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Akebia Therapeutics (AKBA) Q4 2018 Earnings Conference Call Transcript

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Akebia Therapeutics (NASDAQ: AKBA)
Q4 2018 Earnings Conference Call
March 18, 2019 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Akebia Therapeutics preliminary full-year 2018 financial results and business highlights conference call. As a reminder, this conference call is being recorded. [Operator instructions] I would now like to introduce your host for today's conference. Megan, the floor is yours.

Unidentified speaker

Thank you, operator. Good afternoon and thank you for joining us to discuss our recent business progress and Akebia's preliminary full-year 2018 financial results and business highlights conference call. The press release containing the company's preliminary financial results for the fourth quarter and full-year 2018 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. Rita Jain, chief medical officer; Michel Dahan, chief business officer; and Doug Jermasek, VP of marketing and strategy, will also be joining for the Q&A session. Before we begin, I'd 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.

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Additional information regarding these factors are described in the Risk Factors and management's Discussion and Analysis sections of our most recently quarterly and annual financial reports. The forward-looking statements on this call speaks 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'd like to turn the call over to our CEO, John Butler. John?

John Butler -- President and Chief Executive Officer

Thanks, Megan. Good afternoon, everyone, and thank you for joining us. 2018 was a transformative year for Akebia. Throughout the year, we executed against multiple strategic initiatives, including the creation of a fully integrated biopharma company for a successful merger with Keryx.

We now have capabilities from research, commercialization, and a portfolio of complementary assets. Through the merger, we gained access to Auryxia, a commercial product proved for two indications to treat patients with kidney disease. In addition, we continued to advance our global Phase 3 program for vadadustat. 2019 is beginning with the same sort of momentum with the announcement of the positive results from the Phase 3 clinical program for vadadustat in Japan conducted by our collaboration partner, Mitsubishi Tanabe or MTPC.

Simply put, we did what we said we were going to do and a bit more. One of the things that all of us at Akebia are most proud of is that we've advanced our mission to improve care for kidney disease patients. There is much more work ahead to advance our portfolio. And at the same time, we see tremendous opportunities to bring further innovation to the market to grow and to increase shareholder value.

The next 18 months will be a very busy time with significant catalyst ahead of us. Let me share why I have confidence in this vision. First, our two primary assets are highly differentiated and highly complementary. Our portfolio was focused on patients across the spectrum of chronic kidney disease.

Auryxia is the only oral iron tablet approved in the United States to treat non-dialysis-dependent chronic kidney disease or CKD patients for iron deficiency anemia or IDA, and dialysis-dependent CKD patients for [Inaudible]. Vadadustat is an investigational hypoxia-inducible factor prolyl hydroxylase inhibitor or HIF-PHI currently in Phase 3 development for the treatment of anemia due to CKD in non-dialysis-dependent and dialysis-dependent patients. With these assets at the core of our current portfolio and a strategic focus on growing that portfolio, we're working toward an all-important goal: to provide better control of kidney disease and its complications in earlier stages and potentially slow disease progression and improve outcomes for patients. Second, our merger with Keryx provides this valuable manufacturing, sales, marketing, and medical affairs capabilities, including long-standing relationships with key opinion leaders and a broader nephrology community.

We believe that these added capabilities represent a significant advantage that will help us with the launch momentum for vadadustat, subject to FDA approval, in addition to supporting Auryxia growth. For Auryxia, during 2018, the commercial team made significant progress in driving uptake of the drug. Pro forma unaudited full-year Auryxia sales increased 72% to $96 million. We saw an 85% increase in total prescriptions in 2018 compared to 2017.

We exited 2018 with a market share of 6.6% compared to 4.2% at the end of 2017. Auryxia's volume and share gains exceeded the gains of all other phosphate binders, both branded and generic, in 2018. Auryxia has the potential to grow on both of its approved indications, primarily because it offers an alternative treatment option that's very favorably perceived by prescribers. Nephrologists have a highly favorable perception of Auryxia across three of the most important needs in the hyperphosphatemia market: first, less pill burden for patients; second, a favorable tolerability profile; and third, a palatable formulation.

In addition, at the end of 2017, the Kidney Disease Improving Global Outcomes or KDIGO, which publishes treatment guidelines for kidney disease, released guidance stating that in adult patients with CKD, use of calcium-based phosphate binders should be limited. This has driven more than half of nephrologists to recognize the need to use a calcium-based phosphate binder in fewer patients, and we're starting to see that reflected in prescription data. On top of this, we have an opportunity to capture patients that are switching from other agents, particularly those switching from [Inaudible]. Although this is the market leader, there's a high discontinuation rate due to tolerability issues and pill burden.

There are limited options for switching patients, creating even more opportunity to grow share for Auryxia. Together with the proven clinical benefits of Auryxia, these drivers create a significant opportunity for the product. We expect Auryxia's hyperphosphatemia indication to continue to drive the majority of our revenue. As you know, CMS recent decision about coverage of Auryxia's IDA indication has led to the need for nephrologists to obtain prior authorization when prescribing Auryxia to Medicare patients to ensure the uses for its covered hyperphosphatemia indication.

This created an additional and often time-consuming administrative step in the process. While this new requirement pressured Auryxia prescription fulfillment starting late last year and early this year, the tools we developed in response to this action are having an impact. We're effectively working through this, and importantly, Auryxia weekly prescriptions are again exhibiting robust growth. Turning to the IDA indication.

