Akebia Therapeutics, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following information should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the U.S. Securities and Exchange Commission on March 12, 2020, or the 2019 Annual Report on Form 10-K, including the audited consolidated financial statements and notes thereto contained in our 2019 Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” in Part II, Item 1A. of this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements. Business Overview We are a biopharmaceutical company with the purpose of bettering the lives of people living with kidney disease. Our portfolio includes a late-stage product candidate and a commercial product: • Vadadustat is an oral hypoxia-inducible factor prolyl hydroxylase inhibitor, or HIF-PHI, that recently completed global Phase 3 development for two indications: (1) anemia due to chronic kidney disease, or CKD, in adult patients on dialysis, or DD-CKD, and (2) anemia due to CKD in adult patients not on dialysis, or NDD-CKD. Vadadustat is designed to mimic the physiologic effect of altitude on oxygen availability. At higher altitudes, the body responds to lower oxygen availability with stabilization of hypoxia-inducible factor, or HIF, which can lead to red blood cell, or RBC, production and improved oxygen delivery to tissues. Vadadustat is not approved by the U.S. Food and Drug Administration, or FDA, or any regulatory authority for use with the exception of Japan’s Ministry of Health, Labour and Welfare, or MHLW. In Japan, vadadustat is approved and marketed under the trade name VAFSEO as a treatment for anemia due to CKD in both DD-CKD and NDD-CKD adult patients. In May of 2020, we announced that INNO 2 VATE, our Phase 3 program evaluating vadadustat for the treatment of anemia due to CKD in adult DD-CKD patients, met the primary and key secondary efficacy endpoints in each of the two studies in the program and also met the program's primary safety endpoint. In September of 2020, we announced that PRO 2 TECT, our Phase 3 program evaluating vadadustat for the treatment of anemia due to CKD in adult NDD-CKD patients met the primary and key secondary efficacy endpoints in each of the two studies in the program, but did not meet the program's primary safety endpoint. In October of 2020, we completed a pre-NDA meeting with the FDA. We plan to submit to the FDA a New Drug Application, or NDA, for vadadustat as early as possible in 2021 for two indications: (1) the treatment of anemia due to CKD in adult DD-CKD patients, and (2) the treatment of anemia due to CKD in adult NDD-CKD patients. A key component of this NDA is the data from INNO 2 VATE. Based on our pre-NDA meeting, we believe the INNO 2 VATE data support potential approval of vadadustat for the treatment of anemia due to CKD in adult DD-CKD patients. The pre-NDA meeting also allowed us the opportunity to clarify key questions regarding data from PRO 2 TECT, and we look forward to working with the FDA in their review of these data. While the PRO 2 TECT data showed that vadadustat achieved both the primary and key secondary efficacy endpoints in each of the two studies in the program, it did not meet the program’s primary safety endpoint for adult NDD-CKD patients, and we remain appropriately cautious in our outlook for potential approval of vadadustat in adult NDD-CKD patients. Importantly, we believe the PRO 2 TECT data will not adversely impact the potential approvability of vadadustat for the treatment of anemia due to CKD in adult DD-CKD patients. 48 • Auryxia ® (ferric citrate) is approved and marketed in the United States for two indications: (1) the control of serum phosphorus levels in adult patients with DD-CKD, or the Hyperphosphatemia Indication, and (2) the treatment of iron deficiency anemia, or IDA, in adult patients with NDD-CKD, or the IDA Indication. Ferric citrate is also approved and marketed in Japan as an oral treatment for the improvement of hyperphosphatemia in patients with CKD, including DD-CKD and NDD-CKD, under the trade name Riona ® (ferric citrate hydrate). Vadadustat Top-line Results from Global Phase 3 INNO 2 VATE Program The two INNO 2 VATE studies ( Correction/Conversion and Conversion ), which collectively enrolled 3,923 patients, evaluated the efficacy and safety of vadadustat versus darbepoetin alfa for the treatment of anemia due to CKD in adult patients on dialysis. Vadadustat achieved the primary and key secondary efficacy endpoint in each of the two INNO 2 VATE studies, demonstrating non-inferiority to darbepoetin alfa as measured by a mean change in hemoglobin, or Hb, between baseline and the primary evaluation period (weeks 24 to 36) and secondary evaluation period (weeks 40 to 52). Vadadustat also achieved the primary safety endpoint of the INNO 2 VATE program, defined as non-inferiority of vadadustat versus darbepoetin alfa in time to first occurrence of MACE, which is the composite of all-cause mortality, non-fatal myocardial infarction, or non-fatal stroke across both INNO 2 VATE studies. Each analysis was measured against non-inferiority, or NI, margins agreed upon with the U.S. Food and Drug Administration, or FDA, and the European Medicines Agency, or EMA. Both INNO 2 VATE studies are global, multicenter, open label (sponsor blinded), active-controlled (darbepoetin alfa - an injectable erythropoiesis stimulating agent, or ESA), non-inferiority studies. Primary and Key Secondary Efficacy Endpoint Results Vadadustat achieved each of the INNO 2 VATE studies’ primary efficacy endpoints of mean change in Hb between baseline and the primary evaluation period (mean Hb from weeks 24 to 36) compared to darbepoetin alfa, in adult patients on dialysis, demonstrating non-inferiority to darbepoetin alfa based on using a non-inferiority margin of -0.75 g/dL prospectively agreed to with FDA and EMA. In INNO 2 VATE’s Correction/Conversion study of incident dialysis patients (n=369): • Primary Efficacy Endpoint Result : Vadadustat was non-inferior to darbepoetin alfa. The least square mean difference in Hb was -0.31 g/dL (95% CI: -0.53, -0.10), achieving the pre-specified non-inferiority criterion of -0.75 g/dL. The mean (SD) Hb level at week 24 to week 36 was 10.36 (1.13) g/dL for vadadustat-treated patients compared to 10.61 (0.94) g/dL for darbepoetin alfa-treated patients. • Key Secondary Efficacy Endpoint Result : Vadadustat sustained the target Hb efficacy response at weeks 40 to 52 achieving non-inferiority compared to darbepoetin alfa. The least square mean difference in Hb was -0.07 g/dL (95% CI: -0.34, 0.19). The mean (SD) Hb level at week 40 to week 52 was 10.51 (1.19) g/dL for vadadustat treated-patients compared to 10.55 (1.14) g/dL for darbepoetin alfa-treated patients. In INNO 2 VATE’s Conversion study of dialysis patients (n=3,554): • Primary Efficacy Endpoint Result : Vadadustat was non-inferior to darbepoetin alfa. The least square mean difference in Hb was -0.17 g/dL (95% CI: -0.23, -0.10), achieving the pre-specified non-inferiority criterion of -0.75 g/dL. The mean (SD) Hb level at week 24 to week 36 was 10.36 (1.01) g/dL for vadadustat-treated patients compared to 10.53 (0.96) g/dL for darbepoetin alfa-treated patients. • Key Secondary Efficacy Endpoint Result : Vadadustat sustained efficacy in the Conversion study demonstrating non-inferiority to darbepoetin with a least square mean difference in Hb of -0.18 g/dL (95% CI: -0.25, -0.12). The mean (SD) Hb level at week 40 to week 52 was 10.40 (1.04) g/dL in the vadadustat-treated patients compared to 10.58 (0.98) g/dL for darbepoetin treated patients. Primary Safety Major Adverse Cardiovascular Events (MACE) Endpoint Result Vadadustat achieved the INNO 2 VATE program’s primary safety endpoint of non-inferiority for MACE. In the primary analysis of time to first MACE event, vadadustat demonstrated non-inferiority to darbepoetin alfa using a non-inferiority margin of 1.25 prospectively agreed to by FDA and a non-inferiority margin of 1.3 prospectively agreed to by EMA. 49 The INNO 2 VATE program ( Correction/Conversion and Conversion studies) of dialysis patients (n=3,902): • Vadadustat was non-inferior to darbepoetin alfa. The upper bound of the 95% confidence interval (CI) of the Hazard Ratio (HR) was below the pre-specified non-inferiority margin of 1.25 for primary MACE analysis (HR 0.96, 95% CI: 0.83, 1.11.). MACE is defined as the composite endpoint of all-cause mortality, non-fatal myocardial infarction, or non-fatal stroke. The incidence of treatment emergent adverse events during the Correction/Conversion study in vadadustat treated patients was 83.8% and 85.5 % in darbepoetin alfa treated patients. During the study, the most common treatment emergent adverse events reported in vadadustat/darbepoetin alfa treated patients were hypertension (16.2%/ 12.9%) and diarrhea (10.1%/ 9.7%). Serious treatment emergent adverse events were lower in vadadustat treated patients at 49.7% compared to 56.5% for darbepoetin alfa treated patients. The incidence of treatment emergent adverse events during the Conversion study in the vadadustat treated patients was 88.3%, and 89.3% in darbepoetin alfa treated patients. During the study, the most common treatment emergent adverse events reported in vadadustat/darbepoetin alfa treated patients were diarrhea (13.0%/ 10.1%), pneumonia (11.0%/ 9.7%), hypertension (10.6%/ 13.8%), and hyperkalemia (9.0%/ 10.8%). Serious treatment emergent adverse events were slightly lower for vadadustat treated patients at 55.0% and 58.3% for darbepoetin alfa-treated patients. INNO 2 VATE results on key secondary safety endpoints showed that vadadustat demonstrated non-inferiority to darbepoetin alfa in analyses of expanded MACE, cardiovascular MACE, cardiovascular mortality, and all-cause mortality. Top-line Results from Global Phase 3 PRO 2 TECT Program The two PRO 2 TECT studies ( Correction and Conversion ), which collectively enrolled 3,476 patients, evaluated the efficacy and safety of vadadustat for the treatment of anemia due to CKD in adult patients not on dialysis. Vadadustat achieved the primary and key secondary efficacy endpoint in each of the two PRO 2 TECT studies, demonstrating