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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
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/0beff2cbdf756931bf025dfa0c96f7e3-Ardelyx-Logomark-RGB.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 28, 2023, was 217,862,921.


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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 the development of a label for the commercialization of XPHOZAH and our belief regarding what indication may be included in such a label;
our expectations regarding the potential for FDA approval for the New Drug Application ("NDA") for XPHOZAH;
our expectations regarding the timing of the FDA’s review of the NDA for XPHOZAH and, if approved, our current expectations regarding our timing to launch XPHOZAH;
whether or when XPHOZAH, along with other oral ESRD-related drugs without an injectable or intravenous equivalent, are bundled into the ESRD prospective payment system, and the manner in which such introduction into the ESRD prospective payment system may occur, including the length of any applicable Transitional Drug Add-on Payment Adjustment ("TDAPA") period and the amount of the add-on payment available during the TDAPA period;
our plans to address our operating cash flow requirements with our current cash, cash equivalents and short-term investments, cash generated from the sales of IBSRELA®, and if approved, sales of XPHOZAH, the potential receipt of anticipated milestone payments from our collaboration partners, the potential receipt of anticipated payments from our Japanese collaboration partner under the second amendment to our License Agreement, with additional financing sources and through the implementation of cash preservation activities to reduce or defer discretionary spending;
our plans with respect to RDX013 and RDX020;
estimates of our expenses, future revenue, capital requirements, our needs for additional financing and our ability to obtain additional capital; and
other risks and uncertainties, including those under the caption “Risk Factors.”
We have based these forward-looking statements largely on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management’s beliefs and assumptions, and these forward-looking statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. 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

The principal risks and uncertainties affecting our business include the following:

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, cash equivalents and short-term 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 additional financing for the foreseeable future as we invest in the commercialization of IBSRELA in the U.S., and prepare for and commercialize XPHOZAH in the U.S., if approved. The inability to access necessary capital when needed on acceptable terms, or at all, could force us to reduce our efforts to commercialize IBSRELA or, limit the commercialization of XPHOZAH, if approved.


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

We are substantially dependent on the successful commercialization of IBSRELA, and there is no guarantee that we will maintain sufficient market acceptance for IBSRELA; grow market share for IBSRELA; secure adequate coverage and reimbursement for IBSRELA; or generate sufficient revenue from product sales of IBSRELA.

We are pursuing regulatory approval for XPHOZAH. 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, there is no guarantee that we will achieve sufficient market acceptance for XPHOZAH; secure adequate coverage and reimbursement for XPHOZAH; or generate sufficient revenue from product sales of XPHOZAH.
In the event no legislative or regulatory action is taken to further delay the inclusion of oral only ESRD related drugs in the ESRD prospective payment system (“ESRD PPS”), XPHOZAH, if approved, will become part of the ESRD PPS on January 1, 2025, and will no longer be separately paid for under Part D, and as a result the revenue that we may generate on sales of XPHOZAH will be negatively and materially impacted.

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.

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.
The summary risk factors described above should be read together with the text of the full risk factors below in the section entitled “Risk Factors” and the other information set forth in this Quarterly Report on Form 10-Q, including our consolidated financial statements and the related notes, as well as in other documents that we file with the U.S. Securities and Exchange Commission. The risks summarized above or described in full below are not the only risks that we face. Additional risks and uncertainties not precisely known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, results of operations, and future growth prospects.

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
20 
30 
31 
32 
32 
69 
70 
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72 

1

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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)
2

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June 30,
2023
December 31,
2022
(Unaudited)
Assets    
Current assets:    
Cash and cash equivalents$30,058 $96,140 
Short-term investments97,521 27,769 
Accounts receivable9,109 7,733 
Inventory7,617 3,282 
Prepaid commercial manufacturing13,166 13,567 
Prepaid expenses and other current assets4,647 5,112 
Total current assets162,118 153,603 
Inventory, non-current40,295 25,064 
Right-of-use assets7,053 9,295 
Property and equipment, net1,064 1,223 
Other assets673 881 
Total assets$211,203 $190,066 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$5,294 $10,859 
Accrued compensation and benefits6,880 7,548 
Current portion of long-term debt27,052 26,711 
Current portion of operating lease liability4,105 3,894 
Deferred revenue5,959 4,211 
Accrued expenses and other current liabilities12,399 12,380 
Total current liabilities61,689 65,603 
Operating lease liability, net of current portion3,752 5,855 
Deferred revenue, non-current9,238 9,025 
Deferred royalty obligation related to the sale of future royalties13,191 11,254 
Other liabilities, non-current172  
Total liabilities88,042 91,737 
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, 2023 and December 31, 2022, respectively.
  
Common stock, $0.0001 par value; 500,000,000 shares and 300,000,000 shares authorized; 217,862,921 and 198,575,016 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively.
22 20 
Additional paid-in capital947,380 878,500 
Accumulated deficit(824,031)(780,137)
Accumulated other comprehensive loss(210)(54)
Total stockholders’ equity123,161 98,329 
Total liabilities and stockholders’ equity$211,203 $190,066 

The accompanying notes are an integral part of these condensed financial statements.
3

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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,
2023202220232022
Revenues:        
Product sales, net$18,309 $1,564 $29,664 $2,014 
Product supply revenue3,260 952 3,262 966 
Licensing revenue764 10 776 14 
Total revenues22,333 2,526 33,702 2,994 
Cost of goods sold:
Cost of sales492 44 864 57 
Other cost of revenue2,997 94 4,162 166 
Total cost of goods sold3,489 138 5,026 223 
Operating expenses:
Research and development8,282 9,741 17,375 18,592 
Selling, general and administrative27,186 18,862 53,989 38,201 
Total operating expenses35,468 28,603 71,364 56,793 
Loss from operations(16,624)(26,215)(42,688)(54,022)
Interest expense(1,075)(777)(2,103)(1,523)
Non-cash interest expense related to the sale of future royalties(968)(10)(1,937)(10)
Other income, net1,546 70 2,848 554 
Loss before provision for income taxes(17,121)(26,932)(43,880)(55,001)
Provision for income taxes 6 14 8 
Net loss$(17,121)$(26,938)$(43,894)$(55,009)
Net loss per share of common stock - basic and diluted$(0.08)$(0.19)$(0.21)$(0.40)
Shares used in computing net loss per share - basic and diluted214,951,127 145,544,372 211,009,029 138,279,945 
Comprehensive loss:
Net loss$(17,121)$(26,938)$(43,894)$(55,009)
Unrealized losses on available-for-sale securities(190)(21)(156)(103)
Comprehensive loss$(17,311)$(26,959)$(44,050)$(55,112)
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, 2023 and 2022
(Unaudited)
(in thousands, except shares)

Three Months Ended June 30, 2023
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Stockholders'
Equity
SharesAmount
Balance as of March 31, 2023214,462,050 $21 $932,330 $(806,910)$(20)$125,421 
Issuance of common stock for services86,095 — 337 — — 337 
Issuance of common stock upon exercise of options62,993 — 149 — — 149 
Issuance of common stock upon vesting of restricted stock units215,301 — — — — — 
Issuance of common stock in at the market offering3,036,482 1 11,365 — — 11,366 
Stock-based compensation— — 3,199 — — 3,199 
Unrealized losses on available-for-sale securities— — — — (190)(190)
Net loss— — — (17,121)— (17,121)
Balance as of June 30, 2023217,862,921 $22 $947,380 $(824,031)$(210)$123,161 

Six Months Ended June 30, 2023
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Stockholders'
Equity
SharesAmount
Balance as of December 31, 2022198,575,016 $20 $878,500 $(780,137)$(54)$98,329 
Issuance of common stock under employee stock purchase plan165,969 — 138 — — 138 
Issuance of common stock for services86,095 — 337 — — 337 
Issuance of common stock upon exercise of options98,994 — 211 — — 211 
Issuance of common stock upon vesting of restricted stock units423,074 — — — — — 
Issuance of common stock in at the market offering18,513,773 2 62,083 — — 62,085 
Stock-based compensation— — 6,111 — — 6,111 
Unrealized losses on available-for-sale securities— — — — (156)(156)
Net loss— — — (43,894)— (43,894)
Balance as of June 30, 2023217,862,921 $22 $947,380 $(824,031)$(210)$123,161 


