UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended September 30, 2023
OR
For the transition period from __________to__________
Commission File Number 001-36352
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
Registrant’s telephone number, including area code: (617 ) 871-2098
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||||||||
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||||||||
The | ||||||||||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | ý | |||||||||
| Non-accelerated filer | ¨ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of November 6, 2023 was 188,389,415 .
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that are being made pursuant to the provisions of the U.S. Private Securities Litigation Reform Act of 1995 with the intention of obtaining the benefits of the “safe harbor” provisions of that Act. All statements contained in this Quarterly Report on Form 10‑Q other than statements of historical fact are forward-looking statements. These forward-looking statements may be accompanied by words such as “anticipate,” “believe,” “build,” “can,” “contemplate,” “continue,” “could,” “should,” “designed,” “estimate,” “project,” “expect,” “forecast,” “future,” “goal,” “intend,” “likely,” “may,” “plan,” “possible,” “potential,” “predict,” “strategy,” “seek,” “target,” “will,” “would,” and other words and terms of similar meaning, but the absence of these words does not necessarily mean that a statement is not forward-looking. These forward-looking statements include, but are not limited to, statements about:
•the potential therapeutic benefits, safety profile and effectiveness of vadadustat;
•delivering value broadly to the kidney community, as well as others who may benefit from our medicines, will result in delivering value for stockholders;
•our pipeline and portfolio, including its potential, and our related research and development activities;
•the timing of or likelihood of regulatory filings and approvals, including with respect to labeling or other restrictions, such as the anticipated timing of a response by the FDA to our resubmission of our new drug application for vadadustat following our receipt of a complete response letter from the FDA, and potential indications for vadadustat;
•the timing, investment and associated activities involved in continued commercialization of Auryxia® (ferric citrate), its growth opportunities and our ability to execute thereon;
•the potential indications, demand and market opportunity, potential and acceptance of Auryxia and vadadustat, if approved, including the size of eligible patient populations;
•the potential therapeutic applications of the hypoxia inducible factor pathway;
•our competitive position, including estimates, developments and projections relating to our competitors and their products and product candidates, and our industry;
•our expectations, projections and estimates regarding our capital requirements, need for additional capital, financing our future cash needs, costs, expenses, revenues, capital resources, cash flows, financial performance, profitability, tax obligations, liquidity, growth, contractual obligations, the period of time our cash resources will fund our current operating plan, estimates with respect to our ability to operate as a going concern, our internal control over financial reporting and disclosure controls and procedures, and any future deficiencies or material weaknesses in our internal controls and procedures;
•the direct or indirect impacts of the recent COVID-19 pandemic on our business, operations and the markets and communities in which we and our partners, collaborators, vendors and customers operate;
•our manufacturing, supply and quality matters and any recalls, write-downs, impairments or other related consequences or potential consequences;
•estimates, beliefs and judgments related to the valuation of intangible asset, goodwill, debt and other assets and liabilities, including our impairment analysis and our methodology and assumptions regarding fair value measurements;
•the timing of the availability and disclosure of clinical trial data and results;
•the designs of our studies, and the type of information and data expected from our studies and the expected benefits thereof;
•our and our collaborators’ strategy, plans and expectations with respect to the development, manufacturing, supply, commercialization, launch, marketing and sale of Auryxia, Vafseo® and vadadustat, if approved, and the associated timing thereof;
•our collaborator's plans with respect to commercializing Vafseo® in Europe;
•our ability to maintain any marketing authorizations we currently hold or will obtain, including our marketing authorizations for Auryxia and our ability to complete post-marketing requirements with respect thereto;
•our ability to negotiate, secure and maintain adequate pricing, coverage and reimbursement terms and processes on a timely basis, or at all, with third-party payors for Auryxia and vadadustat, if approved;
•the timing of initiation of our clinical trials and plans to conduct preclinical studies and clinical trials in the future;
•the timing and amounts of payments from or to our collaborators and licensees, and the anticipated arrangements and benefits under our collaboration and license agreements, including with respect to milestones and royalties;
•our intellectual property position, including obtaining and maintaining patents, and the timing, outcome and impact of administrative, regulatory, legal and other proceedings relating to our patents and other proprietary and intellectual property rights, patent infringement suits that we have filed or may file, or other actions that we may take against companies, and the timing and resolution thereof;
•expected ongoing reliance on third parties, including with respect to the development, manufacturing, supply and commercialization of Auryxia and vadadustat, if approved;
•accounting standards and estimates, their impact, and their expected timing of completion;
•estimated periods of performance of key contracts;
•our facilities, lease commitments and future availability of facilities;
•cybersecurity;
•insurance coverage;
•management of personnel, including our management team, and our employees, including employee compensation, employee relations, and our ability to attract, train and retain high quality employees;
•the implementation of our business model, current operating plan, and strategic plans for our business, product candidates and technology, and business development opportunities including potential collaborations, alliances, mergers, acquisitions or licensing of assets;
•our workforce reductions, future charges expected to be incurred in connection therewith and estimated reductions in net cash required for operating activities in connection therewith; and
•the timing, outcome and impact of current and any future legal proceedings.
Any or all of these forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. These forward-looking statements involve risks and uncertainties, including those that are discussed below under the heading "Risk Factors Summary", and the risk factors identified further in Part II, Item 1A. "Risk Factors" included in this Quarterly Report on Form 10-Q and elsewhere in this Quarterly Report on Form 10-Q, that could cause our actual results, financial condition, performance or achievements to be materially different from those indicated in these forward-looking statements. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to publicly update or revise these forward-looking statements for any reason. Unless otherwise stated, our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
This Quarterly Report on Form 10-Q also contains estimates and other information concerning our industry and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Unless otherwise expressly stated, we obtained this industry, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.
RISK FACTORS SUMMARY
Investing in our common stock involves numerous risks, including the risks summarized below and described in further detail in “Part II, Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q, any one of which could materially adversely affect our business, financial condition, results of operations and prospects. These risks include, but are not limited to, the following:
•We have incurred significant losses since our inception, and anticipate that we will continue to incur significant losses and cannot guarantee when, if ever, we will become profitable or attain positive cash flows.
•We may require substantial additional financing to achieve our goals. A failure to obtain this necessary capital when needed, or on acceptable terms, could force us to delay, limit, reduce or terminate our product development or commercialization efforts.
•Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our product and product candidates on unfavorable terms to us.
•If we fail to comply with the continued listing requirements of Nasdaq, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted.
•We may not be successful in our efforts to identify, acquire, in-license, discover, develop and commercialize additional products or product candidates or our decisions to prioritize the development of certain product candidates over others may not be successful, which could impair our ability to grow.
•We may engage in strategic transactions to acquire assets, businesses, or rights to products, product candidates or technologies or form collaborations or make investments in other companies or technologies that could harm our operating results, dilute our stockholders’ ownership, increase our debt or cause us to incur significant expense.
•Our business has been and may continue to be, directly or indirectly, adversely affected by the recent COVID-19 pandemic.
•Our obligations in connection with the loan agreement with Pharmakon and requirements and restrictions in the loan agreement could adversely affect our financial condition and restrict our operations.
•Our Royalty Interest Acquisition Agreement with HealthCare Royalty Partners IV, L.P. contains various covenants and other provisions, which, if violated, could materially adversely affect our financial condition.
•Our business is substantially dependent on the commercial success of Auryxia and vadadustat, if approved. If we are unable to continue to successfully commercialize Auryxia, our results of operations and financial condition will be materially harmed.
•If we are unable to maintain or expand, or, if vadadustat is approved, initiate, sales and marketing capabilities or enter into additional agreements with third parties, we may not be successful in commercializing Auryxia, vadadustat, if approved, or any other product candidates that may be approved.
•Our, or our partners', failure to obtain or maintain adequate coverage, pricing and reimbursement for Auryxia, vadadustat, if approved, or any other future approved products, could have a material adverse effect on our or our collaboration partners’ ability to sell such approved products profitably and otherwise have a material adverse impact on our business.
•We face substantial competition, which may result in others discovering, developing or commercializing products before, or more successfully than, we do.
•The commercialization of Riona® and Vafseo in Japan, Vafseo in Europe and other territories where it is approved, and our current and potential future efforts with respect to the development and commercialization of our products and product candidates outside of the United States subject us to a variety of risks associated with international operations, which could materially adversely affect our business.
•Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and we will incur additional costs in connection with, and may experience delays in completing, or ultimately be unable to complete, the development of vadadustat and any other product candidates.
•We may find it difficult to enroll patients in our clinical trials, which could delay or prevent clinical trials of Auryxia, vadadustat or any other product or product candidate, including those that may be in-licensed or acquired.
•Conducting clinical trials outside of the United States, as we have done historically and as we may decide to do in the future, presents additional risks and complexities and, if we decide to conduct a clinical trial outside of the United States in the future, we may not complete such trials successfully, in a timely manner, or at all, which could affect our ability to obtain regulatory approvals.
•Auryxia, vadadustat or any other product or product candidate, including those that may be in-licensed or acquired, may cause undesirable side effects or have other properties that may delay or prevent marketing approval or limit their commercial potential.
•We may not be able to obtain marketing approval for vadadustat or any other product candidate, or we may experience significant delays in doing so, any of which would materially harm our business.
•Products approved for marketing are subject to extensive post-marketing regulatory requirements and could be subject to post-marketing restrictions or withdrawal from the market, and we may be subject to penalties, including withdrawal of marketing approval, if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, or product candidates, when and if any of them is approved.
•We are subject to a complex regulatory scheme that requires significant resources to ensure compliance and our failure to comply with applicable laws could subject us to government scrutiny or enforcement, potentially resulting
in costly investigations, fines, penalties or sanctions, contractual damages, reputational harm, administrative burdens and diminished profits and future earnings.
