Ardelyx, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2022. Filed August 4, 2022. Amounts are in U.S. dollars; financial statement amounts are shown in millions unless noted.
Business context
Ardelyx is a biopharmaceutical company developing and commercializing medicines. It began U.S. sales of IBSRELA for IBS-C in March 2022, its first commercial product. XPHOZAH (tenapanor) for control of serum phosphorus in adults with CKD on dialysis remained unapproved. The company reported an accumulated deficit of $767.9 million.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $2.526 | $1.313 | $2.994 | $7.895 |
| IBSRELA net product sales | $1.564 | — | $2.014 | — |
| Operating expenses | $28.741 | $46.145 | $57.016 | $84.732 |
| Operating loss | $(26.215) | $(44.832) | $(54.022) | $(76.837) |
| Net loss | $(26.938) | $(45.189) | $(55.009) | $(78.344) |
| Net loss per share, diluted | $(0.19) | $(0.45) | $(0.40) | $(0.79) |
Cash and liquidity: Cash, cash equivalents and short-term investments totaled $81.0 million at June 30, down from $116.7 million at December 31, 2021. Operating cash use was $58.9 million in the first half, compared with $78.5 million a year earlier. Cash and cash equivalents at period-end were $53.4 million.
Debt and other obligations: The company had $27.5 million principal outstanding under its 2022 senior secured loan. Its $26.4 million net carrying amount was classified as current, although the loan matures in 2027, because of the going-concern assessment and a lender material-adverse-change provision. The loan bears floating interest at 7.95% plus the applicable benchmark floor/rate; interest-only payments are permitted through March 2024. A $9.6 million deferred royalty obligation was recorded after the company received $10 million from HealthCare Royalty Partners for rights to certain potential Japanese royalties and milestones.
Margins: The filing does not present a meaningful commercial-product margin measure. Operating and net results remained loss-making; reported cost of revenue was $0.138 million for Q2 and $0.223 million for the first half.
Material changes versus comparable periods
- Q2 revenue rose 92.4% year over year, mainly from IBSRELA launch sales and product-supply revenue to Kyowa Kirin. First-half revenue fell 62.1%, primarily because a $5.0 million prior-year milestone and revenue under the 2019 Kyowa Kirin research agreement did not recur.
- First-half R&D expense declined 60.0% to $18.6 million, reflecting reduced clinical and manufacturing costs and the prior restructuring, including elimination of the internal research organization.
- First-half SG&A increased 2.5% to $38.2 million as commercial infrastructure and launch activities offset changes in spending. The company sold 20.5 million shares through its at-the-market program for $18.9 million gross proceeds, at an average price of approximately $0.92 per share.
- In April, Ardelyx and Kyowa Kirin amended the Japan license, reducing future royalty rates in exchange for up to $40 million in conditional payments. In June, Ardelyx received $10 million from HealthCare Royalty Partners in exchange for certain future Japanese royalties and milestones.
Outlook, risks and contingencies
- Going concern: Management said available cash and investments alone were insufficient to fund 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 collaboration milestones and payments, capital-market access, asset monetization and discretionary spending reductions; success is not assured.
- XPHOZAH regulatory path: The FDA had issued a complete response letter, citing the clinical significance of the treatment effect. A Cardiovascular and Renal Drugs Advisory Committee meeting was tentatively scheduled for November 16, 2022 as part of the formal dispute process. The filing cautions that a favorable committee outcome or FDA approval is not assured.
- Additional loan funding: A further $22.5 million under the SLR facility depends on product-revenue targets and FDA approval. An August 1, 2022 amendment extended the FDA-approval deadline from December 31, 2022 to March 31, 2023; this is a subsequent event reported in the 10-Q.
- Commercial execution: IBSRELA sales were limited at this early stage. Risks include market adoption, payer coverage and reimbursement, manufacturing capacity and supply, and competition. Most U.S. product revenue was concentrated among three wholesalers.
- Other risks: The company reported potential Nasdaq minimum-bid-price noncompliance and had not regained compliance as described in the filing. It also faces secured-loan covenants and default risks. A securities class action was consolidated in July 2022; related derivative cases were stayed. Management said it believed the claims were without merit and recorded no related liability accrual. No material contingent liabilities were accrued for other pending matters.
- RDX013’s Phase 2 study showed potassium reduction after eight days but did not meet its primary endpoint at four weeks; further study was deferred pending resources. RDX020 discovery work was expected to continue using third-party resources.
Most important facts for investors to verify
- Subsequent IBSRELA sales, prescription trends, payer access and gross-to-net adjustments, given first-half net sales of $2.0 million.
- Cash runway, actual spending reductions, financing or asset-monetization proceeds, and progress toward resolving the disclosed going-concern uncertainty.
- FDA and advisory committee developments for XPHOZAH, and whether conditions for the additional $22.5 million loan tranche are met.
- Compliance with Nasdaq listing requirements and the potential impact of further equity issuance and dilution.
- Loan covenant compliance, floating-rate interest expense, debt classification, and the obligations and cash-flow effects associated with the royalty sale.