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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 

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)
Six Months Ended June 30,
20232022
Operating activities    
Net loss$(43,894)$(55,009)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense639 738 
Non-cash lease expense1,821 1,698 
Stock-based compensation6,111 6,976 
Gain on sale of equipment (853)
Non-cash interest expense2,090 151 
Other, net(521)136
Changes in operating assets and liabilities:
Accounts receivable(1,376)(5,121)
Inventory(19,566)(4,529)
Prepaid commercial manufacturing401 (12,197)
Prepaid expenses and other assets817 1,848 
Accounts payable(5,565)17 
Accrued compensation and benefits(668)983 
Operating lease liabilities(1,892)(1,692)
Accrued and other liabilities110 259 
Deferred revenue1,961 7,694 
Net cash used in operating activities(59,532)(58,901)
Investing activities
Proceeds from maturities and redemptions of investments19,250 42,300 
Purchases of investments(88,127)(25,762)
Proceeds from sale of property and equipment 1,268 
Purchases of property and equipment(107) 
Net cash (used in) provided by investing activities(68,984)17,806 
Financing activities
Proceeds from 2022 Loan, net of issuance costs 26,971 
Payments for 2018 Loan, net of costs (33,038)
Proceeds from the sale of future royalties, net of issuance costs 9,581 
Proceeds from issuance of common stock in at the market offering, net of issuance costs62,085 18,478 
Proceeds from issuance of common stock under equity incentive and stock purchase plans349 83 
Net cash provided by financing activities62,434 22,075 
Net decrease in cash and cash equivalents(66,082)(19,020)
Cash and cash equivalents at beginning of period96,140 72,428 
Cash and cash equivalents at end of period$30,058 $53,408 
Supplementary disclosure of cash flow information:
Cash paid for interest$1,757 $1,360 
Cash paid for income taxes$19 $6 
Supplementary disclosure of non-cash activities:
Issuance of common stock for services$337 $ 
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)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

Ardelyx, Inc. (“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 developed a unique and innovative platform that enabled the discovery of new biological mechanisms and pathways to develop potent and efficacious therapies that minimize the side effects and drug-drug interactions frequently encountered with traditional, systemically absorbed medicines. The first molecule we discovered and developed was tenapanor, a targeted, first-in-class, oral, small molecule therapy. Tenapanor, branded as IBSRELA, is approved in the U.S. for the treatment of adults with irritable bowel syndrome with constipation (“IBS-C”). On May 17, 2023, the U.S. Food and Drug Administration (“FDA”) accepted our resubmission of the New Drug Application (“NDA”) for tenapanor, branded as XPHOZAH for the control of serum phosphorus in adult patients with chronic kidney disease (“CKD”) on dialysis who have had an inadequate response or intolerance to a phosphate binder therapy. The FDA set a user fee goal date for review of our NDA of October 17, 2023. We also have a development stage asset, RDX013 for adult patients with CKD and/or heart failure with hyperkalemia, or elevated serum potassium, and a discovery phase asset, RDX020 for adult patients with metabolic acidosis, a serious electrolyte disorder, in patients with CKD.
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, 2022. The results for the three and six months ended June 30, 2023 are not necessarily indicative of results to be expected for the entire year ending December 31, 2023, 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, utilization of inventory, 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, 2023, we had cash, cash equivalents and short-term investments of approximately $127.6 million. We have incurred operating losses since inception in 2007 and our accumulated deficit as of June 30, 2023 is $824.0 million. Our current level of cash, cash equivalents and short-term investments alone is not sufficient to meet our plans for the next twelve months following the issuance of these condensed financial statements on August 2, 2023. 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 condensed financial statements. We plan to address our operating cash flow requirements with our current cash, cash equivalents and short-term investments, cash generated from product sales of IBSRELA, and if approved, cash generated from sales of XPHOZAH, our potential receipt of anticipated milestones payments from our collaboration partners, our potential receipt of anticipated payments from our Japanese collaboration partner under the second amendment to our License Agreement, with additional financing sources and through the implementation of cash preservation activities to reduce or defer discretionary spending.
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There are no assurances that our efforts to meet our operating cash flow requirements will be successful. If our current cash, cash equivalents and short-term 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 2 to our audited financial statements for the fiscal year ended December 31, 2022, included in our Annual Report on Form 10-K. 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, 2022.
Recent Accounting Pronouncements
New Accounting Pronouncements - Recently Adopted
We have adopted no new accounting pronouncements subsequent to filing 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 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 short-term investments as of June 30, 2023 and December 31, 2022 are summarized below (in thousands):
June 30, 2023
Gross Unrealized
Amortized CostGainsLossesFair Value
Cash and cash equivalents:
Cash$1,400 $— $— $1,400 
Money market funds28,658 — — 28,658 
Total cash and cash equivalents30,058 — — 30,058 
Short-term investments:
Commercial paper$61,772 $1 $(168)$61,605 
U.S. government-sponsored agency bonds28,045 20 (44)28,021 
Asset backed securities7,914  (19)7,895 
Total short-term investments97,731 21 (231)97,521 
Total cash, cash equivalents and investments$127,789 $21 $(231)$127,579 

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December 31, 2022
Gross Unrealized
Amortized CostGainsLossesFair Value
Cash and cash equivalents:
Cash$11,827 $— $— $11,827 
Money market funds84,313 — — 84,313 
Total cash and cash equivalents96,140 — — 96,140 
Short-term investments
Commercial paper$25,336 $6 $(51)$25,291 
Corporate bonds1,000  (1)999 
U.S. government-sponsored agency bonds1,487  (8)1,479 
Total short-term investments27,823 6 (60)27,769 
Total cash, cash equivalents and investments$123,963 $6 $(60)$123,909 
Cash equivalents consist of money market funds 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 loss within stockholders’ equity on our condensed 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, net, in the statement of operations and comprehensive loss.
All of the short-term available-for sale securities held as of June 30, 2023 and December 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 or subject to credit losses, we write it down through the statement of operations and comprehensive loss to its fair value and establish that value as a new cost basis for the investment. Our unrealized losses as of June 30, 2023 and December 31, 2022 were not material. We determined that none of our available-for-sale securities were other-than-temporarily impaired as of June 30, 2023 and December 31, 2022, and no investment was in a continuous unrealized loss position for more than one year. As such, we believe that it is more likely than not that 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, 2023
Total
Fair Value
Level 1Level 2Level 3
Assets:
Money market funds$28,658 $28,658 $ $ 
Commercial paper61,605  61,605  
U.S. government-sponsored agency bonds28,021  28,021  
Asset-backed securities7,895  7,895  
Total$126,179 $28,658 $97,521 $ 
Liabilities:
Derivative liabilities for exit fees$1,737 $ $ $1,737 
Total$1,737 $ $ $1,737 

December 31, 2022
Total
Fair Value
Level 1Level 2Level 3
Assets:
Money market funds$84,313 $84,313 $ $ 
Commercial paper25,291  25,291  
Corporate bonds999  999  
U.S. government-sponsored agency bonds1,479  1,479  
Total$112,082 $84,313 $27,769 $ 
Liabilities:
Derivative liability for exit fee$1,656 $ $ $1,656 
Total$1,656 $ $ $1,656 
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 the 2022 Exit Fee, as defined and discussed in Note 9. Derivative Liabilities, are classified as Level 3.

The carrying amounts reflected in the condensed 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, 2023 and December 31, 2022, due to their short-term nature.
Based on our procedures under the expected credit loss model, including an assessment of unrealized losses in our portfolio, we concluded that any unrealized losses on our marketable securities were not attributable to credit and, therefore, we have not recorded an allowance for credit losses for these securities as of June 30, 2023 and December 31, 2022.

