Akebia Therapeutics, Inc. 10-K/A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K/A. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve significant risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report on Form 10-K/A, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Please also refer to the section under the heading “Note Regarding Forward-Looking Statements.” The Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth below gives effect to the revision of our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K/A to reflect the impact of errors in the periods impacted. For additional information and a detailed discussion of the revision, refer to Note 1, Revisions of Previously Issued Financial Statements, and Note 3, Summary of Significant Accounting Policies, included in the Notes to Financial Statements section of Part II, Item 8, “Financial Statements and Supplementary Data.” Business Overview We are a fully integrated biopharmaceutical company committed to addressing patients’ unmet needs. Since our initial public offering in 2014, we have built a business focused on developing and commercializing innovative therapeutics that we believe serves as a foundation for future growth. Our purpose is to better the life of each person impacted by kidney disease, and we have established ourselves as a leader in the kidney community. We believe our demonstrated ability to deliver value broadly to the kidney community has enabled us to build a sustainable company. While our current focus centers on people living with kidney disease, we believe our continued commitment to our products and pipeline assets, focusing on all patients who can realize a meaningful benefit from our medicines, will result in delivering value for shareholders. Our current portfolio includes: • Auryxia® (ferric citrate) , a medicine approved and marketed in the United States for two indications: (1) the control of serum phosphorus levels in adult patients with dialysis dependent chronic kidney disease, or DD-CKD, or the Hyperphosphatemia Indication, and (2) the treatment of iron deficiency anemia, or IDA, in adult patients with non-dialysis-dependent chronic kidney disease, or NDD-CKD. The product is also available in Japan and Taiwan. • Vafseo™ (vadadustat) , an oral hypoxia-inducible factor prolyl hydroxylase, or HIF-PH, inhibitor, is approved in Japan for the treatment of anemia due to chronic kidney disease, or CKD, in adult patients. Vadadustat is under regulatory review for the treatment of anemia due to CKD in Europe, where it has received a positive opinion from the Committee for Medicinal Products for Human Use, or CHMP, of the European Medicines Agency, or EMA, in adult patients on dialysis. Vadadustat is also under regulatory review for the treatment of anemia due to CKD in Australia, Korea, Taiwan and other countries. We continue to pursue a path to potentially gain approval for vadadustat in the U.S. Further, we have several lifecycle management and indication expansion opportunities currently under evaluation or in development for vadadustat. • HIF-PH inhibitors in preclinical development. The discovery of hypoxia-inducible factor, or HIF, laid the foundation to explore the central role of oxygen sensing in many diseases. As we have seen through the development of vadadustat as a treatment for anemia due to CKD, when stabilized, HIF triggers wide-ranging adaptive, protective responses during hypoxic or ischemic conditions. Our clinical team and research scientists are eager to further develop HIF-PH inhibitors for various indications including acute kidney injury, or AKI, and retinopathy of prematurity, or ROP. We continue to explore additional commercial and development opportunities to expand our pipeline and portfolio of novel therapeutics through both internal research and external innovation to leverage our fully integrated team. 58 Table of Contents Auryxia Today we market Auryxia in the United States with our well-established, nephrology-focused commercial organization. Auryxia is a non-calcium, non-chewable, orally administered tablet that was approved for marketing by the U.S. Food and Drug Administration, or FDA, in September 2014 as a phosphate binder for the Hyperphosphatemia Indication and was commercially launched in the United States shortly thereafter. In November 2017, Auryxia received marketing approval from the FDA for a second indication, the treatment of iron deficiency anemia, and was commercially launched for this indication in the United States shortly thereafter. Our Japanese sublicensee, Japan Tobacco, Inc., or JT, and its subsidiary, Torii Pharmaceutical Co., Ltd., or Torii, commercialize ferric citrate hydrate as Riona® in Japan. Averoa SAS, or Averoa, has an exclusive license to develop and commercialize ferric citrate in the European Economic Area, or EEA, Turkey, Switzerland and the United Kingdom. In 2022, Auryxia product revenue increased approximately 26.1% over 2021 due to the company’s focus on implementing a new contracting strategy in late 2021. Since 2018, Auryxia product revenue has grown at a compounded annual growth rate of approximately 18% due to market share gains and improved net price per pill, despite a 13% decline in total prescriptions for phosphate binders in the United States since 2018. Vadadustat We are seeking regulatory approval in the European Union and the United States for vadadustat as an oral treatment of anemia in adult DD-CKD patients. We and Mitsubishi Tanabe Pharma Corporation, or MTPC, are also seeking regulatory approval for vadadustat as a treatment for anemia in adult DD-CKD and NDD-CKD patients in the United Kingdom, Switzerland and Australia, and Korea and Taiwan, respectively. Vadadustat is currently pending an European Commission, or EC, approval decision. On February 23, 2023, the CHMP of the EMA adopted a positive opinion recommending the EC approve Vafseo™ for the treatment of symptomatic anemia associated with CKD in adults on chronic maintenance dialysis. We anticipate that the EC will issue a decision on the marketing authorization for Vafseo in May 2023, which would be applicable to all 27 European Union member states and Iceland, Norway and Liechtenstein. Following the termination of our U.S. and international collaboration agreements with Otsuka in June 2022, we regained full rights to vadadustat in Europe, Australia, China, Canada, Latin America, the Middle East and Russia. As we do not have a commercial presence in Europe, we are seeking a partner in Europe and will support the partner’s launch of vadadustat, if approved. We are seeking to identify and secure a partner that can effectively facilitate treatment of as many people as would benefit from vadadustat, if approved, thus maximizing the value of the asset. We submitted a New Drug Application, or NDA, to the FDA for vadadustat in March of 2021. On March 29, 2022, the FDA issued a complete response letter, or CRL, to our NDA for vadadustat. The FDA concluded that the data in the NDA do not support a favorable benefit-risk assessment of vadadustat for dialysis and non-dialysis patients. The FDA expressed safety concerns noting failure to meet non-inferiority in MACE in the non-dialysis patient population, the increased risk of thromboembolic events, driven by vascular access thrombosis in dialysis patients, and the risk of drug-induced liver injury. We believe there are compelling data supporting a positive benefit-risk profile for the use of vadadustat broadly in patients with CKD, including non-dialysis patients though we have always remained cautious about receiving a broad label for vadadustat that would extend to non-dialysis patients with anemia due to CKD. As such, we began the process to dispute the FDA ruling, and in October 2022, we submitted a Formal Dispute Resolution Request, or FDRR, with the FDA regarding the CRL, specifically related to DD-CKD adult patients. The appeal focused on the favorable balance of the benefits and risks of vadadustat for the treatment of adult DD-CKD patients in light of safety concerns expressed by the FDA in the CRL related to the rate of adjudicated thromboembolic events driven by vascular access thrombosis for vadadustat compared to the active comparator and the risk of drug-induced liver injury. In February 2023, we received a second interim response from the FDA to our FDRR, which is still under consideration by the FDA at the time of this filing. Following the termination of our collaboration agreement with Otsuka Pharmaceutical Co. Ltd., or Otsuka, we own full rights to vadadustat in the U.S., subject to our licensing agreement with Vifor (International) Ltd. (now a part of CSL Limited), or CSL Vifor. If we obtain FDA approval of vadadustat for DD-CKD adult patients, we plan to commercialize vadadustat in the United States with CSL Vifor. Leveraging our learnings from the research and development of vadadustat, and a breadth of scientific expertise on the HIF pathway, we believe there is potential to leverage HIFs to treat other hypoxic conditions and to explore the use of HIFs in acute settings. We believe this potential applies to vadadustat as well as other preclinical assets we are internally developing. 