Good afternoon and welcome to the Ardelyx Second Quarter 2024 Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Caitlin Lowie, Vice President of Corporate Communications and Investor Relations at Ardelyx. Please go ahead.

Thank you. Good afternoon and welcome to our second quarter 2024 financial results call. During this call, we will refer to the press release issued earlier today which is available on the Investors section of the company's website at ardelyx.com. 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 the risk factors in our most recent quarterly report on Form 10-Q that was filed today and can be found on our website @ardelyx.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 change. Our President and CEO, Mike Raab, and Chief Financial and Operations Officer, Justin Renz, will share prepared remarks before we open the call to questions. I will now hand the call over to Mike.

Thank you, Caitlin, and good afternoon, everyone. It is great to be back together to discuss another quarter's strong performance. Across all fronts, we continue to drive exceptional progress. IBSRELA's growth momentum continued at a strong pace with another quarter of meaningful gains with revenue growing 25% compared to the first quarter of 2024 and nearly doubled compared to the second quarter of last year. This performance demonstrates the important role IBSRELA is playing addressing the large unmet need among patients with IBS-C. Every month, we continue to see increases in new and repeat writers as well as new and refill prescriptions. Healthcare providers see their patients having positive experiences with IBSRELA, and are expanding the number of patients in their practices for whom they prescribe. Our market access and affordability program, ArdelyxAssist, provides a straightforward path for patients to access IBSRELA. IBSRELA is an important and effective treatment option that is bringing relief to more and more patients who, despite previous treatment, continue to experience the debilitating symptoms of IBS-C. The potential for IBSRELA is significant and reinforces our conviction that it can achieve at least a 10% share of the IBS prescription market and as well on the path to becoming a $1 billion product before patent expiry. The launch of XPHOZAH has been remarkable and makes it abundantly clear that patients have needed a different option to manage their phosphorus when binders are insufficient or not well tolerated. Nephrologists are responding favorably to the benefit XPHOZAH is providing their patients and are increasingly integrating XPHOZAH into their therapeutic regimens. The consistent feedback from the field is that healthcare practitioners are seeing serum phosphorous improvements in their patients, many for the first time as a result of XPHOZAH. These dynamics are translating into significant growth for XPHOZAH in…

Thank you, Mike. I'm very pleased to be ready to discuss the second quarter performance we reported earlier today, which included significant growth for both of our commercial products and thoughtful management of our finances, while maintaining a strong balance sheet. Let's start with revenue. We reported significant year-over-year revenue growth during the second quarter, totaling $73.2 million. That is compared to $22.3 million of total revenue during the same period in 2023. This growth reflects incredibly strong performances from both IBSRELA and XPHOZAH, which together totaled $72.6 million in net product sales revenue in the second quarter of 2024 compared to $18.3 million in net product sales revenue coming from IBSRELA alone in the second quarter of 2023. Before I jump in, I'd like to take a moment to share our perspective on the publicly available prescription data for IBSRELA and XPHOZAH, as many of you ask how to best consider those data in relation to our revenue. First, as you know, our net sales revenue was based upon bottle shipments to our distributors and is not directly linked to prescription-level data available from Symphony or IQVIA. As we've discussed, our distributors and pharmacies keep winded amounts of product in the channel, essentially just-in-time inventory management. I encourage you to use some caution as information from prescription data providers can be incomplete and inconsistent, especially for medicines like IBSRELA and XPHOZAH as a result of our market access and distribution strategy that relies on the critical relationship between HCPs, specialty pharmacies and ArdelyxAssist. Remember, too, that not all prescriptions are a 30-day supply, some are 60-day and some are 90-day supply. We understand the desire to use those data, but we want you to consider these dynamics moving forward. With IBSRELA, we began providing with revenue guidance when we…

Thanks, Justin. Q2 was a remarkable quarter. We demonstrated significant growth for both our products, and we shared our perspectives on the impact of oral-only drugs entering the Medicare bundle and our commitment and plans to fight for patients. We are considering all options and making progress, yet we still have a lot of work to do. We do not fight alone. I would like to extend my sincere thanks to our many partners, physicians, patients and advocates as well as all of team Ardelyx who are lending their voices to the important work we have ahead of us to protect patient access to XPHOZAH. The past few weeks have demonstrated just how aligned we all are in supporting patients and making sure that they have access to innovative therapies. We have a team in place to deliver and we will continue to update you as developments occur and progress is made. We appreciate your support as we move through the next few months. I will now open the call to questions. Operator?

We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Louise Chen with Cantor. Please go ahead. Hi, congratulations on the quarter and thank you for taking my questions.

