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Edited Transcript of AKBA earnings conference call or presentation 9-May-19 1:00pm GMT

Q1 2019 Akebia Therapeutics Inc Earnings Call

Cambridge May 22, 2019 (Thomson StreetEvents) -- Edited Transcript of Akebia Therapeutics Inc earnings conference call or presentation Thursday, May 9, 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

* Christopher Joseph Raymond

Piper Jaffray Companies, Research Division - MD & Senior Research Analyst

* Eric William Joseph

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

* Ishmael Izakiel Gyimah Asante

Morgan Stanley, Research Division - Research Associate

* Kennen B. MacKay

RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research

* Robert Cummins Hazlett

BTIG, LLC, Research Division - MD

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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 Q1 Fiscal Year 2019 Financial Results and Business Highlights Conference Call. As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference. Kristen Sheppard, Vice President of Investor Relations. You may now begin.

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

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Thank you. Good morning, and thank you for joining us to discuss Akebia's first quarter 2019 financial results and our recent business highlights. The press release containing the company's financial results for the first 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 are John Butler, President and Chief Executive Officer of Akebia; and Jason Amello, Chief Financial Officer.

Before we begin, I would 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 recently 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 would like to turn the call over to our CEO, John Butler. John?

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

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Thank you, Kristen, and good morning, everyone. It's been just a little over a month since we presented our 2018 results and business highlights. So I'll keep my remarks brief.

The first quarter marked the achievement of another important milestone for Akebia with the announcement of top line results from 2 Phase III active-controlled pivotal studies evaluating vadadustat, our investigational oral HIF-PHI in Japanese patients with anemia due to chronic kidney disease.

We are excited by these results as they increase our level of confidence in the HIF pathway and more specifically vadadustat's clinical program. They also bring us that much closer to our goal of improving the standard of care for people with anemia due to CKD. Importantly, these results are expected to serve as the basis with Mitsubishi Tanabe's New Drug Application for vadadustat in Japan in 2019.

I'm also pleased to announce that we've completed enrollment in INNO2VATE, our global clinical studies designed to enable potential NDA and MAA filings for vadadustat for treatment of anemia due to CKD in dialysis-dependent patients. We enrolled a combined total of over 3,900 patients across these 2 studies, exceeding our most recent expectations by 300 patients. We continue to expect top line data readout in Q2 of next year, subject to the accrual of MACE.

With respect to PRO2TECT, our global clinical studies designed to enable potential NDA and MAA filings for vadadustat for the treatment of anemia due to CKD in patients not on dialysis, enrollment continues to track in line with our expectations, and we continue to expect top line data readouts in mid-2020, subject to the accrual of MACE.

The goal of treatment with vadadustat in all HIF-PHIs in general is to raise patients hemoglobin levels into the target hemoglobin range and keep the hemoglobin stable over time, while avoiding supra-physiologic levels of erythropoietin, which is then associated with increased cardiovascular risk.

Our global Phase III trials are designed to assess noninferiority for efficacy and cardiovascular safety for vadadustat as compared to darbepoetin alpha, an injectable ESA. The trials also include multiple secondary efficacy and safety endpoints, which are important in assessing other clinically and, hence, commercially important areas of differentiation to ESAs, including the incidence of thromboembolic events, hospitalization for heart failure, effects on blood pressure and, in non-dialysis-dependent subjects, progression of kidney disease.

We believe that vadadustat has the potential to offer other advantages including dosing flexibility with once-daily dosing for non-dialysis-dependent patients and daily or 3 times weekly dosing for dialysis-dependent patients. We believe this dosing flexibility is an important factor for adherence and convenience within these distinct patient groups.

We also continue to make progress on our commercial strategy for vadadustat. We're encouraged by the level of enthusiasm from our strategic collaboration partners, including most recently Vifor Pharma. Our new amended agreement with Vifor now has the potential to provide access to vadadustat to patients treated in U.S. Fresenius Medical Care U.S. dialysis centers and other third-party dialysis organizations, including mid-sized dialysis organizations in the U.S.

We believe this creates the potential for rapid adoption of vadadustat upon approval in up to 60% of U.S. dialysis patients. In summary, we continue to make good progress with our Phase III program for vadadustat and believe the approach we've taken to designing our studies has the potential to be a competitive advantage as it allows for the relatively straightforward collection and analysis of MACE across the relevant studies.

