SEC Filing | Ardelyx, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-36485

ARDELYX, INC.

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE	26-1303944
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No)

34175 Ardenwood Boulevard,

Fremont, California 94555

(Address of Principal Executive Offices) (Zip Code)

(510) 745-1700

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001	ARDX	The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☒

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of issued and outstanding shares of the registrant’s Common Stock, $0.0001 par value per share, as of November 2, 2020, was 90,248,465.

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ARDELYX, INC.

	PAGE
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements:	2
Condensed Balance Sheets (unaudited)	2
Condensed Statements of Operations and Comprehensive Loss (unaudited)	3
Condensed Statements of Changes in Stockholders' Equity (unaudited)	4
Condensed Statements of Cash Flows (unaudited)	6
Notes to Condensed Financial Statements (unaudited)	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3. Quantitative and Qualitative Disclosures About Market Risk	30
Item 4. Controls and Procedures	31

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	32
Item 1A. Risk Factors	32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 3. Defaults Upon Senior Securities	70
Item 4. Mine Safety Disclosures	70
Item 5. Other Information	70
Item 6. Exhibits	71
Signatures	72

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ARDELYX, INC.

CONDENSED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share amounts)


	September 30,		December 31,
	2020		2019
Assets
Current assets:
Cash and cash equivalents	$	91,009	$	181,133
Short-term investments		94,488		66,379
Unbilled revenue		750		750
Prepaid expenses and other current assets		7,546		3,800
Total current assets		193,793		252,062
Property and equipment, net		2,111		3,436
Right-of-use assets		2,402		3,970
Other assets		249		314
Total assets	$	198,555	$	259,782
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	2,490	$	2,187
Accrued compensation and benefits		3,722		4,453
Current portion of operating lease liability		2,770		2,608
Loan payable, current portion		—		1,183
Deferred revenue		885		4,541
Accrued expenses and other current liabilities		6,667		7,248
Total current liabilities		16,534		22,220
Operating lease liability, net of current portion		—		2,076
Loan payable, net of current portion		50,681		48,831
Total liabilities		67,215		73,127
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; no shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively.		—		—
Common stock, $0.0001 par value; 300,000,000 shares authorized; 90,243,409 and 88,817,741 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively.		9		9
Additional paid-in capital		657,130		647,078
Accumulated deficit		(525,889)		(460,452)
Accumulated other comprehensive income		90		20
Total stockholders’ equity		131,340		186,655
Total liabilities and stockholders’ equity	$	198,555	$	259,782

The accompanying notes are an integral part of these condensed financial statements.

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ARDELYX, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(in thousands, except share and per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenues:
Licensing revenue	$	—	$	3,000	$	706	$	3,000
Collaborative development revenue		1,356		—		3,656		—
Other revenue		1,357		13		1,400		31
Total revenues		2,713		3,013		5,762		3,031
Operating expenses:
Cost of revenue		—		600		141		600
Research and development		12,240		17,580		46,948		57,436
General and administrative		7,634		6,922		21,810		17,410
Total operating expenses		19,874		25,102		68,899		75,446
Loss from operations		(17,161)		(22,089)		(63,137)		(72,415)
Interest expense		(1,202)		(1,443)		(3,785)		(4,328)
Other income, net		255		294		1,485		1,896
Loss before provision for income taxes		(18,108)		(23,238)		(65,437)		(74,847)
Provision for income taxes		—		301		—		303
Net loss	$	(18,108)	$	(23,539)	$	(65,437)	$	(75,150)
Net loss per common share, basic and diluted	$	(0.20)	$	(0.37)	$	(0.73)	$	(1.20)
Shares used in computing net loss per share - basic and diluted		89,365,798		62,828,513		89,109,772		62,676,591
Comprehensive loss:
Net loss	$	(18,108)	$	(23,539)	$	(65,437)	$	(75,150)
Unrealized (losses) gains on available-for-sale securities		(227)		(12)		70		42
Comprehensive loss	$	(18,335)	$	(23,551)	$	(65,367)	$	(75,108)

The accompanying notes are an integral part of these condensed financial statements.

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ARDELYX, INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Three and Nine Months ended September 30, 2020

(Unaudited)

(in thousands, except share amounts)


	Three Months Ended September 30, 2020
								Accumulated
				Additional				Other		Total
	Common Stock			Paid-In		Accumulated		Comprehensive		Stockholders'
	Shares	Amount		Capital		Deficit		Income		Equity
Balance as of June 30, 2020	89,140,563	$	9	$	653,805	$	(507,781)	$	317	$	146,350
Issuance of common stock under employee stock purchase plan	94,127		—		459		—		—		459
Issuance of common stock upon exercise of options	142,191		—		339		—		—		339
Issuance of common stock upon vesting of restricted stock units	866,528		—		—		—		—		—
Stock-based compensation	—		—		2,527		—				2,527
Unrealized losses on available-for-sale securities	—		—		—		—		(227)		(227)
Net loss	—		—		—		(18,108)		—		(18,108)
Balance as of September 30, 2020	90,243,409	$	9	$	657,130	$	(525,889)	$	90	$	131,340


	Nine Months Ended September 30, 2020
								Accumulated
				Additional				Other		Total
	Common Stock			Paid-In		Accumulated		Comprehensive		Stockholders'
	Shares	Amount		Capital		Deficit		Income		Equity
Balance as of December 31, 2019	88,817,741	$	9	$	647,078	$	(460,452)	$	20	$	186,655
Issuance of common stock under employee stock purchase plan	169,931		—		834		—		—		834
Issuance of common stock for services	42,403		—		310		—		—		310
Issuance of common stock upon exercise of options	346,806		—		759		—		—		759
Issuance of common stock upon vesting of restricted stock units	866,528		—		—		—		—		—
Stock-based compensation	—		—		8,149		—		—		8,149
Unrealized gains on available-for-sale securities	—		—		—		—		70		70
Net loss	—		—		—		(65,437)		—		(65,437)
Balance as of September 30, 2020	90,243,409	$	9	$	657,130	$	(525,889)	$	90	$	131,340

The accompanying notes are an integral part of these condensed financial statements.

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ARDELYX, INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Three and Nine Months ended September 30, 2019

(Unaudited)

(in thousands, except share amounts)


	Three Months Ended September 30, 2019
								Accumulated
				Additional				Other		Total
	Common Stock			Paid-In		Accumulated		Comprehensive		Stockholders'
	Shares	Amount		Capital		Deficit		Income		Equity
Balance as of June 30, 2019	62,800,869	$	6	$	485,718	$	(417,123)	$	16	$	68,617
Issuance of common stock under employee stock purchase plan	77,698		—		200		—		—		200
Issuance of common stock upon exercise of options	4,513		—		13		—		—		13
Stock-based compensation	—		—		3,879		—				3,879
Unrealized losses on available-for-sale securities	—		—		—		—		(12)		(12)
Net loss	—		—		—		(23,539)		—		(23,539)
Balance as of September 30, 2019	62,883,080	$	6	$	489,810	$	(440,662)	$	4	$	49,158


	Nine Months Ended September 30, 2019
								Accumulated
				Additional				Other		Total
	Common Stock			Paid-In		Accumulated		Comprehensive		Stockholders'
	Shares	Amount		Capital		Deficit		(Loss) Income		Equity
Balance as of December 31, 2018	62,516,627	$	6	$	481,357	$	(365,512)	$	(38)	$	115,813
Issuance of common stock under employee stock purchase plan	160,744		—		397		—		—		397
Issuance of common stock for services	113,136		—		311		—		—		311
Issuance of common stock upon exercise of options	6,964		—		21		—		—		21
Issuance of common stock upon vesting of restricted stock units	85,609		—		—		—		—		—
Stock-based compensation	—		—		7,724		—		—		7,724
Unrealized gains on available-for-sale securities	—		—		—		—		42		42
Net loss	—		—		—		(75,150)		—		(75,150)
Balance as of September 30, 2019	62,883,080	$	6	$	489,810	$	(440,662)	$	4	$	49,158

The accompanying notes are an integral part of these condensed financial statements.

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ARDELYX, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


	Nine Months Ended September 30,
	2020		2019
Operating activities
Net loss	$	(65,437)	$	(75,150)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		1,399		1,993
Amortization of deferred financing costs		416		550
Amortization of deferred compensation for services		235		231
Amortization of premium on investment securities		(241)		(666)
Non-cash lease expense		1,568		1,356
Stock-based compensation		8,149		7,724
Change in derivative liabilities		290		246
Non-cash interest associated with debt discount accretion		393		353
Changes in operating assets and liabilities:
Unbilled revenue		—		5,000
Prepaid expenses and other assets		(3,748)		(3,068)
Accounts payable		303		541
Accrued compensation and benefits		(731)		81
Lease liabilities		(1,914)		(1,301)
Accrued and other liabilities		(871)		(3,237)
Deferred revenue		(3,656)		—
Net cash used in operating activities		(63,845)		(65,347)
Investing activities
Proceeds from maturities of investments		79,402		115,484
Purchases of investments		(107,200)		(36,325)
Purchases of property and equipment		(74)		(325)
Net cash (used in) provided by investing activities		(27,872)		78,834
Financing activities
Proceeds from issuance of common stock under equity incentive and stock purchase plans		1,593		418
Net cash provided by financing activities		1,593		418
Net (decrease) increase in cash and cash equivalents		(90,124)		13,905
Cash and cash equivalents at beginning of period		181,133		78,768
Cash and cash equivalents at end of period	$	91,009	$	92,673
Supplementary disclosure of cash flow information:
Income taxes paid	$	1	$	2
Supplementary disclosure of non-cash activities:
Right-of-use assets obtained in exchange for lease obligations	$	—	$	5,810

The accompanying notes are an integral part of these condensed financial statements.

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ARDELYX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(tabular amounts in thousands, except share and per share amounts and where otherwise noted)

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

Ardelyx, Inc. (the “Company,” “we,” “us” or “our”) is a specialized biopharmaceutical company focused on developing innovative first-in-class medicines to improve treatment for people with kidney and cardiovascular diseases.

The Company operates in one business segment, which is the research and development of biopharmaceutical products.

Basis of Presentation

These condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules and regulations, certain footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted. These condensed financial statements have been prepared on the same basis as the Company’s most recent annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary to present fairly the Company’s financial position at September 30, 2020 and results of operations, changes in stockholders’ equity, and cash flows for the interim periods ended September 30, 2020 and 2019.

The accompanying condensed financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the entire year ending December 31, 2020, or for any other interim period or future year.

Liquidity

As of September 30, 2020, the Company had cash, cash equivalents and short-term investments of approximately $185.5 million. The Company believes its current available cash, cash equivalents and short-term investments will be sufficient to fund the Company’s planned expenditures and meet its obligations for at least 12 months following the filing of this Report on Form 10-Q.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes thereto. On an ongoing basis, management evaluates its estimates, including those related to recognition of revenue, clinical trial accruals, contract manufacturing accruals, the fair value of assets and liabilities, income taxes and stock-based compensation. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could materially differ from those estimates.

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Summary of Significant Accounting Policies

There have been no changes to the significant accounting policies disclosed in the Company’s most recent Annual Report on Form 10-K.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In December 2019, as part of its initiative to reduce complexity in the accounting standards, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company early adopted ASU 2019-12 on April 1, 2020 and this adoption had no material impact on the Company’s financial position or results of operations.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 (“ASU 2018-18”), which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under the FASB’s Accounting Standards Codification (“ASC”) No. 606, Revenue from Contracts with Customers (“ASC 606”) when the collaborative arrangement participant is a customer. The Company adopted ASU 2018-18 on January 1, 2020, and the adoption of this standard did not have a material impact on the Company’s financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework— Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which considers cost and benefits and removes, modifies and adds disclosure requirements in Topic 820. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty is to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments were to be applied retrospectively to all periods presented. The Company adopted ASU 2018-13 on January 1, 2020, and the adoption of this standard did not have a material impact on the Company’s financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate (“LIBOR”). The guidance provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified. This guidance was effective upon issuance and expires on December 31, 2022. The Company adopted ASU 2020-04 on April 1, 2020, and the adoption of this standard did not have a material impact on the Company’s financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, an amendment which modifies the measurement and recognition of credit losses for most financial assets and certain other instruments. The amendment updates the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. The amendment also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. For smaller reporting companies the guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. Management is currently assessing the impact of this standard on the Company’s financial statements.

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NOTE 2. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Securities classified as cash, cash equivalents and short-term investments as of September 30, 2020 and December 31, 2019 are summarized below.


	September 30, 2020
			Gross Unrealized
	Amortized Cost		Gains		Losses		Fair Value
Cash and cash equivalents:
Money market funds	$	83,011	$	—	$	—	$	83,011
Commercial paper		6,499		—		—		6,499
Cash		1,499		—		—		1,499
Total cash and cash equivalents		91,009		—		—		91,009
Short-term investments
Commercial paper	$	41,625	$	30	$	(1)	$	41,654
Corporate bonds		39,219		58		(3)		39,274
U.S. government-sponsored agency bonds		9,334		3		—		9,337
Asset-backed securities		3,221		2		—		3,223
U.S. treasury notes		999		1		—		1,000
Total short-term investments		94,398		94		(4)		94,488
Total cash equivalents and short-term investments	$	185,407	$	94	$	(4)	$	185,497


	December 31, 2019
			Gross Unrealized
	Amortized Cost		Gains		Losses		Fair Value
Cash and cash equivalents:
Money market funds	$	147,208	$	—	$	—	$	147,208
Commercial paper		19,357		3		—		19,360
Corporate bonds		11,441		—		—		11,441
Cash		3,124		—		—		3,124
Total cash and cash equivalents		181,130		3		—		181,133
Short-term investments
Commercial paper	$	36,667	$	14	$	—	$	36,681
Corporate bonds		21,690		6		(3)		21,693
Asset-backed securities		8,005		—		—		8,005
Total short-term investments		66,362		20		(3)		66,379
Total cash equivalents and short-term investments	$	247,492	$	23	$	(3)	$	247,512

All available-for-sale securities held as of September 30, 2020 had contractual maturities of less than one year. The Company’s available-for-sale securities are subject to a periodic impairment review. The Company considers a debt security to be impaired when the fair value of that security is less than its carrying cost, in which case the Company would further evaluate the investment to determine whether the security is other-than-temporarily impaired. When the Company evaluates an investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition or creditworthiness of the issuer and any changes thereto, intent to sell, and whether it is more likely than not the Company will be required to sell the investment before the recovery of its cost basis. If an investment is other-than-temporarily impaired, the Company writes the investment down through the statement of operations to its fair value and establishes that value as the new cost basis for the investment. Management has determined that none of the Company’s available-for-sale securities were other-than-temporarily impaired in any of the periods presented, and as of September 30, 2020, no investment was in a continuous

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unrealized loss position for more than one year. As such, the Company believes that it is more likely than not that the investments will be held until maturity or a forecasted recovery of fair value.

While our investment policy requires that we only invest in highly-rated securities and limit our exposure to any single issuer, the COVID-19 pandemic may materially affect the financial conditions of issuers, which could result in a default by one or more issuers or result in downgrades below our minimum credit rating requirements.

NOTE 3. FAIR VALUE MEASUREMENTS

The Company’s financial instruments consist of cash and cash equivalents, short-term investments, prepaid expenses, other current assets, accounts payable, accrued expenses, and the Term Loan, as defined and discussed in Note 5. Fair value estimates of these instruments are made at a specific point in time based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment. The carrying amounts of financial instruments such as cash and cash equivalents, prepaid expenses, other current assets, accounts payable and accrued expenses approximate the related fair values due to the short maturities of these instruments. Based on prevailing borrowing rates available to the Company for loans with similar terms, the Company believes the fair value of the Term Loan, considering level 2 inputs, approximates this instrument’s carrying value.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:

Level 1 – Valuations are based on quoted prices in active markets for identical assets or liabilities and readily accessible by the Company at the reporting date.

Level 2 – Valuations based on inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Valuations based on unobservable inputs for which there is little or no market data, which require the Company to develop its own assumptions.

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The following table sets forth the fair value of the Company’s financial assets and liabilities that are measured or disclosed on a recurring basis:


	September 30, 2020
	Total Fair Value		Level 1		Level 2		Level 3
Assets:
Money market funds	$	83,011	$	83,011	$	—	$	—
Commercial paper		48,153		—		48,153		—
Corporate bonds		39,274		—		39,274		—
U.S. government-sponsored agency bonds		9,337		9,337
Asset-backed securities		3,223		—		3,223		—
U.S. treasury notes		1,000		1,000		—		—
Total	$	183,998	$	93,348	$	90,650	$	—

Liabilities:
Derivative liability for Exit Fee	$	1,259	$	—	$	—	$	1,259
Total	$	1,259	$	—	$	—	$	1,259


	December 31, 2019
	Total Fair Value		Level 1		Level 2		Level 3
Assets:
Money market funds	$	147,208	$	147,208	$	—	$	—
Commercial paper		56,041		—		56,041		—
Corporate bonds		33,134		—		33,134		—
Asset-backed securities		8,005		—		8,005		—
Total	$	244,388	$	147,208	$	97,180	$	—

Liabilities:
Derivative liability for Exit Fee	$	969	$	—	$	—	$	969
Total	$	969	$	—	$	—	$	969

Where quoted prices are available in an active market, securities are classified as Level 1. The Company classifies money market funds, U.S. government-sponsored agency bonds and U.S. treasury notes as Level 1. When quoted market prices are not available for the specific security, the Company estimates fair value by using benchmark yields, reported trades, broker/dealer quotes and issuer spreads. The Company classifies corporate bonds, commercial paper, asset-backed securities and foreign currency derivative contracts as Level 2. In certain cases, where there is limited activity or less transparency around inputs to valuation, securities or derivative liabilities such as the Exit Fee, as defined and discussed in Note 4, are classified as Level 3.

NOTE 4. DERIVATIVE LIABILITY

In May 2018, in connection with entering into the Loan Agreement, as defined and discussed in Note 5, the Company entered into an agreement pursuant to which the Company agreed to pay $1.5 million in cash (the “Exit Fee”) upon any change of control transaction in respect of the Company or if the Company obtains both (i) U.S. Food and Drug Administration (“FDA”) approval of tenapanor for the treatment of hyperphosphatemia in chronic kidney disease (“CKD”) patients on dialysis and (ii) FDA approval of tenapanor for the treatment of patients with irritable bowel syndrome with constipation (“IBS-C”), which was obtained on September 12, 2019 when the FDA approved IBSRELA® (tenapanor), a 50 milligram, twice daily oral pill for the treatment of IBS-C in adults (the “Exit Fee Agreement”). Notwithstanding the prepayment or termination of the Term Loan, as defined and discussed in Note 5, the Company’s obligation to pay the Exit Fee will expire on May 16, 2028. The Company concluded that the Exit Fee is a freestanding derivative which should be accounted for at fair value on a recurring basis. The estimated fair value of the Exit Fee is recorded as a derivative liability and included in accrued expenses and other current liabilities on the accompanying condensed balance sheets.

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The fair value of the derivative liability was determined using a discounted cash flow analysis, and the key assumptions included in the calculation of the estimated fair value of the derivative liability include: (i) the Company’s estimates of both the probability and timing of payment of the Exit Fee to Solar Capital Ltd. and Western Alliance Bank as a result of the FDA approvals and (ii) a variable discount rate. Generally, increases or decreases in the probability of occurrence would result in a directionally similar impact in the fair value measurement of the derivative liability, and it is estimated that a 10% increase or decrease in the probability of occurrence would result in a fair value fluctuation of approximately $0.1 million.

Changes in fair value, which are presented as other income, net, in the Company's condensed statements of operations, were as follows:


	Nine Months Ended September 30,
		2020		2019
Fair value of Exit Fee derivative liability at January 1	$	969	$	533
Change in estimated fair value of derivative liability		290		246
Fair value of Exit Fee derivative liability at September 30	$	1,259	$	779

NOTE 5. BORROWING