Mike Raab - President and CEO David Rosenbaum - SVP of Drug Development Monique Allaire - Thrust IR.

Matt Kaplan - Ladenburg Thalmann Mike King - JMP Securities Yigal Nochomovitz - Citigroup Mara Goldstein - Cantor Fitzgerald David Nierengarten - Wedbush Securities.

Good morning, and welcome to Ardelyx's Second Quarter Earnings and Corporate Update 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. As a reminder, today's call is being recorded.

I would now like to turn the call over to Monique Allaire of Thrust Investor Relations. You may begin..

Thank you and good morning, everyone. Earlier today, we issued a press release on recent core updates and second quarter operating results. The press release and reference slides are available in the Investors section of the company’s Web site at ardelyx.com. On the call with me is Mike Raab, President and CEO.

Additional members of the team will join us for the Q&A session. During this call, we will make forward-looking statements related to the company’s current expectations and plans. These statements are subject to risks and uncertainties.

Our actual results may differ materially due to various important factors, including those described in the risk factors section of our Form 10-Q filed with the SEC. These statements represent our views as of this call and should not be relied upon as representing our views as of any date in the future.

We undertake no obligation to update any forward-looking statements. With that, let me pass the call over to Mike..

Thanks, Monique, and good morning, everyone. 2017 has already been a year of many accomplishments focused on advancing our Phase 3 programs; tenapanor for both IBS-C, tenapanor for hyperphosphatemia and RDX7675 for hyperkalemia, and reporting positive data from two successful pivotal studies.

Looking towards 2018, we plan to submit our first NDA for tenapanor, prepare for its market launch and drive our other Phase 3 programs towards completion. In 2019, we expect will be a transformational year for the company with the launch ready drug for IBS-C and additional NDA submissions.

In order to achieve all this and drive long-term value and growth, we undertook a comprehensive strategic review of our operations. This resulted in a prioritization of our late-stage programs and for the time being, a decrease in investments in our early-stage pipeline.

By aligning our resources on the execution of our later stage assets, we’ve improved our operating performance, extended our cash runway and optimized the company’s ability to realize the number of significant opportunities. We are now focused on three major objectives.

First is delivering the highest quality Phase 3 clinical trial results for tenapanor and RDX7675 as efficiently as possible. Second is creating optionality to bring our GI and cardiorenal medicines to market which includes evaluating partnering opportunities for all of our assets.

And third is maintaining a strong balance sheet by directing the majority of our resources to our high-value late-stage programs. These objectives will guide our development efforts and decision-making that have already resulted in some important choices.

We have implemented a plan and an organizational structure designed to deliver on near-term clinical and regulatory milestones, including connecting patient enrollment in our second Phase 3 study in tenapanor for hyperphosphatemia in September-October timeframe; reporting T3MPO-2 data early in the fourth quarter and completing the entire T3MPO program by the end of the year.

And advancing our Phase 3 program for RDX7675 for hyperkalemia and reporting results from the onset of action studies after the T3MPO-2 results readout. As part of our comprehensive review, we fully access the markets we want to serve.

In order to optimize the value of our programs, we determined that seeking regional, domestic and/or global partnerships is likely the quickest path to registration and supports the need for high quality launches and commercialization. With the shift, we made the difficult but appropriate decision to restructure our organization.

As a result, we are reducing our workforce by roughly 30% primarily within our research organization and in certain of our administrative functions. I’m incredibly grateful to the entire Ardelyx team and I want to thank each one of our employees for their innovations, achievements and dedication to our mission.

For those impacted, I want to express my sincerest gratitude to you and your family. We are dedicated to supporting you and all of our employees through this transition. Also as a result of these decisions, we have meaningfully extended our operating runway.

With $148.7 million at the end of the second quarter and an updated operating plan, we anticipate that we have sufficient capital through the end of 2018. Notably, this does not include any revenues from future partnerships which we are actively pursuing and we continue to evaluate all options for further strengthening our balance sheet.

Since reporting the first Phase 3 hyperphosphatemia and T3MPO-1 results, two key questions have emerged. Is tenapanor an approval status treatment for both IBS-C and hyperphosphatemia? And if so, is tenapanor commercially viable for each indication? The short answer to these questions is yes.

