Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed financial statements and notes thereto included elsewhere in this report and with the audited financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2019. This discussion and analysis and other parts of this report contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report entitled “Risk Factors”. These forward-looking statements speak only as of the date hereof. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason. Unless the context requires otherwise, the terms “Ardelyx”, “Company”, “we”, “us”, and “our” refer to Ardelyx, Inc.
About Ardelyx
We are a specialized biopharmaceutical company focused on developing innovative first-in-class medicines to improve treatment for people with kidney and cardiovascular diseases. This includes patients with chronic kidney disease (“CKD”) on dialysis suffering from elevated serum phosphorus (“hyperphosphatemia”) and patients with CKD and/or heart failure patients with elevated serum potassium (“hyperkalemia”).
Tenapanor: A New Approach for The Control of Serum Phosphorus in CKD Patients on Dialysis
Our portfolio is led by the development of tenapanor, a first-in-class medicine for the control of serum phosphorus in adult patients with CKD on dialysis. Tenapanor for the control of serum phosphorus has a unique mechanism of action and acts locally in the gut to inhibit the sodium hydrogen exchanger 3 (“NHE3”). This results in the tightening of the epithelial cell junctions, thereby significantly reducing paracellular uptake of phosphate, the primary pathway of phosphate absorption. On September 15, 2020 we announced that the U.S. Food and Drug Administration (“FDA”) accepted the filing of our New Drug Application (“NDA”) for tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis. The acceptance of our NDA represents the next critical step towards bringing to market a completely new approach to the management of hyperphosphatemia. The FDA has set a Prescription Drug User Fee Act (“PDUFA”) goal date of April 29, 2021. We continue to advance commercial preparations for the launch of tenapanor. The NDA is supported by three successful Phase 3 trials involving over 1,000 patients that evaluated the use of tenapanor for the control of serum phosphorus in CKD patients on dialysis, with two trials evaluating tenapanor as monotherapy and one trial evaluating tenapanor as part of a dual mechanism approach with binders.
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We have established agreements with Kyowa Kirin Co., Ltd. (“KKC”) in Japan, Shanghai Fosun Pharmaceutical Industrial Development Co. Ltd. (“Fosun Pharma”) in China and Knight Therapeutics, Inc. (“Knight“) in Canada for the development and commercialization of tenapanor for certain indications in their respective territories.
In December 2019, we reported statistically significant topline efficacy results from our second monotherapy Phase 3 clinical trial, the PHREEDOM trial, which evaluated tenapanor for the control of serum phosphorus in CKD patients on dialysis. The PHREEDOM trial followed a successful monotherapy Phase 3 clinical trial completed in 2017, which achieved statistical significance for the primary endpoint. PHREEDOM is a one-year study with a 26-week open-label treatment period and a 12-week double-blind, placebo-controlled randomized withdrawal period followed by a 14-week open-label safety extension period. An active safety control group, for safety analysis only, received sevelamer, open-label, for the entire 52-week study period. Patients completing the PHREEDOM trial from both the tenapanor arm and the sevelamer active safety control arm had the option to participate in NORMALIZE, an ongoing open-label 18-month extension study.
In June 2020, we announced positive results from a planned interim data analysis from our ongoing NORMALIZE extension study evaluating tenapanor, as monotherapy or in combination with sevelamer, to achieve serum phosphorus levels in the normal range (2.5 – 4.5 mg/dL) in patients with CKD on dialysis. The NORMALIZE extension study allowed patients from our PHREEDOM study to continue therapy with tenapanor and enabled those patients in the PHREEDOM safety control arm receiving sevelamer carbonate to transition to tenapanor. The data from the planned interim analysis demonstrated that the foundational use of tenapanor as monotherapy or in combination with sevelamer carbonate produces a significant phosphorus-lowering effect with a mean serum phosphorous reduction of 2.33 mg/dL, from a mean baseline phosphorus of 7.27 mg/dL at the beginning of the PHREEDOM trial to a mean of 4.94 mg/dL at the time of this analysis. Of the 171 patients in this interim analysis who completed up to 9 months of treatment in this extension study, up to 47.4% achieved a normal serum phosphorus level, and of those, the majority were on tenapanor alone or tenapanor with low dose sevelamer of ≤3 sevelamer tablets per day. These data represent a 58% improvement in the rate of patients who achieve a normal serum phosphorus level, as compared to current treatment practice data as reported in the April 2020 Dialysis Outcomes Practice Patterns Study (“DOPPS”) Practice Monitor. The DOPPS data demonstrate that, with currently available treatments, only 30% of patients have serum phosphorous levels < 4.6 mg/dL. The only adverse event reported in >5% of patients in NORMALIZE was diarrhea, with an incidence rate of 23.3%.
