What changed in this filing

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Item 1. Financial Statements

2021-05-06 compared with 2020-11-05 · 252 added, 297 removed, 207 unchanged (73% of the section changed)

3 unchanged sentences

(in thousands, except share and per share amounts)

September 30,

2021 December 31,

Current assets:

1 unchanged sentence

Short-term investments 94,142 95,452

Unbilled revenue

Accounts receivable 5,783 —

Prepaid expenses and other current assets 21,381 8,202

1 unchanged sentence

Property and equipment, net 2,292 1,936

Right-of-use assets

Long-term investments — 2,114

Right-of-use assets, net 1,667 2,274

Other assets 958 552

Total assets $ 210,293 $ 201,562

Liabilities and stockholders’ equity

9 unchanged sentences

Loan payable, net of current portion 34,348 46,621

Deferred revenue, non-current 2,947 —

Total liabilities 79,482 75,450

3 unchanged sentences

5,000,000 shares authorized;

no shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively.

no shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively.

Common stock, $ 0.0001 par value;

300,000,000 shares authorized;

90,243,409 and 88,817,741 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively.

98,688,577 and 93,599,975 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively.

Additional paid-in capital 718,728 680,872

7 unchanged sentences

(in thousands, except share and per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

Licensing revenue

Three Months Ended March 31,

Collaborative development revenue $ 1,454 $ 1,175

Other revenue

Product supply revenue 126 38

Licensing revenue 5,002 —

Total revenues 6,582 1,213

6 unchanged sentences

Interest expense ( 1,100 ) ( 1,357 )

Other income, net

Other income (expense), net ( 49 ) 753

Loss before provision for income taxes ( 33,154 ) ( 22,373 )

Provision for income taxes 1 —

Net loss $ ( 33,155 ) $ ( 22,373 )

Net loss per common share, basic and diluted $ ( 0.34 ) $ ( 0.25 )

1 unchanged sentence

Comprehensive loss:

Net loss $ ( 33,155 ) $ ( 22,373 )

Unrealized (losses) gains on available-for-sale securities ( 3 ) ( 64 )

3 unchanged sentences

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Three and Nine Months ended September 30, 2020

(in thousands, except share amounts)

Three Months Ended September 30, 2020

Comprehensive

Stockholders'

Balance as of June 30, 2020

Issuance of common stock under employee stock purchase plan

Issuance of common stock upon exercise of options

Issuance of common stock upon vesting of restricted stock units

Stock-based compensation

Unrealized losses on available-for-sale securities

Balance as of September 30, 2020

Nine Months Ended September 30, 2020

For the Three Months ended March 31, 2021 and 2020

(in thousands, except shares)

Three Months Ended March 31, 2021

Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

Stockholders'

Shares Amount

Balance as of December 31, 2020 93,599,975 $ 9 $ 680,872 $ ( 554,765 ) $ ( 4 ) $ 126,112

Issuance of common stock under employee stock purchase plan 102,208 — 478 — — 478

Issuance of common stock for services

Issuance of common stock upon exercise of options 10,507 — 20 — — 20

Issuance of common stock upon vesting of restricted stock units 35,100 — — — — —

Stock-based compensation

Unrealized gains on available-for-sale securities

Balance as of September 30, 2020

The accompanying notes are an integral part of these condensed financial statements.

ARDELYX, INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Three and Nine Months ended September 30, 2019

(in thousands, except share amounts)

Three Months Ended September 30, 2019

Comprehensive

Stockholders'

Balance as of June 30, 2019

Issuance of common stock under employee stock purchase plan

Issuance of common stock upon exercise of options

Issuance of common stock in at-the-market offering 4,940,787 1 34,271 34,272

Stock-based compensation — — 3,087 — — 3,087

Unrealized losses on available-for-sale securities — — — — ( 3 ) ( 3 )

Balance as of September 30, 2019

Nine Months Ended September 30, 2019

Net loss — — — ( 33,155 ) — ( 33,155 )

Balance as of March 31, 2021 98,688,577 $ 10 $ 718,728 $ ( 587,920 ) $ ( 7 ) $ 130,811

Three Months Ended March 31, 2020

Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

Stockholders'

(Loss) Income

Shares Amount

Balance as of December 31, 2019 88,817,741 $ 9 $ 647,078 $ ( 460,452 ) $ 20 $ 186,655

Issuance of common stock under employee stock purchase plan 75,804 — 375 — — 375

Issuance of common stock for services

Issuance of common stock upon exercise of options 141,551 — 216 — — 216

Issuance of common stock upon vesting of restricted stock units

Stock-based compensation — — 2,948 — — 2,948

Unrealized gains on available-for-sale securities — — — — ( 64 ) ( 64 )

Balance as of September 30, 2019

Net loss — — — ( 22,373 ) — ( 22,373 )

Balance as of March 31, 2020 89,035,096 $ 9 $ 650,617 $ ( 482,825 ) $ ( 44 ) $ 167,757

The accompanying notes are an integral part of these condensed financial statements.

2 unchanged sentences

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Operating activities

Net loss $ ( 33,155 ) $ ( 22,373 )

Adjustments to reconcile net loss to net cash used in operating activities:

2 unchanged sentences

Amortization of deferred compensation for services 77 89

Amortization of premium on investment securities

Amortization of (discount) premium on investment securities 157 ( 138 )

Non-cash lease expense 607 502

3 unchanged sentences

Changes in operating assets and liabilities:

Unbilled revenue

Accounts receivable ( 5,783 ) —

Prepaid expenses and other assets ( 13,662 ) ( 928 )

1 unchanged sentence

Accrued compensation and benefits ( 1,324 ) ( 2,502 )

Lease liabilities

Operating lease liabilities ( 721 ) ( 614 )

Accrued and other liabilities 7,517 ( 394 )

2 unchanged sentences

Investing activities

Proceeds from maturities of investments

Proceeds from maturities and redemptions of investments 35,370 4,000

Purchases of investments ( 32,107 ) ( 54,858 )

Purchases of property and equipment ( 778 ) ( 25 )

Net cash (used in) provided by investing activities

Net cash provided by (used in) investing activities 2,485 ( 50,883 )

Financing activities

Proceeds from issuance of common stock in at-the-market offering, net of issuance costs 34,272 —

Proceeds from issuance of common stock under equity incentive and stock purchase plans 498 591

Net cash provided by financing activities 34,770 591

Net (decrease) increase in cash and cash equivalents

Net decrease in cash and cash equivalents ( 6,962 ) ( 75,238 )

Cash and cash equivalents at beginning of period 91,032 181,133

1 unchanged sentence

Supplementary disclosure of cash flow information:

Income taxes paid

Cash paid for interest $ 963 $ 1,142

Cash paid for income taxes $ — $ 2

Supplementary disclosure of non-cash activities:

3 unchanged sentences

NOTES TO CONDENSED FINANCIAL STATEMENTS

(tabular amounts in thousands, except share and per share amounts and where otherwise noted)

(amounts in thousands, except per share amounts and where otherwise noted)

ORGANIZATION AND BASIS OF PRESENTATION

Ardelyx, Inc.

(the “Company,” “we,” “us” or “our”) is a specialized biopharmaceutical company focused on developing innovative first-in-class medicines to improve treatment for people with kidney and cardiovascular diseases.

The Company operates in one business segment, which is the research and development of biopharmaceutical products.

(the “Company,” “we,” “us” or “our”) is a specialized biopharmaceutical company focused on discovering, developing and commercializing innovative first-in-class medicines to enhance the lives of patients with kidney and cardiorenal diseases.

We operate in one business segment, which is the research, development and commercialization of biopharmaceutical products.

Basis of Presentation

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GAAP have been condensed or omitted.

These condensed financial statements have been prepared on the same basis as the Company’s most recent annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary to present fairly the Company’s financial position at September 30, 2020 and results of operations, changes in stockholders’ equity, and cash flows for the interim periods ended September 30, 2020 and 2019.

