Ladies and gentlemen, and welcome to the Akebia Therapeutics Third quarter Financial Results and Business Highlights Conference Call. At this time all participants' lines are in a listen only mode. After the speakers' presentation there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today Ms. Kristen Sheppard. Please go ahead ma'am

Thank you, Catherine and good morning. My name Kristen Sheppard, Vice President of Investor Relations at Akebia. Thank you for joining us to discuss Akebia's third quarter 2019 financial results and our recent business highlights. The press release containing the company's financial results for the third 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 and thanks for joining us today. Akebia is now within two quarters of the first readout of our global Phase 3 studies of vadadustat. Our investigation on HIF-PHI being developed for the treatment of anemia due to CKD with top line data from INNOVATE expected in Q2 '20, followed by PROTECT top line data expected in mid-2020 subject to the accrual of MACE. It's incredibly energizing to all of us at Akebia to consider how close we are to the data readout and to the potential introduction of vadadustat into our renal focus commercial engine. Anemia due to CKD is a disease that affects 5.7 million people in the US. Essentially, every organ in the body is affected by this disease, most notably the kidneys and heart. There are limitations to the current standard of care in treating and managing this disease including the risk of cardiovascular events. Providing a new oral treatment options upon regulatory approval to patients and physicians, one with the potential to help address their unmet needs, and possibly better their lives would represent an incredible opportunity to advance patient care. And that's exactly what we've set out to achieve. It's been a busy and exciting few months. First, we achieved the primary objective by strengthening our balance sheet with $80 million in non-dilutive funding on very competitive terms to further support our clinical development program and other strategic goals. This loan which will close later this month, along with our ability to draw down an additional $20 million by the end of 2020, meaningfully extends our cash runway into 2021, well past the expected top line data readouts of our global Phase 3 clinical studies. Importantly Auryxia revenue allows us to service this debt. Vadadustat is the cornerstone of…

Thank you, John. And good morning. As john mentioned we are making significant progress on our commercialization and development efforts, but at the same time strengthening our liquidity position. Looking at the components of the P&L for the quarter. Total revenue for the third quarter 2019 was $92 million compared to $53.2 million for the pre-merger third quarter of 2018. That product revenue from the sales of Auryxia for the third quarter of 2019 increased 13% to $30 million compared to $26.6 million as reported by Keryx pre-merger during the same period in 2018. Cost of goods sold associated with the manufacturer of Auryxia was $11.2 million for the third quarter of 2019, to that we had about $27.1 million for the non-cash purchase accounting effects of the Keryx merger, including an inventory step up charge of $18 million and $9.1 million of amortization of intangibles bringing our total recorded GAAP cost of sales to $38.3 million. As you know, our collaboration agreements are both highly strategic and important elements of our financial strength. Collaboration and license revenue continue 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 third quarter we recognize $62 million collaboration in license revenue compared with $53.2 million in the third quarter 2018. Publish the majority for both periods relate to our Otsuka agreements. Historically, Otsuka had funded 52.5% of our Phase 3 development costs for vadadustat, and starting in Q2 2019 Otsuka began funding 80% of these costs. With continued progress, future collaboration revenue loss come in the form of additional milestones and royalties. Moving to research and development expenses. R&D expenses were $74.5 million for the third quarter of 2019 compared to $70.6 million for the third…

Thank you. [Operator Instructions] And our first question comes from Chris Raymond with Piper Jeffrey. Your line is open.

Hey, guys, thanks. Just a couple questions. So John, I'm kind of struck by the statement in your press release and you kind of said this as well in your prepared remarks. About, essentially being the only potential you only have approved comparing outcomes to current standard of care in both dialysis and non-dialysis. So, I mean, John, this place stays pretty well. And last night your competitor made a statement, I think that about - only about 15% or so of patients who start dialysis have gotten ESA, which actually is the first time I think I've heard them acknowledge and the meaningful ESA use. But I mean, there's a lot of data out there that says that rate is much higher. So maybe just clear up for us again, the space well, John, I get this from investors a lot. ESA use in the pre-dialysis or non-dialysis setting, how prevalent is it from your perspective and how many patients starting dialysis around an ESA?

