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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 June 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from               to
Commission file number: 001-36485
https://cdn.kscope.io/dbe485665e2cb91681efe4458d6bd046-ardx-20220630_g1.jpg
ARDELYX, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware26-1303944
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No)

400 Fifth Avenue, Suite 210, Waltham, Massachusetts 02451
(Address of Principal Executive Offices) (Zip Code)
(510) 745-1700
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001ARDXThe Nasdaq Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes     No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No 
The number of issued and outstanding shares of the registrant’s Common Stock, $0.0001 par value per share, as of July 31, 2022, was 154,635,575.


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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 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 for the foreseeable future as we invest in the commercialization of IBSRELA and prepare for and participate in a Cardiovascular and Renal Drugs Advisory Committee (“Advisory Committee”) meeting. The Advisory Committee meeting has been convened in connection with the formal dispute resolution (“FDR”) process we 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 tenapanor for the Hyperphosphatemia Indication. 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 tenapanor for the Hyperphosphatemia Indication, the expense and time required to do so could adversely impact our ability to successfully commercialize XPHOZAH for the Hyperphosphatemia 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 limited 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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PART I.            FINANCIAL INFORMATION

ITEM 1.            FINANCIAL STATEMENTS

ARDELYX, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share and per share amounts)
June 30,
2022
December 31,
2021
(Unaudited)
Assets    
Current assets:    
Cash and cash equivalents$53,408 $72,428 
Short-term investments27,604 44,261 
Accounts receivable5,623 502 
Inventory4,529  
Prepaid commercial manufacturing17,793 9,406 
Prepaid expenses and other current assets5,150 7,052 
Total current assets114,107 133,649 
Right-of-use assets11,054 12,752 
Property and equipment, net1,541 2,362 
Other assets4,908 1,150 
Total assets$131,610 $149,913 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$4,294 $4,277 
Accrued compensation and benefits6,405 5,422 
Current portion of long-term debt26,373 32,264 
Current portion of operating lease liability3,691 3,492 
Accrued expenses and other current liabilities7,936 7,366 
Total current liabilities48,699 52,821 
Operating lease liability, net of current portion7,857 9,748 
Deferred revenue, non-current12,421 4,727 
Deferred royalty obligation9,591  
Total liabilities78,568 67,296 
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; no shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively.
  
Common stock, $0.0001 par value; 300,000,000 shares authorized; 153,797,834 and 130,182,535 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively.
15 13 
Additional paid-in capital821,075 795,540 
Accumulated deficit(767,939)(712,930)
Accumulated other comprehensive loss(109)(6)
Total stockholders’ equity53,042 82,617 
Total liabilities and stockholders’ equity$131,610 $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 June 30,Six Months Ended June 30,
2022202120222021
Revenues:        
Product sales, net$1,564 $ $2,014 $ 
Product supply revenue952  966 126 
Licensing revenue10 3 14 5,005 
Collaborative development revenue 1,310  2,764 
Total revenues2,526 1,313 2,994 7,895 
Operating expenses:
Cost of revenue138  223 1,000 
Research and development9,741 26,021 18,592 46,477 
Selling, general and administrative18,862 20,124 38,201 37,255 
Total operating expenses28,741 46,145 57,016 84,732 
Loss from operations(26,215)(44,832)(54,022)(76,837)
Interest expense(787)(1,202)(1,533)(2,302)
Other income, net70 847 554 798 
Loss before provision for income taxes(26,932)(45,187)(55,001)(78,341)
Provision for income taxes6 2 8 3 
Net loss$(26,938)$(45,189)$(55,009)$(78,344)
Net loss per common share, basic and diluted$(0.19)$(0.45)$(0.40)$(0.79)
Shares used in computing net loss per share - basic and diluted145,544,372 100,040,083 138,279,945 98,617,564 
Comprehensive loss:
Net loss$(26,938)$(45,189)$(55,009)$(78,344)
Unrealized losses on available-for-sale securities(21)11 (103)8 
Comprehensive loss$(26,959)$(45,178)$(55,112)$(78,336)
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 Six Months ended June 30, 2022 and 2021
(Unaudited)
(in thousands, except shares)

