What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-09 · 185 added, 97 removed, 257 unchanged (52% of the section changed)

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Food and Drug Administration, or FDA , approved Vafseo (vadadustat) Tablets for the treatment of anemia due to CKD in adults who have been receiving dialysis for at least three months.

We intend to commercialize Vafseo in the U.S.

with Vifor (International) Ltd.

(now a part of CSL Limited), or CSL Vifor .

W e also have several lifecycle management and indication expansion opportunities currently under evaluation for Vafseo, including the potential for alternative dosing and label expansion for the treatment of adult patients not on dialysis.

We are launching Vafseo in the U.S.

and expect product availability in January 2025.

W e also have several lifecycle management and label expansion opportunities currently under evaluation for Vafseo, including the potential for alternative dosing and label expansion for the treatment of adult patients not on dialysis.

In May 2023, we entered into a license agreement granting MEDICE Arzneimittel Pütter GmbH & Co.

KG, or Medice , the rights to market and sell Vafseo in the European Economic Area, or EEA , the United Kingdom, or UK , Switzerland and Australia, or the Medice Territory , where Vafseo is approved for the treatment of symptomatic anemia associated with CKD in adults on chronic maintenance dialysis.

Vafseo is currently marketed and sold by Medice in certain countries in the Medice Territory.

We retain the rights to develop and commercialize Vafseo in Europe for other indications.

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Financial Highlights

Product revenue for the first three months of 2024 has declined by approximately 11% to $31.0 million from $34.7 million for the first three months of 2023, primarily due to decreases in product volume partially offset by price increases and execution of our contracting strategy with third-party payors.

Product revenue was $41.2 million and $72.2 million for the three and six months ended June 30, 2024, respectively, and $42.2 million and $77.0 million for the three and six months ended June 30, 2023, respectively.

We have incurred net losses in each year since inception.

Our net losses were $18.0 million and $26.9 million for the three months ended March 31, 2024 and 2023, respectively.

Our net losses were $8.6 million and $26.6 million for the three and six months ended June 30, 2024, respectively, and $11.2 million and $38.1 million for the three and six months ended June 30, 2023, respectively.

Substantially all of our net losses resulted from costs incurred in connection with the continued commercialization of Auryxia and development efforts relating to Vafseo, including conducting clinical trials of, and seeking regulatory approval for, Vafseo, and providing general and administrative support for these operations and protecting our intellectual property.

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License, collaboration and other revenue includes revenue earned under our agreements with our partners, including license fees, royalty payments and revenue from product we supply.

We expect to continue to generate revenue from our collaboration, license and supply agreements with Medice, MTPC, JT and Torii and any other collaborations into which we have entered or may enter, including our collaboration with CSL Vifor.

We expect to continue to generate revenue from our collaboration, license and supply agreements with Medice, MTPC, JT and Torii and any other collaborations into which we have entered or may enter.

Cost of Goods Sold

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Cost of product and other revenue for a newly launched product does not include the full cost of manufacturing until the initial pre-launch inventory is depleted and additional inventory is manufactured and sold.

Until we received regulatory approval for Vafseo, in the U.S.

we recorded costs incurred to manufacture the U.S.

Until we received regulatory approval for Vafseo in the U.S., we recorded costs incurred to manufacture the U.S.

pre-launch inventory, such as raw materials, drug substance and drug product conversion costs as R&D expense.

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We cannot determine with certainty the duration and completion costs of our R&D projects, the costs of related clinical development, or if, when, or to what extent we will generate revenue from the commercialization or sale of any of our product candidates.

From inception through March 31, 2024, we have incurred $1.6 billion in R&D expenses.

From inception through June 30, 2024, we have incurred $1.7 billion in R&D expenses.

We expect to incur significant R&D expenditures for the foreseeable future as we continue the development of Auryxia, Vafseo and any other product or product candidate, including those that may be in-licensed or acquired.

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Other SG&A expenses include costs for marketing initiatives for our commercial products, market research and analysis on our commercial product and potential product candidates, conferences and trade shows, travel expenses, professional services fees (including legal, patent, accounting, audit, tax, and consulting fees), insurance costs, general corporate expenses and allocated facilities-related expenses, including rent and maintenance of facilities.

License Expense

License expense relates to royalties due to Panion & BF Biotech, Inc., or Panion , for sales of Auryxia in the U.S.

License Expenses

License expenses relates to royalties due to Panion & BF Biotech, Inc., or Panion , for sales of Auryxia in the U.S.

and Riona in Japan.

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Other Income (Expense), Net

Other income (expense), net consists primarily of interest income on our interest-bearing accounts, interest expense related to our term loans, accretion of the debt discount on our term loans as well as amortization of the discount on the liability related to the termination fees associated with the termination agreement with BioVectra Inc., or BioVectra , entered into in December 2022, or the BioVectra Termination Agreement , and the amortization of the discount and deferred gain related to our refund liability to CSL Vifor.

