Ladies and gentlemen, thank you for standing by, and welcome to the Akebia First Quarter 2022 Financial Results Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Mercedes Carrasco, Director of Corporate Communications. Please go ahead, ma'am..

Thank you -- thank you and welcome to Akebia's first quarter 2022 financial results and business update conference call. Please note that a press release was issued earlier today, Monday, May 9th, detailing our first quarter financial results, and that release is available on the Investors section of our website.

For your convenience, a replay of today's call will be available on our website shortly after we conclude. Joining me for today's call, we have John Butler, Chief Executive Officer; and Dave Spellman, Chief Financial Officer. Before we begin, I'd like to remind everyone that this call includes forward-looking statements.

Each forward-looking statement on this call is subject to risks and uncertainties that could cause actual results to differ materially from those described in these statements.

Additional information describing these risks is included in the financial results, financial results press release that we issued on May 9th, as well as in the Risk Factors and Management Discussion and Analysis section of our most recent annual and quarterly reports filed with the SEC.

The forward-looking statements on this call speak only as to the original date of this call, and except as required by law. We do not undertake any obligation to update or revise any of these statements. With that, I'd like to introduce our CEO, John Butler..

first, maximizing Auryxia performance and corporate-wide cost management; second, supporting our global partners through vadadustat review, approval and launch, as well as additional geographic expansion and evaluating options for potential U.S.

approval; third, at the appropriate time, thoughtfully investing in our pipeline by developing internal assets and evaluating other strategic growth opportunities. These efforts are intended to create shareholder value. Let me begin with our first pillar. Most critical for our success is maximizing the value of our commercial product, Auryxia.

Our commercial team has done a great job positioning the product to increase revenue and contribution from the brand. Our financial guidance of $165 million to $170 million represents a 17% to 20% annual net revenue growth for the year. We made some important decisions in 2021 that created the opportunity to increase net price to Akebia.

Those decisions are beginning to bear fruit now. In addition, we've been very deliberate in our efforts to rationalize costs with a goal to align our spending with our top strategic objectives. We believe this work will enable meaningful value creation in the near term.

Again, the goal is to drive Auryxia revenue and identify cash management opportunities with the objective to enable Akebia to manage the Company with existing cash resources and ongoing cash from operations. Our recently announced reduction in force aligns with our go-forward operating model and strategic plan.

Several members of our leadership team will also depart the Company over the coming quarters. The planned transition time for each executive is to ensure Akebia is positioned for long-term success. We're very fortunate that we've had a focus on leadership development for a number of years.

For example, while Dell Faulkingham, our Chief Commercial Officer, will be leaving the Company at the end of June. He's built an incredibly strong leadership team, and, frankly, an incredibly strong commercial organization, which I'm confident will continue to deliver results for Akebia and our patients.

For me, losing anyone is tough, but especially losing these leaders and employees, who are impacted by this necessary change in direction. They have made lasting contributions to Akebia. Each has helped establish a foundation of talent and culture that will enable us to build for the future. For that work, I'm extremely grateful.

Moving to our second pillar. Vadadustat is still a key value driver for Akebia. It's approved in Japan and under review in Europe and several other markets. We will continue to support our partners in their efforts to obtain regulatory approval for and sell vadadustat outside the U.S.

As you recall, our partner, Otsuka, filed an MAA with the European Medicines Agency for vadadustat in October of last year. Approval in Europe, if obtained, could drive significant non-dilutive growth capital and potentially benefit thousands of patients. As I've always said, we're committed to all people impacted by kidney disease.

That commitment drives our efforts to explore a path forward for vadadustat in the U.S. as we continue to believe in its benefit, as a treatment for anemia due to CKD. The next step available to us is to request an end review conference with the FDA.

We're working on the documentation to support that request and expect to submit it to the FDA this quarter. Now on to our third pillar, we've been working hard to build a pipeline beyond Auryxia and vadadustat. These efforts have become even more important now.

In addition to our clinical development pipeline opportunities, we have several promising preclinical stage programs based on internal research that we're currently evaluating. We will take advantage of opportunities to advance our pipeline, as appropriate.

Building our pipeline and leveraging our excellent commercial organization is a key component of our strategy. We've maintained several important capabilities that we believe continue to make us an appealing partner moving forward.

