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Item 2. Management’s Discussion and Analysis

2021-05-10 compared with 2020-11-05 · 221 added, 388 removed, 201 unchanged (75% of the section changed)

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.

The following information should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the U.S.

Securities and Exchange Commission on February 25, 2021, or the 2020 Annual Report on Form 10-K, including the audited consolidated financial statements and related notes therein.

This discussion and analysis contains forward-looking statements that involve significant risks and uncertainties.

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Business Overview

We are a biopharmaceutical company with the purpose of bettering the lives of people living with kidney disease.

We are a biopharmaceutical company with the purpose of bettering the life of each person impacted by kidney disease.

Since our initial public offering in 2014, we have built a business focused on developing and commercializing innovative renal therapeutics that we believe serves as a foundation for future growth.

As a leader in the kidney community, we remain committed to helping patients and others where we believe our current and future products have the ability to deliver value.

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.

• Vadadustat is an investigational oral hypoxia-inducible factor prolyl hydroxylase inhibitor, or HIF-PHI, 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 stimulates erythropoietin, or EPO, production and leads to red blood cell, or RBC, production and improved oxygen delivery to tissues.

The significance of the HIF pathway was recognized by the 2019 Nobel Prize and the 2016 Albert Lasker Basic Medical Research Award, which honored the three physician-scientists who discovered the HIF pathway and elucidated this primary oxygen sensing mechanism that is essential for survival.

We believe that, based on the HIF-PHI mechanism of action and clinical data to date, vadadustat has the potential to set a new oral standard of care for the treatment of anemia due to chronic kidney disease, or CKD.

We completed the global Phase 3 clinical development program for vadadustat in 2020, which included two separate programs, INNO 2 VATE and PRO 2 TECT.

INNO 2 VATE evaluated vadadustat for the treatment of anemia due to CKD in adult patients on dialysis, or DD-CKD, and PRO 2 TECT evaluated vadadustat for the treatment of anemia due to CKD in adult patients not on dialysis, or NDD-CKD.

In May of 2020, we announced positive top-line results from our Phase 3 INNO 2 VATE program that showed vadadustat was non-inferior to darbepoetin alfa, an injectable erythropoiesis-stimulating agent, or ESA, with respect to hematological efficacy (change in hemoglobin concentration) and cardiovascular safety (assessed in a time to the first occurrence of a major adverse cardiovascular event (MACE) analysis, which is the composite of all-cause mortality, nonfatal myocardial infarction, or a nonfatal stroke) in treating anemia due to CKD in DD-CKD adult patients.

In addition to meeting the primary endpoints of the INNO 2 VATE program, vadadustat met the key secondary hematological efficacy endpoint in each of the two studies in the program and also met the program's key secondary safety endpoints.

The results of the INNO 2 VATE program were presented at American Society of Nephrology, or ASN, in October of 2020 and published in the New England Journal of Medicine in April of 2021.

In September of 2020, we announced top-line results from our Phase 3 PRO 2 TECT program that showed vadadustat was non-inferior to darbepoetin alfa with respect to hematological efficacy in treating anemia due to CKD in NDD-CKD adult patients.

While the PRO 2 TECT data showed that vadadustat achieved both the

primary and key secondary hematological efficacy endpoints, it did not meet the program's primary cardiovascular safety (MACE) endpoint.

These cardiovascular outcomes contrast with those reported within the INNO 2 VATE program, which evaluated vadadustat for the treatment of anemia due to CKD in DD-CKD adult patients.

The results of the PRO 2 TECT program were presented at ASN in October of 2020 and published in the New England Journal of Medicine in April of 2021.

Simultaneous with the PRO 2 TECT ASN presentation, we presented additional analyses, conducted by Akebia, of data from the PRO 2 TECT program that revealed that the greater number of MACE events observed among vadadustat patients as compared to the active comparator was primarily related to an excess of non-cardiovascular death and death-of-unknown-cause in regions outside of the United States where significant differences in treatment patterns for NDD-CKD patients were observed.

We submitted a New Drug Application, or NDA, to the U.S.

Food and Drug Administration, or FDA, for vadadustat in March of 2021 for the treatment of anemia due to CKD in both DD-CKD and NDD-CKD adult patients.

Our NDA submission did not include a Priority Review Voucher.

Based on standard FDA review timelines, the FDA has a 60-day period to determine whether the NDA is complete and acceptable for review.

