Akebia Therapeutics, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following information should be read in conjunction with our unaudited condensed consolidated financial statements and 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. As a result of many factors, such as those set forth under “Risk Factors” in Part II, Item 1A. of this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements. Business Overview We are a biopharmaceutical company with the purpose of bettering the 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 35 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 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 was accepted for filing by the FDA in May 2021 and at the time of filing the NDA, the FDA indicated that they were not currently planning to hold an Advisory Committee meeting to discuss the for vadadustat. The FDA also assigned the application standard review and a Prescription Drug User Fee Act (PDUFA) target action date of March 29, 2022. 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 36 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 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 $33.0 million and $30.7 million in revenue from U.S. product sales during the three months ended June 30, 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 $83.0 million and $175.8 million for the three months ended June 30, 2021 and 2020, respectively, and $152.6 million and $236.5 million for the six months ended June 30, 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 product revenue, collaboration revenue, and our ability to obtain additional funding. We expect to continue to incur significant expenses if and as we: 37 • 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; • 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; • make royalty, milestone or other payments under our license agreements and any future license agreements; • maintain, protect and expand our intellectual property portfolio; • 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; and • experience any delays or encounter issues with any of the above. We have not generated, and may not generate, enough product revenue to realize net profits from product sales. We have no manufacturing facilities, and all of our manufacturing activities are contracted out to third parties. Additionally, we currently utilize contract research organizations, or CROs, to carry out our clinical development activities. If we obtain marketing approval for 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 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 June 30, 2021, we raised approximately $771.4 million of net proceeds from the sale of equity, including $519.8 million from various underwritten public offerings, $201.6 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, 2021 and through the date of this Quarterly Report on Form 10-Q, we raised $53.4 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. 38 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, 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 half 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 engage with some healthcare providers and other customers virtually, where possible. The restrictions on our customer-facing employees' in-person interactions with healthcare providers could negatively impact our access to healthcare providers and, ultimately, our sales. Recently, such precautionary measures have been relaxed at certain healthcare facilities and, as a result, members of our sales force have resumed in person interactions with certain customers. Nevertheless, restrictions may be put in place again due to a resurgence in COVD-19 cases, including those involving new variants of COVID-19 which may be more contagious and more severe than prior strains of the virus. 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 TM by MTPC in Japan), which may result in delays in, increased costs 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 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. For additional information on the various risks posed by the COVID-19 pandemic, please refer to Part II, Item 1A. Risk Factors. Financial Overview Revenue To date, our revenues have been derived from collaboration revenues, which include license and milestone payments, royalty and cost-sharing revenue generated through collaboration and license agreements with partners for the development and commercialization of vadadustat and, following the Merger, commercial sales of Auryxia and royalty revenue from sales of Riona in Japan. Cost-sharing revenue represents amounts reimbursed by our collaboration partners for expenses incurred by us for research and development activities and, potentially, co-promotion activities, under our collaboration agreements. We expect our revenue to continue to be generated primarily from our collaborations with Otsuka and MTPC and any other collaborations into which we may enter, as well as commercial sales of Auryxia in the United States, and royalty revenue from 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 39 Cost of goods sold includes direct costs to manufacture commercial drug substance and drug product for Auryxia, as well as indirect costs including costs for packaging, shipping, insurance and quality assurance, idle capacity charges, write-offs for inventory that fails to meet specifications or is otherwise no longer suitable for commercial sale, excess purchase commitment charges, and royalties due to the licensor of Auryxia related to the U.S. product sales recognized during the period. As a result of the Merger and the application of purchase accounting, costs of goods sold also includes both amortization expense and, if applicable, impairment charges associated with the fair value of the developed product rights for Auryxia as well as expense