Ardelyx, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; the filing also reports unaudited quarterly results, including Q4 2019. Ardelyx is a biopharmaceutical company focused on cardiorenal diseases. It had no product sales; revenue came from collaborations and licensing.
Business context and developments
- Tenapanor is in development for control of serum phosphorus in adults with chronic kidney disease (CKD) on dialysis. Ardelyx reported positive Phase 3 results from PHREEDOM in December 2019 and AMPLIFY in September 2019; it planned to submit an FDA application in mid-2020. The phosphorus indication was not approved as of the filing.
- The FDA approved IBSRELA (tenapanor) for IBS-C in adults on September 12, 2019. Ardelyx said it intended to seek a U.S. commercialization partner rather than build its own IBS-C sales operation.
- RDX013, a potential hyperkalemia treatment, remained a development program. Commercialization plans included building a U.S. nephrology-focused sales organization for tenapanor’s phosphorus indication if approved.
Key financial metrics
| Metric | FY2019 | FY2018 |
|---|---|---|
| Total revenue | $5.3 million | $2.6 million |
| Gross profit | $4.7 million | $2.1 million |
| Research and development expense | $71.7 million | $69.4 million |
| General and administrative expense | $24.3 million | $23.7 million |
| Operating loss | $91.3 million | $90.9 million |
| Net loss | $94.9 million | $91.3 million |
| Basic and diluted loss per share | $1.47 | $1.62 |
| Cash, cash equivalents and short-term investments at year-end | $247.5 million | $168.1 million |
| Cash used in operating activities | $76.5 million | $70.3 million |
| Loan payable, net of current portion | $48.8 million | $49.2 million |
Reported gross margin was approximately 88.6% in 2019, calculated from gross profit divided by revenue; revenue was collaboration and licensing revenue, not product sales. The company had an accumulated deficit of $460.5 million. It reported total liabilities of $73.1 million and stockholders’ equity of $186.7 million at year-end. No product royalties had yet been recognized.
Changes, financing and unusual items
- Revenue rose 103% year over year, mainly due to a $3.0 million Fosun milestone and recognition of a $1.5 million XuanZhu license fee; the $0.5 million of 2019 collaborative development revenue related to the new KKC research agreement. Revenue remains milestone- and collaboration-dependent.
- Net loss increased by $3.6 million, while loss per share narrowed from $1.62 to $1.47, reflecting a higher weighted-average share count. R&D expense rose 3%; interest expense increased to $5.7 million from $3.5 million, largely because 2019 included a full year of loan interest.
- 2019 financing included a public offering of 23.0 million shares that generated approximately $134.9 million net and a KKC private placement of 2.9 million shares for approximately $20.0 million net. Outstanding shares increased to 88.8 million from 62.5 million.
- Operating cash outflow exceeded net loss cash-wise? The filing reports $76.5 million used in operations; liquid funds rose mainly due to equity financing. Management said existing resources were expected to fund planned expenditures and obligations for at least 12 months from the March 6, 2020 financial-statement issuance date, subject to assumptions and execution.
- A $3.6 million overaccrual of clinical-trial expenses had overstated 2018 R&D expense and accrued liabilities. The company recorded the correction in 2019 and said the material weakness in related controls was remediated by year-end; management and the auditor concluded controls were effective at December 31, 2019.
Outlook, risks and contingencies
- Management expected continued substantial operating losses and spending on the phosphorus NDA, possible commercialization, IBS-C post-approval obligations, and pipeline research. No revenue or earnings guidance was provided.
- The $50.0 million term loan bears interest at one-month LIBOR plus 7.45%, matures November 1, 2022, and is secured by substantially all assets other than intellectual property. Interest-only payments were extended through December 1, 2020; principal and interest payments follow thereafter. Covenants restrict certain activities, and default could accelerate repayment.
- Risks include FDA review and labeling, manufacturing scale-up and reliance on contract manufacturers, tenapanor’s diarrhea-related tolerability, market access and reimbursement, competition, and the lack of an IBS-C U.S. partner. The filing flagged potential pressure on phosphorus-drug pricing if oral-only dialysis drugs enter the Medicare ESRD bundle in 2025.
- Under the AstraZeneca termination agreement, Ardelyx may owe 10% of future net sales of tenapanor or other NHE3 products and 20% of certain non-royalty collaboration revenue, subject to a $75.0 million aggregate cap; $10.5 million had been recognized through 2019.
- The filing noted potential COVID-19-related disruption to a China-based API-intermediate supplier and a Japan-based collaboration partner, with the impact uncertain. It also disclosed that CFO Mark Kaufmann planned to transition out around March 13, 2020.
- No material litigation was identified, and no off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether the planned phosphorus NDA was submitted on schedule, accepted for review, and ultimately approved, including the approved label and any additional FDA requirements.
- Whether Ardelyx secured a U.S. IBS-C commercialization partner and the resulting economics, or how IBSRELA was otherwise commercialized.
- Actual cash burn, financing needs, and runway relative to the company’s stated 12-month estimate; also monitor debt amortization beginning December 2020.
- Commercial supply readiness, manufacturing costs, coverage and reimbursement prospects, and potential effects of the 2025 ESRD payment-bundle change.
- Whether the remediated clinical-accrual controls remained effective and whether the prior-period correction or other control issues required further action.