Three Months Ended June 30, 2022
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Stockholders'
Equity
SharesAmount
Balance as of March 31, 2022136,330,360 $14 $805,265 $(741,001)$(88)$64,190 
Issuance of common stock upon vesting of restricted stock units2,882,673 — — — — — 
Issuance of common stock in at the market offering14,584,801 1 12,556 — — 12,557 
Stock-based compensation— — 3,254 — — 3,254 
Unrealized losses on available-for-sale securities— — — — (21)(21)
Net loss— — — (26,938)— (26,938)
Balance as of June 30, 2022153,797,834 $15 $821,075 $(767,939)$(109)$53,042 

Six Months Ended June 30, 2022
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Stockholders'
Equity
SharesAmount
Balance as of December 31, 2021130,182,535 $13 $795,540 $(712,930)$(6)$82,617 
Issuance of common stock under employee stock purchase plan127,100 — 83 — — 83 
Issuance of common stock upon vesting of restricted stock units2,996,142 — — — — — 
Issuance of common stock in at the market offering20,492,057 2 18,476 — — 18,478 
Stock-based compensation— — 6,976 — — 6,976 
Unrealized losses on available-for-sale securities— — — — (103)(103)
Net loss— — — (55,009)— (55,009)
Balance as of June 30, 2022153,797,834 $15 $821,075 $(767,939)$(109)$53,042 

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Three Months Ended June 30, 2021
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Stockholders'
Equity
SharesAmount
Balance as of March 31, 202198,688,577 $10 $718,728 $(587,920)$(7)$130,811 
Issuance of common stock upon exercise of options194,799 — 543 — — 543 
Issuance of common stock upon vesting of restricted stock units44,684 — — — — — 
Issuance of common stock in at the market offering4,038,957 — 28,174 — — 28,174 
Stock-based compensation— — 3,219 — — 3,219 
Unrealized gains on available-for-sale securities— — — — 11 11 
Net loss— — — (45,189)— (45,189)
Balance as of June 30, 2021102,967,017 $10 $750,664 $(633,109)$4 $117,569 

Six Months Ended June 30, 2021
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Stockholders'
Equity
SharesAmount
Balance as of December 31, 202093,599,975 9 680,872 (554,765)(4)$126,112 
Issuance of common stock under employee stock purchase plan102,208 — 478 — — 478 
Issuance of common stock upon exercise of options205,306 — 563 — — 563 
Issuance of common stock upon vesting of restricted stock units79,784 — — — — — 
Issuance of common stock in at the market offering8,979,744 1 62,445 — — 62,446 
Stock-based compensation— — 6,306 — — 6,306 
Unrealized gains on available-for-sale securities— — — — 8 8 
Net loss— — — (78,344)— (78,344)
Balance as of June 30, 2021102,967,017 $10 $750,664 $(633,109)$4 $117,569 

