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Table of Contents
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, 2021
OR
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
https://cdn.kscope.io/9655d1bb29a8e6e34de5da14b8293a9f-ardx-20210930_g1.jpg
ARDELYX, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware26-1303944
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No)

400 Fifth Avenue, Suite 210, Waltham, Massachusetts 02451
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001ARDXThe 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 filerAccelerated filer
Non-accelerated filerSmaller 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 9, 2021, was 112,743,408.


Table of Contents
ARDELYX, INC.
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1

Table of Contents
PART I.            FINANCIAL INFORMATION

ITEM 1.            FINANCIAL STATEMENTS

ARDELYX, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share and per share amounts)
September 30,
2021
December 31,
2020
(Unaudited)
Assets    
Current assets:    
Cash and cash equivalents$75,288 $91,032 
Short-term investments66,363 95,452 
Accounts receivable287  
Prepaid expenses and other current assets11,441 8,202 
Total current assets153,379 194,686 
Property and equipment, net2,651 1,936 
Long-term investments 2,114 
Right-of-use assets, net13,580 2,274 
Other assets1,238 552 
Total assets$170,848 $201,562 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$4,263 $5,626 
Accrued compensation and benefits4,770 5,672 
Current portion of operating lease liability3,391 2,117 
Loan payable, current portion44,444 4,167 
Deferred revenue527 4,177 
Accrued expenses and other current liabilities11,373 6,657 
Total current liabilities68,768 28,416 
Operating lease liability, net of current portion10,669 413 
Loan payable, net of current portion7,032 46,621 
Deferred revenue, non-current2,947  
Total liabilities89,416 75,450 
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; no shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively.
  
Common stock, $0.0001 par value; 300,000,000 shares authorized; 106,771,584 and 93,599,975 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively.
11 9 
Additional paid-in capital758,114 680,872 
Accumulated deficit(676,696)(554,765)
Accumulated other comprehensive income (loss)3 (4)
Total stockholders’ equity81,432 126,112 
Total liabilities and stockholders’ equity$170,848 $201,562 
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,
2021202020212020
Revenues:        
Collaborative development revenue$886 $1,356 $3,650 $3,656 
Product supply revenue285 1,357 411 1,400 
Licensing revenue2  5,007 706 
Total revenues1,173 2,713 9,068 5,762 
Operating expenses:
Cost of revenue  1,000 141 
Research and development23,695 12,240 70,172 46,948 
General and administrative19,714 7,634 56,969 21,810 
Total operating expenses43,409 19,874 128,141 68,899 
Loss from operations(42,236)(17,161)(119,073)(63,137)
Interest expense(1,216)(1,202)(3,518)(3,785)
Other (expense) income, net(134)255 664 1,485 
Loss before provision for income taxes(43,586)(18,108)(121,927)(65,437)
Provision for income taxes1  4  
Net loss$(43,587)$(18,108)$(121,931)$(65,437)
Net loss per common share - basic and diluted$(0.42)$(0.20)$(1.21)$(0.73)
Shares used in computing net loss per share - basic and diluted104,144,606 89,365,798 100,480,156 89,109,772 
Comprehensive loss:
Net loss$(43,587)$(18,108)$(121,931)$(65,437)
Unrealized (losses) gains on available-for-sale securities(1)(227)7 70 
Comprehensive loss$(43,588)$(18,335)$(121,924)$(65,367)
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, 2021
(Unaudited)
(in thousands, except shares)
Three Months Ended September 30, 2021
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Stockholders'
Equity
SharesAmount
Balance as of June 30, 2021102,967,017 $10 $750,664 $(633,109)$4 $117,569 
Issuance of common stock under employee stock purchase plan284,456 — 341 — — 341 
Issuance of common stock for services25,989 — 190 — — 190 
Issuance of common stock upon exercise of options126,004 — 21 — — 21 
Issuance of common stock upon vesting of restricted stock units34,410 — — — — — 
Taxes paid related to net share settlement of equity awards— — (106)— — (106)
Issuance of common stock in at-the-market offering3,333,708 1 4,742 4,743 
Stock-based compensation— — 2,262 — — 2,262 
Unrealized losses on available-for-sale securities— — — — (1)(1)
Net loss— — — (43,587)— (43,587)
Balance as of September 30, 2021106,771,584 $11 $758,114 $(676,696)$3 $81,432 

Nine Months Ended September 30, 2021
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Stockholders'
Equity
SharesAmount
Balance as of December 31, 202093,599,975 $9 $680,872 $(554,765)$(4)$126,112 
Issuance of common stock under employee stock purchase plan386,664 — 819 — — 819 
Issuance of common stock for services25,989 — 190 — — 190 
Issuance of common stock upon exercise of options331,310 — 584 — — 584 
Issuance of common stock upon vesting of restricted stock units114,194 — — — — — 
Taxes paid for net share settlement of equity awards— — (106)— — (106)
