Ardelyx, Inc.

Good afternoon and welcome to the RDELX's second quarter 2022 conference call. At this time, all participants are in a listen-only mode. There will be a question and answer session after the prepared remarks. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. As a reminder, today's call is being recorded. I would now like to turn the call over to Justin Renz, Chief Financial Officer of Ardelix. You may begin.

Thank you, and good afternoon, everyone, and welcome to our second quarter financial results call. During this call, we will refer to the press release issued earlier today, which is available in the investor section of the company's website at Ardelix.com. On the call with me today are Mike Robb, President and CEO, and Susan Rodriguez, Chief Commercial Officer with prepared remarks. Dr. Laura Williams, Chief Medical Officer, Dr. David Rosenbaum, Chief Development Officer, and Rob Blanks, Chief Regulatory Affairs and Quality Assurance Officer, will join us for the question and answer period. During this call, we will be making forward-looking statements that are subject to risks and uncertainties. Our actual results may differ materially from those described. We encourage you to review our risk factors in our quarterly report on Form 10-Q filed today, which can also be found on our website at ardalex.com. While we may elect to update these forward-looking statements in the future, we specifically disclaim any obligation to do so, even if our views should change. And with that, I will pass the call over to Mike.

Thank you, Justin, and good afternoon, everyone. It is a great pleasure that I provide you an update on our progress since our last call. First, for Exrella, I'm pleased to report that we continue to make great progress in our launch, laying the foundation for growth and meaningful market penetration of this important product. During these first three months of launch, the commercial team has made significant inroads in building demand for Exrella. Physicians are enthusiastic to have a novel drug added to their treatment armamentarium and are responding favorably to the Exrella first-in-class mechanism and clinical data. Integration of Ibsrella into already established processes across GI offices is driving favorable prior authorization approval rates, thus enabling patient access for Ibsrella. Awareness and intent to prescribe Ibsrella is growing with well-coordinated scientific engagement and education, our high-impact Salesforce efforts, and broad reaching initiatives. Susan will provide more details on the momentum we are building and why we are excited about the important role that we believe Azrella will play in the treatment of IBSC. Turning briefly to Exposon. As we announced in June, we received notification from the FDA that they will convene a cardiovascular and renal advisory drug advisory committee tentatively scheduled for November 16th to gain additional insights into the clinical meaningfulness of the phosphate lowering effect observed in our phase three clinical program for Exposon. We welcome this advisory panel as it will allow the FDA to receive input from treating clinicians to get a better understanding of their perspective on the clinical meaningfulness and significance of the phosphate lowering effect observed in our clinical trials at Exposa. There is strong support within the nephrology community for Exposa bolstered by their belief in the importance of the need for novel mechanism therapies for the treatment of hyperphosphatemia. We are preparing for the adcom with a goal of demonstrating the important role Exposa can play in advancing the management of hyperphosphatemia for patients with CKD on dialysis. We are driven by our limitations and stockholders and know that execution and operational excellence is imperative to our success. We take great pride in our accomplishments across our programs, especially in such a tough market environment. We continue to exercise cash management, and we've undertaken multiple steps to bolster our balance sheet and raise non-diluted capital. In April, we announced an amendment to our license agreement with Oya Kirin, or KKC, our partner in Japan for hypophosphatemia, which may provide us up to an additional $40 million payable in two tranches in return for reduced royalties. The first tranche is expected within the second half of this year following KKC's mission of its application to market tenapenor in Japan. The second tranche is expected within the second half of 2023 following KKC's receipt of regulatory approval to market cunefenol for hyperphosphatemia in Japan. In addition, last month we announced that we had further monetized under the remaining royalties due to us from KKC, under which we may receive up to an additional $20 million. Under the agreement, we received a $10 million upfront payment And additionally, we expect to receive $5 million following KKC's receipt of regulatory approval to market Tanapinor for hyperphosphatine in Japan, and $5 million in the event net sales in Japan exceed a certain annual target level in 2025. In return, healthcare royalty partners will receive the royalty payments and commercial sales milestones that may become due us under our agreement with KKC. In summary, we see ourselves as a highly differentiated revenue-generating biopharmaceutical company. We are in the early phases of launching Ipsirella, an important advancement for the treatment of IBSC. We have an opportunity ahead of us with a November 16th advisory committee meeting to advance our formal dispute resolution process and demonstrate to the committee of the meaningfulness of Exposys phosphate reduction. We have a pipeline of two internally discovered candidates, which include RDX13 for hyperkalemia and RDX020 for metabolic acidosis. and we have a strengthening cash position. This unique position is a result of our dedicated, tenacious, and talented teams across the company. It is evidence of our vision, our science, and our belief in the drugs that we've created, coupled with persistence and a laser focus on the execution of our strategies. Now I'd like to pass the call to Susan to provide an update on the launch of the Zerola. Susan?

