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Edited Transcript of AKBA earnings conference call or presentation 8-Aug-19 1:00pm GMT

Q2 2019 Akebia Therapeutics Inc Earnings Call

Cambridge Sep 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Akebia Therapeutics Inc earnings conference call or presentation Thursday, August 8, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jason A. Amello

Akebia Therapeutics, Inc. - Senior VP, CFO & Treasurer

* John P. Butler

Akebia Therapeutics, Inc. - CEO, President & Director

* Kristen K. Sheppard

Akebia Therapeutics, Inc. - VP of IR

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Conference Call Participants

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* Alexandre N. Bouilloux

Mizuho Securities USA LLC, Research Division - Research Analyst

* Antonio Eduardo Arce

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst

* Chad Jason Messer

Needham & Company, LLC, Research Division - Senior Analyst

* David Neil Lebowitz

Morgan Stanley, Research Division - VP

* Eric William Joseph

JP Morgan Chase & Co, Research Division - VP & Senior Analyst

* Justin Hayward Burns

RBC Capital Markets, LLC, Research Division - Senior Associate

* Nicole Ashley Gabreski

Piper Jaffray Companies, Research Division - Research Analyst

* Robert Cummins Hazlett

BTIG, LLC, Research Division - MD & Biotechnology Equity Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Akebia Therapeutics Second Quarter Fiscal 2019 Financial Results and Business Highlights Conference Call. As a reminder, this call is being recorded. (Operator Instructions)

I would now like to introduce your host for today's conference, Kristen Sheppard.

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Kristen K. Sheppard, Akebia Therapeutics, Inc. - VP of IR [2]

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Thank you, and good morning. My name is Kristen Sheppard, Vice President of Investor Relations with Akebia. Thank you for joining us to discuss Akebia's second quarter 2019 financial results and our recent business highlights. The press release containing the company's financial results for the second quarter was issued earlier this morning and is also available on our Investor Relations website. For your convenience, an audio replay of today's call will also be available on our website shortly after we conclude today's webcast. Joining our call today are John Butler, President and Chief Executive Officer; and Jason Amello, Chief Financial Officer.

Before we begin, I'd like to remind everyone that this conference call includes forward-looking statements. Each forward-looking statement contained in this call is subject to risks and uncertainties that could cause actual results to differ materially from those described in these statements. Additional information regarding these factors is described in the Risk Factors and Management's Discussion and Analysis sections of our most recent quarterly and annual reports filed with the SEC. The forward-looking statements on this call speak only as of the original date of this call, and we do not undertake any obligation to update or revise any of these statements.

With that, I'd like to turn the call over to our CEO, John Butler.

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [3]

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Thanks, Kristen, and good morning, everyone. We believe we have a great story to share with you this morning. Throughout the first half of this year, we continued to make good progress against our strategic initiatives, and the headline continues to be solid execution. The commercial team delivered $29 million in Auryxia revenue in the second quarter, the highest quarter since launch, 21% year-over-year growth and 26% growth versus the first quarter of 2019.

We reached a settlement with an ANDA filer for Auryxia that reinforces the strength of our Auryxia IP. And with respect to vadadustat, the clinical team continued to knock it out of the park with the first regulatory submission for marketing approval of vadadustat, which was filed by our collaboration partner Mitsubishi Tanabe or MTPC in Japan. This JNDA submission is a significant milestone for both companies. We believe this is just the beginning of an exciting lineup of announcements expected in 2020 and beyond.

While there's still much work ahead of us, I believe we have tremendous opportunities to advance our mission to better the lives of people living with kidney disease and deliver significant value to all our stakeholders. We've been very purposeful in developing our strategy to achieve this mission, and it's great to see the benefits of our work coming to light as the team continues to systematically execute on our priorities.

I'll start with progress in our Phase III clinical program for vadadustat. Vadadustat is our investigational oral HIF-PHI that's designed to stimulate endogenous EPO production to a more physiologic level for adult patients with anemia due to chronic kidney disease or CKD. Our JNDA filing is particularly impressive, not only because it's the first regulatory submission for marketing approval of vadadustat, but also because we believe it may establish vadadustat as the first oral HIF-PHI to file for approval for the treatment of anemia due to CKD in both dialysis-dependent and nondialysis-dependent patient populations in a major market. Importantly, this submission was supported by positive top line data from 2 Phase III active-control pivotal studies in Japan that we announced together with MTPC in the first quarter.