In fact, we believe that in total, tenapanor represents a greater than $1 billion commercial opportunity. In IBS-C, the T3MPO-1 data reported in May demonstrates its physical significance with the primary endpoint and its durable response for both constipation and abdominal pain, two challenging symptoms for people with IBS-C.

We estimate that about 11 million people in the United States have IBS-C. Of those patients, a very low proportion are treating with a prescription and only one-third of patients respond to the current market leader. Additionally, a 2015 AGA report indicated that just one in four patients receiving treatment is very satisfied with their therapy.

Following the T3MPO-1 readout and based on those data, we conducted third-party market research among 50 healthcare practitioners accepting their view of tenapanor profile as a potential utility in their patients. The results of this work support our enthusiastic view of tenapanor and tell us that physicians are keenly interested in this novel agent.

Nearly 75% of healthcare practitioners surveyed in the research said that they would prefer a new treatment with a novel mechanism of action with a unique approach targeting NHE3, a well-tolerated profile and have demonstrated ability to reduce abdominal pain and normalized bowel habits, we are highly confident in the commercial viability for tenapanor.

Physicians reported that the efficacy and durable impact of tenapanor are the most important and attractive attributes. Nearly 50% think that tenapanor is different or very different from current prescription treatment and nearly 75% are interested or very interested in using tenapanor. Enrollment has been completed in the entire tenapanor program.

We are on track to report data from T3MPO-2 early in the fourth quarter and complete T3MPO-3 by the end of the year. Efforts are already underway to prepare our first NDA which we plan to submit in 2018 and the program success [ph] we believe tenapanor can reach the market as early as 2019.

With its modest penetration in this large and growing market, we think that tenapanor represents at a minimum of $400 million to $500 million commercial opportunity.

Beyond that, we see potential to expand into both chronic idiopathic constipation and opioid induced constipation, highly problematic conditions, while those indications represent significant upside that we hope to explore in the future.

Looking ahead, we now believe that the optimal way to create value for this program is through a strategic partnership. We are evaluating potential collaborations to bring tenapanor to the IBS-C market and into clinical development for other indications.

In parallel, we are executing on our registration program for tenapanor for hyperphosphatemia and end-stage renal disease patients who are on dialysis. The number of people with hyperphosphatemia has been growing as the prevalence of patients with ESRD increases.

Hyperphosphatemia is currently managed as a mature market, needs a new treatment mechanism as provided by tenapanor. Having led the development and launch of the current market leader, we know that binders are not substantially differentiated from each other and are very difficult to take.

The pill sizes are large and the number of pills per dose required each day is very challenging for patients.

Due to this, nearly half of all patients are noncompliant with their medication and two-thirds are not at target serum phosphorus levels, we take for granted that elevated serum phosphorus is an independent predictor of morbidity, mortality in dialysis patients.

Tenapanor, a tiny pill taken just twice a day has the potential to offer these patients a simple and effective solution. In February, we completed a first of two Phase 3 registration trials. This achieved statistical significant with primary endpoint and tenapanor was well tolerated.

Following learnings from the first Phase 3 trial, we chose to seek additional feedback from the FDA on the second Phase 3 study protocols in order to ensure the best possible design for the best possible outcome. We are awaiting FDA feedback and planning to begin enrolling patients in September or October.

If approved, tenapanor would be the first non-phosphate binder treatment for hyperphosphatemia which we believe represents at a minimum of $500 million to $700 million market opportunity. Given our extensive development and commercial expertise, we have the capabilities to at it alone in the renal market in the United States.

However, as with IBS-C, we will evaluate all opportunities, including partnerships to optimize the development and commercialization of tenapanor in hyperphosphatemia. The third priority in our portfolio is our potassium binder, RDX7675, for the treatment of patients with hyperkalemia.

From our estimates, there are at least 2 million people in the United States who require treatment for hyperkalemia. We believe the 7675, an easier to take and callable treatment that does not have any added sodium or sorbitol may offer meaningful advantages over current options. Earlier this year, we announced the initiation of two studies for 7675.

The first is an onset-of-action study to evaluate the time to response in patients. The second is a single Phase 3 trial required for registration under our 505b(2) strategy.