•We will incur significant liability if it is determined that we are promoting any “off-label” use of Auryxia or any other product we may develop, in-license or acquire or if it is determined that any of our activities violates the federal Anti-Kickback Statute.
•Disruptions in the FDA, regulatory authorities outside the U.S. and other government agencies caused by global health concerns or funding shortages could prevent new products and services from being developed or commercialized in a timely manner, which could negatively impact our business.
•Compliance with privacy and data security requirements could result in additional costs and liabilities to us or inhibit our ability to collect and process data globally, and the failure to comply with such requirements could subject us to significant fines and penalties, which may have a material adverse effect on our business, financial condition or results of operations.
•Legislative and regulatory healthcare reform may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain for any products that are approved in the United States or foreign jurisdictions.
•We depend on collaborations with third parties for the development and commercialization of Auryxia, Riona, Vafseo and vadadustat and if these collaborations are not successful or if our collaborators terminate their agreements with us, we may not be able to capitalize on the market potential of Auryxia, Riona, Vafseo and vadadustat, and our business could be materially harmed.
•We may seek to establish additional collaborations and, if we are not able to establish them on commercially reasonable terms, or at all, we may have to alter our development and commercialization plans.
•We rely upon third parties to conduct all aspects of our product manufacturing, and in many instances only have a single supplier, and the loss of these manufacturers, their failure to supply us on a timely basis, or at all, or their failure to successfully carry out their contractual duties or comply with regulatory requirements, cGMP requirements, or guidance could cause delays in or disruptions to our supply chain and substantially harm our business.
•We rely upon third parties to conduct our clinical trials and certain of our preclinical studies. If they do not successfully carry out their contractual duties, comply with regulatory requirements or meet expected deadlines, we may not be able to obtain or maintain marketing approval for Auryxia, vadadustat or any of our product candidates, and our business could be substantially harmed.
•If the licensor of certain intellectual property relating to Auryxia terminates, modifies or threatens to terminate existing contracts or relationships with us, our business may be materially harmed.
•If we are unable to adequately protect our intellectual property, third parties may be able to use our intellectual property, which could adversely affect our ability to compete in the market.
•We may not be able to protect our intellectual property rights throughout the world.
•The intellectual property that we own or have licensed and related non-patent exclusivity relating to our current and future products is, and may be, limited, which could adversely affect our ability to compete in the market and adversely affect the value of Auryxia.
•The market entry of one or more generic competitors or any third party’s attempt to challenge our intellectual property rights will likely limit Auryxia sales and have an adverse impact on our business and results of operation.
•Litigation and administrative proceedings, including third party claims of intellectual property infringement and opposition/invalidation proceedings against third party patents, may be costly and time consuming and may delay or harm our drug discovery, development and commercialization efforts.
•We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.
•If we fail to attract, retain and motivate senior management and qualified personnel, we may be unable to successfully develop, obtain and/or maintain marketing approval of and commercialize vadadustat or commercialize Auryxia.
•Our cost savings plan and the associated workforce reductions implemented in April, May and November 2022 may not result in anticipated savings, could result in total costs and expenses that are greater than expected and could disrupt our business.
•We may encounter difficulties in managing our growth, including with respect to our employee base, and managing our partnerships and operations successfully.
•We have identified a material weakness in our internal control over financial reporting as of December 31, 2022 relating to our product return reserves that resulted in a revision of our financial statements for the years ended December 31, 2022, 2021 and 2020. If we are not able to remediate this material weakness, or if we experience additional material weaknesses or other deficiencies in our internal control over financial reporting in the future or otherwise fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.
•We are currently subject to legal proceedings that could result in substantial costs and divert management's attention, and we could be subject to additional legal proceedings.
•Our stock price has been and may continue to be volatile, which could result in substantial losses for holders or future purchasers of our common stock and lawsuits against us and our officers and directors.
Akebia Therapeutics, Inc.
Form 10-Q
For the Quarter Ended September 30, 2023
TABLE OF CONTENTS
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| Item 1 | 2 | |||||||
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| 4 | ||||||||
| 5 | ||||||||
| 6 | ||||||||
| Item 2 | ||||||||
| Item 3 | ||||||||
| Item 4 | ||||||||
| Item 1 | ||||||||
| Item 1A | ||||||||
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| Item 3 | ||||||||
| Item 4 | ||||||||
| Item 5 | ||||||||
| Item 6 | ||||||||
In this Quarterly Report on Form 10-Q, unless otherwise stated or the context otherwise requires, references to “Akebia,” “we,” “us,” “our,” “the Company,” "our Company" and similar references refer to Akebia Therapeutics, Inc. and, where appropriate, its consolidated subsidiaries. On December 12, 2018, in connection with the consummation of the merger (Merger) with Keryx Biopharmaceuticals, Inc. (Keryx), Keryx became a wholly owned subsidiary of the Company.
AURYXIA®, AKEBIA Therapeutics®, Vafseo® and their associated logos are trademarks of Akebia and/or its affiliates. All other trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, trademarks, trade names, and service marks referred to in this Quarterly Report on Form 10-Q may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that the applicable licensor will not assert, to the fullest extent under applicable law, its rights to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other company.
Akebia Therapeutics, Inc. | Form 10-Q | Page 1
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Akebia Therapeutics, Inc.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| (dollars in thousands, except per share amounts) | September 30, 2023 | December 31, 2022 | ||||||||||||
| Assets | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Inventories | ||||||||||||||
| Accounts receivable, net | ||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||
| Total current assets | ||||||||||||||
| Property and equipment, net | ||||||||||||||
| Operating right-of-use assets | ||||||||||||||
| Intangible asset, net | ||||||||||||||
| Goodwill | ||||||||||||||
| Other long-term assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| Liabilities and stockholders' (deficit) equity | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | $ | ||||||||||||
| Accrued expenses and other current liabilities | ||||||||||||||
| Short-term deferred revenue | ||||||||||||||
| Current portion of long-term debt | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Deferred revenue, net of current portion | ||||||||||||||
| Long-term operating lease liabilities | ||||||||||||||
| Embedded debt derivative | ||||||||||||||
| Long-term debt, net | ||||||||||||||
| Liability related to sale of future royalties | ||||||||||||||
| Refund liability to customer | ||||||||||||||
| Other long-term liabilities | ||||||||||||||
| Total liabilities | ||||||||||||||
| Commitments and contingencies (Note 12) | ||||||||||||||
| Stockholders' (deficit) equity: | ||||||||||||||
Preferred stock $ outstanding at September 30, 2023 and December 31, 2022 | ||||||||||||||
Common stock $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| Accumulated other comprehensive income | ||||||||||||||
| Accumulated deficit | ( | ( | ||||||||||||
| Total stockholders' (deficit) equity | ( | |||||||||||||
| Total liabilities and stockholders' (deficit) equity | $ | $ | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Akebia Therapeutics, Inc. | Form 10-Q | Page 2
Akebia Therapeutics, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (dollars in thousands, except per share amounts) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||
| Product revenue, net | $ | $ | $ | $ | ||||||||||||||||||||||
| License, collaboration and other revenue | ||||||||||||||||||||||||||
| Total revenues | ||||||||||||||||||||||||||
| Cost of goods sold | ||||||||||||||||||||||||||
| Product | ||||||||||||||||||||||||||
| Amortization of intangible asset | ||||||||||||||||||||||||||
| Total cost of goods sold | ||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||||||||
| License expense | ||||||||||||||||||||||||||
| Restructuring | ||||||||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||||||||
| Loss from operations | ( | ( | ( | ( | ||||||||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | ||||||||||||||||||||||
| Other (expense) income | ( | |||||||||||||||||||||||||
| Loss on extinguishment of debt | ( | ( | ||||||||||||||||||||||||
| Loss on termination of lease | ( | |||||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
Net loss per share: | ||||||||||||||||||||||||||
| Basic and diluted | $( | $( | $( | $( | ||||||||||||||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||||||||||
| Basic and diluted | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Akebia Therapeutics, Inc. | Form 10-Q | Page 3
Akebia Therapeutics, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders' Equity (Deficit) | ||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Shares | Amount | ||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Issuance of common stock, net of issuance costs | — | — | ||||||||||||||||||||||||||||||||||||
| Proceeds from sale of stock under employee stock purchase plan | — | — | — | |||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Restricted stock unit vesting | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Exercise of options | — | — | — | |||||||||||||||||||||||||||||||||||
| Restricted stock unit vesting | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Proceeds from sale of stock under employee stock purchase plan | — | — | — | |||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Restricted stock unit vesting | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders' Equity (Deficit) | ||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Shares | Amount | ||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Proceeds from sale of stock under employee stock purchase plan | — | — | — | |||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Restricted stock unit vesting | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Restricted stock unit vesting | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||||
| Proceeds from sale of stock under employee stock purchase plan | — | — | — | |||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Restricted stock unit vesting | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Akebia Therapeutics, Inc. | Form 10-Q | Page 4
Akebia Therapeutics, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine Months Ended September 30, | ||||||||||||||
| (dollars in thousands) | 2023 | 2022 | ||||||||||||
| Operating Activities: | ||||||||||||||
| Net loss | $ | ( | $ | ( | ||||||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||
| Depreciation | ||||||||||||||
| Amortization of intangible asset | ||||||||||||||
| Non-cash interest expense related to sale of future royalties | ||||||||||||||
| Non-cash royalty revenue related to sale of future royalties | ( | ( | ||||||||||||
| Non-cash collaboration revenue | ( | |||||||||||||
| Non-cash research and development expense | ||||||||||||||
| Non-cash interest expense | ||||||||||||||
| Non-cash operating lease expense | ( | ( | ||||||||||||
| Non-cash write-off from termination of lease | ( | |||||||||||||
| Non-cash loss on extinguishment of debt | ||||||||||||||
| Write-down of inventory | ||||||||||||||
| Change in excess inventory purchase commitments | ||||||||||||||
| Stock-based compensation expense | ||||||||||||||
| Change in fair value of embedded debt derivative | ( | |||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||
| Accounts receivable | ||||||||||||||
| Inventory | ( | |||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||
| Other long-term assets | ( | |||||||||||||
| Accounts payable | ( | ( | ||||||||||||
| Accrued expense and other current liabilities | ( | ( | ||||||||||||
| Operating lease liabilities | ||||||||||||||
| Deferred revenue | ( | |||||||||||||
| Other long-term liabilities | ( | ( | ||||||||||||
| Net cash used in operating activities | ( | ( | ||||||||||||
| Investing Activities: | ||||||||||||||
| Purchases of equipment | ( | |||||||||||||
| Net cash used in investing activities | ( | |||||||||||||
| Financing Activities: | ||||||||||||||
| Proceeds from refund liabilities to customers | ||||||||||||||
| Proceeds from issuance of common stock, net of issuance costs | ||||||||||||||
| Proceeds from issuances of stock under employee stock purchase plan | ||||||||||||||
| Proceeds from the exercise of stock options | ||||||||||||||
| Repayments of term debt | ( | ( | ||||||||||||
| Net cash (used in) provided by financing activities | ( | |||||||||||||
| Decrease in cash, cash equivalents and restricted cash | ( | ( | ||||||||||||
| Cash, cash equivalents and restricted cash — beginning of period | ||||||||||||||
| Cash, cash equivalents and restricted cash — end of period | $ | $ | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Akebia Therapeutics, Inc. | Form 10-Q | Page 5
Akebia Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.NATURE OF BUSINESS
Organization
Akebia Therapeutics, Inc., and it's subsidiaries, referred to as Akebia or the Company, was incorporated in the State of Delaware in 2007. Akebia is a fully integrated biopharmaceutical company with the purpose of bettering the lives of people impacted by kidney disease. The Company has one commercial product, Auryxia® (ferric citrate), which is approved by the U.S. Food and Drug Administration, or FDA, and marketed for two indications in the United States: the control of serum phosphorus levels in adult patients with chronic kidney disease, or CKD, on dialysis, or DD-CKD, and the treatment of iron deficiency anemia, or IDA, in adult patients with CKD not on dialysis, or NDD-CKD. Ferric citrate is also approved and marketed in Japan as an oral treatment for IDA in adult patients for the improvement of hyperphosphatemia in such patients with DD-CKD and NDD-CKD under the trade name Riona (ferric citrate hydrate).