Turning to our global Phase III clinical program. In April, we completed enrollment in INNO2VATE, our global clinical studies designed to enable regulatory filings for vadadustat for the treatment of anemia due to CKD in dialysis-dependent patients. We enrolled a total of nearly 4,000 patients across the 2 INNO2VATE studies, and we continue to expect top line data readouts in Q2 of next year subject to the accrual of MACE.

With respect to PRO2TECT, our global clinical studies designed to enable regulatory filings for vadadustat for the treatment of anemia due to CKD in patients not on dialysis, patient enrollment has continued to be strong. And I'm pleased to announce that as we expect to complete enrollment shortly, we're no longer accepting new patients into screening. We continue to expect top line data readouts in mid-2020 subject to the accrual of MACE.

We have a tremendous amount of confidence in the program that we've designed for vadadustat and believe we are well positioned for clinical, regulatory and commercial success. For example, both INNO2VATE and PRO2TECT are designed to assess noninferiority for efficacy and cardiovascular safety for vadadustat using an active-control darbepoetin alfa, an injectable ESA, which is the current standard of care. We believe this structure will enable a straightforward collection and analysis of MACE across the relevant studies and, ultimately, a clear data readout.

Importantly, our program includes multiple secondary efficacy and safety endpoints to assess other clinically and hence commercially important areas of differentiation to ESAs, including the incidents of thromboembolic events, hospitalization for heart failure and effects on blood pressure and, in nondialysis dependent CKD subjects, the progression of kidney disease.

If successful with these studies, we expect vadadustat to be the first HIF-PHI in the U.S. and EU markets with data directly comparing its outcomes to the current standard of care in both dialysis and nondialysis patients. We believe this data will be extremely relevant for physicians, patients and payers as they make important decisions about patient care.

I think it's important to note here that because our nondialysis study was designed with an active control, patients in this population that progressed to dialysis during this study will be able to stay on study drug. As a result, we expect to be able to compare how these new-to-dialysis patients on either the control drug or vadadustat do as they transition to dialysis and move forward.

We will have data across that continuum of care for a large number of patients. We believe that this will be very valuable data from a regulatory and commercial standpoint, especially when paired with our incident patient study in INNO2VATE as the new-to-dialysis patient population is of particular interest because the event rate in the first year of dialysis is generally much higher. It also makes our MACE analysis much more straightforward.

We believe another key advantage of our program is that it was designed with a basic philosophy that not every patient's needs are the same. As a result, we designed our clinical program with the potential for dosing flexibility, with once-daily dosing for nondialysis-dependent CKD patients and daily or 3 times a week dosing for dialysis-dependent CKD patients.

Lastly, we designed these studies after extensive dialogue with the FDA and European regulators. We have prospectively defined and agreed to noninferiority margins with the FDA and EMA, and we also agreed with the FDA on the key components of our statistical analysis plan.

Turning to our commercial product, Auryxia, the only oral iron tablet approved in the U.S. to treat both dialysis-dependent CKD patients for hyperphosphatemia and nondialysis-dependent CKD patients for iron deficiency anemia or IDA. For Q2, Auryxia revenue increased 21% to $29 million, and total Auryxia prescriptions increased 22% to 49,200.

The team is doing a great job executing on our near-term growth initiatives. We continue to see solid demand for Auryxia within our hyperphosphatemia indication, which we believe represents most of our product revenue. In fact, the prescription demand we've seen in the first 4 weeks of the third quarter is the highest of any quarter since Auryxia was launched, affirming our confidence that Auryxia is on a growth trajectory.

We believe continued execution on our growth initiatives and underlying market demand will drive increased revenue for Auryxia across the second half of the year. A favorable outcome from our continuing work with CMS to restore coverage for Auryxia's IDA indication would represent the opportunity for upside. We look forward to providing more specific revenue guidance for Auryxia early next year after we get a few more quarters of solid execution under our belt.

In looking further ahead, what I'm most excited about with respect to Auryxia is how we're continuing to advance its long-term growth story and impact the lives of people living with CKD. We've always believed that Auryxia can have a valuable role in treating patients beyond our current indications.