We're looking forward to our Phase III data and other value-driving clinical events over the next 12 to 18 months. The size of the market opportunity and the significant need for innovation for this patient population provide a large opportunity for multiple products in this space. We are excited about the progress we're making in building our future growth story with the goal of improving the standard of care for people living with anemia due to chronic kidney disease.

Now turning to the progress we've made to date with our marketed product, Auryxia. Auryxia is the only oral iron tablet approved in the U.S. to treat dialysis-dependent CKD patients for hyperphosphatemia and non-dialysis-dependent CKD patients for iron deficiency anemia or IDA. For Q1, Auryxia revenue increased 12% over the prior year to $23.1 million and total Auryxia prescriptions increased 22.5% over the same period to 40,080.

We believe that the year-over-year growth reflects the strong underlying demand for Auryxia. We believe the sequential decline from Q4 is primarily the result of the new prior authorization required on prescribing Auryxia for its hyperphosphatemia indication for Medicare beneficiaries.

As we discussed at our year-end call in late March, this new requirement pressured prescriptions in Q4 and more specifically across the first quarter. As a reminder, this prior authorization is the consequence of CMS decision to stop covering Auryxia's IDA indication under Medicare Part D.

I'm pleased that we're making good progress with our efforts to help patients and nephrologists navigate this new requirement. We're encouraged with the growth in weekly prescriptions that we're now seeing. In fact, the prescription demand we have seen in the first 4 weeks of the second quarter exceeded the first 4 weeks of any quarter since Auryxia was launched.

Importantly, we are also continuing to advance the growth strategy we outlined on our last call. The first aspect of the strategy is focused on maximizing Auryxia's opportunity within its hyperphosphatemia indication, where we see the greatest potential for near-term revenue growth. We continue to have a high level of engagement with prescribers as we leverage Auryxia's proven clinical benefits. The real world data that we generated demonstrating Auryxia's lower pill burden versus other phosphate binders and nephrologists' view that Auryxia has a differentiated tolerability profile.

We're also continuing to leverage the KDIGO treatment guidelines, which advise nephrologists to limit the use of calcium-based phosphate binders for dialysis-dependent CKD patients. These interactions are also giving us the opportunity to position Auryxia as an option for patients who are switching from other agents due to efficacy, tolerability and pill burden limitations.

We're also focused on growing Auryxia's share within the commercial and private pay market in the U.S. for IDA. This large and growing patient population represents about 45% of the U.S. patients with IDA today. Over 70% of nephrologists see Auryxia as an advance over other oral iron products, and we're improving our commercial capabilities to translate this perception into adoption. I'm very excited about our opportunity to create broader access to Auryxia where presently many of these patients are untreated.

Finally, we're focused on restoring Medicare coverage for Auryxia for its IDA indication. We believe CMS recent coverage decision negatively impacts choice and care for Medicare beneficiaries. Together with others in the renal care community, we're working hard to urge CMS to restore coverage. There are analogs where CMS has provided Medicare Part D coverage for products in similar situations and that gives us confidence in our position.

Looking ahead, we believe continued execution on this growth strategy and underlying market demand will drive increased revenue for Auryxia in the second quarter and across the year. A favorable outcome from our work with CMS would represent the opportunity for upside. With so much activity underway, having the right leader at the helm of our commercial organization has been a key priority of mine.

I'm excited to welcome Dell Faulkingham to our team. As our new Chief Commercial Officer, Dell will be invaluable in advancing our commercial strategies for Auryxia and preparing for the vadadustat launch following FDA approval. Dell has significant experience in highly technical, but importantly, highly competitive markets, where he's demonstrated significant success.

Most recently, as Senior Vice President of the multiple sclerosis franchise at Biogen. He has deep experience in sales, marketing and market access. He's already on board, and we expect great things moving forward. I would also like to share with you that Dr. Steven Burke will succeed Dr. Rita Jain, who has informed us of her decision to step down from her position as Senior Vice President, Chief Medical Officer with the company effective June 17 to pursue other opportunities.

