Ardelyx Inc (ARDX) 2015 Q3 法說會逐字稿

Welcome to Ardelyx's third-quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, today's call is being recorded. It is now my pleasure to turn the call over to Kimberly Minarovich, Vice President of Investor Relations at Burns McClellan, who will make introductory comments.

Thank you. Good morning. Welcome to Ardelyx's third-quarter 2015 earnings conference call. Earlier this morning, Ardelyx issued a press release providing the details of the Company's financial results for the third quarter of 2015, as well as a Corporate update. The press release is available in 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 Mark Kaufmann, Chief Financial Officer and David Rosenbaum, Senior Vice President of Drug Development.

As a reminder during today's call, Ardelyx will be making forward-looking statements. To the extent that, that statements discussed on the 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 and hyperphosphatemia in CKD patients on dialysis, Ardelyx's future development plans for tenapanor and the timing thereof and the expected timing for the receipt of the results for the Phase 2 hyperphosphatemia clinical trial, the potential for RDX022 in treating hyperkalemia in kidney and heart disease patients, Ardelyx's future development plans for RDX022 and the timing thereof, the expected timing for the receipt of the results for the RDX022 pharmacodymanic clinical trial, 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, RDX022 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 research and the clinical development process, and the uncertainties in the manufacture of clinical trial material including process development, scale up, and tech transfer of manufacturing processes.

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 the Ardelyx's quarterly report on Form 10-Q to be filed with the Securities and Exchange Commission on November 12, 2015 and its future, current and periodic reports to be filed with the Securities and Exchange Commission. 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. Thank you all for joining us. On today's call, I will summarize our recent clinical and Corporate accomplishments and highlight our upcoming plans. I'm joined by David Rosenbaum, Senior Vice President of Drug Development as well as Mark Kaufmann, our Chief Financial Officer, who will review our financial results from the quarter.

Over the past three months, we have made significant strides with several of our key clinical candidates. Our efforts have allowed us to accelerate the timelines for tenapanor in IBS-C and for RDX022, a potassium binder for the treatment of hyperkalemia. In October, we initiated the first of two Phase 3 clinical trials evaluating tenapanor to treat patients with IBS-C. We designed those trials to closely match our previous Phase 2b clinical trial as well as other successful Phase 3 IBS-C clinical trials conducted in the industry.

The study includes a 12-week primary endpoint with a 4-week randomized withdrawal phase followed by an open-label extension. The primary endpoint of the study is the overall responder rate in 6 out of 12 weeks for patients treated with a 50-milligram dose of tenapanor administered twice daily versus placebo.

We have also included important secondary endpoints, such as the rate of complete spontaneous bowel movements, abdominal pain and other abdominal symptoms in 6 out of 12 weeks, as well as in 9 out of 12 weeks and the sustained responder endpoint that conferred via insight into the potential benefit of tenapanor in chronic idiopathic constipation. The trial will include about 300 patients per group. We expect enrollment to take approximately 12 months.

Additionally, I'm pleased to announce that we will begin our second Phase 3 trial in IBS-C patients in December, ahead of our original plan. The study was expected to start in the first quarter of 2016. This study will include a 12-week primary endpoint and a 26-week efficacy endpoint, along with an open-label extension. This study has similar primary and secondary endpoints as the first Phase 3 study and will additionally evaluate tenapanor versus placebo at 13 of 26 weeks. We also expect enrollment in this study to require about one year.

In addition to accelerating the IBS-C program, the Company is also on track to initiate a second Phase 2b study of tenapanor in December for the treatment of hyperphosphatemia in CKD patients on dialysis. The goal of this study is to optimize efficacy with the best tolerability profile for those patients.

As you recall, tenapanor demonstrated statistically significant dose-related decrease in serum phosphate levels in the first Phase 2 study with a P-value of 0.012. We currently expect data to be available from this trial in the second half of 2016.

Tenapanor has the potential to be an important first-in-class drug for the use -- for the treatment of hyperphosphatemia in dialysis patients with a significantly lower pill burden. As you know, tenapanor is the first drug candidate at this stage of development to have mechanism of phosphate reduction that is different from phosphate binders, a fact that has excited key opinion leaders and the principal investigators in our clinical studies. When we've completed our work, we plan to publish tenapanor's mechanism of action for phosphate reduction in an appropriate scientific format.

In addition to tenapanor, we've also accelerated the development timeline for our RDX022 program, our novel potassium binder. During the quarter, we began a pharmacodymanic study in healthy adult volunteers. While we previously anticipated that we would obtain results in the first half of 2016, due to the rapid pace of the study, we can now confirm that we expect results in January of 2016.