Furthermore, as we've shared, vadadustat is being studied by the University of Texas Health, as a potential therapy to prevent and lessen the severity of acute respiratory distress syndrome, or ARDS, in adult patients, who have been hospitalized due to COVID-19.

Beauty Health expects to read out of the data from the investigator-sponsored study later this quarter. We look forward to updating you there as appropriate. With that, let me pass it over to Dave to look more carefully at the numbers.

Dave?.

Thank you, John, and good afternoon, everyone. As John mentioned, we have made several difficult and important decisions this month. With our cost savings plan aligned to our strategic pillars, we believe we can build a Company that can fund its current operating plan with collaboration and product revenues.

We are excited to be one of the few biotechs that come up to its lead product for key strategic cash in these challenging times in the biotech and broader equity markets.

In addition to the Auryxia revenue guidance, we plan to reduce our operating expenses in each of the next few quarters for the remainder of 2022, as we see the benefits from our headcount reductions and anticipated reduction in contractual commitments.

We are working to preserve cash until we're in a position where we -- where our cash from operations is contributing important funds to profitability, reinvestment or both, which we will evaluate in future periods. Some of the cost savings we have already implemented include reductions to our vadadustat external marketing costs and the U.S.

supply chain build. We are taking steps to reduce our overhead costs across our G&A functions and plan to continue to find ways to streamline our external cost structure in R&D and commercial. Most importantly, our team is showing resilience and resourcefulness, as we undertake these activities.

Turning to some important selected financial results for the quarter, starting with revenue. Net product revenue for Auryxia increased 36% to $41.4 million for the first quarter of 2022 compared to $30.4 million for the first quarter of 2021. The Akebia team is very proud of the performance.

This is a challenging market, where COVID has increased mortality in the patients we serve. The growth is reflective of a higher net revenue per pill. Collaboration revenue was $20.3 million for the first quarter of 2022 compared to $21.9 million for the first quarter of 2021. The decrease was primarily due to lower collaboration revenue from Otsuka.

Turning to expenses. Our total cost of goods sold in the quarter were $31.3 million versus $34.6 million a year ago. Our cost of goods sold compared -- consisted of costs associated with the manufacturing of Auryxia and supply of Vafseo to Mitsubishi for commercial sale in Japan.

Additionally, $5.3 million was related to excess and obsolescence reserves associated with Auryxia, partially offset by a $0.8 million reduction to the liability for excess purchase commitments and $9 million related to amortization of intangibles.

Additionally, we estimate our restructuring charge in connection with our recently announced reduction in force to be approximately $16.5 million, driven by headcount reductions and associated costs. For our bottom line, net loss was $62.4 million for the first quarter of 2022 compared to $69.6 million for the first quarter of 2021.

Regarding our capital position, we ended the first quarter with $174.6 million in cash and cash equivalents. We believe that our cash resources should be sufficient to fund our current operating plan through at least the next 12 months. To achieve this cash runway, we will have to continue to reduce our cost base from where it is today.

As mentioned earlier, we have not yet achieved all the savings we are targeting, and the team is diligently working to execute our plan. Overall, as we move through the second quarter, we are proud with the progress we have made despite these unexpected circumstances.

Auryxia continues to perform well, and we look forward to providing further updates throughout the year. With that, we'll open the line for questions.

Operator?.

[Operator Instructions]. Your first question comes from the line of Allison Bratzel from Piper Sandler..

Hi, good afternoon, and thank you for taking my questions. Just 2 from me. So I think, first on Auryxia, I guess, could you just help us understand the growth drivers going forward for '22? Is it really going to be limited to the increased revenue per pill, I think you were talking about.

I just -- doing some math, it seems like guidance assumes relatively limited sequential growth for the remainder of the year.

And also, just hoping you could kind of walk us through how to think about Auryxia's margins going forward? I know there's a lot of non-cash items included in COGS and you announced -- and some of the expense cuts you announced won't be realized later this year.

So it would just be helpful if you could kind of walk us through some of those moving parts and kind of what gives you confidence that you can make this a cash flow positive product before generic entry in '25? And then the other question on the cash position.

