Akebia, Trading M&A For an IPO, Follows Fast in Anemia Drug Race

6/9/14Follow @benthefidler

Akebia Therapeutics and its investors had hit a crossroads familiar to many startup biotechs last year. Its lead drug, AKB-6548, a pill for the anemia people get when their kidneys are failing, had just produced good enough data to move it into a Phase 2b study. If that went well too, the company would need to do a pricey late-stage trial if the drug were to have a chance to make it to market. So more money was needed—a lot of it.

Meanwhile, rival drugs, some further along in development, were advancing. Akebia (NASDAQ: AKBA) faced a tough choice. Should it sell itself to the highest bidder (assuming it could find one), or go it alone and build a company, the long road ahead and the competition be damned?

“There was clearly significant interest [from buyers], but I think sometimes when you get significant interest you realize, wait a minute, if I put a few more dollars in here myself, and finance it through the next study, the step up is going to be a lot greater,” says Akebia CEO John Butler, who joined the company after the decision was made.

Akebia opted to go for it alone. The company raised a private round, brought in Butler, the ex-head of Genzyme’s renal business, to lead the company, and moved its headquarters from Cincinnati to the biotech hub of Cambridge, MA. Then it sprinted towards an IPO in late March to grab even more cash, in the nick of time. Akebia was one of the last big biotech IPOs in the recent boom, raising some $30 million more than it first sought, just before a plunge in biotech stocks.

“We just moved at 100 miles an hour to get this thing done,” Butler says “This is why from the day I started it was let’s just move as quickly as we can because windows are open, but windows close, and you don’t know when they’re gonna close.”

Still, now comes the hard part for Akebia. The mostly-virtual, 27-employee company, is in a heated race with three rival groups—San Diego, CA-based FibroGen (teamed with giants AstraZeneca and Astellas Pharma), big British drugmaker GlaxoSmithKline, and Bayer—that are also trying to bring an anemia pill to the market. The huge prize they’re all trying to grab is replacing the injectable blockbuster biologic anemia drugs like Amgen’s epoetin alfa (Epogen) and darbapoeitin alfa (Aranesp), whose use has been dialed back a bit over the past several years due to significant safety concerns, but still generate billions of dollars.

What’s more, all three groups are using variations of the same approach—using a drug to try to trick the body into thinking it’s at high altitude. That stimulates the body to make more red blood cells, the natural corrective response to low-oxygen conditions. And Akebia is trailing FibroGen, which already started a Phase 3 trial for its prospect, FG-4592 (Both GSK’s and Bayer’s prospects are just a bit behind Akebia), giving it a lead in the race to make it to the market first. So Akebia must not only show that AKB-6548 works as well, and is safer, than the old biologic drugs; it also may have to stand out in among the new drugs as well. But that’s what Akebia signed up for when it decided not to sell—a high-stakes race to the finish line.

Akebia John Butler

John Butler, CEO of Akebia

Akebia started up in 2007, a spinout of Proctor & Gamble founded by P&G medicinal chemist Joseph Gardner and Bob Shalwitz, a former Reliant Pharmaceuticals and Abbott Laboratories executive. The company was initially based on two disparate scientific ideas. One was to look into the biology of hypoxia inducible factor, or HIF—a system of checks and balances that makes sure cells have the right amount of oxygen to survive. The second was to focus on activators of Tie-2 receptors, which are implicated in the formation of new blood vessels.

Akebia’s HIF efforts developed faster, and for good reason: an oral anemia drug is a big deal. When people with chronic kidney disease start to show signs of anemia, they’re first given iron to raise their hemoglobin levels. That eventually stops working, however, because the additional iron doesn’t change the fact that the failing kidneys start losing their ability to make erythropoietin—a protein that signals to the bone marrow to make red blood cells. That’s why injecting variants of human erythropoietin made with recombinant DNA technology—first the drug Epogen, and later Aranesp and Procrit—was such a huge advance in health care when the drugs were first introduced in the late 80s.

“It was a miracle at the time,” says Butler, who was a sales rep for Epogen in 1991. “I’d walk into a dialysis center and a patient would find out I was from Amgen and come up and hug me.”

Sentiment has since shifted, however. By the mid-2000s, various studies had begun to link heart attacks and strokes to the use of the drugs. In 2007, Epogen and Aransep were shown to increase the risk of serious cardiovascular events. Another major use for the drugs had been to fight the anemia that cancer patients suffer from—until studies linked the drugs to faster progression of cancer. As the result of all the new findings, the FDA slapped tighter restrictions on the drugs’ use.

Now, the standard of care for chronic kidney disease patients not on dialysis is no longer biologics, Butler says, but rescue therapy. Clinicians will let patients’ hemoglobin levels dip very low, and then give them a smaller dose of recombinant erythropoietin to get their blood cell count up, according to Butler. Patients on dialysis are treated with the drugs more frequently, but Butler says even those numbers are down because of recent reimbursement changes that have bundled payments for the entirety of kidney failure treatment into a single Medicare payment. Even with these changes, the anemia market related to chronic kidney disease alone is still worth $7 billion annually, according to Butler, and Epogen alone still generates around $2 billion per year. “Physicians use [billions] of this product [annually] even though it is known to increase mortality risk in patients,” he says.

That’s why there’s a huge market opportunity for a safer drug.

Enter the prospective oral anemia pills. Instead of spiking peoples’ erythropoietin levels quickly like biologics do, the oral pills are supposed to do so more gradually. In theory, that should reduce the cardiac risks. The big challenge for all the competitors here, Akebia included, is to prove that safety advantage while producing comparable, or close to comparable, efficacy. They must also show that the new approach doesn’t have other worrisome side effects. “It’s a small molecule so you’re always going to be worried about safety and that’s the biggest question you have here,” Butler says.

If the new drugs leap all these hurdles, the companies then must convince nephrologists who have backed off prescribing the old biologic drugs for CKD to adopt these pills instead.

Betting on Akebia to meet all these challenges is, of course, a big risk. But it’s a risk that Akebia’s investors, through a series of strategic moves over the past few years, have shown they’re willing to take. Butler notes that “fundamentally there was a thought…that there would be the opportunity to sell the company” once the Phase 2a data came in on AKB-6548. That happened in April 2012, when drug hit its goal of a dose-responsive increase in hemoglobin levels over 42 days, and also showed signs of increasing patients’ iron levels.

Even before those data came in, though, Akebia had some reorganization work to do. If results were good and Akebia sold itself, Butler says, it wouldn’t have gotten any value for its other assets. So Akebia first split itself in two, creating Aerpio Therapeutics around its Tie-2 program and a few other assets.

“If we [sold] Akebia, then we’d still have this other company we can finance that and build those assets, where we wouldn’t have gotten any value for them in M&A,” says Butler, who was at Genzyme at the time, of the company’s investors’ plans before he got there. ”[This] was a very sound way of thinking I think—being on the other side of it, if Genzyme was looking at a company like this, [they wouldn’t be] giving any value to anything other than that which [they’re] interested in, which would be the lead compound.”

The official split was announced in January 2012. It was a clean break. Akebia didn’t keep any rights to the assets Aerpio took. Both Akebia and Aerpio were being run side by side in Cincinnati, and both by Gardner. This wasn’t the case for very long, though. Investors in either company were getting, as Butler says, “half a CEO.” They shopped Akebia, but didn’t strike a deal. Even though Butler says there was interest, investors decided “they weren’t getting the value they wanted.”

Instead, another path opened up—a route to the public markets. Akebia raised a $41 million Series C in June 2013 and Novo A/S came aboard as an investor, joining Novartis Bioventures, Kearny Venture Partners, and others. Butler—who had been talking to Akebia for a few years about a board seat—joined it the following month, and quickly became the CEO (Gardner now leads Aerpio). Investors were adamant that if Akebia were to build itself independently, it had to move to one of the biotech hotspots, namely Boston or San Francisco. Butler, who was already in Boston, happily obliged. Akebia’s headquarters are now in Cambridge, though it does still have some employees in the Cincinnati area.

The move “was kind of going down without me, but let’s just say I accelerated the process,” he says.

Akebia then hustled towards an IPO. There was some talk of delaying the roadshow even by a week, but the board and bankers voted that down. The timing proved critical. On March 20, Akebia priced 5,882,323 shares at $17 apiece, the top of its range. It sold about 1 million more shares than it thought it would, and netted about $107 million after deductions, some $30 million more than it first sought.

The very same day, Congress sent a letter to Gilead Sciences challenging the pricing of its hepatitis C drug sofosbuvir (Sovaldi), triggering a big sell-off of biotech stocks. IPO successes in the sector have been few and far between since, with several companies having to cut smaller deals to get their offerings done.

“It was us and Versartis [which priced at the top of its range on the same day],” Butler says. “After that it’s been a very significant slope.”

Now Akebia’s under a whole different kind of pressure—producing good data and hitting milestones. It’s enrolled 209 patients in a Phase 2b study of AKB-6548 in patients with chronic kidney disease, which results expected in the fourth quarter of this year. If that trial is successful, Akebia will then go back to Wall Street and raise more cash for a big Phase 3 trial of about 2,000 patients. The specific medical goal in the trial is gradually increasing hemoglobin levels without increasing the risk of any significant cardiac events (compared to a placebo), according to Butler. The company is gearing up a mid-stage trial for the dialysis patients as well.

At the same time, Akebia needs to stand out from the competition. Astellas and FibroGen are already running a Phase 3 study of FG-4592 in Europe, and another is coming with AstraZeneca in the U.S. And GSK’s prospect recently completed a Phase 2a trial (Bayer’s is in Phase 2 testing as well). Butler says that while each of the drugs work via the same type of mechanism—stabilizing HIF—there are subtle differences in chemistry. As a result, each drug affects certain proteins in the HIF pathway (HIF1 and HIF2) by different degrees. Butler says these variations will translate into differences in the side effects the drugs cause—meaning, the winner should be easy to spot. Akebia, of course, thinks it’s got the best of the bunch. But it’ll have to prove it to win over doctors who will use the drugs.

“It’s not going to be like statins, where they’re all kind of the same,” Butler says. “There are going to be some pretty profound differences between the drugs.”

So what are Akebia’s chances? Nomura Securities analyst Ian Somaiya is bullish, favoring Akebia’s drug over FibroGen’s in a recent report. Somaiya cited “tighter distribution in the body” for AKB-6548 that could lead to “potentially better efficacy,” and noted that cholesterol-lowering effects seen in patients taking FibroGen’s drug “may portend systemic safety concerns.” (Nomura, it should be noted, was one of the underwriters in Akebia’s IPO).

Certainly, Wall Street shares that enthusiasm. Like the entire biotech sector, Akebia’s stock price took a hit after Congress’ letter to Gilead, dropping from $26.60 on March 20 to $18.96 by March 26. But since then, the stock has climbed back over $26, recouping almost all of the losses. That’s a better performance than the overall biotech sector. The Nasdaq Biotechnology Index (NASDAQ: IBB), for instance, was still down by more than 6 percent on June 4, compared to March 19.

There’s still a long road ahead for the company, of course. But so far, the choice to go it alone instead of finding a buyer has been a good one.

Ben Fidler is Xconomy's Deputy Biotechnology Editor. You can e-mail him at bfidler@xconomy.com Follow @benthefidler

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