SEC Filing | Ardelyx, Inc.

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ardx-20220331

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 March 31, 2022


☐			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 May 2, 2022, was 144,598,863.

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

Unless the context requires otherwise, in this Quarterly Report on Form 10-Q the terms “Ardelyx”, “we,” “us,” “our” and “the Company” refer to Ardelyx, Inc.

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

•our expectations regarding our participation in a Cardiovascular and Renal Drugs Advisory Committee (“Advisory Committee”) meeting in connection with the formal dispute resolution (“FDR”) process commenced in response to the Complete Response Letter (“CRL”) received from the U.S. Food and Drug Administration (“FDA”) relating to our new drug application (“NDA”) for XPHOZAH® (tenapanor) for the control of serum phosphorus in adult patients with chronic kidney disease on dialysis (“CKD”) (the “Hyperphosphatemia Indication”);

•our plans to address our operating cash flow requirements with our current cash and investments, cash generated from the sales of IBSRELA®, our potential receipt of anticipated milestones from our collaboration partners, our potential receipt of anticipated payments from our Japanese collaboration partner under the second amendment to our License Agreement; our ability to access the capital markets, as well as through the implementation of cash preservation activities to reduce or defer discretionary spending;

•our plans with respect to RDX013 and RDX020; and

•estimates of our expenses, future revenue, capital requirements, our needs for additional financing and our ability to obtain additional capital.

Factors that could cause actual results or conditions to differ from those anticipated by these and other forward-looking statements include those more fully described in the “ITEM 1A. RISK FACTORS” section and elsewhere in this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update any forward-looking statement publicly, or to revise any forward-looking statement to reflect events or developments occurring after the date of this Quarterly Report on Form 10-Q, even if new information becomes available in the future. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in any such forward-looking statement.

SUMMARY OF PRINCIPAL RISKS ASSOCIATED WITH OUR BUSINESS

•We have a limited operating history, have incurred significant losses since our inception and will incur losses in the future, which makes it difficult for us to assess our future viability; although our financial statements have been prepared on a going concern basis, our current level of cash and investments alone is not sufficient to meet our operating plans for the next twelve months, raising substantial doubt regarding our ability to continue as a going concern.

•We will require substantial additional financing to achieve our goals, including our goals of commercializing IBSRELA, and preparing for and participating in a Cardiovascular and Renal Drugs Advisory Committee (“Advisory Committee”) meeting in connection with the formal dispute resolution (“FDR”) process commenced in response to the Complete Response Letter (“CRL”) received from the U.S. Food and Drug Administration (“FDA”) relating to our new drug application (“NDA”) for XPHOZAH (tenapanor) for the control of serum phosphorus in adult patients with chronic kidney disease (“CKD”) on dialysis (“Hyperphosphatemia Indication”) and the inability to access necessary capital when needed on acceptable terms, or at all, could force us to limit, reduce or terminate our efforts to commercialize IBSRELA or to seek and obtain approval for XPHOZAH for the Hyperphosphatemia Indication.

•Our failure to meet the continued listing requirements of The Nasdaq Global Market ("Nasdaq") could result in a de-listing of our common stock.

•We have generated limited revenue from product sales and may never be profitable.

•We are substantially dependent on the successful launch and commercialization of IBSRELA for IBS-C, and there is no guarantee that we will achieve sufficient market acceptance for IBSRELA; secure adequate coverage and reimbursement for IBSRELA; or generate sufficient revenue from product sales of IBSRELA.

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•We are pursuing regulatory approval for XPHOZAH for the Hyperphosphatemia Indication, and there can be no assurances that we will be successful in obtaining such regulatory approval.

•Even if we are successful in obtaining regulatory approval for XPHOZAH for the Hyperphosphatemia Indication, the expense and time required to do so could adversely impact our ability to successfully commercialize XPHOZAH for such indication.

•IBSRELA, and/or, if approved and commercialized, XPHOZAH, may cause undesirable side effects or have other properties that could limit the commercial success of the product.

•As a company, we have no prior experience in the marketing, sale and distribution of pharmaceutical products; and there are significant risks in building and managing a commercial organization.

•Third-party payor coverage and reimbursement status of newly-commercialized products are uncertain. Failure to obtain or maintain adequate coverage and reimbursement for IBSRELA and, if approved, for XPHOZAH could limit our ability to market those products and decrease our ability to generate revenue.

•We rely completely on third parties to manufacture IBSRELA and XPHOZAH. If they are unable to comply with applicable regulatory requirements, unable to source sufficient raw materials, experience manufacturing or distribution difficulties or are otherwise unable to manufacture sufficient quantities to meet demand, our commercialization of IBSRELA, and, if approved and commercialized of XPHOZAH, and our future development efforts for tenapanor may be materially harmed.

•Our operating activities may be restricted as a result of covenants related to the indebtedness under our loan and security agreement and we may be required to repay the outstanding indebtedness in an event of default, which could have a materially adverse effect on our business.

NOTE REGARDING TRADEMARKS

ARDELYX®, IBSRELA®, and XPHOZAH® are trademarks of Ardelyx. All other trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

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ARDELYX, INC.