See Note 10, Commitments and Contingencies, in the accompanying notes to the condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information on the BioVectra Termination Agreement.

(now a part of CSL Limited), or CSL Vifor .

See Note 10, Commitments and Contingencies, in the accompanying notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information on the BioVectra Termination Agreement.

Change in Fair Value of Warrant Liability

Change in fair value of warrant liability relates to the change in fair value of our warrant liability related to a warrant agreement with Kreos Capital VII Aggregator SCSp, an affiliate of Kreos Capital VII (UK) Limited , or Kreos.

See Note 3, Fair Value of Financial Instruments , and Note 7, Indebtedness , in the accompanying notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information on the warrant liability.

Recent Events

Approval of Vafseo (vadadustat) Tablets

CSL Vifor Termination and Settlement Agreement

On July 10, 2024, we and CSL Vifor entered into a Termination and Settlement Agreement, or the Vifor Termination Agreement .

Pursuant to the Vifor Termination Agreement, we and CSL Vifor agreed, among other things, to terminate, effective immediately, the Second Amended and Restated License Agreement, dated February 18, 2022 and as amended May 3, 2024, or the Vifor License Agreement , pursuant to which we granted to CSL Vifor an exclusive license to sell Vafseo to Fresenius Medical Care North America and its affiliates, including Fresenius Kidney Care Group LLC, to certain third-party dialysis organizations approved by us, to independent dialysis organizations that are members of certain group purchasing organizations, and to certain non-retail specialty pharmacies in the U.S.

We and CSL Vifor agreed to terminate the Vifor License Agreement for business reasons.

See Note 16, Subsequent Events , in the accompanying notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information on the Vifor Termination Agreement.

Approval and Commercialization of Vafseo (vadadustat) Tablets

In March 2024, we received approval from the FDA for Vafseo (vadadustat) Tablets for the treatment of anemia due to CKD in adults who have been receiving dialysis for at least three months.

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market entry which is expected in January 2025.

We believe that we have the right team, the right commercial partners and the organizational experience and relationships within dialysis organizations to be successful.

We will apply to designate Vafseo for Transitional Drug Add-on Payment Adjustment reimbursement from the CMS, which we expect to begin in January 2025.

We believe that we have the right team and the organizational experience and relationships within dialysis organizations to be successful.

In June 2024, we applied to designate Vafseo for Transitional Drug Add-on Payment Adjustment reimbursement from the CMS, which we expect to begin in January 2025.

Our goal is for Vafseo to be an oral standard of care for dialysis patients.

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Borrowing Under BlackRock Term Loans and Repayment of Pharmakon Term Loans

On January 29, 2024, we entered into a secured term loan facility with Kreos Capital VII (UK) Limited , or Kreos , which are funds and accounts managed by BlackRock Inc., collectively BlackRock , or the BlackRock Credit Agreement , that provides for an aggregate principal amount of up to $55.0 million made available under the following three tranches:

On January 29, 2024, we entered into a secured term loan facility with Kreos , which are funds and accounts managed by BlackRock Inc., collectively BlackRock , or the BlackRock Credit Agreement , that provides for an aggregate principal amount of up to $55.0 million made available under the following three tranches:

(i) Tranche A — $37.0 million, drawn down on the closing date of the BlackRock Credit Agreement, of which we received $34.5 million, net of debt issuance costs, fees and expenses and was used to repay our senior secured term loans, or the Pharmakon Term Loans , with Pharmakon Advisors LP, or Pharmakon , of $35.0 million,

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Each warrant shall be exercisable for eight years from the date of issuance.

See Note 7, Indebtedness, in the accompanying notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.

At-the-Market (ATM) Offering

On April 7, 2022, we entered into an Open Market Sale Agreement SM , or Sales Agreement , with Jefferies LLC as agent, to sell up to $26.0 million of our common stock at current market prices from time to time.

During the quarter and year ended December 31, 2023, we sold 6,189,974 shares of common stock under this program with net proceeds of $6.7 million, after deducting commissions and other offering expenses.

During the three months ended March 31, 2024, we sold 13,261,311 shares of our common stock under the Sales Agreement with net proceeds of $18.7 million, after deducting commissions and other offering expenses.

We have sold essentially all amounts previously registered under the prospectus supplement and Registration Statement on Form S-3.

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On July 10, 2024, in connection with the Vifor Termination Agreement, we and Kreos entered into a First Amendment to the Agreement for the Provision of a Loan Facility, which amends certain provisions of the BlackRock Credit Agreement.

See Note 7, Indebtedness, and Note 16, Subsequent Events , in the accompanying notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.

Impact of Inflation

We are experiencing rising costs for certain inflation-sensitive operating expenses such as labor and certain service providers that are heavily dependent on labor.

We do not believe these impacts were material to our net loss during the three months ended March 31, 2024 or will be going forward.

We do not believe these impacts were material to our net loss during the three and six months ended June 30, 2024 or will be going forward.

