Ardelyx Inc (ARDX) 2016 Q2 法說會逐字稿

Hello, ladies and gentlemen. Thank you for standing by and welcome to Ardelyx's second quarter 2016 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 Bill Slattery, Jr.; Account Manager at Burns McClellan, Incorporated, who will make introductory comments.

Thank you, Howard. Good afternoon and welcome to Ardelyx's second quarter 2016 earnings conference call. This afternoon, Ardelyx issued a press release providing the details of the Company's financial results for the second quarter of 2016 as well as a corporate and a clinical 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'ss President and Chief Executive Officer. He will be joined by Mark Kaufmann, Chief Financial Officer; Dr. Paul Korner, Executive Vice President and Chief Medical Officer, and Dr. David Rosenbaum, Senior Vice President of Drug Development.

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 patients with irritable bowl syndrome with constipation, or IBS-C; the potential for tenapanor in treating hyperphosphatemia in patients with end stage renal disease, or ESRD; the expected timing for the receipt of results from ongoing tenapanor clinical trials, and the expected timing of the initiation of the second tenapanor Phase 3 hyperphosphatemia clinical trial; the potential for RDX227675 in treating hyperkalemia in kidney and heart disease patients; the expected timing for the initiation of the RDX227675 Phase 3 clinical trial, and for the initiation of and the results from the onset of action in clinical trial for RDX227675, the expected timing for the filing of an IND for RDX98940; 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, RDX227675 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 and the uncertainties in the manufacture of clinical trial materials.

Ardelyx undertakes no obligation to update or revise any forward-looking statements. For a future 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 relating to Ardelyx's business in general, please refer to Ardelyx's quarterly report on Form 10-Q filed with the Securities and Exchange Commission on August 8, 2016 and it's future, current and period 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, Bill. Good afternoon, everyone, and thank you all for joining us. On today's call, I will review our recent clinical and corporate accomplishments and walk through Ardelyx's ongoing and planned clinical activities for the remainder of 2016 and 2017. Mark Kaufman, our Chief Financial Officer, will then provide financial highlights for the second quarter of 2016; Dr. Paul Korner, Executive Vice President and Chief Medical Officer, and Dr. David Rosenbaum, Senior Vice President of Drug Development, are also joining us today and will be available to address any questions you may have.

The second quarter of 2016 was highlighted by a number of important and exciting developments for Ardelyx. In June we note that upon the end of Phase 2 meeting with the FDA regarding tenapanor for the treatment of hyperphosphatemia in ESRD patients on dialysis, that our ongoing trial would be considered the first of our two Phase 3 trials for the indication. We were extremely pleased with the outcome as we believe that tenapanor can become an extremely important tool for physicians to better manage hyperphosphatemia dialysis patients.

Tenapanor is the first-in-class, non-binder therapeutic in development for patients with hyperphosphatemia, and we believe it has the potential to be a clear paradigm shift for these patients. Enrollment continues as planned, and we currently plan to share the results from the trial during the first quarter of 2017, and expect to initiate the second Phase 3 trial in the first half of 2017.

Also in June, we announced positive results from the once-a-day dosing arm of our RDX227675 PD study in healthy adult volunteers. Results from the final arm of the study demonstrated that 7675, at roughly 14 grams once-a-day, is able to bind potassium at similar levels as 7 grams twice-a-day and 4.6 grams three-times-a-day. Based on these data, we plan to evaluate QD and BID dosing regimens in our upcoming 7675 clinical trials.

Another significant event happened just a few weeks ago when we announced that the US PTO has issued an notice of allowance for a composition of matter patent application for 7675. This is a critical development as this patent will provide key intellectual property protection for 7675, exclusive without extension, through 2035.

When we originally conceived of the program we set a number of very specific goals. One, we thought it critical to eliminate sodium as a counter ion for these patients; and, two, we wanted to optimize the binding capacity of our binder. In addition to these critical performance measures, we felt it essential to improve palatability and develop formulations that would taste pleasant and be easier to take as adherence and compliance is going to be very important in ensuring that patients benefit from a potassium binder.

