Ardelyx, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; balance-sheet comparisons are to December 31, 2017. Ardelyx is a clinical-stage biopharmaceutical company developing tenapanor and other candidates. It had no approved products and generated no product-sale revenue.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Licensing revenue | $2.32 million | $0 |
| Cost of revenue / gross profit | $0.464 million / $1.856 million | $0 / $0 |
| Gross margin | 80% | Not meaningful |
| Research and development expense | $13.35 million | $22.387 million |
| General and administrative expense | $6.191 million | $6.047 million |
| Operating loss | $17.685 million | $28.434 million |
| Net loss / loss per share | $17.019 million / $0.36 | $28.008 million / $0.59 |
| Operating cash used | $6.804 million | $26.761 million |
| Cash, cash equivalents and short-term investments | $127.449 million | $133.976 million at Dec. 31, 2017 |
At March 31, total assets were $142.837 million, total liabilities $13.861 million, and stockholders’ equity $128.976 million. The filing shows no borrowings on the summarized balance sheet; management stated there was no credit facility or committed source of capital. Accumulated deficit was $291.232 million.
Changes from the comparable period
- Net loss narrowed by about 39%; operating loss narrowed by about 38%.
- R&D expense fell 40%, mainly from lower external program costs after completion of the IBS-C Phase 3 program and the first hyperphosphatemia Phase 3 trial, discontinuation of RDX7675, reduced RDX8940 activity, and lower internal costs following a 2017 workforce reduction. The second hyperphosphatemia Phase 3 study had begun.
- Licensing revenue was the $2.3 million upfront payment under the March 2018 Knight agreement for Canadian rights to tenapanor. The corresponding cost of revenue primarily reflects amounts payable to AstraZeneca under a prior termination agreement.
- Operating cash use was lower than in Q1 2017. Cash and cash equivalents decreased $7.638 million during the quarter; investing activity was primarily purchases and maturities of short-term investments.
Outlook, risks and notable items
- Management expected existing capital resources to fund projected operating requirements for at least 12 months from March 31, 2018, while warning that assumptions could prove wrong. Additional financing or collaborations may be needed; availability and terms are uncertain.
- The company planned to submit an NDA to the FDA for tenapanor for IBS-C in the second half of 2018. Tenapanor was also in a second Phase 3 trial for hyperphosphatemia in dialysis patients; success and approval were not assured.
- Management expected continued operating losses and substantial development spending. It anticipated higher G&A costs from pre-commercial preparation and public-company compliance. No numerical earnings or revenue guidance was provided.
- Key risks include clinical-trial outcomes and timing, FDA review, manufacturing and supply, commercial partnering for U.S. IBS-C, reimbursement and market acceptance, competition, and the need for additional capital. The company also disclosed known tenapanor side effects including diarrhea and gastrointestinal symptoms.
- Adoption of revenue standard Topic 606 on January 1, 2018 increased opening current assets by $5.0 million, current liabilities by $1.0 million, and reduced accumulated deficit by approximately $4.0 million. It did not change Q1 2018 reported licensing revenue or cost of revenue versus the prior standard.
- Management reported effective disclosure controls at March 31, 2018, with no material change in internal control over financial reporting during the quarter. No litigation was reported that was expected to have a material adverse effect.
Investor verification points
- Confirm progress, enrollment, timing, and results of the second tenapanor Phase 3 hyperphosphatemia trial and the planned second-half 2018 IBS-C NDA submission.
- Track cash burn and financing needs against management’s stated 12-month liquidity expectation; note the absence of a credit facility or committed capital.
- Verify timing and collectability of the $5.0 million KHK milestone receivable and the related $1.0 million AstraZeneca payable, as well as future milestone and royalty terms under licensing agreements.
- Assess whether the Knight upfront payment and any future partner payments translate into sustained revenue; Q1 revenue was licensing revenue, not product sales.
- Monitor regulatory, manufacturing, reimbursement, partnering, and safety risks that could affect tenapanor’s approval or commercialization.