Ardelyx, Inc. (ARDX) Q2 2022 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Ardelyx's Second Quarter 2022 Conference Call. [Operator Instructions]. As a reminder, today's call is being recorded. I would now like to turn the call over to Justin Renz, Chief Financial Officer of Ardelyx. You may begin.

Thank you, and 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 in the Investors section of the company's website at ardelyx.com. On the call with me today are Mike Raab, President and CEO; and Susan Rodriguez, Chief Commercial Officer, with prepared remarks. Dr. Laura Williams, Chief Medical Officer; Dr. David Rosenbaum, Chief Development Officer; and Rob Blanks, Chief Regulatory Affairs and Quality Assurance Officer will join us for the question-and-answer period. 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 quarterly report on Form 10-Q 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 view should change. And with that, I will pass the call over to Mike.

Thank you, Justin, and good afternoon, everyone. It is a great pleasure that I provide you an update on our progress since our last call. First, for IBSRELA, I'm pleased to report that we continue to make great progress in our launch, laying the foundation for growth and meaningful market penetration of this important product. During these first 3 months of launch, the commercial team has made significant inroads in building demand for IBSRELA. Physicians are enthusiastic to have a novel drug added to their IBS-C treatment armamentarium and are responding favorably to the IBSRELA first-in-class mechanism and clinical data. Integration of IBSRELA into already-established processes across GI offices is driving favorable prior authorization approval rates, thus enabling patient access for IBSRELA. Awareness and intent to prescribe the IBSRELA is growing with well-coordinated scientific engagement and education, our high-impact sales force efforts and broad-reaching Omnichannel initiatives. Susan will provide more details on the momentum we are building and why we are excited about the important role that we believe IBSRELA will play in the treatment of IBS-C. Turning briefly to XPHOZAH. As we announced in June, we received notification from the FDA that they will convene a cardiovascular and renal advisory Drug Advisory Committee, technically scheduled for November 16 to gain additional insights into the clinical meaningfulness of the phosphate-lowering effect observed in our Phase III clinical program for XPHOZAH. We welcome this advisory panel as it will allow the FDA to receive input from treating clinicians to get a better understanding of their perspective on the clinical meaningfulness and significance of the phosphate-lowering effect observed in our clinical trials at XPHOZAH. There is strong support within the nephrology community for XPHOZAH, bolstered by their belief in the importance of the need for novel mechanism therapies for the treatment of hyperphosphatemia. We are prepared for the AdCom with the goal of demonstrating the important role XPHOZAH can play in advancing the management of hyperphosphatemia for patients with CKD on dialysis. We are driven by [Technical Difficulty] and stockholders and know that execution in operational excellence is imperative to our success. We take great pride in our accomplishments across our programs, especially in such a tough life environment. We continue to exercise prudent cash management, and we've undertaken multiple steps to bolster our balance sheet and raise non-diluted capital. In April, we announced an amendment to our license agreement with Kyowa Kirin or KKC, our partner in Japan for hypophosphatemia, which may provide us up to an additional $40 million payable in 2 tranches in return for reduced royalties. The first tranche is expected within the second half of this year, following KKC's mission of its application to market tenapanor in Japan. The second tranche is expected within the second half of 2023, following KKC's receipt of regulatory approval to market tenapanor for hyperphosphatemia in Japan. In addition, last month, we announced that we had further monetized -- under the remaining royalties due to us from KKC, under which we may receive up to an additional $20 million. Under the agreement, we received a $10 million upfront payment. And additionally, we expect to receive $5 million following KKC's receipt of regulatory approval to market tenapanor for hyperphosphatemia in Japan, and $5 million in the event net sales in Japan exceed a certain annual target level in 2025. In return, Healthcare Royalty Partners will receive the royalty payments and commercial sales milestones that may be come to us under our agreement with KKC. In summary, we see ourselves as a highly differentiated revenue-generating biopharmaceutical company. We are in the early phases of launching IBSRELA, an important advancement for the treatment of IBS-C. We have an opportunity ahead of us with the November 16 Advisory Committee meeting to advance our formal dispute resolution process and demonstrate to the committee of the meaningfulness of XPHOZAH phosphate reduction. We have a pipeline of 2 internally discovered candidates, which include RDX013 for hyperkalemia and RDX020 for metabolic acidosis and we have a strengthening cash position. This unique position is a result of our dedicated, tenacious and talented teams across the company. It is evidence of our vision, our science and our belief in the drugs that we've created, coupled with persistence and a laser focus on the execution of our strategies. Now I'd like to pass the call to Susan to provide an update on the launch of the IBSRELA. Susan?

