Ardelyx, Inc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; the filing also reports fourth-quarter results. Ardelyx is a clinical-stage biopharmaceutical company with no approved products or product-sale revenue. Its lead candidate, tenapanor, is being developed for hyperphosphatemia in dialysis patients and IBS-C; RDX013 is an earlier-stage hyperkalemia program.
Financial performance and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Total revenue | $2.6 million | $42.0 million |
| Gross profit | $2.1 million | $33.6 million |
| Research and development expense | $69.4 million | $75.5 million |
| General and administrative expense | $23.7 million | $23.2 million |
| Operating loss | $90.9 million | $65.1 million |
| Net loss | $91.3 million | $64.3 million |
| Net loss per share, basic and diluted | $1.62 | $1.36 |
| Cash, cash equivalents and short-term investments at year-end | $168.1 million | $134.0 million |
- 2018 revenue was primarily the $2.3 million upfront fee from Knight Therapeutics; the remaining $0.3 million was supply revenue from KHK. The prior-year $42.0 million largely reflected upfront license payments from KHK and Fosun, making the year-over-year revenue decline largely attributable to nonrecurring collaboration receipts.
- Cash used in operating activities was $70.3 million, versus $65.2 million in 2017. The company reported an accumulated deficit of $365.5 million.
- At December 31, 2018, total current assets were $176.4 million and current liabilities were $17.7 million. Long-term loan carrying value was $49.2 million. The $50.0 million term loan bears interest at one-month LIBOR plus 7.45%, has a November 2022 maturity, and is secured by substantially all assets except intellectual property and customary exclusions.
- Management said available cash and investments were expected to fund planned expenditures and obligations for at least 12 months after the financial statements were issued, while warning that plans could change and additional capital may be needed.
- 2018 financing included $53.8 million net proceeds from a public stock offering and $49.3 million net proceeds from the term loan. The share count rose to 62.5 million at year-end from 47.5 million a year earlier.
Material changes and quarterly results
- Net loss widened by $27.0 million from 2017, despite an 8% reduction in R&D expense. Interest expense of $3.5 million was recorded following the 2018 borrowing.
- 2018 quarterly revenue was $2.320 million, $0.030 million, $0.172 million and $0.085 million, respectively; fourth-quarter net loss was $27.9 million, or $0.45 per share. Fourth-quarter 2017 revenue was $42.0 million and net income was $10.1 million, reflecting the timing of license revenue.
- R&D spending shifted toward tenapanor: increased Phase 3 activity was partly offset by completion of IBS-C trials and discontinuation or reduction of other programs. Management cited lower internal costs following a 2017 workforce reduction.
- The company adopted ASC 606 in 2018. The transition increased opening accumulated earnings by $4.0 million, reflecting earlier recognition of a KHK milestone and related AstraZeneca payment; the filing reports no change to 2018 revenue from adoption.
Pipeline, outlook and key risks
- Tenapanor for IBS-C: The FDA accepted the NDA, with a PDUFA target action date of September 12, 2019. The filing describes two successful Phase 3 trials and a long-term safety study. Diarrhea was a notable adverse event; in the IBS-C trials, placebo-adjusted discontinuation due to diarrhea was reported at 5.3% and 5.8%.
- Tenapanor for hyperphosphatemia: PHREEDOM, the second Phase 3 monotherapy trial, had topline results expected in Q4 2019. AMPLIFY, evaluating tenapanor with phosphate binders, had results expected in the second half of 2019. If results supported development, the company planned to seek FDA approval in 2020 and said it intended to build a U.S. nephrology-focused sales organization.
- RDX013: The company described the potassium-secretagogue program as under development for potential hyperkalemia treatment; it remained earlier stage, with no clinical results or firm development timetable disclosed in this filing.
- Commercial collaborations: KHK holds Japan rights and Fosun holds China rights; Knight holds Canadian rights. In February 2019, KHK began a Phase 2 study and Ardelyx received a $5.0 million milestone payment. Ardelyx was seeking a U.S. IBS-C commercialization partner.
- Principal risks: Clinical and regulatory outcomes are uncertain, including the pending IBS-C NDA and two hyperphosphatemia Phase 3 trials. The company had no product sales, remained loss-making, and may need additional financing. Other material risks include market access and reimbursement, potential 2025 inclusion of oral ESRD drugs in Medicare’s dialysis bundle, manufacturing reliance on third parties, competition, adverse effects, patent challenges and loan covenants/default provisions.
- Under its AstraZeneca termination agreement, Ardelyx remains obligated to pay 10% royalties on net sales of tenapanor or other NHE3 products and 20% of certain non-royalty collaboration revenue, subject to a $75.0 million aggregate cap for those payments.
- The independent auditor gave an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not attest to internal-control effectiveness because of the company’s emerging-growth-company exemption.
Important facts for investors to verify
- Subsequent FDA action and commercial prospects for the IBS-C NDA, including any label, safety or additional-study requirements.
- PHREEDOM and AMPLIFY results, timing, and whether they support the intended monotherapy and adjunctive indications.
- Cash burn and runway against the company’s stated estimate, including required loan payments, commercialization spending and any need for additional financing.
- Terms and progress of a U.S. IBS-C partnership and the cost, scale and readiness of any planned U.S. sales organization.
- Reimbursement and pricing implications for tenapanor, especially the potential ESRD drug-bundling change beginning in 2025.
- Outstanding AstraZeneca obligations, loan covenants and potential dilution from future equity issuance.