Hi, congratulations on the quarter and thank you for taking my questions. So first question I had for you was on XPHOZAH. Obviously, the sales were very strong, and you mentioned something from a gross to net perspective that it sounded like it may create some volatility quarter-to-quarter. So just curious how you think we should model or think about forecasting the product going forward? And I just wanted to confirm, it sounds like there was not any inventory build, but I just wanted to confirm that there wasn't anything like that.

Yes, I mean, Justin will go into some detail on it. But I think really what we're trying to communicate there is as we did with IBSRELA giving specifics on guidance is premature at this stage for XPHOZAH as we're learning the ins and outs of what's happening. Justin, if you can provide some perspective, too?

Sure. Yes, both products continue to have low amounts of inventory in the channel. So that's been very consistent throughout the course of actually both product launches. And from a gross to net perspective, the largest variable is in our commercial co-pay program. And so there's been some mild fluctuation, of course, as Mike suggested, that is sensitive to the payer mix. So we continue to learn more and more about how that goes, but we're pleased with what we've seen so far.

Okay. And maybe if I could just ask one more question here. I was curious with respect to XPHOZAH and your initiatives to keep it out of the CMS bundle, I know you sued CMS. What other initiatives could you take to fulfill what you're trying to do?

Well, I think with the work that we're doing still ongoing, so it's premature to go into any of that. There's a lot of work going on behind the scenes. I think as you've seen Louise, we will exhaust all options to make sure that patients continue to have access to these drugs.

And our next question today comes from Yigal from Citi. Please go ahead.

Yes, hi. Thank you very much. Just if we could follow on the inventory question. Is it possible that you could provide any quantification of what the low inventory looks like for both products? And then on the SG&A, you mentioned just an, I think, $80 million run rate per quarter. Just can you comment on when you would get to that point?

Yes, Justin?

Sure. So on the latter, so SG&A was $64.7 million in the second quarter, which reports include noncash stock compensation expense and we continue to add to the sales force. As we build the sales force that we're almost done with the ramp-up of the IBSRELA sales team, we should hit that $80 million level in the fourth quarter of this year. In terms of inventory in the channel, both products have been very consistently low. We have a very tight distribution channel. And so there's obviously some variability on a specialty pharmacy and specialty pharmacy basis. But in general, we've been in that 1.5 to 2.5 maximum and we're closer to two weeks tops in the channel on a regular basis.

And our next question today comes from Dennis Ding with Jefferies. Please go ahead.

Hi. Thanks for taking our questions and congrats on a really strong second quarter. So I had a question on IBSRELA. You guys have been obviously expanding your sales force since earlier this year. Just wondering how much of second quarter's performance stemmed from some of these new sales reps and to be expecting an inflection in the second half as you complete some of these new hires? And maybe you can comment on when you expect those new hires to be hired? And then as a follow-up, just on R&D. I mean, we appreciate you guys have two very successful commercial franchises, but one piece of feedback we get from investors since tenapanor patents do expire in early 2030s. How are you guys thinking about the pipeline? So where is this on your list of priorities? And how soon can we hear more about that?

In terms of sales force expansion, I think with Justin's comments, you heard that we expect that the full expansion will begin having impact by the end of this month. It's a process to hire 60 new people. They don't all come on at once. You need to train and certify. So the full team is not on board until the end of this quarter. So we expect that. And as we've said, we're reiterating our $140 million to $150 million is as you know us well by now that we're not going to get over our skis. We're thrilled with the performance. But I think what you can count on is the reiteration of the guidance that we've given. In terms of R&D, I think as we've discussed before, one of the reasons that we had brought Mike Kelliher on board as our Executive Vice President of Strategy and Corporate Development was to address exactly the question that you have brought up is looking for those programs that we could bring into in-house that are complementary to what we have created with both XPHOZAH and IBSRELA. As we make progress on those things, certainly, that's what we will bring to the floor and share with everyone.

And our next question comes from Laura Chico with Wedbush. Please go ahead

Good afternoon. Thanks very much for taking the question. I guess just two here. One on IBSRELA. Congrats on the progress. Wondering, can you talk a little bit about what's necessary to see pull forward in earlier lines of utilization? And with respect to your prior peak estimate here, can you remind me how much does earlier utilization play into your assumptions? And then I think I missed it, but XPHOZAH, what was the split on Medicare versus non-Medicare?