Thanks, Mike. We are 3 months into the launch of IBSRELA, and I'm pleased to report early and solid progress across a number of key launch parameters that are good proxies for future market penetration and revenue growth. Our on-market experience is confirming the need for new options to treat IBS-C, the role IBSRELA can play to address this need and the extent to which a significant subset of currently treated IBS-C patients are seen as candidates that can benefit from IBSRELA therapy. First, our access and reach with prescribers. Our sales force is mobilized and making good headway securing face-to-face meetings with top prescribers. These sales efforts are further amplified by omnichannel tactics targeting new type prescribers, leveraging the rapidly advancing marketplace dynamics on how and where HCPs receive information. As of month 3, our sales force has reached 56% of the highest riding GI with 87% of our target GIs reach at high intensity levels through our omnichannel digital tactics. Second, physicians are responding favorably to the availability of IBSRELA and confirming that a meaningful subset of their existing patients are in need of a novel treatment approach. We are positioning IBSRELA as a first-in-class NHE3 inhibitor with a triple action to treat IBS-C, emphasizing its differentiated mechanism of action and clinical data that demonstrate significant improvement in abdominal pain, bloating and constipation with a quick onset of action, sustained efficacy and an acceptable safety and tolerability profile. In addition to the ramp-up of our promotional efforts, visibility of IBSRELA across scientific forums during our launch quarter is also noteworthy. The American Gastroenterological Association announced their updated clinical practice guidelines on the pharmacological management of irritable bowel syndrome with constipation in May. Within a month of our launch, the updated guideline includes IBSRELA for the treatment of IBS-C. In addition, Ardelyx had a strong commercial and scientific presence at Digestive Disease Week, the largest annual gastroenterology meeting that was held in May in San Diego. The meeting included poster presentation of long-term data demonstrating the impact of IBSRELA on abdominal pain and other abdominal symptoms, effective IBSRELA on treatment satisfaction, degree of relief and quality of life and early onset of action in treating symptoms of irritable bowel syndrome with constipation. IBSRELA is gaining visibility across the medical community and the product's favorable reputation is growing across the GI community. Findings reported by the independent syndicated launch tracking research published monthly by Spherix Global Insights who have selected IBSRELA as one of the key launches in the GI space to follow, indicate that our promotional efforts and medical presence is having an impact. Spherix reports that as of month 3, 66% of GI's report unaided awareness of IBSRELA, 41% report use of IBSRELA and 92% of those surveyed rate IBSRELA as either a substantial or moderate advance over currently available therapy. Percent of patients considered to be candidates for treatment with IBSRELA was reported at 31%. A third team launch parameter centers on the office submission of prior authorizations to enable patient access to IBSRELA. Offices are integrating IBSRELA into their practice processes, working through their already established preferred specialty pharmacies or through Ardelyx Assist, our patient services program to access IBSRELA for their patients. Our early results demonstrate that we are altering IBS-C prescribing habits, practice by practice based on the fact that treatments have been limited and IBSRELA as a differentiated therapy option addresses an important patient need. HCPs and their office teams recognize the need to submit prior authorizations when they prescribe IBSRELA and are motivated to do so since the patients they believe can benefit have already been treated with existing treatment and meet the prior authorization requirements. Our distribution network further support office practices for handling specialty product prescriptions. We are pleased to report a newly established agreement with BioBridge, a specialty wholesale distributor with a comprehensive network of over 200 specialty pharmacies to support the distribution and dispensing of IBSRELA. Additionally, IBSRELA is stocked across all major wholesalers who also supply independent specialty pharmacy. Securing direct agreements with large GI group in-house pharmacies is also ongoing. Turning to a fourth key launch parameter, market access. I'm pleased to report that outcomes in our first quarter of launch have exceeded our expectations. We are finding early in our launch that there are many patients who have been treated with the limited therapies available have been in need of alternative mechanism option and until the launch of IBSRELA have had an unavailable. As a result, we are finding that patients prescribed IBSRELA commonly meet payers that added prior authorization requirements and therefore, are yielding favorable PA approval rate. Additionally, our co-pay assistance program that can be accessed by patients with commercial insurance, combined with the reasonable out-of-pocket requirements for certain segments insured by government payers makes IBSRELA affordable for many patients. And those who cannot afford IBSRELA are eligible to apply for patient assistance and can access IBSRELA at no cost if they meet the eligibility criteria. The access and affordability dynamics we are seeing early in this launch are promising early signs that will build uptake momentum. The fifth and last key launch parameter I would like to highlight is among the most important. Physicians are reporting positive feedback regarding their early treatment experience with IBSRELA, telling us that IBSRELA is working well and provided a much-needed new option. The month 3 Spherix readout date that 41% of the physicians that have used IBSRELA report moderate satisfaction and 59% report high satisfaction. In summary, our first launch quarter was characterized by advances on multiple fronts that made deep inroads in laying the groundwork for revenue growth. Physicians are recognizing patient needs for IBSRELA where there has been limited options historically. Physician offices are motivated, willing and experienced in navigating prior authorization requirements. The pool of patients who meet the prior treatment requirement is sizable, patients are gaining access to IBSRELA, and physicians are reporting satisfaction with their early experiences. We look forward to keeping you posted our activities and progress toward realizing the market potential for IBSRELA. I will now turn the call over to Justin to review our Q1 2022 financials. Justin?

