AKBA - Akebia: 'Hold' Through Regulatory And Financial Hurdles

2023-08-02 19:00:48 ET

Summary

• Akebia Therapeutics plans to resubmit its FDA application for kidney disease drug vadadustat by Q3 2023, following initial rejection over safety concerns.
• Despite a decrease in revenues and a net loss in Q1 2023, Akebia's stock has seen significant growth, outperforming the S&P 500 substantially.
• Akebia signed an amended agreement with CSL Vifor for the commercialization of vadadustat, with Piper analyst Allison Bratzel forecasting promising future revenues for the drug.

Introduction

Akebia Therapeutics ( AKBA ), a biopharmaceutical entity, has been making strides in the kidney disease community since its 2014 public debut. The company's mission is to develop innovative therapeutic solutions that meet the needs of kidney disease patients. It prides itself on its leading products, Auryxia and Vafseo, which address various conditions associated with chronic kidney disease.

Recent developments: Akebia Therapeutics is preparing to resubmit its FDA application for vadadustat, a kidney disease drug, by the end of Q3, following an initial rejection over safety concerns regarding vascular access thrombosis and drug-induced liver injury.

The following article details Akebia Therapeutics' efforts in kidney disease treatment, focusing on the resubmission of a drug application, recent financial performance, stock assessment, agreements, and potential risks and opportunities.

Financial Performance

Turning to financial performance, Q1 2023 saw Akebia Therapeutics reporting revenues of $40.1 million, showing a reduction from Q1 2022's $61.7 million. The decrease in net product revenue, by 15.9% YoY and 30.0% from the previous quarter, is primarily attributed to a drop in Auryxia inventory and lower sales volumes. However, reductions were also observed in R&D expenses and SG&A expenses due to a decrease in headcount and marketing costs. While the company reported a net loss of $26.2 million, this was a marked improvement from the $62.4 million loss of Q1 2022. Cash reserves, as of the end of Q1, amounted to $57.0 million, which is projected to support operations for the next year.

Stock Evaluation

Per Seeking Alpha data: AKBA has demonstrated remarkable momentum over the past year, outperforming the S&P 500 by a substantial margin. The 3-month return is an impressive +83.82%, followed by +165.08% over 6 months, a staggering +556.19% over 9 months, and +327.11% over a full year. These numbers reflect a significant growth trajectory, particularly when compared to the more modest gains in the broader S&P 500 index.

With a market capitalization of $310.50M and an enterprise value of $336.42M, the company's financial structure also includes $82.87M in total debt and $56.95M in cash.

FDA Correspondence and Resubmission Plans

Recently, the FDA's Office of New Drugs responded to Akebia Therapeutics' Formal Dispute Resolution Request. This request pertained to the FDA's refusal to approve vadadustat in March 2022. The FDA denied the appeal but provided resubmission guidelines for the new drug application. These guidelines indicate that no additional clinical data are required. Following a meeting with the FDA, Akebia plans to resubmit the application for vadadustat, a proposed treatment for anemia in adult dialysis patients with chronic kidney disease, by the end of Q3 2023.

The FDA's guidance suggests that issues could be managed with appropriate labeling and monitoring, which is an encouraging sign for Akebia. However, Akebia's resubmitted application will need to convincingly address the FDA's initial concerns. Additionally, new issues may arise during the review process. The FDA will assign a Prescription Drug User Fee Act (PDUFA) date six months from the date of submission for the final decision. Despite the more explicit path forward, the final approval is contingent on the FDA's thorough review of the resubmitted application.

Vifor Agreement and Future Commercialization

In February 2022, Akebia Therapeutics signed an amended agreement with CSL Vifor. As per the agreement, Vifor was granted exclusive rights to sell vadadustat to a designated group, while Akebia retains commercialization rights for certain markets. In exchange, Akebia will receive about 66% of the profit, after deducting specific costs.

CSL Vifor made an upfront payment of $25 million to Akebia and invested another $20 million for 4 million shares of Akebia's common stock. Additionally, CSL Vifor contributed $40 million to a working capital facility to help Akebia partially fund its purchase of vadadustat from its contract manufacturers. The agreement will remain in effect until all patents or regulatory exclusivity for vadadustat expire, and it can be terminated by either party under certain conditions.

Piper analyst Allison Bratzel forecasts a promising future for vadadustat in the U.S market. Bratzel projects revenue to reach approximately $375 million by the fiscal year 2028. As a result, Akebia Therapeutics was upgraded to "Overweight" from a previously "Neutral" stance.

My Analysis & Recommendation

Akebia Therapeutics has positioned itself as an innovative force within the kidney disease community, manifesting significant potential for growth. The anticipated resubmission of vadadustat and an encouraging agreement with CSL Vifor underline its commitment to meeting the needs of kidney disease patients. A substantial rally in stock performance further illustrates a positive investor sentiment.

However, it's essential to recognize that the road ahead for Akebia is fraught with uncertainties. The approval of vadadustat is by no means guaranteed and hinges on a resubmission process that convincingly addresses prior concerns. Furthermore, even with approval, its label may include a limited population or expansive safety mitigation, such as a REMS program. Such a label may not be perceived positively by the market. Lastly, the recent financial performance, while showing improvements in net loss, highlights a decline in revenue and carries questions about the sustainability of current cash reserves.

When Akebia Therapeutics reports its Q2 earnings in August, investors should focus on the following key areas:

• Progress on vadadustat: Any additional information or updates on the vadadustat application process, including timelines and engagements with the FDA, will be vital in assessing the drug's prospects.

• Revenue Trends: A detailed understanding of the factors driving the decline in Q1 2023's revenue and whether these trends persist in Q2 will be crucial. Monitoring sales volumes and inventory levels will help investors gauge the company's commercial success.

• R&D and SG&A Expenses: Insight into any further reductions or increases in research, development, and administrative costs will provide a view into Akebia's operational efficiency and spending strategy.

• Cash Reserves and Debt Management: A close examination of cash flow, current reserves, and the approach to handling the existing debt burden will offer insights into the company's financial stability.

• Guidance and Future Plans: Finally, any forward-looking statements or guidance from the company regarding future product pipelines, partnerships, or market strategies will assist investors in forming a longer-term perspective on Akebia's growth potential.

In conclusion, while Akebia Therapeutics offers an intriguing investment opportunity with high growth prospects, it is not without significant risks. Adopting a 'Hold' position and attentively monitoring the key areas outlined above during the Q2 earnings report can provide investors with a more comprehensive understanding of both the potential rewards and inherent uncertainties surrounding this biopharmaceutical entity.

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