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)
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Six Months Ended June 30,
20222021
Operating activities    
Net loss$(55,009)$(78,344)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense407 787 
Amortization of deferred financing costs226 316 
Amortization of deferred compensation for services105 145 
Amortization of premium on investment securities16 274 
Non-cash lease expense1,698 1,318 
Stock-based compensation6,976 6,306 
Change in derivative liabilities18 (713)
Debt refinancing costs102  
Gain on sale of equipment(853) 
Non-cash interest associated with debt discount accretion151 141 
Changes in operating assets and liabilities:
Accounts receivable(5,121) 
Inventory(4,529) 
Prepaid commercial manufacturing(12,197)(8,481)
Prepaid expenses and other assets1,848 1,102 
Accounts payable17 (3,039)
Accrued compensation and benefits983 267 
Operating lease liabilities(1,692)(1,361)
Accrued and other liabilities259 2,607 
Deferred revenue7,694 182 
Net cash used in operating activities(58,901)(78,493)
Investing activities
Proceeds from maturities and redemptions of investments42,300 60,550 
Purchases of investments(25,762)(48,314)
Proceeds from sale of property and equipment1,268  
Purchases of property and equipment (1,517)
Net cash provided by investing activities17,806 10,719 
Financing activities
Proceeds from 2022 Loan, net of issuance costs26,971  
Repayment of 2018 Loan, net of settlement costs(33,038) 
Proceeds from the sale of future royalties, net of issuance costs9,581  
Proceeds from issuance of common stock in at the market offering, net of issuance costs18,478 62,446 
Proceeds from issuance of common stock under equity incentive and stock purchase plans83 1,041 
Net cash provided by financing activities22,075 63,487 
Net decrease in cash and cash equivalents(19,020)(4,287)
Cash and cash equivalents at beginning of period72,428 91,032 
Cash and cash equivalents at end of period$53,408 $86,745 
Supplementary disclosure of cash flow information:
Cash paid for interest$1,360 $1,936 
Cash paid for income taxes$6 $3 
Supplementary disclosure of non-cash activities:
Right-of-use assets obtained in exchange for lease obligations$ $14,379 
Issuance of derivative in connection with issuance of loan payable$375 $ 
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 and six months ended June 30, 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 June 30, 2022, we had cash and investments of approximately $81.0 million. We have incurred operating losses since inception and our accumulated deficit as of June 30, 2022 is $767.9 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 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.

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.
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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 and six months ended June 30, 2022 also included the policies discussed below related to accounts receivable, inventory, revenue and cost of 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 June 30, 2022 our accounts receivable balance is comprised of $4.1 million from our collaborators and $1.5 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 IBSRELA principally through a limited number of wholesalers and specialty pharmacy providers (collectively, our "Customers"). Our Customers subsequently sell IBSRELA 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.

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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 gross 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 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 wholesaler sales to pharmacies, and available industry payor information.
Chargebacks: Chargebacks are discounts that occur when certain contracted purchasers purchase directly from our wholesalers at a discounted price. The wholesaler, in turn, charges back the difference between the price initially paid to us by the wholesaler and the discounted price paid to the wholesaler 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 wholesaler chargebacks is estimated based on known chargeback rates, known sales to wholesalers, and estimated utilization by types of contracted purchasers.
Discounts and Fees: Our payment terms are generally 30 to 60 days. Wholesalers and specialty pharmacies are offered various forms of consideration, including service fees. Wholesalers may also receive prompt pay discounts for payment within a specified period. We expect prompt pay discounts to be earned when offered 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 and 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 and six months ended June 30, 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 $11.9 million as cost of revenue under the AZ Termination Agreement.
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Non-cash Interest Expense on Deferred Royalty Obligation
The net proceeds we receive from the sale of certain future royalties are amortized to non-cash interest expense over the estimated life of the associated agreement using the effective interest method. As we earn royalties and remit those royalties pursuant to the agreement, the balance of the deferred royalty obligation will be effectively repaid over the life of agreement. To determine the amortization of our deferred royalty obligation, we are required to estimate the total amount of future royalty payments we expect to earn. There are a number of factors that could materially affect the amount and timing of royalty payments, most of which are not within our control. We periodically assess the amount of royalty payments we expect to receive which are subject to the agreement and, to the extent that the amount or timing of such payments is materially different than our original estimates, we prospectively adjust the imputed interest rate and the related amortization of the deferred royalty obligation.
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.
NOTE 2. CASH, CASH EQUIVALENTS AND INVESTMENTS
Securities classified as cash, cash equivalents and investments as of June 30, 2022 and December 31, 2021 are summarized below (in thousands):
June 30, 2022
Gross Unrealized
Amortized CostGainsLossesFair Value
Cash and cash equivalents:
Cash$2,975 $ $ $2,975 
Money market funds50,433   50,433 
Total cash and cash equivalents53,408   53,408 
Short-term investments:
Commercial paper$16,931 $ $(49)$16,882 
U.S. government-sponsored agency bonds8,768  (45)8,723 
Corporate bonds1,011  (12)999 
Asset-backed securities1,003  (3)1,000 
Total short-term investments27,713  (109)27,604 
Total cash equivalents and investments$81,121 $ $(109)$81,012 

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December 31, 2021
Gross Unrealized
Amortized CostGainsLossesFair Value
Cash and cash equivalents:
Cash$1,253 $ $ $1,253 
Money market funds71,175   71,175 
Total cash and cash equivalents72,428   72,428 
Short-term investments
Commercial paper$31,936 $1 $(2)$31,935 
Corporate bonds7,025  (3)7,022 
Asset backed securities5,306  (2)5,304 
Total short-term investments44,267 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 June 30, 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 June 30, 2022, no 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.

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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):
June 30, 2022
Total
Fair Value
Level 1Level 2Level 3
Assets:
Money market funds$50,433 $50,433 $ $ 
Commercial paper16,882  16,882  
U.S. government-sponsored agency bonds8,723  8,723  
Corporate bonds999  999  
Asset-backed securities1,000  1,000  
Total$78,037 $50,433 $27,604 $ 
Liabilities:
Derivative liabilities for exit fees$1,091 $ $ $1,091 
Total$1,091 $ $ $1,091 

December 31, 2021
Total
Fair Value
Level 1Level 2Level 3
Assets:
Money market funds$71,175 $71,175 $ $ 
Commercial paper31,935  31,935  
Corporate bonds7,022  7,022  
Asset-backed securities5,304  5,304  
Total$115,436 $71,175 $44,261 $ 
Liabilities:
Derivative liability for exit fee$698 $ $ $698 
Total$698 $ $ $698 

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 2018 Exit Fee and 2022 Exit Fee, as defined and discussed in Note 9. Derivative Liability, 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 June 30, 2022 and December 31, 2021, due to their short-term nature.

Fair Value of Debt

The interest rates of our deferred royalty obligation and term loan facility approximate the rate at which we could obtain alternative financing. Therefore, the carrying amount of the deferred royalty obligation and the term loan facility approximated their fair values at June 30, 2022 and December 31, 2021. See Note 7. Deferred Royalty Obligation and Note 8. Borrowing for a description of the Level 3 inputs used to estimate the fair value of each respective liability.

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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):
June 30, 2022
Raw materials$460 
Work in process3,606 
Finished goods463 
Total$4,529 
Prepaid commercial manufacturing of $17.8 million and $9.4 million as of June 30, 2022 and December 31, 2021, respectively, consist of prepayments to third party contract manufacturing organizations for the manufacture of IBSRELA for production orders which we expect work to commence within the next 12 months. Prepayments for commercial manufacturing of $3.8 million as of June 30, 2022 that are expected to be converted into inventory after 12 months are included in other assets on our Condensed Balance Sheets.

NOTE 5. PRODUCT REVENUE, NET
We received approval from the FDA in September 2019 to market IBSRELA, the first and only NHE3 inhibitor for the treatment of 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 $1.6 million and $2.0 million during the three and six months ended June 30, 2022, respectively.
Sales to AmerisourceBergen Drug Corporation, Cardinal Health, and McKesson Corporation made up 40.2%, 22.7%, and 24.6% of our gross product revenue during the three months ended June 30, 2022 and 35.1%, 21.7%, and 22.5% during the six months ended June 30, 2022.
The activities and ending reserve balances for each significant category of discounts and allowances, which constitute variable consideration, were as follows (in thousands):
Discounts and ChargebacksRebatesOther Fees, Copay and ReturnsTotal
Balance as of December 31, 2021$ $ $ $ 
Activity related to 2022 sales84 329 322 735 
Credits/deductions issued(41)(15)(133)(189)
Balance as of June 30, 2022$43 $314 $189 $546 
There were no product sales or gross-to-net accruals during the three and six months ended June 30, 2021.
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.

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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 original term of the 2019 KKC Agreement commenced on the Effective Date and was to end 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 entered into three amendments to the 2019 KKC Agreement, which have resulted in the extension of the original term. Under the third amendment to the 2019 KKC Agreement entered into on June 28, 2022, the current term will end on February 28, 2023.
We have no material future obligations under the 2019 KKC Agreement and recorded no revenue under the 2019 KKC Agreement during the three and six months ended June 30, 2022. During the three and six months ended June 30, 2021, we recognized $1.3 million and $2.8 million, respectively, 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.
Under the terms of the 2017 KKC Agreement, KKC paid us an up-front license fee of $30.0 million. We may be entitled to receive up to $55.0 million in total development and regulatory milestones, of which $10.0 million has been received and recognized as revenue as of June 30, 2022. We may also be eligible to receive approximately ¥8.5 billion for commercialization milestones, or approximately $62.3 million at the currency exchange rate on June 30, 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. As discussed in Note 7. Deferred Royalty Obligation, the future royalties and commercial milestone payments we may receive under the 2017 KKC Agreement will be remitted to HealthCare Royalty Partners IV, L.P. pursuant to a Royalty and Sales Milestone Interest Acquisition Agreement. The variable consideration related to the remaining milestone payments has not been included in the transaction price as these were fully constrained at June 30, 2022.
On April 11, 2022, we entered into a second amendment (the "Amendment") to the 2017 KKC Agreement. Under the terms of the Amendment, we and KKC 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 discussed in Note 7. Deferred Royalty Obligation, the future commercial milestones and royalties we may receive under the 2017 KKC Agreement will be remitted to HealthCare Royalty Partners IV, L.P. pursuant to a Royalty and Sales Milestone Interest Acquisition Agreement. As consideration for the reduction in the royalty rate, KKC has agreed to pay us up to an additional $40.0 million payable in two tranches, with the first payment due following KKC's filing with the Japanese Ministry of Health, Labour and Welfare 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. The variable consideration related to the reduction in the royalty rate has not been included in the transaction price as these were fully constrained at June 30, 2022.
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During the three and six months ended June 30, 2022 we recognized no licensing revenue upon the achievement of development milestones. During the three and six months ended June 30, 2021, we recognized zero and $5.0 million respectively, as licensing revenue upon the initiation of phase 3 clinical studies by KKC in Japan to evaluate tenapanor for hyperphosphatemia. During the three and six months ended June 30, 2022, we recognized $952 thousand and $966 thousand, respectively, 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 six months ended June 30, 2021, we recognized zero and $126 thousand, respectively, 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.
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. Under the terms of the Fosun Agreement, Fosun paid us a $12.0 million upfront license fee. We may be entitled to receive development and commercialization milestones of up to $113.0 million, of which $3.0 million has been received and recognized as revenue as of June 30, 2022, 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 June 30, 2022.
We have recorded no revenue during the three and six months ended June 30, 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. Under the terms of the Knight Agreement, Knight paid us a $2.3 million upfront payment. We may also be eligible to receive approximately CAD22.2 million for development and commercialization milestones, or approximately $17.2 million at the currency exchange rate on June 30, 2022, of which $0.7 million has been received and recognized as revenue as of June 30, 2022. 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 June 30, 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 June 30, 2022, to date in aggregate, we have recognized $11.9 million of the $75.0 million, which has been recorded as cost of revenue, and have paid AstraZeneca $11.6 million. During the three and six months ended June 30, 2022 we recognized and recorded as cost of revenue $0.2 million and $0.3 million, respectively, related to the AstraZeneca Termination Agreement. During the three and six months ended June 30, 2021 we recognized zero and $1.0 million, respectively, as cost of revenue related to the AstraZeneca Termination Agreement.
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Deferred Revenue
The following tables present changes in our current and non-current deferred revenue balances during the reporting period. The June 30, 2022 and 2021 current deferred revenue balance is attributable entirely to the 2019 KKC Agreement and the non-current deferred revenue balances are attributable entirely to the 2017 KKC Agreement (in thousands):
Deferred revenue - current20222021
Balance at January 1,$ $4,177 
Decreases due to revenue recognized in the period for which cash has been received (2,765)
Balance at June 30,$ $1,412 