59 Table of Contents Regarding broader uses of vadadustat, in July 2020 we partially funded an investigator-sponsored clinical study conducted 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 treat acute respiratory distress syndrome, or ARDS, in adult patients who have been hospitalized due to COVID-19 and hypoxemia (O2 saturation ≤94%). The study was a phase 2, randomized, double-blind, placebo-controlled trial that measured the proportion of patients who had scores of 6, 7, or 8 on the National Institute of Allergy and Infectious Disease Ordinal Scale, or NIAID-OS, at Day 7 and Day 14, with Day 14 being the primary endpoint. While the study missed the primary endpoint, the data, detailed in the Clinical Development Program section, were encouraging. For reference, subjects receiving vadadustat demonstrated 94% probability for conferring benefit on the NIAID-OS at Day 14, slightly below the primary superiority threshold of >95% probability. We believe vadadustat has the potential to prevent the worsening of ARDS more broadly since the mechanism underlying the benefits are not specific to COVID-19, and we will further explore vadadustat in an acute care setting. Operating Overview We have incurred net losses in each year since inception. Our net losses were $94.2 million, $282.0 million and $384.8 million for the years ended December 31, 2022, 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 conducting clinical trials of, and seeking regulatory approval for, vadadustat, providing general and administrative support for these operations and protecting our intellectual property. Our ability to achieve profitability depends in part on our ability to manage our expenses. Following receipt of the CRL, in April 2022 and May 2022, we implemented a reduction of our workforce by approximately 42% across all areas of our company including several members of management (47% inclusive of the closing of the majority of open positions). These actions reflect our determination to refocus our strategic priorities around our commercial product, Auryxia®, and our development portfolio, and are steps in a cost savings plan to significantly reduce our expense profile. The workforce reduction included net charges totaling approximately $14.5 million, including costs for one-time termination benefits and contractual termination benefits for severance, healthcare, and related benefits of $11.3 million and non-cash stock-based compensation expense of $3.2 million. On November 7, 2022, we implemented a further reduction in workforce by approximately 14% consisting solely of individuals within the commercial organization as a result of our decision to shift to a strategic account management focused model for our commercial efforts. The workforce reduction included net charges totaling approximately $1.4 million, primarily related to one-time and contractual termination benefits including severance, non-cash stock-based compensation expense, healthcare and related benefits in the fourth quarter of 2022. During the year ended December 31, 2022, we recognized an aggregate of $15.9 million of restructuring charges in the consolidated statement of operations and comprehensive loss. See Note 6 to our consolidated financial statements in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K/A for further details of the reductions in workforce. We expect to continue to incur additional operating expenses, including additional research and development expenses to our pipeline, additional costs related to vadadustat, and research and development and selling, general and administrative expenses for ongoing development and commercialization of Auryxia, which could lead to operating losses for the foreseeable future. In addition to any additional costs not currently contemplated due to the events associated with or resulting from the workforce reductions noted above, our ability to achieve profitability and our financial position will depend, in part, on the rate of our future expenditures, on our product revenue from Auryxia, our collaboration revenue, our ability to successfully implement cost avoidance measures and reduce overhead costs and our ability to obtain additional funding. We expect to continue to incur significant expenses if and as we: • continue our commercialization activities for Auryxia and vadadustat, if we are able to obtain marketing approval for vadadustat following receipt of the CRL from the FDA in March 2022, and any other product or product candidate, including those that may be in-licensed or acquired; • address the issues identified in the CRL for vadadustat that we received from the FDA and pursue our appeal of the CRL for vadadustat with the FDA; • conduct and enroll patients in any clinical trials, including post-marketing 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; • seek marketing approvals for vadadustat and any other product candidate, including those that may be in-licensed or acquired; • maintain marketing approvals for Auryxia and vadadustat, if we are able to obtain marketing approval for vadadustat following receipt of the CRL from the FDA in March 2022, and any other product, including those that may be in-licensed or acquired; 60 Table of Contents • manufacture Auryxia, vadadustat and any other product or product candidate, including those that may be in-licensed or acquired, for commercial sale and clinical trials; • conduct discovery and development activities for 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; • continue to repay, and pay any associated pre-payment penalties, if applicable, the senior secured term loans in an aggregate principal amount of $67.0 million as of December 31, 2022, or the Term Loans, that were made available to us pursuant to the Loan Agreement; • make royalty, milestone or other payments under our license agreements and any future license agreements; • maintain, protect and expand our intellectual property portfolio; • make decisions with respect to our personnel, including the retention of key employees; • make decisions with respect to our infrastructure, including to support our operations as a fully integrated publicly traded biopharmaceutical company; and • experience any additional 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, 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 December 31, 2022, we raised approximately $793.5 million of net proceeds from the sale of equity, including $519.8 million from various underwritten public offerings, $223.7 million from at-the-market offerings, or ATM offerings, pursuant to prior sales agreements with Cantor Fitzgerald & Co., and $70.0 million from the sale of 7,571,429 shares of common stock to CSL Vifor. As of December 31, 2022, through our collaboration agreement with MTPC and our prior collaboration agreements with Otsuka, we received approximately $837.1 million in cost-share funding, and are not entitled to receive any additional cost-share funding. On June 30, 2022, we entered into a Termination and Settlement Agreement, or the Termination Agreement, with Otsuka, pursuant to which we received a nonrefundable and non-creditable payment of $55.0 million in consideration for the covenants and agreements set forth in the Termination Agreement. 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 July 15, 2022, or the Effective Date, we entered into the Second Amendment and Waiver with BioPharma Credit PLC, or the Collateral Agent, BPCR Limited Partnership, as a Lender, and BioPharma Credit Investments V (Master) LP, as a Lender, or the Second Amendment and Waiver, which amends and waives certain provisions of the Loan Agreement as amended by the First Amendment and Waiver between the Collateral Agent, the Lenders and us, dated February 18, 2022. The Collateral Agent and the Lenders are collectively referred to as Pharmakon. Pursuant to the Second Amendment and Waiver, we made prepayments totaling $25.0 million together with a prepayment premium of $0.5 million plus all accrued and unpaid interest on such prepayments of principal to the Effective Date, and Pharmakon agreed to waive or modify certain covenants in 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 in Note 7 to our consolidated financial statements in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K/A. Finally, on February 18, 2022, we entered into a Second Amended and Restated License Agreement, or the Vifor Second Amended Agreement, with CSL Vifor. Pursuant to the Vifor Second Amended Agreement, CSL Vifor made an upfront payment to us of $25.0 million in lieu of the previously disclosed milestone payment of $25.0 million that CSL Vifor was to pay to us following approval of vadadustat by the FDA. Also 61 Table of Contents pursuant to the Vifor Second Amended Agreement, Vifor contributed $40 million to a working capital fund established to partially fund our costs of purchasing vadadustat from our contract manufacturers, or the Working Capital Fund, which amount of funding will fluctuate, and which funding we are required to repay to CSL Vifor over time. Impacts of COVID-19 Pandemic The COVID-19 pandemic has presented a substantial public health and economic challenge around the world and continues to affect our patients, healthcare providers with whom we interact, customers, collaboration partners, CROs, contract manufacturing organizations, or CMOs, vendors, communities and business operations. We believe our revenue growth was negatively impacted by the COVID-19 pandemic in 2021 and 2022 primarily as the CKD patient populations that we serve experienced both high hospitalization and mortality rates due to COVID-19, and the pandemic had an adverse impact on the phosphate binder market in which Auryxia competes. Labor shortages and costs have adversely impacted dialysis providers. These impacts have refocused clinical efforts in addressing bone and mineral disorders like hyperphosphatemia to more acute operational issues to ensure patients receive dialysis treatments and still some patients have been rescheduled or missed treatments due to labor shortages. We believe, this and potentially other factors, has led to the reduction in the phosphate binder market, which has not experienced growth since early 2020. While we are unable to quantify the impact of the COVID-19 pandemic on future revenues and revenue growth, the COVID-19 pandemic and the ongoing impacts from the COVID-19 pandemic continue to adversely and disproportionately impact CKD patients and the phosphate binder market; therefore, we expect the COVID-19 pandemic and the ongoing impacts from the pandemic to continue to have a negative impact on our revenue growth for the foreseeable future. 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 previously 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 have, and could continue to, negatively impact our access to healthcare providers and, ultimately, our sales, including with respect to vadadustat, if approved. 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, 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 in the United States for Auryxia and will be for vadadustat, if approved, including the potential for further declines or changes in prescription trends and customer orders, which could have a material adverse effect on our business, results of operations and financial condition. 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. For example, areas of China have recently continued to implement lockdowns for COVID-19, which could impact the global supply chain. 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 (if approved in the United States and EMA and which is currently marketed under the trade name Vafseo TM by MTPC in Japan), which may result in increased costs and delays, or disruptions to the manufacturing and supply of our products and product candidates. 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 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 I, Item 1A. Risk Factors. 62 Table of Contents Financial Overview Revenue To date, our revenues have been derived from product revenue from commercial sales of Auryxia, 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, a nonrefundable, non-creditable termination fee pursuant to the terms of the Termination Agreement with Otsuka, 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 commercial sales of Auryxia, our collaborations with MTPC and Japan Tobacco, Inc., and its subsidiary, Torii Pharmaceutical Co., Ltd., collectively JT and Torii, and any other collaborations into which we may enter. We do not expect to recognize any material future revenue pursuant to our former collaboration with Otsuka. 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, changes in our excess purchase commitment liability, and royalties due to the licensor of Auryxia related to U.S. and Japan product sales recognized during the period. In addition, cost of goods sold includes personnel-related costs, including salaries and bonuses, employee benefits, and stock-based compensation attributable to employees in a particular function and associated with our products. Cost of goods sold also includes costs to manufacture drug product provided to MTPC for commercial sale of Vafseo in Japan. As a result of the Merger and the application of purchase accounting, cost 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 December 31, 2022 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 trials; • 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; • costs associated with preclinical, clinical and regulatory activities; and • costs associated with pre-launch inventory build for vadadustat in the United States and Europe, for which we received the CRL from the FDA in the United States in March 2022. 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 trials of Auryxia and vadadustat or if, when, or to what extent we will receive marketing approval for vadadustat or 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 trials and development of Auryxia and vadadustat will depend on a variety of factors including, but not limited to, those described in Part I, 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 63 Table of Contents trials in addition to or different from those that we currently anticipate, or if we experience delays in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. From inception through December 31, 2022, we have incurred $1.6 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 trials, and drug substance and drug product manufacturing for clinical trials. In 2020, we completed our global Phase 3 clinical program for vadadustat to which the majority of our research and development costs are attributable. A significant portion of our research and development costs have been external costs, which we track on a program-by-program basis. These external costs include fees paid to investigators, consultants, central laboratories and 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 years ended December 31, 2022 and 2021: Year ended December 31, 2022 2021 (in thousands) Vadadustat external costs $ 58,785 $ 48,506 External costs for other programs 21,422 25,907 Total external research and development expenses 80,207 74,413 Headcount, consulting, facilities and other 49,779 73,439 Total research and development expenses $ 129,986 $ 147,852 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. 64 Table of Contents Results of Operations Comparison of the Years Ended December 31, 2022 and 2021 Year ended December 31, Increase (Decrease) 2022 2021 (In Thousands) Revenues: Product revenue, net $ 176,949 $ 140,288 $ 36,661 License, collaboration and other revenue 115,535 71,362 44,173 Total revenues 292,484 211,650 80,834 Cost of goods sold: Product 49,526 114,629 (65,103) Amortization of intangible asset 36,042 36,042 — Total cost of goods sold 85,568 150,671 (65,103) Operating expenses: Research and development 129,986 147,852 (17,866) Selling, general and administrative 138,601 174,140 (35,539) License expense 3,175 3,489 (314) Restructuring 15,933 — 15,933 Total operating expenses 287,695 325,481 (37,786) Operating loss (80,779) (264,502) 183,723 Other expense, net (12,541) (17,522) 4,981 Loss on extinguishment of debt (906) — (906) Net loss before income taxes (94,226) (282,024) 187,798 Benefit from income taxes — — — Net loss $ (94,226) $ (282,024) $ 187,798 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 $176.9 million for the year ended December 31, 2022, compared to net product revenue of $140.3 million for the year ended December 31, 2021. The increase was primarily due to pricing, improved payor mix and a 2022 year-end inventory build by a customer that exceeded 2021, partially offset by a decline in volume during 2022. License, Collaboration and Other Revenue. License, collaboration and other revenue was $115.5 million for the year ended December 31, 2022, compared to $71.4 million for the year ended December 31, 2021. On June 30, 2022, we and Otsuka entered into the Termination Agreement, which, among other things, terminated the 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 of the United States, or the Otsuka International Agreement. During the year ended December 31, 2022, we recognized $55.0 million in collaboration revenue related to a payment received pursuant to the terms of the Termination Agreement with Otsuka, $15.5 million related to previously deferred revenue as of the date of termination and $9.6 million of non-cash consideration related to Otsuka's obligations to complete certain agreed upon clinical activities related to the Phase 3b clinical trial of vadadustat Otsuka is conducting, in accordance with the current study protocol, at its own cost and expense. We also recognized $19.1 million in collaboration revenue for the year ended December 31, 2022 from the Otsuka U.S. Agreement and the Otsuka International Agreement prior to the termination. We also recognized royalty revenue under the MTPC Agreement, and revenue under our supply agreement with MTPC, or the MTPC Supply Agreement, totaling $18.0 million. On December 16, 2022, we, MTPC, and Esteve Química, S.A., or Esteve, executed an Assignment of Supply Agreement, or the Assignment Agreement, pursuant to which the supply agreement between us and Esteve, or the Esteve Agreement, was assigned to MTPC. The Assignment Agreement transferred the rights and obligations of the Esteve Agreement to MTPC, including the obligations under certain purchase orders issued by us and accepted by Esteve. Therefore, we expect significantly less revenue in the future under the MTPC Supply Agreement. We recognized $65.5 million in collaboration revenue for the year ended December 31, 2021 from the Otsuka U.S. Agreement and the Otsuka International Agreement, royalty revenue earned under the MTPC Agreement, and revenue under our Supply Agreement with MTPC. 65 Table of Contents Cost of Goods Sold - Product . Cost of goods sold of $49.5 million for the year ended December 31, 2022 primarily consisted of costs associated with the manufacturing of Auryxia and supply of Vafseo to MTPC for commercial sale in Japan, $28.7 million in termination fees in connection with the BioVectra Termination Agreement in the fourth quarter of 2022, and $30.2 million primarily related to inventory reserves associated with unusable drug substance. These costs were offset by a non-cash reduction of our excess purchase commitment liability of $65.9 million driven by the reduction in purchase commitments due to execution of the Termination Agreement with BioVectra. See Note 16 to our consolidated financial statements in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K/A for further details of the BioVectra termination fees and decrease to the liability for excess purchase commitments. Cost of goods sold of $114.6 million for the year ended December 31, 2021 primarily consisted of costs associated with the manufacturing of Auryxia and supply of Vafseo to MTPC for commercial sale in Japan, $30.3 million in non-cash charges related to our excess purchase commitment liability, $21.6 million in non-cash charges related to the fair-value inventory step-up from the application of purchase accounting, and $15.0 million primarily related to excess and obsolescence reserves associated with Auryxia as well as inventory reserves associated with a previously disclosed manufacturing quality issue related to Auryxia. Cost of Goods Sold - Amortization of Intangible Asset. Amortization of the intangible asset relates to the acquired developed product rights for Auryxia, which is being amortized using a straight-line method over its estimated useful life of approximately six years. Amortization of our intangible asset during each of the years ended December 31, 2022 and 2021 was $36.0 million. Research and Development Expenses . Research and development expenses were $130.0 million for the year ended December 31, 2022, compared to $147.9 million for the year ended December 31, 2021. The net decrease of $17.9 million was due to the following changes as compared to the year ended December 31, 2021: (in millions) Vadadustat external development expenses $ 5.8 Headcount, consulting, facilities and other (23.7) Total net decrease $ (17.9) The decrease in research and development expense was primarily due to decreased headcount related costs as a result of the April 2022 reduction in force, decreased consulting costs, and decreased outsourced contract services. Also during the year ended December 31, 2021, we made an upfront payment of $3.0 million to Cyclerion for an exclusive global license to develop and commercialize praliciguat, an investigational oral sGC stimulator, which was recorded to research and development expense which did not reoccur during the year ended December 31, 2022. Although we expect our research and development expenses to continue to decrease in the near term, 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 product candidates. Selling, General and Administrative Expenses . Selling, general and administrative expenses were $138.6 million for the year ended December 31, 2022, compared to $174.1 million for the year ended December 31, 2021. The decrease of $35.5 million was primarily due to decreased headcount related costs as a result of both the April 2022 and November 2022 reductions in force, decreased one-time legal costs, and lower marketing expenses following receipt of the CRL for vadadustat. We expect our selling, general and administrative expenses to continue to decrease as we reduce our expense profile. License Expenses. License expense related to royalties due to Panion relating to sales of Riona in Japan were $3.2 million and $3.5 million for the years ended December 31, 2022 and 2021, respectively. Restructuring . Restructuring expenses were $15.9 million for the year ended December 31, 2022 due to one-time termination benefits and contractual termination benefits for severance, healthcare, and non-cash stock-based compensation related to the April 2022 and November 2022 reductions in force. There were no restructuring expenses for the year ended December 31, 2021. Other Expense, Net . Other expense, net, was $12.5 million for the year ended December 31, 2022, compared to $17.5 million for the year ended December 31, 2021. The decrease was primarily due to a decrease in interest expense as a result of principal prepayments totaling $25.0 million made on the Term Loans pursuant to the Second Amendment and Waiver in the year ended December 31, 2022, as well as an additional $8.0 million of quarterly principal payments made on the Term Loans pursuant to the Loan Agreement with Pharmakon, reducing our outstanding balance on the Term Loans. The decrease was also related to a 66 Table of Contents decrease in the fair value of our derivative liability related to the Loan Agreement with Pharmakon during the year ended December 31, 2022. Loss on Extinguishment of Debt. During the year ended December 31, 2022, we recorded a debt extinguishment loss of $0.9 million related to the principal prepayments made on the Term Loans pursuant to the Second Amendment and Waiver. Comparison of the Years Ended December 31, 2021 and 2020 For discussion of our 2021 results and a comparison with 2020 results please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Conditions and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 that was filed with the SEC on March 1, 2022, or the 2021 Form 10-K. We have not revised our results of operations for the years ended December 31, 2021 and 2020 as presented in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations - 2021 as compared to 2020” section of our 2021 Form 10-K. The errors that we have corrected in the consolidated financial statements for the fiscal years ended December 31, 2021 and 2020 as disclosed in Note 1, “Revision of Previously Issued Financial Statements” did not have a material impact on management’s discussion contained in our 2021 Form 10-K. Liquidity and Capital Resources We have funded our operations principally through sales of our common stock, payments received from our collaboration partners, product sales, debt, a royalty transaction and a refund liability to a customer. As of December 31, 2022, we had cash and cash equivalents of approximately $90.5 million. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. On April 7, 2022, we entered into an Open Market Sale Agreement SM , or the Sales Agreement, with Jefferies LLC, or Jefferies, as agent, for the offer and sale of common stock at current market prices in amounts to be determined from time to time. Also, on April 7, 2022, we filed a prospectus supplement relating to the Sales Agreement, pursuant to which we are able to offer and sell under the Sales Agreement up to $26.0 million of our common stock at current market prices from time to time. From the date of filing of the prospectus supplement through the date of the filing of the Original 10-K, we have not sold any shares of our common stock under this program. As of December 31, 2022, through our collaboration agreements with Otsuka and MTPC we received approximately $837.1 million in cost-share funding, and are not entitled to receive any additional cost-share funding. Cash Flows The following table sets forth the primary sources and uses of cash for each of the periods set forth below: Year ended December 31, 2022 2021 2020 (In Thousands) Net cash provided by (used in): Operating activities $ (73,154) $ (252,965) $ (110,388) Investing activities (114) 39,941 (40,004) Financing activities 14,598 133,731 231,720 Net (decrease) increase in cash, cash equivalents and restricted cash $ (58,670) $ (79,293) $ 81,328 Operating Activities . Net cash used in operating activities during the year ended December 31, 2022 was $73.2 million as compared to $253.0 million for the year ended December 31, 2021. The decrease in cash used was primarily due to a lower net loss driven by increased revenue as well as decreased operating expenses. The decrease in cash used was also due to lower accounts receivable and decreased inventory purchases. This was partially offset by payments made related to the reductions in force as well as decreases in accounts payable and accrued expenses and other current liabilities. Net cash used in operating activities during the year ended December 31, 2021 of $253.0 million was largely driven by net payroll-related expenses, rebate payments and payments for inventory. Investing Activities . Net cash used in investing activities during the year ended December 31, 2022 of $0.1 million was comprised of purchases of equipment. 67 Table of Contents Net cash provided by investing activities during the year ended December 31, 2021 of $39.9 million 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 year ended December 31, 2022 was $14.6 million and consisted of net proceeds from a refund liability to a customer of $40.0 million, net proceeds from the issuance of common stock of $7.1 million, and proceeds from the sale of stock under our employee stock purchase plan, partially offset by principal payments of debt of $33.0 million. Net cash provided by financing activities for the year ended December 31, 2021 was $133.7 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 prior ATM sales agreement of $88.2 million, and proceeds from the exercise of stock options and from the sale of stock under our employee stock purchase plan. A discussion of changes in our cash flow from the year ended December 31, 2020 to the year ended December 31, 2021 can be found in Part II, Item 7, "Management's Discussion and Analysis of Financial Conditions and Results of Operations" of the 2021 Form 10-K. Operating Capital Requirements We have one product, Auryxia, approved for commercial sale in the United States. While we expect to be able to generate positive cash flows from our existing operations, we have not generated, and may not generate, enough product revenue from the sale of Auryxia to realize net profits from product sales. We currently have exclusive rights under a series of patents and patent applications to commercialize Auryxia in the U.S. that currently protect us from generic drug competition until March 2025. Following loss of exclusivity in the U.S., we may not be able realize enough product revenue from sales of Auryxia to realize net profits from product sales after March 2025. We have incurred losses and cumulative negative cash flows from operations in each year since our inception in February 2007, and as of December 31, 2022, we had an accumulated deficit of $1.6 billion. Our current operating plan anticipates continued increasing levels of cash flows from operations. We expect to continue to incur additional research and development expenses related to our pipeline, additional costs related to vadadustat, and research and development and selling, general and administrative expenses for 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 filing of our 2022 Annual Report on Form 10-K on March 10, 2023 . Our operating plan includes the effects of certain cost avoidance measures and the reduction of overhead costs that resulted from the amendment or termination of contractual arrangements with certain supply and collaboration partners and the reduction of operating expenses. During 2022, we implemented certain cost avoidance measures. For example, during the fourth quarter of 2022, we and BioVectra entered into a Termination Agreement, pursuant to which the parties agreed, among other things, to terminate, effective immediately, any and all existing agreements entered into between the parties in connection with the manufacture and supply, by BioVectra to us, of Auryxia drug substance, which eliminated future contractual commitments with this supply partner. We, MTPC, and Esteve also executed an Assignment Agreement, pursuant to which the Supply Agreement between us and Esteve was assigned to MTPC. The Assignment Agreement transferred our rights and obligations under the Supply Agreement to MTPC, specifically including the obligations under certain purchase orders issued by us and accepted by Esteve. In addition, in April, May and November of 2022, the Board of Directors approved reductions of our workforce by a combined total of approximately 56% consisting of individuals across our company. These actions reflect our determination to refocus our strategic priorities and drive revenue around our commercial product, Auryxia®, and our development portfolio, and are steps in a cost savings plan to significantly reduce our expense profile in line with being a single commercial product company (see Note 6 to our consolidated financial statements in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K/A). We expect to finance future cash needs through product revenue, potential strategic transactions, public or private equity or debt transactions, expense management, or a combination of these approaches. We plan to reduce our need for future financing through product sales, expense management, and cost avoidance measures in line with being a single commercial product company. We believe that the execution of further cost avoidance measures, future decisions by the FDA or foreign regulatory agencies related to the potential regulatory approval of vadadustat, and our ability to generate additional value from vadadustat, if approved, through partnerships or other strategic transactions could potentially further extend our cash runway for a period greater than twelve months. However, these future decisions and transactions are not contemplated in our operating plan and are outside of our control. Additionally, with Loss of Exclusivity, or LOE, in March of 2025, we believe the CMS decision to include phosphate binders in the dialysis bundle could potentially lead to higher sales of Auryxia after the LOE date than in other LOE scenarios, and plan to work with payors and providers to continue the use of Auryxia beyond LOE. Assuming we are successful in those endeavors, we will require additional funding to fund our strategic growth beyond Auryxia or to pursue 68 Table of Contents later stage development and commercial activities for our product candidates and any additional product or product candidates, including those that may be in-licensed or acquired. There can be no assurance that the current operating plan will be achieved in the time frame anticipated by us, or that our cash resources will fund our operating plan for the period of time anticipated by us, or that additional funding will be available on terms acceptable to us, or at all. 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 numerous risks and uncertainties, and actual results could vary as a result of a number of factors, many of which are outside our control. 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. If our operating performance deteriorates significantly from the levels achieved in 2022, it could have an effect on our liquidity and our ability to continue as a going concern in the future. Our future funding requirements, both near- and long-term, will depend on many factors including, but not limited to, those described under Part I, Item 1A. Risk Factors under the heading "Risks Related to our Financial Position, Need for Additional Capital and Growth Strategy." Contractual Obligations and Commitments Leases We lease approximately 65,167 square feet of office and lab space in Cambridge, Massachusetts under a lease which was most recently amended in November 2020, collectively the Cambridge Lease. Under the Third Amendment to the Cambridge Lease, or the Third Amendment, executed in July 2016, total monthly lease payments under the initial base rent were approximately $242,000 and are subject to annual rent escalations. In addition to such annual rent escalations, base rent payments for a portion of said premises commenced on January 1, 2017 in the monthly amount of approximately $22,000. The Fourth Amendment to the Cambridge Lease, executed in May 2017, provided additional storage space to us and did not impact rent payments. In April 2018, we entered into a Fifth Amendment to the Cambridge Lease, or the Fifth Amendment, for an additional 19,805 square feet of office space on the 12 th floor. Monthly lease payments for the existing 45,362 square feet of office and lab space, under the Third Amendment, remain unchanged. The new space leased by us was delivered in September 2018 and additional monthly lease payments of approximately $135,000 commenced in February 2019 and are subject to annual rent escalations, which commenced in September 2019. In November 2020, we entered into a Sixth Amendment to the Cambridge Lease, or the Sixth Amendment, to extend the term of the Cambridge Lease with respect to the lab space from November 30, 2021 to January 31, 2025. The Sixth Amendment includes two months of free rent starting in December 2020 and additional monthly lease payments of approximately $48,000 which commenced in December 2021, and is subject to annual rent escalations, which commenced in December 2022. Additionally, as a result of the Merger, we have a lease for 27,300 square feet of office space in Boston, Massachusetts, or the Boston Lease. The total monthly lease payments under the Boston Lease are approximately $136,000 and are subject to annual rent escalations. On February 24, 2022, we entered into a First Amendment to Lease, or the First Lease Amendment, with CLPF One Marina Park Drive LLC (successor-in-interest to Fallon Cornerstone One MPD LLC), or the Landlord, amending the Boston Lease. Pursuant to the First Lease Amendment, we agreed to extend the term of the Boston Lease until July 31, 2031. The monthly lease payment pursuant to the First Amendment will be $200,122 commencing on August 1, 2023 and subject to annual rent escalation of approximately 2% commencing on August 1, 2024. The First Lease Amendment also includes a Landlord’s allowance for certain leasehold improvements to the Premises in an amount of up to $1,954,680, provided that such allowance must be used prior to August 1, 2024. In September 2019, Keryx entered into an agreement to sublease the Boston office space to Foundation Medicine, Inc., or Foundation. The sublease is subject and subordinate to the Boston Lease between Keryx and the landlord. The term of the sublease commenced on October 16, 2019, upon receipt of the required consent from the landlord for the sublease agreement, and expired on February 27, 2023. Keryx continues to be obligated for all payment terms pursuant to the Boston Lease, and we will guaranty Keryx’s obligations under the sublease. Term Loans On November 11, 2019, Akebia, with Keryx as guarantor, entered into a loan agreement, or the Loan Agreement, with BioPharma Credit PLC as collateral agent and a lender, or the Collateral Agent, and BioPharma Credit Investments V (Master) LP as a lender, pursuant to which term loans in an aggregate principal amount of $100.0 million were made available to us in two tranches, subject to certain terms and conditions, or the Term Loans. BioPharma Credit PLC subsequently transferred its interest in the Term Loans, solely in its capacity as a lender, to its affiliate, BPCR Limited Partnership. The Collateral Agent and the lenders are collectively referred to as Pharmakon. The first tranche of $80.0 million, or Tranche A, was drawn on November 25, 2019, or the Tranche A Funding Date, and the second tranche of $20.0 million, or Tranche B, was drawn on December 10, 2020, or the Tranche B Funding Date. During the twelve months ended December 31, 2022, we made our first quarterly principal payment under the Term Loans of $8.0 million. In addition, on July 15, 2022, pursuant to the Loan 69 Table of Contents Agreement, as amended, we made prepayments totaling $25.0 million together with a prepayment premium of $0.5 million plus all accrued and unpaid interest on such prepayments of principal to the Effective Date, and Pharmakon agreed to waive or modify certain covenants in the Loan Agreement. A more detailed description of the Term Loans can be found in Note 12 to our consolidated financial statements in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K/A. Liability Related to Sale of Future Royalties On February 25, 2021, we entered into a royalty interest acquisition agreement, or the Royalty Agreement, with 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 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 Royalty Agreement can be found in Note 7 to our consolidated financial statements in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K/A. Refund Liability to Customer On February 18, 2022, pursuant to the Vifor Second Amended Agreement, CSL Vifor contributed $40.0 million to the Working Capital Fund, established to partially fund our costs of purchasing vadadustat from our contract manufacturers, which amount of funding will fluctuate, and which funding we are required to repay to CSL Vifor over time. The $40.0 million initial contribution to the Working Capital Fund represented 50% of the amount of purchase orders that we had placed with our contract manufacturers for the supply of vadadustat for the United States, or the Territory, already delivered as of the effective date of the Vifor Second Amended Agreement, and to be delivered through the end of 2023. We have recorded the Working Capital Fund as a refund liability under ASC 606, Revenue from Contracts with Customers . We accounted for the refund liability as a debt arrangement with zero coupon interest. We imputed interest on the refund liability to the customer at a rate of 15.0% per annum and recorded an initial discount on the refund liability to the customer and a related deferred gain as of the date the funds were received from CSL Vifor, which was March 18, 2022. The discount on the note payable is being amortized to interest expense using the effective interest method over the expected term of the refund liability. The deferred gain is being amortized to interest income on a straight-line basis over the expected term of the refund liability. A more detailed description of the Working Capital Fund can be found in Note 5 to our consolidated financial statements in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K/A. Manufacturing Agreements As a result of the Merger, our contractual obligations include Keryx’s commercial supply agreement with Siegfried Evionnaz SA, or Siegfried, and previously included a commercial supply agreement with BioVectra Inc., or BioVectra, to supply commercial drug substance for Auryxia. On December 22, 2022, we entered into a Termination Agreement with BioVectra, pursuant to which we and BioVectra agreed, among other things, to terminate, effective immediately, any and all existing agreements entered into between us in connection with the manufacture and supply, by BioVectra to us, of Auryxia drug substance. Under the terms of the BioVectra Termination Agreement, we agreed to pay BioVectra a total of $32.5 million consisting of (i) an upfront payment of $17.5 million and (ii) six quarterly payments of $2.5 million commencing in April 2024. We made the initial payment of $17.5 million in December 2022. In addition, we and BioVectra have released one another from all existing and future claims and liabilities and agreed to return certain materials and documents. Furthermore, as it relates to all open purchase orders, BioVectra is relieved from any obligations to manufacture any product or perform services under any such open purchase orders, and we are relieved from any obligations to purchase any product under such open purchase orders. We are also relieved from any obligations to pay any outstanding purchase orders or invoices related to performance by BioVectra of services and all other obligations under our agreements with BioVectra. Pursuant to the Siegfried Master Manufacturing Services and Supply Agreement, as amended through December 31, 2022, or the Siegfried Agreement, we have agreed to purchase a minimum quantity of drug substance of Auryxia at predetermined prices. The term of the Siegfried Agreement was to expire on December 31, 2022, but was automatically extended into 2023 as a result of Siegfried's updated production schedule for delivery of product originally scheduled for delivery in 2022. The 70 Table of Contents Siegfried Agreement provides us and Siegfried with certain termination rights. As of December 31, 2022, we are required to purchase a minimum quantity of drug substance under the Siegfried Agreement for Auryxia annually at a total cost of approximately $8.4 million through the third quarter of 2023. As of the date of the filing of this Annual Report on Form 10-K/A, we have amended the Siegfried Agreement pursuant to which, we agreed to extend the term and purchase a minimum quantity of drug substance of Auryxia at a predetermined price as further described in Note 18 to our consolidated financial statements in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K/A. On April 9, 2019, we entered into a Supply Agreement with Esteve Química, S.A., or Esteve, or the Esteve Agreement. The Esteve Agreement included the terms and conditions under which Esteve would manufacture vadadustat drug substance for commercial use. On December 16, 2022, we, MTPC, and Esteve executed an assignment agreement, or the Assignment Agreement, pursuant to which the Esteve Agreement was assigned to MTPC. The Assignment Agreement transferred our rights and obligations under the Esteve Agreement to MTPC, including the obligations under certain purchase orders issued by us and accepted by Esteve. We will have no further obligation to take delivery of, or pay for, product delivered by Esteve under the Esteve Agreement or the transferred purchase orders. On March 11, 2020, we entered into a Supply Agreement with Patheon Inc., or Patheon, or the Patheon Agreement. The Patheon Agreement includes the terms and conditions under which Patheon will manufacture vadadustat drug product for commercial use. Pursuant to the Patheon Agreement, we provide Patheon a long-term forecast on an annual basis, as well as short-term forecasts on a quarterly basis, or the Patheon Forecast. The Patheon Forecast reflects our needs for commercial supply of vadadustat drug product produced by Patheon, represented as a quantity of drug product per calendar quarter. The parties have agreed to a volume-based pricing structure under the Patheon Agreement. The Patheon Agreement had an initial term beginning March 11, 2020 and ending June 30, 2023 and automatically renews for successive one-year terms unless either party gives the other party eighteen months' prior written notice. The current term of the Patheon Agreement ends June 30, 2025. Pursuant to the Patheon Agreement, we have agreed to purchase a certain percentage of the global demand for vadadustat drug product from Patheon. As of December 31, 2022, we had a minimum commitment with Patheon for $3.1 million through the third quarter of 2023. On April 2, 2020, we entered into a Supply Agreement with STA Pharmaceutical Hong Kong Limited, a subsidiary of WuXi AppTec, or WuXi STA, as amended on April 15, 2021, or the WuXi STA DS Agreement. The WuXi STA DS Agreement includes the terms and conditions under which WuXi STA will manufacture vadadustat drug substance for commercial use. Pursuant to the WuXi STA DS Agreement, we provide rolling forecasts to WuXi STA on a quarterly basis, or the WuXi STA DS Forecast. The WuXi STA DS Forecast reflects our needs for vadadustat drug substance produced by WuXi STA over a certain number of quarters. The parties have agreed to a volume-based pricing structure under the WuXi STA DS Agreement. The WuXi STA DS Agreement has an initial term of four years, beginning April 2, 2020 and ending April 2, 2024. Pursuant to the WuXi STA DS Agreement, we have agreed to purchase a certain percentage of the global demand for vadadustat drug substance from WuXi STA. As of December 31, 2022, we have committed to purchase $15.3 million of vadadustat drug substance from WuXi STA through the end of 2023. On February 10, 2021, we entered into a Supply Agreement with WuXi STA, or the WuXi STA DP Agreement. The WuXi STA DP Agreement includes the terms and conditions under which WuXi STA will manufacture and supply vadadustat drug product for commercial purposes. Pursuant to the WuXi STA DP Agreement, we will provide rolling forecasts to WuXi STA on a quarterly basis, or the WuXi STA DP Forecast. Each WuXi STA DP Forecast will reflect the quantities of vadadustat drug product that we expect to order from WuXi STA over a certain number of months, represented as a quantity of vadadustat drug product per calendar quarter. Pursuant to the WuXi STA DP Agreement, we have agreed to purchase a certain percentage of global demand for vadadustat drug product from WuXi STA. The parties have agreed to a volume-based pricing structure under the WuXi STA DP Agreement. The vadadustat drug product price will remain fixed for the first 12 months and thereafter shall be annually reviewed by us and WuXi STA. We will also reimburse WuXi STA for certain reasonable expenses. The WuXi STA DP Agreement has an initial term of four years, beginning February 10, 2021 and ending February 10, 2025. The WuXi STA DP Agreement may be renewed or extended by mutual agreement of us and WuXi STA with at least 18 months’ prior written notice. The WuXi STA DP Agreement allows us to terminate the relationship on 180 calendar days’ prior written notice to WuXi STA for any reason. In addition, each party has the ability to terminate the WuXi STA DP Agreement upon the occurrence of certain conditions. Other Third Party Contracts We contract with various organizations to conduct research and development activities with remaining contract costs to us of approximately $90.2 million as of December 31, 2022. The scope of the services under these research and development contracts can be modified and the contracts cancelled by us upon written notice, and therefore not included in the table of contractual obligations and commitments. In some instances, the contracts may be cancelled by the third party upon written notice. 71 Table of Contents 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 consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these 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 consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue, inventory, our excess purchase commitment liability, liabilities related to sale of future royalties, refund liabilities to customers, impairment of intangible asset, and income taxes. 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. While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K/A, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our consolidated financial statements. Product Revenue, Net We sell Auryxia in the United States, primarily to wholesale distributors as well as certain specialty pharmacy providers, collectively, Customers. These Customers resell our product to health care providers and patients. In addition to distribution agreements with Customers, we enter into arrangements with health care providers and payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts with respect to the purchase of our product. We recognize revenue on product sales when the Customer obtains control of our product, which occurs at a point in time, typically upon delivery to the Customer. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that we would have recognized is one year or less. Revenue from product sales is recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established and are based on limited rights to return in accordance with our return policy as well as various incentives offered within contracts between us and our Customers, health care providers, payors and other indirect customers relating to sales of our products. These reserves are based on the amounts earned or to be claimed on the related sales. These reserves include: • Trade Discounts and Allowance s: Discounts include incentive fees that are explicitly stated in our contracts. In addition, we compensate (through trade discounts and allowances) our Customers for sales order management, data and distribution services. • Product Returns : Consistent with industry practice, we generally offer Customers a limited right of return which allows for the product to be returned when the product expiry is within an allowable window, when the quantity delivered is different than the quantity ordered, the product is damaged in transit prior to receipt by the customer or is subject to a recall. This right of return generally lapses once the product is provided to a patient. We estimate the amount of our product sales that may be returned for credit by our Customers in our gross-to-net calculations. We estimated the accrual for product returns using a percentage of gross revenue based on historical return rates and evaluated and considered the estimated amount of inventory in the distribution channel, available industry data and our historical return and sale information. • Provider Chargebacks and Discounts : Chargebacks for fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to Customers who directly purchase the product from us. Customers charge us for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. Reserves for chargebacks consist of credits that we expect to issue for units that remain in the distribution channel at each reporting period end that we expect will be sold to qualified healthcare providers, and chargebacks that Customers have claimed but for which we have not yet issued a credit. We review the methodology utilized in estimating the reserve for chargebacks in connection with analyzing our product return reserve each quarter and make revisions as considered necessary to reasonably estimate our potential future obligation. • Commercial and Medicare Part D Rebates : We contract with various commercial payor organizations, primarily health insurance companies and pharmacy benefit managers, for the payment of rebates with respect to utilization of our products. We estimate the rebates for commercial and Medicare Part D payors based upon (i) our contracts with the payors and (ii) information obtained from our Customers and other third parties regarding the payor mix for Auryxia. • Other Government Rebates : We are subject to discount obligations under state Medicaid programs and other government programs. We estimate Medicaid and other government programs rebates based upon a range of possible 72 Table of Contents outcomes that are probability-weighted for the estimated payor mix. For Medicare, we also estimate the number of patients in the prescription drug coverage gap for whom we will owe an additional liability under the Medicare Part D program. Our liability for these rebates consists of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and estimated future claims that will be made for product that has been recognized as revenue, but which remains in the distribution channel at the end of each reporting period. • Other Incentives : Other incentives that we offer include voluntary patient assistance programs such as our co-pay assistance program, which are intended to provide financial assistance to qualified commercially insured patients with prescription drug co-payments required by payors. The calculation of the accrual for co-pay assistance is based on actual claims processed during a given period, as well as historical utilization data to estimate the amount we expect to receive associated with product that has been recognized as revenue, but remains in in the distribution channel at the end of each reporting period. When appropriate, these estimates take into consideration a range of possible outcomes which are probability-weighted in accordance with the expected value method in ASC 606 for relevant factors such as our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the respective underlying contracts. The preceding estimates and judgments materially affect our recognition of net product revenues. Changes in our estimates of net product revenues could have a material effect on net product revenues recorded in the period in which we determine that change occurs. Collaboration Revenues We enter into out-license and collaboration agreements which are within the scope of ASC 606, under which we license certain rights to our product candidates to third parties. The terms of these arrangements typically include payment to us of one or more of the following: non-refundable, up-front license fees; development, regulatory, and commercial milestone payments; payments for manufacturing supply services we provide through our contract manufacturers; and royalties on net sales of licensed products. Each of these payments may result in license, collaboration and other revenue, except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues. For elements of our collaboration agreements that are accounted for pursuant to ASC 606, we must develop assumptions that require judgment to determine whether the individual promises should be accounted for as separate performance obligations or as a combined performance obligation, and to determine the stand-alone selling price for each performance obligation identified in the contract. We use key assumptions to determine the stand-alone selling price, which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates, and probabilities of technical and regulatory success. If the license to our intellectual property is determined to be distinct from the other performance obligations identified in an out-license and collaboration arrangement, we recognize revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. With regard to the Otsuka collaboration agreements, we recognized revenue related to amounts allocated to the identified performance obligation on a proportional performance basis as the underlying services are performed. The preceding estimates and judgments materially affect our recognition of collaboration revenues. Changes in our estimates of forecasted development costs could impact proportional performance percentages and could have a material effect on collaboration revenue recorded in the period in which we determine that change occurs. Refund Liability to Customer We treat the refund liability to customer as a zero-coupon debt financing, which is recorded at net present value. We recorded an initial discount on the refund liability to the customer and a corresponding deferred gain to the refund liability to customer on the consolidated balance sheet as of the date the funds were received from CSL Vifor, which was March 18, 2022. The discount on the note payable is being amortized to interest expense using the effective interest method over the expected term of the refund liability. The deferred gain is being amortized to interest income on a straight-line basis over the expected term of the refund liability. 73 Table of Contents Inventories We value our inventories at the lower-of-cost or net realizable value. We determine the cost of our inventories, which includes amounts related to materials and manufacturing overhead, on a first-in, first-out basis. We classify inventory costs as long-term, in other assets in our consolidated balance sheets, when we expect to utilize the inventory beyond our normal operating cycle. We perform an assessment of the recoverability of capitalized inventory during each reporting period, and write down any excess and obsolete inventory to our net realizable value in the period in which the impairment is first identified. Such impairment charges, should they occur, are recorded as a component of cost of product sales in the consolidated statements of operations and comprehensive loss. The determination of whether inventory costs will be realizable requires the use of estimates by management. If actual market conditions are less favorable than projected by management, additional write-downs of inventory may be required. Additionally, our product is subject to strict quality control and monitoring that we perform throughout the manufacturing process. In the event that certain batches or units of product do not meet quality specifications, we will record a charge to cost of product sales, to write-down any unmarketable inventory to its estimated net realizable value. In all cases, product inventory is carried at the lower of cost or its estimated net realizable value. Excess Purchase Commitment Liability We identified executory contracts in the commercial supply agreements between Keryx and its contract manufacturers for Auryxia, which include future firm purchase commitments. These executory contracts were deemed to have an off-market element related to the amount of purchase commitments that exceed the current forecast and as such, we recorded a liability in purchase accounting. We re-evaluate the excess purchase commitments each reporting period to assess whether any adjustments to the excess purchase commitment liability are necessary. This evaluation includes reviewing the contractual minimums, expiration and utilization assumptions, and sales forecasts. Inventory receipts that have been previously identified as excess are recorded as a reduction to the excess purchase commitment liability. Liability Related to Sale of Future Royalties We treat the liability related to sale of future royalties 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. Changes in our estimates of future royalty payments could have a material effect on the liability related to sale of future royalties balance recorded in the period in which we determine that change occurs. Intangible Asset We maintain a definite-lived intangible asset related to developed product rights for Auryxia, which was acquired on December 12, 2018 as part of the Merger. Intangible assets are initially recorded at fair value and stated net of accumulated amortization and impairments. We amortize our intangible assets that have finite lives using either the straight-line method, or if reliably determinable, based on the pattern in which the economic benefit of the asset is expected to be utilized. Amortization for our intangible asset is recorded over its remaining estimated useful life, which as of December 31, 2022 is estimated to be six years. We review intangible assets subject to amortization to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. If an impairment indicator exists, we perform a recoverability test by comparing the sum of the estimated undiscounted cash flows of the intangible asset group to its carrying value on the consolidated balance sheet. If the carrying value of the intangible asset group exceeds the undiscounted cash flows used in the recoverability test, we will write the carrying value of the intangible asset group down to the fair value in the period identified. We calculate the fair value of the intangible asset group as the present value of estimated future cash flows expected to be generated from the intangible asset group using a risk-adjusted discount rate. In determining estimated future cash flows associated with the intangible asset group, we use market participant assumptions pursuant to ASC Topic 820, Fair Value Measurements and Disclosures (ASC 820). During the second quarter of 2020, we identified indicators of impairment related to the developed product rights for Auryxia and recorded an impairment charge of $114.4 million (see Note 10 contained in this Annual Report on Form 10-K/A for additional information). Income Taxes Income taxes are recorded in accordance with FASB Topic 740, Income Taxes, or ASC 740, which provides for deferred taxes using an asset and liability approach. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined 74 Table of Contents based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. All deferred taxes as of December 31, 2022 and 2021 are classified as noncurrent within the income tax provision (see Note 14 to our consolidated financial statements in Part II, Item 8. Financial Statements and Supplementary Data). Recent Accounting Pronouncements For additional discussion of recent accounting pronouncements, please refer to New Accounting Pronouncements – Recently Adopted included within Note 3 to our consolidated financial statements in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K/A. 75 Table of Contents