non-inferiority to darbepoetin alfa as measured by a mean change in Hb between baseline and the primary evaluation period (weeks 24 to 36) and secondary evaluation period (weeks 40 to 52). Vadadustat did not meet the primary safety endpoint of the PRO 2 TECT program, defined as non-inferiority of vadadustat versus darbepoetin alfa in time to first occurrence of MACE, which is the composite of all-cause mortality, non-fatal myocardial infarction, and non-fatal stroke across both PRO 2 TECT studies. Primary and Key Secondary Efficacy Endpoint Results Vadadustat achieved each of the PRO 2 TECT studies' primary efficacy endpoints of mean change in Hb between baseline and the primary evaluation period (mean Hb from weeks 24 to 36) compared to darbepoetin alfa, in adult patients on dialysis, demonstrating non-inferiority to darbepoetin alfa using an NI margin of -0.75 g/dL prospectively agreed to with FDA and EMA. In PRO 2 TECT's Correction study (n=1,751): • Primary Efficacy Endpoint Result : Vadadustat was non-inferior to darbepoetin alfa. The least square mean difference in Hb was 0.05 g/dL (95% CI: -0.04, 0.15), achieving the pre-specified NI criterion of -0.75 g/dL. The mean (SD) Hb level at week 24 to week 36 was 10.39 (0.99) g/dL for vadadustat-treated patients compared to 10.35 (1.03) g/dL for darbepoetin alfa-treated patients. • Key Secondary Efficacy Endpoint Result : Vadadustat sustained the target Hb efficacy response at weeks 40 to 52 achieving non-inferiority compared to darbepoetin alfa. The least square mean difference in Hb was 0.04 g/dL (95% CI: -0.06, 0.14). The mean (SD) Hb level at week 40 to week 52 was 10.48 (1.05) g/dL for vadadustat-treated patients compared to 10.45 (1.01) g/dL for darbepoetin alfa-treated patients. In PRO 2 TECT's Conversion study (n=1,725): • Primary Efficacy Endpoint Result : Vadadustat was non-inferior to darbepoetin alfa. The least square mean difference in Hb was -0.01 g/dL (95% CI: -0.09, 0.07), achieving the pre-specified NI criterion of -0.75 g/dL. The mean (SD) Hb level at week 24 to week 36 was 10.77 (0.98) g/dL for vadadustat-treated patients compared to 10.77 (0.99) g/dL for darbepoetin alfa-treated patients. • Key Secondary Efficacy Endpoint Result : Vadadustat sustained efficacy in the Conversion study demonstrating non-inferiority to darbepoetin with a least square mean difference in Hb of 0.00 g/dL (95% CI: 50 -0.10, 0.09). The mean (SD) Hb level at week 40 to week 52 was 10.80 (1.04) g/dL in the vadadustat-treated patients compared to 10.79 (1.05) g/dL for darbepoetin alpha-treated patients. Primary Safety Major Adverse Cardiovascular Events (MACE) Endpoint Result The PRO 2 TECT program (Correction and Conversion studies) (n=3,471): • Primary Safety MACE Endpoint Result : Vadadustat did not meet the PRO 2 TECT program's primary safety endpoint of non-inferiority for MACE. The upper bound of the 95% confidence interval of the Hazard Ratio (HR) was above the pre-specified NI margin of 1.25 for primary MACE analysis (HR 1.17, 95% CI: 1.01, 1.36). MACE is defined as the composite endpoint of all-cause mortality, non-fatal myocardial infarction, and non-fatal stroke. The incidence of treatment emergent adverse events during the Correction study in the vadadustat-treated patients was 90.9%, and 91.6% in darbepoetin alfa-treated patients. During the study, the most common treatment emergent adverse events reported in vadadustat/darbepoetin alfa-treated patients were end-stage renal disease (34.7%/ 35.2%), hypertension (17.7%/ 22.1.%), hyperkalemia (12.3.%/ 15.6%), urinary tract infection (12.9%/ 12.0%), diarrhea (13.9%/ 10.0%), peripheral oedema (12.5%/ 10.5%), fall (9.6%/ 10%) and nausea (10%/ 8.2%). Serious treatment emergent adverse events were 65.3% for vadadustat-treated patients and 64.5% for darbepoetin alfa-treated patients. The incidence of treatment emergent adverse events during the Conversion study in vadadustat treated patients was 89.1% and 87.7% in darbepoetin alfa-treated patients. During the study, the most common treatment emergent adverse events reported in vadadustat/darbepoetin alfa-treated patients were end-stage renal disease (27.5%/ 28.4%), hypertension (14.4%/ 14.8%), urinary tract infection (12.2%/ 14.5%), diarrhea (13.8.%/ 8.8.%), peripheral oedema (9.9%/ 10.1%) and pneumonia (10.0%/ 9.7%). Serious treatment emergent adverse events were 58.5% for vadadustat-treated patients and 56.6% for darbepoetin alfa-treated patients. The PRO 2 TECT analysis plan was prospectively designed to analyze the effect of regional differences, most notably, well-known differences in Hb treatment targets. Within PRO 2 TECT, U.S. patients were treated to a target Hb range of 10 to 11 g/dL and non-U.S. patients were treated to a target Hb range of 10 to 12 g/dL. In October of 2020, we presented a pre-specified regional analysis using age as a dichotomous variable, that showed vadadustat was not associated with a clinically meaningful increase in cardiovascular risk compared to darbepoetin alfa in U.S. patients treated to a target Hb range of 10 to 11 g/dL, in an analysis of MACE (HR 1.06, 95% CI: 0.87, 1.29). Regulatory and Commercialization Strategy In October of 2020, we completed a pre-NDA meeting with the FDA. We plan to submit to the FDA an NDA for vadadustat as early as possible in 2021 for two indications: (1) the treatment of anemia due to CKD in adult DD-CKD patients, and (2) the treatment of anemia due to CKD in adult NDD-CKD patients. A key component of this NDA is the data from INNO 2 VATE. Based on our pre-NDA meeting, we believe the INNO 2 VATE data support potential approval of vadadustat for the treatment of anemia due to CKD in adult DD-CKD patients. The pre-NDA meeting also allowed us the opportunity to clarify key questions regarding data from PRO 2 TECT, and we look forward to working with the FDA in their review of these data. While the PRO 2 TECT data showed that vadadustat achieved both the primary and key secondary efficacy endpoints in each of the two studies in the program, it did not meet the program’s primary safety endpoint for adult NDD-CKD patients, and we remain appropriately cautious in our outlook for potential approval of vadadustat in adult NDD-CKD patients. Importantly, we believe the PRO 2 TECT data will not adversely impact the potential approvability of vadadustat for the treatment of anemia due to CKD in adult DD-CKD patients. We and Otsuka Pharmaceutical Co. Ltd., are working in close collaboration to prepare a Marketing Authorization Application, or MAA, for submission to the European Medicines Agency, or EMA, next year. In connection with our plan to file an NDA for vadadustat in the United States, we entered into a letter agreement on February 14, 2020, or the Letter Agreement, with Vifor (International) Ltd., or Vifor Pharma, relating to Vifor Pharma’s agreement with a third party to purchase a Priority Review Voucher, or the PRV, issued by the FDA subject to satisfaction of customary closing conditions, or the PRV Purchase. A PRV entitles the holder to priority review of an NDA, or a Biologics License Application, or BLA, for a new drug, which reduces the target FDA review time to six months after official acceptance of the submission, and could lead to expedited approval. Pursuant to the Letter Agreement, we paid Vifor Pharma $10.0 million in connection with the closing of the PRV Purchase. Vifor Pharma is obligated to retain all rights to, and maintain the validity of, the PRV until we and Vifor Pharma (a) enter into a definitive agreement setting forth the financial and other terms by which Vifor Pharma will assign the PRV to us for use with our planned NDA for vadadustat for the treatment of anemia due to CKD in both DD-CKD and NDD-CKD patients, or (b) make a mutual decision to sell the PRV and share the proceeds based on certain terms. 51 We plan to commercialize vadadustat, subject to FDA approval, in the United States with our existing nephrology-focused commercial organization, while also leveraging our collaboration with Otsuka Pharmaceutical Co. Ltd., or Otsuka, and its U.S. commercial organization. We also granted Otsuka exclusive rights to commercialize vadadustat in Europe, China and certain other markets, subject to marketing approvals. In Japan and certain other countries in Asia, we granted Mitsubishi Tanabe Pharma Corporation, or MTPC, exclusive rights to commercialize vadadustat, subject to marketing approvals. In addition, we granted Vifor Pharma an exclusive license to sell vadadustat solely to Fresenius Kidney Care Group LLC, or FKC, which manages approximately 40% of the dialysis patients in the United States, at its U.S. dialysis clinics, and to certain third party dialysis organizations in the United States, approved by us, or Third Party Dialysis Organizations, which account for up to an additional 20% of the dialysis market in the United States. The license granted to Vifor Pharma would be effective upon FDA approval of vadadustat in the DD-CKD indication, the earlier of a determination by the Centers for Medicare & Medicaid Services, or CMS, that vadadustat will be included in Medicare’s bundled reimbursement model or that vadadustat will be reimbursed using the Transitional Drug Add-On Payment Adjustment, or TDAPA, and a milestone payment by Vifor Pharma. Japan Approval and Launch In June 2020, we announced the first regulatory approval of vadadustat for the treatment of anemia due to CKD in DD-CKD and NDD-CKD patients in Japan. Our collaboration partner, MTPC, commenced commercial sales of vadadustat in Japan under the trade name, VAFSEO, in August 2020. The regulatory approval triggered a $15.0 million regulatory milestone payment from MTPC to Akebia. Study in COVID-19-Related Indication In July 2020, we announced the initiation of an investigator-sponsored clinical study by The University of Texas Health Science Center at Houston, or UTHealth, in Houston, Texas, evaluating the use of vadadustat as a potential therapy to prevent and lessen the severity of acute respiratory distress syndrome, or ARDS, a complication of severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), or COVID-19, infection. The randomized, double-blind, placebo-controlled study is intended to evaluate the safety and efficacy of vadadustat in up to 300 adult patients who have been hospitalized due to COVID-19. Patients will be dosed with vadadustat or a placebo starting within 24 hours of hospital admission and continuing for up to 14 days. This study is being conducted under an FDA Investigational New Drug application with UTHealth as the study sponsor and is currently enrolling patients. Auryxia We market Auryxia in the United States with our well-established, nephrology-focused commercial organization. Our Japanese sublicensee, Japan Tobacco, Inc., or JT, and its subsidiary, Torii Pharmaceutical Co., Ltd., or Torii, commercialize Riona in Japan. Auryxia is our only product approved for sale in the United States and it generated approximately $34.4 million and $30.0 million in revenue from U.S. product sales during the three months ended September 30, 2020 and 2019, respectively, and approximately $94.3 million and $82.2 million during the nine months ended September 30, 2020 and 2019, respectively. We have funded our operations primarily through equity offerings, strategic collaborations, product revenues and debt. Operating Overview We have never been profitable and have incurred net losses in each year since inception. Our net losses were $60.0 million and $54.6 million for the three months ended September 30, 2020 and 2019, respectively, and $296.5 million and $185.2 million for the nine months ended September 30, 2020 and 2019, respectively. Substantially all of our net losses resulted from costs incurred in connection with our development efforts relating to vadadustat, including preparing for and conducting clinical studies of vadadustat, providing general and administrative support for these operations and protecting our intellectual property. We expect to continue to incur significant expenses and operating losses for the foreseeable future. The amount of our future net losses will depend, in part, on the rate of our future expenditures, and our financial position will depend, in part, on revenue from commercial products, and our ability to obtain additional funding. We expect to continue to incur significant expenses if and as we: • conduct our development program of vadadustat and develop any other potential product candidates; • continue our commercialization activities for Auryxia and plan for the commercialization of vadadustat, if approved, and any other product or product candidate, including those that may be in-licensed or acquired; • continue our integration activities as a result of our merger, or the Merger, with Keryx Biopharmaceuticals, Inc., or Keryx; 52 • seek marketing approvals for our product candidates that successfully complete clinical studies, and maintain marketing approvals for Auryxia and any product candidate for which we obtain marketing approval, including complying with any post-marketing regulatory requirements; • have our product candidates manufactured for clinical trials and for commercial sale; • initiate any post-marketing approval studies, Phase 4 studies or any other clinical trials for Auryxia or any other product, including those that may be in-licensed or acquired; • seek to discover additional product candidates; • engage in transactions, including strategic, merger, collaboration, acquisition and licensing transactions, pursuant to which we would market and develop commercial products, or develop and commercialize other product candidates and technologies; • make royalty, milestone or other payments under our license agreements and any future license agreements; • maintain, protect and expand our intellectual property portfolio; • attract and retain skilled personnel; • continue to create additional infrastructure and expend additional resources to support our operations as a public company, including any additional infrastructure and resources necessary to support the transition from our prior status as an emerging growth company; and • experience any delays or encounter issues with any of the above. We have not generated, and may not generate, enough product revenue to realize net profits from product sales. We have no manufacturing facilities, and all of our manufacturing activities are contracted out to third parties. Additionally, we currently utilize contract research organizations, or CROs, to carry out our clinical development activities. If we obtain marketing approval for any of our product candidates, and as we continue to commercialize Auryxia, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. We expect to finance future cash needs through product revenue, public or private equity or debt transactions, payments from our collaborators, royalty transactions, strategic transactions, or a combination of these approaches. If we are unable to raise additional capital in sufficient amounts when needed or on attractive terms, we may not be able to pursue development and commercial activities related to expanded indications for current products and any additional products and product candidates. Any of these events could significantly harm our business, financial condition and prospects. From inception through September 30, 2020, we raised approximately $693.7 million of net proceeds from the sale of equity including $519.8 million from various underwritten public offerings, $123.9 million from at-the-market offerings, or ATM offerings, pursuant to sales agreements with Cantor Fitzgerald & Co., and $50.0 million from the sale of 3,571,429 shares of common stock to Vifor Pharma. During the quarter ended June 30, 2020, we completed an underwritten public offering of our common stock with aggregate net proceeds of $142.4 million. During the quarter ended March 31, 2020, we raised $56.7 million of net proceeds from ATM offerings. In addition, on November 11, 2019, we entered into a loan agreement, or the Loan Agreement, with funds managed by Pharmakon Advisors LP, or Pharmakon, pursuant to which term loans in an aggregate principal amount of $100.0 million were made available to us in two tranches, subject to certain terms and conditions, or the Term Loans. On November 25, 2019, we drew down the first tranche of $80.0 million from the Term Loans and received net proceeds of $77.3 million. At inception of our collaboration agreements with Otsuka and MTPC, our collaborators committed to an aggregate of approximately $573.0 million or more in cost-share funding, which we generally continue to receive on a quarterly prepaid basis, and license payments. Of these commitments, we received approximately $272.0 million at the onset of the collaboration agreements. Impacts of COVID-19 Pandemic The ongoing severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), or COVID-19, pandemic has presented a substantial public health and economic challenge around the world and continues to affect our employees, patients, customers, collaboration partners, vendors, communities and business operations. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition continues to depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, any resurgence of COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets where the healthcare providers with whom we interact, our partners, our CROs, our contract manufacturing organizations, or CMOs, and our other vendors operate. 53 To date, we do not believe we have experienced any significant adverse impact from COVID-19 on our financial and operational performance. However, the dialysis and non-dialysis CKD patient populations, many of whom rely on our innovative therapies, have been disproportionately impacted by COVID-19 based on the number of cases and hospitalizations, which may significantly negatively impact our product demand, payer mix, and net product revenue in the future. Continuing to provide and support our therapies is a priority and we are continuing to monitor and assess the potential impact of the COVID-19 pandemic on our business and operations, including our sales, supply chain, manufacturing, and clinical trials. We are also mindful of the potential macro-level risks from the impact on the healthcare system to us, our patients, our customers, healthcare providers, our collaboration partners, and our vendors, as well as the potential impact on payer mix. The majority of our office-based employees have been working from home since March 13, 2020 and are not expected to return to the office before the end of 2020. In addition, healthcare facilities have continued, or begun again, to restrict access for non-patients, including the members of our sales force. For example, DaVita, Inc., or DaVita, and Fresenius Medical Care, or Fresenius, which account for a vast majority of the dialysis population in the United States, have restricted access to their clinics. As a result, we continue to primarily engage with healthcare providers and other customers virtually, where possible. Given this uncertain environment and the disproportionate impact of COVID-19 on CKD patients, we are actively monitoring the demand for our marketed therapy, including the potential for material declines or changes in prescription trends and customer orders. At this time, our third party contract manufacturing partners continue to operate at or near normal levels. However, it is possible that the COVID-19 pandemic and response efforts may have an impact in the future on our contract manufacturing partners' ability to manufacture and deliver Auryxia and vadadustat (which is currently marketed under the trade name VAFSEO by MTPC in Japan), which may result in delays in or disruptions to manufacturing and supply of our products. COVID-19 precautions may cause a delay in enrolling new clinical trials. We are using remote monitoring and central monitoring, where possible. This uncertain COVID-19 environment has presented new risks to our business. While we are working aggressively to mitigate the impacts on our business, we are mindful that many of these risks and the impact to the larger healthcare market are outside of our control. For additional information on the various risks posed by the COVID-19 pandemic, please refer to Part II, Item 1A. Risk Factors. Financial Overview Revenue To date, our revenues have been derived from collaboration revenues, which include license and milestone payments, royalty and cost-sharing revenue generated through collaboration and license agreements with partners for the development and commercialization of vadadustat and, following the Merger, commercial sales of Auryxia and royalty revenue from sales of Riona in Japan. Cost-sharing revenue represents amounts reimbursed by our collaboration partners for expenses incurred by us for research and development activities and, potentially, co-promotion activities, under our collaboration agreements. We expect our revenue to continue to be generated primarily from our collaborations with Otsuka and MTPC and any other collaborations into which we may enter, as well as commercial sales of Auryxia in the United States, and royalty revenue from JT and Torii. Cost of Goods Sold Cost of goods sold includes direct costs to manufacture commercial drug substance and drug product for Auryxia, as well as indirect costs including costs for packaging, shipping, insurance and quality assurance, idle capacity charges, write-offs for inventory that fails to meet specifications or is otherwise no longer suitable for commercial sale, and royalties due to the licensor of Auryxia related to the U.S. product sales recognized during the period. As a result of the Merger and the application of purchase accounting, costs of goods sold also includes both amortization expense and, if applicable, impairment charges associated with the fair value of the developed product rights for Auryxia as well as expense associated with the fair value inventory step-up. The fair value of the developed product rights for Auryxia is being amortized over its estimated useful life, which as of September 30, 2020 is estimated to be seven years. The fair value inventory step-up is expected to be incurred over approximately three years from the date of the Merger. Research and Development Expenses 54 Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include: • personnel-related expenses, including salaries, benefits, recruiting fees, travel and stock-based compensation expense of our research and development personnel; • expenses incurred under agreements with CROs and investigative sites that conduct our clinical studies; • the cost of acquiring, developing and manufacturing clinical study materials through CMOs; • facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies; and • costs associated with preclinical, clinical and regulatory activities. Research and development costs are expensed as incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites. We cannot determine with certainty the duration and completion costs of current or future clinical studies of our product candidates or if, when, or to what extent we will generate revenue from the commercialization and sale of any of our product candidates that obtain marketing approval. We may never succeed in achieving marketing approval for any of our product candidates. The duration, costs and timing of clinical studies and development of our product candidates will depend on a variety of factors including, but not limited to, those described in Part II, Item 1A. Risk Factors. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA, the EMA, or other regulatory authorities were to require us to conduct clinical studies in addition to or different from those that we currently anticipate, or if we experience delays in any of our clinical studies, we could be required to expend significant additional financial resources and time on the completion of clinical development. From inception through September 30, 2020, we have incurred $1.3 billion in research and development expenses. We expect to have significant research and development expenditures for the foreseeable future as we continue the development of vadadustat and any other product candidates. Our direct research and development expenses consist principally of external costs, such as fees paid to clinical trial sites, consultants, central laboratories and CROs in connection with our clinical studies, and drug substance and drug product manufacturing for clinical studies. We currently have four clinical trials for our global Phase 3 clinical program for vadadustat to which the majority of our research and development costs are attributable. A significant portion of our research and development costs have been external costs, which we track on a program-by-program basis. These external costs include fees paid to investigators, consultants, central laboratories and contract research organizations in connection with our clinical trials, and costs related to acquiring and manufacturing clinical trial materials. Our internal research and development costs are primarily personnel-related costs, depreciation and other indirect costs. We do not track our internal research and development expenses on a program-by-program basis as they are deployed across multiple projects under development. The following table summarizes our external research and development expenses by program, as well as expenses not allocated to programs, for the three and nine months ended September 30, 2020 and 2019: 55 Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (in thousands) (in thousands) Vadadustat external costs $ 24,502 $ 56,502 $ 113,921 $ 190,845 External costs for other programs 4,874 4,937 11,078 17,103 Total external research and development expenses 29,376 61,439 124,999 207,948 Headcount, consulting, facilities and other 17,481 13,073 55,908 34,609 Total research and development expenses $ 46,857 $ 74,512 $ 180,907 $ 242,557 Selling, General and Administrative Expenses Selling, general and administrative expenses consist primarily of salaries and related costs for personnel, including stock-based compensation and travel expenses for our commercial personnel, including our field sales force and other commercial support personnel, as well as personnel in executive and other administrative or non-research and development functions. Other selling, general and administrative expenses include facility-related costs, fees for directors, accounting and legal services fees, recruiting fees and expenses associated with obtaining and maintaining patents. Results of Operations Comparison of the Three Months Ended September 30, 2020 and 2019 Three Months Ended Increase September 30, 2020 September 30, 2019 (Decrease) (In Thousands) Revenues: Product revenue, net $ 34,392 $ 30,004 $ 4,388 License, collaboration and other revenue 25,596 61,973 (36,377) Total revenues 59,988 91,977 (31,989) Cost of goods sold: Product 24,239 29,162 (4,923) Amortization of intangibles 6,106 9,101 (2,995) Total cost of goods sold 30,345 38,263 (7,918) Operating expenses: Research and development 46,857 74,512 (27,655) Selling, general and administrative 40,171 34,178 5,993 License expense 710 929 (219) Total operating expenses 87,738 109,619 (21,881) Operating loss (58,095) (55,905) (2,190) Other income (expense), net (1,864) 43 (1,907) Net loss before income taxes (59,959) (55,862) (4,097) Benefit from income taxes — (1,277) 1,277 Net loss $ (59,959) $ (54,585) $ (5,374) Product Revenue, Net . Net product revenue is derived from sales of our only commercial product in the United States, Auryxia. We distribute our product principally through a limited number of wholesale distributors as well as certain specialty pharmacy providers. Net product revenue was $34.4 million for the three months ended September 30, 2020, compared to net product revenue of $30.0 million for the three months ended September 30, 2019. The increase was primarily due to an increase in units sold. We do not believe we experienced any significant impact from COVID-19 on net product revenue for the three months ended September 30, 2020; however, CKD patients have been disproportionately impacted by COVID-19 based on the number of cases and hospitalizations, which may significantly negatively impact our product demand, payer mix, and net product revenue in the future. 56 In September 2018, CMS decided that Auryxia would not be covered by Medicare for the IDA Indication. While this decision does not impact CMS coverage of the Hyperphosphatemia Indication, it requires all Auryxia prescriptions for Medicare patients to undergo a prior authorization to ensure their use in the Hyperphosphatemia Indication. On October 15, 2019, we filed a complaint in the United States District Court for the District of Massachusetts against CMS and the U.S. Department of Health and Human Services challenging CMS’s decision that Auryxia would no longer be covered by Medicare for the IDA Indication and CMS’s related decision that imposed the prior authorization requirement for Auryxia for the Hyperphosphatemia Indication, or the CMS Decisions. See Part II, Item 1. Legal Proceedings for further information. While we believe that the vast majority of the Medicare prescriptions written for Auryxia today are for the Hyperphosphatemia Indication and therefore will continue to be covered by Medicare with prior authorization, the CMS Decisions have had and will continue to have an adverse impact on the sales of Auryxia for the Hyperphosphatemia Indication and the IDA Indication, and ultimately on the timing and number of prescriptions and Auryxia product revenue. Even if the CMS Decisions are ultimately reversed, the negative impact that they have had on the growth of sales of Auryxia for the Hyperphosphatemia Indication and the IDA Indication will continue, although less significantly than if the CMS Decisions are not reversed. License, Collaboration and Other Revenue. License, collaboration and other revenue was $25.6 million for the three months ended September 30, 2020 compared to $62.0 million for the three months ended September 30, 2019. We recognized $23.9 million in collaboration revenue for the three months ended September 30, 2020 from our cost sharing arrangement under the Otsuka collaboration agreement for the United States, or the Otsuka U.S. Agreement, and the Otsuka collaboration agreement for certain territories outside the United States, or the Otsuka International Agreement, and recognition of royalty revenue under our collaboration agreement with MTPC, or the MTPC Agreement. We recognized $59.9 million in collaboration revenue for the three months ended September 30, 2019 from our cost sharing arrangement under the Otsuka U.S. Agreement and the Otsuka International Agreement. The decrease in revenue between the two periods was attributable to a decrease of $36.4 million of revenue recognized under both the Otsuka U.S. Agreement and Otsuka International Agreement, offset by $0.4 million of royalty revenue recognized under the MTPC Agreement. We expect our Otsuka collaboration revenue to decrease in the near term because our INNO 2 VATE and PRO 2 TECT studies have read out, and we are currently engaged in close-out activities with respect to these studies. Cost of Goods Sold - Product . Cost of goods sold of $24.2 million for the three months ended September 30, 2020 primarily consists of costs associated with the manufacturing of Auryxia, $8.4 million in non-cash charges related to the fair-value inventory step-up from the application of purchase accounting, and $8.5 million primarily related to the write-down of inventory associated with specific lots of Auryxia because it was determined that these lots were not manufactured in conformance with the FDA's GMP guidance relating to validation. This write-down was largely related to a previously disclosed manufacturing quality issue related to Auryxia. These charges were partially offset by a $0.7 million non-cash gain related to a reduction to the liability for excess purchase commitments. Cost of goods sold of $29.2 million for the three months ended September 30, 2019 consisted primarily of costs associated with the manufacturing of Auryxia and $18.0 million in non-cash charges related to the fair-value inventory step-up from the application of purchase accounting. Cost of Goods Sold - Amortization of Intangibles. Amortization of intangibles relates to the acquired developed product rights for Auryxia. During the three months ended September 30, 2020, this intangible asset was being amortized using a straight-line method over its estimated useful life of approximately seven years. Amortization of intangibles during the three months ended September 30, 2020 and 2019 was $6.1 million and $9.1 million, respectively. The combined effect of the lower carrying value of the Auryxia intangible asset following impairment in the second quarter of 2020, as further described below, and the corresponding adjustment to the estimated useful life of the developed product rights for Auryxia, results in a decrease in future amortization charges. Research and Development Expenses . Research and development expenses were $46.9 million for the three months ended September 30, 2020, compared to $74.5 million for the three months ended September 30, 2019, a decrease of $27.7 million. The decrease was primarily due to the following: (in millions) Vadadustat development expenses $ (32.0) Headcount, consulting and facilities 4.4 Other research and development (0.1) Total net decrease $ (27.7) 57 The decrease in the costs related to the development of vadadustat is primarily attributable to a decrease in external costs related to our global Phase 3 program (INNO 2 VATE and PRO 2 TECT), for which we reported top-line data in the second and third quarters of 2020, respectively. The decreases in vadadustat research and development expenses, as well as other research and development expenses, were offset by an increase in headcount and consulting costs to support our research and development program. Although we expect our research and development expenses in 2020 to decrease because top-line data from our INNO 2 VATE and PRO 2 TECT studies were reported, we will continue to incur significant research and development expenses in future periods in support of our development program of vadadustat and other ongoing or planned studies with respect to Auryxia, vadadustat and development of our other product candidates. Selling, General and Administrative Expenses . Selling, general and administrative expenses were $40.2 million for the three months ended September 30, 2020, compared to $34.2 million for the three months ended September 30, 2019. The increase of $6.0 million was primarily due to increases in headcount, professional fees and consulting costs. In 2020, we expect our selling, general and administrative expenses for our ongoing commercialization of Auryxia and for support of our ongoing research and development and potential commercialization of vadadustat and other product candidates to be relatively consistent with 2019. License Expenses. License expense related to royalties due to Auryxia relating to sales of Riona in Japan were $0.7 million and $0.9 million for the three months ended September 30, 2020 and 2019, respectively. Other Expense, Net . Other expense, net, was $1.9 million for the three months ended September 30, 2020 compared to other income, net of $43,000 for the three months ended September 30, 2019. The change to other expense, net was primarily due to interest expense associated with our Term Loans in the three months ended September 30, 2020. We did not have similar expenses during the three months ended September 30, 2019. Other income, net for the three months ended September 30, 2019 was primarily due to interest income on our investments. Benefit from Income Taxes. There was no benefit from income taxes for the three months ended September 30, 2020. Benefit from income taxes was $1.3 million for the three months ended September 30, 2019 due to a decrease in our net deferred tax liabilities, or DTLs. During the three months ended September 30, 2019, there was an increase in deferred tax assets associated with the state net operating loss generated during the period. This increase in deferred tax assets reduced our net DTLs which created a benefit from income taxes for the three months ended September 30, 2019. 58 Comparison of the Nine Months Ended September 30, 2020 and 2019 Nine Months Ended Increase September 30, 2020 September 30, 2019 (Decrease) (In Thousands) Revenues: Product revenue, net $ 94,297 $ 82,204 $ 12,093 License, collaboration and other revenue 144,311 $ 183,242 (38,931) Total revenues 238,608 265,446 (26,838) Cost of goods sold: Product 92,840 $ 79,888 12,952 Amortization of intangibles 24,307 27,301 (2,994) Impairment of intangible asset 115,527 — 115,527 Total cost of goods sold 232,674 107,189 125,485 Operating expenses: Research and development 180,907 242,557 (61,650) Selling, general and administrative 113,636 104,537 9,099 License expense 2,430 2,560 (130) Total operating expenses 296,973 349,654 (52,681) Operating loss (291,039) (191,397) (99,642) Other income (expense), net (5,418) 1,342 (6,760) Net loss before income taxes (296,457) (190,055) (106,402) Benefit from income taxes — (4,879) 4,879 Net loss $ (296,457) $ (185,176) $ (111,281) Product Revenue, Net . Net product revenue is derived from sales of our only commercial product in the United States, Auryxia. We distribute our product principally through a limited number of wholesale distributors as well as certain specialty pharmacy providers. Net product revenue was $94.3 million for the nine months ended September 30, 2020, compared to net product revenue of $82.2 million for the nine months ended September 30, 2019. The increase was primarily due to an increase in units sold. We do not believe we experienced any significant impact from COVID-19 on net product revenue for the nine months ended September 30, 2020; however, CKD patients have been disproportionately impacted by COVID-19 based on the number of cases and hospitalizations, which may significantly negatively affect our product demand, payer mix, and net product revenue in the future. In September 2018, CMS decided that Auryxia would not be covered by Medicare for the IDA Indication. While this decision does not impact CMS coverage of the Hyperphosphatemia Indication, it requires all Auryxia prescriptions for Medicare patients to undergo a prior authorization to ensure their use in the Hyperphosphatemia Indication. On October 15, 2019, we filed a complaint in the United States District Court for the District of Massachusetts against CMS and the U.S. Department of Health and Human Services challenging the CMS Decisions. See Part II, Item 1. Legal Proceedings for further information. While we believe that the vast majority of the Medicare prescriptions written for Auryxia today are for the Hyperphosphatemia Indication and therefore will continue to be covered by Medicare with prior authorization, the CMS Decisions have had and will continue to have an adverse impact on the sales of Auryxia for the Hyperphosphatemia Indication and the IDA Indication, and ultimately on the timing and number of prescriptions and Auryxia product revenue. Even if the CMS Decisions are ultimately reversed, the negative impact that they have had on the growth of sales of Auryxia for the Hyperphosphatemia Indication and the IDA Indication will continue, although less significantly than if the CMS Decisions are not reversed. License, Collaboration and Other Revenue. License, collaboration and other revenue was $144.3 million for the nine months ended September 30, 2020 compared to $183.2 million for the nine months ended September 30, 2019. We recognized $135.5 million in collaboration revenue for the nine months ended September 30, 2020 from our cost sharing arrangement under the Otsuka U.S. Agreement and the Otsuka International Agreement and recognition of a milestone and royalty revenue earned under the MTPC Agreement. We recognized $178.1 million in collaboration revenue for the nine months ended September 30, 59 2019 from our cost sharing arrangement under the Otsuka U.S. Agreement and the Otsuka International Agreement and recognition of a milestone under the MTPC Agreement. The decrease in revenue between the two periods was attributable to a decrease of $47.9 million of revenue recognized under both the Otsuka U.S. Agreement and Otsuka International Agreement. This decrease was partially offset by an additional $5.4 million of revenue recognized under the MTPC Agreement due to timing of milestone recognition and royalty revenue. We expect our Otsuka collaboration revenue to decrease in the near term because our INNO 2 VATE and PRO 2 TECT studies have read out, and we are currently engaged in close-out activities with respect to these studies. Cost of Goods Sold - Product . Cost of goods sold of $92.8 million for the nine months ended September 30, 2020 primarily consists of costs associated with the manufacturing of Auryxia, $39.5 million in non-cash charges related to the fair-value inventory step-up from the application of purchase accounting, $18.6 million primarily related to the write-down of inventory associated with specific lots of Auryxia because it was determined that these lots were not manufactured in conformance with the FDA's GMP guidance relating to validation, and $10.3 million in non-cash charges related to an increase to the liability for excess purchase commitments as a result of a reduction in short-term and long-term Auryxia revenue sales forecast during the second quarter of 2020. Cost of goods sold of $79.9 million for the nine months ended September 30, 2019 consisted primarily of costs associated with the manufacturing of Auryxia and $51.6 million in non-cash charges related to the fair-value inventory step-up from the application of purchase accounting. Cost of Goods Sold - Amortization of Intangibles. Amortization of intangibles relates to the acquired developed product rights for Auryxia. During the nine months ended September 30, 2020, this intangible asset was being amortized using a straight-line method over its estimated useful life of approximately seven years during the three months ended September 30, 2020 and approximately nine years during the six months ended June 30, 2020. Amortization of intangibles during the nine months ended September 30, 2020 and 2019 was $24.3 million and $27.3 million, respectively. The combined effect of the lower carrying value of the Auryxia intangible asset following impairment in the second quarter of 2020, as further described below, and the corresponding adjustment to the estimated useful life of the developed product rights for Auryxia, results in a decrease in future amortization charges. Cost of Goods Sold - Impairment of Intangible Asset. In the second quarter of 2020, in connection with a routine business review, we reduced our short-term and long-term Auryxia revenue forecast. This reduction was primarily driven by the compounding impact of the CMS Decisions that rescinded Medicare Part D coverage of Auryxia for the IDA Indication, and imposed a prior authorization requirement for Auryxia for the Hyperphosphatemia Indication. As a result, we recorded an impairment charge of $115.5 million to the Auryxia intangible asset during the nine months ended September 30, 2020. There were no such impairment charges during the nine months ended September 30, 2019. Research and Development Expenses . Research and development expenses were $180.9 million for the nine months ended September 30, 2020, compared to $242.6 million for the nine months ended September 30, 2019, a decrease of $61.7 million. The decrease was primarily due to the following: (in millions) Vadadustat development expenses $ (76.9) Headcount, consulting and facilities 21.3 Other research and development (6.1) Total net decrease $ (61.7) The decrease in the costs related to the development of vadadustat is primarily attributable to a decrease in external costs related to our global Phase 3 program (INNO 2 VATE and PRO 2 TECT), for which we reported top-line data in the second and third quarters of 2020, respectively. The decreases in vadadustat research and development expenses, as well as other research and development expenses, were offset by an increase in headcount and consulting costs to support our research and development program. Although we expect our research and development expenses in 2020 to decrease because top-line data from our INNO 2 VATE and PRO 2 TECT studies were reported, we will continue to incur significant research and development expenses in future periods in support of our development program of vadadustat and other ongoing or planned studies with respect to Auryxia, vadadustat and development of our other product candidates. Selling, General and Administrative Expenses . Selling, general and administrative expenses were $113.6 million for the nine months ended September 30, 2020, compared to $104.5 million for the nine months ended September 30, 2019. The increase of $9.1 million was primarily due to increases in headcount and consulting costs. In 2020, we expect our selling, general and 60 administrative expenses for our ongoing commercialization of Auryxia and for support of our ongoing research and development and potential commercialization of vadadustat and other product candidates to be relatively consistent with 2019. License Expenses. License expense related to royalties due to Auryxia relating to sales of Riona in Japan were $2.4 million and $2.6 million for the nine months ended September 30, 2020 and 2019, respectively. Other Expense, Net . Other expense, net, was $5.4 million for the nine months ended September 30, 2020 compared to other income, net of $1.3 million for the nine months ended September 30, 2019. The change to other expense, net was primarily due to interest expense associated with our Term Loans in the nine months ended September 30, 2020. We did not have similar expenses during the nine months ended September 30, 2019. Other income, net for the nine months ended September 30, 2019 was primarily due to interest income on our investments. Benefit from Income Taxes. There was no benefit from income taxes for the nine months ended September 30, 2020. Benefit from income taxes was $4.9 million for the nine months ended September 30, 2019 due to a decrease in our DTLs. During the nine months ended September 30, 2019, there was an increase in deferred tax assets associated with the state net operating loss generated during the period. This increase in deferred tax assets reduced our net DTLs which created a benefit from income taxes for the nine months ended September 30, 2019. Liquidity and Capital Resources We have incurred losses and cumulative negative cash flows from operations since our inception in February 2007, and as of September 30, 2020, we had an accumulated deficit of $1.1 billion. We anticipate that we will continue to incur losses for the foreseeable future. We expect to continue to incur additional research and development and selling, general and administrative expenses for our ongoing research and development and potential commercialization of vadadustat. We will require additional capital to pursue development and commercial activities related to expanded indications for current products and any additional products and product candidates. We expect to finance future cash needs through product revenue, public or private equity or debt transactions, payments from our collaborators, royalty transactions, strategic transactions, or a combination of these approaches. Given the impact from COVID-19 on the U.S. economy and financial markets, there can be no assurance that additional funding will be available on terms acceptable to us, or at all. We have funded our operations principally through sales of our common stock, payments received from our collaboration partners, debt, and following the Merger, product sales. As of September 30, 2020, we had cash and cash equivalents and available for sale securities of approximately $269.3 million. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Accordingly, available for sale securities, consisting principally of corporate and government debt securities stated at fair value, are also available as a source of liquidity. Cash Flows The following table sets forth the primary sources and uses of cash for each of the periods set forth below: Nine Months Ended September 30, 2020 September 30, 2019 (In Thousands) Net cash provided by (used in): Operating activities $ (79,606) $ (165,306) Investing activities (99,687) 188,896 Financing activities 201,209 (5,448) Net (decrease) increase in cash, cash equivalents, and restricted cash $ 21,916 $ 18,142 Operating Activities . Net cash used in operating activities of $79.6 million for the nine months ended September 30, 2020 was largely driven by timing of payments on our Phase 3 development program for vadadustat, rebate payments and payments for inventory. These payments were partially offset by adjustments for non-cash items, including the intangible asset impairment charge of $115.5 million, fair value step-up of inventory sold or written off of $39.5 million, amortization of intangibles of $24.3 million, write-downs of inventory of $18.6 million primarily associated with specific lots of Auryxia because it was determined that these lots were not manufactured in conformance with the FDA's GMP guidance relating to validation, stock-based compensation expense of $18.4 million, and an increase to the liability for excess purchase commitments of $10.3 million. 61 Net cash used in operating activities of $165.3 million for the nine months ended September 30, 2019 was largely driven by timing of payments on our Phase 3 development program for vadadustat, payments for inventory and merger-related liabilities. These payments were partially offset by adjustments for non-cash items, including the fair value step-up of inventory sold or written off of $51.6 million, amortization of intangibles of $27.3 million, and stock-based compensation expense of $7.0 million. Investing Activities . Net cash used in investing activities for the nine months ended September 30, 2020 was $99.7 million and was comprised primarily of purchase of available for sale securities of $99.9 million. Net cash provided by investing activities for the nine months ended September 30, 2019 was $188.9 million and was comprised primarily of proceeds from the maturities of available for sale securities of $130.6 million and proceeds from the sales of available for sale securities of $64.7 million, partially offset by purchases of equipment of $6.4 million. Financing Activities. Net cash provided by financing activities for the nine months ended September 30, 2020 was $201.2 million and consisted primarily of proceeds from the public issuance of common stock of $198.9 million, proceeds from the exercise of stock options and proceeds from the sale of stock under our employee stock purchase plan. Net cash used in financing activities for the nine months ended September 30, 2019 was $5.4 million and consisted primarily of payments on loans payable of $15.0 million, partially offset by proceeds from the public issuance of common stock, proceeds from the exercise of stock options and proceeds from the sale of stock under our employee stock purchase plan. Operating Capital Requirements We have one product, Auryxia, approved for commercial sale in the United States, but have not generated, and may not generate, enough product revenue from the sale of Auryxia to realize net profits from product sales. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek marketing approvals for, our product candidates. We are subject to all risks incident to the development and commercialization of novel therapeutics, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We expect to continue to incur additional costs associated with operating as a public company and we anticipate that we will need substantial additional funding in connection with our continuing operations. As of September 30, 2020, we had cash, cash equivalents and available for sale securities of $269.3 million. At the inception of our collaboration agreements with Otsuka and MTPC, our collaborators committed to an aggregate of approximately $573.0 million or more in cost-share funding, of which we received approximately $272.0 million at the onset of the collaborations, and the remainder of which we generally continue to receive on a quarterly prepaid basis, and through license payments. We expect our cash resources to fund our current operating plan beyond the expected U.S. launch of our product candidate, vadadustat, assuming regulatory approval. We will require additional capital to pursue development and commercial activities related to expanded indications for current products and any additional products and product candidates. We expect to finance future cash needs through product revenue, public or private equity or debt transactions, payments from our collaborators, royalty transactions, strategic transactions, or a combination of these approaches. We have based these estimates on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Furthermore, our development and regulatory milestones may not be achieved, we may not receive the anticipated funding from our collaboration partners, and we may not secure other sources of financing. Additional funds may not be available to us on acceptable terms or at all. If we are unable to raise additional capital in sufficient amounts when needed or on attractive terms, we may not be able to pursue development and commercial activities related to expanded indications for current products and any additional products and product candidates. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing stockholders or increased fixed payment obligations, and any such securities may have rights senior to those of our common stock. Any of these events could significantly harm our business, financial condition and prospects. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors. We have based this estimate on assumptions that may be substantially different than actual results, and we could utilize our available capital resources sooner than we currently expect. Our future funding requirements, both near- and long-term, will depend on many factors including, but not limited to, those described under Part II, Item 1A. Risk Factors. 62 If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition and results of operations could be materially adversely affected. Contractual Obligations and Commitments Leases We lease approximately 65,167 square feet of office and lab space in Cambridge, Massachusetts under a lease which was most recently amended in April 2018, collectively the Cambridge Lease. Under the Third Amendment to the Cambridge Lease, or the Third Amendment, executed in July 2016, total monthly lease payments under the initial base rent were approximately $242,000 and are subject to annual rent escalations. In addition to such annual rent escalations, base rent payments for a portion of said premises commenced on January 1, 2017 in the monthly amount of approximately $22,000. The Fourth Amendment to the Cambridge Lease, executed in May 2017, provided additional storage space to us and did not impact rent payments. In April 2018, we entered into a Fifth Amendment to the Cambridge Lease, or the Fifth Amendment, for an additional 19,805 square feet of office space on the 12 th floor. Monthly lease payments for the existing 45,362 square feet of office and lab space, under the Third Amendment, remain unchanged. The new space leased by us was delivered in September 2018 and additional monthly lease payments of approximately $135,000 commenced in February 2019 and are subject to annual rent escalations, which commenced in September 2019. Additionally, as a result of the Merger, we have a lease for 27,300 square feet of office space in Boston, Massachusetts, or the Boston Lease, which expires on February 28, 2023. The total monthly lease payments under the base rent are approximately $136,000 and are subject to annual rent escalations. In September 2019, Keryx entered into an agreement to sublease the Boston office space to Foundation Medicine, Inc., or Foundation. The sublease is subject and subordinate to the Boston Lease between Keryx and the landlord. The term of the sublease commenced on October 16, 2019, upon receipt of the required consent from the landlord for the sublease agreement, and expires on February 28, 2023. Foundation is obligated to pay Keryx rent that approximates the rent due from us to Keryx’s landlord with respect to the Boston Lease. Keryx continues to be obligated for all payment terms pursuant to the Boston Lease, and we will guaranty Keryx’s obligations under the sublease. Term Loans On November 11, 2019, Akebia, with Keryx as guarantor, entered into a loan agreement, or the Loan Agreement, with BioPharma Credit PLC as collateral agent and a lender, or the Collateral Agent, and BioPharma Credit Investments V (Master) LP as a lender, pursuant to which term loans in an aggregate principal amount of $100.0 million were made available to us in two tranches, subject to certain terms and conditions, or the Term Loans. BioPharma Credit PLC subsequently transferred its interest in the term loans, solely in its capacity as a lender, to its affiliate, BPCR Limited Partnership. The Collateral Agent and the lenders are collectively referred to as Pharmakon. The first tranche of $80.0 million, or Tranche A, was drawn on November 25, 2019, or the Tranche A Funding Date. The second tranche, available until December 31, 2020, allows us to borrow, at our option, an additional $20.0 million, or Tranche B, subject to the satisfaction of customary conditions. The date on which Tranche B is drawn, the Tranche B Funding Date, and each of the Tranche A Funding Date and the Tranche B Funding Date, a Funding Date. Proceeds from the Term Loans may be used for general corporate purposes. We and Keryx entered into a Guaranty and Security Agreement with the Collateral Agent, or the Guaranty and Security Agreement, on the Tranche A Funding Date. Pursuant to the Guaranty and Security Agreement, our obligations under the Term Loans are unconditionally guaranteed by Keryx, or the Guarantee. Additionally, our and Keryx’s obligations under the Term Loans and the Guarantee are secured by a first priority lien on certain assets of ours and Keryx’s, including Auryxia and certain related assets, cash, and certain equity interests held by us and Keryx, collectively the Collateral. The Term Loans bear interest at a floating rate per annum equal to the three-month LIBOR rate plus 7.50%, subject to a 2.00% LIBOR floor and a 3.35% LIBOR cap, payable quarterly in arrears. The Term Loans will mature on the fifth anniversary of the Tranche A Funding Date, or the Maturity Date. We will repay the principal under the Term Loans in equal quarterly payments starting on the 33rd-month anniversary of the applicable Funding Date or, if certain conditions are met, it will have the option to repay the principal in equal quarterly payments starting on the 48th-month anniversary of the applicable Funding Date, or collectively the Amortization Schedule. Under certain circumstances, unless certain liquidity conditions are met, the Maturity Date may decrease by up to one year, and the Amortization Schedule may correspondingly commence up to one year earlier. 