Consistent with our efforts to ensure the on-time delivery of T3MPO-2 results, completion of T3MPO-3 and enrollment in the second hyperphosphatemia Phase 3 study, the 7675 onset-of-action results will now follow the T3MPO-2 results in the fourth quarter of 2017.

We see tremendous potential for 7675 and conservatively project the market opportunity of at least $300 million. Behind these programs, we have a number of clinical and preclinical candidates discovered through our novel research platform and capabilities.

This includes our TGR5 agonist for which IND has been filed as well as our FXR agonist and second-generation NHE3 inhibitor, both of which are ready for IND-enabling studies. The development of these and other candidates will likely slow down while we execute on key milestones in our late-stage portfolio. Our platform is a tremendous asset.

Our core team of researchers will continue to utilize this to its fullest to elucidate first-in-class mechanism of action, as with tenapanor and conduct preclinical experiment to advance our candidates. These activities further support the potential commercialization of our program and are critical to us and future partners.

We believe that our early pipeline and our platform represents additional market potential, collaborative opportunities and downstream value creation. In closing, we have prioritized our pipeline, streamlined our efforts, conserved operating capital and increased our optionality around strategic opportunities for our programs.

Looking to the rest of this year, we’ll be focused on completing the T3MPO program and reporting results from T3MPO-2, as well as beginning enrollment in the second Phase 3 hyperphosphatemia trial and reporting results from our onset-of-action study for hyperkalemia.

In 2018, we plan to submit our first NDA which will lead to having a launch-ready drug in 2019 with additional NDAs to be submitted. This is clearly a pivotal time in our company’s evolution and we look forward to keeping you updated on our progress. Thank you for joining us on the call today, and I’ll be happy to take your questions..

[Operator Instructions]. Our first question comes from the line of Matt Kaplan with Ladenburg. Your line is now open..

Hi. Good morning..

Hi, Matt..

A couple of follow-up questions in terms of just want to get a sense in terms of the potential timing for the second Phase 3 hyperphosphatemia study. You indicated you’re going to commence the study September-October.

How should we think about in terms of the readout from that study and the potential filing for that indication for tenapanor?.

Yes, Matt, I think as we’ve talked about in the past when you look at enrollments, it’s a year-long study, close out this study and readout the data. You look towards the end of '18 or early '19 is the timeframe we have the readout..

Okay, very good.

And then in terms of pursuing partnership opportunities for tenapanor in IBS-C indication, I guess how will that work in terms of being able to carve out perhaps the hyperphosphatemia indication and potentially getting value for it, given that you’re not going to have the Phase 3 data potentially in time to – with coordination with IBS-C?.

A couple items in that question, Matt, is obviously that’s a sticky wicket as we look at how one would carve out indications. Clearly, it’s something that has been done and can be done and what we’re working on as we talk potential partners who would be interested in either or indications or both.

So there are partners across the spectrum that would be interested in one or the other, both indications. What’s interesting is that’s why I said in the prepared remarks that ideally what we would do is retain cardiorenal and hyperphosphatemia indication while organization with a larger footprint we’ll be able to do IBS-C.

So I think that then makes it easier versus having to spread it out between two separate companies. But we’re evaluating all as we go forward..

Okay. Thanks.

And then in terms of the market assessment that you performed for tenapanor in IBS-C, can you give us a little bit more color on that? And what the feedback was in terms of physicians there?.

Sure. If you download the slides that we provided, there’s a couple of slides in the deck that has the market research that we did. And the reason we did this was the feedback that we were getting after we read out the data, we wanted to make sure that our perspective that we saw with the results were actually reflective in the view of the physicians.

So if you look at Slide 7 where you see when we asked the question of these treating physicians, they clearly see that there’s a need and it was just 50 physicians who treat IBS-C that there’s clearly a need for a treatment with a different mechanism of action.

And you look at the movements with 2018, for example, Express Scripts formulary, clearly as we’ve talked in the past, different mechanism of action for IBS-C is going to be critical. And though on Slide 7, it’s supportive data in those discussions with those clinicians.