Dr. Jain has been a valuable member of our leadership team and we'd like to acknowledge and thank her for significant contributions to Akebia over her tenure. Rita has agreed to support our team and ensure a seamless and successful transition to her successor. We are excited to welcome Dr. Burke to our team in June. Steve is an experienced biotechnology executive with extensive drug development experience in kidney disease. He is joining us from Proteon Therapeutics, where he's been the Chief Medical Officer since 2006.

Prior to that, he was Senior Vice President of Medical and Regulatory Affairs at Genzyme and was responsible for clinical development at GelTex, where he led the global development of Renagel and Renvela. His clinical, medical, and regulatory experience in the renal market will be critically important for us as we drive adoption of Auryxia and prepare vadadustat for global regulatory filings.

I would now like to 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 we successfully closed our merger with the Keryx on December 12, 2018, this is the first time we are reporting a full quarter of financial results as a fully integrated biotechnology company. The results for the quarter demonstrated that we are making significant progress on our commercialization and development efforts, and we are 1 quarter closer to achieving our strategic vision. The company reported total revenue of $72.7 million in the first quarter of 2019 compared to $45.9 million in the first quarter of 2018, which included only collaboration revenue.

Looking at the components of our revenue, net product revenue from the sales of Auryxia for the first quarter 2019 was $23.1 million compared to $20.6 million as reported by Keryx premerger during the same period 2018. This represents a 12.1% increase from the first quarter of 2018. We believe that the majority of Auryxia's revenue is within the hyperphosphatemia indication, which we expect to remain the case for at least the near term. As a reminder, regarding our license and collaboration revenue, our collaboration agreements with Otsuka and Mitsubishi Tanabe are considered multiple element arrangements under the revenue recognition guidance.

This generally means that committed future payments that are probable of being received by the company are recognized over the life of the arrangement on a percentage of completion basis to the extent the activities under the arrangement are performed and delivered by Akebia, rather than when the payments are actually received. The company also recognizes royalties earned on net sales of ferric citrate in Japan under a sublicense agreement with Japan Tobacco and Torii which generally gets recognized when related sales occur.

So with that, said, license and collaboration revenue for the first quarter of 2019 was $49.6 million compared to $45.9 million in Q1 '18 of which the majority for both periods are related to our cost-sharing arrangements under the Otsuka collaboration agreements in connection with our Phase III program for vadadustat.

Through Q1 2019, Otsuka has funded 52.5% of the company's Phase III development cost for vadadustat and will begin to fund 80% of those cost when a predefined cost threshold is met, which is expected to occur in this second quarter of 2019. With respect to the MTPC agreement, the company's performance obligations under that agreement were substantially complete as of Q2 2018. Therefore, potential future MTPC collaboration revenue will come in the form of regulatory and commercial milestones and royalties.

Cost of goods sold for Auryxia was $31.3 million for the first quarter of 2019 consisting of $7.6 million of cost associated with the manufacture of Auryxia and $23.7 million related to the application of purchase accounting as a result of our merger with Keryx, which includes $14.6 million of share value inventory step-up and $9.1 million of amortization of intangibles.

Moving to our research and development expenses, R&D expenses were $82.4 million for the first quarter of 2019 compared to $61.4 million for the first quarter of 2018. The increase was primarily attributable to increase in external costs related to the continued advancement of PRO2TECT and INNO2VATE Phase III studies, including ongoing enrollment, manufacture of drug substance and drug product and regulatory activities in support of the global Phase III program as well as other clinical and preclinical activities. R&D expenses were further impacted by increases in headcount, consulting costs and consulting costs to support our expanding R&D programs. It is important to keep in mind that a portion 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 $34.3 million for the first quarter of 2019 compared to $9 million for the first quarter of 2018. The increase was primarily attributable to commercialization costs associated with Auryxia as there was no comparable commercialization costs in the first quarter of 2018. As a result of the foregoing operating results, the company reported a net loss for the first quarter of 2019 of a $72.4 million as compared to a net loss of $23.4 million for the first quarter of 2018. Net loss for the first quarter 2019 includes the impact of merger-related accounting charges totaling $23.7 million as I previously mentioned, offset by a $2.8 million deferred tax benefit.

