Ardelyx, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Financial amounts below are in U.S. dollars; rounded to millions unless stated otherwise. The filing was signed October 31, 2023.
Business context
Ardelyx is a biopharmaceutical company commercializing IBSRELA (tenapanor) for adults with IBS-C. XPHOZAH (tenapanor) was not yet FDA-approved at quarter end; the FDA approved it on October 17, 2023 for specified adults with CKD on dialysis. The company also has development-stage RDX013 and discovery-stage RDX020, but does not expect to meaningfully advance them until resources permit after prioritizing commercial products.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $56.4m | $5.0m | $90.1m | $8.0m |
| Product sales, net | $22.3m | $4.9m | $51.9m | $6.9m |
| Operating income (loss) | $7.4m | $(21.9)m | $(35.3)m | $(75.9)m |
| Net income (loss) | $6.6m | $(22.9)m | $(37.3)m | $(77.9)m |
| Operating cash flow | Not provided separately | Not provided separately | $(81.0)m | $(84.3)m |
- Q3 revenue included $32.0m of licensing revenue, primarily the $30.0m earned following Japanese regulatory approval of tenapanor, plus a $2.0m China milestone. The Japanese-related $30.0m was received in October and recorded as a September 30 receivable.
- Product sales were IBSRELA sales. Q3 sales increased 356% year over year; nine-month sales increased 653%, reflecting the product’s commercial launch in March 2022 and subsequent growth.
- Q3 gross profit was approximately $48.7m, or 86% of revenue; nine-month gross profit was approximately $77.4m, or 86%. Other cost of revenue includes AstraZeneca payments and international product-supply costs.
- Q3 R&D was $8.6m and SG&A was $32.7m. Nine-month R&D was $26.0m, essentially flat year over year; SG&A rose 52% to $86.7m, primarily from IBSRELA commercialization and preparation for XPHOZAH’s launch.
- Interest expense was $3.2m for the first nine months, and non-cash interest on the future-royalty obligation was $2.9m. The latter obligation had a 23.9% effective interest rate.
Balance sheet, liquidity and financing
- At September 30, cash and cash equivalents were $33.8m and short-term investments were $131.3m, totaling $165.1m. Total current assets were $241.2m versus current liabilities of $43.5m.
- Cash and cash equivalents declined $62.4m from year-end 2022, while short-term investments increased $103.5m. Investing cash outflow of $101.7m largely reflected purchases of investments; it should be considered alongside the reported liquid-funds total.
- Net operating cash outflow was $81.0m for the first nine months. Financing provided $120.3m, including $119.2m net proceeds from at-the-market stock sales. Shares outstanding rose from 198.6m at December 31, 2022 to 232.1m at September 30, 2023.
- At quarter end, long-term debt was $27.2m net of discounts and costs, based on $27.5m principal outstanding; no current portion was reported. The separate deferred royalty obligation was $14.1m.
- Management said available cash, cash equivalents and short-term investments were expected to fund operations for at least one year from issuance of the statements, while noting this depends on assumptions and that additional capital may be needed. The filing says liquidity had raised substantial doubt about going concern since December 31, 2021 and before September 30, 2023.
Material changes, outlook and risks
- Post-quarter developments: FDA approval of XPHOZAH on October 17 triggered a $3.0m Fosun milestone and enabled a $22.5m Term B loan draw, which Ardelyx elected to draw in October. The filing says XPHOZAH was expected to be available in November 2023.
- The October loan amendment also provided an option for up to $50m of additional committed capital by March 15, 2024 and up to $50m of uncommitted capital, subject to lender investment-committee approval, by December 31, 2026. The interest-only period was extended to December 31, 2026 upon the Term B draw; principal repayments are scheduled to begin in January 2027.
- Kyowa Kirin’s Japanese approval also led to a $5.0m HCR payment received in October. Under the royalty-sale arrangement, future Japanese royalties and commercial milestone payments are remitted to HCR; no royalty payments had yet been received by Ardelyx as of September 30.
- Absent further legislative or regulatory action, the company expects oral-only ESRD-related drugs, including XPHOZAH, to enter the ESRD prospective payment system on January 1, 2025, ending separate Medicare Part D payment. TDAPA eligibility, payment levels, bundling timing and any later base-rate adjustment remain uncertain and could materially affect XPHOZAH revenue.
- Key commercial risks include market acceptance and reimbursement for both products, competition, adverse effects, and dependence on third-party manufacturers, including single-source suppliers. The company also expects continued operating losses and may require additional financing.
- RDX013’s Phase 2 study did not meet its primary endpoint at four weeks, although it showed proof-of-concept potassium reductions at eight days. Further work is deferred pending resources.
- Pending securities class actions and consolidated derivative litigation relate to alleged historical statements about tenapanor. Ardelyx considers the claims without merit and recorded no contingent-liability accrual. Management reported disclosure controls were effective at a reasonable assurance level.
Important facts for investors to verify
- IBSRELA prescription, net-sales and reimbursement trends, and the associated product-level economics.
- XPHOZAH launch results, coverage and reimbursement, TDAPA treatment, and developments affecting the anticipated 2025 ESRD PPS transition.
- Cash consumption relative to management’s stated one-year runway, including the timing and use of October milestone receipts and loan proceeds.
- Debt draw amounts, interest costs, covenant compliance, and the availability and conditions of optional loan tranches.
- Share dilution from ATM offerings and any further financing, alongside progress toward reducing operating losses.
- Manufacturing capacity and supply continuity, plus developments in the disclosed lawsuits and any resulting financial exposure.