Fair Value of Debt

The principal amount outstanding under our term loan facilities is subject to a variable interest rate. Therefore, we believe the carrying amount of the term loan facility approximates fair value as of June 30, 2023 and December 31, 2022. See Note 8. Borrowing for a description of the Level 2 inputs used to estimate the fair value of the liability.

The carrying value of the deferred royalty obligation related to the sale of future royalties approximates its fair value as of June 30, 2023 and December 31, 2022 and is based on our current estimates of future royalties and commercialization
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milestones expected to be paid to us by Kyowa Kirin Co., Ltd. ("Kyowa Kirin") over the life of the agreement. See Note 7. Deferred Royalty Obligation Related to the Sale of Future Royalties for a description of the Level 3 inputs used to estimate the fair value of the liability.

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 as of June 30, 2023 and December 31, 2022 consisted of the following (in thousands):
June 30, 2023December 31, 2022
Raw materials$22,783 $22,299 
Work in process23,527 5,324 
Finished goods1,602 723 
Total$47,912 $28,346 
Reported as:
Inventory$7,617 $3,282 
Inventory, non-current40,295 25,064 
Total$47,912 $28,346 
Prepaid commercial manufacturing of $13.2 million and $13.6 million as of June 30, 2023 and December 31, 2022, respectively, consisted 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.

NOTE 5. PRODUCT REVENUE, NET

We received approval from the FDA in September 2019 to market IBSRELA in the U.S. We began selling IBSRELA in the U.S. in March 2022. We distribute IBSRELA principally through major wholesalers, specialty pharmacies and group purchasing organizations ("GPOs") (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 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.

During the three and six months ended June 30, 2023, we recorded net revenue for IBSRELA of $18.3 million and $29.7 million, respectively. During the three and six months ended June 30, 2022, we recorded net revenue for IBSRELA of $1.6 million and $2.0 million, respectively.

Revenue from the following Customers who contributed greater than 10% of our product revenue, net during the three and six months ended June 30, 2023 and 2022 as a percentage of total product revenue, net was as follows:
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Cardinal Health22.4 %22.7 %22.3 %21.7 %
AmerisourceBergen Drug Corporation21.1 %40.2 %21.3 %35.1 %
McKesson Corporation18.4 %24.6 %19.4 %22.5 %
BioRidge Pharma, LLC20.0 % %19.0 % %
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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 ChargebacksRebates, Wholesaler and GPO FeesCopay and ReturnsTotal
Balance as of December 31, 2022$142 $1,444 $1,258 $2,844 
Provisions1,978 5,724 5,272 12,974 
Credits/payments(1,782)(4,325)(3,864)(9,971)
Balance as of June 30, 2023$338 $2,843 $2,666 $5,847 
NOTE 6. COLLABORATION AND LICENSING AGREEMENTS
Kyowa Kirin Co., Ltd. (“Kyowa Kirin”)
In November 2017, we entered into an exclusive license agreement with Kyowa Kirin (“2017 Kyowa Kirin Agreement”), under which we granted Kyowa Kirin 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 Kyowa Kirin Agreement, Kyowa Kirin 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 Kyowa Kirin’s use in development and commercialization throughout the term of the 2017 Kyowa Kirin Agreement, provided that Kyowa Kirin may exercise an option to manufacture the tenapanor drug substance under certain conditions. In October 2022, we entered into a Commercial Supply Agreement with Kyowa Kirin to further define the obligations of the parties with respect to the commercial supply of tenapanor drug substance (“2022 Kyowa Kirin Supply Agreement”). As detailed below under the heading “Deferred revenue’ we have received advanced payments from Kyowa Kirin for the manufacturing of tenapanor drug substance that will be used to satisfy Kyowa Kirin needs.
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, Kyowa Kirin, is a customer. Under the terms of the 2017 Kyowa Kirin 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 Kyowa Kirin Agreement, and as such, each of the performance obligations is distinct.
Under the terms of the 2017 Kyowa Kirin Agreement, Kyowa Kirin 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 $20.0 million has been received and recognized as revenue as of June 30, 2023. We may also be eligible to receive approximately ¥8.5 billion for commercialization milestones, or approximately $58.8 million at the currency exchange rate on June 30, 2023, 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 Related to the Sale of Future Royalties, the future royalties and commercial milestone payments we may receive under the 2017 Kyowa Kirin 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 was fully constrained at June 30, 2023.
In April 2022, we entered into a second amendment to the 2017 Kyowa Kirin Agreement ("2022 Amendment"). Under the terms of the 2022 Amendment, we and Kyowa Kirin have agreed to a reduction in the royalty rate payable to us by Kyowa Kirin upon net sales of tenapanor for hyperphosphatemia 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 Related to the Sale of Future Royalties, the future commercial milestones and royalties we may receive under the 2017 Kyowa Kirin 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, Kyowa Kirin agreed to pay us up to an additional $40.0 million payable in two tranches, with the first payment due following Kyowa Kirin'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 Kyowa Kirin’s receipt of regulatory approval to market tenapanor for hyperphosphatemia in Japan.
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In October 2022, we announced that Kyowa Kirin submitted an NDA to the Japanese Ministry of Health, Labour and Welfare for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis, which resulted in payment to us from Kyowa Kirin for an aggregate of $35.0 million for milestone payments and payments under the 2022 Amendment. We received these payments during the fourth quarter of 2022 and recorded them as licensing revenue on our statement of operations and comprehensive loss. The remaining variable consideration related to the reduction in the royalty rate was fully constrained at June 30, 2023.
During the three and six months ended June 30, 2023, we recognized $3.3 million of product supply revenue pursuant to the 2017 Kyowa Kirin Agreement. During the three and six months ended June 30, 2022, we recognized $952 thousand and $966 thousand, respectively, of product supply revenue pursuant to the 2017 Kyowa Kirin Agreement.
Shanghai Fosun Pharmaceutical Industrial Development Co. Ltd. (“Fosun Pharma”)
In December 2017, we entered into an exclusive license agreement with Fosun Pharma ("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 our 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 are distinct.
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, 2023, 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 was fully constrained at June 30, 2023.
In July 2023, we announced that an NDA for tenapanor had been accepted for review by China’s Center for Drug Evaluation of the National Medical Products Administration ("NMPA") for the control of serum phosphorus in adult patients with chronic kidney disease on hemodialysis. This acceptance triggers a $2.0 million milestone payment to us under the terms of the Fosun Agreement. We expect to receive this payment during the third quarter of 2023 and record it as licensing revenue on our condensed statement of operations and comprehensive loss.
During the three and six months ended June 30, 2023 and 2022, we did not recognize a material amount of revenue pursuant to the Fosun Agreement.
Knight Therapeutics, Inc. (“Knight“)  
In March 2018, we entered into an exclusive license agreement with Knight Therapeutics, Inc., ("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 our assessment, we determined that the license and the manufacturing supply services were the material performance obligations at the inception of the agreement and, as such, each of the performance obligations are distinct.
Under the terms of the Knight Agreement, we received a $2.3 million non-refundable, one-time upfront payment in March 2018 and may be eligible to receive additional development and commercialization milestone payments worth up to CAD 22.2 million, or approximately $16.7 million at the currency exchange rate on June 30, 2023, of which $0.7 million has been received and recognized as revenue as of June 30, 2023. We are also eligible to receive royalties ranging from the mid-single digits to the low twenties throughout the term of the agreement, and a transfer price for manufacturing services. The variable consideration related to the remaining development milestone payments was fully constrained at June 30, 2023.
During the three and six months ended June 30, 2023 and 2022, we did not recognize a material amount of revenue pursuant to the Knight Agreement.
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METiS Therapeutics Inc. ("METiS") 
In April 2023, we entered into an exclusive, worldwide license agreement with METiS Therapeutics Inc., ("METiS Agreement") for the development and commercialization of a portfolio of TGR5 agonist compounds that were discovered and developed by Ardelyx for all therapeutic areas. We assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, METiS, is a customer. Based on our assessment, we determined that the license was the material performance obligation at the inception of the agreement.
Under the terms of the METiS Agreement, we received a $0.8 million non-refundable, one-time upfront payment in April 2023 and may be eligible to receive additional development and commercialization milestone payments worth up to $243.0 million. We are also eligible to receive royalties ranging within the mid-single digits throughout the term of the agreement. The variable consideration related to the remaining development and commercialization milestone payments was fully constrained at June 30, 2023.
During the three and six months ended June 30, 2023, we recognized $0.8 million of licensing revenue pursuant to the METiS Agreement.
AstraZeneca AB (“AstraZeneca”)
In June 2015, we entered into a termination agreement with AstraZeneca (the “AstraZeneca Termination Agreement”) pursuant to which we have agreed to pay AstraZeneca (i) future royalties at a royalty rate of 10% of net sales of tenapanor or other NHE3 products by us or our licensees, and (ii) 20% of non-royalty revenue received from a new collaboration partner should we elect to license, or otherwise provide rights to develop and commercialize tenapanor or other NHE3 products, up to a maximum of $75.0 million in aggregate for (i) and (ii). As of June 30, 2023, to date in aggregate, we have recognized $18.3 million of the $75.0 million, which has been recorded as other cost of revenue on our condensed statements of operations and comprehensive loss, and have paid AstraZeneca $16.4 million. During the three and six months ended June 30, 2023, we recognized $1.9 million and $3.0 million, respectively, as other cost of revenue related to the AstraZeneca Termination Agreement. During the three and six months ended June 30, 2022 we recognized $0.2 million and $0.3 million, respectively, as other cost of revenue related to the AstraZeneca Termination Agreement.
Deferred Revenue
The following tables present changes in our current and non-current deferred revenue balances during the reporting period, which are all attributable to the 2017 Kyowa Kirin Agreement (in thousands):
Deferred revenue - current20232022
Balance at January 1,$4,211 $ 
Increases due to cash received, excluding amounts recognized as revenue during the period816  
Increases due to amounts reclassified from non-current, to be recognized in the next twelve months3,265 
Decreases due to revenue recognized in the period for which cash has not been received(2,333) 
Balance at June 30,$5,959 $ 

Deferred revenue - non-current20232022
Balance at January 1,$9,025 $4,727 
Increases due to cash received during the period3,478 3,829 
Increases to amounts invoiced, for which cash has not yet been received 3,865 
Decreases due to amounts reclassified as current, to be recognized in the next twelve months(3,265) 
Balance at June 30,$9,238 $12,421 

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NOTE 7. DEFERRED ROYALTY OBLIGATION RELATED TO THE SALE OF FUTURE ROYALTIES

In June 2022, we and HealthCare Royalty Partners IV, L.P. (“HCR”) entered into a Royalty and Sales Milestone Interest Acquisition Agreement (“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 Kyowa Kirin based upon Kyowa Kirin's net sales of tenapanor in Japan for hyperphosphatemia. 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 Kyowa Kirin's receipt of regulatory approval to market tenapanor for hyperphosphatemia in Japan, and another $5.0 million payment in the event net sales by Kyowa Kirin 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 Kyowa Kirin Agreement, to create or incur any liens with respect to the Royalty Interest Payments, the 2017 Kyowa Kirin Agreement or certain patents, or to sell, license or transfer certain patents in the field and territory described in the 2017 Kyowa Kirin 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 Kyowa Kirin 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 Kyowa Kirin 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.

We received the $10.0 million upfront payment from HCR during June 2022 and recorded it as a deferred royalty obligation related to the sale of future royalties ("deferred royalty obligation") on our balance sheet. Due to our ongoing manufacturing obligations under the 2017 Kyowa Kirin Agreement, we account for the proceeds as imputed debt and therefore will recognize royalties received under the arrangement as non-cash royalty revenue. Non-cash interest expense will be recognized over the life of the HCR Agreement using the effective interest method based on the imputed interest rate derived from estimated amounts and timing of future royalty payments to be received from Kyowa Kirin. As part of the sale, we incurred approximately $0.4 million in transaction costs, which, along with the deferred royalty obligation, are being 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 Kyowa Kirin, and subsequently from us to HCR, the balance of the deferred royalty obligation will be effectively repaid over the life of the HCR Agreement. There are a number of factors that could materially affect the fair value of the deferred royalty obligation. Such factors include, but are not limited to, the amount and timing of potential future royalty payments to be received from Kyowa Kirin under the 2017 Kyowa Kirin agreement, changing standards of care, the introduction of competing products, manufacturing or other delays, intellectual property matters, adverse events that result in governmental health authority imposed restrictions on the use of the drug products, significant changes in foreign exchange rates as the royalties remitted to HCR are made in U.S. dollars while the underlying sales of the products by Kyowa Kirin are made in Japanese yen, and other events or circumstances that could result in reduced royalty payments from Kyowa Kirin, which are not within our control, and all of which would result in a reduction of non-cash royalty revenues and the non-cash interest expense over the life of the deferred royalty obligation. We periodically assess the estimated royalty payments from Kyowa Kirin 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. As of June 30, 2023, our effective interest rate used to amortize the liability is 34.4%.

During the three and six months ended June 30, 2023, we recognized approximately $1.0 million and $1.9 million, respectively, of non-cash interest expense related to the deferred royalty obligation. During the three and six months ended June 30, 2022, we did not recognize a material amount of non-cash interest expense related to the deferred royalty obligation. As of June 30, 2023, we have received no royalty payments from Kyowa Kirin and, therefore, the deferred royalty obligation has not begun to be reduced.

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NOTE 8. BORROWING

Solar Capital and Western Alliance Bank Loan Agreement

In May 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 loan facility for up to $50.0 million 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 (“Closing Date”), we entered into a loan and security agreement (“2022 Loan Agreement”) with SLR Investment Corp. as collateral agent (“Agent”), and the lenders listed in the 2022 Loan Agreement (collectively the “2022 Lenders”). The 2022 Loan Agreement was subsequently amended on August 1, 2022 and February 9, 2023. We concluded that the Loan amendments were modifications to the 2022 Loan Agreement and are accounted for accordingly. The 2022 Loan Agreement as amended provides for a senior secured loan facility, with $27.5 million (“Term A Loan”) funded on the Closing Date and an additional $22.5 million which we may borrow on or prior to December 20, 2023; provided that (i) we have received approval by the FDA for our NDA for XPHOZAH by November 30, 2023, and (ii) we have achieved certain product revenue milestone targets described in the 2022 Loan Agreement (“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 as amended bear interest at a floating per annum interest rate with 7.95% plus the greater of (a) one percent (1.00%) per annum and (b)(i) 0.022% plus (ii) 1-month CME Term SOFR reference rate as published by the CME Term SOFR Administrator on the CME Term SOFR Administrator’s Website. We are permitted to make interest-only payments on the 2022 Loan through March 31, 2024, which date will be extended to March 31, 2025 if we receive approval by the FDA for our NDA for XPHOZAH on or prior to November 30, 2023 or achieve a defined net product revenue threshold for 2023. Accordingly, beginning on April 1, 2024 or April 1, 2025, we will be required to make monthly payments of interest plus repayment of the 2022 Loan in consecutive equal monthly installments of principal over 36 months or 24 months, respectively. 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) December 20, 2023, and (iii) the prepayment, refinancing, substitution, or replacement of the Term A Loan on or prior to December 20, 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 (“2022 Exit Fee”). As discussed in Note 9. Derivative Liability, in connection with the 2022 Loan, we entered into an agreement pursuant to which we agreed to pay an exit fee in the amount of 2% of the 2022 Loan funded (the "2022 Exit Fee"). Notwithstanding the prepayment or termination of the 2022 Loan, the 2022 Exit Fee will expire 10 years from the Closing Date.

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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 June 30, 2023 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 condensed financial statements.

As of June 30, 2023, our future payment obligations related to the 2022 Loan, excluding interest payments and the 2022 final fee, were as follows (in thousands):
Total repayment obligations$28,861 
Less: Unamortized discount and debt issuance costs(1,280)
Less: Unaccreted value of final fee(529)
Long-term debt27,052 
Less: Current portion of long-term debt(27,052)
Long-term debt, net of current portion$ 
NOTE 9.  DERIVATIVE LIABILITIES
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 ("2018 Exit Fee") upon any change of control transaction in respect of the Company or if we obtain both (i) FDA approval of XPHOZAH and (ii) FDA approval of IBSRELA, which was obtained on September 12, 2019 (“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 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 expense and other current liabilities on the accompanying condensed balance sheets. As of June 30, 2023 and December 31, 2022, the estimated fair value of the 2018 Exit Fee was $1.3 million and $1.2 million, respectively.
The fair value of the derivative liability was determined using a discounted cash flow analysis and is classified as a Level 3 measurement within the fair value hierarchy since our valuation utilized significant unobservable inputs. Specifically, the key assumptions included in the calculation of the estimated fair value of the derivative instrument include: (i) our estimates of both the probability and timing of a potential $1.5 million payment to Solar Capital Ltd. and Western Alliance Bank as a result of the FDA approvals, and (ii) a discount rate which was derived from our estimated cost of debt, adjusted with current LIBOR. Generally, increases or decreases in the probability of occurrence would result in a directionally similar impact in the fair value measurement of the derivative instrument and it is estimated that a 10% increase (decrease), not to exceed 100%, in the probability of occurrence would result in a fair value fluctuation of no more than $0.1 million.
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2022 Exit Fee
In February 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 (“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 ("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. As of June 30, 2023 and December 31, 2022, the estimated fair value of the 2022 Exit Fee was $0.5 million and $0.4 million, respectively.
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 adult patients with CKD on dialysis by November 30, 2023, 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% increase (decrease) in the probability of occurrence would not result in a material fair value fluctuation.
Changes in the fair value of recurring measurements included in Level 3 of the fair value hierarchy are presented as other income, net in our condensed statements of operations and comprehensive loss and were as follows for the six months ended June 30, 2023 and 2022 (in thousands):
20232022
Balance at January 1,$1,656 $698 
2022 Exit Fee addition at fair value 375 
Changes in estimated fair value:
2018 Exit Fee78 (29)
2022 Exit Fee3 47 
Balance at June 30,$1,737 $1,091 
NOTE 10. 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.
The following table provides additional details of our facility leases presented in our condensed balance sheets (dollars in thousands):
FacilitiesJune 30, 2023December 31, 2022
Right-of-use assets$7,053$9,295
Current portion of lease liabilities4,1053,894
Operating lease liability, net of current portion3,7525,855
Total$7,857$9,749
Weighted-average remaining life (years)2.02.4
Weighted-average discount rate6.8 %6.8 %
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The lease costs, which are included in operating expenses in our condensed statements of operations and comprehensive loss, were as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Operating lease expense$1,064 $1,064 $2,128 $2,128 
Cash paid for operating lease$1,100 $1,064 $2,198 $2,122 
The following table summarizes our undiscounted cash payment obligations for our operating lease liabilities as of June 30, 2023 (in thousands):
Remainder of 2023$2,242 
20244,589 
20251,321 
2026252 
Thereafter 
Total undiscounted operating lease payments8,404 
Imputed interest expenses(547)
Total operating lease liabilities7,857 
Less: Current portion of operating lease liability(4,105)
Operating lease liability, net of current portion$3,752 
In March 2023, we entered into a sub-lease Agreement (the “Sub-lease”) with Chronus Health, Inc. ("Chronus). The Sub-lease permits use by Chronus of a portion of the space in our facility in Fremont, California. We lease the facility from a different counterparty under a separate head lease that commenced in September 2008 and has been amended multiple times to add space and to extend the lease term through March 2025. We have sub-leased to Chronus approximately 21,644 square feet of the 72,500 square foot building's interior space, plus corresponding exterior support space and parking. The term of the Sub-lease shall expire on February 1, 2025.
In accordance with the Sub-lease we recognized an impairment of long-lived assets totaling $0.4 million during the three months ended March 31, 2023, which consisted primarily of impairment to the Fremont facility right-of-use asset. The Sub-lease commenced in April 2023 and we recognized $0.2 million and $0.3 million income from the Sub-lease during the three and six months ended June 30, 2023, respectively.
NOTE 11. STOCKHOLDERS’ EQUITY
At the Market Offerings Agreement
In August 2021, we filed an additional prospectus supplement under a Registration Statement which was filed in July 2020 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 we were authorized to issue and sell, from time to time, under a sales agreement we entered into with Jefferies (the "2021 Open Market Sales Agreement"), pursuant to which we, from time to time, sold up to $150.0 million in shares of our common stock through Jefferies. Pursuant to the 2021 Open Market Sales Agreement, Jefferies, as our sales agent, received a commission of up to 3% of the gross sales price for shares of common stock sold under the 2021 Open Market Sales Agreement. As of March 2023, we had sold a total of 95.2 million shares and received the maximum gross proceeds of $150.0 million under the 2021 Open Market Sales Agreement.
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In January 2023, we filed a Form S-3 registration statement, which became effective in January 2023 ("2023 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 $150.0 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” ("2023 Open Market Sales Agreement"). Pursuant to the 2023 Open Market Sales Agreement, Jefferies, as sales agent, may receive a commission of up to 3.0% of the gross sales price for shares of common stock sold under the 2023 Open Market Sales Agreement. During the three months ended June 30, 2023, we completed sales pursuant to the 2023 Open Market Sales Agreement resulting in the issuance of 3.0 million shares of our common stock and receipt of gross proceeds of $11.6 million at a weighted average sales price of approximately $3.83 per share.
NOTE 12. EQUITY INCENTIVE PLANS
Stock-Based Compensation
Stock-based compensation expense recognized for stock options, restricted stock units ("RSUs"), 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 June 30,Six Months Ended June 30,
2023202220232022
Selling, general and administrative$2,303 $2,220 $4,391 $4,728 
Research and development896 973 1,720 2,096 
Total$3,199 $3,193 $6,111 $6,824 
As of June 30, 2023, our total unrecognized stock-based compensation expense, net of estimated forfeitures, and average remaining vesting period, included the following (dollars in thousands):
Unrecognized Compensation ExpenseAverage Remaining Vesting Period (Years)
Stock option grants$21,167 3.0
RSU grants$7,776 3.1
ESPP$118 0.2
Stock Options
A summary of our stock option activity and related information for the six months ended June 30, 2023 is as follows (in thousands, except dollar amounts):
Number of SharesWeighted-Average
Exercise Price per
Share
Balance at December 31, 202213,963 $4.83 
Options granted7,331 $2.92 
Options exercised(99)$2.12 
Options forfeited or canceled(121)$4.87 
Balance at June 30, 202321,074 $4.18 
Exercisable at June 30, 202310,269 $5.63 
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Restricted Stock Units
A summary of our RSUs activity and related information for the six months ended June 30, 2023 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, 20221,406 $2.17 
Granted2,203 $2.98 
Vested(509)$2.86 
Forfeited(35)$3.88 
Non-vested restricted stock units at June 30, 20233,065 $2.62 
Employee Stock Purchase Plan
During the six months ended June 30, 2023, we sold approximately 0.2 million shares of our common stock under the ESPP. The shares were purchased by employees at an average purchase price of $0.83 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 six months ended June 30, 2023, we issued 0.1 million shares of our common stock to members of the board of directors in accordance with the program.
NOTE 13. 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 six months ended June 30, 2023 and 2022, 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 June 30,Six Months Ended June 30,
Numerator:2023202220232022
Net loss$(17,121)$(26,938)$(43,894)$(55,009)
Denominator:
Weighted average common shares outstanding - basic and diluted214,951 145,544 211,009 138,280 
Net loss per share of common stock - basic and diluted$(0.08)$(0.19)$(0.21)$(0.40)
For the periods presented, the total numbers of securities that could potentially dilute net income per share in the future that were not considered in the diluted net loss per share calculations because the effect would have been anti-dilutive were as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Options to purchase common stock20,65913,09920,26013,182
Restricted stock units3,0083,5202,9693,963
ESPP shares issuable278200242176
Total23,94516,81923,47117,321
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NOTE 14. CONTINGENCIES
On July 30 and August 12, 2021, two putative securities class action lawsuits were commenced in the U.S. District Court for the Northern District of California naming as defendants Ardelyx and two current officers captioned Strezsak v. Ardelyx, Inc., et al., Case No. 4:21-cv-05868-HSG, and Siegel v. Ardelyx, Inc., et al., Case No. 5:21-cv-06228-HSG (together, the “Securities Class Actions”). The complaints allege that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder, by making false and misleading statements and omissions of material fact related to tenapanor. The plaintiffs seek damages and interest, and an award of costs, including attorneys’ fees. On July 19, 2022, the court consolidated the two putative class actions and appointed a lead plaintiff and lead counsel. The lead plaintiff filed an amended complaint on September 29, 2022. Defendants filed a motion to dismiss the amended complaint on December 2, 2022. In January and February 2023, in lieu of filing a response to defendant’s motion to dismiss, plaintiffs filed a motion seeking leave to further amend their complaint and defendants filed an opposition to the motion for leave to further amend the complaint. On April 6, 2023, the court granted plaintiff’s motion for leave to further amend the complaint. With the second amended complaint, the plaintiffs seek to represent all persons who purchased or otherwise acquired Ardelyx securities between March 6, 2020 and July 19, 2021. Defendants filed a motion to dismiss the amended complaint on June 2, 2023, with a hearing on the motion to dismiss to be held on September 14, 2023. We believe the plaintiff’s claims are without merit and we have not recorded any accrual for a contingent liability associated with these legal proceedings.

On December 7, 2021 and March 29, 2022, two verified shareholders derivative lawsuits were filed in the U.S. District Court for the Northern District of California purportedly on behalf of Ardelyx against certain of Ardelyx’s executive officers and members of our board of directors, captioned Go v. Raab, et al., Case No. 4:21-cv-09455-HSG, and Morris v. Raab, et al., Case No. 4:22-cv-01988-JSC. The complaints allege that the defendants violations of Section 14(a) of the Securities Exchange Act of 1934, as amended, breaches of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets, for personally making and/or causing Ardelyx to make materially false and misleading statements regarding the Company’s business, operations and prospects. The complaint seeks contribution under Sections 10(b) and 21D of the Securities Exchange Act of 1934 from two executive officers. On January 19, and April 27, 2022, the court granted the parties’ stipulation to stay the Go and Morris actions, respectively, until resolution of the anticipated motion(s) to dismiss in the Securities Class Actions. On October 25, 2022, the parties filed a stipulation to consolidate and stay the Go and Morris actions, and on October 27, 2022, the court consolidated the Go and Morris action and stayed the consolidated action pending resolution of the anticipated motion(s) to dismiss in the Securities Class Action. We believe the plaintiff’s claims are without merit and we have not recorded any accrual for a contingent liability associated with these legal proceedings.
From time to time, we may be involved in legal proceedings arising in the ordinary course of business. As of June 30, 2023, there is no litigation pending that would reasonably be expected to have a material adverse effect on our results of operations and financial condition, and no contingent liabilities were accrued as of June 30, 2023.
NOTE 15.  SUBSEQUENT EVENTS
In July 2023, we announced that an NDA for tenapanor had been accepted for review by China’s Center for Drug Evaluation of the NMPA for the control of serum phosphorus in adult patients with chronic kidney disease on hemodialysis. This acceptance triggers a $2.0 million milestone payment to us under the terms of the Fosun Agreement. We expect to receive this payment during the third quarter of 2023 and record it as licensing revenue on our condensed statement of operations and comprehensive loss.
ITEM 2.       MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed financial statements and notes thereto included elsewhere in this report and with the audited financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2022. This discussion and analysis and other parts of this report contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report entitled “Risk Factors.” These forward-looking statements speak only as of the date hereof. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason. Unless the context requires otherwise, the terms “Ardelyx”, “Company”, “we”, “us”, and “our” refer to Ardelyx, Inc.
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Overview
We are a biopharmaceutical company founded with a mission to discover, develop and commercialize innovative first-in-class medicines that meet significant unmet medical needs. We developed a unique and innovative platform that enabled the discovery of new biological mechanisms and pathways to develop potent, and efficacious therapies that minimize the side effects and drug-drug interactions frequently encountered with traditional, systemically absorbed medicines. The first molecule we discovered and developed was tenapanor, a targeted, first-in-class, oral, small molecule therapy. Tenapanor, branded as IBSRELA, is approved in the U.S. for the treatment of adults with irritable bowel syndrome with constipation (“IBS-C”). On May 17, 2023, the U.S. Food and Drug Administration (“FDA”) accepted our resubmission of the New Drug Application (“NDA”) for tenapanor, branded XPHOZAH for the control of serum phosphorus in adult patients with chronic kidney disease (“CKD”) on dialysis who have had an inadequate response or intolerance to a phosphate binder therapy. The FDA set a user fee goal date for review of the NDA of October 17, 2023. We also have a development stage asset, RDX013 for adult patients with CKD and/or heart failure with hyperkalemia, or elevated serum potassium, and a discovery stage asset, RDX020, for adult patients with metabolic acidosis, a serious electrolyte disorder, in patients with CKD.

Since commencing operations in October 2007, substantially all our efforts have been dedicated to our research and development (“R&D”) activities, including developing tenapanor and developing our proprietary drug discovery and design platform. We realized our first product sales of IBSRELA® (tenapanor) in March 2022. As of June 30, 2023, we had an accumulated deficit of $824.0 million.

We expect to continue to incur substantial operating losses for the foreseeable future as we invest in the commercialization of IBSRELA, seek to gain approval in the U.S. for XPHOZAH® (tenapanor); prepare for and commercialize XPHOZAH in the U.S., if approved; and incur manufacturing and development cost for tenapanor. To date, we have funded our operations from the sale and issuance of common stock and convertible preferred stock, funds from our collaboration partnerships, which includes license fees, milestones and product supply revenue, funds from our loan agreements with our lenders, as well as from sales of IBSRELA.

Our Commercial Product
IBSRELA for IBS-C

Our unique discovery platform and deep understanding of the primary mechanism of sodium transport in the intestine resulted in our discovery and development of IBSRELA, a first-in-class, FDA approved, sodium hydrogen exchange 3 ("NHE3") inhibitor for the treatment of IBS-C in adults. IBSRELA acts locally in the gut and is minimally absorbed. IBS-C is a gastrointestinal ("GI") disorder characterized by both abdominal pain and altered bowel movements, and depending on the diagnostic criteria employed, is estimated to affect up to 13 million people in the U.S. IBS-C is associated with significantly impaired quality of life, reduced productivity, and substantial economic burden.

We recognized our first sales of IBSRELA in the U.S. in March 2022. For our commercial launch of IBSRELA, we designed a market-responsive commercial strategy and built a commercial organization highly experienced in launching novel therapies into specialty areas. The dynamics of the IBS-C market reflect an established patient base, limited number of competitors all confined to a single mechanism of action, concentrated number of prescribers, and recognized unmet need. In addition, market research indicated a favorable response to the IBSRELA product profile as a novel mechanism therapy. These dynamics enabled a targeted promotional focus on patients currently being managed for IBS-C by the approximately 9,000 high-writing healthcare providers that account for 50% of IBS-C prescriptions. Central to our go to market strategy for IBSRELA has been our highly experienced specialty sales force, many with existing relationships across their GI target base, full company engagement, and innovative peer-to-peer and digital initiatives.

We expect competition for IBSRELA will come largely from the three prescription products indicated for IBS-C: Linzess (linaclotide), Amitiza (lubiprostone) and Trulance (plecanatide). Generic lubiprostone is also available in the U.S. Additionally, over-the-counter products, not indicated for IBS-C are commonly used to treat the constipation component of IBS-C, alone and in combination with the IBS-C-indicated prescription therapies.

We have established commercial agreements with Shanghai Fosun Pharmaceutical Industrial Development Co. Ltd. ("Fosun Pharma") in China and Knight Therapeutics, Inc. ("Knight") in Canada for IBSRELA for IBS-C. Knight is currently marketing IBSRELA in Canada.

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Our Product Pipeline

Development Candidate XPHOZAH: A Potential New Approach for the Control of Serum Phosphorus in Adult Patients with CKD on Dialysis Who Have Had an Inadequate Response or Intolerance to a Phosphate Binder Therapy

XPHOZAH (tenapanor) is a first-in-class medicine being developed for the control of serum phosphorus, or hyperphosphatemia, in adult patients with CKD on dialysis who have had an inadequate response or intolerance to a phosphate binder therapy. XPHOZAH has a unique mechanism of action and acts locally in the gut to inhibit NHE3. This results in the tightening of the epithelial cell junctions, thereby significantly reducing paracellular uptake of phosphate, the primary pathway of phosphate absorption. It is estimated that there are more than 550,000 adult patients with CKD on dialysis in the U.S. and approximately 80% of those patients are being treated with phosphate lowering therapies. Seventy-seven percent of patients treated with phosphate binders to treat hyperphosphatemia were unable to consistently maintain phosphorous levels <=5.5 mg/dL over a six-month period. If approved, XPHOZAH would be the first therapy for phosphate management that blocks phosphate absorption at the primary site of uptake.

In June 2020, we submitted a NDA to the FDA for XPHOZAH. The NDA was supported by three Phase 3 trials involving more than 1,200 adult patients that evaluated the use of tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis, with two trials evaluating tenapanor as monotherapy and one trial evaluating tenapanor as part of a dual mechanism approach with phosphate binders. All three Phase 3 trials met their primary and key secondary endpoints.

On July 28, 2021, we received a Complete Response Letter ("CRL") from the FDA’s Division of Cardiology and Nephrology ("the Division") regarding our NDA for XPHOZAH. In December 2021 we submitted a Formal Dispute Resolution Request ("FDRR") to the Office of Cardiology, Hematology, Endocrinology and Nephrology ("OCHEN"). At the request of the FDA’s Office of New Drugs ("OND"), as part of our second level of appeal of the CRL, a Cardiovascular and Renal Drug Advisory Committee meeting on was held on November 16, 2022 with the committee voting that the benefits of XPHOZAH outweigh its risks nine to four as a monotherapy and ten to two, with one abstention, in combination with phosphate binder therapy. In December 2022, the OND granted our appeal to the CRL for the NDA for XPHOZAH and directed the Division to work with us to develop an appropriate label for the commercialization of XPHOZAH. On February 13, 2023, we participated in a Type A meeting with the Division where we discussed the resubmission of the NDA, and the information to be contained in the resubmitted NDA.

In April 2023, we resubmitted a NDA to the FDA for the approval of XPHOZAH for the control of serum phosphorus in adult patients with CKD on dialysis who have had an inadequate response or intolerance to a phosphate binder therapy. In May 2023, we announced that the FDA accepted our resubmission of our NDA for XPHOZAH, and that the FDA determined that the NDA is a class 2 review, which results in a six-month review period from the date of resubmission. The FDA set a user fee goal date of October 17, 2023. If approved, we expect XPHOZAH to be commercially available in the fourth quarter of 2023, as soon as possible following an approval from the FDA.

We have established commercial agreements with Kyowa Kirin, Co. Ltd. ("Kyowa Kirin") in Japan, Fosun Pharma in China and Knight in Canada for tenapanor for hyperphosphatemia. In October 2022, Kyowa Kirin submitted an NDA to the Japanese Ministry of Health, Labour and Welfare for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis. In July 2023, we announced that an NDA for tenapanor had been accepted for review by China’s Center for Drug Evaluation of the National Medical Products Administration ("NMPA") for the control of serum phosphorus in adult patients with chronic kidney disease on hemodialysis.

Discovery and Developmental Assets

We have a small molecule potassium secretagogue program, RDX013, for the potential treatment of hyperkalemia, or elevated serum potassium. Hyperkalemia is a common problem in patients with heart and kidney disease, particularly in patients taking customary blood pressure medications known as renin-angiotensin-aldosterone system ("RAAS") inhibitors. RDX013 is a novel mechanism agent designed to target the underlying biological mechanisms of potassium secretion to lower elevated potassium. We have completed a Phase 2 dose ranging clinical trial evaluating the safety and efficacy of RDX013 for the treatment of hyperkalemia in CKD patients who are not on dialysis. While the results of the study demonstrated an acceptable safety and tolerability profile for RDX013 and supported proof of concept in its ability to lower serum potassium levels, with statistically significant reductions compared to placebo after eight days of treatment, the study did not meet its primary endpoint of significantly reducing serum potassium levels compared to placebo after four weeks of treatment.

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We have a discovery program targeting the inhibition of the chloride bicarbonate exchanger for the treatment of metabolic acidosis, a highly prevalent comorbidity in CKD patients that is strongly correlated with disease progression and adverse outcomes. We have identified lead compounds that are potent, selective and proprietary inhibitors of bicarbonate secretion.

We do not currently expect to meaningfully advance either of these two assets until such time as we have determined our available resources can support additional activities after prioritization of the commercialization of IBSRELA and, if approved, XPHOZAH.

Collaboration Partners
We have exclusive rights to tenapanor in the U.S. and we have established agreements with Kyowa Kirin in Japan, Fosun Pharma in China and Knight in Canada for the development and commercialization of tenapanor for certain indications in their respective territories.

In March 2018, we entered into an exclusive license agreement with Knight (“Knight Agreement”) for the development, commercialization and distribution of tenapanor in Canada for hyperphosphatemia and IBS-C. In March 2021, Knight announced the commercial availability of IBSRELA in Canada, following its approval by Health Canada in April 2020. Under the terms of the Knight Agreement, Knight paid us a $2.3 million non-refundable, one-time payment in March 2018. We may also be eligible to receive approximately CAD 22.2 million for development and commercialization milestones, or approximately $16.7 million at the currency exchange rate on June 30, 2023, of which $0.7 million has been received and recognized as revenue as of June 30, 2023. 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, 2023.