I also then think if you look at Slide 10 where we provided physicians the profile of the data that came from T3MPO-1, they’re very enthusiastic of the potential for having tenapanor as one of the tools in their omnium-gatherum [ph] for treating IBS-C. So this made us very confident and comfortable with the conclusion we were drawing.

There’s certainly more to the market research on these two slides, but we as of yet are not going to release those data..

Okay, that’s helpful. Thanks for taking the questions..

Thank you..

Thank you. Our next question comes from the line of Mike King with JMP Securities. Your line is now open..

Hi, guys. Good morning. Thanks for taking the question. Mike, I’m just curious what – have you had other substantive business development discussions around tenapanor prior to today’s discussion? That’s question sort of part one.

And then part two is, are your goals now different given the strategically alignment with your business development discussions going forward as compared to prior to this? In other words, now that you’ve taken a reduction in force, what future business development activities be geared towards kind of rebuilding the organization, bringing back R&D or would it be focused more on downstream market access, commercialization, et cetera?.

Great question, Mike. And I think nine weeks ago prior to T3MPO-1, clearly where we were headed as an organization was building the group that we needed to from a pre-commercial effort, all of those functions in order to go it alone with GI and cardiorenal.

I think the realities as we’ve talked as we contemplate the T3MPO-1 results, the feedback that we were getting, one of the reasons we did the market research was to confirm, bolster our views or show with a different view on the part of the physicians as to what the opportunity was.

And as I’ve said on the road during NDRs is that we have no plan to raise equity from prior T3MPO too.

And in order to optimize our runway, the reduction for us, which would not eliminate R&D to make that clear, it cuts back to a quarter of the people that will continue work on the platform to support the efforts that we have around our current program.

So long term, ideal the objective would be to find a strong partner for the GI indications allowing us less or non-diluted option to build our own presence in cardiorenal.

As Matt pointed out further, the time separation between T3MPO outcomes and hyperphosphatemia and so your difference would be one in which we would then – if things turn out the way we would anticipate, rebuild and put in place the infrastructure required for the cardiorenal opportunities.

Now as I said, in terms of what we’re doing and being more transparent, obviously if people are interested in the cardiorenal assets as well, we ideally would like to retain those rights in the United States but all those things are open for discussion. What we have been clear on is ex-U.S. business development.

Externalization efforts have been ongoing for quite a while and those are far more advanced and ones that are more interesting. I wouldn’t anticipate anything to be accomplished in the United States prior to T3MPO-2. People are going to want to see those data before they will do any sort of transaction.

So I think I’m just being a little bit more forthright to all of you about the work that we’re doing both on a domestic and a global basis, but we’ve always been pretty transparent about the discussions that we have underway, ex-U.S.

Did that answer all your questions, Mike?.

Yes, it does, at least on that part.

And then second part or second question I wanted to ask is, are any of the members of the C-suite [ph] departing or I don’t know what specifics you can give us publicly or they got to wait for the 8-K to file or what?.

Yes, so the Q is filed and coincidently with this reduction in force given sort of the change in strategy, we’re sad to hear that Paul Korner had tendered his resignation as our Chief Medical Officer. Much of Paul’s focus was looking towards the commercialization build up, MSL, all that type of work that we were putting in place for GI.

And based upon the shift in strategy through further externalization efforts combining a partner domestically, Paul made the decision and it’s one we’re not happy with. We wish it could have been different, but understand it was he tendered his resignation. So that’s the only impact on the C-suite..

Okay. Thanks. I’ll get back in queue, Mike..

All right. Thanks, Mike..

Thank you. Our next question comes from Yigal Nochomovitz with Citigroup. Your line is now open..

Hi, Mike. Thanks for taking the questions. You were pretty specific about some of the dollar numbers for market opportunity across the portfolio.

Could you give us a little bit more granularity on the assumptions behind the numbers you cited, specifically I think you said 400 to 500 minimum for tenapanor in IBS-C and 500 to 700 for hyperphosphatemia and for hyperkalemia at least 300 million? Thanks..

Sure. Our objective since T3MPO-1 came out, one of the reasons we have put these numbers into our corporate deck which you can now download from our Web site is that people are looking across the different projections that are out there from those that cover the company. And this took a lot of variability in it.

