Ardelyx, Inc. (ARDX) Earnings Call Transcript & Summary

Hello and welcome to the Ardelyx Second Quarter 2023 Conference Call. [Operator Instructions]. Please note, this event is being recorded. I'd now like to turn the conference over to Caitlin Lowie. Please go ahead, ma'am.

Thank you. Good morning, 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 and can 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 prepared 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 and 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 2 quarters ahead of us. IBSRELA is making significant inroads in the IBS-C market as health care practitioners and patients recognize 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 the team that is fully engaged in the field, calling on HCPs and articulating the unique value proposition that IBSRELA 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 to draw a 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 a 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 relatively 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, ArdelyxAssist. We are confident in the future performance of the IBSRELA, and we hope that this guidance will offer better insight into our expectations for this product in the market. As it relates to XPHOZAH, meaningful progress has been made since we spoke in May. First, as we announced mid-May, the FDA had set the review -- goal 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 payer 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 1, 2033. The introduction of this bill is an important first step and extending the exclusion of the oral-only ESRD drugs from the PPS. Currently, oral-only phosphorus-lowering treatments, which exposed 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 joined 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 3 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 2 years, Ardelyx will have launched 2 highly differentiated commercial products in markets for patients with significant unmet medical needs, twice delivering on the vision of Ardelyx. I see few biotechnology companies have ever accomplished. Susan will now talk through the market dynamics and key performance metrics that are driving our success and accelerated sales growth for IBSRELA. Susan?

Thank you, Mike. 15 months into the launch of IBSRELA, we are establishing a strong early market position disrupting the IBS-C market by addressing the need for novel mechanism treatment options. With a strong sales force of more than 60 reps having daily interaction with the top riding IBS-C HCP, 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 that 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 Spherix, 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 GI. The May 2023 findings reported based on the 76 GI survey 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 Spherix 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 TIs reporting seeing in IBSRELA reps, of which the majority reported being a rep within the last 3 months. These results align with the persistent growth that we are seeing in both new and refill prescriptions and the feedback we received daily from HCP. HCPs are interested in IBSRELA are engaging actively with our sales team, responding to our omnichannel communications, 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, prudent 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 has 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 targeted focus on a concentrated number of HCP. Our strategy centers on treating nephrologists with a product positioning directed at patients with unmet medical needs and a path to access to bring this first-in-class phosphate absorption inhibitor XPHOZAH to patients. I look forward to continuing to report on our IBSRELA performance as well as sharing more detail 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, improvement to our gross to net margin as compared to last quarter, careful monitoring of cash expenditures and strengthening of our balance sheet and the methodical manner we have [ faced ] over the past several quarters. I will walk through those metrics now and then discuss the guidance we provided today for IBSRELA net product sales in 2023. In the second quarter of 2023, we had total revenue of $22.3 million compared to $2.5 million in the second quarter of 2022, reflecting increases to both our net product sales of IBSRELA and our product supply and licensing-related revenues. As previously mentioned, we had net product sales of IBSRELA in Q2 2023 of $18.3 million, which is significant 61% quarter-over-quarter growth of the $11.4 million we reported in the first quarter. As a reminder, in the second quarter of 2022, our first full quarter scale following launch, we reported net product sales of $1.6 million. We also reported $4 million in product supply and licensing-related revenue in the second quarter of this year compared to $1 million in the second quarter of 2022. Research and development expenses were $8.3 million for the quarter ended June 30, 2023, which is a decrease of $1.4 million from $9.7 million for the same quarter last year. Expenses in the prior year reflects higher tenapanor manufacturing expenses as well as costs associated with our appeal of the FDA July 2021 complete response letter on the NDA for disposal. We saw our gross to net margin improved in the second quarter when compared to the first quarter. As we expected, as health care plans reset a new calendar year, 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 when compared to the $18.9 million in the same period of 2022. The increase was primarily due to the increased costs associated with the continued commercialization and growth of IBSRELA. For the quarter ended June 30, 2022, we had 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, including $4.2 million in combined noncash expenses from share-based compensation and noncash interest expenses. As of June 30, 2023, we had total cash, cash equivalents and short-term investments of $127.6 million as compared to $123.9 million at December 31, 2022. This reflects $11.6 million we weighed 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. I'm 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. 15 months following the launch, we continue to see sales trends moving in a steady positive direction. Patients are refilling their prescriptions Previously writing HCPs are finding new patients, and we have new HCPs running every day. Our strategy to grow depth and breadth of providers is working. We are also gaining visibility to patterns and dynamics of its launch 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 recorded year-to-date 2023 net sales revenue of $29.7 million. This full year guidance range represents a thoughtful consideration of continued growth consistent with the volume of new prescriptions we've seen, a favorable growth trajectory for refill prescriptions 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 received related to Symphony script tracking data. As we start to understand the differences between our reported revenue and the Symphony script data, we have identified that the numbers reported by Symphony include prescriptions from the pharmacy that will build prescriptions for our patient assistance program. Ardelyx does not receive revenue from patient assistance program prescriptions. And for this reason, the Symphony data is not directly tied [indiscernible]. 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 launched XPHOZAH, if approved and 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 hyperphosphatemia treatment landscape. Finally, as we have discussed in previous quarters, we will continue to strengthen our cash position by looking at all options available to them, including nonequity solutions. As a reminder, we expect to recognize a $2 million milestone payment in the third quarter from our partner in China, Fosun Pharma following the acceptance of the NDA for tenapanor for hyperphosphatemia, which we announced earlier in July. In addition, assuming the approval of tenapanor for hyperphosphatemia in Japan, we will earn another milestone payment later this year from our Japanese partner, Kyowa Kirin Co. Led by the continued growth of IBSRELA, we are in 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 our Ardelyx achieved important milestones, delivered on our priorities and strengthened our business. We are excited with 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 the Ardelyx 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 Ardelyx, your talent, your passion and commitment are the driving force behind the performance that we've shared today. I will now open the call to questions. Operator?

