Ardelyx, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; balance-sheet comparisons are with December 31, 2015. Ardelyx is a clinical-stage biopharmaceutical company with no product sales. Its principal candidates include tenapanor and RDX227675.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 / prior balance date |
|---|---|---|
| Revenue | $0 | $5.9 million |
| Research and development expense | $19.3 million | $6.2 million |
| General and administrative expense | $4.3 million | $3.2 million |
| Net loss | $23.5 million | $3.5 million |
| Basic and diluted loss per share | $0.70 | $0.19 |
| Cash and cash equivalents | $171.7 million | $107.0 million at Dec. 31, 2015 |
| Operating cash used | $16.2 million | $8.2 million |
| Total assets / total liabilities | $180.5 million / $12.8 million | $116.9 million / $8.0 million at Dec. 31, 2015 |
Amounts are in U.S. dollars; financial statement figures are rounded. No meaningful operating margin is presented because Q1 2016 revenue was zero. The filing reports no credit facility or committed capital sources and lists no borrowings. Working capital was approximately $163.2 million at quarter-end. Management said existing capital resources were expected to fund projected operating requirements for at least 12 months, subject to assumptions that could prove incorrect.
Material changes and cash flows
- Revenue fell to zero from $5.9 million in Q1 2015: $3.9 million of licensing revenue and $2.0 million of collaborative development revenue. Both related to the AstraZeneca collaboration, terminated in June 2015; related revenue recognition and expense reimbursements ceased.
- R&D expense rose 211%, primarily due to tenapanor clinical development and clinical manufacturing and process development for tenapanor and RDX227675. G&A expense increased 35%, mainly from professional services, personnel, and public-company costs.
- Operating cash use increased to $16.2 million. Financing provided $81.1 million, primarily from the January 2016 public offering, which generated approximately $80.8 million net proceeds. Cash and cash equivalents increased by $64.7 million during the quarter.
- Common shares outstanding increased from 26.0 million at year-end to 34.6 million at March 31, following the offering. Stock-based compensation was $1.2 million.
- Accrued and other liabilities rose to $6.3 million from $2.6 million, including a $2.0 million AstraZeneca clinical-material accrual. The filing reports $3.1 million of operating lease obligations as of March 31.
Outlook, risks, and unusual items
- Management expected results from tenapanor’s two pivotal Phase 3 IBS-C trials in 2017 and results from an additional Phase 2b hyperphosphatemia trial in the second half of 2016.
- Following a generally well-tolerated open-label study in healthy volunteers, Ardelyx expected to initiate a Phase 3 program for RDX227675 for hyperkalemia in the second half of 2016. It also expected to file an IND for RDX98940 in the second half of 2016.
- Management expected R&D expense to increase substantially as development advances, and G&A expense for the remainder of 2016 to increase from Q1 levels. The company anticipates needing additional capital or collaborations over time; its funding needs depend on clinical progress, costs, regulatory requirements, manufacturing, and commercial plans.
- Key risks include clinical-trial failure or delay, tenapanor-associated gastrointestinal side effects (including diarrhea and discontinuations at the highest doses in the hyperphosphatemia study), regulatory and manufacturing uncertainty, competition, reimbursement and pricing pressure, and the possibility of needing additional financing. The company has no approved products and has incurred losses since inception.
- In April 2016, the company amended its Fremont facility lease, adding space and extending the term through September 2021. The extended lease has approximately $5.8 million of minimum payments and a tenant-improvement allowance of up to $0.4 million.
- The company reported no litigation pending that it expected to have a material adverse effect, no off-balance-sheet arrangements, and no material change in market-risk disclosures. Management concluded disclosure controls were effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether the stated clinical timelines and trial results are achieved, especially the tenapanor Phase 3 IBS-C readouts and RDX227675 Phase 3 initiation.
- Whether cash burn, clinical spending, and working-capital needs remain consistent with management’s estimated 12-month funding runway.
- The impact of the AstraZeneca termination on development costs, remaining clinical-material obligations, and future collaboration or commercialization strategy.
- Potential dilution from future equity financing and outstanding options and warrants; the filing reports 4.5 million anti-dilutive common-stock equivalents excluded from Q1 loss-per-share calculations.
- Whether trial safety, manufacturing capacity, regulatory requirements, and eventual reimbursement support successful development and commercialization.