Ardelyx, Inc. (NASDAQ:ARDX) Q3 2023 Earnings Call Transcript

Ardelyx, Inc. (NASDAQ:ARDX) Q3 2023 Earnings Call Transcript October 31, 2023

Ardelyx, Inc. beats earnings expectations. Reported EPS is $0.02909, expectations were $-0.11.

Operator: Good day and welcome to the Ardelyx Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Caitlin Lowie vice President of Corporate Communications and Investor Relations at Ardelyx. Please go ahead.

Caitlin Lowie: Thank you. Good morning and welcome to our third quarter financial results call. During this call, we will refer to the press release issued earlier today which is available on the Investors section of the company’s website at ardelyx.com. During the call, we’ll be making forward-looking statements that are subject to risks and uncertainties. Our actual results may differ materially from those described. We encourage you to review the risk factors in our most recent quarterly report on Form 10-Q that was filed today and can be found on our website at ardelyx.com. Only elect to update these forward-looking statements in the future, we specifically disclaim any obligation to do so, even if our views change. Our President and CEO, Mike Raab, will begin today’s call with opening remarks and an overview of the company’s progress during the third quarter of 2023.

Next, Susan Rodriguez, Chief Commercial Officer, will provide an update on the performance of IBSRELA and the launch of XPHOZAH following its approval earlier this month. Justin Renz, Chief Financial and Operations Officer, will conclude today’s prepared remarks with a review of the company’s financial performance during the quarter ended September 30, 2023, before we open the call to questions. With that, let me pass the call over to Mike.

Mike Raab: Good morning, everyone and thank you for joining us on the call. I’m very pleased to be here once again, just a short few weeks after we celebrated the approval of XPHOZAH. With this approval, we now have delivered on our mission to provide patients with medicines that matter for the second time. It is something I am immensely proud of. Today, Susan, Justin and I will share details on the performance from the third quarter, as well as important updates from the first couple of weeks following — in the fourth quarter following the announcement of XPHOZAH’s approval. Before I hand it over to them, let me share a few of my thoughts on the third quarter and what we expect in the near future for Ardelyx. First, IBSRELA momentum continues.

Our quarter-over-quarter growth in Q3 was driven by a clear need patients have for new medicine to address the challenging and sometimes intractable symptoms experienced by patients with IBS-C. IBSRELA is establishing a unique role in what has traditionally been thought to be a challenging market to penetrate. We are demonstrating that when you have a novel mechanism product, with a strong safety and efficacy profile that is benefiting patients and when you’re thinking differently about marketing innovative products that you can disrupt markets. Second, XPHOZAH is ready for success. As Susan discussed on our approval call, awareness, interest and intent to adopt exposed are high among the nephrology community. The response to our approval has been nothing short of amazing.

It is also humbling as we now have the responsibility to deliver for patients. We’ve received words of congratulations from across the kidney community with nephrologists expressing their excitement about having this novel therapy available to prescribe for their patients. As we’ve shared, there is significant pent-up demand and we expect strong uptake at launch. Our sales team is already in the field and we expect to have exposed at our distributors shortly after the conclusion of ASN’s Kidney Week [ph]; the new era for managing hyperphosphatemia on kidney patients is here. Finally, we are well resourced for the foreseeable future. We carefully and thoughtfully financed the company and have a strong cash position as a result, sufficient to fund the commercialization of XPHOZAH and support the critical ongoing investment in IBSRELA.

We will also begin investments in R&D in the coming quarters as we work towards the next phase of Ardelyx. I will now hand it to Susan, who will share more on IBSRELA’s performance and additional details on the launch activities for XPHOZAH. Susan?

Susan Rodriguez: Thank you, Mike. It is great to be back today, speaking about IBSRELA and now XPHOZAH. We continue to disrupt the established IBS-C market, with Q3 revenue for IBSRELA at $22.3 million, reflecting a 22% increase versus Q2. This first-in-class drug can offer meaningful benefit to patients who have been in need of a novel approach. As I’ve noted on previous earnings calls, our growth is consistent and persistent. New prescriptions are growing, retail prescriptions are growing. We continue to grow new writers and existing writers are expanding their use. These results reflect the extent to which physicians continue to identify more and more of their patients as candidates for IBSRELA, that patients are getting access to IBSRELA and that their treatment experience is favorable.