			PAGE
PART I. FINANCIAL INFORMATION

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

PART II. OTHER INFORMATION

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

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ARDELYX, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and per share amounts)


	March 31, 2022		December 31, 2021
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	47,077	$	72,428
Short-term investments	42,627		44,261
Accounts receivable	4,394		502
Inventory	3,487		—
Prepaid expenses and other current assets	16,640		16,458
Total current assets	114,225		133,649
Right-of-use assets	11,910		12,752
Property and equipment, net	2,045		2,362

Other assets	1,228		1,150
Total assets	$	129,408	$	149,913
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	5,030	$	4,277
Accrued compensation and benefits	6,304		5,422
Current portion of long-term debt	26,139		32,264
Current portion of operating lease liability	3,592		3,492

Accrued expenses and other current liabilities	6,778		7,366
Total current liabilities	47,843		52,821
Operating lease liability, net of current portion	8,812		9,748

Deferred revenue, non-current	8,563		4,727
Total liabilities	65,218		67,296
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; no shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively.	—		—
Common stock, $0.0001 par value; 300,000,000 shares authorized; 136,330,360 and 130,182,535 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively.	14		13
Additional paid-in capital	805,265		795,540
Accumulated deficit	(741,001)		(712,930)
Accumulated other comprehensive loss	(88)		(6)
Total stockholders’ equity	64,190		82,617
Total liabilities and stockholders’ equity	$	129,408	$	149,913

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 March 31,
	2022		2021
Revenues:
Product sales, net	$	450	$	—
Product supply revenue	14		126
Licensing revenue	4		5,002
Collaborative development revenue	—		1,454
Total revenues	468		6,582
Operating expenses:
Cost of revenue	85		1,000
Research and development	8,851		20,456
Selling, general and administrative	19,339		17,131
Total operating expenses	28,275		38,587
Loss from operations	(27,807)		(32,005)
Interest expense	(746)		(1,100)
Other income (expense), net	484		(49)
Loss before provision for income taxes	(28,069)		(33,154)
Provision for income taxes	2		1
Net loss	$	(28,071)	$	(33,155)
Net loss per common share, basic and diluted	$	(0.21)	$	(0.34)
Shares used in computing net loss per share - basic and diluted	130,934,795		97,179,241
Comprehensive loss:
Net loss	$	(28,071)	$	(33,155)
Unrealized losses on available-for-sale securities	(82)		(3)
Comprehensive loss	$	(28,153)	$	(33,158)

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 Months ended March 31, 2022 and 2021

(Unaudited)

(in thousands, except shares)


	Three Months Ended March 31, 2022
	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders' Equity
	Shares	Amount
Balance as of December 31, 2021	130,182,535	$	13	$	795,540	$	(712,930)	$	(6)	$	82,617
Issuance of common stock under employee stock purchase plan	127,100	—		83		—		—		83


Issuance of common stock upon vesting of restricted stock units	113,469	—		—		—		—		—

Issuance of common stock in at the market offering	5,907,256	1		5,920		—		—		5,921
Stock-based compensation	—	—		3,722		—		—		3,722
Unrealized losses on available-for-sale securities	—	—		—		—		(82)		(82)
Net loss	—	—		—		(28,071)		—		(28,071)
Balance as of March 31, 2022	136,330,360	$	14	$	805,265	$	(741,001)	$	(88)	$	64,190


	Three Months Ended March 31, 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	102,208	—		478		—		—		478

Issuance of common stock upon exercise of options	10,507	—		20		—		—		20
Issuance of common stock upon vesting of restricted stock units	35,100	—		—		—		—		—
Issuance of common stock in at the market offering	4,940,787	1		34,271						34,272
Stock-based compensation	—	—		3,087		—		—		3,087
Unrealized losses on available-for-sale securities	—	—		—		—		(3)		(3)
Net loss	—	—		—		(33,155)		—		(33,155)
Balance as of March 31, 2021	98,688,577	$	10	$	718,728	$	(587,920)	$	(7)	$	130,811

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)


	Three Months Ended March 31,
	2022		2021
Operating activities
Net loss	$	(28,071)	$	(33,155)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense	232		422
Amortization of deferred financing costs	169		157
Amortization of deferred compensation for services	47		77
Amortization of (discount) premium on investment securities	15		157
Non-cash lease expense	842		607
Stock-based compensation	3,722		3,087
Change in derivative liabilities	15		36
Debt refinancing costs	102		—
Gain on sale of equipment	(710)		—
Non-cash interest associated with debt discount accretion	109		70
Changes in operating assets and liabilities:

Accounts receivable	(3,892)		(5,783)
Inventory	(3,487)		—
Prepaid expenses and other assets	(307)		(13,662)
Accounts payable	753		(248)
Accrued compensation and benefits	882		(1,324)
Operating lease liabilities	(836)		(721)
Accrued and other liabilities	(1,041)		7,517
Deferred revenue	3,836		(1,454)
Net cash used in operating activities	(27,620)		(44,217)
Investing activities
Proceeds from maturities and redemptions of investments	27,300		35,370
Purchases of investments	(25,763)		(32,107)
Proceeds from sale of equipment	795		—
Purchases of property and equipment	—		(778)
Net cash provided by investing activities	2,332		2,485
Financing activities
Proceeds from 2022 Loan, net of issuance costs	26,971		—
Repayment of 2018 Loan, net of settlement costs	(33,038)		—