Based on the results from this PD study and ongoing manufacturing efforts, we expect to begin our Phase 3 clinical trial to evaluate RDX022 in the second half of 2016. To remind you, RDX022 is a carefully re-engineered form of polystyrene sulfonate, the polymer that the medical community has used for many decades to treat hyperkalemia. RDX022 has been designed to offer significant advantages over currently available polystyrene sulfonate based products.

First, we use a non-sodium counterion, so that we do not expect sodium-related side effects. Second, we are developing an entirely new formulation of polystyrene sulfonate to make it far more palatable for patients.

Third, we have made certain modifications that improve morphology and mouthfeel of RDX022, keeping within the product specifications that allow us to pursue a 505-b-2 approach with the FDA. We currently expect to be able to enter a Phase 3 clinical program with RDX022 in the second half of 2016. We will conduct appropriate drug-drug interaction studies prior to NDA submission.

Some other recent developments highlighted in our press release include Dr Geoff Block's presentation of our Phase 2b results with tenapanor for the treatment of hyperphosphatemia last week at the American Society of Nephrology Kidney Week in San Diego. Dr Block is the Director of Clinical Research at Denver Nephrology and has served as principal investigator for multiple clinical studies.

In October, data evaluating tenapanor in IBS-C patients were presented at the 2015 American College of Gastroenterology Annual Meeting. As we come to the end of 2015, we will have fully transformed the Company from one with an out-licensed lead program and pipeline of early stage products to one with three mid- to late-stage clinical programs comprised of products that are being built solely by Ardelyx and are on the path towards commercialization. I will now turn the call over to Mark Kaufmann, Ardelyx's CFO, who will review third-quarter 2015 financial results.

Thanks, Mike. As usual practice for the Company, rather than review all of the information disclosed in the press release, I'd like to focus on a few specific financial highlights. Our cash position remains strong with $129 million in cash at the end of the third quarter versus $107.2 million at December 31, 2014. The main reason for this increase is the financing we closed in June in which we raised $74.3 million in net proceeds after deducting issuance comps.

This was offset by our operating expenses and working capital needs during the first nine months, as well as our termination agreement with AstraZeneca, which resulted in a $25 million upfront payment. We had a net loss in the third quarter of 2015 of $18.1 million or a loss of $0.70 per basic and diluted share compared to a net income of $74,000 or $0 per basic and diluted share in the third quarter of 2014.

This change primarily reflects two aspects of our business. First, the AstraZeneca licensing agreement was terminated in June 2015. As a result, we did not recognize any amortization of deferred revenue in the third quarter. Second, the Company's operating expenses have increased significantly to reflect the Company's new clinical trial start up expenses as well as manufacturing expenses.

One aspect that bears mentioning is the status of the transfer of clinical trial materials from AstraZeneca. Last quarter, we announced that we would pay up to $10 million for clinical trial materials in process or already made by AZ. Subsequently, we've reduced that amount to $8 million during the quarter. We have accrued $7.3 million of that amount to reflect partial receipt of tenapanor from AZ for our clinical studies. The remaining technology transfer activities has essentially been completed.

So in conclusion, we're in the process of embarking on several large clinical studies. We're excited to solidify our status as a Phase 3 Company. We are looking forward to updating you as we move forward.

Thank you, Mark. With that, we would now like to take any questions you have. As a reminder, we're also joined today by 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)

Jason Gerberry, Leerink.

This is Etzer Darout filling in for Jason. Just one quick question on RDX022. Wondered if you could comment on the recent Veltassa approval and black box warnings that it received? I heard you mentioning that you were planning to do DDI studies prior to the submission. I just wondered is that a -- just a derisking for that potential drug binding event that these drugs may be attributed with? Wondered if you could provide a little bit more color on that?

Yes. Et, so we're thrilled that Veltassa got approved. Clearly, this is a significant market that merits an awful lot of work by all of the companies involved to build it. DDI studies are standard fare; if you look back to my experience and David's experience with sevelamer, we actually did something quite similar that Veltassa has experienced and ultimately learned then that what you do in vitro does not necessarily correlate to the in vivo experience.

So the specific commentary that we said in my opening comments that we will conduct appropriate drug-drug interaction studies prior to NDA submission is exactly that. We'll do the work to make sure that we have the proper information on the label when it comes time for approval versus on the confusion that has had to work itself out with the Veltassa approval.

Thank you.

Mike King, JMP Securities.

I had a couple on tenapanor and then probably one or two on 022. So in tenapanor in IBS-C, can you talk about whether you're allowing for enrollment of patients who have failed drugs LINZESS oral EC? Or will these be patients, who are naive to treatment? That's the first question.

