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

Thank you. Thank you. Great. Good morning, everyone. My name is Bob Klingenberger. I'm with Morgan Stanley. Before we start with the Ardelyx team, which we're very excited to have here, I just want to direct everyone to our research disclosures at morganstanley.com/researchdisclosures. And if you have any questions, reach out to your Morgan Stanley representative. I am very excited this morning to have Michael Raab, CEO, and Sue Hohenleitner, CFO from Ardelyx joining us. So welcome. And, you know, I think just to kind of kick things off, Mike, maybe starting with you. You know, obviously the company has—there's a lot that's happened over the last couple of years, um, uh, moving commercial stage and launching 2 products. Maybe just to start us off, how would you characterize where the company stands today and reflecting on some of the progress over the last couple of years?

Sure. Bob, thank you, and thanks, Morgan Stanley, for inviting us today. It has been certainly a journey for all of us getting to where we are. And I guess the way I describe where we are in our journey is what we all aspire to do, right? We ultimately get into this business to develop drugs and ultimately help people who have needs that are not being met by the current medicines on the market. We have the good fortune of having 2 on the market, 1 for IBS-C, Ibsrela, and the other for hyperphosphatemia for patients on dialysis, Xphosa. Um, and, you know, we are on a path right now to generate, this year, um, close to half a billion dollars of revenue. Um, we, as we've said in our last earnings, we are on a path to be profitable in 2027. And with that cash that we're going to generate is going to be the next evolution in the chapter of Ardelyx as we in-license and look at extending the life cycle for particularly Ibsrela when we're running. We're running our Chronic Idiopathic Constipation trial. And the reason we're doing this work is that you look at the intellectual property that we have built. We have a runway now to 2042. So the ability that we have to create additional value for both of these programs is evident and and the investments that we're making. So we're just at the start, frankly, if you look at 2042 being the timeframe before we have expiry of our intellectual property, there's a lot of time to build substantive value and help the many, many patients, both with IBS-C and with hyperphosphatemia.

Yes. And you mentioned your guidance for the year and the strong ongoing demand for both Ibsrela and Xphosa. Maybe just talk us through some of the comments you made in your last earnings around the payer environment and how you adjusted some of the recent guidance.

Yes. So I'll ask you to comment on this as well. But 1 of the things when launched as we said there is going to be an opportunity coming for negotiations and discounting to payers. We started without it because frankly, as we described, we could have given every single penny of profit away and not had a better position which was non-formulary, non-preferred. We have now gotten noticed. And I think that was really the genesis of the of the re-guide that we did earlier this year was based upon the pressures that payers do, that's their job and the business that they're in, they're putting hurdles in front of patients in order to get a prior authorization approved. And just based upon those dynamics, as we looked at it, we felt it was a responsible thing to do, to back off from the guide that we do, reframe, the business as it was going forward as we start this process with our payers. And feel very good about the guides that we've given, both for Ibsrela and Xphosa, and the opportunity ahead soon.

Yes, I mean the only thing I'd add is, you know, the guidance for the rest of the year doesn't reflect that any of those payer pressures are going to be eased off. So, you know, we know that these talks take a little time, and, you know, we'll look to do something in '27 likely, but we have started the talks. And I think really, as Mike said, what we want to do is make sure that patients and physicians can prescribe and know that their patients will get the product.

Yeah. And I think importantly as part of that, right, you talk, you sort of, you know, maybe specifically on Ibsrela, right, the sort of $1 billion, greater than $1 billion kind of peak guidance. Maybe just help, you know, walk us through kind of the funnel to get down to that number and, you know, how, you know, kind of the different components giving you confidence and.

in that longer-term outlook? I mean, I'll start in terms of the financial piece of that. When we think about our guide for this year and the revision of $350 million to $370 million for Ibsrela, that represents at the mid about a 31% growth rate. And so when you think about the path to $1 billion, initially in '29, that would have assumed about a 38% CAGR. So we knew right now growing at 30% to be able to grow at 38 just felt like that's a little much right now without a huge catalyst. Obviously, CIC is a great catalyst, but not something that's going to really measurably impact '29, just given when we expect approval. So we decided let's decouple the timing with the billion. We still firmly believe in the billion. It just may be a little bit longer.

