SEC Filing | Ardelyx, Inc.

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ardx-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-36485

ARDELYX, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware			26-1303944
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No)

400 Fifth Avenue, Suite 210, Waltham, Massachusetts 02451

(Address of Principal Executive Offices) (Zip Code)

(510) 745-1700

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001

ARDX

The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of issued and outstanding shares of the registrant’s Common Stock, $0.0001 par value per share, as of October 26, 2023, was 232,137,709.

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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 current expectations regarding the availability of XPHOZAH® (tenapanor);

•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 (ESRD PPS), and the manner in which such introduction into the ESRD PPS may occur, including the length of any applicable Transitional Drug Add-on Payment Adjustment (TDAPA) period; the amount of the add-on payment available during the TDAPA period and whether, and the extent to which, the ESRD PPS base rate is adjusted following any applicable 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® (tenapanor) and sales of XPHOZAH, the potential receipt of anticipated future milestone payments from our collaboration partners, with funding under our loan and security agreement with SLR Investment Corp. (SLR), potential 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.

•We will require additional financing for the foreseeable future as we invest in the commercialization of IBSRELA and XPHOZAH in the U.S. The inability to access necessary capital when needed on acceptable terms, or at all, could force us to reduce our efforts to commercialize IBSRELA and XPHOZAH.

•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 and maintain adequate coverage and reimbursement for IBSRELA, or generate sufficient revenue from product sales of IBSRELA.

•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 will become part of the ESRD PPS on January 1, 2025, and

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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 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 XPHOZAH could limit our ability to market those products and decrease our ability to generate revenue.

•We rely completely on third parties, including certain single-source suppliers, 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 XPHOZAH and our future development efforts for tenapanor may be materially harmed.

•Our future results depend on contract manufacturing organizations (CMOs), many of whom are our single source manufacturers.

•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
PART I. FINANCIAL INFORMATION

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

PART II. OTHER INFORMATION

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

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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ARDELYX, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and per share amounts)


	September 30, 2023		December 31, 2022
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	33,767	$	96,140
Short-term investments	131,313		27,769
Accounts receivable	43,263		7,733
Inventory	8,524		3,282
Prepaid commercial manufacturing	17,176		13,567
Prepaid expenses and other current assets	7,173		5,112
Total current assets	241,216		153,603
Inventory, non-current	38,974		25,064
Right-of-use assets	6,523		9,295
Property and equipment, net	1,116		1,223

Other assets	1,550		881
Total assets	$	289,379	$	190,066
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	7,736	$	10,859
Accrued compensation and benefits	8,357		7,548
Current portion of long-term debt	—		26,711
Current portion of operating lease liability	4,321		3,894
Deferred revenue	4,072		4,211
Accrued expenses and other current liabilities	19,043		12,380
Total current liabilities	43,529		65,603
Operating lease liability, net of current portion	2,887		5,855
Long-term debt, net of current portion	27,229		—
Deferred revenue, non-current	10,290		9,025
Deferred royalty obligation related to the sale of future royalties	14,113		11,254
Other liabilities, non-current	170		—
Total liabilities	98,218		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 September 30, 2023 and December 31, 2022, respectively.	—		—
Common stock, $0.0001 par value; 500,000,000 shares and 300,000,000 shares authorized; 232,133,132 and 198,575,016 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively.	23		20
Additional paid-in capital	1,008,741		878,500
Accumulated deficit	(817,402)		(780,137)
Accumulated other comprehensive loss	(201)		(54)
Total stockholders’ equity	191,161		98,329
Total liabilities and stockholders’ equity	$	289,379	$	190,066

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

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ARDELYX, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands, except share and per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues:
Product sales, net	$	22,285	$	4,885	$	51,949	$	6,899
Product supply revenue	2,092		92		5,354		1,058
Licensing revenue	32,014		9		32,790		23

Total revenues	56,391		4,986		90,093		7,980
Cost of goods sold:
Cost of sales	644		230		1,508		287
Other cost of revenue	7,048		502		11,210		668
Total cost of goods sold	7,692		732		12,718		955
Operating expenses:
Research and development	8,637		7,467		26,012		26,059
Selling, general and administrative	32,664		18,667		86,653		56,868
Total operating expenses	41,301		26,134		112,665		82,927
Income (loss) from operations	7,398		(21,880)		(35,290)		(75,902)
Interest expense	(1,107)		(886)		(3,210)		(2,409)
Non-cash interest expense related to the sale of future royalties	(922)		(831)		(2,859)		(841)
Other income, net	1,460		704		4,308		1,258
Income (loss) before provision for income taxes	6,829		(22,893)		(37,051)		(77,894)
Provision for income taxes	200		—		214		8
Net income (loss)	$	6,629	$	(22,893)	$	(37,265)	$	(77,902)
Net income (loss) per share of common stock - basic and diluted	$	0.03	$	(0.14)	$	(0.17)	$	(0.53)
Shares used in computing net income (loss) per share - basic	222,782,229		165,104,789		214,976,555		147,319,818
Shares used in computing net income (loss) per share - diluted	227,894,335		165,104,789		214,976,555		147,319,818
Comprehensive income (loss):
Net income (loss)	$	6,629	$	(22,893)	$	(37,265)	$	(77,902)
Unrealized gains (losses) on available-for-sale securities	9		(5)		(147)		(108)
Comprehensive income (loss)	$	6,638	$	(22,898)	$	(37,412)	$	(78,010)

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

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ARDELYX, INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Three and Nine Months ended September 30, 2023 and 2022

(Unaudited)

(in thousands, except shares)


	Three Months Ended September 30, 2023
	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders' Equity
	Shares	Amount
Balance as of June 30, 2023	217,862,921	$	22	$	947,380	$	(824,031)	$	(210)	$	123,161
Issuance of common stock under employee stock purchase plan	269,739	—		670		—		—		670

Issuance of common stock upon exercise of options	28,227	—		40		—		—		40
Issuance of common stock upon vesting of restricted stock units	211,277	—		—		—		—		—

Issuance of common stock in at the market offering	13,760,968	1		57,162		—		—		57,163
Stock-based compensation	—	—		3,489		—		—		3,489
Unrealized gains on available-for-sale securities	—	—		—		—		9		9
Net income	—	—		—		6,629		—		6,629
Balance as of September 30, 2023	232,133,132	$	23	$	1,008,741	$	(817,402)	$	(201)	$	191,161


	Nine Months Ended September 30, 2023
	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders' Equity
	Shares	Amount
Balance as of December 31, 2022	198,575,016	$	20	$	878,500	$	(780,137)	$	(54)	$	98,329
Issuance of common stock under employee stock purchase plan	435,708	—		808		—		—		808
Issuance of common stock for services	86,095	—		337		—		—		337
Issuance of common stock upon exercise of options	127,221	—		251		—		—		251
Issuance of common stock upon vesting of restricted stock units	634,351	—		—		—		—		—

Issuance of common stock in at the market offering	32,274,741	3		119,245		—		—		119,248
Stock-based compensation	—	—		9,600		—		—		9,600
Unrealized losses on available-for-sale securities	—	—		—		—		(147)		(147)
Net loss	—	—		—		(37,265)		—		(37,265)
Balance as of September 30, 2023	232,133,132	$	23	$	1,008,741	$	(817,402)	$	(201)	$	191,161

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	Three Months Ended September 30, 2022
	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders' Equity
	Shares	Amount
Balance as of June 30, 2022	153,797,834	$	15	$	821,075	$	(767,939)	$	(109)	$	53,042
Issuance of common stock under employee stock purchase plan	181,256	—		112		—		—		112
Issuance of common stock for services	711,675	—		390		—		—		390