associated with the fair value inventory step-up. The fair value of the developed product rights for Auryxia is being amortized over its estimated useful life, which as of June 30, 2021 is estimated to be six years. The fair value inventory step-up as a result of the Merger was fully amortized as of the first quarter of 2021. Research and Development Expenses 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; • expenses incurred under agreements with CROs and investigative sites that conduct our clinical studies; • the cost of acquiring, developing and manufacturing clinical study materials through CMOs; • facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies; and • costs associated with preclinical, clinical and regulatory activities. Research and development costs are expensed as incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites. We cannot determine with certainty the duration and completion costs of current or future clinical studies of 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 Auryxia and vadadustat could mean a significant change in the costs and timing associated with that development. 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 June 30, 2021, we have incurred $1.4 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. 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 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 six months ended June 30, 2021 and 2020: 40 Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 (in thousands) (in thousands) Vadadustat external costs $ 12,917 $ 31,072 $ 29,720 $ 89,420 External costs for other programs 5,122 2,972 11,564 6,205 Total external research and development expenses 18,039 34,044 41,284 95,625 Headcount, consulting, facilities and other 19,175 18,775 36,541 38,425 Total research and development expenses $ 37,214 $ 52,819 $ 77,825 $ 134,050 Selling, General and Administrative Expenses Selling, general and administrative expenses consist primarily of salaries and related costs for personnel, including stock-based compensation and travel expenses for our commercial personnel, including our field sales force and other commercial support personnel, as well as personnel in executive and other administrative or non-research and development functions. Other selling, general and administrative expenses include facility-related costs, fees for directors, accounting and legal services fees, recruiting fees and expenses associated with obtaining and maintaining patents. Results of Operations Comparison of the Three Months Ended June 30, 2021 and 2020 Three Months Ended Increase June 30, 2021 June 30, 2020 (Decrease) (In Thousands) Revenues: Product revenue, net $ 32,959 $ 30,696 $ 2,263 License, collaboration and other revenue 19,954 59,446 (39,492) Total revenues 52,913 90,142 (37,229) Cost of goods sold: Product 43,484 49,988 (6,504) Amortization of intangibles 9,011 9,101 (90) Impairment of intangible asset — 115,527 (115,527) Total cost of goods sold 52,495 174,616 (122,121) Operating expenses: Research and development 37,214 52,819 (15,605) Selling, general and administrative 41,651 35,482 6,169 License expense 894 1,044 (150) Total operating expenses 79,759 89,345 (9,586) Operating loss (79,341) (173,819) 94,478 Other expense, net (3,697) (1,932) (1,765) Net loss $ (83,038) $ (175,751) $ 92,713 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 $33.0 million for the three months ended June 30, 2021, compared to net product revenue of $30.7 million for the three months ended June 30, 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. 41 In September 2018, CMS decided that Auryxia would no longer 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 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 $20.0 million for the three months ended June 30, 2021 compared to $59.4 million for the three months ended June 30, 2020. We recognized $18.5 million in collaboration revenue for the three months ended June 30, 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 $53.7 million in collaboration revenue for the three months ended June 30, 2020 from our cost sharing arrangement under the Otsuka U.S. Agreement and the Otsuka International Agreement. The $35.2 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 $43.5 million for the three months ended June 30, 2021 consisted of costs associated with the manufacturing of Auryxia and a $30.3 million million non-cash charge related to an increase to the liability for excess purchase commitments. Refer to Note 14 to our condensed consolidated financial statements for further details on the excess purchase commitments liability. Cost of goods sold of $50.0 million for the three months ended June 30, 2020 consisted of costs associated with the manufacturing of Auryxia, $19.9 million in non-cash charges related to the fair-value inventory step-up from the application of purchase accounting, $11.0 million in non-cash charges related to an increase to the liability for excess purchase commitments, and $9.9 million primarily related to the write-down of inventory associated with specific lots of Auryxia as it was determined that these lots were not manufactured in conformance with the FDA's GMP guidance relating to validation. Cost of Goods Sold - Amortization of Intangibles. Amortization of intangibles relates to the acquired developed product rights for Auryxia. During the three months ended June 30, 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 June 30, 2021 and 2020 was $9.0 million and $9.1 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 three months ended June 30, 2020. Research and Development Expenses . Research and development expenses were $37.2 million for the three months ended June 30, 2021, compared to $52.8 million for the three months ended June 30, 2020, a decrease of $15.6 million. The decrease was primarily due