Ardelyx, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Ardelyx is a development-stage biopharmaceutical company focused on kidney and cardiovascular diseases. It had no product sales; reported revenue came from licensing, collaboration and supply activities. Amounts below are in millions of dollars unless stated otherwise.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $1.836 | $0.018 | $3.049 | $0.018 |
| Operating expenses | $26.043 | $24.846 | $49.025 | $50.344 |
| Loss from operations | $(24.207) | $(24.828) | $(45.976) | $(50.326) |
| Net loss | $(24.956) | $(25.467) | $(47.329) | $(51.611) |
| Net loss per share | $(0.28) | $(0.41) | $(0.53) | $(0.82) |
- Q2 revenue included $1.125 million of collaborative development revenue under the 2019 Kyowa Kirin agreement and $0.706 million of licensing revenue from a Knight milestone. H1 revenue included $2.300 million and $0.706 million, respectively.
- Q2 R&D was $18.864 million, down 3.1%; H1 R&D was $34.708 million, down 12.9%. Lower clinical and manufacturing costs were partly offset by regulatory spending, including a $2.9 million FDA filing fee.
- Q2 G&A was $7.038 million, up 31.0%; H1 G&A was $14.176 million, up 35.2%, primarily reflecting personnel, stock compensation and professional services.
- Gross margin is not a meaningful indicator of product economics given the absence of product sales and the small, collaboration-driven revenue base.
- At June 30, cash and cash equivalents were $100.494 million and short-term investments were $104.347 million, totaling $204.841 million, down from $247.512 million at year-end 2019. Current assets were $211.626 million and current liabilities $33.650 million.
- H1 operating cash use was $43.968 million; investing cash use was $37.466 million, primarily reflecting purchases of short-term investments; financing provided $0.795 million. Cash and cash equivalents fell $80.639 million, in part because of investment purchases and maturities.
- Loan carrying value was $50.451 million, including $13.716 million classified current. Contractual principal and final-fee payments total $51.975 million, excluding interest and the separate exit fee. Interest is floating at one-month LIBOR plus 7.45%; principal amortization begins December 2020. The loan is secured by substantially all assets other than intellectual property and specified exclusions.
- Management said available cash, equivalents and investments were expected to fund planned expenditures and obligations for at least 12 months after the August 6, 2020 issuance date. This estimate depends on assumptions; the company said it had no unused credit facility or committed additional capital.
Business developments and changes
- Ardelyx submitted an NDA on June 30, 2020 for tenapanor to control serum phosphorus in adults with chronic kidney disease on dialysis. It expected an FDA filing-acceptance decision by early September; approval had not been received as of the filing.
- The company reported positive interim NORMALIZE Phase 4 results: among 171 patients completing up to nine months, mean serum phosphorus declined 2.33 mg/dL from the PHREEDOM baseline, and up to 47.4% achieved a normal level. Diarrhea was the only adverse event reported in more than 5% of patients, at 23.3%.
- Tenapanor had FDA approval for IBS-C in adults, but Ardelyx was seeking a U.S. commercialization partner. It planned, if approved, to commercialize tenapanor for hyperphosphatemia itself, requiring commercial build-out.
- RDX013, a potassium-secretagogue program for hyperkalemia, and earlier-stage discovery programs remained in development.
- Compared with H1 2019, H1 2020 net loss narrowed 8.3%, while revenue rose substantially from a minimal base. Lower R&D spending was partly offset by higher G&A and cost of revenue. Weighted-average shares rose to 88.98 million from 62.60 million, contributing to the difference between net-loss and per-share-loss trends.
Outlook, risks and unusual items
- Management expected continued substantial operating losses and spending on tenapanor development, potential commercialization, manufacturing, pediatric IBS-C trials and research programs.
- Key uncertainties include FDA review and labeling, commercial acceptance and reimbursement, manufacturing scale and supply, the cost of building a sales organization, and finding a U.S. IBS-C partner. The filing highlighted possible COVID-19 effects on employees, clinical activities, suppliers, manufacturing and FDA timelines.
- CMS oral-only ESRD drug bundling was scheduled for 2025 absent further legislative action; the filing warned that bundling could pressure tenapanor pricing and reimbursement.
- The company reported a prior-period clinical-trial accrual error: R&D expense and accrued liabilities had been overstated by $0.5 million in Q1 2019 and $3.6 million in 2018. A $4.1 million cumulative adjustment reducing R&D expense and accrued liabilities was recorded in Q2 2019. The company said the errors were significant to the six-month 2019 statements but not material to each quarter or full-year results. This adjustment affects comparability with 2019.
- On July 9, 2020, the company filed a shelf registration for up to $250 million of securities and an at-the-market prospectus for up to $100 million of common stock; the amended registration became effective August 3. This creates potential financing capacity and dilution, not assurance of proceeds.
- A May 2020 multi-year Patheon agreement provides for tenapanor tablet manufacturing and supply across several territories, with minimum purchasing requirements. No material litigation was reported, and no contingent liabilities were accrued. The company said it was in compliance with loan covenants at June 30.
Important facts for investors to verify
- FDA review milestones and any decision on the hyperphosphatemia NDA, including the ultimate label and timing.
- Cash burn, spending required for launch preparation, and whether the stated 12-month liquidity estimate remains valid.
- Use and potential dilution from the effective $100 million ATM offering; distinguish this from the broader $250 million shelf capacity.
- Debt amortization beginning December 2020, variable-rate exposure, final fee and exit-fee terms, and continuing covenant compliance.
- Clinical-trial accrual correction and its effect on comparisons with 2019, as well as whether reported collaboration revenue converts into cash as expected.
- Commercial partner progress for U.S. IBS-C, reimbursement prospects for tenapanor, manufacturing readiness and COVID-19-related operational risks.