We're encouraged with recent data published in the Journal of the American Society of Nephrology that we believe supports this potential. We've mentioned this study previously. It was an investigator-initiated study funded by Keryx prior to the merger and conducted by ColoradoCare with Dr. Geoff Block as the principal investigator and lead author of the publication. In a single site, 203 patient trial that compared a fixed dose of ferric citrate, or Auryxia, to standard of care in patients with advanced CKD, the authors concluded that ferric citrate effectively managed multiple biochemical parameters and was associated with significant improvements in hemoglobin, TSAT and ferritin and significant decreases in serum phosphorus and FGF-23 compared to the standard of care.

The encouraging finding was that in this small study, the investigator was able to show a statistically significantly lower incidence of progression to dialysis, transplant or death; fewer hospital admissions; and fewer days in the hospital in those patients who received ferric citrate. No related serious adverse events occurred, and the most common related adverse event in ferric citrate-treated patients were gastrointestinal. These findings are very encouraging, and we agree with the author's conclusion that this pilot study warrants further investigation, which we're now exploring with a number of our KOL advisers who are also excited about the data and about Auryxia's potential.

It's great to see the new policy initiatives like the Advancing American Kidney Health initiative aligning with this vision and placing a priority on these outcomes while at the same time seeking to reduce the more than $100 billion expense annually in the U.S. to treat chronic and end-stage renal disease. Although it's early, we believe this environment creates opportunities not only to improve patient care, but also enhance the value of Auryxia with both prescribers and payers.

As you know, we've been intensely focused on protecting the value of Auryxia. We believe the ANDA settlement we announced earlier this week reinforces the strength of our Auryxia intellectual property and does not allow Par to have a generic entry until March 20, 2025. This was another great example of solid execution in the quarter that's well worth noting. We're very pleased with the outcome.

Lastly, we're also pleased to see our collaboration partner, Japan Tobacco, and its subsidiary Torii, who market ferric citrate in Japan under the trade name Riona, investing with the goal of adding a second approved indication for Riona. Earlier in July, we announced that they reported positive top line results from a pivotal Phase III comparative study evaluating Riona for the treatment of IDA in adult patients in Japan. They also stated that they expect to file for this additional indication upon successful completion of their Phase III program.

Wrapping up, we feel good about the opportunities we have today, and the team is thrilled with the prospect of continuing to advance vadadustat and enhancing Auryxia's potential.

And with that, I'll turn the call over to Jason.

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Jason A. Amello, Akebia Therapeutics, Inc. - Senior VP, CFO & Treasurer [4]

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Thank you, John, and good morning. As John discussed, we delivered a solid quarter while making significant progress on our commercialization and development efforts.

When looking at the components of the P&L, our product revenue continues to grow nicely. Net product revenue for the sales of Auryxia for the second quarter of 2019 increased 20.7% to $29.1 million compared to $24.1 million as reported by Keryx premerger during the same period in 2018. And this also represents a 26% increase over Q1 of '19.

Cost of goods sold associated with the manufacture of Auryxia was $9.6 million for the second quarter of 2019. To that, we add about $28.1 million for the noncash purchase accounting effects of the Keryx merger, including an inventory step-up charge of $19 million and $9.1 million of amortization of intangibles, bringing our total reported GAAP cost of sales to $37.7 million.

As you know, our collaboration agreements are both highly strategic and important elements of our financial strength. Collaboration and license revenue continues to be a significant source of revenue for us reflecting the value we are creating as we continue to execute and advance our programs. For the second quarter, we recognized $71.7 million of collaboration and license revenue compared with $48.8 million in the second quarter of 2018, of which the majority for both periods relates to our Otsuka agreements. Historically, Otsuka has funded 52.5% of our Phase III development cost of vadadustat, and starting in Q2 2019, Otsuka began funding 80% of those costs.

Also, in connection with our MTPC agreement, the JNDA submission in July triggered a $10 million milestone payment from MTPC to Akebia, which we recorded as revenue in the second quarter as it was considered probable at that time. With continued progress, future collaboration revenue would also come in the form of additional regulatory and commercial milestones and royalties.

