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Overall thesis
Ardelyx (NASDAQ:NASDAQ:ARDX) is a biotechnology company specialising in developing novel small-molecule treatments with novel mechanisms of action. They currently have one approved product, Ibsrela (tenapanor) indicated for treatment of irritable bowel syndrome with constipation (IBS-C). Ibsrela was approved in the US in April 2022 but has been licensed to partners in Canada, Japan, and China, which should bring in solid revenues. Ardelyx has attempted to license tenapanor for management of hyperphosphatemia, although it has faced pushback from the FDA; a November committee meeting should indicate whether an approval is likely.
The approval on Ibsrela earlier this year means revenues have started to increase and their financial position is improving. However, they still hold significant debt and it may be some time before they turn a profit. Nevertheless, their product exists in a large US market and may be able to fulfil an unmet clinical need. If Ardelyx can effectively commercialize in the US, it may be in line for good growth in future.
One licensed product, a second on the way but no guarantee
Ibsrela
Ardelyx currently has one approved product, Ibsrela (tenapanor), a first-in-class therapy for treatment of adults with IBS-C, released in April 2022 in the US and Canada. Speaking at the HC Wainwright 24th Annual Global Investment Congress, CEO Michal Raab discussed the potential of Ibsrela in the US market. IBS-C is estimated to affect around 11 million patients a year in the US, accounting for an annual market of around $3 billion and around 5 million prescriptions written to help manage this condition. The three currently available competitors, Amitiza (Takeda), Linzess (AbbVie) and Trulance (Salix), all currently have effectively the same mode of action. However, many patients do not adequately respond to treatment and there is a need for a treatment with a novel mode of action, such as Ibsrela.
In clinical trials, Ibsrela met its primary endpoints of decreased pain and increased bowel movements, with data showing the benefit was maintained over 26 weeks, an important finding for chronic conditions such as IBS-C. As explained by Mr. Raab in the HC Wainwright talk, early market research found 41% of surveyed physicians had already prescribed Ibsrela, and 92% rated it as a substantial or moderate improvement over currently available therapies. Ibsrela, therefore, seems well positioned to increase its market share in the coming months.
Xphozah
The active ingredient in Ibsrela, tenapanor, has also been shown to have a benefit as a treatment for hyperphosphatemia. It has consequently been reformed into Xphozah, a novel treatment in development.
If Xphozah is approved, it would give access to a large market of physicians as a first-in-class treatment. There are over 550,000 patients with chronic kidney disease receiving dialysis in the US, 80% of whom require treatment for hypophosphatemia. The only current treatment for this is phosphate binders, and 95% of physicians asked expressed a need for new treatments. As Mr. Raab discussed in the HC Wainwright congress, this suggests strong revenue potential.
Xphozah was submitted to the FDA as a new drug application in June 2020, and although the data was accepted, it was not judged to have sufficient clinical significance and an approval was not given. This was appealed but again denied. In February 2022, this was appealed again to the Office of New Drugs, which said expert insight from physicians would be useful, and an advisory committee is scheduled for November 16, 2022. Whether this committee is positive of negative to Xphozah, there is no guarantee that the FDA will approve it for use either way.
Other pipeline products
Ardelyx has two other products in the pipeline. RDX013 is a novel therapy for hyperkalaemia that has just completed a phase II trial. While it was generally well tolerated and showed a proof-of-concept, it did not meet its primary endpoint of reducing serum potassium levels compared to placebo. The next step is, therefore, to adjust the formulation and run an additional phase II trial, dependent on available resources.
The other product is RDX020, a treatment for metabolic acidosis, is currently in preclinical trials.
Ardelyx is some time away from having any new products come to market; at the current time, accurate predictions cannot be made about the likelihood of these products coming to market, although they could be ones to watch over the long term.
Collaborations
Ardelyx holds exclusive rights to tenapanor in the US but has established partnerships with Kyowa Kirin Co. Ltd. (OTCPK:KYKOY) in Japan, Fosun Pharma (also known as Shanghai Fosun Pharmaceutical Industrial Development Co. Ltd) (OTCPK:SFOSF) in China, and Knight Therapeutics Inc. (OTCPK:KHTRF) in Canada. These collaborations could prove to be lucrative revenue streams. The latest quarterly report has shown the value of these partnerships, with some solid earnings from each agreement:
- Knight Therapeutics Inc.: Paid $2.3 million upfront for exclusive rights for development in Canada. In March 2021, commercial availability in Canada announced. Ardelyx may be eligible for another $17.2 million, with ongoing royalties eligible throughout agreement.
- Kyowa Kirin Co.: Paid $30 million for exclusive rights in Japan for cardiorenal indications. Ardelyx may be eligible for up to $55 million in total costs, of which $10 million has already been received. Another $62.3 million may be eligible throughout the agreement.
- Fosun Pharma: Paid $12 million for rights, may provide up to $113 million throughout the agreement; $3 million already paid, with tiered royalties for net sales up to 20%.
Risks exist from limited product options
Risks to Ardelyx stem from the need to effectively commercialize Ibsrela in the US. The first sales were realised in March 2022, but they must continue to solidify their position and establish a base of customers to build their presence and maintain a revenue stream. This risk is mitigated somewhat by the global collaborations and the licensing revenues these should bring in.
Another risk would be failure to achieve approval of Xphozah, which probably depends on a positive outcome from the November meeting.
With the only other pipeline products some time away from being brought to market, Ardelyx currently depends fully on the success of Ibsrela in the US and the licensing deals with other companies.
Financials
As Ibsrela was only recently approved, Ardelyx’s revenues have started to improve but the company is still operating at a loss, but one that is declining. The net loss in the six months ending June 2021 was $78,344,000, which fell to a loss of $55,009,000 for the six months ending 2022. This corresponds to a net loss per common basic and diluted share of 0.79 and 0.40 for the six months ending June 2021 and June 2022, respectively.
Their quarterly report lists cash and cash equivalent at $53.4 million in June 2022, down from $72.4 million in December 2021. Their investments amount to $27.6 million in June 2022, down from $44.2 million in December 2021, putting their current cash and investments at $81 million.
The latest quarterly operating expenses were $28.7 million, and losses from operations were $26.2 million, giving estimated gross and net quarterly cash burn rates of 1.86 and 2.04 quarters (not including the cash held in investments). Ardelyx, therefore, has a reserve of around half a year. Revenues should grow as Ibsrela becomes further commercialized, but a longer reserve would be generally preferable.
Current long-term debt amounts to $26.37 million as of June 2022, down from $32.26 million in December 2021.
Ardelyx’s latest quarterly report states that their “current level of cash and investments alone is not sufficient to meet [their] operating plans for the next twelve months”. They also accept that they expect to continue to incur losses for the foreseeable future as they continue to commercialise Ibsrela and work on getting approval for Xphozah. The report also states they will require substantial additional financing for the foreseeable future to support investments in their commercialisation and approval processes.
Conclusion
Ardelyx remains loss making, and with no guarantees for Xphozah approval and other pipeline products a long time from coming to market, its success depends on effective commercialization of Ibsrela in the US and continued licensing revenues from overseas. They are in a relatively strong position to tap into a large US market. Ardelyx could be a quiet growth company if it can continue to grow its revenues, but the need for increased debt and questions about sufficient cash makes this a more speculative position.
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