What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-12 compared with 2021-08-13 · 125 added, 124 removed, 134 unchanged (65% of the section changed)

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Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report entitled “Risk Factors.” These forward-looking statements speak only as of the date hereof.

Except as required by law, we assume no obligation to update or revise these forward-looking

statements for any reason.

Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason.

Unless the context requires otherwise, the terms “Ardelyx”, “Company”, “we”, “us”, and “our” refer to Ardelyx, Inc.

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This results in the tightening of the epithelial cell junctions, thereby significantly reducing paracellular uptake of phosphate, the primary pathway of phosphate absorption.

Since commencing operations in October 2007, substantially all our efforts have been dedicated to our research and development (“R&D”) activities, including developing tenapanor and developing our proprietary drug discovery and design platform.

We have not generated any revenues from product sales.

As of September 30, 2021, we had an accumulated deficit of $676.7 million.

We expect to continue to incur substantial operating losses for the foreseeable future as we seek to gain approval for our New Drug Application (“NDA”) for tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis;

prepare for the potential commercialization of tenapanor for any approved indication, incur manufacturing and development cost for, tenapanor;

and incur development costs for RDX013.

To date, we have funded our operations from the sale and issuance of common stock and convertible preferred stock, funds from our collaboration partnerships, which includes license fees, milestones and product supply revenue, as well as funds from our Loan Agreement with Solar Capital Ltd.

and Western Alliance Bank.

Our Product Pipeline

A New Approach for The Control of Serum Phosphorus in Adult Patients with CKD on Dialysis

Our portfolio is led by the development of tenapanor, a first-in-class medicine for the control of serum phosphorus in adult patients with CKD on dialysis.

Tenapanor is a first-in-class medicine being developed for the control of serum phosphorus in adult patients with CKD on dialysis.

Tenapanor for the control of serum phosphorus has a unique mechanism of action and acts locally in the gut to inhibit the NHE3.

This results in the tightening of the epithelial cell junctions, thereby significantly reducing paracellular uptake of phosphate, the primary pathway of phosphate absorption.

On July 28, 2021, we received a Complete Response Letter ("CRL") from the U.S.

Food and Drug Administration ("FDA") regarding our New Drug Application ("NDA") for the control of serum phosphorus in adult patients with CKD on dialysis.

According to the CRL, while the FDA agrees “that the submitted data provide substantial evidence that tenapanor is effective in reducing serum phosphorus in CKD patients on dialysis,” the FDA characterizes the magnitude of the treatment effect as “small and of unclear clinical significance.” Additionally, the FDA noted that for the application to be approved, we will need “to conduct an additional adequate and well-controlled trial demonstrating a clinically relevant treatment effect on serum phosphorus or an effect on the clinical outcome thought to be caused by hyperphosphatemia in CKD patients on dialysis.” There were no safety, clinical pharmacology/biopharmaceutics, chemistry, manufacturing, and controls or non-clinical issues identified in the CRL.

We intend to request a Type A meeting as soon as possible to discuss the CRL and determine potential paths forward for the approval of tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis.

We have exclusive rights to tenapanor in the U.S.

and we have established agreements with Kyowa Kirin Co., Ltd.

(“KKC”) in Japan, Shanghai Fosun Pharmaceutical Industrial Development Co.

(“Fosun Pharma”) in China and Knight Therapeutics, Inc.

(“Knight“) in Canada for the development and commercialization of tenapanor for certain indications in their respective territories.

In December 2019, we reported statistically significant topline efficacy results from our second monotherapy Phase 3 clinical trial, the PHREEDOM trial, which evaluated tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis.

The PHREEDOM trial followed a successful monotherapy Phase 3 clinical trial completed in 2017, the BLOCK trial, which achieved statistical significance for the primary endpoint.

The only adverse event reported in these Phase 3 trials in greater than 5% of patients was diarrhea, with an incidence rate of 52% in the PHREEDOM trial and 39% in the BLOCK trial, with most incidences in each trial being mild to moderate in nature.

PHREEDOM is a one-year study with a 26-week open-label treatment period and a 12-week double-blind, placebo-controlled randomized withdrawal period followed by a 14-week open-label safety extension period.

An active safety control group, for safety analysis only, received sevelamer, open-label, for the entire 52-week study period.

Patients completing the PHREEDOM trial from both the tenapanor arm and the sevelamer active safety control arm had the option to participate in NORMALIZE, an ongoing open-label 18-month extension study.

In June 2020, we announced positive results from a planned interim data analysis from our ongoing NORMALIZE extension study evaluating tenapanor, as monotherapy or in combination with sevelamer, to achieve serum phosphorus levels in the normal range (2.5 – 4.5 mg/dL) in patients with CKD on dialysis.