In September 2019, we reported positive results from the AMPLIFY trial, a Phase 3 study evaluating tenapanor in patients with CKD on dialysis who had uncontrolled hyperphosphatemia despite phosphate binder treatment.
In June 2020, our partner Kyowa Kirin Co., Ltd. (“KKC”), a Japan-based global specialty pharmaceutical company exclusively developing tenapanor in Japan, presented results from a Phase 2 trial of tenapanor at the European Renal Association-European Dialysis and Transplant Association annual meeting (“ERA-EDTA 2020”). The trial was designed to evaluate if, with tenapanor, patients with hyperphosphatemia undergoing hemodialysis could achieve at least a 30% decrease in mean pill burden while maintaining their serum phosphorus level. The study results were statistically significant, with 71.6% (p<0.001) of patients achieving at least a 30% reduction in mean pill burden. The overall mean reduction in phosphate binder usage was 80% (reduction from 14.7 to 3.0 pills per day), while maintaining serum phosphorus control. The mean phosphorus level of patients entering the study on treatment with binders was 5.2 mg/dL at baseline and 4.7 mg/dL at the end of the 26-week study.
Tenapanor, if approved, would be the first therapy for phosphate management that blocks phosphorus absorption at the primary pathway of uptake. It is not a phosphate binder. Tenapanor is a novel, potent, small molecule, that has been shown in the phase 3 studies to treat hyperphosphatemia as monotherapy and as a dual mechanism approach. Additionally, we believe tenapanor could greatly improve patient adherence and compliance with one single pill dosed twice daily in contrast to current therapies where typically multiple pills are taken before every meal.
RDX013 Program: Small Molecule for Treating Hyperkalemia
We are also advancing a small molecule potassium secretagogue program, RDX013, for the potential treatment of hyperkalemia. Hyperkalemia is a common problem in patients with heart and kidney disease, particularly in patients taking common blood pressure medications known as renin-angiotensin-aldosterone system (“RAAS”) inhibitors. Similar to what
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we have done with tenapanor in developing a non-binder approach for the treatment of elevated serum phosphate levels, RDX013 is designed to target the underlying biological mechanisms of potassium secretion to lower elevated potassium. While currently available therapies are all ion exchange agents, RDX013 is a first in class approach that exerts its effects by amplifying the underlying pathways of potassium secretion in the colon.
IBSRELA® (tenapanor) for Irritable Bowel Syndrome with Constipation (IBS-C)
In addition to the development of tenapanor for hyperphosphatemia, we have developed tenapanor for the treatment of patients with irritable bowel syndrome with constipation (“IBS-C”). In September 2019, we received FDA approval of IBSRELA® (tenapanor) for the treatment of IBS-C in adults. IBS-C is a burdensome gastrointestinal (“GI”) disorder. It is characterized by significant abdominal pain, constipation, straining during bowel movements, bloating and/or gas.
We have developed a proprietary drug discovery and design platform to discover targets found in the GI tract that regulate processes in the body and design product candidates that act upon those targets to take advantage of the gut’s ability to communicate with other organs.
Since commencing operations in October 2007, substantially all our efforts have been dedicated to our research and development (“R&D”) activities, including developing our clinical product candidate tenapanor and developing our proprietary drug discovery and design platform. We have not generated any revenues from product sales. As of September 30, 2020, we had an accumulated deficit of $525.9 million.