Auryxia is the only oral iron tablet approved in the U.S. to treat non-dialysis-dependent CKD patients for iron deficiency anemia. Over 70% of nephrologists see Auryxia as an advance over other oral iron products and we continue to work to translate this perception into adoption. We see substantial opportunity for growth in the IDA indication.

Our greatest near-term opportunity is within the large and growing pool of private, commercial, and Medicaid patients, who represent approximately 45% of the addressable patient population. And in CKD non-dialysis, that's hundreds of thousands of patients. With respect to Auryxia's opportunity within the Medicare patient population, our team continues to work with others in the renal care community to urge CMS to restore coverage for the IDA indication under Medicare Part D, as we believe it dramatically impacts patient choice and access to care. There are analogues where CMS has provided Part D coverage for similar products, which gives us confidence in our position.

To fully recognized Auryxia's long-term market opportunity, we'll need to restore coverage when prescribed to treat IDA and ensure Medicare patients have access to its use for both FDA-approved indications, and we're actively engaged toward that end. We're very excited about the opportunities ahead for Auryxia. The product is growing in both indications. We're pleased with the progress the team has been making.

There's clearly more work and more opportunity ahead. I'd like -- and now I'd like to shift gears and spend some time discussing the vadadustat clinical development program in anemia due to CKD. Vadadustat is an oral HIF-PHI that's designed to stimulate endogenous EPO production to a more physiologic level. The premise is that by raising hemoglobin levels while avoiding super physiologic levels of EPO, vadadustat will present less cardiovascular risk to patients than ESAs, the current standard of care.

The goal is to bring patient's hemoglobin levels into the target range and keep it stable over time without fluctuations in and out of the target range, also called excursions or overstimulation of erythropoietin, which has been associated with cardiovascular safety risks in patients. Our global Phase 3 trials are designed to compare directly to [Inaudible] in ESA. They're designed to assess non-inferiority for efficacy to [Inaudible] and non-inferiority for the major adverse cardiovascular events or MACE. The trials include multiple secondary end points to assess other clinically important areas of differentiation [Inaudible] and alpha.

We believe the next 12 to 18 months are going to be an exciting time for Akebia and HIF-PHI class in general. The size of the addressable market for anemia associated with CKD is substantial -- in the multibillion dollar range, creating a large opportunity for multiple products in the space. Data continues to highlight the potential of our program in both dialysis-dependent and non-dialysis-dependent CKD patients. Just recently, we announced positive top-line results from two pivotal Japanese Phase 3 clinical trials conducted by our development and commercialization partner, Mitsubishi Tanabe, one in non-dialysis-dependent subjects and one in hemodialysis-dependent subjects; and results from two additional single-arm studies in dialysis-dependent subjects that further support vadadustat's potential to establish a new standard of care in anemia due to CKD.

The Japanese regulatory authority does not require a cardiovascular outcomes trial but a typical assessment of efficacy and safety. Based on these results, Mitsubishi Tanabe expects to submit a Japanese new drug application in 2019. This would be the first regulatory submission of vadadustat globally. Moving to our global Phase 3 program, the core programs supporting a potential filing in dialysis patients is INNOVATE, which includes two open-label, active-controlled, non-inferiority cardiovascular outcome studies: a correction study and a correction conversion study.

Target enrollment in the larger trial, which is the conversion study completed in February of 2019 with over 3,500 subjects enrolled. With respect to the second smaller study, the final patients are in screening, and we expect completion of enrollment by April of this year with approximately 350 subjects enrolled. We're pleased with the robust enrollment in the program. If you recall, our expectation was up to 3,600 subjects, and we'll finish with about 3,900 subjects.

Now based on this enrollment number, the specifics of the protocol, and the tactical time lines related to data analysis following database lock, we expect to have top line data readouts for both INNOVATE studies in Q2 of next year, subject, of course, to the accrual of MACE events. The core program supporting a potential filing in non-dialysis patients is our PROTECT program. PROTECT also includes two open-label, active-controlled, non-inferiority cardiovascular outcomes trials: a correction and a conversion study. PROTECT enrollment is tracking in line with our expectations.

We've informed sites that we plan to close screening shortly, so we do expect to complete enrollment this year and we continue to anticipate a PROTECT readout in mid-2020, subject to the accrual of MACE. I'd now like to turn the call over to Jason for a review of our preliminary financials.

Jason Amello -- Chief Financial Officer

Thank you, John, and good afternoon, everyone. As John referenced in his opening remarks, 2018 was a transformative year for Akebia, where we continued to execute and optimize on our vadadustat development program, and we finished off the year with closing out our merger with Keryx on December 12. As a result, our financial results for 2018 are reflective of a newly merged integrated biotechnology company with commercial revenues and a late-stage development program. With that said, I'd like to remind everyone that although the merger was completed in 2018, the results of Keryx operations are included in our consolidated financial results only from December 12 forward.

As with all mergers and acquisitions, the most significant reporting requirement is the allocation of the merger consideration to the fair value of the acquired assets and liabilities. Given the proximity of the closing date of December 12 to the end of the year, that allocation process and the assessment of the associated tax impacts is not yet complete. Therefore, I submitted by SEC regulations, our 10-K will be filed when that analysis is completed, which will be no later than April 2nd. So on this call, we'll only be discussing our unaudited pre-tax operating results, and we'll provide our full audited financial statements with the filing of our 10-K in the days to come.