Turning to our capital position. We ended the first quarter with cash, cash equivalents and available-for-sale securities of $168 million. As a reminder, there are always shifts in the timing of our cash flows between quarters given the scope of our Phase III program for vadadustat. The decrease in our cash position from the end of 2018 was primarily related to those shifts, such as reimbursement amounts from our collaboration partners and payments related to our Phase III program., including $13 million of advanced purchases of a comparator drug in anticipation of Brexit.

Additionally, cash was impacted by a onetime $30 million payment of certain merger-related liabilities that were recorded in 2018 but remained outstanding at the end of the year. Subsequent to the quarter end, we also raised $9.3 million under our existing ATM facility. We believe we have sufficient capital resources, including a prepaid quarterly committed cost share funding from our collaboration partners to fund our current operating plans into the third quarter of 2020. And lastly, we ended the quarter with approximately 117.1 million shares outstanding.

With that, we'll open up 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 Chris Raymond with Piper Jaffray.

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Christopher Joseph Raymond, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [2]

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Just a question on Auryxia. So John, I heard your comments about gaining traction with respect to helping physicians work through the existing limitations. I guess, with respect to what Medicare Part D did. But I remember you guys talking about working hard to sort of reverse that decision. Can you maybe talk about progress there. I think you said earlier that there could be resolution this year? Is that still a reasonable assumption?

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

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Thanks, Chris, for the question. Yes, we have been working extremely hard, not just us, but other members of the renal community and a number of patient organizations have been working with us, key opinion leaders, practicing nephrologists have written letters, and it's a very, very active effort both with CMS and on the Hill as well to help exert pressure on that side. It's very difficult as I'm sure you know to predict the timing of when something like that is going to happen, but we've had in multiple meetings with CMS, I feel very positive about the direction this is going in, but it's too early to say exactly when we'll resolve it. I think we're not taking our foot off the gas there.

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Christopher Joseph Raymond, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [4]

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Okay. And then maybe back on to vadadustat. So we're getting feedback from investors, a lot of folks, I think, are just questioning what the read-through is with respect to the FibroGen data and I know you guys have talked about this at length may be could you just remind folks whether there is or isn't why a read-through particularly in the pre-dialysis population when we do get that data?

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [5]

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Sure. Again, thanks for the question, Chris. So Chris, we don't have the data yet. So we're all anxiously awaiting it. We're really looking forward to see. I mean, there is no one more positive about the HIF class than I am, I think, and our perspective is when you see positive data for one product, that's good for the class. We think that generally speaking, that is the way -- certainly the way we think about seeing data from any other product being developed in the space. There are significant differences in the programs. So I think, you have to take that into account as you look at the results. As you mentioned, you have a placebo control that AstraZeneca's using in their non-dialysis trial versus an active-control that we're using. Again, we had very clear feedback from regulators that, that was the right comparator to use, and we think ultimately this is going to not only set us up for a positive regulatory outcome, but will give us opportunities to compare the drugs so that you have more direct ability to differentiate commercially.

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Operator [6]

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Our next question comes from Difei Yang from Mizuho.

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Alexandre N. Bouilloux, Mizuho Securities USA LLC, Research Division - Research Analyst [7]

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This is Alex on for Difei. I was just wondering if you could comment on the Hy's law disclosure. Maybe if could elaborate a little bit and what gives you confidence you will not encounter a second case?

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

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Yes, thanks for the question. So again, this was an update that we had to our disclosure in the 10-K. This is a case that we previously disclosed from our Phase IIb study from about 5 years ago, and the same case, no new data. But we're always looking at the data and the current medical team, the clinical team, updated their -- remember, this was a possibly related case when it was first reported. The current medical team updated that to call it a probably related case, again, nothing really changes with the data, just the way they looked at it. And with that, we felt it appropriate to update our disclosure. Nothing has changed in our view of the safety of the product.

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Alexandre N. Bouilloux, Mizuho Securities USA LLC, Research Division - Research Analyst [9]

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Okay. And then just related to the Japan NDA submission in 2019. Do you have a sense for the timing of that?

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

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So that obviously is Mitsubishi Tanabe who will be doing that filing. We've been working very hard to give them all of the information they need to then translate it and submit it to the PMDA. The guidance right now is 2019 and we are confident that they're on target to do that.