Vadadustat, the Company’s lead investigational product candidate, is an investigational oral hypoxia-inducible factor prolyl hydroxylase, or HIF-PH, inhibitor designed to mimic the physiologic effect of altitude on oxygen availability. On March 29, 2022, the Company received a complete response letter, or CRL, from the FDA, which provided that it could not approve the new drug application, or NDA, for vadadustat for the treatment of anemia due to CKD in adult patients in its present form. In October 2022, the Company submitted a Formal Dispute Resolution Request with the FDA and in May 2023, the Office of New Drugs, or OND, denied the Company's appeal but provided a path forward for the Company to resubmit the NDA for vadadustat for the treatment of anemia due to CKD for dialysis dependent patients without the need for the Company to generate additional clinical data. In September 2023, the Company completed its resubmission to its NDA for vadadustat for the treatment of anemia due to CKD for dialysis dependent patients. In October 2023, the FDA acknowledged that the resubmission was complete, classified it as a Class 2 response and set a user fee goal date, or PDUFA date, of March 27, 2024.
In April 2023, the European Commission, or EC, approved the marketing authorization of vadadustat under the trade name Vafseo for the treatment of symptomatic anemia associated with CKD in adults on chronic maintenance dialysis. The marketing authorization of vadadustat under the trade name Vafseo for the treatment of symptomatic anemia associated with CKD in adults on chronic maintenance dialysis was subsequently approved in May 2023 in the United Kingdom, or UK, by the Medicines and Healthcare products Regulatory Agency, in June 2023 in Switzerland by the Swiss Agency for Therapeutics Products, in March 2023 in Korea by the Ministry of Food and Drug Safety (under trade name Vadanem) and in September 2023 in Australia and Taiwan by the Therapeutic Goods Administration, or TGA, and Taiwan Food and Drug Administration, respectively. In May 2023, the Company entered into a License Agreement, or the Medice License Agreement, with MEDICE Arzneimittel Pütter GmbH & Co. KG, or Medice, pursuant to which the Company granted Medice an exclusive license to develop and commercialize vadadustat for the treatment of anemia in patients with CKD in the European Economic Area, the UK, Switzerland and Australia, or the Medice Territory. Vadadustat is also approved in Japan as a treatment for anemia due to CKD in both DD-CKD and NDD-CKD patients under the trade name Vafseo, and marketed and sold in Japan by Mitsubishi Tanabe Pharma Corporation, or MTPC.
Additionally, following regulatory approval of vadadustat in Japan, the Company began recognizing royalty revenues from MTPC from the sale of Vafseo in August 2020. In February 2021, the Company entered into a royalty interest acquisition agreement with HealthCare Royalty Partners IV, L.P., or HCR, or Royalty Agreement, whereby the Company sold its right to receive royalties and sales milestones under its Collaboration Agreement with MTPC, or MTPC Agreement, subject to certain caps and other terms and conditions (see Note 4 for additional information). The Company has not generated a profit to date, and may never generate profits, from product sales. Vadadustat and the Company’s other potential product candidates are subject to long development cycles, and the Company may be unsuccessful in its efforts to develop, obtain marketing approval for or market vadadustat and its other potential product candidates.
Going Concern
Since inception, the Company has devoted most of its resources to research and development, including its preclinical and clinical development activities, commercializing Auryxia and providing general and administrative support for these operations. The Company began recording revenue from the U.S. sales of Auryxia in 2014 and revenue from sublicensing rights to Auryxia in Japan from the Company’s Japanese partners, Japan Tobacco, Inc. and its subsidiary Torii Pharmaceutical Co., Ltd., collectively, JT and Torii, in December 2018. In addition, the Company continues to explore additional development opportunities to expand its pipeline and portfolio of novel therapeutics. If the Company does not successfully commercialize vadadustat, if approved, or any other potential product candidate, it may be unable to achieve profitability.
As of September 30, 2023, the Company had cash and cash equivalents of approximately $46.5 million. Based on its current operating plan, the Company believes its cash resources and the cash the Company expects to generate from product, royalty and license revenues will be sufficient to fund its current operating plan for at least twelve months from the filing of this Quarterly Report on Form 10-Q. However, if the Company’s operating performance deteriorates significantly from the levels expected in the Company’s operating plan, or if vadadustat is not approved in the U.S., it would affect the Company’s liquidity and its ability to continue as a going concern in the future. The Company expects to finance future cash needs through
Akebia Therapeutics, Inc. | Form 10-Q | Page 6
Akebia Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2022, and notes thereto, which are included in the Company's Annual Report on Form 10-K, as amended by Amendment No. 1 on Form 10-K/A that was filed with the Securities and Exchange Commission, or SEC, on August 28, 2023, or 2022 Annual Report on Form 10-K/A. Since the date of those financial statements, there have been no material changes to the Company's significant accounting policies.
In the opinion of management, all adjustments, consisting of normal recurring accruals and revisions of estimates, considered necessary for a fair presentation of the unaudited condensed consolidated financial statements have been included. Interim results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023 or any other future period.
Basis of Presentation and Principals of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S., or GAAP. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the ASC and Accounting Standards Update, or ASU, of the Financial Accounting Standards Board, or FASB.
Certain monetary amounts, percentages, and other figures included elsewhere in these unaudited condensed consolidated financial statements have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.
Use of Estimates
The preparation of financial statements in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities as of and during the reported period. On an ongoing basis, management evaluates its estimates. Management bases its estimates and assumptions on historical experience when available and on various factors, including expected business and operational changes, sensitivity and volatility associated with the assumption that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of the assets and liabilities that are not readily apparent from other sources. In certain circumstances, management must apply significant judgment in this process. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management selects an amount that falls within that range of reasonable estimates. Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period they become known.
Akebia Therapeutics, Inc. | Form 10-Q | Page 7
Akebia Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| (in thousands) | September 30, 2023 | December 31, 2022 | ||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Restricted cash included in other long-term assets | ||||||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | ||||||||||||
3.PRODUCT REVENUE AND RESERVES FOR VARIABLE CONSIDERATION
To date, the Company’s only source of product revenue has been from the U.S. sales of Auryxia. Total net product revenue was $40.1 million and $42.0 million for the three months ended September 30, 2023 and 2022, respectively, and $117.1 million and $126.7 million for the nine months ended September 30, 2023 and 2022, respectively. Product revenue allowance and reserve categories were as follows:
| (in thousands) | Chargebacks and Discounts | Rebates, Fees and other Deductions | Product Returns | Total | ||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ||||||||||||||||||||||
| Current provisions related to sales in current year | ||||||||||||||||||||||||||
| Adjustments related to prior year sales | ( | ( | ( | |||||||||||||||||||||||
| Credits/payments made | ( | ( | ( | ( | ||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ||||||||||||||||||||||
| (in thousands) | Chargebacks and Discounts | Rebates, Fees and other Deductions | Product Returns | Total | ||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ||||||||||||||||||||||
| Current provisions related to sales in current year | ||||||||||||||||||||||||||
| Adjustments related to prior year sales | ( | ( | ( | |||||||||||||||||||||||
| Credits/payments made | ( | ( | ( | ( | ||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ||||||||||||||||||||||
Chargebacks, discounts and estimated product returns are recorded as a reduction of revenue in the period the related product revenue is recognized in the unaudited condensed consolidated statement of operations and comprehensive loss. Chargebacks are recorded as a reduction to accounts receivable while discounts, rebates, fees and other deductions are recorded with a corresponding increase to accrued expenses and other current liabilities or accounts payable on the unaudited condensed consolidated balance sheets. Estimated product returns for the period related to product sales are recorded as other long-term liabilities in the unaudited condensed consolidated balance sheet.