So let's look at the components of the P&L. Net product revenues from the sales of Auryxia from the date of the merger were $6.8 million with associated cost of goods sold of $6.3 million. It's important to note that the cost of goods sold includes a charge of $4.8 million related to the fair value inventory step-up as a result of merger accounting. We also continue to recognize revenues under three collaboration arrangements: our Otsuka U.S.

agreement, our Otsuka international agreement, and our MTPC agreement. These collaborations are considered multiple element arrangements under the revenue recognition guidance. This generally means that the noncontingent payments will be recognized over the life of the arrangement based on how activities under the arrangement are performed or delivered by Akebia versus when payments are actually received. With that said, collaboration revenue was $53 million for the fourth quarter of 2018, compared to $90.6 million for the fourth quarter of 2017.

A significant decrease is due to the recognition of $42.9 million of previously deferred MTPC collaboration revenue in the fourth quarter of 2017, for which there is no comparable amounts recorded in the fourth quarter of 2018. As the company's performance obligations under the MTPC agreement were substantially complete as of Q3, future MTPC collaboration revenue will now come in the form of regulatory and commercial milestones and royalties. Collaboration revenue for the full year of 2018 was $200.9 million, compared to $181.2 million for 2017. This full-year increase relates primarily to our collaboration agreements with Otsuka.

Through 2018, Otsuka had funded 52.5% of the company's Phase 3 development costs for vadadustat. And in Q2 2019, Otsuka will begin to fund 80% of those costs. Moving to our research and development expenses. R&D expenses were $87.1 million for the fourth quarter of 2018, compared to $68.4 million for the fourth quarter of 2017 and $291.1 million for the full year of 2018 compared to $230.9 million for the -- for 2017.

The increase is primarily attributable to an increase in external costs related to the continued advancement of the PROTECT and INNOVATE Phase 3 program, including ongoing enrollment, manufacture of drug substance and drug product and regulatory activities, partially offset primarily by costs associated with the Phase 2 studies in Japan, which were primarily incurred in 2017. R&D expenses were further increased by headcount and consulting costs required to support our expanding R&D programs. We expect R&D expenses to increase modestly for 2019 as we expect to fully enroll both PROTECT and INNOVATE Phase 3 studies in 2019. It's important to keep in mind that a significant portion of these R&D costs are reimbursed by our collaboration partners, which gets recorded as collaboration revenue, as I mentioned earlier.

Selling, general, and administrative expenses were $55.1 million for the fourth quarter of 2018, compared to $7.6 million for the fourth quarter of 2017 and $87.1 million for the full year of 2018, compared to $27 million for 2017. The increase in SG&A expense was primarily attributable to merger-related costs of $49.5 million, of which $41.7 million was incurred in the fourth quarter of 2018, including a noncash expense of $13.4 million related to the conversion of the Keryx convertible notes. The increase of both periods was also attributable to an increase in costs to support our R&D programs, including headcount, information technology, and compensation-related costs. Keep in mind that SG&A only includes about two weeks of commercialization costs for Auryxia since the merger was closed on December 12.

SG&A expenses will therefore increase substantially in 2019 as we include full year of commercialization expenses. As a result of the foregoing operating results, the company reported a pre-tax net loss for the fourth quarter of 2018 of $88.4 million as compared to a pre-tax net income of $15.5 million for the fourth quarter of '17. The pre-tax net loss through the fourth quarter of '18 includes total merger-related costs of $46.5 million, and the pre-tax net income reported for the fourth quarter of 2017 was attributable to the $42.9 million of collaboration revenue recognized in connection with the MTC -- MTPC collaboration agreement as the criteria for revenue recognition was satisfied in that fourth quarter. For the full year, the company reported a pre-tax net loss of $171.9 million as compared to a pre-tax net loss for the prior year of $73.7 million.

And pre-tax net loss for the full year of 2018 includes total merger-related costs of $54.3 million. Turning to our capital position, we ended 2018 with cash, cash equivalents, and available-for-sale securities of $321.6 million. We expect that cash resources, including the prepaid quarterly committed cost-share funding from our collaborators, to fund our current operating plan into the third quarter of 2020. And lastly, we ended the year with approximately 116.9 million shares outstanding or 126.7 million shares on a fully diluted basis, inclusive of outstanding options and RSUs.

With that, I'll turn it back to John for additional remarks.

John Butler -- President and Chief Executive Officer

Thanks, Jason. Again, 2018 was a transformational year for Akebia and we're very excited for what's to come. The next 18 months will be a very busy time with significant catalysts ahead of us. We expect our collaboration partner, MTPC, to submit the first regulatory filing for vadadustat in Japan in 2019.

We will learn more about the potential utility of the general HIF-PHI class this year, followed by readouts from two potentially registration enabling Phase 3 trials of vadadustat: INNOVATE in the second quarter of 2020 and PROTECT by mid-2020. And for Auryxia, we remain focused on maximizing its growth, as I've outlined here today. For 2019, our priorities are clear: execute on Auryxia sales plan, drive our vadadustat development program forward, and support Mitsubishi Tanabe with its regulatory filing for vadadustat in Japan. In the meantime, we will remain committed to our core mission, which is delivering innovative therapies to advance care for patients with kidney disease.

And with that, we'll open the line for questions. George?

Questions and Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Chris Raymond with Piper Jaffray. Your line is open.

Chris Raymond -- Piper Jaffray -- Analyst

Hey. Thanks for taking the question. I just wanted to maybe understand Auryxia a little bit better. So just backing to the Q4 number, it looks like revenue was about $24.7 million.

And I think that's down about 7% quarter-on-quarter but I think I heard you state that at year end, it exited with 6.6% market share. But I think Keryx said at the end of the third quarter of '18, it was 6.4%. So can you maybe sort of square those two trends? Am I not getting a full picture with some of those numbers or what's happening?

John Butler -- President and Chief Executive Officer

No. You're right on target, Chris. So if you recall, in the fourth quarter, actually, starting in September of last year, DaVita Rx, the specialty pharmacy arm of DaVita stopped shipping. And when you looked at fourth quarter of last year, the entire phosphate binder market decreased by roughly 10%.

I can't remember the exact numbers, but roughly 10%, and Auryxia's scripts actually grew a little bit. So from a share perspective, it actually kicked up a small percentage of share in the market. So again, I mean, it was DaVita Rx decreasing the market as patients were moved to other pharmacy providers. They use the product that was on the shelf.

It was very much a time-limited issue but one that impacted the entire market. Auryxia continued to grow modestly through that difficult time.

Chris Raymond -- Piper Jaffray -- Analyst

OK. So understanding that there was some disruption from that DaVita Rx situation, I guess, just going forward, I guess, at what point -- and so it looks like the script numbers still have not yet really picked up. And I guess, that's sort of a key question is when do you think we should start to see some normalization and maybe some reflection of what's really going on with Auryxia from the script numbers? And then maybe a second part to that is you mentioned some specific steps to deal with the prior auth requirement. What are those steps? And maybe talk about what you can do to sort of get past this and get to the point where I think you were saying you'd want to give guidance once you get past the CMS issue.

Thanks.

John Butler -- President and Chief Executive Officer

Yes, yes. So we talked about DaVita Rx and then in the remarks I talked about the CMS issue, which really was -- once again, an administrative prior auth that was put on all patients, who -- Medicare Part D patients, who were prescribed Auryxia. 90-something percent of those prescriptions are being approved because they're mostly being written for hyperphosphatemia today but that creates an administrative burn for the provider. So if you look at weekly scripts, you saw that right out of the beginning of the year -- remember, if you take all of the patients who are on Part D, January 1st comes and then you need to get prior auths.

So you have this large number of patients who have to work through the PA process, and we've seen this. So you saw this drop in scripts in the first couple of weeks but you've seen a very robust rebound in scripts to the point where -- again, looking at weekly scripts, you're back right around the highest point you've had since before DaVita Rx stopped shipping. So we really like the momentum that we're seeing. People are working through it.

There are a number of tools that are available for centers to -- prescribers to use to help work through the prior auth. Prior auth is not something that providers aren't used to dealing with, right? I mean, it's something they deal with every day. But no matter how good you are at it, it doesn't take you two days to get it through. It takes some time to get it through.

When you have a bolus of patients that come through, it takes a bit more time. So when I look at the prescriptions now coming out of the last week we saw in March, there's the robust -- the growth is really robust again. But to the point of giving guidance, you do want to see that sustained over time. When you look at the growth in scripts, we had across '18, are we back on that? Can the sales force focus on growing the product versus kind of helping manage the experience that physicians are having today across the prior auths? That's the point that I want to see more.

Very pleased with the prescription momentum but not quite ready to feel like we understand it well enough to be accurate in guidance.

Chris Raymond -- Piper Jaffray -- Analyst

Thank you.

John Butler -- President and Chief Executive Officer

And just to remind you, Chris, also this is kind of a onetime thing, right -- at least once a year. Once you get a prior auth, it's good for the year. And this hit toward the end of the year as we were closing the merger, et cetera. If we are unsuccessful in reversing or reestablishing coverage, and we certainly have an expectation that it will be, but we're preparing sort of this to be a very smooth process 12 months from now and we don't go through the same upset in the market.

Chris Raymond -- Piper Jaffray -- Analyst

OK. Thank you.

John Butler -- President and Chief Executive Officer

Thanks.

Operator

Thank you. And our next question comes from the line of Kennen MacKay with RBC Capital Markets. Your line is now open.

Kennen MacKay -- RBC Capital Markets -- Analyst

All right. Thanks for taking the question and congrats on the quarter as well as the Japanese Phase 3 data. First, just another housekeeping question on Auryxia. If we look at that annual number of $96 million, is that inclusive of the post-December $126.8 million that was reported in the financials or could that be -- is that additive on top of that?

John Butler -- President and Chief Executive Officer

That includes -- that's the full-year pro forma 2018. That just includes U.S. Auryxia sales. And when you layer on the Japan tobacco royalties, it was $101.7 million for the year.

Kennen MacKay -- RBC Capital Markets -- Analyst

Gotcha. Thanks. And maybe just on that, that's a little bit different than I think what we were looking at in terms of script analysis. Is there anything in terms of gross to net that sort of unfolded over the course of Q4 that could lead to sort of a different script growth rate versus revenue growth rate reported there?

