Ardelyx, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. Ardelyx is a clinical-stage biopharmaceutical company with no commercial product revenue. Its lead candidate, tenapanor, is partnered with AstraZeneca; Sanofi holds an option related to Ardelyx’s NaP2b inhibitor program. Financial amounts below are in millions unless noted.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Total revenue | $5.883 | $8.550; down 31% |
| Licensing revenue | $3.884 | $3.236; up 20% |
| Collaborative development revenue | $1.999 | $5.314; down 62% |
| Research and development expense | $6.198 | $7.637; down 19% |
| General and administrative expense | $3.175 | $1.377; up 131% |
| Operating loss | $(3.490) | $(0.464) |
| Net loss | $(3.502), or $(0.19) per share | $(3.071), or $(2.44) per share |
| Operating cash flow | $(8.209) | $(1.120) |
Cash and cash equivalents were $98.318 at March 31, compared with $107.286 at December 31, 2014. The quarter’s net cash decrease was $8.968, including $1.055 of property and equipment purchases and $0.296 of financing proceeds. Cash and cash equivalents were heavily invested in money market funds. The company said existing capital resources should fund projected operations for at least 12 months, subject to assumptions that may change.
Total assets were $105.399 and total liabilities were $47.399. Liabilities included $43.143 of deferred revenue; the filing reports no credit facility or committed capital sources and no interest-bearing debt on the balance sheet. Contractual obligations totaled $5.556, including $3.971 in operating leases. Accumulated deficit was $75.369. No gross margin is presented because the filing does not report a separate cost-of-revenue line.
Changes versus the prior comparable period
- Revenue declined primarily because AstraZeneca-related development activity and reimbursable costs were lower. Licensing revenue increased as the 2014 $25 million AstraZeneca payment was recognized over the estimated performance period.
- R&D expense fell with lower AstraZeneca program spending, partly offset by increased discovery research expense, which rose from $2.360 million to $4.179 million.
- G&A expense increased mainly due to public-company professional services, personnel and operating costs.
- Operating cash use rose substantially, in part reflecting working-capital movements, including a $3.910 million reduction in deferred revenue.
- Per-share loss comparisons are affected by the change in weighted-average shares—from 1.256 million in Q1 2014 to 18.607 million in Q1 2015—following the June 2014 IPO. The 2014 period also included a $2.603 million noncash loss from a preferred-stock warrant fair-value change; no such expense was recorded in 2015.
Outlook, commentary and key risks
- Material clinical update after quarter-end: On May 5, 2015, Ardelyx reported that a 154-patient Phase 2a tenapanor trial in Stage 3 chronic kidney disease patients with type 2 diabetes and albuminuria did not meet its primary endpoint of reducing urinary albumin-creatinine ratio versus placebo.
- AstraZeneca was assessing data across tenapanor trials and was required to notify Ardelyx by June 29, 2015 whether it would continue development. AstraZeneca may choose indications and may terminate the collaboration; termination could eliminate future milestones and royalties and return development costs and risks to Ardelyx.
- Management expected unpartnered R&D spending to increase as internal programs advance. Ardelyx had no product sales and remained dependent on collaborations, milestone payments and future financing; the timing and receipt of those payments are uncertain.
- Under the AstraZeneca agreement, Ardelyx could elect to contribute $20 million, $30 million or $40 million toward the first Phase 3 program in exchange for a 1%, 2% or 3% royalty increase, respectively. Any election would require significant capital.
- Other material risks include clinical failure or delay, tenapanor side effects (including diarrhea, with higher-than-expected rates and discontinuations at the highest doses in a Phase 2b hyperphosphatemia study), regulatory and manufacturing hurdles, competition, reimbursement and dependence on partners. The filing gives no financial guidance.
- Management stated disclosure controls were effective as of March 31, 2015 and reported no material change in internal control over financial reporting during the quarter. Ardelyx reported no material litigation.
Important facts for investors to verify
- AstraZeneca’s June 29, 2015 decision on tenapanor and its intended indications, development plans and timeline.
- Follow-up analyses and implications of the failed Phase 2a primary endpoint, alongside results and safety data from other tenapanor trials.
- Cash runway under updated spending plans, particularly if collaboration funding or milestones are delayed or the AstraZeneca program returns to Ardelyx.
- Whether Ardelyx exercises its Phase 3 co-funding option and how that choice affects liquidity and potential royalties.
- Progress and potential economics of Sanofi’s NaP2b option, and the assumptions behind deferred-revenue recognition periods.