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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

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)

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 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 9, 2021, was 112,743,408.

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Table of Contents

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

1

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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 investments			66,363						95,452
Accounts receivable			287						—
Prepaid expenses and other current assets			11,441						8,202
Total current assets			153,379						194,686
Property and equipment, net			2,651						1,936
Long-term investments			—						2,114
Right-of-use assets, net			13,580						2,274
Other assets			1,238						552
Total assets			$	170,848					$	201,562
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable			$	4,263					$	5,626
Accrued compensation and benefits			4,770						5,672
Current portion of operating lease liability			3,391						2,117
Loan payable, current portion			44,444						4,167
Deferred revenue			527						4,177
Accrued expenses and other current liabilities			11,373						6,657
Total current liabilities			68,768						28,416
Operating lease liability, net of current portion			10,669						413
Loan payable, net of current portion			7,032						46,621
Deferred revenue, non-current			2,947						—
Total liabilities			89,416						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 capital			758,114						680,872
Accumulated deficit			(676,696)						(554,765)
Accumulated other comprehensive income (loss)			3						(4)
Total stockholders’ equity			81,432						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,
			2021						2020						2021						2020
Revenues:
Collaborative development revenue			$	886					$	1,356					$	3,650					$	3,656
Product supply revenue			285						1,357						411						1,400
Licensing revenue			2						—						5,007						706
Total revenues			1,173						2,713						9,068						5,762
Operating expenses:
Cost of revenue			—						—						1,000						141
Research and development			23,695						12,240						70,172						46,948
General and administrative			19,714						7,634						56,969						21,810
Total operating expenses			43,409						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 taxes			1						—						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 diluted			104,144,606						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 Stock												Additional Paid-In Capital						Accumulated Deficit						Accumulated Other Comprehensive Income						Total Stockholders' Equity
			Shares						Amount
Balance as of June 30, 2021			102,967,017						$	10					$	750,664					$	(633,109)					$	4					$	117,569
Issuance of common stock under employee stock purchase plan			284,456						—						341						—						—						341
Issuance of common stock for services			25,989						—						190						—						—						190
Issuance of common stock upon exercise of options			126,004						—						21						—						—						21
Issuance of common stock upon vesting of restricted stock units			34,410						—						—						—						—						—
Taxes paid related to net share settlement of equity awards			—						—						(106)						—						—						(106)
Issuance of common stock in at-the-market offering			3,333,708						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, 2021			106,771,584						$	11					$	758,114					$	(676,696)					$	3					$	81,432

			Nine Months Ended September 30, 2021
			Common Stock												Additional Paid-In Capital						Accumulated Deficit						Accumulated Other Comprehensive Income						Total Stockholders' Equity
			Shares						Amount
Balance as of December 31, 2020			93,599,975						$	9					$	680,872					$	(554,765)					$	(4)					$	126,112
Issuance of common stock under employee stock purchase plan			386,664						—						819						—						—						819
Issuance of common stock for services			25,989						—						190						—						—						190
Issuance of common stock upon exercise of options			331,310						—						584						—						—						584
Issuance of common stock upon vesting of restricted stock units			114,194						—						—						—						—						—
Taxes paid for net share settlement of equity awards			—						—						(106)						—						—						(106)
Issuance of common stock in at-the-market offering			12,313,452						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, 2021			106,771,584						$	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 Stock												Additional Paid-In Capital						Accumulated Deficit						Accumulated Other Comprehensive Income						Total Stockholders' Equity
			Shares						Amount
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
			Common Stock												Additional Paid-In Capital						Accumulated Deficit						Accumulated Other Comprehensive Income						Total Stockholders' Equity
			Shares						Amount
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 CASH FLOWS

(Unaudited)

(in thousands)

			Nine Months Ended September 30,
			2021						2020
Operating activities
Net loss			$	(121,931)					$	(65,437)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense			1,247						1,399
Amortization of deferred financing costs			477						416
Amortization of deferred compensation for services			192						235
Amortization of (discount) premium on investment securities			396						(241)
Non-cash lease expense			2,257						1,568
Stock-based compensation			8,568						8,149
Change in derivative liabilities			(696)						290
Non-cash interest associated with debt discount accretion			212						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 liabilities			5,411						(871)
Deferred revenue			(703)						(3,656)
Net cash used in operating activities			(113,082)						(63,845)
Investing activities
Proceeds from maturities and redemptions of investments			103,550						79,402
Purchases of investments			(72,736)						(107,200)
Purchases of property and equipment			(1,962)						(74)
Net cash provided by (used in) investing activities			28,852						(27,872)
Financing activities
Proceeds from issuance of common stock in at-the-market offering, net of issuance costs			67,189						—
Proceeds from issuance of common stock under equity incentive and stock purchase plans			1,403						1,593
Payments for taxes related to net share settlement of equity awards			(106)						—
Net cash provided by financing activities			68,486						1,593
Net decrease in cash and cash equivalents			(15,744)						(90,124)
Cash and cash equivalents at beginning of period			91,032						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 Cost						Gains						Losses						Fair Value
Cash and cash equivalents:
Cash			$	5,712					$	—					$	—					$	5,712
Money market funds			68,326						—						—						68,326
Commercial paper			1,250						—						—						1,250
Total cash and cash equivalents			75,288						—						—						75,288
Short-term investments
Commercial paper			$	49,919					$	3					$	—					$	49,922
Corporate bonds			11,100						3						(2)						11,101
Asset-backed securities			5,341						—						(1)						5,340
Total short-term investments			66,360						6						(3)						66,363
Total cash equivalents and investments			$	141,648					$	6					$	(3)					$	141,651

			December 31, 2020
									Gross Unrealized
			Amortized Cost						Gains						Losses						Fair Value
Cash and cash equivalents:
Cash			$	781					$	—					$	—					$	781
Money market funds			88,151						—						—						88,151
Commercial paper			2,100						—						—						2,100
Total cash and cash equivalents			91,032						—						—						91,032
Short-term investments
Commercial paper			$	60,631					$	2					$	(4)					$	60,629
Corporate bonds			24,547						3						(6)						24,544
U.S. government-sponsored agency bonds			9,277						2						—						9,279
U.S. treasury notes			1,000						—						—						1,000
Total short-term investments			95,455						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 1						Level 2						Level 3
Assets:
Money market funds			$	68,326					$	68,326					$	—					$	—
Commercial paper			51,172						—						51,172						—
Corporate bonds			11,101						—						11,101						—
Asset-backed securities			5,340						—						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 1						Level 2						Level 3
Assets:
Money market funds			$	88,151					$	88,151					$	—					$	—
Commercial paper			62,729						—						62,729						—
Corporate bonds			26,658						—						26,658						—
U.S. government-sponsored agency bonds			9,279						—						9,279						—
U.S. treasury notes			1,000						—						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 received			2,947
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 payable			51,476
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,
			2021						2020
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 liabilities			3,391
Operating lease liability, net of current portion			10,669
Total			$	14,060
Weighted-average remaining life (years)			3.70
Weighted-average discount rate			6.86		%

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,
			2021						2020						2021						2020
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
2022			4,292
2023			4,440
2024			4,589
2025			1,321
Thereafter			252
Total undiscounted operating lease payments			15,950
Imputed interest expenses			(1,890)
Total operating lease liabilities			14,060
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,
			2021						2020						2021						2020
Research and development			$	730					$	963					$	2,909					$	3,165
General and administrative			1,532						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 Shares						Weighted Average Exercise Price
Outstanding balance at December 31, 2020			9,790						$