Business context and reporting period
Ardelyx, Inc. is a biopharmaceutical company reporting for the fiscal year ended December 31, 2022; this 10-K does not provide a separate Q4 income statement. IBSRELA (tenapanor) is approved in the U.S. for adults with IBS-C, and U.S. sales began in March 2022. XPHOZAH is under development for serum-phosphorus control in adults with CKD on dialysis. The company also has earlier-stage programs RDX013 and RDX020.
Key financial metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $52.2 million | $10.1 million |
| IBSRELA net product sales | $15.6 million | None |
| Operating expenses | $115.9 million | $164.4 million |
| Operating loss | $63.8 million | $154.3 million |
| Net loss | $67.2 million | $158.2 million |
| Net loss per share, basic and diluted | $0.42 | $1.52 |
| Net cash used in operating activities | $70.0 million | $152.6 million |
| Cash, cash equivalents and short-term investments at year-end | $123.9 million | $116.7 million |
Cost of revenue was $4.1 million in 2022. The filing does not present a product-level gross margin; total revenue less cost of revenue was approximately $48.0 million, but revenue includes collaboration and licensing income as well as product sales. Interest expense was $3.4 million, with a further $1.7 million of non-cash interest related to the sale of future royalties. Accumulated deficit was $780.1 million.
At December 31, 2022, total assets were $190.1 million and total liabilities were $91.7 million. The $26.7 million outstanding loan balance was classified as current. The company also reported an $11.3 million deferred royalty obligation and $28.3 million of inventory, including $25.1 million classified as non-current.
Material changes versus the prior comparable period
- Revenue increased $42.1 million, primarily from $15.6 million of initial IBSRELA sales and $35.0 million in KKC milestone and amendment-related licensing revenue after KKC filed its Japanese NDA for tenapanor. Collaborative development revenue fell to zero from $4.2 million.
- Operating expenses declined $48.5 million. R&D fell 61% to $35.2 million, reflecting lower clinical and manufacturing costs and the 2021 elimination of the internal research organization. Selling, general and administrative expense rose 6% to $76.6 million, mainly due to the IBSRELA launch.
- Net loss narrowed by $91.0 million. The improvement reflected lower operating expenses and higher revenue, though 2022 revenue included a substantial, non-recurring milestone-related contribution.
- Operating cash use decreased by $82.5 million. Financing cash flow included $71.6 million net proceeds from ATM stock sales, $27.0 million net proceeds from the 2022 loan and $9.6 million net proceeds from the sale of future royalties.
- Common shares outstanding increased to 198.6 million from 130.2 million at year-end 2021, primarily reflecting ATM issuance.
Outlook, risks and unusual items
- Going concern and financing: Management and the auditor identified substantial doubt about the company’s ability to continue as a going concern for one year from issuance of the financial statements. Year-end cash and short-term investments alone were not sufficient for operating plans over the next 12 months. Management cited IBSRELA sales, potential XPHOZAH sales and partner milestones, additional financing, and spending reductions as potential funding sources; success is not assured.
- XPHOZAH: After an FDA advisory committee voted that benefits outweighed risks, the FDA’s Office of New Drugs granted Ardelyx’s appeal of the 2021 Complete Response Letter and directed the Division to work with the company on a label. As of the filing, management expected to resubmit early in Q2 2023, anticipated FDA action in H2 2023, and expected a possible launch in H2 2023 if approved. Approval and timing remained uncertain.
- Debt: The SLR loan has a $27.5 million funded tranche and a further $22.5 million potentially available subject to conditions, including FDA approval or specified product-revenue targets. A February 2023 amendment extended the draw period and could extend interest-only payments through March 2025 if conditions are met. The loan is secured by substantially all assets other than intellectual property and includes operating restrictions and default provisions.
- Royalty transaction: Ardelyx received $10 million upfront from HCR in exchange for specified future Japanese royalties and milestones, with up to $10 million in additional conditional payments. The obligation had a 34.4% effective interest rate at year-end; no KKC royalties had yet been received. Future royalties and commercial milestones under the KKC agreement are subject to the HCR arrangement.
- Commercial and reimbursement risks: IBSRELA adoption, coverage, pricing, manufacturing supply and competition remain important uncertainties. For XPHOZAH, the label and reimbursement are uncertain; oral ESRD-related drugs may be incorporated into the dialysis payment bundle beginning in 2025, potentially affecting economics.
- Pipeline and legal matters: RDX013’s Phase 2 study did not meet its primary endpoint at four weeks, and further work is deferred pending resources. RDX020 and RDX013 are not expected to advance meaningfully while commercialization is prioritized. Securities class-action and related derivative lawsuits were pending; the company said it considered the claims without merit and recorded no related accrual.
- Other unusual items: The company recorded a $1.3 million gain on laboratory-equipment sales. It also reported $28.0 million of inventory previously expensed as R&D, which will not be recognized as cost of revenue when sold.
Most important facts for investors to verify
- Whether IBSRELA sales, net pricing, patient demand, payer coverage and gross-to-net estimates support durable growth; year-end variable-consideration reserves were $2.8 million.
- Whether and when XPHOZAH is resubmitted, the FDA’s review classification and decision, the final label, and the effect of dialysis reimbursement policy.
- Cash runway and financing needs, including post-year-end ATM proceeds, possible future share issuance, and the conditions for drawing the remaining $22.5 million loan tranche.
- Loan covenants, repayment schedule, interest costs and the company’s ability to meet obligations without further financing.
- The sustainability of 2022 revenue and loss improvement, given the $35.0 million KKC-related revenue contribution and reduced R&D spending.
- Manufacturing capacity and inventory usability, partner progress in Japan, and the status and potential exposure of the pending lawsuits.