Akebia surges on anemia drug deal; is a much bigger breakout looming?

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The News:

Akebia Therapeutics Inc. (Cambridge MA) leaped 18% Tuesday (May 16, 2017) sparked by news the fledgling dialysis treatment developer and Swiss backer Vifor Pharma Group Ltd. (Glattburg) agreed to an exclusive license agreement with giant Fresenius Medical Care AG (Bad Homburg DEU) for Akebia’s experimental anemia drug vadadustat. The med is presently in late-stage development as a treatment for anemia associated with chronic kidney disease (CKD).

@akebiatx stock surges after @ViforPharmaES agrees to license with @FMC_AC Click To Tweet

As part of the deal, Vifor Pharma has agreed to make a $50 million equity investment in Akebia at $14.00 per share. The agreement as a whole still remains subject to vadadustat’s approval from the US Food and Drug Administration. At the moment, the investigational product is still under Phase 3 development.

Oral hypoxia-inducible factor (HIF) stabilizer vadadustat has brought the three companies together, according to FierceBiotech.

Under terms of the potentially transformational agreement, Akebia will be handing exclusive distribution rights over to Vifor Pharma to sell vadadustat to Fresenius Medical Care North America–the leading kidney dialysis provider in the United States. The dialysis facilities saw over 185,000 patients in calendar 2016, representing approximately 40% of American dialysis patients.

Akebia and Vifor will share the profits. And Vifor will pay Akebia $20 million if vadadustat is approved and included in a bundled reimbursement model.

The agreement gives Vifor another potential source of revenue at a time when it is trying to equip itself to prosper as an independent company. Until last month, Vifor was tied to Galenica Santé but the IPO of its former sister unit has left it to fend for itself, says FierceBiotech.

“Vifor engaged in two years of checkbook pipeline building to prepare for the split and has committed to three years of intense investment to cement its position. The Akebia deal furthers this plan,” says FierceBiotech.

Steve’s Take:

I liken Akebia to a racehorse, gallopping down the home stretch to the pot of gold upon FDA approval of its highly regarded vadadustat.

The latest deals with Vifor and Fresenius give Ake­bia a po­ten­tial edge in its loom­ing show­down with Fi­bro­Gen Inc. (San Francisco), which has an­other oral ther­apy in late-stage de­vel­op­ment that will look to knock some aging bi­o­log­ics from the mar­ket called erythropoietin-stimulating agents—ESAs–that earn bil­lions of dol­lars a year.

At the end of the Phase 2 trial, Ake­bia showed that pa­tients trans­fer­ring from a stan­dard treat­ment main­tained healthy he­mo­glo­bin lev­els, set­ting up the Phase 3 ri­valry with Fi­bro­Gen, which re­leased in­terim Phase 3 data in Jan­u­ary.

As I wrote previously, if everything falls into place, Akebia will split the revenues and milestone it receives from Vifor with Japan’s Otsuka Pharma Co. Ltd., the company that has the US rights to vadadustat. Otsuka picked up the US rights last year, before returning to secure the rights to vadadustat in other markets in April.

Akebia has used the deals with Otsuka and another with Mitsubishi Tanabe Pharma to secure the near-term financial future of vadadustat while positioning itself to profit if the drug is a success.

The Japan­ese com­pa­nies were drawn in by one of two Phase 3 ther­a­pies that work by mak­ing the human body be­lieve it’s at a high al­ti­tude, trig­ger­ing red blood cell pro­duc­tion.

Bottom Line:

This latest licensing agreement largely assures that vadadustat will get off to a blistering start and immediate lead once it enters the market. Fresenius, recall, is the largest kidney dialysis provider in the US, with a 40% market share–implying that the drug will have an advantage from the get go.

What does Wall Street think?

Following news of the deal, HC Wainwright analyst Ed Arce announced that he is reiterating his Neutral rating on Akebia’s common stock and lifting his 12-month price target from $21.00 to $25.00. The upside suggested by Arce is about 67%.

Similarly, Needham & Company said that it raised its price target on the company’s stock from $18.00 to $25.00 while keeping a Buy rating.

Analyst Chad Messer said that the latest contract “is a boon for both future commercial opportunities as well as upfront equity at a premium to the company’s trailing stock price.”

What do other analysts think?

As of May 12, 2017, the consensus forecast among 6 polled investment analysts covering Akebia Therapeutics advises that the company will Outperform the market, according to the Financial Times. This has been the consensus forecast since the sentiment of investment analysts deteriorated on June 22, 2015. The previous consensus forecast advised investors to Buy equity.

Recommendations 1yr ago Latest
Buy 2 1
Outperform 4https://www.zacks.com/ 5
Hold 1 0
Underperform 0 0
Sell 0 0

According to the Recommendation Trends of the stock polled by Zacks Investment Research for this month, the company has a consensus recommendation of 1.38 on scale of 1 to 5, where 1 stands for Strong Buy and 5 means Strong Sell.

1 YEAR PRICE CHANGE +82.16%

Share price forecast

The 6 analysts offering 12-month price targets for Akebia have a median target of $19.50, with a high estimate of $25.00 and a low estimate of $17.00. The median estimate represents a 35% increase from the latest price of $14.43 on Wednesday.

Management of 10-year-old Akebia appears to be building a solid foundation for growth through vadadustat’s vigorous late-stage development program. So, even though it does have to share a portion of the drug’s profits and milestone payments with its US business collaborator Otsuka, this up-and-coming drugmaker may be worth watching.

Steve's Take: @akebiatx is shaping up as a potentially huge success story Click To Tweet

Yes, there’s risk due to the always fickle FDA. But there’s also a lot of upside to its share price after approval occurs, and with all the momentum and strategic business planning already accomplished, this name is shaping up as a potentially huge success story.

Steve Walker has no position in any stocks mentioned. MedContent Inc. has no position in any stocks mentioned. MondayMorning.com has a disclosure policy.