Issuance of common stock upon vesting of restricted stock units	95,555	—		—		—		—		—

Issuance of common stock in at the market offering	32,613,325	4		34,363		—		—		34,367
Stock-based compensation	—	—		1,848		—		—		1,848
Unrealized losses on available-for-sale securities	—	—		—		—		(5)		(5)
Net loss	—	—		—		(22,893)		—		(22,893)
Balance as of September 30, 2022	187,399,645	$	19	$	857,788	$	(790,832)	$	(114)	$	66,861


	Nine Months Ended September 30, 2022
	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders' Equity
	Shares	Amount
Balance as of December 31, 2021	130,182,535	$	13	$	795,540	$	(712,930)	$	(6)	$	82,617
Issuance of common stock under employee stock purchase plan	308,356	—		195		—		—		195
Issuance of common stock for services	711,675	—		390		—		—		390

Issuance of common stock upon vesting of restricted stock units	3,091,697	—		—		—		—		—

Issuance of common stock in at the market offering	53,105,382	6		52,839		—		—		52,845
Stock-based compensation	—	—		8,824		—		—		8,824
Unrealized losses on available-for-sale securities	—	—		—		—		(108)		(108)
Net loss	—	—		—		(77,902)		—		(77,902)
Balance as of September 30, 2022	187,399,645	$	19	$	857,788	$	(790,832)	$	(114)	$	66,861

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

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ARDELYX, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


	Nine Months Ended September 30,
	2023		2022
Operating activities
Net loss	$	(37,265)	$	(77,902)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense	930		1,017
Non-cash lease expense	2,690		2,570
Stock-based compensation	9,600		8,824
Gain on sale of equipment	—		(1,260)
Non-cash interest expense	3,093		1,055
Other, net	(1,483)		174
Changes in operating assets and liabilities:

Accounts receivable	(35,530)		(4,706)
Inventory	(19,152)		(9,774)
Prepaid commercial manufacturing	(3,609)		(10,549)
Prepaid expenses and other assets	(2,671)		754
Accounts payable	(3,123)		(1,164)
Accrued compensation and benefits	809		1,743
Operating lease liabilities	(2,880)		(2,571)
Accrued and other liabilities	6,466		(375)
Deferred revenue	1,126		7,836
Net cash used in operating activities	(80,999)		(84,328)
Investing activities
Proceeds from maturities and redemptions of investments	36,264		59,000
Purchases of investments	(137,644)		(43,824)
Proceeds from sale of property and equipment	—		1,798
Purchases of property and equipment	(301)		—
Net cash (used in) provided by investing activities	(101,681)		16,974
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 costs	119,248		52,845
Proceeds from issuance of common stock under equity incentive and stock purchase plans	1,059		195


Net cash provided by financing activities	120,307		56,554
Net decrease in cash and cash equivalents	(62,373)		(10,800)
Cash and cash equivalents at beginning of period	96,140		72,428
Cash and cash equivalents at end of period	$	33,767	$	61,628
Supplementary disclosure of cash flow information:
Cash paid for interest	$	2,692	$	2,079
Cash paid for income taxes	$	19	$	6
Supplementary disclosure of non-cash activities:
Right-of-use assets obtained in exchange for lease obligations	$	339	$	—
Issuance of common stock for services	$	337	$	390
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 minimally absorbed, 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). Tenapanor, branded as XPHOZAH®, was approved by the U.S. Food and Drug Administration (FDA) on October 17, 2023, to reduce serum phosphorus in adults with chronic kidney disease (CKD) on dialysis as add-on therapy in patients who have an inadequate response to phosphate binders or who are intolerant of any dose of phosphate binder therapy. 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 nine months ended September 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 September 30, 2023, we had cash, cash equivalents and short-term investments of approximately $165.1 million. We have incurred operating losses since inception in 2007 and our accumulated deficit as of September 30, 2023 is $817.4 million. Since December 31, 2021 and prior to September 30, 2023, our liquidity position raised substantial doubt about our ability to continue as a going concern. We have addressed our operating cash flow requirements through cash generated from product sales of IBSRELA, proceeds from the sale of shares of our common stock under our at-the-market offering, and from the receipt of milestones payments from our collaboration partners and payments from our Japanese collaboration partner under the second amendment to our License Agreement, which were received in October 2023. We believe our available cash, cash equivalents and short-term investments as of September 30, 2023 will be sufficient to fund our operations for at least a period of one year from the issuance of these condensed financial statements.

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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

In July 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-03, Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718) Presentation of Financial Statements (ASU 2023-03). ASU 2023-03 amends the FASB Accounting Standards Codification to include Amendments to SEC Paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and SEC Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. As the ASU does not provide any new guidance, there is no transition or effective date associated with its adoption. Accordingly, we adopted ASU 2023-03 immediately upon its issuance. The adoption of ASU 2023-03 did not have any impact on our condensed financial statement presentation or related disclosures.

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 September 30, 2023 and December 31, 2022 are summarized below (in thousands):


	September 30, 2023
			Gross Unrealized
	Amortized Cost		Gains		Losses		Fair Value
Cash and cash equivalents:
Cash	$	1,533	$	—	$	—	$	1,533
Money market funds	32,234		—		—		32,234


Total cash and cash equivalents	33,767		—		—		33,767
Short-term investments:
Commercial paper	$	82,851	$	1	$	(133)	$	82,719
U.S. government-sponsored agency bonds	31,850		5		(44)		31,811
Corporate bonds	6,284		—		(2)		6,282
Asset-backed securities	10,529		—		(28)		10,501
Total short-term investments	131,514		6		(207)		131,313
Total cash, cash equivalents and investments	$	165,281	$	6	$	(207)	$	165,080

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	December 31, 2022
			Gross Unrealized
	Amortized Cost		Gains		Losses		Fair Value
Cash and cash equivalents:
Cash	$	11,827	$	—	$	—	$	11,827
Money market funds	84,313		—		—		84,313


Total cash and cash equivalents	96,140		—		—		96,140
Short-term investments
Commercial paper	$	25,336	$	6	$	(51)	$	25,291
Corporate bonds	1,000		—		(1)		999
U.S. government-sponsored agency bonds	1,487		—		(8)		1,479

Total short-term investments	27,823		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 income (loss).

All of the short-term available-for sale securities held as of September 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 income (loss) to its fair value and establish that value as a new cost basis for the investment. Our unrealized losses as of September 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 September 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):


	September 30, 2023
	Total Fair Value		Level 1		Level 2		Level 3
Assets:
Money market funds	$	32,234	$	32,234	$	—	$	—
Commercial paper	82,719		—		82,719		—
U.S. government-sponsored agency bonds	31,811		—		31,811		—
Corporate bonds	6,282		—		6,282		—
Asset-backed securities	10,501		—		10,501		—

Total	$	163,547	$	32,234	$	131,313	$	—

Liabilities:
Derivative liabilities for exit fees	$	2,055	$	—	$	—	$	2,055
Total	$	2,055	$	—	$	—	$	2,055


	December 31, 2022
	Total Fair Value		Level 1		Level 2		Level 3
Assets:
Money market funds	$	84,313	$	84,313	$	—	$	—
Commercial paper	25,291		—		25,291		—
Corporate bonds	999		—		999		—
U.S. government-sponsored agency bonds	1,479		—		1,479		—
Asset-backed securities	—		—		—		—

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 September 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 September 30, 2023 and December 31, 2022.