Accounts receivable, net related to product sales, was approximately $21.3 million and $37.3 million as of September 30, 2023 and December 31, 2022, respectively.
4.LICENSE, COLLABORATION AND OTHER REVENUE
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| License, collaboration and other revenue: | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| MTPC Collaboration Agreement | $ | $ | $ | $ | ||||||||||||||||||||||
| Otsuka U.S. Agreement | ||||||||||||||||||||||||||
| Otsuka International Agreement | ||||||||||||||||||||||||||
| Total collaboration revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| JT and Torii Sublicense Agreement | ||||||||||||||||||||||||||
| Medice License Agreement | ||||||||||||||||||||||||||
| Total license, collaboration and other revenue | $ | $ | $ | $ | ||||||||||||||||||||||
Akebia Therapeutics, Inc. | Form 10-Q | Page 8
Akebia Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following tables present changes in the Company’s contract assets and liabilities (in thousands):
| Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||
| Balance at Beginning of Period | Additions | Deductions | Balance at End of Period | |||||||||||||||||||||||
| Contract assets: | ||||||||||||||||||||||||||
Accounts receivable(1) | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Prepaid expenses and other current assets | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Contract liability: | ||||||||||||||||||||||||||
| Deferred revenue | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||
| Balance at Beginning of Period | Additions | Deductions | Balance at End of Period | |||||||||||||||||||||||
| Contract assets: | ||||||||||||||||||||||||||
Accounts receivable(1) | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Prepaid expenses and other current assets | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Contract liabilities: | ||||||||||||||||||||||||||
| Deferred revenue | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Accounts payable | $ | $ | $ | ( | $ | |||||||||||||||||||||
(1) Excludes accounts receivable related to amounts due to the Company from product sales of Auryxia which are included in the accompanying unaudited condensed consolidated balance sheet as of September 30, 2023 and 2022.
The Company recognized the following revenues as a result of changes in the contract asset and contract liability balances in the respective periods (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| Revenue Recognized in the Period: | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Deferred revenue — beginning of the period | $ | $ | $ | $ | ||||||||||||||||||||||
During the three and nine months ended September 30, 2023 and 2022, the Company recognized no
MTPC Collaboration Agreement
On December 11, 2015, the Company and MTPC entered into the MTPC Agreement, providing MTPC with exclusive development and commercialization rights to vadadustat in Japan and certain other Asian countries, collectively, the MTPC Territory, which was amended effective as of December 2, 2022. In addition, the Company supplies vadadustat to MTPC for both clinical and commercial use in the MTPC Territory. In February 2021, the Company entered into the Royalty Agreement with HCR, whereby the Company sold its right to receive royalties and sales milestones under the MTPC Agreement, subject to certain caps and other terms and conditions. See Note 5 for additional information and Note 5 of the Notes to the Consolidated Financial Statements in the 2022 Annual Report on Form 10-K/A for a more detailed description of the MTPC Agreement.
The Company identified two performance obligations in connection with its material promises under the MTPC Agreement as follows: (i) License, Research and Clinical Supply Performance Obligation and (ii) Rights to Future Know-How Performance Obligation. The Company allocates the transaction price to each performance obligation based on the Company’s best estimate of the relative standalone selling price. The Company developed a best estimate of the standalone selling price for the Rights to Future Know-How Performance Obligation primarily based on the likelihood that additional intellectual property covered by the license conveyed will be developed during the term of the arrangement and determined it is immaterial. As such, the Company did not develop a best estimate of standalone selling price for the License, Research and Clinical Supply Performance Obligation and allocated the entire transaction price to this performance obligation. The deliverables associated with the License, Research and Clinical Supply Performance Obligation were satisfied as of June 30, 2018.
The transaction price was comprised of: (i) the up-front payment of $20.0 million, (ii) the cost for the Phase 2 studies of $20.5 million, (iii) the cost of all clinical supply provided to MTPC for the Phase 3 studies, (iv) $10.0 million in development milestones received, (v) $25.0 million in regulatory milestones received, comprised of $10.0 million relating to the NDA filing
Akebia Therapeutics, Inc. | Form 10-Q | Page 5
Akebia Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
in Japan and $15.0 million relating to regulatory approval of vadadustat in Japan, and (vi) $4.4 million in royalties from net sales of Vafseo. As of September 30, 2023, all development milestones and $25.0 million in regulatory milestones have been achieved. No other regulatory milestones have been assessed as probable of being achieved and as a result have been fully constrained. The Company re-evaluates the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur. Revenue for the License, Research and Clinical Supply Performance Obligation for the MTPC Agreement is being recognized using a proportional performance method, for which all deliverables have been completed. During the three and nine months ended September 30, 2023, the Company recognized revenue from MTPC royalties totaling approximately $0.5 million and $1.4 million, respectively, and approximately $0.4 million and $1.2 million during the three and nine months ended September 30, 2022, respectively. As noted above, in February 2021, the Company entered into the Royalty Agreement, whereby the Company sold its right to receive these royalties and sales milestones under the MTPC Agreement, subject to certain caps and other terms and conditions (see Note 5 for additional information). The revenue is classified as license, collaboration and other revenue in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss. As of September 30, 2023, there were no
Supply of Drug Product to MTPC
On July 15, 2020, the Company and MTPC entered into a supply agreement, or MTPC Supply Agreement, under which the Company supplies vadadustat drug product to MTPC for commercial use in Japan and certain other Asian countries, as contemplated by the MTPC Agreement. See Note 5 of the Notes to the Consolidated Financial Statements in the 2022 Annual Report on Form 10-K/A for a more detailed description of this supply agreement.
On December 16, 2022, the Company, MTPC and Esteve Química, S.A., or Esteve, executed an Assignment of Supply Agreement, or Esteve Assignment Agreement, pursuant to which the Supply Agreement between the Company and Esteve, or Esteve Agreement (see Note 12) was assigned to MTPC. The Esteve Assignment Agreement transferred the rights and obligations of the Company under the Esteve Agreement to MTPC, including the obligations under certain purchase orders issued by the Company and accepted by Esteve that will continue to have a binding effect on MTPC to take delivery of the product from Esteve in accordance with the terms of the Esteve Agreement. The Company has no further obligation to take delivery of, or pay for, product delivered by Esteve.
The Company recognized no revenue and $3.7 million in revenue under the MTPC Supply Agreement during the three and nine months ended September 30, 2023, respectively, and $5.1 million and $12.7 million in revenue during the three and nine months ended September 30, 2022, respectively. Due to the Esteve Agreement, the Company no longer records accounts receivable, deferred revenue or other current liabilities relating to the MTPC Supply Agreement.
Cyclerion License Agreement
On June 4, 2021, the Company entered into a License Agreement, or Cyclerion Agreement, with Cyclerion Therapeutics Inc., or Cyclerion, pursuant to which Cyclerion granted the Company an exclusive global license under certain intellectual property rights to research, develop and commercialize praliciguat, an investigational oral soluble guanylate stimulator.
Under the terms of the Cyclerion Agreement, the Company made an upfront payment of $3.0 million in cash to Cyclerion, which was paid and recorded to research and development expense in June 2021. Substantially all of the fair value of the assets acquired in conjunction with the Cyclerion Agreement was concentrated in the acquired license. As a result, the Company accounted for this transaction as an asset acquisition under ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The upfront payment was charged to expense at acquisition, as it relates to a development stage compound with no alternative future use. In addition, Cyclerion is eligible to receive up to an aggregate of $222.0 million from the Company in specified development and regulatory milestone payments on a product-by-product basis. Cyclerion will also be eligible to receive specified commercial milestones as well as tiered royalties ranging from a low-single-digit- to mid-double-digit percentage of net sales, on a product-by-product basis, and subject to reduction upon expiration of patent rights or the launch of a generic product in the territory. A more detailed description of this agreement can be found in Note 5 of the Notes to the Consolidated Financial Statements in the 2022 Annual Report on Form 10-K/A.
CSL Vifor License Agreement
On May 12, 2017, the Company entered into a License Agreement, as amended and restated on February 18, 2022, or the Vifor Agreement, with Vifor (International) Ltd. (now a part of CSL Limited), or CSL Vifor, which grants CSL Vifor an exclusive license to sell vadadustat to Fresenius Kidney Care Group LLC, an affiliate of Fresenius Medical Care North America, or FMCNA, and its affiliates, including Fresenius Kidney Care Group LLC, to certain third-party dialysis organizations approved by the Company, to independent dialysis organizations that are members of certain group purchasing organizations and certain non-retail specialty pharmacies, collectively, the Supply Group, in the United States, or Vifor Territory. CSL Vifor has agreed not to sell or otherwise supply vadadustat until the FDA has granted regulatory approval for vadadustat for the treatment of
Akebia Therapeutics, Inc. | Form 10-Q | Page 6
Akebia Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
anemia due to CKD in adult patients with DD-CKD in the Vifor Territory and until CSL Vifor has entered a supply agreement with the applicable member of the Supply Group.
The Vifor Agreement is structured as a profit share arrangement between the Company and CSL Vifor in which the Company will receive approximately 66 % of the profits, net of certain pre-specified costs. In addition, CSL Vifor made an upfront payment to the Company of $25.0 million in February 2022 in connection with the amendment and restatement of the Vifor Agreement, which was recorded as long-term deferred revenue in the accompanying unaudited condensed consolidated balance sheet.
