Akebia Therapeutics(AKBA) - 2019 Q2 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements The unaudited condensed consolidated financial statements for Q2 2019 reflect the company's financial position, operations, and cash flows post-Keryx merger Condensed Consolidated Balance Sheets Total assets decreased to $823.5 million by June 30, 2019, primarily due to reduced cash and securities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $87,212 | $104,644 | | Available for sale securities | $49,553 | $216,996 | | Total current assets | $316,396 | $468,275 | | Goodwill | $55,053 | $55,053 | | Other intangible assets, net | $309,413 | $328,153 | | Total assets | $823,528 | $996,540 | | Liabilities & Equity | | | | Total current liabilities | $185,618 | $265,693 | | Total liabilities | $304,172 | $360,612 | | Total stockholders' equity | $519,356 | $635,928 | | Total liabilities and stockholders' equity | $823,528 | $996,540 | Condensed Consolidated Statements of Operations and Comprehensive Loss Q2 2019 total revenues reached $100.8 million, but net loss widened to $58.2 million due to increased operating expenses Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | | :--- | :--- | :--- | | Product revenue, net | $29,089 | $— | | License, collaboration and other revenue | $71,714 | $48,793 | | Total revenues | $100,803 | $48,793 | | Total cost of goods sold | $37,669 | $— | | Research and development | $85,694 | $71,917 | | Selling, general and administrative | $36,068 | $12,538 | | Operating loss | ($59,523) | ($35,662) | | Net loss | ($58,170) | ($34,069) | | Net loss per share | ($0.49) | ($0.60) | Statement of Operations Highlights (in thousands, except per share data) | Metric | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Product revenue, net | $52,200 | $— | | License, collaboration and other revenue | $121,269 | $94,723 | | Total revenues | $173,469 | $94,723 | | Total cost of goods sold | $68,926 | $— | | Research and development | $168,045 | $133,321 | | Selling, general and administrative | $70,359 | $21,562 | | Operating loss | ($135,492) | ($60,160) | | Net loss | ($130,591) | ($57,487) | | Net loss per share | ($1.11) | ($1.09) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities significantly increased to $176.3 million for H1 2019, resulting in a $17.4 million net cash decrease Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | ($176,295) | ($11,334) | | Net cash provided by investing activities | $164,506 | $8,866 | | Net cash provided by (used in) financing activities | ($5,643) | $96,123 | | Increase (decrease) in cash | ($17,432) | $93,655 | Notes to Condensed Consolidated Financial Statements Notes detail operations, Keryx merger impact, going concern uncertainty, accounting policies, revenue, assets, debt, and commitments - The company is a biopharmaceutical firm focused on developing and commercializing therapeutics for kidney disease, with commercial product Auryxia and lead candidate vadadustat in Phase 3 development[20] - The company completed its merger with Keryx Biopharmaceuticals, Inc. on December 12, 2018, integrating the commercial product Auryxia[21] - Management's ASC 205-40 analysis concluded "substantial doubt" about the company's ability to continue as a going concern for the next twelve months, as certain potential funding is excluded from the formal assessment[23] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses post-merger focus, revenue, wider net loss, and liquidity, including going concern disclosure Results of Operations Q2 2019 total revenues increased to $100.8 million, but operating loss widened to $59.5 million due to higher R&D and SG&A expenses Comparison of Three Months Ended June 30, 2019 and 2018 (in thousands) | Item | Q2 2019 | Q2 2018 | Change | | :--- | :--- | :--- | :--- | | Total revenues | $100,803 | $48,793 | $52,010 | | Product revenue, net | $29,089 | $— | $29,089 | | License, collaboration revenue | $71,714 | $48,793 | $22,921 | | Total cost of goods sold | $37,669 | $— | $37,669 | | Research and development | $85,694 | $71,917 | $13,777 | | Selling, general and administrative | $36,068 | $12,538 | $23,530 | | Operating loss | ($59,523) | ($35,662) | ($23,861) | | Net loss | ($58,170) | ($34,069) | ($24,101) | - Collaboration revenue increased primarily due to an additional $11.1 million from the Otsuka U.S. Agreement and a $9.8 million increase from the MTPC Agreement, including a $10.0 million JNDA filing milestone[254] Liquidity and Capital Resources The company's liquidity includes $136.8 million in cash and securities, with a cash runway into Q3 2020, despite formal "substantial doubt" about going concern - Cash, cash equivalents, and available for sale securities totaled approximately $136.8 million as of June 30, 2019[276] - Net cash used in operating activities for H1 2019 was $176.3 million, primarily due to the Phase 3 vadadustat program, inventory, and merger liabilities[277] - The company's cash runway is expected to fund operations into Q3 2020, but accounting standards lead to "substantial doubt" about its ability to satisfy obligations for the next twelve months[284] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate sensitivity on its cash and securities portfolio, with no material impact expected from a 100 basis point change - The company's primary market risk is interest rate sensitivity on its $136.8 million portfolio of cash and securities[333] - Due to the short-term nature of the investment portfolio, an immediate 100 basis point change in interest rates is not expected to have a material effect on its fair market value[333] Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal controls during the quarter - Management concluded that as of June 30, 2019, the company's disclosure controls and procedures were effective at the reasonable assurance level[335] - No material changes were made to the company's internal control over financial reporting during the quarter ended June 30, 2019[336] Part II. Other Information Legal Proceedings The company is involved in multiple legal proceedings, including shareholder litigation, Auryxia patent defense, and challenges to competitor patents - The company is defending against consolidated shareholder lawsuits in Delaware related to the Keryx merger, alleging false and misleading statements in the registration statement[340] - Keryx received Paragraph IV certification notices for Auryxia ANDAs from multiple generic manufacturers, leading to patent infringement lawsuits and 30-month FDA approval stays[345][346][347] - The company is actively challenging the validity of competitor FibroGen, Inc.'s HIF-related patents in various jurisdictions to ensure freedom to operate for its vadadustat program[354][361][362] Risk Factors The company faces risks including Keryx merger integration, going concern uncertainty, commercialization, development, third-party reliance, and intellectual property litigation - The company may fail to realize anticipated Keryx merger benefits due to integration difficulties, loss of key personnel, and unforeseen liabilities[365] - A key financial risk is the company's history of losses and the "substantial doubt" about its ability to fund obligations for the next twelve months, potentially impeding capital raising[379] - Commercial success is threatened by generic competition for Auryxia, with multiple ANDAs filed, and potential competition for vadadustat from other HIF-PHI inhibitors[397][423] - The company is heavily reliant on third parties for manufacturing Auryxia and vadadustat and for conducting clinical trials, creating supply, quality, and regulatory risks[513][518] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 55,324 shares of common stock in April 2019 to cover tax liabilities for vested RSUs, with no unregistered sales during the quarter - In April 2019, the company repurchased 55,324 shares of common stock at an average price of $7.70 per share to cover tax liabilities for certain officers related to vested RSUs[632][637] Other Information Akebia provided an unconditional guaranty and security interest for Keryx's $40 million SVB line of credit, following a waiver of existing defaults - On August 7, 2019, Akebia provided an unconditional guaranty and granted a security interest to SVB for its subsidiary Keryx's $40 million line of credit[634] - On July 31, 2019, SVB waived existing events of default under the Keryx loan and security agreement[640] Exhibits This section lists exhibits filed with the Form 10-Q, including merger agreements, corporate documents, various contracts, and officer certifications