Ardelyx, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Amounts below are in millions of dollars unless otherwise noted. The filing is unaudited.
Business context and reporting period
Ardelyx is a biopharmaceutical company focused on kidney and cardiorenal diseases. It has not generated revenue from product sales; reported revenue comes from collaboration, licensing and product-supply arrangements. Tenapanor is approved in the U.S. for IBS-C as IBSRELA, but Ardelyx had not commercialized it itself. Its principal near-term objective had been approval and launch of tenapanor for hyperphosphatemia in adults with CKD on dialysis.
After quarter-end, on July 28, 2021, the FDA issued a Complete Response Letter (CRL) for that application. The FDA said the treatment effect was small and of unclear clinical significance and required an additional adequate, well-controlled trial demonstrating a clinically relevant effect. The FDA identified no safety, clinical pharmacology, chemistry, manufacturing or nonclinical issues.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $1.3 | $1.8 | $7.9 | $3.0 |
| Operating expenses | $46.1 | $26.0 | $84.7 | $49.0 |
| Operating loss | $(44.8) | $(24.2) | $(76.8) | $(46.0) |
| Net loss | $(45.2) | $(25.0) | $(78.3) | $(47.3) |
| Net loss per share | $(0.45) | $(0.28) | $(0.79) | $(0.53) |
| Cash used in operating activities | Not clearly stated for Q2 alone | Not clearly stated for Q2 alone | $(78.5) | $(44.0) |
Q2 revenue fell 28.5% year over year, mainly because the prior-year quarter included a $0.7 million Knight milestone. First-half revenue rose 158.9%, primarily due to a $5.0 million KKC milestone for starting Phase 3 studies in Japan. Q2 and first-half revenue were modest relative to operating expenses; the filing does not present a meaningful product gross margin because there were no product sales.
Research and development expense was $26.0 million in Q2, up 37.9%, and $46.5 million for the first half, up 33.9%. General and administrative expense was $20.1 million in Q2, up 185.9%, and $37.3 million for the first half, up 162.8%, primarily reflecting investment in commercial infrastructure and launch preparation. First-half cost of revenue was $1.0 million, principally an AstraZeneca payment related to the KKC milestone.
Balance sheet, debt and liquidity
| Metric | June 30, 2021 | December 31, 2020 |
|---|---|---|
| Cash and cash equivalents | $86.7 | $91.0 |
| Short- and long-term investments | $85.1 | $97.6 |
| Total cash, cash equivalents and marketable securities | $171.8 | $188.6 |
| Total assets | $205.0 | $201.6 |
| Total liabilities | $87.4 | $75.5 |
| Stockholders’ equity | $117.6 | $126.1 |
The company reported a $78.5 million first-half operating cash outflow, partly offset by $10.7 million of investing cash inflow and $63.5 million of financing inflow, largely from its at-the-market (ATM) equity offering. Cash and cash equivalents declined by $4.3 million over the six months.
Term-loan carrying value was $51.2 million, of which $36.1 million was current and $15.1 million long-term. The filing lists total repayment obligations of $52.5 million before interest and the exit fee. The loan is secured by substantially all assets except intellectual property and specified exclusions. Management believed available cash and investments would fund planned expenditures and obligations for at least 12 months following filing, while cautioning that plans could change and further capital may be required.
Material changes, outlook and risks
- FDA outcome and development outlook: The CRL makes the approval path, timing and cost for the dialysis hyperphosphatemia indication uncertain. Ardelyx planned to request a Type A meeting; further clinical work may be required. The company warned that it may need to delay, reduce or discontinue development or commercialization plans if it cannot obtain sufficient capital.
- Debt repayment timing: A July 29 loan amendment extended interest-only payments to December 1, 2021, subject to FDA approval by October 25. If approval had not been received by then, principal repayments were to begin November 1, including amounts that would have been due since June 1.
- Restructuring: The board approved a workforce reduction of approximately 83 employees, or 33%, implemented beginning August 2. Ardelyx expected approximately $17 million in annual cash compensation savings and about $3.4 million in one-time restructuring charges, primarily in Q3 2021.
- Equity financing and dilution: During the first half, Ardelyx sold approximately 9.0 million shares through the ATM for $63.8 million gross proceeds at a weighted-average price of $7.10 per share. This helped fund operations but increased shares outstanding.
- Pipeline and commercialization risks: Ardelyx remains dependent on tenapanor, has no product-sales revenue, and expects substantial losses. Risks include clinical and regulatory uncertainty, third-party manufacturing dependence, reimbursement and market acceptance, competition, and access to additional capital. The company also cited potential COVID-19-related disruptions to trials, suppliers and operations.
- Legal matter after quarter-end: A putative securities class action was filed July 30, 2021 against Ardelyx and two officers concerning statements related to tenapanor. The company said it believes the claims are without merit and recorded no accrual.
- Other notable item: A new Waltham lease and an extension of the Fremont lease increased right-of-use assets and lease liabilities; total lease liabilities were $14.7 million at June 30.
Most important facts for investors to verify
- What guidance the FDA provides at the planned Type A meeting, and whether an additional trial is required, including its design, cost and timeline.
- Whether Ardelyx meets the October 25, 2021 loan-agreement approval condition and when principal repayments begin.
- Actual cash burn, remaining liquidity and financing needs after the CRL and workforce restructuring.
- Whether the expected $17 million annual compensation savings and approximately $3.4 million restructuring charges are realized as described.
- Progress and funding priorities for IBSRELA, RDX013 and other pipeline programs, alongside the uncertain dialysis indication.
- Developments in the securities lawsuit, manufacturing and supply arrangements, and any changes to the company’s stated 12-month liquidity assessment.