We have accomplished all of these goals and continue to believe that each of these important characteristics is vital for the management of hyperkalemia patients who've been prescribed anti-hypertensives such as base inhibitors and angiotensin 2 receptor blockers, as optimal dosing of these agents is often limited by elevated serum potassium.

In the fourth quarter this year, we plan to initiate a clinical trial designed to evaluate the onset of action of 7675, along with a safety and efficacy, in approximately 60 hyperkalemic patients. Additionally, in the fourth quarter of this year, we expect to initiate a Phase 3 clinical trial evaluating 7675 for the treatment of hyperkalemia in the same population as the onset of action study. Key end points we will evaluate in a placebo-controlled, randomized withdrawal study are the change in serum potassium from baseline to the end of a four-week treatment period, and change in serum potassium versus placebo. The initiation of this trial would mark our third program to be in Phase 3 clinical testing as we head into 2017.

Clearly, we have a lot of exciting things going on at Ardelyx and we recognize the need to strengthen our balance sheet as we commence all of these trials. With the pipe we closed in July, we had, on a pro forma basis, for the proceeds of the offering approximately $257 million on the balance sheet at June 30, 2016. Looking forward, our focus is the execution of our late stage clinical programs and the continued advancement of those programs towards commercialization. In 2017, we expect all three of our late stage programs to generate important clinical data. I've touched on a few of these key upcoming milestones already, which include, results from the ongoing first Phase 3 trial for validating tenapanor for the treatment of hyperphosphatemia for ESRD patients on dialysis, which are expected in the first quarter of 2017. Results from the planned RDX227675 onset of action trial are expected in the first half of next year.

Results from T3MPO-1, our ongoing 12-week Phase 3 trial evaluating tenapanor in patients with irritable bowel syndrome with constipation, or IBS-C, are expected mid-2017; and results from T3MPO-2, our ongoing six-month Phase 3 trial that evaluates tenapanor patients with IBS-C are expected by the end of 2017.

Finally, in the fourth quarter this year, we expect to file an IND for RDX98940; the lead product candidate from our RDX009 program, our minimally systemic TGR5 agonist that stimulates in the intestine the secretion of endogenous GLP-1 and GLP-2. We believe, based on our preclinical work, that our TGR5 agonist has the potential for use in a number of GI and metabolic disorders such as NASH, inflammatory bowel disease and diabetes. In sum, we continue to make excellent progress across all of our programs and execute as planned. Like 2016, we expect 2017 to be another momentous year for Ardelyx.

With that, I will now turn the call over to Mark Kaufmann, Ardelyx's CFO, who will review our second 2016 financial results.

Thank you, Mike. As Mike mentioned, we have approximately $257 million in the bank, pro forma, as of June 30. We're well-positioned to support the Company through receipt of our clinical milestones in 2017 and with sufficient cash at year-end 2017 to provide an adequate additional runway. Our goal in completing the private placement of common stock to rid the Company of any financial overhangs for these important milestones in 2017, which I believe we have succeeded in doing. Incidentally, we have not changed our guidance of $25 million to $30 million cash burn over the next several quarters.

Regarding the results from the second quarter of 2016, net loss was $28.6 million, or $0.83 per basic and diluted share, compared to a net income of $9 million, or $0.43 per basic and $0.42 per diluted share for the second quarter of 2016. Both licensing and collaborative development revenue decreased in the second quarter 2016 to $0.00 from $17.7 million and $0.4 million for the second quarter of 2015, respectively, because both of these items were recorded as part of the AstraZeneca agreement which was terminated in June 2015.

Research and development expenses for the second quarter of 2016 increased to $23.8 million from $6.2 million for the second quarter of 2015, as expected primarily due to the increased clinical development activities as well as clinical manufacturing and process development activities associated with tenapanor, 227675, and 98940. General and administrative expense was $4.9 million in the second quarter of 2016 as compared to $2.9 million for the second quarter of 2015. The increase was primarily due to an increase in professional services, including fees for market research and pre-commercialization activities, systems implementation and intellectual property management as well as an increase in personnel-related expenses and facility costs.

