Akebia Therapeutics Inc (AKBA) 2018 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Akebia Therapeutics Second Quarter 2018 Financial Results Conference Call. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, John Garabo, Director of Corporate Communications at Akebia. Sir, you may begin.

Great. Thank you, Edna. Good afternoon, everyone, and thanks for joining us for Akebia's Second Quarter 2018 Financial Results and Midyear Update Call. Today's call will be archived, and a replay will be available on our corporate website, www.akebia.com.

Before we begin, I'd like to remind everyone that this conference call includes forward-looking statements. Each forward-looking statement contained in this call is subject to risks and uncertainties that could cause actual results to differ materially from those described in these statements. Additional information regarding these factors appears under the heading Risk Factors in our quarterly report on Form 10-Q for the quarterly period ended June 30, 2018, and in our press release issued earlier today, both of which are available on our corporate website. Please refer to this press release for additional information regarding Akebia's proposed merger with Keryx Biopharmaceutical. The forward-looking statements in this call speak only as of the original date of this call, and we undertake no obligation to update or revise any of these statements.

I'd now like to turn the call over to John Butler, Akebia's President and Chief Executive Officer. John?

Thanks, John. Good afternoon, everyone, and thanks for joining us. On today's call, I'll be highlighting our major accomplishments over the past few months. Jason Amello, our Chief Financial Officer, will review our financial results for the quarter, and I'll close with our outlook for the remainder of 2018 before opening the call to questions. Dr. Rita Jain, our Chief Medical Officer; and Nikki Hadas, our General Counsel, will join us for Q&A.

At the end of June, Akebia and Keryx Biopharmaceuticals shared the exciting news that we're combining to create a fully integrated biopharmaceutical company focused on developing and delivering innovative products to patients with kidney disease. We believe this combination has the potential to create significant value and growth opportunities for all of our stakeholders, including shareholders. This transaction is expected to close by the end of 2018.

There's a strong strategic rationale for this combination. At a high level, it creates the potential for accelerated growth and for organizational and product synergies by bringing in the best of Keryx and Akebia together. Keryx, of course, brings Auryxia, an FDA-approved drug with 2 renal indications and a strong growth trajectory as well as experienced commercial and medical affairs teams who've been in the field for the last 3 years building relationships within the nephrology community.

Akebia brings a talented R&D organization, driving an approximately 7,000-patient global Phase III program for our product candidate, vadadustat, which has the potential to change the standard of care for patients with anemia due to chronic kidney disease, a multibillion-dollar market. Akebia also brings established collaborations with multiple companies to deliver vadadustat to patients in markets around the world, subject to the drug's regulatory approval in these markets.

The combined R&D, medical manufacturing and commercial functions, along with Keryx' existing presence in the medical community and our collective expertise in the commercial renal market, will provide the combined company with the infrastructure to maximize sales of Auryxia while driving launch momentum for vadadustat in the United States, subject to FDA approval. And upon this approval, the combined company will offer nephrologists a portfolio of renal products to address the needs of nondialysis-dependent and dialysis-dependent chronic kidney disease patients in the United States.

The current executive leadership team at Akebia will serve as the executive leadership team of the combined company with the addition of a Chief Commercial Officer. I feel confident that this team can build on the momentum that Keryx has already driven and identify and leverage new growth opportunities to ultimately build a premier renal company.

We expect the combined company to have a unique footprint in the biopharma space as a fully integrated renal company with an anticipated pro forma market cap of over $1 billion. As a result, we'll have the potential to be a partner of choice, increasing our engagement with the renal community and pursuing strategic business transactions that will further grow our business and realize value for shareholders and for patients.

Turning to the vadadustat clinical development program. We continue to make important progress. This past quarter, we completed U.S. enrollment of our Phase III INNO2VATE conversion trial, and we're targeting full enrollment to the INNO2VATE program by the end of 2018. We expect top line results in the fourth quarter of 2019 or the first quarter of 2020, subject to the accrual of MACE.

In addition, our Phase III PRO2TECT program continues to enroll in 27 countries. We're pleased with the pace of the current enrollment. And by simply maintaining this pace, we expect top line results for the program to come in mid-2020 subject to the accrual of MACE.