Jason Amello -- Chief Financial Officer

No. I mean, if you look at just the stuff here that I referred to on the revenue, that's coming at 40%. And I just think that's just an anomaly of -- because of the two-week period, but our normalized kind of gross-to-net ratio was about 50%.

Kennen MacKay -- RBC Capital Markets -- Analyst

Gotcha. OK. And then on the vadadustat, I was wondering if there was anything relating to the MACE rate from either the non-dialysis-dependent or dialysis-dependent Japanese trials that you could comment on so that maybe we could get sort of a better sense of how we can be expecting the MACE rates to accumulate in the ongoing PROTECT and INNOVATE trials. And then also just wondering if you can remind us what the powering was in those trials or what the expectations for the MACE event rates were based on there.

Thank you very much and congrats again.

John Butler -- President and Chief Executive Officer

Thanks, Kennen. I think its important to point out that when you have studies like the Japanese studies, we're thrilled with the data and very excited for what this can do for our filing in Japan. But to project that, what you see from an MACE event rate to our global studies I think is something we certainly wouldn't want to do. Remember, these are -- this is 24-week data in these patients and not something that should be easily projected out beyond that.

But -- for -- and we've never talked about powering of MACE events across the global study. But I don't know, Rita, if you have any other color to add there.

Rita Jain -- Chief Medical Officer

No. I think -- thank you, John. I would just say that we were pleased with the results of the Mitsubishi Phase 3 studies in Japan. It does give us further support and understanding of the vadadustat profile and further indicates the potential for vadadustat to provide a new therapeutic option for subjects with anemia due to chronic kidney disease.

But I think in terms of MACE, we're really not able to draw any conclusions from the smaller, shorter data set.

John Butler -- President and Chief Executive Officer

Yes. And just a reminder, Ken, I mean, it's not -- it wasn't a MACE trial, right? So there were -- of course, you're looking at events -- at safety. But Japan, the PMDA, the Japanese regulatory authorities don't need a MACE study for approval. So -- and this didn't have a MACE endpoint.

Kennen MacKay -- RBC Capital Markets -- Analyst

OK. Thank you again.

Rita Jain -- Chief Medical Officer

Thank you.

John Butler -- President and Chief Executive Officer

And again, I mean, we're really pleased with the fact that the safety was well balanced. And these were our first active-controlled darbepoetin-controlled studies that we've forwarded on.

Operator

Thank you. And our next question comes from the line of Difei Yang with Mizuho Securities. Your line is now open.

Difei Yang -- Mizuho Securities -- Analyst

Hi. Good afternoon and thanks for taking my question. So just a couple here. With regards to the commercial infrastructure, how high of a priority you think it is to bring a second product into the sales force?

John Butler -- President and Chief Executive Officer

Well, we're looking forward to bringing vadadustat into the sales force in a couple of years but we're looking to build the company. I mean, it's very important that it's understood that our strategy is clearly to continue to build a kidney disease-focused organization. Now whether that's a commercial product today or adding to our development pipeline, well, I mean, you have to be opportunistic about these things. As I've mentioned, our focus is on driving the Auryxia sales plan.

We think there are some modest investments that we are planning to make in the commercial organization to that end, to help us do that to help us maximize the value, but we're not -- we don't think it's critical in the short term to add a commercial product to the bag of the sales reps.

Difei Yang -- Mizuho Securities -- Analyst

OK. Thank you. So now with regards to the competitor's MACE readouts, upcoming MACE readout, could you share your thoughts with regards to how likely can we read across from that trial into Akebia's drug with the understanding the two drugs are in the same cost but not identical compounds?

John Butler -- President and Chief Executive Officer

Yes. Well, I think we're all looking forward to seeing data from the studies of [Inaudible]. Again, any time we have the opportunity to provide innovative therapies and advancements in care for these patients, we're supportive of that. I think that we always need to be careful about reading through too far.

The programs are designed very differently. The compounds are different compounds, albeit in the same class. I think we should wait and see the data.

Difei Yang -- Mizuho Securities -- Analyst

OK. Thank you.

John Butler -- President and Chief Executive Officer

Thanks, Difei.

Operator

And our next question comes from the line of Reni Benjamin with Raymond James. Your line is now open.

Reni Benjamin -- Raymond James -- Analyst

Hey. Good afternoon, everyone. Thanks for taking the questions and congrats on a good quarter. Can you talk a little bit about how we should be thinking about the revenue numbers for Auryxia in the context of the CMS decision and what you had kind of reported prior to the acquisition of Keryx and what the impacts could be for 2019?

John Butler -- President and Chief Executive Officer

Yes, well, as we mentioned, we're not guiding on revenue at this point kind of given these -- the issues we've dealt with. We're pleased with the progress we're making, but when we announced the acquisition, you look at the S4, DaVita Rx kind of not shipping and the CMS noncoverage decision, neither of those were incorporated into that thinking. When I look at the momentum of scripts in the last couple of weeks -- the last few weeks, as the team does a great job of working through, I'm really pleased with the momentum that we see. And once we feel like we have a better handle on what that will translate into from a revenue perspective this year, I think that's the point we want to guide when we feel more confident.

