Ardelyx, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Ardelyx is a clinical-stage biopharmaceutical company focused on kidney and cardiovascular diseases. It had no product-sale revenue; reported revenue came from collaborations and supply activities. Financial statement amounts below are in millions of dollars unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $1.213 | $0 |
| Research and development expense | $15.844 | $20.381 |
| General and administrative expense | $7.138 | $5.117 |
| Operating loss | $21.769 | $25.498 |
| Net loss | $22.373 | $26.144 |
| Net loss per share, basic and diluted | $0.25 | $0.42 |
| Cash used in operating activities | $24.946 | $16.913 |
Revenue included $1.175 million of collaborative development revenue under the 2019 Kyowa Kirin (KKC) agreement and $38,000 of other revenue. No product gross margin is reported; with no product sales, product margins are not meaningful.
At March 31, 2020, cash, cash equivalents and short-term investments totaled $223.207 million, down from $247.512 million at December 31, 2019. Current assets were $228.582 million and current liabilities $23.417 million. Total liabilities were $67.565 million. The loan payable had a carrying value of $50.230 million, including $7.437 million classified as current. Stockholders’ equity was $167.757 million.
Investing activities used $50.883 million, mainly reflecting purchases of short-term investments; financing activities provided $0.591 million. Cash and cash equivalents fell by $75.238 million, while funds were shifted into short-term investments. Management said available cash and investments should fund planned expenditures and obligations for at least 12 months after the May 7, 2020 issuance date; it cautioned that estimates depend on assumptions and capital could be used sooner.
Changes versus Q1 2019
- Net loss narrowed by $3.771 million, or 14.4%, and loss per share improved from $0.42 to $0.25. Lower R&D expense more than offset higher G&A expense.
- R&D expense declined 22.3%, primarily from lower external tenapanor clinical and manufacturing costs and lower RDX013 program costs.
- G&A expense increased 39.5%, reflecting higher headcount and personnel costs, stock-based compensation, severance for the former CFO, and professional services.
- Operating cash use increased by $8.033 million, despite lower cash R&D expense, due primarily to working-capital movements and lower collaboration cash receipts.
- Weighted-average shares increased to 88.9 million from 62.5 million; the filing reports no dilutive effect on loss per share because potential shares were antidilutive.
Outlook, risks and notable items
- Management expected to submit an NDA for tenapanor for control of serum phosphorus in dialysis patients in mid-2020. The Phase 3 program was complete, and the company reported positive topline PHREEDOM results in December 2019. Approval and commercial success were not assured.
- Tenapanor (IBSRELA) had FDA approval for IBS-C in adults, but Ardelyx had not generated product-sale revenue and said it did not currently expect to commercialize the U.S. IBS-C product itself; it was seeking a collaboration partner. The company planned, if approved, to commercialize the phosphorus indication itself.
- The KKC research collaboration’s initial $10 million transaction price is recognized over research services, expected to continue through the end of 2021. Ardelyx recognized $1.175 million in Q1; $8.4 million was allocated to partially unsatisfied obligations at quarter-end, including $3.4 million of deferred revenue.
- The $50 million term loan bears interest at one-month LIBOR plus 7.45%. Following achievement of the Phase 3 endpoint, interest-only payments were permitted through December 1, 2020; principal payments of about $2.1 million monthly were scheduled to begin then. The loan is secured by substantially all assets other than intellectual property and specified exclusions. Ardelyx reported covenant compliance and no known event of default at March 31.
- COVID-19 could disrupt clinical activity, supplier deliveries and collaborators. The company identified a supplier of API intermediates in China and a collaboration partner in Japan, and noted access restrictions at dialysis centers could delay ongoing or planned trials. It also warned of potential effects on investment issuers’ credit quality.
- Key commercial and financing uncertainties include regulatory approval, manufacturing scale-up and supply, reimbursement and pricing, competition, and the need for additional capital or partnerships. The company had no unused credit facility or committed additional capital source.
- No material pending litigation or accrued contingent liabilities were reported. Management said disclosure controls were effective at a reasonable assurance level and reported no material change in internal control over financial reporting during the quarter.
- The filing disclosed a prior clinical-trial accrual error: Q1 2019 R&D expense and accrued liabilities had been overstated by $0.5 million. The correction was recorded in Q2 2019; management concluded it was not material to each quarter or full-year 2019 and 2018 results.
Investor verification priorities
- Confirm the timing and outcome of the planned phosphorus-indication NDA submission, FDA review, and any additional data or studies requested.
- Track cash and investment balances against operating cash use, commercialization spending, and management’s stated 12-month liquidity outlook.
- Verify the loan’s interest and principal schedule, including the start of amortization and the ability to meet payments through the November 2022 maturity.
- Monitor progress toward a U.S. IBS-C commercialization partner and the commercial readiness, reimbursement prospects, and manufacturing capacity for tenapanor.
- Assess whether COVID-19, supplier concentration, clinical-trial delays, or investment credit deterioration materially affect operations or liquidity.