We also initiated our Phase II FO2RWARD-2 study in dialysis-dependent patients, with top line results expected in the first half of 2019. This study is designed to provide us with additional data to differentiate and characterize vadadustat in the marketplace, subject to vadadustat's regulatory approval.

This past quarter, we also completed a type-C meeting with the FDA, in which we aligned with the agency on our statistical analysis plan ahead of our planned NDA filing for vadadustat.

And finally, our collaboration partner, Mitsubishi Tanabe, continues its Phase III studies of vadadustat in nondialysis-dependent and dialysis-dependent CKD subjects in Japan, with data readout expected in 2019. And as a reminder, these studies for Japan are not MACE-dependent.

And now I'll turn the call over to Jason for a review of our financials.

Thank you, John, and good afternoon, everyone. The second quarter of 2018 was an important quarter for Akebia from a financial perspective in addition to the Q2 announcement of the merger with Keryx, which subject to satisfaction of the closing conditions, would provide near-term commercial revenue and cash flow. Akebia's financial results for the second quarter of 2018 demonstrate the company's continued advancement of its vadadustat development program and the significant financial leverage obtained from its collaboration partners.

Akebia reported a net loss for the second quarter of 2018 of $34.1 million or $0.60 per diluted share as compared to a net loss for the second quarter of 2017 of $21.5 million or $0.53 per share.

Looking at the net loss on a 6-month year-to-date basis, it's important to note that the net loss for 2018 actually decreased by 13% as compared to the same period of 2017, despite increases in our development expenses. Specifically, net loss for the 6 months ended June 2018 was $57.5 million or $1.09 per share as compared to a net loss of $66.1 million or $1.66 per share for the same period of 2017. This reduction in net loss is primarily due to the consummation of the Otsuka international collaboration in late April 2017, which demonstrates the beneficial impact of our partnerships on our financial performance and as this collaboration was operational for the entire 6 months versus the comparable 6 months of 2017.

Looking at the components of the P&L for the quarter. On the revenue side, we are recognizing revenues under 3 collaboration agreements: our Otsuka U.S. Agreement, our Otsuka International Agreement and our MTPC agreement. It's important to note -- to point out that these collaborations are considered multiple element arrangements under the revenue recognition guidance, namely ASC 606. This generally means that noncontingent payments will be recognized over the life of the arrangement based on how activities under the arrangement are performed or delivered by Akebia versus when payments are actually received. Revenue was, therefore, recognized on a proportional performance basis as the underlying services are performed and costs are incurred.

Collaboration revenue, the majority of which relates to the Otsuka agreements, was $48.8 million for the second quarter of 2018 compared to $28.5 million for the second quarter of 2017. The increase in collaboration revenue relates to our continued advancement of the vadadustat development program and the associated cumulative costs incurred to date for the program on a proportionate performance basis. Collaboration revenue recognized for the second quarter of 2017 relates to revenue recognized from the Otsuka U.S. Agreement, and beginning in late April 2017, from the Otsuka International Agreement.

Revenue recognized from MTPC during the second quarter of 2018 was not significant, since MTPC is conducting and funding the vadadustat Phase III program in Japan and as we have substantially completed our responsibilities to provide clinical supply to MTPC.

Moving to our research and development expenses. R&D expenses were $71.9 million for the second quarter of 2018 compared to $43.8 million for the second quarter of 2017. The increase is primarily attributable to an increase in external costs related to the continued advancement of the PRO2TECT and INNO2VATE Phase III program, including ongoing enrollment, the manufacture of drug substance and drug product and regulatory activities as well as other clinical and preclinical activities. R&D expenses were further increased by headcount, consulting and facility-related costs required to support our growing R&D programs.

We do expect R&D expenses to increase significantly for 2018 as we target to fully enroll our INNO2VATE Phase III program by the end of 2018 and as we continue to advance our Phase III program in FO2RWARD-2 study, prepare to initiate the TRILO2GY-2 study as well as develop our other product candidates. Despite this expected increase in R&D, it is important to keep in mind that a significant portion of the costs are reimbursed by our collaboration partner, namely Otsuka, which gets recorded as collaboration revenue, as I previously mentioned.

