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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-05 · 136 added, 125 removed, 265 unchanged (50% of the section changed)

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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.

Securities and Exchange Commission, or the SEC, 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.

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.

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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.

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 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.

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 can lead 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.

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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.

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-causes 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 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.

Our collaboration partner, Otsuka Pharmaceutical Co.

Ltd., submitted a Marketing Authorization Application, or MAA, for vadadustat for the treatment of anemia due to CKD in adult patients to the European Medicines Agency, or EMA, in October 2021.

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.

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Auryxia is our only product approved for sale in the United States and it generated approximately $36.8 million and $34.4 million in revenue from U.S.

product sales during the three months ended June 30, 2021 and 2020, respectively.

product sales during the three months ended September 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.

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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.

Our net losses were $59.5 million and $60.0 million for the three months ended September 30, 2021 and 2020, respectively, and $212.2 million and $296.5 million for the nine months ended September 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.

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We expect to continue to incur significant expenses if and as we:

• 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;

• conduct and enroll patients in any clinical trials, including any post-marketing approval studies, any 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;

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• 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;

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

• maintain marketing approvals for Auryxia, vadadustat, if approved, 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;

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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.

From inception through September 30, 2021, we raised approximately $787.5 million of net proceeds from the sale of equity, including $519.8 million from various underwritten public offerings, $217.7 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 September 30, 2021 and through the date of this Quarterly Report on Form 10-Q, we raised $16.1 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.

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

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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.

We believe our revenue growth was negatively impacted in the first three quarters of 2021 primarily as the kidney patient populations that we serve continue to experience both high 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.

The majority of our office-based employees began working from home in March 2020, and continue to primarily work from home.

In October 2021, we announced a requirement that all of our employees be fully vaccinated by January 1, 2022, subject to limited medical and religious exemptions.

At this time, it is not possible to predict with certainty the exact impact that our vaccine requirement will have on us or on our workforce, and the requirement may result in employee distraction, absences, resignations, attrition and difficulty securing future labor needs which could have an adverse effect on our business, results of operations and cash flows.

In addition, several healthcare facilities have previously 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.

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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.

Nevertheless, some restrictions remain, and more restrictions may be put in place again due to a resurgence in COVID-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.

In addition, the direct and indirect impacts of the pandemic or the response efforts to the pandemic, including among others, competition for labor and resources and increases in labor, sourcing, manufacturing and shipping costs, may cause disruptions to, closures of, or other impacts on our CMOs and other vendors in our supply chain on which we rely for the supply of our products and product candidates.

At this time, our third party contract manufacturers 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 manufacturers' 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.

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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.

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 and, if approved, vadadustat, 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

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.

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, changes in our excess purchase commitment liability, 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 of the developed product rights for Auryxia is being amortized over its estimated useful life, which as of September 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.

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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.

From inception through September 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, vadadustat and any other product or product candidate, including those that may be in-licensed or acquired.

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.

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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:

Three Months Ended June 30, Six Months Ended June 30,

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, 2021 and 2020:

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

2021 2020 2021 2020

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Results of Operations

Comparison of the Three Months Ended June 30, 2021 and 2020

Comparison of the Three Months Ended September 30, 2021 and 2020

Three Months Ended Increase

June 30, 2021 June 30, 2020 (Decrease)

September 30, 2021 September 30, 2020 (Decrease)

(in thousands)

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Amortization of intangibles 9,011 6,106 2,905

Impairment of intangible asset — 115,527 (115,527)

Total cost of goods sold 15,944 30,345 (14,401)

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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 $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.

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.

Net product revenue was $36.8 million for the three months ended September 30, 2021, compared to net product revenue of $34.4 million for the three months ended September 30, 2020.

The increase was due to lower volume rebates related to the negative impact to sales volume as a result of COVID-19 and improved payer mix.

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

As an oral drug, Auryxia is covered by Medicare only under Part D.

However, 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 Part D plan sponsors to impose prior authorization or other steps to ensure that Auryxia is used only for the Hyperphosphatemia Indication.

However, due to the COVID-19 pandemic, CMS has issued a guidance that expressly encouraged Part D plans to waive all prior authorization requirements.

This guidance was issued in March of 2020 and updated in May of 2020.

In both versions of the guidance, CMS clarified that due to COVID-19, Part D plan sponsors are encouraged to waive prior authorization requirements.

Further, 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.

On October 22, 2021, the parties agreed to dismiss the litigation.

See Part II, Item 1.

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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.

