Akebia Therapeutics: Take Profits Before Second Quarter Report

Akebia Therapeutics (NASDAQ:AKBA) is a small ($~340 million market cap) biopharmaceutical company focused on kidney disease with two commercial products, Auryxia (ferric citrate) and Vafseo (vadadustat). On March 29, 2022, Akebia received a complete response letter (‘CRL’) from the U.S. Food and Drug Administration (FDA) rejecting the new drug application (‘NDA’) for vadadustat for the treatment of anemia due to chronic kidney disease (CKD) for dialysis dependent (‘DD’) patients, in light of safety concerns related to the rate of adjudicated thromboembolic events driven by vascular access thrombosis (‘VAT’) for vadadustat and the risk of drug-induced liver injury (‘DILI’). On May 30, 2023, the Agency’s Office of New Drugs ('OND') provided a path forward to resubmit the NDA which crucially does not require the generation of additional clinical data. This sets investors up for several catalysts for 2023; unfortunately, the earliest is the reporting of Q2 financial results, a likely negative event.

Vafseo is an oral hypoxia-inducible factor prolyl hydroxylase (HIF-PH) inhibitor designed to simulate the physiologic effect of hypoxia due to altitude, which is to promote erythropoiesis, the production and maturation of hemoglobin-filled oxygen-rich red blood cells. Other nations considered the risk/benefit ratio and favored Vafseo, which is currently approved in 34 countries, including all 27 European Union member states for adult patients on chronic maintenance dialysis. In Japan, Vafseo is approved for both DD and non-dialysis dependent (‘NDD’) patients, and is marketed by Mitsubishi Chemical Group Corporation’s (OTCPK:MTLHY) Tanabe Pharma subsidiary (referred to hereafter as MTPC).

The OND review concluded that the VAT and DILI signal appear modest in intensity and potentially manageable with appropriate labeling recommendations. Commercial experience with Vafseo is important to the OND. In Japan, there have been no reports of DILI in the more than two years that Vafseo has been on the market, and Akebia plans to resubmit the NDA by the end of the third quarter of 2023, with data from tens of thousands of Japanese Vafseo patients. The FDA will likely set a Prescription Drug User Fee Act (PDUFA) date of six months from the date of submission.

Financials

Auryxia net product revenue was $34.8 million for Q1 2023. License, collaboration, and other revenue was $5.3 million, which was much less than in 2022 due to termination of the partnership with Otsuka Holdings (OTCPK:OTSKY) after the CRL. Q1 Research and development expenses of $19.7 million and selling, general and administrative expenses of $25.2 million were lower than in 2022 due to the workforce reduction in response to the CRL. Cash and equivalents as of March 31, 2023 were approximately $57.0 million. Akebia believes that its cash resources will be sufficient to fund its current operating plan for at least the next twelve months, but Q1 net loss was $26.2 million.

Figure 1. Akebia’s Cash Management

Akebia licensed MEDICE Arzneimittel Pütter to sell Vafseo in the European Economic Area in addition to the United Kingdom, Switzerland and Australia. Akebia received $10 million upfront and is entitled to commercial milestone payments up to $100 million, and tiered royalties from 10% to 30% of net sales. The initial MTPC arrangement called for tiered royalty payments ranging from 13% to 20% on annual Vafseo net sales. In 2021, Akebia sold some rights to HealthCare Royalty Management for an upfront $45 million. In exchange, HCR will receive Vafseo royalties and sales milestones due from MTPC, up to an annual cap of $13 million and an aggregate cap of $150 million. After the annual cap is met in a given calendar year, Akebia gets 85% of the remaining Vafseo royalties and sales milestones that year. After the aggregate cap is met, Akebia keeps 100% of the remaining MTPC revenue stream. Obviously, annual Vafseo sales haven’t reached anywhere close to $130 million, due to competition and apparent lack of demand.

HIF-PH Landscape

Everybody refers to Astellas Pharma’s (OTCPK:ALPMY) first-in-class rival Evrenzo (roxadustat), but it was Gsk (GSK) who became the HIF-PHI U.S. first-mover in February 2023, when the FDA approved Jesduvroq (daprodustat) tablets for anemia due to CKD in adults who have been receiving dialysis for at least four months. Meanwhile, Astellas got Evrenzo approved in Japan (first-mover here since September 2019) and Europe for anemia associated with CKD in both DD and NDD patients. AstraZeneca (AZN) and FibroGen (FGEN) are collaborating on Evrenzo in the U.S. and other countries in the Americas, Australia and New Zealand, as well as China and Southeast Asia. They fared the worst, receiving a CRL requesting additional clinical trials in both the NDD and DD patient populations.

