Business context and reporting period
Ardelyx, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2017. It is a clinical-stage biopharmaceutical company focused on gastrointestinal and cardiorenal diseases. It had no approved products and generated no revenue.
Financial performance and position
Amounts below are in millions of dollars, except per-share data. No revenue or gross margin was reported; operating margins are therefore not meaningful.
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $15.4 | $24.9 | $58.3 | $68.0 |
| General and administrative | $5.9 | $4.3 | $17.8 | $13.5 |
| Total operating expenses | $21.2 | $29.2 | $76.1 | $81.4 |
| Net loss | $20.7 | $29.0 | $74.5 | $81.1 |
| Basic and diluted loss per share | $(0.44) | $(0.65) | $(1.57) | $(2.15) |
- Cash and cash equivalents plus short-term investments were $129.3 million at September 30, 2017, down from $200.8 million at December 31, 2016. Cash and equivalents alone were $59.5 million.
- Operating cash use was $69.9 million for the first nine months, versus $65.8 million in 2016. Investing activities provided $54.1 million, primarily reflecting investment maturities and sales; financing provided $0.7 million, compared with $191.0 million in 2016, which included equity financings.
- Total assets were $143.1 million, total liabilities $16.5 million, and stockholders’ equity $126.6 million. The filing reports no credit facility or committed capital source and discloses no debt balance.
- Management said existing capital resources were expected to fund projected operating requirements for at least the next 12 months, while warning that assumptions could prove wrong and substantial additional capital would be needed.
Material changes versus the prior comparable period
- Q3 R&D expense fell 38% year over year, primarily because some tenapanor Phase 3 trials were completed and related clinical and process-development costs declined. Nine-month R&D fell 14%; lower external program costs were partly offset by higher internal costs, including compensation and stock-based compensation.
- G&A expense rose 35% in Q3 and 32% for the nine-month period, reflecting personnel, stock-based compensation, facilities, patent-related legal fees and severance, partly offset by lower professional-services costs.
- Net loss narrowed in both comparison periods, but operating cash use increased year over year for the nine months. Share-based compensation was $7.0 million for the nine months, versus $3.8 million.
- Liquid funds declined $71.5 million from year-end 2016. The comparison also reflects that 2016 financing included substantial public-offering and private-placement proceeds.
Outlook, management commentary and risks
- Tenapanor: Ardelyx reported completion of two Phase 3 trials for IBS-C and expected to submit an NDA in the second half of 2018. For hyperphosphatemia in dialysis patients, one Phase 3 trial had succeeded; the company was awaiting FDA feedback before proceeding with its second Phase 3 study.
- RDX7675: A Phase 3 hyperkalemia trial had been initiated; the company anticipated an onset-of-action study update by the end of 2017. No financial guidance was provided.
- In August 2017, the company announced a restructuring that reduced its workforce by 29% to 75 employees and prioritized late-stage programs. It delayed development of earlier-stage programs, including RDX8940, and recorded $0.9 million of severance charges, substantially all paid by September 30.
- Management expected continued substantial R&D investment and higher future G&A for potential pre-commercialization, public-company and personnel costs. Development, regulatory approval, manufacturing, commercialization and reimbursement outcomes remain uncertain.
- Key risks include clinical-trial or regulatory setbacks, reliance on third-party manufacturers and trial operators, competition, the lack of a sales organization, uncertain collaboration opportunities, and the need to raise capital on acceptable terms. The filing also discusses potential reimbursement pressure for oral-only ESRD drugs as Medicare payment bundling is scheduled to take effect in 2025.
- The company reported no material pending litigation, no off-balance-sheet arrangements, and disclosure controls effective at a reasonable-assurance level. It stated that ordinary-course claims were not expected to cause material aggregate losses beyond reserves, although losses could affect results in a particular period.
Important facts for investors to verify
- Whether FDA feedback supports the planned second Phase 3 hyperphosphatemia trial, and whether trial outcomes and safety data support eventual approval.
- Whether the anticipated IBS-C NDA timing and RDX7675 clinical milestones were achieved, and whether subsequent regulatory requirements change those timelines.
- How long available cash and investments support operations relative to actual cash burn, and the timing, terms and dilution risk of any needed financing or partnership.
- Whether the reduced workforce and reprioritized pipeline can sustain execution of late-stage trials and potential commercialization preparations.
- Manufacturing readiness, product safety and efficacy, competitive developments, and likely coverage, reimbursement and pricing for any eventual products.