If the FDA determines that the NDA is complete and acceptable for review, we expect to have frequent communications with the FDA with respect to the NDA, including attending meetings, responding to information requests, and engaging in labeling negotiations, among other things.

We plan to provide updates, if and as appropriate, on these communications through our Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K filed with the SEC.

We are also working in close collaboration with our collaboration partner, Otsuka Pharmaceutical Co.

Ltd., to prepare a Marketing Authorization Application, or MAA, for vadadustat for the treatment of anemia due to CKD in both DD-CKD and NDD-CKD adult patients for submission to the European Medicines Agency, or EMA, expected in 2021.

However, as vadadustat did not meet the PRO 2 TECT program's primary safety endpoint, we are remaining cautious in our outlook for potential approval of vadadustat in NDD-CKD adult patients in the United States and Europe.

In June of 2020, we announced the first regulatory approval of vadadustat for the treatment of anemia due to CKD in DD-CKD and NDD-CKD adult patients in Japan.

Our collaboration partner in Japan, Mitsubishi Tanabe Pharma Corporation, or MTPC, commenced commercial sales of vadadustat in Japan under the trade name, Vafseo TM , in August 2020.

In addition to anemia due to CKD, we believe that vadadustat has the potential to treat other serious or life-threatening conditions, including preventing and lessening 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.

More specifically, in July of 2020, we announced 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 ARDS in up to 400 adult patients who have been hospitalized due to COVID-19.

Within this randomized, double-blind, placebo-controlled study, 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, or IND, with UTHealth as the study sponsor and is currently enrolling patients.

In January of 2021, UTHealth announced that it had been awarded $5.1 million in funding from the U.S.

Department of Defense, or DOD, to expand this clinical trial at its facilities.

• 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).

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.

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:

-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:

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:

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.

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.

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.

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.

Ferric citrate is also approved and marketed in Japan as an oral treatment for IDA in adult patients and the improvement of hyperphosphatemia in adult patients with CKD, including DD-CKD and NDD-CKD, under the trade name Riona (ferric citrate hydrate).

Auryxia is our only product approved for sale in the United States and it generated approximately $30.4 million and $29.2 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.

product sales during the three months ended March 31, 2021 and 2020, respectively.

We plan to commercialize vadadustat, subject to FDA approval, in the United States with our well-established, nephrology-focused commercial organization, while leveraging our collaboration with Otsuka and its U.S.

nephrology commercial organization.

We granted Otsuka exclusive rights to commercialize vadadustat in Europe, China and certain other markets, subject to marketing approvals.

We granted MTPC exclusive rights to commercialize vadadustat in Japan, where MTPC

commenced commercial sales of vadadustat under the trade name, Vafseo TM , in August 2020, and in certain other countries in Asia, subject to marketing approvals.

In addition, we granted Vifor (International) Ltd., or Vifor Pharma, an exclusive license to sell vadadustat to Fresenius Kidney Care Group LLC, or FKC, an affiliate of Fresenius Medical Care North America, or FMCNA, and to certain third party dialysis organizations approved by us, or Third Party Dialysis Organizations, which combined manage up to approximately 60% of the dialysis patients in the United States, which would be effective upon FDA approval of vadadustat, the earlier of vadadustat’s reimbursement under a bundled reimbursement model or using the Transitional Drug Add-On Payment Adjustment, or the TDAPA, and a milestone payment by Vifor Pharma.

During the term of the license agreement, Vifor Pharma is not permitted to sell any HIF product that competes with vadadustat in the United States to FKC or its affiliates or to any Third Party Dialysis Organization, and we may not directly supply vadadustat to FKC or any other affiliate of FMCNA or any Third Party Dialysis Organization.

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.

Our net losses were $69.6 million and $60.7 million for the three months ended March 31, 2021 and 2020, respectively.

Substantially all of our net losses resulted from costs incurred in connection with the continued commercialization of Auryxia and 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.

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 product revenue, collaboration revenue, 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;

• conduct any post-marketing approval studies, Phase 4 studies or any other clinical trials for Auryxia, vadadustat or any other product or product candidate, including those that may be in-licensed or acquired;

• 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;

• adapt to any regulatory changes, including changes relating to reimbursement;

• adapt to any changes in reimbursement practices by third party payors;

• continue our integration activities as a result of our merger, or the Merger, with Keryx Biopharmaceuticals, Inc., or Keryx;

• 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;

• enroll patients in our clinical trials;

• seek marketing approvals for vadadustat and any other product candidate, including those that may be in-licensed or acquired, and maintain marketing approvals for Auryxia and any other product, including those that may be in-licensed or acquired;

• have Auryxia, vadadustat and any other product or product candidate, including those that may be in-licensed or acquired, manufactured for clinical trials and for commercial sale;

• seek to discover and develop additional product candidates or platforms that may lead to the discovery of 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;

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• 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;

• attract, hire and retain qualified personnel;

• continue to create additional infrastructure and expend additional resources to support our operations as a fully integrated, publicly traded biopharmaceutical company;

• experience any delays or encounter issues with any of the above.

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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.

Additionally, we currently

utilize contract research organizations, or CROs, to carry out our clinical development activities.

If we obtain marketing approval for vadadustat, 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.

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 Auryxia and vadadustat, if approved, or any additional products and product candidates, including those that may be in-licensed or acquired.

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.

From inception through March 31, 2021, we raised approximately $734.1 million of net proceeds from the sale of equity, including $519.8 million from various underwritten public offerings, $164.3 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 March 31, 2021 and through the date of this Quarterly Report on Form 10-Q, we raised $33.0 million of net proceeds from ATM offerings.

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.

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.

As of March 31, 2021, we had drawn down the full amount $100.0 million made available to us under the Loan Agreement.

In addition, on February 25, 2021, we received an upfront payment of $44.8 million (net of certain transaction expenses) in connection with our sale to HealthCare Royalty Partners IV, L.P., or HCR, of the right to receive all royalties and sales milestones payable to us under our collaboration agreement with MTPC, or the MTPC Agreement, subject to certain caps and other terms and conditions described elsewhere in this Quarterly Report.

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.

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.

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, healthcare providers with whom we interact, customers, collaboration partners, CROs, contract manufacturing organizations, or CMOs, 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 the COVID-19 pandemic, any resurgences or mutations 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 CMOs, and our other vendors operate.

We believe our revenue growth was negatively impacted in the first quarter of 2021 primarily as the kidney patient populations that we serve continue to experience both higher hospitalization and mortality rates due to COVID-19.

While we are unable to quantify the impact of the COVID-19 pandemic on future revenues and revenue growth, COVID-19 continues to adversely and disproportionately impact our patient population;

therefore, we expect COVID-19 to continue to have a negative impact on our revenue growth for the foreseeable future.

The majority of our office-based employees have been working from home since March 2020.

In addition, several healthcare facilities have restricted 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.

Given this uncertain environment and the disproportionate impact of the COVID-19 pandemic on CKD patients, we are actively monitoring the demand for Auryxia, including the potential for further 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.

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 TM by MTPC in Japan), which may result in delays in or disruptions to manufacturing and supply of our products.

COVID-19 pandemic precautions have caused moderate delays in enrolling new clinical trials and may cause delays in enrolling other 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.

This uncertain COVID-19 pandemic 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.

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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 Japan Tobacco, Inc., or JT, and its subsidiary, Torii Pharmaceutical Co., Ltd., or Torii, based on net sales of Riona in Japan.

Cost of Goods Sold

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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 of the developed product rights for Auryxia is being amortized over its estimated useful life, which as of March 31, 2021 is estimated to be six 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

Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:

Research and development expenses consist primarily of costs incurred for the development of vadadustat, which include:

• personnel-related expenses, including salaries, benefits, recruiting fees, travel and stock-based compensation expense of our research and development personnel;

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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.

We cannot determine with certainty the duration and completion costs of current or future clinical studies of Auryxia and vadadustat or if, when, or to what extent we will generate revenue from the commercialization and sale of vadadustat, if approved.

We may never succeed in achieving marketing approval for vadadustat.

The duration, costs and timing of clinical studies and development of Auryxia and vadadustat 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.

A change in the outcome of any of these variables with respect to the development of Auryxia and vadadustat could mean a significant change in the costs and timing associated with that development.

our clinical studies, we could be required to expend significant additional financial resources and time on the completion of clinical development.

From inception through March 31, 2021, 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 Auryxia and vadadustat.

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.

In 2020, we completed our global Phase 3 clinical program for vadadustat to which the majority of our research and development costs have been 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.

These external costs include fees paid to investigators, consultants, central laboratories and CROs 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:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

(in thousands) (in thousands)

The following table summarizes our external research and development expenses by program, as well as expenses not allocated to programs, for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

(in thousands)

Vadadustat external costs $ 16,803 $ 58,347

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Results of Operations

Comparison of the Three Months Ended September 30, 2020 and 2019

Comparison of the Three Months Ended March 31, 2021 and 2020

Three Months Ended Increase

September 30, 2020 September 30, 2019 (Decrease)

March 31, 2021 March 31, 2020 (Decrease)

(In Thousands)

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Operating loss (64,936) (59,125) (5,811)

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.

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)

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 (4,644) (1,622) (3,022)

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.

Comparison of the Nine Months Ended September 30, 2020 and 2019

Nine Months Ended Increase

September 30, 2020 September 30, 2019 (Decrease)

(In Thousands)

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 $ (69,580) $ (60,747) $ (8,833)

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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.

Net product revenue was $30.4 million for the three months ended March 31, 2021, compared to net product revenue of $29.2 million for the three months ended March 31, 2020.

The increase was primarily due to an increase in units sold, partially offset by the negative impact from COVID-19.

We believe our revenue growth continues to be negatively impacted primarily as the kidney patient populations that we serve continue to experience both higher hospitalization and mortality rates due to COVID-19.

In September 2018, CMS decided that Auryxia would no longer be covered by Medicare for the IDA 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.

Department of Health and Human Services challenging CMS’s decision that Auryxia would no longer be covered by Medicare for the IDA Indication and imposing a prior authorization requirement for Auryxia in the Hyperphosphatemia Indication, or the CMS Decision.

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 Decision has had and will continue to have an adverse impact on the sales and future growth of Auryxia for the Hyperphosphatemia Indication and the IDA Indication.

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,

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.

License, collaboration and other revenue was $21.9 million for the three months ended March 31, 2021 compared to $59.3 million for the three months ended March 31, 2020.

We recognized $20.7 million in collaboration revenue for the three months ended March 31, 2021 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 royalty revenue under our collaboration agreement with MTPC, or the MTPC Agreement.

We recognized $57.9 million in collaboration revenue for the three months ended March 31, 2020 from our cost sharing arrangement under the Otsuka U.S.

Agreement and the Otsuka International Agreement.

The $37.2 million decline in collaboration revenue was driven by lower payments recognized under both the Otsuka U.S.

Agreement and Otsuka International Agreement as we completed our global Phase 3 clinical development program for vadadustat in 2020 and are currently engaged in close-out activities with respect to the program.

We expect our Otsuka collaboration revenue to continue to decrease in the near term for that reason.

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 of $25.6 million for the three months ended March 31, 2021 consisted of costs associated with the manufacturing of Auryxia, $21.6 million in non-cash charges related to the fair-value inventory step-up from the application of purchase accounting, and $5.1 million related to inventory reserves associated with a previously disclosed manufacturing quality issue related to Auryxia, partially offset by an $8.9 million non-cash gain related to a reduction to the liability for excess purchase commitments primarily as a result of modifications to certain of our supply agreements.

Cost of goods sold of $18.6 million for the three months ended March 31, 2020 consisted primarily of costs associated with the manufacturing of Auryxia and $11.2 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.

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.

During the three months ended March 31, 2021, this intangible asset was being amortized using a straight-line method over its estimated useful life of approximately six years.

Amortization of intangibles during the three months ended March 31, 2021 and 2020 was $9.0 million and $9.1 million, respectively.

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.

Research and development expenses were $40.6 million for the three months ended March 31, 2021, compared to $81.2 million for the three months ended March 31, 2020, a decrease of $40.6 million.

The decrease was primarily due to the following:

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Although we expect our research and development expenses to continue to decrease in the near term compared to the full year 2020 as we completed our global Phase 3 clinical development program for vadadustat in 2020, we will continue to incur significant research and development expenses in future periods in support of our overall development program for vadadustat and ongoing or planned studies with respect to Auryxia, vadadustat and development of other potential 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

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.

Selling, general and administrative expenses were $41.3 million for the three months ended March 31, 2021, compared to $38.0 million for the three months ended March 31, 2020.

The increase of $3.3 million was primarily due to higher promotional expenses.

In 2021, 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 continue to increase modestly from 2020.

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.

License expense related to royalties due to Panion relating to sales of Riona in Japan were $0.7 million for each of the three months ended March 31, 2021 and 2020.

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.

Other expense, net, was $4.6 million for the three months ended March 31, 2021 compared to $1.6 million for the three months ended March 31, 2020.

