Ardelyx, Inc. Q2 FY2022 Earnings Call

Good afternoon, and welcome to Ardelyx's Second Quarter 2022 Conference Call. As a reminder, today's call is being recorded. I would now like to turn the call over to Justin Renz, Chief Financial Officer of Ardelyx. You may begin.

Thank you, and good afternoon, everyone, and welcome to our second quarter financial results call. During this call, we will refer to the press release issued earlier today, which is available in the Investors section of the company's website at ardelyx.com. On the call with me today are Mike Raab, President and CEO; and Susan Rodriguez, Chief Commercial Officer, with prepared remarks. Dr. Laura Williams, Chief Medical Officer; Dr. David Rosenbaum, Chief Development Officer; and Rob Blanks, Chief Regulatory Affairs and Quality Assurance Officer will join us for the question-and-answer period. During this call, we will 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 our risk factors in our quarterly report on Form 10-Q filed today, which can also be found on our website at ardelyx.com. While we may elect to update these forward-looking statements in the future, we specifically disclaim any obligation to do so even if our view should change. And with that, I will pass the call over to Mike.

Thank you, Justin, and good afternoon, everyone. It is a great pleasure that I provide you an update on our progress since our last call. First, for IBSRELA, I'm pleased to report that we continue to make great progress in our launch, laying the foundation for growth and meaningful market penetration of this important product. During these first three months of launch, the commercial team has made significant inroads in building demand for IBSRELA. Physicians are enthusiastic to have a novel drug added to their IBS-C treatment armamentarium and are responding favorably to the IBSRELA first-in-class mechanism and clinical data. Integration of IBSRELA into already established processes across GI offices is driving favorable prior authorization approval rates, thus enabling patient access for IBSRELA. Awareness and intent to prescribe IBSRELA is growing with well-coordinated scientific engagement and education, our high-impact sales force efforts and broad-reaching Omnichannel initiatives. Susan will provide more details on the momentum we are building and why we are excited about the important role that we believe IBSRELA will play in the treatment of IBS-C. Turning briefly to XPHOZAH. As we announced in June, we received notification from the FDA that they will convene a cardiovascular and renal advisory Drug Advisory Committee, technically scheduled for November 16 to gain additional insights into the clinical meaningfulness of the phosphate-lowering effect observed in our Phase III clinical program for XPHOZAH. We welcome this advisory panel as it will allow the FDA to receive input from treating clinicians to get a better understanding of their perspective on the clinical meaningfulness and significance of the phosphate-lowering effect observed in our clinical trials at XPHOZAH. There is strong support within the nephrology community for XPHOZAH, bolstered by their belief in the importance of the need for novel mechanism therapies for the treatment of hyperphosphatemia. We are prepared for the AdCom with the goal of demonstrating the important role XPHOZAH can play in advancing the management of hyperphosphatemia for patients with CKD on dialysis. We are driven by our responsibilities to our patients and stockholders and know that execution in operational excellence is imperative to our success. We take great pride in our accomplishments across our programs, especially in such a tough life environment. We continue to exercise prudent cash management, and we've undertaken multiple steps to bolster our balance sheet and raise non-dilutive capital. In April, we announced an amendment to our license agreement with Kyowa Kirin (KKC), our partner in Japan for hypophosphatemia, which may provide us up to an additional $40 million payable in two tranches in return for reduced royalties. The first tranche is expected within the second half of this year, following KKC's submission of its application to market tenapanor in Japan. The second tranche is expected within the second half of 2023, following KKC's receipt of regulatory approval to market tenapanor for hyperphosphatemia in Japan. In addition, last month, we announced that we had further monetized under the remaining royalties due to us from KKC, under which we may receive up to an additional $20 million. Under the agreement, we received a $10 million upfront payment. Additionally, we expect to receive $5 million following KKC's receipt of regulatory approval to market tenapanor for hyperphosphatemia in Japan, and $5 million in the event net sales in Japan exceed a certain annual target level in 2025. In return, Healthcare Royalty Partners will receive the royalty payments and commercial sales milestones that may accrue to us under our agreement with KKC. In summary, we see ourselves as a highly differentiated revenue-generating biopharmaceutical company. We are in the early phases of launching IBSRELA, an important advancement for the treatment of IBS-C. We have an opportunity ahead of us with the November 16 Advisory Committee meeting to advance our formal dispute resolution process and demonstrate to the committee the meaningfulness of XPHOZAH phosphate reduction. We have a pipeline of two internally discovered candidates, which include RDX013 for hyperkalemia and RDX020 for metabolic acidosis and we have a strengthening cash position. This unique position is a result of our dedicated, tenacious and talented teams across the company. It is evidence of our vision, our science and our belief in the drugs that we've created, coupled with persistence and a laser focus on the execution of our strategies. Now I'd like to pass the call to Susan to provide an update on the launch of IBSRELA. Susan?