However, significant sustained inflation driven by the macroeconomic environment or other factors could negatively impact our margins, profitability and results of operations in future periods.

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Results of Operations

Comparison of the Three Months Ended March 31, 2024 and 2023

Three Months Ended March 31, Change

Comparison of the Three Months Ended June 30, 2024 and 2023

Three Months Ended June 30, Change

(dollars in thousands) 2024 2023 $ %

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Selling, general and administrative 26,917 27,036 (119) *

License expense 711 568 143 25 %

License 762 949 (187) (20) %

Restructuring — (94) 94 *

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Change in fair value of warrant liability 2,331 — 2,331 *

Loss on extinguishment of debt (517) — (517) *

Loss on termination of lease — (524) 524 (100) %

Net loss $ (8,582) $ (11,172) $ 2,590 (23) %

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We distribute Auryxia principally through a limited number of wholesale distributors as well as certain specialty pharmacy providers.

Net product revenue was $31.0 million for the three months ended March 31, 2024, compared to $34.7 million for the three months ended March 31, 2023.

Net product revenue was $41.2 million for the three months ended June 30, 2024, compared to $42.2 million for the three months ended June 30, 2023.

The decrease was primarily due to a reduction in volume partially offset by price increases and execution of our contracting strategy with third-party payors.

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We believe CMS's 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 third-party payors and providers to continue the use of Auryxia beyond LoE.

License, Collaboration and Other Revenue— License, collaboration and other revenue was $1.6 million for the three months ended March 31, 2024, compared to $5.3 million for the three months ended March 31, 2023.

The decrease was primarily due to a reduction in revenue under our supply agreement with MTPC as a result of the assignment of our supply agreement with Esteve Química, S.A.

to MTPC in December 2022.

License, Collaboration and Other Revenue— License, collaboration and other revenue was $2.4 million for the three months ended June 30, 2024, compared to $14.1 million for the three months ended June 30, 2023.

The decrease was primarily due to a one-time $10.0 million upfront payment recognized in connection with the Medice License Agreement during the three

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months ended June 30, 2023.

We also recognized $2.2 million in revenue in connection with the Packaging Validation Transfer Agreement we entered into with Otsuka Pharmaceutical Co.

Ltd., or Otsuka , during the three months ended June 30, 2023.

Cost of Goods Sold—Cost of Product and Other Revenue— Cost of product and other revenue was $8.0 million for the three months ended June 30, 2024 compared to $8.3 million for the three months ended June 30, 2023.

The decrease was primarily due to a $4.9 million gain that we recorded during the three months ended June 30, 2024 due to our ability to commercially sell inventory previously written-down as excess inventory, which was partially offset by a charge of $2.1 million related to our firm purchase commitment liability.

During the second half of 2024, we anticipate realizing lower costs of up to $3.7 million related to our ability to commercially sell inventory previously written-down as excess inventory.

See Note 10, Commitments and Contingencies , for further information on our firm purchase commitment liability.

Cost of Goods Sold—Amortization of Intangible Asset— Amortization of 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 intangible asset during each of the three months ended June 30, 2024 and 2023 was $9.0 million and will continue through the end of 2024.

R&D Expenses— R&D expenses were $7.6 million for the three months ended June 30, 2024, compared to $20.2 million for the three months ended June 30, 2023.

The decrease was largely due to the completion of activities related to certain clinical trials, a reduction in consulting expenses associated with pursuing Vafseo regulatory approval in the Medice Territory and lower headcount related costs.

Additionally, during the three months ended June 30, 2023, prior to receiving regulatory approval for Vafseo in the U.S., we recorded costs incurred to manufacture the U.S.

pre-launch inventory as R&D expenses.

The following table summarizes our external research and development expenses by program, as well as costs not allocated to programs, for the three months ended June 30, 2024 and 2023 (in thousands):

Three Months Ended June 30,

Vafseo clinical trial and other external costs $ 1,565 $ 4,279

Vafseo pre-launch inventory — 3,139

External costs for other programs, including feasibility and new processes and methods associated with commercial product 1,262 3,423

Total external R&D expenses 2,827 10,841

Internal personnel, consulting, facilities and other 4,820 9,356

Total R&D expenses $ 7,647 $ 20,197

We expect to incur significant R&D expenses in future periods in support of ongoing or planned studies with respect to the development of our product candidates as well as Vafseo.

Selling, General and Administrative Expenses— Selling, general and administrative expenses were $26.9 million for the three months ended June 30, 2024, compared to $27.0 million for the three months ended June 30, 2023.

License Expenses— License expenses related to royalties due to Panion relating to sales of Riona in Japan were $0.8 million and $0.9 million for the three months ended June 30, 2024 and 2023, respectively.

Restructuring Expenses— There was no restructuring expenses and a $0.1 million benefit to restructuring expense for the three months ended June 30, 2024 and 2023, respectively.

