ARDELYX, INC. 10-Q

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 2024 Form 10-K. 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. 16 Table of Content s EXECUTIVE SUMMARY We are a biopharmaceutical company founded with a mission to discover, develop and commercialize innovative, first-in-class medicines that meet significant unmet medical needs. We developed a unique and innovative platform that enabled the discovery of new biological mechanisms and pathways to develop potent and efficacious therapies that minimize the side effects and drug-drug interactions frequently encountered with traditional, systemically absorbed medicines. The first molecule we discovered and developed was tenapanor, a minimally absorbed, first-in-class, oral, small molecule therapy. Tenapanor, branded as IBSRELA ® , is approved in the U.S. for the treatment of adults with IBS-C. Tenapanor, branded as XPHOZAH ® , is approved in the U.S. to reduce serum phosphorus in adults with CKD on dialysis as add-on therapy in patients who have an inadequate response to phosphate binders or who are intolerant of any dose of phosphate binder therapy. Refer to the Summary of Abbreviated Terms at the end of this Quarterly Report on Form 10-Q for definitions of terms used throughout the document. We are committed to our mission of discovering, developing and commercializing first-in-class medicines that address unmet patient needs. Our principal strategy is to maintain our commercial momentum with our current products while identifying additional assets that leverage our core capabilities, including clinical, developmental and regulatory expertise and commercial excellence while maintaining a solid financial foundation, to support our future growth. Our priorities include: (i) accelerating IBSRELA growth momentum; (ii) executing our XPHOZAH strategy to grow utilization; (iii) building a pipeline focused on areas of unmet patient need; and (iv) continuing to deliver strong commercial and financial performance. In February 2025, we announced the approval of an NDA for tenapanor for the control of hyperphosphatemia in adult patients with CKD undergoing hemodialysis by China’s Center for Drug Evaluation of the NMPA. This approval triggered a $5.0 million milestone to us under the terms of the Fosun Agreement, which was recorded as licensing revenue on our condensed statement of operations and comprehensive loss when earned during the 2025 first quarter and was received in April 2025. RESULTS OF OPERATIONS The results of operations for the 2025 first quarter are not necessarily indicative of results to be expected for the entire year ending December 31, 2025, or for any other interim period or future year. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2024 Form 10-K to enhance the understanding of our financial metrics below. Revenue Below is a summary of our total revenues: Three Months Ended March 31, Change 2025 vs. 2024 ($ in thousands) 2025 2024 $ % Product sales, net $ 67,814 $ 43,512 $ 24,302 56 % Product supply revenue 254 2,126 (1,872) (88) % Licensing revenue 5,020 17 5,003 (a) Non-cash royalty revenue related to the sale of future royalties 1,026 368 658 179 % Total revenues $ 74,114 $ 46,023 $ 28,091 61 % (a) Percent change is not meaningful. Below is a summary of our product sales, net by product: Three Months Ended March 31, Change 2025 vs. 2024 ($ in thousands) 2025 2024 $ % Product sales, net IBSRELA $ 44,403 $ 28,361 $ 16,042 57 % XPHOZAH 23,411 15,151 8,260 55 % Total product sales, net $ 67,814 $ 43,512 $ 24,302 56 % 17 Table of Content s Product sales, net: The increase in IBSRELA product sales, net in the 2025 first quarter was due to higher demand, reflecting continued increase in awareness and prescriber experience, and to a lesser extent, higher net price. The increase in XPHOZAH product sales, net in the 2025 first quarter was due to higher demand since its commercial launch in November 2023, partially offset by lower net price due to unfavorable payor mix shifts associated with loss of XPHOZAH Medicare Part D reimbursement. As of January 1, 2025, the Centers of Medicare and Medicaid Services officially began the transition of oral only therapies, including XPHOZAH, into the End Stage Renal Disease Prospective Payment System. The increase in XPHOZAH product sales, net also reflected the release of $3.8 million of prior periods’ estimated product returns for XPHOZAH, based on assumptions from actual returns history and other data supporting an expectation of minimal returns. Product supply revenue: Product supply revenue is primarily impacted by the timing of product supply shipments to our collaboration partners. The product supply revenue in the 2025 and 2024 first quarters was attributable to Knight and Kyowa Kirin, respectively, under our product supply agreements in support of non-U.S. launches. Licensing revenue: Licensing revenue is primarily impacted by the timing of regulatory and commercial milestone achievements from our collaboration partners, as well as sales-based royalties received from Knight. The licensing revenue in the 2025 first quarter was primarily attributable to the earning of a $5.0 million milestone under the terms of the Fosun Agreement upon approval of an NDA for tenapanor for the control of hyperphosphatemia in adult patients with CKD undergoing hemodialysis by China’s Center for Drug Evaluation of the NMPA. Non-cash royalty revenue: The increase in non-cash royalty revenue in the 2025 first quarter was attributable to a full quarter of royalties from Kyowa Kirin for sales of PHOZEVEL in