Cash and cash equivalents were $146.7 million as of June 30, 2016, compared with $107 million as of December 31, 2015, primarily is a result of the completion of an underwritten public offering in common stock in January 2016 that yielded approximately $80.8 million in net proceeds, offset by $41.1 million in cash required for operating and other activities. As noted, in July 2016, the Company also sold shares of its common stock in a pipe for aggregate proceeds of approximately $110 million.

I'm pleased to report that the financial condition of the Company has been strengthened in a way that allows us to focus on the execution of our clinical plan rather than the financing of them.

I'll now turn the call back over to Mike.

Thank you, Mark. With that, we would now like to take any questions that you may have. As a reminder, Dr. Paul Korner, Executive Vice President and Chief Medical Officer, and Dr. David Rosenbaum, Senior Vice President of Product Development, have joined us on today's call should you have any questions related to our clinical programs.

Howard, we are now ready to take questions.

(Operator instructions) Yigal Nochomovich from CitiGroup.

A question on the onset of action study, can you just go into a little bit more detail on what you expect to see there in the way of trying to affect - just in light of what we've already seen for Relypsa and ZS?

The study is designed to look at the rate of onset of action over the first 48 hours. We're in the study so we can give guidance to people on how fast the onset of action is. We don't know, but we don't expect there to be any surprises there, that it will work. But we do not know yet the speed at which it will work.

And then can you just clarify the Phase 3 that you are referencing that would serve as one of the pivotal trials for hyperphosphatemia? Is that the same as the Phase 2b; or are we talking about something else? It's just a little unclear.

It's the same. It's the ongoing trial.

So that's basically then sort of upgraded to a Phase 3 trial formally from a Phase 2b?

We referenced it in the press release. When we had the end of Phase 2 meeting with the FDA, what was previously the secondary end point - the randomized withdrawal portion of the trial at the end is not the primary end point as well as the FDA made a strong recommendation to provide an enriched population of responders from that first eight-week portion of the trial. So it is the same trial, but different end points as we looked at the opportunity with the FDA.

And did the FDA have any other specific feedback apart from changing the primary?

The FDA actually provided feedback that Mike just mentioned because they had a real interest in seeing the data and now weighed against placebo. They clearly expressed interest in this type of product being out there as another option for phosphate.

David Nierengarten from Wedbush.

Maybe a little bit more open-ended question. As we're getting towards next year where you're going to have several Phase 3 readouts, where are you on planning for commercialization? And kind of what should we look for over the next year in terms of ramps in that regard?

In terms of ramps, I think for expenses to be de minimis; we are already well underway in building a strategic plan around both market access, how we would look at promoting these products, where we would promote them to, what relationships we want to have - certainly, looking at European, Asian partners. All that is part of the plan that we are in the process of developing.

I think one of the biggest issues that we're going to face over the next period of time is going to be market access as we look at the change with kind of a peer organization and the way a company like ours would address the market. That was one of the key reasons to bring Paul on board when we did, and he and myself build out will begin happening towards the end of next year. Again, that will be modest, but a huge impact that that kind of group would be able to make. So next year, I wouldn't anticipate too much of a significant build above from where we are now in terms of commercial presence.

Jason Gerberry from Leerink Partners.

This is Ed Smith filling in for Jason. There's a couple of quick questions. First, wondered if you could frame the composition of matter patent on 7675 within the context of your overall IP portfolio strategy for the drug. Can we expect additional IP for the product, for example? And the other one was just a quick question going back to some of the exploratory Phase 2 data that suggested that tenapanor could play a role in lowering FGF23 levels? And I wondered if there was any additional updates on that finding?

Let me first address that last part, and Paul can address any plans that we have on publication. There isn't anything updated on that. Clearly, exciting data to see that kind of decrease in FGF23. But let's be realistic; if those patients on dialysis have sky high levels of FGF23, and looking at seeing that over a longer period of time is what we would expect and hope to see as part of our trials.

