Ardelyx, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2019. Amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Business context
Ardelyx is a development-stage biopharmaceutical company focused on cardiorenal diseases. Its lead drug, tenapanor, is in Phase 3 development for hyperphosphatemia in dialysis patients. The FDA approved tenapanor as IBSRELA for IBS-C in adults on September 12, 2019; the company said it intended to seek a U.S. commercialization partner and had not yet secured one. Ardelyx reported positive Phase 3 AMPLIFY results for tenapanor used with phosphate binders. It also has an early-stage potassium secretagogue program, RDX013.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $3.013 | $0.172 | $3.031 | $2.522 |
| Gross profit | $2.413 | $0.170 | $2.431 | $2.056 |
| Research and development | $17.580 | $17.941 | $57.436 | $47.337 |
| General and administrative | $6.922 | $5.961 | $17.410 | $18.290 |
| Operating loss | $(22.089) | $(23.732) | $(72.415) | $(63.571) |
| Net loss | $(23.539) | $(24.126) | $(75.150) | $(63.436) |
| Net loss per share | $(0.37) | $(0.39) | $(1.20) | $(1.17) |
Q3 revenue included a $3.0 million Fosun development milestone and $13,000 of supply revenue; nine-month revenue also included $31,000 of supply revenue. The company reported no product-sale revenue. Q3 gross margin was approximately 80%, but revenue was primarily milestone-based and should not be viewed as recurring product revenue.
Cash, cash equivalents and short-term investments totaled $103.543 million at September 30, 2019, versus $168.089 million at December 31, 2018. Cash and cash equivalents alone were $92.673 million, compared with $78.768 million at year-end. Nine-month operating cash use was $65.347 million; investing activities provided $78.834 million, primarily from investment maturities, while financing activities provided $0.418 million. Management believed available capital would fund operating and capital needs for at least 12 months after financial statement issuance, but cautioned that assumptions could change and additional capital may be needed.
Long-term loan payable was $49.803 million at quarter-end. The $50 million term loan bears interest at one-month LIBOR plus 7.45%, matures November 2022, and is secured by substantially all assets other than intellectual property and customary exclusions. Principal payments are expected to begin in 2020, subject to the loan’s terms. The company reported covenant compliance and no known circumstances giving rise to default.
Changes, outlook and risks
- Nine-month net loss increased by $11.714 million year over year, with R&D expense up 21%, primarily reflecting tenapanor manufacturing and clinical development and increased RDX013 spending. Q3 R&D declined 2% year over year.
- R&D expense included a $3.6 million out-of-period reduction in Q2 2019 for previously overstated clinical trial accruals. The company identified earlier accrual errors and recorded a cumulative $4.1 million reduction in Q2 liabilities and R&D expense, concluding the corrections were not material to individual prior periods.
- The company expected to incur operating losses for the foreseeable future and anticipated substantial continued investment in tenapanor development, regulatory preparation, potential commercialization, and research programs. It said additional capital or collaborations may be required; no specific revenue or earnings guidance was provided.
- Management expected PHREEDOM Phase 3 topline results in Q4 2019. Tenapanor’s further development and commercialization remained subject to clinical, regulatory, manufacturing, reimbursement, market-acceptance, and collaboration risks. The filing specifically notes the lack of a U.S. IBSRELA commercialization partner.
- FDA approval of IBSRELA made one of two approvals required for a $1.5 million loan-related exit fee; the fee would also be triggered by approval for hyperphosphatemia or a change-of-control transaction. Its fair value was $0.779 million at quarter-end.
- Disclosure controls and internal control over financial reporting were reported ineffective because of a material weakness in controls for interpreting clinical trial contracts and estimating clinical trial expenses. A remediation plan was in progress; completion and effectiveness were not yet established.
- The company reported no litigation pending that it expected to have a material adverse effect on results or financial condition. It stated that reasonably possible losses from pending claims in excess of reserves were not expected to be material to financial condition or cash flows.
Key facts for investors to verify
- PHREEDOM results, subsequent regulatory plans, and any effect on the loan’s principal-payment schedule.
- Whether Ardelyx secures an IBSRELA U.S. commercialization partner and the economics of any agreement.
- Actual cash burn and financing needs relative to management’s stated 12-month liquidity expectation.
- Remediation and independent assessment of the clinical-trial accrual material weakness.
- Loan covenants, repayment obligations, and the potential exit fee if the remaining approval condition or a change of control occurs.