The NORMALIZE extension study allowed patients from our PHREEDOM study to continue therapy with tenapanor and enabled those patients in the PHREEDOM safety control arm receiving sevelamer carbonate to transition to tenapanor.

The data from the planned interim analysis demonstrated that the use of tenapanor as monotherapy or in combination with sevelamer carbonate produces a significant phosphorus-lowering effect with a mean serum phosphorous reduction of 2.33 mg/dL, from a mean baseline phosphorus of 7.27 mg/dL at the beginning of the PHREEDOM trial to a mean of 4.94 mg/dL at the time of this analysis.

Of the 171 patients in this interim analysis who completed up to 9 months of treatment in this extension study, up to 47.4% achieved a normal serum phosphorus level, and of those, the majority were on tenapanor alone or tenapanor with low dose sevelamer of three or fewer sevelamer tablets per day.

These data represent a 58% improvement in the rate of patients who achieve a normal serum phosphorus level, as compared to current treatment practice data as reported in the April 2020 Dialysis Outcomes Practice Patterns Study (“DOPPS”) Practice Monitor.

The DOPPS data demonstrate that, with currently available treatments, only 30% of patients have serum phosphorous

levels less than 4.6 mg/dL.

The only adverse event reported in greater than 5% of patients in NORMALIZE was diarrhea, with an incidence rate of 23.3%.

In September 2019, we reported positive results from the AMPLIFY trial, a Phase 3 study evaluating tenapanor in adult patients with CKD on dialysis who had uncontrolled hyperphosphatemia despite phosphate binder treatment.

In this trial, approximately twice the number of patients achieved the serum phosphorus treatment goal of less than 5.5 mg/dL with tenapanor and phosphate binders versus phosphate binders alone.

The only adverse event with a placebo-adjusted rate greater than 3% was diarrhea, with an incidence rate of 43%, with most being mild to moderate in nature.

In June 2020, our partner KKC, a Japan-based global specialty pharmaceutical company exclusively developing tenapanor in Japan, presented results from a Phase 2 trial of tenapanor at the European Renal Association-European Dialysis and Transplant Association annual meeting (“ERA-EDTA 2020”).

The trial was designed to evaluate if, with tenapanor, patients with hyperphosphatemia undergoing hemodialysis could achieve at least a 30% decrease in mean pill burden while maintaining their serum phosphorus level.

The study results were statistically significant, with 71.6% (p<0.001) of patients achieving at least a 30% reduction in mean pill burden.

The overall mean reduction in phosphate binder usage was 80% (reduction from 14.7 to 3.0 pills per day), while maintaining serum phosphorus control.

The mean phosphorus level of patients entering the study on treatment with binders was 5.2 mg/dL at baseline and 4.7 mg/dL at the end of the 26-week study.

Tenapanor is the first therapy for phosphate management that blocks phosphorus absorption at the primary pathway of uptake.

It is not a phosphate binder.

Tenapanor is a novel, potent, small molecule, that has been shown in phase 3 studies to treat hyperphosphatemia as monotherapy and as a dual mechanism approach.

In June 2020, we submitted an NDA to the U.S.

Food and Drug Administration (“FDA”) for tenapanor the control of serum phosphorus in adult patients with CKD on dialysis.

The NDA is supported by three Phase 3 trials involving over 1,000 patients that evaluated the use of tenapanor for the control of serum phosphorus in CKD patients on dialysis, with two trials evaluating tenapanor as monotherapy and one trial evaluating tenapanor as part of a dual mechanism approach with phosphate binders.

All three Phase 3 trials met the primary and all key secondary endpoints.

On July 28, 2021, we received a Complete Response Letter ("CRL") from the FDA regarding our NDA for tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis.

We held an End-of-Review Type A meeting (“End of Review Meeting”) in October 2021, with the FDA’s Division of Cardiology and Nephrology (the “Division”).

The End of Review Meeting did not provide a reasonable path forward for resubmission of our NDA.

As a result, we currently expect to submit a Formal Dispute Resolution Request (“FDRR”) by the end of the fourth quarter 2021 in order raise our scientific disagreement above the Division level within FDA’s Center for Drug Evaluation and Research (“CDER”).

There can be no assurances that the Formal Dispute Resolution (“FDR”) process will result in approval of our NDA, or in a clear path to resubmission of our NDA that is achievable in terms of clinical endpoints, time and cost.

IBSRELA ® (tenapanor) for Irritable Bowel Syndrome with Constipation (IBS-C)

In addition to the development of tenapanor for hyperphosphatemia, we have developed tenapanor for the treatment of patients with irritable bowel syndrome with constipation (“IBS-C”).

In addition to the development of tenapanor for hyperphosphatemia, we have developed tenapanor for the treatment of patients with IBS-C.

IBSRELA (tenapanor) for IBS-C is a first-in-class novel therapy with a unique mechanism of action that acts locally in the gut to inhibit the NHE3.

This reduces absorption of sodium from the small intestine and colon, resulting in an increase in water secretion into the intestinal lumen, which accelerates intestinal transit time and results in a softer stool consistency.

In September 2019, we received FDA approval of IBSRELA ® (tenapanor) for the treatment of IBS-C in adults.

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While currently available therapies are all ion exchange agents, RDX013 is a first in class approach that exerts its effects by amplifying the underlying pathways of potassium secretion in the colon.

RDX020 Program:

Small molecule for Treating Metabolic Acidosis

We have an ongoing discovery program targeting the inhibition of intestinal bicarbonate exchange for the treatment of metabolic acidosis, a highly prevalent comorbidity in CKD patients that is strongly correlated with disease progression and adverse outcomes.

We have identified lead compounds that are potent, selective and proprietary inhibitors of bicarbonate secretion.

We have not generated any revenues from product sales.

As of June 30, 2021, we had an accumulated deficit of $633.1 million.

We expect to continue to incur substantial operating losses for the foreseeable future as a result of costs associated with the following activities:

efforts to determine and execute upon the best way to address the deficiencies noted in the CRL regarding our NDA for tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis, and the execution of such;

preparing for the potential commercialization of tenapanor, including significantly increased personnel costs associated with our commercial team;

the performance of certain activities required as a result of our NDA approval of tenapanor for IBS-C;

the continued development of RDX013 and the advancement of our research programs into the preclinical stage.

To date, we have funded our operations from the sale and issuance of common stock and convertible preferred stock, funds from our

collaboration partnerships, which includes license fees, milestones and product supply revenue, as well as funds from our Loan Agreement with Solar Capital Ltd.

and Western Alliance Bank.

Collaboration Partners

We have exclusive rights to tenapanor in the U.S.

and we have established agreements with Kyowa Kirin Co., Ltd.

(“KKC”) in Japan, Shanghai Fosun Pharmaceutical Industrial Development Co.

(“Fosun Pharma”) in China and Knight Therapeutics, Inc.

(“Knight“) in Canada for the development and commercialization of tenapanor for certain indications in their respective territories.

Knight has exclusive rights for the development, commercialization and distribution of tenapanor in Canada for hyperphosphatemia and IBS-C.

In March 2021, Knight announced the commercial availability of IBSRELA (tenapanor) in Canada, following its approval by Health Canada in April 2020.

Under the terms of the agreement with Knight, 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 $17.5 million.

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

KKC has exclusive rights for the development, commercialization and distribution of tenapanor in Japan for cardiorenal indications.

In April 2021, we announced that KKC had commenced four phase 3 clinical trials in Japan evaluating tenapanor for hyperphosphatemia.

The phase 3 clinical trials consist of a multi-center, randomized, double-blind, placebo-controlled, parallel-group comparative study;

a phosphate binder-combination parallel-group comparative study;

an open-label, single-arm study evaluating hyperphosphatemia patients on peritoneal dialysis;

and a long-term study evaluating serum phosphorus in patients who switch from one or more phosphate binders to tenapanor.

Under the terms of the agreement with KKC, we received a $30.0 million upfront payment from KKC, and we may be entitled to receive up to $55.0 million in total development milestones, of which $10.0 million has been received and recognized as revenue as of September 30, 2021, and approximately ¥8.5 billion for commercialization milestones, or approximately $76.1 million at the currency exchange rate on September 30, 2021, as well as high-teen royalties on net sales throughout the term of the agreement.

Fosun Pharma has exclusive rights for the development and commercialization for the development, commercialization and distribution of tenapanor in China for both hyperphosphatemia and IBS-C.

Under the terms of the Fosun Agreement, we received $12.0 million in upfront license, and 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%.

Corporate Restructurings

Following the receipt of the CRL for our NDA for tenapanor for the control of serum phosphorus in CKD patients on dialysis, in August, we implemented a restructuring plan (the “August Restructuring”) to better align our workforce and anticipated commercial and development spend with our capital resources and the needs of our business following the receipt of the CRL.

Under the August restructuring plan we reduced our workforce by 83 employees (approximately 33%).

Following the conclusion of an End of Review Type A meeting with the FDA, in October 2021, we began to implement an additional restructuring plan (the “October Restructuring”) to further reduce operating costs and better align our workforce with the needs of our business.

Under the restructuring plan, we are reducing our workforce by approximately 100 of our remaining employees (approximately 60%).

Our impacted employees received notice that their positions will be eliminated on December 15, 2021.

The restructuring plan, which will result in the elimination of our research organization and most of our commercial sales and marketing organizations, is expected to be completed in December 2021.

Impact of COVID-19

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To date, we have been able to continue our operations with our workforce, most of whom are working remotely, and our pre-existing infrastructure that supports secure access to our internal systems.