Moving to our research and development expenses. R&D expenses were $85.7 million for the second quarter of 2019 compared to $71.9 million for the second quarter of 2018. The increase was primarily attributable to an increase in external costs related to the continued advancement of the PRO2TECT and INNO2VATE Phase III studies of vadadustat, including supporting clinical and preclinical activities as well as regulatory activities and ongoing enrollment.

R&D expenses were also impacted by increases in headcount and consulting costs to support our expanding R&D programs. It is important to keep in mind that 80% of our Phase III costs are reimbursed by Otsuka, which gets recorded as collaboration revenue, as I mentioned earlier.

Selling, general and administrative expenses were $36.1 million for the second quarter of 2019 compared to $12.5 million for the second quarter of 2018. The increase was primarily attributable to commercialization costs associated with Auryxia, as there was no comparable commercialization costs in the premerger second quarter of 2018.

As a result of the foregoing operating results, the company reported a net loss for the second quarter of 2019 of $58.2 million as compared to a net loss of $34.1 million for the second quarter of 2018. Again, I want to point out that the net loss for the second quarter of 2019 includes the impact of noncash charges of $28.1 million related to the application of purchase accounting for the merger with Keryx that I mentioned earlier.

Turning to our capital position. We ended the second quarter with cash, cash equivalents and available-for-sale securities of $136.8 million. Importantly, as we continue to effectively manage and leverage our operations together with our partners' resources, we continue to fund and advance our development efforts. We expect our cash resources, including the committed research and development funding from collaborators, to fund our current operating plan beyond the next 12 months into the third quarter of 2020.

And lastly, we ended the quarter with approximately 118.8 million shares outstanding. With that, we'll open the line for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Eric Joseph with JPMorgan.

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Eric William Joseph, JP Morgan Chase & Co, Research Division - VP & Senior Analyst [2]

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Just a couple from us. John, I guess regarding your comments on the outcome study from Dr. Block's group, I'm wondering if you could elaborate a little bit on the types of additional studies you're contemplating with KOLs, and specifically, whether you're seeking opportunities to expand label claims for -- with Auryxia for later-stage CKD? And then I have a follow-up.

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [3]

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Sure, Eric. Thanks very much for the question. That's exactly the way we're thinking about this. The FDA has a lot more interest in real world kind of outcome studies. And when you look at the way that Dr. Block's study was designed, it really was a very straightforward outcome study with very clear results. So what we are -- what we've been discussing is taking a very similar kind of design and just expanding that to, ultimately, expand the label for Auryxia. And of course, when you think about having that kind of study ongoing, the kind of confidence that demonstrates, we think that actually can impact the way physicians think about the product on a day-to-day basis even before you see the data. So this is just data that's just too exciting not to try to take advantage of. And this is very much in line with the long-term growth strategy that we've been thinking about since the merger.

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Eric William Joseph, JP Morgan Chase & Co, Research Division - VP & Senior Analyst [4]

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Got it. And maybe just one on the product side -- product commercial side. I guess, there seems to be a little bit of variability in COGS with a bit of a sequential step-up this quarter on Auryxia. Can you just talk about some of the drivers behind the fluctuations in COGS and just sort of how to think about how they would smooth out over time?

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Jason A. Amello, Akebia Therapeutics, Inc. - Senior VP, CFO & Treasurer [5]

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Sure. This is Jason. So you look at the COGS -- if you look at the base level of COGS, which is $9.6 million, that's really related to the manufacture of Auryxia, and that's up from Q1 primarily due to the increase in sales. So that representatively is the same. When you look at the margin, it's around 67% at that level. So that's just a volume-driven increase. The other 2 items that gets added to that are purchase accounting related, so the step-up on inventory; that is part of the valuation that you do when you do the acquisition from the date of closing. That gets brought into the P&L as we sell units of Auryxia. So that -- that's a $19 million charge. We expect that will continue into the second half of next year.

The way to think about that is, generally speaking, if you look at that $9.6 million of cost of sales and if you projected what that would be in the future, that step-up portion is generally twice that per period. So that's a reasonable benchmark to use in terms of what to expect for that. Then there's the amortization of the license that we valued on Auryxia, and that's $9.1 million, and that's the same number every quarter. That's getting amortized over 9 years.

