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Akebia Therapeutics (NASDAQ:AKBA) Q4 2018 Earnings Conference CallMarch 18, 2019 4:30 p.m. ET
Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks:Operator
Good day, ladies and gentlemen, and welcome to the Akebia Therapeutics preliminary full-year 2018 financial results and business highlights conference call. As a reminder, this conference call is being recorded. [Operator instructions] I would now like to introduce your host for today's conference. Megan, the floor is yours.
Unidentified speaker
Thank you, operator. Good afternoon and thank you for joining us to discuss our recent business progress and Akebia's preliminary full-year 2018 financial results and business highlights conference call. The press release containing the company's preliminary financial results for the fourth quarter and full-year 2018 was issued earlier this afternoon and is also available on our Investor Relations website. For your convenience, an audio replay of today's call will also be available on our website shortly after we conclude today's webcast.
Joining our call are John Butler, president and chief executive officer; and Jason Amello, chief financial officer. Rita Jain, chief medical officer; Michel Dahan, chief business officer; and Doug Jermasek, VP of marketing and strategy, will also be joining for the Q&A session. 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 are described in the Risk Factors and management's Discussion and Analysis sections of our most recently quarterly and annual financial reports. The forward-looking statements on this call speaks only as of the original date of this call, and we do not undertake any obligation to update or revise any of these statements. With that, I'd like to turn the call over to our CEO, John Butler. John?
John Butler -- President and Chief Executive Officer
Thanks, Megan. Good afternoon, everyone, and thank you for joining us. 2018 was a transformative year for Akebia. Throughout the year, we executed against multiple strategic initiatives, including the creation of a fully integrated biopharma company for a successful merger with Keryx.
We now have capabilities from research, commercialization, and a portfolio of complementary assets. Through the merger, we gained access to Auryxia, a commercial product proved for two indications to treat patients with kidney disease. In addition, we continued to advance our global Phase 3 program for vadadustat. 2019 is beginning with the same sort of momentum with the announcement of the positive results from the Phase 3 clinical program for vadadustat in Japan conducted by our collaboration partner, Mitsubishi Tanabe or MTPC.
Simply put, we did what we said we were going to do and a bit more. One of the things that all of us at Akebia are most proud of is that we've advanced our mission to improve care for kidney disease patients. There is much more work ahead to advance our portfolio. And at the same time, we see tremendous opportunities to bring further innovation to the market to grow and to increase shareholder value.
The next 18 months will be a very busy time with significant catalyst ahead of us. Let me share why I have confidence in this vision. First, our two primary assets are highly differentiated and highly complementary. Our portfolio was focused on patients across the spectrum of chronic kidney disease.
Auryxia is the only oral iron tablet approved in the United States to treat non-dialysis-dependent chronic kidney disease or CKD patients for iron deficiency anemia or IDA, and dialysis-dependent CKD patients for [Inaudible]. Vadadustat is an investigational hypoxia-inducible factor prolyl hydroxylase inhibitor or HIF-PHI currently in Phase 3 development for the treatment of anemia due to CKD in non-dialysis-dependent and dialysis-dependent patients. With these assets at the core of our current portfolio and a strategic focus on growing that portfolio, we're working toward an all-important goal: to provide better control of kidney disease and its complications in earlier stages and potentially slow disease progression and improve outcomes for patients. Second, our merger with Keryx provides this valuable manufacturing, sales, marketing, and medical affairs capabilities, including long-standing relationships with key opinion leaders and a broader nephrology community.
We believe that these added capabilities represent a significant advantage that will help us with the launch momentum for vadadustat, subject to FDA approval, in addition to supporting Auryxia growth. For Auryxia, during 2018, the commercial team made significant progress in driving uptake of the drug. Pro forma unaudited full-year Auryxia sales increased 72% to $96 million. We saw an 85% increase in total prescriptions in 2018 compared to 2017.
We exited 2018 with a market share of 6.6% compared to 4.2% at the end of 2017. Auryxia's volume and share gains exceeded the gains of all other phosphate binders, both branded and generic, in 2018. Auryxia has the potential to grow on both of its approved indications, primarily because it offers an alternative treatment option that's very favorably perceived by prescribers. Nephrologists have a highly favorable perception of Auryxia across three of the most important needs in the hyperphosphatemia market: first, less pill burden for patients; second, a favorable tolerability profile; and third, a palatable formulation.
In addition, at the end of 2017, the Kidney Disease Improving Global Outcomes or KDIGO, which publishes treatment guidelines for kidney disease, released guidance stating that in adult patients with CKD, use of calcium-based phosphate binders should be limited. This has driven more than half of nephrologists to recognize the need to use a calcium-based phosphate binder in fewer patients, and we're starting to see that reflected in prescription data. On top of this, we have an opportunity to capture patients that are switching from other agents, particularly those switching from [Inaudible]. Although this is the market leader, there's a high discontinuation rate due to tolerability issues and pill burden.
There are limited options for switching patients, creating even more opportunity to grow share for Auryxia. Together with the proven clinical benefits of Auryxia, these drivers create a significant opportunity for the product. We expect Auryxia's hyperphosphatemia indication to continue to drive the majority of our revenue. As you know, CMS recent decision about coverage of Auryxia's IDA indication has led to the need for nephrologists to obtain prior authorization when prescribing Auryxia to Medicare patients to ensure the uses for its covered hyperphosphatemia indication.
This created an additional and often time-consuming administrative step in the process. While this new requirement pressured Auryxia prescription fulfillment starting late last year and early this year, the tools we developed in response to this action are having an impact. We're effectively working through this, and importantly, Auryxia weekly prescriptions are again exhibiting robust growth. Turning to the IDA indication.
Auryxia is the only oral iron tablet approved in the U.S. to treat non-dialysis-dependent CKD patients for iron deficiency anemia. Over 70% of nephrologists see Auryxia as an advance over other oral iron products and we continue to work to translate this perception into adoption. We see substantial opportunity for growth in the IDA indication.
Our greatest near-term opportunity is within the large and growing pool of private, commercial, and Medicaid patients, who represent approximately 45% of the addressable patient population. And in CKD non-dialysis, that's hundreds of thousands of patients. With respect to Auryxia's opportunity within the Medicare patient population, our team continues to work with others in the renal care community to urge CMS to restore coverage for the IDA indication under Medicare Part D, as we believe it dramatically impacts patient choice and access to care. There are analogues where CMS has provided Part D coverage for similar products, which gives us confidence in our position.
To fully recognized Auryxia's long-term market opportunity, we'll need to restore coverage when prescribed to treat IDA and ensure Medicare patients have access to its use for both FDA-approved indications, and we're actively engaged toward that end. We're very excited about the opportunities ahead for Auryxia. The product is growing in both indications. We're pleased with the progress the team has been making.
There's clearly more work and more opportunity ahead. I'd like -- and now I'd like to shift gears and spend some time discussing the vadadustat clinical development program in anemia due to CKD. Vadadustat is an oral HIF-PHI that's designed to stimulate endogenous EPO production to a more physiologic level. The premise is that by raising hemoglobin levels while avoiding super physiologic levels of EPO, vadadustat will present less cardiovascular risk to patients than ESAs, the current standard of care.
The goal is to bring patient's hemoglobin levels into the target range and keep it stable over time without fluctuations in and out of the target range, also called excursions or overstimulation of erythropoietin, which has been associated with cardiovascular safety risks in patients. Our global Phase 3 trials are designed to compare directly to [Inaudible] in ESA. They're designed to assess non-inferiority for efficacy to [Inaudible] and non-inferiority for the major adverse cardiovascular events or MACE. The trials include multiple secondary end points to assess other clinically important areas of differentiation [Inaudible] and alpha.
We believe the next 12 to 18 months are going to be an exciting time for Akebia and HIF-PHI class in general. The size of the addressable market for anemia associated with CKD is substantial -- in the multibillion dollar range, creating a large opportunity for multiple products in the space. Data continues to highlight the potential of our program in both dialysis-dependent and non-dialysis-dependent CKD patients. Just recently, we announced positive top-line results from two pivotal Japanese Phase 3 clinical trials conducted by our development and commercialization partner, Mitsubishi Tanabe, one in non-dialysis-dependent subjects and one in hemodialysis-dependent subjects; and results from two additional single-arm studies in dialysis-dependent subjects that further support vadadustat's potential to establish a new standard of care in anemia due to CKD.
The Japanese regulatory authority does not require a cardiovascular outcomes trial but a typical assessment of efficacy and safety. Based on these results, Mitsubishi Tanabe expects to submit a Japanese new drug application in 2019. This would be the first regulatory submission of vadadustat globally. Moving to our global Phase 3 program, the core programs supporting a potential filing in dialysis patients is INNOVATE, which includes two open-label, active-controlled, non-inferiority cardiovascular outcome studies: a correction study and a correction conversion study.
Target enrollment in the larger trial, which is the conversion study completed in February of 2019 with over 3,500 subjects enrolled. With respect to the second smaller study, the final patients are in screening, and we expect completion of enrollment by April of this year with approximately 350 subjects enrolled. We're pleased with the robust enrollment in the program. If you recall, our expectation was up to 3,600 subjects, and we'll finish with about 3,900 subjects.
Now based on this enrollment number, the specifics of the protocol, and the tactical time lines related to data analysis following database lock, we expect to have top line data readouts for both INNOVATE studies in Q2 of next year, subject, of course, to the accrual of MACE events. The core program supporting a potential filing in non-dialysis patients is our PROTECT program. PROTECT also includes two open-label, active-controlled, non-inferiority cardiovascular outcomes trials: a correction and a conversion study. PROTECT enrollment is tracking in line with our expectations.
We've informed sites that we plan to close screening shortly, so we do expect to complete enrollment this year and we continue to anticipate a PROTECT readout in mid-2020, subject to the accrual of MACE. I'd now like to turn the call over to Jason for a review of our preliminary financials.
Jason Amello -- Chief Financial Officer
Thank you, John, and good afternoon, everyone. As John referenced in his opening remarks, 2018 was a transformative year for Akebia, where we continued to execute and optimize on our vadadustat development program, and we finished off the year with closing out our merger with Keryx on December 12. As a result, our financial results for 2018 are reflective of a newly merged integrated biotechnology company with commercial revenues and a late-stage development program. With that said, I'd like to remind everyone that although the merger was completed in 2018, the results of Keryx operations are included in our consolidated financial results only from December 12 forward.
As with all mergers and acquisitions, the most significant reporting requirement is the allocation of the merger consideration to the fair value of the acquired assets and liabilities. Given the proximity of the closing date of December 12 to the end of the year, that allocation process and the assessment of the associated tax impacts is not yet complete. Therefore, I submitted by SEC regulations, our 10-K will be filed when that analysis is completed, which will be no later than April 2nd. So on this call, we'll only be discussing our unaudited pre-tax operating results, and we'll provide our full audited financial statements with the filing of our 10-K in the days to come.
So let's look at the components of the P&L. Net product revenues from the sales of Auryxia from the date of the merger were $6.8 million with associated cost of goods sold of $6.3 million. It's important to note that the cost of goods sold includes a charge of $4.8 million related to the fair value inventory step-up as a result of merger accounting. We also continue to recognize revenues under three collaboration arrangements: our Otsuka U.S.
agreement, our Otsuka international agreement, and our MTPC agreement. These collaborations are considered multiple element arrangements under the revenue recognition guidance. This generally means that the 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. With that said, collaboration revenue was $53 million for the fourth quarter of 2018, compared to $90.6 million for the fourth quarter of 2017.
A significant decrease is due to the recognition of $42.9 million of previously deferred MTPC collaboration revenue in the fourth quarter of 2017, for which there is no comparable amounts recorded in the fourth quarter of 2018. As the company's performance obligations under the MTPC agreement were substantially complete as of Q3, future MTPC collaboration revenue will now come in the form of regulatory and commercial milestones and royalties. Collaboration revenue for the full year of 2018 was $200.9 million, compared to $181.2 million for 2017. This full-year increase relates primarily to our collaboration agreements with Otsuka.
Through 2018, Otsuka had funded 52.5% of the company's Phase 3 development costs for vadadustat. And in Q2 2019, Otsuka will begin to fund 80% of those costs. Moving to our research and development expenses. R&D expenses were $87.1 million for the fourth quarter of 2018, compared to $68.4 million for the fourth quarter of 2017 and $291.1 million for the full year of 2018 compared to $230.9 million for the -- for 2017.
The increase is primarily attributable to an increase in external costs related to the continued advancement of the PROTECT and INNOVATE Phase 3 program, including ongoing enrollment, manufacture of drug substance and drug product and regulatory activities, partially offset primarily by costs associated with the Phase 2 studies in Japan, which were primarily incurred in 2017. R&D expenses were further increased by headcount and consulting costs required to support our expanding R&D programs. We expect R&D expenses to increase modestly for 2019 as we expect to fully enroll both PROTECT and INNOVATE Phase 3 studies in 2019. It's important to keep in mind that a significant portion of these R&D costs are reimbursed by our collaboration partners, which gets recorded as collaboration revenue, as I mentioned earlier.
Selling, general, and administrative expenses were $55.1 million for the fourth quarter of 2018, compared to $7.6 million for the fourth quarter of 2017 and $87.1 million for the full year of 2018, compared to $27 million for 2017. The increase in SG&A expense was primarily attributable to merger-related costs of $49.5 million, of which $41.7 million was incurred in the fourth quarter of 2018, including a noncash expense of $13
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