Our team’s efforts are supported by the strong clinical data package for IBSRELA which we continue to expand. Just recently, at the American College of Gastroenterology Meeting in Vancouver, we have a significant commercial and medical presence which included a well-attended product theater, as well as 2 posters and an oral presentation on data analysis about symptom response during treatment with IBSRELA. Our research was incredibly well received. Our poster titled, Tenapanor can improve Abdominal Symptoms Independent of Changes in Bowel Movement Frequency in Adult Patients with IBS-C, authored by notable opinion leaders, Dr. Darren Brenner and Dr. Tony Lembo, as well as Ardelyx scientists, was recognized with the Presidential Poster Award by the ACG Abstract Selection Committee.

Awarded to less than 5% of all posters, this distinction recognizes high-quality, unique research. Our dedicated team is fully engaged with the physician community and carving out a meaningful role for IBSRELA among the IBS-C patient population. Based on the uptake we are seeing, it is clear that the potential for IBSRELA is high among this target group of patients who are in need of a novel option and that IBSRELA is on pace to achieve a high single-digit market share position across this 5 million script market over time. With the price point we established within this market, enabled by the value of its innovation and the favorable uptake dynamics driven by the patient need, we are well positioned for success with IBSRELA. Turning to XPHOZAH.

During our call a few weeks ago, I characterized in detail the dynamics and our commercial approach. I will summarize those briefly before discussing our pricing and access strategy in more detail. The market dynamics for XPHOZAH are favorable. Hyperphosphatemia is a well-established therapeutic area with treatment goal centered on globally recognized treatment guidelines. 80% of the estimated 550,000 patients with CKD on dialysis in the U.S. are treated with a prescription therapy in an effort to control their elevated levels of serum phosphorus. Of those being treated, it has been shown that 77% are unable to consistently maintain target levels of serum phosphorus over a 6-month period. The market is primed and ready for expose, nearly 70% of survey nephrologists report a high or very high need for a new treatment option and among nephrologists aware of new treatments for hyperphosphatemia, 3 quarters mentioned tenapanor by name.

Survey nephrologists rate a novel mechanism, efficacy, tolerability and dosing attributes favorably and 59% reported that they intend to adopt XPHOZAH within the first 6 months of product availability. Ardelyx is well positioned to capitalize on this opportunity. Positioning for XPHOZAH will center on integrating a novel blocking mechanism therapy for their binder treated patients who have an inadequate response or are intolerant to any dose of binder therapy. [indiscernible] pricing for XPHOZAH will be set at $2,960 per month of therapy, reflecting the value exposed it brings to patients, in the context of the CKD market pricing landscape. We have built a dedicated nephrology sales force of 60 reps that cover the approximately 8,000 nephrology health care providers who write the majority of the hyperphosphatemia prescription.

Our distribution network is also in place and will provide full coverage across the U.S. aligned optimally to our access strategy. Our comprehensive patient services program, ArdelyxAssistT, have gone live for XPHOZAH and is receiving calls. Product is on track to be in the channel following ASN’s Kidney Week in early November. As I outlined in our approval call, there are 3 foundational components to our go-to-market approach, centered on enabling nephrologists to integrate first-in-class phosphate absorption inhibitor XPHOZAH into the treatment regimen of their binder treated patients who have had an inadequate response or cannot tolerate any dose of binder therapy. First, XPHOZAH is novel. It is a first-in-class phosphate absorption inhibitor.

It is not a binder. This is a significant innovation for patients who up until now have only had 1 treatment option for managing hyperphosphatemia. Second, patients are in need of innovation, the vast majority of the 550,000 CKD patients on dialysis who are treated with a phosphate binder to lower their phosphorus levels are unable to consistently achieve or maintain target levels. And third, Ardelyx’s commitment to patient access and affordability. Patients prescribed XPHOZAH will have access to comprehensive prior authorization support and affordability program. ArdelyxAssistT connects providers, payers and specialty services to help facilitate prior authorization and other administrative processes. For commercial patients, their co-pays will be covered at the level of 100%.

Patients unable to afford XPHOZAH can apply for our patient assistance program that provides drug at no cost to patients who need the program’s broad eligibility criteria. I’d like to further characterize the access landscape and our access strategy, as we received a number of questions following our approval call 2 weeks ago. XPHOZAH, like IBSRELA, will be available to patients through a prior authorization process. We have been engaged with payers for several months to educate them on XPHOZAH, its novel mechanism of action, clinical data and now, the approved label. Over the coming months, payers will issue their coverage policy. We anticipate that the requirement will be that physicians at test that patients have not had an adequate response to their binder treatment or that they are not able to tolerate binder therapy.