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Operator [11]

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Our next question comes from Eric Joseph with JPMorgan.

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Eric William Joseph, JP Morgan Chase & Co, Research Division - VP & Senior Analyst [12]

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Sorry if I missed this, but I'm just wondering if you could comment on recruitment time lines in the FO2RWARD-2 trial of evaluating 3x weekly dosing for vadadustat how -- whether you can provide sort of narrow time lines on the top line readout? And with the focus broadly here on minimizing hemoglobin excursion, what's the expectation that you might observe some widening of the range with a 3 times weekly dose regimen and sort of what level of tolerance would be accommodated?

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

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Eric, thanks for the question. So we haven't updated on FO2RWARD enrollment. We said that we'll have data this year. We're still very much on track for that. This is a dialysis trial. If you look at the INNO2VATE trial for instance, you have captive patients. So enrollment there is certainly quicker than in the nondialysis population. And I think that's what we're seeing in FO2RWARD as well. We're very pleased, and no update to timing, we'll have data this year. This is an open-label study. So we'll be looking at the data as we go. And the design of FO2RWARD it's a once-a-day design and then patients are switched to 3 times weekly. So you'll already have patients who are well-controlled on the drug. I can't recall the number of weeks before the switch, but we'll be moving patients who are well-controlled on vadadustat to 3 times weekly dosing. So your design constantly looking at -- into the hemoglobin level just like in Phase III to avoid having patients have excursions above -- even above 11 where the current guidelines reside and physicians really only worry when it's more above 13. But we're managing to the guidelines for the FDA. So again, we think that vadadustat has the ability and it's shown that in Phase II to control hemoglobins well. We expect that we'll see that in FO2RWARD but we'll all see the data at the end of the year or sometime this year.

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Eric William Joseph, JP Morgan Chase & Co, Research Division - VP & Senior Analyst [14]

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Got it. And I guess, you're not looking at MACE in this study, but I'm just wondering if there are incremental safety considerations with a 3 times weekly dosing regimen that would yet need to be considered -- looked at to have the data be eligible for an initial filing following in tandem with the INNO2VATE results?

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

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Right. So we're not looking at MACE in FO2RWARD. Obviously, we'll have 3,900 patients in INNO2VATE looking at MACE results from INNO2VATE. So we think that database will be extremely strong. We'll look at general safety. These are dialysis patients so they're being seen 3 times a week. So they're watched over quite carefully just on a normal course of care. Now this is a Phase II study. So we don't have an expectation that this will lead to an indication for 3 times weekly dosing. We will have -- we're planning the TRILO2GY trial in order to be a Phase III to lead to an indication, but we'll have this data and have it published and obviously in the NDA and MAA as well.

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Operator [16]

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Our next question comes from Chad Messer with Needham & Company.

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Chad Jason Messer, Needham & Company, LLC, Research Division - Senior Analyst [17]

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John, I was wondering if you could just comment a little more on the recent expansion of your agreement with Vifor? How significant is their third-party business?

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [18]

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So Chad, thanks for asking the question. This is something we're extremely excited about and we really think it reflects on the way Vifor and Fresenius, for that matter, are looking at vadadustat and the opportunity for the product in the market. So as you know, Fresenius represents about 40% of the dialysis market in the U.S. and the all other non-DaVita, if you will, mid-sized dialysis providers, smaller dialysis providers represent about 20%. Now Vifor doesn't have access to all of them, but they are continuing to grow that business and will continue to do that over the next number of years in advance of the vadadustat launch with a large portfolio of products. So being a part of that will very quickly allow us to have the product introduced into more than just the Fresenius network, which, again, speed of launch is critical and we really think this has a significant -- will have a significant impact on that speed and the TDAPA ruling as well is an important step in the direction where it really does encourage innovation for dialysis providers and the Vifor agreement along with the TDAPA ruling, we think will really accelerate the launch of vadadustat.

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Operator [19]

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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 [20]

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I think all of my questions have been answered, but thank you.

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Operator [21]

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Our next question comes from Robert Hazlett with BTIG.

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Robert Cummins Hazlett, BTIG, LLC, Research Division - MD [22]

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John, you've been interacting with Auryxia for a while now. Could you just comment on any fine-tuning that you might be making with regard to messaging of the product in the marketplace or subtle adjustments that -- or levers you can pull to be able to affect demand?

