Ardelyx, Inc. Q2 FY2023 Earnings Call

Thank you. 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 on 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 quarterly report on Form 10-Q that was 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 the second quarter of 2023. Next, Susan Rodriguez, Chief Commercial Officer, will provide an update on the launch of IBSRELA. Justin Renz, Chief Financial and Operations Officer, will conclude today's formal remarks with a review of the company's financial performance during the second quarter ended June 30, 2023 before we open the call to questions. With that, let me pass the call over to Mike.

Good morning everyone, and thank you for joining us on the call. I'm really pleased to be here today along with Susan and Justin to share with you the progress we've made over the past quarter. At the midway point of 2023, we are excited about the critical milestones we've achieved, the continued execution of our priorities, and the important two quarters ahead of us. IBSRELA is making significant inroads in the IBS-C market as healthcare practitioners and patients recognized the benefits of its novel mechanism profile. Our growth rate accelerated with net sales revenue in the second quarter of $18.3 million reflecting a 61% increase in net sales revenue over Q1. This performance is the result of the incredible efforts of a team that is fully engaged in the field, calling on HCPs, and articulating the unique value proposition that IBS-C offers patients who are in need of a new treatment option. At this stage of our commercialization of IBSRELA, we're excited to provide revenue guidance for the very first time. We currently expect IBSRELA net sales revenue for 2023 to be in the range of $72 million to $77 million. Physician adoption, patient need, and positive treatment experiences, as well as favorable access are the fundamentals driving our IBSRELA growth and we believe the strength of these forces continues to predict expanded use of IBSRELA. As we've said, physicians are finding IBSRELA to be an important treatment option for their patients with IBS-C. Patients are experiencing positive results and refilling their prescriptions. Access to IBSRELA is favorable, enabled by our best-in-class patient services program, Ardelyx Assist. We are confident in the future performance of IBSRELA, and we hope that this guidance will offer better insight into our expectations for this product and the market. As it relates to XPHOZAH, meaningful project risk has been made since we spoke in May. First, as we announced mid-May, the FDA had set the review date for XPHOZAH of October 17, and we expect to launch XPHOZAH in the fourth quarter of this year as quickly as possible following approval. Market awareness, interest, and intent to adopt XPHOZAH is high. We will have comprehensive sales, medical affairs, patient services, and peer access support in place at launch. And as we get closer to launch, we will share more details on our expectations for XPHOZAH and our launch plan to drive uptake and long-term success. Second, as you may have seen, a bipartisan bill was introduced last week in the House of Representatives by Buddy Carter, Carol Miller, Annie Kuster, and Terri Sewell that would delay the implementation of the Oral Only Policy under the Medicare ESRD Prospective Payment System, or PPS, through January 1st of 2033. The introduction of this bill is an important first step in extending the exclusion of the Oral Only ESRD drugs from the PPS. Currently, Oral Only Phosphorus-Binding treatments, which XPHOZAH would be considered upon approval, are scheduled to enter the PPS beginning in January of 2025, eliminating separate payment under Medicare Part D for the approximately 60% to 65% of CKD patients on dialysis who are covered by Medicare. We believe this important legislation is in the best interest of patients, and we join the entire kidney community—advocates, patients, nephrologists, and dialysis providers—that support the efforts to advance it. Congress, taking action to extend this exclusion, as it has done on three previous occasions, will ensure that CKD patients on dialysis continue to have access to personalized care and innovation. Pending approval of XPHOZAH by the end of this year, within two years, Ardelyx will have launched two highly differentiated commercial products in markets for patients with significant unmet medical needs, twice delivering on the vision of Ardelyx, a feat few biotechnology companies have ever accomplished. Susan will now talk through the market dynamics and key performance metrics that are driving our success and accelerating the sales growth for IBSRELA.

