Ardelyx, Inc. Q4 FY2022 Earnings Call

Thank you. Good afternoon everyone and welcome to our fourth 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. 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 most recent annual report on Form 10-K 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 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 2022 with a look ahead to 2023. Next, Susan Rodriguez, Chief Commercial Officer, will provide an update on the launch of IBSRELA, as well as preparation activities to support the successful launch of XPHOZAH if approved. Justin Renz, Chief Financial and Operations Officer, will conclude today's formal remarks with a review of the company's financial performance during the fourth quarter and full year ended December 31st, 2022. 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 session period. With that, let me pass the call over to Mike.

Thank you, Caitlin, and good afternoon everyone. It is a great pleasure that I provide an update on our IBSRELA launch and the tremendous progress that we have made on our path to bring XPHOZAH to the patients on dialysis. To be clear, the progress Susan, Justin, and I will discuss today is not just about XPHOZAH, it's about IBSRELA and XPHOZAH. The last year for Ardelyx captured the results of well over a decade of hard work, dedication, and tenacity on the part of the entire Ardelyx team as well as our many supporters in the patient and healthcare provider communities. In the midst of all of the challenges everyone faced during the pandemic, our continued success illustrates our ability to execute on our plans and to realize the vision of Ardelyx. And most importantly, it demonstrates our profound commitment to doing the hard work of bringing novel mechanism products to patients in need. We say this often, but our mission is to discover, develop, and commercialize innovative first-in-class medicines that meet significant unmet medical needs. Many of us in biotech have similar goals and missions, but it isn't common for a company, especially a company of our size, to say that we have done that once and are on the path to do it again with the potential of bringing another important medicine to patients later this year. In March of last year, we launched our first novel therapy, IBSRELA, for patients with irritable bowel syndrome with constipation and we're demonstrating significant quarter-over-quarter prescription growth in both new and refill prescriptions and bringing much needed relief to patients with IBS-C. In our December update, Spherix noted that 60% of surveyed GIs reported the use of IBSRELA, raising their satisfaction with treatment as either moderate or high. In addition, 32% of non-using GIs surveyed in the report reported an intent to adopt IBSRELA within the next three months. IBSRELA is providing clinically meaningful benefits to patients and Ardelyx is establishing itself as a commercial company. Furthermore, last quarter, we experienced an overwhelmingly positive Cardiorenal Advisory Committee vote supporting the benefit of XPHOZAH, which was then followed by the Office of New Drugs granting our appeal and instructing the Cardiorenal division to work with us on an appropriate label for XPHOZAH. We are moving quickly towards our NDA resubmission, and in mid-February, we held a Type A meeting with the Cardiorenal division. It was a very positive discussion and we are really appreciative of the time and responsiveness of the FDA. We are now completing our work on the NDA for XPHOZAH and are on track for resubmission early in the second quarter. As we have said before, our base case expectations are that this will be a six-month Class II review. We, of course, are hopeful that it could be shorter. Regardless, we are well-positioned and will be ready to launch in the second half of this year if approved. As things progress, we will keep you updated with the goal review date and any other updates we can share. What I want you to take away from today's call is that IBSRELA is growing and continues to gain important momentum. When we announced the launch of IBSRELA, we shared that we expected we could capture a mid to high single-digit share of its 5 million prescription IBS-C market, which we expect would yield a peak revenue of at least $500 million. Based on what we are seeing today, nothing changes that perspective, and I believe we are on our way to achieving that target. Importantly, I also want you to have confidence that the Ardelyx team is mobilizing and ready to launch XPHOZAH if approved. Finally, I want to reinforce a critical aspect of our business and our approach that is behind the results we are generating. With what we continue to accomplish, we are demonstrating that Ardelyx is a company with a crucial mission that expands the discovery and development of important therapeutics, and we are executing on an innovative commercial strategy that is unique and replicable. We have developed first-in-class therapies with strong clinical data demonstrating meaningful benefits for patients. We are in therapeutic areas where there is a persistent and significant unmet medical need. We are executing with IBSRELA in a large established market with a concentrated set of specialist healthcare providers, and we expect our commercialization efforts for XPHOZAH will follow a very similar dynamic. We have a long runway of strong intellectual property with no new branded agents on the horizon, and we have an innovative, disruptive commercial strategy led by a highly experienced commercial leadership team that will continue to drive results. What we have is true for our current portfolio first-in-class agents, both IBSRELA and XPHOZAH. We will leverage this commercial strategy as we continue to build the growth momentum for IBSRELA, execute on our plans for a successful launch of XPHOZAH, and seek to expand our businesses to support the next phase of our growth. With that, I'll turn the call over to Susan.