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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 September 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 September 30, 2023 and December 31, 2022 and is based on our current estimates of future royalties and commercialization 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 September 30, 2023 and December 31, 2022 consisted of the following (in thousands):


	September 30, 2023		December 31, 2022
Raw materials	$	22,783	$	22,299
Work in process	22,956		5,324
Finished goods	1,759		723
Total	$	47,498	$	28,346
Reported as:
Inventory	$	8,524	$	3,282
Inventory, non-current	38,974		25,064
Total	$	47,498	$	28,346

Prepaid commercial manufacturing of $17.2 million and $13.6 million as of September 30, 2023 and December 31, 2022, respectively, consisted of prepayments to third party contract manufacturing organizations for work we expect 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 nine months ended September 30, 2023, we recorded net revenue for IBSRELA of $22.3 million and $51.9 million, respectively. During the three and nine months ended September 30, 2022, we recorded net revenue for IBSRELA of $4.9 million and $6.9 million, respectively.

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Revenue from the following Customers who contributed greater than 10% of our gross product revenue during the three and nine months ended September 30, 2023 and 2022 as a percentage of total gross product revenue was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Cardinal Health	22.2	%	25.2	%	22.3	%	24.2	%
AmerisourceBergen Drug Corporation	21.2	%	26.4	%	21.3	%	28.9	%
McKesson Corporation	18.4	%	20.2	%	19.0	%	20.9	%
BioRidge Pharma, LLC	19.5	%	—	%	19.2	%	—	%

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


	Discounts and Chargebacks		Rebates, Wholesaler and GPO Fees		Copay and Returns		Total
Balance as of December 31, 2022	$	142	$	1,444	$	1,258	$	2,844
Provisions	3,466		9,512		7,839		20,817
Credits/payments	(3,262)		(7,610)		(6,065)		(16,937)
Balance as of September 30, 2023	$	346	$	3,346	$	3,032	$	6,724

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.

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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 $35.0 million has been recognized as revenue and $20.0 million has been received as of September 30, 2023. We may also be eligible to receive approximately ¥8.5 billion for commercialization milestones, or approximately $57.0 million at the currency exchange rate on September 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 September 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 (MHLW) 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, both of which have occurred as of September 30, 2023.

In October 2022, we announced that Kyowa Kirin submitted a New Drug Application (NDA) to the Japanese MHLW 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 condensed statement of operations and comprehensive income (loss).

In September 2023, we announced that Kyowa Kirin received approval from the Japanese MHLW for the NDA for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis, which results in payment to us from Kyowa Kirin for an aggregate of $30.0 million for milestone payments and payments under the 2022 Amendment. We received these payments in October 2023 and recorded them as licensing revenue on our condensed statement of operations and comprehensive income (loss) when earned during the three months ended September 30, 2023 and reported them as accounts receivable on our condensed balance sheet as of September 30, 2023.

During the three and nine months ended September 30, 2022, we recognized no licensing revenue pursuant to the 2017 Kyowa Kirin Agreement.

During the three and nine months ended September 30, 2023, we recognized $2.1 million and $5.4 million, respectively, of product supply revenue pursuant to the 2017 Kyowa Kirin Agreement. During the three and nine months ended September 30, 2022, we recognized $83 thousand and $1.0 million, 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 $5.0 million has been received and recognized as revenue as of September 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 September 30, 2023.

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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 CKD on hemodialysis. This acceptance triggered a $2.0 million milestone payment to us under the terms of the Fosun Agreement. We received this payment during the third quarter of 2023 and recorded it as licensing revenue on our condensed statement of operations and comprehensive income (loss) when earned during the three months ended September 30, 2023. In October 2023, we announced that the FDA had approved XPHOZAH to reduce serum phosphorus in adults with CKD on dialysis as add-on therapy in patients who have an inadequate response to phosphate binders or who are intolerant of any dose of phosphate binder therapy. This triggered an additional $3.0 million milestone payment to us under the terms of the Fosun Agreement, which we expect to receive during the fourth quarter of 2023. Also, in October 2023, we announced that Fosun Pharma received approval from the Hong Kong Department of Health for the marketing application for tenapanor for the treatment of irritable bowel syndrome with constipation (IBS-C).

During the three and nine months ended September 30, 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 $16.4 million at the currency exchange rate on September 30, 2023, of which $0.7 million has been received and recognized as revenue as of September 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 September 30, 2023.

During the three and nine months ended September 30, 2023 and 2022, we did not recognize a material amount of revenue pursuant to the Knight Agreement.

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 September 30, 2023.

During the three and nine months ended September 30, 2023, we recognized $0.8 million of licensing revenue pursuant to the METiS Agreement.

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AstraZeneca AB (AstraZeneca)

In June 2015, we entered into a termination agreement with AstraZeneca (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 September 30, 2023, to date in aggregate, we have recognized $23.9 million of the $75.0 million, which has been recorded as other cost of revenue on our condensed statements of operations and comprehensive income (loss), and have paid AstraZeneca $18.3 million. During the three and nine months ended September 30, 2023, we recognized $5.7 million and $8.7 million, respectively, as other cost of revenue related to the AstraZeneca Termination Agreement. During the three and nine months ended September 30, 2022 we recognized $0.5 million and $0.8 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):


	2023				2022
	Current		Non-Current		Current		Non-Current
Balance at January 1,	$	4,211	$	9,025	$	—	$	4,727
Amounts invoiced as prepayments for product supply	1,182		4,530		42		7,794
Decrease for revenue recognized for product supply	(4,586)		—		—		—
Reclassify amounts to be recognized in the next twelve months	3,265		(3,265)		3,961		(3,961)
Balance at September 30,	$	4,072	$	10,290	$	4,003	$	8,560

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 as a result of 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.

In September 2023, we announced that Kyowa Kirin received approval from the Japanese MHLW for the New Drug Application for tenapanor for the improvement of hyperphosphatemia in adult patients with chronic kidney disease on dialysis, which entitles us to the first $5.0 million payment under the terms of the HCR Agreement. We received the payment in October 2023.

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

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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 earned 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 September 30, 2023, our effective interest rate used to amortize the liability is 23.9%. During the three and nine months ended September 30, 2023, we recognized approximately $0.9 million and $2.9 million, respectively, of non-cash interest expense related to the deferred royalty obligation. During each of the three and nine months ended September 30, 2022, we recognized approximately $0.8 million of non-cash interest expense related to the deferred royalty obligation. As of September 30, 2023, we have received no royalty payments from Kyowa Kirin and, therefore, the deferred royalty obligation has not begun to be reduced.

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) (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 (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 (2018 Exit Fee). Our obligations for the 2018 Exit Fee remained outstanding following the full repayment of the 2018 Loan in February 2022 until October 2023 when we received approval from the FDA for XPHOZAH to reduce serum phosphorus in adults with CKD on dialysis as add-on therapy in patients who have an inadequate response to phosphate binders or who are intolerant of any dose of phosphate binder therapy. This triggered our obligation to pay the 2018 Exit Fee to the 2018 Lenders and we subsequently paid the 2018 Exit Fee in October 2023.

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 in August 2022 (the First Amendment) and February 2023 (the Second Amendment). We concluded that the First Amendment and the Second Amendment were modifications to the 2022 Loan Agreement. The 2022 Loan Agreement as amended by the First Amendment and the Second Amendment provided 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

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2022 Loan Agreement (Term B Loan, and together with the Term A Loan, the 2022 Original Loans). The 2022 Term A Loan funds were used to repay the 2018 Loan with the 2018 Lenders.

On October 17, 2023, we entered into a Third Amendment (the Third Amendment) to the 2022 Loan Agreement by and between us and the 2022 Lenders. The Third Amendment, among other things, (1) provides us with the option to draw an additional $50.0 million of committed capital by March 15, 2024 (the Term C Loan); and (2) provides us with the option to draw up to an additional $50.0 million of uncommitted capital by December 31, 2026, subject to approval by the Agent’s investment committee (the Term D Loan and together with the Term A, B, and C Loans, the Four 2022 Loans).

Under the Third Amendment, the maturity date for the Four 2022 Loans is March 1, 2027. The interest rate for each of the Term A Loan and the Term B Loan is 7.95% plus a SOFR value equal to 0.022% plus the 1-month CME Term SOFR reference rate as published by the CME Term SOFR Administrator on the CME Term SOFR Administrator’s Website, subject to a SOFR floor of one percent. The interest rate for each of the Term C Loan and the Term D Loan is 4.25% plus a SOFR value equal to 0.022% plus the 1-month CME Term SOFR reference rate as published by the CME Term SOFR Administrator on the CME Term SOFR Administrator’s Website, subject to a SOFR floor of 4.7%.

In addition, the period under which we are permitted to make interest-only payments on the Four 2022 Loans was extended to December 31, 2026, effective upon our decision to draw the Term B Loan in the amount of $22.5 million. We provided the Agent with notice of our decision to draw the Term B Loan in October 2023 to support the commercial launch of XPHOZAH.

We were obligated to pay $0.2 million, upon the closing of the Term A Loan, and we were obligated to pay $0.1 million on the funding date of the Term B Loan. We are obligated to pay $0.3 million on the earliest of (1) the funding date of the Term C Loan, (2) March 15, 2024, and (3) the prepayment, refinancing, substitution or replacement of the Term B Loans on or prior to March 15, 2024. In addition, we will be obligated to pay 0.5% of the aggregate original principal amount of the Term D Loan commitment, if requested by us and approved by the Agent’s investment committee, which shall be due on the earliest of (1) the funding of the Term D Loan, (2) if we request and the 2022 Lenders provide the Term D Loan commitment, the day immediately preceding the amortization date, and (3) if we request and the 2022 Lenders provide the Term D Loan commitment, the prepayment, refinancing, substitution or replacement of the Term C Loan on or prior to the date immediately preceding the amortization date.

We are obligated to pay a final fee equal to 4.95% of the aggregate original principal amount of the Four 2022 Loans, to the extent such loans are funded, upon the earliest to occur of the maturity date, the acceleration of the Four 2022 Loans, and the prepayment, refinancing, substitution, or replacement of the Four 2022 Loans.

We may voluntarily prepay all amounts outstanding under the Four 2022 Loans, subject to a prepayment premium of (i) 3% of the outstanding principal amount of the Four 2022 Loans if prepaid prior to or on October 17, 2024, (ii) 2% of the outstanding principal amount of the Four 2022 Loans if prepaid after October 17, 2024 through and including October 17, 2025, or (iii) 1% of the outstanding principal amount of the Four 2022 Loans if prepaid after October 17, 2025 and prior to the maturity date. The Four 2022 Loans are secured by substantially all of our assets, except for our intellectual property and certain other customary exclusions. Additionally, as discussed in Note 9. Derivative Liabilities, in connection with the 2022 Original Loans, 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). Notwithstanding the prepayment or termination of the 2022 Loan, the 2022 Exit Fee will expire 10 years from the Closing Date.

The 2022 Loan Agreement, as amended, 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 Four 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 Four 2022 Loan balance.

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In addition, the 2022 Loan Agreement, as amended, 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 Four 2022 Term Loans, 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 Original Loan balance as a non-current liability as of September 30, 2023 due to principal repayments beginning in January 2027.

As of September 30, 2023, our future payment obligations related to the Original 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	(1,277)
Less: Unaccreted value of final fee	(355)
Long-term debt	27,229
Less: Current portion of long-term debt	—
Long-term debt, net of current portion	$	27,229

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 September 30, 2023 and December 31, 2022, the estimated fair value of the 2018 Exit Fee was $1.5 million and $1.2 million, respectively.

In October 2023, we received approval from the FDA for XPHOZAH to reduce serum phosphorus in adults with chronic kidney disease (CKD) on dialysis as add-on therapy in patients who have an inadequate response to phosphate binders or who are intolerant of any dose of phosphate binder therapy. This triggered our obligation to pay the 2018 Exit Fee to the 2018 Lenders and we subsequently paid the 2018 Exit Fee in October 2023.

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 the 2018 Lenders as a result of the FDA approvals, and (ii) a discount rate which was derived from our estimated cost of debt, adjusted with current LIBOR. 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 Original Loans, we entered into an agreement, whereby we agreed to pay an exit fee in the amount of 2% of the 2022 Original 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. The Term C and Term D Loans do not result in payment of an additional exit fee. 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 September 30, 2023 and December 31, 2022, the estimated fair value of the 2022 Exit Fee was $0.6 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 Exit Fee 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 was 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 income (loss) and were as follows for the nine months ended September 30, 2023 and 2022 (in thousands):


	2023		2022
Balance at January 1,	$	1,656	$	698
2022 Exit Fee addition at fair value	—		375
Changes in estimated fair value:
2018 Exit Fee	273		(4)
2022 Exit Fee	126		58
Balance at September 30,	$	2,055	$	1,127

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):


Facilities	September 30, 2023			December 31, 2022
Right-of-use assets	$	6,523		$	9,295

Current portion of lease liabilities	4,321			3,894
Operating lease liability, net of current portion	2,887			5,855
Total	$	7,208		$	9,749

Weighted-average remaining life (years)	1.8			2.4
Weighted-average discount rate	6.8		%	6.8		%

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The lease costs, which are included in operating expenses in our condensed statements of operations and comprehensive income (loss), were as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Operating lease expense	$	1,061	$	1,064	$	3,127	$	3,192
Cash paid for operating lease	$	1,119	$	1,072	$	3,316	$	3,194

The following table summarizes our undiscounted cash payment obligations for our operating lease liabilities as of September 30, 2023 (in thousands):


Remainder of 2023	$	1,165
2024	4,715
2025	1,450
2026	329

Thereafter	—
Total undiscounted operating lease payments	7,659
Imputed interest expenses	(451)
Total operating lease liabilities	7,208
Less: Current portion of operating lease liability	(4,321)
Operating lease liability, net of current portion	$	2,887

In March 2023, we entered into a sub-lease Agreement (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 expires 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 $0.5 million of income from the Sub-lease during the three and nine months ended September 30, 2023, respectively.

In August 2023, we entered into an amendment to the lease agreement (the Waltham lease) for our Waltham, Massachusetts facility to expand the leased premises to include an additional 4,247 square feet of office space. We recorded an additional $0.3 million right-of-use asset and lease liability for the Waltham lease upon commencement of the lease.

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 (2021 Open Market Sales Agreement) we entered into with Jefferies LLC (Jefferies) , 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 received the maximum gross proceeds of $150.0 million under the 2021 Open Market Sales Agreement, which included 15.5 million shares of our common stock for which we received gross proceeds of $51.9 million during the quarter ended March 31, 2023.