63 On the Tranche A Funding Date, we paid to Pharmakon a facility fee equal to 2.00% of the aggregate principal amount of the Term Loans, or $2.0 million, in addition to other expenses incurred by Pharmakon and reimbursed by us, or Lender Expenses. The Tranche A draw was $77.3 million, net of facility fee, Lender Expenses and issuance costs. The Loan Agreement permits voluntary prepayment at any time in whole or in part, subject to a prepayment premium. The prepayment premium would be 2.00% of the principal amount being prepaid prior to the third anniversary of the applicable Funding Date, 1.00% on or after the third anniversary, but prior to the fourth anniversary, of the applicable Funding Date, and 0.50% on or after the fourth anniversary of the applicable Funding Date but prior to the Maturity Date, and a make-whole premium on or prior to the second anniversary of the applicable Funding Date in an amount equal to foregone interest through the second anniversary of the applicable Funding Date. A change of control triggers a mandatory prepayment of the Term Loans. The Loan Agreement contains customary representations, warranties, events of default and covenants of ours and our subsidiaries, including maintaining, on an annual basis, a minimum liquidity threshold starting in 2021, and on a quarterly basis, a minimum net sales threshold for Auryxia starting in the fourth quarter of 2020. If an event of default occurs and is continuing under the Loan Agreement, the Collateral Agent is entitled to take enforcement action, including acceleration of amounts due under the Loan Agreement. Under certain circumstances, a default interest rate will apply on all outstanding obligations during the occurrence and continuance of an event of default. As of September 30, 2020, we determined that no events of default had occurred. We assessed the terms and features of the Loan Agreement in order to identify any potential embedded features that would require bifurcation or any beneficial conversion feature. As part of this analysis, we assessed the economic characteristics and risks of the Loan Agreement, including put and call features. The terms and features assessed include a potential extension to the interest-only period dependent on both no event of default having occurred and continuing and on our achieving certain regulatory and revenue conditions. We also assessed the acceleration of the obligations under the Loan Agreement under an event of default. In addition, under certain circumstances, a default interest rate will apply on all outstanding obligations during the occurrence and continuance of an event of default. In accordance with ASC 815, we concluded that these features are not clearly and closely related to the host instrument, and represent a single compound derivative that is required to be re-measured at fair value on a quarterly basis. Manufacturing Agreements As a result of the Merger, our contractual obligations include Keryx’s commercial supply agreements with BioVectra Inc., or BioVectra, and Siegfried Evionnaz SA, or Siegfried, to supply commercial drug substance for Auryxia. Pursuant to the Manufacture and Supply Agreement with BioVectra and the Product Manufacture and Supply and Facility Construction Agreement with BioVectra, collectively the BioVectra Agreement, we agreed to purchase minimum quantities of Auryxia drug substance annually at predetermined prices. On September 4, 2020, we and BioVectra entered into an Amended and Restated Product Manufacture and Supply and Facility Construction Agreement, which provided for reduced minimum quantity commitments and revised the predetermined prices. The price per kilogram decreases with an increase in quantity above the predetermined purchase quantity tiers. In addition, the Manufacture and Supply Agreement with BioVectra and the Amended and Restated Product Manufacture and Supply and Facility Construction Agreement with BioVectra, collectively the Amended BioVectra Agreement, requires us to reimburse BioVectra for certain costs in connection with construction of a new facility for the manufacture and supply of Auryxia drug substance. These construction costs are recorded in other assets and amortized into drug substance as inventory is released to us from BioVectra. The term of the Manufacture and Supply Agreement with BioVectra expires on December 31, 2022. The term of the Amended and Restated Product Manufacture and Supply and Facility Construction Agreement expires on December 31, 2026, after which, it automatically renews for successive one-year terms unless either party gives notice of its intention to terminate within a specified time prior to the end of the then-current term. In addition, we and BioVectra each have the ability to terminate these agreements upon the occurrence of certain conditions. As of September 30, 2020, we are required to reimburse BioVectra for certain costs in connection with the construction of the new facility and to purchase minimum quantities of Auryxia drug substance annually for a total cost of approximately $96.2 million through the end of the contract term. Pursuant to the Siegfried Master Manufacturing Services and Supply Agreement, or the Siegfried Agreement, we have agreed to purchase a minimum quantity of drug substance of Auryxia at predetermined prices. The price per kilogram will decrease with an increase in quantity above the minimum purchase quantity. The term of the Siegfried Agreement expires on December 31, 2021, after which, it automatically renews for one-year terms until terminated. The Siegfried Agreement provides us with certain termination rights prior to December 31, 2021. As of September 30, 2020, we are required to purchase a minimum quantity of drug substance for Auryxia annually at a total cost of approximately $51.4 million through the year ending December 31, 2021. 64 As part of purchase accounting, we identified executory contracts in the commercial supply agreements between Keryx and its contract manufacturers for Auryxia, which include firm purchase commitments. These executory contracts were deemed to have an off-market element related to the amount of purchase commitments that exceed the current forecast. The liability related to the amount of purchase commitments that exceed the current forecast was $41.0 million and $30.2 million as of September 30, 2020 and December 31, 2019, respectively. The $10.8 million increase in liability, which was largely driven by a reduction in the short-term and long-term Auryxia revenue sales forecast during the second quarter of 2020, was primarily recorded to cost of goods sold. On April 9, 2019, we entered into a Supply Agreement with Esteve Química, S.A., or Esteve, or the Esteve Agreement. The Esteve Agreement includes the terms and conditions under which Esteve will manufacture vadadustat drug substance for commercial use. Pursuant to the Esteve Agreement, we provide rolling forecasts to Esteve on a quarterly basis, or the Esteve Forecast. The Esteve Forecast reflects our needs for vadadustat drug substance produced by Esteve over a certain number of months, represented as a quantity of vadadustat drug substance per calendar quarter. The parties have agreed to a volume-based pricing structure under the Esteve Agreement. The Esteve Agreement has an initial term of four years, beginning April 9, 2019 and ending April 9, 2023. As of September 30, 2020, we have committed to purchase $26.0 million of vadadustat drug substance from Esteve through the second quarter of 2022. On March 11, 2020, we entered into a Supply Agreement with Patheon Inc., or Patheon, or the Patheon Agreement. The Patheon Agreement includes the terms and conditions under which Patheon will manufacture vadadustat drug product for commercial use. Pursuant to the Patheon Agreement, we provide Patheon a long-term forecast on an annual basis, as well as short-term forecasts on a quarterly basis, or the Patheon Forecast. The Patheon Forecast reflects our needs commercial supply of vadadustat drug product produced by Patheon, represented as a quantity of drug product per calendar quarter. The parties have agreed to a volume-based pricing structure under the Patheon Agreement. The Patheon Agreement has an initial term beginning March 11, 2020 and ending June 30, 2023. Pursuant to the Patheon Agreement, we have agreed to purchase a certain percentage of our or ours affiliates' global demand for vadadustat drug product from Patheon. As of September 30, 2020, we had a minimum commitment with Patheon for $1.3 million through the third quarter of 2021. On April 2, 2020, we entered into a Supply Agreement with STA Pharmaceutical Hong Kong Limited, a subsidiary of WuXi AppTec, or WuXi STA, or the WuXi STA Agreement. The WuXi STA Agreement includes the terms and conditions under which WuXi STA will manufacture vadadustat drug substance for commercial use. Pursuant to the WuXi STA Agreement, we provide rolling forecasts to WuXi STA on a quarterly basis, or the WuXi STA Forecast. The WuXi STA Forecast reflects our needs for vadadustat drug substance produced by WuXi STA over a certain number of quarters. The parties have agreed to a volume-based pricing structure under the WuXi STA Agreement. The WuXi STA Agreement has an initial term of four years, beginning April 2, 2020 and ending April 2, 2024. As of September 30, 2020, we have committed to purchase $44.7 million of vadadustat drug substance from WuXi STA through the fourth quarter of 2021. Other Third Party Contracts Under our agreement with IQVIA to provide contract research organization services for the PRO 2 TECT and INNO 2 VATE programs, the total remaining contract costs as of September 30, 2020 were approximately $17.6 million, of which Otsuka reimburses a significant portion back to us. The estimated period of substantive performance for the committed work with IQVIA is through the end of 2020. We also contract with various other organizations to conduct research and development activities with remaining contract costs to us of approximately $119.8 million as of September 30, 2020. The scope of the services under these research and development contracts can be modified and the contracts cancelled by us upon written notice, and therefore not included in the table of contractual obligations and commitments. In some instances, the contracts may be cancelled by the third party upon written notice. Off-Balance Sheet Arrangements As of September 30, 2020, we did not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC. Critical Accounting Policies and Significant Judgments and Estimates Our management’s discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our unaudited condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue, prepaid and accrued research and development expenses and stock-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying 65 values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. In making estimates and judgments, management employs critical accounting policies. During the nine months ended September 30, 2020, there were no material changes to our critical accounting policies as reported in our Annual Report on Form 10-K. Recent Accounting Pronouncements For additional discussion of recent accounting pronouncements, please refer to New Accounting Pronouncements – Recently Adopted and New Accounting Pronouncements – Not Yet Adopted included within Note 2 to our condensed consolidated financial statements in Part I, Item 1. Financial Statements (unaudited).