Issuance of common stock in at-the-market offering12,313,452 2 67,187 — — 67,189 
Stock-based compensation— — 8,568 — — 8,568 
Unrealized gains on available-for-sale securities— — — — 7 7 
Net loss— — — (121,931)— (121,931)
Balance as of September 30, 2021106,771,584 $11 $758,114 $(676,696)$3 $81,432 

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 shares)

Three Months Ended September 30, 2020
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Stockholders'
Equity
SharesAmount
Balance as of June 30, 202089,140,563 $9 $653,805 $(507,781)$317 $146,350 
Issuance of common stock under employee stock purchase plan94,127 — 459 — — 459 
Issuance of common stock upon exercise of options142,191 — 339 — — 339 
Issuance of common stock upon vesting of restricted stock units866,528 — — — — — 
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, 202090,243,409 $9 $657,130 $(525,889)$90 $131,340 

Nine Months Ended September 30, 2020
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Stockholders'
Equity
SharesAmount
Balance as of December 31, 201988,817,741 $9 $647,078 $(460,452)$20 $186,655 
Issuance of common stock under employee stock purchase plan169,931 — 834 — — 834 
Issuance of common stock for services42,403 — 310 — — 310 
Issuance of common stock upon exercise of options346,806 — 759 — — 759 
Issuance of common stock upon vesting of restricted stock units866,528 — — — — — 
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, 202090,243,409 $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 CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended September 30,
20212020
Operating activities    
Net loss$(121,931)$(65,437)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense1,247 1,399 
Amortization of deferred financing costs477 416 
Amortization of deferred compensation for services192 235 
Amortization of (discount) premium on investment securities396 (241)
Non-cash lease expense2,257 1,568 
Stock-based compensation8,568 8,149 
Change in derivative liabilities(696)290 
Non-cash interest associated with debt discount accretion212 393 
Changes in operating assets and liabilities:
Accounts receivable(287) 
Prepaid expenses and other assets(3,927)(3,748)
Accounts payable(1,363)303 
Accrued compensation and benefits(902)(731)
Operating lease liabilities(2,033)(1,914)
Accrued and other liabilities5,411 (871)
Deferred revenue(703)(3,656)
Net cash used in operating activities(113,082)(63,845)
Investing activities
Proceeds from maturities and redemptions of investments103,550 79,402 
Purchases of investments(72,736)(107,200)
Purchases of property and equipment(1,962)(74)
Net cash provided by (used in) investing activities28,852 (27,872)
Financing activities
Proceeds from issuance of common stock in at-the-market offering, net of issuance costs67,189  
Proceeds from issuance of common stock under equity incentive and stock purchase plans1,403 1,593 
Payments for taxes related to net share settlement of equity awards(106) 
Net cash provided by financing activities68,486 1,593 
Net decrease in cash and cash equivalents(15,744)(90,124)
Cash and cash equivalents at beginning of period91,032 181,133 
Cash and cash equivalents at end of period$75,288 $91,009 
Supplementary disclosure of cash flow information:
Cash paid for interest$2,920 $3,119 
Cash paid for income taxes$4 $1 
Supplementary disclosure of non-cash activities:
Right-of-use assets obtained in exchange for lease obligations$14,379 $ 
Issuance of common stock for services$190 $310 
The accompanying notes are an integral part of these condensed financial statements.
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ARDELYX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(amounts in thousands, except per share amounts and where otherwise noted)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Ardelyx, Inc. (the “Company,” “we,” “us” or “our”) is a biopharmaceutical company focused on the discovery, development, and commercialization of innovative first-in-class medicines to improve treatment for people with kidney and cardiorenal diseases.
We operate in one business segment, which is the research, development and commercialization 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 our most recent annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary to present fairly our financial position, results of operations, changes in stockholders’ equity, and cash flows for the interim periods presented.
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 our Annual Report on Form 10-K for the year ended December 31, 2020. The results for the three and nine months ended September 30, 2021 are not necessarily indicative of results to be expected for the entire year ending December 31, 2021, or for any other interim period or future year.
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.
Liquidity
As of September 30, 2021, we had cash, cash equivalents and marketable securities of approximately $141.7 million. We believe our current available cash, cash equivalents and marketable securities will be sufficient to fund our planned expenditures and meet our obligations for at least 12 months following the filing of this Report on Form 10-Q.