We expect to continue to incur substantial operating losses for the foreseeable future as a result of costs associated with the following activities: our continued development of tenapanor for the control of serum phosphorus in CKD patients on dialysis; our preparations for the commercialization of tenapanor in the United States for the control of serum phosphorus in CKD patients on dialysis, including significantly increased personnel costs associated with building out our commercial team; the performance of certain activities required as a result of our NDA approval of tenapanor for IBS-C; and the advancement of our research programs into the preclinical stage. To date, we have funded our operations from the sale and issuance of common stock and convertible preferred stock, funds from our collaboration partnerships, and funds from our Loan Agreement with Solar Capital Ltd. and Western Alliance Bank.
Impact of COVID-19
The global COVID-19 pandemic has impacted the operational decisions of companies worldwide. It also has created and may continue to create significant uncertainty in the global economy. We have undertaken measures to protect our employees, partners, collaborators, and vendors, some of which impact our normal operations. To date, we have been able to continue our operations with our workforce, most of whom are working remotely, and our pre-existing infrastructure that supports secure access to our internal systems. If, however, the COVID-19 pandemic has a substantial impact on the productivity of our employees, our ability to successfully prepare for the commercial launch of tenapanor for the control of serum phosphorous in CKD patients on dialysis, including our ability to hire and successfully integrate into the company the new personnel required to prepare for such launch, or our ability to progress our research and development efforts, the results of our operations and overall financial performance may be adversely impacted. The extent of the impact from the COVID-19 pandemic on our business will depend largely on future developments that are highly uncertain and cannot be predicted. For a discussion of risks of COVID-19 relating to our business, see “Part II: Other Information-Item 1A.- Risk Factors- Risks Related to Our Business- The ongoing COVID-19 pandemic, or any other outbreak of epidemic diseases, or the perception of their effects, could have a material adverse effect on our business, financial condition, results of operations or cash flows .” As of the date of issuance of this financial report, we are not aware of any specific event or circumstance that would require updates to our estimates and judgments or revisions to the carrying value of our assets or liabilities. These estimates may change as new events occur and additional information is obtained.
Critical Accounting Policies and Significant Judgments and Estimates
Our discussion and analysis of financial condition and results of operations is based on our condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
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Critical accounting policies are those that require significant judgment and/or estimates by management at the time that financial statements are prepared such that materially different results might have been reported if other assumptions had been made. These estimates form the basis for making judgments about the carrying values of assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates.
The critical accounting policies that we believe impact significant judgments and estimates used in the preparation of our financial statements presented in this report are described in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , in our Annual Report on Form 10-K filed with the SEC on March 6, 2020. There have been no significant changes to our critical accounting policies as disclosed in our most recently filed Annual Report on Form 10-K during the three and nine months ended September 30, 2020.
Recent Accounting Pronouncements
A summary of recent accounting pronouncements that we have adopted or may expect to adopt is included in Note 1 – Organization and Basis of Presentation to our condensed financial statements (see Part I, Item 1 Notes to Condensed Financial Statements , of this Quarterly Report on Form 10-Q).
Financial Operations Overview
Revenue
Our revenue to date has been generated primarily through license, research and development collaborative agreements with various collaboration partners. We have not generated any revenue from product sales. In the future, we may generate revenue from a combination of license fees and other upfront payments, milestone payments, product sales and royalties in connection with our current or future collaborative partnerships. We expect that any revenue we generate will fluctuate in future periods as a result of, among other factors: the timing and progress of goods and services provided pursuant to our current or future collaborative partnerships; our or our collaborators’ achievement of preclinical, clinical, regulatory or commercialization milestones, to the extent achieved; the timing and amount of any payments to us relating to the aforementioned milestones; and the extent to which any of our product candidates are approved and successfully commercialized by us or a collaboration partner. If we, our current collaboration partners or any future collaboration partners fail to develop product candidates in a timely manner or to obtain regulatory approval for product candidates, our ability to generate future revenue from collaborative arrangements, and our results of operations and financial position, would be materially and adversely affected. Our past revenue performance is not necessarily indicative of results to be expected in future periods.
Cost of Revenue
Cost of revenue currently represents payments due to AstraZeneca AB (“AstraZeneca”), which under the terms of a termination agreement entered into in 2015 is entitled to (i) future royalties at a rate of 10% of net sales of tenapanor or other NHE3 products by us or our licensees, and (ii) 20% of non-royalty revenue received from a new collaboration partner should we elect to license, or otherwise provide rights to develop and commercialize tenapanor or certain other NHE3 inhibitors. We have agreed to pay AstraZeneca up to a maximum of $75.0 million in the aggregate for (i) and (ii). We recognize these expenses as cost of revenue when we recognize the corresponding revenue that gives rise to payments due to AstraZeneca. To date, we have recognized an aggregate of $10.6 million of the $75.0 million under the AstraZeneca Termination Agreement.