The accompanying condensed financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The results for the three and nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the entire year ending December 31, 2020, or for any other interim period or future year.

As of September 30, 2020, the Company had cash, cash equivalents and short-term investments of approximately $ 185.5 million.

The Company believes its current available cash, cash equivalents and short-term investments will be sufficient to fund the Company’s planned expenditures and meet its obligations for at least 12 months following the filing of this Report on Form 10-Q.

These condensed financial statements have been prepared on the same basis as our most recent annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary to present fairly our financial position at March 31, 2021 and results of operations, changes in stockholders’ equity, and cash flows for the interim periods ended March 31, 2021 and 2020.

The accompanying condensed financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020.

The results for the three months ended March 31, 2021 are not necessarily indicative of results to be expected for the entire year ending December 31, 2021, or for any other interim period or future year.

Use of Estimates

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Actual results could materially differ from those estimates.

As of March 31, 2021, we had cash, cash equivalents and marketable securities of approximately $ 178.2 million.

We believe our current available cash, cash equivalents marketable securities will be sufficient to fund our planned expenditures and meet our obligations for at least 12 months following the filing of this Report on Form 10-Q.

Failure to generate product revenue in a timely manner, or raise sufficient capital when needed, could have a negative impact on our financial condition and our ability to pursue our business strategies and could require us to significantly delay, scale back or discontinue one or more of our product development programs, commercialization efforts, or other aspects of our business plans, and our operating results and financial condition would be adversely affected.

Summary of Significant Accounting Policies

There have been no changes to the significant accounting policies disclosed in the Company’s most recent Annual Report on Form 10-K.

There have been no changes to the significant accounting policies disclosed in our most recent Annual Report on Form 10-K.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In December 2019, as part of its initiative to reduce complexity in the accounting standards, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes.

The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.

The Company early adopted ASU 2019-12 on April 1, 2020 and this adoption had no material impact on the Company’s financial position or results of operations.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808):

Clarifying the Interaction between Topic 808 and Topic 606 (“ASU 2018-18”), which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under the FASB’s Accounting Standards Codification (“ASC”) No.

606, Revenue from Contracts with Customers (“ASC 606”) when the collaborative arrangement participant is a customer.

The Company adopted ASU 2018-18 on January 1, 2020, and the adoption of this standard did not have a material impact on the Company’s financial statements.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework— Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which considers cost and benefits and removes, modifies and adds disclosure requirements in Topic 820.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty is to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption.

All other amendments were to be applied retrospectively to all periods presented.

The Company adopted ASU 2018-13 on January 1, 2020, and the adoption of this standard did not have a material impact on the Company’s financial statements.

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate (“LIBOR”).

The guidance provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified.

This guidance was effective upon issuance and expires on December 31, 2022.

The Company adopted ASU 2020-04 on April 1, 2020, and the adoption of this standard did not have a material impact on the Company’s financial statements.

New Accounting Pronouncements - Recently Adopted

We have adopted no new accounting pronouncements other than those disclosed in our most recent Annual Report on Form 10-K.

Recent Accounting Pronouncements Not Yet Adopted

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Early adoption is permitted.

Management is currently assessing the impact of this standard on the Company’s financial statements.

Management is currently assessing the impact of this standard on our financial statements.

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Securities classified as cash, cash equivalents and short-term investments as of September 30, 2020 and December 31, 2019 are summarized below.

September 30, 2020

Securities classified as cash, cash equivalents and short-term investments as of March 31, 2021 and December 31, 2020 are summarized below (in thousands):

March 31, 2021

Gross Unrealized

Amortized Cost

Amortized Cost Gains Losses Fair Value

Cash and cash equivalents:

Cash $ 2,751 $ — $ — $ 2,751

Money market funds 76,676 — — 76,676

Commercial paper 3,500 — — 3,500

Corporate bonds 1,143 — — 1,143

Total cash and cash equivalents 84,070 — — 84,070

4 unchanged sentences

Asset-backed securities 2,035 — — 2,035

treasury notes

Total short-term investments 94,149 3 ( 10 ) 94,142

2 unchanged sentences

Gross Unrealized

Amortized Cost

Amortized Cost Gains Losses Fair Value

Cash and cash equivalents:

Cash $ 781 $ — $ — $ 781

Money market funds 88,151 — — 88,151

Commercial paper 2,100 — — 2,100

Corporate bonds

Total cash and cash equivalents 91,032 — — 91,032

2 unchanged sentences

Corporate bonds 24,547 3 ( 6 ) 24,544

Asset-backed securities

government-sponsored agency bonds 9,277 2 — 9,279

treasury notes 1,000 — — 1,000

Total short-term investments 95,455 7 ( 10 ) 95,452

Long-term investments:

Corporate bonds $ 2,115 $ ( 1 ) 2,114

Total cash equivalents and short-term investments $ 188,602 $ 7 $ ( 11 ) $ 188,598

All available-for-sale securities held as of September 30, 2020 had contractual maturities of less than one year.

The Company’s available-for-sale securities are subject to a periodic impairment review.

The Company considers a debt security to be impaired when the fair value of that security is less than its carrying cost, in which case the Company would further evaluate the investment to determine whether the security is other-than-temporarily impaired.

When the Company evaluates an investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition or creditworthiness of the issuer and any changes thereto, intent to sell, and whether it is more likely than not the Company will be required to sell the investment before the recovery of its cost basis.

If an investment is other-than-temporarily impaired, the Company writes the investment down through the statement of operations to its fair value and establishes that value as the new cost basis for the investment.

Management has determined that none of the Company’s available-for-sale securities were other-than-temporarily impaired in any of the periods presented, and as of September 30, 2020, no investment was in a continuous

unrealized loss position for more than one year .

As such, the Company believes that it is more likely than not that the investments will be held until maturity or a forecasted recovery of fair value.

While our investment policy requires that we only invest in highly-rated securities and limit our exposure to any single issuer, the COVID-19 pandemic may materially affect the financial conditions of issuers, which could result in a default by one or more issuers or result in downgrades below our minimum credit rating requirements.

We invest excess cash in marketable securities with high credit ratings.

These securities consist primarily of money market funds, commercial paper, corporate bonds, asset-backed securities, and U.S.

treasury and agency securities and are classified as “available-for-sale.”

All available-for-sale securities held as of March 31, 2021 had contractual maturities of less than one year.

Our available-for-sale securities are subject to a periodic impairment review.

We consider a debt security to be impaired when the fair value of that security is less than its carrying cost, in which case we would further evaluate the investment to determine whether the security is other-than-temporarily impaired.

When we evaluate an investment for other-than-temporary impairment, we review factors such as the length of time and extent to which fair value has been below cost basis, the financial condition or creditworthiness of the issuer and any changes thereto, intent to sell, and whether it is more likely than not we will be required to sell the investment before the recovery of its cost basis.

If an investment is other-than-temporarily impaired, we write the investment down through the statement of operations to its fair value and establishes that value as the new cost basis for the investment.

Management has determined that none of our available-for-sale securities were other-than-temporarily impaired in any of the periods presented, and as of March 31, 2021, no investment was in a continuous unrealized loss position for more than one year.

As such, we believe that it is more likely than not that the investments will be held until maturity or a forecasted recovery of fair value.

FAIR VALUE MEASUREMENTS

The Company’s financial instruments consist of cash and cash equivalents, short-term investments, prepaid expenses, other current assets, accounts payable, accrued expenses, and the Term Loan, as defined and discussed in Note 5.

Fair value estimates of these instruments are made at a specific point in time based on relevant market information.

These estimates may be subjective in nature and involve uncertainties and matters of significant judgment.

The carrying amounts of financial instruments such as cash and cash equivalents, prepaid expenses, other current assets, accounts payable and accrued expenses approximate the related fair values due to the short maturities of these instruments.

Based on prevailing borrowing rates available to the Company for loans with similar terms, the Company believes the fair value of the Term Loan, considering level 2 inputs, approximates this instrument’s carrying value.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

1 unchanged sentence

The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:

Level 1 – Valuations are based on quoted prices in active markets for identical assets or liabilities and readily accessible by the Company at the reporting date.

Level 2 – Valuations based on inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;

Valuations are based on quoted prices in active markets for identical assets or liabilities and readily accessible by us at the reporting date.

Examples of assets and liabilities utilizing Level 1 inputs are certain money market funds, U.S.

treasuries and trading securities with quoted prices on active markets.

Valuations based on inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;

quoted prices in markets that are not active;

or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Valuations based on unobservable inputs for which there is little or no market data, which require the Company to develop its own assumptions.

The following table sets forth the fair value of the Company’s financial assets and liabilities that are measured or disclosed on a recurring basis:

September 30, 2020

Examples of assets and liabilities utilizing Level 1 inputs are certain money market funds, U.S.

treasuries and trading securities with quoted prices on active markets.

Valuations based on unobservable inputs for which there is little or no market data, which require us to develop our own assumptions.

The following table sets forth the fair value of our financial assets and liabilities that are measured or disclosed on a recurring basis by level within the fair value hierarchy (in thousands):

March 31, 2021

Fair Value Level 1 Level 2 Level 3

Money market funds $ 76,676 $ 76,676 $ — $ —

3 unchanged sentences

Asset-backed securities 2,035 — 2,035 —

treasury notes

Total $ 175,461 $ 76,676 $ 98,785 $ —

Derivative liability for Exit Fee $ 1,412 $ — $ — $ 1,412

Total $ 1,412 $ — $ — $ 1,412

December 31, 2020

Fair Value Level 1 Level 2 Level 3

Money market funds $ 88,151 $ 88,151 $ — $ —

1 unchanged sentence

Corporate bonds 26,658 — 26,658 —

Asset-backed securities

government-sponsored agency bonds 9,279 — 9,279 —

treasury notes 1,000 — 1,000 —

Total $ 187,817 $ 88,151 $ 99,666 $ —

Derivative liability for Exit Fee $ 1,376 $ — $ — $ 1,376

Total $ 1,376 $ — $ — $ 1,376

Where quoted prices are available in an active market, securities are classified as Level 1.

The Company classifies money market funds, U.S.

government-sponsored agency bonds and U.S.

treasury notes as Level 1.

When quoted market prices are not available for the specific security, the Company estimates fair value by using benchmark yields, reported trades, broker/dealer quotes and issuer spreads.

The Company classifies corporate bonds, commercial paper, asset-backed securities and foreign currency derivative contracts as Level 2.

We classify money market funds as Level 1.

When quoted market prices are not available for the specific security, we estimate fair value by using benchmark yields, reported trades, broker/dealer quotes and issuer spreads.

We classify U.S.

government-sponsored agency bonds, U.S.

treasury notes, corporate bonds, commercial paper, asset-backed securities and foreign currency derivative contracts as Level 2.

In certain cases, where there is limited activity or less transparency around inputs to valuation, securities or derivative liabilities such as the Exit Fee, as defined and discussed in Note 4, are classified as Level 3.

DERIVATIVE LIABILITY

In May 2018, in connection with entering into the Loan Agreement, as defined and discussed in Note 5, the Company entered into an agreement pursuant to which the Company agreed to pay $ 1.5 million in cash (the “Exit Fee”) upon any change of control transaction in respect of the Company or if the Company obtains both (i) U.S.

Food and Drug Administration (“FDA”) approval of tenapanor for the treatment of hyperphosphatemia in chronic kidney disease (“CKD”) patients on dialysis and (ii) FDA approval of tenapanor for the treatment of patients with irritable bowel syndrome with constipation (“IBS-C”), which was obtained on September 12, 2019 when the FDA approved IBSRELA® (tenapanor), a 50 milligram, twice daily oral pill for the treatment of IBS-C in adults (the “Exit Fee Agreement”).

Notwithstanding the prepayment or termination of the Term Loan, as defined and discussed in Note 5, the Company’s obligation to pay the Exit Fee will expire on May 16, 2028.

The Company concluded that the Exit Fee is a freestanding derivative which should be accounted for at fair value on a recurring basis.

The estimated fair value of the Exit Fee is recorded as a derivative liability and included in accrued expenses and other current liabilities on the accompanying condensed balance sheets.

The fair value of the derivative liability was determined using a discounted cash flow analysis, and the key assumptions included in the calculation of the estimated fair value of the derivative liability include:

(i) the Company’s estimates of both the probability and timing of payment of the Exit Fee to Solar Capital Ltd.

and Western Alliance Bank as a result of the FDA approvals and (ii) a variable discount rate.

Generally, increases or decreases in the probability of occurrence would result in a directionally similar impact in the fair value measurement of the derivative liability, and it is estimated that a 10 % increase or decrease in the probability of occurrence would result in a fair value fluctuation of approximately $ 0.1 million.

Changes in fair value, which are presented as other income, net, in the Company's condensed statements of operations, were as follows:

Nine Months Ended September 30,

Fair value of Exit Fee derivative liability at January 1

Change in estimated fair value of derivative liability

Fair value of Exit Fee derivative liability at September 30

The carrying amounts reflected in the balance sheets for cash equivalents, short-term investments, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values at both March 31, 2021 and December 31, 2020, due to their short-term nature.

Fair Value of Debt

The interest rate of our term loan facility approximates the rate at which we could obtain alternative financing.

Therefore, the carrying amount of the term loan facility approximated its fair value at March 31, 2021 and December 31, 2020.

COLLABORATION AND LICENSING AGREEMENTS

Kyowa Kirin Co., Ltd.

2019 KKC Agreement

In November 2019, we entered into a research collaboration and option agreement with KKC (the “2019 KKC Agreement”) for research associated with identifying two preclinical compounds that are ready for designation as development compounds (“DCs”), with one compound inhibiting the first undisclosed target (“Program 1”), and a second inhibiting the second undisclosed target (“Program 2”).

Pursuant to the 2019 KKC Agreement, upon completion of the research and designation by the research steering committee of one or more DCs, KKC has the right to execute one or more separate collaborative agreements relating to the development and commercialization of one or both DCs in certain specified territories.

Under the terms of the 2019 KKC Agreement, KKC agreed to pay us a non-refundable, non-creditable upfront fee of $ 10.0 million, payable as follows:

the first installment of $ 5.0 million within 30 days of November 11, 2019 (the “Effective Date”), and the second installment of $ 5.0 million on the first anniversary of the Effective Date, unless the 2019 KKC Agreement is earlier terminated by KKC due to material breach by us.

The term of the 2019 KKC Agreement commenced on the Effective Date and ends on the earliest of:

(i) 2 years following the Effective Date, (ii) the nomination of a program DC for both programs, (iii) the nomination of one program DC and the decision by the parties to cease research for the other program, or (iv) the decision by the parties to cease research for both programs.

During the three months ended March 31, 2021, we recognized $ 1.5 million as revenue under the 2019 KKC Agreement in the accompanying condensed statement of operations and comprehensive loss.

The aggregate amount of the transaction price allocated to our partially unsatisfied performance obligations as of March 31, 2021 was $ 2.7 million which is presented in the accompanying condensed balance sheet as deferred revenue.

As of March 31, 2021, we expect to recognize the remaining transaction price allocated to our partially unsatisfied performance obligations over the remaining research terms, which is currently expected to extend through the end of 2021.

There were no significant changes in estimates associated with the 2019 KKC Agreement during the three months ended March 31, 2021.

2017 KKC Agreement

In November 2017, we entered into an exclusive license agreement with KKC (the “2017 KKC Agreement”), for the development, commercialization, and distribution of tenapanor in Japan for cardiorenal indications.

We granted KKC an exclusive license to develop and commercialize certain sodium hydrogen exchanger 3 (“NHE3”) inhibitors including tenapanor in Japan for the treatment of cardiorenal diseases and conditions, excluding cancer.

We retained the rights to tenapanor outside of Japan, and also retained the rights to tenapanor in Japan for indications other than those stated above.

Pursuant to the 2017 KKC Agreement, KKC is responsible for all costs and expenses incurred in the development and commercialization of tenapanor for all licensed indications in Japan.

We are responsible for supplying the tenapanor drug substance for KKC’s use in development and commercialization throughout the term of the 2017 KKC Agreement, provided that KKC may exercise an option to manufacture the tenapanor drug substance under certain conditions.

We assessed these arrangements in accordance with Accounting Standards Update (“ASU”) No.

2014-09, Revenue from Contracts with Customers (Topic 606) and related amendments (“ASC 606”) and concluded that the contract counterparty, KKC, is a customer.

Under the terms of the 2017 KKC Agreement, we received $ 30.0 million in upfront license fees, which was recognized as revenue when the agreement was executed.

Based on our assessment, management determined that the license and the manufacturing supply services were its material performance obligations at the inception of the 2017 KKC Agreement, and as such, each of the performance obligations is distinct.

In addition to the up-front license fee received of $ 30.0 million, we may be entitled to receive up to $ 55.0 million in total development milestones, of which $ 10.0 million has been recognized as revenue and $ 5.0 million has been received as of March 31, 2021, and approximately ¥ 8.5 billion for commercialization milestones, or approximately $ 76.5 million at the currency exchange rate on March 31, 2021, as well as reimbursement of costs plus a reasonable overhead for the supply of product and high-teen royalties on net sales throughout the term of the agreement.

The variable consideration related to the remaining development milestone payments has not been included in the transaction price as these were fully constrained at March 31, 2021.

During the three months ended March 31, 2021 and 2020, we recognized $ 5.0 million and zero , respectively, as licensing revenue upon the achievement of development milestones.

The $ 5.0 million development milestone recognized during the three months ended March 31, 2021 related to the initiation by KKC of phase 3 clinical studies in Japan to evaluate tenapanor for

hyperphosphatemia.

During the three months ended March 31, 2021, we recognized $ 0.1 million as product supply revenue related to the manufacturing supply of tenapanor and other materials to KKC pursuant to the 2017 KKC Agreement.

Similarly, for the three months ended March 31, 2020, $ 13.0 thousand was recognized as product supply revenue.

During the three months ended March 31, 2021 we recorded a $ 2.9 million prepayment that is due to us from KKC for the manufacturing of tenapanor drug substance.

The prepayment is reflected within prepaid and other current assets and deferred revenue, non-current on our condensed balance sheet as of March 31, 2021.

Shanghai Fosun Pharmaceutical Industrial Development Co.

(“Fosun Pharma”)

In December 2017, we entered into an exclusive license agreement with Fosun Pharma (the “Fosun Agreement”), for the development, commercialization and distribution of tenapanor in China for both hyperphosphatemia and IBS-C.

We assessed these arrangements in accordance with ASC 606 and concluded that the contract counterparty, Fosun Pharma, is a customer.

Under the terms of the Fosun Agreement, we received $ 12.0 million in upfront license fees which was recognized as revenue when the agreement was executed.

Based on management’s assessment, we determined that the license and the manufacturing supply services represented the material performance obligations at the inception of the agreement, and as such, each of the performance obligations is distinct.

We may be entitled to additional development and commercialization milestones of up to $ 110.0 million, as well as reimbursement of cost plus a reasonable overhead for the supply of product and tiered royalties on net sales ranging from the mid-teens to 20 %.

The variable consideration related to the remaining development milestone payments has not been included in the transaction price as these were fully constrained at March 31, 2021.

We have recorded no revenue during the three months ended March 31, 2021 related to the Fosun Agreement.

Knight Therapeutics, Inc.

In March 2018, we entered into an exclusive license agreement with Knight (the “Knight Agreement”), for the development, commercialization and distribution of tenapanor in Canada for hyperphosphatemia and IBS-C.

We assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, Knight, is a customer.

Under the terms of the agreement, we received a $ 2.3 million nonrefundable, one-time upfront payment in March 2018 and are eligible to receive additional development and commercialization milestone payments worth up to $ 17.6 million.

We are also eligible to receive royalties throughout the term of the agreement, and a transfer price for manufacturing services.

The variable consideration related to the remaining development milestone payments has not been included in the transaction price as they were fully constrained at March 31, 2021.

AstraZeneca AB (“AstraZeneca”)

In June 2015, we entered into a termination agreement with AstraZeneca (the “AstraZeneca Termination Agreement”) pursuant to which we have agreed to pay AstraZeneca (i) future royalties at a royalty rate of 10 % of net sales of tenapanor or other NHE3 products by us or our licensees, and (ii) 20 % of non-royalty revenue received from a new collaboration partner should we elect to license, or otherwise provide rights to develop and commercialize tenapanor or another NHE3 inhibitor, up to a maximum of $ 75.0 million in aggregate for (i) and (ii).

As of March 31, 2021, to date in aggregate, we have recognized $ 11.6 million of the $ 75.0 million, which has been recorded as cost of revenue, and have paid AstraZeneca $ 10.6 million.

For the three months ended March 31, 2021 we recognized and recorded as cost of revenue $ 1.0 million related to the AstraZeneca Termination Agreement.

For the three months ended March 31, 2020 we recognized no cost of revenue related to the AstraZeneca Termination Agreement.

Deferred Revenue

The following tables present changes in our current and non-current deferred revenue balances during the reporting period.

The current deferred revenue balance is attributable entirely to the 2019 KKC Agreement and the non-current deferred revenue balance is attributable entirely to the 2017 KKC Agreement.

Deferred revenue - current

Balance at December 31, 2020 $ 4,177

Decreases due to revenue recognized in the period for which cash has been received ( 1,454 )

Balance at March 31, 2021 $ 2,723

Deferred revenue - non-current

Balance at December 31, 2020 $ —

Increases to amounts invoiced, for which cash has not yet been received 2,947

Balance at March 31, 2021 $ 2,947

Solar Capital and Western Alliance Bank Loan Agreement

On May 16, 2018, the Company entered into a loan and security agreement (the “Loan Agreement”), with Solar Capital Ltd.

On May 16, 2018, we entered into a loan and security agreement (the “Loan Agreement”), with Solar Capital Ltd.

and Western Alliance Bank (collectively the “Lenders”).

The Loan Agreement provides for a $ 50.0 million term loan facility with a maturity date of November 1, 2022 (the “Term Loan”).

On October 9, 2020, the Company and the Lenders entered into an amendment to the Loan Agreement to extend the date through which the Company is permitted to make interest-only payments on the Term Loan by twelve months.

Please see Note 13 for additional information.

Borrowings under the Term Loan, before the October 2020 amendment, bore interest at a floating per annum rate equal to 7.45 % plus the one -month LIBOR, and the Company was permitted to make interest-only payments on the Term Loan until December 1, 2020.

The Company paid a closing fee of 1 % of the Term Loan, or $ 0.5 million, upon the closing of the Term Loan, and the Company is obligated to pay a final fee equal to 3.95 % of the Term Loan upon the earliest to occur of the maturity date, the acceleration of the Term Loan, the prepayment or repayment of the Term Loan or the termination of the Loan Agreement.

The Company may voluntarily prepay the outstanding Term Loan, subject to a prepayment premium of (i) 3 % of the principal amount of the Term Loan if prepaid prior to or on the first anniversary of the Closing Date, (ii) 2 % of the principal amount of the Term Loan if prepaid after the first anniversary of the Closing Date through and including the second anniversary of the Closing Date, or (iii) 1 % of the principal amount of the Term Loan if prepaid after the second anniversary of the Closing Date and prior to the maturity date.

The Term Loan is secured by substantially all the Company’s assets, except for the Company’s intellectual property and certain other customary exclusions.

Additionally, in connection with the Term Loan, the Company entered into the Exit Fee Agreement, as discussed in Note 4.

The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants.

As of September 30, 2020, the Company was in compliance with all of the covenants set forth in the Loan Agreement.

The Loan Agreement also contains customary events of default that entitle the Lender to cause the Company’s indebtedness under the Loan Agreement to become immediately due and payable, and to exercise remedies against the Company and the collateral securing the Term Loan, including the Company’s cash.

Upon the occurrence and for the duration of an event of default, an additional default interest rate equal to 4.0 % per annum will apply to all amounts owed under the Loan Agreement.

As of September 30, 2020, to the Company’s knowledge, there were no facts or circumstances in existence that would give rise to an event of default.

As of September 30, 2020, the Company’s future payment obligations related to the Term Loan, excluding interest payments and the Exit Fee, are as follows:

On October 9, 2020, we and the Lenders entered into an amendment to the Loan Agreement (“the 2020 Amendment”) to extend the date through which we are permitted to make interest-only payments on the Term Loan by twelve months to December 1, 2021.

The 2020 amendment also requires that if either the FDA does not approve our New Drug Application ("NDA") for tenapanor for the control of serum phosphorus in adult patients with chronic kidney disease ("CKD") on dialysis on or before May 31, 2021 or the U.S.

Food and Drug Administration ("FDA") issues a CRL with respect to our NDA Number 213931, then we are to begin principal payments on the earlier of June 1, 2021 or the first day of the month immediately following the date that the FDA issues us a CRL.

On April 29, 2021, the FDA extended the Prescription Drug User Fee Act ("PDUFA") date for tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis by three months to July 29, 2021, making it unlikely that the FDA would approve our NDA for tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis on or before May 31, 2021.

In May 2021, we and the Lenders entered into an additional amendment to the Loan Agreement (“the 2021 Amendment”) to extend the date by which FDA approval is required in order to continue interest-only payments through December 1, 2021.

The 2021 Amendment requires that if either the FDA does not approve our NDA Number 213931 for tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis on or before July 31, 2021 or the FDA issues a complete response letter (“CRL”) for tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis, then we are to begin principal payments on the earlier of August 1, 2021 or the first day of the month immediately following the date that the FDA issues us a CRL.

If principal repayments are required to begin prior to December 1, 2021 under the 2021 Amendment then the first principal repayment would include all payments that would have been due if principal repayment had begun on June 1, 2021.

We paid a closing fee of 1 % of the Term Loan, or $ 0.5 million, upon the closing of the Term Loan, and $ 0.1 million upon closing of the 2020 Amendment.

Under the Term Loan, we are also obligated to pay a final fee equal to 4.95 % of the Term Loan upon the earliest to occur of the maturity date, the acceleration of the Term Loan, the prepayment or repayment of the Term Loan or the termination of the Loan Agreement.

We may voluntarily prepay the outstanding Term Loan, subject to a prepayment premium of (i) 3 % of the principal amount of the Term Loan if prepaid prior to or on the first anniversary of the Closing Date, (ii) 2 % of the principal amount of the Term Loan if prepaid after the first anniversary of the Closing Date through and including the second anniversary of the Closing Date, or (iii) 1 % of the principal amount of the Term Loan if prepaid after the second anniversary of the Closing Date and prior to the maturity date.

The Term Loan is secured by substantially all our assets, except for our intellectual property and certain other customary exclusions.

Additionally, in connection with the Term Loan, we entered into the Exit Fee Agreement, as discussed in Note 6.

The Loan Agreement also contains customary events of default that entitle the Lender to cause us indebtedness under the Loan Agreement to become immediately due and payable, and to exercise remedies against us and the collateral securing the Term Loan, including our cash.

Upon the occurrence and for the duration of an event of default, an additional default interest

rate equal to 4 % per annum will apply to all amounts owed under the Loan Agreement.

As of March 31, 2021, to our knowledge, there were no facts or circumstances in existence that would give rise to an event of default.

As of March 31, 2021, our future payment obligations related to the Term Loan, excluding interest payments and the Exit Fee, are as follows (in thousands):

Total repayment obligations $ 52,475

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Unaccreted value of final fee ( 1,011 )

Loan payable 51,015

Loan payable, current portion ( 16,667 )

Loan payable, net of current portion $ 34,348

All of the Company’s leases, which primarily include the right to use office and laboratory space, are operating leases, and certain of the leases have both lease and non-lease components.

The Company has elected to account for each separate lease component and the non-lease components associated with that lease component as a single lease component for all classes of underlying assets.

The following table provides additional details related to our facility leases, as presented in the Company’s condensed balance sheet as of September 30, 2020:

DERIVATIVE LIABILITY

In May 2018, in connection with entering into the Loan Agreement, as defined and discussed in Note 5, we entered into an agreement pursuant to which we agreed to pay $ 1.5 million in cash (the “Exit Fee”) upon any change of control transaction in respect of the Company or if we obtain both (i) FDA approval of tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis and (ii) FDA approval of tenapanor for the treatment of patients with irritable bowel syndrome with constipation (“IBS-C”), which was obtained on September 12, 2019 when the FDA approved IBSRELA® (tenapanor), a 50 milligram, twice daily oral pill for the treatment of IBS-C in adults (the “Exit Fee Agreement”).

Notwithstanding the prepayment or termination of the Term Loan, as defined and discussed in Note 5, our obligation to pay the Exit Fee will expire on May 16, 2028.

We concluded that the Exit Fee is a freestanding derivative which should be accounted for at fair value on a recurring basis.

The estimated fair value of the Exit Fee is recorded as a derivative liability and included in accrued expenses and other current liabilities on the accompanying condensed balance sheets.

The fair value of the derivative liability was determined using a discounted cash flow analysis and is classified as a Level 3 measurement within the fair value hierarchy since our valuation utilized significant unobservable inputs.

Specifically, the key assumptions included in the calculation of the estimated fair value of the derivative liability include:

(i) our estimates of both the probability and timing of a potential $ 1.5 million payment to Solar Capital Ltd.

and Western Alliance Bank as a result of the FDA approvals and (ii) a discount rate which was derived from our estimated cost of debt, adjusted with current LIBOR (or a comparable successor rate if LIBOR no longer exists).

Generally, increases or decreases in the probability of occurrence would result in a directionally similar impact in the fair value measurement of the derivative liability and it is estimated that a 10 % increase (decrease), not to exceed 100%, in the probability of occurrence would result in a fair value fluctuation of no more than $ 0.1 million.

Changes in the fair value of recurring measurements included in Level 3 of the fair value hierarchy are presented as other income (expense), net in our statements of operations and were as follows for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended March 31,

Fair value of Exit Fee derivative liability at January 1 $ 1,376 $ 969

Change in estimated fair value of derivative liability 36 82

Fair value of Exit Fee derivative liability at March 31 $ 1,412 $ 1,051

All of our leases are operating leases and each contain customary rent escalation clauses.

Certain of the leases have both lease and non-lease components.

We have elected to account for each separate lease component and the non-lease components associated with that lease component as a single lease component for all classes of underlying assets.

The following table provides additional details of our facility leases presented in the condensed balance sheet as of March 31, 2021 (dollars in thousands):

Right of use assets $ 1,667

1 unchanged sentence

Operating lease liability, net of current portion 397

Total $ 1,809

Weighted-average remaining life (years) 1.60

Weighted-average discount rate 11.23 %

Other information related to the Company’s facilities leases is as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Lease costs, which are included in operating expenses in our statements of operations, were as follows (in thousands):

Three Months Ended March 31,

Operating lease expense $ 673 $ 648

Cash paid for operating lease

The following table summarizes the Company’s undiscounted cash payment obligations for its operating lease liabilities as of September 30, 2020:

Cash paid for operating leases $ 1,565 $ 760

The following table summarizes our undiscounted cash payment obligations for our operating lease liabilities as of March 31, 2021:

Remainder of 2021 $ 1,463

Thereafter 469

Total undiscounted operating lease payments 1,932

3 unchanged sentences

Operating lease liability, net of current portion $ 397

STOCKHOLDERS’ EQUITY

At the Market Offerings Agreement

In July 2020, we filed a Form S-3 registration statement, which became effective in August 2020, containing (i) a base prospectus for the offering, issuance and sale by us of up to a maximum aggregate offering price of $ 250.0 million of our common stock, preferred stock, debt securities, warrants and/or units, from time to time in one or more offerings;

and (ii) a prospectus supplement for the offering, issuance and sale by us of up to a maximum aggregate offering price of $ 100.0 million of our common stock that may be issued and sold, from time to time, under a sales agreement with Jefferies LLC, deemed to be “at the market offerings.” During the three months ended March 31, 2021, we sold 4.9 million shares of our common stock for aggregate gross proceeds of $ 35.0 million at a weighted average price of $ 7.09 per share under the Open Market Sales Agreement.

In aggregate during the life of the Open Market Sales Agreement, and as of March 31, 2021, we have sold 8.2 million shares of our common stock for gross proceeds of $ 56.7 million at a weighted average sales price of approximately $ 6.91 per share.

Pursuant to the Open Market Sales Agreement, Jefferies, as sales agent, receives a commission of up to 3.0 % of the gross sales price for shares of common stock sold under the Open Market Sales Agreement.

EQUITY INCENTIVE PLANS

Stock Option Plan

During the three and nine months ended September 30, 2020, options were granted to employees and members of the board of directors to purchase 460,167 and 3,109,683 shares, respectively, of the Company's common stock.

The weighted-average grant-date estimated fair value of options granted during the three and nine months ended September 30, 2020 was $ 4.09 and $ 5.03 , respectively.

During the three and nine months ended September 30, 2020, options were exercised to purchase 142,191 and 346,806 shares, respectively, of the Company's common stock, resulting in corresponding approximately $ 0.3 million and $ 0.8 million net proceeds, respectively, to the Company.

During the three and nine months ended September 30, 2019, options were exercised to purchase 4,513 and 6,964 shares, respectively, of the Company's common stock, resulting in corresponding $ 13,000 and $ 21,000 net proceeds to the Company.

Restricted Stock Units (“RSUs”)

In July 2018, the Company granted 903,374 performance-based restricted stock units (“PRSUs”) to its employees that were to vest upon the achievement of certain performance conditions, subject to the employees’ continued service relationship with the Company through the achievement date.

The primary performance condition was acceptance by the FDA of the Company’s filing of its New Drug Application (“NDA”) of tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis.

Additionally, during the second quarter of 2020, the Company granted 30,000 PRSUs, in aggregate, with the same performance criteria to its chief commercial officer and chief financial officer hired during that period.

On September 15, 2020, the Company announced the performance conditions were achieved and 866,528 of these PRSUs that were outstanding on the achievement date were vested and issued.

Based on the achievement of the performance conditions, the Company recorded stock-based compensation expense of $ 0.2 million and $ 1.6 million for the three and nine months ended September 30, 2020, respectively.

The Company had recorded a one-time catch-up of stock-based compensation expense of $ 2.1 million for each of the three and nine months ended September 30, 2019 as the related performance condition had become probable as of September 30, 2019.

The related compensation cost was recognized as an expense ratably over the estimated vesting period.

The expense recognized for these awards was based on the grant date fair value of the Company’s common stock multiplied by the number of units granted.

For each of the three and nine months ended September 30, 2020 and 2019, the Company issued zero and 85,609 shares , respectively, of its common stock upon vesting of time-based RSUs to its employees.

No time-based RSUs were granted to employees during the three and nine months ended September 30, 2020 or 2019.

During the three months ended March 31, 2021, options were granted to employees and members of the board of directors to purchase 2.8 million shares of our common stock.

The weighted-average grant-date estimated fair value of options granted during the three months ended March 31, 2021 was $ 6.51 .

During the three months ended March 31, 2021, options were exercised to purchase 10.5 thousand shares of our common stock, resulting in net proceeds of approximately $ 0.5 million.

During the three months ended March 31, 2020, options were exercised to purchase 0.1 million shares of or common stock, resulting in net proceeds of approximately $ 0.6 million.

Restricted Stock Units

During the three months ended March 31, 2021, we granted 0.9 million restricted stock units (“RSUs”) to our employees that will vest upon employees’ continued service relationship with us.

During the three months ended March 31, 2020, we granted 0.9 million restricted stock units to our employees.

During both the three months ended March 31, 2021 and March 31, 2020, we granted no performance-based restricted stock units ("PRSUs") to our employees.

Employee Stock Purchase Plan

In August 2020, the Company sold 94,127 shares of its common stock under the Company’s employee stock purchase program (“ESPP”).

The shares were purchased by employees at a purchase price of $ 4.88 per share with proceeds to the Company of approximately $ 0.4 million.

In February 2020, the Company sold 75,804 shares of its common stock under the ESPP.

The shares were purchased by employees at a purchase price of $ 4.95 per share with proceeds to the Company of approximately $ 0.4 million.

In August 2019, the Company sold 77,698 shares of its common stock under the ESPP.

The shares were purchased by employees at a purchase price of $ 2.58 per share with proceeds to the Company of approximately $ 0.2 million.

In February 2019, the Company sold 83,046 shares of its common stock under the ESPP.

The shares were purchased by employees at a purchase price of $ 2.39 per share with proceeds to the Company of approximately $ 0.2 million.

In February 2021, we sold 0.2 million shares of our common stock under our employee stock purchase program (the "ESPP").

The shares were purchased by employees at a purchase price of $ 5.84 per share resulting in proceeds to us of approximately $ 1.4 million.

Issuance of Common Stock for Services

For the three and nine months ended September 30, 2020, the Company issued zero and 42,403 shares, respectively, of its common stock to members of the board of directors who elected to receive stock in lieu of their cash fees under the Company’s Amended and Restated Non-Employee Director Compensation Program.

The shares issued were valued at

$ 0.3 million based on the fair value of the common stock on the date of grant.

For the three and nine months ended September 30, 2019, the Company issued zero and 113,136 shares, respectively, of its common stock to members of the board of directors who elected to receive stock in lieu of their cash fees.

The shares issued were valued at $ 0.3 million based on the fair value of the common stock on the date of grant.

Under Our Amended and Restated Non-Employee Director Compensation Program, members of our board of directors may elect to receive shares of our stock in lieu of their cash fees.

For the three months ended March 31, 2021 and 2020, we issued no shares of our common stock to members of the board of directors in accordance with the program.

Stock-Based Compensation

Stock-based compensation expense recognized for stock options, RSUs, PRSUs and the Company’s ESPP are recorded as operating expenses in the Company’s condensed statements of operations and comprehensive loss, as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Stock-based compensation expense recognized for stock options, RSUs, PRSUs and the ESPP are recorded as operating expenses in our condensed statements of operations and comprehensive loss, as follows:

Three Months Ended March 31,

Research and development $ 1,092 $ 1,058

General and administrative 1,995 1,890

As of September 30, 2020, the Company’s total unrecognized stock-based compensation expense, net of estimated forfeitures, and average remaining vesting period, included the following:

Unrecognized Compensation Expense

Average Remaining Vesting Period (Years)

Total $ 3,087 $ 2,948

As of March 31, 2021, our total unrecognized stock-based compensation expense, net of estimated forfeitures, and average remaining vesting period, included the following:

Unrecognized Compensation

Expense Average Remaining

Vesting Period (Years)

Stock options $ 25,723 3.1

STOCKHOLDERS’ EQUITY

In June 2015, the Company sold and issued warrants to purchase 2,172,899 shares of common stock.

The purchase price for the warrants was $ 0.125 per warrant.

The warrants were exercisable for an exercise price of $ 13.91 per share at any time prior to the earlier of (i) 5 years from the date of issuance or (ii) certain changes in control of the Company.

In June 2020, the warrants expired with none of the warrants exercised.

At the Market Offerings Agreement

In July 2020, the Company filed a Form S-3 registration statement, which became effective in August 2020, containing (i) a base prospectus for the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $ 250,000,000 of the Company’s common stock, preferred stock, debt securities, warrants and/or units, from time to time in one or more offerings;

and (ii) a prospectus supplement for the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $ 100,000,000 of the Company’s common stock that may be issued and sold, from time to time, under a sales agreement with Jefferies LLC, deemed to be “at the market offerings.” As of September 30, 2020, no shares have been offered, issued or sold pursuant to this sales agreement.

RSUs $ 6,246 3.7

ESPP $ 399 0.4

NET LOSS PER SHARE

1 unchanged sentence

Diluted net loss per common share is computed giving effect to all potential dilutive common shares, including common stock issuable upon exercise of stock options, and unvested restricted common stock and stock units.

As the Company had net losses for the three and nine months ended September 30, 2020 and 2019, all potential common shares were determined to be anti-dilutive.

As we had net losses for the

three months ended March 31, 2021 and 2020, all potential common shares were determined to be anti-dilutive.

The following table sets forth the computation of net loss per common share:

Three Months Ended

Nine Months Ended September 30,

Three Months Ended March 31,

Net loss $ ( 33,155 ) $ ( 22,373 )

Weighted average common shares outstanding - basic and diluted 97,179,241 88,880,658

Net loss per share - basic and diluted $ ( 0.34 ) $ ( 0.25 )

For the three and nine months ended September 30, 2020, the total number of securities that could potentially dilute basic net loss per share in the future that were not included in the computation of diluted net loss per share because the effect would have been antidilutive was 9.6 million and 10.4 million, respectively.

For the three and nine months ended September 30, 2019, the total number of securities that could potentially dilute basic net loss per share in the future that were not included in the computation of diluted net loss per share because the effect would have been antidilutive was 10.5 million and 10.2 million, respectively.

COLLABORATION AND LICENSING AGREEMENTS

Kyowa Kirin Co., Ltd.

2019 KKC Agreement

In November 2019, the Company entered into a research collaboration and option agreement with KKC (the “2019 KKC Agreement”) for research associated with identifying two pre-clinical compounds that are ready for designation as development compounds (“DCs”), with one compound inhibiting the first undisclosed target (“Program 1”), and a second inhibiting the second undisclosed target (“Program 2”).

Under the terms of the 2019 KKC Agreement, KKC agreed to pay the Company a non-refundable, non-creditable upfront fee of $ 10.0 million, payable as follows:

The term of the 2019 KKC Agreement commenced on the Effective Date and ends on the earliest of:

(i) two years following the Effective Date, (ii) the nomination of a program DC for both programs, (iii) the nomination of one program DC and the decision by the parties to cease research for the other program, or (iv) the decision by the parties to cease research for both programs.

The Company assessed the 2019 KKC Agreement in accordance with ASC 606 and concluded that the contract’s counterparty, KKC, is a customer.

Management also considered the modification guidance prescribed in ASC 606 and concluded that the 2019 KKC Agreement should be accounted for as a separate contract from the 2017 KKC Agreement, as defined and discussed below.

The Company identified various promises in the 2019 KKC Agreement, including:

the grant of an initial research license;

the Program 1 research;

the Program 2 research;

the right to obtain certain development and commercialization rights to a Program 1 DC in certain territories;

the right to obtain development and commercialization rights to a Program 2 DC in certain territories;

and participation in a joint steering committee (“JSC”).

The Company determined that KKC could not benefit from either of the research programs without the research license and participation in the JSC.

As such, the combined license, research programs and participation in the JSC were deemed to be the highest level of goods and services that can be deemed distinct for each of the Program 1 research and Program 2 research.

The Company concluded that the options to obtain additional development and commercialization rights that are exercisable by KKC under certain circumstances are not performance obligations of the contract at inception because the option fees reflect the standalone selling price of the options, and therefore, the options are not considered to be material rights.

At the outset of the 2019 KKC Agreement, the Company determined that the initial transaction price amounted to $ 10.0 million and that revenue associated with the combined performance obligations will be recognized as services are provided using an input method.

Since transfer of control occurs over time, in management’s judgment this input method is the best measure of progress towards satisfying the performance obligations and reflects a faithful depiction of the transfer of goods and services.

Revenue will be recognized over the Program 1 and Program 2 research periods, which are currently expected to extend through the end of 2021.

Management will re-evaluate the estimates related to the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur and adjust the timing of revenue recognition as necessary.

During the three and nine months ended September 30, 2020, the Company recognized $ 1.4 million and $ 3.7 .

million, respectively, as revenue under the 2019 KKC Agreement in the accompanying statement of operations and comprehensive loss.

The aggregate amount of the transaction price allocated to the Company’s partially unsatisfied performance obligations as of September 30, 2020 was $ 5.9 million, of which $ 0.9 million is presented in the accompanying condensed balance sheet as deferred revenue.

As of September 30, 2020, the Company expects to recognize the remaining transaction price allocated to the Company’s partially unsatisfied performance obligations over the remaining research terms, which, as noted above, are currently expected to extend through the end of 2021.

There were no significant changes in estimates associated with the 2019 KKC Agreement during the three or nine months ended September 30, 2020.

2017 KKC Agreement

In November 2017, the Company entered into an exclusive license agreement with KKC (the “2017 KKC Agreement”), for the development, commercialization and distribution of tenapanor in Japan for cardiorenal indications.

The Company granted KKC an exclusive license to develop and commercialize certain sodium hydrogen exchanger 3 (“NHE3”) inhibitors including tenapanor in Japan for the treatment of cardiorenal diseases and conditions, excluding cancer.

The Company retained the rights to tenapanor outside of Japan, and also retained the rights to tenapanor in Japan for indications other than those stated above.

Pursuant to the 2017 KKC Agreement, KKC is responsible for all costs and expenses incurred in the development and commercialization of tenapanor for the treatment of cardiorenal diseases and conditions, excluding cancer in Japan.

Under the 2017 KKC Agreement, the Company is responsible for supplying the tenapanor drug product for KKC’s use in development and during commercialization until KKC has assumed such responsibility.

Additionally, the Company is responsible for supplying the tenapanor drug substance for KKC’s use in development and commercialization throughout the term of the 2017 KKC Agreement, provided that KKC may exercise an option to manufacture the tenapanor drug substance under certain conditions.

The Company assessed these arrangements in accordance with ASC 606 and concluded that the contract counterparty, KKC, is a customer.

Under the terms of the 2017 KKC Agreement, the Company received $ 30.0 million in upfront license fees, which was recognized as revenue when the agreement was executed.

Based on the Company’s assessment, management determined that the license and the manufacturing supply services were its material performance obligations at the inception of the 2017 KKC Agreement, and as such, each of the performance obligations is distinct.

Additionally, the Company recorded unbilled revenue of $ 5.0 million and an increase in uncharged license fees of $ 1.0 million related to the first milestone under the 2017 KKC Agreement that KKC;

this first milestone was achieved in February 2019 .

In addition to the $ 30.0 million upfront license fee, the Company may be entitled to receive up to $ 55.0 million in total development milestones, of which $ 5.0 million has been received to date, and approximately $ 80.4 million in

commercialization milestones, as well as reimbursement of costs plus a reasonable overhead for the supply of product and high-teen royalties on net sales throughout the term of the agreement.

The variable consideration related to the remaining development milestone payments has not been included in the transaction price as these were fully constrained at September 30, 2020.

During each of the three and nine months ended September 30, 2020, the Company recognized $ 1.4 million as other revenue related to the manufacturing supply of tenapanor and other materials to KKC pursuant to the 2017 KKC Agreement.

Similarly, for the three and nine months ended September 30, 2019, $ 13,000 and $ 31,000 , respectively, was recognized as other revenue.

Xuanzhu (HK) Biopharmaceutical Limited (“XuanZhu”)

In November 2019, the Company entered into a license agreement with XuanZhu (the “XuanZhu Agreement”), pursuant to which the Company granted XuanZhu a license to certain specific patent and patent applications.

The Company assessed the XuanZhu Agreement in accordance with ASC 606 and concluded that the contract counterparty, XuanZhu, is a customer.

Under the terms of the XuanZhu Agreement, the Company recognized $ 1.5 million in license fees, which constituted the initial transaction price, when the agreement was executed, of which $ 750,000 was received upfront in November 2019, and achievement for the second $ 750,000 payment, related to the issuance and grant of a specific patent, was determined to be not materially at risk and probable of achievement.

Based on management’s assessment, the Company determined that it has one combined performance obligation, which is the license and the specific patent grant.

No revenue related to the XuanZhu Agreement was recorded during the three and nine months ended September 30, 2020.

Shanghai Fosun Pharmaceutical Industrial Development Co.

(“Fosun Pharma”)

In December 2017, the Company entered into an exclusive license agreement with Fosun Pharma ( the “ Fosun Agreement ”), for the development, commercialization and distribution of tenapanor in China for both hyperphosphatemia and IBS-C.

The Company assessed these arrangements in accordance with ASC 606 and concluded that the contract counterparty, Fosun Pharma, is a customer.

Under the terms of the Fosun Agreement, the Company received $ 12.0 million in upfront license fees which was recognized as revenue when the agreement was executed.

Based on management’s assessment, the Company determined that the license and the manufacturing supply services represented the material performance obligations at the inception of the agreement, and as such , each of the performance obligations is distinct .

The Company may be entitled to additional development and commercialization milestones of up to $ 110.0 million, as well as reimbursement of cost plus a reasonable overhead for the supply of product and tiered royalties on net sales ranging from the mid-teens to 20 % .

The variable consideration related to the remaining development milestone payments has not been included in the transaction price as these were fully constrained at September 30, 2020.

The Company has recorded no revenue during the three and nine months ended September 30, 2020 related to the Fosun Agreement.

During each of the three and nine months ended September 30, 2019, $ 3.0 million licensing revenue was recorded upon the achievement of a development milestone pursuant to the Fosun Agreement.

Knight Therapeutics, Inc.

In March 2018, the Company entered into an exclusive license agreement with Knight (the “Knight Agreement”), for the development, commercialization and distribution of tenapanor in Canada for hyperphosphatemia and IBS-C.

The Company assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, Knight, is a customer.

Under the terms of the agreement, the Company received a $ 2.3 million nonrefundable, one-time upfront payment in March 2018 and is eligible to receive additional development and commercialization milestone payments worth up to

$ 16.4 million.

The Company is also eligible to receive royalties throughout the term of the agreement, and a transfer price for manufacturing services .

The variable consideration related to the remaining development milestone payments has not been included in the transaction price as these were fully constrained at September 30, 2020.

In April 2020, Knight announced that it had received approval from Health Canada for IBSRELA ® (tenapanor) for the treatment of IBS-C, and in May 2020, the Company received a development milestone payment from Knight related to the achievement of the aforementioned milestone.

For the three and nine months ended September 30, 2020 the Company recognized zero and $ 0.7 million, respectively, as licensing revenue, and for the three and nine months ended September 30, 2019, no revenue was recognized related to the Knight Agreement.

AstraZeneca AB (“AstraZeneca”)

In June 2015, the Company entered into a termination agreement with AstraZeneca (the “AstraZeneca Termination Agreement”) pursuant to which the Company has agreed to pay AstraZeneca (i) future royalties at a royalty rate of 10 % of net sales of tenapanor or other NHE3 products by the Company or its licensees, and (ii) 20 % of non-royalty revenue received from a new collaboration partner should the Company elect to license, or otherwise provide rights to develop and commercialize tenapanor or another NHE3 inhibitor, up to a maximum of $ 75.0 million in aggregate for (i) and (ii).

As of September 30, 2020, to date in aggregate, the Company has recognized $ 10.6 million of the $ 75.0 million, recorded as cost of revenue, and has paid AstraZeneca $ 10.6 million.

For the three and nine months ended September 30, 2020 the Company has recognized and recorded as cost of revenue zero and $ 0.1 million, respectively, related to the AstraZeneca Termination Agreement.

Similarly, for each of the three and nine months ended September 30, 2019 the Company recognized $ 0.1 million as cost of revenue.

The following table presents changes in the Company’s deferred revenue balance, which is attributable entirely to the 2019 KKC Agreement discussed above, during the reporting period:

Deferred revenue

Balance at December 31, 2019

Increases due to cash received, excluding amounts recognized as revenue during the period

Decreases due to revenue recognized in the period for which cash has been received

Decreases due to revenue recognized in the period for which cash has not been received

Balance at September 30, 2020

For the three months ended March 31, 2021, the total number of securities that could potentially dilute basic net loss per share in the future that were not included in the computation of diluted net loss per share because the effect would have been antidilutive was 13.0 million.

For the three months ended March 31, 2020, the total number of securities that could potentially dilute basic net loss per share in the future that were not included in the computation of diluted net loss per share because the effect would have been antidilutive was 11.9 million.

CONTINGENCIES

From time to time the Company may be involved in claims arising in connection with its business.

Based on information currently available, management believes that the amount, or range, of reasonably possible losses in connection with any pending actions against the Company will not be material to the Company’s financial condition or cash flows, and no contingent liabilities were accrued as of September 30, 2020 or 2019.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law.

The CARES Act includes, among other features, provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

While the Company continues to evaluate the impact of the CARES Act, it does not expect the provisions of the legislation to have a significant impact on the effective tax rate or on the income tax provision or deferred income tax positions of the Company.

SUBSEQUENT EVENT

On October 9, 2020, the Company and the Lenders entered into an amendment to the Loan Agreement, as defined and discussed in Note 5, to extend the date through which the Company is permitted to make interest-only payments on the Term Loan from December 1, 2020 to December 1, 2021 (the “Amended Interest Only Period”);

provided that, if (a) the FDA does not approve the Company’s NDA for tenapanor for control of serum phosphorus in adult CKD patients on dialysis on or before May 31, 2021 or (b) the FDA issues a complete response letter (“CRL”) for tenapanor for the control of serum phosphorus in adult CKD patients on dialysis, then the Amended Interest Only Period will be shortened to the earlier of June 1, 2021 or the first day of the month immediately following the date that the FDA issues the CRL.

In addition, the Company and the Lenders have agreed to increase the fee that is due upon the earliest to occur of the maturity date, the acceleration of the Term Loan, the prepayment or repayment of the Term Loan or the termination of the Loan Agreement from 3.95 % of the Term Loan to 4.95 % of the Term Loan and set a minimum LIBOR rate of 0.25 %.

The Company paid an amendment fee of $ 125,000 , in aggregate, to the Lenders in October 2020 and November 2020.

The amendment to the interest-only payments period results in the classification of the loan payable as non-current in the condensed balance sheet at September 30, 2020.

From time to time we may be involved in claims arising in connection with our business.

Based on information currently available, management believes that the amount, or range, of reasonably possible losses in connection with any pending actions against us would not be material to our financial condition or cash flows, and no contingent liabilities were accrued as of March 31, 2021 or 2020.

SUBSEQUENT EVENTS

On April 29, 2021, the FDA extended the PDUFA date for our NDA for tenapanor for control of serum phosphorus in adult patients with CKD on dialysis by three months to July 29, 2021.

In May 2021, we entered into an amendment to our loan and security agreement (the “Loan Agreement”), with Solar Capital Ltd.

and Western Alliance Bank (collectively the “Lenders”) to extend the date by which FDA approval is required in order to continue interest-only payments through December 1, 2021.

Please see Note 5.

Borrowing for additional information.

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 1. Financial Statements