Ardelyx, Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. Ardelyx is a clinical-stage biopharmaceutical company and has no approved products or product-sale revenue. Its lead candidate, tenapanor, was under development for hyperphosphatemia in dialysis patients and IBS-C; the company submitted an IBS-C NDA to the FDA in September 2018. It was also advancing RDX013 for potential treatment of hyperkalemia.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Total revenue | $0.2 million | None | $2.5 million | None |
| Operating expenses | $23.9 million | $21.2 million | $65.6 million | $76.1 million |
| Operating loss | $23.7 million | $21.2 million | $63.6 million | $76.1 million |
| Net loss | $24.1 million | $20.7 million | $63.4 million | $74.5 million |
| Basic and diluted loss per share | $0.39 | $0.44 | $1.17 | $1.57 |
| Operating cash used | Not stated for quarter | Not stated for quarter | $51.8 million | $69.9 million |
Q3 gross profit was $0.17 million on $0.17 million of revenue; the filing does not present a meaningful product-level margin, given the very small, non-product revenue base. Nine-month gross profit was $2.1 million. Ardelyx reported no product sales.
- Cash and investments: $186.4 million in cash, cash equivalents and short-term investments at September 30, 2018, versus $134.0 million at December 31, 2017. Cash and cash equivalents alone were $75.0 million.
- Debt: $49.0 million carrying value on a $50.0 million term loan funded in May 2018, due November 2022. Interest is floating at one-month LIBOR plus 7.45%; interest-only payments run through June 2020, potentially December 2020 if a specified Phase 3 endpoint is achieved. The loan is secured by substantially all assets other than intellectual property and customary exclusions.
- Balance sheet: Total assets were $206.7 million, total liabilities $65.2 million and stockholders’ equity $141.4 million. Current assets were $199.3 million and current liabilities $15.5 million.
- Financing: Nine-month financing cash inflow was $103.6 million, principally from $53.8 million net proceeds from a public offering and $49.3 million net loan proceeds. The offering issued 14.375 million shares; outstanding shares were 62.1 million at September 30.
Material changes versus comparable periods
- Q3 R&D expense rose 17% to $17.9 million, mainly due to higher external costs for the second Phase 3 hyperphosphatemia study; lower spending on discontinued or reduced programs and lower internal costs partly offset the increase.
- Nine-month R&D expense fell 19% to $47.3 million, reflecting reduced activity on RDX7675 and RDX8940, completion of IBS-C Phase 3 work and lower internal personnel costs, partly offset by the second hyperphosphatemia Phase 3 study.
- Nine-month G&A expense increased 3% to $18.3 million. Q3 G&A was broadly stable at $6.0 million.
- Nine-month revenue was $2.5 million, primarily the $2.3 million Knight license fee and $0.2 million of manufacturing-supply revenue to KHK. AstraZeneca-related license costs contributed $0.5 million of nine-month cost of revenue.
- Net loss narrowed for the first nine months, but widened in Q3. Q3 other expense was $0.4 million, compared with $0.5 million of other income a year earlier.
- Cash used in operations improved to $51.8 million from $69.9 million for the first nine months. Cash and cash equivalents declined by $0.4 million as investing outflows largely reflected purchases of short-term investments.
Outlook, commentary and risks
- Management expected operating losses to continue for the foreseeable future, with substantial R&D and potential commercialization-preparation costs. It stated existing capital resources were expected to fund operations and capital expenditures for at least 12 months after the financial statements’ issuance date, while cautioning that assumptions could prove wrong and additional capital may be needed.
- The company had no product sales and no unutilized credit facility or committed additional capital. Future funding needs depend on clinical and regulatory outcomes, commercialization plans, manufacturing costs, collaboration opportunities, reimbursement and other factors.
- Key clinical and regulatory uncertainties include FDA review of the IBS-C NDA and the outcome of the second Phase 3 hyperphosphatemia trial. Approval, commercial uptake, pricing, reimbursement and the ability to secure a U.S. IBS-C commercialization partner are not assured.
- The loan includes covenants and default provisions; an event of default could accelerate repayment and permit enforcement against collateral, including cash. Ardelyx reported compliance with loan covenants and no known circumstances giving rise to default at September 30, 2018.
- The loan’s $1.5 million exit fee may be payable upon a change of control or upon both specified FDA approvals; its reported fair value was $0.6 million. The company also reported $6.2 million of Swiss-franc forward contracts and estimated that a hypothetical 10% strengthening in the relevant exchange rate could reduce contract value by approximately $0.6 million.
- The company disclosed no material pending litigation, no off-balance-sheet arrangements and no material change in internal control over financial reporting. Disclosure controls were assessed as effective at a reasonable-assurance level.
- ASC 606 adoption increased opening current assets by $5.0 million and current liabilities by $1.0 million, reducing opening accumulated deficit by about $4.0 million. The filing said the adoption did not change reported nine-month 2018 revenue or cost of revenue.
Most important facts for investors to verify
- Current status and FDA review timeline for the IBS-C NDA, and the design, enrollment and results timeline for the second hyperphosphatemia Phase 3 trial.
- Cash-burn trend and whether management’s stated minimum 12-month funding runway remains valid under updated operating plans.
- Loan interest, amortization schedule, covenants, collateral and potential exit-fee triggers, including the effect of floating LIBOR.
- Potential commercialization partner for U.S. IBS-C, and the economics and obligations of existing licenses, including payments due to AstraZeneca.
- Share dilution from the 2018 offering, outstanding equity awards and any use of the $50 million at-the-market sales agreement, which had no shares issued or sold as of September 30, 2018.