General and administrative expenses were $12.5 million for the second quarter of 2018 compared to $6.9 million for the second quarter of 2017. The increase of $5.6 million was primarily due to an increase in legal and other professional fees related to the proposed merger with Keryx and an increase in costs to support the research and development programs, including headcount and compensation. We expect our G&A expenses to increase in future periods to support our continued research and development and as we prepare for commercialization of vadadustat.

Turning to our capital position. We ended the second quarter of 2018 with cash, cash equivalents and available-for-sale securities of approximately $402 million compared to $393 million at the end of the first quarter of 2018. This higher cash balance in the second quarter is due to the timing of receipt of cost-share prepayments from Otsuka versus the timing of our actual payments for certain expenses which can vary from quarter-to-quarter. We expect our cash -- existing cash resources, including the quarterly committed cost-share funding from Otsuka, to fund our current operating plan into the first quarter of 2020.

We ended the second quarter of 2018 with approximately 56.9 million shares outstanding or 62.4 million shares on a diluted basis, inclusive of outstanding options and RSUs.

And lastly, looking forward to the merger. The combined company will have an unaudited pro forma cash balance as of June 30, 2018, of approximately $452 million, which, along with the expected cost synergies of greater than $250 million to be realized 5 years following the closing and the potential for increasing Auryxia revenues, are expected to provide the combined company with significant financial strength and flexibility to enable continued growth.

With that, I'll turn it back to John.

Thanks, Jason. Our vision is and has always been to build a leading, innovation-driven, fully integrated renal company. Our planned merger with Keryx means that, subject to the satisfaction to the closing conditions for the merger, we're just months away from realizing this vision. It's a big accomplishment and an incredibly exciting time for us. In the months ahead, we'll continue to drive the vadadustat program forward as we plan for successful integration with Keryx.

I'd like to take this time to say how much I appreciate all of the hard work and dedication of the employees of both companies and how proud I am for the opportunity to lead this talented team into the future.

And now we'll open the line for questions. Operator?

(Operator Instructions) Your first question comes from Bert Hazlett with BTIG.

Just, John, you've mentioned briefly in the opening remarks and in the press release about the type-C meeting with FDA. Could you describe a little bit more about the -- about what needed to be aligned and kind of the results of the -- of that meeting? And then I have a question on financials.

Sure. I think, Bert, I'll have Rita Jain, who -- our Chief Medical Officer, who ran the meeting, answer the question on the FDA. Rita?

Yes. Thank you, John. Certainly, we did have a very productive meeting with the FDA. And as is not unusual, we wanted to discuss details of our statistical analysis plans for the global Phase III programs prior to completion of the studies and submission of our registration package. Without getting into too much detail, we did align on some aspects of analysis for key end points in the trials. And overall, the interaction was quite productive and included our partner, Otsuka.

And I think, given the length of the trials, the opportunity to interact with the FDA, again, is always a positive to keep in touch with them. Bert, you said you had a question on finance?

I did. And I guess, just a quick one on the MACE rate. Maybe you referred to it, but has the MACE rate been greater or lesser than what you've expected in the study to this point? Can you comment?

Yes. I think what -- the way we've talked about it in the past and is still the case is, it's within the range of what we expected. And I think saying high or low, it's just too early to make that determination. But it's within the range. Rita, you'd agree with that?

Yes. Thanks.

Okay, terrific. And then just our operating expenses -- or estimates were a bit low relative this quarter, relative to what they came in. Could you just talk to the, maybe, some of the pacing of the operational expenses throughout 2018?