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [23]

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Thanks for the question. I really have enjoyed getting to know the team, the traditional Keryx team and the product, and have obviously been impressed with the way they worked through this CMS issue and I have to say, a lot of the first quarter was focused on that, it was focused on implementing tactical programs to help physicians work through and manage the CMS issue, which has led to a very clear growth curve moving forward. Now just as of Monday, we have Dell Faulkingham on board, who is our new Chief Commercial Officer and I have -- we have certainly worked together with the team on moving messaging, moving tactical implementation forward. I'm really looking forward to allowing Dell to sink his teeth in here and drive the team forward and see how steep we can drive that growth curve.

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Robert Cummins Hazlett, BTIG, LLC, Research Division - MD [24]

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And just one other question about vadadustat. Do you know the total number of patients that have been exposed to drug? I know that's kind of an obscure question, but just as we're considering things like Hy's law, just want to make sure we have that type of a number in the back of our minds?

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

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Yes, that's not a number we've ever provided, but when you -- if you start thinking about the 3,900 patients we have in INNO2VATE, many thousand patients in PRO2TECT and then hundreds of patients in our Phase I, Phase II program, it is many thousands of patients, of course, those are all kind of one-to-one randomizations, but it's many thousands of patients who have been exposed to the drug at this point.

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Operator [26]

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

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Ishmael Izakiel Gyimah Asante, Morgan Stanley, Research Division - Research Associate [27]

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This is Ishmael on for David. Within the context of the strong growth you're observing in 2Q '19 so far, can you help us understand the ultimate impact you anticipate to Auryxia from or ongoing quarters from the IDA ruling?

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [28]

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Thanks for the question. So as we mentioned before, our expectation even before the CMS ruling was that hyperphosphatemia was going to be the key growth driver certainly in 2019 and that IDA was a very important longer-term growth driver. So while disappointed by the CMS ruling and working hard to overcome it, we didn't think it was going to have a significant impact on physician adoption in 2019. Now what was unprecedented was the way that this prior auth was implemented in that I've never seen this in my career where you have all of the patients on the drug who have to go through this prior auth process all kind of as of January 1, which was most of them, when the plans put the prior auth in place. So we have to manage all of those patient through in Q1, focused on it, did it very successfully, and I think we see that success by the first 4 weeks of the second quarter being the highest we've ever seen since the drug launched. So -- and that's really being driven by the hyperphosphatemia indication. So the steepness of that growth curve, what that may turn out to be for the balance of the year and beyond, we just really don't understand what that will be yet, but it will be driven by hyperphosphatemia. The team will focus on those 45% of patients who have IDA and have commercial insurance, but it was always our expectation that hyperphosphatemia was the big driver.

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Operator [29]

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

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [30]

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John, can you maybe just remind us on the endpoints and the registrational path forward for the vadadustat as it relates to noninferiority versus superiority on MACE? And going back to your prior comments on how we could sort of think about a read-through to vadadustat from roxadustat MACE events. Can you maybe just help us contextualize this a little bit better given the difference in control arms? Should we think that maybe a placebo could have sort of lower MACE events than an active Aranesp control arm, or how should we be thinking about that? And then I have one quick follow-up question on Auryxia.

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [31]

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Okay. So Kennen, thanks for the question. Thanks for the opportunity to really stress that the design of the Phase III program is a noninferiority design, that is the threshold for regulatory approval, that's our expectation is that we are targeting noninferiority. To my knowledge, every single trial being done, that is a MACE trial for all of the competitors are all noninferiority design trials. And so we are all targeting the same thing. From that perspective, I do think that, that there is the opportunity for a read-through here. I think you have to remember that in the dialysis market, which will be the first readout, I mean, we're incredibly excited that we're just a year away from readout of our now fully enrolled INNO2VATE trial. But that will be an active-control trial as is every other company who is developing drugs for dialysis patients, they're all active control. So that's a very clear readout. Non-dialysis as I mentioned before, when you have a placebo control, it is a difference, there is a difference in how you will look at MACE. I think when you're looking at vadadustat versus an ESA, you've got a comparative product that has a history of elevated cardiovascular risk and you have to show your no worse. I think that's a bar we're really happy to have to cross for regulatory approval. And I mentioned in my speech there, that there are multiple secondary endpoints that allow for that commercial and clinical differentiation of the drug, that if you're comparing to placebo, you don't have that opportunity.