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Research and Development Expenses
We recognize all R&D expenses as they are incurred to support the discovery, research, development and manufacturing of our product candidates. R&D expenses include, but are not limited to, the following:
● external R&D expenses incurred under agreements with consultants, third-party contract research organizations and investigative sites where a substantial portion of our clinical studies are conducted, and with contract manufacturing organizations where our clinical supplies are produced;
● employee-related expenses, which include salaries, bonuses, benefits, travel and stock-based compensation;
● facilities and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation and amortization expense and information technology expenses;.
● expenses associated with supplies and materials consumed in connection with our research operations; and
● other costs associated with research, clinical development and regulatory activities.
We expect to continue to make substantial investments in research and development activities as we further progress the development of tenapanor, as well as our other product candidates, as we advance our research programs into the preclinical stage and as we continue our early stage research. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming. We may not succeed in achieving marketing approval for our product candidates, including tenapanor for the control of serum phosphorus. The probability of success of each of our product candidates may be affected by numerous factors, including preclinical data, clinical data, market acceptance, sufficient third-party coverage or reimbursement, our ability to access capital on acceptable terms, competition, manufacturing capability and commercial viability.
We anticipate that we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success of each product candidate, ongoing assessment as to each product candidate’s commercial potential, and our ability to access capital on acceptable terms. We will need to raise additional capital and may seek additional collaboration partnerships in order to complete the development and commercialization of tenapanor. If we are unable to access capital on a timely basis and on terms that are acceptable to us, we may be forced to restructure certain aspects of our business or identify and complete one or more strategic collaborations or other transactions in order to fund the development or commercialization of tenapanor or certain of our product candidates through the use of alternative structures.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, for our executive, board, finance, legal, business development, market development, commercial and support staff. Other general and administrative expenses include facility related costs and professional fees for legal, accounting and audit, investor relations, other consulting services and allocated facility-related costs not otherwise included in research and development expenses.
We anticipate that our general and administrative expenses will increase in the future primarily because of increased pre-commercial activities, personnel costs and professional fees for services to support the potential launch and commercialization of tenapanor for the control of serum phosphorus in CKD patients on dialysis.
Interest Expense
Interest expense represents the interest accrued on our loan payable.
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Other Income, net
Other income consists of interest income earned on our cash and cash equivalents and short-term investments, the periodic revaluation of the exit fee related to our loan and currency exchange gains and losses.
Income Taxes
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act includes, among other features, provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. While we continue to evaluate the impact of the CARES Act, we do not expect the provisions of the legislation to have a significant impact on the effective tax rate or on the income tax provision or deferred income tax positions of the Company.