Other Expense, Net— Other expense, net, was $2.2 million for the three months ended June 30, 2024, compared to $1.7 million for the three months ended June 30, 2023.

The increase of $0.5 million was primarily due to lower interest income on our interest-bearing accounts.

Change in Fair Value of Warrant Liability— Change in fair value of warrant liability was $2.3 million for the three months ended June 30, 2024.

There was no change in fair value of warrant liability for the three months ended June 30, 2023 since the warrant agreement was entered into in January 2024.

Loss on Lease Termination— On May 26, 2023 we incurred a loss on lease termination of $0.5 million in connection with the assignment of our lease for 27,924 square feet of office space in Boston, Massachusetts, or the Boston Lease .

In accordance with ASC 842, Leases , we wrote off the right-of-use asset and lease liability associated with the Boston Lease, and recognized the difference between the right-of-use asset and the lease liability offset by the payment we made to LG Chem Life Sciences Innovation Center, Inc.

in connection with the assignment of $1.3 million.

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Comparison of the Six Months Ended June 30, 2024 and 2023

Six Months Ended June 30, Change

(dollars in thousands) 2024 2023 $ %

Product revenue, net $ 72,218 $ 76,950 $ (4,732) (6) %

License, collaboration and other revenue 4,037 19,431 (15,394) (79) %

Total revenues 76,255 96,381 (20,126) (21) %

Cost of goods sold

Cost of Product and Other Revenue— Cost of product and other revenue was $2.6 million for the three months ended March 31, 2024 compared to $11.2 million for the three months ended March 31, 2023.

The decrease of $8.6 million was primarily due to lower year-over-year sales volume and a decrease in cost of product and other revenue related to MTPC as a result of the assignment of our supply agreement with Esteve Química, S.A.

Cost of product and other revenue 10,630 19,452 (8,822) (45) %

Amortization of intangible asset 18,021 18,021 — — %

Total cost of goods sold 28,651 37,473 (8,822) (24) %

Operating expenses

Research and development 17,379 39,883 (22,504) (56) %

Selling, general and administrative 52,354 52,090 264 1 %

License 1,473 1,517 (44) (3) %

Restructuring 58 12 46 383 %

Total operating expenses 71,264 93,502 (22,238) (24) %

Operating loss (23,660) (34,594) 10,934 (32) %

Other expense, net (4,591) (2,932) (1,659) 57 %

Change in fair value of warrant liability 2,201 — 2,201 100 %

Loss on extinguishment of debt (517) — (517) *

Loss on termination of lease — (524) 524 *

Net loss $ (26,567) $ (38,050) $ 11,483 (30) %

*Percentage change not meaningful.

Product Revenue, Net— Net product revenue is derived only from sales of Auryxia in the U.S.

until Vafseo's U.S.

market entry, which is expected in January 2025.

We distribute Auryxia principally through a limited number of wholesale distributors as well as certain specialty pharmacy providers.

Net product revenue was $72.2 million for the six months ended June 30, 2024, compared to $77.0 million for the six months ended June 30, 2023.

The decrease was primarily due to a reduction in volume partially offset by price increases and execution of our contracting strategy with third-party payors.

Auryxia will lose exclusivity in the U.S.

in March 2025, which may have a negative impact on revenue.

License, Collaboration and Other Revenue— License, collaboration and other revenue was $4.0 million for the six months ended June 30, 2024, compared to $19.4 million for the six months ended June 30, 2023.

The decrease was primarily due to a one-time $10.0 million upfront payment recognized in connection with the Medice License Agreement during the six months ended June 30, 2023 as well as a reduction in revenue under our supply agreement with MTPC as a result of the assignment of our supply agreement with Esteve Química, S.A.

to MTPC in December 2022.

Additionally, during the three months ended March 31, 2024, we realized a lower cost of product and other revenue of $3.7 million due to our ability to commercially sell inventory previously written-down as excess inventory.

Cost of Goods Sold - Amortization of Intangible Asset— Amortization of 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

We also recognized $2.2 million in revenue in connection with the Packaging Validation Transfer Agreement we entered into with Otsuka during the six months ended June 30, 2023.

Cost of Goods Sold—Cost of Product and Other Revenue— Cost of product and other revenue was $10.6 million for the six months ended June 30, 2024 compared to $19.5 million for the six months ended June 30, 2023.

The decrease of $8.8 million was primarily due to lower year-over-year sales volume, and the realization of lower cost of product and other revenue of $8.6 million during the six months ended June 30, 2024 due to our ability to commercially sell inventory previously written-down as excess inventory, which was partially offset by a $2.1 million charge related to our firm purchase commitment liability.

See Note 10, Commitments and Contingencies , for further information on our firm purchase commitment liability.

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approximately six years.

Amortization of intangible asset during each of the three months ended March 31, 2024 and 2023 was $9.0 million and will continue through the end of 2024.