To the latter question first, we didn't provide that split. I think implied in Justin's comments about gross to net, those are things that we're going to see evolving over time. So I think we've talked historically about a 45 to 55 split non-Medicare to Medicare as an example. In terms of IBSRELA, the specificity is to, I think, what you're asking about previous utilization pulling forward is refill prescription and rate of that, we've not talked about that, and I think still it's something that we're looking to understand and not sharing at this stage. But it's both, right? It's new patients as well as refills, is physicians that our incredible team on the ground has convinced to try and then that they're expanding their utilization across the broader patient population. It's the grit and the grind that this team does, and that was what drove much of the decision around the expansion that we expect to see the impact of by the end of this month.

And our question today comes from Roanna Ruiz with Leerink Partners. Please go ahead.

Hi. Afternoon, everyone. So a question on XPHOZAH. I was curious what current field force strategies are getting the most traction so far with physicians in the first couple of quarters of this year? And if you can elaborate, is volume coming more from possibly new or repeat prescribers so far and how that affects your conviction going into the second half of this year with XPHOZAH?

So we're two quarters in. So it's kind of tough to think about repeat writers yet. I think is probably not inconsistent with other launches. Physicians are going to be trying drugs in their hardest to treat patients and the fact that you then see expansion within that physician to other patients says it's working in those patients and those patients who may be less challenging or having less of a difficult time managing serum phosphorous deserved, the opportunity to have a product like XPHOZAH helping them manage their phosphorus levels. So it's across the board, and that's the enthusiasm that we have that anecdotally, we hear these stories about patients who, for their first time ever, are able to get their serum phosphorous in control. That's meaningful, right? When you've only had binders, your entire career through your training as a nephrologist and then you have a new mechanism like XPHOZAH as an opportunity to help your patients get to goal, you're going to try it. And if it works, as this does, you're going to expand its use.

And our next question today comes from Ryan Deschner with Raymond James. Please go ahead.

Hi there. First off, congratulations on the impressive quarter. Two quick questions for me. At this point, are you getting any feedback from prescribers suggesting there's uptake in patients with adequately controlled serum phosphorus? And number two, regarding your litigation with CMS, what was the time line for securing access to XPHOZAH for Medicare patients look like in sort of the best case scenario here?

It's an interesting question because you would think that patients in control deserve the opportunity for something like XPHOZAH too. I can say that not many stories yet that are coming that way as I think the enthusiasm and excitement that we see is don't forget that almost 80% of these patients over time in the 6-month period of time are out of control. So one might say in control today, but historically not, they deserve the opportunity as well. So I think it's all over different kinds of profiles. So the most important thing what we're hearing is very strong results in terms of patients getting to goal. I think from the comments that we made, it's premature for us to be providing any commentary in terms of where the status of the lawsuit stands. We are committed, as we learn more in terms of the time line and discussions that we will have with the government lawyers that we will share that.

And our next question today comes from Joseph Thome with TD Cowen. Please go ahead.

Hi there. Good morning. And thank you for taking my questions. Congrats on the quarter. Maybe just two for me to follow on a little bit on a prior question. Can you talk a little bit about the breadth of prescribers that you're seeing for XPHOZAH versus maybe your overall target prescriber account base? And then second, just to get a little bit of understanding, I guess, if the bundle does go through and we don't really hear by the end of the year that, that will be extended, I guess, what sort of happens to Medicare patients that are currently on XPHOZAH? Is there a grace period? Or does that hit January 1 and we have to figure out how to get medicine to patients or not?

So in terms of the breadth of prescribing, again, we're two quarters into this launch, and we've got an incredible field force of 60 ABDs, making those calls. What I can say is the interest on the part of all those physicians that we have been able to see clearly is demonstrated by the revenue that we announced today. So I think we continue on the path that shows that these patients truly deserve the access that we're fighting for for them. To your question about Medicare, if things move forward, we have an important continuity of care program that exists for patients. So that is going to be something that if we need to, patients are going to be able to access. Our hope is, honestly, with everything we're doing and our continued evaluation of other things that we might do is that we don't come to a place where patients who deserve access to a drug like this are prevented to do so because of a misunderstanding or unlawful perspective that CMS has about what we're trying to fight against because they're just going to ultimately effectively ensure that patients don't get this drug that's working if they continue on the path that they're on.

And our next question today comes from Ed Arce with H.C. Wainwright.

Please go ahead. Hi. Thanks for taking my questions. And let me add my congrats on a truly remarkable quarter of growth here. First question is on XPHOZAH, 145% quarterly growth sequential and already surpassing IBSRELA in the second full quarter. I wanted to ask about what's driving that. Obviously, you've mentioned inherent strong demand and the focus on difficult-to-treat patients. But I wanted to ask if there's other areas that you've discussed with physicians that could share a little bit more light on this. And if there has been any discussion of where XPHOZAH may not be appropriate for any of their patients? And then I have a couple of follow-ups.

Sure. So remember that we started educating the nephrology community about this new mechanism and opportunity to XPHOZAH as disease awareness before what was supposed to be the approval in 2021. we had the terrible surprise that was given to us by the FDA and resulted in the CRL. So there was a lot of disease awareness, product awareness before that occurred. And hence, the fight that we started that everyone's aware of through the FDR process two years plus later with this launch. So disease awareness exposed awareness was significant. That certainly plays a role, Ed. But most importantly is the clear unmet need, the requirements that have to be there for patients to get to goal and the fact that this drug is helping accomplish just that. That's a big massive part of what is the established sort of market for the opportunity. but it's also the field force. We have a group of remarkable ABDs on XPHOZAH side as we do with IBSRELA who are doing the work required to help physicians understand an option for both of these indications where there hasn't been another mechanism with a kind of clinical benefit that both of these drugs are providing. And I think that's what's driving and is driving as it should, what you're seeing in this quarter's performance. In terms of places where you wouldn't use it, there really aren't any comments that we're hearing from that. Remember, our label is for those patients where there is an insufficient response or intolerability to binders, which with the statistics as we all know, insufficient is a very large majority of these patients over any 6-month period of time or less, they are patients who can access this product. So I think our label, clinical benefit, the evidence of physicians are seeing in their own practices as well as the commercial approach that we're taking, I think, is resulting in what you see.

Great. Are you aware of any physicians experimenting with this drug as a monotherapy?

Well, remember that the label says insufficient or inadequate and how they then use that, whether it is on top of a fixed dose of binder, whether it is a decrease in binder dose with XPHOZAH on top of that or an elimination of binder because it's not working and XPHOZAH as monotherapy is all within the indication on our label, and all of those are approaches that physicians are taking.

Okay. And last question is just wondering if you could explain a little bit further some of your contingency plans if it comes to pass that your efforts with CMS on the oral phosphate agents are unsuccessful and they're moved into the bundle.

Yes. I appreciate the question, absolutely, and would love to be able to be in a position to provide you clarity on that. It's premature at this stage. It's the work that's ongoing. I think the progress that we've made, I feel very, very good about. But you know us well by now that we're not going to get over our skis and communicate something that we aren't fully 100% comfortable with. So we believe that there are opportunities, God forbid that what you just described that occurs, but it's premature for us to provide you those details.

And our next question today comes from Matt Kaplan at Ladenburg Thalmann.

Please go ahead. Hey, guys, thanks for taking the questions and congrats on the very strong quarterly results. Just a follow-up to Ed's question a little bit in terms of XPHOZAH. Maybe it's with the understanding it's early in the launch. But help us understand in terms of the breakdown of patients on the drug? Is it mostly being used in the combination setting? Or to Ed's question, monotherapy in patients who are intolerant of the binders.

So it's a specific breakdown across those patients, right? You go in at anecdotes. When a prescription is filled for XPHOZAH, it doesn't say on top of binder, on top of half binder or monotherapy. You just get prescription for XPHOZAH. So all I can say is, anecdotally, it's a distribution of all those patients. What that then results in what it looks like for all the patients. I can't tell you that.

Okay. Fair enough. And then any update that you're hearing we spoke recently, but in terms of the status of the Kidney Care Act and where that is?

Yes. I mean, we continue to make incredible progress. IF you follow it as we do, Tunico sponsors have joined on the House side. And the fact that we have, as I said in my opening comments, both bipartisan-bicameral support with the Senate companion bill is incredibly strong for us, and it's going to ultimately come down to how bills are passed, which we all know end up being on the bus or many buses at the end of the year when others healthcare legislation that it can ride on. All of those things that we talked about in the past, what is clear is all of the constituents that have worked on this and continue to work on it are demonstrating why this is absolutely the right thing for Congress to do. While in parallel, we continue all of the other approaches from both the legal side as well as the evaluations that we're undertaking to look at what else we can do after the decision that we made to not file for TDAPA. So I think as you've heard me describe in our last discussion on this in July, it's kind of like a 3-dimensional chess game where we're looking at moving all these pieces and trying to make sure that we are doing all possible to ensure access for patients.

This concludes our question-and-answer session. I would now like to turn the conference back over to President and CEO, Mike Raab, for any closing remarks.

Thank you, everyone, for joining us this evening. As I'm sure you understand, we will remain focused on our priorities, and we will provide information updates when we can. In the meantime, we remain steadfast in our commitment to patients and to maintaining our commercial momentum. With that, we can close the call. Operator?

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful evening.