Could you just kind of remind us on your cash run rate guidance, what assumptions are made for milestone payments related to EU approval and also repayment of the term loan? And then what other factors like use of the ATM are not contemplated in that guidance?.

Great. Thanks, Ally. Dave, do you want to....

Yes. I'd be happy -- I'd be happy to. Yes, so on your first question on the Auryxia revenue growth. So like you said, the guidance is limited at this time, really based on a couple of factors.

Number one, we're extremely proud of where we've been for the last 6 months in terms of realizing this higher net price per pill, but it is still early in the year, and with some of these contractual changes, we just want to make sure that we continue to see the product perform well, and we look forward to giving you further updates on that throughout the year.

We're really proud of how things are going so far.

The other reason to just be a little cautious to begin with is we do know and you've seen the large dialysis providers provide guidance that while they're not seeing as much of the excess mortality in their patients as they saw, they're still seeing Omicron has impacted patients showing up for -- for sessions. They have staffing issues.

All of those, we just want to be cautious, as we look at how they'll look at changing phosphate binders in the marketplace. Yes. On the second question on the expense guidance, so our expense guidance does factor in several things like you mentioned. So we do plan to be able to service our term loan with Pharmakon. That is part of the plan.

We're also exiting, as we mentioned in the prepared remarks, we're exiting several external expenses that have been cost drivers in addition to winding down some of the things in the research and development area, like the 3 times weekly studies we'll also be winding it down later this year.

So we believe that with all of that, we should be able to support the Company. I'll also remind you that any ongoing work, like we mentioned, supporting our partners with the approvals outside the U.S. does come with partnering funds that our partners do contribute. So that's why we mentioned both collaboration, as well as product revenue.

And then you had asked about the cost of goods and cost of goods drivers. So we do plan to continue to amortize the intangible with -- for Auryxia. That will continue to be about $9 million a quarter. the rest of what's in cost of goods is split between Auryxia and vadadustat.

We do supply our partner, Mitsubishi, with the -- with drug substance -- sorry, drug product for their market. We have to recognize the revenue through collaboration revenue that goes through cost of goods as well.

And to your last question on cash, cash position, while we do plan to, like we said, be able to fully service our term loan, there is no assumption in our cash guidance on use of the ATM. Again, this is our current operating plan. We have a significant amount of cash savings that we do need to go get.

I guess, the last thing I would say, just to tie it all together would just be some of the reductions that we've made. Like I said in the prepared remarks, will come over the next few quarters, as we exit some of those expenses. Sorry, you also asked about milestones in the EU. It's a pretty past question.

Milestones in the EU, so our operating plan assumes minimal contribution from those, if you remember from prior quarters. Anything that we do get for milestones in Europe are clawed back at about 50% to offset some of the excess R&D cost share that Otsuka has paid. So from a net revenue perspective, it's pretty minimal in the one way..

Do we captured everything there, Ally. That was, you did have a long list..

Yes. I thought I missed that last one..

Your next question comes from the line of Mara Goldstein from Mizuho..

So I just wanted to ask -- I wanted to ask a couple of things.

And the first just is on any update from any of your discussions that you have had with your partners for vadadustat outside the U.S.? And then with respect to the request for the FDA meeting, can you maybe just walk us through the time line of when you think your request and when you think you'll ultimately have the meeting? And then the last question I had was actually just on the R&D or rather the write-up for obsolete inventory and whether that will be the last -- whether there will be additional charges for obsolescence reserves, sorry, not inventory..

So I'll take the first two, David, and then, I'll throw it to you. So your first question, Mara, was on an update on conversations with our partners regarding OUS. And obviously, we're in constant discussion with our partners. And I don't think anything has changed in our focus OUS.

We're obviously quite active in the European review at this point in time. Europe is quite independent in the way they look at reviewing products themselves, I think evidenced by the fact that in the same class roxadustat received the CRL in the U.S. and has been approved in Europe for both dialysis and non-dialysis patients.

So I think we are all kind of full steam ahead there, as well as the other markets that Mitsubishi is filing and seeking approval for vadadustat in. So that's all good. The FDA meeting, so as we said, we're putting the documentation together. We expect to request that meeting with that documentation by the end of the quarter.

And within submitting that request within 90 days, we expect FDA to grant us a meeting within 30 days. But obviously, we'll update as appropriate as we know more. Yes..

And then, yes, Mara, on the excess and obsolete inventory, we believe that this is a onetime charge within this quarter. You'll note that the excess purchase commitment was actually a slight reversal this quarter. We believe that, that one we've got a good forecast on right now..

Okay. And I'm trying -- I hope you don't mind. I just wanted to ask another question, and it's really about the pipeline. And at this point in time, how we should think -- I mean, you obviously have a lot of pressing issues.

But having mentioned sort of the idea of advancing an earlier-stage pipeline, how we should think about that?.

Yes. So as you said, we have pricing issues right now. So we are extremely focused as an organization in identifying the cost savings. As Dave said, we haven't identified everything, but I'm incredibly pleased with the work that the team has done to identify clear cost savings.

It allows us to feel confident in saying we expect to be able to operate the Company on our current cash and cash from operations. And that being said, we do want and expect to be able to invest in the pipeline.

Now the nice thing is when you think about our earlier pipeline, our preclinical assets, those have very modest investments initially to keep them moving forward. And while we're doing very little there today, we'll be very thoughtful, as we see the product progress in identifying cost savings at continuing to move those forward and add value.

So right now, we really want to completely understand, where we are, understand the trajectory of Auryxia for maintaining the trajectory of the last 6 months, which is what we certainly hope and expect, and then make wise decisions about how to move forward with some of our pipeline programs.

And again, this is something we'll talk more to you about once we've established the first part of that pillar really identifying those savings and driving Auryxia. We do want to talk more about those. But we think we -- we want to earn the right to do that by hitting that first pillar as hard as we can in the short-term..

Your next question comes from the line of Ed Arce from H.C. Wainwright & Company..

Few for me. Firstly, on the second pillar of your restructuring plan, wondering if you could give us a little more detail around the opportunity with vadadustat in Europe, assuming approval? What different scenarios could you consider -- you mentioned specifically an opportunity for non-dilutive capital. That's first.

Secondly, I'm wondering about the Vifor agreement and what discussions are going on there in terms of forward scenarios? And are there any exit costs involved that we should know about, if indeed that is the decision? And then finally, just wondering about -- you've obviously gone over several times that the -- the additional cost reductions that are necessary throughout this year beyond what you've said today.

But I'm sure there are at least some sort of committed contractual expenses that you have, obviously, given that you had been previously expecting the launch of vadadustat about now.

And so wondering if you could expand a little bit about what you have there, and if there's any opportunity to restructure or eliminate those or reduce those?.

Great. Ed, thank you. That was another -- there's a lot of pieces to that. So detail around Europe, first. I mean, Europe is a large market opportunity, right? I mean, this is a market that's almost the size of the U.S. market. And as you look at kind of the competitively, roxadustat received approval for both dialysis and non-dialysis.

And so we have significant expectations. Now Europe, of course, a few things to note, right? I mean most countries, you have to go through the pricing approval process. So it takes more time before you start to be able to access that broad audience. So you're going country-by-country after the first couple that you can launch in with free pricing.

So it does take some time. But again, there is significant opportunity to grow across Europe. And again, Otsuka has been clearly committed to the product in Europe, that the European team is excited about it and is working hard. Our folks are working hard with our partners there to support the regulatory process.

When we talk about non-dilutive capital, we talk about the milestones that are available to us, but we also have quite a good agreement, royalty agreement for -- royalties that we'll receive. I can't remember the numbers, Dave, if you have there. I don't want to give the wrong number. I think it's up to 30% royalty in Europe over time.

So while it will take time for that to come in, there's significant capital that will come from that. I think as Dave reflected in the last question, I mean, that's not a driver of the plan that we're putting in front of you today. There's a minimal amount that we've included from that in this expectation.

We're very much looking to stand on our feet without that. But we do think that there's significant opportunity there. Now you mentioned Vifor, you asked a question about Vifor, I have to say Vifor has been a great partner through this. They are clearly with us.

I think, and they are surprised around the CRL, but also they've been incredibly helpful, as we pulled the documentation together for go forward. They believe in the benefits of the product and feel that there should be a path forward with FDA. So we're working very closely together on that. There certainly hasn't been any discussions of exit.

I believe there's any exit costs if that was where they are. But that's -- again, they've been an incredibly collaborative and helpful partner. And if we do end up having success with FDA, I credit them standing alongside us. So -- so Vifor, I think we're very happy with that with where that is.

Dave, maybe you want to talk about committed expenses?.

Yes. So Ed, I think, again, I alluded to some of this in the prepared remarks, but if you just go through some of the key cost areas for us. So a lot of the vadadustat external sales and marketing expenses, those are already behind us. We structured the contracts in such a way that we could exit them quickly if we needed to.

We also, from a supply chain perspective, I think one of the big things that we just have to plan out with our partners is we've got a global supply chain right now that we are partnered in with Mitsubishi, with Otsuka, with Vifor, and we want to make sure that we are able to support the outside the U.S.

markets, while at the same time, reduce the commitments that are needed for the near term for the U.S. market.

And again, on the -- on things like clinical studies, things like the TIW studies will be winding down as just a natural course and things like the pediatric studies will be -- we'll have to figure out what's going to go on there since those will -- we're on the partial clinical hold there..

Okay. Great. That's helpful. Thank you. And just good -- I wish you good luck with the meeting with the FDA coming up..

[Operator Instructions]. Your next question comes from the line of Rohit Bhasin from Needham..

This is Rohit on for Serge.

Are you able to just provide some additional details on how you're currently supporting your international partners? And in terms of the new earlier stage pipeline assets, do you expect to stay in the kidney disease space or explore additional indications?.

Thanks, Rohit. So we're supporting our partners in a number of different areas, right, obviously, on the regulatory side, the clinical folks are working closely with them. One of the key areas, I think, is on CMC and supply. They referenced the supply chain is a global supply chain that we're managing.

So that is, as we think about launch in Europe, thinking about that supply chain, they are on the quality side, inspection readiness, et cetera. I mean, they are just pretty much any area you can think of, we're helping to support our partners, as they prepare for launch. And then the second question was on the pipeline.

So the way we're thinking about the preclinical stage pipeline is we have had our research organization has built an expertise in hypoxia-inducible factor and HIF biology.

And while we look for areas to leverage that within the kidney disease space, and we think we have, in some ways, beyond vadadustat in anemia and CKD, we didn't want to limit them there. I mean there are other applications.

If you think about our -- the ARDS study for vadadustat, right? I mean, this is a study that's being done now in hospitalized COVID-19 patients, but this isn't about COVID-19. This is about the impact on ARDS, and this could be applicable to any patient, who has experienced ARDS, as a -- as an outcome of infection.

So we obviously need to see this data to know how to move forward. But biologically, this is a disease of hypoxia. And we think that there is a role to be played here and that would then put us in a development area outside of strictly the kidney space.

And yet these are patients that have a very significant unmet need and it's a very acute use of the product. So an interesting way to look at it.

And we've seen that in other areas as well, where we've really identified and outside collaborators have brought ideas to us that are outside the kidney space yet are looking at this HIF biology, as a kind of underlying why you have an impact on patients. And again, it's a little early to talk about them.

But we're actually quite excited about some of the opportunities that are being presented to us and that we've pursued, and we're pursuing in a very limited way earlier and we're really pleased with the progress that we've made. So -- so I would say we're not -- certainly, as we think about kidney disease, that remains critical to us.

But with early-stage programs, we're quite willing to look at adjacent areas or areas, where we think we can have a significant impact for patients..

[Operator Instructions]. There are no further questions at this time. I would now like to turn the conference back to our CEO, John Butler..

Thanks, operator. As I said, we were surprised and disappointed to receive a CRL for vadadustat, and we plan to evaluate and determine potential next steps for the product in the U.S. But I'm very proud of the way our organization has quickly pivoted our focus to driving Auryxia and changing our cost structure.

And our goal is to be able to manage the Company with existing cash resources and ongoing cash from operations. We believe this is the best way for us to be able to continue to deliver on our purpose to better the lives of patients, as well as deliver value for shareholders. And I look forward to keeping you all updated on our progress.

Thanks for joining this afternoon..

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect. Goodbye..