Obviously, you all have different opinions and what the opportunities are, how we can accomplish those revenues. So we took a very conservative view of what the opportunity might be and came up with those numbers. The specifics around how those were built, I don’t think we’re going to go into that level of detail.

But if you look at for hyperphosphatemia alone, clearly a market that we know extremely well, it’s a very mature binder market. As you pointed out and as I’ve just pointed out and the differences in efficacy and the differences in benefit to the patient are marginal from one binder to another.

It’s been a long time in coming for companies like Ardelyx to find different pharmaceutical approaches, pharmacologic approaches in managing Ardelyx team here. We, as I said in my comments, underestimate the impact or take for granted the impact of elevated serum phosphorous in this population.

So that’s what’s driven us as aggressively as we’ve been to get this product to market for hyperphosphatemia and I think some of the differences and opinions that we’ve had allow people to project the opportunity for tenapanor.

I know when I launched sevelamer; had I had tenapanor I would have thought it was greater than $1 billion opportunity then and people have stocked at us when we said that sevelamer would be more than 1 billion and it is today.

So I’m taking very conservative assumptions in a modestly growing market with something as disruptive as tenapanor can come in at the same time that you see calcium being recommended again by [indiscernible] with a recent recommendation that came out.

So it’s the market that’s right for disruption and $500 million to $700 million I think is a reasonable assumption to make for that market. The 300 million for hyperkalemia, Yigal, is again just a growing market and as we’ve spoken before ramps to peak is not going to be a traditional for us.

You’re going to see [indiscernible] in a market that needs to be built. So in a market that needs to be built without having the most understood and common backbone polystyrene sulfonate as a binder solved the problems that most treated physicians have struggled with, with the traditional polystyrene sulfonate [indiscernible].

So again, it’s a modest assumption where people are projecting whether it’s for the zirconium silicate or the specialty polymer [indiscernible] made out of were pretty likely to be significantly greater than the 300 we have.

And for IBS-C, that again is an assumption based upon our estimates of 11 million people having the disease compared to the 600 million right now for the market leader and the growth that you see in [indiscernible].

So just conservative to allow people to do this kind of cash flows and at least our numbers found a way to anchor any assumptions that they might make about the market opportunities..

Okay, great. Just a couple of other questions here on the pipeline. You have a little bit of detail about the second Phase 3 for hyperphosphatemia.

I’m wondering you could provide a little bit more in terms of the size of the study, what the washout on the current binder might look like and when you’re expecting the feedback from the agency?.

Yes, so let me just introduce a little bit and then I’ll pass it over to David for the specifics. The beginning of the study is no different than any other hyperphosphatemia study where you wash people out and wait for the rise and you put them in the trial.

The difference in this trial are primarily the randomized withdrawal period and how that is projected in the 12 weeks versus the four that you’ve seen in our previous study..

And in our slide deck on Slide 17, there is a slide that shows the whole study design. And it should be around 320 to 400 ESRD patients. And as far as feedback, we submitted the protocol to the FDA and we could get feedback any time now. And based on that, that’s why we kind of gave ourselves a little room for when we would start the clinical trials..

Okay. Thanks.

And then, Mike, just on the onset-of-action moving the data into the fourth quarter, I guess can you just help us understand it better because maybe I’m wrong but assuming that’s being done by an outside CRO, it’s still unclear why the cut in the organization would necessarily delay that if it’s just an outside effort to generate the data? Thanks..

Yes, so a couple of things is we have a [indiscernible] project to clone David Rosenbaum and it’s not going as well as we would like. He is actually one in special. So that’s one of the things that we’ve done. Same thing with hyperphosphatemia, we’ve brought that inside versus doing it with JIRA to save money.

So it isn’t being done by an outside organization. Dave and his team are doing the onset-of-action study and it’s a harder study, right. These are people that need serial blood draws. The important thing, Yigal, is that it does not impact the timing for the Phase 3, it does not impact the program overall.

So what I wanted to do is ask David and actually everyone here with these cuts to get me realistic projections that doesn’t sacrifice the long-term timelines of the value creating Phase 3 and moving this out to a couple of months allowed David to focus on hyperphosphatemia getting off the ground in a way that it needs as well as continuing the efforts on hyperkalemia, if that makes sense..

Okay. Thanks for clarifying..

Sure..

Thank you. [Operator Instructions]. Our next question comes from the line of Mara Goldstein with Cantor Fitzgerald. Your line is now open..

Hi. Thanks for taking the question.

Just initially to clarify, with respect to tenapanor in IBS-C, the company does not plan on participating in any commercial activities?.

That’s a great question, Mara. I didn’t say that. Certainly in a deal, we certainly would like the opportunity to participate but it’s going to depend upon negotiations and ultimately what we put in play. So while I did not say that we would not, it’s going to depend upon the type of transaction that we strike..

Are you able to perhaps share with us just the broad parameters, the financial parameters what would be acceptable to you in a partnership?.

No. Those are the sort of details that we wouldn’t share. I appreciate the desire to know them, but at this stage we won’t..

Okay.

And if I could just ask now that we have a little bit of distance from T3MPO-1 results, have you been able to determine from exploration of the data, either the underlying cause or causes of the differences and the magnitude of effect of what was observed in the Phase 3 outcome versus Phase 2, and is there anything there you can share with us?.

No. We have done all those things that you can imagine we would look at and we don’t see anything – we’re not going to do data mining [indiscernible] because I don’t think we get patted for doing that either. People would say, oh, wait a second; you didn’t do nine studies to look at the answer that you just gave us.

So we’ve been thoughtful, comprehensive, looking at parameters that one should and there is not anything obvious that would drive us to a conclusion as to why the Phase 3 is different than 2b..

Okay.

And just lastly with your restructuring in place, how many employees are there at the company?.

76..

Okay. Thanks so much..

Thanks, Mara..

Thank you. Our next question comes from David Nierengarten with Wedbush. Your line is now open..

Thanks for taking the question. Just one kind of focused on market research and differentiation on tenapanor in IBS-C.

With your physician survey and discussions, was there any additional insight as to why – what aspects of differentiation are most importance or basically how are you different from Synergy who has made efforts to partner too, as I recall, in this space? So basically where can you succeed where Synergy hasn’t signed a partner? Thanks..

Sure. Thanks, David. I think fundamentally one of the basic differences is the different mechanism of action. You look at with the other [indiscernible] GCC agonist and I think that’s reflected in Express Scripts not putting the follower on to the formulary.

We’re living in a world where having the same mechanism of action and formulary is no longer acceptable. You need to have a unique mechanism of action to try to capture patients that may not work in previous mechanisms.

So that in and of itself and with the dirt of research going on in IBS-C, CIC defined in mechanisms of action; so clinicians keenly interested in having other choices because they know GCC agonist if you look at both clinical data and real-world data of experiences mostly don’t work and finding yet another way to try to address what is the debilitating syndrome for these patients.

A new mechanism of action gives them the opportunity to try to help patients who aren’t getting help with current drugs..

Okay.

Was there also any conversations with – I know it’s particularly early but with pairs on that about being on formularies versus second in class potentially or you’re kind of waiting until the Phase 3 reads out?.

No, some networks are ongoing; nothing to share at this stage. But I think if you look at predicate [ph] examples of what’s happening to formularies in 2018, I think committees are being very judicious in a way that they’re looking at managing what it is that they allow or pay for a lot of physicians use and what they’re willing to pay for..

Okay. Thanks..

Thank you. And we have a follow-up question from the line of Mike King with JMP Securities. Your line is now open..

Mike, thanks for taking the follow up.

I’m just wondering in terms of your ability to partner tenapanor for IBS-C, do you feel like you’ll need the longer-term follow up data to readout before a partner might be induced into some kind of collaboration?.

You mean prior to the launch of data for IBS-C?.

Yes..

Yes, so all of that will be completed by the end of this year. So we will have those data by the end of this year..

Okay..

That’s not going to be regular meeting..

Thank you very much. And I’m showing no further questions at this time. So I’d like to return the call to Mr. Mike Raab for any closing remarks..

Thank you all for your questions. As you’ve heard, we have a number of important milestones in the coming months. We believe we are taking the best steps forward to execute on those milestones and we look forward to keeping you updated as we do so. Thank you again for joining us on this call..

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone, have a great day..