[Operator Instructions]. And the first question comes from Yigal Nochomovitz with Citigroup.

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 over -- quarter-over-quarter growth potentially lower than what you saw 2Q over 1Q 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 orals out of the bundle to 2033.

Sure. Let me start with the last part first is I feel like starting to sing schoolhouse rock as to how the bill becomes a law. And 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 is such a strong message of what Congress has previously done 3 other times, that 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, we're going to take a very measured approach. I think as we look at how we performed since launch, there's different percentages growth quarter-to-quarter. So we're not going to just straight line thing. We're going to 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-over-quarter growth in the measured [indiscernible] and really to the question [indiscernible], and we'll keep you apprised with our progress.

And then just one quick question on the 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 upon all the scripts, right? So there's not a specific percentage that we can say is going to be true last quarter to the next one, but it's just a -- it's a PAP program that shows up in Symphony.

And the next question comes from Dennis Ding with Jefferies.

Congratulations on the progress. Two, if I may. For XPHOZAH, what are your expectations 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 engagement with the FDA been? And what more needs to happen in the next 2 months into the PDUFA?

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 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, it's what, almost 80% of patients are above range in any 6-month period of time. So we feel strong and feel good about if that's the indication ultimately ends up being. There's not really been any substantive communication with the agency, didn't anticipate any. Traditionally, you begin your negotiations on your package insert month or so prior to your PDUFA date. And if you recall in our last go around, we've negotiated the majority of the package insert before what occurred to ultimately end up in the CRL. So I don't know how much relitigation is going to have to be required for the PI since that's already been done. But that's what we would anticipate.

And the next question comes from Laura Chico with Wedbush.

I just wanted to circle back on the guidance real quick here. What -- I guess, maybe if you could explain, Mike, what gave this -- why was now a good time to start providing guidance? Was there anything that's changed kind of in the trajectory or anything there. But yes, rationale around why now it's a good time for guidance.

Well, we said that we would do in about 15 to 18 months from launches. We learn more about the data and got more comfortable. And I think as Justin said in his opening remarks, that we're gaining confidence in those numbers being representative of where we're going. So that's really what generated it. It's 15, 16 months post launch, and it just seemed like the right time. Justin, anything to add.

No, I think that's right. Laura?

Okay. And then if I could follow up on one just with respect to the legislation, I don't think we've seen text on the bill yet. And I know you mentioned we've already had the can kick down the road 3 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 impacts during the transition. Yes, thanks. If there's any color that you could provide.

Sure. And to see the text of the bill, you can go to Buddy Carter's website, Congressman from Georgia. And the bill is there. As it relates to the bundle, it would end up being January 1, '25 as it goes in and you ultimately are on a 2-year to [ date ] period. Like other drugs that have gone in something like Sensipar, Parsabiv, they collect the data from that 2-year period and then the following year, they increased their base rate based upon a calculation on those data that they collected to increase the base rate to cover the costs associated with anything going into the bundle. I think what makes these oral-only so unique is that they are not given during the provision of dialysis. If you recall or as we talked that, in fact, you're not allowed to eat when you're on dialysis. And certainly our package and certain others say you have to take your drugs while you have food, right, whether it's a meal or a snack in the case of binders, and for us, it's one small pill before breakfast and whether it's dinner or lunch, your next largest meal. So it makes it a vexing issue for the providers to actually accomplish what they need to when they're not going to be getting these drugs during the provision of the balance of services.