In November 2017, we entered into an exclusive license agreement with Kyowa Kirin (“2017 Kyowa Kirin Agreement”) for the development, commercialization and distribution of tenapanor in Japan for cardiorenal indications. Under the terms of the 2017 Kyowa Kirin Agreement, we received a $30.0 million upfront payment from Kyowa Kirin, and we may be entitled to receive up to $55.0 million in total development and regulatory milestones, of which $20.0 million has been received and recognized as revenue as of June 30, 2023. We may also be eligible to receive approximately ¥8.5 billion for commercialization milestones, or approximately $58.8 million at the currency exchange rate on June 30, 2023, 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 Related to the Sale of Future Royalties, the future royalties and commercial milestone payments we may receive under the 2017 Kyowa Kirin Agreement will be remitted to HealthCare Royalty Partners IV, L.P. pursuant to a Royalty and Sales Milestone Interest Acquisition Agreement.
On April 11, 2022, we entered into a second amendment to the 2017 Kyowa Kirin Agreement ("2022 Amendment"). Under the terms of the 2022 Amendment, we and Kyowa Kirin agreed to a reduction in the royalty rate payable to us by Kyowa Kirin upon net sales of tenapanor in Japan. The royalty rate was 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 Related to the Sale of Future Royalties, the future royalties we may receive under the 2017 Kyowa Kirin 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, Kyowa Kirin agreed to pay us up to an additional $40.0 million payable in two tranches, with the first payment received in the fourth quarter of 2022 following Kyowa Kirin’s October 2022 filing with the Japanese Ministry of Health, Labour and Welfare of its application for marketing approval for tenapanor and the second payment due following Kyowa Kirin’s receipt of regulatory approval to market tenapanor for hyperphosphatemia in Japan.
In October 2022, we announced that Kyowa Kirin submitted a NDA to the Japanese Ministry of Health, Labour and Welfare for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis, which resulted in payment to us from Kyowa Kirin for an aggregate of $35.0 million for milestone payments and payments under the 2022 Amendment.
In December 2017, we entered into an exclusive license agreement with Fosun Pharma (“Fosun Agreement”) for the development and commercialization 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. In July 2023, we announced that an NDA for tenapanor had been accepted for review by China’s Center for Drug Evaluation of the NMPA for the control of serum phosphorus in adult patients with chronic kidney disease on hemodialysis. This acceptance triggers a $2.0 million milestone payment to us under the terms of the Fosun Agreement, which we expect to receive in the third quarter of 2023.
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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, 2023, 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%.
Critical Accounting Policies and Significant Judgments and Estimates
Our discussion and analysis of financial condition and results of operations is based on our condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
Critical accounting policies are those that require significant judgment and/or estimates by management at the time that financial statements are prepared such that materially different results might have been reported if other assumptions had been made. These estimates form the basis for making judgments about the carrying values of assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates.
The critical accounting policies that we believe impact significant judgments and estimates used in the preparation of our condensed financial statements presented in this report are described in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K filed with the SEC on March 2, 2023.
During the six months ended June 30, 2023, we did not adopt any new critical accounting policies and significant judgements and estimates.
Recent Accounting Pronouncements
A summary of recent accounting pronouncements that we have adopted or may expect to adopt is included in Note 1 – Organization and Basis of Presentation to our condensed financial statements (see Part I, Item 1 Notes to Condensed Financial Statements, of this Quarterly Report on Form 10-Q).
Financial Operations Overview
Revenue
Our revenue to date has been generated primarily through license, research and development collaborative agreements with various collaboration partners. We realized our first commercial product sales of IBSRELA beginning in March 2022. In the future, we may generate revenue from a combination of our own product sales and payments in connection with our current or future collaborative partnerships, including license fees, other upfront payments, milestone payments, royalties and payments for drug product and/or drug substance. We expect that any revenue we generate will fluctuate in future periods as a result of, among other factors: the extent to which we are successful in our commercialization of IBSRELA; whether we are able to gain approval from the FDA for our NDA for XPHOZAH; our ability to obtain and sustain an adequate level of coverage and reimbursement for IBSRELA by third-party payors; whether and the extent to which we are successful in our commercialization of XPHOZAH, if approved; whether or when XPHOZAH, if approved, along with other oral ESRD-related drugs without an injectable or intravenous equivalent, are bundled into the end stage renal disease (“ESRD”) prospective payment system, and the manner in which such introduction into the ESRD prospective payment system may occur, including the length of any applicable Transitional Drug Add-on Payment Adjustment ("TDAPA") period and the amount of the add-on payment available during the TDAPA period; the timing and progress of goods and services provided pursuant to our current or future collaborative partnerships; or our collaborators’ achievement of clinical, regulatory or commercialization milestones, to the extent achieved; the timing and amount of any payments to us relating to the aforementioned milestones; addressing any competing technological and market developments; maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets, and know-how, and our ability to develop, manufacture and commercialize our product candidates and products without infringing intellectual property rights of others; attracting, hiring, and retaining qualified personnel; and the extent to which tenapanor or other licensed products are approved and successfully commercialized by a collaboration partner. If our current collaboration partners or any future collaboration partners fail to obtain regulatory approval for tenapanor or other licensed products, our ability to generate future revenue from our collaborative arrangements, and our results of operations and financial position, would be materially and adversely affected. Our past revenue performance is not necessarily indicative of results to be expected in future periods.
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Cost of Goods Sold
Cost of sales consists of the cost of commercial goods sold to our Customers. Other cost of revenue consists of the cost of materials sold to our international partners under product supply agreements, as well as 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, 2023 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. We believe our cost of goods sold for the three and six months ended June 30, 2023 would have been $2.0 million and $2.4 million higher, respectively, if we had not previously expensed certain material and production costs with respect to the units sold. We believe our cost of goods sold for the three and six months ended June 30, 2022 would have been $140 thousand and $149 thousand higher, respectively, if we had not previously expensed certain material and production costs with respect to the units sold. As of June 30, 2023 and December 31, 2022, we had approximately $24.5 million and $28.0 million, respectively, of inventory on hand that was previously expensed as research and development expense and will not be reported as cost of goods sold in future periods when sales of IBSRELA are recognized as revenue.
Other cost of revenue includes payments due to AstraZeneca AB (“AstraZeneca”), which under the terms of a termination agreement entered into in 2015 (“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 in connection with the development and commercialization of tenapanor or other NHE3 products. 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 other 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 $18.3 million as other cost of revenue under the AZ Termination Agreement. See details in Note 6, Collaboration and Licensing Agreements, under AstraZeneca, in the notes to our financial statement of this Quarterly Report on Form 10-Q.
Research and Development
Pursuant to the October 2021 restructuring plan, we eliminated our internal research organization and we do not currently expect to meaningfully advance our efforts with respect to our discovery and developmental assets until such time as we have determined our available resources can support additional activities after prioritization of the commercialization of IBSRELA and, if approved, XPHOZAH. We recognize all research and development expenses as they are incurred to support the discovery, research, development and manufacturing of our product candidates. Research and development expenses include, but are not limited to, the following:
external research and development expenses incurred under agreements with consultants, third-party contract research organizations (“CROs”) and investigative sites where a substantial portion of our clinical studies are conducted, and with contract manufacturing organizations where our clinical supplies are produced;

expenses associated with supplies and materials consumed in connection with our research operations;

expenses associated with producing XPHOZAH prior to FDA approval;

expenses associated with producing discovery and developmental assets prior to FDA approval;

other costs associated with research, clinical development and regulatory activities;

employee-related expenses, which include salaries, bonuses, benefits, travel and stock-based compensation; and

facilities and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation and amortization expense, information technology expense and other supplies.
Selling, General and Administrative
Selling, general and administrative expenses relate to sales and marketing, finance, human resources, legal and other administrative activities, including information technology investments. Selling, general and administrative expenses consist primarily of personnel costs, outside professional services, marketing, advertising and legal expenses, facilities costs not otherwise allocated to research and development and other general and administrative costs.
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Interest Expense
Interest expense represents the interest paid on our loan payable.
Non-cash interest expense related to the sale of future royalties
Non-cash interest expense related to the sale of future royalties represents the imputed interest expense on our deferred royalty obligation related to the sale of future royalties using the effective interest method. As further described in Note 7. Deferred Royalty Obligation Related to the Sale of Future Royalties, in June 2022, we and HealthCare Royalty Partners IV, L.P. (“HCR”) entered into a Royalty and Sales Milestone Interest Acquisition Agreement (“HCR Agreement”). Under the terms of the HCR Agreement, HCR 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 Kyowa Kirin based upon Kyowa Kirin's net sales of tenapanor in Japan for hyperphosphatemia. As part of the HCR Agreement, we received a $10.0 million upfront payment from HCR in June 2022 and recorded it as a deferred royalty obligation on our balance sheet. Non-cash interest expense will be recognized over the life of the HCR Agreement using the effective interest method based on the imputed interest rate derived from estimated amounts and timing of future royalty payments to be received from Kyowa Kirin.
Other Income, net
Other income, net consists of interest income earned on our cash and cash equivalents and available-for-sale investments, the periodic revaluation of the exit fee related to our loan, gains on sales of property and equipment, and currency exchange gains and losses.
RESULTS OF OPERATIONS
The results of operations as of June 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, for any other interim period, or for any other future year.
Comparison of the three and six months ended June 30, 2023 and 2022
Revenue
Below is a summary of our total revenue (dollars in thousands):
Three Months Ended June 30,Change
2023 vs. 2022
Six Months Ended June 30,Change
2023 vs. 2022
20232022$%20232022$%
Product sales, net$18,309 $1,564 $16,745 1,071 %$29,664 $2,014 $27,650 1,373 %
Product supply revenue3,260 952 2,308 242 %3,262 966 2,296 238 %
Licensing revenue764 10 754 7,540 %776 14 762 5,443 %
Total revenues$22,333 $2,526 $19,807 784 %$33,702 $2,994 $30,708 1,026 %