RESULTS OF OPERATIONS
Comparison of the three and nine months ended September 30, 2020 and 2019
The following table summarizes the results of our operations for the periods indicated (amounts in thousands, except percentages):
Three Months Ended September 30,
2020
2019
$ Change
% Change
Revenues:
Licensing revenue
$
—
$
3,000
$
(3,000)
(100.0)
%
Collaborative development revenue
1,356
—
1,356
*
%
Other revenue
1,357
13
1,344
*
%
Total revenues
2,713
3,013
(300)
(10.0)
%
Operating expenses:
Cost of revenue
—
600
(600)
(100.0)
%
Research and development
12,240
17,580
(5,340)
(30.4)
%
General and administrative
7,634
6,922
712
10.3
%
Total operating expenses
19,874
25,102
(5,228)
(20.8)
%
Loss from operations
(17,161)
(22,089)
4,928
(22.3)
%
Interest expense
(1,202)
(1,443)
241
(16.7)
%
Other income, net
255
294
(39)
(13.3)
%
Loss before provision for income taxes
(18,108)
(23,238)
5,130
(22.1)
%
Provision for income taxes
—
301
(301)
(100.0)
%
Net loss
$
(18,108)
$
(23,539)
$
5,431
(23.1)
%
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Nine Months Ended September 30,
2020
2019
$ Change
% Change
Revenues:
Licensing revenue
$
706
$
3,000
$
(2,294)
(76.5)
%
Collaborative development revenue
3,656
—
3,656
*
%
Other revenue
1,400
31
1,369
*
%
Total revenues
5,762
3,031
2,731
90.1
%
Operating expenses:
Cost of revenue
141
600
(459)
(76.5)
%
Research and development
46,948
57,436
(10,488)
(18.3)
%
General and administrative
21,810
17,410
4,400
25.3
%
Total operating expenses
68,899
75,446
(6,547)
(8.7)
%
Loss from operations
(63,137)
(72,415)
9,278
(12.8)
%
Interest expense
(3,785)
(4,328)
543
(12.5)
%
Other income, net
1,485
1,896
(411)
(21.7)
%
Loss before provision for income taxes
(65,437)
(74,847)
9,410
(12.6)
%
Provision for income taxes
—
303
(303)
(100.0)
%
Net loss
$
(65,437)
$
(75,150)
$
9,713
(12.9)
%
____________________________________
* Not meaningful
The results of operations are not necessarily indicative of the results to be expected for the year ended December 31, 2020, for any other interim period, or for any other future year.
Revenue
Total revenue was $2.7 million for the three months ended September 30, 2020, a decrease of $0.3 million compared to $3.0 million for the three months ended September 30, 2019. This decrease was primarily attributable to $3.0 million revenue recognized related to achievement of a milestone pursuant to the Fosun agreement during the three months ended September 30, 2019, partially offset by $1.3 million collaborative development revenue recognized in connection with the research collaboration and option agreement entered into in December 2019 with Kyowa Kirin Co., Ltd. (“KKC”) (the “2019 KKC Agreement”) and a $1.4 million increase in manufacturing supply of tenapanor and other materials sold to KKC in connection with the license agreement entered into with KKC in November 2017 (the “2017 KKC Agreement”) for its product development and clinical trials in Japan. For the above mentioned 2019 KKC Agreement with an initial transaction price of $10.0 million, revenue is being recognized as services are provided using an input method. As of September 30, 2020, the remaining unamortized initial transaction price totaled $5.9 million, and we currently expect this amount will be recognized through the end of 2021.
Total revenue was $5.7 million for the nine months ended September 30, 2020, an increase of $2.7 million compared to $3.0 million for the nine months ended September 30, 2019. This increase was primarily attributable to $3.6 million higher collaborative development revenue recognized in connection with the 2019 KKC Agreement, a $0.7 million licensing revenue recognized upon Knight’s achievement of a development milestone, pursuant to the Knight Agreement and a $1.4 million increase in manufacturing supply of tenapanor and other materials sold to KKC in accordance with the 2017 KKC Agreement, partially offset by $3.0 million revenue related to achievement of a milestone pursuant to the Fosun agreement during the nine months ended September 30, 2019.
Cost of revenue
The decrease in cost of revenue for both the three and nine months ended September 30, 2020 was due to a decrease in fees owed to AstraZeneca pursuant to the AstraZeneca Termination Agreement, corresponding to a reduction in licensing revenue realized.
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Research and Development Expenses
The following table presents our R&D expenses incurred during the periods indicated (in thousands):
Three Months Ended September 30,
2020
2019
$ Change
% Change
External R&D expenses
$
5,767
$
10,629
$
(4,862)
(45.7)
%
Employee-related expenses
5,101
5,389
(288)
(5.3)
%
Facilities, equipment and depreciation expenses
1,233
1,430
(197)
(13.8)
%
Other
139
132
7
5.3
%
Total
$
12,240
$
17,580
$
(5,340)
(30.4)
%
Nine Months Ended September 30,
2020
2019
$ Change
% Change
External R&D expenses
$
27,242
$
38,229
$
(10,987)
(28.7)
%
Employee-related expenses
15,223
14,544
679
4.7
%
Facilities, equipment and depreciation expenses
4,240
4,419
(179)
(4.1)
%
Other
243
244
(1)
(0.4)
%
Total
$
46,948
$
57,436
$
(10,488)
(18.3)
%
The decrease in our external R&D expenses for the three months ended September 30, 2020 primarily includes a $5.1 million decrease in our tenapanor-related expenses, as well as a $0.6 million decrease in our RDX013 program-related expenses, partially offset by $0.8 million of higher expenses attributable to 2019 KKC Agreement-related research and general R&D expenses. Of the overall tenapanor-related decrease, approximately $3.6 million relates to lower clinical study costs due to the winding down of expenses associated with our Phase 3 program for tenapanor for the control of hyperphosphatemia, an approximately $0.7 million decrease in manufacturing expenses due to reduced validation related expenses for tenapanor and a decrease of $0.7 million related to regulatory expenses in 2020 as compared to 2019.