And I think also for the context is the hurdles are ultimately at the bottom of the funnel, and the demand at the top of the funnel is incredibly strong. I mean, what we hear from the field and prescribing physicians, we get 0 pushback on the clinical value proposition on any of the things in the benefit it provides the patient, which is 1 of the reasons we've also put in place the beginning of the program, of the Ibsrela Pharmacy Network, the IPN as we refer to it. And the reason we do that is if you look at where the vast majority of IBS-C prescriptions historically have gone through is through a retail pharmacy. And I don't know if you've been in a retail pharmacy recently, but if you look at it, roughly 90% of their prescriptions are generics. They are not set up given the amount of time it takes for prior authorizations. So to move our prescriptions out of retail and into the specialty network allows for a higher touch. Our data says that there's at least 1 to 2 additional prescriptions that are filled, that go through the IPN versus retail. So it's a strategic move that, frankly, had I to do it over again, we probably would have only launched with a specialty pharmacy network because of the high abandonment rate through the funnel of scripts that go through retail. So there's, in the dynamics that are happening in our business, the need for any new drug that has a kind of value proposition in a space that has an incredibly successful set of competition like Linzess, that is retail. You need to have a strategy where you begin to have that high touch. Prior authorizations for new medicine is just the name of the game. And retail is not set up for it. So the IPN is a huge part of it, and that transition from retail into the IPN is also part of the genesis of the re-guide that we made.

Yes, I think, Mike, I've heard you in the past, I think, kind of talk through to the kind of the broader market and how many patients and kind of what is, you know, what does $1 billion kind of more or less mean? Right. If you look at...

The IBS-C indicated market is roughly 8 million prescriptions written a year. So it is an incredibly sizable market. The epi on it is roughly 13 million people in this country have IBS-C. For us to get to $1 billion, it's south of 10% share, right? So it is a relatively small share to get to that billion. It is actually, as Sue pointed out, it is the growth rate that had us back off the timing of the billion, not the absolute number, because of these challenges that the paying environment puts in place. Our job is to eliminate that friction as much as we possibly can. Now, we could give every penny away of profit, which we obviously would not do. And we would not have a much better position than we have now, simply because the volume of, whether it's generic Lubiprostone, or where we are with Linzess in terms of the price, they cut their WAC price in half in the fourth quarter, and they've done their IRA negotiations. So it is a basically generic market that we're competing against. So that's the dynamic. And for us to get to the billion, as you look at it, is less than approximately 10% of the market share thereabouts. Get us to that $1 billion. And I think as we've shared before, of those writers, there's probably 200,000 writing HCPs. We call on the top 50%, which is only 14,000, right? So that's why we have a sales organization of roughly 144. It's about 100 HCPs per salesperson. And that's the way we've scaled it, is to call on that 50%. Because the other 180,000.

2000, we're not going to call on those. Yes. And you made reference, right, to just the broader IBS-C market. You know, it's obviously a competitive space. And, you know, so as you're positioning, you mentioned some of the, you know, kind of the plan on the Salesforce side, but as you're positioning, right, Ibsrela with physicians and patients, you know, what are kind of, what are some of the key kind of differentiator and just in terms of kind of that go forward. You talked a little bit about the specialty pharmacy network, but just kind of go forward commercial.

I mean, it's interesting. If you look at the history of IBS-C, it is basically 1 class of drugs historically that's been in secretagogues. You have the 2 GCC agonists, then you have Amitiza. So 1 very basic difference between us and all those others is a different mechanism of action, or an inhibitor that blocks NHE3. So that's 1 important thing. But what does that actually mean practically for the patient? If you look at the pain benefit, and the differentiation between chronic constipation and IBS-C is pain. You're our physician, Sue and I come into your office, I'm constipation without pain, Sue's with pain, I'm Chronic Constipation, which is why we're doing the CIC trial and IBS-C for Sue, that is the differentiator to understand 1 reason why we're doing the CIC trial but why for IBS-C the benefit that we have in pain is so critical if you look at our endpoint. Our clinical trial was a first-line therapy trial. We had some patients that had previous experience with the secretagogues, but most were naive. But given we knew how we would be positioned in the market by the payer world, we have taken a position of second, third line therapy after those other products have been used.

We also know over 70% of patients who are on a sort of secretagogue end up not being satisfied or not working. So then that is really our market because we aren't competing in first line, we are getting those failures or those people that need it.

Yes. And maybe just sticking with Ibsrela, you mentioned the patent out to 2042, you know, on the formulation. You know, I guess, you know, as you think about kind of, you know,

the path from here to a billion beyond, kind of what are driving those growth opportunities as you think about obviously capturing more share, but just kind of more specifically on what's driving it? I think there are a couple of important levers to think about. One is, as Sue pointed out, the failures on the GCC agonists. And even with the new steps that are in place with people going back to Luby, those patients will ultimately fail. Sadly, we know that with the secretagogues, the vast majority of patients are ultimately going to be unsatisfied with the therapy that they're being given, and that's where Ibsrela fits. So for us, it is 1, making sure that the physicians and the HCPs understand that their patients will ultimately be dissatisfied with the current therapy that they're on, 2, that there then is a choice. And we get 0 pushback in terms of clinical benefit and the proposition that we provide. Third, if you put your prescription through the Ibsrela Pharmacy Network, the probability is orders of magnitude higher that it will get filled. So it's a change of habit where these physicians, the HCPs, are accustomed to writing a script to retail for an IBS-C drug. So it's a change of mind that we are working on to help them understand this is a specialty drug. These are for people that need to be treated better, differently than they historically have. And going through retail and going through GPOs is insufficient. So you need to change the frame of mind to say, OK, now I need to treat these patients differently, similar to the way they do ulcerative colitis or other things within their offices, which So it's actually a mind shift that we're in the midst of working through to say, now put your patients through. Um, you're going to have far greater certainty that not only would get the first script filled, but then subsequent refills. Because especially pharmacy will remind you, do all those things, it's a higher touch approach. And as we make that transition over the ensuing months, that's going to be an important differentiator between us and the other products.

Yes. And when I think too about, just to add about the entire life cycle that we have, you know, we are going to be continuing to allocate capital towards life cycle management because we have that long runways.

So it's something that we're doing as part of our life cycle, as part of our capital allocation plan.

Yes, and that was actually my next question, where you mentioned, briefly the CIC study you're running, the Excel study. Maybe just kind of remind us all the genesis for that, obviously beyond just the 2042, but the unmet need and then the trial that you all are running.

Yes, I mean, I'll start, but basically,

all of the other, uh, secretagogues are approved for both IBS-C and CIC. So when you think about going into a physician, as Mike said before, if 1 of us has pain and the other doesn't, the physician doesn't have to think about it. And so for us, it's we can pursue that indication now just to continue to make it as easy as we can for a physician who's not sure whether pain or discomfort might be included with the with the constipation. So, um, something we we could have done before if we had the the capital, and I think now that we we do and we can do that study, it's great. So, you know, we're enrolling now, we are going to do a readout mid-next year and go from there.

And for us, the confidence in this, Bob, is we're all treating constipation. If you look at IBS-C, it is made up of constipation and pain, as I said. So we know what the response rate is, and that was the basis of the design of our CIC trial, was the benefit that we see in the constipation component of IBS-C. If you look at the evolution over time of how the treating world considers chronic constipation for IBS-C, it used to be 2 pretty distinct groups of people. The reality is they really overlap. It's more than a Venn diagram because you have chronic constipation people that will move, if they're not treated, into IBS-C. You have people on IBS-C. That their pain is taken care of, but then they become constipation. So they go back and forth. So it is actually a far more fluid indication between the 2 and the fact that we don't have the ICD-9 code. We don't have the indication for CIC. It makes it an extra step for the physician to say, oh, gee, I have to write down the ICD-9 code only for IBS-C, because if I do CIC, it will not get through prior authorization unless there's a lot of work on the part of the treater.

So, you know, in terms of just sort of the incremental patient opportunity, you know, CIC, how big, you know, relative maybe to IBS-C? It is a. It's about a.

It is a huge market. It's massive, right? So it's about, compared to the 13 million IBS-C, the epi in CIC is roughly 30 million people. Now, the vast majority of those patients are treated well through over-the-counter medications, right? So then you have to take a significant haircut there. But those patients with chronic constipation that are actually going to their physician, they're not getting satisfied by over-the-counter medications. So they need a prescription medicine. So is that roughly about the same size as IBS-C is kind of the way I think about it. Yeah. It's hard if you look at the data for Linzess in particular, they have 2 lower doses that are indicated for CIC. The realities are physicians use for IBS-C the lower dose, for CIC the higher dose. It's hard to use that. It's the best proxy that's out there.

out there, and it would tell you this roughly the same size. Yeah. And it's really to your point, to be able to be used for both patient sets as they present. Exact. Right. Yeah. Maybe just, you know, kind of shifting for a moment to Xphosa, your your second product. I think there was, there's been a lot of, I think questions, and you all have obviously talked about this a lot in terms of reimbursement and what you put in place for that program. Maybe just, kind of give us the latest on where that stands for Xphosa today.

Yes, I mean, taking a step back from it is I've been in the business for the better part of 25 years in developing and commercializing. drugs for hyperphosphatemia for dialysis patients. It is really a hidden population, although all of us live within an average of a dialysis center, most of us don't know that, is there's 550,000 people in the U.S., excuse me, that are on dialysis. And 1 of the things that they have to deal with when their kidneys no longer function is phosphorus. Phosphorus is something with functioning kidneys none of us hear about or think about, but it is an independent predictor more morbidity and mortality in that patient population. We lose 20% of dialysis patients per annum. And so for us, the ability to provide a medicine with a new mechanism, has never had anything but binders, is a critically important thing for the well-being of those patients. So when we were launching the medicine, you know, 1 of the challenges in dialysis is you do end up potentially being in a government-bundled system for payments. We know for new innovative drugs it is a short life for those medicines because once they finish a period of time when you get qualified to go into the government payment system, the drugs go away. Very good medicines have disappeared that would help these patients. So we made the decision, and it's a controversial 1 and provided challenges for everyone to understand is we would not go into that system. And what that means is the Medicare population, which is roughly 60% of the patients on dialysis, no longer have the same sort of access in terms of through insurance. We have a patient assistance program for those that qualify can get it, but we focus on the Medicaid and the commercial sectors of that patient population, which is 40%. So we focus our commercial efforts or our sales efforts around those 2 areas. And from there is where we've generated all the revenue that you've now seen, um, since this began in '25. We're coming to the end of what's referred to as the TDAPA period, of that period of time to qualify to be paid for under the government system. And I think that will change some of the dynamics for the prescribers, the dialysis organizations and their engagement with us and Xphosa. That will begin in '27. So part of what we did at the same time as we re-guided for Xphosa is we said, hey, listen, with the dynamics that are happening out there, including now a quality measure which is never been in there in my career of how well you as a dialysis organization are doing in managing phosphorus, that quality measure could be a tailwind. That could help engage physicians, the DOs, dialysis organizations to do a better job than historically has been done in managing phosphorus. So that's a good thing. But the dynamics as you look at other potential competitors that may or may not choose to play in that system getting the government payment may add additional confusion and challenges in the market. So we felt it was prudent to step back from the $750 million and say, we'll come back to you once we see what those dynamics look like, both tailwinds and headwinds, um, to give you the street, both from an investor from sell-side as well, an understanding of what that dynamic looks like, because it is confusing. It is a different thing, there's no real proxy for what it is that we're doing. And help us help them to better understand the market going forward.