Thank you, Mike. Fifteen months into the launch of IBSRELA, we are establishing a strong early market position disrupting the IBS-C market by addressing the need for a novel mechanism treatment option. With a strong field force of more than 60 reps having daily interactions with the top writing IBS-D HCPs, we continue to focus on driving both breadth and depth of IBSRELA writing across HCPs for their patients who can benefit from a novel treatment approach. Our omnichannel digital tactics further amplify our commercial presence, enabling continuous engagement with existing writers, as well as expanding awareness to cultivate new writers. With new writers continuously being added and existing writers increasing their prescribing, IBSRELA is redefining the treatment landscape. Our Q2 sales performance and revenue growth over Q1 reflects the growing uptake of IBSRELA and the opportunity we believe this drug offers for a meaningful subset of patients who up until the launch of IBSRELA had limited treatment options. This market is highly promotion-sensitive; our market presence is strong, and the value proposition of IBSRELA is resonating with HCPs and patients. The May 2023 launch dynamics tracking report published in Q2 by an independent market research firm provides a view of the market response to IBSRELA based on a monthly launch tracking survey across a sample of GIs. The May 2023 findings reported based on the 76 GIs surveyed that 91% rated IBSRELA as an advance over existing therapy. Additionally, of the subset of respondents who reported using IBSRELA, 98% reported satisfaction with treatment. The May 2023 survey results also provide a view of the strength of our targeted commercial presence in high IBS-C writing HCP offices with 74% of survey GIs reporting seeing an IBSRELA rep, of which the majority reported seeing a rep within the last three months. These results align with the persistent growth that we are seeing in both new and refill prescriptions and the feedback we receive daily from HCPs. HCPs interested in IBSRELA are engaging actively with our sales team, responding to our omnichannel communication, adopting IBSRELA, and continuously expanding their use across their practice based on their favorable treatment experience. Momentum is strong, and the potential is high. We believe the opportunity for this drug to deliver sales for Ardelyx of $500 million or more at peak is very real. Our commercial presence is strong and making an impact. The novel mechanism and clinical profile resonate with physicians; patients are gaining access to the drug and seeing positive results. The need is clear, the opportunity is clear, the product is performing, and the team is executing at the highest level. Commercial capabilities at Ardelyx are strong, proven, and mobilizing to be prepared to launch XPHOZAH if approved in the fourth quarter of this year. Marketing, distribution, payer access, and patient services commercial ramp have been ongoing with the build out of the nephrology sales team now underway. Upon its approval, XPHOZAH, like IBSRELA, will be a novel mechanism therapy entering into an established therapeutic area with limited treatment options that is highly accessible via a targeted focus on a concentrated number of HCPs. Our strategy centers on treating nephrologists with a product positioning directed at patients with unmet medical needs and a pathway to access to bring this first-in-class off-site absorption inhibitor, XPHOZAH, to patients. I look forward to continuing to report on our XPHOZAH performance as well as sharing more details on the XPHOZAH launch in the near future. With that, I will hand it to Justin.