Thanks, Mike. We are three months into the launch of Adrella, and I'm pleased to report early and solid progress across a number of key launch parameters that are good proxies for future market penetration and revenue growth. Our on-market experience is confirming the need for new options to treat IBSC, the role Adrella can play to address this need, and the extent to which a significant subset of currently treated IBSC patients are seen as candidates that can benefit from Instrella Therapy. First, our access and reach with prescribers. Our sales force is mobilized and making good headway securing face-to-face meetings with top prescribers. These sales efforts are further amplified by omnichannel tactics targeting these high prescribers, leveraging the rapidly advancing marketplace dynamics on how and where HCPs receive information. As of month three, Our sales force has reached 56% of the highest-writing GIs, with 87% of our target GIs reached at high-intensity levels through our omni-channel digital tactics. Second, physicians are responding favorably to the availability of Insurella and confirming that a meaningful subset of their existing patients are in need of a novel treatment approach. We are positioning Abzrella as a first-in-class NHE3 inhibitor with a triple action to treat IBSV, emphasizing its differentiated mechanism of action and clinical data that demonstrate significant improvement in abdominal pain, bloating, and constipation with a quick onset of action, sustained efficacy, and an acceptable safety and tolerability profile. In addition to the ramp-up of our promotional efforts, Visibility of Adrella across scientific forums during our launch quarter is also noteworthy. The American Gastroenterological Association announced their updated clinical practice guidelines on the pharmacological management of irritable bowel syndrome with constipation in May. Within a month of our launch, the updated guidelines include Adrella for the treatment of IBSC. In addition, Ardelix had a strong commercial and scientific presence at Digestive Disease Week, the largest annual gastroenterology meeting that was held in May in San Diego. The meeting included poster presentation of long-term data demonstrating the impact of Exrella on abdominal pain and other abdominal symptoms, effect of Exrella on treatment satisfaction, degree of relief, and quality of life, and early onset of action in treating symptoms of irritable bowel syndrome with constipation. Ithrella is gaining visibility across the medical community, and the product's favorable reputation is growing across the GI community. Findings reported by the independent syndicated launch tracking research published monthly by Spirix Global Insights, who has selected Ithrella as one of the key launches in the GI space to follow, indicate that our promotional efforts and medical presence is having an impact. Spherics reports that as of month three, 66% of GIs report unaided awareness of Ithrella, 41% report use of Ithrella, and 92% of those surveyed rate Ithrella as either a substantial or moderate advance over currently available therapies. Percent of patients considered to be candidates for treatment with IZRELA was reported at 31%. A third key launch parameter centers on the office submission of prior authorizations to enable patient access to IZRELA. Offices are integrating IZRELA into their practice processes, working through their already established preferred specialty pharmacies or through our DELICS Assist, our patient services program, to access Ibsrella for their patients. Our early results demonstrate that we are altering IBSC prescribing habits, practice by practice, based on the fact that treatments have been limited and Ibsrella, as a differentiated therapy option, addresses an important patient need. HCPs and their office teams recognize the need to submit prior authorizations when they prescribe Ibsrella and are motivated to do so since the patients they believe can benefit have already been treated with existing treatments and meet the prior authorization requirements. Our distribution network further supports office practices for handling specialty product prescriptions. We are pleased to report a newly established agreement with BioRidge, a specialty wholesale distributor with a comprehensive network of over 200 specialty pharmacies, to support the distribution and dispensing of Insurella, Additionally, Ibsrella is stocked across all major wholesalers who also supply independent specialty pharmacies. Securing direct agreements with large GI groups in-house pharmacies is also ongoing. Turning to a fourth key launch parameter, market access, I'm pleased to report that outcomes in our first quarter of launch have exceeded our expectations. We are finding early in our launch that there are many patients who have been treated with the limited therapies available, have been in need of alternative mechanism options, and until the launch of Ipsrella have had none available. As a result, we are finding the patients prescribed Ipsrella commonly meet pay or step edit prior authorization requirements and therefore are yielding favorable PA approval rates. Additionally, our co-pay assistance program that can be accessed by patients with commercial insurance, combined with the reasonable out-of-pocket requirements for certain segments insured by government payers, makes Adrella affordable for many patients. And those who cannot afford Adrella are eligible to apply for patient assistance and can access Adrella at no cost if they meet the eligibility criteria. The access and affordability dynamics we are seeing early in this launch are promising early signs that will build uptake momentum. The fifth and last key launch parameter I would like to highlight is among the most important. Physicians are reporting positive feedback regarding their early treatment experience with Indrella, telling us that Indrella is working well and provided a much needed new option. The month three Spherix readout states, that 41% of the physicians that have used Ibsrella report moderate satisfaction and 59% report high satisfaction. In summary, our first launch quarter was characterized by advances on multiple fronts that made deep inroads in laying the groundwork for revenue growth. Physicians are recognizing patient need for Ibsrella where there has been limited options historically. Physician offices are motivated, willing, and experienced in navigating prior authorization requirements. The pool of patients who meet the prior treatment requirement is sizable. Patients are gaining access to Ipsrella, and physicians are reporting satisfaction with their early experiences. We look forward to keeping you posted on our activities and progress toward realizing the market potential for Ipsrella. I will now turn the call over to Justin to review our Q1 2022 financial. Justin?

Thank you, Susan. At the end of the second quarter of 2022, we had total cash, cash equivalents, and short-term investments of $81 million, as compared to total cash, cash equivalents, and investments of $116.7 million as of December 31st, 2021. In our first quarter of launch, Net product sales of Ibsrella were approximately $1.6 million. When combined with our lunch pre-stocking revenue shipments we made in late March, we're at just over $2 million in net product sales as of June 30th. Research and development expenses were $9.7 million for the quarter ended June 30th, 2022, a decrease of $16.3 million, or approximately 63%, compared to $26 million for the same quarter last year. This decrease in our R&D expenses is primarily the result of lower clinical study costs from the OPTIMIZE study, lower Tanapnor manufacturing expense as we have begun to capitalize costs associated with Ibsrella inventory, and lower expenses following the elimination of our research function in the fourth quarter of 2021. Selling, general, and administrative expenses were $18.9 million for the quarter ended June 30th, 2022, a decrease of $1.3 million, or approximately 6%, compared to $20.1 million for the quarter ended June 30, 2021. The decrease in selling, general, and administrative expenses was primarily due to the timing of costs associated with preparing for and carrying out the commercial launch of Adrella. The net loss for the quarter ended June 30, 2022, was $26.9 million, or 19 cents per share, compared to $45.2 million, or 45 cents per share, for the same quarter last year. We recognize the importance for us to maintain a strong balance sheet and cash position. We are pleased to have completed important transactions in the second quarter, such as the KKC License Agreement Amendment and the HCR Royalty Tail Financing that have the potential to provide us with significant non-dilutive capital. We will continue to pursue all efforts to strengthen our balance sheet and exercise judicious cash management. As a follow-up reminder to Mike's earlier comments, we now have the opportunity to receive up to an additional $70 million in non-dilutive capital over the next 16 months based on the potential advancement of Tenopnor for hyperphosphatemia in Japan. We have confidence in our ability to continue to fund our operations. I will now turn the call back to Mike for some concluding comments before we open the call up for questions. Mike?

Thanks, Justin. In our first quarter call, I highlighted the exciting and transformational time for Ardelex. We are evolving into an impressive growth story with many opportunities ahead. As we report on our significant progress and momentum in the second quarter, those words could not have been more prophetic. Before I open the call to questions, I'd like to emphasize a number of points. We are committed to our efforts to drive significant progress on the commercial front with Azarella. Our continued focus on launch execution supports and is facilitating the market's embrace of this new treatment option and is already driving change in the treatment practices for patients with IBSC. The positive response we hear from early adopters of Azarella and the role it can play in treating patients with IBSC further convinces us of the importance of this critical new medicine. As is the case in the launch of any new product, there continues to be work ahead on continuing to build upon this early momentum. I want to emphasize that I have tremendous confidence in Izrella, what it can bring to patients with IBSC and the spectacular commercial team that Susan has built and their ability to meet our corporate objectives. The opportunity for us with Izrella is significant as it provides clear line of sight to financial break even. Finally, As we look forward to making the case for Exclusa to the FDA's Advisory Committee meeting in November, as we believe that it will be an essential treatment for patients with CK on dialysis with hyperplasticity. We look forward to keeping you apprised of our progress. And with that, I will now open the call to questions. Abigail.

Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone. Please stand by while we compile the Q&A roster. Our first question. Our first question comes from the line of Chris Powerton with Jefferies. Your line is open.