Sure, sure. So we look to R&D, the R&D program, just in general, is expanding as we continue to enroll the patients, and as we're targeting to fully enroll INNO2VATE by the end of this year, that pace continues. We're continuing to invest in the program to optimize that. And as we're starting start-up activities as well for the other trials, that ramp will continue. We generally have been increasing year-over-year as this trial gets closer and closer to being enrolled. So that's primarily the driver on the R&D expense. On the G&A side, the big driver there was really the cost pertaining to the planning for the merger. Most of our G&A is commensurate with the normal increase from the R&D spend to support that because as you know, it's a very large trial, so we're always going to need a certain amount of G&A to support that activity with the CROs and so forth. So I think you should expect these -- both line items to increase commensurately with each other, barring the one-off transaction costs from the merger.

Your next question comes from Allison Bratzel with Piper Jaffray.

Just one quick one from me. I didn't see anything in the release on timing for TRILO2GY. Could you just confirm timing of trial initiation for that? Is that not until next year now? And just remind us of what you're hoping to see from that trial.

Yes. No, thank you for the question. We are targeting the end of '18 or early '19 to initiate the TRILO2GY trial, as we have previously discussed. The TRILO2GY trial is planned as a Phase III study that will evaluate dosing of vadadustat as compared to Epogen. We'll look at switching from a variety of ESA products onto vadadustat. And we are evaluating the potential for QD and TIW therapy, although we've not fully finalized the protocols yet. So that will still be additional detail that we'll provide at a later point.

Your next question comes from Ed Arce with H.C. Wainwright.

This is Matt on for Ed. Just wondering, in general, how the merger integration is progressing.

Thanks -- thanks for the question. Actually, as we said on the call, I had an expectation that, given the -- kind of some of the similarities of the companies, the shared experiences that there would be a similar culture across the 2 companies. I'm happy to say that, that really is what we're seeing. I mean, I think it's very -- a lot of these mergers really do hang on having similar cultures that can be easily integrated and probably, at very different companies. And that's been helpful also, frankly, that you have a commercial company and a development company, so there's not a lot of people worrying about synergies translated as jobs. And we're just fundamentally very similar in our approach, in our philosophy around kind of putting patients first, et cetera, and a real commitment to this space. So -- and of course, the geographic proximity makes it a lot easier for people to communicate face-to-face on an ongoing basis. So I would say that I'm very pleased with the progress we're making from an integration standpoint. And I have a lot of confidence in the strength the company will have when this merger closes.

Your next question comes from Difei Yang with Mizuho.

So John, post integration, post closing of the deal, where do you see the immediate growth area with Keryx' product portfolio?

Yes, so -- I mean, I don't think we have to wait for post-closing. You look at the momentum that Keryx has on the product. They reported their Q2 earnings this morning and almost $26 million in revenue. It's very consistent with very strong growth and consistent with our expectations. When you think about the 2 indications, we see very, very robust growth opportunities in both indications. Hyperphosphatemia is a much more mature market, of course, and a much more competitive market. But when you look at the growth that they've seen there, still growing share significantly, but share's still in the single digits, there's lots of opportunity. You have -- the KDIGO guidelines are changing to encourage people away from calcium as a second-line agent. That creates an opportunity. There's multiple opportunities to grow on the hyperphosphatemia side. And it's very important, and I know that, having communicated with the sales team multiple times since we announced the merger, that they're very focused on this. It's critical to maintain that focus on hyperphosphatemia. It's great to sell the new indication, IDA, but hyperphosphatemia is a very important growth area. But IDA is where there's significant momentum as well. It is a very clear field. It's the only prescription iron product available in iron deficiency anemia. All of the kind of outside market research we see suggests physicians increasing their adoption of the product, their trial of the product and that their experience is very positive. So continuing to build on the momentum in IDA, I think, will be critical. And looking for other opportunities to enhance the growth in hyperphosphatemia will be there as well. But as I said, I mean, the current commercial team there is doing a great job of building momentum, much stronger momentum than they had at any time in the past. And we obviously think there are other areas that we can add to that. But it's always easier to drive further momentum when the line's moving in the right direction.

(Operator Instructions) Your next question comes from Kennen MacKay with RBC Capital Markets.

Maybe just a follow-up for Rita on the FDA type-C meeting here on the stat analysis. Really wondering if you can perhaps get a little bit more granular in terms of what changes were made to the statistical analysis plan versus those that were set about in your prior end of Phase II or pre-Phase III type-B meetings with the FDA?