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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, 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 September 30, 2023, we completed sales pursuant to the 2023 Open Market Sales Agreement resulting in the issuance of 13.8 million shares of our common stock and receipt of gross proceeds of $58.4 million at a weighted average sales price of approximately $4.24 per share. During the nine months ended September 30, 2023, we completed sales pursuant to the 2023 Open Market Sales Agreement resulting in the issuance of 16.8 million shares of our common stock and receipt of gross proceeds of $70.0 million at a weighted average sales price of approximately $4.17 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 (ESPP) are recorded as operating expenses in our condensed statements of operations and comprehensive income (loss), as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Selling, general and administrative	$	2,574	$	1,373	$	6,965	$	6,102
Research and development	915		461		2,635		2,557

Total	$	3,489	$	1,834	$	9,600	$	8,659

As of September 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 Expense		Average Remaining Vesting Period (Years)
Stock option grants	$	19,087	2.8
RSU grants	$	7,372	2.9
ESPP	$	390	0.4

Stock Options

A summary of our stock option activity and related information for the nine months ended September 30, 2023 is as follows (in thousands, except dollar amounts):


	Number of Shares	Weighted-Average Exercise Price per Share
Balance at December 31, 2022	13,963	$	4.83
Options granted	7,512	$	2.94
Options exercised	(127)	$	1.96
Options forfeited or canceled	(144)	$	4.45
Balance at September 30, 2023	21,204	$	4.18
Exercisable at September 30, 2023	11,209	$	5.46

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Restricted Stock Units

A summary of our RSUs activity and related information for the nine months ended September 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, 2022	1,406	$	2.17
Granted	2,293	$	3.02
Vested	(720)	$	2.80
Forfeited	(56)	$	3.17
Non-vested restricted stock units at September 30, 2023	2,923	$	2.67

Employee Stock Purchase Plan

During the nine months ended September 30, 2023, we sold approximately 0.4 million shares of our common stock under the ESPP. The shares were purchased by employees at an average purchase price of $1.85 per share resulting in proceeds to us of approximately $0.8 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 nine months ended September 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 INCOME (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 nine months ended September 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 September 30,				Nine Months Ended September 30,
Numerator:	2023		2022		2023		2022
Net income (loss)	$	6,629	$	(22,893)	$	(37,265)	$	(77,902)
Denominator:
Weighted average common shares outstanding - basic	222,782		165,105		214,977		147,320
Weighted average common shares outstanding - diluted	227,894		165,105		214,977		147,320
Net income (loss) per share of common stock - basic and diluted	$	0.03	$	(0.14)	$	(0.17)	$	(0.53)

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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 September 30,		Nine Months Ended September 30,
	2023	2022	2023	2022
Options to purchase common stock	14,718	13,882	20,561	13,410

Restricted stock units	268	1,542	2,982	3,145

ESPP shares issuable	197	180	247	169
Total	15,183	15,604	23,790	16,724

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. On August 22, 2023, the court cancelled the hearing scheduled for September 14, 2023 on the motion to dismiss the amended complaint and indicated its decision to instead rule on the filed briefs. 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 September 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 September 30, 2023.

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NOTE 15. SUBSEQUENT EVENTS

In September 2023, we announced that Kyowa Kirin received approval from the Japanese MHLW for the NDA for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis, which results in payment to us from Kyowa Kirin for an aggregate of $30.0 million for milestone payments and payments under the 2022 Amendment and our right to receive an additional $5.0 million investment payment from HCR (See Note 7. Deferred Royalty Obligation Related to the Sale of Future Royalties). We received these payments in October 2023.

On October 17, 2023, we announced that the FDA approved XPHOZAH® (tenapanor) to reduce serum phosphorus in adults with chronic kidney disease on dialysis as add-on therapy in patients who have an inadequate response to phosphate binders or who are intolerant of any dose of phosphate binder therapy. The FDA approval of XPHOZAH results in a number of financial implications that will be recognized in the fourth quarter of 2023 including payment of the 2018 Exit Fee, which was paid in October 2023 (see Note 8. Borrowing and Note 9. Derivative Liabilities), the achievement of a $3.0 million development milestone from Fosun Pharma (See Note 6. Collaboration and Licensing Agreements), and our ability to draw the Term B Loan from SLR (See Note 8. Borrowing).

Also on October 17, 2023, we entered into a Third Amendment (the Third Amendment) to the 2022 Loan Agreement by and between us and the 2022 Lenders. The Third Amendment, among other things, (1) provides us with the option to draw an additional $50.0 million of committed capital by March 15, 2024 (the Term C Loan); (2) provides us with the option to draw up to an additional $50.0 million of uncommitted capital, subject to approval by the Agent's investment committee (the Term D Loan); and (3) extends the interest-only period for the Four Loans to December 31, 2026, effective upon our decision to draw the Term B Loan in the amount of $22.5 million. We provided the Agent with notice of our decision to draw the Term B Loan in October 2023 to support the commercial launch of XPHOZAH (See Note 8. Borrowing for additional information related to borrowing).

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.

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 minimally absorbed, 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). Tenapanor, branded as XPHOZAH®, was approved by the U.S. Food and Drug Administration (FDA) on October 17, 2023, to reduce serum phosphorus in adults with chronic kidney disease (CKD) on dialysis as add-on therapy in patients who have an inadequate response to phosphate binders or who are intolerant of any dose of phosphate binder therapy. 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.

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 September 30, 2023, we had an accumulated deficit of $817.4 million.

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We expect to continue to incur substantial operating losses for the foreseeable future as we invest in the commercialization of IBSRELA and XPHOZAH (tenapanor); 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 Products

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. In October 2023, we announced that Fosun Pharma received approval from the Hong Kong Department of Health for the marketing application for tenapanor for the treatment of irritable bowel syndrome with constipation (IBS-C).

XPHOZAH to Reduce Serum Phosphorus in Adults with CKD on dialysis as Add-on Therapy in Patients who have an Inadequate Response to Phosphate Binders or who are Intolerant of any Dose of Phosphate Binder Therapy

On October 17, 2023, XPHOZAH (tenapanor) is a first-in-class medicine received approval from the FDA to market XPHOZAH in the U.S. to reduce serum phosphorus in adults with chronic kidney disease (CKD) on dialysis as add-on therapy in patients who have an inadequate response to phosphate binders or who are intolerant of any dose of phosphate binder therapy XPHOZAH has a differentiated 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 eighty percent 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. XPHOZAH is the first therapy for phosphate management that blocks phosphate absorption at the primary site of uptake. We currently expect XPHOZAH to be available to patients in November 2023.

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 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 CKD on hemodialysis. In September 2023, we announced that Kyowa Kirin received approval from the Japanese Ministry of Health, Labour and Welfare (MHLW) for the new drug application (NDA) for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis.

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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.

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 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 $16.4 million at the currency exchange rate on September 30, 2023, of which $0.7 million has been received and recognized as revenue as of September 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 September 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 $35.0 million has been recognized as revenue and $20.0 million has been received as of September 30, 2023. We may also be eligible to receive approximately ¥8.5 billion for commercialization milestones, or approximately $57.0 million at the currency exchange rate on September 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 MHLW 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 MHLW 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 triggered a $2.0 million milestone payment to us under the terms of the Fosun Agreement, which we received in the third quarter of 2023. We may be entitled to receive development and commercialization milestones of up to $113.0 million, of which $5.0 million has been received and recognized as revenue as of September 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%.

In October 2023, we announced that the FDA has approved XPHOZAH to reduce serum phosphorus in adults with CKD on dialysis as add-on therapy in patients who have an inadequate response to phosphate binders or who are intolerant of any dose of phosphate binder therapy. This triggered an additional $3.0 million milestone payment to us under the terms of the Fosun Agreement, which we expect to receive during the fourth quarter of 2023. Also, in October 2023, we announced that Fosun Pharma received approval from the Hong Kong Department of Health for the marketing application for tenapanor for the treatment of irritable bowel syndrome with constipation (IBS-C).

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 nine months ended September 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).

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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; 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; whether or when XPHOZAH, 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, the amount of the add-on payment available during the TDAPA period and whether, and the extent to which, the ESRD PPS base rate is adjusted following any applicable 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.

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 payments due to AstraZeneca AB (AstraZeneca) 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 nine months ended September 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 nine months ended September 30, 2023 would have been $1.0 million and $3.4 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 nine months ended September 30, 2022 would have been $0.2 million and $1.2 million higher, respectively, if we had not previously expensed certain material and production costs with respect to the units sold. As of September 30, 2023 and December 31, 2022, we had approximately $25.0 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, which under the terms of a termination agreement entered into in 2015 (AstraZeneca 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 $23.9 million as other cost of revenue under the AstraZeneca 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.

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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 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.

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.

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RESULTS OF OPERATIONS

The results of operations as of September 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 nine months ended September 30, 2023 and 2022

Revenue

Below is a summary of our total revenue (dollars in thousands):


	Three Months Ended September 30,				Change 2023 vs. 2022				Nine Months Ended September 30,				Change 2023 vs. 2022
	2023		2022		$		%		2023		2022		$		%
Product sales, net	$	22,285	$	4,885	$	17,400	356	%	$	51,949	$	6,899	$	45,050	653	%
Product supply revenue	2,092		92		2,000		2174	%	5,354		1,058		4,296		406	%
Licensing revenue	32,014		9		32,005		355,611	%	32,790		23		32,767		142,465	%

Total revenues	$	56,391	$	4,986	$	51,405	1,031	%	$	90,093	$	7,980	$	82,113	1,029	%

The increase in product sales, net during the three and nine months ended September 30, 2023 as compared to the same periods in 2022 is attributable to increased net product sales for IBSRELA.

The increase in product supply revenue during the three and nine months ended September 30, 2023 as compared to the same periods in 2022 is attributable to increased product supply revenue to Kyowa Kirin.

The increase in licensing revenue during the three and nine months ended September 30, 2023 as compared to the same periods in 2022 is attributable to earning an aggregate of $30.0 million for milestones under the 2017 Kyowa Kirin Agreement and payments under the 2022 Kyowa Kirin Amendment upon approval from the Japanese MHLW for the NDA for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis. We also earned a $2.0 million milestone under the terms of the Fosun Agreement upon acceptance of the NDA for tenapanor by China’s Center for Drug Evaluation of the NMPA for the control of serum phosphorus in adult patients with CKD on hemodialysis.

Cost of Goods Sold

Below is a summary of our cost of goods sold (dollars in thousands):


	Three Months Ended September 30,				Change 2023 vs. 2022				Nine Months Ended September 30,				Change 2023 vs. 2022
	2023		2022		$		%		2023		2022		$		%
Cost of sales	$	644	$	230	$	414	180	%	$	1,508	$	287	$	1,221	425	%
Other cost of revenue	7,048		502		6,546		1,304	%	11,210		668		10,542		1,578	%
Total cost of goods sold	$	7,692	$	732	$	6,960	951	%	$	12,718	$	955	$	11,763	1,232	%

The increase to cost of sales for the three and nine months ended September 30, 2023 as compared to the same periods in 2022 is attributable to cost of goods sold for increased net product sales of IBSRELA. The increase to other cost of revenue for the three and nine months ended September 30, 2023 as compared to the same periods in 2022 is primarily attributable to payments due to AstraZeneca under the AstraZeneca Termination Agreement as well as cost of goods sold for product supply sold to our international partners.

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Operating Expenses

Below is a summary of our operating expenses (dollars in thousands):


	Three Months Ended September 30,				Change 2023 vs. 2022				Nine Months Ended September 30,				Change 2023 vs. 2022
	2023		2022		$		%		2023		2022		$		%
Research and development	$	8,637	$	7,467	$	1,170	16	%	$	26,012	$	26,059	$	(47)	—	%
Selling, general and administrative	32,664		18,667		13,997		75	%	86,653		56,868		29,785		52	%
Total operating expenses	$	41,301	$	26,134	$	15,167	58	%	$	112,665	$	82,927	$	29,738	36	%

Research and Development

Below is a summary of our research and development expenses (dollars in thousands):


	Three Months Ended September 30,				Change 2023 vs. 2022				Nine Months Ended September 30,				Change 2023 vs. 2022
	2023		2022		$		%		2023		2022		$		%
External R&D expenses	$	3,089	$	2,693	$	396	15	%	$	10,295	$	10,240	$	55	1	%
Employee-related expenses	4,454		3,462		992		29	%	12,549		11,214		1,335		12	%
Facilities, equipment and depreciation expenses	763		611		152		25	%	2,120		2,441		(321)		(13)	%
Other	331		701		(370)		(53)	%	1,048		2,164		(1,116)		(52)	%
Total research and development expenses	$	8,637	$	7,467	$	1,170	16	%	$	26,012	$	26,059	$	(47)	—	%

The change in our external R&D expenses for the three months ended September 30, 2023 as compared to the same period in 2022 is primarily the result of tenapanor manufacturing expenses as well as regulatory consulting expenses related to the FDA appeal of XPHOZAH. The change in our external R&D expenses for the nine months ended September 30, 2023 as compared to the same period in 2022 is primarily the result of clinical trial and pharmacovigilance activities related to IBSRELA.

Selling, General and Administrative

The increase in selling, general and administrative expenses for the three and nine months ended September 30, 2023 as compared to the same periods in 2022 is primarily due to increased costs associated with the commercial launch of IBSRELA as well as preparation for the commercial launch of XPHOZAH and increases in expenses associated with administrative support functions as our company has grown in headcount and activity level. The increases consisted of headcount and related personnel costs and external spending for disease awareness initiatives, commercial infrastructure and strategy.

Interest Expense

Below is a summary of our interest expense (dollars in thousands):


	Three Months Ended September 30,				Change 2023 vs. 2022				Nine Months Ended September 30,				Change 2023 vs. 2022
	2023		2022		$		%		2023		2022		$		%
Interest expense	$	(1,107)	$	(886)	$	(221)	25	%	$	(3,210)	$	(2,409)	$	(801)	33	%

The increase in interest expense for the three and nine months ended September 30, 2023 as compared to the same periods in 2022 is due to a higher variable interest rate applied to our loan balance primarily resulting from market fluctuations.

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Non-Cash Interest Expense Related to the Sale of Future Royalties

Below is a summary of our non-cash interest expense (dollars in thousands):


	Three Months Ended September 30,				Change 2023 vs. 2022				Nine Months Ended September 30,				Change 2023 vs. 2022
	2023		2022		$		%		2023		2022		$		%
Non-cash interest expense related to the sale of future royalties	$	(922)	$	(831)	$	(91)	11	%	$	(2,859)	$	(841)	$	(2,018)	240	%

Non-cash interest expense related to the sales of future royalties for the three and nine months ended September 30, 2023 is accrued on the deferred royalty obligation that we recorded following the receipt of the $10.0 million upfront payment from HCR during June 2022. We recognized nine months of expense during the nine months ended September 30, 2023 compared to approximately three months of expense during the nine months ended September 30, 2022.

Other Income, net

Below is a summary of our other income, net (dollars in thousands):


	Three Months Ended September 30,				Change 2023 vs. 2022				Nine Months Ended September 30,				Change 2023 vs. 2022
	2023		2022		$		%		2023		2022		$		%
Other income, net	$	1,460	$	704	$	756	107	%	$	4,308	$	1,258	$	3,050	242	%

The increase in other income, net for the three and nine months ended September 30, 2023 as compared to the same periods in 2022 is primarily due to increased income on our investments resulting from both higher interest rates and larger investment balances throughout the period.

Liquidity and Capital Resources

Below is a summary of our cash, cash equivalents and short-term investments (dollars in thousands):


	September 30, 2023		December 31, 2022		Change $		Change %
Cash and cash equivalents	$	33,767	$	96,140	$	(62,373)	(65)	%
Short-term investments	131,313		27,769		103,544		373	%

Total liquid funds	$	165,080	$	123,909	$	41,171	33	%

As of September 30, 2023, we had cash, cash equivalents and short-term investments of approximately $165.1 million.

In August 2021, we filed a 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 was authorized for issuance and sale, from time to time, under a sales agreement (2021 Open Market Sales Agreement) we entered into with Jefferies LLC (Jefferies), 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 received the maximum gross proceeds of $150.0 million under the 2021 Open Market Sales Agreement, which included 15.5 million shares of our common stock for which we received gross proceeds of $51.9 million during the quarter ended March 31, 2023.

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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, 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 September 30, 2023, we initiated sales pursuant to the 2023 Open Market Sales Agreement resulting in the issuance of 13.8 million shares of our common stock and receipt of gross proceeds of $58.4 million at a weighted average sales price of approximately $4.24 per share. During the nine months ended September 30, 2023, we completed sales pursuant to the 2023 Open Market Sales Agreement resulting in the issuance of 16.8 million shares of our common stock and receipt of gross proceeds of $70.0 million at a weighted average sales price of approximately $4.17 per share.

In February 2022, we entered into a loan and security agreement (2022 Loan Agreement) with SLR Investment Corp (SLR). The 2022 Loan Agreement was subsequently amended on August 1, 2022 and February 9, 2023. The 2022 Loan Agreement as amended provides for a senior secured term loan facility, with $27.5 million funded at closing and an additional $22.5 million that 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.

The initial funding of $27.5 million was used to repay the 2018 Loan and is funding our ongoing operations. We had $25.0 million principal from the 2018 Loan outstanding as of the closing date, as well as the 2018 Exit Fee in the amount of $1.5 million. We paid the 2018 Exit Fee in October 2023 following approval from the FDA for XPHOZAH to reduce serum phosphorus in adults with chronic kidney disease (CKD) on dialysis as add-on therapy in patients who have an inadequate response to phosphate binders or who are intolerant of any dose of phosphate binder therapy. As discussed in Note 9. Derivative Liabilities, in connection with entering into the 2022 Loan Agreement, we entered into the 2022 Exit Fee agreement, whereby we agreed to pay an exit fee in the amount of 2% of the 2022 Loan funded if certain conditions are met. Notwithstanding the prepayment or termination of the 2022 Loan, the 2022 Exit Fee will expire on February 23, 2032.

In October 2022, we announced that our collaboration partner, Kyowa Kirin, submitted an NDA to the Japanese MHLW for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis. In accordance with the terms of the 2022 Amendment, Kyowa Kirin paid an aggregate of $35.0 million to us in milestone payments and payments associated with the 2022 Amendment during the quarter ended December 31, 2022.

In September 2023, we announced that Kyowa Kirin received approval from the Japanese MHLW for the NDA for tenapanor for the improvement of hyperphosphatemia in adult patients with chronic kidney disease on dialysis, which results in payment to us from Kyowa Kirin for an aggregate of $30.0 million for milestone payments and payments under the 2022 Amendment and we expect will also entitle us to the first $5.0 million payment under the terms of the HCR Agreement. We received these payments in October 2023.

In October 2023, we entered into a Third Amendment (the Third Amendment) to the 2022 Loan Agreement by and between us and the 2022 Lenders. As discussed in Note 8. Borrowing, the Third Amendment, among other things, (1) provides us with the option to draw an additional $50.0 million of committed capital by March 15, 2024 (the Term C Loan); (2) provides us with the option to draw up to an additional $50.0 million of uncommitted capital, subject to approval by the Agent's investment committee (the Term D Loan); and (3) extends the interest-only period for the Four Loans to December 31, 2026, effective upon our decision to draw the Term B Loan in the amount of $22.5 million. We provided the Agent with notice of our decision to draw the Term B Loan in October 2023 to support the commercial launch of XPHOZAH.

We have incurred operating losses since inception in 2007 and our accumulated deficit as of September 30, 2023 is $817.4 million. Our primary sources of cash have been from the sale and issuance of common stock (in both public offerings and private placements), private placements of convertible preferred stock, funds from our collaboration partnerships, funds from our 2018 Loan Agreement, as amended, and 2022 Loan Agreement, as amended, as well as from sales of IBSRELA. Our primary uses of cash have been to fund operating expenses, primarily research and development expenditures, as well as pre-commercial and commercial expenses. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

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Since December 31, 2021 and prior to September 30, 2023, our liquidity position raised substantial doubt about our ability to continue as a going concern. We have addressed our operating cash flow requirements through cash generated from product sales of IBSRELA, proceeds from the sale of shares of our common stock under our at-the-market offering, and from the receipt of milestones payments from our collaboration partners and payments from our Japanese collaboration partner under the second amendment to our License Agreement, which were received in October 2023. We believe our available cash, cash equivalents and short-term investments as of September 30, 2023 will be sufficient to fund our operations for at least a period of one year from the issuance of these condensed financial statements. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. In particular, our operating plan may change and we may require significant additional capital to fund our operations. 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 condensed financial statements, our liquidity, financial condition and business prospects will be materially affected.

Our future funding requirements will depend on many factors, including, but not limited to:

•the extent to which we are able to generate product revenue from sales of IBSRELA and XPHOZAH;

•the availability of adequate third-party reimbursement for IBSRELA and XPHOZAH;

•the manufacturing, selling and marketing costs associated with IBSRELA and 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 (ESRD PPS), the manner in which such introduction into the ESRD PPS may occur, including the length of any applicable TDAPA period and the amount of the add-on payment available during the TDAPA period and whether, and the extent to which, the ESRD PPS base rate is adjusted following any applicable TDAPA period;

•our ability to maintain our existing collaboration partnerships and to establish additional collaboration partnerships, in-license/out-license, joint ventures or other similar arrangements and the financial terms of such agreements;

•the timing, receipt and amount of any milestones that may be received from our collaboration partners in connection with tenapanor, if any;

•the timing, receipt, and amount of royalties we may receive as a result of sales of tenapanor by our collaboration partners in China and Canada, if any;

•the cash requirements for the discovery and/or development of other potential product candidates, including RDX013 and RDX020;

•the time and cost necessary to respond to technological and market developments;

•the costs of filing, prosecuting, maintaining, defending and enforcing any patent claims and other intellectual property rights, including litigation costs and the outcome of such litigation, and costs of defending any claims of infringement brought by others in connection with the development, manufacture or commercialization of tenapanor or any of our product candidates; and

•the payment of interest and principal related to our loan and security agreement entered into with SLR Investment Corp. in February 2022, as amended to date.