Thank you, Mike. I'll be reviewing several topics today. I will review our strong Q4 and full year performance for IBSRELA, the traction we are gaining, and the position we are establishing that will enable continued market share gain. I will review key achievements of our launch that have established favorable foundational uptake drivers, predicting a strong growth momentum for IBSRELA in 2023. I will then take some time to cover the opportunity for XPHOZAH, our preparations for launch in the second half of this year, and our go-to-market strategy. So, let's begin with IBSRELA. Our Q4 revenue for IBSRELA came in at $8.7 million, representing a revenue increase of 78% versus our Q3 sales of $4.9 million. This brings IBSRELA's total revenue for 2022 from our launch in March through the end of the year to $15.6 million with strong growth momentum going into 2023. Our early launch results demonstrate that IBSRELA is having an impact with its novel mechanism of action and strong clinical data and adoption is growing. Our launch tracking research demonstrates that over two-thirds of surveyed GIs reported IBSRELA as unique compared to other IBS-C prescription products. For the majority, its differentiated mechanism of action is the most compelling reason for use. The Spherix December 2022 report also noted that surveyed GIs consider approximately 25% of their patients with IBS-C to be good candidates for treatment. These insights align with the consistent growth we are seeing in prescriptions, reflected in both new and refill prescriptions as well as new and repeat writers. Our salesforce presence is clearly making an impact, our omnichannel initiatives are clearly making an impact, and our market access strategy is clearly working. Payers have evaluated IBSRELA and set policies that grant access to IBSRELA by prior authorization, typically if patients have been treated with an existing option. Patients under the care of these high IBS-C writing doctors have commonly been treated with one, if not more, of the limited options available that meet these criteria, and therefore, prior authorization approvals are being secured. Patients are increasingly being identified as candidates for IBSRELA, accessing the drug, and responding favorably to the treatment. These key launch indicators suggest that we are in a strong position to continue to advance our market share across what is a favorable market landscape where there are no new branded agents in view across the patent life for IBSRELA. Transitioning now to our commercial planning for XPHOZAH, I will briefly review the background market dynamics across hyperphosphatemia and the market opportunity for XPHOZAH. Published data demonstrates that over a six-month period, 77% of patients are unable to consistently maintain established guideline-directed target levels despite active treatment with phosphate binders, the single class of therapy available to treat this highly prevalent condition in patients with CKD on dialysis. It is clear that hyperphosphatemia is in great need of a next-line alternative. With the approval and launch of XPHOZAH, patients inadequately controlled with phosphate binders will have a new alternative. XPHOZAH, a first-in-class phosphate absorption inhibitor, represents a unique approach to treating hyperphosphatemia by blocking phosphorus absorption via the primary pathway of absorption. It provides clinically meaningful phosphorus reduction and enables a dosing regimen of one Tic Tac-sized pill twice a day that is novel to this patient population. In addition, research in December of 2022 by Spherix indicated a high level of interest among nephrologists, a high level of intent to adopt, and a large subset of patients surveyed nephrologists would consider candidates for XPHOZAH. The product proposition and market opportunity for XPHOZAH has many parallels to Ardelyx — a first-in-class therapy entering an established prescription market with a single mechanism treatment option currently that is not meeting patient needs. Those patients are being treated by a concentrated group of healthcare providers that are actively looking for novel approaches to bring to their patients. To launch XPHOZAH, we will focus on the 8,000 nephrology healthcare providers that account for approximately 80% of all hyperphosphatemia prescriptions, with a dedicated nephrology salesforce and a product positioning centered on the important role that blocking mechanism drugs can play in helping many patients who are currently unable to achieve guideline established target phosphate levels. Our established commercial capabilities have enabled quickly mobilized launch planning activities, and we are poised to rapidly ramp up a dedicated nephrology salesforce once we get closer to a launch date. Our commercial leadership team has deep nephrology experience, enabling ongoing opinion leader and key stakeholder engagement across the nephrology landscape. If XPHOZAH is approved and launched sometime in the second half of 2023, it will launch into a traditional prescription payer model comprised of Medicare Part D, commercial, Medicaid, and VA payers. Our access strategy centers on the unique position XPHOZAH will hold as a novel mechanism therapy for patients inadequately controlled by phosphate binders and a high level of prescriber demand driven by their motivation to adopt a new treatment option. For this large subset of patients in need, XPHOZAH offers the only new and differentiated option. As is the case for all innovative branded therapies introduced into established therapeutic areas where low-cost options are available, we expect payers will require prior authorization for access to XPHOZAH. We do not expect this to limit patient access. The majority of CKD patients on dialysis with hyperphosphatemia are actively treated with phosphate binder therapy, and in many cases, inadequately controlled. Therefore, meeting prior authorization criteria will be achievable. In addition, Ardelyx will provide support through a comprehensive patient services program designed to optimize access and affordability. This is a strategy that is working for IBSRELA and will work for XPHOZAH. While we are not ready to announce the launch price for XPHOZAH, I can characterize for you the current pricing landscape in the hyperphosphatemia space. While the majority of dialysis patients requiring phosphate-lowering treatment are treated with generically available phosphate binders, approximately 20% are treated with branded binders launched within the last 10 years, with list price points ranging from $1,500 per month to $2,300 per month. This current pricing landscape provides opportunity for XPHOZAH to launch at a price point aligned with its clinical value proposition. Across the biotech landscape, Ardelyx is in the unique class of companies actively commercializing its own products. We are advancing our market position at IBSRELA and preparing for the potential launch of XPHOZAH in the second half of 2023. The state of our business reflects our vision being realized. These two first-in-class novel mechanism therapies discovered and developed by Ardelyx are poised for commercial success with favorable product, market, and competitive dynamics, and are powered by our disruptive commercial strategy for innovative therapy products. Our Q4 results for IBSRELA and strong growth momentum going into 2023 combined with the commercial promise of XPHOZAH eliminate the potential for Ardelyx to build a strong market position for our portfolio of assets as a successful commercial biotech company.

Thank you, Susan. I'm going to walk you through our product sales, collaboration revenue, and expenses before turning to our cash position and how we're thinking about 2023. We had net product sales of IBSRELA in the fourth quarter of $8.7 million and full year net sales of $15.6 million. That $8.7 million figure reflects significant quarter-over-quarter growth, a 78% increase from what we reported in sales for the third quarter. We also recognized $36.6 million in collaboration revenue during the full year of 2022 compared to $10.1 million in 2021, $35 million of which came in November and is related to milestone payments and payments under the 2022 amendment to the license agreement between Ardelyx and KKC, our partner in Japan for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis. This $35 million in payments was earned upon KKC's submission of a new drug application in October. Research and development expenses were $9.1 million for the quarter ended December 31st, 2022, compared to $21 million from the same quarter last year. For the full year 2022, research and development expenses were $35.2 million, a decrease of 61% compared to the full year 2021. The decrease in our R&D expenses is primarily the result of lower clinical study costs from the optimized study, lower tenapanor manufacturing expenses as we began to capitalize those costs associated with IBSRELA inventory, and lower expenses from the elimination of our research function in the fourth quarter of 2021. Selling, general, and administrative expenses were $19.7 million for the quarter ended December 31st, 2022, an increase of $4.4 million compared to the $15.3 million in the fourth quarter of 2021. Full year SG&A expenses were $76.6 million in 2022, an increase of 6% compared to 2021. The increase was primarily due to the increased costs associated with the launch of IBSRELA in 2022. Due to the aforementioned KKC payments for the quarter ended December 31st, 2022, we had net income of approximately $11 million or $0.06 per fully diluted share. Net loss for the year ended December 31st, 2022 was $67.2 million or $0.42 per share compared to a net loss of $158.2 million or $1.52 per share in 2021. As of December 31st, 2022, we had total cash, cash equivalents, and short-term investments of $123.9 million compared to total cash, cash equivalents, and short-term investments of $116.7 million the previous year end. We recognize the importance of making a strong balance sheet, and we continue to seek opportunities to strengthen our cash position. As you saw in our press release, we have unaudited cash of approximately $121 million as of February 28, 2023, which includes $20 million we raised from the sale of common stock under our ATM program in January 2023, following the appeal granted letter from the Office of New Drugs. As we look ahead, we will continue to pursue an ongoing capital strategy of non-equity solutions, including international partnerships and opening territories for IBSRELA and XPHOZAH. These efforts will continue, while Susan and the commercial team grow revenue from IBSRELA and we seek to drive rapid market uptake for XPHOZAH if approved. We will continue to make thoughtful decisions to maximize shareholder value. As a reminder, we expect one additional milestone and collaboration revenue from KKC and Healthcare Royalty Partners in the fourth quarter of 2023 pending the approval of tenapanor for hyperphosphatemia in Japan. Combined, if KKC's NDA is approved, we expect an additional $35 million of non-equity capital later this year. As we look ahead, we have confidence in our ability to continue to fund our operations.

Thanks, Justin. As you heard, we accomplished a lot in 2022. Since our third quarter earnings call in November, we've made significant advancements on our commercialization of IBSRELA and successfully concluded the CRL appeal process for XPHOZAH, resulting in the granting of our appeal and providing a path forward for approval and subsequent launch in the second half of this year. We also issued our first-ever ESG report, which demonstrates Ardelyx's commitment to issues that are critical to all of our stakeholders. I want to thank the Ardelyx team and the patient and clinician communities. It is a steadfast commitment of these groups that has gotten us to this point and will be the foundation for our future success. With that, I will now open the call to questions.

Ladies and gentlemen, we will now begin the question-and-answer session. Our first question today comes from Laura Chico from Wedbush. Please go ahead with your question.

Good afternoon. Thanks very much for taking the question. Congratulations on the progress. One, I think I might have missed this in the opening remarks, but could you comment on the latest expectation for cash runway? And then secondarily, would you be able to comment if there's any meaningful off-label utilization occurring with IBSRELA at this point? Thank you.

Yes. Let me address the second part of the question first, then I'll hand it over to Justin. We don't obviously see a whole lot of that kind of information, and we don't anticipate very much off-label use. Remember that the strategy that we undertook to get these two drugs approved is separate NDAs, very different markets, different dosing, different NDC codes, which we think helps that as it relates to any off-label use outside of IBS-C. Within IBS-C, I think our data demonstrates that the IBS dosing of the 50 mg tablets is where you can get the best effect. So, we don't see very much of that.

Yes. Thank you, Mike. Hi, Laura. As I mentioned, as of February 28th, we had unaudited total cash, cash equivalents, and short-term investments of approximately $121 million. And we're going to be very thoughtful on how we finance the company and continue to leverage as many non-equity solutions as possible and be cautious about managing our spending, targeted approach that Susan has led. We're not going to give specific guidance on any future financing or runway, but we're confident in our ability to fund our operations.

Thanks very much guys.

And our next question comes from Yigal Nochomovitz from Citi. Please go ahead with your question.

Hi, Mike and team. Thanks for taking the question. I'm just curious with regard to the Type A meeting; did anything happen in that meeting that made you closer to conclude that it would be a six-month or a two-month review?

No, that's why we continue to have our base case; Yigal, that our base case is six months, it could be sooner. But I think it's prudent for us to be expecting that. If we get perspective that it could be quicker than that, we certainly will share.

Okay. And then with regard to what is required to complete the NDA resubmission, are you able to provide any more details in terms of what needs to happen there?

I think generally, as I'll ask Rob to comment, is we know we have to update safety, but I think with additional work that needs to be done is pretty straightforward. Rob, anything to add?

I think you covered it, Mike. It's mostly safety data, as you know, and we have a lot of trials that we need to include, a lot of safety data from our Japanese and Chinese partners as well as two studies that we completed after we submitted the initial NDA.

Great. Okay. Thank you.

Our next question comes from Chris Howerton from Jefferies. Please go ahead with your question.

My first question is could you provide some details on IBSRELA's gross to net? And is it stable?

Yes, Justin?

Yes. Thank you, A.J. Yes, we filed our 10-K already today; you'll see the information provided there. As a general premise through the course of our 2022 operations, we ranged between 25% and 30%. You'll see for the year ended 2022, we were approximately 28% as a reduction. So gross to net depending on how you score it, 72% or 28% of a general price.

Got you. Okay. Thank you. Okay. My next question is, is there any possible risk here in terms of a delay to the review process beyond six months?

So as you know, we're a bit jaded in the way that we think about this. But we are on a very solid path to launching this drug in the second half of the year. The way that we look at it is the appeal granted says to us that the NDA should have been approved. The instructions to the division to work with us in establishing a label say we're on the path to approval. I think the interaction that we had at the Type A meeting doesn't change any of that perspective.

Okay. Fantastic. If you don't mind my asking one more question.

Go for it.

I hope this isn't premature, but have you thought more about when you will resume your clean on and acidosis programs?

No. So I think the way we think about the pipeline, as Justin said, we've got to be very thoughtful about our outlay of our capital. We've got important things that we're doing with IBSRELA. We're actually just finishing our national sales meeting and the enthusiasm and what we're hearing from the field and from physicians is really quite remarkable. So we've got to invest wisely and thoughtfully, get ourselves on the path that we are going to be on by focusing on IBSRELA and getting XPHOZAH approved. When we have sufficient capital, our ability to then invest in other assets like that will take a higher priority than it does today.

Fantastic. Well, thank you for taking my questions and congrats on an excellent Q4.

Thanks, A.J.

Our next question comes from Matt Kaplan from Ladenburg Thalmann. Please go ahead with your question.

Hi. This is Raymond in for Matt. Thanks for taking our questions. Congrats on the quarter. I was just wondering as the launch has progressed, I was wondering if you had better visibility on your expectations for 2023?

Yes. So, we're not going to be sharing patient numbers, certainly. And it's too early for us to be providing guidance in terms of what we expect for script growth or total prescriptions in 2023. But Susan, anything you can add to that?

Yes, no. I mean, we are clearly seeing strong growth momentum quarter-over-quarter. We need a little more time to really understand ourselves based on the prescription data, the direction for 2023. At that time, we'll be ready to give some guidance.

Okay. Yes, fair enough. I guess I was wondering — you've done several ex-US deals for IBSRELA as well? What do you thought about Europe potentially?

Yes, no, certainly. I think if you heard in the opening remarks, those up in territories are things that we're working on now as a way of getting non-equity sources of capital. So those efforts will continue both for IBSRELA and XPHOZAH in China. As you see, we've done well with our relationship with KKC in Japan. We have both done that has the right motive in China for both IBSRELA and XPHOZAH China. So all the other territories in the world are un-partnered and represent opportunities.

Okay. Cool. And just one last question for me, if I may, for audit proposal, I was wondering. What are the kind of rate-limiting steps that you have prepared for the commercial preparation for a potential launch in the second half of 2023? And thanks.

Yes. So, we are already mobilizing our preparations for the launch of XPHOZAH, AJ, as we have a very established commercial infrastructure in place as it relates to marketing, sales operations, patient services, and distribution. So all of these aspects are already ramping up to be prepared for the launch of XPHOZAH. We have a senior leadership team with deep connections in nephrology, well networked across the country, and are in a high level of preparedness as we get closer to understanding the actual launch date in the second half of 2023. We will be able to rapidly mobilize to get feet on the ground to have a dedicated nephrology salesforce. So everything is lined up quite nicely. As we mentioned in our narrative, the go-to-market approach is something that we are already well-schooled in and experienced with and are successfully executing for IBSRELA. So it's falling in line very nicely to be ready for XPHOZAH.

Our next question comes from Peyton Bohnsack from TD Cowen. Please go ahead with your question.

Hi, this is Peyton on for Joe. Congrats on the truly productive year and thanks for taking our questions. I guess just really one real quick one. After this Type A meeting, did you guys engage in labeling discussions? Or did you give any additional detail or clarity about what the eventual label would look like? And then I guess I've got a second follow-up question on IBSRELA.

Sure. It's a stepwise approach, right? So we need to re-file the NDA. So no labeling discussions until you have an active NDA. But I think, as we've shared from our field-granted interactions with OND, the strength of our data has demonstrated that for those patients that are failing the current binder therapies, which is a large majority, as we've shared as well, that they're going to be ready to take XPHOZAH and benefit from it once approved. So no, it's premature to have labeling discussions until you have the NDA filed. We will share — you will know that once we have the goal date that we will share when we get that information post-filing the NDA.

But, Peyton, we can confirm that no additional analyses will be required and we have the information we need to complete our submission going in the second quarter.

Awesome, great. And then I guess kind of just switching over to the IBSRELA launch, I know you said you were not going to say anything on patient numbers or script data, but I was wondering if any of your market research or any internal script data has indicated to you about the proportion of patients that are refilling in IBSRELA after initially trying the medication, and how that's kind of growing compared to new prescriptions?

Yes. I'll ask Susan to comment on it generally. I think you heard in her statement that we're seeing both new and refill prescriptions growing well. I think, as you look at the data, whether Symphony or Akebia, you're going to see both new and refill prescriptions; those data that you can observe some assumptions on your own. Susan, anything you could add?

Yes. No, exactly. So we're seeing a very nice relationship between new and refill prescriptions. On top of that, we're seeing a very nice trend in new and repeat writers, which is very consistent with the feedback we're hearing on the ground. Physicians are identifying patients that they believe need IBSRELA, treating them with IBSRELA, and the treatment experience is going very well according to the satisfaction ratings they are reporting into the Spheris data. So everything is lining up to really demonstrate that strong growth momentum we're seeing in scripts. And as Mike alluded to, we're not blocking the script. So that's something that you would have access to, and you can take a look and see this kind of momentum for yourself.

Great. Thank you very much for taking our questions.

Thank you.

And ladies and gentlemen, I'm showing no additional questions. I'd like to turn the floor back over to management for any closing remarks.

Thanks again for the questions and to everyone who joined today's call. On behalf of the Ardelyx team, I want to reiterate our optimism about our future potential. Ardelyx is a company spanning the discovery and development of important therapeutics, and we're executing on an innovative commercial strategy that is, as I said, unique and replicable, and we are excited about the opportunities that lie ahead. Once again, I want to thank the team for their tireless dedication to helping patients. We look forward to sharing more in the weeks and months ahead. With that, we can close the call. Thank you, Jamie.

And with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.