R&D Expenses— R&D expenses were $9.7 million for the three months ended March 31, 2024, compared to $19.7 million for the three months ended March 31, 2023.

The decrease was largely due to the completion of activities related to certain clinical trials and a reduction in consulting expenses associated with pursuing Vafseo regulatory approval in the Medice Territory in 2023.

The following table summarizes our external research and development expenses by program, as well as costs not allocated to programs, for the three months ended March 31, 2024 and 2023 (in thousands):

Three Months Ended March 31,

Amortization of intangible asset during each of the six months ended June 30, 2024 and 2023 was $18.0 million and will continue through the end of 2024.

R&D Expenses— R&D expenses were $17.4 million for the six months ended June 30, 2024, compared to $39.9 million for the three months ended June 30, 2023.

Additionally, during the six months ended June 30, 2023, prior to receiving regulatory approval for Vafseo in the U.S., we recorded costs incurred to manufacture the U.S.

pre-launch inventory as R&D expenses.

The following table summarizes our external research and development expenses by program, as well as costs not allocated to programs, for the three months ended June 30, 2024 and 2023 (in thousands):

Six Months Ended June 30,

Vafseo clinical trial and other external costs $ 3,291 $ 10,620

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We expect to incur significant R&D expenses in future periods in support of ongoing or planned studies with respect to the development of our product candidates as well as Vafseo.

Selling, General and Administrative Expenses— Selling, general and administrative expenses were $25.4 million for the three months ended March 31, 2024, compared to $25.1 million for the three months ended March 31, 2023.

License Expenses— License expense related to royalties due to Panion relating to sales of Riona in Japan were $0.7 million and $0.6 million for the three months ended March 31, 2024 and 2023, respectively.

Restructuring— Restructuring expenses were $0.1 million for each of the three months ended March 31, 2024 and 2023.

Other Expense, Net— Other expense, net, was $2.4 million for the three months ended March 31, 2024, compared to $1.3 million for the three months ended March 31, 2023.

Selling, General and Administrative Expenses— Selling, general and administrative expenses were $52.4 million for the six months ended June 30, 2024, compared to $52.1 million for the six months ended June 30, 2023.

License Expenses— License expenses related to royalties due to Panion relating to sales of Riona in Japan were $1.5 million for each of the six months ended June 30, 2024 and 2023.

Restructuring Expenses— Restructuring expenses were $0.1 million and immaterial for the six months ended June 30, 2024 and 2023, respectively.

Other Expense, Net— Other expense, net, was $4.6 million for the six months ended June 30, 2024, compared to $2.9 million for the six months ended June 30, 2023.

The increase of $1.7 million was primarily due to lower interest income on our interest-bearing accounts and a decrease in sublease income due to the assignment of our lease for office space in Boston, Massachusetts.

Change in fair value of warrant liability— Change in fair value of warrant liability was $0.1 million for the three months ended March 31, 2024.

There was no change in fair value of warrant liability for the three months ended March 31, 2023.

Loss on Extinguishment of Debt.

During the three months ended March 31, 2024, we recorded $0.5 million loss on the extinguishment of debt in connection with the repayment of the Pharmakon Term Loans.

Change in Fair Value of Warrant Liability— Change in fair value of warrant liability was $2.2 million for the six months ended June 30, 2024.

There was no change in fair value of warrant liability for the six months ended June 30, 2023 since the warrant agreement was entered into in January 2024.

Loss on Extinguishment of Debt— During the six months ended June 30, 2024, we recorded $0.5 million loss on the extinguishment of debt in connection with the repayment of the Pharmakon Term Loans.

Loss on Lease Termination— On May 26, 2023 we incurred a loss on lease termination of $0.5 million in connection with the assignment of our Boston Lease.

In accordance with ASC 842, Leases , we wrote off the right-of-use asset and lease liability associated with the Boston Lease, and recognized the difference between the right-of-use asset and the lease liability offset by the $1.3 million payment we made to LG Chem Life Sciences Innovation Center, Inc.

in connection with the assignment.

Liquidity and Capital Resources

As of March 31, 2024, we had cash and cash equivalents of $42.0 million and restricted cash of $1.7 million.

As of June 30, 2024, we had cash and cash equivalents of $39.5 million and restricted cash of $1.7 million.

To date, we have funded our operations principally through sales of our common stock, including through our employee stock purchase plan, product sales, payments received from our collaboration and licensing partners, borrowings under term loans, a working capital payment from CSL Vifor also referred to as a refund liability and a royalty transaction.

From inception through March 31, 2024, we raised approximately $838.9 million of net proceeds from the sale of equity, including $519.8 million from various underwritten public offerings, $249.1 million from at-the-market offerings pursuant to our sales agreement with Jefferies LLC and 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.

From inception through June 30, 2024, we raised approximately $838.9 million of net proceeds from the sale of equity, including $519.8 million from various underwritten public offerings, $249.1 million from at-the-market offerings pursuant to our sales

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agreement with Jefferies LLC and 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.