The decrease in our external R&D expenses for the nine months ended September 30, 2020 primarily includes a $11.1 million decrease in our tenapanor-related expenses, as well as a $2.0 million decrease in our RDX013 program-related expenses, partially offset by $2.1 million of higher expenses attributable to 2019 KKC Agreement-related research and general R&D expenses. Of the overall tenapanor-related decrease, approximately $15.2 million relates to lower clinical study costs due to the winding down of expenses associated with our Phase 3 program for tenapanor for the control of hyperphosphatemia, offset by an out-of-period adjustment that reduced clinical trial expenses by $3.6 million related to our tenapanor clinical trials for the nine months ended September 30, 2019; and approximately $3.9 million relates to lower manufacturing expenses due to reduced validation related expenses for tenapanor in 2020 as compared to 2019; offset by an increase of $4.2 million related to regulatory expenses that includes $2.9 million paid to the FDA for the filing of a NDA for tenapanor for the control of serum phosphorus in CKD patients on dialysis on June 30, 2020.
General and Administrative Expenses
The increase in general and administrative expenses for the three months ended September 30, 2020 was primarily due to an increase in costs associated with building and staffing our commercial infrastructure and teams as we prepare for the anticipated U.S. launch of tenapanor for the control of serum phosphorus in CKD patients on dialysis. The increase consisted of headcount and related personnel costs and an increase in external spending for disease awareness initiatives, commercial infrastructure and strategy, partially offset by a decrease in stock-based compensation costs related to performance-based restricted stock units and a decrease in professional services.
The increase in general and administrative expenses for the nine months ended September 30, 2020 was primarily due to an increase in costs associated with building and staffing our commercial infrastructure as described above. The increase
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consisted of increases in headcount and related personnel costs, stock-based compensation costs, professional services and external spending for disease awareness initiatives, commercial infrastructure and strategy.
Interest Expense
The decrease in interest expense for both the three and nine months ended September 30, 2020 was primarily due to lower interest rates on our variable-rate term loan.
Other Income, net
The decrease in other income, net for the three months ended September 30, 2020 was primarily due to a decrease in investment income, a lower exit fee revaluation adjustment related to our loan agreement and a decrease in currency exchange losses.
The decrease in other income, net for the nine months ended September 30, 2020 was primarily due to a decrease in investment income, a lower exit fee revaluation adjustment related to our loan agreement and a decrease in currency exchange losses.
Liquidity and Capital Resources
In July 2020, we filed a Form S-3 registration statement, which became effective in August 2020, containing (i) a base prospectus for the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $250,000,000 of the Company’s common stock, preferred stock, debt securities, warrants and/or units, from time to time in one or more offerings; and (ii) a prospectus supplement for the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $100,000,000 of our common stock that may be issued and sold, from time to time, under a sales agreement with Jefferies LLC, deemed to be “at the market offerings.” As of September 30, 2020, no shares have been offered, issued or sold pursuant to this sales agreement.
Our primary sources of cash have been from the sale and issuance of common stock (in both public offerings and private placements) and private placements of convertible preferred stock, funds from our collaboration partnerships and funds from our loan agreement. Our primary uses of cash are to fund operating expenses, primarily research and development expenditures and pre-commercial expenses. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.
As of September 30, 2020 and December 31, 2019, our cash, cash equivalents and short-term investments were as follows (in thousands):
September 30,
December 31,
2020
2019
Cash and cash equivalents
$
91,009
$
181,133
Short-term investments
94,488
66,379
Total liquid funds
$
185,497
$
247,512
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Cash Flows
The following table summarizes our cash flows for the periods indicated (in thousands):
Nine Months Ended September 30,
2020
2019
Cash used in operating activities
$
(63,845)
$
(65,347)
Cash (used in) provided by investing activities
(27,872)
78,834
Cash provided by financing activities
1,593
418
Net (decrease) increase in cash and cash equivalents
$
(90,124)
$
13,905
Cash Flows from Operating Activities
Net cash used in operating activities during the nine months ended September 30, 2020 was $63.9 million, as compared to $65.3 million for the nine months ended September 30, 2019. The most significant factors that contributed to the $1.4 million decrease in net cash used in operating activities for the nine months ended September 30, 2020, as compared to the comparable period in 2019 was a $10.4 million decrease in research and development expenses, partly offset by a $3.0 million decrease in cash received from collaboration partners, a $4.4 million increase in general and administrative G&A expenses, and an increase in cash used related to fluctuations in components of our working capital.
Cash Flows from Investing Activities
Net cash used in investing activities was $27.9 million for the nine months ended September 30, 2020, as compared to cash provided by investing activities of $78.9 million for the nine months ended September 30, 2019. The $106.7 million decrease in net cash provided by investing activities was primarily attributable to a $36.1 million decrease in proceeds from maturities and sales of investments, a $0.2 million decrease in purchases of property and equipment, and $70.9 million increase in purchases of investments.
Cash Flows from Financing Activities
Net cash provided by financing activities increased by $1.2 million during the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019. This increase was attributable to an increase in net proceeds from issuance of common stock under our equity incentive and stock purchase plans.
Funding Requirements
We believe that our existing capital resources as of September 30, 2020 will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months following our financial statement issuance date. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. In particular, our operating plan can change, and we may require significant additional capital to fund our operations, including to support the development, commercialization and manufacturing efforts for tenapanor. We may seek to obtain such additional capital through debt financings, credit facilities, additional equity offerings and/or strategic collaborations. We currently have no unutilized credit facility or committed sources of capital, and there can be no assurances that such sources of capital will be available to us when needed or on acceptable terms. There are numerous risks and uncertainties associated with research, development and commercialization initiatives, and actual results could vary materially as a result of a number of factors, many of which are outside of our control. Our future capital requirements are difficult to forecast and will depend on many factors, including:
● the FDA’s actions and decisions with respect to the NDA submitted to the FDA on June 30, 2020 to request marketing authorization for tenapanor for the control of serum phosphorus in adult CKD patients on dialysis;
● our ability to successfully commercialize tenapanor for the control of serum phosphorus in CKD patients on dialysis, if approved, either alone or with one or more collaboration partners;
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● the sales price and the availability of adequate third-party reimbursement for tenapanor, if approved;
● the manufacturing costs of our product candidates, and the availability of one or more suppliers for our product candidates at reasonable costs, both for clinical and commercial supply;
● the selling and marketing costs associated with tenapanor, including the cost and timing of building our sales and marketing capabilities;
● our ability to maintain our existing collaboration partnerships and to establish additional collaboration partnerships, in-license/out-license, joint ventures or other similar arrangements and the financial terms of such agreements;
● the timing, receipt, and amount of sales of, or royalties on, tenapanor, if any;
● the cash requirements of any future acquisitions or discovery of product candidates;
● the number and scope of preclinical and discovery programs that we decide to pursue or initiate, and any clinical trials we decide to pursue for other product candidates, including RDX013;
● the time and cost necessary to respond to technological and market developments;
● the costs of filing, prosecuting, maintaining, defending and enforcing any patent claims and other intellectual property rights, including litigation costs and the outcome of such litigation, including costs of defending any claims of infringement brought by others in connection with the development, manufacture or commercialization of tenapanor or any of our product candidates; and
● the payment of interest and principal related to our loan and security agreement entered into with Solar Capital and Western Alliance Bank in May 2018, as amended on October 9, 2020.
Please see the risk factors set forth in Part II, Item 1A, Risk Factors, in this Quarterly Report on Form 10-Q for additional risks associated with our capital requirements.
Off-Balance Sheet Arrangements
None.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.