Thanks, Mike. We are three months into the launch of IBSRELA, and I'm pleased to report early and solid progress across a number of key launch parameters that are good proxies for future market penetration and revenue growth. Our on-market experience is confirming the need for new options to treat IBS-C, the role IBSRELA can play to address this need and the extent to which a significant subset of currently treated IBS-C patients are seen as candidates that can benefit from IBSRELA therapy. First, our access and reach with prescribers. Our sales force is mobilized and making good headway securing face-to-face meetings with top prescribers. These sales efforts are further amplified by omnichannel tactics targeting new type prescribers, leveraging the rapidly advancing marketplace dynamics on how and where healthcare providers receive information. As of month three, our sales force has reached 56% of the highest prescribing GIs with 87% of our target GIs reached at high-intensity levels through our omnichannel digital tactics. Second, physicians are responding favorably to the availability of IBSRELA and confirming that a meaningful subset of their existing patients are in need of a novel treatment approach. We are positioning IBSRELA as a first-in-class NHE3 inhibitor with a triple action to treat IBS-C, emphasizing its differentiated mechanism of action and clinical data that demonstrate significant improvement in abdominal pain, bloating, and constipation with a quick onset of action, sustained efficacy, and an acceptable safety and tolerability profile. In addition to the ramp-up of our promotional efforts, visibility of IBSRELA across scientific forums during our launch quarter is also noteworthy. The American Gastroenterological Association announced their updated clinical practice guidelines on the pharmacological management of irritable bowel syndrome with constipation in May. Within a month of our launch, the updated guideline includes IBSRELA for the treatment of IBS-C. In addition, Ardelyx had a strong commercial and scientific presence at Digestive Disease Week, the largest annual gastroenterology meeting that was held in May in San Diego. The meeting included a poster presentation of long-term data demonstrating the impact of IBSRELA on abdominal pain and other abdominal symptoms, effective IBSRELA on treatment satisfaction, degree of relief, and quality of life, and early onset of action in treating symptoms of irritable bowel syndrome with constipation. IBSRELA is gaining visibility across the medical community and the product's favorable reputation is growing across the GI community. Findings reported by the independent syndicated launch tracking research published monthly by Spherix Global Insights, who have selected IBSRELA as one of the key launches in the GI space to follow, indicate that our promotional efforts and medical presence is having an impact. Spherix reports that as of month three, 66% of GIs report unaided awareness of IBSRELA, 41% report use of IBSRELA, and 92% of those surveyed rate IBSRELA as either a substantial or moderate advance over currently available therapy. The percentage of patients considered to be candidates for treatment with IBSRELA was reported at 31%. A third team launch parameter centers on the office submission of prior authorizations to enable patient access to IBSRELA. Offices are integrating IBSRELA into their practice processes, working through their already established preferred specialty pharmacies or through Ardelyx Assist, our patient services program to access IBSRELA for their patients. Our early results demonstrate that we are altering IBS-C prescribing habits, practice by practice based on the fact that treatments have been limited and IBSRELA as a differentiated therapy option addresses an important patient need. Healthcare providers and their office teams recognize the need to submit prior authorizations when they prescribe IBSRELA and are motivated to do so since the patients they believe can benefit have already been treated with existing treatment and meet the prior authorization requirements. Our distribution network further supports office practices for handling specialty product prescriptions. We are pleased to report a newly established agreement with BioBridge, a specialty wholesale distributor with a comprehensive network of over 200 specialty pharmacies to support the distribution and dispensing of IBSRELA. Additionally, IBSRELA is stocked across all major wholesalers who also supply independent specialty pharmacy. Securing direct agreements with large GI group in-house pharmacies is also ongoing. Turning to a fourth key launch parameter, market access. I'm pleased to report that outcomes in our first quarter of launch have exceeded our expectations. We are finding early in our launch that there are many patients who have been treated with the limited therapies available have been in need of alternative mechanism options that until the launch of IBSRELA have been unavailable. As a result, we are finding that patients prescribed IBSRELA commonly meet payers that added prior authorization requirements and therefore are yielding favorable prior authorization approval rates. Additionally, our co-pay assistance program that can be accessed by patients with commercial insurance, combined with the reasonable out-of-pocket requirements for certain segments insured by government payers makes IBSRELA affordable for many patients. And those who cannot afford IBSRELA are eligible to apply for patient assistance and can access IBSRELA at no cost if they meet the eligibility criteria. The access and affordability dynamics we are seeing early in this launch are promising early signs that will build uptake momentum. The fifth and last key launch parameter I would like to highlight is among the most important. Physicians are reporting positive feedback regarding their early treatment experience with IBSRELA, telling us that IBSRELA is working well and provided a much-needed new option. The month three Spherix readout data indicates that 41% of the physicians that have used IBSRELA report moderate satisfaction and 59% report high satisfaction. In summary, our first launch quarter was characterized by advances on multiple fronts that made deep inroads in laying the groundwork for revenue growth. Physicians are recognizing patient needs for IBSRELA where there have been limited options historically. Physician offices are motivated, willing, and experienced in navigating prior authorization requirements. The pool of patients who meet the prior treatment requirement is sizable, patients are gaining access to IBSRELA, and physicians are reporting satisfaction with their early experiences. We look forward to keeping you posted on our activities and progress toward realizing the market potential for IBSRELA. I will now turn the call over to Justin to review our Q1 2022 financials. Justin?

