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

Good morning, everyone. My name is [ Balaji Prasad]. I'm the senior analyst for the spec pharma sector for Barclays. Thank you for joining us at the Barclays Global Healthcare Conference. And on day 3, continuing the spec pharma track, we have with us the management team from Ardelyx, including Justin Renz, the CFO; and our Chief Operations Officer, too. and Caitlin Lowie, the Vice President of Investor Relations. Justin, Caitlin, thank you for joining us today at the health care conference. Maybe to kick start, I'd love to invite you to provide a brief overview on Ardelyx and more about the pipeline and the key value drivers for the company, and then we can dig into some of the questions.

Great. Thank you. Good morning, everyone, and thank you, Balaji, for having us a beautiful day here in Miami, the Barclays conference. Also today, also happens to be a World Kidney Day. So we're very excited to our kidney colleagues out there to offer a novel medicine for them. So Ardelyx is a company that was founded just over 15 years ago in California, and our desire was to discover, develop novel medicines for either gastroenterology or kidney disease. And so novel mechanism of action, small molecule and so we are so proud to get that we have in fact on that twice. We discovered on our own, developed, got approved and commercialized 2 medicines. So IBSRELA is approved for irritable bowel syndrome with constipation. We got that approved in 2019, launched in 2022. We are very proud of our commercial success with that. We did $16 million in the first year, then $80 million and then $158 million last year. And so we look forward to executing and building on the revenue of that product, and we'll get into that in detail. Our second product XPHOZAH is approved for hyperphosphatemia. So as an add-on treatment to binders or if you are unable to tolerate binders, again, novel mechanism based on the [ NHE3 ] class, and it works either, as I said, in combination, with binders stand-alone, great efficacy profile. Both drugs have had excellent clinical results. And so we launched XPHOZAH in the fall of 2023 had an excellent first full year sales last year with approximately $160 million in net product sales revenue and look forward to talking more about that as part of our discussion. We have a very strong balance sheet. We've tried to be thoughtful stewards of our capital. And so we finished last year with approximately $250 million in cash. So we're well resourced to build a great company. And so we are looking to expand our pipeline. We have a number of items internally that we've discovered that we're looking to and evaluating and we will be discussing those probably later this year, should they move forward appropriately. We're very measured and methodical in what we do. We also are looking at external business development. And so there's opportunities that we are being very thoughtful and careful in evaluating what it will take a very high bar because of the success we've had in first 2 products, but we are looking to build a great company. And so we're very grateful the opportunity to talk to you today, Balaji.And again, Caitlin is here. I don't know if I've missed any of our key talking points to start.

No. I think Justin outlined our key strategic priorities really well. Initially, we're going to be focused on executing and driving commercial excellence for IBSRELA and XPHOZAH, building out the pipeline and delivering a strong commercial and financial performance.

Great. Thanks for the overview. So being in the commercial side of things with IBSRELA, clearly the flagship product for the company, as I look at last year's performance, and I said launched in 2022, you had an exceptionally strong launch and the guidance for this year is $240 million to $250 million with the long-term peak sales guidance of $1 billion. So help us understand what degree of element of conservatism is there in the FY 2025 guidance considering that you have such a strong FY '24? And how are you like taking the long-term growth drivers into this guidance?