What I will say, Ren, from a long-term perspective, there's nothing that we've seen in the product and market research and interacting with our team here that changes my long-term feeling about what the opportunity for the product is.

Reni Benjamin -- Raymond James -- Analyst

OK. That's good to know. And can you remind us or update us on what the split between hyperphosphatemia and IDA scripts are, and maybe the split between Medicare and commercial?

John Butler -- President and Chief Executive Officer

Well, we've never really broken out the hyperphosphatemia versus IDA. I don't believe Keryx did that either. And it is -- what you really look at is the size of the prescriptions that are written. And you saw in 2018, I think it was about 200 was the exit number.

Doug, was there -- I mean, it was down slightly, which suggests that you're getting growth in IDA, but dominated still by hyperphosphatemia scripts.

Doug Jermasek -- Vice President of Marketing and Strategy

Yes, most of the year, we're in about 215 tablets per prescription, and by the end of the year, that was down about 200.

John Butler -- President and Chief Executive Officer

Right. And that -- there is a reflection of IDA. So as you continue to grow on IDA, you'll see that the average prescription, because the prescribed dose is basically half of what it is for hyperphosphatemia, you'll see the average prescription size a little bit smaller but we still think that hyperphosphatemia is going to be the dominant driver certainly this year and, again, as we know more, we'll tell you more. And but again, as I mentioned, there's still a tremendous amount of room.

Even with the CMS noncoverage decision, about 45% of the IDA opportunity, which is hundreds of thousands of patients, is in commercial Medicaid private patients. So we still expect to see growth and I think we're seeing growth in IDA. But long term, we need to change that coverage per se.

Reni Benjamin -- Raymond James -- Analyst

Got it. And then just talking about the IP, can you just remind us kind of where we are with Teva and kind of the other players and what the current sort of stay of discrimination is and when we should start to be thinking about this?

John Butler -- President and Chief Executive Officer

Right. So as expected when you hit four-year anniversary of approval, we had ANDA filers and we have filed litigation against those ANDA filers. With that, you have a 30-month stay, which takes us to May of 2021. But again, I want to remind everyone that we have 14 Orange Book-listed patents for Auryxia with varying expiry dates on those patents, and we are protecting or defending our IP vigorously.

Reni Benjamin -- Raymond James -- Analyst

Got it. And then just switching gears real quick to vadadustat. Can you just remind us of where we are with FORWARD? And are we still expecting that data? I think you had mentioned before in the second half of this year?

John Butler -- President and Chief Executive Officer

That's right. We're enrolling patients in FORWARD. That's a Phase II study and we'll have multiple data cups there but we will have top line data before the end of this year.

Reni Benjamin -- Raymond James -- Analyst

Perfect. Thanks for taking the question. Thank you.

John Butler -- President and Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Bert Hazlett with BTIG. Your line is now open.

Bert Hazlett -- BTIG -- Analyst

Yes. Thanks. Thank you for taking the question and congratulations on a successful quarter and successful merger. The Auryxia, maybe you've touched on this, but my apologies, but I'd love a little more granularity on your expectations for cost of goods sold with regard to that product moving forward.

John Butler -- President and Chief Executive Officer

So do you have the cost of goods -- [Inaudible] stub period? So cost of goods, we don't -- we certainly don't expect any significant changes in cost of goods. We have multiple contracts in place with providers. As a matter of fact, we have a third tablet provider from Patheon, who is now shipping product in the U.S. So we're in a very good place from that perspective but we don't think there'll be any significant changes.

I can't remember the number off top of my head, so I don't want to say one, Bert, but we can follow up in that.

Bert Hazlett -- BTIG -- Analyst

OK. That would be great. And then just --

Jason Amello -- Chief Financial Officer

And then --

John Butler -- President and Chief Executive Officer

Go ahead, Jason.

Jason Amello -- Chief Financial Officer

Yes, and just to add to that, the -- as I mentioned in the call here, there's a charge for merger accounting in this particular stub period, was $4.8 million. We will continue to have charges like that in subsequent periods because this is the inventory that we acquired, which has all been marked up to market value. So we'll continue to have these ongoing charges until we bleed through that purchase inventory. But we'll disclose that piece of the cost of sales so that you could see the normalized run rate of the margin versus this anomaly from the markup.

Bert Hazlett -- BTIG -- Analyst

OK. And as you -- just a follow-up on that. As you think about the rate at which you're churning through the inventory or burning through the inventory, the -- how long during 2019 would you expect those types of charges to occur?

Jason Amello -- Chief Financial Officer

That will probably continue throughout '19.

Bert Hazlett -- BTIG -- Analyst

OK.

Jason Amello -- Chief Financial Officer

Yes.

Bert Hazlett -- BTIG -- Analyst

Thank you for that. And then just with regard to Otsuka and the comment that's -- they funded 52.5% of the company's Phase 3 development costs for vadadustat and in the second quarter, expected to increase its contribution to 80%. Can you just remind us of the pushes and pulls that go into that 80%? And what are the expectations going forward for that line item as well?

John Butler -- President and Chief Executive Officer

So that -- the 80% is of -- we have a global development plan that we agreed to as two companies, and that is -- that basically encompasses all of the vadadustat development costs. So that's been 52%, and that's what's now going to be going in Q2 to 80%, which of course is a vast majority of our R&D expenses.

Bert Hazlett -- BTIG -- Analyst

And the decision as to the level of that contribution going forward?

John Butler -- President and Chief Executive Officer

Sorry, Bert, I didn't understand the question. So again, contractually, remember there's two [Inaudible] contracts. There's the U.S. contract and the international contract.

And under the U.S. contract, we have a right. Once we pass a certain kind of negotiated budget level, which we'll pass in the second quarter of this year, to ask them to cover -- remember, the U.S. is a 50-50 deal.

So we're basically asking them to cover our half of the development expenses for the U.S. portion of the contract. And when you do the math between the two contracts, that's what brings us to 80%. Now for those dollars that are the difference between 52% and 80%, they have the right to credit those dollars against future milestones and future royalties.

No more than 50% in any calendar year, but that is the way that the contract is structured.

Bert Hazlett -- BTIG -- Analyst

OK. That's helpful. Thank you and congrats again.

John Butler -- President and Chief Executive Officer

Thanks, Bert.

Operator

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

Unidentified speaker

Hi. This is Ishmal on for David. Thank you for taking our question. In the long term, you mentioned hoping to get the CMS IDA decision overturned.

What will you have to do and what steps are you taking now on that front? Thank you.

John Butler -- President and Chief Executive Officer

So you basically have to get CMS to restore coverage for the product and that is -- we're kind of working with CMS, and we have a whole number of steps in a plan that we have put together to communicate the reasons why. I have been through this before. At Genzyme, we had a similar determination that was made for Hectorol, our vitamin D product. And we had to have multiple meetings with CMS to explain the particular use of the product, etc, and we're able to change that coverage decision.

It's hard to know whether that comes in one quick meeting or if it takes multiple meetings to have that. But again, having seen this with not only been through it myself but seen multiple other products that have had been able to overcome the same issues, we feel quite confident that we'll be able to make that happen. In the meantime, as we think about 2019, there's still lots of room with the commercial payers to grow the IDA market.

Unidentified speaker

Thank you. And a quick follow-up, would you be able to walk us through the dynamics of the Japanese market for vadadustat and how that may vary for the U.S. market?

John Butler -- President and Chief Executive Officer

Michel, do you want to maybe take that question?

Michel Dahan -- Chief Business Officer

With pleasure. So generally speaking, in Japan, you have two large population. And the nondialysis population, unlike the U.S. market, is generally well treated in terms of treatment rate.

So you do have a larger market relative to the U.S. So that's one key difference. And I'll note another important difference in that the target range is different as well. So in Japan, for example, you're going from 11 to 13 in the non-dialysis patient population and 10 to 12 in the dialysis patient population, so those are the two main differences.

Other than that, it is similar.

John Butler -- President and Chief Executive Officer

Generally, when you look at the patient population in Japan, you don't do transplant. So you'll have these kind of healthier patients on dialysis generally because a lot of those patients have transplant in the U.S. And the reason to be on dialysis or the reason for kidney disease is less frequently -- things like diabetes that you see in the U.S., which just make it a little different from a profile perspective.

Unidentified speaker

Thank you.

John Butler -- President and Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Chad Messer with Needham & Company. Your line is now open.

Chad Messer -- Needham and Company -- Analyst

Great. Thanks. Good evening and thanks for taking my question. I was just wondering, John and team, if you could maybe give us a little bit more perspective on the performance of vadadustat and the two Japanese studies.

Congratulations on two positive studies there. But on that primary endpoint of hemoglobin versus a placebo in those studies, how good does that look? I know we're non-inferior. Was that kind of within your expectations? And then also versus some of the roxadustat Phase 3 data in non-dialysis, just kind of at the top-line level, over half a gram per deciliter better for vadadustat. Is that something I should get excited about or should I kind of temper my excitement until we get all the outcomes data?

John Butler -- President and Chief Executive Officer

Thanks, Chad. So I mean, we're excited, right? We're very pleased with the data that we've seen. I just want to remind you that both the 01 and the 03 studies were darbepoetin and controlled. So they were active controlled studies.

And I'd reference to the point Michel was making before, you're looking to treat patients into a target range. And so we were able to do that and show that non-inferiority to darbepoetin from an efficacy standpoint. That was the goal of the study. That's what we were looking to achieve.

And of course, the fact that the safety was balanced between them, I think, was something we were pretty excited about as well. But Rita, do you have any other -- anything to add?

Rita Jain -- Chief Medical Officer

No. I think the key here, as you know, was that the hemoglobin target of 11 to 13 in the non-dialysis population and 10 to 12 in the dialysis population was the goal. We did achieve non-inferiority and the 95% confidence in both the non-dialysis and dialysis trials or within the target hemoglobin range. So I think this does support vadadustat development, but I think nothing further.

John Butler -- President and Chief Executive Officer

Yes, I think one thing to point out, because there may be some confusion around it, remember, vadadustat and darbepoetin, these are tight ratable drugs. So if you want to increase hemoglobin further, you can titrate to a higher dose. So the concept of superiority when it comes to hemoglobin, it -- it's really trying to manage hemoglobins into a target range. If you want it to be a higher hemoglobin, you can always get a higher dose.

So what we saw in the Japanese studies is we manage patients into the target range -- higher target range in the nondialysis population in Japan than we see in the U.S. and with a very balanced safety profile, and that to us is exciting.

Chad Messer -- Needham and Company -- Analyst

Right. Great. Thanks. I appreciate the added perspective.

John Butler -- President and Chief Executive Officer

Thanks, Chad.

Operator

Thank you. And our next question comes from the line of Ed Arce with H.C. Wainwright & Co. Your line is now open.

Ed Arce -- H.C. Wainwright and Company

Hey, John. Thanks for taking my question, and I'll add my congratulations on the closure of the merger and the success so far as an integrated company.

John Butler -- President and Chief Executive Officer

Thanks, Ed.

Ed Arce -- H.C. Wainwright and Company

A couple questions and then maybe a follow-up. First, if you could remind us how we should think about a reasonable MACE rate for darbepoetin overall in a treatment period that's analogous to INNOVATE and PROTECT? And then separately, you had mentioned revenues going forward from MTPC, expected really to be just milestones from this point forward. Have there been any -- has there been any disclosure around the timing or amounts of those? And then I have a follow-up.

John Butler -- President and Chief Executive Officer

Jason, do you want to take the second one?

Jason Amello -- Chief Financial Officer

Yes. So the milestones are basically regulatory and commercial. So obviously, the regulatory ones are basically approval-related. So obviously, when they get to that point, that's when the milestones will become payable.

Those particular milestones on the regulatory is up to $40 million and then the commercial is up to $175 million, but the timing is specific to the events that occur.

John Butler -- President and Chief Executive Officer

And we had $10 million.

Jason Amello -- Chief Financial Officer

We had $10 million in '18.

John Butler -- President and Chief Executive Officer

In '18 when we started the study.

Jason Amello -- Chief Financial Officer

Yes, yes, yes.

John Butler -- President and Chief Executive Officer

And so on the MACE rate, there's -- what you really look at is previous studies that have been done to inform you as to what MACE rate would be. And you always have to take into consideration with that things like when it was done, the target hemoglobin ranges that people were looking for, the patient population, et cetera. And so we do see a range, which is why we always have a range of expectation of MACE rate that we're going to see. Again, looking at when they were targeting higher hemoglobin ranges, you saw MACE rates up to 14% or so and in placebo -- 9% or 10%.

I'm looking at Rita and she's nodding her head, so I think I'm getting that right. Is there any other?

Rita Jain -- Chief Medical Officer

I think that generally, historically, the MACE rates have been higher in the dialysis population than in the non-dialysis population and maybe higher in the incident dialysis population as compared to -- which is new onset dialysis as opposed to established dialysis. It also factors in, in terms of the proportion of subjects that you've enrolled in your trials who have diabetes, hypertension, preexisting cardiovascular disease, etc. We have looked at all of these factors and considered changes from historical trends as we've assessed what we thought are likely MACE rates would be and, of course, at this point, we are seeing blinded data to help us guide actual time lines.

Ed Arce -- H.C. Wainwright and Company

OK. That's great. And one more question around a previous question that was asked in raising hemoglobin levels. Could you just talk about how the issue of excursions and the number and the rate and the degree of excursions factors into the considerations of treating physicians versus an ability, as you said, with darbepoetin and others to tight rate and really looking at versus the drug, where you can just think of it as a blunt force reducing hemoglobin?

John Butler -- President and Chief Executive Officer

Right. So clearly, the idea of excursions, as you think about the market and the way physicians are treating patients, they are looking to avoid excursions. And when you have a long-acting drug like darbepoetin, you'll see hemoglobins rise when you get the drug and then a good drop again over time. So you'll have -- you potentially have excursions, which are generally most physicians would define as hemoglobins above 13 in the market and but you also have hemoglobin cycling, which is that kind of up and down of hemoglobin, which is something they want to avoid as well.

So showing more stability of response of hemoglobin is certainly a goal also the physicians have for treatment because we talk about the differences in EPO levels. Certainly, those EPO doses have been associated with increased cardiovascular risk, but so have excursions and hemoglobin cycling, and that really kind of is the basis of the theory that we can have a difference in cardiovascular safety ultimately.

Ed Arce -- H.C. Wainwright and Company

Thanks again.

John Butler -- President and Chief Executive Officer

Thanks, Ed.

Rita Jain -- Chief Medical Officer

Thank you.

Operator

Thank you. And I show no further questions at this time. I would like to turn the call back over to John Butler for closing comments.

John Butler -- President and Chief Executive Officer

Thanks, George, and thanks, everyone, for attending today. We do look forward to updating you again in the future. Have a great afternoon.

Operator

[Operator signoff]

Duration: 56 minutes

Call Participants:

John Butler -- President and Chief Executive Officer

Jason Amello -- Chief Financial Officer

Chris Raymond -- Piper Jaffray -- Analyst

Kennen MacKay -- RBC Capital Markets -- Analyst

Rita Jain -- Chief Medical Officer

Difei Yang -- Mizuho Securities -- Analyst

Reni Benjamin -- Raymond James -- Analyst

Doug Jermasek -- Vice President of Marketing and Strategy

Bert Hazlett -- BTIG -- Analyst

Michel Dahan -- Chief Business Officer

Chad Messer -- Needham and Company -- Analyst

Ed Arce -- H.C. Wainwright and Company

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