Summary
- Akebia's revenue growth in the last quarter disappointed investors.
- Stock is about to break below a 52-week low.
- Contrarian opportunity if revenue growth accelerates in the second half of this year.
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Akebia Therapeutics, Inc. (AKBA) is on the verge of re-testing the $4.09 yearly low. The stock tried to break out above $5.00 but in failing to do so, could leave shareholders with bigger paper losses. And after a weak first-quarter report, investors will wonder when the stock will ever sustain a rebound.
Akebia, which was formed through the merger between Kerx Pharmaceuticals and Akebia on Dec 13, 2018, reported higher Auryxia sales in the first quarter. Sales grew 12.1% to $23.1 million as prescriptions grew 22.5% from last year. The company reported a number of positive developments in its clinical trials. It completed enrollment for its Phase 3 INNO 2 VATE trial, which studies the treatment of anemia due to CKD in dialysis-dependent patients. It announced positive top-line results from two Phase 3, active-controlled, pivotal studies evaluating vadadustat in Japanese subjects with anemia due to CKD in March 2019. The company has a commercial strategy for vadadustat, with the amended agreement expanding access for patients.
Despite the positive sales increase for Auryxia, investors are unimpressed. 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. But as the company focuses on growing Auryxia’s share within the private pay and commercial markets, revenue growth should accelerate.
Investors may note through Seeking Alpha’s ‘Peers’ tab that Akebia trades at the lowest price/sales of two times. Markets are clearly skeptical that management will succeed in restoring Medicare coverage for its IDA indication. In the short term, this negative view is justified because it could take more time and energy to restore coverage. With AKBA’s stock near yearly lows at $4.20, betting on a favorable turnaround could pay off. The stock’s market capitalization is $463 million and well below the over $1 billion level at its 52-week high.
Worrisome Signs
The company reported unexpected costs that shook investor confidence. In the first quarter, COGS (cost of goods sold) for Auryxia was $31.3 million. This consisted of $7.6 million for the cost associated with manufacturing the drug. $23.7 million is related to the purchase accounting following its merger with Keryx. This figure includes $14.6 million in share value inventory.
R&D costs rose to $82.4 million, up from $61.4 million last year. Investors need not express concern over the higher costs because Otsuka will provide reimbursements. It will cover a portion of the Phase 3 costs.