Sure. No, thank you for adding -- so the IBS-C space has really evolved over the last 15, 20 years. So it was once a primarily generic and over-the-counter marketplace has evolved with the introduction first of AMITIZA and then later on LINZESS the teams at Forest, now AbbVie and Ironwood did a great job with LINZESS and really building out the prescription marketplace for IBS-C, and that was about 12, 13 years ago. And then another GCC agonist came along named TRULANCE about 7 years ago or so. And they have really built out this prescription marketplace. So when we launched in 2022, there were approximately 5.2 million written for IBS-C indicated drugs, and we did around $16 million in sales. In 2023, the indicated market was about 5.7 million scripts, and we did approximately $80 million in sales and then last year, there were about 6.3 million scripts written, and we did approximately $158 million in sales. So we've been growing with the market. The market clearly has unmet need. IBSRELA has an excellent clinical profile, it actually is in the 2 Phase III trials. The results were very similar to LINZESS in terms of efficacy. It is the payer dynamic that we cannot really compete with LINZESS on price. And so we are essentially by the way the marketplace has evolved, a second or a third-line treatment option, meaning if we want the patient to ask if they've been on LINZESS or TRULANCE or even both, and many of these patients have cycled through both drugs. Would you like to try something new? Is there something different that you would like to try? And that's what we -- and are your symptoms completely under control? Maybe you can do a little better. And so that's kind of our marketing message. And so we are trying to give that new option with that novel mechanism for patients. And so we're looking to really penetrate that market. As I mentioned, there were approximately 6.3 million prescriptions written in 2024. We aspire to achieve at least a 10% market share. And so at our price point with our considered gross to net and that share percentage of scripts, we believe we can get to over $1 billion. And so we are working methodically and building towards that is relatively expeditiously as possible. So we increased our sales force initially 34 at the launch a year later, and we built it from 64 to 124 over the course of last year, having all reps in the field for sure. for the fourth quarter, and that's where we saw some incremental growth. So we're trying to build towards that $1 billion target. We try to be very thoughtful and measured in our guidance. So we believe that when we can achieve a number, we will share that with the external audience. And so we're comfortable with our $250 million to $250 million guidance, and that is on our path to $1 billion.

So kind of understand the dynamics around market growth and the prescription growth and you judiciously building your sales force expansion towards this target. So what kind of time duration should we think about when you speak about $1 billion or a 10% market share in this segment? And what kind of field force setup would be needed maybe at the time you reach peak sales, what kind of what do we need?

Yes. As I mentioned, we expanded our sales force last year from 64 to 124 over -- from the time frame we say, March to September. And really, our initial launch, we were targeting around 9,000 gastroenterologists and high-writing non- gastroenterologists. With our increased sales force, we're now targeting approximately 14,000 writers and those writers include an incremental approximately 5,000 APPs, so advanced practice providers, because that we've found in our work in the first couple of years that there were others within the office dynamics that we're writers. So we are trying to drive breadth and depth of those groups. That's our target audience. And we want each of those targets to ask their patients would you like to try something new again, same idea really messaging that over and over again. The composition of matter patent is August of 2033 and so our goal is to drive to that $1 billion target, of course, prior to that date in patent expiry. We're, of course, doing everything we can to accelerate that growth, and we'll be thoughtful in how we add to the sales force and our team. One of the changes our recent new Chief Commercial Officer, Eric Foster made, is we've added some folks that are actually in the field, we call them field access managers, and they're actually out deployed to try to help the pull-through of the scripts. Again, in this marketplace, there prior auths required. We really want to help the office make this as seamless as possible and get the drug to as many patients as possible.

Yes. I think the only thing I'd add is the reason why we believe that these investments, both in the commercial team are omnichannel communications the market has really demonstrated that it responds very favorably to IBSRELA. It has a strong clinical and efficacy profile. And once physicians have experience with IBSRELA, they're willing to write more. So we know that once we get in front of them, they're more likely to write due to the clinical profile. So these investments, we feel very good about. And we talk about the field can drive that clinical conviction at the top of the funnel. And then the more that we can use the lever with our delegates program and our field access managers to pull them through at the bottom, it allows us to touch the patient at every step of their journey.

Understood. And you spoke about the unmet need. Is there a way you can quantify or comment on this unmet need and what section of the patient population this would constitute and how we could tap into them?

Interesting question because there actually is a little bit of a difference in opinion between the physicians and the prescribers and the patient population. I think from our survey data, we found that when asked the high-writing GIs and high-writing non-GI physician population at large, they believe that approximately 30% of their patient population is not well served or could possibly do better. When we ask the patient population, essentially the same question, it's closer to 70%, we believe their needs are not completely resolved.

