Good day, ladies and gentlemen, and welcome to the Akebia Therapeutics Second Fiscal Year 2019 Financial Results and Business Highlights Conference Call. As a reminder, this call is being recorded. Later we will conduct the question-and-answer session and instructions will follow at that time. [Operator Instructions] I would now like to introduce your host for today's conference, Kristen Sheppard.

Thank you and good morning. My name Kristen Sheppard, Vice President of Investor Relations at 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 afternoon 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; 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 financial 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.

Thank you, Kristen. Good morning everyone. We believe we have a great story to share with you this morning. Throughout the first half of this year, we continue to make good progress against our strategic initiatives. And the headline continues to be solid execution. The commercial teams 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 the settlement with ANDA filer for Auryxia that reinforces the strength of our Auryxia IP. And with respect to vadadustat, the clinical team continue to knock it out of the park with the first regulatory submission for marketing approval of vadadustat, which was filed by our collaboration 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 is 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 have been very purposeful in developing our strategy to achieve this mission and it is great to see the benefits of our work coming to light as the team continues to systematically execute on our priorities. I will start with progress in our Phase III clinical program for vadadustat. Vadadustat is our investigational oral HIF-PHI that is designed to stimulate endogenous production to a more physiologic level for adult patients with anemia due to chronic kidney disease or CKD. Our JNDA filings particularly impressive, not only because it is the first regulatory submission for marketing approval of vadadustat, but also because we believe is may…

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 to $24.1 million as reported by Keryx pre merger during the same period in 2018. And this also represents a 26% increase over Q1 of 2019. Cost to goods sold associated with the manufacture of Auryxia was 9.6 million for the second quarter 2019, to that we had about $28.1 million for the non-cash purchasing accounting effects of the Keryx merger including an inventory step-up charge of $19 million and $9.1 million of the amortization of intangible bringing our total reported GAAP cost of sales to $37.7 million. As your know our collaboration agreements are both highly strategic and important elements of our financial strategy. Coloration in 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 program. For the second quarter, we recognize $71.7 million of collaboration and license revenue compared with $48.8 million in the second quarter of 2018 of which the majority of both periods relates to our Otsuka agreements. Historically Otsuka has funded 52.5% of our Phase III development cost vadadustat and starting in Q2 2019 Otsuka began funding 80% of those costs. Also in connection with our MTPC agreement its JANDA submission in July attribute a $10 million mile stone 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…

Thank you [Operator instructions] Our first question comes from Eric Joseph with JP Morgan. Your line is now open.

Hey guys thanks for taking the question. Just a couple from us. John, I guess, regarding your comments on the outcome studies from Block’s Paper. But I'm wondering if you could elaborate a little bit on the types of additional studies we are concentrating with KOLs and specifically whether you are seeking opportunities to expand label claims with a Auryxia for later stage PKD and then I have a follow-up.

Eric thanks very much for the question. That is exactly the way we are 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 study was designed, it really was a very straightforward outcome study with very clear results. So, what we have 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 and got 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 is 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 have, been thinking about since the merger.

Got it and maybe just one on the product side price commercial side, I guess there seems to be a little bit of variability in cogs, with a bit 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 to think about how they would smooth out overtime? Thanks.

Sure. This is Jason. So when you look at the cogs, if you look at the base level of cogs, which is $9.6 million, that is really related to the manufacturer of Auryxia and that is 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 is just a volume driven increase. The other two items that gets added to that are purchase accounting related. So the step-up on inventory, that is part of evaluation that you do when you do the acquisition from the date of closing. That gets brought into the P&L as we saw units of Auryxia. So that is 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 is our reasonable benchmark to use in terms of what to expect for that. Then there is the amortization of the license that we valued on Auryxia, and that is $9.1 million, and that is the same number every quarter. That is getting amortized over nine-years.

Great. That is helpful. Thanks for taking the questions.

Thank you. And our next question comes from Chris Raymond with Piper Jaffray. Your line is now open.

Good morning. This is Nicole Gabreski on for Chris this morning. So just Auryxia, on CMS' IDA coverage decision, you mentioned 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?

Sure. Thanks, Nicole, for the questions. So on the second question first, I mean we continue to have very good dialogue. Everywhere. In Washington. I think even at the Part D level there is a clear understanding of the value that Auryxia brings. And, I remain very confident in our ability to change that non-coverage determination. On the other side of that of course, this is the federal government we are working on. So from a timing perspective, they are not on my calendar, unfortunately. So, but as I said, there is every single meeting we have had has been positive and when you pair that with that. 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, and we are proving that we can delay progression. And, that is 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 that give me, great confidence that we are going to get to a positive resolution. Now, before we get to that resolution, as we have said, most of the growth that we have been driving is coming out of hyperphosphatemia indication. I mean our market share of hyperphosphatemia is just over 7%, there is tremendous room for growth there. As you think about things like KDIGO guidelines, moving people away from calcium, we continue to see that play through the way physicians think about prescribing drugs here and so with great confidence that we can continue to grow on hyperphosphatemia space and even as you think about iron deficiency anemia fully half of the CKD patients have commercial coverage or Medicaid where they still have access to Auryxia. So there is still significant opportunities 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 are seeing that in the prescriptions to-date.

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 community in some way.

So Japan doesn’t have process like the FDA does where they formally notify of acceptance, its generally they will send questions that would indicate they are not accepting it within a few weeks of the filing we are we pass that point now. So I think Mitsubishi and we believe that we are on a way to full review.

Okay. Thanks so much.

Thank you.

Thank you. And our next question comes from David Lebowitz with Morgan Stanley. Your line is now open.

Thank you very much for taking my question. I guess since competitive data came out earlier this year, I guess what positive take away do you have from what you read out from their data that might extrapolate to your coming studies and what differences can you also extrapolate that you would want to highlight to us regard to your studies and how we should think about things when we compare and contrast.

David thanks for the question. So there are 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, it’s certainly report and over safety issues at all which would or could be categorized that class related. So 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 is a very important comment and we haven't seen any data of course. So it makes it hard to draw too many conclusions, but we certainly suggests that there was no negative that we are seeing from a cardio vascular stand point and I think that again from a class prospective is quite encouraging. And then when I think about our program vis-a-vis their program and really feel like our program is very much set up for success from clinical prospective and from a regulatory prospective and ultimately from a commercial prospective. From a clinical prospective again we have got an active control comparator in both our non-dialysis study as well as our dialysis study and with a non-inferiority end point we think this gives us very strong opportunity for a very positive result from that prospective. It also allows us to do multiple comparison versus the standard of care which is in ESA and that from a commercial perspective gives us opportunities to compare. Remember this the $7 billion of revenue that is being generated today in this market is being generated by ESA. To take that market, you have to be able to compare directly to the drug the physicians are used to using will have much more of an opportunity to do that, particularly in the non-dialysis segment, which we all recognize as the opportunity to grow more than in the dialysis segment. But of course, you have got to get to the market first. And that is you want to have the right regulatory strategy. And, I sat across from the FDA, and they said in the non-dialysis segment, they wanted to see an active control. That is what we are going to give them. We think that gives us a significant advantage from that perspective. And, beyond that, we have an agreed to non- inferiority margin for MACE. And, we start with them, I guess it was just over a year ago now and agreed on the key elements for a statistical analysis plan. So we think we are very, very well set up as our data comes 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.

Thank you for that. 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 were some form that was imposed, that was also going to affect the hyperphosphatemia at least for a temporary period of time, and that more or less worked its way through.

So, yes, it was a very unusual situation at the beginning of the year where every patient on the drugs have to go through a prior authorization process. And that is 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 have put some tactics in place, around our hub, et cetera, to help physicians and patients get through the prior authorization process. It is not that physicians aren't used to that process. They are very much used to having to through prior authorizations. It was simply a volume of patients who had to go through in Q1. So we have really worked through that, we are now seeing clear growth. As I said, we see that certainly in the Q2 number, and we are continuing to see growth in Q3. So, I think working through it is the right way to say it. And, while we are confident in resolving the CMS issue, we are also working very hard so that at the beginning of the year, next year, we will be very prepared, not to see the same kind of pressure on prescriptions. And I'm very confident that we are set up to do that.

Thanks for taking my questions.

Thank you. And our next question comes from Bert Hazlett with BTIG. Your line is open. is now open.

Thank you. David just asked my questions and you were very clear in answering them. I will 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? Thanks.

Sure. So as we disclose, we have cash beyond 12-months and we are into Q3 2020 with that. So that is why we without reaffirming our previous guidance. Going forward we look at where we are in the horizon of our Phase III program, we are one year away from that reading out. So 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 have had on historically where we had a large Phase III programs going on all cylinders while we are enrolling. So we think that we are now in a very good position from a capital position and also having flexibility with the commercial product to look at other non-dilutive types of sources as well.

Yes, let me 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 is no urgency, but we are 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 are exploring all of those and we have a commercial product is moving towards profitability. And that is an important component of the long-term opportunities to put capital on the balance sheet. But there are multiple non-dilutive options as well. And we are exploring all of those. And we have time to do that, given the cash position that we have today. So, we feel 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 is, what do you need? And, when we look at the revenue growth we are 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 words. It is very manageable, compared to what we have to raise to fund this clinical program over the last few years.

Thank you for the color and thank you for the taking the question.

Thank you. And our next question comes from Difei Yang with Mizuho. Your line now is open.

Hey, good morning, guys. This is Alex on for Difei. Thank you for taking the questions. I have one on vadadustat. When you think about the commercialization of vadadustat that initially in the dialysis setting. How long do you think it would take for physicians to become comfortable with vadadustat in the non-dialysis setting? How much physician education do you think will be required there? Thank you.

Alex, thanks for the question. So in the dialysis setting, of course, you have got it is a very - they are two very different markets, right. And one of the reasons that we completed the transaction with V4 was the opportunity to accelerate the adoption of the product within the dialysis market. And I mean, if you use Mircera from V4 as a comp, in nine-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 are already in conversations with V4 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 non-dialysis market, of course, is does take more education on the product and more time to move adoption. And that is one of the reasons why ironically, it is nice that another company might be out there talking about the benefits of HIFs for a year before and we bring out what we think is a superior product. We will see what the data says but that is our belief. And that allows us to take advantage of the work that they have done.

And our next question comes from Chad Messer with Needham & Company. Your line is now open.

This March 25 date on the settlement Par. that is goods, that is actually year so out from what we have been modeling based on patterns. What do you think the odds are you will have other people, you have to defend your patents against and if so would the 2025 kind of stick, I know this is a settlement not a judgment.

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

That is great. And then I know the Japanese have a less defined process regulatory than the FDA and what is typical review time or range of typical review times.

Yes. Actually it is just a little bit of a different process, it is pretty well described, it is about a year and I think that is the right way to think about it, they do approvals in batches which is a little bit different, but you are talking about a year for the review.

Alright great and then just wanted to ask a little bit about the three time per week dosing that you got into PROTECT sort of trying to park it back to a new when you added that. Is that flexibility to benefit of that mainly just to give a different dose or is it suppose to be a compliance or adherence benefit as well, normally you think of less than daily is sometimes problematic for adherence.

So just to clarify the IV2 study has three times weekly dosing after daily dosing in it was an ongoing study. Of course we had the Phase II dialysis study that we published few years ago that had a three times weekly arm in it as well and then we are planning for a registration study with three times weekly dosing also. And you know the rational there is really around the dialysis segment and the fact that patient dialyzed three 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 provider want to ensure their patients are compliant and so they can deliver the drug to the patient in the chair and ensure a 100% compliance and that is 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 options for those patients is ideal. There will be patients that will still be in the dialysis center many thousands of them and having three times weekly option for them is ideal as well. And so, that is thinking about from commercial perspective, the idea is to have - physicians and patients have choice in how drug is delivered.

Okay. again I appreciate you taking me through that. And then my apologies to Jason, because I know, I know you went through this with this with an earlier question just on a cost of goods, I guess that there is a flat line that 9100. But how long is this accounting - how long we affected by that other non-cash item on the cards?

So, again the key thing to remember, both of these are non-cash. So the amortization is nine years from the date of the acquisition. So that is the same number $9.1 million per quarter. If you factor from December of 2018, nine years on a quarterly basis for that number. On the fair value step-up for the inventory, we expect that - if we take 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 a normal margin without these charges. So in this quarter, 9.6 million or 67% margin, if you are forecasting that that is fair value step-up charge, would be twice that two times that number on a quarterly basis, generally speaking give or take. Again, we think that will be finished by this time Q3 second half next year.

Great. Thanks.

Okay.

Thank you. And our next question comes from Kennen MacKay with RBC Capital Markets. Your line is now open.

This is [Justin] (Ph) on for Kennen and thanks for taking my question and congrats on all the progress this quarter. Question from us event rate expectations for the Phase III program, just wondering where that guidance was coming from and how it changes the hemoglobin goals since the initial Aranesp publications affects in MACE event rate predictions. So essentially, with the new hemoglobin goals, have there been any changes to your expectations for event approval? Thank you.

Yes, so when you are projecting event rates when you are designing a study, I mean you look at all of the available literature and project based on that. If you think about, studies like TREAT, I mean, really what your using - you are not really using the Aranesp rate, you really thinking about the placebo rate. And that has kind of informed, kind of the way we think about it, obviously, we are deeply into the trial now and INNOVATE fully enrolled PROTECT 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.

Greta. Thank you very much.

Thank you. [Operator Instructions] Our next question comes from Ed Arce with H.C. Wainwright. Your line is now open.

Hello everyone, thanks for taking my questions. 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 is that being enrolled and how in particular, do you think that could ultimately benefit HIFs and vadadustat in particular? Thanks.

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 us Akebia 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, the 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 adjuster that allows for payments of vadadustat out of the bundle for two years, and really does encourage innovation. And, there are still certainly improvements we would like to see - may to TDAPA. And again, being part of the 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 have kind of had that near-term opportunity to grow. It is really that focused on outcomes that is key for us. And a lot of the payment schemes that they put out there really around dialysis, whereas, it is these initiatives on keeping people off of dialysis that are much more interesting when you think about Auryxia and 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.

That is great. Thanks, john, and congrats on the continued progress.

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

Thanks. We are very pleased with the progress that the team has made 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.

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