to the following: (in millions) Vadadustat development expenses $ (18.2) Headcount, consulting and facilities 0.4 Other research and development 2.2 Total net decrease $ (15.6) 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. Although we expect our research and development expenses to continue to decrease in the near 42 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 $41.7 million for the three months ended June 30, 2021, compared to $35.5 million for the three months ended June 30, 2020. The increase of $6.2 million was primarily due to higher marketing expenses. For the remainder of 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 Panion relating to sales of Riona in Japan were $0.9 million and $1.0 million the three months ended June 30, 2021 and 2020, respectively. Other Expense, Net . Other expense, net, was $3.7 million for the three months ended June 30, 2021 compared to $1.9 million for the three months ended June 30, 2020. Other expense, net, for the three months ended June 30, 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 June 30, 2020 was primarily due to interest expense associated with our Term Loans. Comparison of the Six Months Ended June 30, 2021 and 2020 Six Months Ended Increase June 30, 2021 June 30, 2020 (Decrease) (In Thousands) Revenues: Product revenue, net $ 63,367 $ 59,905 $ 3,462 License, collaboration and other revenue 41,850 118,715 (76,865) Total revenues 105,217 178,620 (73,403) Cost of goods sold: Product 69,079 68,601 478 Amortization of intangibles 18,021 18,201 (180) Impairment of intangible asset — 115,527 (115,527) Total cost of goods sold 87,100 202,329 (115,229) Operating expenses: Research and development 77,825 134,050 (56,225) Selling, general and administrative 82,979 73,465 9,514 License expense 1,590 1,720 (130) Total operating expenses 162,394 209,235 (46,841) Operating loss (144,277) (232,944) 88,667 Other expense, net (8,341) (3,554) (4,787) Net loss $ (152,618) $ (236,498) $ 83,880 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 $63.4 million for the six months ended June 30, 2021, compared to net product revenue of $59.9 million for the six months ended June 30, 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 43 as the kidney patient populations that we serve continue to experience both higher hospitalization and mortality rates due to COVID-19. License, Collaboration and Other Revenue. License, collaboration and other revenue was $41.9 million for the six months ended June 30, 2021 compared to $118.7 million for the six months ended June 30, 2020. We recognized $39.1 million in collaboration revenue for the six months ended June 30, 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 $111.7 million in collaboration revenue for the six months ended June 30, 2020 from our cost sharing arrangement under the Otsuka U.S. Agreement and the Otsuka International Agreement and recognition of a milestone earned under the MTPC Agreement. The $76.9 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 $69.1 million for the six months ended June 30, 2021 consisted of costs associated with the manufacturing of Auryxia, $21.3 million in non-cash charges related to an increase to the liability for excess purchase commitments, $21.6 million in non-cash charges related to the fair-value inventory step-up from the application of purchase accounting, and $5.4 million related to inventory reserves associated with a previously disclosed manufacturing quality issue related to Auryxia. Refer to Note 14 to our condensed consolidated financial statements for further details of the increase to the liability for excess purchase commitments. Cost of goods sold of $68.6 million for the six months ended June 30, 2020 consisted primarily of costs associated with the manufacturing of Auryxia and $31.1 million in non-cash charges related to the fair-value inventory step-up from the application of purchase accounting, $11.0 million in non-cash charges related to an increase to the liability for excess purchase commitments and $10.1 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. Cost of Goods Sold - Amortization of Intangibles. Amortization of intangibles relates to the acquired developed product rights for Auryxia. During the six months ended June 30, 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 six months ended June 30, 2021 and 2020 was $18.0 million and $18.2 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 six months ended June 30, 2020. There were no such impairment charges during the six months ended June 30, 2021. Research and Development Expenses . Research and development expenses were $77.8 million for the six months ended June 30, 2021, compared to $134.1 million for the six months ended June 30, 2020, a decrease of $56.2 million. The decrease was primarily due to the following: (in millions) Vadadustat development expenses $ (59.7) Headcount, consulting and facilities (1.9) Other research and development 5.4 Total net decrease $ (56.2) 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. 