it's around July. If everything goes on the time line, we would get the HIF-PHI's code, and so you'd be marching down that. But the dialysis providers really need that time also to prepare for introducing a new product into their protocols, et cetera. So there is -- there'll be things going on in a number of different ways. Obviously, they'll be contracting that's happening with the dialysis providers, they'll be -- our commercial organization will be able to talk about the product. It will be an approved product with an approved label. Physicians will want to learn about the product. So having those conversations before it's available and explaining to them the timing will be critical as well. And maybe the most important work will be done by our medical organization and Vifor CSL's medical organization, where you'll be working with the dialysis providers on those protocols for how the product will be used in the dialysis center. So we won't see -- and again, some dialysis providers may choose to do small experience trials to develop those protocols, and so you may see some revenue. But I really want to kind of minimize the idea that there'll be significant revenue. This is -- it's really an important 6 months to be ready to hit the ground and take advantage of that 2-year TDAPA period. And that's -- that will be -- so that will be critical. We're looking forward to that.

And then on the dialysis center side, again, for the patients who are PPS patients which are -- 90% of patients on dialysis are Medicare patients. Those almost -- used to be almost all prospective payment system, or PPS payments -- patients. When Medicare Advantage was introduced into dialysis, that has moved quickly and it's close to 40% to 50% of dialysis patients now. So the MA area is a little more challenging since their individual contracts, each provider has a different contract, and they are a little hit and miss, and we're still trying to understand and help ensure that there is this separate payment available for those MA patients. So that's more work we'll be doing even for today. But on those 50% of patients who are PPS patients, it's very clear that this TDAPA designation pays for vadadustat on an ASP basis. So whenever the product is used, the dialysis center will build for the cost of vadadustat and CMS will determine ASP and reimburse at that rate. Basically, what that means is they have a fixed payment. I believe the bundled payment is $280 a dialysis session, something like that, for next year and the final rule. And that includes the dollars that they would spend on ESA. So dialysis providers, they have the confidence that they're going to get paid for vadadustat on a cost basis and they don't have to purchase the ESA. They look at that as an opportunity to use an innovative product and potentially a cost saving for them as well. And that's something that obviously is important as dialysis providers -- Medicare patients are not where dialysis providers make their money. So any opportunity they can have to squeeze those costs down, they look for that opportunity.

And I think your last question was on pricing. And of course, we're not prepared to talk about pricing for vadadustat yet. We've always talked about kind of understanding the market, and the market -- the price in the market for ESAs has gone down pretty substantively over the last few years. Interestingly, if you look at the wholesale cost pricing of Jesduvroq, or daprodustat, from GSK, if you look at the average dose from their Phase III study, that would indicate about an $8,000 a year pricing. Now we've indicated that the opportunity for premium pricing exists and I think that they've seen that as well, certainly during the TDAPA period. So we don't know what their contract pricing is. We don't have any indication that it's going to be significantly lower than that number. So that certainly helps inform us as we think about our pricing for the vadadustat launch.

[Operator]

[Operator Instructions]

And again, we have Allison Bratzel of Piper Sandler.

[John Butler, executive]

Looks like we have luckily multiple ways of communicating these days. So Ally e-mailed Mercedes her questions. So Mercedes will play Ally today.

[Mercedes Carrasco, executive]

Yes. I'm going to -- I'll jump in. Thank you very much, Chris. And all right, let's start with current cash burn and runway guidance. Ellen, can you talk through the runway -- the cash runway guidance, especially with the loan agreement and how that might change things?

[Ellen Snow, executive]

Yes. Thank you. We don't provide OpEx guidance. But that said, Auryxia continues to contribute meaningful cash to fund operations, and we have a disciplined approach to spending and continue to streamline and become more efficient in our operations. We're extremely happy with where we landed on our Pharmakon amendment and giving us the opportunity to invest incrementally costs to support the vadadustat launch, and we believe we have sufficient cash to fund operations well through 2024.

[Mercedes Carrasco, executive]

Thank you, Ellen. And then just to build on the question on potential pricing for vadadustat. How might you be thinking about pricing once the TDAPA period ends?

[John Butler, executive]

That's an important question. So as we talked about TDAPA, you've got kind of that 2-year window where you're outside of the dialysis bundle. When TDAPA ends in the final rule that came out just a couple of weeks ago, basically the way CMS has looked at it is they look at the overall utilization of a product that was part of TDAPA and then they basically take those dollars and spread it over all of the dialysis sessions that are provided. So for a product that has very limited use in a very small number of patients, that's really challenging, right? It doesn't really provide the dialysis providers the cash, if they have 1 or 2 patients that are getting a drug. The great thing for vadadustat is, as we've talked about, dialysis -- anemia is treated in 90% of dialysis patients and there are significant dollars already in the bundle. So thinking about that pricing and that post-TDAPA policy is a little bit more straightforward. Now I don't think that, that post TDAPA policy really encourages innovation long term. And one of the things being part of the kidney care partners, the lobby and coalition, this is a key area of focus for us and kind of creating a better way to incorporate innovation into treatment of these patients. So we're going to continue to lobby on the hill and with CMS to have those dollars follow the patients, and that's a real opportunity for us.

So if we think about the environment today, though, whatever pricing you have during your TDAPA period, you are going to have to adapt that pricing to kind of what's in the bundle, moving forward. So there will be, and we'll kind of see where our pricing strategy lands, but I do expect that the contracting price will have to become more aggressive post TDAPA without a change in that post TDAPA policy. So stay tuned as that progresses, but that's the way we're thinking about that.

[Mercedes Carrasco, executive]

Great. And on vadadustat, can you help us frame the base case expectation on the label, particularly any differences compared to daprodustat and whether that will matter for uptake?

[John Butler, executive]

So obviously, we haven't started labeling discussions with FDA yet. I mean they're early in their review. But we do think that there are significant differences between the compounds. We know that FDA does frequently have a desire to have class labeling, but there are certain areas that we really believe that the data doesn't support that. So we've really tried to address that -- those particular areas as aggressively as we can, or as clearly as we can, maybe it's a better word, in our draft labeling to the FDA. But of course, we will obviously work with the agency to have the product approved, and there's a point where negotiation ends and you take what you get. But from a compound perspective, we really do think that these are very different products. And some of the areas, like the 4 months not using the product until patient has been on for 4 months. If you look at the MACE data from INNO2VATE from incident patients and from the 1,000 patients PRO2TECT who became dialysis patients during treatment, there's no increase in MACE risk seen in that data. So we've incorporated that into our resubmission. I feel very strongly about that, and that's the kind of conversation we're looking forward to having with the agency.

[Mercedes Carrasco, executive]

Great. Thanks. And then finally, just on the Auryxia side once more. Ellen had provided good commentary on volume expectations for next year. Just curious if that factors in any impact from the availability of tenapanor? Or more broadly, how should we be thinking about the competitive set for Auryxia moving forward?

[John Butler, executive]

Yes. So the way we think about tenapanor, honestly, as a person who has worked in this space for 30 years as a patient advocate, it's exciting to see a product -- a new technology come in. What we know, Auryxia is a great product, sevelamer is a great product. They don't manage patient's phosphorus levels to normal. And we know that there's a direct relationship between phosphorus and mortality in dialysis patients. And so managing patients more aggressively, if you will, to a lower phosphorus level is a benefit to patients. And with tenapanor, I think they can do that. And that's clearly where the label is written. It is an add-on therapy. So I didn't mention that as one of the things that can help drive Auryxia sales. There will be more interest in phosphorus management with physicians because they have -- and the Ardelyx folks will be out there talking about tenapanor as well. And the idea that patients who have an average phosphorus of 6 can get to 5 or 4.5 would be a fantastic thing for patient outcomes. And at the end of the day, more focus on phosphate binders, or phosphate control, only helps Auryxia.

[Mercedes Carrasco, executive]

Great.

[Operator]

I'm seeing no further questions in the queue. I would now like to turn the conference back to John Butler for closing remarks.

[John Butler, executive]

Thanks, Chris, and thanks, everyone, for your questions. Now nearly through 2023, I just want to reiterate how well positioned we believe Akebia is to close the year. Our team is committed to our strategic objectives. We're eager to bring vadadustat to patients in the U.S., if approved, and we'll work to ensure vadadustat is available globally through our commercial partnerships. We'll advance our pipeline and grow our revenue in the years ahead. We believe our efforts will help create sustained value for our shareholders while continue towards our purpose to better the lives of people impacted by kidney disease.

Thanks, everyone, for joining us today. I look forward to updating you in the future.

[Operator]

This concludes today's conference call. Thank you all for participating. You may now disconnect, and have a pleasant day.