Deferred revenue - non-current20222021
Balance at January 1,$4,727 $ 
Increases due to cash received during the period3,829 2,947 
Increases to amounts invoiced, for which cash has not yet been received3,865  
Balance at June 30,$12,421 $2,947 

NOTE 7. DEFERRED ROYALTY OBLIGATION

On June 28, 2022, we and HealthCare Royalty Partners IV, L.P. (“HCR”) entered into a Royalty and Sales Milestone Interest Acquisition Agreement (the “HCR Agreement”). Under the terms of the HCR Agreement, HCR has agreed to pay us up to $20.0 million in exchange for the royalty payments and commercial milestone payments (collectively the “Royalty Interest Payments”) that we may receive under our 2017 License Agreement with KKC based upon KKC's net sales of tenapanor in Japan. As consideration for the sale of the Royalty Interest Payments, HCR paid to us a $10.0 million upfront payment, and we are eligible to receive a $5.0 million payment following KKC's receipt of regulatory approval to market tenapanor for hyperphosphatemia in Japan, and another $5.0 million payment in the event net sales by KKC in Japan exceed a certain annual target level by the end of 2025.

The HCR Agreement is effective until terminated by the mutual agreement of the parties and contains customary representations and warranties and customary affirmative and negative covenants, including, among others, requirements as to prosecution, maintenance, defense and enforcement of certain patent rights in Japan, restrictions regarding our ability to forgive, release or reduce any Royalty Interest Payments due to us under the 2017 KKC Agreement, to create or incur any liens with respect to the Royalty Interest Payments, the 2017 KKC Agreement or certain patents, or to sell, license or transfer certain patents in the field and territory described in the 2017 KKC Agreement.

In addition, the HCR Agreement contains customary events of default with respect to which we may incur indemnification obligations to HCR for any losses incurred by HCR and related parties as a result of the event of default, subject to a specified limitation of liability cap. Under the HCR Agreement, an event of default will occur if, among other things, any of the representations and warranties included in the HCR Agreement proves not to have been true and correct in all material respects, at the time it was made, we breach any of our covenants under the HCR Agreement, subject to specified cure periods with respect to certain breaches, we are in breach or default under the 2017 KKC Agreement in any manner which is likely to cause a material adverse effect on the Royalty Interest Payments, the occurrence of a termination of the 2017 KKC Agreement under certain circumstances or we or our assets become subject to certain legal proceedings, such as bankruptcy proceedings, or we are unable to pay our debts as they become due.

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We received the $10.0 million upfront payment from HCR during June 2022 and recorded it as a deferred royalty obligation on our condensed balance sheet. As part of the sale, we incurred approximately $0.4 million in transaction costs, which, along with the deferred royalty obligation, will be amortized to non-cash interest expense over the estimated life of the HCR Agreement using the effective interest method. As future royalties are remitted to us by KKC, and subsequently from us to HCR, the balance of the deferred royalty obligation will be effectively repaid over the life of the HCR Agreement. To determine the amortization of the deferred royalty obligation, we are required to estimate the total amount of future royalty payments to be received from KKC for sales of tenapanor in Japan. There are a number of factors that could materially affect the amount and timing of royalty payments from KKC, most of which are not within our control. We will periodically assess the estimated royalty payments from KKC and, to the extent that the amount or timing of such payments is materially different than our original estimates, we will prospectively adjust the imputed interest rate and the related amortization of the deferred royalty obligation. As of June 30, 2022, our effective interest rate used to amortize the liability is 34.4%. During the three and six months ended June 30, 2022, we did not recognize a material amount of non-cash interest expense for the amortization of the deferred royalty obligation.

NOTE 8. 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 9. 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 Investment Corp. 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”). On August 1, 2022, we entered into an amendment to the 2022 Loan Agreement with SLR Investment Corp. that extends the date by which we must receive approval by the FDA for our NDA for the control of serum phosphorus in chronic kidney disease patients on dialysis in order to borrow the additional $22.5 million from December 31, 2022 to March 31, 2023. 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.

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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 over 36 months. 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 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 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, 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.</