Business context and reporting period
Ardelyx, Inc. is a biopharmaceutical company developing and commercializing medicines. This unaudited Form 10-Q reports the three and six months ended June 30, 2023; it was filed August 2, 2023. IBSRELA (tenapanor) is marketed in the U.S. for adults with IBS-C. XPHOZAH (tenapanor) is under FDA review for control of serum phosphorus in certain adults with CKD on dialysis. The company also has development-stage candidate RDX013 and discovery-stage candidate RDX020.
Financial performance and position
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $22.3 | $2.5 | $33.7 | $3.0 |
| Net product sales | $18.3 | $1.6 | $29.7 | $2.0 |
| Gross profit | $18.8 | $2.4 | $28.7 | $2.8 |
| Gross margin | 84.4% | 94.5% | 85.1% | 92.6% |
| Operating expenses | $35.5 | $28.6 | $71.4 | $56.8 |
| Net loss | $17.1 | $26.9 | $43.9 | $55.0 |
| Net loss per share | $0.08 | $0.19 | $0.21 | $0.40 |
- Revenue growth primarily reflected IBSRELA sales and increased product-supply revenue to Kyowa Kirin. Q2 SG&A rose 44% to $27.2 million, mainly due to IBSRELA commercialization; R&D fell 15% to $8.3 million.
- Lower gross margins versus 2022 reflect higher cost of revenue, including AstraZeneca royalties and international product-supply costs. Ardelyx noted that some IBSRELA inventory costs had been expensed as R&D before commercialization; without those prior expenses, cost of goods sold would have been higher by $2.0 million for Q2 and $2.4 million for the first half of 2023.
- At June 30, cash and cash equivalents were $30.1 million and short-term investments were $97.5 million, totaling $127.6 million in liquid funds. Total assets were $211.2 million; total liabilities were $88.0 million; stockholders’ equity was $123.2 million.
- Six-month operating cash use was $59.5 million, versus $58.9 million a year earlier. Investing activities used $69.0 million, largely reflecting purchases of short-term investments. Financing provided $62.4 million, primarily from net at-the-market equity proceeds of $62.1 million.
- Outstanding 2022 term-loan principal was $27.5 million; its $27.1 million net carrying value was classified as current because of the going-concern assessment and the lender agreement’s material-adverse-change provision. The loan matures March 2027, bears a floating rate, and has interest-only payments through March 2024, potentially extended to March 2025 if specified conditions are met.
- Common shares outstanding increased to 217.9 million from 198.6 million at December 31, 2022, reflecting equity issuance, including ATM sales.
Material changes versus the prior comparable period
- Q2 revenue increased to $22.3 million from $2.5 million; first-half revenue rose to $33.7 million from $3.0 million, as IBSRELA sales expanded following its March 2022 U.S. launch.
- Net losses narrowed year over year, but spending shifted toward commercialization: first-half SG&A increased 41% to $54.0 million while R&D decreased 7% to $17.4 million.
- First-half liquid funds were $127.6 million, slightly above $123.9 million at year-end 2022, despite cash and cash equivalents declining by $66.1 million. The increase in short-term investments partly offset that cash decline.
- Inventory rose to $47.9 million from $28.3 million at year-end, including $40.3 million classified as non-current.
Outlook, risks and unusual items
- Liquidity and going concern: Management states that liquid funds alone are insufficient to meet operating plans for the 12 months following issuance of the financial statements, raising substantial doubt about the company’s ability to continue as a going concern. Plans include IBSRELA sales, potential XPHOZAH sales and collaboration payments, additional financing, and reducing or deferring discretionary spending; there is no assurance these efforts will succeed.
- XPHOZAH: The FDA accepted the resubmitted NDA on May 17, 2023, with an October 17, 2023 goal date. If approved, management expected U.S. commercial availability in Q4 2023. Approval, label, reimbursement, launch timing and commercial uptake remain uncertain.
- ESRD payment policy: Unless further legislative or regulatory action delays it, oral-only ESRD-related drugs, potentially including XPHOZAH if approved, are expected to enter the ESRD prospective payment system on January 1, 2025 and no longer be separately paid under Medicare Part D. Ardelyx warns this could materially affect XPHOZAH revenue; TDAPA eligibility and payment levels are uncertain.
- Financing and dilution: A further $22.5 million under the secured loan may be available only if XPHOZAH is FDA-approved by November 30, 2023 and specified product-revenue targets are met. The company also has an ATM equity program, which may provide capital but dilute shareholders.
- Other financing obligations: Future Kyowa Kirin royalties and commercial milestones have been assigned to HealthCare Royalty Partners under an agreement that may provide up to $20 million. Ardelyx had received no Kyowa Kirin royalty payments by June 30, 2023 and recorded $1.9 million of first-half non-cash interest expense on the related deferred royalty obligation.
- Pipeline and operations: Management does not expect to meaningfully advance RDX013 or RDX020 until resources permit. The company relies entirely on third parties to manufacture its products and identifies supply, regulatory compliance, reimbursement, competition and product safety as material risks.
- Contingencies: Securities class-action litigation and related derivative suits remain pending. The company says it believes the claims are without merit and recorded no liability accrual; it states that no pending litigation was expected to have a material adverse effect as of June 30, 2023.
- Subsequent event: In July 2023, China accepted a tenapanor NDA for review, triggering a $2.0 million Fosun milestone that Ardelyx expected to receive in Q3 2023.
Important facts for investors to verify
- Whether the FDA acted on XPHOZAH by the October 17, 2023 goal date, and the approved indication, label and launch timing, if applicable.
- IBSRELA sales growth, net pricing, payer coverage and reimbursement, and whether commercial growth can offset rising commercialization costs.
- Cash use and financing needs relative to the going-concern warning; availability and terms of new capital, including whether the conditional $22.5 million loan tranche is accessible.
- Progress toward ESRD PPS policy decisions and any effect on XPHOZAH payment and commercial economics from 2025 onward.
- Share-count changes and potential dilution from ATM sales, equity compensation and other financing.
- Manufacturing capacity and supply continuity, developments in the securities and derivative litigation, and receipt of the expected Fosun milestone.