Thank you, Susan. At the end of the second quarter of 2022, we had total cash, cash equivalents and short-term investments of $81 million as compared to total cash, cash equivalents and investments of $116.7 million as of December 31, 2021. In our first quarter of launch, net product sales of IBSRELA were approximately $1.6 million. When combined with our launch prestocking revenue shipments we made in late March, we're at just over $2 million of net product sales as of June 30. Research and development expenses were $9.7 million for the quarter ended June 30, 2022, a decrease of $16.3 million or approximately 63% compared to $26 million for the same quarter last year. This decrease in our R&D expenses is primarily the result of lower clinical study costs from the OPTIMIZE study, lower tenapanor manufacturing expense as we have begun to capitalize costs associated with IBSRELA inventory and lower expenses following the elimination of our research function in the fourth quarter of 2021. Selling, general and administrative expenses were $18.9 million for the quarter ended June 30, 2022, a decrease of $1.3 million or approximately 6% compared to $20.1 million for the quarter ended June 30, 2021. The decrease in selling, general and administrative expenses was primarily due to the timing of costs associated with preparing for and carrying out the commercial launch of IBSRELA. The net loss for the quarter ended June 30, 2022, was $26.9 million or $0.19 per share compared to $45.2 million or $0.45 per share for the same quarter last year. We recognize the importance for us to maintain a strong balance sheet and cash position. We are pleased to have completed reporting transaction in the second quarter, such as the KKC license agreement amendment and the HCR royalty tail financing that have the potential to provide us with significant nondilutive capital. We will continue to pursue all efforts to strengthen our balance sheet and exercise judicious cash management. As a follow-up reminder to Mike's earlier comments, we now have the opportunity to receive up to an additional $70 million in nondilutive capital over the next 16 months based on the potential advancement of tenapanor for hyperphosphatemia in Japan. We have confidence in our ability to continue to fund our operations. I will now turn the call back to Mike for some concluding comments before we open the call up for questions. Mike?

Thanks, Justin. In our first quarter call, I highlighted the exciting and transformational time for Ardelyx. We are evolving into an impressive growth story with many opportunities ahead. As we report on our significant progress and momentum in the second quarter, those words could not have been more prophetic. Before I open the call to questions, I'd like to emphasize a number of points. We are committed to our efforts to drive significant progress on the commercial front with IBSRELA. Our continued focus on launch execution supports and is facilitating the markets embrace of this new treatment option and is already driving change in the treatment practices for patients with IBS-C. The positive response we hear from early adopters of IBSRELA and the role it can play in treating patients with IBS-C further convinces us that the importance of this critical new medicine. As is the case in the launch of any new product, there continues to be work ahead on continuing to build upon this early momentum. I want to emphasize that I have tremendous confidence in IBSRELA, what it can bring to patients with IBS-C and a spectacular commercial team that Susan has built and their ability to meet our corporate objectives. The opportunity for us with IBSRELA is significant as it provides clear line of sight to financial breakeven. Finally, as we look forward to making the case for XPHOZAH to the FDA's advisory committee meeting in November, we believe that it will be an essential treatment for patients with CK on dialysis with hyperphosphatemia. We look forward to keeping you apprised of our progress. And with that, I will now open the call to questions. Abigail?

[Operator Instructions]. Our first question comes from the line of Chris Howerton with Jefferies.