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Operator [6]

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And our next question comes from Chris Raymond with Piper Jaffray.

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Nicole Ashley Gabreski, Piper Jaffray Companies, Research Division - Research Analyst [7]

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This is Nicole Gabreski on for Chris this morning. So just on Auryxia on CMS's IDA coverage decision, you mentioned if the rule is overturned that it would be opportunity upside. But without the rule being reversed, how should we think about this going forward? And then you guys have also talked just about working hard to sort of reverse that decision. Can you talk about any progress made here?

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [8]

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Sure. Thanks, Nicole, for the questions. So on the second question first, we continue to have very good dialogue everywhere in Washington. I think even at the Part D level, there's a clear understanding of the value that Auryxia brings. And I remain very confident in our ability to change that noncoverage determination. On the other side of that, of course, this is the federal government we're working on. So from a timing perspective, they're not on my calendar, unfortunately. So -- but as I said, there is -- every single meeting we've had has been positive. And when you pair that with -- I was down in Washington a few weeks ago when the President launched this initiative from the administration on improving kidney care and delaying progression, et cetera. And when you pair Auryxia's IDA indication and the Dr. Block data that we just talked about, we're proving that we can delay progression, and that's in line, and to not be covering the drug, I think, is inconsistent with what the administration's goals are. So these are the things that give me great confidence that we're going to get to a positive resolution.

Now, before we get to that resolution, as we've said, most of the growth that we've been driving is coming out of a hyperphosphatemia indication. I mean our market share in hyperphosphatemia is just over 7%. There's tremendous room for growth there. As you think about things like the KDIGO guidelines, moving people away from calcium, we continue to see that play through the way physicians think about prescribing drugs here. And so we have great confidence that we can continue to grow in the hyperphosphatemia space.

And even as you think about iron deficiency anemia, fully half of the patients -- the CKD patients have commercial coverage or Medicaid where they still have access to Auryxia. So there's still significant opportunity to grow within that space. We won't be able to maximize that without the CMS coverage, but we can certainly have very robust growth from where we are, and we're seeing that in the prescriptions to date.

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Nicole Ashley Gabreski, Piper Jaffray Companies, Research Division - Research Analyst [9]

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Great. And then sorry if I missed this, but for vadadustat and the JNDA submission, I guess I just wanted to clarify, has that submission been accepted for review? And if not, will that decision be communicated in some way?

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [10]

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So Japan doesn't have a process like the FDA does where they formally notify you of acceptance. It's generally -- they'll send questions that would indicate they're not accepting it within a few weeks of the filing. We're well past that point now. So I think Mitsubishi and we believe that we're on the way to full review.

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Operator [11]

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And our next question comes from David Lebowitz with Morgan Stanley.

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David Neil Lebowitz, Morgan Stanley, Research Division - VP [12]

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I guess since competitive data came out earlier this year, I guess, what positive takeaways can you -- do you have from what you read out from their data that might extrapolate to your upcoming studies? And then what differences can you also extrapolate that you would want to highlight to us regarding your studies and how we should think about things when we compare and contrast?

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [13]

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David, thanks for the question. So there are a number of things in the release on roxadustat that gives us greater confidence in vadadustat. I mean certainly, the fact that there didn't seem to be, certainly didn't report any overt safety issues at all which would or could be categorized as class related. So there was -- that gives me confidence. On top of that, when you look at the press release from AstraZeneca, it talks about confirming cardiovascular safety. I think that's a very important comment, and we haven't seen any data, of course. So it makes it hard to draw too many conclusions, but it certainly suggests that there was no negatives that we're seeing from a cardiovascular standpoint, and I think that, again, from a class perspective, is quite encouraging.

And then when I think about our program vis-à-vis their program, I really feel like our program is very much set up for success: successful from a clinical perspective, from a regulatory perspective and, ultimately, from a commercial perspective. From a clinical perspective, again, we've got an active-control comparator in both our nondialysis study as well as our dialysis study. And with a noninferiority end point, we think this gives us a very strong opportunity for a very positive result from that perspective. It also allows us to do multiple comparisons versus the standard of care, which is an ESA. And that, from a commercial perspective, gives us opportunities to compare.