It's clearly going to be part of what we publish from the study that we have ongoing. And it's becoming an increasingly more important biomarker of risk that we hope to learn more about and generate more data on tenapanor specifically in the future trials as well.

And I think it's important to note that we have historically seen improvements in FGF23 with very high doses of binders delivered; it's just to practicable for patients to take that amount of binder as often as they need to. And that's what I think people often miss as they think about tenapanor is this is two small pills a day with that kind of response. And even the dose response that you saw in that at very low doses, you see dramatic FGF23 lowering.

Clearly, this is a paradigm shift for the pharmacology - what tenapanor is doing for phosphorus FGF23; and we often forget that this also blocks the absorption of sodium, another bad actor for both TK and [IBS] patients. So your question is a good one and one that I think does lead to some other benefits that we expect to see out of tenapanor.

As it relates to intellectual property, obviously, we can't predict what the US PTO is going to do. We were believing what we would get in terms of the patent that's composition of matter. We will always work to continue to expand our IP, be it by composition of matter, formulations, method use, manufacturing; all of those things are responsible things we continue to pursue in any of our products. So, nothing specific that I can address for that now; but certainly, once we get clarity from the US PTO as anything else emerges, that would be part of the releases that we would have in the future.

Mara Goldstein from Cantor Fitzgerald.

I have two questions both may be perhaps strategic in nature. And I'm just wondering in the field of hyperkalemia what your thoughts are given the projected merger between Relypsa and Galenica regarding going it alone in that market versus looking for a partner? And then just secondarily, now that you have this additional cash are there funds that are earmarked more for commercial? And where you think you'll be once you start to have data readouts for the cash funding for commercial activities?

We look at what's happening even going back to GS Pharma and now with Relypsa as great indications of other companies seeing the huge value that exists in the management of chronic hyperkalemia. I guess my view - and I've said it consistently - is the big markets - the chronic market - onset of action, although it's a critical part of what we're going to need in our package insert, is going to be less, I think, of a bigger market issue. Then that tends to be a discussion that people have about in-hospital acute use for managing hyperkalemia.

Under the context of hospital cost putting a binder into patients who may be cognitively impaired due to the situation that they're in, I can imagine them ingesting an expensive binder. I think, although it is happening with some of the scripts that we see written with [altace], is likely to be a smaller part of the market. The long term, mildly hyperkalemic patients whose ACE inhibitors are sub-optimally dosed, and that's where we know we can improve outcomes. That's the target market.

AZ knows how to build businesses and build markets; if you look at PTIs and Crestor, clearly a company that understands that well. I think with the Relypsa acquisition the same thing; it's a company that will develop wanting to come in and build that presence in the US is a very, very positive sign for the management of hyperkalemia. The fact that we now have intellectual property that covers us without extension through 2035, I think you'll get a taste of it where our Phase 1 QD data at 14 grams having the potassium binding; the effect that [altace] had at 28 grams; we clearly believe with the palatability with the palatability what we've done with flavoring and the variety that ultimately you'll have with these patients, we obviously believe that what we have, the 7675, is going to be optimal.

We all have to recognize that compliance adherence is going to be the name of the game for these patients. This a lot of material for these folks to ingest, and they're non-compliance in general, as most patients are taking oral meds. But you've got to make the potassium binder as palatable and easy to ingest as possible, which is what we've accomplished with 7675.

Specifically to your question about co-promotion versus going it alone; I'm certainly consistent in saying whether it's as AZ, which would require a relationship, and, certainly, hyperkalemia, which would require a relationship, we wouldn't do those without those data. And that was one of the reasons to raise the kind of capital that we did was to be in a far stronger negotiating position with a partner to do a licensing agreement - not a 50/50 co-co, because we want to make sure that we have the strength of those Phase 3 data in hand for those negotiations.

Certainly, we see a partnership in our future; but, obviously, we would look at deals that are presented to us that we can't say no to very seriously. But our objective right now is to generate those data and then move forward in relationships as we see fit.

Mike King from JMP Securities.

I've got a couple of quick follow-ups. Just wondering if you can - just as far as the second Phase 3 trial of tenapanor. You might have mentioned this on the call, although I may have missed it. Any appreciable difference in terms of either patient numbers or geographic locations? Or is it expected to be a direct replication of the first Phase 3 trial? And also if you could just tell us sort of the gating factors of why that's starting in the first half of 2017 versus any earlier time than that?

Let me address that last part first and then, David, if you want to talk about the design versus the current trial.

You know, if you look at the timing - remember, this first trial was originally 2ba, 2b, right? And a big part of what we were doing was getting our manufacturing up and running after its transfer back to us from AZ. Remember, it was just a year ago we got tenapanor back. But that was a negating factor. And we also we're seeing what we are doing now with this program being a Phase 3, the first one; nothing has changed in the timeline for the second one.

The ongoing clinical trial is an eight-week study followed by a four-week placebo-controlled randomized withdrawal period. The next clinical trial will be a long term safety study, so people will receive drugs for one year. That will be followed by the same placebo-controlled randomized withdrawal period. The clinical trial will probably be in the 300 patient size receiving drug, and it will probably include some e-international sites.

So from that standpoint, it should look fairly similar to the [ferric citrate] trial?

Yes, exactly.

And then just as far as you've been talking about market awareness for hyperkalemia, but I'm just wondering what you guys are doing as far as your market assessments for both dialysis and non-dialysis SlgAD patients for tenapanor in terms of, you know, in the real world utilization of phosphate binders where things are falling shorts, where improvements could be made, and just what segment of the market tenapanor may exploit, assuming successful clinical development and approval?

If you look at our primary market research, if you look at yield biotrends, decision resources, market research (inaudible); anything that we've seen talks about one of the most significant unmet medical needs for patients on dialysis with hyperphosphatemia is pill burdened. And there's just a massive amount of binder fatigue out there. All these binders, and you know me well; I launched [divelimere] and am pleased with how it performed, but they're all created equal in a lot of ways as it relates to phosphate management.

Something that provides fewer pills and, let's be clear, fewer and smaller pills; if you do three big pills it makes no difference because the mass and the fluid to ingest that is still as problematic as taking a handful of other pills that you do with other binders. So you need to make smaller pills like we have and fewer, which we have, number one. Number two, physicians have been looking for a new mechanism of action. There's never been anything out there but binders. When people talk about [Nitrosynimide], an axon inhibitor that Astellas began the trial and stopped moving forward with, was never getting a new mechanism of action.

My confidence says that this would be a first-in-class eventually drug. It's going to be a drug that is going to - what is the FGF23 opportunity; what do you see with hyperphosphatemia? The fact that we divert sodium, most of these patients are constipated and have the benefit of moving time out of the gut more rapidly is a good thing given where these patients are. I think we will have a significant percentage of the market that's going to be interested in what we have for them and what we can provide in terms of benefit of course presuming a successful outcome, as you said.

I guess I would ask, is that just the kind of things you're getting from AdBoard kind of feedback? Or have you gone more in-depth and closer to the physician community?

Both AdBoard in terms of KOLs; but it's really important to go to the treating community to make sure what they are seeing on the front lines is consistent and also the nursing and dietitians. And if you look across all the examples that I gave you, each of them are doing hundreds of nephrologists and associated caregivers. The number one issue is pill burden, pill mass. The number two issue is something that's going to be easier to take and mechanism of action. So we meet the criterion of many of the things that physicians and patients and caregivers have been asking for. We're going to have to earn the right, of course, with our clinical data; but this isn't just AdBoard; this is hundreds of (inaudible).

Matt Kaplan from Ladenburg Thalmann.

Just going back to 7675; in terms of the Phase 3 study there, could you give us a sense in terms of the timing that it will take to complete that study? And kind of paint us a picture in terms of potential timeline for filing NDA and approval?

Yes, we're not giving specific guidance, Matt, on trending of all those things ending. But what I think is fair to assume with all these trials ongoing, presuming successful outcomes, IBS-C, hyperphosphatemia and hyperkalemia all will be launching in 2019.

And then in terms of tenapanor in the hyperphosphatemia, do you expect to have any presence at ASN coming up later in November?

Yes, we'll be there. And, to be honest with you, we're going back to the work with AZ and things that we've done subsequently, there is an extensive publication strategy that includes posters, oral presentations and things that we're going to attempt to whether it's ASM, EBTA or DDW for IBS-2. So we will continue to have an expanding presence at all these meetings.

You expect to have publications there at that meeting, not just a booth or something?

Yes. We have some.

And then in terms of - I guess a question for Mark. Thinking about your R&D spend kind of going into this year and the next, obviously, the number of trials starting and the trials wrapping up, can you help us think about that, I guess, for the remainder of the year and 2017?

Well, I think we haven't been more granular on the $25 million to $30 million per quarter. And as we've said in the past it kind of bounces around for the reason that you give. G&A is relatively flat during the next several quarters. So it's all because of, as you point out, R&D. But again, we haven't been any more granular in that.

And then in terms of just one more follow-up on the - since the end of Phase 2 meeting for the hyperphosphatemia, now the ongoing Phase 2b is going to serve as your first Phase 3. Besides changing the end points for the study in terms of the eight-week and, I guess, the four-week withdrawal, are you changing the size of that study as well?

In order to ensure that we have the 90% power for the placebo portion of the study, an additional 50 patients who were included; and in our previous guidance we had indicated that the readout with them should end in the first quarter of 2017.

(Operator instructions) Tim Chiang from BTIG.

On the 7675 Phase 3 CKD trial you're going to start in the fourth quarter, how many patients do you guys plan on enrolling for that trial?

That'll be somewhere between 250 and 300-ish.

It'll be close to the number of patients, I guess, what Relypsa enrolled in [Casa] Phase 3 trial?

Yes.

The design of the trial is very similar to the design of their trial?

Yes; very similar.

And how confident are you guys that you only have to do one Phase 3 here? And I know you guys have just met with the FDA and they sort of supported this single Phase 3 trial; but I just wanted to make sure that you only needed the one trial here; is that right?

As part of the 505(b) route for this type of NDA it's standard and we've received guidance from the FDA that a single Phase 3 would be adequate. And that's very consistent with the 505(b) methodology.

But this is an open label extension trial, so you'll be following them for, what, all year; is that right?

In terms, the study itself.

So there will be a year-long Phase 2 portion of that trial; that is correct.

And maybe just one last question. Now that you've done the additional financing completed, are you guys pretty confident that you won't need to do another financing to get yourself to submission for both tenapanor and the two pivotal programs you're running in 7675 and hyperkalemia; is that right?

I don't think we've ever guided that the money that we were raising would get us through submission. I think what we have said is with the money that we've raised, the $110 million in the pipe, we get to the end of 2017 with approximately 12 months of cash remaining, depending upon what the burn would be at that time. What that doesn't factor in, Tim, is if we did licensing in Japan or other territories or in advance of that. But certainly not wanting to have any less than 12 months of cash on hand is another driving force as we look towards building out commercial, those sorts of things, like in the guidance we have given. And, frankly, the success we've had in bolstering our balance sheet is quite a significant accomplishment.

Thank you. As there are no additional questions at this time, I'd like to turn the conference back over to management for any closing remarks.

Thank you, Howard. As mentioned in this press release issued this afternoon and reiterated on today's call, we remain committed to advancing our clinical and pre-clinical product candidates for registration and approval and to becoming a fully integrated commercial biotech company.

We look forward to the remainder of 2016 and 2017, which will be characterized by a number of important milestones for Ardelyx, and confidence in our ability to achieve our objectives.

Thanks again for joining us today. We appreciate your continued interest in Ardelyx and look forward to maintaining an open dialogue with you over the coming months and providing updates on our programs.

Howard, you may now disconnect the call.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect.