IPO Report: Ardelyx (ARDX)

Francis Gaskins |

Ardelyx (ARDX) is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of innovative, non-systemic, small molecule therapeutics that work exclusively in the gastrointestinal, or GI, tract to treat cardio-renal, GI and metabolic diseases. The company is headquartered in Fremont, CA.

Eleven other companies are scheduled to IPO for the week of June 16, 2014.  The full IPO calendar is available at IPOpremium.

The manager and joint managers are Citigroup, Leerink Partners.  The co-managers are JMP Securities, Wedbush PacGrow Life Sciences.

ARDX scheduled a $50 million IPO with a market capitalization of $241 million at a price range midpoint of $14 for Thursday, June 19, 2014 on the Nasdaq.  SEC filings

ARDX Overview

ARDX is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of innovative, non-systemic, small molecule therapeutics that work exclusively in the gastrointestinal, or GI, tract to treat cardio-renal, GI and metabolic diseases.

ARDX does not know whether any of its product candidates will be protectable or remain protected by enforceable patents.

Together with AstraZeneca (AZN) ARDX is evaluating tenapanor in three Phase 2 clinical trials in patients with ESRD, late-stage CKD, and constipation-predominant irritable bowel syndrome, or IBS-C.  ASZN has a market cap of $94 billion.

In December 2013, ARDX entered into an amendment to the license agreement to acknowledge the intention of AstraZeneca to commence development of tenapanor for the treatment of hyperphosphatemia in ESRD patients and to provide additional clarification for certain payments.

ARDX is evaluating small molecule NaP2b inhibitors for the treatment of elevated phosphorus, or hyperphosphatemia, in ESRD, a program ARDX has licensed to Sanofi S.A. (SNY) which has a market cap of $143 billion.

 

Ardelyx

ARDX, C, 7

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Post IPO shares: 17.2mm

Biopharma

       

IPO Mkt

Fremont, CA

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Cap (mm)

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$241

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@$14

             

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2012

2013

Q1 '13

Q1 '14

Rev ($thousands)

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$5,410

$28,928

$6,556

$8,550

License rev

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$3,182

$8,063

$1,989

$3,236

% increase in license revenue

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153%

 

63%

Notice that license revenue is increasing at good rate.

Valuation of ARDX

Glossary

Valuation Ratios

Mrkt Cap (mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

annualizing Q1 '14

         

Ardelyx (ARDX)

$241

7.0

-20.1

5.7

5.7

21%

             

Conclusion

The rating on ARDX is neutral.

The ratio of price-to-book of 5.7 seems a little high, but ARDX has two strong corporate partners who are adding to top line revenue, AstraZeneca (ASZN) and Sanofi (SNY).

Business

ARDX is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of innovative, non-systemic, small molecule therapeutics that work exclusively in the gastrointestinal, or GI, tract to treat cardio-renal, GI and metabolic diseases.

ARDX has developed a proprietary drug discovery and design platform enabling ARDX, in a rapid and cost-efficient manner, to discover and design novel drug candidates.

Platform

To enhance its proprietary drug discovery and design platform, ARDX has developed a cell-culture system to simulate gut tissues called the Ardelyx Primary Enterocyte and Colonocyte Culture System, or APECCS. ARDX has also identified over 3,800 proteins on the inner surface of the gut, many of which it believes may be drug targets.

In addition to tenapanor, ARDX is evaluating small molecule NaP2b inhibitors for the treatment of elevated phosphorus, or hyperphosphatemia, in ESRD, a program ARDX has licensed to Sanofi S.A. (SNY) which has a market cap of $143 billion.

ARDX is also independently advancing three other discovery and lead development programs focused in cardio-renal, GI and metabolic diseases.

tenapanor

Utilizing its platform, ARDX discovered and designed its lead product candidate, tenapanor, which in preclinical and clinical studies has consistently demonstrated the ability to reduce the absorption of dietary sodium and phosphorus, both of which are key factors in the progression of kidney disease.

In addition to tenapanor, ARDX is evaluating small molecule NaP2b inhibitors for the treatment of hyperphosphatemia in end stage renal disease, or ESRD, a program ARDX has licensed to Sanofi S.A., or Sanofi.

ARDX is also independently advancing three other discovery and lead development programs focused in cardio-renal, GI and metabolic diseases.

ARDX Collaboration AstraZeneca

In October 2012, ARDX entered into a collaboration partnership with AstraZeneca AB, or AstraZeneca, for the worldwide development and commercialization of tenapanor.

