Ardelyx, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Unaudited results; financial amounts below are in U.S. dollars unless stated otherwise.
Business context and reporting period
Ardelyx is a clinical-stage biopharmaceutical company developing medicines for cardiorenal diseases. It had no approved products or product-sales revenue. Its lead candidate, tenapanor, was under FDA review for IBS-C and in Phase 3 trials for hyperphosphatemia in dialysis patients. The company was also advancing RDX013 for potential treatment of hyperkalemia.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | $0 | $2.32 million licensing revenue |
| Gross profit | $0 | $1.86 million |
| Research and development expense | $20.38 million | $13.35 million; up 53% |
| General and administrative expense | $5.12 million | $6.19 million; down 17% |
| Operating loss | $25.50 million | $17.69 million |
| Net loss | $26.14 million | $17.02 million |
| Net loss per share, basic and diluted | $0.42 | $0.36 |
| Net cash used in operating activities | $16.91 million | $6.80 million |
With no revenue in Q1 2019, a gross margin is not meaningful. R&D expense rose mainly due to higher external costs for the PHREEDOM and AMPLIFY trials and other tenapanor studies. G&A declined primarily due to lower professional-services and stock-based compensation costs. Interest expense was $1.43 million, compared with none in Q1 2018.
Cash and cash equivalents were $92.04 million and short-term investments were $59.52 million at March 31, 2019, for total liquid funds of $151.56 million, down from $168.09 million at year-end 2018. Cash and investments were concentrated in money-market funds and short-term securities. Cash increased by $13.27 million during the quarter, principally because investment maturities exceeded purchases; operating activities consumed $16.91 million.
Total assets were $166.14 million; current assets were $154.31 million and current liabilities were $20.83 million. The company reported an accumulated deficit of $391.66 million. The $50 million term loan had a $49.40 million carrying value at quarter-end and matures November 1, 2022. Its rate is one-month LIBOR plus 7.45%; principal payments are scheduled to begin in 2020, subject to the loan terms and clinical milestone. The debt is secured by substantially all assets other than intellectual property, with customary covenants; the company reported compliance and no known event of default. Newly recognized operating lease liabilities totaled $6.17 million.
Material changes and unusual items
- Licensing revenue and cost of revenue were both zero, versus $2.32 million and $0.46 million, respectively, in Q1 2018. The prior-year revenue was a Knight license fee.
- R&D spending increased 53%, while operating cash use more than doubled year over year. Net loss per share increased from $0.36 to $0.42.
- Under the KHK agreement, a $5 million milestone was achieved in February 2019; the associated unbilled receivable was reduced to zero. The company owed AstraZeneca $1 million in related fees and reported that it was reclassified to accounts payable and paid in Q2 2019.
- Adoption of the new lease standard on January 1, 2019 added right-of-use assets and lease liabilities to the balance sheet. The filing reports $648,000 of Q1 operating lease cost.
- The fair value of the loan-related exit-fee derivative liability increased from $533,000 to $570,000, with a $37,000 change recorded in other income (expense).
Outlook, management commentary and risks
Management stated that existing capital resources were expected to fund operating expenses and capital expenditures for at least 12 months following issuance of the financial statements, but emphasized that this estimate depends on assumptions and that additional capital may be required. Ardelyx expected continuing operating losses and substantial development spending; it had no unused credit facility or committed source of additional capital.
- The FDA target action date for the IBS-C NDA was September 12, 2019. The NDA had been submitted in September 2018 and accepted for substantive review.
- Top-line results from the PHREEDOM Phase 3 monotherapy trial were expected in Q4 2019; results from the AMPLIFY adjunctive-therapy trial were expected in the second half of 2019.
- Management highlighted dependence on successful clinical results, regulatory approvals, manufacturing capacity, reimbursement and market acceptance. It also noted the need for capital and, potentially, a U.S. commercialization partner for IBS-C.
- Key risks include clinical-trial failure or delay, adverse effects, FDA review outcomes, third-party manufacturing and supply, competition, pricing and reimbursement uncertainty, and the ability to obtain financing. The filing specifically discusses possible future Medicare bundling of oral-only ESRD drugs.
- The company reported no litigation pending that it expected to have a material adverse effect on results or financial condition; it also stated that reasonably possible losses beyond reserves were not expected to be material to consolidated financial condition or cash flows, though losses could affect a particular period’s results.
- Management concluded disclosure controls were effective at a reasonable-assurance level as of March 31, 2019, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- FDA action on the IBS-C NDA and any changes to its target action date.
- PHREEDOM and AMPLIFY trial timing, results, safety findings and any subsequent regulatory requirements.
- Quarterly operating cash burn, liquid-funds balance and the assumptions behind the stated 12-month funding runway.
- Loan amortization, variable-rate exposure, covenant compliance and any conditions that could accelerate repayment.
- Commercialization and reimbursement prospects, including any U.S. IBS-C partnership and the potential impact of ESRD drug-bundling rules.