Great. Well, thanks so much for taking the questions and congratulations on the strong numbers so far from the launch. I think maybe just a few questions as it relates to the launch and then one on the pipeline, if you don't mind. With respect to the launch itself, wondering if you could describe to us the nature of the scripts that you're seeing thus far. I mean, are they, my assumptions would be that they would mainly be from patients that are dissatisfied with currently available treatments. So like second line or refractory patients, perhaps we would call them. And then as it relates to the doctor's offices, how often are you seeing instances where there's multiple scripts or patients being treated with Ibsrella by the same doctor or office. And then a third just kind of housekeeping question as it relates to the launch would be, how well do things like IQVIA track everything thus far? Sure.

So first, I think we're, as I said, even in the first quarter discussion, is that we're still in the anecdotal phase of this. But I've got to tell you some of the stories that we hear coming in from the field of, sure, there's plenty of patients that are tough to treat who have been trying to find relief for years and have been unsuccessful with the therapies that are out there. And we get these comments of, you know, patients when the physician comes in after the trial of using Azarella and they're crying because they've never had relief like they had our experience with Azarella. So it's very heartening. And not surprising that those difficult patients who have not been responsive to other therapies are the first ones that physicians want to seek to find relief. Let me pass it on to Susan to further that and talk about what we're seeing in terms of refills and multiple scripts written and sort of how that experience is beginning to emerge.

Thank you, Mike. Thank you, Chris, for the question. I think, you know, one thing to point out, you used the term second line refractory, but what we're really seeing on the ground in our first three months of launch is that physicians are feeding back that they have really had a need for an alternative approach for novel mechanism approaches. What we hear from them is that they consider IBSC to be a condition of multifactorial pathophysiology And I think people haven't realized, truly, when you look at the IBSC market today, it's actually a market with rather limited options. It's an uncluttered market. There's a really limited number of options, all that work through basically the same mechanism. So what we're finding in terms of the patients that are being selected is that physicians are telling us that these are all highly symptomatic patients. They communicate their symptoms to the physician. And they've been doing that for quite some time. So those are the patients that are being treated with Ipsirella, patients that the way the physicians characterize to us are patients that are in need of novel approaches. And what's very encouraging in terms of an early sign in our launch is that this group of patients really seems to be quite sizable, as I noted in the narrative earlier. The SPHERICS data tells us that the physician surveyed report around 31% of their patients are considered to be candidates for treatment with Israel. I think in terms of the, you know, the repeat scripts and refills, et cetera, we are clearly seeing some nice refill rates moving forward, but it's still very early. I think what's important to note is this, you know, in these first three months, we've really hit some key parameters in terms of integrating into offices prior authorization practices. They're having early favorable experience with prior authorization approval rates, and they're having early favorable experience with the treatment of Ipsrella. So all these things are happening as we speak. It's still early, and clearly we see opportunity moving forward for these practices where we have built a foundation and we're established to grow the number of patients that they're using Ipsrella with. And I think your last point around IQV and Symfony, it is very interesting. You know, it's always challenging early in launch based on the capture rates and the projection methodologies that actually differ between IQV and Symfony and are not completely transparent. But what we find, they affect directionally, they give us some sense of our growth trajectory, but really... one probably you know that which one is closer to the actual we really can't tell you right now but they directionally they are somewhat informative okay very good um i guess maybe i'll hop back in the queue to give others a chance i really appreciate it thank you thanks chris thank you

Our next question comes from Matt Kaplan with Ladenburg-Talman.

Your line is open.

Hi, guys. Good afternoon. Thanks for taking the questions. I guess focusing on the Izrella launch, are you doing any sampling, or is there any free drug that you're giving away at this point?

Yeah, Susan?

Yes, we are sampling all of our key target offices. So that is typically how the physicians like to trial. They start with the sample before they see that they're responding well and move forward with the prescription. So we are having, you know, very smooth uptake process from that perspective. And the other thing we offer through our patient services program, to the extent that there is a delay in, you know, payer approval of the PA, which we're actually seeing them go through pretty quickly, but in the event where there is any delay, we can offer the patient some bridging product. But that represents the total offering for the patient to try to make it the smoothest trial process, get the prescription filled, and make sure that the patient can access Estrella.

Great. And then, assuming there's a positive outcome for the adcom, What are the next steps after that, and what's the path forward to potential approval?

Sure. A couple of comments, and then I'll ask Rob Blanks, our chief regulatory officer, to comment on the process. It depends upon what comes out of the adcom. It could be a shorter two months, so we don't have an ND on file, so we have to refile. It could be two months, or it could be six months, depending upon what the outcome would be for the trial. Rob, anything to add?

No, not really, Mike. Obviously, this is part of our appeal process. Once we have the adcom and the OND then has 30 days to respond to us, if our appeal is granted, as Mike has said, we'd have to resubmit the NDA.