While the specifics around the requirements will vary by plan, it is important to note that the majority of patients treated with binders today by nephrologists meet these criteria. What will be most important is that nephrologists prescribe XPHOZAH based on patient need and integrate the prior authorization work stream into their office practice so that patients prescribed XPHOZAH can access XPHOZAH. Nephrologists are well accustomed to the prior authorization processes as several products commonly used for patients with CKD on dialysis require them. Given the limited agents available today to treat hyperphosphatemia, to recognize unmet patient needs and unopposed position of XPHOZAH as the only non-binder next line option for patients, we anticipate that XPHOZAH will be acceptable via the prior authorization pathway early in the launch.

We do not intend to contract with payers and anticipate a steady and persistent update of XPHOZAH by HCPs based on addressing the patient’s unmet needs and effectively engaging in the prior authorization administrative process. The XPHOZAH’s sales force has been in the field and will be joining the nephrology community this weekend at the ASN Kidney Week in Philadelphia. In parallel, the IBSRELA sales team maintains their singular focus on disrupting the IBS-C market, also with a first-in-class therapy addressing important unmet patient needs. The Ardelyx commercial team is executing at the highest level with teams of experienced dedicated and highly capable individuals who are delivering on Ardelyx admissions every day, addressing important unmet treatment needs through innovation.

With that, I will hand it to Justin.

Justin Renz: Thank you, Susan. Ardelyx has delivered on a number of key milestones since August. Continued growth of IBSRELA across all key measures. The approval and the imminent commercial launch of XPHOZAH. The expansion of our commercial organization to support XPHOZAH. The approval of tenapanor for hyperphosphatemia in Japan. The approval of IBSRELA in Hong Kong for IBS-C which we announced this morning. And an amended loan agreement which provides additional cash and flexibility to fund our future growth. We find ourselves with a very strong cash position and we are well resourced to support our ongoing operations including the commercialization of both of our in-market products. With that backdrop, I will discuss the specifics of our financial performance.

In the third quarter of 2023, we had total revenues of $56.4 million, compared to $4.9 million in total revenues during the third quarter of 2022. The increase reflects IBSRELA’s net product sales growth, as well as milestone and collaboration payments from our international partners. Next, let me take you through the relative contributions of our revenue components during the quarter. First, as previously mentioned, we had U.S. net product sales of IBSRELA in the quarter ended September 30, 2023, of $22.3 million, a 22% increase from the $18.3 million we reported in the second quarter. As a reminder, in the third quarter of 2022, we reported IBSRELA net product sales of $4.9 million. Second, we reported other IBSRELA net product supply revenue of $2.1 million related to our international partners.

This is compared to 92,000 new product supply revenue in the third quarter of last year. Third, we recorded $30 million in licensing revenue as a result of milestone and contract amendment payments in [indiscernible], following the approval of tenapanor for hyperphosphatemia in Japan in September. Fourth, we recorded a $2 million milestone payment from Fosun Pharma, following the NDA submission for hyperphosphatemia in China which we announced back in July. And finally, we recorded a small amount of royalty income from Knight Pharmaceuticals as we receive a percentage of their IBSRELA net product sales in Canada. Overall, our revenues were in line with our expectations regarding U.S. net product sales from IBSRELA, as well as milestone payments related to our international collaboration partners.

Looking ahead, we currently expect net drill sales revenue in the U.S. for the full year of 2023 to be between $76 million and $78 million. Please note that this does not include any anticipated sales from XPHOZAH, partner milestone payments or product supply revenues. In addition, the FDA approval of XPHOZAH triggered a $3 million milestone payment from Fosun which will be recognized as revenue and is expected to be received in this current fourth quarter. At the end of Q3, we reported year-to-date 2023 net IBSRELA sales revenue of approximately $52 million. Our raised and narrowed full year guidance range of $76 million to $78 million represents our expectation of continued consistent growth. We are still early in our launch and unable to fully anticipate how seasonality may play to performance during the fourth quarter, so we will continue to take a measured approach as we guided in our expected sales performance.

Research and development expenses were $8.6 million for the third quarter of 2023 which is an increase of $1.1 million from the $7.5 million in the same period last year. Selling, general and administrative expenses were $32.7 million in the third quarter of 2023, an increase of $14 million from the $18.7 million we reported for the same period of 2022. The increase was due to the cost associated with the continued commercialization and growth of IBSRELA, as well as launch preparation activities for XPHOZAH. As we mentioned during our second quarter call in August, we anticipate the costs associated with XPHOZAH would be incremental $20 million per quarter, ramping up in the third quarter and then being fully reflected in our SG&A expenses beginning in the fourth quarter this year.

We had net income of approximately $6.6 million or $0.03 per fully diluted share in the third quarter of 2023, compared to a net loss of $22.9 million or $0.14 per share in the same period last year. Our net income in the third quarter resulted in a $30 million milestone, in collaboration amendment payments from Kyowa Kirin, as well as increased sales from IBSRELA. From a cash perspective, we have never been in a stronger financial position at the company. Let me take a step back and tell you where we are, how we got here and what it means. First, as you saw in the press release this morning, as of September 30, 2023, we had total cash, cash equivalents and short-term investments of $165.1 million, as compared to $123.9 million at the end of 2022.

This reflects $58.4 million in gross proceeds that we raised during the quarter through sales of approximately 14 million shares of common stock under our ATM program at an average selling price of $4.24 per share. We also received a $2 million milestone payment from Fosun, following the submission of an NDA for tenapanor for hyperphosphatemia in China which we announced back in July. In addition to our cash as of September 30, 2023, subsequent to quarter end, there are also 3 other contributing factors that I want to point out, that significantly strengthens our cash position. First, we have received payment from Kyowa Kirin for the $30 million receivable, associated with [indiscernible] approval in Japan. Second, also associated with that approval is a $5 million milestone payment we have received from health care royalty partners.

And finally, we drew $22.5 million from our loan agreement with SLR or SLR Capital. Considering these items as well as the ongoing business in October, as of yesterday, October 30, our cash and investments amounted to approximately $218.1 million. When combined with access to additional capital or option via the loan agreement with SLR and our continued financial discipline as a company, we believe that we are very well resourced in the foreseeable future. We have taken a very thoughtful, disciplined and patient approach to how we fund the company. We are positioned to support continued investments in our in-market products as well as beginning investments in our pipeline programs. We will continue to make thoughtful decisions that maximize shareholder value.

And with that, I’ll turn it back to Mike.

Mike Raab: Thanks, Justin. This is an exciting time at Ardelyx. Within a couple of weeks, we will have XPHOZAH at our distributors and ready for fulfillment to patients alongside IBSRELA. We have focused on execution this year and yet we are not done. We have a lot of work ahead of us, continuing the momentum we’ve established with IBSRELA, ensuring a successful launch of XPHOZAH and looking ahead to next year, where we will begin investing for further growth. We have shown that we can deliver on our promises. We continue to strengthen our company and our balance sheet. We are well resourced and excited about what is to come. I want to thank the members of the investment community who have been alongside us on this interesting journey. However, none of this would have been possible without the dedication, the passion and the resilience of team Ardelyx. Thank you for what you do for patients every day. I will now open the call to questions. Operator?

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Q&A Session

Operator: We will now begin the question and answer session. [Operator Instructions] The first question today comes from Louise Chen from Cantor.

Louise Chen: Congratulations on a strong quarter. I wanted to ask you, how are you thinking about gross to net for XPHOZAH? And then also, do you think there’s a bolus of patients waiting for drug, just kind of curious how you think about how fast the uptake might be, especially in the last quarter of the year? Or do you expect more of the uptake to come in the first half of 2024. And then, last question I wanted to ask you was, obviously, you have a very strong cash position. What do you think your cash runway takes you out to?

Mike Raab: Yes. So let me ask Justin to address the first and last question first. And then Susan, please, about the uptake.

Justin Renz: Great. Louise, regarding our gross to net for XPHOZAH, our commercial strategy will be very similar to IBSRELA which means that we don’t expect significant remitting to payers other than the statutorily required rebates to certain government payers which would obviously have a negative effect on our gross to net. But in general, we expect it to be very similar to what we saw with IBSRELA. There may be some seasonality in our gross to net, our first quarter being, perhaps, less than the other quarters due to the resetting of commercial copayment programs. But otherwise, we’re very confident that it will be in — certainly in the early years comparable to IBSRELA. And then regarding our cash position, you may see in our 10-Q which we filed early today that we no longer have a going concern which means our auditors are confident we have more than a year of cash.

For us, we believe that it is more than that. We have enough cash runway for quite a while. We can’t specifically put on because we’re waiting to see how successful we are being close to launch but we’re quite confident in our cash position. Susan?

Susan Rodriguez: Yes, Louise, regarding the uptake of XPHOZAH, you’re exactly right. There is a very large group of patients today who, despite treatment with binders, are unable to consistently maintain target levels and patients that can’t tolerate binder therapy. So there’s clearly a nice opportunity there. And now, these patients will have a new option with XPHOZAH. I think what’s important here is thinking about the integration of novel mechanism XPHOZAH into the nephrologist prescribing pattern. How exactly they’re going to integrate use of XPHOZAH across their patient group. So it’s always going to take some time for the physician community to adapt their practices, now that they have an expanded treatment armamentarium.

So given that and given our promotional presence with nephrologists, we believe that uptick of XPHOZAH is really going to be really quite steady and consistent as they identify patients early that they believe are most in need of XPHOZAH and then based on their experience, proceed to expand their use to those additional patients that they’re quite aware today are not meeting the target levels despite binder treatment.

Operator: The next question comes from Dennis [ph] with Jefferies.

Unidentified Analyst: A few questions from me. Number one, maybe on the congressional action to delay moving orals into the bundle. Can you comment if you haven’t met with the CBO and what can you disclose from those discussions as it relates to XPHOZAH pricing? And how the $3,000 a month price would impact their cost estimates for moving orals into the bundle versus keeping them out? And then number two, on the IBSRELA guidance. Seems based of off of scripts which continue to generally grow week over week, your guidance for the year seems a little bit conservative for Q4. So is there anything you could be expecting in the quarter that investors are missing?

Mike Raab: Sure, Dennis. So with any congressional action and meeting with the CBO, we don’t meet with them. I’ve never seen that companies actually meet with the Congressional Budget Office. Any build going through Congress needs to get scored best of standard fare. So that’s our expectation that’s going to be happening here. Whether or not our price has an impact on that, again, that is the process that CBO goes through and that’s not something that we have transparency to. With IBSRELA, I think is in the guidance, as Justin said and I think as you’ve seen, we take a very measured approach in the way that we have certainly financed the company and the guidance that we give. We’re very confident with this range and felt that raising it the way we did and narrowing it was giving you a perspective in terms of our confidence of where IBSRELA revenue and uptake is going.

Operator: The next question comes from Yigal with Citi.

Yigal Nochomovitz: On the pricing for XPHOZAH, can you just give a little more insight into the thought process around the $2,960. If you look at the binders, obviously, they’re priced around 200 a year back. You’re about 75%, 75% to 80% premium. Obviously, you have a very significant value proposition with the unique actions and we don’t have anything likely in the market. But nonetheless, maybe spend a little more time discussing the thinking around that type of [indiscernible].

Mike Raab: Sure, Yigal. I think, what you just described as the significant difference in the opportunity and the benefit that XPHOZAH will bring to patients, that’s really the differentiator here. It’s looking at what we’re thinking is the best thing and what’s most appropriate for patients, especially in the context of other branded binders within the marketplace. So we’re very comfortable with where we’ve landed and think the price is exactly where it needs to be and it’s appropriate for the patients and what we are going to be bringing for them.

Yigal Nochomovitz: And then maybe for Susan. Susan, if you could talk a little bit more about IBSRELA, [indiscernible] but could you tell us what the refill rate is and the number of scripts per writer so far, if that’s data you have access to?

Susan Rodriguez: Yes. Yes, we track that closely. We have not specifically disclosed those growth rates. But what I can tell you is that the refill rates are growing at comparable or greater than the new Rx rate. So those are showing very healthy growth and that has been persistent. So reflecting that physicians are continuing to write new scripts for patients. And when those scripts are written, they’re getting refilled. So it’s very encouraging, looking at those rates. And in terms of the average script per writer, again, it’s not a specific metric we have disclosed but we track that very closely. And what’s really encouraging is that every single month, we see a new cohort of writers joining the IBSRELA writing group. So we’re persistently accumulating writers. And when you track existing riders, monthly on a persistent level, they’re increasing their prescription volume for IBSRELA. So all of those fundamental demand indicators continue to be very strong.