Great. Well, congratulations on the strong numbers so far from the launch. I think maybe just a few questions as it relates to the launch and then one on the pipeline, if you don't mind. With respect to the launch itself, wondering if you could describe to us the nature of the scripts that you're seeing thus far? I mean, are they -- my assumptions would be that they would mainly be from patients that are dissatisfied with currently available treatments. So like second line or refractory patients, perhaps we would call them. And then as it relates to the doctor's offices, how often are you seeing instances where there's multiple scripts or patients being treated with IBSRELA by the same doctor office? And then third, just kind of like housekeeping question as it relates to the launch would be how well do things like IQVIA track everything thus far?

Sure. So first, I think we're -- as I said, even in the first quarter, discussion is that we're still in the anecdotal phase of this. But I got to tell you some of the stories that we hear coming from the field of sure there's plenty of patients that are tough to treat who have been trying to find relief for years and have been unsuccessful with the therapies that are out there. And we got these comments of patients when the physician comes in after the trial of using IBSRELA and they're crying because they've never had relief like they have experienced with IBSRELA. So it's very heartening and not surprising that the difficult patients who have not been responsive to other therapies are the first ones that physicians want to seek to find relief. Let me pass it on to Susan to further that and talk about what we're seeing in terms of refills and multiple scripts written and sort of how that experience is beginning to emerge.

Thank you, Mike. Thank you, Chris, for the question. I think one thing to point out, you used the term second line or refractory. But what we're really seeing on the ground as we -- in our first 3 months of launch is that physicians are feeding back that they have really had a need for an alternative approach for novel mechanism approaches. What we hear from them is that they consider IBS-C to be a condition of multifactorial pathophysiology. And I think people haven't realized truly, when you look at the IBS-C market to date, it's actually a market with rather limited option. It's an uncluttered market. There's a really limited number of options, all that work through basically the same mechanism. So what we're finding in terms of the patients that are being selected is that physicians are telling us that these are all highly symptomatic patients, they communicate their symptoms to the physicians, and they've been doing that for quite some time. So those are the patients that are being treated with IBSRELA, patients that the way the physicians characterize to us are patients that are in need of normal approaches. And what's very encouraging in terms of its early signs in our launch is that this group of patients really seems to be quite sizable. As I noted in the narrative, the Spherix data tells us that the physicians surveyed report around 31% of those patients are considered to be candidates for treatment with IBSRELA. I think in terms of the repeat scripts and retails, et cetera, we are clearly seeing some nice refill rates moving forward, but it's still very early. I think what's important to note is in these first 3 months, we've really hit some key parameters in terms of integrating into office prior authorization practices get -- they're having early favorable experience with prior authorization approval rates and they're having early favorable experience with the treatment of IBSRELA. So all these things are happening as we speak. It's still early. And clearly, we see opportunity moving forward for these practices where we have built a foundation and we're established to grow the number of patients that they're using IBSRELA with. And I think your last point around IQVIA or Symphony, it is very interesting. You know it's always challenging early and launched based on the capture rates and the projection methodologies that actually differ between IQVIA and Symphony and are not completely transparent. But what we find -- directionally, they give us some sense of our growth trajectory, but really, one, probably which one is closer to the actual, we really can't tell you right now, but they -- directionally, they are somewhat informative.

Our next question comes from Matt Kaplan with Ladenburg Thalmann.

I guess focusing on the IBSRELA launch, are you doing any sampling or is there any free drug that you're giving away at this point?

Yes, Susan?

Yes. Yes, we are sampling all of our key target offices. So that is typically how the physicians like to trial IBSRELA, they start with the samples before they then see that they're responding well and move forward with the prescription. So we are having a very smooth uptake process from that perspective. And the other thing we offer through our patient services program to the extent that there is a delay in payer approval of the PA, which we're actually seeing them go through pretty quickly, but in the event where there is any delay, we can offer the patients on bridging products. But that is -- that represents the total offering for the patients to try to make it the smoothest trial process, get the prescription filled and make sure that the patient can access IBSRELA.

Okay. Great. And then assuming there's a positive outcome for the AdCom, what are the next steps after that? And what's the path forward to potential approval?

Sure. A couple of comments, and then I'll ask Rob Blanks, our Chief Regulatory Officer, to comment on the process, is that it depends upon what comes out of the AdCom. It could be a shorter 2 months. So we don't have an NDA on file. So we have to refile. It could be 2 months or it could be 6 months depending upon what the outcome would be for the trial. Rob, anything to add?

No, not really, Mike. Just obviously, this is part of our appeal process once we have the AdCom and the O&D then has 30 days to respond to us. If our appeal is granted, as Mike has said, we have to resubmit the NDA.

Work is being done on that now that we're as prepared as possible, just resubmit that once we hear back from the FDA.

Okay. And at that point, they either grant you a 2-month or a 6-month review, is what you're saying?

That's correct.

[Operator Instructions]. Our next question comes from the line of Peyton Bohnsack with Cowen and Company.

This is Peyton on for Joe. Congratulations on the strong launch. I guess the first one from us would be kind of in terms of the IBSRELA launch. How many of the like -- once you get to a certain number of these high-level prescribers that you guys are first targeting with your sales force, is there another tranche of subscribers that you would go for? And what would be like the key metrics that you guys would look at to kind of go on to that next tranche? And then, I guess, kind of more broadly, what is kind of like the main thing that you're looking at launch to kind of determine success?

Yes, Susan?

So yes, we -- as we had mentioned before, our whole go-to-market strategy is very much centered on a targeted approach because there is a concentration of writers that account for 50% of the total scripts in IBS-C. And that is where we're focused with the opportunity for IBSRELA, and that is a population of less than 10,000 HCP. So as you have mentioned, in our early stages of launch, we're very focused on the highest writing physicians in that context. However, we are continuing as we get IBSRELA established in the practices and the writing of IBSRELA, demonstrating the favorable access rates definitely expanding our reach across that target audience. So that is the intention. And over time, can continue when ready to add resources. We are finding early in the launch that it truly is a promotion-sensitive market, when our sales reps have the face-to-face time and work with these offices, we are seeing productivity of prescriptions. So we are on pace to hit the target we talked about and with an understanding that we can continue to earn out and build up our reach across the target audience.

Great. I guess kind of just following up on that, how many of those physicians that you've already reached on, do you know or how many of them have actually prescribed IBSRELA?

Yes, yes. No, the -- I don't want to misquote the number because I look at it in so many different ways. But yes, we are seeing that -- I mean, the Spherix data itself is reporting that 41% of GI are writing IBSRELA. And as I mentioned, we're reaching 56% of GI. So we are seeing response in IBSRELA prescriptions as we are getting the message out to these targets.

We have a follow-up from the line of Chris Howerton with Jefferies.

Yes, I just wanted to follow up with one question with respect to the co-pay assistance programs. Could you describe to us what type of patients would be eligible for that? And I guess, could you articulate what percentage of your targeted patient population you think that could comprise?

Sure. I think what's been interesting early on is that we are having patients fill prescriptions across all types of payers, commercial Medicare and Medicaid. So the strategy that Sue and the team put in place for market access, including co-pay systems for commercial, has been working as anticipated. Susan?

I'm sorry, Mike, can you repeat the question?

Chris was just wondering about co-pay assistance, how that's looking? And is it meeting sort of the expectations of what we have?

Thank you very much, Chris, for the question. Thank you, Mike. So yes, actually, things are going extremely well with our co-pay business program. We're finding that we have some nice redemption rate, so -- which really just makes IBSRELA affordable for patients with commercial payers, but we're also finding that patients who are Medicare patients or Medicaid patients, we're finding that they have affordable copays associated with their benefit plans. And we're seeing those prescriptions get filled as well. So -- and that's reflected overall in our mix of scripts. It's still very early. However, if you look at the mix of our early scripts in our first 3 months, we see a mix of commercial patients, Medicare and Medicaid patients.

Okay. Very good. And then I guess what the -- what was left in translation slightly was just what -- could you anticipate what percentage of the patients that would be eligible for co-pay assistance comprise your targeted market?

Yes. Yes. Yes. I understand, Chris. So the general profile of the IBS-C market is about 50-50, is the rule of thumb, commercial payer patients, and the other 50% are government payer patients. So half of the patients across the market would be eligible for the co-pay assistance program. And again, we're seeing nice utilization of that program for those with commercial payers. But important to note that we're also finding that IBSRELA is affordable for patients who are not commercial, who are government payer patients.

I would now like to turn the conference back to Mike Raab for closing comments.

Thank you all for joining our call and staying abreast of our transformational progress as we look at IBSRELA for patients with IBS-C and continue to navigate the regulatory process with XPHOZAH. We look forward to keeping you apprised of our progress in the coming months. And Abigail, you may now end the call.

This concludes today's conference call. Thank you for participating. You may now disconnect.