Please see the risk factors set forth in Part II, Item 1A, Risk Factors, in this Quarterly Report on Form 10-Q for additional risks associated with our capital requirements.

CASH FLOW ACTIVITIES

The following table summarizes our cash flows (dollars in thousands):


	Nine Months Ended September 30,				Change 2023 vs. 2022
	2023		2022		$		%
Net cash used in operating activities	$	(80,999)	$	(84,328)	$	3,329	(4)	%
Net cash (used in) provided by investing activities	(101,681)		16,974		(118,655)		(699)	%
Net cash provided by financing activities	120,307		56,554		63,753		113	%
Net decrease in cash and cash equivalents	$	(62,373)	$	(10,800)	$	(51,573)	478	%

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Cash Flows from Operating Activities

Net cash used in operating activities during the nine months ended September 30, 2023 decreased by $3.3 million as compared to the same period in 2022 primarily as a result of our lower net loss, partially offset by changes in our working capital, including a $30.8 million increase in accounts receivable. Accounts receivable was elevated at September 30, 2023 due to $30.0 million receivable from Kyowa Kirin for milestone payments and payments under the 2022 Amendment that were earned in September 2023 and received in October 2023.

Cash Flows from Investing Activities

Net cash (used in) provided by investing activities during the nine months ended September 30, 2023 decreased by $118.7 million as compared to the same periods in 2022 due to increased investment purchases during 2023, as we invested higher levels of cash as compared to the same period in 2022.

Cash Flows from Financing Activities

Net cash provided by financing activities during the nine months ended September 30, 2023 increased by $63.8 million as compared to the same periods in 2022 primarily due to net proceeds from issuance of our common stock pursuant to the at the market offerings of $119.2 million during the nine months ended September 30, 2023 compared to $52.8 million during the nine months ended September 30, 2022. In addition, during the nine months ended September 30, 2022 we expended net $6.1 million in conjunction with entering into the 2022 Loan and repaying the principal outstanding under the 2018 Loan and received net proceeds of $9.6 million from the sale of future royalties to HCR.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk. We are subject to market risks, including interest rate fluctuation exposure through our investments, in the ordinary course of our business. However, the goals of our investment policy are the preservation of capital, fulfillment of liquidity needs and fiduciary control of cash. To achieve our goal of maximizing income without assuming significant market risk, we maintain our excess cash and cash equivalents in money market funds and short-term debt securities. Because of the short-term maturities of our cash equivalents, we do not believe that a decrease in interest rates would have any material negative impact on the fair value of our cash equivalents.

As of September 30, 2023, we had cash, cash equivalents and short-term investments of $165.1 million, which consist of bank deposits and money market funds, as well as high quality fixed income instruments including commercial paper, U.S. government-sponsored agency bonds, corporate bonds and asset-backed securities. The credit rating of our short-term investments must be rated A-1/P-1, or better by Standard and Poor’s and Moody’s Investors Service. Asset-backed securities must be rated AAA/Aaa. Money Market funds must be rated AAA/Aaa. Such interest-earning instruments carry a degree of interest rate risk. However, because our investments are high quality and short-term in duration, we believe that our exposure to interest rate risk is not significant and that a 10% movement in market interest rates would not have a significant impact on the total value of our portfolio, as noted above. We do not enter into investments for trading or speculative purposes.

We are subject to interest rate fluctuation exposure through our borrowings under the Loan Agreement and our investment in money market accounts which bear a variable interest rate. 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. A hypothetical increase in one-month CME Term SOFR of 100 basis points above the current one-month CME Term SOFR rate would have increased our interest expense by approximately $0.2 million for the nine months ended September 30, 2023. As of September 30, 2023, we had an aggregate principal amount of $27.5 million outstanding pursuant to our 2022 Loan Agreement.

Foreign Currency Risk. The majority of our transactions are denominated in U.S. dollars. However, we do have certain transactions that are denominated in currencies other than the U.S. dollar, primarily Swiss francs and the euro, and we therefore are subject to foreign exchange risk. The fluctuation in the value of the U.S. dollar against other currencies affects the reported amounts of expenses, assets and liabilities associated with a limited number of manufacturing activities.

We do not use derivative financial instruments for speculative trading purposes, nor do we hedge foreign currency exchange rate exposure in a manner that entirely offsets the earnings effects of changes in foreign currency exchange rates. The counterparties to our forward foreign currency exchange contracts are creditworthy commercial banks, which minimizes the risk of counterparty nonperformance.

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As of September 30, 2023, we had no open forward foreign currency exchange contracts.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (Exchange Act), our management, under the supervision and with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2023. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of September 30, 2023, our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control Over Financial Reporting

During the nine months ended September 30, 2023 there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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. On August 22, 2023, the court cancelled the hearing scheduled for September 14, 2023 on the motion to dismiss the amended complaint and indicated its decisions to instead rule on the filed briefs. 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.

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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.

ITEM 1A. RISK FACTORS

Our business involves significant risks, some of which are described below. You should carefully consider these risks, as well as other information in this Quarterly Report on Form 10-Q, including our financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations, cash flows, the trading price of our common stock and our growth prospects. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.

Risks Related to our Financial Condition and Capital Requirements

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.

In March 2022, we commenced the commercialization of our first product, IBSRELA® (tenapanor) for the treatment of irritable bowel syndrome with constipation (IBS-C) in adult patients and have generated $67.5 million in net revenue from product sales through September 30, 2023. In October 2023, we received regulatory approval for XPHOZAH® (tenapanor) for the reduction of serum phosphorus in adults with chronic kidney disease (CKD) on dialysis as add-on therapy in patients who have an inadequate response to phosphate binders or who are intolerant of any dose of phosphate binder therapy. We currently expect XPHOZAH to be available to patients in November 2023.

We are not profitable and have incurred losses in each year since our inception in October 2007, and we do not know whether or when we will become profitable. We continue to incur significant commercialization, development and other expenses related to our ongoing operations. As of September 30, 2023, we had an accumulated deficit of $817.4 million.

We expect to continue to incur substantial operating losses for the foreseeable future as we commercialize IBSRELA, and XPHOZAH; and incur manufacturing and development costs for tenapanor.

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, our liquidity, financial condition and business prospects will be materially affected.

Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital. Further, the net losses we incur may fluctuate significantly from quarter-to-quarter and year-to-year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance.

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Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

We have substantial net operating loss and tax credit carryforwards for Federal and California income tax purposes. Such net operating losses and tax credits carryforwards may be reduced as a result of certain intercompany restructuring transactions. In addition, the future utilization of such net operating loss and tax credit carryforwards and credits will be subject to limitations, pursuant to Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the Code). In general, if a corporation undergoes an “ownership change,” generally defined as a cumulative change of more than 50 percentage points (by value) in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change net operating loss (NOL) carryforwards and other pre-change tax attributes (such as research and development tax credits) to offset its post-change income or taxes may be limited. We have experienced ownership changes in the past and may experience additional ownership changes in the future, as a result of subsequent changes in our stock ownership, some of which are outside our control. Accordingly, we may not be able to utilize a material portion of our NOL carryforwards, even if we achieve profitability.

We will require additional financing for the foreseeable future as we invest in the commercialization of IBSRELA and XPHOZAH in the U.S. 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 XPHOZAH.

We believe that we will continue to expend substantial resources for the foreseeable future, including costs associated with our efforts to commercialize IBSRELA and XPHOZAH; conducting pediatric clinical trials for IBSRELA; and manufacturing for IBSRELA and XPHOZAH. Our future funding requirements will depend on many factors, including, but not limited to: