Business context and reporting period
Ardelyx, Inc. filed this Form 10-K for the fiscal year ended December 31, 2017. The company is a clinical-stage biopharmaceutical developer with no approved products or product-sale revenue. Its lead candidate, tenapanor, is being developed for hyperphosphatemia in dialysis patients and IBS-C; RDX013 is an earlier-stage candidate for hyperkalemia.
Financial performance and liquidity
| Metric (USD millions, except per-share data) | 2017 | 2016 |
|---|---|---|
| Revenue | 42.0 | 0 |
| Cost of revenue | 8.4 | 0 |
| Gross profit / margin | 33.6 / 80% | — |
| Research and development | 75.5 | 94.2 |
| General and administrative | 23.2 | 18.7 |
| Operating loss | (65.1) | (112.9) |
| Net loss | (64.3) | (112.4) |
| Net loss per share | $(1.36) | $(2.80) |
| Cash, equivalents and short-term investments at year-end | 134.0 | 200.8 |
| Cash used in operating activities | (65.2) | (92.5) |
2017 revenue was entirely licensing revenue: $30 million upfront from Kyowa Hakko Kirin (KHK) for Japan rights and $12 million from Fosun Pharma for China rights. The reported gross margin reflects these license payments, not product sales. The $8.4 million cost of revenue was payable to AstraZeneca under the prior termination agreement. Ardelyx had $149.7 million of current assets and $17.9 million of current liabilities at year-end; the filing reports no borrowing or debt balance. Accumulated deficit was $278.2 million.
Material changes versus prior period
- Revenue rose from zero in 2016 due to the two 2017 licensing agreements; the agreements also carry potential milestones and royalties, which are not guaranteed revenue.
- Net loss narrowed by $48.0 million, while R&D expense declined 20%, mainly as the IBS-C Phase 3 program completed and some earlier-stage development was reduced or deferred. G&A increased 24%.
- Year-end liquid funds fell by $66.8 million. The company used $65.2 million in operating cash; the positive $65.3 million investing cash flow mainly reflected investment maturities and sales, not operating generation.
- Quarterly results included $42.0 million of revenue and $10.1 million of net income in Q4, following losses in each of the first three quarters. The full-year result remained a net loss.
Outlook, commentary and risks
- Management planned to submit an IBS-C NDA in the second half of 2018 and was seeking a commercialization partner for the indication. Both IBS-C Phase 3 trials met their primary endpoints; diarrhea was the principal tolerability issue, with placebo-adjusted discontinuation rates of 5.3% and 5.8% in the two trials.
- A second Phase 3 trial of tenapanor for hyperphosphatemia was underway; results were expected in 2019. If successful, the company planned an NDA in 2019 and a potential U.S. launch in 2020, with an intended company sales organization for this indication.
- KHK and Fosun agreements provide potential additional milestones of up to $130 million and $113 million, respectively, plus royalties. Ardelyx remains responsible for supplying drug substance under the agreements and owes AstraZeneca a share of specified future NHE3-related revenue.
- Management stated existing resources, including the Fosun upfront payment collected in January 2018, were expected to fund operations for at least 12 months after the filing date. It also warned that additional financing may be needed and is not assured; losses and operating costs are expected to continue.
- Key risks include clinical or regulatory setbacks, commercialization and partnership execution, third-party manufacturing and supply, reimbursement and pricing pressure, competition, and the need for additional capital. Medicare ESRD drug bundling was scheduled to begin in 2025 under then-current law and could pressure pricing if tenapanor is approved.
- The 2017 financial statements received an unqualified audit opinion. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not attest to internal-control effectiveness under the company’s emerging-growth-company exemption.
Important facts for investors to verify
- Whether the planned IBS-C NDA was submitted on schedule, accepted for review, and ultimately approved, including its labeling and safety profile.
- Results and timing of the second hyperphosphatemia Phase 3 trial, and any resulting regulatory and launch milestones.
- Cash burn, subsequent financing needs, and the actual duration of the stated cash runway.
- Receipt and timing of KHK and Fosun milestones and royalties, supply obligations, and payments due to AstraZeneca.
- Manufacturing readiness, market access and reimbursement prospects, including the potential effect of ESRD drug bundling.