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Operator
Ladies and gentlemen, thank you for standing by and welcome to the KBS first quarter 2022 financial results conference call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. Thank you. I would like to hand the conference over to your speaker today. Mercedes Carrasco, Director of Corporate Communications. Please go ahead, ma'am. Thank you.
spk08
Thank you, and welcome to Akebia's first quarter 2022 financial results and business updates 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 investor 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 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.
John Butler
Thanks, Mercedes, and thank you all for joining us. Our first quarter and the weeks since have been extremely eventful for the Akibia team. Given all the moving pieces, I believe it's important to start with an outline of our strategic focus as we reshape Akibia to maximize value and deliver on our purpose. As you know, Akibi received a complete response letter, or CRL, for the company's new drug application for Vatadustat, an investigational oral hypoxia-inducible factor, prolohydroxylase inhibitor, for the treatment of anemia due to chronic kidney disease. The CRL came as a surprise and we're extremely disappointed by the outcome. Regardless, we acted quickly with the goal to both strengthen and secure the company financially, as well as begin to rechart our near-term and longer-term focus. We've organized our strategic focus into three pillars. First, maximizing Arixia performance and corporate-wide cost management. Second, supporting our global partners through Vatadustat 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, Arixia. Our commercial team has done a great job positioning the product to increase revenue and contribution from the brand. Our financial guidance of $165 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 Akibia. 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 ORIXIA revenue and identify cash management opportunities with the objective to enable Akibia 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 Del Falkingham, 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 Akibia 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 Akibia, 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. Vatadustat is still a key value driver for Akibia. 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 Vatadustat outside the U.S. As you recall, our partner Otsuka filed an MAA with the European Medicines Agency for Vatadustat 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 Vatadustat 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 the Rixia and Vatadustat. 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, Vatadustat 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've been hospitalized due to COVID-19. UT 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?
Akibia
Thank you, John, and good afternoon, everyone. As John mentioned, we've 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 can look to its lead product for key strategic cash in these challenging times in the biotech and broader equity markets. In addition to the Erixia 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 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 VAT-induced debt external marketing costs and the U.S. supply chain bills. 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 revenues. Net product revenue for Arixia increased 36% to $41.4 million for the first quarter of 2022, compared to $30.4 million for the first quarter of 2021. The Akiva 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 OTSUCA. 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 Arixia and supply of Vasio to Mitsubishi for commercial sale in Japan. Additionally, $5.3 million was related to excess and obsolescence reserves associated with Arixia, 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 of the progress we have made despite these unexpected circumstances. Eurexia continues to perform well, and we look forward to providing further updates throughout the year.
John
With that, we'll open the line for questions.
Oryxia
Operator?
Operator
As a reminder to ask a question, please press star then the number one on your telephone keypad. Again, that's star then the number one on your telephone keypad. Your first question comes from the line of Allison Bradsell from Piper Sandler. Your line is open.
Allison Bradsell
Hi. Good afternoon, and thank you for taking my questions. Just two from me. So I think first, anorexia. 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? It 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 Oryxia's margins going forward. I know there's a lot of non-cash items included in COGS, and some of the expense cuts you announced won't be realized until 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 2025. And then the other question on the cash position, could you just kind of remind us on your cash runway 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? Thanks.
Oryxia
Great. Thanks, Allie. Dave, do you want to? Yeah, I'd be happy.
Akibia
I'd be happy to. Yeah, so on your first question on the Orixia 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 six 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.
John Butler
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 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.
Akibia
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 Pharmacon. 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 three times weekly studies, will also be winding 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 for Orixia. That will continue to be about $9 million a quarter. The rest of what's in cost of goods, is split between Orixia and Vatadustat. We do supply our partner Mitsubishi with drug substance, sorry, drug products 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 packed question. Milestones in the EU, so our operating plan assumes minimal contribution from those, if you'll 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 Otuka has paid. So from a net revenue perspective, it's pretty minimal in the workplace.
Allison Bradsell
Got it. Very helpful. Thank you.
Oryxia
Did we capture everything there, Allie? You did have a long list. Yeah, I thought I missed that last one.
Allison Bradsell
I think you got it all. Thanks.
Oryxia
Great. Thank you, Allie.
Operator
Your next question comes from the line of Mara Goldstein from Mizuho. Your line is open.
Mara Goldstein
Great. Thanks very much for taking that question. So I just 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 VAT as you said outside the U.S. And then with respect to the request for the FDA meeting, Can you maybe just walk us through the timeline of when you'll 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 inventories.
John Butler
So I'll take the first two, Dave, and then I'll throw it to you. So the first question matter was on an update on conversations with our partners regarding OUS, and obviously we're in constant discussion with our partners. 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, you know, reviewing products themselves. I think evidenced by, you know, the fact that in the same class, Roxadustat received the CRL in the U.S. and, you know, has been approved in Europe for both dialysis and non-dialysis patients. So, I think we are, you know, all kind of full steam ahead there as well as, you know, the other markets that Mitsubishi is filing and seeking approval for Vatadustat 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, you know, within submitting that request within 90 days, we expect FDA to grant us a meeting within 30 days. But, you know, obviously we'll update as appropriate as we know more.
