ARDELYX, INC. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed financial statements and notes thereto included elsewhere in this report and with the audited financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2020. This discussion and analysis and other parts of this report contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. 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. Unless the context requires otherwise, the terms “Ardelyx”, “Company”, “we”, “us”, and “our” refer to Ardelyx, Inc. Overview We are a biopharmaceutical company focused on the discovery, development, and commercialization of innovative first-in-class medicines to improve treatment for people with kidney and cardiorenal diseases. This includes patients with chronic kidney disease ("CKD") on dialysis suffering from elevated serum phosphorus, or hyperphosphatemia; and CKD patients and/or heart failure patients with elevated serum potassium, or hyperkalemia. Tenapanor has a unique mechanism of action and acts locally in the gut to inhibit the sodium hydrogen exchanger 3 ("NHE3"). 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. 20 Table of Contents Our Product Pipeline Tenapanor: A New Approach 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. Tenapanor is the first therapy for phosphate management that blocks phosphorus absorption at the primary pathway of uptake. It is not a phosphate binder. 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. 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 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 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. IBS-C is a burdensome gastrointestinal (“GI”) disorder. It is characterized by significant abdominal pain, constipation, straining during bowel movements, bloating and/or gas. RDX013 Program: Small Molecule for Treating Hyperkalemia We are also advancing a small molecule potassium secretagogue program, RDX013, for the potential treatment of hyperkalemia. Hyperkalemia is a common problem in patients with heart and kidney disease, particularly in patients taking common blood pressure medications known as renin-angiotensin-aldosterone system (“RAAS”) inhibitors. Similar to what we have done with tenapanor in developing a non-binder approach for the treatment of elevated serum phosphate levels, RDX013 is designed to target the underlying biological mechanisms of potassium secretion to lower elevated potassium. 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. 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. Ltd. (“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. 21 Table of Contents 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 The global COVID-19 pandemic has impacted the operational decisions of companies worldwide. It also has created and may continue to create significant uncertainty in the global economy. We have undertaken measures to protect our employees, partners, collaborators, and vendors, some of which impact our normal operations. 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, 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. For a discussion of risks of COVID-19 relating to our business, see “Part II: Other Information-Item 1A.- Risk Factors- Risks Related to Our Business- The ongoing COVID-19 pandemic, or any other outbreak of epidemic diseases, or the perception of their effects, could have a material adverse effect on our business, financial condition, results of operations or cash flows .” As of the date of issuance of this financial report, we are not aware of any specific event or circumstance that would require updates to our estimates and judgments or revisions to the carrying value of our assets or liabilities. These estimates may change as new events occur and additional information is obtained. 22 Table of Contents Critical Accounting Policies and Significant Judgments and Estimates Our discussion and analysis of financial condition and results of operations is based on our condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Critical accounting policies are those that require significant judgment and/or estimates by management at the time that financial statements are prepared such that materially different results might have been reported if other assumptions had been made. These estimates form the basis for making judgments about the carrying values of assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. 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 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 A summary of recent accounting pronouncements that we have adopted or may expect to adopt is included in Note 1 – Organization and Basis of Presentation to our condensed financial statements (see Part I, Item 1 Notes to Condensed Financial Statements , of this Quarterly Report on Form 10-Q). Financial Operations Overview Revenue Our revenue to date has been generated primarily through license, research and development collaborative agreements with various collaboration partners. 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 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: 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. 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 (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. Research and Development We recognize all research and development expenses as they are incurred to support the discovery, research, development and manufacturing of our product candidates. Research and development expenses include, but are not limited to, the following: 23 Table of Contents • external research and development expenses incurred under agreements with consultants, third-party contract research organizations ("CROs") and investigative sites where a substantial portion of our clinical studies are conducted, and with contract manufacturing organizations where our clinical supplies are produced; • expenses associated with supplies and materials consumed in connection with our research operations; • expenses associated with producing tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis prior to FDA approval; • other costs associated with research, clinical development and regulatory activities; and • employee-related expenses, which include salaries, bonuses, benefits, travel and stock-based compensation; • 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. 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. 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. 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 General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, for certain of our executives, our board members, and our finance, legal, business development, market development, commercial and support staff. 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 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 Interest expense represents the interest paid on our loan payable. Other Income, net Other income, net consists of interest income earned on our cash and cash equivalents and available-for-sale investments, the periodic revaluation of the exit fee related to our loan and currency exchange gains and losses. 24 Table of Contents RESULTS OF OPERATIONS 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 nine months ended September 30, 2021 and 2020 Revenue Below is a summary of our total revenue (dollars in thousands): Three Months Ended September 30, Change 2021 vs. 2020 Nine Months Ended September 30, Change 2021 vs. 2020 2021 2020 $ % 2021 2020 $ % Collaborative development revenue $ 886 $ 1,356 $ (470) (34.7) % $ 3,650 $ 3,656 $ (6) (0.2) % Product supply revenue 285 1,357 (1,072) (79.0) % 411 1,400 (989) (70.6) % 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 % (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 Below is a summary of our operating expenses (dollars in thousands): Three Months Ended September 30, Change 2021 vs. 2020 Nine Months Ended September 30, Change 2021 vs. 2020 2021 2020 $ % 2021 2020 $ % 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 % General and administrative 19,714 7,634 12,080 158.2 % 56,969 21,810 35,159 161.2 % 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 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. 25 Table of Contents Research and Development Below is a summary of our research and development expenses (dollars in thousands): Three Months Ended September 30, Change 2021 vs. 2020 Nine Months Ended September 30, Change 2021 vs. 2020 2021 2020 $ % 2021 2020 $ % External R&D expenses $ 15,310 $ 5,767 $ 9,543 165.5 % $ 44,316 $ 27,242 $ 17,074 62.7 % Employee-related expenses 6,702 5,101 1,601 31.4 % 20,434 15,223 5,211 34.2 % Facilities, equipment and depreciation expenses 1,518 1,233 285 23.1 % 4,240 4,240 — — % Other 165 139 26 18.7 % 1,182 243 939 386.4 % 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 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 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. 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 Below is a summary of our other income, net (dollars in thousands): Three Months Ended September 30, Change 2021 vs. 2020 Nine Months Ended September 30, Change 2021 vs. 2020 2021 2020 $ % 2021 2020 $ % Interest expense $ (1,216) $ (1,202) $ (14) 1.2 % $ (3,518) $ (3,785) $ 267 (7.1) % 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 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 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. 26 Table of Contents Liquidity and Capital Resources 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 Investments - current 66,363 95,452 Investments - non-current — 2,114 Total liquid funds $ 141,651 $ 188,598 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 ("Jefferies"), deemed to be “at the market offerings” (the "2020 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. Our primary uses of cash are to fund operating expenses, primarily research and development expenditures and pre-commercial expenses. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. Funding Requirements 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. In particular, our operating plan can change, and we may require significant additional capital to fund our operations, including to support the development, commercialization and manufacturing efforts for tenapanor. We may seek to obtain such additional capital through debt financings, credit facilities, additional equity offerings and/or strategic collaborations. 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 development and commercialization initiatives, and actual results could vary materially as a result 27 Table of Contents 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. 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: • 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; and • 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. CASH FLOW ACTIVITIES The following table summarizes our cash flows (in thousands): Nine Months Ended September 30, 2021 2020 Cash used in operating activities $ (113,082) $ (63,845) Cash (used in) provided by investing activities 28,852 (27,872) Cash provided by financing activities 68,486 1,593 Net decrease in cash and cash equivalents $ (15,744) $ (90,124) Cash Flows from Operating Activities 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. 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. 28 Table of Contents Cash Flows from Investing Activities 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 Net cash provided by financing activities increased by $66.9 million due to net proceeds from issuance of our common stock pursuant to the 2020 Open Market Sales Agreement, or at-the-market offering. Off-Balance Sheet Arrangements 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.