Yes. No, thank you. First of all, at the end of Phase II meetings, while there was some high-level discussion of the endpoints and comments around analysis, actually, at that time, the formal statistical analysis plans that we used to analyze the studies were not fully prepared and were not reviewed with FDA. At this meeting, we had provided them with the full statistical analysis plans for all 4 studies. So this was quite a significant conversation. I think, for a number of reasons, we're not going to go into more detail. But as I said, we were very pleased with the alignment that we reached with FDA. We have good clarity on the key points of our efficacy and safety endpoints, which allows us to fully move forward and be ready to analyze the data at the point of study completion. And as you recall, we will be looking at both efficacy and safety and MACE data when we complete our studies.

And Ken, I mean, that's the normal process. I mean, you don't finalize the statistical analysis plan when you're having your end of Phase II meeting. This is the way it's normally done. But obviously, I think, as Rita kind of pointed out, in a study as complex as these, the SAP is an important box to check to get alignment with the agency.

No, that's incredibly helpful color. I appreciate the added granularity there. And it sounds like much more of a -- potentially even more comprehensive meeting than sort of what we think about during a type-3 meeting -- I'm sorry, type-C meeting. So sort of beyond that, just wondering if I could get your perspective on the competitive dynamic in sort of the HIF-Prolyl Hydroxylase inhibitor space. One of your competitors just announced completion of enrollment into their U.S. Phase III programs and had mentioned expecting top line data in Q4 and a potential NDA in first half '19. I was wondering if you could sort of run us back through any timing or sort of trial differences that are behind your expectations for INNO2VATE data in Q4. And based on the enrollment rate into PRO2TECT, wondering maybe when we could hope to see full enrollment there, or a ballpark. Or sort of what supports your expectations for data from PRO2TECT in mid-2020?

Yes. So I mean, I think, looking at the competitive dynamics that you mentioned, that really isn't a change from, I believe, what had been disclosed previously. So this kind of timing of filing by mid-'19 for the first HIF-PH in the U.S., I think, is very consistent with what we've been expecting. So all of our plans are unchanged from that perspective. I -- maybe, Rita, do you want to comment on PRO2TECT enrollment and any of the trial dynamics?

Yes. And I think I might start by saying that we believe both INNO2VATE and PRO2TECT are progressing well. And as you know, with MACE outcomes trials, as the programs get further along in terms of both enrollment and accrual of MACE events, we're better able to estimate the time line to study completion. John mentioned earlier that for the INNO2VATE program, we have finished enrollment for the larger of the 2 studies, the conversion study in the U.S., and we're targeting completion of enrollment at the end of '18 for INNO2VATE. For PRO2TECT, what we've seen is a very steady rate of enrollment over the first half of this year. Now we continue to push on enrollment, but what we've decided to do is take an approach of estimating that the enrollment rate won't change until the completion of the trial. Now obviously, the other piece that we're looking at is the accrual of the MACE events, and obviously, that progresses also. What we are seeing for both INNO2VATE and PRO2TECT is that the MACE rates are running in the range that we expected. Now that gives us confidence in the time lines that we're providing for study completion. We didn't specify when PRO2TECT will complete enrollment because there are a number of factors that might come into our decision when to stop enrollment. But within those range of factors, it really still does provide for top line data at the time line that we indicated.

And I think, Rita, and you can correct me if I'm wrong, but the further you get in, given that MACE is time to first event, the impact of what the underlying MACE rate is far greater than the impact of enrollment at this point and when you ultimately see.

Yes. And that's why, as I noted, there could be a range of timing for finishing enrollment or some decisions we make there. But in large part, we don't expect it to impact when we will get top line data. Certainly, if our MACE rate were to change, that would be a factor, but it's tracking to what we expected.

I mean, even within the range, high or low, makes a difference. And that's why you might want to continue enrolling or not. It's sort of an insurance policy in a way, too.

Exactly.

Does that help, Kennen?

That does.

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back over to John Butler.

Thanks very much. And thanks, everyone, for joining us today. Have a great evening.

Ladies and gentlemen

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