Using ¥135/$1 exchange rate, Evrenzo generated a lackluster $23.7 million sales in fiscal 2022 ended March 31. Of that, $4.5 million came from Europe, despite being launched in December 2021, leading Astellas to book almost $350 million in impairment losses after a review of future sales forecast for EVRENZO. Marketed as Duvroq in Japan since June 2020 for patients with anemia of DD and NDD CKD, Gsk claims Duvroq is Japan’s market leading HIF-PHI. Notwithstanding this performance, Gsk decided to concede the European arena and won’t file elsewhere.

In the first meta-analysis on Vafseo, all HIF-PHIs reduced hepcidin, making them appropriate for DD patients with inflammation. EVRENZO was found to be the most effective treatment for hemoglobin correction. However, Vafseo had 36% decreased risk of thrombosis and hypertension than EVRENZO, so may be preferable in patients at risk for hypertension and thrombosis. Vafseo was best for total iron-binding capacity improvement and was much better than Jesduvroq. EVRENZO and Jesduvroq had the bad effect of reducing ferritin, a form of iron storage in the liver. There is a small chance that Vafseo may be able to gain a foothold once FDA-approved, and eventually outduel Jesduvroq one-on-one because of the above advantages.

Risks and Bear Case

Akebia isn’t an ideal biotech for a bear market as it can’t be profitable on Auryxia alone. The iron-based anemia drug is one of the last few branded binders on the market, and will most likely lose exclusivity in March 2025. The company’s pipeline is thin (Figure 2), especially after an investigator-initiated vadadustat trial of COVID-19 patients with acute respiratory distress syndrome (OTC:ARDS) failed last August. While Akebia has declared its intentions to submit the NDA, delays sometimes happen. Also, some other adverse effects may show up, as the relative safe profile in Japanese people may not completely translate to Western or more diverse populations. Most importantly, as discussed above, the competition in CKD is fierce, and entrenched products from other classes aren’t surrendering market share. Evaluate Pharma’s consensus for EVRENZO sales estimates have plunged from 2021’s $542 million by 2026 to 2022’s $360 million by 2028 to this year’s dismal $99 million in 2028. Gsk has likewise seen the writing on the wall and gave up on trying to compete.

Figure 2. Akebia Pipeline

Takeaways

Akebia has many good things going for it, and sports a Strong Buy from Seeking Alpha’s Quant system. This is mostly driven by an A grade in Revisions (2 ups for Fiscal 2023 in the past 90 days) and an A+ in Momentum. Akebia is in 52-week high territory after skyrocketing 85% since the beginning of July despite no news or SEC filings. However, analysts predict $59.1 million for Q2, following 2 upward revenue revisions. Akebia hasn’t earned that much since Q2 2022’s $127 million, which included $80 million for several one-time payments related to the Otsuka partnership termination. Investors should note that Akebia will not be recognizing any future revenue under the Otsuka agreements. Positive catalysts include the NDA resubmission and acceptance by the FDA, launching Vafseo in Europe, and publication of FO₂CUS clinical trial data demonstrating an effective vadadustat three times a week alternate to daily dosing, which could lead to adoption in some countries. There may be surprise developments such as more partnerships or unscheduled milestone payments.

On the other hand, Akebia has probably maxed out Auryxia’s revenue, and any Vafseo contribution from Europe will hardly be felt in 2023 or even 2024, given the EVRENZO trajectory. Negative catalysts include the FDA deciding on the longer 6-month review. A similar decision with Ardelyx (ARDX) tanked the stock 12% even though the longer review was inevitable because an advisory committee meeting was held. Therefore, many might be hoping for a shorter 2-month review for Vafseo. One of the worst possibilities it that the Agency could require an AdComm.

To conclude, Longs should probably take profits before the Q2 call, which some sources estimate as August 3, although there has been no official announcement from Akebia. They can then buy the dip if desired in anticipation of a runup to the NDA resubmission. Akebia could be dead money leading to the FDA acceptance of the NDA, all through the review period. By then, Ardelyx will likely be the better Buy, as its drug candidate adjunct to phosphate binders has a much, much larger CKD market.