Proceeds from issuance of common stock in at the market offering, net of issuance costs	5,921		34,272
Proceeds from issuance of common stock under equity incentive and stock purchase plans	83		498


Net cash provided by (used in) financing activities	(63)		34,770
Net decrease in cash and cash equivalents	(25,351)		(6,962)
Cash and cash equivalents at beginning of period	72,428		91,032
Cash and cash equivalents at end of period	$	47,077	$	84,070
Supplementary disclosure of cash flow information:
Cash paid for interest	$	741	$	963
Cash paid for income taxes	$	1	$	—
Supplementary disclosure of non-cash activities:
Right-of-use assets obtained in exchange for lease obligations	$	—	$	450

Issuance of derivative in connection with issuance of loan payable	$	375	$	—

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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 founded with a mission to discover, develop and commercialize innovative first-in-class medicines that meet significant unmet medical needs.

We operate in one business segment, which is the 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, 2021. The results for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the entire year ending December 31, 2022, 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 March 31, 2022, we had cash and investments of approximately $89.7 million. We have incurred operating losses since inception and our accumulated deficit as of March 31, 2022 is $741.0 million. Our current level of cash and investments alone is not sufficient to meet our plans for the next twelve months following the issuance of these financial statements. These factors raise substantial doubt regarding our ability to continue as a going concern for a period of one year from the issuance of these financial statements. We plan to address our operating cash flow requirements with our current cash and investments, cash generated from sales of IBSRELA, our potential receipt of anticipated milestones from our collaboration partners, our ability to access the capital markets, as well as through the implementation of cash preservation activities to reduce or defer discretionary spending.

There are no assurances that our efforts to meet our operating cash flow requirements will be successful. If our current cash and investments as well as our plans to meet our operating cash flow requirements are not sufficient to fund necessary expenditures and meet our obligations for at least the next twelve months following the issuance of these financial statements, our liquidity, financial condition and business prospects will be materially affected. These financial statements have been prepared on a going concern basis and do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary in the event that we can no longer continue as a going concern.

Summary of Significant Accounting Policies

Our significant accounting policies are described in Note 1 to our audited financial statements for the fiscal year ended December 31, 2021, included in our Annual Report on Form 10-K. Our significant accounting policies for the three months ended March 31, 2022 also included the policies discussed below related to accounts receivable, inventory, revenue and cost of

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revenue for commercial product sales. With the exception of those noted below, there have been no material changes in our significant accounting policies as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Accounts Receivable

Accounts receivable is reported net of allowances for returns, chargebacks and contractual discounts offered to our customers. Our estimate of the allowance for doubtful accounts is based on an evaluation of the aging of our receivables. Trade receivable balances are written off against the allowance when it is probable that the receivable will not be collected. To date, we have determined that an allowance for doubtful accounts is not required. As of March 31, 2022 our accounts receivable balance is comprised of $3.8 million from our collaborators and $0.6 million from commercial customers. As of December 31, 2021 our accounts receivable balance was comprised of $0.5 million from our collaborators.

Inventory

Prior to the regulatory approval of drug product candidates, we incurred expenses for the manufacture of drug product that could potentially be available to support the commercial launch of our products. We began to capitalize inventory costs associated with IBSRELA during the fourth quarter of 2021, when our intent to commercialize IBSRELA was established and we commenced preparation for the commercial launch of IBSRELA, which was when it was determined that the inventory had a probable future economic benefit.

Inventory is stated at the lower of cost or estimated net realizable value with cost determined under the first-in first-out method. Inventory costs include third-party contract manufacturing, third-party packaging services, freight, labor costs for personnel involved in the manufacturing process, and indirect overhead costs. We primarily use actual costs to determine the cost basis for inventory. The determination of whether inventory costs will be realizable requires management review of the expiration dates of IBSRELA compared to our forecasted sales. If actual market conditions are less favorable than projected by management, write-downs of inventory may be required, which would be recorded as cost of goods sold in the condensed statement of operations and comprehensive loss.

Product Sales, Net

We account for our commercial product sales, net in accordance with Topic 606 - Revenue from Contracts with Customers. We received approval from the U.S. Food and Drug Administration (“FDA”) in September 2019 to market IBSRELA, the first and only sodium hydrogen exchanger 3 (“NHE3”) inhibitor for the treatment of irritable bowel syndrome with constipation ("IBS-C") in adults, in the United States ("U.S."). We began selling IBSRELA in the U.S. in March 2022. We distribute our products principally through a limited number of distributors and specialty pharmacy providers (collectively, our "Customers"). Our Customers subsequently sell our products to pharmacies and patients. Separately, we enter into arrangements with third parties that provide for government-mandated and privately-negotiated rebates, chargebacks and discounts. Revenue from product sales is recognized when our performance obligations are satisfied, which is when Customers obtain control of our product and occurs upon delivery.

Reserves for Variable Consideration

Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration, including rebates, discounts, patient copay assistance programs, and estimated product returns. These estimates are based on the amounts earned or to be claimed for related sales and are classified as reductions of accounts receivable if the amount is payable to our Customers or a current liability if the amount is payable to a party other than a Customer. Where appropriate, these estimates are based on factors such as industry data and forecasted customer buying and payment patterns, our historical experience, current contractual and statutory requirements, specific known market events and trends. Overall, these reductions to gross sales reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract. Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we adjust these estimates, which would affect product revenue and earnings in the period such variances become known. As we gain more historical experience, estimates will be more heavily based on the expected utilization from historical data we have accumulated since the IBSRELA product launch.

Rebates: Rebates include mandated discounts under the Medicaid Drug Rebate Program ("Medicaid") and the Medicare Coverage Gap Program ("Medicare"). Rebates are amounts owed after the final dispensing of products to a benefit plan

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participant and are based upon contractual agreements or legal requirements with the public-sector benefit providers. These estimates for rebates are recorded in the same period the related gross revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included in accrued expenses on the condensed balance sheets. We estimate our Medicaid and Medicare rebates based upon the estimated payor mix, and statutory discount rates. Our estimates for payor mix are guided by payor information received from specialty pharmacies, expected utilization for specialty distributor sales to pharmacies, and available industry payor information.

Chargebacks: Chargebacks are discounts that occur when contracted purchasers purchase directly from our specialty distributors at a discounted price. The specialty distributor, in turn, charges back the difference between the price initially paid to us by the specialty distributor and the discounted price paid to the specialty distributor by the contracted purchaser. Amounts for estimated chargebacks are established in the same period that the related gross revenue is recognized, resulting in a reduction of product revenue and accounts receivable. The accrual for specialty distributor chargebacks is estimated based on known chargeback rates, known sales to specialty distributors, and estimated utilization by types of contracted purchasers.

Discounts and Fees: Our payment terms are generally 30 to 60 days. Specialty distributors and specialty pharmacies are offered various forms of consideration, including service fees and prompt pay discounts for payment within a specified period. We expect these Customers will earn prompt pay discounts and therefore, we deduct the full amount of these discounts and service fees from product sales when revenue is recognized, resulting in a reduction of product revenue and accounts receivable.

Other Reserves: Patients who have commercial insurance may receive co-pay assistance when product is dispensed by pharmacies to patients. We estimate the amount of co-pay assistance provided to eligible patients based on the terms of the program and redemption information provided by third-party claims processing organizations and are recorded in accounts payable, accrued expenses and other current liabilities on the condensed balance sheets.

Cost of Revenue

Cost of revenue consists of the cost of commercial goods sold to our Customers, international partners under product supply agreements, and royalty expense based on sales of tenapanor. We capitalize inventory costs associated with the production of our products after regulatory approval or when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized. Otherwise, such costs are expensed as research and development. A portion of the costs of IBSRELA units recognized as revenue during the three months ended March 31, 2022 were expensed prior to the fourth quarter of 2021, at which time our intent to commercialize IBSRELA was established and we commenced preparation for the commercial launch of IBSRELA.

Cost of revenue includes payments due to AstraZeneca, which under the terms of a termination agreement entered into in 2015 (the "AZ Termination Agreement") is entitled to (i) future royalties at a 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 our collaboration partners as a result of the development and commercialization of tenapanor or certain other NHE3 inhibitors. We have agreed to pay AstraZeneca up to a maximum of $75.0 million in the aggregate for (i) and (ii). We recognize these expenses as cost of revenue when we recognize the corresponding revenue that gives rise to payments due to AstraZeneca. To date, we have recognized an aggregate of $11.7 million as cost of revenue under the AZ Termination Agreement.

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

There were various accounting standards and interpretations issued recently, none of which are expected to a have a material impact on our financial position, operations or cash flows.

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NOTE 2. CASH, CASH EQUIVALENTS AND INVESTMENTS

Securities classified as cash, cash equivalents and investments as of March 31, 2022 and December 31, 2021 are summarized below (in thousands):


	March 31, 2022
			Gross Unrealized
	Amortized Cost		Gains		Losses		Fair Value
Cash and cash equivalents:
Cash	$	7,555	$	—	$	—	$	7,555
Money market funds	34,524		—		—		34,524
Commercial paper	4,999		—		(1)		4,998

Total cash and cash equivalents	47,078		—		(1)		47,077
Short-term investments:
Commercial paper	$	28,409	$	—	$	(52)	$	28,357
U.S. government-sponsored agency bonds	10,777		—		(22)		10,755
Corporate bonds	2,521		—		(10)		2,511
Asset-backed securities	1,007		—		(3)		1,004
Total short-term investments	42,714		—		(87)		42,627
Total cash equivalents and investments	$	89,792	$	—	$	(88)	$	89,704


	December 31, 2021
			Gross Unrealized
	Amortized Cost		Gains		Losses		Fair Value
Cash and cash equivalents:
Cash	$	1,253	$	—	$	—	$	1,253
Money market funds	71,175		—		—		71,175


Total cash and cash equivalents	72,428		—		—		72,428
Short-term investments
Commercial paper	$	31,936	$	1	$	(2)	$	31,935
Corporate bonds	7,025		—		(3)		7,022

Asset backed securities	5,306		—		(2)		5,304
Total short-term investments	44,267		1		(7)		44,261


Total cash equivalents and investments	$	116,695	$	1	$	(7)	$	116,689

Cash equivalents consist of money market funds and other debt securities with original maturities of three months or less at the time of purchase, and the carrying amount is a reasonable approximation of fair value. We invest our cash in high quality securities of financial and commercial institutions. These securities are carried at fair value, which is based on readily available market information, with unrealized gains and losses included in accumulated other comprehensive income (loss) within stockholders’ equity on our balance sheets. We use the specific identification method to determine the amount of realized gains or losses on sales of marketable securities. Realized gains or losses have been insignificant and are included in other income (expense), net, in the statement of operations and comprehensive loss.

All short-term available-for-sale securities held as of March 31, 2022 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 its fair value is less than its carrying cost, in which case we would further review the investment to determine whether it is other-than-temporarily impaired. When we evaluate an investment for other-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 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 it down through the statement of operations and comprehensive loss to its fair value and establishes that value as a new cost basis for the investment. We did not identify any of our available-for-sale securities as other-than-temporarily impaired in any of the periods presented. As of March 31, 2022 no

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investment was in a continuous unrealized loss position for more than one year and we believe that it is more likely than not that the investments 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.

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

Level 3 –			Valuations based on unobservable inputs for which there is little or no market data, which require 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):


	March 31, 2022
	Total Fair Value		Level 1		Level 2		Level 3
Assets:
Money market funds	$	34,524	$	34,524	$	—	$	—
Commercial paper	33,355		—		33,355		—
U.S. government-sponsored agency bonds	10,755		—		10,755		—
Corporate bonds	2,511		—		2,511		—
Asset-backed securities	1,004		—		1,004		—

Total	$	82,149	$	34,524	$	47,625	$	—

Liabilities:
Derivative liability for exit fees	$	1,088	$	—	$	—	$	1,088
Total	$	1,088	$	—	$	—	$	1,088


	December 31, 2021
	Total Fair Value		Level 1		Level 2		Level 3
Assets:
Money market funds	$	71,175	$	71,175	$	—	$	—
Commercial paper	31,935		—		31,935		—
Corporate bonds	7,022		—		7,022		—

Asset-backed securities	5,304		—		5,304		—

Total	$	115,436	$	71,175	$	44,261	$	—

Liabilities:
Derivative liability for exit fee	$	698	$	—	$	—	$	698
Total	$	698	$	—	$	—	$	698

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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, and asset-backed securities 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 8, 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 March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021.

NOTE 4. INVENTORY

We began capitalizing inventory during the fourth quarter of 2021, at which time our intent to commercialize IBSRELA was established and we commenced preparation for the commercial launch of IBSRELA. Inventory consisted of the following (in thousands):


	March 31, 2022
Raw materials	$	460
Work in process	2,507
Finished goods	520
Total	$	3,487

NOTE 5. PRODUCT REVENUE, NET

We received approval from the FDA in September 2019 to market IBSRELA, the first and only sodium hydrogen exchanger 3 (“NHE3”) inhibitor for the treatment of irritable bowel syndrome with constipation ("IBS-C") in adults, in the U.S. We began selling IBSRELA in the U.S. in March 2022. We recorded net revenue for IBSRELA of $0.5 million during the three months ended March 31, 2022.

Sales to Cardinal Health, AmerisourceBergen Drug Corporation, and McKesson Corporation made up 17.9%, 17.1%, and 15.4% of our gross product revenue during the three months ended March 31, 2022.

The activities and ending reserve balances for each significant category of discounts and allowances, which constitute variable consideration, were as follows (in thousands):


	Discounts and Chargebacks		Rebates		Other Fees, Copay and Returns		Total
Balance as of December 31, 2021	$	—	$	—	$	—	$	—
Activity related to 2022 sales	24		40		90		154

Balance as of March 31, 2022	$	24	$	40	$	90	$	154

There were no product sales or gross-to-net accruals during the three months ended March 31, 2021.

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NOTE 6 . 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.

We have no material future obligations under the 2019 KKC Agreement and recorded no revenue under the 2019 KKC Agreement during the three months ended March 31, 2022. During the three months ended March 31, 2021, we recognized $1.5 million as collaborative development revenue under the 2019 KKC Agreement in the accompanying condensed statement of operations and comprehensive loss.

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 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 March 31, 2022, and approximately ¥8.5 billion for commercialization milestones, or approximately $69.7 million at the currency exchange rate on March 31, 2022, as well as reimbursement of costs plus a reasonable overhead for the supply of product and 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 March 31, 2022.

As discussed in Note 14 - Subsequent events, on April 11, 2022, we entered into a second amendment (the "Amendment") to the 2017 KKC Agreement. Under the terms of the Amendment, the parties have agreed to a reduction in the royalty rate payable to us by KKC upon net sales of tenapanor in Japan. The royalty rate will be reduced from the high teens to low double digits for a two-year period of time following the first commercial sale in Japan, and then to mid-single digits for the remainder of the royalty term. As consideration for the reduction in the royalty rate, KKC has agreed to pay us up to an additional U.S. $40.0 million payable in two tranches, with the first payment due following KKC's filing with the Japanese Ministry Health, Labour and Welfare (MHLW) of its application for marketing approval for tenapanor and the second payment due following KKC’s receipt of regulatory approval to market tenapanor for hyperphosphatemia in Japan.

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During the three months ended March 31, 2022 we recognized no licensing revenue upon the achievement of development milestones. During the three months ended March 31, 2021, we recognized $5.0 million licensing revenue upon the initiation of phase 3 clinical studies by KKC in Japan to evaluate tenapanor for hyperphosphatemia. During the three months ended March 31, 2022, we recognized $14 thousand 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 months ended March 31, 2021, we recognized $0.1 million as product supply revenue pursuant to the 2017 KKC Agreement.

As detailed below under the heading Deferred revenue - non-current, we have received prepayments from KKC for the manufacturing of tenapanor drug substance that will be used to satisfy KKC needs. We also have recorded certain unbilled prepayments from KKC for the manufacturing of tenapanor drug product reflected within prepaid and other current assets. Both amounts are reflected within our deferred revenue, non-current on our condensed balance sheet as of March 31, 2022. The prepayment is reflected within prepaid and other current assets and deferred revenue, non-current on our condensed balance sheet as of March 31, 2022.

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 March 31, 2022.

We have recorded no revenue during the three months ended March 31, 2022 or 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 $17.8 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 March 31, 2022.

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 licensee of tenapanor or another NHE3 inhibitor, up to a maximum of $75.0 million in aggregate for (i) and (ii). As of March 31, 2022, to date in aggregate, we have recognized $11.7 million of the $75.0 million, which has been recorded as cost of revenue, and have paid AstraZeneca $11.6 million. During the three months ended March 31, 2022 we recognized and recorded as cost of revenue $0.1 million related to the AstraZeneca Termination Agreement. During the three months ended March 31, 2021 we recognized $1.0 million cost of revenue related to the AstraZeneca Termination Agreement.

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Deferred Revenue

The following tables present changes in our current and non-current deferred revenue balances during the reporting period. The March 31, 2021 current deferred revenue balance is attributable entirely to the 2019 KKC Agreement and the non-current deferred revenue balances at March 31, 2022 and 2021 are attributable entirely to the 2017 KKC Agreement (in thousands):


Deferred revenue - current	2022		2021
Balance at January 1,	$	—	$	4,177


Decreases due to revenue recognized in the period for which cash has been received	—		(1,454)

Balance at March 31,	$	—	$	2,723


Deferred revenue - non-current	2022		2021
Balance at January 1,	$	4,727	$	—

Increases to amounts invoiced, for which cash has not yet been received	3,829		2,947
Increase due to unbilled prepayments recorded during the period	7		—

Balance at March 31,	$	8,563	$	2,947

NOTE 7. BORROWING

Solar Capital and Western Alliance Bank Loan Agreement

On May 16, 2018, we entered into a loan and security agreement (as amended on October 9, 2020, March 1, 2021, May 5, 2021, and July 29, 2021) (the "2018 Loan Agreement") with Solar Capital Ltd. and Western Alliance Bank (collectively the “2018 Lenders”). The 2018 Loan Agreement provided for a $50.0 million loan facility with a maturity date of November 1, 2022 (the “2018 Loan”). As of the Closing Date for the 2022 Loan, as discussed below, we owed $25.0 million in principal payments from the 2018 Loan, which we repaid in full at that time.

As discussed in Note 8. Derivative Liability, in connection with entering into the 2018 Loan Agreement, we entered into an agreement pursuant to which we agreed to pay $1.5 million in cash upon the occurrence of certain conditions (the "2018 Exit Fee"). Our obligations for the 2018 Exit Fee remain outstanding following the full repayment of the 2018 Loan in February 2022.

SLR Investments Loan Agreement

On February 23, 2022 (the “Closing Date”), we entered into a loan and security agreement (the “2022 Loan Agreement”) with SLR Investment Corp. as collateral agent (the “Agent”), and the lenders listed in the 2022 Loan Agreement (collectively the “2022 Lenders”). The 2022 Loan Agreement provides for a senior secured loan facility, with $27.5 million (the “Term A Loan”) funded on the Closing Date and an additional $22.5 million that we may borrow on or prior to July 25, 2023; provided that (i) we have received approval by the FDA for our NDA for the control of serum phosphorus in chronic kidney disease patients on dialysis by December 31, 2022, and (ii) we have achieved certain product revenue milestone targets described in the 2022 Loan Agreement (the “Term B Loan”, and collectively, the Term A Loan and the Term B Loan, the “2022 Loan”). The 2022 Term A Loan funds were used to repay the 2018 Loan with the 2018 Lenders. The 2022 Loan has a maturity date of March 1, 2027.

Borrowings under the 2022 Loan bear interest at a floating per annum rate equal to 7.95% plus the greater of (i) one tenth percent (0.10%) and (ii) the one-month rate published by the Intercontinental Exchange Benchmark Administration Ltd or its successor. We are permitted to make interest-only payments on the 2022 Loan through March 31, 2024. Accordingly, beginning on April 1, 2024, we will be required to make monthly payments of interest plus repay the 2022 Loan in consecutive equal monthly installments of principal. We were obligated to pay $0.2 million, upon the closing of the Term A Loan, and we are obligated to pay $0.1 million on the earliest of (i) the funding date of the Term B Loan, (ii) July 25, 2023, and (iii) the prepayment, refinancing, substitution, or replacement of the Term A Loan on or prior to July 25, 2023. We are obligated to pay a final fee equal to 4.95% of the aggregate original principal amount of the 2022 Loan funded upon the earliest to occur of the maturity date, the acceleration of the 2022 Loan, and the prepayment, refinancing, substitution, or replacement of the 2022 Loan. We may voluntarily prepay the outstanding 2022 Loan balance, subject to a prepayment premium of (i) 3% of the

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outstanding principal amount of the 2022 Loan if prepaid prior to or on the first anniversary of the Closing Date, (ii) 2% of the outstanding principal amount of the 2022 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 outstanding principal amount of the 2022 Loan if prepaid after the second anniversary of the Closing Date and prior to the maturity date. The 2022 Loan is secured by substantially all of our assets, except for our intellectual property and certain other customary exclusions. Additionally, in connection with the 2022 Loan, we entered into an agreement, whereby we agreed to pay an exit fee in the amount 2% of the 2022 Loan funded (the “2022 Exit Fee”) upon (i) any change of control transaction or (ii) our achievement of net revenue from the sale of any products equal to or greater than $100.0 million, measured on a six (6) months basis, tested monthly at the end of each month. Notwithstanding the prepayment or termination of the 2022 Loan, the 2022 Exit Fee will expire 10 years from the Closing Date.

The 2022 Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among others, requirements as to financial reporting and insurance and restrictions on our ability to dispose of our business or property, to change our line of business, to liquidate or dissolve, to enter into any change in control transaction, to merge or consolidate with any other entity or to acquire all or substantially all the capital stock or property of another entity, to incur additional indebtedness, to incur liens on our property, to pay any dividends or other distributions on capital stock other than dividends payable solely in capital stock or to redeem capital stock. We have agreed to not allow our cash and cash equivalents to be less than the eighty percent (80%) of the outstanding 2022 Term Loan balance for any period in which our net revenue from the sale of any products, calculated on a trailing six (6) month basis and tested monthly, is less than sixty percent (60%) of the outstanding 2022 Loan balance.

In addition, the 2022 Loan Agreement contains customary events of default that entitle the Agent to cause our indebtedness under the 2022 Loan Agreement to become immediately due and payable, and to exercise remedies against us and the collateral securing the 2022 Term Loan, including our cash. Under the 2022 Loan Agreement, an event of default will occur if, among other things, we fail to make payments under the 2022 Loan Agreement, we breach any of our covenants under the 2022 Loan Agreement, subject to specified cure periods with respect to certain breaches, certain Lenders determine that a material adverse change has occurred, we or our assets become subject to certain legal proceedings, such as bankruptcy proceedings, we are unable to pay our debts as they become due or we default on contracts with third parties which would permit the holder of indebtedness to accelerate the maturity of such indebtedness or that could have a material adverse change on us. 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 obligations owed under the 2022 Loan Agreement. We have classified the 2022 Loan balance as a current liability as of March 31, 2022 due to the determination of the existence of substantial doubt about our ability to continue operating as a going concern discussed in Note 1. Organization and Basis of Presentation: Liquidity and our assessment that the material adverse change clause under the 2022 Loan Agreement is not within our control. The lenders have not invoked the material adverse change clause as of the date of issuance of these financial statements.

As of March 31, 2022, our future payment obligations related to the 2022 Loan, excluding interest payments and the 2022 final fee, are as follows (in thousands):


Total repayment obligations	$	28,862
Less: Unamortized discount	(1,399)
Less: Unaccreted value of final fee	(1,324)
Long-term debt	26,139
Less: Current portion of long-term debt	(26,139)
Long-term debt, net of current portion	$	—

NOTE 8. DERIVATIVE LIABILITY

2018 Exit Fee

In May 2018, in connection with entering into the 2018 Loan Agreement, we entered into an agreement pursuant to which we agreed to pay $1.5 million in cash (the “2018 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 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 “2018 Exit Fee Agreement”). Notwithstanding the February 2022 prepayment of the 2018 Loan our obligation to pay the 2018 Exit Fee will expire on May 16, 2028. We concluded that the 2018 Exit Fee is a freestanding derivative which should be accounted

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for at fair value on a recurring basis. The estimated fair value of the 2018 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 2018 derivative liability include: (i) our estimates of both the probability and timing of a potential $1.5 million payment to the 2018 Lenders 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 10.0% 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.

2022 Exit Fee

On February 23, 2022, in connection with entering into the 2022 Loan Agreement, we entered into an agreement, whereby we agreed to pay an exit fee in the amount of 2% of the 2022 Loan funded (the “2022 Exit Fee”) upon (i) any change of control transaction or (ii) our achievement of net revenue from the sale of any products equal to or greater than $100.0 million, measured on a six (6) months basis (the "Revenue Milestone"), tested monthly at the end of each month. Notwithstanding the prepayment or termination of the 2022 Loan, the 2022 Exit Fee will expire on February 23, 2032. We concluded that the 2022 Exit Fee is a freestanding derivative which should be accounted for at fair value on a recurring basis. The estimated fair value of the 2022 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 2022 derivative liability include: (i) our estimates of both the probability and timing of achieving the Revenue Milestone and (ii) the probability and timing of funding the Term B Loan, which is dependent upon (a) approval by the FDA for our NDA for the control of serum phosphorus in chronic kidney disease patients on dialysis by December 31, 2022, and (b) achievement of certain product revenue milestone targets. 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 10.0% increase (decrease) in the probability of occurrence would not result in a material fair value fluctuation.

Changes in the fair value of our exit fee derivative liabilities 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 three months ended March 31, 2022 and 2021 (in thousands):


	Three Months Ended March 31,
	2022		2021
Beginning balance	$	698	$	1,376
2022 Exit Fee addition at fair value	375		—
Changes in estimated fair value	15		36
Ending balance	$	1,088	$	1,412

NOTE 9. 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.

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The following table provides additional details of our facility leases presented in our condensed balance sheets as of March 31, 2022 and December 31, 2021 (dollars in thousands):


Facilities	March 31, 2022			December 31, 2021
Right-of-use assets	$	11,910		$	12,752

Current portion of lease liabilities	3,592			3,492
Operating lease liability, net of current portion	8,812			9,748
Total	$	12,404		$	13,240

Weighted-average remaining life (years)	3.2			3.4
Weighted-average discount rate	6.9		%	6.9		%

Lease costs, which are included in operating expenses in our statements of operations, were as follows (in thousands):


	Three Months Ended March 31,
	2022		2021
Operating lease expense	$	1,064	$	673
Cash paid for operating lease	$	1,058	$	1,565

The following table summarizes our undiscounted cash payment obligations for our operating lease liabilities as of March 31, 2022 (in thousands):


Remainder of 2022	$	3,234
2023	4,440
2024	4,589
2025	1,321
2026	252

Total undiscounted operating lease payments	13,836
Imputed interest expenses	(1,432)
Total operating lease liabilities	12,404
Less: Current portion of operating lease liability	(3,592)
Operating lease liability, net of current portion	$	8,812

NOTE 10. 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"). The 2020 Open Market Sales Agreement was fully utilized as of December 31, 2021. During the three months ended March 31, 2021 we sold 4.9 million shares and received gross proceeds of $35.0 million at a weighted average sales price of approximately $7.09 per share under 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

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Sales Agreement, Jefferies, as our sales agent, receives a commission of up to 3% of the gross sales price for shares of common stock sold under the 2021 Open Market Sales Agreement. During the three months ended March 31, 2022 we sold 5.9 million shares and received gross proceeds of $6.0 million at a weighted average sales price of approximately $1.02 per share under the 2021 Open Market Sales Agreement.

We sold 8.3 million shares of our common stock pursuant to the 2021 Open Market Sales Agreement which were settled between the dates of April 1, 2022 through April 27, 2022 for gross proceeds of $9.0 million at a weighted average sales price of approximately $1.09 per share. We did not sell any additional shares of our common stock after April 25, 2022 and through the date of filing this Quarterly Report on Form 10-Q.

NOTE 11. 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 March 31,
	2022		2021
Research and development	$	1,214	$	1,092
Selling, general and administrative	2,508		1,995
Total	$	3,722	$	3,087

As of March 31, 2022, 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 option grants	$	14,865	3.0
RSU grants	$	4,894	1.3
ESPP	$	53	0.8

Stock Options

A summary of our stock option activity and related information for the three months ended March 31, 2022 is as follows (in thousands, except dollar amounts):


	Number of Shares	Weighted-Average Exercise Price per Share
Balance at December 31, 2021	10,417	$	7.00
Options granted	3,535	$	0.98
Options exercised	—	$	—
Options forfeited or canceled	(1,006)	$	7.18
Balance at March 31, 2022	12,946	$	5.34
Exercisable at March 31, 2022	6,476	$	7.16

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Restricted Stock Units

A summary of our RSUs activity and related information for the three months ended March 31, 2022 is as follows (in thousands, except dollar amounts):


	Number of RSUs	Weighted-Average Grant Date Fair Value Per Share
Non-vested restricted stock units at December 31, 2021	3,529	$	2.04
Granted	1,120	$	0.98
Vested	(113)	$	3.62
Forfeited	(88)	$	2.02
Non-vested restricted stock units at March 31, 2022	4,448	$	1.73

Employee Stock Purchase Plan

In February 2022, we sold approximately 0.1 million shares of our common stock under the ESPP. The shares were purchased by employees at a purchase price of $0.65 per share resulting in proceeds to us of approximately $0.1 million.

Issuance of Common Stock for Services

Under Our Amended and Restated Non-Employee Director Compensation Program, members of our board of directors may elect to receive shares of our stock in lieu of their cash fees. During the three months ended March 31, 2022, we issued no shares of our common stock to members of the board of directors in accordance with the program.

NOTE 12. NET LOSS PER SHARE

Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, less shares subject to repurchase, and excludes any dilutive effects of stock-based awards and warrants. Diluted net loss per common share is computed giving effect to all potential dilutive common shares, including common stock issuable upon exercise of stock options, and unvested restricted common stock and stock units. As we had net losses for the three months ended March 31, 2022 and 2021, all potential common shares were determined to be anti-dilutive.

The following table sets forth the computation of net loss per common share (in thousands, except per share amounts):


	Three Months Ended March 31,
Numerator:	2022		2021
Net loss	$	(28,071)	$	(33,155)
Denominator:
Weighted average common shares outstanding - basic and diluted