Thank you, Susan. At the end of the second quarter of 2022, we had total cash, cash equivalents, and short-term investments of $81 million as compared to total cash, cash equivalents, and investments of $116.7 million as of December 31, 2021. In our first quarter of launch, net product sales of IBSRELA were approximately $1.6 million. When combined with our launch pre-stocking revenue shipments we made in late March, we're at just over $2 million of net product sales as of June 30. Research and development expenses were $9.7 million for the quarter ended June 30, 2022, a decrease of $16.3 million or approximately 63% compared to $26 million for the same quarter last year. This decrease in our R&D expenses is primarily the result of lower clinical study costs from the OPTIMIZE study, lower tenapanor manufacturing expense as we have begun to capitalize costs associated with IBSRELA inventory, and lower expenses following the elimination of our research function in the fourth quarter of 2021. Selling, general, and administrative expenses were $18.9 million for the quarter ended June 30, 2022, a decrease of $1.3 million or approximately 6% compared to $20.1 million for the quarter ended June 30, 2021. The decrease in selling, general, and administrative expenses was primarily due to the timing of costs associated with preparing for and carrying out the commercial launch of IBSRELA. The net loss for the quarter ended June 30, 2022, was $26.9 million or $0.19 per share compared to $45.2 million or $0.45 per share for the same quarter last year. We recognize the importance for us to maintain a strong balance sheet and cash position. We are pleased to have completed reporting transactions in the second quarter, such as the KKC license agreement amendment and the HCR royalty tail financing that have the potential to provide us with significant non-dilutive capital. We will continue to pursue all efforts to strengthen our balance sheet and exercise judicious cash management. As a follow-up reminder to Mike's earlier comments, we now have the opportunity to receive up to an additional $70 million in non-dilutive capital over the next 16 months based on the potential advancement of tenapanor for hyperphosphatemia in Japan. We have confidence in our ability to continue to fund our operations. I will now turn the call back to Mike for some concluding comments before we open the call up for questions. Mike?