Japan, which was launched in February 2024, as compared to a partial quarter of royalties in the 2024 first quarter. GTN Adjustments Reconciliation of gross product sales to product sales, net by GTN adjustment category is as follows: Three Months Ended March 31, Change 2025 vs. 2024 ($ in thousands) 2025 2024 $ % Gross product sales $ 96,732 $ 62,527 $ 34,205 55 % GTN adjustments (28,918) (19,015) $ (9,903) 52 % Product sales, net $ 67,814 $ 43,512 $ 24,302 56 % GTN adjustment percentage 29.9 % 30.4 % The decrease in GTN adjustment percentage in the 2025 first quarter was primarily due to the favorable impact of a change in prior periods’ estimate of expected returns of XPHOZAH, partially offset by unfavorable payor mix shifts. The activities and ending reserve balances for each significant category of GTN adjustments on product sales, net, which constitute variable consideration, were as follows: (in thousands) Discounts and Chargebacks Rebates, Wholesaler and GPO Fees Copay Assistance and Returns Total Balance as of December 31, 2024 $ 1,643 $ 14,475 $ 11,170 $ 27,288 Provisions (1) 4,143 18,835 5,940 28,918 Credits/payments (4,681) (18,405) (8,334) (31,420) Balance as of March 31, 2025 $ 1,105 $ 14,905 $ 8,776 $ 24,786 (1) Provisions included approximately $3.8 million of favorable adjustment resulting from changes in prior periods’ estimated product returns for XPHOZAH. 18 Table of Content s Expenses Below is a summary of our cost of goods sold, operating expenses, interest expense, non-cash interest expense related to the sale of future royalties and other income, net: Three Months Ended March 31, Change 2025 vs. 2024 ($ in thousands) 2025 2024 $ % Cost of product sales $ 2,340 $ 1,013 $ 1,327 131 % Other cost of revenue 9,963 6,115 3,848 63 % Total cost of goods sold $ 12,303 $ 7,128 $ 5,175 73 % Research and development $ 14,938 $ 10,579 $ 4,359 41 % Selling, general and administrative 83,222 52,994 30,228 57 % Total operating expenses $ 98,160 $ 63,573 $ 34,587 54 % Interest expense $ (4,191) $ (2,356) $ (1,835) 78 % Non-cash interest expense related to the sale of future royalties $ (2,071) $ (1,702) $ (369) 22 % Other income, net $ 2,326 $ 2,339 $ (13) (1) % Cost of Goods Sold Cost of product sales: The increase in cost of product sales in the 2025 first quarter was due to higher product sales. A portion of the costs of IBSRELA and XPHOZAH units recognized as revenue during the 2025 and 2024 first quarters was expensed as research and development expenses in periods prior to the commencement of capitalization of inventory costs for each respective product. The cost associated with inventory sold but previously expensed as research and development was $0.7 million and $1.2 million for the 2025 and 2024 first quarters, respectively. The value of inventory on hand as of March 31, 2025 and December 31, 2024 that was previously expensed as research and development was approximately $14.8 million and $15.6 million, respectively. Other cost of revenue: The increase in other cost of revenue in the 2025 first quarter was primarily due to higher AstraZeneca royalties, driven by higher tenapanor product sales, net. Other cost of revenue related to the AstraZeneca Termination Agreement was $8.8 million and $4.7 million for the 2025 and 2024 first quarters, respectively. The remaining future royalty obligation to AstraZeneca was $3.8 million as of March 31, 2025. Research and Development Below is a summary of our research and development expenses: Three Months Ended March 31, Change 2025 vs. 2024 ($ in thousands) 2025 2024 $ % External R&D and other expenses $ 4,202 $ 3,520 $ 682 19 % Employee-related expenses 9,455 6,136 3,319 54 % Facilities, equipment, depreciation and other expenses 1,281 923 358 39 % Total research and development expenses $ 14,938 $ 10,579 $ 4,359 41 % The increase in R&D expenses in the 2025 first quarter was primarily driven by the increase in employee-related expenses, reflecting an increase in headcount to support medical engagement with scientific communities in the areas of gastroenterology and nephrology related to our marketed products. This increase included an incremental $1.6 million in stock-based compensation expense. 19 Table of Content s Selling, General and Administrative The increase in selling, general and administrative expenses in the 2025 first quarter was primarily due to increased commercialization and administrative costs to support net sales growth of IBSRELA and XPHOZAH. The increase consisted of spending for disease awareness initiatives, patient affordability, access support and related patient awareness, as well as increased commercial infrastructure. In addition, the increase was attributable to increased headcount, including an incremental $2.8 million in stock-based compensation expense. Interest Expense The increase in interest expense in the 2025 first quarter was due to a higher loan balance resulting from the Term D Loan draw of $50.0 million in October 2024. In addition, the increase was attributable to a full quarter of interest expense related to the Term C Loan as compared to a partial quarter of interest expense in the 2024 first quarter. Non-Cash Interest Expense Related to the Sale of Future Royalties The increase in non-cash interest expense related to the sale of future royalties in the 2025 first quarter was due to the increasing outstanding balance of the deferred royalty obligation attributable to the imputed interest accrued on the outstanding balance, partially offset by royalties received from Kyowa Kirin related to the sale of PHOZEVEL, which were remitted to HCR. Other Income, Net Other income, net consists of interest income earned on our cash, cash equivalents and short-term investments as well as currency exchange gains and losses. In the 2024 first quarter, other income, net also included the periodic revaluation of our previously outstanding 2022 Exit Fee related to our 2022 Loan Agreement that was settled in October 2024. LIQUIDITY AND CAPITAL RESOURCES Below is a summary of our cash, cash equivalents and short-term investments: ($ in thousands) March 31, 2025 December 31, 2024 Change $ Change % Cash and cash equivalents $ 30,808 $ 64,932 $ (34,124) (53) % Short-term investments 183,144 185,168 (2,024) (1) % Total liquid funds $ 213,952 $ 250,100 $ (36,148) (14) % We regularly assess our cash position and our working capital needs to execute our strategy. Our primary uses of cash to date have been to fund research and development expenditures related to our development of tenapanor and to support the commercialization of our marketed products. We have funded our operations primarily from the sale of common stock, product sales, funds from our collaboration partnerships, funds from our loan agreements with SLR, as well as sale of future royalties to HCR. We expect that we will increasingly rely on cash generated from operations to fund our operating plan while maintaining financial flexibility from our ability to source cash from future equity sales and debt financing. In January 2023, we filed a registration statement on Form S-3, which became effective in January 2023, containing (i) a base prospectus for the offering, issuance and sale by us of up to a maximum aggregate offering price of $250.0 million of our 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 us of up to a maximum aggregate offering price of $150.0 million of our common stock that may be issued and sold, from time to time, under a sales agreement with Jefferies, deemed to be “at-the-market offerings” (2023 Open Market Sales Agreement). Pursuant to the 2023 Open Market Sales Agreement, Jefferies, as sales agent, may receive a commission of up to 3.0% of the gross sales price for shares of common stock sold under the 2023 Open Market Sales Agreement. In the 2025 first quarter, we completed no sales pursuant to the 2023 Open Market Sales Agreement. As of March 31, 2025, we have completed sales pursuant to the 2023 Open Market Sales Agreement, resulting in the issuance of 16.8 million shares of our common stock and receipt of gross proceeds of $70.0 million at a weighted average sales price of approximately $4.17. 20 Table of Content s We have a loan and security agreement (as amended, the 2022 Loan Agreement) with SLR. The 2022 Loan Agreement provides a total of $200.0 million, of which $150.0 million has been drawn as of March 31, 2025 to support our ongoing operations and the commercial launches of IBSRELA and XPHOZAH. The borrowings under the 2022 Loan Agreement bear interest at SOFR plus a spread based on our public debt rating. We classify outstanding borrowings under the 2022 Loan Agreement as long-term based on the maturity date of the loan. All the term loans mature on July 1, 2028. See Note 9. Borrowing of our 2024 Form 10-K for further discussion. We believe our available cash, cash equivalents and short-term investments as of March 31, 2025 will be sufficient to fund our planned operations for at least a period of one year from the issuance of these financial statements. We have based this estimate on assumptions that may prove to be wrong and we could utilize our available capital resources sooner than we currently expect. In particular, our operating plan may change and we may require significant additional capital to fund our operations. There are no assurances that our efforts to meet our operating cash flow requirements will be successful. If our current cash, cash equivalents and short-term investments as well as our plans to meet our operating cash flow requirements are not sufficient to fund necessary expenditures and meet our obligations following the issuance of these financial statements, our liquidity, financial condition and business prospects will be materially affected. Our future funding requirements will depend on many factors as described in Part II, Item 1A, “Risk Factors,” of this Quarterly Report on Form 10-Q. CASH FLOW ACTIVITIES The following table summarizes our cash flows: Three Months Ended March 31, Change 2025 vs. 2024 ($ in thousands) 2025 2024 $ % Net cash used in operating activities $ (38,457) $ (35,722) $ (2,735) 8 % Net cash provided by (used in) investing activities 2,851 (2,572) 5,423 (211) % Net cash provided by financing activities 1,482 52,971 (51,489) (97) % Net (decrease) increase in cash and cash equivalents $ (34,124) $ 14,677 $ (48,801) (332) % Cash Flows from Operating Activities Net cash used in operating activities increased in the 2025 first quarter primarily due to higher expenses to support our commercial growth and higher payment to AstraZeneca under the AstraZeneca Termination Agreement. This increase was partially offset by cash inflows from higher product sales, net and timing of collection of our accounts receivable. Cash Flows from Investing Activities Net cash provided by investing activities increased in the 2025 first quarter primarily due to the timing of our investment maturities and purchases. Cash Flows from Financing Activities Net cash provided by financing activities decreased in the 2025 first quarter primarily due to the 2024 first quarter receipt of $49.8 million net of proceeds from the Term C Loan.