On July 28, 2021, we received a Complete Response Letter ("CRL") from the U.S. Food and Drug Administration ("FDA") regarding our New Drug Application ("NDA") for the control of serum phosphorus in adult patients with chronic kidney disease ("CKD") on dialysis in which the FDA noted additional requirements would need to be met in order to obtain approval for tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis. On July 29, 2021 we entered into a Fourth Amendment to our Term Loan Agreement which extended the period of time that we are permitted to make interest-only payments on the Term Loan to December 1, 2021, provided, however, the amendment provided that if the FDA did not approve our NDA for tenapanor for the control of serum phosphorus in adult patients with CKD on or before October 25, 2021, then the interest-only period would expire and principal repayments would be required to begin on November 1, 2021. Further, on July 29, 2021, our Board of Directors approved, and on August 2, 2021, we implemented a restructuring plan to better align our workforce and anticipated commercial and development spend with our capital resources and the needs of our business following the receipt of the CRL.
On October 8, 2021, our Board of Directors approved, and on October 12, 2021 we began implementing, an additional restructuring plan to further reduce operating costs and better align our workforce with the needs of our business following the
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subsequent conclusion of an End of Review Type A Meeting ("End of Review Meeting") with the FDA on October 1, 2021. The restructuring plan is expected to be completed in December 2021.
During November 2021, in compliance with the terms of our Loan Agreement as discussed in Note 5, we paid the first principal repayment on the Term Loan in the amount of $16.7 million. For additional information see Note 13, Subsequent Events.
Failure to raise sufficient capital when needed or generate product revenue will further impact our ability to pursue our business strategies and could require us to further delay, scale back or discontinue one or more of our product development programs, commercialization efforts, or other aspects of our business plans.
Summary of Significant Accounting Policies
There have been no changes to the significant accounting policies disclosed in our most recent Annual Report on Form 10-K other than the following:
Restructuring
We recognize restructuring charges related to reorganization plans that have been committed to by management and when liabilities have been incurred. In connection with these activities, we record restructuring charges at fair value for, a) contractual employee termination benefits when obligations are associated to services already rendered, rights to such benefits have vested, and payment of benefits is probable and can be reasonably estimated, b) one-time employee termination benefits when management has committed to a plan of termination, the plan identifies the employees and their expected termination dates, the details of termination benefits are complete, it is unlikely changes to the plan will be made or the plan will be withdrawn and communication to such employees has occurred, and c) contract termination costs when a contract is terminated before the end of its term.
One-time employee termination benefits are recognized in their entirety when communication has occurred and future services are not required. If future services are required, the costs are recorded ratably over the remaining period of service. Contract termination costs to be incurred over the remaining contract term without economic benefit are recorded in their entirety when the contract is canceled.
The recognition of restructuring charges requires us to make certain judgments and estimates regarding the nature, timing and amount of costs associated with the planned reorganization plan. To the extent our actual results differ from our estimates and assumptions, we may be required to revise the estimates of future accrued restructuring liabilities, requiring the recognition of additional restructuring charges or the reduction of accrued restructuring liabilities already recognized. Such changes to previously estimated amounts may be material to the consolidated financial statements. Changes in the estimates of the restructuring charges are recorded in the period the change is determined.
At the end of each reporting period, we evaluate the remaining accrued restructuring balances to ensure that no excess accruals are retained, and the utilization of the provisions are for their intended purpose in accordance with developed restructuring plans.
Recent Accounting Pronouncements
New Accounting Pronouncements - Recently Adopted
We have adopted no new accounting pronouncements other than those disclosed in our most recent Annual Report on Form 10-K.
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
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guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. On June 30, 2021, our public float exceeded $700 million and therefore, on December 31, 2021, we will no longer qualify as a “smaller reporting company” and will instead be considered a large accelerated filer. We expect to adopt Topic 326 in the fourth quarter of 2021. We do not expect the adoption of ASU 2016-13 to have a material impact on our financial statements and related disclosures.
NOTE 2. CASH, CASH EQUIVALENTS AND INVESTMENTS
Securities classified as cash, cash equivalents and investments as of September 30, 2021 and December 31, 2020 are summarized below (in thousands):
September 30, 2021
Gross Unrealized
Amortized CostGainsLossesFair Value
Cash and cash equivalents:
Cash$5,712 $— $— $5,712 
Money market funds68,326 — — 68,326 
Commercial paper1,250 — — 1,250 
Total cash and cash equivalents75,288 — — 75,288 
Short-term investments
Commercial paper$49,919 $3 $ $49,922 
Corporate bonds11,100 3 (2)11,101 
Asset-backed securities5,341  (1)5,340 
Total short-term investments66,360 6 (3)66,363 
Total cash equivalents and investments$141,648 $6 $(3)$141,651 
December 31, 2020
Gross Unrealized
Amortized CostGainsLossesFair Value
Cash and cash equivalents:
Cash$781 $— $— $781 
Money market funds88,151 — — 88,151 
Commercial paper2,100 — — 2,100 
Total cash and cash equivalents91,032 — — 91,032 
Short-term investments
Commercial paper$60,631 $2 $(4)$60,629 
Corporate bonds24,547 3 (6)24,544 
U.S. government-sponsored agency bonds9,277 2  9,279 
U.S. treasury notes1,000   1,000 
Total short-term investments95,455 7 (10)95,452 
Long-term investments:
Corporate bonds$2,115 $(1)2,114 
Total cash equivalents and investments$188,602 $7 $(11)$188,598 
We invest excess cash in marketable securities with high credit ratings. These securities consist primarily of money market funds, commercial paper, corporate bonds, asset-backed securities, and U.S. treasury and agency securities and are classified as “available-for-sale.”