Remember, the $7 billion of revenue that's being generated today in this market is being generated by ESAs. To take that market, you have to be able to compare directly to the drug the physicians are used to using. We'll have much more of an opportunity to do that, particularly in the nondialysis segment, which we all recognize as the opportunity to grow more than in the dialysis segment. But of course, you've got to get to the market first and that -- you want to have the right regulatory strategy. And I sat across from the FDA, and they said in the nondialysis segment, they wanted to see an active control. That's what we're going to give them. We think that gives us a significant advantage from that perspective.

And beyond that, we have an agreed-to noninferiority margin for MACE, and we sat with them, I guess it was just over a year ago now and agreed on the key elements of our statistical analysis plan. So we think we're very, very well set up as we -- as our data comes in, in less than a year from now, and set up for success not only from a regulatory perspective, but from a commercial perspective as well.

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David Neil Lebowitz, Morgan Stanley, Research Division - VP [14]

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And just jumping over to Auryxia and following up on a prior question, I know that certainly Medicare was not going to reimburse for IDA, and there was some form that was imposed that was also going to affect the hyperphosphatemia at least for a temporary period of time. Has that more or less worked its way through?

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [15]

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So yes, it was a very unusual situation at the beginning of the year where every patient on the drug had to go through a prior authorization process, and that's why you saw the pressure on prescriptions in Q1. The team has done a great job of working through that, incredibly solid execution by the folks in the field. We've put some tactics in place around our hub, et cetera, to help physicians and patients get through the prior authorization process. It's not as if physicians aren't used to that process. They are very much used to having to go through prior authorizations. It was simply the volume of patients who had to go through in Q1. So we've really worked through that.

We're now seeing clear growth. As I said, we see that certainly in the Q2 number, and we're continuing to see growth in Q3. So I think working through it is the right way to say it. And while we're confident in resolving the CMS issue, we're also working very hard so that at the beginning of the year next year, we'll be very prepared not to see the same kind of pressure on prescriptions. And I'm very confident that we're set up to do that.

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Operator [16]

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And our next question comes from Bert Hazlett with BTIG.

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Robert Cummins Hazlett, BTIG, LLC, Research Division - MD & Biotechnology Equity Research Analyst [17]

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David just asked my questions, and you were very clear in answering them. I'll just ask one on cash needs and expectations going forward. Could you just repeat the guidance with regard to the cash runway and thoughts on capital structure going forward broadly?

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Jason A. Amello, Akebia Therapeutics, Inc. - Senior VP, CFO & Treasurer [18]

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Sure. So as we disclosed, we have cash beyond 12 months, so -- and we're into Q3 2020 with that. So thus, reaffirming our previous guidance. Going forward, we look at the -- where we are in the horizon of our Phase III program. We're one year away from that reading out, so that -- those costs will start to wind down. And at the same time, we believe the commercial business will be -- on Auryxia will be increasing and contributing more cash. So our needs going forward are much more manageable in the next near-term horizon versus what we've had done historically, where we had the large Phase III program going on all cylinders while we were enrolling. So we think that we're now in a very good position from a capital position and also having flexibility with a commercial product to look at other nondilutive types of sources as well.

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [19]

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Yes. Let me -- Bert, let me just kind of put an exclamation point on Jason's points there. I mean we have more than 12 months of cash today. So there's no urgent need, but we're always looking for opportunities to enhance our capital structure. And as Jason said, post the merger, when we were working through the merger, we talked about the fact that having a commercial product gave us so many more options versus simply selling equity, and we're exploring all of those. And we have a product -- commercial product that's moving towards profitability. And that's an important component of the long-term opportunity to put capital on the balance sheet. But there are multiple nondilutive options as well, and we're exploring all of those. And we have time to do that, given the cash position that we have today. So we feel very good about where we are vis-à-vis cash. And as Jason said, as important as what our balance sheet says today, it's what do you need. And when we look at the revenue growth we're seeing from Auryxia and we expect to continue to see from Auryxia, that has a significant impact on what our ultimate need is, and Jason used the right word, it's very manageable compared to what we had to raise to fund this clinical program over the last few years.

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Operator [20]

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And our next question comes from Difei Yang with Mizuho.

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Alexandre N. Bouilloux, Mizuho Securities USA LLC, Research Division - Research Analyst [21]

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This is Alex on for Difei. I have one on vadadustat. When you think about commercialization of vadadustat initially in the dialysis setting, how long do you think it would take for physicians to become comfortable with vadadustat in the nondialysis setting? How much physician education do you think will be required there?

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [22]

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Alex, thanks for the question. So in the dialysis setting, of course, you've got -- it's a -- they're are 2 very different markets, right? And one of the reasons that we completed the transaction with Vifor was the opportunity to accelerate the adoption of the product within the dialysis market. And I mean if you use Mircera from Vifor as a comp, in 9 months, they had -- 90% of patients had Fresenius on Mircera. Now the way it works basically is they do pilot studies, they understand what the protocol is and then they push that through. And we're already in conversations with Vifor about the strategy to make that happen. So we do believe that you can have a very quick adoption of vadadustat within the dialysis population.

The nondialysis market, of course, is -- does take more education on the product and more time to move adoption, and that's one of the reasons why ironically it's nice that another company might be out there talking about the benefits of HIF for a year before, and we bring out what we think is a superior product. We'll see what the data says, but that's our belief. And that allows us to take advantage of the work that they've done.

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Operator [23]

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And our next question comes from Chad Messer with Needham & Company.

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Chad Jason Messer, Needham & Company, LLC, Research Division - Senior Analyst [24]

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This March '25 date on the settlement with Par, that's good. That's actually a year or so out from what we've been modeling based on patents. What do you think the odds are you'll have to -- you'll have other people you'll have to defend your patents against? And if so, would the 2025 kind of stick? I know this is a settlement, not a judgment.

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [25]

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Right, Chad. Thanks for the question. We were very, very pleased with that settlement with Par. There are 5 other ANDA filers, and given that we are in litigation with them, we won't comment specifically on it. But we believe that Par was the first filer. Par believes they're the first filer. We don't know that for a fact until the FDA publishes the list. But we think that has the potential to positively influence where this lands. And as you said quite rightly, in our modeling, we had been looking at 2024. We're very pleased with a March of '25 date.

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Chad Jason Messer, Needham & Company, LLC, Research Division - Senior Analyst [26]

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That's great. And then I know the Japanese have a less defined process regulatorily than the FDA, but what's typical review time or range of typical review times?

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [27]

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Yes. They -- actually, it's just a little bit of a different process. It's pretty well described. It's about a year, and I think that's the right way to think about it. They do approvals in batches, which is a little bit different, but you're talking about a year for the review.

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Chad Jason Messer, Needham & Company, LLC, Research Division - Senior Analyst [28]

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All right. Great. And then I just wanted to ask a little bit about the 3-time-per-week dosing that you've got into PRO2TECT, sort of trying to harken back to when you added that. Is that flexibility -- is the benefit of that mainly just to give a different dose? Or is it supposed to be a compliance or adherence benefit as well? Normally, you think of less than daily is sometimes problematic for adherence.

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [29]

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Yes. So just to clarify, the FO2RWARD-2 study has 3 times weekly dosing after daily dosing, and it was an ongoing study. Of course, we had the Phase II dialysis study that we published a few years ago that had a 3 times weekly arm in it as well, and then we're planning for a registration study with 3 times weekly dosing also. And the rationale there is really around the dialysis segment and the fact that patient's dialyze 3 times a week and the fact that vadadustat would be part of the bundle. It would certainly be purchased by the dialysis providers even with the TDAPA rule that allows for payment outside the bundle. And the dialysis providers want to ensure their patients are compliant. And so they can deliver the drug to the patient in the chair and ensure 100% compliance, and that's their preference.

So from our perspective, you look at the initiatives that the government has to move people out of the dialysis center onto home dialysis, peritoneal dialysis, having a once-a-day option for those patients is ideal. There will be patients that will still be in the dialysis center, many thousands of them, and having a 3 times weekly option for them is ideal as well. And so that's the -- thinking about it from a commercial perspective, the idea is to have physicians and patients have choice in how drug is delivered.