Thank you, Susan. Our second quarter of 2023 reflects positive momentum on a number of financial metrics. Accelerated sales growth, improvements to our gross-to-net margin as compared to last quarter. Careful monitoring of cash expenditures and strengthening of our balance sheet in the methodical manner we have taken over the past several quarters. I will walk through those metrics now and then discuss the guidance we provided today for the full-year net product sales in 2023. In the second quarter of 2023, we have total revenue of $22.3 million compared to $2.5 million in the second quarter of 2022. We have increases to both our net product sales of IBSRELA and our product supply and licensing related revenue. As previously mentioned, we had net product sales of IBSRELA in Q2 2023 of $18.3 million, which is a significant 61% quarter-over-quarter growth from the $11.4 million we reported in the first quarter. As a reminder, in the second quarter of 2022, our first full quarter sales following launch, we reported net product sales of $1.6 million. We also reported $4 million in product supply and licensing related revenues in the second quarter this year, compared to $1 million in the second quarter of 2022. Research and development expenses were $8.3 million in the quarter ended June 30, 2023, which is a decrease of $1.4 million from the $9.7 million for the same quarter last year. Expenses in the prior year were quite higher due to increased manufacturing expenses, as well as costs associated with our appeal at the FDA regarding our 2021 complete response letter on the NDA's first proposal. We saw our gross-to-net margin improved in the second quarter when compared to the first quarter. As we expected, as healthcare plans reset in a new calendar year, our gross-to-net was somewhat higher in the first quarter than it had been in the third and fourth quarter of 2022. We were pleased to see that our gross-to-net improved in the second quarter of 2023 to be approximately 28%. We anticipate the gross-to-net margin to continue to be in the high 20s for the remainder of 2023. Selling, general and administrative expenses were $27.2 million for the second quarter of 2023, an increase of $8.3 million compared to the $18.9 million for the same period of 2022. The increase was primarily due to the increased cost associated with continued commercialization and growth of IBSRELA. For the quarter ended June 30, 2023, we reported a net loss of approximately $17.1 million or $0.08 per fully diluted share compared to a net loss of $26.9 million or $0.19 per share in the second quarter of 2022. The net loss for the quarter ended June 30, 2023 includes $12.2 million in combined non-cash expenses from share-based compensation and non-cash savings expense. As of June 30, 2023, we have total cash, cash equivalents, and short-term investments of $127.6 million as compared to $123.9 million at December 31, 2022. This reflects an $11.6 million increase during the quarter, through sales of approximately 3 million shares of common stock under our ATM program. We will continue to be patient and explore further opportunities to raise additional capital for the company. We're now going to walk through some of the details of our financial expectations for the next 12 months. First, as you saw in our press release this morning and as you heard from Mike, for the first time, we shared full-year net sales revenue guidance for IBSRELA. Fifteen months following the launch, we continue to see sales trends moving in steady, positive directions. Patients are refilling their prescriptions, previously writing HCPs are finding new patients, and we have new HCPs writing every day. Our strategy to grow the depth and breadth of writers is working. We are also gaining visibility into the patterns and dynamic responses each day, enabling us to make more firm projections. We currently expect net IBSRELA sales revenue for full-year 2023 to be between $72 million and $77 million. At the end of the second quarter, we reported year-to-date 2023 net sales revenue of $29.7 million. This full-year guidance range represents thoughtful consideration of continued growth, consistent with the volume of new prescriptions we've seen, a favorable growth trajectory for refills, and strong demand and interest for this novel treatment. We have confidence in IBSRELA's potential, and we continue to believe IBSRELA can generate $500 million or more in net sales revenue at peak. In addition, I wanted to address the question we’ve received related to Symphony script tracking data. As we sought to understand the differences between our recorded revenue and the Symphony script data, we've identified that the numbers reported by Symphony include prescriptions from the pharmacy that fulfills prescriptions for our patient assistance program. Our delta does not receive revenue from patient assistance program prescriptions, and for this reason, the Symphony data does not directly tie to our revenue. In addition, as Susan shared, we will begin investing this quarter to prepare for the launch of XPHOZAH in the fourth quarter, pending approval. When we launch XPHOZAH, if approved, as we ramp up, we expect incremental expenditures to be approximately $20 million per quarter. We hope to quickly drive uptake and establish a position for XPHOZAH in the treatment landscape. Finally, as we've discussed in previous quarters, we will continue to strengthen our cash position by looking at all options available to us, including non-equity solutions. As a reminder, we expect to recognize a $2 million milestone payment in the third quarter from our partner in China, Olson Pharma, following the acceptance of the NDA for our product, which we announced earlier in July. In addition, assuming the approval of our product in Japan, we will earn another milestone payment later this year from our Japanese partner, Kyowa Kirin Co. We are in an excellent financial position as we prepare for the XPHOZAH launch. We are confident in our ability to fund our operations, and we will continue to make thoughtful decisions to maximize shareholder value. With that, I'll hand it over to Mike.

Thanks, Justin. Q2 was another quarter where we achieved important milestones, delivered on our priorities, and strengthened our business. We are excited about IBSRELA's performance and are beginning to see upside for this product. The team behind IBSRELA is focused, dedicated, and driven to help the patients that we serve. They have set a standard for the type of success and innovative thinking that can be expected from our commercial organization. Demand for XPHOZAH is high, and we believe we have the potential for a strong launch after approval. We continue to support our partners’ regulatory submissions while engaging in discussions for further international expansion and looking at all the options available to us from a financing perspective. Before closing, I would like to take a moment as I always do to thank the incredible team at Ardelyx. Your talent, your passion, and your commitment are the driving force behind the performance that we've shared today. I will now open the call to questions.

Yes, thank you. We will now begin the question-and-answer session. The first question comes from Yigal Nochomovitz with Citi Group.

Hi, Mike and team. Thank you very much. Could you just spend a little bit more time talking about the assumptions behind the newly introduced guidance range? Obviously, it implies a quarterly growth that is essentially lower than what you saw in Q2 over Q1 for the back half of the year. So if you could just delve into that a little bit more, and then on the legislation with the bundling, can you talk about the likelihood that that legislation will come to fruition and keep the drug out of the bundle to 2033? Thanks.

Sure. Let me start with the last part first. I feel like starting to sing Schoolhouse Rock as to how a bill becomes a law, so I can't give you any specific percentages on the probabilities. This is such an important first step; what we're focused on is making sure that the team is ready to launch in the fourth quarter pending approval. And we'll take it step by step. I think this message is strong due to what Congress has done on three other occasions, and it gives me some hope and optimism, but I can't give you specific numbers. As it relates to the guidance, as I said, and Justin, this is our first time giving guidance, and we're going to take a very measured approach. I think as we look at how we performed since launch, there are different percentages for growth quarter-to-quarter. So we're not going to just straight-line things or take these in a stepwise fashion as we have with this. And I think this is a measured and appropriate first step for guidance. Justin, anything to add to that?

No Mike, that's excellent. Again, we're really encouraged by Q2's quarter-to-quarter growth. Our team has done an amazing job, and we will keep you apprised of our progress.

Thanks. And then just one quick question on Symphony. So the patient assistance program. Can you say what percent of the script volume coming out of Symphony was driven by the PAP for which you don't book revenue?

Yes, I mean, it's going to vary depending on all the scripts, right? So there's not a specific percentage that we can provide that is going to be true from one quarter to the next. But it's just a patient assistance program that shows up in Symphony.

Okay. Thanks, Mike.

Sure.

Thank you. And the next question comes from Dennis Ding with Jeffries.

Hi, good morning. Congratulations on the progress, and thanks for taking our questions. Two if I may, for XPHOZAH, what are your expectations going into the October PDUFA, including how the label could eventually shake out and how that would impact your positioning in the market? And then, number two, ever since the resubmission and acceptance, how have discussions with the FDA been and what more needs to happen in the next two months?

Sure. So I think as we shared when we said that we had refiled the NDA and as well with Dr. Stein's letter and frankly all the discussions that occurred at the AdCom, we believe the likelihood is that this is going to be an indication that says something along the lines of when binders are insufficient or intolerable, which is the majority of patients, as everyone knows. So I think that secures a very powerful second line spot where all the binder treatments are concerned since almost 80% of patients are above range in any six-month period of time. So I feel strong and positive about that indication ultimately, if that ends up being what we anticipate. There's not really been any substantive communication from the agency; they didn't anticipate any. Traditionally, you begin your negotiations on your package insert about a month prior to your PDUFA date. And if you recall in our last experience, we negotiated most of the package insert before what occurred that ultimately ended up in the CRL. I don't know how much re-litigation is going to have to be required for the PI since that's already been done. But that's what we would anticipate.

Thank you.

Thanks, Dennis.

Thank you. And the next question comes from Laura Chico with Wedbush.

Hey, good morning guys. Thanks for taking the questions. I just want to circle back on the guidance real quick here. What, I guess, maybe if you could explain Mike, what gave you the rationale for starting to provide guidance now? Was there anything that changed in the trajectory or anything there? But yes, rationale around why now is a good time for guidance?

We said that we're doing about 15 months to 18 months from launch as we learn more about the data and get more comfortable. I think as Justin said in his opening remarks, we're gaining confidence in those numbers being representative of where we're going. It has been 15 months since our first launch, and it just seems like the right time. Justin, anything to add?

Okay.

No, I think that's fine.

Laura?

Thanks guys, okay. And then, if I could follow-up on one just with respect to the legislation. I don’t think we've seen a text on the bill yet, and I know you mentioned we've already had the can kicked on the road three times previously. I guess just on the off chance the bill does not progress, I'm just wondering if you could kind of walk through mechanistically what would actually happen if it were included in the bundle. I guess, I'm trying to work through the scenario of potential impact during a transition. Yes, thanks if there is any color that you could provide.

Sure. And to see the text of the bill, you can go to Buddy Carter's website, a congressman from Georgia, and the bill is there. As it relates to the bundle, it would end up being January 1, 2025, and it goes into annual reviews on a two-year cycle. Like other drugs that have gone through this process, they collect data from that two-year period and then the following year they would increase our base rate based upon the calculation on the data collected to increase the base rate to cover the cost associated with anything going into the bundle. I think what makes these drugs unique is that they are not given during the provision of dialysis. If you recall, you're not allowed to eat when you're on dialysis. Our package, and other drugs, state yes: take your drugs while you have food, whether it’s a meal or a snack. In the case of binders, it is one small pill before your next largest meal, whether it is breakfast, lunch, or dinner. This makes it a complex issue for providers.

That's very helpful, Mike. Last question I have, and back in the queue. In terms of ATM utilization, I think there were $11 million generated this quarter. Could you just comment on kind of appetite for further use of the ATM? Thanks very much.

Sure. Justin?

Yes, thank you. So, we sold approximately 3 million shares in the second quarter through the ATM generating $11.6 million as we discussed in our prepared remarks. We remain open-minded to other capital raising ideas. This is certainly a tool in our toolbox, but we're going to be patient in the market as we try to stay aligned with prior quarters and demonstrate we can raise capital gracefully.