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [32]

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Got you. And then I just had this one quick follow-up on Auryxia. I guess when I'd been tracking scripts, it hadn't looked like demand was down about 14% quarter-over-quarter, obviously an impact of that CMS sort of decision and working through those reauthorizations, but I was wondering if you could elaborate on your commentary around demand sort of being the highest ever for this drug? And then separately, you mentioned some analogies for the Part D coverage of drugs in similar positions. I'm wondering if you could sort of specify what those were so we can dig into this a little bit more closely and sort of understand where the team is coming from.

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [33]

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Sure. So when you look at the quarter-on-quarter change, I mean, I think, Kennen, you might have been referencing Q4 to Q1 for the decreasing prescriptions?

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [34]

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Correct.

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [35]

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So that is where you saw weakness. When you -- what you don't see on a normal basis is the Fresenius script numbers, which are included in the [40,080] number that I gave you and obviously Fresenius is a very important direct customer for us, the Fresenius Rx piece of business. And so that really is absolutely, from where you saw that decrease. When you incorporate Fresenius, the decrease is not quite the percentage you referenced, but it was -- the cadence of the quarter was you saw that drop in the early part of the quarter as all of those patients came through for the prior auth. We implemented these tools. For instance, you saw the utilization of samples doubled from what we expected in the first quarter under normal circumstances as physicians used samples to bridge patients through the prior auth.

So obviously those are not paying prescription, but that patient stays on Auryxia and that's what's driving that increase we saw after those first few weeks, the scripts started to increase. I think on the March call, I even said we were seeing that growth. We're really seeing that robustly now in Q2. A very steep growth curve, and again, how steep that will remain, we'll be monitoring, but I'm very encouraged by where that is today. We've come through that period where that bolus of patients have to move through. Once you get that prior auth, it's good for a year. And now even if we aren't successful in overturning CMS, we'll be prepared before they come through, again, so that you don't have that dip in prescriptions that you saw in the beginning of this year in Q1. So we'll be able to manage through that much more effectively.

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [36]

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And then the analogies for drugs in similar positions as it relates to Part D coverage.

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

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Yes, thanks, thanks Kennen. The clearest one and one I worked on myself was vitamin D analogs. Really the point that we believe that CMS is making here is that there is statutory exclusion for vitamins and minerals. And they're saying that iron is a mineral, and of course, what we know about Auryxia is that it's not a naturally occurring iron, it is a chemically created ferric citrate coordination complex, and that's demonstrated most clearly by the fact that our Phase III trial in the iron deficiency anemia population was done only in patients who had failed oral iron already. That's a very compelling fact, but this is what we dealt with back when Part D was coming into place in 2006, where Part D wasn't going to cover vitamin D analogs. And -- because they were vitamins, and of course, what we had to explain to CMS and had folks on the hill help us explain this as well is that this was an analog of vitamin D that dialysis or non-dialysis patients can't process natural vitamin D and manage secondary hyperparathyroidism. You're not using Auryxia as an iron supplement, you're treating a disease and so that's the argument patient that we're using and we have used successfully in the past. Niaspan is another product that went through this as well and I didn't work on that one myself. But again, successfully made a very similar argument. So I have a lot of confidence in our ability to get through this. Timing, of course, is a much more -- when you're dealing with the government, it's much harder to pin that down.

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [38]

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Just wanted to say our physician checks come back very much in line with your commentary on Auryxia being perceived as a very differentiated product and helpful for patients.

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

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Kennen, thanks for adding that. That's what our research says as well.

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Operator [40]

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Ladies and gentlemen, thanks for participating today's question-and-answer session. I would now like to turn the call back over to Mr. John Butler for any closing remarks.

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John P. Butler, Akebia Therapeutics, Inc. - CEO, President & Director [41]

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Thanks, Sherry, and thank everyone for participating on the call. We look forward to continue updating you with our next quarterly call. Have a great day.

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Operator [42]

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Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Have a wonderful day.