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Chad Jason Messer, Needham & Company, LLC, Research Division - Senior Analyst [30]

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Okay. I appreciate you taking me through that. And then with my apologies to Jason, because I know you went through this with an earlier question. Just on cost of goods, I get that there is a flat line at $9,100,000, but how long is this accounting -- how long are we affected by that other noncash item on COGS?

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Jason A. Amello, Akebia Therapeutics, Inc. - Senior VP, CFO & Treasurer [31]

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Sure. No problem, Chad. So again, the key thing to remember is both of these are noncash. So the amortization is 9 years from the date of the acquisition. So that's the same number, $9.1 million per quarter, so if you factor it from December of '18, 9 years on a quarterly basis for that number. On the step-up -- the fair value step-up for the inventory, we expect that -- we think by the second half of next year, probably around this time, Q3 or so, we think that will be fully depleted. And the way to think about that is if you just project the normal margin without these charges, so in this quarter $9.6 million or 67% margin. If you're forecasting that, that fair value step-up charge would be twice that, 2x that number on a quarterly basis, generally speaking, give and take. And again, we think that will be finished by this time, Q3 second half next year.

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Operator [32]

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And our next question comes from Kennen MacKay with RBC Capital Markets.

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Justin Hayward Burns, RBC Capital Markets, LLC, Research Division - Senior Associate [33]

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This is Justin on for Kennen. Congrats on all the progress this quarter. Question from us on event rate expectations for the Phase III program. Just wondering where that guidance is coming from and how it changes the hemoglobin goals. Since the initial Aranesp publications affect the MACE event rate predictions, so essentially with the new hemoglobin goals, have there been any changes to your expectations for event accrual?

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [34]

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Yes. So when you're projecting event rates, when you're designing a study, you look at all of the available literature and project based on that. If you think about studies like TREAT, really, what you're -- you're not really using the Aranesp [free], you're really thinking about the placebo rate. And that's kind of informed kind of the way we think about it. Obviously, we are deeply into the trial now, INNO2VATE is fully enrolled, PRO2TECT will be very shortly. And so we have a very good sense of how events are coming in, and I think we have a lot of confidence in the timing now of when data is going to be available.

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Operator [35]

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(Operator Instructions) Our next question comes from Ed Arce with H.C. Wainwright.

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Antonio Eduardo Arce, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [36]

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Most have been asked and answered already pretty thoroughly, but I did want to ask one around this new policy Advancing American Kidney Health and the goals of reducing the risk of kidney failure and improving access to quality care. In particular, around the sort of payment incentive plans that they have, could you share with us sort of your thoughts and perspectives going forward as that's being enrolled? And how in particular do you think that could ultimately benefit HIFs and vadadustat in particular?

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [37]

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Yes. Thanks for that question. This is an initiative that, obviously, is positive for everyone in the kidney care industry, frankly. And I recently was elected chair of the Kidney Care Partners, which is the lobbying organization for the community. And that really does give Akebia a unique opportunity to be kind of at the head of the table as we work with the government on some of these policy initiatives going forward. So I think people are still trying to understand some of these different payment schemes that they are proposing, both the ones that are mandatory and optional.

I think very importantly, of course, is the TDAPA rule. And when you think about Akebia and vadadustat, TDAPA is that transitional drug add-on payment adjustor that allows for payment of vadadustat out of the bundle for 2 years and really does encourage innovation. And there are still certainly improvements we would like to see made to TDAPA and, again, being part of KCP helps us to drive our agenda forward with the rest of the community. But I think TDAPA is the one that really has the biggest impact on us today on vadadustat.

When you think about Auryxia, we've kind of had that near-term opportunity to grow. It's really that focus on outcomes that's key for us. And a lot of the payment schemes that they've put out there are really around dialysis, whereas it's these initiatives on keeping people off of dialysis that are much more interesting when you think about Auryxia, particularly given the Block data that we referenced earlier. So we are absolutely kind of right in the middle of finding every opportunity to take advantage of that and help that drive our strategic initiative for Auryxia and vadadustat in the future.

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Operator [38]

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Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to John Butler for any closing remarks.

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [39]

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Thanks, Yual. We're very pleased with the progress that the team has made in both driving Auryxia revenue and executing on the vadadustat program, and we really do look forward to updating you on our future progress. Thanks very much for joining the call today. Have a great day.

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Operator [40]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone, have a wonderful day.