Unless earlier terminated, the Vifor Agreement will expire upon the later of the expiration of all patents that claim or cover vadadustat or expiration of marketing or regulatory exclusivity for vadadustat in the Vifor Territory. CSL Vifor may terminate the Vifor Agreement in its entirety upon 30 months' prior written notice after the first anniversary of the receipt of regulatory approval, if approved from the FDA for vadadustat for dialysis-dependent CKD patients. The Company may terminate the Vifor Agreement in its entirety for convenience, following the earlier of a certain period of time elapsing or following certain specified regulatory events and upon six months ’ prior written notice. If the Company so terminates for convenience, subject to specified exceptions, the Company will pay a termination fee to CSL Vifor. In addition, either party may, subject to a cure period, terminate the Vifor Agreement in the event of the other party’s uncured material breach or bankruptcy.
Investment Agreement
In connection with the Vifor Agreement, in May 2017, the Company and CSL Vifor entered into an investment agreement, or First Investment Agreement, pursuant to which the Company sold an aggregate of 3,571,429 shares of the Company’s common stock, or 2017 Shares, to CSL Vifor at a price per share of $14.00 for a total of $50.0 million.
On February 18, 2022, in connection with the amendment and restatement, the Company and CSL Vifor entered into an investment agreement, or Second Investment Agreement, pursuant to which the Company sold an aggregate of 4,000,000 shares of its common stock, or 2022 Shares, to CSL Vifor at a price per share of $5.00 for a total of $20 million on February 22, 2022.
The amounts representing the premium over the closing stock price and the amount paid of $4.7 million under the First Investment Amendment and $13.6 million under the Second Investment Amendment were determined by the Company to represent consideration related to the Vifor Agreement and recorded as long-term deferred revenue in long-term liabilities on the unaudited condensed consolidated financial statements.
CSL Vifor agreed to a lock-up restriction not to sell the 2017 Shares or the 2022 Shares for a period of time following the effective date of the First Investment Agreement and Second Investment Agreement, respectively, which restriction with respect to the 2017 Shares has expired. The First Investment Agreement and the Second Investment Agreement each contain a customary standstill agreement.
In addition, the First Investment Agreement and Second Investment Agreement contain voting agreements made by CSL Vifor with respect to the 2017 Shares and 2022 Shares, respectively. The 2017 Shares and 2022 Shares have not been registered pursuant to the Securities Act of 1933, as amended, or the Securities Act, and were issued and sold in reliance upon the exemption from registration contained in Section 4(a)(2) of the Securities Act and Rule 506 promulgated thereunder as the transaction did not involve any public offering within the meaning of Section 4(a)(2) of the Securities Act. See Note 5 of the Notes to the Consolidated Financial Statements in the 2022 Annual Report on Form 10-K/A for a more detailed description of the Vifor Agreement.
Revenue Recognition
The Company identified one performance obligation under the Vifor Agreement, as amended, the deliverable of the license. Thus until the license is delivered, the transaction price of $43.3 million which is comprised of the up-front payment of $25.0 million and the premiums paid by CSL Vifor on the First Investment Agreement and Second Investment Agreement of $4.7 million and $13.6 million, respectively, will remain in long-term deferred revenue in the accompanying unaudited condensed consolidated balance sheet.
Under the Vifor Agreement, these payments from CSL Vifor are non-refundable and non-creditable against any other amount due to the Company. In addition, if the Centers for Medicare & Medicaid Services, or CMS, determines that vadadustat is excluded from the Transitional Drug Add-on Payment Adjustment, or TDAPA, the Company can terminate the Vifor Agreement and will be required to repay the up-front payment of $25.0 million and the premiums paid by CSL Vifor of $18.3 million.
Refund Liability to Customer
Pursuant to the Vifor Agreement, CSL Vifor contributed $40.0 million to a working capital fund established to fund approximately 50 % of the Company’s costs of purchasing vadadustat from its contract manufacturers, or Working Capital
Akebia Therapeutics, Inc. | Form 10-Q | Page 7
Akebia Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Fund, for the supply of vadadustat for the Vifor Territory already delivered or to be delivered to the Company through the end of 2023. The amount of the Working Capital Fund can be reviewed at specified intervals and may be adjusted based on a number of factors including outstanding supply commitments for vadadustat and agreed upon vadadustat inventory levels held by the Company for the Vifor Territory. Upon termination or expiration of the Vifor Agreement for any reason other than convenience by CSL Vifor (including following receipt of the CRL for vadadustat), the Company will be required to refund the outstanding balance of the Working Capital Fund on the date of termination or expiration.
The Company has determined the Working Capital Fund itself does not represent an obligation to transfer goods or services to CSL Vifor in the future and thus under ASC 606 was recorded as a refund liability. The refund liability is considered a debt arrangement with zero coupon interest and the Company imputes interest on the refund liability at a rate of 15.0 % per annum, which was determined based on certain factors, including the Company's credit rating, comparable securities yield and the expected repayment period. On March 18, 2022, when the $40.0 million was received from CSL Vifor, the Company recorded an initial discount on the refund liability and a corresponding deferred gain on the condensed consolidated balance sheet. The discount on the refund liability is being amortized to interest expense using the effective interest method over the expected term of the Vifor Agreement. The deferred gain is being amortized to interest income on a straight-line basis over the expected term of the Vifor Agreement. The amortization of the discount was $0.7 million and $2.4 million for the three and nine months ended September 30, 2023, respectively, and $1.1 million and $2.3 million for the three and nine months ended September 30, 2022, respectively. The amortization of the deferred gain was $1.0 million and $3.0 million for the three and nine months ended September 30, 2023, respectively, and $0.9 million and $1.8 million for the three and nine months ended September 30, 2022, respectively. As of September 30, 2023, the $40.3 million refund liability is classified as a long-term liability based on management's estimated timing of the repayment of the refund liability to Vifor exceeding one-year.
Panion License Agreement
The Company had a license agreement, which was amended from time to time, with Panion & BF Biotech, Inc., or Panion, under which Keryx Biopharmaceuticals, Inc., or Keryx, the Company's wholly owned subsidiary, was the contracting party, or Panion License Agreement, pursuant to which Keryx in-licensed the exclusive worldwide rights, excluding certain Asian-Pacific countries, or Licensor Territory, for the development and commercialization of ferric citrate.
On April 17, 2019, the Company and Panion entered into a second amended and restated license agreement, or Panion Amended License Agreement, which amends and restates in full the Panion License Agreement, effective as of April 17, 2019. The Panion Amended License Agreement provides Keryx with an exclusive license under Panion-owned know-how and patents with the right to sublicense, develop, make, use, sell, offer for sale, import and export ferric citrate worldwide, excluding the Licensor Territory. The Panion Amended License Agreement also provides Panion with an exclusive license under the Keryx-owned patents, with the right to sublicense (with the Company’s written consent), develop, make, use, sell, offer for sale, import and export ferric citrate in certain countries in the Licensor Territory. Under the Panion Amended License Agreement, Panion is eligible to receive from the Company or any sublicensee royalty payments based on a mid-single digit percentage of sales of ferric citrate in the Company’s licensed territories. The Company is eligible to receive from Panion or any sublicensee royalty payments based on a mid-single digit percentage of net sales of ferric citrate in Panion’s licensed territories. See Note 5 of the Notes to the Consolidated Financial Statements in the 2022 Annual Report on Form 10-K/A for a more detailed description of this license agreement.
The Company recognized royalty payments due to Panion of approximately $3.1 million and $9.3 million during the three and nine months ended September 30, 2023, respectively, and $2.9 million and $9.5 million during the three and nine months ended September 30, 2022, respectively, relating to the Company’s sales of Auryxia in the United States and JT and Torii’s net sales of Riona in Japan.
JT and Torii Sublicense Agreement
The Company has an Amended and Restated Sublicense Agreement, which was amended in June 2013, with JT and Torii, or JT and Torii Sublicense Agreement, under which Keryx, the Company’s wholly owned subsidiary, remains the contracting party. Under the JT and Torii Sublicense Agreement, JT and Torii obtained the exclusive sublicense rights for the development and commercialization of ferric citrate hydrate in Japan. JT and Torii are responsible for the future development and commercialization costs in Japan. See Note 5 of the Notes to the Consolidated Financial Statements in the 2022 Annual Report on Form 10-K/A for a more detailed description of this sublicense agreement.
The Company identified two performance obligations in connection with its obligations under the JT and Torii Sublicense Agreement: (i) License and Supply Performance Obligation and (ii) Rights to Future Know-How Performance Obligation. The Company allocated the transaction price to each performance obligation based on the Company’s best estimate of the relative standalone selling price. The Company developed a best estimate of the standalone selling price for the Rights to Future Know-How Performance Obligation primarily based on the likelihood that additional intellectual property covered by the license conveyed will be developed during the term of the arrangement and determined it immaterial. As such, the
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Company did not develop a best estimate of standalone selling price for the License and Supply Performance Obligation and allocated the entire transaction price to this performance obligation.
The Company recognized license revenue of $1.4 million and $4.0 million during the three and nine months ended September 30, 2023, respectively, and $1.2 million and $3.9 million during the three and nine months ended September 30, 2022, respectively, related to royalties earned on net sales of Riona in Japan. The Company records the associated mid-single digit percentage of net sales royalty expense due to Panion, the licensor of Riona, in the same period as the royalty revenue from JT and Torii is recorded.
Averoa License Agreement
On December 22, 2022, the Company and Averoa SAS, or Averoa, entered into a license agreement, or Averoa License Agreement, pursuant to which the Company granted to Averoa an exclusive license to develop and commercialize ferric citrate, or Averoa Licensed Product, in the European Economic Area, Turkey, Switzerland and the United Kingdom, or Averoa Territory.
Under the Averoa License Agreement, the Company is entitled to receive tiered escalating royalties ranging from a mid-single digit percentage to a low double-digit percentage of Averoa's annual net sales in the Averoa Territory, including certain minimum royalty amounts in certain years, and subject to reduction in certain circumstances. The Company and Averoa have established a joint steering committee to oversee the development, manufacturing and commercialization of the Averoa Licensed Product in the Averoa Territory. The Averoa License Agreement expires on the date of expiration of all royalty obligations due thereunder with respect to the Averoa Licensed Product on a country-by-country basis in the Averoa Territory, unless earlier terminated in accordance with the Averoa License Agreement.
The Averoa License Agreement provides that the Company and Averoa will enter into a supply agreement pursuant to which the Company will supply the Averoa Licensed Product to Averoa for commercial use in the Averoa Territory. The Company will have the right to terminate the supply agreement upon 24 months' notice, which may be provided on or after January 1, 2024. As of September 30, 2023, the Company and Averoa have not yet entered into a supply agreement.
A more detailed description of the Averoa License Agreement can be found in Note 5 of the Notes to the Consolidated Financial Statements in the 2022 Annual Report on Form 10-K/A.
Medice License Agreement
On May 24, 2023, or Medice Effective Date, the Company and Medice entered into the Medice License Agreement, pursuant to which the Company granted to Medice an exclusive license to develop and commercialize vadadustat, or Medice Licensed Product, for the treatment of anemia in adult patients with chronic kidney disease in the Medice Territory.
Under the Medice License Agreement, the Company received an up-front payment of $10.0 million and is entitled to receive the following payments:
(i) commercial milestone payments up to an aggregate of $100.0 million, and
(ii) tiered royalties ranging from 10 % to 30 % of Medice's annual net sales of the Medice Licensed Product in the Medice Territory, subject to reduction in certain circumstances.
The royalties will expire on a country-by-country basis upon the latest to occur of (a) the date of expiration of the last-to-expire valid claim of any Company, Medice or joint patent that covers the Medice Licensed Product in such country in the Medice Territory, (b) the date of expiration of data or regulatory exclusivity for the Medice Licensed Product in such country in the Medice Territory and (c) the date that is 12 years from first commercial sale of the Medice Licensed Product in such country in the Medice Territory.
Under the Medice License Agreement, the Company retains the right to develop the Medice Licensed Product for non-dialysis patients with anemia due to chronic kidney disease in the Medice Territory. If the Company develops the Medice Licensed Product for non-dialysis patients and such Medice Licensed Product receives marketing approval in the Medice Territory, Medice will commercialize the Medice Licensed Product for both indications in the Medice Territory. In this instance, the Company would receive 70 % of the net product margin of any sales of the Medice Licensed Product in the non-dialysis patient population, unless Medice requests to share the cost of the development necessary to gain approval to market the Medice Licensed Product for non-dialysis patients in the Medice Territory and the parties agree on alternative financial terms. If the Company develops the licensed product for non-dialysis patients, the Company has determined that the activities under the Medice License Agreement represent joint operating activities in which both parties are active participants and of which both parties are exposed to significant risks and rewards that are dependent on the success of the activities. Accordingly, if the Company develops the Medice Licensed Product for non-dialysis patients the Company will account for the joint activities in accordance with ASC No. 808, Collaborative Arrangements, or ASC 808. Additionally, the Company has determined that in the
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
context of the development of the Medice Licensed Product for non-dialysis patients, Medice does not represent a customer as contemplated by ASC 606-10-15, Revenue from Contracts with Customers – Scope and Scope Exceptions. As a result, the activities conducted pursuant to development activities for the Medice Licensed Product for non-dialysis patients will be accounted for as a component of the related expense in the period incurred.
The Company and Medice expect in the future to establish a joint steering committee to oversee the development and commercialization of the Medice Licensed Product in the Medice Territory.
The Medice License Agreement expires on the date of expiration of all payment obligations due thereunder with respect to the Medice Licensed Product in the last country in the Medice Territory, unless earlier terminated in accordance with the terms of the Medice License Agreement. Either party may, subject to a cure period, terminate the Medice License Agreement in the event of the other party's uncured material breach. Medice has the right to terminate the Medice License Agreement in its entirety for convenience upon 12 months' prior written notice delivered on or after the date that is 12 months after the Medice Effective Date.
The Medice License Agreement includes customary terms relating to, among others, indemnification, confidentiality, remedies, and representations and warranties. The Medice License Agreement provides that the Company and Medice will enter into a supply agreement pursuant to which the Company will supply the Medice Licensed Product to Medice for commercial use in the Medice Territory.
Revenue Recognition
The Company evaluated the elements of the Medice License Agreement in accordance with the provisions of ASC 606 and concluded Medice is a customer. The Company's arrangement with Medice contains one material promise under the contract at inception, which is the exclusive license under the Company's intellectual property to develop and commercialize the Medice Licensed Product in the Medice Territory during the term of the Medice License Agreement and use the Akebia Trademark solely in connection with the commercialization of the Medice Licensed Product, or License Deliverable.
The Company identified one performance obligation in connection with its obligations under the Medice License Agreement, which is the License Deliverable, or License Performance Obligation. The transaction price at inception was comprised of the up-front payment of $10.0 million, of which the Company received $8.6 million during the quarter ended June 30, 2023. The remaining $1.4 million was withheld by the German Federal Tax Office and is included in other long-term assets on the condensed consolidated balance sheet as of September 30, 2023.
Pursuant to the terms of the Medice License Agreement, the up-front payment of $10.0 million is non-refundable and non-creditable against any other amount due to the Company and was allocated to the License Performance Obligation, which was satisfied as of the Medice Effective Date. As such, the Company recognized the $10.0 million up-front payment as License, collaboration and other revenue in the condensed consolidated statement of operations and comprehensive loss during the nine months ended September 30, 2023.
In accordance with ASC 606, the Company will recognize sales-based royalties and milestone payments at the later of when the performance obligation is satisfied or the related sales occur.
Past Collaboration and License Agreements
U.S. Collaboration and License Agreement with Otsuka Pharmaceutical Co. Ltd.
On December 18, 2016, the Company entered into a collaboration and license agreement, or Otsuka U.S. Agreement, with Otsuka Pharmaceutical Co. Ltd., or Otsuka. The collaboration was focused on the development and commercialization of vadadustat in the United States. The Company was responsible for leading the development of vadadustat, for which it submitted an NDA to the FDA in March 2021, and for which it received the CRL in March 2022.
On May 12, 2022, the Company received notice from Otsuka that Otsuka had elected to terminate the Otsuka U.S. Agreement and the April 25, 2017 collaboration and license agreement with Otsuka, or Otsuka International Agreement.
On June 30, 2022, the Company and Otsuka entered into the Termination and Settlement Agreement, or Termination Agreement, pursuant to which, among other things, the Company and Otsuka agreed to terminate the Otsuka U.S. Agreement and the Otsuka International Agreement as of June 30, 2022.
The Company did not recognize collaboration revenue with respect to the Otsuka U.S. Agreement during the three months ended September 30, 2023 or 2022. During the nine months ended September 30, 2022, the Company recognized collaboration revenue totaling $86.8 million with respect to the Otsuka U.S. Agreement. During the nine months ended September 30, 2023, the Company recognized $2.2 million in collaboration revenue in connection with the Packaging Validation Transfer Agreement entered into with Otsuka on April 20, 2023. The Company evaluated the agreement under ASC
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606 and concluded it was closely tied to the prior collaboration revenue agreements and under ASC606 recognized collaboration revenue in the current quarter. A more detailed description of the Otsuka U.S. Agreement can be found in Note 5 of the Notes to the Consolidated Financial Statements in the 2022 Annual Report on Form 10-K/A.
International Collaboration and License Agreement with Otsuka Pharmaceutical Co. Ltd.
On April 25, 2017, the Company entered into the Otsuka International Agreement. The collaboration was focused on the development and commercialization of vadadustat in Europe, Russia, China, Canada, Australia, the Middle East and certain other territories, collectively, the Otsuka International Territory. As discussed above, the Otsuka International Agreement was terminated on June 30, 2022 pursuant to the Termination Agreement.
During the three and nine months ended September 30, 2022, the Company recognized no collaboration revenue and $5.5 million with respect to the Otsuka International Agreement, respectively. A more detailed description of this collaboration agreement and the Company's evaluation of this agreement under ASC 606 can be found in Note 5 of the Notes to the Consolidated Financial Statements in the 2022 Annual Report on Form 10-K/A.
5.LIABILITY RELATED TO SALE OF FUTURE ROYALTIES
On February 25, 2021, the Company entered into the Royalty Agreement with HCR, pursuant to which the Company sold to HCR its right to receive royalties and sales milestones for vadadustat in Japan and certain other Asian countries, such countries collectively, the MTPC Territory, and such payments collectively the Royalty Interest Payments, in each case, payable to the Company under the MTPC Agreement, subject to an annual maximum “cap” of $13.0 million, or Annual Cap, and an aggregate maximum “cap” of $150.0 million, or Aggregate Cap. The Company received $44.8 million from HCR (net of certain transaction expenses) under the Royalty Agreement. The Company retains the right to receive all potential future regulatory milestones for vadadustat under the MTPC Agreement. Although the Company sold its right to receive royalties and sales milestones for vadadustat in the MTPC Territory as described above, as a result of its ongoing involvement in the cash flows related to these royalties, the Company will continue to account for these royalties as revenue. The Company recognized the proceeds received from HCR as a liability and is amortizing it using the effective interest method over the life of the arrangement. At the transaction date, the Company recorded the net proceeds of $44.8 million as a liability. In order to determine the amortization of the liability, the Company is required to estimate the total amount of future net royalty payments to be made to HCR over the term of the Royalty Agreement. The total threshold of net royalties to be paid, less the net proceeds received, is recorded as interest expense over the life of the liability. The Company imputes interest on the unamortized portion of the liability using the effective interest method. The annual effective interest rate as of September 30, 2023 was 0 % which is reflected as interest expense in the unaudited condensed consolidated statements of operations and comprehensive loss. On a quarterly basis, the Company reassesses the effective interest rate and adjusts the rate prospectively as needed. A more detailed description of Royalty Agreement can be found in Note 7 of the Notes to the Consolidated Financial Statements in the 2022 Annual Report on Form 10-K/A.
The activity within the long-term liability account for the nine months ended September 30, 2023 is as follows (in thousands):
| Liability related to sale of future royalties, beginning balance at December 31, 2022 | $ | ||||
| MTPC royalties payable | ( | ||||
| Liability related to sale of future royalties, ending balance at September 30, 2023 | $ | ||||
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6.FAIR VALUE OF FINANCIAL INSTRUMENTS
| September 30, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total Fair Value | ||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | |||||||||||||||||||
| Long-term liability: | |||||||||||||||||||||||
| Embedded debt derivative | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total Fair Value | ||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | |||||||||||||||||||
| Long-term liability: | |||||||||||||||||||||||
| Embedded debt derivative | $ | $ | $ | $ | |||||||||||||||||||
Cash and cash equivalents —Money market funds included within cash and cash equivalents are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.
Embedded debt derivative —As described in Note 10, the Company’s Loan Agreement with Pharmakon contains certain provisions that change the underlying cash flows of the debt instrument, including a potential extension to the interest-only period dependent on both (i) no event of default having occurred and continuing and (ii) the Company achieving certain regulatory and revenue conditions. The Company did not meet one of the regulatory conditions and therefore, the Company is no longer eligible for the interest-only extension period and this no longer changes the underlying cash flows of the debt instrument.
The Company concluded the acceleration of the obligations under the Loan Agreement under certain events of default, and under certain circumstances, the application of a default interest rate on all outstanding obligations during the occurrence and continuance of an event of default represent a single compound embedded debt derivative required to be bifurcated from the debt host instrument that is required to be re-measured at fair value on a quarterly basis.
The estimated fair value of the embedded debt derivative on both September 30, 2023 and December 31, 2022 was determined using a scenario-based approach and discounted cash flow model that includes principal and interest payments under various cash flow assumptions. Should the Company’s assessment of the probabilities around these scenarios change, including for changes in market conditions, there could be a change to the fair value of the embedded debt derivative. The determination of the fair value of the embedded debt derivative includes inputs not observable in the market and as such, represents Level 3 measurement. The methodology utilized requires inputs based on certain subjective assumptions, specifically, probabilities of acceleration of the obligations under the Loan Agreement by Pharmakon under certain events of default. The probabilities used in the valuation of the embedded debt derivative included a 95
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7.INVENTORIES
Inventories consists of the following (in thousands):
| September 30, 2023 | December 31, 2022 | ||||||||||
| Work-in-process | $ | $ | |||||||||
| Finished goods | |||||||||||
| Inventories, current | $ | $ | |||||||||
| Raw materials included in other long-term assets | |||||||||||
| Total inventories | $ | $ | |||||||||
For the period ended December 31, 2022, inventory consisted only of inventory related to our commercial product, Auryxia. On April 24, 2023, or the EC Marketing Authorization Date, vadadustat received marketing authorization from the EC under the trade name Vafseo. Costs associated with converting the vadadustat drug substance to finished goods after the EC Marketing Authorization Date, which will be used to supply Europe, have been capitalized as inventory on the condensed consolidated balance sheet of the Company as of September 30, 2023.
Inventory written down for Auryxia as a result of excess, obsolescence, scrap or other reasons charged to cost of goods in the unaudited condensed consolidated statement of operations and comprehensive loss totaled approximately $0.7 million and $2.6 million during the three months ended September 30, 2023 and 2022, respectively, and $1.3 million and $10.0 million during the nine months ended September 30, 2023 and 2022, respectively.
The Company records advance payments for vadadustat drug substance that it expects to use for the potential US launch as prepaid manufacturing costs. Upon the quality release of the vadadustat batches and transfer of title to the Company, the Company records the cost as research and development expense. As of September 30, 2023 and December 31, 2022, the Company had $15.6 million of prepaid manufacturing costs for vadadustat drug substance expected to be used in the potential U.S. launch of vadadustat included in other current assets on the condensed consolidated balance sheet.
8.INTANGIBLE ASSET AND GOODWILL
Intangible Asset
Intangible asset, net of accumulated amortization, prior impairments and adjustments as of September 30, 2023 and December 31, 2022 consisted of the following (in thousands):
| September 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||
| Intangible asset: | Gross Carrying Value | Accumulated Amortization | Net Book Value | Net Book Value | Estimated Useful Life | |||||||||||||||||||||||||||
| Developed product rights for Auryxia | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
The Company recorded $9.0 27.0
Goodwill
9.ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
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| September 30, 2023 | December 31, 2022 | ||||||||||
| Product revenue allowances | $ | $ | |||||||||
| Product return reserves, current portion | |||||||||||
| Compensation and related benefits | |||||||||||
| Royalties | |||||||||||
| Professional fees | |||||||||||
| Accrued manufacturing costs | |||||||||||
| BioVectra termination fees | |||||||||||
| Clinical trial costs | |||||||||||
| Restructuring costs | |||||||||||
| Other | |||||||||||
| Total accrued expenses and other current liabilities | $ | $ | |||||||||
10.DEBT
Pharmakon Term Loans
On November 11, 2019, the Company, with Keryx as guarantor, entered into a loan agreement, or Loan Agreement, with BioPharma Credit PLC as collateral agent and a lender, or Collateral Agent, and BioPharma Credit Investments V (Master) LP as a lender, and a Guaranty and Security Agreement with the Collateral Agent. BioPharma Credit PLC subsequently transferred its interest in the loans, solely in its capacity as a lender, to its affiliate, BPCR Limited Partnership. The Collateral Agent and the lenders are collectively referred to as Pharmakon. The Loan Agreement, as amended, consists of a secured term loan facility in an aggregate amount of up to $100.0 million, or Term Loans, which was made available under two tranches: (i) the first tranche of $80.0 million, or Tranche A, and (ii) the second tranche of $20.0 million, or Tranche B. On November 25, 2019, the Company drew $77.3 million on Tranche A, net of fees and expenses of $2.7 million. On December 10, 2020, the Company drew $20.0 million on Tranche B, net of immaterial lender expenses and issuance costs.
On July 15, 2022, or Second Amendment Effective Date, the Company prepaid $25.0 million of the then outstanding principal, $5.0 million on Tranche A and a $20.0 million on Tranche B as well as a $0.5 million prepayment fees under the terms of the Loan Agreement. During the three months ended September 30, 2022, the Company recorded a debt extinguishment loss of $0.9 million. As of September 30, 2023, the Company had $43.0 million of principal outstanding.
The Term Loans, as amended, bear interest through maturity at a variable rate based on the three month Secured Overnight Financing Rate, or SOFR, plus a SOFR adjustment of 0.30% plus 7.50 %. The SOFR interest rate was capped at 3.35% through October 31, 2023, the date of the Fourth Amendment to the Loan Agreement, or Fourth Amendment. As of September 30, 2023, the three-month SOFR rate was above the SOFR cap, therefore, the Company's interest rate was 11.15 %. The Company recognized interest expense related to the Loan Agreement of $1.4 million and $2.1 million during the three months ended September 30, 2023 and 2022, respectively, and $4.7 million and $7.5 million during the nine months ended September 30, 2023 and 2022, respectively. Unamortized discount and issuance costs were $0.4 million as of September 30, 2023.
The Company was required to make equal quarterly principal payments that started on the 33 rd-month anniversary of the applicable Funding Date until November 25, 2024, or Original Maturity Date. The Fourth Amendment, which the Company entered into on October 31, 2023, extended the maturity date to March 31, 2025, or New Maturity Date, and revised the principal payments to monthly principal payments starting in October 2024 on the remaining principal balance of $35.0 million. During the three months ended September 30, 2023, the Company made no quarterly principal payments under the Term Loans. During the nine months ended September 30, 2023, the Company made quarterly principal payments under the Term Loans totaling $24.0 million. Under certain circumstances, unless certain liquidity conditions are met, the Maturity Date may decrease by up to one year , and the Amortization Schedule may correspondingly commence up to one year earlier.
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
If the Company prepays the loan prior to the New Maturity Date, it will be required to make a prepayment fee of 0.50 % of such prepayment amount. A change of control, which includes a new entity or group owning a majority (greater than 50%) of the Company's voting stock, triggers a mandatory prepayment of the Term Loans.
The obligations of the Company and Keryx under the Loan Agreement are secured by a first priority lien on certain assets of the Company and Keryx, including Auryxia and certain related assets, cash and certain equity interests held by the Company and Keryx. The Loan Agreement contains various affirmative and negative covenants, including that limit the Company's ability to engage in specified types of transactions and require the Company to maintain one or more controlled cash accounts. In addition, the Loan Agreement, as amended, requires the Company to (i) report quarterly minimum net Auryxia sales for the trailing twelve-month period of $85.0 million, (ii) in certain instances maintain an annual minimum liquidity threshold and (iii) not be subject to any qualification as to going concern in its Annual Reports on Form 10-K. If an event of default occurs, including a qualification as a going concern, and is continuing under the Loan Agreement, the Collateral Agent is entitled to take enforcement action, including acceleration of amounts due under the Loan Agreement. Under certain circumstances, a default interest rate will apply on all outstanding obligations during the occurrence and continuance of an event of default. As of September 30, 2023 and December 31, 2022, the Company was in compliance with the covenants under the Pharmakon Loan Agreement.