That's very helpful, Mike. Last question, I'll hop back in the queue. In terms of ATM utilization, I think it was about $11 million generated this quarter. Could you just comment on kind of appetite for further use of the ATM?

Sure, Justin?

Yes. Thank you. So we sold approximately 3 million shares during the second quarter for gross proceeds of approximately $11.6 million. As we discussed in our prepared remarks, we're going to hear the [indiscernible] and our capital raising ideas. So we're open-minded to non-equity solutions as well as we continue to explore options across both business development, debt and other nonequity solutions. So we have certainly a tool in our toolbox, but we are going to be patient and methodical as we tried to be in the previous quarters that we demonstrated in promotional trial.

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

Congrats on the IBSRELA results for the quarter, nice results. Just wanted to dive in a little bit more to your preparation for the XPHOZAH launch and going into the October 17 PDUFA. Can you give us a little bit more color in terms of how you're thinking about the build-out of that sales team and will it look like the IBSRELA team or in terms of size and give us a little bit more color as you prep for.

Sure, Susan.

Yes. Matt, we are -- as we mentioned in our narrative, we have mobilized to prepare for the launch of XPHOZAH. We have the capabilities to ramp up all the marketing, distribution, payer engagement and patient services. Your question on the sales force, we are fielding a dedicated nephrology sales force. And this market, as the IBSRELA, as we have noted around the IBS-C market has a very concentrated number of doctors with around 8,000 HCPs accounting for the majority of hyperphosphatemia scripts. So to really reach that target group, we are fielding a group of about 60, which we believe really will develop a very -- establish a strong sales force presence for XPHOZAH with a dedicated nephrology sales force across the country. So it really is a sales force comparable in size to our IBSRELA sales force. However, it is dedicated to the nephrology call point, and we are experiencing a really high level of interest because we're interviewing to fill those spots as we speak, with very seasoned salespeople with -- coming in with nephrology experience and established relationships. So we're quite enthusiastic about launching this dedicated team, and we will be prepared to be able to launch as quickly as possible upon the approval of XPHOZAH in the fourth quarter.

And Matt, the thing I would add to that is if you recall, before the CRL, we had an extensive disease awareness campaign in an organization that was feet on the ground doing that. And what's been remarkable is to see the continued awareness that has built even since then in the anticipation for it. So we're enthusiastic about what we're going to be launching into.

That's helpful. And then a follow-on to that is, I guess, why should the XPHOZAH launch look like the IBSRELA launch? Or why should it look different given, I guess, given what you just said, Mike, in terms of the level of awareness, et cetera. What should our expectations be in terms of the trajectory of the [ launch ]?

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

Okay. Fair enough. And last question in terms of the prep for the launch. I think in your prepared remarks, Justin, you mentioned incremental increase in SG&A. Can you just go over that again? And how we should think about that?

Yes. Thank you, Matt. So we'd like to guide that we anticipate an additional incremental $20 million in combined SG&A spend with well as some additional product supply spend starting in this quarter and going on. That will be the incremental cost. Of course, once the targeted margin we're generating revenue there will be offset by the proceeds from net revenue. But we're guiding you to an incremental $20 million in the quarter, respectively.

[Operator Instructions] And the next question comes from Peyton Bohnsack with TD Cowen.

I guess a little more on the PDUFA that you mentioned. So I'm assuming that you have to apply for this. Is my assumption that you guys would apply for this if it wasn't put in the bundle, however, mix on, Mike, that maybe.

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

Okay. Got you. And then I guess it's kind of like a follow-up, how have kind of discussions been going for other areas like specifically Europe. Have you begun to move forward [ with maybe those ]? And if you have any time line, that would be great.

Yes. So we've had ongoing discussions in all the unpartnered territories, whether it's IBS-C and Japan, Europe, rest of world, those conversations continue with some. There is a better trajectory than others. No specific time line that I can give you in terms of when anything like that would be finalized.

Great. And I guess, just like one final one for me, seeing how you guys are pretty deep into the IBSRELA launch now and they both will probably going to get approved and then launched. Could you maybe talk about your long-term P&D or internal R&D strategy? Would you guys restart your earlier-stage pipeline? Or would you be looking to license something?

Yes. I mean it's a great question. As we've said, there's a couple of programs that are sort of laying fallow at this point because both the metabolic acidosis, the hyperkalemia program to speak of 2 that with sufficient capital, 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 I'm confident 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 even upcoming drugs in dialysis [indiscernible]. So we'll continue looking across multiple ways of strengthening our pipeline as we get to a place where we have a strong enough balance sheet to do that.

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, operator.

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