ARDELYX, INC. quarterly report, Q1 FY2023

Ardelyx, Inc. — Q1 2023 Form 10-Q

Business context and reporting period. This filing covers the three months ended March 31, 2023. Ardelyx is a biopharmaceutical company commercializing IBSRELA (tenapanor) for adults with IBS-C and pursuing FDA approval of XPHOZAH (tenapanor) for control of serum phosphorus in dialysis patients with CKD. The filing was issued May 3, 2023.

Financial performance and position

Cost of revenue was $1.5 million; gross profit was approximately $9.8 million, or 86% of revenue, calculated from reported figures. Selling, general and administrative expense rose 39% to $26.8 million, primarily reflecting IBSRELA launch spending. Research and development expense was $9.1 million, up 3%. Interest expense was $1.0 million; the company also recorded $1.0 million of non-cash interest expense on its royalty-related obligation.

At March 31, 2023, cash and cash equivalents were $92.5 million and short-term investments were $37.9 million, totaling $130.4 million, versus $123.9 million at December 31, 2022. Current assets were $167.0 million and current liabilities $63.1 million. Total liabilities were $91.6 million; stockholders’ equity was $125.4 million. Accumulated deficit was $806.9 million. Inventory was $44.9 million, including $40.1 million classified as non-current.

Outstanding principal on the SLR senior secured loan was $27.5 million. Its carrying amount of $26.9 million, net of discounts and fees, was classified entirely as current because of the company’s going-concern assessment and the material-adverse-change provision; lenders had not invoked that provision as of issuance. The loan bears a variable rate and matures March 1, 2027. A further $22.5 million may be borrowed only if specified XPHOZAH approval and product-revenue conditions are met.

Material changes versus the prior period

• Revenue increased by $10.9 million, mainly because IBSRELA U.S. sales began in March 2022 and expanded in the current quarter.
• Operating expenses increased by $9.2 million, principally due to higher commercial launch costs; R&D remained broadly stable.
• Operating cash use increased by $17.2 million, mainly from commercial manufacturing and inventory investment.
• Net loss narrowed by $1.3 million, while loss per share decreased to $0.13 from $0.21; weighted-average shares rose to 207.0 million from 130.9 million.
• The company raised $50.7 million net through its 2021 at-the-market offering, selling 15.5 million shares at a weighted average price of approximately $3.35. That offering reached its $150 million gross proceeds limit; no shares had been sold under the new 2023 ATM agreement by quarter-end.

Outlook, risks, contingencies, and unusual items

Going concern and funding: Management stated that available cash, cash equivalents, and short-term investments alone were insufficient to fund operating plans for the twelve months following issuance of the financial statements, raising substantial doubt about the company’s ability to continue as a going concern. Plans include IBSRELA revenue, potential XPHOZAH revenue if approved, collaboration milestones and payments, additional financing, and reducing or deferring discretionary spending. Success is not assured. The statements are prepared on a going-concern basis without adjustments that might be required if the company cannot continue.

Regulatory outlook: Ardelyx resubmitted the XPHOZAH NDA in April 2023 after the FDA’s Office of New Drugs granted its appeal of the prior Complete Response Letter. The company expected an FDA acknowledgement and review classification in mid-May, FDA action in the second half of 2023, and—if approved—a U.S. launch in the second half of 2023. These are expectations, not assurances; approval, label scope, reimbursement, and launch timing remain uncertain.

Other key risks and items: IBSRELA adoption, coverage and reimbursement; competition and pricing pressure; reliance on third-party manufacturers; loan covenants and variable interest rates; and potential dilution from future financing are material risks. XPHOZAH’s reimbursement may be affected by possible inclusion of oral ESRD drugs in the Medicare dialysis bundle beginning in 2025. The company recorded a $0.4 million impairment, primarily related to a facility right-of-use asset, following a sublease that commenced in April 2023. Future Kyowa Kirin royalties assigned to HCR have not begun, and the related deferred royalty obligation was $12.2 million. Securities class-action and derivative litigation remained pending; the company stated it believed the claims were without merit and accrued no liability.

Most important facts for investors to verify

• FDA acknowledgement, resubmission classification, review date, eventual decision, and any XPHOZAH label limitations.
• IBSRELA sales growth, net pricing, access and reimbursement, and whether commercial spending can translate into sustainable margins.
• Cash burn and financing needs relative to the disclosed $130.4 million of cash and investments; confirm whether anticipated milestones or other funding materialize.
• SLR loan conditions, covenant compliance, repayment schedule, and eligibility for the additional $22.5 million facility.
• Potential dilution and share-count effects from future equity financing, and developments in the pending litigation.