Hey, Chris, thanks for the question. It is certainly more frequent than 15%. I mean, you have to break it down a couple of different ways. You have patients who are chronically treated within ESA, which actually quite common outside of the U.S., but in the U.S., it's much more frequently dosed in a - as a rescue therapy, because of the significant risk associated with the FAUs and the fact that you're bringing patients in for injections frequently, having them go to infusion centers etcetera. So I do think that there is significant work that will need to be done to continue to educate physicians on the need to treat those patients, which is one other reasons why we have a commercial organization that's talking about anemia today with Auryxia. So, but if you talk to nephrologists, they don't - it's not in their mind that they are not treating these patients. This is a very common and maybe they would much preferred to see a comparison to what they're used to using which is in ESA than to placebo which really means nothing to them.

Okay. And then just I know we kind of gun around on this issue, a decent amount with respect to your trial and your design. And I know you differed from your competitor and that you hadn't really talked about your non-inferiority margin. Is there any - instead to be more directly I guess why not provide that non-inferiority margin to investors especially since you have an agreement with the FDA?

So, I think you can appreciate Chris that, it's a very competitive situation. And given that we have agreement with the FDA and DMA, we will hold back for us and how we progress. I don't think it's our job to inform others of our negotiations.

Fair enough, okay. And then one final question maybe on this trial. So the way you guys are looking at MACE, John you guys have stressed that the MACE components are an additional non-primary endpoint in your clinical program for vadadustat. When we saw the lots of data, there was a pretty decent imbalance in MI and stroke. And so, I guess the question is maybe sort of talk a little bit about you feel like that's a dead end for you guys once you finally have those readouts or maybe just talk about the value of having those individual components of MACE?

Right. So Chris when you look at the data that was presented, it's really not surprising to us that there are significant questions around the components and other areas. And from where we're sitting, kind of most of that really revolves around design issues, and regulatory interaction. And again when I talk to KOLs and nephrologists about this, I was at the sessions at ASN, there were a lot of excitement about the data. And I think that bodes well for us in the class. But it's our design that really makes the difference. It is the active control particularly in non-dialysis. Maybe your referencing was in non-dialysis patients. We have direct comparison with ASSAYs, that's what sets us up from a clinical perspective and from a regulatory perspective, ultimately from a commercial perspective. But all of those differences that we're seeing are we really think of is designs or FDA interaction differences. And we think we've done a right thing on both with the active control and those agreements with FDA and EMA on key statistical elements before, frankly, on most of them before we started the study.

Okay, great. Thank you very much.

Thanks Chris.

Thank you. And our next question comes from Eric Joseph with JP Morgan. Your line is open.

Hi, guys thanks for taking the questions. Maybe just a pick up on the last question. In your discussions with regulators, has there been specific discussion on cell components within these and I guess, their utility or is the cell components come to non-inferiority strictly on the composite main score? And I have a couple of follow ups.

I think regulators look at the totality of the data. So, clearly there's an agreement on the primary efficacy and safety endpoints and those are MACE as we described. But what I know about the FDA and EMA is, you hand them the data and they analyze it kind of however they want. What you want is a data set that is not complex and not statistically challenging so that you understand the data that you're handing to them. And, they'll look at it in its totality. And again, I mean, that is the study that we've designed with an act of control in both dialysis and non-dialysis.

Okay. And then just picking up on some of your prepared remarks, discussing some of the secondary endpoints and potential benefits with vadadustat particularly progression CKD. Can you talk a little bit about mechanistically, how treatment of anemia with HIFs might impact CKD progression? And what baseline expectation is with the ESA on that on progression, and what might be viewed as a clinically meaningful improvement.

Yeah. So the HIFs have shown in preclinical models that they have been able to impact, kidney or organ health, kind of better oxygen flow to an organ, kind of suggests that it can protect that organ. I think it's important to recognize again that in our study in non-dialysis, we're comparing directly to an ESA. So what's known of course, is that anemia itself has an impact on progression on GFR. You make up - you correct anemia, correct congestive heart failure and you're improving, potentially GFR not necessarily progression. So it truly is a difference. We really want to explore that versus the standard of care, which is an ESA. And that's what will - that's the answer we will have in our study.

Got it. And just one on Auryxia if I could. I appreciating that you're in the midst of a legal dispute when it comes to the IDA opportunity. But just within hyperphosphatemia, I'm wondering, as we turn the corner here 2020 whether next year, we've been in position to talk about guidance within that segment. Thanks.

So, again, I mean, where we are today, we have a tremendous amount of excitement about hyperphosphatemia as an opportunity for us. But given, the issues around IDA and CMS, it just doesn't make sense for us to guide you, in that area. And I mean, this is we really believe that CMS has a legal obligation to cover the drug. But at this point, I think it's really about being cautious in how we approach revenue expectations for Auryxia. I really encourage you to do the same, Eric.

Alright. Appreciate it. Thanks for taking the questions guys.

Thank you.

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

Thank you so much for taking my question. One question on the IDA. Could you give us I guess, an example of historic precedent of a scenario that might be similar? It seems somewhat unique, in which you've had a single drug, two indications; one reimbursed one not and being put in this kind of legal scenario. Is there some scenario we can look at, I guess, to gain some perspective?

Yeah. There certainly is - it is actually multiple. And one I was involved in myself was with Vitamin D, and Part D, again same patient population. It wasn't the same and that there were two indications, but it was indicated for the treatment of CKD patients, their hyperthyroidism. And again, I mean, the initial read by CMS was that this was a vitamin and therefore there was an exclusion for it. But they recognized with our help, that this was being used to treat a disease that was not an excluded disease. And therefore, it should be covered and was, which is why we really believe that we had, clear path forward. Today, can we feel the same about Auryxia? This is a product that's being reimbursed for hyperphosphatemia. And therefore, it's not kind of being seen by CMS as a mineral in that case. And its iron deficiency anemia is not an excluded indication. So we feel that they have a legal obligation to reimburse the drug. And that's what the lawsuit is about.

Thanks for taking the questions.

Thank you.

Thank you. Our next question comes from Difei Yang with Mizuho Securities. Your line is open.

Hey, good morning, and thanks for taking my question. So John, just a couple from JFDA, so Japanese FDA perspective, why wouldn't they need the MACE? Maybe you could help us with their rationale?

Well we basically follow the guidance that regulators give us. The PMDA, and as you know, Japan is always a generally conservative country, doesn't require MACE data. I mean, it certainly, like every regulatory authority you provide them all the data that exists for the drug, but they don't have the expectation that you provide MACE data they haven't seen in a Japanese population, the impact on outcomes and they frankly target higher hemoglobin levels in Japanese patients. Importantly, our partner MTPC is really encouraged by the data as run rate we. And as you know, it's an active review in process. And if we stay on expected timelines, we'd be talking about a July approval for vadadustat.

Yeah, thank you for that additional color. Then on the very high level from nephrologist perspective, the NDD [ph] setting. Do you think - where do you think the market needs is? Are the nephrologists are looking for something as safe as a placebo or they're looking for something for as long as that something is safer than [indiscernible] You think that market will expand?

So, from a nephrologist perspective, I think they're much more interested in seeing a comparison to the drug that they use. And again, I mean to the Chris's question earlier, I mean, they use on a regular basis. And that's, again, from a commercial perspective, a much stronger package to go in and speak to physicians about, because you can make direct comparisons, which you can't do in a placebo controlled trial.

Yeah, thank you. Then finally on GFR. So, what is clinically relevant, if I see a how much of an improvement in GFR that could be signaling that is slowing the progression of CKD?

I think which clinically relevant is seeing a slower progression, not seeing just a change in GFR. But actually seeing a difference in the time it takes for a patient to get onto dialysis. And I think that's really what will move physicians not at change in GFR, we are measuring that in our Phase 3 study.

So for the design, do you think you have the power to get significant - to get the statistical significance on the CapEx?

Yeah, no, it's a great question, Difei. And of course you do not know whether you have the power and once you know what the treatment effect is, and we don't have that - we don't have anything to base that on. I don't want to oversell our expectations on showing a delayed progression. And let's just see where the data leads us.

Okay, great. And, John moreover on this topic. Could you help us with how this portion of the trial was designed? What would you be measuring? Are you using the staging to decide how long does it take for a patient to go from stage three to four to five and/or there are finer measurements you're trying to discern?

Difei that's a level of detail in the protocol that I don't have at my fingertips here. So we'll have to come back to you on that.

Oh, great. Thank you.

It's a good question. I just don't - and I haven't looked at the protocol in a long time. So, but it's a good question.

No worries. And thank you so much for clarifying or providing clarifying thoughts on the program. Thanks.

Thank you, Difei.

Thank you. Our next question comes from Ed Arce with H.C. Wainwright. Your line is open.

Hi John, thanks for taking my questions. Perhaps I could ask one on the commercial infrastructure and readiness given the high level of confidence you mentioned earlier in your remarks. As you think about approval and launch likely late '21 or in '22 what are the key factors - the dynamics of the competitive environment that you're looking at? And how are you thinking about addressing those?

So, this is really where the merger we completed last year that's the strategic value of that really starts to pay off. I mean I mentioned earlier that communicating on the need to treat patients with chronic KD disease for anemia chronically versus episodically as physicians do today, it's an important communication point and one that we can start today, talking about iron deficiency anemia and certainly our medical affairs group can talk more broadly about kind of treating that disease area, the importance of that. That is absolutely critical. The other critical component of success here is the relationship we have with Vifor Pharma. And the fact that we have access to 60% of the dialysis population, with vadadustat right from launch. Again I'm going to use a Mircera example where a nine months, 90% of the patients change. But to that rule that's been finalized by CMS, gives us great opportunity to move patients quickly. And just to remind you that Vifor relationship is an exclusive one. Vadadustat is the only product, HIF product that they can sell into their joint venture with Fresenius. Fresenius alone accounts for 40% of the market. So, those are kind of a number of things that we have done to really be prepared for commercial launch, the things that we think are will have the biggest impact. And I should also add that we have our partner Otsuka, who is providing 50% of the commercial muscle for the product as well. So, when I look at the competitive environment I'm really very encouraged by where we are. And unlike a company with a single asset looking to launch themselves where you have significant capital raise needed to finance that, because of all of those pieces we put in place, it's a much more modest the investments that we need to make.

Okay, thanks John, that's a nice summary. One - perhaps one other question on your ongoing suit with CMS regarding IDA and I appreciate that there are certainly some things you are - really wouldn't want to discuss given the ongoing litigation. But you'd mentioned even more recently beyond the initial suit, I think you mentioned an injunction. Just maybe could you review again what's the latest status with the overall effort? Thank you.

Sure, Ed, thanks for the question. So yes, as we mentioned we filed a preliminary injunction, which would obviously because of the significant harm that we're experiencing with - not just with the lack of reimbursement for iron deficiency and anemia but also because of the prior ops that are required for hyperphosphatemia patients, we've filed that with the Court. We are waiting to hear on that. I don't know the timing.

Great, thanks so much.

Thanks, Ed.

Thank you. [Operator Instructions] Our next question comes from Kennen MacKay with RBC Capital Markets. Your line is open.

Hey, this is Justin on for Ken. And thanks for taking my question. And congrats on the progress this quarter. Just a quick question from us as you sort of think about the landscape. Given the higher event rate in year one for patients on dialysis already receiving standard care, do you have any sort of clinician feedback on their willingness to switch over well control patients to a new therapy?

That’s an interesting question. I think that one thing that you need to recognize about dialysis treatment is that it's very protocol driven, particularly when you think about Fresenius and DaVita. And they really do quite a bit of work to optimize treatment for patients and switch everyone as quickly as they can to have consistency. I mean, I think we're encouraged by the data we've seen in incident patients from roxadustat. And we're obviously looking at that population also. And remember, as you treat more patients on non-dialysis, and those patients start dialysis on a particular product, there will be a great desire to continue to maintain them if they're being maintained well. So I do think that the incident market is one that will be very interesting for vadadustat.

Okay, great. And then just a quick one on Auryxia, if you're able to. Look like sales were a little flattish on this quarter from the last quarter. I was wondering if you can go into some of the details behind the slowdown in growth that you saw there.

So Q3 is always a quarter where you see more of a flattening in the summer months. We had a little bit of a softening on the average selling price as well. But fundamentally the ability to grow in the iron deficiency anemia market has really been impacted by the CMS decision and the prior off. So we're continuing to focus on hyperphosphatemia, we have a lot of excitement around that. But I do encourage you to be cautious as you think about growth in the fourth quarter and into 2020.

Okay, thank you very much.

Thank you. And that's all the questions we have. I'd like to turn the call back to Mr. John Butler CEO for any closing remarks.

Thanks, Catherine. And thanks, everyone, for attending again. We look forward to continuing to update you in the future on the progress we make in the business. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.