Thanks, Justin. In our first quarter call, I highlighted the exciting and transformational time for Ardelyx. We are evolving into an impressive growth story with many opportunities ahead. As we report on our significant progress and momentum in the second quarter, those words could not have been more prophetic. Before I open the call to questions, I'd like to emphasize a number of points. We are committed to our efforts to drive significant progress on the commercial front with IBSRELA. Our continued focus on launch execution supports and is facilitating the market's embrace of this new treatment option and is already driving change in the treatment practices for patients with IBS-C. The positive response we hear from early adopters of IBSRELA and the role it can play in treating patients with IBS-C further convinces us of the importance of this critical new medicine. As is the case in the launch of any new product, there continues to be work ahead on continuing to build upon this early momentum. I want to emphasize that I have tremendous confidence in IBSRELA, what it can bring to patients with IBS-C, and a spectacular commercial team that Susan has built and their ability to meet our corporate objectives. The opportunity for us with IBSRELA is significant as it provides a clear line of sight to financial breakeven. Finally, as we look forward to making the case for XPHOZAH to the FDA's advisory committee meeting in November, we believe that it will be an essential treatment for patients with CKD on dialysis with hyperphosphatemia. We look forward to keeping you apprised of our progress. And with that, I will now open the call to questions. Abigail?

Our first question comes from Chris Howerton with Jefferies.

Congratulations on the strong numbers from the launch. I have a few questions regarding the launch and one about the pipeline, if that's alright. Regarding the launch, could you describe the nature of the scripts you're seeing so far? I assume they are mainly from patients who are dissatisfied with current treatments, like second-line or refractory patients. Also, how often are you observing instances where multiple scripts or patients are treated with IBSRELA by the same doctor's office? Lastly, as a housekeeping question related to the launch, how well is IQVIA tracking everything so far?

Certainly. I want to emphasize that we are still gathering anecdotal evidence at this stage. However, I've heard some remarkable stories from the field. Many patients who have struggled for years to find relief from challenging conditions have not found success with existing therapies. We've received feedback from patients who have cried when their doctor comes in after using IBSRELA, expressing they have never experienced such relief before. It’s encouraging to see that physicians are eager to help difficult patients who haven't responded to other treatments. Now, I'll hand it over to Susan to discuss refills, the frequency of multiple prescriptions, and how these experiences are beginning to unfold.

Thank you, Mike. Thank you, Chris, for the question. One thing to highlight is that while you referred to the second line or refractory treatment, what we are observing after three months of our launch is that physicians are expressing a strong need for alternative approaches with novel mechanisms. They view IBS-C as a condition with multiple underlying factors, and it's important to note that the IBS-C market currently has limited options. This market is relatively uncluttered with few alternatives, all operating through similar mechanisms. We've learned that the patients being chosen for treatment are highly symptomatic and have been communicating their issues to physicians for a considerable time. These are the patients receiving IBSRELA, who physicians describe as needing standard treatment options. Encouragingly, early indications from our launch show that this patient group appears to be quite large. According to data from Spherix, around 31% of surveyed physicians believe these patients qualify for treatment with IBSRELA. Regarding refill rates and retail, we are noting some positive trends, although it's still early days. In these initial three months, we've achieved significant milestones in integrating prior authorization practices within offices, and physicians are gaining early favorable experiences with both the approval rates and the treatment of IBSRELA. All of this is occurring in real time. Clearly, we see further opportunities to expand the patient base for IBSRELA in established practices. About your point on IQVIA and Symphony, it's indeed intriguing. Launch periods are always complicated by the differences in their data capture rates and projection methods, which are not fully transparent. However, they do provide us with some directional insights into our growth trajectory, though we cannot definitively determine which data set is closer to reality at this time; both are somewhat helpful in guiding us.

Our next question comes from Matt Kaplan with Ladenburg Thalmann.

I guess focusing on the IBSRELA launch, are you doing any sampling or is there any free drug that you're giving away at this point?

Yes, Susan?

Yes, yes, we are sampling all of our key target offices. So that is typically how the physicians like to trial IBSRELA, they start with the samples before they then see that they're responding well and move forward with the prescription. So we are having a very smooth uptake process from that perspective. And the other thing we offer through our patient services program to the extent that there is a delay in payer approval of the prior authorization, which we're actually seeing them go through pretty quickly, but in the event where there is any delay, we can offer the patients on bridging products. But that represents the total offering for the patients to try to make it the smoothest trial process, get the prescription filled and make sure that the patient can access IBSRELA.

Okay. Great. And then assuming there's a positive outcome for the AdCom, what are the next steps after that? And what's the path forward to potential approval?