Other expense, net, for the three months ended March 31, 2021 was primarily due to interest expense associated with our Term Loans and non-cash interest expense on the liability related to the sale of our right to receive royalties and sales milestones from MTPC as further described in Note 5 to our condensed consolidated financial statements in Part I, Item 1.

Financial Statements (unaudited).

Other expense, net, for the three months ended March 31, 2020 was primarily due to interest expense associated with our Term Loans.

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.

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.

We have funded our operations principally through sales of our common stock, payments received from our collaboration partners, and following the Merger, product sales, debt and a royalty transaction.

As of March 31, 2021, we had cash and cash equivalents and available for sale securities of approximately $272.8 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.

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.

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

Three Months Ended

March 31, 2021 March 31, 2020

(In Thousands)

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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.

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.

Net cash used in operating activities of $70.7 million for the three months ended March 31, 2021 was largely driven by payroll-related expenses, rebate payments and payments for inventory.

These payments were partially offset by adjustments for non-cash items, including fair value step-up of inventory sold or written off of $21.6 million, amortization of intangibles of $9.0 million, stock-based compensation expense of $6.0 million, write-downs of inventory of $5.1 million, and non-cash interest expense related to sale of future royalties of $2.2 million, partially offset by an $8.9 million non-cash gain primarily related to a reduction to the liability for excess purchase commitments.

Net cash used in operating activities of $89.6 million for the three months ended March 31, 2020 was largely driven by timing of payments on our Phase 3 development program for vadadustat and payments for inventory.

These payments were partially offset by adjustments for non-cash items, including the fair value step-up of inventory sold or written off of $11.2 million, amortization of intangibles of $9.1 million, and stock-based compensation expense of $4.9 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.

Net cash provided by investing activities for the three months ended March 31, 2021 was $19.9 million and was comprised of proceeds from the sale of available for sale securities of $20.0 million, partially offset by immaterial purchases of equipment.

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.

Net cash provided by financing activities for the three months ended March 31, 2021 was $74.5 million and consisted of net proceeds from the sale of future royalties of $44.8 million, net proceeds from the public issuance of common stock in connection with our ATM sales agreement of $29.3 million, 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 have incurred losses and cumulative negative cash flows from operations since our inception in February 2007, and as of March 31, 2021, we had an accumulated deficit of $1.2 billion.

We anticipate that we will continue to incur losses for the foreseeable future, and 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 and our ongoing development and commercialization of Auryxia.

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.

launch of our product candidate, vadadustat, assuming timely regulatory approval and the receipt of associated regulatory milestones.

Although we believe we have the cash resources to fund our operating plan beyond the expected the expected U.S.

launch of vadadustat, as noted above, we expect to continue to incur significant costs and we anticipate that we will need to obtain substantial additional funding in connection with our operating plan beyond that period.

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.

Furthermore, our 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.

The period over which our cash runway extends is also dependent on the execution of our commercial plan, which is dependent on the overall market, the competitive environment, and the execution of reimbursement strategies.

We expect to finance future cash needs through product revenue, public or private equity or debt transactions, payments from our collaboration partners, royalty transactions, strategic transactions, or a combination of these approaches.

Additionally, we will require additional capital to pursue development and commercial activities related to Auryxia and vadadustat, if approved, or any additional products and product candidates, including those that may be in-licensed or acquired.

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 Auryxia and vadadustat, if approved, or any additional products or product candidates, including those that may be in-licensed or acquired.

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.

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Contractual Obligations and Commitments

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.

We lease approximately 65,167 square feet of office and lab space in Cambridge, Massachusetts under a lease which was most recently amended in November 2020, 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.

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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.

In November 2020, we entered into a Sixth Amendment to the Cambridge Lease, or the Sixth Amendment, to extend the term of the Cambridge Lease with respect to the lab space from November 30, 2021 to January 31, 2025.

The Sixth Amendment includes two months of free rent starting in December 2020 and additional monthly lease payments of approximately $48,000 commencing in December 2021, and is subject to annual rent escalations, which commence in December 2022.

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.

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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.

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 27, 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.

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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.

The first tranche of $80.0 million, or Tranche A, was drawn on November 25, 2019, or the Tranche A Funding Date, and the second tranche of $20.0 million, or Tranche B, was drawn on

December 10, 2020, or the Tranche B Funding Date.

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.

