Ardelyx Inc (ARDX) 2015 Q2 法說會逐字稿

Hello, ladies and gentlemen. Thank you for standing by and welcome to Ardelyx second-quarter 2015 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, today's call is being recorded.

It is now my pleasure to turn the floor over to Kimberly Minarovich, Vice President of Investor Relations at Burns McClellan, who will make introductory comments.

Thank you, Shannon. Good morning and welcome to the Ardelyx's second-quarter of 2015 earnings conference call. Earlier this morning, Ardelyx issued a press release providing the details of the Company's second-quarter 2015 financial results, as well as a corporate and clinical update. The press release is available on the Investor Relations section of the corporate website at ir.ardelyx.com.

Today's call will be led by Mike Raab, Ardelyx's President and Chief Executive Officer. He will be joined by Jeremy Caldwell, Executive Vice President and Chief Scientific Officer; David Rosenbaum, Senior Vice President of Drug Development; and Mark Kaufmann, Chief Financial Officer.

As a reminder, during today's call, Ardelyx will be making certain forward-looking statements. To the extent that statements discussed on this call are not descriptions of historical facts regarding Ardelyx, they are forward-looking statements, reflecting the current beliefs and expectations of management made pursuant to the Safe Harbor of the Private Securities Reform Act of 1995, including the potential for tenapanor in treating IBS-c patients; the potential for tenapanor in treating hyperphosphatemia in dialysis patients; Ardelyx's future development plans for tenapanor and the timing thereof; the potential for RDX022 in treating hyperkalemia; Ardelyx's future development plans for RDX022 and the timing thereof; the potential of RDX009 treating chemotherapy-induced diarrhea; and the potential and timing for a filing and IND for RDX009; and the potential of Ardelyx's drug discovery and design platform.

Such forward-looking statements involve substantial risks and uncertainties that could cause the development of tenapanor or Ardelyx's future results, performance, or achievements to differ significantly from those expressed or implied by the forward-looking statements. Such risks and uncertainties include, among others, the uncertainties inherent in the research and clinical development process; Ardelyx's reliance upon AstraZeneca for the timely delivery of clinical trial material required for the initiation of Phase III clinical program in IBS-c, and the Phase IIb clinical trial in hyperphosphatemia; and Ardelyx's reliance upon AstraZeneca to facilitate a complete and timely transition of the tenapanor program from AstraZeneca to Ardelyx.

Ardelyx undertakes no obligation to update or revise any forward-looking statements. For a further description of the risks and uncertainties that could cause actual results to differ from those expressed in these forward-looking statements, as well as risks related to Ardelyx's business in general, please refer to Ardelyx's current report filed on Form 8-K with the Securities and Exchange Commission on July 14, 2015, and its future periodic reports to be filed with the Securities and Exchange Commission, including its Quarterly Reports in the second-quarter 2015 expected to be filed on or about August 12th.

At this time, it is my pleasure to turn the call over to Ardelyx's President and Chief Executive Officer, Mike Raab.

Thank you, Kimberly. Good morning, everyone, and thank you all for joining us. On today's call, I will review some of the achievements from this past quarter. The team and I will share some recent clinical progress, and also discuss important clinical milestones that we expect in the coming months. Mark Kaufmann, our Chief Financial Officer, will then discuss financial results from the quarter.

Ardelyx achieved significant strides this past quarter, both in terms of advancing our clinical development programs, as well as in the progress of our Company as a whole. During the quarter, we required from AstraZeneca all rights to our leading product candidate tenapanor and our NHE3 program. And in June, we raised $74.4 million in net proceeds after all costs from the sale of common stock and warrants, bringing our cash balance to approximately $141.5 million at the end of second-quarter.

Also during the quarter, we announced results from two separate clinical trials for tenapanor, providing additional clinical support for the use of tenapanor in the treatment of irritable bowel syndrome with constipation, or IBS-c, and for the treatment of hyperphosphatemia in dialysis patients. We also announced our development plans for RDX022 for the treatment of hyperkalemia based on positive results reported in a preclinical model.

Based on our discussions with the FDA, we intend to pursue an accelerated 505(b)2 development pathway for RDX022. In May at the Digestive Disease Week Conference, we presented data from our Phase IIb clinical trial evaluating tenapanor in IBS-c in a presentation entitled Efficacy and Safety of Tenapanor Patients in Patients with Constipation-Predominant Irritable Bowel Syndrome, a 12-week, double-blind, placebo-controlled, randomized Phase IIb trial.

Tenapanor met the primary endpoint of an increase of complete spontaneous bowel movements or CSBMs, and saw a significant responder rate with a 60.7% of patients receiving 50 milligrams of tenapanor twice-daily, achieving CSBM response, as opposed to 33.7% in the placebo group. The study also showed a response in the reduction of abdominal pain. Other key secondary endpoints that exhibited significant improvements for patients receiving 15 milligrams of tenapanor twice-daily compared to placebo included improvement in abdominal discomfort, abdominal bloating, straining, stool consistency, CSBM per week, and spontaneous bowel movements per week.

Subsequently, we presented data from this Phase IIb study demonstrating that the sustained or durable overall responder rate was 14.6 greater than the placebo group. Based on the strength of these results, we plan to begin a Phase III clinical program in IBS-c patients by the end of this year.

In addition to these promising results in IBS-c, tenapanor has also demonstrated significant potential for the treatment of hyperphosphatemia in dialysis patients. In an exploratory analysis from our Phase IIb clinical trial in hyperphosphatemia that we highlighted during a recent R&D day in July, we observed significant reductions in fibroblast growth factor 23 or FGF23 in patients treated with tenapanor.

FGF23 is a key factor involved in the regulation of phosphate and other bone-related hormones and minerals. High FGF23 levels have independently been associated with cardiovascular disease and left ventricular hypertrophy in both chronic kidney disease patients, and more recently, in individuals with normal renal function. Based on these results, as well as the results that we have seen to date demonstrating tenapanor's ability to lower serum phosphorus, we plan to begin a Phase IIb clinical trial in dialysis patients with hyperphosphatemia in the fourth quarter of this year, and expect results from this trial in the second half of 2016.

Other R&D highlights that we presented during our inaugural R&D day included a proof of concept in an animal model of chemotherapy-induced diarrhea, or CID, for RDX009, a TGR5 agonist that stimulates local secretion of GLP-1 and GLP-2 in the gut. We are targeting and IND filing for RDX009 in the second half of 2016. And though we are evaluating several potential indications for RDX009, we're most excited about its potential in CID -- a very difficult condition prevalent in certain cancer patients that is not currently well-managed with any marketed agents.

We also presented proof of concept demonstrating that several agents from our RDX013 program of potassium secretagogue increased potassium secretion into the gut in an animal model. Though we expect this program to be challenging, we are encouraged that we are able to demonstrate potential feasibility of this new approach to treat hyperkalemia.

We also presented several new R&D programs, including an NHE3 program based on our growing understanding of the broad and complex biology, mechanisms and physiology involved in NHE3 modulation. We expect to expand our clinical footprint by evaluating new indications for tenapanor and other NHE3 inhibitors. We look forward to providing updates on these promising programs.

As you know during the quarter we re-acquired the global rights of -- to tenapanor and our portfolio of NHE3 inhibitors. With this transaction, we are now in greater control of our own destiny, as we retain the vast majority of the economics from the family of NHE3 inhibitors that we had previously licensed to AZ. Now, under our direction, tenapanor's clinical development is accelerating with two trials planned to be initiated later this year.

This transaction represents one important element in a series of activities that have transformed Ardelyx from a story derivative of the relationship with AstraZeneca to one of a company with three late-stage clinical programs on the path towards commercialization in G.I. and cardio-renal diseases; a substantial pipeline of earlier-stage product candidates; and a strong balance sheet to achieve our near-term objectives.

Overall, in the first half of the year, and particularly the second quarter, was exciting and extremely productive. As we look toward the second half of 2015, we will continue to expect important advances in our clinical pipeline, including the initiation of three clinical trials in the fourth quarter -- a Phase III study of tenapanor in IBS-c; a second Phase IIb study in tenapanor for hyperphosphatemia; and a pharmacodynamic study for RDX022 in hyperkalemia.

In conclusion, this has clearly been a transformational quarter for Ardelyx, one that sets the foundation for our Company to become a commercial biopharmaceutical company.

I will now turn the call over to Mark Kaufmann, Ardelyx's CFO, who will review the second -quarter 2015 financials.

Thanks, Mike. Now as we've done in the past, rather than review all the information disclosed in the press release, I'd like to focus on a few specific financial highlights.

We started the quarter with $98.3 million in cash and cash equivalents, and ended the quarter with $141.5 million. The changes in cash during the quarter were primarily affected by three different events. First, the termination agreement with AstraZeneca, which resulted in the return to us of worldwide rights to tenapanor and our NHE3 program, and included aggregate and upfront payments of $25 million to AstraZeneca.

Second, the sale of common stock and warrants of a private placement that we completed on June 5 for net proceeds of $74.4 million to the Company after all costs. And lastly, the operating cash burn during the quarter. I'll talk about each of these in turn.

Regarding our termination agreement with AstraZeneca, Ardelyx has agreed to pay AstraZeneca certain amounts for the return of the rights to tenapanor in our NHE3 program, including [$15 million] upfront, which was paid during the quarter; royalties equal to 10% of net sales of tenapanor or other NHE3 inhibitors by Ardelyx or a licensee; and 20% of non-royalty payments that Ardelyx receives from a new collaboration partner, should we elect to license or otherwise provide rights, develop and commercialize tenapanor, or another NHE3 inhibitor, with all such amounts not to exceed $90 million.

During the quarter, Ardelyx also paid AstraZeneca an additional $10 million upfront in R&D costs and in consideration of the acceleration of the transfer of information data and materials to Ardelyx. In addition, AstraZeneca is obligated to complete the manufacture of clinical trial material necessary for the Phase III clinical program in IBS-c patients, and Ardelyx has agreed to purchase the Phase III clinical trial material and other drug product inventory from AstraZeneca for up to $10 million.

Second, on June 5, we closed a private placement equity transaction with net proceeds after all costs of $74.4 million. The purpose of this financing was to shore up our balance sheet and ensure we are able to achieve substantial clinical milestones over the near-term, and provide additional cash to support the termination agreement with AstraZeneca.

The resale of common stock issued in connection with the private placement, as well as the resale of those shares that may be issued upon the exercise of warrants, were subsequently registered with the SEC in a filing on July 13.

Finally, regarding our operational activities, we've continued to modestly expand our base R&D capabilities and several non-cash items were prominent during the quarter. We had a net income in the second quarter of 2015 of $9 million or $0.43 per basic and $0.42 per diluted share, primarily because we recognized all of our outstanding deferred revenue from AstraZeneca as a result of the termination agreement.

Deferred revenues were $43.1 million at the end of the first quarter, and this was offset primarily by the $25 million of aggregate payments to AstraZeneca, resulting in licensing revenues of $17.7 million in the second quarter.

Research and development expenses for the second quarter of 2015 were $6.2 million. And general and administrative expense was $2.9 million. The total $9.1 million represents primarily our base operational expenses for the Company, and has increased over the same period last year, primarily because of an increased scope of R&D activities and our being a public company.

This amount is expected to increase in the second half of 2015 as we purchase up to $10 million in clinical supplies of tenapanor from AstraZeneca, as set forth in our termination agreement; execute manufacturing agreements for our RDX022 potassium binding polymer; and begin to work with large clinical research organizations to commence clinical trials for our lead programs.

In sum, our balance sheet is strong, and we've built a strong team to support the promise of our growing pipeline. We expect to keep you abreast of our financial activities as we move forward into clinical trials and advance our programs -- multiple late-stage programs over the next 12 months.

Thank you, Mark. With that, we would like now to take any questions that you may have. As a reminder, we're also joined today by Jeremy Caldwell, Executive Vice President and Chief Scientific Officer; and David Rosenbaum, Senior Vice President of Drug Development, should you have any questions related to our clinical programs.

Operator, we are now ready to take questions.

(Operator Instructions) Kennen MacKay, Citi.

Thanks so much for taking my question. So I was wondering if you could speak just a little bit more on the disconnect between the phosphate affect and diarrhea? And if the new dialysis trial, the hyperphosphatemia trial, if there's any way to determine diarrhea risk and potentially avoid these patients?

Okay. So, as we showed in the slide deck that we presented most recently, we've been able to show that there are 50% of the individuals who have a good phosphate-lowering effect show no adverse events of any loose stools or diarrhea. In our upcoming hyperphosphatemia clinical trial, we are going to try to look at not only AEs, but the actual stool frequency and form of individual during the whole clinical trial. And by that way, we will be able to look at the actual effect of the drug on stool form in the ESRD patient population.

And one other note is, when you all were out in California for your bus tour, one of the things that we talked about was we've actually run two trials in the ESRD patients. The first one was the two-way interdialytic weight gain. And with that patient population, had far more insight in terms of what the potential pharmacology of the drug might be.

If you recall, the mean dose there was far higher at 34 milligrams twice a day. So, we think what will be -- they will do with this trial is both educate the patients in terms of what the effect of the drug is, so it's something they anticipate versus the fixed dose, that we saw in the IIb, and will have a significant difference in terms of response.

Got it, got it. And then in that same trial, can you talk a little bit about how titration will be done there?

Yes. So what we are planning to do -- and this is still in the planning stage right now -- is we're planning to start at a higher dose. So let's say at 30 milligrams BID. And based on individual stool form tolerability, they will be able to titrate in a stepwise manner from like 30, to 20, to 10, to 5, in that type of way. And so that will be very similar to that first ESRD clinical trial that Mike just referred to.

Got it, okay, terrific. And then just in terms of cash burn, is there anything you can comment on the cost of the two Phase II trials you are expecting to start later this year? I'm sorry, the Phase II and the Phase III?

So, this is Mark. We have not disclosed any details on the specific cost over the next 12 to 18 months, except to say that the overall program is $60 million to $85 million to get to an NDA. We may be giving more guidance on costs in the future, but we decided not to do that for now.

Okay, thanks, guys. I appreciate you taking my questions.

Mike King, JMP Securities. Mike King, your line is open. Please check your mute button.

Thanks for taking the question. I just wanted to ask you if you could share a progress report on the asset transfer fund from AstraZeneca just in terms of documentation as well as API, et cetera? Where are we in that process? When do we think it will be complete?

Yes. So just to repeat because you were fading out, Mike, but I believe you want an update in terms of the process of transfer of the asset from AstraZeneca. It's all going incredibly well. A lot of those folks have taken quite a bit of time off on vacation in the summer months, so you can imagine how it was a bit of a challenge.

But throughout, whether it is the manufacturing, we have been in Europe meeting with the contract manufacturer. We have been in Sweden on the clinical side on the scientific side exchanging mechanism of action. All the things that we would want to see. So everything is following as expected, from the negotiated timeline. And thus far, there have been no hiccups whatsoever. So it's going quite well.

So -- and what do you think, Mike? Would you be done with that whole process in September? Or are you going to be that granular?

Yes, it's -- I think what's important is that we retain the relationship with them, because of the ongoing presentations at ASN and co-authors, 99% of this will be done before the end of the year. But there's going to continue to be authorships and those sorts of interactions that will continue.

Okay, great. And then just further to that, can you talk about what gating items lie between you know the transfer from AstraZeneca and the actual commencement of the Phase III process for IBS-c?

So, if I understood that right -- you were fading out again -- is the timing of the Phase III. What we've said it's in the fourth quarter when the program begins. What I can tell you is with David and the team taking it over, it's accelerated from where it otherwise would have been. So that is completely on track and process is going forward as we need.

Can you hear me better now?

Yes.

Okay. Sorry. I think my headphone is on the way out. The question was what other items need to be done in between getting the assets analysis and actually starting Phase III for IBS-c?

The only thing now to complete is on our end. Everything from the transfer is done that needs to be transferred. So we are set to go, and it's just finalizing contracts and those sorts of things.

Okay. And then finally, just with regard to the prior question about diarrhea, are you guys going to make any dietary and/or hydration proposals or requests in the Phase III designed to sort of perhaps improve human factors in order to reduce the incidence and severity of diarrhea?

Yes. So, Mike, so the Phase III in IBS-c, we had very low rates of diarrhea there. We don't expect to need to do anything like that in the Phase III clinical trials.

And with regard to the Phase II for hyperphosphatemia?

Yes, still, there is no -- we've never had to do any guidance like that. As you recall, it has a very fast on and off. So if you have loose stools and it's something that you want to stop, if you stop taking the drug, it goes right away. So there's no need for any medical intervention at all.

And Mike, I think that's important why we're doing another Phase IIb, is to do this titration and to follow along after the 10 milligrams BID. When you talk to us during our R&D day, folks like Jeff Block -- he's treated 40 patients of his in the trials that we've run with tenapanor, does not see diarrhea as being a problem.

And I think what we are sometimes talking around is the process by which AEs are reported in the context of a clinical trial versus what it's like in the real world, a physician who is going to be working closely with their patient. So, we are pretty confident. But yet we still believe the right thing to do is to run a Phase IIb, just to confirm what it is that we feel about the drug, and get these data for the titration under our belts before we embark on a substantial Phase III program.

Great. Thank you very much.

Yes, thanks, Mike.

(Operator Instructions) Jason Gerberry, Leerink Partners.

Thanks for taking the question. Just on RDX022, just -- I'm just curious to get your commentary how derisking you view the pharmacodynamic study as it relates to the type of differentiation you want to show in your pivotal? It looks like if I just look at like Relypsa's pharmacodynamic study, it's just measuring kind of a mean serum potassium reduction at a couple timepoints. Very short-term evaluation.

I think you are going after tolerability and more convenient dosing versus the potassium scavengers. So just trying to understand exactly what the pharmacodynamic study, what we expect to learn there.

So I think by the nature of its title, we are looking at pharmacodynamics. So I think qualitatively, we will get some other things that we would want. Our -- we would not -- we actually don't have to do many of these kinds of studies because of the 505(b)2. But because of the kind of clinical work you are referencing, and the fact that Kayexalate has nothing in its package insert talking about the level of potassium that can be lowered, we felt it was important to treat this as though it were a comprehensive clinical program.

And so we'll clearly get pharmacodynamic results. Qualitatively, we'll see some of the tolerability issues that we believe we have a benefit for. And David can address some more too.

Yes. So, the way I look at it, it would be kind of foolish of me to jump right into a large Phase III clinical trial. I think based on the in vivo work that we have done, we want to ensure that we have the right dose range. We think that the drug may work even better. So it's a good idea for us to get a good understanding of what the pharmacodynamic properties are in this small pharmacodynamic study. And then we'll be all set for the right dose ranges in our Phase III.

Okay. And if I could just shift gears to the IBS program, I'm just kind of curious your guys' thoughts on Synergy's plecanatide reported out another CIC study. I realize it's a different population, but it looks like the rates of diarrhea with that GCC is a bit lower in the 4% to 5% pooled range from the two Phase III studies.

So just kind of curious how you guys are thinking about differentiation of your product, and potentially any tweaks you might make to your Phase III -- I don't know, secondary endpoints, to elucidate any of the additional benefits of tenapanor? Thanks.

Yes, sure. So, I look at that in two different ways. One is if you look at plecanatide, yes, it has a lower rate diarrhea than Linzess, but it also has a lower rate of efficacy. They work by the same mechanism, so I don't really see much of a difference between the two.

As far as tenapanor, we released information that we looked at the sustained responder or the durable responder effect, and that was the same endpoint that plecanatide used in their CIC clinical trials. If you look at the effect there -- and, as you know, there's a huge overlap between the CIC patient population and the IBS-c patient population -- if you look at our durable responder rate there, which is the nine of 12 week responder plus a response in three of the last four weeks, we had an extremely good response, much higher than what they have shown. So, I think our Phase III clinical trials, if we are able to repeat what we showed in our Phase IIb, that we'll have a much more efficacious drug.

Got it. Thank you.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Mike Raab for closing remarks.

Thank you, Shannon. The second-quarter was an exciting one for Ardelyx, and we look forward to continued progress in the second half of 2015, with several expected milestones to detail. On behalf of the entire Ardelyx team, we appreciate your support, and look forward to continuing our dialogue with all of you.

Thanks again for joining us. You may now disconnect.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.