Ardelyx, Inc. — Q3 2015 Form 10-Q
Business context and reporting period
Clinical-stage biopharmaceutical company developing GI-tract-focused treatments for cardio-renal and GI diseases. This unaudited filing covers the quarter and nine months ended September 30, 2015; amounts below are in millions of dollars unless otherwise noted. Ardelyx had no product sales.
Financial performance and liquidity
| Metric | Q3 2015 / September 30, 2015 | Comparable period / date |
|---|---|---|
| Revenue | $0 | Q3 2014: $7.598 |
| Operating expenses | $18.079 | Q3 2014: $7.517 |
| Operating loss | $(18.079) | Q3 2014: income of $0.081 |
| Net loss | $(18.126); $(0.70) per share | Q3 2014: income of $0.074 |
| Nine-month revenue | $24.026 | 2014: $25.284 |
| Nine-month net result | Loss of $12.621; $(0.58) per share | 2014: income of $0.757 |
| Cash and cash equivalents | $129.047 | December 31, 2014: $107.286 |
| Total assets / liabilities | $138.066 / $12.936 | December 31, 2014: $113.414 / $52.732 |
| Cash flows, nine months | Operations $(50.237); investing $(3.000); financing $74.998 | 2014: operations $17.189; investing $(0.824); financing $61.244 |
For the first nine months, R&D expense was $27.101 million versus $18.514 million, and G&A was $9.438 million versus $4.401 million. The company reported no debt or credit facility. Current assets were $133.471 million and current liabilities $12.584 million. Management believed cash resources would cover projected operating requirements for at least 12 months, while cautioning that assumptions could prove wrong and additional capital may be needed.
Material changes and unusual items
- The June 2015 termination of the AstraZeneca collaboration returned tenapanor and other NHE3 inhibitor rights to Ardelyx. The company recognized $43.1 million of remaining deferred revenue in Q2, while $15 million paid for the rights return and $10 million for R&D reimbursement and accelerated transfer costs were recorded as reductions to licensing revenue. These items explain why nine-month licensing revenue was $21.611 million even though Q3 revenue was zero.
- Q3 R&D rose 158%, mainly including $7.3 million of tenapanor clinical-trial material expenses and increased tenapanor and RDX022 development activity. Q3 G&A rose 85%, primarily due to personnel and professional services.
- Operating cash use was $50.237 million, substantially affected by a $47.053 million decrease in deferred revenue. June financing generated $77.8 million gross and $74.3 million net proceeds through common stock and warrants; common shares outstanding rose to 25.955 million from 18.589 million at year-end 2014.
- Accrued liabilities included $7.328 million for AstraZeneca tenapanor clinical-trial material. The termination agreement also provides for future payments, including 10% royalties on net sales and 20% of certain non-royalty revenue from a new partner, subject to an aggregate $90 million cap. The maximum payable for specified materials was later reduced from $10 million to $8 million in a November 2015 amendment.
- Contractual obligations reported at quarter-end totaled $4.511 million, comprising $0.959 million of purchase commitments and $3.552 million of operating leases. No material litigation or off-balance-sheet arrangements were reported.
Outlook, management commentary, and principal risks
After quarter-end, Ardelyx initiated a Phase 3 tenapanor trial for IBS-C in October 2015. It expected a second IBS-C Phase 3 trial and a Phase 2b hyperphosphatemia trial to begin in December 2015. An RDX022 healthy-adult trial began in October; the company intended to pursue a 505(b)(2) pathway and expected a Phase 3 program as early as the second half of 2016. These are expectations, not assured outcomes.
Management expected R&D costs to increase substantially as programs advanced and stated that future funding needs depend on trial progress, manufacturing, regulatory and commercialization costs, and potential collaborations. Key risks include clinical efficacy and safety (including higher-than-expected diarrhea and discontinuations at the highest tenapanor doses in a Phase 2b study), clinical supply and manufacturing transfer from AstraZeneca, regulatory uncertainty, competition, reimbursement and pricing, and the need for additional financing. The filing said disclosure controls were effective as of September 30, 2015 and identified no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether tenapanor trial milestones and clinical-material supply proceed on schedule, and whether the diarrhea findings affect dosing, discontinuation, or trial outcomes.
- Whether RDX022 can progress under the intended 505(b)(2) pathway and whether its clinical, manufacturing, and regulatory plans remain achievable.
- How cash burn and trial spending compare with the company’s estimate that September 2015 resources would fund at least 12 months of operations, and whether further financing is required.
- The financial impact of AstraZeneca’s contingent royalties and partner-revenue payments, the $90 million cap, and the amended $8 million materials limit.
- The dilution and potential share overhang from the June 2015 offering, warrants exercisable at $13.91 per share, and any future equity issuance.