We have incurred recurring losses and negative cash flow from operations in each year since inception and anticipate net losses and negative operating cash flows for the near future.

For the three months ended March 31, 2024 and 2023, we incurred net operating losses of $18.0 million and $26.9 million, respectively.

As of March 31, 2024 and December 31, 2023, we had an accumulated deficit of $1.6 billion.

We incurred net operating losses of $8.6 million and $26.6 million during the three and six months ended June 30, 2024, respectively, and $11.2 million and $38.1 million during the three and six months ended June 30, 2023, respectively.

As of June 30, 2024 and December 31, 2023, we had an accumulated deficit of $1.6 billion.

We currently have exclusive rights under a series of patents and patent applications to commercialize Auryxia in the U.S.

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Following LoE, in the U.S., we may not be able to realize enough product revenue from sales of Auryxia to realize net profits from product sales.

While we believe CMS's 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

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scenarios, and plan to work with payors and providers to continue the use of Auryxia beyond LoE, Auryxia product sales have not generated, and may not generate, now or following LoE in the U.S., sufficient product revenue to realize net profits from product sales to cover our current or long-term operating costs.

We believe our existing cash resources and the cash we expect to generate from product, royalty, supply and license revenues as well as the borrowings and potential future borrowing that are available under the BlackRock Credit Agreement and the working capital fund are sufficient to fund our current operating plan for at least twenty-four months.

While we believe CMS's 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, Auryxia product sales have not generated, and may not generate, now or following LoE in the U.S., sufficient product revenue to realize net profits from product sales to cover our current or long-term operating costs.

We believe our existing cash resources and the cash we expect to generate from product, royalty, supply and license revenues are sufficient to fund our current operating plan for at least twenty-four months.

However, if our operating performance deteriorates significantly from the levels expected in our operating plan, it would have an adverse effect on our liquidity and capital resources and could affect our ability to continue as a going concern in the future.

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During the continuance of any payment event of default the interest rate on such overdue sum will automatically increase by an additional 3.0% per annum, and may be subject to an additional late fee of 2.0% of such overdue sum.

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All obligations under the Term Loan Facility are secured by substantially all of our existing and after-acquired assets.

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The BlackRock Credit Agreement contains certain representations and warranties, affirmative and negative covenants that limit our ability to engage in specified types of transactions and other provisions typical within a credit agreement.

If an event of default occurs and is continuing under the BlackRock Credit Agreement, BlackRock is entitled to take enforcement action, including acceleration of amounts due.

If an event of default occurs and is continuing under the BlackRock Credit Agreement, BlackRock is entitled to take enforcement action, including acceleration of amounts due which could limit our ability to make certain payments under the Vifor Termination Agreement.

If we prepay the Term Loans prior to the BlackRock Maturity Date, we will be required to pay a prepayment fee ranging from 1.0% to 4.0% of the amount prepaid.

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On the Closing Date, Kreos Capital VII Aggregator SCSp, an affiliate of Kreos, or the Warrant Holder , received a warrant to purchase 3,076,923 shares of our common stock, at an exercise price per share of $1.30, and upon borrowing of Tranche C, we will become obligated to issue additional warrants to purchase 1,153,846 shares of our common stock at an exercise price per share of $1.30.

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See Note 7, Indebtedness, in the accompanying notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.

See Note 16, Subsequent Events , in the accompanying notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.

Working Capital Fund/Refund Liability

In February 2022, we amended our agreement with CSL Vifor and they contributed $40.0 million to a working capital fund, or the Working Capital Fund , established to partially fund our costs of purchasing Vafseo from our contract manufacturers.

The Working Capital Fund amount may fluctuate, and will be repaid to CSL Vifor over time.

We have recorded the Working Capital Fund as a refund liability under ASC 606, Revenue from Contracts with Customers .

The refund liability is considered a debt arrangement with zero coupon interest and we impute interest on the refund liability at a rate of 15.0% per annum.

As of March 31, 2024, the $39.9 million refund liability is classified as a long-term liability based on management’s estimated timing of the repayment of the refund liability to CSL Vifor exceeding one-year.

On May 3, 2024, we and CSL Vifor entered into Amendment #1 to the Vifor Agreement, or the Amendment , under which we and CSL Vifor agreed to modify the method of repayment of the Working Capital Fund such that the Working Capital Fund will be repaid through tiered royalties ranging from a high single-digit to low double-digit percentage of our sales of Vafseo to both CSL Vifor and to third parties outside of the Vifor Agreement.

See Note 8, Deferred Revenue , Refund Liability and Liability Related to Sale of Future Royalties , and Note 16, Subsequent Events , in the accompanying notes to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information.

As of June 30, 2024, the $40.0 million refund liability is classified as a long-term liability based on management’s estimated timing of the repayment of the refund liability to CSL Vifor exceeding one-year.

Pursuant to the terms of the Vifor Termination Agreement, and generally consistent with the terms of the Vifor License Agreement, we agreed to repay the Working Capital Fund to CSL Vifor through quarterly tiered royalty payments ranging from 8% to 14% of our net sales of Vafseo in the U.S., or the WCF Royalty Payments .

The WCF Royalty Payments will commence on July 1, 2025, and will continue until the earlier of (i) the cumulative total of the WCF Royalty Payments equals $40.0 million, or (ii) May 31, 2028, or the WCF Royalty Term .

The WCF Royalty Payments are subject to certain minimum true-up milestones.

See Note 8, Deferred Revenue , Refund Liability and Liability Related to Sale of Future Royalties , in the accompanying notes to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information.

CSL Vifor Settlement Royalty Payments

Pursuant to the terms of the Vifor Termination Agreement, we will pay CSL Vifor decreasing quarterly tiered royalty payments ranging from a high single-digit percentage of our net sales of Vafseo up to $450.0 million to mid-single digit percentage of our net sales of Vafseo above $450.0 million, in each case, in the U.S.

during a calendar year, or the Settlement Royalty Payments .

The Settlement Royalty Payments will commence upon the first sale of Vafseo by us, its affiliates or third-party licensees to a third party for use in the U.S., and will continue until the later of the (i) expiration of the last-to-expire valid claim listed in the FDA Orange Book that would be infringed by the making, using, selling or importing of Vafseo in the U.S.

or (ii) the expiration of marketing or regulatory exclusivity for Vafseo in the U.S., or the Settlement Royalty Term .

Beginning on July 1, 2027 and throughout the Settlement Royalty Term, we have the option to make a one-time payment to CSL Vifor, or the Royalty Buy-Down Option, upon which the Settlement Royalty Payments will be adjusted as of the date of exercise of the Royalty Buy-Down Option such that we will then only pay CSL Vifor quarterly royalty payments based on a mid-single digit percentage of our net sales of Vafseo up to $450.0 million in the U.S.

during a calendar year in lieu of the above Settlement Royalty Payments.

If we exercise the Royalty Buy-Down Option, the WCF Royalty Payments will continue as described above.

See Note 16, Subsequent Events , in the accompanying notes to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information.

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Liability Related to Sale of Future Royalties

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We amortize the liability related to the sale of future royalties using the effective interest method over the life of the arrangement.

The annual effective interest rate as of March 31, 2024 was 0%.

The annual effective interest rate as of June 30, 2024 was 0%.

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

During each of the three months ended March 31, 2024 and 2023, we recorded $0.4 million of non-cash royalty revenue.

We recorded $0.5 million and $0.9 million of non-cash royalty revenue during each of the three and six months ended June 30, 2024 and 2023, respectively.

See Note 8, Deferred Revenue, Refund Liability and Liability Related to Sale of Future Royalties , in the accompanying notes to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information.

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Letter of Credit

As of March 31, 2024, in connection with the Cambridge Lease (as defined below), we had $1.7 million in a letter of credit outstanding.

As of June 30, 2024, in connection with the Cambridge Lease (as defined below), we had $1.7 million in a letter of credit outstanding.

Director and Officer Indemnification

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We are party to contractual obligations involving commitments to make payments to third parties in the future.

Certain contractual obligations are reflected on our condensed consolidated balance sheet as of March 31, 2024, while others are considered future obligations.

Our material cash requirements as of March 31, 2024, include contractual obligations and

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commitments arising in the normal course of business, including leases, license agreements, manufacturing agreements and unconditional purchases commitments which are described in more detail below.

Certain contractual obligations are reflected on our condensed consolidated balance sheet as of June 30, 2024, while others are considered future obligations.

Our material cash requirements as of June 30, 2024, include contractual obligations and commitments arising in the normal course of business, including leases, license agreements, manufacturing agreements and unconditional purchase commitments which are described in more detail below.

Cambridge Lease

We lease approximately 65,167 square feet of office, storage and laboratory space in Cambridge, Massachusetts under non-cancelable operating leases, collectively the Cambridge Lease .

The office and storage lease expires on September 11, 2026.

On May 6, 2024, we extended the term of the Cambridge Lease with respect to the laboratory space from January 31, 2025 to September 11, 2026.

See Note 9, Leases , and Note 16, Subsequent Events , in the accompanying notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.

The office, storage and lab lease expires on September 11, 2026.

See Note 9, Leases , in the accompanying notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.

License Agreements

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Unless earlier terminated, the Cyclerion Agreement will expire on a product-by-product and country-by-country basis upon the expiration of the last royalty term, which ends upon the longest of (i) the expiration of the patents licensed under the Cyclerion Agreement, (ii) the expiration of regulatory exclusivity for such product and (iii) ten years from first commercial sale of such product.

We may terminate the Cyclerion Agreement in its entirety or only with respect to a particular licensed compound or product upon 180 days’ prior written notice to Cyclerion.