Thanks very much, guys.

Thank you. And the next question comes from Matt Kaplan with Ladenburg Thalmann.

Hi, good morning guys and congrats on the results for the quarter, nice results. Just want to dive in a little more to your preparation for the XPHOZAH launch. Going into the October 17th PDUFA, could you provide a little more color in terms of how you're thinking about the build-out of that sales team? Will it look like the IBSRELA team in terms of size? Please give us a little more color as you prep for the launch.

Sure, Susan?

Yes, hi Matt. We are, as we mentioned in our narrative, we have mobilized to prepare for the launch of XPHOZAH. We have the capability to ramp up the marketing, distribution, payer engagement, and patient services. Your question on the sales force: we are fielding a dedicated nephrology sales force for this market, as needed. As we have noted, the IBS-C market has a very concentrated number of doctors—with around 8000 HCPs accounting for the majority of hyperphosphatemia scripts. To reach that target group, we're fielding a group of about 60, which we believe will establish a strong sales force presence for XPHOZAH across the country. It is a sales force comparable in size to our existing sales force; however, it is dedicated to the nephrology focus. We are experiencing a high level of interest as we interview seasoned sales representatives with nephrology experience and established relationships who are quite enthusiastic about being part of this dedicated team. We will be prepared to launch as quickly as possible upon the approval of XPHOZAH in the fourth quarter.

Matt, the thing I would add to that is, if you recall before the CRL, we had an extensive disease awareness campaign and an organization that was in the field doing that. What’s been remarkable is to see the continuing awareness that has built up even since then and the anticipation for it. We’re enthusiastic about what we will be launching.

Okay, that’s helpful. And then a follow-on to that is why should the XPHOZAH launch look like the IBSRELA launch, or why should it look different given what you just said Mike in terms of the level of awareness? What should our expectations be in terms of the trajectory?

So, I think what we'll do is hold on that. We will spend some more dedicated time with everyone as we get closer to the PDUFA date, and tell you more about our expectations and how that’s going to look. We think there’s going to be a positive response to the launch, but quantifying that at this stage is probably premature.

Okay, thanks. Thanks again.

Thanks, Matt.

Right, thank you. And the next question comes from Peyton Bohnsack with TD Cowen.

Hi, everyone. Thank you for addressing our questions. Regarding the PDUFA you mentioned, I assume that you would apply for this if it were not included in the bundle, but perhaps it is.

Yes. I mean, to whatever the process is to get those data collected, we would certainly participate in that.

All right, got you. And then, I guess, it’s kind of like a follow-up. How have discussions been going for other areas like Europe? Have you begun to look forward at those, and if you have any timelines, that’d be great.

Yes, so we had ongoing discussions in all the partnered territories, whether it's IBS-C and Japan, Europe, and the rest of the world. Those conversations continue. Some have a better trajectory than others, but I have no specific timeline that I can give you in terms of when anything like that would be finalized.

Yes. And I guess just one final one for me. Seeing how you guys are pretty deep into the IBSRELA launch now and the vote is probably going to get approved and then launched. Could you maybe talk about your long-term pipeline or an internal R&D strategy? Would you guys restart your earlier stage pipeline so we could be looking to something?

Yes, I mean, it’s a great question. As we've said, there are a couple of programs that are sort of laying shallow at this point, particularly towards metabolic acidosis and the hyperkalemia program to speak of two—those will need sufficient capital, and obviously looking at those and restarting those would be a prudent thing to do. I think what we’re also demonstrating, Peyton, was what we've done with IBSRELA, and confidence we’ll demonstrate with XPHOZAH, is an extraordinarily powerful commercial organization. That should be the partner of choice for new and upcoming drugs in IBS and new and upcoming drugs in dialysis and renal. We’ll continue looking across multiple avenues to strengthen our pipeline as we get to a place where we have a strong enough balance sheet to do that.

Great, thank you very much. I appreciate all the color.

Thank you, Peyton.

Thank you. And this concludes our question-and-answer session. I'd like to return the conference back over to President and CEO Mike Raab for any closing comments.

Thank you everyone for joining us this morning. I look forward to providing you with further updates in the weeks and months ahead. We have a number of milestones that I look forward to sharing including an approval of XPHOZAH in October and continued growth of IBSRELA. With that, we can close the call. Thank you.

Thank you. The conference has concluded. Thank you for attending today's presentation, and you may now disconnect.