Sure. A couple of comments, and then I'll ask Rob Blanks, our Chief Regulatory Officer, to comment on the process, is that it depends upon what comes out of the AdCom. It could be a shorter 2 months. So we don't have an NDA on file. So we have to refile. It could be 2 months or it could be 6 months depending upon what the outcome would be for the trial. Rob, anything to add?

No, not really, Mike. Just obviously, this is part of our appeal process once we have the AdCom, and the Office of New Drugs then has 30 days to respond to us. If our appeal is granted, as Mike has said, we have to resubmit the NDA.

Work is being done on that now that we're as prepared as possible, just resubmit that once we hear back from the FDA.

Our next question comes from Peyton Bohnsack with Cowen and Company.

This is Peyton on for Joe. Congratulations on the strong launch. My first question is regarding the IBSRELA launch. After reaching a certain number of high-level prescribers that your sales force is initially targeting, is there another group of subscribers you plan to pursue? What key metrics will you consider for moving onto that next group? Additionally, more generally, what is the main factor you're focusing on during the launch to assess success?

Yes, Susan?

Our go-to-market strategy is highly focused on a targeted approach because a small group of writers accounts for 50% of the total scripts in IBS-C. We're concentrating on this opportunity for IBSRELA, which involves less than 10,000 healthcare providers. During the early stages of our launch, we are prioritizing the top prescribing physicians in this context. As we establish IBSRELA in practices and encourage its use, we are demonstrating favorable access rates that will help us expand our reach within this target audience. That is our intention. Over time, we will be ready to add more resources. We have observed that this market is very sensitive to promotion; when our sales reps interact face-to-face with these offices, we see an increase in prescription productivity. We are on track to meet our target, with the understanding that we can continue to broaden our reach within the target audience.

Great. I guess kind of just following up on that, how many of those physicians that you've already reached on, do you know or how many of them have actually prescribed IBSRELA?

Yes, I don't want to misquote the number because I look at it in various ways. However, we are seeing that Spherix data indicates 41% of gastroenterologists are writing prescriptions for IBSRELA. As I mentioned, we are reaching 56% of gastroenterologists. Therefore, we are seeing an increase in IBSRELA prescriptions as we communicate our message to these targets.

We have a follow-up from the line of Chris Howerton with Jefferies.

Yes, I just wanted to follow up with one question with respect to the co-pay assistance programs. Could you describe to us what type of patients would be eligible for that? And I guess, could you articulate what percentage of your targeted patient population you think that could comprise?

Sure. I think what's been interesting early on is that we are having patients fill prescriptions across all types of payers, commercial, Medicare, and Medicaid. So the strategy that Sue and the team put in place for market access, including co-pay systems for commercial, has been working as anticipated. Susan?

I'm sorry, Mike, can you repeat the question?

Chris was just wondering about co-pay assistance, how that's looking? And is it meeting sort of the expectations of what we have?

Thank you very much, Chris, for the question. Thank you, Mike. Yes, things are progressing exceptionally well with our co-pay business program. We’re observing good redemption rates, which make IBSRELA affordable for patients with commercial insurers. Additionally, Medicare and Medicaid patients are also experiencing manageable co-pays with their benefit plans, leading to filled prescriptions. This trend is evident in our overall prescription mix. Although it’s still early, the mix of our initial prescriptions over the first three months includes commercial patients as well as Medicare and Medicaid patients.

Okay. Very good. And then could you anticipate what percentage of the patients eligible for co-pay assistance makes up your targeted market?

Yes. Yes. Yes. I understand, Chris. So the general profile of the IBS-C market is about 50-50 is the rule of thumb, is commercial payer patients, and the other 50% are government payer patients. So half of the patients across the market would be eligible for the co-pay assistance program. And again, we're seeing nice utilization of that program for those with commercial payers. But it is important to note that we're also finding that IBSRELA is affordable for patients who are not commercial, who are government payer patients.

I would now like to turn the conference back to Mike Raab for closing comments.

Thank you all for joining our call and staying abreast of our transformational progress as we look at IBSRELA for patients with IBS-C and continue to navigate the regulatory process with XPHOZAH. We look forward to keeping you apprised of our progress in the coming months. And Abigail, you may now end the call.

This concludes today's conference call. Thank you for participating. You may now disconnect.