We may terminate the Cyclerion Agreement in its entirety or only with respect to a particular licensed

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compound or product upon 180 days’ prior written notice to Cyclerion.

The parties also have customary termination rights, subject to a cure period, in the event of the other party’s material breach of the Cyclerion Agreement or in the event of certain additional circumstances.

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Payments due upon cancellation consist only of payments for services provided or expenses incurred, including non-cancellable obligations of service providers, up to the date of cancellation.

In addition, we contract with various organizations to conduct R&D activities with remaining contract costs to us of approximately $47.9 million as of March 31, 2024.

In addition, we contract with various organizations to conduct R&D activities with remaining contract costs to us of approximately $46.7 million as of June 30, 2024.

The scope of the services under these R&D contracts can be modified and the contracts cancelled by us upon written notice.

In some instances, the contracts may be cancelled by the third party upon written notice.

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The following table provides a summary of cash flow data for each applicable period:

Three Months Ended March 31,

Six Months Ended June 30,

NET CASH PROVIDED BY/(USED IN) ( in thousands ):

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Operating Activities

Net cash used in operating activities was $19.4 million for the three months ended March 31, 2024.

Net cash used in operating activities for the three months ended March 31, 2024 consisted of a net loss of $18.0 million and net non-cash adjustments of $13.7 million, including amortization of our intangible asset of $9.0 million, and a reduction of $15.1 million in working capital.

Net cash used in operating activities was $17.5 million for the three months ended March 31, 2023.

Net cash used in operating activities consisted of a net loss of $26.9 million and net non-cash adjustments of $12.5 million, including amortization of our intangible asset of $9.0 million, and a reduction of $3.2 million in working capital.

Net cash used in operating activities was $29.5 million for the six months ended June 30, 2024.

Net cash used in operating activities for the six months ended June 30, 2024 consisted of a net loss of $26.6 million reduced by net non-cash adjustments of $25.9 million, including amortization of our intangible asset of $18.0 million, a change in excess inventory purchase commitments of $2.1 million and a change in fair value of the warrant liability of $2.2 million, offset by a reduction of $28.8 million in working capital.

Net cash used in operating activities was $13.9 million for the six months ended June 30, 2023.

Net cash used in operating activities consisted of a net loss of $38.1 million reduced by net non-cash adjustments of $24.5 million, including amortization of our intangible asset of $18.0 million, offset by a reduction of $0.3 million in working capital.

Investing Activities

No net cash was used in investing activities for either of the three months ended March 31, 2024 and 2023.

Net cash used in investing activities for the six months ended June 30, 2024 was immaterial.

No net cash was used in investing activities for the six months ended June 30, 2023.

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Financing Activities

Net cash provided by financing activities was $18.5 million for the three months ended March 31, 2024, which primarily consisted of proceeds of $37.0 million from the issuance of debt under the BlackRock Credit Agreement and net proceeds of $18.7 million from the sale of common stock under our ATM Facility partially offset by principal payments of debt of $36.7 million primarily related to the Pharmakon Term Loans which were repaid in January 2024.

Net cash used in financing activities was $16.0 million for the three months ended March 31, 2023, which primarily consisted of principal payments of debt related to the Pharmakon Term Loans.

Net cash provided by financing activities was $26.1 million for the six months ended June 30, 2024, which primarily consisted of proceeds of $45.0 million from the issuance of debt under the BlackRock Credit Agreement and net proceeds of $18.7 million from the sale of common stock under our ATM Facility partially offset by principal payments of debt of $37.1 million primarily related to the Pharmakon Term Loans which were repaid in January 2024.

Net cash used in financing activities was $24.0 million for the six months ended June 30, 2023, which primarily consisted of principal payments of debt related to the Pharmakon Term Loans.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, please see Note 2, Summary of Significant Accounting Policies , of the Notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

For a discussion of recent accounting pronouncements, see Note 2, Summary of Significant Accounting Policies , of the Notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Critical Accounting Estimates and Significant Judgments

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The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities in our unaudited condensed consolidated financial statements.

On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses, a warrant liability, other long-term liabilities, product revenues, including various rebates, returns and reserves related to product sales, inventories, classification of expenses between cost of goods sold, R&D and selling, general and administrative, long-term assets, including our right-of-use assets, intangible asset and goodwill.

On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses, other long-term liabilities, product revenues, including various rebates, returns and reserves related to product sales, inventories, classification of expenses between cost of goods sold, R&D and selling, general and administrative, long-term assets, including our right-of-use assets, intangible asset and goodwill.

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.

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In making estimates and judgments, management employs critical accounting policies.

During the three months ended March 31, 2024, there were no material changes to our methodologies used for our critical accounting estimates as reported in our 2023 Form 10-K.

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During the six months ended June 30, 2024, there were no material changes to our methodologies used for our critical accounting estimates as reported in our 2023 Form 10-K.

Quantitative and Qualitative Disclosures about Market Risk.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis