Ardelyx, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions where shown. Ardelyx is a biopharmaceutical company commercializing IBSRELA and developing tenapanor for additional indications.
Financial results and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $5.0 million | $1.2 million | $8.0 million | $9.1 million |
| IBSRELA net product sales | $4.9 million | None | $6.9 million | None |
| Operating expenses | $26.9 million | $43.4 million | $83.9 million | $128.1 million |
| Operating loss | $21.9 million | $42.2 million | $75.9 million | $119.1 million |
| Net loss | $22.9 million | $43.6 million | $77.9 million | $121.9 million |
| Net loss per share, diluted | $0.14 | $0.42 | $0.53 | $1.21 |
- Q3 gross profit was approximately $4.3 million, or 85% of revenue, based on reported revenue less cost of revenue. The filing does not present a labeled gross-margin measure.
- Operating cash used in the first nine months was $84.3 million, versus $113.1 million a year earlier. Cash and cash equivalents declined to $61.6 million at September 30; short-term investments were $29.0 million, for total cash and investments of $90.6 million.
- Current assets were $119.9 million and current liabilities $52.0 million. The $26.5 million carrying amount of debt was classified as current; the company cited going-concern uncertainty and a material-adverse-change provision outside its control as reasons for the classification.
- Net cash from financing was $56.6 million for the nine months, including $52.8 million net ATM equity proceeds, $27.0 million net loan proceeds and $9.6 million from selling future royalty interests, offset in part by repayment of the prior loan.
Material changes versus comparable periods
- Q3 revenue rose 325%, primarily because IBSRELA sales began in March 2022. Nine-month revenue fell 12%: new IBSRELA sales did not offset the prior-year $5.0 million milestone and collaborative revenue recognized under the KKC agreements.
- Operating expenses fell 38% in Q3 and 35% for the nine months. Research and development expense fell 68% and 63%, respectively, mainly reflecting reduced clinical and manufacturing costs and the 2021 restructuring. SG&A was broadly flat year to date as lower restructuring-related costs were offset by IBSRELA launch spending.
- Net losses narrowed year over year, but the company continued to consume substantial operating cash. The nine-month reduction in cash use primarily reflected lower R&D spending, partly offset by commercial inventory and manufacturing outlays.
- Common shares outstanding increased from 130.2 million at December 31, 2021 to 187.4 million at September 30, 2022. The ATM offering accounted for 53.1 million shares issued during the first nine months.
Outlook, risks and unusual items
- Going concern and funding: Management stated that available cash and investments alone were insufficient for the next 12 months following issuance of the statements and that substantial doubt existed about the company’s ability to continue as a going concern. Plans included IBSRELA cash generation, anticipated collaboration payments, access to capital markets and cash-preservation measures; success was not assured. No specific cash-runway date or numerical operating guidance was provided.
- XPHOZAH: The FDA had issued a Complete Response Letter, stating that the observed treatment effect was small and of unclear clinical significance. An FDA advisory committee meeting was scheduled for November 16, 2022 as part of the formal dispute process; the filing cautions that a favorable outcome or eventual approval is not assured.
- Post-quarter KKC payment: KKC submitted a Japanese NDA on October 31, 2022. Ardelyx said this triggers $35.0 million in aggregate milestone and amendment-related payments, which it expected to receive in Q4 2022. These were not cash received as of September 30.
- Debt and royalty financing: The $27.5 million funded SLR term loan bears interest at 7.95% plus a floating-rate component, allows interest-only payments through March 2024 and matures in 2027. An additional $22.5 million is conditional on FDA approval by March 31, 2023 and revenue milestones. Ardelyx received $10.0 million upfront from HCR for rights to specified future KKC royalties and milestones, with up to $10.0 million in further contingent payments. The royalty obligation generated $0.8 million of non-cash interest expense in Q3.
- Pipeline: RDX013 showed potassium reductions after eight days in a Phase 2 study but missed its primary endpoint at four weeks; further work was contingent on available resources. RDX020 discovery work was to continue using third parties after the internal research organization was eliminated.
- Other risks and contingencies: IBSRELA commercialization, payer coverage and reimbursement, third-party manufacturing, potential dilution and Nasdaq listing compliance remain material risks. Securities class actions and related derivative suits were pending; Ardelyx said it believed the claims were without merit and had accrued no contingent liability. The filing reported no litigation expected to have a material adverse effect as of September 30.
Important facts for investors to verify
- Whether IBSRELA prescriptions, net sales, payer access and commercial costs support improving cash generation.
- The FDA advisory committee and subsequent agency decision on XPHOZAH, including implications for approval timing and access to the conditional loan tranche.
- Receipt and timing of the expected $35.0 million from KKC, and any conditions or deductions affecting the payment.
- Cash burn, financing availability, ATM dilution and whether management’s funding plans address the stated 12-month going-concern shortfall.
- Debt covenant compliance, floating-rate expense, current classification and the conditions attached to the additional $22.5 million tranche.