Akibia
And then, Mar, on the excess and obsolete inventory, we believe that this is a one-time 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.
Mara Goldstein
Okay. And can I – I hope you don't mind. I just wanted to ask another question, and it's really about the pipeline. Sure. And, you know, 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?
John Butler
Yeah, so, you know, as you said, we have pressing issues right now. So we're extremely focused as an organization in, you know, identifying issues 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 a 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 Erixia, if we're maintaining the trajectory of the last six 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 Erixia. We do want to talk more about those, but we think we want to earn the right to do that by hitting that first pillar as hard as we can in the short term.
Mara Goldstein
All right. Thanks. I really appreciate it. Thank you.
Operator
Your next question comes from the line of Ed Arce from H.J. Wainwright and Company. Your line is open.
Ed Arce
Great. Thanks for taking my questions. A few for me. Firstly, on the second pillar of your restructuring plan, I'm wondering if you could give us a little more detail around the opportunity with Vatadustat in Europe, assuming approval. You know, what different scenarios could you consider? You mentioned specifically the opportunity for non-dilutive capital. That's first. Secondly, I'm wondering about the BIFOR 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 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 Adadustat 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. Thanks so much.
John Butler
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, you know, as you look at kind of the competitively, Rochstustat received approval for both dialysis and non-dialysis. And so, you know, we have significant expectations. Now, Europe, of course, a few things to know, 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. 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-diluted capital, we talk about the milestones that are available to us, but we also have you know, 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, you know, while it will take time for that to come in, you know, there's significant capital that will come from that. The thing is, Dave reflected in the last question, and that's not a driver of the 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 V4. Yes, question about V4. I have to say V4 has been a great partner through this. They are clearly with us, I think, in their surprise around the CRL, but also they've been incredibly helpful as we pull 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 don't 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 V4, I think we're very happy with where that is. Dave, maybe you want to talk about committed expenses?
Akibia
Yeah. So, Ed, I think, you know, 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 Vatadustat external sales and marketing expenses, those are already behind us. We structured the contracts in such a way that we could, you know, 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 V4, 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 things like clinical studies, uh, things like the, uh, the TIW studies will be take winding down as just a natural course, uh, and things, you know, like the pediatric studies will be, you know, uh, we'll have to figure out, you know, what's going to go on there since those will, you know, we're on the partial clinical hold there.
Ed Arce
Okay, great. That's helpful. Thank you. Um, and, uh, I wish you good luck with the meeting with the FDA coming up.
Oryxia
Thanks so much, Ed.
Operator
Once again, to ask a question, please press star then the number one on your telephone keypad. Again, that's star then the number one on your telephone keypad. Your next question comes from the line of Rohit Basin from Needham. Your line is open.
John
Hi, this is Rohit on for search. Thanks for taking my question. Are you able to 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? Thank you.
John Butler
Thanks, Rohit. So we're supporting our partners across a number of different areas. Obviously, you know, on the regulatory side, The clinical folks are working closely with them. You know, one of the key areas, I think, is on CMC and supply. You know, Dave referenced the supply chain is a global supply chain that we're managing. So, you know, that is, you know, as we think about launch in Europe, you know, thinking about that supply chain, you know, there are on the quality side, inspection readiness, I mean, there are just pretty much any area you can think of, you know, we're helping to support our partners as they prepare for launch. And then the second question was on the pipeline. So, you know, the way we're thinking about the preclinical stage pipeline is, you know, we have had our research organization you know, has built an expertise in hypoxia-inducable factor and HIF biology. And, you know, while we, you know, look for areas to leverage that within the kidney disease space, and we think we have in some ways beyond batadustat and anemia and CKD, we don't want to limit them there. I mean, there are other applications. If you think about, you know, our, the ARDS study for Vatadustat, 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 is experiencing ARDS 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's 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, you know, we've seen that in other areas as well, where, you know, 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, you know, kind of underlying, you know, why you have an impact on patients. And again, it's a little early to talk about them. But, you know, 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 you know, in a very limited way earlier. And, you know, we're really pleased with the progress that we've made. So I would say we're not, certainly as we think about, you know, 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.
Oryxia
Great. Thank you. Thanks, Rohit.
Operator
As a reminder to ask a question, please press star, then the number one on your telephone keypad. Again, that's star, then the number one on your telephone keypad. There are no further questions at this time. I would now like to turn the conference back to our CEO, John Butler.
John Butler
Thanks, Operator. As I said, we were surprised and disappointed to receive a CRL for Vatadustat, 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 Arixia 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.
Oryxia
Thanks for joining this afternoon.
Operator
Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.
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