The Company concluded the contingent put and call features that could require mandatory repayment upon the occurrence of an event of default, default interest rates to be payable and certain other events represent an embedded derivative required to be bifurcated from the debt host instrument and accounted for separately and re-measured at fair value on a quarterly basis. The fair value of the embedded debt derivative related to the Company’s Loan Agreement with Pharmakon was $0.8 1.1 million gain in other (expense) income in the consolidated statements of operations and comprehensive loss related to the decrease in the fair value of the embedded debt derivative.
11.CAPITAL STOCK, STOCK-BASED COMPENSATION AND BENEFIT PLAN
Authorized and Outstanding Capital Stock
On June 5, 2020, the Company filed a Certificate of Amendment to its Ninth Amended and Restated Certificate of Incorporation, or its Charter, to increase the number of authorized shares of common stock from 175,000,000 to 350,000,000 . As of September 30, 2023, the authorized capital stock of the Company included 350,000,000 shares of common stock, $0.00001 par value per share, of which 188,313,807 184,135,714 25,000,000 shares of undesignated preferred stock, $0.00001 par value per share, of which no
At-the-Market Facility
On April 7, 2022, the Company entered into an Open Market Sale Agreement, or Sales Agreement, with Jefferies LLC, or Jefferies, as agent, for the offer and sale of common stock at current market prices in amounts to be determined from time to time. Also, on April 7, 2022, the Company filed a prospectus supplement relating to the Sales Agreement, pursuant to which it is able to offer and sell under the Sales Agreement up to $26.0 million of its common stock at current market prices from time to time. From the date of filing of the prospectus supplement through the date of the filing of this Quarterly Report on Form 10-Q, the Company has not sold any shares of its common stock under this program.
Terminated At-the-Market Facility
On March 12, 2020, the Company filed a prospectus supplement relating to the Company's sales agreement with Cantor Fitzgerald & Co., or Prior Sales Agreement, pursuant to which it was able to offer and sell up to $65.0 million of its common stock at current market prices from time to time.
On February 25, 2021, the Company filed a prospectus relating to the Prior Sales Agreement with its new shelf registration statement (which replaced the prior shelf registration statement and the sales agreement prospectus supplement), pursuant to which it was able to offer and sell up to $100.0 million of its common stock at current market prices from time to time. On March 1, 2022, the Company filed a prospectus relating to the Prior Sales Agreement, pursuant to which it was authorized to offer and sell up to $25.3 million of its common stock at current market prices from time to time. On March 16, 2022, the Company terminated the Prior Sales Agreement. During the three months ended March 31, 2022, the Company sold 404,600
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
shares of common stock under this program with net proceeds (after deducting commissions and other offering expenses) of $0.8 million.
Stock-Based Compensation and Benefit Plans
The Company incurred stock-based compensation expenses of $1.8 million and $7.8 million for the three and nine months ended September 30, 2023, respectively, and $3.4 million and $14.8 million for the three and nine months ended September 30, 2022, respectively.
Equity Incentive Plans
The following table contains information about our equity plans:
| September 30, 2023 | ||||||||||||||||||||||||||
| Title of Plan | Group Eligible | Type of Award Granted (or to be Granted) | Awards Outstanding | Additional Awards Authorized for Grant | ||||||||||||||||||||||
Keryx Equity Plans(1)(2)* | Employees, directors and consultants | Stock options and RSUs | ||||||||||||||||||||||||
Akebia Therapeutics, Inc. Amended and Restated 2008 Equity Incentive Plan (the 2008 Plan)(2) | Employees, directors and consultants | Stock options and RSUs | ||||||||||||||||||||||||
Akebia Therapeutics, Inc. 2014 Incentive Plan, as amended (2) (3) (the 2014 Plan) (replaces 2008 Plan) | Employees, directors, consultants and advisors | Stock options, RSUs, SARs and performance awards | ||||||||||||||||||||||||
Akebia Therapeutics, Inc. 2023 Stock Incentive Plan(3) (the 2023 Plan) (replaces 2014 Plan) | Employees, officers, directors, consultants and advisors | Stock options, SARs, restricted stock, unrestricted stock, RSUs, performance awards, other share-based awards and dividend equivalents | ||||||||||||||||||||||||
(1) The Keryx Equity Plans consist of the Keryx Biopharmaceuticals, Inc. 1999 Share Option Plan, Keryx Biopharmaceuticals, Inc., as amended, the 2004 Long-Term Incentive Plan, as amended, the Keryx Biopharmaceuticals, Inc. 2007 Incentive Plan, the Keryx Biopharmaceuticals Inc. Amended and Restated 2013 Incentive Plan and the Keryx Biopharmaceuticals, Inc. 2018 Equity Incentive Plan.
(2) Shares are no longer being issued under these plans.
(3) Includes inducement awards that are subject to the terms and conditions of the applicable plan but were granted as inducement awards consistent with Nasdaq Listing Rule 5635(c)(4): 2,035,832 options outstanding under the 2014 Plan and 653,000 options outstanding under the 2023 Plan.
Common Stock Options and SARs
During the nine months ended September 30, 2023, the Company issued 2,489,500 options to employees under the 2014 Plan and 315,000 options to directors under the 2023 Plan. During the nine months ended September 30, 2023, the Company issued 635,313 SARs to one executive under the 2014 Plan. In addition, the Company issues stock options to directors, new hires and occasionally to other employees not in connection with the annual grant process. Options and SARs granted by the Company generally vest over periods of between 12 48 100 25 one year 12 one year 10
The Company also maintains an inducement award program with a share pool that is separate from the Company's equity plans under which inducement awards may be granted consistent with Nasdaq Listing Rule 5635(c)(4). During the nine months ended September 30, 2023, the Company granted 704,000 options to purchase shares of the Company’s common stock to new hires as inducements to such employees' entering into employment with the Company, of which 701,000 options remained outstanding as of September 30, 2023.
The Company grants annual service-based stock options to employees and directors and SARs to certain executives under the 2023 and 2014 Plans. In addition, the Company issues stock options to directors, new hires and occasionally to other employees not in connection with the annual grant process. During the nine months ended September 30, 2023, the
Akebia Therapeutics, Inc. | Form 10-Q | Page 16
Akebia Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Company granted options not in connection with the annual grant process with an aggregate grant date fair values of $1.2 million calculated using the Black-Scholes option-pricing model.
The fair value of stock options that vested during the nine months ended September 30, 2023 was $5.3 million.
The combined stock option activity for the nine months ended September 30, 2023, is as follows:
| Stock Options | Weighted Average Exercise Price | Weighted-Average Remaining Contractual Life (years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||
| Outstanding at December 31, 2022 | $ | — | |||||||||||||||||||||
| Granted | $ | — | — | ||||||||||||||||||||
Expired | ( | $ | |||||||||||||||||||||
| Canceled and forfeited | ( | $ | — | — | |||||||||||||||||||
| Outstanding at September 30, 2023 | $ | $ | |||||||||||||||||||||
| Exercisable at September 30, 2023 | $ | ||||||||||||||||||||||
Performance Awards
The performance-based stock options granted by the Company generally vest in connection with the achievement of specified commercial, regulatory and corporate milestones. The performance-based stock options also generally feature a time-based vesting component. The expense recognized for these awards is based on the grant date fair value of the Company’s common stock multiplied by the number of options granted and recognized over time based on the probability of meeting such commercial, regulatory and corporate milestones.
The Company also grants performance-based restricted stock units, or PSUs, to employees under the 2023 Plan and the 2014 Plan. The PSUs granted by the Company generally vest in connection with the achievement of specified commercial, regulatory and corporate milestones. The PSUs also generally feature a time-based vesting component. The expense recognized for these awards is based on the grant date fair value of the Company’s common stock multiplied by the number of units granted and recognized over time based on the probability of meeting such commercial, regulatory and corporate milestones. The Company did not
Restricted Stock Units
Generally, restricted stock units, or RSUs, granted by the Company vest in one of the following ways: (i) 100 % of each RSU grant vests on the first anniversary of the grant date, (ii) one third of each RSU grant vests on the first, second and third anniversaries of the grant date, (iii) 50 % of each RSU grant vests on the first anniversary and 25 % of each RSU grant vests every six months after the one year anniversary of the grant date, or (iv) one third of each RSU grant vests on the first anniversary and the remaining two thirds vests in eight substantially equal quarterly installments beginning after the one year anniversary, subject, in each case, to the individual’s continued service through the applicable vesting date. The grant-date fair value of the RSUs is recognized as expense on a straight-line basis. The Company determines the fair value of the RSUs based on the closing price of the common stock on the date of the grants.
RSU activity is as follows:
| 2014 Plan | 2023 Plan | ||||||||||||||||||||||
| Number of Shares | Weighted Average Fair Value | Number of Shares | Weighted Average Fair Value | ||||||||||||||||||||
| Outstanding as of December 31, 2022 | $ | — | — | ||||||||||||||||||||
| Granted | $ | $ | |||||||||||||||||||||
Vested | ( | $ | — | — | |||||||||||||||||||
| Forfeited and canceled | ( | $ | — | — | |||||||||||||||||||
| Outstanding as of September 30, 2023 | $ | $ | |||||||||||||||||||||
Akebia Therapeutics, Inc. | Form 10-Q | Page 17
Akebia Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2023, there was $4.0 million of unrecognized compensation costs related to time-based RSUs which is expected to be recognized over a weighted-average period of 1.75 years.
Employee Stock Purchase Plan