Okay. And imagine, Matt, work is being done on that now so that we're as prepared as possible to resubmit that once we hear back from the FDA. Okay.

And at that point, they either grant you a two-month or a six-month review, is what you're saying?

That's correct. Okay.

Great. Thanks for taking the questions, guys. Thanks, Matt.

Thank you.

As a reminder, to ask a question, please press star 1-1 on your telephone. Our next question comes from the line of Peyton Bontak with Count and Company.

Your line is open.

Peyton Bontak Hi, guys. This is Peyton on for Joe. Congratulations on the strong launch. I guess the first one from us would be kind of in terms of the Israeli launch, how many of the, like, once you get to a certain number of these high-level prescribers that you guys are first targeting with the Salesforce, is there another tranche of prescribers that you would go for, and what would be, like, the key metrics that you guys would look at to kind of go on to that next tranche? And then, I guess, kind of more broadly, what is kind of, like, the main thing that you're looking at to launch to kind of determine success? Thanks.

Yes, Susan?

So, yes, we, you know, as we had mentioned before, our whole go-to-market strategy is very much centered on a targeted approach because there is a concentration of writers that account for 50% of the total scripts in IBSC. And that is where we're focused with the opportunity for Zrella. And that is a population of less than 10,000 HTPs. So as you had mentioned, in our early stages of launch, we're very focused on the highest writing positions in that context. However, we are continuing as we get IBSRELA established in the practices and the writing of IBSRELA and demonstrating those favorable access rates, you know, definitely expanding our reach across that target audience. So that is the intention, and over time can continue, you know, when ready to add resources. We are finding early in the launch that it truly is a promotion-sensitive market. When our sales reps have the face-to-face time and work with these offices, we are seeing productivity of prescriptions. So we are on pace to hit the target we talked about and with an understanding that we can continue to earn out and build up our reach across the target audience.

Great, thank you. I guess kind of just following up on that, how many of those physicians that you've already reached, do you know, or how many of them have actually described the problem?

Yes, yes. Now, the, you know, I don't want to misquote the number because I look at it in so many different ways, but yes, we are seeing that, I mean, the SPHERICS data itself is reporting that 41% of GIs are writing Abzrella. And as I mentioned, we're reaching 56% of GIs. So we are seeing response in Abzrella prescriptions as we are getting the message out to these targets.

Great. Thank you, and thanks for taking our questions. Thanks, Peyton.

Thank you.

We have a follow-up from the line of Chris Howerton with Jefferies. Your line is open.

Awesome. Yeah, I just wanted to follow up with one question with respect to the co-pay assistance programs. Could you describe to us what type of patients would be eligible for that? And I guess, could you articulate what percentage of your targeted patient population you think that could comprise?

Sure. You know, I think what's been interesting early on is that we are having patients fill prescriptions across all types of commercial Medicare and Medicaid. So, you know, the strategy that Susan and the team put in place for market access, including co-pay assistance for commercial, has been working as anticipated. Susan?

I'm sorry, Mike. Can you repeat the question?

Chris was just wondering about copay assistance, you know, how that's looking and is it meeting sort of the expectations of what we have?

Oh, thank you very much, Chris, for the question. Thank you, Mike. So, yes, actually, things are going extremely well with our copay assistance program. We're finding that we have some, you know, nice redemption rates. which really just makes Adrella affordable for patients with commercial payers. But we're also finding that patients who are Medicare patients or Medicaid patients, we're finding that they have affordable co-pays associated with their benefit plans, and we're seeing those prescriptions get filled as well. And that's reflected overall in our mix of scripts. It's still very early. However, if you look at the mix of our early scripts in our first three months, We see a mix of commercial patients, Medicare and Medicaid patients.

Okay, very good. And then I guess what was lost in translation slightly was just what could you anticipate, what percentage of the patients that would be eligible for co-pay assistance comprise your targeted market?

Yes, yes. Yes, I understand, Chris. So the general profile of the IVSC market is about 50-50, the rule of thumb, commercial payer patients, and the other 50% are government payer patients. So half of the patients across the market would be eligible for the co-pay assistance program. And again, we're seeing nice utilization of that program for those with commercial payers. But important to note that we're also finding that Adrella is affordable for patients who are not commercial, who are government payer patients.

Okay, excellent. Thank you very much for taking the follow-up. I appreciate it. Thanks, Chris.

Thank you. I would now like to turn the conference back to Mike Robb for closing comments.

Thank you all for joining our call and staying abreast of our transformational progress as we launch Adrella for patients with IBSC. and continue to navigate the regulatory process with Xfoso. We look forward to keeping you apprised of our progress in the coming months. And Abigail, you may now end the call.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.