Yes. I think that we have data that suggest up to 13 million patients may have IBS-C. So there's a large patient population and they're very active in their treatment. They -- especially those that are diagnosed, they're looking at their entire life holistically and how to manage the condition. So that's where some of the activities we're taking this year to activate those patients in a more aggressive way, we believe will be involved. As Justin said, 70% of them indicate they continue to have symptoms despite treatment. So that's a large opportunity for us to have.

Understood. Maybe on the commercial side of things, can you provide a breakdown around the Medicare versus non-Medicare patients for IBSRELA.

Sure. So IBSRELA is approximately at least historically for us in the 50% neighborhood of commercial and then 50% noncommercial. And that is a little bit more Medicare than Medicaid, and then there's some cash. But it is different than XPHOZAH. When we talk about XPHOZAH and XPHOZAH has a different patient mix, but approximately 50% commercial, approximately 30% Medicare and approximately 20% Medicaid plus or minus, historically.

Yes. And so as an extension that could you also talk about your contracting and your -- especially the gross to net strategy and how this is likely to evolve?

Sure. So we have not contracted yet with payers. We believe that as a novel mechanism and with the clinical profile that we have, that we are comfortable in being second line from a payer perspective, again, because a first-line clinical profile, we are there for the patients whose needs have not been well met by frontline therapy. And so we don't believe that contracting would actually ever move formulary of either LINZESS or TRULANCE or something else. And so we are firmly in that second line when your symptoms aren't well needed, which Caitlin just alluded to. So that's a place where we are currently playing. Obviously, this is always subject to change. We should take an independent look every year. But for now, we don't believe there's anything we can do contractually that will give us in a better position than we are right now because if we did, of course, that would negatively impact our gross to net calculation. So IBSRELA historically has had a, what I call, 30 plus or minus 5% gross to net range. less favorable in the first quarter and then more favorable as time progresses. And that's primarily a variable of the commercial co-pay buy down that we do. So to the extent that the patients commercial plan allows, we will do everything we can to pay their co-pay at the point of sale. And so as you might imagine, most -- so deductible plans and others reset in January. And so typically, our co-pay claim amounts are higher and more frequent in the first quarter and they lessen over the course of the year. And so as an example, in 2024, in the first quarter, our gross to net was approximately 33.5%. And in Q4 of last year, it was approximately 28.5%.

Understood. That's [indiscernible] basis point spread. I want to spend a few minutes on XPHOZAH. And again, similarly there on that front. Maybe a quick overview around the product itself. It's been 1 full year of launch for you. And what has been the feedback till now been? And what are you seeing on the ground?

Sure. So XPHOZAH was approved in October of 2023, and we launched in November. And so now we're 15, 16 months into its commercial availability. It is a great drug. These patients are -- have an end-stage renal disease patients on dialysis. And again, our drug is indicated that these are an add-on therapy to binders or when you can't tolerate a binder. These patients, there's approximately 550,000 patients in end-stage renal disease on dialysis in our country. And the mix is approximately 60% Medicare, 40% non-Medicare. We want to make our drug available to everyone because of its novel mechanism. Its clinical profile is excellent. We were, again, discovered and develoepd and approved by our team and now launch. The response from the patient community, again, it's World Kidney Day today. And so we are happy that we are able to make this drug available for kidney patients. It's easier to take. So it's one small pill twice a day, 30-milligram strength and has a really strong clinical profile. And so we have seen patients that were outside of the target ranges set by the kidney community of -- which the goal generally speaking, is to have your mgs per deciliter of 5.5 or less. We have been able to get patients who have been outside of range for many years under control and within acceptable range. And we've had even anecdotal feedback of patients who once upon a time were not transplant eligible to suddenly become transplant eligible because their levels were within range.

Yes. So therapy is really serving an unmet need among patients. It can work in combination with binders as well as a monotherapy. So it's proven to be a very flexible therapy for physicians. And while our sort of initial cohort of patients were those that maybe had the highest level of phosphate binder, we believe that physicians are beginning to expand their consideration set to really any patient who may be intolerant of binders or who adding XPHOZAH may allow them to reduce their binder regimen or add on top. So the therapy has demonstrated we had an incredibly strong first year of sales at $161 million, and we believe it just demonstrates the unmet need among the patients and the continued growth opportunity in the future.

Got it. And do you have a long-term guidance of $750 million before peak. Remind us of when the IP expires and what's the trajectory to the $750 million in terms of duration?

Great question. So XPHOZAH has a composition of matter to August of '33, but it's a method of use patent extends until April 2034. As Kate alluded to, we did approximately $161 million in sales last year. That included Medicare patients as well. on January 1 of this year, the dialysis bundle took effect. Medicare patients are no longer revenue-generating prescriptions for us. And so we're having a little bit of a reset here in 2025. And looking at the total addressable population, again, there's approximately 550,000 end-stage renal disease patients on dialysis. 40% of them approximately are non-Medicare. So our total addressable market is approximately 220,000 patients. And it's our belief over time that all of these patients at some point are going to need pharmaceutical intervention for their phosphate lowering therapies. So we believe we can get a meaningful share of those 220,000 patients. So in our survey work prior to approval in our first year of launch and even now, we believe that we can achieve at least a 30% market share at least the project community believes that's kind of on average, what they think that they would prescribe to their patients. And so if we can make that type of penetration at our price point, we can get to that $750 million of net sales prior to patent expiry.

Understood. So I got you right, that the 60% Medicare patients are no longer accessible because of the changes in the reimbursement power.

They are no longer revenue-generating patients, but we built it as the right thing to do to make our drug available to everyone. And so our message hasn't changed from March 12 of last year to March 12 of this year, which is -- have the prescription writers, the nephrologist or the nephrologist office to send the script to our ArdelyxAssist, we will evaluate the patient's coverage. And should they be a commercial payer and that is a revenue-generating script, excellent. If they happen to be a low-income patient, and this was true last year as well. And they qualify, we will make sure the program is available through our patient assistance program to get them the drug as well as the mail order. And to the extent they're a Medicare patient before and another Medicare patient still, of course, in 2025, we want them to still maintain their medicine. We want the nephrologist to be agnostic the coverage of the patient. We want them to write the prescription for every patient that is clinically relevant than the benefit from. And so one of our tests that we've evaluated and Eric Foster, our Chief Commercial Officer, has really carefully analyzed is, okay, if you were a commercial patient in 2024 and you're a commercial patient in 2025, are you still getting the drug? And the answer is yes. Are you a new commercial patient in 2025? And are you getting the drug? And the answer is yes. If you are a Medicare patient in 2024, are you getting the drug? And are you getting it still in 2025? And the answer is yes. If you're a new Medicare patient in 2025, are you getting the drug? And the answer is yes. So we're very pleased with that our strategy is working. We want this drug to be available to everyone. Again, in honor of World Kidney Day. It's looking to do more early to make sure that everyone who could benefit from a drug and get it.

Wonderful. That's great. So you're definitely addressing one part of the equation, which is to ensure that patients don't lose access to the drug. The other part of the equation is on the company itself on mitigating the revenue impact. So how could you counter that? And what could you do to minimize revenue impact?

Sure. So we will, of course, a setback in 2025 with this reduction from Q4 of '24. But our goal, again, as I just mentioned, is to make it available to everyone and have the nephrologist keep writing. So it is a very large addressable market. We're only 1.5 years since approval. And so we need to just continue to have a nephrologist write the script. There's enough of a total addressable market that we believe over time, we will make it -- the revenue guidance long term.

And so to help investors understand this, is there any way you could share metrics ] around this retention of patients on XPHOZAH in 2024, with Medicare in 2025. So how can we kind of gauge this or understand this?

Sure. I mean, it's a little too early to tell specifically in 2025, we're only about 11 weeks into the year. The overall dialysis particularly around phosphate lowering therapies has been oral tumultuous because of the change that affects all patients, not just related to Ardelyx. And so we want to keep the nephrologist at the center of the decision-making and encourage the dialysis organization to let them know that our Ardelyx's drug XPHOZAH available through our Ardelyx program and to not worry about the other items. But in general, the space is having some challenges in getting their medicine because it's a new government decision where Medicare no longer includes the oral-only outside as a Part D benefit it has moved into a Part B benefit. And so that is a change for all of us that we have to navigate. And it's too early to tell on a specific basis.

Understood. Maybe shifting towards the pipeline side of things. Clearly, with 2 composition of matter patents expiring in 2033 for both drugs, with the patents expiring in 2033. I think you have to get started now to build the pipeline. So help us understand what's your capital allocation strategy. You called out a strong balance sheet. I see around $250 million in cash. So how would R&D be prioritized and BD be prioritized over with this kind of balance sheet structure.

Yes. Excellent question. So we've always tried to be thoughtful stewards of our shareholder capital. And so I think we've done a very good job over the past few years in getting us to where we are. And so we need to maintain that discipline in 2025 and beyond. So we aspire to build a great company. And to your point, we need to augment the pipeline. So we're going to look at internal innovations that we have that we, again, focused on the launch and growth of brain exposure for the last few years and appropriately so. And now that we have that in command and in control, and we have -- we're going to execute on those. The next step to do is to augment our offerings. And so we're going to have a very high bar to grow. So it has to be, again, an area of unmet need patient population that's underserved and an area where we think we can make a difference. And that will be probably renal adjacent or GI adjacent. We do have some assets internally that we have not developed yet for, again, capital reasons or priority reasons that now we're going to look to see if we can bring those forward. We're going to look at life cycle management to see if there's any opportunities there because tenapanor is an outstanding drug efficacious and safe, we know the profile. And we'll also look at external innovation. Again, we're going to have a very high bar. We're going to be thoughtful. And again, but we -- if it can be similar to what we've done before, we'll do it, but we're not going to do a deal just to do a deal.

Understood. And with the tenapanor approved in multiple geographies and as you think of expanding OUS, what are the time frames are you looking at and the investments needed for this? And what's the strategy?

We have 3 partners. So we partnered with Kyowa Kirin in Japan for hyperphosphatemia. It actually got approved a month before us in September of '23. They've been selling it for 1.5 years now, doing very, very well. We provide them with the product supply, tenapanor actually challenging to make. And so we actually do provide them with the drug and then they do their final packaging. We're happy for their success. It is unpartnered for IBS-C in Japan. It happens to be a large market for LINZESS, and that's a potential opportunity. We were proud that 2 weeks ago, our drug was approved in China with our partner, Fosun. So Fosun will be moving that forward. We got a $5 million milestone, and we have royalties between 15% and 20% of our sales for hyperphosphatemia. They also have the rights to IBS-C. They were focusing on hyperphos first. We are partnered with Knight in Canada, and they are selling it for IBS-C that was approved several years ago, and we get a modest royalty from them. Europe is unpartnered as is the rest of world. Again, it would take the right deal and the right partner. We want to be thoughtful about it. Again, echoing my business development comments. We would never do a deal just to do a deal. So we'd like the right partner to move this forward at the appropriate time. It is not a high priority for us. Again, the most important thing for us is driving the execution of IBSRELA and XPHOZAH and then following up with keeping a strong balance sheet. So if we can find the right partner that would fortify our balance sheet to go to our other initiatives, that would be great. But again, now that we have a business development team, we actually have the resources to look at partnering considerations, but it has to be the right deal.

Understood. With the time just running out, I think that's a great spot to leave this conversation at. Justin and Caitlin, thank you so much for your time and look forward to updates on your progress. And I wish you the best of the conference. Thank you.

Thanks for having us.

Thank you.

Thank you for having us.