Akebia: Is This A Potential Winner?

Summary

The current bear market offers many high-quality companies that are on sales at a deep bargain.

As we continue our bargain-hunting quest, we stumbled upon Akebia Therapeutics.

The company recently completed its merger with Keryx Pharmaceuticals.

Keryx’s approved medicine, Auryxia, provides increasing cash flow to help Akebia fund further pipeline innovation.

We’ll assess whether Akebia will post positive clinical data its lead drug Vadadustat and whether it has good market potential.

Looking for more? I update all of my investing ideas and strategies to members of Integrated BioSci Investing. Start your free trial today » With every new wave of optimism or pessimism, we are ready to abandon history and time-tested principles, but we cling tenaciously and unquestioningly to our prejudices. – Benjamin Graham Back on Dec. 13, 2018, Keryx Pharmaceuticals and Akebia Therapeutics (NASDAQ: AKBA ) announced the completion of their previously-disclosed plan to merge into one company. Keryx already is powering by the approved medicine, ferric citrate (Auryxia): It was initially approved back in 2014 to manage iron deficiency anemia associated with chronic kidney disease ("ACKD"). On Nov. 7, 2017, Auryxia gained additional approval as a phosphate binder and normalizer for patients suffering from CKD who are on dialysis. With the merger, Akebia hopes to bring pipeline synergy to its Phase 3 drug (Vadadustat) that’s being innovative as a treatment for non-dialysis dependent anemia due to chronic kidney disease (NDD ACKD). Interestingly, the stock continued to underperform after the merger. It’s most likely that the stock tumbled because of the bear market that dragged down nearly all bioscience companies. Nonetheless, there could be other fundamental weaknesses affecting Akebia. In this article, we’ll present a fundamental analysis of Akebia and what investors can expect from this interesting firm. Figure 1: Akebia chart. (Source: StockCharts ) Fundamental Analysis

Headquartered in Cambridge, Massachusetts, the newly-merged company (Akebia) is powering an enriched pipeline of both developing therapeutic and an approved medicine, Auryxia as shown in Figure 2 below. Notably, Auryxia , is generating more than $21M quarterly (i.e. >$100M on an annual basis based on our estimate). While this is clearly not a blockbuster, it still provides a meaningful revenue stream to fund the development of the lead molecule Vadadustat. According to President and CEO John Butler, We are very pleased to announce the completion of our merger with Keryx to create a fully integrated renal company that has the potential to set new standards of care for patients with kidney disease. With established renal development, manufacturing and commercial capabilities, strong cash position, a flexible balance sheet and experienced management team, our company is uniquely positioned to capitalize on the significant market opportunity by maximizing the growth of Auryxia and build launch momentum for our Phase 3 product candidate, Vadadustat, subject to approval by the U.S. Food and Drug Administration. On behalf of everyone at Akebia, we welcome Keryx and its talented team, and look forward to working together to achieve a seamless transition and to build value for all of our stakeholders. Figure 2: Therapeutic pipeline (Source: Akebia Therapeutics ) Anemia of Chronic Kidney Disease And Auryxia

As both Auryxia and Vadadustat treat the same condition, we’ll analyze the underlying science for ACKD and how both aforesaid molecules fit into the management of this disease. Defined as having a lowered than normal hemoglobin ("Hb") level, anemia is diagnosed when Hb range in men and women falls below (13.5 g/dL – 17.5 g/dL) and (12.0 g/dL – 15.5 g/dL), respectively. The symptoms of anemia include a pale skin color, easy fatigue, excessive tiredness, shortness of breath, etc.

When patients are suffering from prolonged (i.e. chronic) kidney disease, they tend to experience anemia. This is because erythropoietin (“EPO”) – a hormone responsible for synthesizing new red blood cells (“RBC”) – is made in the kidneys. Hence, prolonged kidney damage dampens their ability to make new RBC. Additionally, the body tends to sequester iron (an essential element for RBC synthesis) inside the RBC in a chronic disease state like a chronic kidney disease (“CKD”). Consequently, the lowered bioavailability of iron leads to low RBC production and thereby exacerbates anemia.

Regarding treatment, the first-line management is with EPO. The other treatment options include erythropoiesis-stimulating agents (“ESAs”) and iron. Since iron is not the standard of care or first-line drug, sales of the iron supplement, Auryxia, has been quite modest since several years after approval and launch as mentioned. Looking ahead, we believe that it’s highly unlikely for Auryxia to generate blockbuster sales because it’s not the standard of care. Additionally, the sales team of Keryx also is not robust because Keryx is a small company. We elucidated in an IBI Educational Series article: It’s highly unlikely for a small bioscience company to successfully launch a newly approved drug to blockbuster status. The main rationale is that it takes time to build a new sales and marketing team from scratch. Additionally, it takes time for their new reps to build a relationship with physicians, clinics, and hospital. A small company also has limited resources and thereby reduces the size of their team that, in and of itself, limits the marketing impact. Consequently, it’s extremely unlikely for a small sales force to completely unlock the value of a particular drug in commercialization. Putting all that together, we expect sales will be quite modest in the first few years of commercialization. Vadadustat

Asides from Auryxia, the newly merged company is tinkering with a Hypoxia-Inducible Factor Prolyl Hydroxylase (HIF-PH) inhibitor known as Vadadustat. It essentially works by mimicking the physiological effects of high altitude. When patients traverse from the sea level to higher altitude like a mountain, the oxygen level in the atmosphere thins out. In response to the oxygen-deficient environment, the body undergoes various homeostatic processes to improve oxygen transport and delivery. For instance, an adaptation is to ramp up RBC production because RBCs serve as an oxygen reservoir and carrier. The aforementioned science underlies the reason that elite athletes train in high altitude . Specifically, they wish to increase their RBC level to combat fatigue.

Accordingly, HIF-PH inhibition can lead to a low oxygen state (i.e. hypoxia) which induces RBC production. Consequently, this can result in enhanced iron utilization and improved erythropoietin (“EPO”) synthesis which altogether leads to more RBC/Hb production. And the higher RBC synthesis normalizes the low Hb content need to treat ACKD. If Vadadustat can generate excellent Phase 3 results the drug will most likely gain approval. Thereafter, Akebia will commercialize Vadadustat in the US, Europe, and other territories. We believe that it’s highly favorable that Akebia already inked the deal with Otsuka for the commercialization rights of Vadadustat worldwide. Having a commercialization partner like Otsuka substantially increased the launch success of Vadadustat. Notwithstanding, the ultimate success of Vadadustat depends on many factors. Quantitative Data Forecasting

As the crucial element to Vadadustat is the clinical reporting for its Phase 3 PRO2TECT trial , we’ll conduct a data forecasting for Vadadustat. Leveraging our Integrated BioSci framework of “molecule analysis” – that took into accounts different scoring variables, including available trial data (“TDV”), comparative molecular analysis (“CMV”), structural design (“SDV”), clinical trial setups (“TSV”), and disease specificity (DSV) – we prognosticated that there are more than 60% chances that Vadadustat will generate positive outcomes in PRO2TECT. Therefore, this translates into “slightly favorable” chances that Vadadustat will procure positive clinical outcomes.

CMV and DSV factored substantially into this data forecast. We believe that the mechanism of action of HIF-PH inhibition and the underlying pathophysiology of ACD are most important in this forecast. Our opinion is that the application of erythropoietin is imperative to the normalization of RBC. Besides EPO, research demonstrated that treating the underlying cause of chronic disease is the best way to normalize the RBC (hence Hb) level. Therefore, iron supplementation and HIF-PH inhibition play less important roles.

Consequently, when the underlying causes of CKD is treated the RBC and Hb level improves. The introduction of more iron is not as effective yet it can lead to other complications like infection and heart disease. The underlying mechanism in anemia of CKD is not due to iron deficiency. As a matter of act, the total iron level in the body is normal. The culprit is that in any chronic disease state, the body believes that it’s being under attack by an infectious agent (i.e. bacteria) that, in and of itself, utilizes iron. As a homeostasis response, the body sequesteres and hides irons inside of the RBC to make it unavailable for the bugs. We believe that the more iron is given in CKD the more it will be stored inside the RBC. In other words, it won’t be mobilized for RBC/Hb synthesis. As for HIF-PH inhibition in CKD, the kidneys are still damaged and might not be able to ramp up the EPO production needed for RBC/Hb synthesis. In the appropriate disease context, either administering iron or Vadadustat are unlikely to ameliorate ACKD.

Regarding qualitative analysis, all variables scored "extremely high." The scientific novelty of HIF-PH inhibition via Vadadustat is unprecedented. There’s also an extremely […]

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