If, however, the COVID-19 pandemic has a substantial impact on the productivity of our employees, our ability to successfully prepare for the commercial launch of tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis, including our ability to hire and successfully integrate into the company the new personnel required to prepare for such launch, or our ability to progress our research and development efforts, the results of our operations and overall financial performance may be adversely impacted.

If, however, the COVID-19 pandemic has a substantial impact on the productivity of our employees, the results of our operations and overall financial performance may be adversely impacted.

The extent of the impact from the COVID-19 pandemic on our business will depend largely on future developments that are highly uncertain and cannot be predicted.

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Actual results could differ materially from these estimates.

The critical accounting policies that we believe impact significant judgments and estimates used in the preparation of our financial statements presented in this report are described in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , in our Annual Report on Form 10-K filed with the SEC on March 8, 2021.

There have been no significant changes to our critical accounting policies as disclosed in our most recently filed Annual Report on Form 10-K during the three and six months ended June 30, 2021.

The critical accounting policies that we believe impact significant judgments and estimates used in the preparation of our condensed financial statements presented in this report are described in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , in our Annual Report on Form 10-K filed with the SEC on March 8, 2021.

There have been no significant changes to our critical accounting policies as disclosed in our most recently filed Annual Report on Form 10-K during the three and nine months ended September 30, 2021.

Recent Accounting Pronouncements

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We have not generated any revenue from commercial product sales.

In the future, we may generate revenue from a combination of our own product sales, if regulatory approval is received, and payments in connection with our current or future collaborative partnerships, including license fees, other upfront payments, milestone payments, royalties and payments for drug product and/or drug substance.

In the future, we may generate revenue from a combination of our own product sales and payments in connection with our current or future collaborative partnerships, including license fees, other upfront payments, milestone payments, royalties and payments for drug product and/or drug substance.

We expect that any revenue we generate will fluctuate in future periods as a result of, among other factors:

the extent to which we are successful in our efforts to commercialize tenapanor for such indication; the timing and progress of goods and services provided pursuant to our current or future collaborative partnerships;

our or our collaborators’ achievement of preclinical, clinical, regulatory or commercialization milestones, to the extent achieved;

whether we are able to gain approval from the FDA for our NDA for tenapanor or the control of serum phosphorus in CKD patients on dialysis;

whether and the extent to which we are successful in our efforts to commercialize tenapanor for any approved indication the timing and progress of goods and services provided pursuant to our current or future collaborative partnerships;

our or our collaborators’ achievement of clinical, regulatory or commercialization milestones, to the extent achieved;

the timing and amount of any payments to us relating to the aforementioned milestones;

and the extent to which any of our product candidates are approved and successfully commercialized by a collaboration partner.

If our current

collaboration partners or any future collaboration partners fail to obtain regulatory approval for tenapanor, our ability to generate future revenue from our product sales or from our collaborative arrangements, and our results of operations and financial position, would be materially and adversely affected.

If our current collaboration partners or any future collaboration partners fail to obtain regulatory approval for tenapanor, our ability to generate future revenue from our product sales or from our collaborative arrangements, and our results of operations and financial position, would be materially and adversely affected.

Our past revenue performance is not necessarily indicative of results to be expected in future periods.

Cost of Revenue

Cost of revenue currently represents payments due to AstraZeneca, which under the terms of a termination agreement entered into in 2015 is entitled to (i) future royalties at a 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 our collaboration partners should we elect to which we provide rights to develop and commercialize tenapanor or certain other NHE3 inhibitors.

Cost of revenue currently represents payments due to AstraZeneca, which under the terms of a termination agreement entered into in 2015 (the "AZ Termination Agreement") is entitled to (i) future royalties at a 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 our collaboration partners to which we may elect to provide rights to develop and commercialize tenapanor or certain other NHE3 inhibitors.

We have agreed to pay AstraZeneca up to a maximum of $75.0 million in the aggregate for (i) and (ii).

We recognize these expenses as cost of revenue when we recognize the corresponding revenue that gives rise to payments due to AstraZeneca.

To date, we have recognized an aggregate of $11.6 million as cost of revenue under the AZ Termination Agreement since 2017.

To date, we have recognized an aggregate of $11.6 million as cost of revenue under the AZ Termination Agreement.

Research and Development

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• facilities and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation and amortization expense, information technology expense and other supplies.

We expect to continue to make substantial investments in research and development activities as we further progress the development of tenapanor, particularly if the FDA should require additional clinical trials in connection with our NDA for the control of serum phosphorus in adult patients with CKD on dialysis, RDX013 and our other product candidates, as we advance our research programs into the preclinical stage and as we continue our early stage research.

As a result of the October Restructuring, we currently anticipate that our research organization will be eliminated by the end of 2021.

We expect that we will continue to make substantial investments in our development activities as we progress the development of RDX013 and further progress the development of tenapanor to the extent additional clinical studies, including pediatric studies, are necessary to support the commercialization of tenapanor for any approved indication.

The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming.

On July 28, 2021, we received a CRL from the FDA regarding our NDA for the control of serum phosphorus in adult patients with CKD on dialysis.

We may not succeed in achieving marketing approval for our product candidates, including tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis.

The probability of success of each of the product candidates may be affected by numerous factors, including preclinical data, clinical data, the regulatory process, market acceptance, sufficient third-party coverage or reimbursement, our ability to access capital on acceptable terms, competition, manufacturing capability and commercial viability.

The probability of success of each of our product candidates may be affected by numerous factors, including preclinical data, clinical data, the regulatory process, market acceptance, sufficient third-party coverage or reimbursement, our ability to access capital on acceptable terms, competition, manufacturing capability and commercial viability.

We anticipate that we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success of each product candidate, ongoing assessment as to each product candidate’s commercial potential, and our ability to access capital on acceptable terms.

We will need to raise additional capital to complete the development and commercialization of tenapanor.

If we are unable to access capital on a timely basis and on terms that are acceptable to us, we may be forced to restructure certain aspects of our business or identify and complete one or more strategic collaborations or other transactions in order to fund the development or commercialization of tenapanor, the development of RDX013 or certain of our product candidates through the use of alternative structures.

If we are unable to access capital on a timely basis and on terms that are acceptable to us, we may be forced to restructure certain aspects of our business or identify and complete one or more strategic collaborations or other transactions in order to fund the commercialization of tenapanor for any approved indication and the development of RDX013 through the use of alternative structures.

General and Administrative

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Other general and administrative expenses include facility related costs and professional fees for legal, accounting and audit, investor relations, other consulting services and allocated facility-related costs not otherwise included in research and development expenses.

We anticipate that our general and administrative expenses will increase in the future primarily because of increased commercial activities, personnel costs and professional fees for services to support the launch and commercialization of tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis.

We anticipate that our general and administrative expenses will decrease in the immediate future primarily because of the impact of the October Restructuring on our sales and marketing pre-commercial activities and personnel costs.

We anticipate that our general and administrative expenses will increase in the future based upon whether and the extent to which we scale our organization to support a launch and commercialization of tenapanor for any approved indication.

Interest Expense

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

Comparison of the three and six months ended June 30, 2021 and 2020

Comparison of the three and nine months ended September 30, 2021 and 2020

Below is a summary of our total revenue (dollars in thousands):

Three Months Ended

June 30, Change

2020 Six Months Ended June 30, Change

September 30, Change

2020 Nine Months Ended September 30, Change

2021 2020 $ % 2021 2020 $ %

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Product supply revenue 285 1,357 (1,072) (79.0) % 411 1,400 (989) (70.6) %

Licensing revenue 3 706 (703) (99.6) % 5,005 706 4,299 608.9 %

Licensing revenue 2 — 2 (a) 5,007 706 4,301 609.2 %

Total revenues $ 1,173 $ 2,713 $ (1,540) (56.8) % $ 9,068 $ 5,762 $ 3,306 57.4 %

The decrease to total revenues during the three months ended June 30, 2021 as compared to the same period in 2020 is primarily attributable to a $0.7 million development milestone which was achieved and recognized as revenue in the prior year pursuant to the Knight Agreement.

There was no comparable revenue during the three months ended June 30, 2021.

The increase to total revenues during the six months ended June 30, 2021 as compared to the same period in 2020 is primarily attributable to a $5.0 million development milestone which we earned during three months ended March 31, 2021 upon the initiation by KKC of phase 3 clinical studies in Japan to evaluate tenapanor for hyperphosphatemia.

(a) Percent change is not meaningful.

The decrease to total revenues during the three months ended September 30, 2021 as compared to the same period in 2020 is primarily attributable to manufacturing supply of tenapanor and other materials sold to KKC during the three months ended September 30, 2020 in connection with the license agreement entered into with KKC in November 2017 for its product development and clinical trials in Japan.

The increase to total revenues during the nine months ended September 30, 2021 as compared to the same period in 2020 is primarily attributable to a $5.0 million development milestone which we earned during three months ended March 31, 2021 upon the initiation by KKC of phase 3 clinical studies in Japan to evaluate tenapanor for hyperphosphatemia.

The increase was partially offset by lower product supply revenue during the nine months ended September 30, 2021.

Operating Expenses

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Three Months Ended

June 30, Change

2020 Six Months Ended June 30, Change

September 30, Change

2020 Nine Months Ended September 30, Change

2021 2020 $ % 2021 2020 $ %

Cost of revenue $ — $ 141 $ (141) (100.0) % $ 1,000 $ 141 $ 859 609.2 %

Cost of revenue $ — $ — $ — (a) $ 1,000 $ 141 $ 859 609.2 %

Research and development 23,695 12,240 11,455 93.6 % 70,172 46,948 23,224 49.5 %

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Total operating expenses $ 43,409 $ 19,874 $ 23,535 118.4 % $ 128,141 $ 68,899 $ 59,242 86.0 %

(a) Percent change is not meaningful.

Cost of revenue

We did not incur any cost of revenue under the AZ termination Agreement during the three months ended June 30, 2021.

The increase in cost of revenue for the six months ended June 30, 2021 was for payment due to AstraZeneca under the AZ Termination Agreement related to the development milestone we earned upon the initiation by KKC of phase 3 clinical studies in Japan to evaluate tenapanor for hyperphosphatemia.

We did not incur any cost of revenue under the AZ termination Agreement during the three months ended September 30, 2021.

The increase in cost of revenue for the nine months ended September 30, 2021 was for payment due to AstraZeneca under the AZ Termination Agreement related to the development milestone we earned upon the initiation by KKC of phase 3 clinical studies in Japan to evaluate tenapanor for hyperphosphatemia.

Research and Development

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Three Months Ended

June 30, Change

2020 Six Months Ended June 30, Change

September 30, Change

2020 Nine Months Ended September 30, Change

2021 2020 $ % 2021 2020 $ %

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Total research and development expenses $ 23,695 $ 12,240 $ 11,455 93.6 % $ 70,172 $ 46,948 $ 23,224 49.5 %

The increase in our external R&D expenses for the three and six months ended June 30, 2021 is primarily the result of clinical study costs from the advancement of our OPTIMIZE study which were partially offset by lower costs for the PHREEDOM clinical study.

The increase in our employee-related expenses for the three months ended June 30, 2021 is related to recruiting, compensation and benefits expenses for our research and development workforce.

The increase in our external R&D expenses for the three and nine months ended September 30, 2021 is primarily the result of tenapanor manufacturing costs as well as clinical study costs from the advancement of our OPTIMIZE study which were partially offset by lower costs for the PHREEDOM clinical study.

The increase in our employee-related expenses for the three and nine months ended September 30, 2021 is related to compensation and benefits expenses for our research and development workforce.

Employee-related expenses for the three and nine months ended September 30, 2021 include $1.2 million severance payments and other employee-related costs as discussed in Note 10 - Restructuring to the financial statements included elsewhere in this Quarterly Report.

General and Administrative

The increase in general and administrative expenses for the three and six months ended June 30, 2021 was primarily due to an increase in costs associated with building and staffing our commercial infrastructure and teams as we prepared for the U.S.

The increase in general and administrative expenses for the three and six months ended September 30, 2021 was primarily due to increased costs associated with building and staffing our commercial infrastructure and teams as we prepared for the U.S.

launch of tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis.

The increase consisted of headcount and related personnel costs and an increase in external spending for disease awareness initiatives, commercial infrastructure and strategy, partially offset by a decrease in stock-based compensation costs related to performance-based restricted stock units.

The increase consisted of headcount and related personnel costs and an increase in external spending for disease awareness initiatives, commercial infrastructure and strategy.

Employee-related expenses for the three and nine months ended September 30, 2021 include $2.4 million severance payments and other employee-related costs as discussed in Note 10 - Restructuring to the financial statements included elsewhere in this Quarterly Report.

Other Income, net

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Three Months Ended

June 30, Change

2020 Six Months Ended June 30, Change

September 30, Change

2020 Nine Months Ended September 30, Change

2021 2020 $ % 2021 2020 $ %

Interest expense $ (1,216) $ (1,202) $ (14) 1.2 % $ (3,518) $ (3,785) $ 267 (7.1) %

Other income, net 847 477 370 77.6 % 798 1,230 (432) (35.1) %

Other (expense) income, net (134) 255 (389) (152.5) % 664 1,485 (821) (55.3) %

Total other income, net $ (1,350) $ (947) $ (403) 42.6 % $ (2,854) $ (2,300) $ (554) 24.1 %

Interest Expense

The decrease in interest expense for the three and six months ended June 30, 2021 was primarily due to lower interest rates on our variable-rate term loan.

The decrease in interest expense for the nine months ended September 30, 2021 was primarily due to lower interest rates on our variable-rate term loan.

Other Income, net

The changes in other income, net for the three and six months ended June 30, 2021 were primarily due to revaluation of our derivative liability related to our term loan agreement following receipt of the FDA CRL on July 28, 2021 in the amount of $0.7 million and decreases in investment income.

The changes in other income, net for the three and nine months ended September 30, 2021 were primarily due to lower income earned on our investments, which was largely offset by the revaluation of our derivative liability related to our term loan agreement following receipt of the FDA CRL on July 28, 2021.

Liquidity and Capital Resources

Below is a summary of our cash, cash equivalents and marketable securities (in thousands):

June 30, 2021 December 31, 2020

Below is a summary of our cash, cash equivalents and investments (in thousands):

September 30, 2021 December 31, 2020

Cash and cash equivalents $ 75,288 $ 91,032

Marketable securities - current 85,064 95,452

Marketable securities - non-current — 2,114

Investments - current 66,363 95,452

Investments - non-current — 2,114

Total liquid funds $ 141,651 $ 188,598

As of June 30, 2021, we had cash, cash equivalents and marketable securities totaling $171.8 million compared to $188.6 million as of December 31, 2020.

As of September 30, 2021, we had cash, cash equivalents and investments totaling $141.7 million compared to $188.6 million as of December 31, 2020.

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 June 30, 2021, we sold 9.0 million shares of our common stock for aggregate gross proceeds of $63.8 million at a weighted average price of $7.10 per share under the Open Market Sales Agreement.

In aggregate during the life of the Open Market Sales Agreement, we sold 8.2 million shares of our common stock between the dates of November 13, 2020 through February 19, 2021 and 4.0 million shares between the dates of May 11, 2021 through June 18, 2021 for a cumulative total of 12.2 million shares of our common stock for gross proceeds of $85.4 million at a weighted average sales price of approximately $6.98 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.

Pursuant to the 2020 Open Market Sales Agreement, Jefferies, as our sales agent, received a commission of up to 3.0% of the gross sales price for shares of common stock sold under the 2020 Open Market Sales Agreement.

During the nine months ended September 30, 2021 we sold 12.3 million shares of our common stock for aggregate gross proceeds of $68.7 million at a weighted average price of $5.58 per share under the 2020 Open Market Sales Agreement.

We sold 8.2 million shares of our common stock between the dates of November 13, 2020 through February 19, 2021, 4.0 million shares between the dates of May 11, 2021 through June 18, 2021 and 3.3 million shares between the dates of August 24, 2021 and September 10, 2021 for a cumulative total of 15.6 million shares and gross proceeds of $90.3 million at a weighted average sales price of approximately $5.80 per share during the life of the 2020 Open Market Sales Agreement.

We sold 6.0 million shares of our common stock between the dates of October 21, 2021 and November 5, 2021 for gross proceeds of $7.4 million at a weighted average sales price of approximately $1.23 per share.

In August 2021, we filed an additional prospectus supplement under the Registration Statement for the offering, issuance and sale by us of up to a maximum aggregate offering price of $150.0 million of our common stock that may be issued and sold, from time to time, under an additional sales agreement with Jefferies (the "2021 Open Market Sales Agreement"), pursuant to which we may, from time to time, sell up to $150.0 million in shares of our common stock through Jefferies.

We are not required to sell shares under the 2021 Open Market Sales Agreement.

Pursuant to the 2021 Open Market Sales Agreement, Jefferies, as our sales agent, receives a commission of up to 3.0% of the gross sales price for shares of common stock sold under the 2021 Open Market Sales Agreement.

As of September 30, 2021 we have sold no shares of our common stock under the 2021 Open Market Sales Agreement.

We expect that the workforce reductions will decrease our future annual cash compensation costs by approximately $35 million.

Our primary sources of cash have been from the sale and issuance of common stock (in both public offerings and private placements) and private placements of convertible preferred stock, funds from our collaboration partnerships and funds from our loan agreement.

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Funding Requirements

We believe that our existing capital resources as of June 30, 2021 will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months following our financial statement issuance date.

We believe that our existing capital resources as of September 30, 2021 will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months following the filing of this Report on Form 10-Q.

We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.

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We currently have no unutilized credit facility or committed sources of capital, and there can be no assurances that such sources of capital will be available to us when needed or on acceptable terms.

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

There are numerous risks and uncertainties associated with development and commercialization initiatives, and actual results could vary materially as a result

of a number of factors, many of which are outside of our control.

Failure to raise sufficient capital when needed or generate product revenue will further impact our ability to pursue our business strategies and could require us to further delay, scale back or discontinue one or more of our product development programs, commercialization efforts, or other aspects of our business plans.

On July 28, 2021, we received a CRL from the FDA regarding our NDA for the control of serum phosphorus in adult patients with CKD on dialysis in which the FDA noted additional requirements would need to be met in order to obtain approval of tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis.

In addition, on July 29, 2021 we entered into a Fourth Amendment to our Term Loan Agreement which extended the period of time that we are permitted to make interest-only payments on the Term Loan to November 1, 2021 and our Board of Directors approved, and on August 2, 2021 we began implementing, a restructuring plan to better align our workforce and anticipated commercial and development spend with our capital resources and the needs of our business following the receipt of the CRL.

For additional information see Note 12, Subsequent Events, in the notes to our unaudited condensed financial statements in Part I, Item 1, Notes to Condensed Financial Statements, of this Quarterly Report on Form 10-Q.

These events could prevent us from successfully executing our operating plan and could raise substantial doubt as to our ability to continue as a going concern in future periods.

Our future capital requirements are difficult to forecast and will depend on many factors, including:

• our ability to identify a path to address the deficiencies noted in the CRL regarding our NDA that is achievable in terms of clinical endpoints, time and cost;

• our ability to successfully commercialize tenapanor for any approved indication, either alone or with one or more collaboration partners;

• the sales price and the availability of adequate third-party reimbursement for tenapanor, if commercialized;

• the manufacturing costs of our product candidates, and the availability of one or more suppliers for our product candidates at reasonable costs, both for clinical and commercial supply;

• the selling and marketing costs associated with tenapanor, including the cost and timing of maintaining our sales and marketing capabilities;

• our ability to maintain our existing collaboration partnerships and to establish additional collaboration partnerships, in-license/out-license, joint ventures or other similar arrangements and the financial terms of such agreements;

• the timing, receipt, and amount of sales of, or royalties on, tenapanor, if any;

• the cash requirements of any future acquisitions or discovery of product candidates;

• the number and scope of preclinical and discovery programs that we decide to pursue or initiate, and any clinical trials we decide to pursue for other product candidates, including RDX013;

• the time and cost necessary to respond to technological and market developments;

• the costs of filing, prosecuting, maintaining, defending and enforcing any patent claims and other intellectual property rights, including litigation costs and the outcome of such litigation, including costs of defending any claims of infringement brought by others in connection with the development, manufacture or commercialization of tenapanor or any of our product candidates;

• the payment of interest and principal related to our loan and security agreement entered into with Solar Capital and Western Alliance Bank in May 2018, as amended in October 2020, March 2021, May 2021 and July 2021.

• whether we are successful in our efforts under the FDR process to secure approval for our NDA for tenapanor for the Hyperphosphatemia Indication, or whether we are able during the FDR to reach resolution with the FDA regarding a path to addressing the deficiencies in our NDA noted in the CRL that is achievable in terms of clinical study design, time and cost;

• our ability to successfully commercialize tenapanor for any approved indication, either on our own or with one or more collaboration partners;

• establishing and maintaining supply and manufacturing relationships with third parties that can provide an adequate (in amount and quality) supply of product to support the market demand for tenapanor for the treatment of IBS-C, and/or, if approved, tenapanor for the Hyperphosphatemia Indication;

• obtaining market acceptance of tenapanor as a viable treatment option for the indications for which it is approved and commercialized;

• addressing any competing technological and market developments;

• maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets, and know-how, and our ability to develop, manufacture and commercialize our product candidates and products without infringing intellectual property rights of others;

• attracting, hiring, and retaining qualified personnel.

Please see the risk factors set forth in Part II, Item 1A, Risk Factors, in this Quarterly Report on Form 10-Q for additional risks associated with our capital requirements.

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The following table summarizes our cash flows (in thousands):

Six Months Ended June 30,

Nine Months Ended September 30,

Cash used in operating activities $ (113,082) $ (63,845)

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Cash Flows from Operating Activities

Net cash used in operating activities during the three months ended June 30, 2021 increased by $34.5 million as a result of our increased net loss for the period.

The increased net loss was primarily driven by costs associated with building and staffing our commercial infrastructure and teams as we prepare for the U.S.

Net cash used in operating activities during the nine months ended September 30, 2021 increased by $49.2 million as a result of our increased net loss for the period.

The increased net loss was primarily driven by costs associated with building and staffing our commercial infrastructure and teams as we prepared for the U.S.

launch of tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis.

An increase of $5.2 million of cash used in prepaid expenses and other assets which was primarily for prepayments for raw materials and production of tenapanor also contributed to the increase in net cash used during the three months ended June 30, 2021.

The increased net loss was partially offset by a decrease in the amount of $6.3 million for accrued and other liabilities which was primarily for prepayments for raw materials and production of tenapanor.

Cash Flows from Investing Activities

Net cash provided by investing activities increased by $48.2 million as our investment maturities increased to fully offset the cost to purchase investments.

During the three months ended June 30, 2021, investment purchases exceeded maturities by approximately $37.4 million.

Net cash (used in) provided by investing activities increased by $56.7 million as our investment maturities increased to fully offset the cost to purchase investments.

During the nine months ended September 30, 2020, investment purchases exceeded maturities by approximately $27.8 million.

Cash Flows from Financing Activities

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Off-Balance Sheet Arrangements

As of June 30, 2021 and 2020, respectively, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K as promulgated by the SEC.

As of September 30, 2021 and 2020, respectively, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K as promulgated by the SEC.

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