AstraZeneca is responsible for all of the development and commercialization costs for tenapanor, and ARDX has retained an option to co-promote in the United States.

Sanofi (SNY) -- $142 million market cap -- collaboration

In 2014, ARDX entered into an option and license agreement with Sanofi under which ARDX  granted Sanofi an exclusive worldwide license to conduct research utilizing small molecule NaP2b inhibitors.

In addition, Sanofi has the option to obtain an exclusive license to develop, manufacture and commercialize the NaP2b inhibitors. Sanofi is advancing this program towards first-in-human clinical trials.

Under the arrangement, Sanofi is responsible for all of the costs and expenses for research and preclinical activities and, should it exercise its option, for the development and commercialization efforts under the program.

Under the license option and license agreement, ARDX received an upfront payment of $1.25 million and is responsible for up to $175,000 of patent costs, at which point any additional patent costs will be fully reimbursed to by Sanofi.

ARDX has the potential to earn future development, regulatory and commercial milestone payments of up to $196.75 million if Sanofi continues to advance the program into development and through commercialization.

Clinical trials

Together with AstraZeneca, ARDX is evaluating tenapanor in three Phase 2 clinical trials in patients with ESRD, late-stage CKD, and constipation-predominant irritable bowel syndrome, or IBS-C.

If ARDX exercises its right to co-fund the first Phase 3 clinical development program for tenapanor, ARDX may invest $20.0 million, $30.0 million or $40.0 million to acquire an increase of 1%, 2% or 3%, respectively, in the royalties payable to ARDX by AstraZeneca on net sales of tenapanor.

In December 2013, ARDX entered into an amendment to the license agreement to acknowledge the intention of AstraZeneca to commence development of tenapanor for the treatment of hyperphosphatemia in ESRD patients and to provide additional clarification for certain payments.

There was no change in the total consideration that ARDX could receive under the agreement.

Dividend Policy

No dividends are planned.

Intellectual Property

The patent positions of biopharmaceutical companies like ARDX are generally uncertain and involve complex legal, scientific and factual questions.

In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance.

Consequently, ARDX does not know whether any of its product candidates will be protectable or remain protected by enforceable patents.

ARDX cannot predict whether the patent applications it is currently pursuing will issue as patents in any particular jurisdiction or whether the claims of its issued patents will provide sufficient proprietary protection from competitors.

Competition

Phosphate binders are the only pharmacologic interventions currently marketed for the treatment of hyperphosphatemia.

Calcium-based binders are the least expensive option to treat hyperphosphatemia.

In hemodialysis patients, sevelamer has a 36% patient share versus 51% for calcium-based binders and 18% for lanthanum.

The various types of phosphate binders commercialized in the United States include the following:

Calcium carbonate (many over-the-counter brands including Tums and Caltrate)

Calcium acetate (several prescription brands including PhosLo and Phoslyra)

Lanthanum carbonate (Fosrenol marketed by Shire)

Sevelamer hydrochloride (Renagel, marketed by Sanofi; new generic competition is also expected to enter the market in early 2014 after expiration of Sanofi’s patent)

Sevelamer carbonate (Renvela, marketed by Sanofi)

Sucroferric oxyhydroxide (Velphoro, marketed by Vifor Fresenius)

5% stockholders

Entities Associated with New Enterprise Associates 45.89%

Entities Associated with CMEA   28.72%

Amgen Ventures           6.03%

Peter Schultz, Ph.D.      6.99%

Use of proceeds

ARDX expects to net $43 million from its IPO. Proceeds are allocated as follows:

$15 million to $20 million to fund continued discovery and development efforts for its preclinical product candidates;

if ARDX exercises its right to co-fund the first Phase 3 clinical development program for tenapanor, ARDX may invest a portion of the net proceeds of this offering, alone or together with cash on hand, in an amount of $20.0 million, $30.0 million or $40.0 million to acquire an increase of 1%, 2% or 3%, respectively, in the royalties payable to ARDX by AstraZeneca on net sales of tenapanor;

$5 million to $10 million to advance and expand the development of APECCS, which amount is expected to fund its planned development activities for at least two years including acquiring equipment to monitor, miniaturize and automate the APECCS cell culture and screening processes, and enhancing the capabilities to develop intestinal cells in the APECCS format, APECCS cultures from intestinal tissues and assays with the APECCS system; and the remainder for working capital and other corporate purposes, which will include facilities expansion and the pursuit of other research and discovery efforts and could include the acquisition or in-license of other products, product candidates or technologies.

 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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