After it announced fourth-quarter earnings after the closing bell Monday, Akebia Therapeutics (NASDAQ:AKBA) saw its shares fall as much as 16% Tuesday morning, though they have recovered somewhat -- shares were only down 11.1% at 2:05 p.m. EST.
As a development-stage biotech, it shouldn't be Akebia Therapeutics' revenue or earnings -- or lack thereof -- that have investors worried. Investors know they will have to deal with it burning cash until it has a drug on the market.
Instead, it appears it this comment from CFO Jason Amello, courtesy of Thomson StreetEvents, might be the reason investors woke up worried about Akebia:
"Collaboration revenue in connection with our agreement with Mitsubishi Tanabe, which was executed at the end of 2015, is expected to commence in the second half of 2017, following the results of our Phase 2 studies being conducted in Japan. As such, the $40 million upfront payment we received back in 2015 remains in deferred revenue at the end of 2016."
In other words, some of the upfront payment from Mitsubishi Tanabe could be taken back if the development of Akebia's anemia drug vadadustat stalls in Japan, so it remains as deferred revenue. But as the buy-side biotech analyst whoo goes by just Zach on Twitter pointed out, the potential claw-back of the upfront payment has been in the public record since the deal was done:
Sure enough, there it is in the 10-K:
"In December 2015, we entered into a collaboration agreement with Mitsubishi Tanabe to develop and commercialize vadadustat in Japan and certain other countries in Asia for total milestone payments of up to $350 million, including up to $100 million in upfront and development payments, of which $40 million was received in January 2016. Of the $40.0 million received, $20.0 million is subject to refund to Mitsubishi depending on the outcome of discussions with the Japanese regulator about the global trial design."
Assuming the shares really were down because of the deferred revenue "revelation" and not for another reason -- like investors were hoping for a more-substantial update that didn't materialize -- the moral of the story is that investors should read companies' SEC 10-K and 10-Q filings. Sure, the material can be boring, but knowing the details of deals can keep investors from getting surprised about events that could change a company's cash situation.