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 44 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 $83.0 million for the six months ended June 30, 2021, compared to $73.5 million for the six months ended June 30, 2020. The increase of $9.5 million was primarily due to higher marketing expenses and increased people costs. For the remainder 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 Panion relating to sales of Riona in Japan were $1.6 million and $1.7 million for the six months ended June 30, 2021 and 2020, respectively. Other Expense, Net . Other expense, net, was $8.3 million for the six months ended June 30, 2021 compared to $3.6 million for the six months ended June 30, 2020. Other expense, net, for the six months ended June 30, 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 six months ended June 30, 2020 was primarily due to interest expense associated with our Term Loans. Liquidity and Capital Resources 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 June 30, 2021, we had cash and cash equivalents and available for sale securities of approximately $247.0 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. Cash Flows The following table sets forth the primary sources and uses of cash for each of the periods set forth below: Six Months Ended June 30, 2021 June 30, 2020 (In Thousands) Net cash provided by (used in): Operating activities $ (133,887) $ (52,369) Investing activities 39,941 (49,750) Financing activities 111,846 200,155 Net increase in cash, cash equivalents, and restricted cash $ 17,900 $ 98,036 Operating Activities . Net cash used in operating activities of $133.9 million for the six months ended June 30, 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, an increase to the liability for excess purchase commitments of $21.3 million, amortization of intangibles of $18.0 million, stock-based compensation expense of $12.5 million, write-downs of inventory of $5.4 million, and non-cash interest expense related to sale of future royalties of $4.4 million. Net cash used in operating activities of $52.4 million for the six months ended June 30, 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 intangible asset impairment charge of $115.5 million, fair value step-up of inventory sold or written off of $31.1 million, amortization of intangibles of $18.2 million, stock-based compensation expense of $11.8 million, an increase to the liability for excess purchase commitments of $11.0 million and write-downs of 45 inventory of $10.1 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. Investing Activities . Net cash provided by investing activities for the six months ended June 30, 2021 was $39.9 million and was comprised of proceeds from the maturities of available for sale securities of $40.0 million, partially offset by immaterial purchases of equipment. Financing Activities. Net cash provided by financing activities for the six months ended June 30, 2021 was $111.8 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 $66.7 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 have incurred losses and cumulative negative cash flows from operations since our inception in February 2007, and as of June 30, 2021, we had an accumulated deficit of $1.3 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 for at least twelve months from the date of this filing. Additionally, we expect our cash runway would extend beyond the next twelve months assuming timely regulatory approval of vadadustat and the receipt of associated regulatory milestones. 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 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. Any of these events could significantly harm our business, financial condition and prospects. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors. We have based this estimate on assumptions that may be substantially different than actual results, and we could utilize our available capital resources sooner than we currently expect. Our future funding requirements, both near- and long-term, will depend on many factors including, but not limited to, those described under Part II, Item 1A. Risk Factors. If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition and results of operations could be materially adversely affected. Contractual Obligations As of June 30, 2021, other than as disclosed in Note 14 to our condensed consolidated financial statements, there have been no material changes to our contractual obligations and commitments from those described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2020 Annual Report on Form 10-K. Term Loans On November 11, 2019, Akebia, with Keryx as guarantor, entered into a loan agreement, or the Loan Agreement, with BioPharma Credit PLC as collateral agent and a lender, or the Collateral Agent, and BioPharma Credit Investments V (Master) LP as a lender, pursuant to which term loans in an aggregate principal amount of $100.0 million were made available to us in 46 two tranches, subject to certain terms and conditions, or the Term Loans. BioPharma Credit PLC subsequently transferred its interest in the Term Loans, solely in its capacity as a lender, to its affiliate, BPCR Limited Partnership. The Collateral Agent and the lenders are collectively referred to as Pharmakon. The first tranche of $80.0 million, or Tranche A, was drawn on November 25, 2019, or the Tranche A Funding Date, and the second tranche of $20.0 million, or Tranche B, was drawn on December 10, 2020, or the Tranche B Funding Date. A more detailed description of the term loans can be found in Note 11 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. 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. A more detailed description of the liability related to the sale of future royalties can be found in Note 5 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Off-Balance Sheet Arrangements As of June 30, 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 Our management’s discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our unaudited condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue, prepaid and accrued research and development expenses and stock-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying 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 six months ended June 30, 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 2020 Annual Report on Form 10-K. 47 Recent Accounting Pronouncements For additional discussion of recent accounting pronouncements, please refer to New Accounting Pronouncements – Recently Adopted included within Note 2 to our condensed consolidated financial statements in Part I, Item 1. Financial Statements (unaudited).