Sure. Mike, this is David Rosenbaum. Yes, so we are allowing for that. There is no exclusion in the clinical protocol that would exclude individuals who have been on other IBS-C therapies.

Will there have to be some wash out period?

Yes. So as a standard -- so in this clinical protocol, you would have to be off other IBS-C meds for a week before starting. Then there's a standard two-week screening period in which you assess individuals active IBS-C states.

Okay, great. Then in regards to the dialysis study, can you talk about what your assumption's going to be for your active control? Can you also tell us a bit about the number and frequency of dose adjustments that you'll permit?

Sure. So first of all, this is a two-part study. In the first part, there are three arms that are tenapanor only. One arm is 3-milligrams BID fixed-dose, another arm is 10-milligrams BID fixed-dose. The third arm is this down titration arm, which you just asked about.

Everyone will start at 30-milligrams BID They will be allowed to adjust their dose during the first four weeks of the clinical trial. So they will be allowed to if needed, based on GI tolerability, go down to 20-milligrams BID, 15-milligrams BID, 10-milligrams BID, and then finally 3-milligrams BID, at which point their dose will be fixed for the last four weeks of the clinical trial.

The second part was?

The active comparator? If you're -- when you do the (multiple speakers)

Yes. So, in the randomized withdrawal period, which is the second part of the clinical trial, it's a placebo-controlled, there is no active comparator.

Okay. All right, thank you. Then on 022, I'm just wondering what -- I guess a couple questions. First is, it seems like you're making a lot of modifications. So I'm just wondering if you can comment on that relative to 505-b-s status, especially if you're going to use a different counterion?

Then I would also ask you about whether you all start your DDIs before the COleDate label is changed or after? Thank you.

So the first part is -- so what we are doing is making slight changes to the drug while staying in the same structure and staying within the specifications currently available to Kayexalates. You can change the counterion and still remain under a 505-b-2. The salt form is not, it can be adjusted.

As far as the second part -- so second part is we are not just dependent on Kayexalates, the generic doing the DDI studies first when we reported doing ours. We see ours as a completely different product in order to undertake those DDI studies appropriately.

Tim Chiang, BTIG.

David, could you talk a little bit about the patient sizes for the two pivotal studies for tenapanor in IBS-C?

Sure, Tim. So in both clinical trials, there are, well A, there's only two groups in both; one is 50-milligrams BID and the other is placebo. Each arm will have around 300 per arm. We chose 300 per arm because at 300, we will have a 95% power to show a 15% drug effect or an 80% power to show 11.6% drug effect. If you'll recall, the effect that we saw in our Phase 3 primary endpoints from our Phase 2b clinical trials was 26.4%. So we have powered it to show a much lower effect so we feel that it's a very robust clinical trial design.

Thanks. Mike, I had one follow-up. Coming back from the ACG conference, what -- could you talk a little bit about what sort of feedback you're getting from physicians? What are they looking for in an IBS-C treatment? Do you think tenapanor can fill a niche in that marketplace down the road?

So I'll comment a little bit generally and then have David comment on any feedback he got at ACG. I did not attend that. But I think the biggest issue that we expect to overcome if you look at the Phase 2a that we ran and then ultimately the results in our 2b.

Our overall responder rate of 50%, not adjusted for placebo, compared to the 30%-ish in both mononucleotide and placanatide. We feel that we will have an overall responder rate that's greater than the GC/CI can [assert out] there, with lower rates of diarrhea, which is evidenced both by our Phase 2a and our Phase 2b.

Overall as we've talked, our objective is to normalize bowel movements in this population. That's why we look at the sustained responder rate where we've gotten a substantial number of our patients x three bowel movements per week at a minimum. So that's well within the normal range. So that is the biggest differentiators compared to what we see or hear about in terms of how patients are actually dealing with LINZESS in the amount of diarrhea that they experience.

Tim, I think the feedback that I've got is actually, there are two things. One is, when people see the results from our Phase 2a study and see that we had a once a day drug that had, in a small full week clinical trial, had a nice effect with no difference in diarrhea between that group and the placebo, as well as the results, the highly statistically, significant results we had in our Phase 2b study, they are starting to see the drug that they think they might be able to use at different doses. Start people at 100-milligrams, once a day in those people that it works great, they expect low rates of diarrhea. In those that don't, they could split it and do a 50-milligram BID and increase the efficacy.

So I think they see a drug that they could actually titrate unlike any other treatment that's available. The other thing that everyone always points to is the rates of diarrhea, between that Phase 2a study and the 11.2% rate that we started in Phase 2b study, they see a potential drug that won't have as high of rates of diarrhea.

Okay. Maybe just one last question. I mean, at what point will you guys consider running chronic constipation studies with tenapanor?

Yes. So Tim, I guess we look at it two different ways. One, as we've said before, we would like to see the results of our first Phase 3 IBS-C clinical trial. Two, in our Phase 3 clinical trials, in both, we have as a key secondary endpoint the sustained or durable responder endpoint. What this endpoint is, is the overall response as well as the complete spontaneous bowel movement response in 9 of 12 weeks and 3 of the last 4 weeks, which means individuals have to have an increase of at least one complete spontaneous bowel movement and have at least a total of three in that week as well as a 30% decrease in abdominal pain.

This endpoint, when you look at the CFBM sustained responder endpoint, this is the same that is currently used in chronic idiopathic constipation clinical trials. We believe the results of that clinical trial will give good insights to us as well as key opinion leaders and investigators of the utility of the drug in chronic idiopathic constipation. There is a huge overlap that you look in the literature between the IBS-C patient population and chronic constipation population.

Okay, great. Thanks very much.

Mara Goldstein, Cantor Fitzgerald.

I just had a question on the tenapanor study and the hyperphosphatemia. I know the numbers are small, but if you look at the percent of patients who discontinue -- who completed the study, it was lowest in both the 30-milligram arms. I'm just wondering if that's related to the GI side effects? How that gets managed?

Yes, that's a really good question, Mara. So you are right, from the Phase 2b study that we previously reported, the 30-milligram BID group had the highest rate of discontinuation. That was predominantly due to the loose stools and diarrhea produced by tenapanor treatment.

If you recall, we ran an ESID study, where we were looking at interdialytic weight gain. In that clinical trial, which was a double-blind placebo-controlled study, in which there was a dose titration arm and a placebo arm. There were 45 in each group.

In the dose titration arm, everyone started at 45-milligram BID and they were allowed to weekly down titrate based on GI tolerability, in which they could go down to 30, 15 and 5. When we unblinded the study, we saw two things. The mean dose was 34-milligrams BID, which is higher than what we used in this Phase 2b hyperphosphatemia trial. Only one individual out of 45 discontinued.

So when we think forward to this hyperphosphatemia clinical trial that we're starting in December, we have a dose titration arm in which we are starting at 30. If you look at the results, even from our Phase 2b, two-thirds of the individuals stayed at 30 throughout the whole clinical trial with no issues, with no reason to discontinue. So the way we look at it is, if we see that it's the same thing, at the end of the clinical trial -- there's 50 people per group.

We'll have 20 to 30 people perhaps staying at the 30-milligram group and then some will go down to the 20 and a few more will go down to the 15 or the 10. By doing this, we're allowing people treatment options because of the heterogeneity of their individual bowel habits, the drug can affect them slightly differently. So at the end, we'll have improved the dropout rate and we'll have maximized the efficacy because we'll have a higher dose in that group.

Right, okay. Okay, thank you. I appreciate that.

(Operator Instructions)

Tim Chiang, BTIG.

Just a quick follow-up. Mark, could you talk a little bit about just what your expectations for cash burn are going forward, given the acceleration on the R&D pipeline?

Sure. We actually have not provided specific guidance, as you know. The only thing we've provided is sort of a general sense of -- the overall burn rate has been running around -- this would be R&D plus G&A, not including the clinical trial, the new clinical trial with C&C expenses, it's around $30 million to $40 million a year. We have provided the guidance of how much it will cost to get to in NDA for these programs, which is $65 million to $80 million for tenapanor IBS-C and then $40 million to $50 million for hyperphosphatemia and $40 million to $50 million for hyperkalemia, already a Code-22 program. That is all we've provided to date.

Okay. So that probably doesn't really change materially, does it?

(multiple speakers) the amounts that I gave, no, that does not change.

Okay, great. Thanks very much.

Sure.

Thank you. That is all the questions that we have in the queue at this time, so I'd like to turn the call back over to Mike Raab for closing remarks.

Thank you, operator. The recent achievements and increased momentum of Ardelyx's clinical programs have positioned the Company well to achieve our milestones. We look forward to continued progress during the remainder of 2015 and to several upcoming milestones in 2016. On behalf of the entire Ardelyx team, we appreciate your support and look forward to continuing to share our milestones with all of you. Thanks again for joining us. Operator, you may now disconnect.

Ladies and gentlemen, thank you again for your participation in today's conference. This now concludes the program. You may all disconnect your telephone lines at this time. Everyone, have a great day.