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The Tranche A draw was $77.3 million, net of facility fee, Lender Expenses and issuance costs.

The Tranche B draw was $20.0 million, net of immaterial Lender Expenses and issuance costs.

The Loan Agreement permits voluntary prepayment at any time in whole or in part, subject to a prepayment premium.

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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.

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 which started in 2021, and on a quarterly basis, a minimum net sales threshold for Auryxia which started 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.

As of March 31, 2021, 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.

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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.

Liability Related to Sale of Future Royalties

On February 25, 2021, we entered into the Royalty Agreement with HealthCare Royalty Partners IV, L.P., or HCR, pursuant to which we sold to HCR our right to receive royalties and sales milestones for vadadustat in the MTPC Territory, such payments collectively the Royalty Interest Payments, in each case, payable to us under the MTPC Agreement, subject to an annual maximum “cap” of $13.0 million, or the Annual Cap, and an aggregate maximum “cap” of $150.0 million, or the Aggregate Cap.

After HCR receives Royalty Interest Payments equal to the Annual Cap in a given calendar year, we will receive 85% of the Royalty Interest Payments for the remainder of that year.

After HCR receives Royalty Interest Payments equal to the Aggregate Cap, or we pay the Aggregate Cap to HCR (net of the Royalty Interest Payments already received by HCR), the Royalty Interest Payments will revert back to us, and HCR would have no further right to any Royalty Interest Payments.

We received $44.8 million from HCR (net of certain transaction expenses) under the Royalty Agreement, and we are eligible to receive an additional $5.0 million in each year from 2021 through 2023 under the Royalty Agreement if specified annual sales milestones are achieved for vadadustat in the MTPC Territory, subject to the satisfaction of certain customary conditions.

We retain the right to receive all potential future regulatory milestones for vadadustat under the MTPC Agreement.

The Royalty Agreement will terminate on the earlier of the date on which HCR has received (i) the last Royalty Interest Payment or (ii) payment by us of an amount equal to the Aggregate Cap minus the aggregate amount of all Royalty Interest Payments actually received by HCR.

Although we sold our right to receive royalties and sales milestones for vadadustat in the MTPC Territory as described above, as a result of our ongoing involvement in the cash flows related to these royalties, we will continue to account for these royalties as revenue.

We recognized the proceeds received from HCR as a liability that is being amortized using the effective interest method over the life of the arrangement.

We recorded the net proceeds of $44.8 million as a liability.

In order to determine the amortization of the liability, we are required to estimate the total amount of future net royalty payments to be made to HCR over the term of the Royalty Agreement.

The total threshold of net royalties to be paid, less the net proceeds received, will be recorded as interest expense over the life of the liability.

We impute interest on the unamortized portion of the liability using the effective interest method.

The annual effective interest rate as of March 31, 2021 was 19.3% which is reflected as interest expense in the unaudited condensed consolidated statements of operations and comprehensive loss.

Over the course of the Royalty Agreement, the actual interest rate will be affected by the amount and timing of royalty revenue recognized and changes in forecasted royalty revenue.

There are a number of factors that could materially affect the amount and timing of royalty payments from MTPC, none of which are within our control.

On a quarterly basis, we reassess the effective interest rate and adjust the rate prospectively as needed.

Manufacturing Agreements

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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.

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.

As of March 31, 2021, 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 $91.2 million through the end of the contract term.

Pursuant to the Siegfried Master Manufacturing Services and Supply Agreement, as amended (the most recent amendment having been executed on February 11, 2021), or the Siegfried Agreement, we have agreed to purchase a minimum quantity of drug substance of Auryxia at predetermined prices.

The term of the Siegfried Agreement expires on December 31, 2022, subject to our option to extend the term through December 31, 2023 by providing 12 months’ prior written notice to Siegfried.

The Siegfried Agreement provides us and Siegfried with certain early termination rights.

As of March 31, 2021, we are required

to purchase a minimum quantity of drug substance for Auryxia annually at a total cost of approximately $35.2 million through the year ending December 31, 2022.

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.

The liability related to the amount of purchase commitments that exceed the current forecast was $46.8 million and $55.8 million as of March 31, 2021 and December 31, 2020, respectively.

The $9.0 million reduction in the liability was largely driven by a reduction in purchase commitments due to the most recent amendment to the Siegfried Agreement and was recorded as a non-cash gain 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.

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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.

Pursuant to the Esteve Agreement, we have agreed to purchase a certain percentage of the global demand for vadadustat drug substance from Esteve.

As of March 31, 2021, we have committed to purchase $44.7 million of vadadustat drug substance from Esteve through the fourth quarter of 2022.

On March 11, 2020, we entered into a Supply Agreement with Patheon Inc., or Patheon, or the Patheon Agreement.

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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 Patheon Forecast reflects our needs for 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.

Pursuant to the Patheon Agreement, we have agreed to purchase a certain percentage of the global demand for vadadustat drug product from Patheon.

As of March 31, 2021, we had a minimum commitment with Patheon for $1.0 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 DS Agreement.

The WuXi STA DS Agreement includes the terms and conditions under which WuXi STA will manufacture vadadustat drug substance for commercial use.

Pursuant to the WuXi STA DS Agreement, we provide rolling forecasts to WuXi STA on a quarterly basis, or the WuXi STA DS Forecast.

The WuXi STA DS 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 DS Agreement.

The WuXi STA DS Agreement has an initial term of four years, beginning April 2, 2020 and ending April 2, 2024.

Pursuant to the WuXi STA DS Agreement, we have agreed to purchase a certain percentage of the global demand for vadadustat drug substance from WuXi STA.

As of March 31, 2021, we have committed to purchase $44.7 million of vadadustat drug substance from WuXi STA through the first quarter of 2022.

On February 10, 2021, we entered into a Supply Agreement with WuXi STA, or the WuXi STA DP Agreement.

The WuXi STA DP Agreement includes the terms and conditions under which WuXi STA will manufacture and supply vadadustat drug product for commercial purposes.

Pursuant to the WuXi STA DP Agreement, we will provide rolling forecasts to WuXi STA on a quarterly basis, or the WuXi STA DP Forecast.

Each WuXi STA DP Forecast will reflect the quantities of vadadustat drug product that we expect to order from WuXi STA over a certain number of months, represented as a quantity of vadadustat drug product per calendar quarter.

Pursuant to the WuXi STA DP Agreement, we have agreed to purchase a certain percentage of global demand for vadadustat drug product from WuXi STA.

The parties have agreed to a volume-based pricing structure under the WuXi STA DP Agreement.

The vadadustat drug product price will remain fixed for the first 12 months and thereafter shall be annually reviewed by us and WuXi STA.

We will also reimburse WuXi STA for certain reasonable expenses.

The WuXi STA DP Agreement has an initial term of four years, beginning February 10, 2021 and ending February 10, 2025.

The WuXi STA DP Agreement may be renewed or extended by mutual agreement of us and WuXi STA with at least 18 months’ prior written notice.

The WuXi STA DP Agreement allows us to terminate the agreement on 180 calendar days’ prior written notice to WuXi STA for any reason.

In addition, each party has the ability to terminate the WuXi STA DP Agreement upon the occurrence of certain conditions.

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.

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 March 31, 2021 were approximately $8.3 million, of which Otsuka reimburses a significant portion back to us.

Substantive performance for the committed work with IQVIA was completed in 2020 and close out activities will be performed throughout 2021.

We also contract with various other organizations to conduct research and development activities with remaining contract costs to us of approximately $192.3 million as of March 31, 2021.

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.

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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.

As of March 31, 2021, 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

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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

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.

During the three months ended March 31, 2021, we had the following material change to our critical accounting policies as reported in our Annual Report on Form 10-K:

Liability Related to Sale of Future Royalties

We treat the liability related to sale of future royalties (see Note 5 to our condensed consolidated financial statements in Part I, Item 1.

Financial Statements (unaudited)) as a debt financing, amortized under the effective interest rate method over the estimated life of the related expected royalty stream.

The liability related to sale of future royalties and the debt amortization are based on our current estimates of future royalties expected to be paid over the life of the arrangement.

We will periodically assess the expected royalty payments.

To the extent our estimates of future royalty payments are greater or less than previous estimates or the estimated timing of such payments is materially different than previous estimates, we will adjust the effective interest rate and recognize related non-cash interest expense on a prospective basis.

Non-cash royalty revenue is reflected as royalty revenue within license, collaboration and other revenue, and non-cash amortization of debt is reflected as interest expense in the unaudited condensed consolidated statements of operations and comprehensive loss in Part I, Item 1.

Financial Statements (unaudited).

There were no other material changes to our critical accounting policies as reported in our Annual Report on Form 10-K.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis