Ardelyx, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Figures below are unaudited and in millions of dollars, except per-share amounts.
Business context
Ardelyx is a development-stage biopharmaceutical company focused on kidney and cardiovascular diseases. It had no product sales; revenue came from licensing, collaboration research and product-supply arrangements. Its lead program, tenapanor, had an FDA-accepted NDA for control of serum phosphorus in adults with CKD on dialysis, with an FDA PDUFA goal date of April 29, 2021. IBSRELA (tenapanor) was FDA-approved for IBS-C in 2019.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $2.7 | $3.0 | $5.8 | $3.0 |
| Research and development expense | $12.2 | $17.6 | $46.9 | $57.4 |
| General and administrative expense | $7.6 | $6.9 | $21.8 | $17.4 |
| Operating loss | $(17.2) | $(22.1) | $(63.1) | $(72.4) |
| Net loss | $(18.1) | $(23.5) | $(65.4) | $(75.2) |
| Net loss per share, basic and diluted | $(0.20) | $(0.37) | $(0.73) | $(1.20) |
| Cash used in operating activities | — | — | $(63.8) | $(65.3) |
At September 30, cash and cash equivalents were $91.0 million and short-term investments were $94.5 million, totaling $185.5 million. Current assets were $193.8 million and current liabilities $16.5 million. The company reported $50.7 million of loan payable, all classified as non-current following an October 2020 amendment. Total liabilities were $67.2 million; accumulated deficit was $525.9 million. No meaningful product gross margin was reported, and operating margins are not informative for this loss-making, pre-commercial business.
Changes versus comparable periods
- Q3 revenue decreased 10% year over year: the prior-year quarter included a $3.0 million Fosun Pharma milestone, partly offset in 2020 by KKC collaboration revenue and increased KKC supply revenue.
- Nine-month revenue increased 90%, primarily from recognition of the 2019 KKC research collaboration, a $0.7 million Knight milestone and KKC supply revenue; the prior-year period included the $3.0 million Fosun milestone.
- R&D expense fell 30% in Q3 and 18% year to date, mainly as Phase 3 tenapanor work wound down. Year-to-date 2020 regulatory expense included a $2.9 million FDA NDA filing fee.
- G&A expense rose 10% in Q3 and 25% year to date as Ardelyx built commercial infrastructure and hired personnel ahead of a potential U.S. launch.
- Despite lower net losses, liquid funds declined $62.0 million from December 31, 2019. Operating cash use was partly offset by changes in investment maturities and purchases; investing activities used $27.9 million in the first nine months of 2020, versus providing $78.8 million in 2019.
Outlook, risks and unusual items
- Management believed available cash, cash equivalents and short-term investments would fund planned expenditures and obligations for at least 12 months following filing. It also cautioned that assumptions may prove wrong and additional capital may be needed.
- On October 9, 2020, lenders extended the interest-only period from December 1, 2020 to December 1, 2021, subject to earlier shortening if the FDA did not approve the tenapanor NDA by May 31, 2021 or issued a complete response letter. The amendment increased the final loan fee from 3.95% to 4.95%, set a 0.25% minimum LIBOR rate and involved a $125,000 amendment fee. Loan maturity remained November 1, 2022.
- Key risks include FDA review and approval, market adoption and reimbursement, the potential 2025 inclusion of oral ESRD-related drugs in the dialysis bundle, commercial-launch execution, third-party manufacturing and supply, and the need for additional financing. COVID-19 could disrupt operations, trials, supply or launch preparation; no material operational impact was reported for the quarter.
- Tenapanor’s ongoing development and commercial prospects remain important to the company; management expected substantial operating losses to continue. The company reported no material pending litigation and accrued no contingent liabilities. It was in compliance with loan covenants at September 30, 2020.
- A $100 million at-the-market common-stock offering facility was effective, but no shares had been sold under it by September 30, 2020. The company had 90.2 million shares outstanding at that date.
Most important facts for investors to verify
- FDA review status and outcome for the tenapanor NDA, including the April 29, 2021 goal date and any effect on loan terms.
- Cash burn, liquidity runway and financing needs relative to commercialization and development plans.
- Loan amendment terms, interest costs, final fee, covenants and repayment obligations.
- Commercial launch readiness, manufacturing capacity, pricing and reimbursement prospects, including ESRD-bundle exposure.
- Revenue composition and recognition under KKC and other collaborations, and any future ATM issuance or resulting dilution.