All of the available-for-sale securities that we held as of September 30, 2021 had contractual maturities of less than one year. Our available-for-sale securities are subject to a periodic impairment review. We consider a debt security to be impaired when the fair value of that security is less than its carrying cost, in which case we would further evaluate the investment to determine whether the security is other-than-temporarily impaired. When we evaluate an investment for other-
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than-temporary impairment, we review 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 we will be required to sell the investment before the recovery of its cost basis. If an investment is other-than-temporarily impaired, we write the investment down through the statement of operations to its fair value and establish that value as the new cost basis for the investment. Management has determined that none of our available-for-sale securities were other-than-temporarily impaired in any of the periods presented, and, as of September 30, 2021, no investment was in a continuous unrealized loss position for more than one year. As such, we believe that it is more likely than not that investments in a loss position will be held until maturity or a forecasted recovery of fair value.
NOTE 3. FAIR VALUE MEASUREMENTS
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 us at the reporting date. Examples of assets and liabilities utilizing Level 1 inputs are certain money market funds, U.S. treasuries and trading securities with quoted prices on active markets.
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. Examples of assets and liabilities utilizing Level 1 inputs are certain money market funds, U.S. treasuries and trading securities with quoted prices on active markets.
Level 3 –
Valuations based on unobservable inputs for which there is little or no market data, which require us to develop our own assumptions.
The following table sets forth the fair value of our financial assets and liabilities that are measured or disclosed on a recurring basis by level within the fair value hierarchy (in thousands):
September 30, 2021
Total
Fair Value
Level 1Level 2Level 3
Assets:
Money market funds$68,326 $68,326 $ $ 
Commercial paper51,172  51,172  
Corporate bonds11,101  11,101  
Asset-backed securities5,340  5,340  
Total$135,939 $68,326 $67,613 $ 
Liabilities:
Derivative liability for Exit Fee$680 $ $ $680 
Total$680 $ $ $680 

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December 31, 2020
Total
Fair Value
Level 1Level 2Level 3
Assets:
Money market funds$88,151 $88,151 $ $ 
Commercial paper62,729  62,729  
Corporate bonds26,658  26,658  
U.S. government-sponsored agency bonds9,279  9,279  
U.S. treasury notes1,000  1,000  
Total$187,817 $88,151 $99,666 $ 
Liabilities:
Derivative liability for Exit Fee$1,376 $ $ $1,376 
Total$1,376 $ $ $1,376 
Where quoted prices are available in an active market, securities are classified as Level 1. We classify money market funds as Level 1. When quoted market prices are not available for the specific security, we estimate fair value by using benchmark yields, reported trades, broker/dealer quotes and issuer spreads. We classify U.S. government-sponsored agency bonds, U.S. treasury notes, 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 6, are classified as Level 3.
The carrying amounts reflected in the balance sheets for cash equivalents, short-term investments, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values at both September 30, 2021 and December 31, 2020, due to their short-term nature.

Fair Value of Debt
The interest rate of our term loan facility approximates the rate at which we could obtain alternative financing. Therefore, the carrying amount of the term loan facility approximated its fair value at September 30, 2021 and December 31, 2020.
NOTE 4. COLLABORATION AND LICENSING AGREEMENTS
Kyowa Kirin Co., Ltd. (“KKC”)
2019 KKC Agreement
In November 2019, we entered into a research collaboration and option agreement with KKC (the “2019 KKC Agreement”) for research associated with identifying two preclinical compounds that are ready for designation as development compounds (“DCs”), with one compound inhibiting the first undisclosed target (“Program 1”), and a second inhibiting the second undisclosed target (“Program 2”). Pursuant to the 2019 KKC Agreement, upon completion of the research and designation by the research steering committee of one or more DCs, KKC has the right to execute one or more separate collaborative agreements relating to the development and commercialization of one or both DCs in certain specified territories.
Under the terms of the 2019 KKC Agreement, KKC paid us a non-refundable, non-creditable upfront fee of $10.0 million in two installments as follows: the first installment of $5.0 million within 30 days of November 11, 2019 (the “Effective Date”), and the second installment of $5.0 million on the first anniversary of the Effective Date. The term of the 2019 KKC Agreement commenced on the Effective Date and ends on the earliest of: (i) 2 years following the Effective Date, (ii) the nomination of a program DC for both programs, (iii) the nomination of one program DC and the decision by the parties to cease research for the other program, or (iv) the decision by the parties to cease research for both programs.
During the three and nine months ended September 30, 2021, we recognized $0.9 million and $3.7 million, respectively, as collaborative development revenue under the 2019 KKC Agreement in the accompanying condensed statement of operations and comprehensive loss. During the three and nine months ended September 30, 2020, we recognized $1.4 million and $3.7 million, respectively, as collaborative development revenue under the 2019 KKC Agreement in the accompanying condensed statement of operations and comprehensive loss. The aggregate amount of the transaction price allocated to our
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partially unsatisfied performance obligations as of September 30, 2021 and December 31, 2020 was $0.5 million and $4.2 million, respectively, which is presented in the accompanying condensed balance sheet as deferred revenue. As of September 30, 2021, we expect to recognize the remaining transaction price allocated to our partially unsatisfied performance obligations over the remaining research terms, which is currently expected to extend through the end of 2021. There were no significant changes in estimates associated with the 2019 KKC Agreement during the nine months ended September 30, 2021.
2017 KKC Agreement
In November 2017, we entered into an exclusive license agreement with KKC (the “2017 KKC Agreement”), for the development, commercialization, and distribution of tenapanor in Japan for cardiorenal indications. We granted KKC an exclusive license to develop and commercialize certain sodium hydrogen exchanger 3 (“NHE3”) inhibitors including tenapanor in Japan for the treatment of cardiorenal diseases and conditions, excluding cancer. We retained the rights to tenapanor outside of Japan, and also retained the rights to tenapanor in Japan for indications other than those stated above. Pursuant to the 2017 KKC Agreement, KKC is responsible for all costs and expenses incurred in the development and commercialization of tenapanor for all licensed indications in Japan. We are responsible for supplying the tenapanor drug substance for KKC’s use in development and commercialization throughout the term of the 2017 KKC Agreement, provided that KKC may exercise an option to manufacture the tenapanor drug substance under certain conditions.
We assessed these arrangements in accordance with Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) and related amendments (“ASC 606”) and concluded that the contract counterparty, KKC, is a customer. Under the terms of the 2017 KKC Agreement, we received $30.0 million in upfront license fees, which was recognized as revenue when the agreement was executed. Based on our assessment, management determined that the license and the manufacturing supply services were its material performance obligations at the inception of the 2017 KKC Agreement, and as such, each of the performance obligations is distinct.
In addition to the up-front license fee received of $30.0 million, we may be entitled to receive up to $55.0 million in total development milestones, of which $10.0 million has been received and recognized as revenue as of September 30, 2021, and approximately ¥8.5 billion for commercialization milestones, or approximately $76.1 million at the currency exchange rate on September 30, 2021, as well as reimbursement of costs plus a reasonable overhead for the supply of product and high-teen royalties on net sales throughout the term of the agreement. The variable consideration related to the remaining development milestone payments has not been included in the transaction price as these were fully constrained at September 30, 2021.
During the three and nine months ended September 30, 2021 we recognized zero and $5.0 million, respectively, as licensing revenue upon the achievement of development milestones. During the three and nine months ended September 30, 2020, we recognized no licensing revenue upon the achievement of development milestones. The $5.0 million development milestone recognized during the three months ended March 31, 2021 related to the initiation by KKC of phase 3 clinical studies in Japan to evaluate tenapanor for hyperphosphatemia. During the three and nine months ended September 30, 2021, we recognized $0.3 million and $0.4 million as product supply revenue related to the manufacturing supply of tenapanor and other materials to KKC pursuant to the 2017 KKC Agreement. During the three and nine months ended September 30, 2020, we recognized $1.4 million and $1.4 million as product supply revenue.
During the three months ended March 31, 2021, we received a $2.9 million prepayment from KKC for the manufacturing of tenapanor drug substance. The prepayment is reflected within prepaid and other current assets and deferred revenue, non-current on our condensed balance sheet as of September 30, 2021.
Shanghai Fosun Pharmaceutical Industrial Development Co. Ltd. (“Fosun Pharma”)
In December 2017, we entered into an exclusive license agreement with Fosun Pharma (the “Fosun Agreement”), for the development, commercialization and distribution of tenapanor in China for both hyperphosphatemia and IBS-C. We assessed these arrangements in accordance with ASC 606 and concluded that the contract counterparty, Fosun Pharma, is a customer. Under the terms of the Fosun Agreement, we received $12.0 million in upfront license fees which was recognized as revenue when the agreement was executed. Based on management’s assessment, we determined that the license and the manufacturing supply services represented the material performance obligations at the inception of the agreement, and as such, each of the performance obligations is distinct.  
We may be entitled to additional development and commercialization milestones of up to $110.0 million, as well as reimbursement of cost plus a reasonable overhead for the supply of product and tiered royalties on net sales ranging from the mid-teens to 20%. The variable consideration related to the remaining development milestone payments has not been included in the transaction price as these were fully constrained at September 30, 2021.
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We have recorded no revenue during the three and nine months ended September 30, 2021 related to the Fosun Agreement.
Knight Therapeutics, Inc. (“Knight“)  
In March 2018, we entered into an exclusive license agreement with Knight (the “Knight Agreement”) for the development, commercialization and distribution of tenapanor in Canada for hyperphosphatemia and IBS-C. We assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, Knight, is a customer. Based on management’s assessment, we determined that the license and the manufacturing supply services represented the material performance obligations at the inception of the agreement, and as such, each of the performance obligations is distinct. Under the terms of the agreement, we received a $2.3 million nonrefundable, one-time upfront payment in March 2018 and are eligible to receive additional development and commercialization milestone payments worth up to $17.5 million. We are also eligible to receive royalties throughout the term of the agreement, and a transfer price for manufacturing services. The variable consideration related to the remaining development milestone payments has not been included in the transaction price as they were fully constrained at September 30, 2021.
AstraZeneca AB (“AstraZeneca”)
In June 2015, we entered into a termination agreement with AstraZeneca (the “AstraZeneca Termination Agreement”) pursuant to which we have agreed to pay AstraZeneca (i) future royalties at a royalty rate of 10% of net sales of tenapanor or other NHE3 products by us or our licensees, and (ii) 20% of non-royalty revenue received from a new collaboration partner should we elect to license, or otherwise provide rights to develop and commercialize tenapanor or another NHE3 inhibitor, up to a maximum of $75.0 million in aggregate for (i) and (ii). As of September 30, 2021, to date in aggregate, we have recognized $11.6 million of the $75.0 million, which has been recorded as cost of revenue, and have paid AstraZeneca $11.6 million. For the three and nine months ended September 30, 2021 we recognized and recorded as cost of revenue zero and $1.0 million related to the AstraZeneca Termination Agreement. For the three and nine months ended September 30, 2020 we recognized zero and $0.1 million, respectively, as cost of revenue related to the AstraZeneca Termination Agreement.
Deferred Revenue
The following tables present changes in our current and non-current deferred revenue balances during the reporting period. The current deferred revenue balance is attributable entirely to the 2019 KKC Agreement and the non-current deferred revenue balance is attributable entirely to the 2017 KKC Agreement (in thousands):
Deferred revenue - current
Balance at December 31, 2020$4,177 
Decreases due to revenue recognized in the period for which cash has been received(3,650)
Balance at September 30, 2021$527 

Deferred revenue - non-current
Balance at December 31, 2020$ 
Increases to amounts invoiced for which cash has been received2,947 
Balance at September 30, 2021$2,947 
NOTE 5. BORROWING
Solar Capital and Western Alliance Bank Loan Agreement
On May 16, 2018, we entered into a loan and security agreement (the “Loan Agreement”), with Solar Capital Ltd. and Western Alliance Bank (collectively the “Lenders”). The Loan Agreement provides for a $50.0 million term loan facility with a maturity date of November 1, 2022 (the “Term Loan”).
On October 9, 2020, we and the Lenders entered into an amendment to the Loan Agreement (“the 2020 Amendment”) to extend the date through which we are permitted to make interest-only payments on the Term Loan by twelve months to December 1, 2021. The 2020 amendment also required that if either the FDA does not approve our NDA for tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis on or before May 31, 2021 or the FDA issues a CRL with
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respect to our NDA Number 213931, then we are to begin principal payments on the earlier of June 1, 2021 or the first day of the month immediately following the date that the FDA issues us a CRL. On April 29, 2021, the FDA extended the Prescription Drug User Fee Act ("PDUFA") date for tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis by three months to July 29, 2021, making it unlikely that the FDA would approve our NDA for tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis on or before May 31, 2021.
In May and July 2021, we and the Lenders entered into additional amendments to the Loan Agreement (“the 2021 Amendments”) which together extended the period of time that we are permitted to make interest-only payments on the Term Loan to December 1, 2021; provided that if we have not received FDA approval for our NDA for tenapanor for the control of serum phosphorus in adult patients with CDK on dialysis on or before October 25, 2021, the interest-only period will expire and principal repayments shall be required to begin on November 1, 2021. If principal repayments are required to begin prior to December 1, 2021 under the 2021 Amendments, then the first such repayment shall include all payments that would have been due if monthly principal repayment had begun on June 1, 2021. As of September 30, 2021, we have classified our loan payable, current to include all principal payments that would have been due beginning on June 1, 2021. During November 2021, in compliance with the terms of our Loan Agreement, we paid the first principal repayment on the Term Loan in the amount of $16.7 million. For additional information see Note 13, Subsequent Events.
We paid a closing fee of 1% of the Term Loan, or $0.5 million, upon the closing of the Term Loan, $0.1 million upon closing of the 2020 Amendment and $0.1 million upon closing of the 2021 Amendments. Under the Term Loan, we are also obligated to pay a final fee equal to 4.95% of the Term Loan upon the earliest to occur of the maturity date, the acceleration of the Term Loan, the prepayment or repayment of the Term Loan or the termination of the Loan Agreement. We may voluntarily prepay the outstanding Term Loan, subject to a prepayment premium of (i) 3% of the principal amount of the Term Loan if prepaid prior to or on the first anniversary of the Closing Date, (ii) 2% of the principal amount of the Term Loan if prepaid after the first anniversary of the Closing Date through and including the second anniversary of the Closing Date, or (iii) 1% of the principal amount of the Term Loan if prepaid after the second anniversary of the Closing Date and prior to the maturity date. The Term Loan is secured by substantially all our assets, except for our intellectual property and certain other customary exclusions. Additionally, in connection with the Term Loan, we entered into the Exit Fee Agreement, as discussed in Note 6.
The Loan Agreement also contains customary events of default that entitle the Lenders to cause us indebtedness under the Loan Agreement to become immediately due and payable, and to exercise remedies against us and the collateral securing the Term Loan, including our cash. Upon the occurrence and for the duration of an event of default, an additional default interest rate equal to 4% per annum will apply to all amounts owed under the Loan Agreement. As of September 30, 2021 and as of the date of filing this Quarterly Report on Form 10-Q, to our knowledge, there were no facts or circumstances in existence that would give rise to an event of default.
As of September 30, 2021, our future payment obligations related to the Term Loan, excluding interest payments and the Exit Fee, are as follows (in thousands):
Total repayment obligations$52,475 
Less: Unamortized discount and debt issuance costs(307)
Less: Unaccreted value of final fee(692)
Loan payable51,476 
Less: Loan payable, current portion(44,444)
Loan payable, net of current portion$7,032 
NOTE 6.  DERIVATIVE LIABILITY
Exit Fee
In May 2018, in connection with entering into the Loan Agreement, as defined and discussed in Note 5, we entered into an agreement pursuant to which we agreed to pay $1.5 million in cash (the “Exit Fee”) upon any change of control transaction in respect of the Company or if we obtain both (i) FDA approval of tenapanor for the control of serum phosphorus in adult patients with CKD 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, our obligation to pay the Exit Fee will expire on May 16, 2028. We concluded that the Exit Fee is a freestanding derivative which should be accounted for at fair value on a
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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.
The fair value of the derivative liability was determined using a discounted cash flow analysis and is classified as a Level 3 measurement within the fair value hierarchy since our valuation utilized significant unobservable inputs. Specifically, the key assumptions included in the calculation of the estimated fair value of the derivative liability include: (i) our estimates of both the probability and timing of a potential $1.5 million payment to Solar Capital Ltd. and Western Alliance Bank as a result of the FDA approvals and (ii) a discount rate which was derived from our estimated cost of debt, adjusted with current LIBOR (or a comparable successor rate if LIBOR no longer exists). 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 (decrease), not to exceed 100%, in the probability of occurrence would result in a fair value fluctuation of no more than $0.1 million.
Changes in the fair value of recurring measurements included in Level 3 of the fair value hierarchy are presented as other income, net in our statements of operations and were as follows for the nine months ended September 30, 2021 and 2020 (in thousands):
Nine Months Ended September 30,
20212020
Fair value of Exit Fee derivative liability at January 1$1,376 $969 
Change in estimated fair value of Exit Fee derivative liability(696)290 
Fair value of Exit Fee derivative liability at September 30$680 $1,259 

During the nine months ended September 30, 2021 we reduced the value of the derivative liability due the receipt of the CRL from the FDA regarding our NDA for the control of serum phosphorus in adult patients with CKD on dialysis.
NOTE 7. LEASES
All of our leases are operating leases and each contain customary rent escalation clauses. Certain of the leases have both lease and non-lease components. We have elected to account for each separate lease component and the non-lease components associated with that lease component as a single lease component for all classes of underlying assets.
During May 2021, we entered into an amendment to the lease for our Fremont, California facility that extended the term of the lease to March 2025. The office space consists of 72,500 square feet with the lease terminating in September 2025. We increased the right-of-use asset and lease liability by $11.9 million for the Fremont lease upon commencement of the amendment.
During April 2021 and May 2021, we recorded right-of-use operating lease assets for a new facility in Waltham, Massachusetts under a lease agreement entered into during December 2020 with lease commencement dates during April and May 2021. The office space consists of 12,864 square feet with the lease terminating in June 2026. We have an option to extend the lease term for one additional five year period. This option to extend the lease term has not been included in the calculation since currently the exercise of the option is uncertain and therefore deemed not probable. We recorded a $1.6 million right-of-use asset and lease liability for the Waltham lease upon commencement of the lease.
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The following table provides additional details of our facility leases presented in the condensed balance sheet as of September 30, 2021 (dollars in thousands):
Facilities
Right-of-use assets$13,580
Current portion of lease liabilities3,391
Operating lease liability, net of current portion10,669
Total$14,060
Weighted-average remaining life (years)3.70
Weighted-average discount rate6.86 %
Lease costs, which are included in operating expenses in our statements of operations, were as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Operating lease expense$1,096 $648 $2,606 $1,944 
Cash paid for operating leases$829 $767 $2,383 $2,288 
The following table summarizes our undiscounted cash payment obligations for our operating lease liabilities as of September 30, 2021 (in thousands):
Remainder of 2021$1,056 
20224,292 
20234,440 
20244,589 
20251,321 
Thereafter252 
Total undiscounted operating lease payments15,950 
Imputed interest expenses(1,890)
Total operating lease liabilities14,060 
Less: Current portion of operating lease liability(3,391)
Operating lease liability, net of current portion$10,669 
NOTE 8. STOCKHOLDERS’ EQUITY
At the Market Offerings Agreement
In July 2020, we filed a Form S-3 registration statement, which became effective in August 2020 ("Registration Statement"), containing (i) a base prospectus for the offering, issuance and sale by us of up to a maximum aggregate offering price of $250.0 million of our common stock, preferred stock, debt securities, warrants and/or units, from time to time in one or more offerings; and (ii) a prospectus supplement for the offering, issuance and sale by us of up to a maximum aggregate offering price of $100.0 million of our common stock that may be issued and sold, from time to time, under a sales agreement with Jefferies LLC ("Jefferies"), deemed to be “at the market offerings” (the "2020 Open Market Sales Agreement"). Pursuant to the 2020 Open Market Sales Agreement, Jefferies, as our sales agent, received a commission of up to 3.0% of the gross sales price for shares of common stock sold under the 2020 Open Market Sales Agreement. During the nine months ended September 30, 2021 we sold 12.3 million shares of our common stock for aggregate gross proceeds of $68.7 million at a weighted average price of $5.58 per share under the 2020 Open Market Sales Agreement. We sold 8.2 million shares of our common stock between the dates of November 13, 2020 through February 19, 2021, 4.0 million shares between the dates of May 11, 2021 through June 18, 2021 and 3.3 million shares between the dates of August 24, 2021 and September 10, 2021 for a
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cumulative total of 15.6 million shares and gross proceeds of $90.3 million at a weighted average sales price of approximately $5.80 per share during the life of the 2020 Open Market Sales Agreement.
In August 2021, we filed an additional prospectus supplement under the Registration Statement for the offering, issuance and sale by us of up to a maximum aggregate offering price of $150.0 million of our common stock that may be issued and sold, from time to time, under an additional sales agreement we entered into with Jefferies (the "2021 Open Market Sales Agreement"), pursuant to which we may, from time to time, sell up to $150.0 million in shares of our common stock through Jefferies. We are not required to sell shares under the 2021 Open Market Sales Agreement. Pursuant to the 2021 Open Market Sales Agreement, Jefferies, as our sales agent, receives a commission of up to 3.0% of the gross sales price for shares of common stock sold under the 2021 Open Market Sales Agreement. As of September 30, 2021 we had sold no shares of our common stock under the 2021 Open Market Sales Agreement.
NOTE 9. EQUITY INCENTIVE PLANS
Stock-Based Compensation
Stock-based compensation expense recognized for stock options, restricted stock units ("RSUs"), performance-based restricted stock units ("PRSUs") and our employee stock purchase program (the "ESPP") are recorded as operating expenses in our condensed statements of operations and comprehensive loss, as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Research and development$730 $963 $2,909 $3,165 
General and administrative1,532 1,564 5,659 4,984 
Total$2,262 $2,527 $8,568 $8,149 
As of September 30, 2021, our total unrecognized stock-based compensation expense, net of estimated forfeitures, and average remaining vesting period, included the following (dollars in thousands):
Unrecognized Compensation
 Expense
Average Remaining
 Vesting Period (Years)
Stock options$19,546 2.6
RSUs$4,839 3.3
ESPP$201 0.4
Stock Options
A summary of our stock option activity and related information for the nine months ended September 30, 2021 is as follows (in thousands, except dollar amounts):
Number of SharesWeighted Average Exercise Price
Outstanding balance at December 31, 20209,790 $