License, collaboration and other revenue was $12.0 million for the three months ended September 30, 2021 compared to $25.6 million for the three months ended September 30, 2020.

We recognized $10.6 million in collaboration revenue for the three months ended September 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 $23.9 million in collaboration revenue for the three months ended September 30, 2020 from our cost sharing arrangement under the Otsuka U.S.

Agreement and the Otsuka International Agreement, as well as royalty revenue under our collaboration agreement with MTPC.

The $13.3 million decline in collaboration revenue was driven by lower development costs incurred subject to cost sharing arrangements 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.

The decrease in Otsuka collaboration revenue was partially offset by an increase in royalty revenue under the MTPC Agreement.

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.

Cost of goods sold of $6.9 million for the three months ended September 30, 2021 consisted of costs associated with the manufacturing of Auryxia partially offset by a $6.0 million reduction to the liability for excess purchase commitments, primarily due to the settlement of all patent litigation proceedings related to Abbreviated New Drug Applications filed with respect to Auryxia, which allows for generic versions of Auryxia beginning in March 2025.

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 of $24.2 million for the three months ended September 30, 2020 consisted 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 as it was determined that these lots were not manufactured in conformance with the FDA's GMP guidance relating to validation.

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 - 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.

During the three months ended September 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 September 30, 2021 and 2020 was $9.0 million and $6.1 million, respectively.

The increase in amortization charges is due to the prospective adjustment of the estimated useful life of the developed product rights for Auryxia that occurred in the fourth quarter of 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.

Research and development expenses were $40.5 million for the three months ended September 30, 2021, compared to $46.9 million for the three months ended September 30, 2020, a decrease of $6.4 million.

The decrease was primarily due to the following:

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Total net decrease $ (6.4)

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 program for vadadustat and ongoing or planned studies with respect to Auryxia, vadadustat and development of other potential product candidates.

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 for vadadustat (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 ongoing or planned studies with respect to Auryxia and 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.

Selling, general and administrative expenses were $46.4 million for the three months ended September 30, 2021, compared to $40.2 million for the three months ended September 30, 2020.

The increase of $6.2 million was primarily due to increases in headcount related costs and one-time legal costs.

For the remainder of 2021, we expect our selling, general and administrative expenses for our ongoing commercialization of Auryxia 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.

License expense related to royalties due to Panion relating to sales of Riona in Japan were $0.9 million and $0.7 million for the three months ended September 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.

Other expense, net, was $4.7 million for the three months ended September 30, 2021 compared to $1.9 million for the three months ended September 30, 2020.

Other expense, net, for the three months ended September 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)

Other expense, net, for the three months ended September 30, 2020 was primarily due to interest expense associated with our Term Loans.

Comparison of the Nine Months Ended September 30, 2021 and 2020

Nine Months Ended Increase

September 30, 2021 September 30, 2020 (Decrease)

(in thousands)

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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 $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

as the kidney patient populations that we serve continue to experience both higher hospitalization and mortality rates due to COVID-19.

Net product revenue was $100.1 million for the nine months ended September 30, 2021, compared to net product revenue of $94.3 million for the nine months ended September 30, 2020.

The increase was primarily due to an increase in units sold and improved payer mix.

partially offset by the negative impact from 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.

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.

License, collaboration and other revenue was $53.9 million for the nine months ended September 30, 2021 compared to $144.3 million for the nine months ended September 30, 2020.

We recognized $49.7 million in collaboration revenue for the nine months ended September 30, 2021 from our cost sharing arrangement under the Otsuka U.S.

Agreement and the Otsuka International Agreement, and royalty revenue under the MTPC Agreement.

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.

The $85.7 million decline in collaboration revenue was driven by lower payments recognized under both the Otsuka U.S.

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

We expect our Otsuka collaboration revenue to continue to decrease in the remainder of 2021 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.

Cost of goods sold of $76.0 million for the nine months ended September 30, 2021 consisted of costs associated with the manufacturing of Auryxia, $15.4 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 $7.1 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 of $92.8 million for the nine months ended September 30, 2020 consisted primarily of costs associated with the manufacturing of Auryxia and $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.

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.

During the nine months ended September 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 nine months ended September 30, 2021 and 2020 was $27.0 million and $24.3 million, respectively.

The increase in amortization charges is due to the prospective adjustment of the estimated useful life of the developed product rights for Auryxia that occurred in the fourth quarter of 2020.

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.

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.

This reduction was primarily driven by the compounding impact of the CMS Decision 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, 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.

Research and development expenses were $118.3 million for the nine months ended September 30, 2021, compared to $180.9 million for the nine months ended September 30, 2020, a decrease of $62.6 million.

The decrease was primarily due to the following:

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Total net decrease $ (62.6)

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.

Selling, general and administrative expenses were $129.3 million for the nine months ended September 30, 2021, compared to $113.6 million for the nine months ended September 30, 2020.

The increase of $15.7 million was primarily due to higher marketing expenses, increased headcount related costs, and one-time legal costs.

For the remainder of 2021, we expect our selling, general and administrative expenses for our ongoing commercialization of Auryxia 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.

License expense related to royalties due to Panion relating to sales of Riona in Japan were $2.5 million and $2.4 million for the nine months ended September 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.

Other expense, net, was $13.0 million for the nine months ended September 30, 2021 compared to $5.4 million for the nine months ended September 30, 2020.

Other expense, net, for the nine months ended September 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.

Other expense, net, for the nine months ended September 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.

As of September 30, 2021, we had cash and cash equivalents and available for sale securities of approximately $207.2 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.

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, 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:

Six Months Ended

June 30, 2021 June 30, 2020

Nine Months Ended

September 30, 2021 September 30, 2020

(in thousands)

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Financing activities 128,328 201,209

Net increase in cash, cash equivalents, and restricted cash $ 17,900 $ 98,036

Net (decrease) increase in cash, cash equivalents, and restricted cash $ (21,888) $ 21,916

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.

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.

Net cash used in operating activities of $190.2 million for the nine months ended September 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 amortization of intangibles of $27.0 million, fair value step-up of inventory sold or written off of $21.6 million, stock-based compensation expense of $18.1 million, an increase to the liability for excess purchase commitments of $15.4 million, write-downs of inventory of $7.1 million, and non-cash interest expense related to sale of future royalties of $6.8 million.

Net cash used in operating activities of $79.6 million for the nine months ended September 30, 2020 was largely driven by payments for the 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, stock-based compensation expense of $18.4 million, an increase to the liability for excess purchase commitments of $10.3 million and 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.

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.

Net cash provided by investing activities for the nine months ended September 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.

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.

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.

Net cash provided by financing activities for the nine months ended September 30, 2021 was $128.3 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 $82.8 million, and proceeds from the sale of stock under our employee stock purchase plan.

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.

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 have incurred losses and cumulative negative cash flows from operations since our inception in February 2007, and as of September 30, 2021, we had an accumulated deficit of $1.4 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.

If we receive regulatory approval of vadadustat in the U.S., we expect to incur significant incremental costs to our current operating plan to commercialize vadadustat, including costs of marketing, manufacturing and distribution.

The potential timely regulatory approval of vadadustat and the receipt of associated regulatory milestones is an important source of funding of our cash runway.

However, we will require additional funding to fund our operating plan beyond the next twelve months.

There are numerous risks and uncertainties associated with research, development and commercialization activities, and actual results could vary materially as a result of a number of factors, many of which are outside of our control.

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.

If we are unable to obtain sufficient funding, we could be required to delay our development efforts, limit activities and reduce costs, which could adversely affect our business prospects.

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.

We expect to finance future cash needs through product revenue, public or private equity or debt transactions, payments from our collaborators (including associated regulatory approval milestones), 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.

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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.

On November 11, 2019, Akebia, with Keryx as guarantor, entered into a loan agreement, or the Loan Agreement, with BioPharma Credit PLC as collateral agent and a lender, or the Collateral Agent, and BioPharma Credit Investments V (Master) LP as a lender, pursuant to which term loans in an aggregate principal amount of $100.0 million were made available to us in

two tranches, subject to certain terms and conditions, or the Term Loans.

As of September 30, 2021, other than as disclosed in Note 14 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, 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.

BioPharma Credit PLC subsequently transferred its interest in the Term Loans, solely in its capacity as a lender, to its affiliate, BPCR Limited Partnership.

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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.

As of September 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

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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:

During the nine months ended September 30, 2021, we had the following material change to our critical accounting policies as reported in our 2020 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.

Financial Statements (unaudited) included in this Quarterly Report on Form 10-Q) 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.

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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).

Financial Statements (unaudited) included in this Quarterly Report on Form 10-Q.

There were no other material changes to our critical accounting policies as reported in our 2020 Annual Report on Form 10-K.

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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).

Financial Statements (unaudited) included in this Quarterly Report on Form 10-Q.

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