What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-28 compared with 2021-03-08 · 561 added, 448 removed, 465 unchanged (68% of the section changed)

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INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Balance Sheets

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generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 28, 2022 expressed an unqualified opinion thereon.

The Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has stated that substantial doubt exists about the Company’s ability to continue as a going concern.

Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 2.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accrued clinical and contract manufacturing expenses

Description of the Matter

During 2020, the Company incurred $65.1 million of research and development expenses and accrued $2.2 million of clinical expenses and $1.8 million of contract manufacturing expenses as of December 31, 2020.

As described in Note 2 to the Financial Statements, the Company estimates the accruals for its contracts with third party service providers including contract research organizations (“CROs”), investigative sites, vendors related to contract manufacturing, development and distribution of clinical supplies, and vendors in connection with preclinical development activities, which comprise a significant component of the Company’s research and development activities.

External costs are accrued and expensed based on estimates of the services received and efforts expended pursuant to contracts with multiple CROs, investigative sites, contract manufacturing vendors, and preclinical development vendors.

The timing and the amount of payments required under each individual arrangement are often different from the pattern of costs actually incurred.

The Company accrues the cost of the services under its contracts with third party service providers based on the extent of activities completed by vendors over the estimated service period, number of subjects enrolled, and number of sites activated.

Auditing management’s accounting for accrued clinical and contract manufacturing expenses is especially challenging because the evaluation is dependent on a high volume of data exchanged between third-party service providers, internal clinical and manufacturing personnel as well as the company’s finance team.

Determining the accrued amounts is based on an evaluation of the unique terms and conditions set in each respective CRO, investigative site, contract manufacturing, and pre-clinical development agreement.

Additionally, due to the duration of clinical-related development activities and the timing of invoices received from third parties, the determination of the accrual for services incurred requires application of judgment by management.

How We Addressed the Matter in Our Audit

To test accrued clinical and contract manufacturing expenses, our audit procedures included, among others, testing the accuracy and completeness of the inputs used in management’s analysis to determine costs incurred.

We also inspected terms and conditions for material vendor contracts and change orders and compared these to the cost models management used in tracking progress of service agreements.

We met with internal legal personnel to understand material unique contract terms and conditions that require special consideration in estimating the accrued research and development expenses.

We met with internal clinical and manufacturing personnel to understand the status of significant clinical and contract manufacturing activities.

We evaluated estimated services incurred by third parties by understanding the terms and timeline of significant projects, evaluating management’s estimate of work performed, subjects enrolled and sites activated and costs incurred, and obtaining external confirmation of contracts and change orders executed with the Company for a sample of vendors as well as key terms and conditions of those contracts.

Further, we inspected material invoices received from third parties after the balance sheet date and evaluated whether services performed prior to the balance sheet date had been properly included in the accrual.

Accounting for Restructuring activities

Description of the Matter During 2021, the Company incurred $6.2 million of restructuring charges in connection with two restructuring plans that were implemented in August 2021 and October 2021, following the receipt of a Complete Response Letter from the FDA and the conclusion of an End of Review Type A meeting with the FDA, respectively.

Of these charges, $2.7 million was recorded in research and development expenses, and $3.5 million was recorded in general and administrative expenses.

Further, in November 2021, in connection with its announced plans to launch IBSRELA in 2022, the Company retained certain employees whose positions were originally eliminated as part of the October 2021 restructuring plan.

As described in Note 11 to the financial statements, the restructuring activities consisted primarily of workforce reduction through the elimination of the Company’s research organization and its commercial sales and marketing organizations.

These actions resulted in restructuring charges that included one-time employee termination benefits and severance payments, as well as other employee-related costs.

The Company’s liability for accrued restructuring charges was $0.5 million as of December 31, 2021.

Auditing the Company’s restructuring charges was especially challenging due to the multiple restructuring plans implemented during the year, various one-time termination benefit arrangements approved for different ranks and groups of the impacted employees and various retention plans approved for the remaining employees, as well as the impact of the Company’s later decision to retain certain employees whose positions were originally eliminated as part of the October 2021 restructuring plan.

This required the Company to maintain complete record-keeping of the multiple restructuring plans implemented, assess and evaluate the differences between the various severance agreements and retention plans executed, as well as to apply applicable technical accounting guidance in determining the timing of recognition, classification, and disclosure of restructuring charges in the financial statements.

In addition, the Company needed to analyze and ensure completeness of any contract termination costs to be recorded as a result of the restructuring activities and changing needs of its business.

How We Addressed the Matter in Our Audit To test the restructuring charges and year-end liability for accrued restructuring charges, our audit procedures included, among others, gaining an understanding of the approved restructuring plans and evaluating the accounting treatment, timing of recognition, and classification of restructuring charges incurred.

In addition, we tested the accuracy and completeness of underlying data used in management’s analysis and computation of restructuring charges and year-end liability for accrued restructuring charges by agreeing related details to supporting documentation.

We reviewed management’s analysis of contract termination costs to determine whether any amount needed to be recorded or accrued as restructuring charges during the year.

We also met with internal finance and legal personnel to understand the nature and the comprehensive scope of the approved restructuring plans, as well as inspected and evaluated the accounting treatment of the terms and conditions for a sample of severance agreements and retention plans executed.

Additionally, we tested subsequent cash payments made related to the restructuring activities.

Further, we tested the classification and disclosure of the restructuring expenses in the financial statements.

/s/ Ernst & Young LLP

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Redwood City, California

March 8, 2021

February 28, 2022

ARDELYX, INC.

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Short-term investments 44,261 95,452

Unbilled revenue

Accounts receivable 502 —

Prepaid expenses and other current assets 16,458 8,202

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Right-of-use assets 12,752 2,274

Other assets 1,150 552

Total assets $ 149,913 $ 201,562

Liabilities and stockholders’ equity

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Loan payable, net of current portion — 46,621

Deferred revenue, non-current 4,727 —

Total liabilities 67,296 75,450

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Accumulated deficit ( 712,930 ) ( 554,765 )

Accumulated other comprehensive income

Accumulated other comprehensive income (loss) ( 6 ) ( 4 )

Total stockholders’ equity 82,617 126,112

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Year Ended December 31,

2021 2020 2019

Collaborative development revenue $ 4,177 $ 5,364 $ 459

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Provision for income taxes 4 2 303

Net loss $ ( 158,165 ) $ ( 94,313 ) $ ( 94,940 )

Net loss per common share, basic and diluted $ ( 1.52 ) $ ( 1.05 ) $ ( 1.47 )

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Comprehensive loss:

Net loss $ ( 158,165 ) $ ( 94,313 ) $ ( 94,940 )

Unrealized (losses) gains on available-for-sale securities ( 2 ) ( 24 ) 58

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(in thousands, except share amounts)

Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

(Loss) Income Total

Stockholders'

(Loss) Income

Shares Amount

Balance as of December 31, 2018 62,516,627 $ 6 $ 481,357 $ ( 365,512 ) $ ( 38 ) $ 115,813

Adoption of ASU No.

2014-09 on January 1, 2018

Issuance of common stock under employee stock purchase plan 160,744 — 396 — — 396

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Issuance of common stock upon underwritten public offering, net of issuance costs 23,000,000 3 134,924 — — 134,927

Issuance of common stock upon private placement, net of issuance costs 2,873,563 — 19,975 — — 19,975

Net loss — — — ( 94,940 ) — ( 94,940 )

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

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Issuance of common stock upon exercise of options 445,942 — 1,020 — — 1,020

Issuance of common stock upon vesting of restricted stock units 866,528 — — — — —

Stock-based compensation — — 10,583 — — 10,583

Unrealized gains on available-for-sale securities — — — — ( 24 ) ( 24 )

Issuance of common stock upon underwritten public offering, net of issuance costs

Issuance of common stock upon private placement, net of issuance costs

Issuance of common stock in At-the-market offering 3,257,430 — 21,047 — — 21,047

Net loss — — — ( 94,313 ) — ( 94,313 )

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

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Issuance of common stock upon vesting of restricted stock units 167,158 — — — — —

Taxes paid for net share settlement of equity awards — — ( 106 ) — — ( 106 )

Stock-based compensation — — 12,039 — — 12,039

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Issuance of common stock in At-the-market offering 35,671,439 4 101,142 — — 101,146

Net loss — — — ( 158,165 ) — ( 158,165 )

Balance as of December 31, 2021 130,182,535 $ 13 $ 795,540 $ ( 712,930 ) $ ( 6 ) $ 82,617

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(in thousands)

2021 2020 2019

Operating activities

Net loss $ ( 158,165 ) $ ( 94,313 ) $ ( 94,940 )

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

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Amortization of deferred compensation for services 240 313 309

Amortization of premium on investment securities

Amortization of (discount) premium on investment securities 488 ( 92 ) ( 698 )

Non-cash lease expense 3,085 2,147 1,839

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Accrued compensation and benefits ( 250 ) 1,219 1,730

Lease liabilities

Operating Lease liabilities ( 2,853 ) ( 2,604 ) ( 1,892 )

Accrued and other liabilities 1,386 ( 1,000 ) ( 5,861 )

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Purchases of property and equipment ( 1,867 ) ( 324 ) ( 325 )

Net cash (used in) provided by investing activities

Net cash provided by (used in) investing activities 50,948 ( 31,442 ) 23,373

Financing activities

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Proceeds from issuance of common stock under equity incentive and stock purchase plans 1,403 1,854 574

Proceeds from (payments for) loan payable, net of issuance costs

Principal repayments for loan payable ( 19,444 ) — —

Payments for loan payable, net of issuance costs — ( 125 ) —

Payments for taxes related to net share settlement of equity awards ( 106 ) — —

Net cash provided by financing activities 82,999 22,776 155,476

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Issuance of common stock for services $ 190 $ 310 $ 312

Issuance of derivative in connection with issuance of loan payable

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

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Ardelyx, Inc.

(the “Company,” “we,” “us” or “our”) is a specialized biopharmaceutical company focused on developing first-in-class medicines to improve treatment choices for people with kidney and cardiorenal 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 biopharmaceutical company founded with a mission to discover, develop and commercialize innovative first-in-class medicines that meet significant unmet medical needs.

This includes adult patients with irritable bowel syndrome with constipation (“IBS-C”), adult patients with chronic kidney disease (“CKD”) on dialysis suffering from elevated serum phosphorus, or hyperphosphatemia;

and adult CKD patients and/or heart failure patients with elevated serum potassium, or hyperkalemia.

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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In connection with our review of our financial statements as of and for the six months ended June 30, 2019, we corrected errors related to the accounting for clinical trial accruals that had resulted in an overstatement of research and development expenses during the year ended December 31, 2018.

Specifically, management concluded that the Company’s research and development expenses recorded during the year ended December 31, 2018 had been overstated by $ 3.6 million and that the Company’s accrued expenses and other current liabilities as of December 31, 2018 had been overstated by the same amount.

Management analyzed the potential impact of these errors in accordance with the U.S.

Specifically, management concluded that our research and development expenses recorded during the year ended December 31, 2018 had been overstated by $ 3.6 million and that our accrued expenses and other current liabilities as of December 31, 2018 had been overstated by the same amount.

We analyzed the potential impact of these errors in accordance with the U.S.

Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin No.

108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, and concluded that while the errors were significant to the Company’s financial statements as of and for the six months ended June 30, 2019, a correction of the errors would not have been material to the full year results for 2019 and 2018 nor affect the trend of financial results.

Accordingly, the Company reduced accrued and other liabilities by $ 3.6 million and recorded a cumulative adjustment of $ 3.6 million in the statement of operations and comprehensive loss to reduce research and development expenses in 2019 .

108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, and concluded that while the errors were significant to our financial statements as of and for the six months ended June 30, 2019, a correction of the errors would not have been material to the full year results for 2019 and 2018 nor affect the trend of financial results.

Accordingly, we reduced accrued and other liabilities by $ 3.6 million and recorded a cumulative adjustment of $ 3.6 million in the statement of operations and comprehensive loss to reduce research and development expenses in 2019.

Use of Estimates

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Actual results could materially differ from those estimates.

As of December 31, 2020, the Company had cash and investments of approximately $ 188.6 million, which include net proceeds of approximately $ 21.0 million from the 2020 At-the-Market Offerings, $ 134.9 million from the 2019 Offering, and $ 20.0 million received in connection with the 2019 Private Placement, respectively, as defined and discussed in Note 7.

We believe our current available cash and investments will be sufficient to fund our planned expenditures and meet the Company’s obligations for at least 12 months following March 8, 2021, which is the date that the financial statements are being issued.

As of December 31, 2021, we had cash and investments of approximately $ 116.7 million.

We have incurred operating losses since inception and our accumulated deficit as of December 31, 2021 is $ 712.9 million.

Our current level of cash and investments alone is not sufficient to meet our plans for the next twelve months following the issuance of these financial statements.

These factors raise substantial doubt regarding our ability to continue as a going concern for a period of one year from the issuance of these financial statements.

We plan to address our operating cash flow requirements with our current cash and investments, cash generated from the product launch of IBSRELA, our potential receipt of anticipated milestones from our collaboration partners, our ability to access the capital markets, as well as through the implementation of cash preservation activities to reduce or defer discretionary spending.

There are no assurances that our efforts to meet our operating cash flow requirements will be successful.

If our current cash and investments as well as our plans to meet our operating cash flow requirements are not sufficient to fund necessary expenditures and meet our obligations for at least the next twelve months following the issuance of these financial statements,

our liquidity, financial condition and business prospects will be materially affected.

These financial statements have been prepared on a going concern basis and do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary in the event that we can no longer continue as a going concern.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity date of 90 days or less on the date of purchase to be cash equivalents.

We consider all highly liquid investments purchased with an original maturity date of 90 days or less on the date of purchase to be cash equivalents.

Short-Term Investments

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Short-term investments are carried at fair value based upon quoted market prices.

Unrealized gains and losses on available-for-sale securities are excluded from earnings and are reported as a component of accumulated other comprehensive loss.

Unrealized gains and losses on available-for-sale securities are included in earnings and are reported as an allowance for credit losses on our Balance Sheets.

The cost of available-for-sale securities sold is based on the specific-identification method.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments and accounts receivable.

The Company is exposed to credit risks in the event of default by the counterparties to the extent of the amount recorded in its balance sheet.

Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments and accounts receivable.

We are exposed to credit risks in the event of default by the counterparties to the extent of the amount recorded in its balance sheet.

Cash, cash equivalents and short-term investments are invested through banks and other financial institutions in the U.S.

Foreign Currency and Forward Contracts

The Company manages its foreign currency exposures with the use of foreign currency purchases as well as currency spot and forward contracts.

The Company primarily conducts its business in U.S.

however, a portion of the Company’s expense and capital activities are transacted in foreign currencies which are subject to exchange rate fluctuations that can affect cash or earnings.

The Company has been in a loss position and therefore its primary objective is to conserve and manage cash.

There are generally two methods by which the Company manages the cash flow risk of foreign exchange fluctuations when a contract is signed (i) it can purchase the foreign funds, in full or in part, upon the execution of the contract, or (ii) it can obtain the right to purchase such funds, in full or in part, at the execution of the contract, i.e., obtain a forward contract from an appropriate bank, that can be exercised to obtain the currency of interest at a particular point in time.

The derivative instruments that the Company uses to hedge the exposure shall generally not be designated as cash flow hedges, and as a result, changes in their fair value will be recorded in other income (expense), net, in the Company's statements of operations and comprehensive loss.

The fair values of forward foreign currency exchange contracts are estimated using current exchange rates and interest rates and the current creditworthiness of the counterparties is taken into consideration.

Foreign Currency

We manage our foreign currency exposures with the use of foreign currency purchases.

We primarily conduct business in U.S.

however, a portion of our expense and capital activities are transacted in foreign currencies which are subject to exchange rate fluctuations that can affect cash or earnings.

We have been in a loss position and therefore our primary objective is to conserve and manage cash.

There are generally two methods by which we may manage the cash flow risk of foreign exchange fluctuations when a contract is signed (i) we can purchase the foreign funds, in full or in part, upon the execution of the contract, or (ii) we can obtain the right to purchase such funds, in full or in part, at the execution of the contract, i.e., obtain a forward contract from an appropriate bank, that can be exercised to obtain the currency of interest at a particular point in time.

The derivative instruments that we may use to hedge the exposure shall generally not be designated as cash flow hedges, and as a result, changes in their fair value would be recorded in other income (expense), net, in our statements of operations and comprehensive loss.

The fair values of forward foreign currency exchange contracts would be estimated using current exchange rates and interest rates and the current creditworthiness of the counterparties is taken into consideration.

Property and Equipment

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Impairment, if any, would be assessed using discounted cash flows or other appropriate measures of fair value.

For the years ending December 31, 2020, 2019 and 2018 there have been no impairment losses.

The Company uses the asset and liability method of accounting for income taxes.

For the years ending December 31, 2021, 2020 and 2019 we have recognized no impairment losses.

We use the asset and liability method of accounting for income taxes.

Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

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Revenue Recognition

On January 1, 2018 the Company adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) No.

On January 1, 2018 we adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) No.

2014-9, Revenue from Contracts with Customers (Topic 606) and related amendments (“ASC 606”), on a modified retrospective basis, which resulted in an adjustment to the opening accumulated deficit balance on the adoption date.

As a result of the adoption of the new standard, on January 1, 2018, the Company recorded the following:

(i) unbilled revenue under current assets of $ 5.0 million representing a future receivable related to the first milestone under the Company’s license agreement with Kyowa Kirin Co., Ltd.

(formerly known as Kyowa Hakko Kirin Co., Ltd, or KHK) (“KKC”), which was subsequently achieved by KKC and collected in February 2019, thereby reducing the unbilled revenue balance to zero , (ii) uncharged license fees under current liabilities of $ 1.0 million representing the corresponding future payable related to AstraZeneca AB, or AstraZeneca, in accordance with the Company’s termination agreement with AstraZeneca, which, upon KKC achieving the milestone, was reclassified to accounts payable and subsequently paid to AstraZeneca during the second quarter of 2019, and (iii) a related decrease in accumulated deficit of approximately $ 4.0 million as the new standard permitted revenue from milestones that possess certain criteria to be recognized earlier and also contained different recognition criteria related to milestones than under the previous accounting standard.

The Company generates revenue primarily from research and collaboration and license agreements with customers.

Goods and services in the agreements may include the grant of licenses for the use of the Company’s technology, the provision of services associated with the research and development of product candidates, manufacturing services, and participation in joint steering committees.

The terms of these arrangements typically include payment to the Company of one or more of the following:

As a result of the adoption of the new standard, on January 1, 2018, we recorded the following:

(i) unbilled revenue under current assets of $ 5.0 million representing a future receivable related to the first milestone under our license agreement with Kyowa Kirin Co., Ltd.

(formerly known as Kyowa Hakko Kirin Co., Ltd ("KHK") (“KKC”), which was subsequently achieved by KKC and collected in February 2019, thereby reducing the unbilled revenue balance to zero , (ii) uncharged license fees under current liabilities of $ 1.0 million representing the corresponding future payable related to AstraZeneca AB ("AstraZeneca") in accordance with our termination agreement with AstraZeneca, which, upon KKC achieving the milestone, was reclassified to accounts payable and subsequently paid to AstraZeneca during the second quarter of 2019, and (iii) a related decrease in accumulated deficit of approximately $ 4.0 million as the new standard permitted revenue from milestones that possess certain criteria to be recognized earlier and also contained different recognition criteria related to milestones than under the previous accounting standard.

We generate revenue primarily from research and collaboration and license agreements with customers.

Goods and services in the agreements may include the grant of licenses for the use of our technology, the provision of services associated with the research and development of product candidates, manufacturing services, and participation in joint steering committees.

The terms of these arrangements typically include payment to us of one or more of the following:

non-refundable, up-front license fees;

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and future royalties on net sales of licensed products.

When two or more contracts are entered into with the same customer at or near the same time, the Company evaluates the contracts to determine whether the contracts should be accounted for as a single arrangement.

When two or more contracts are entered into with the same customer at or near the same time, we evaluate the contracts to determine whether the contracts should be accounted for as a single arrangement.

Contracts are combined and accounted for as a single arrangement if one or more of the following criteria are met:

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or (iii) the goods or services promised in the contracts (or some goods or services promised in each of the contracts) are a single performance obligation.

In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under each of its agreements, management performs the following steps:

In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under each of its agreements, management performs the following steps:

(i) identification of the promised goods or services in the contract;

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(iv) allocation of the transaction price to the performance obligations;

and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

As part of the accounting for contracts with customers, the Company develops assumptions that require judgment to determine whether promised goods and services represent distinct performance obligations and the standalone selling price for each performance obligation identified in the contract.

This evaluation is subjective and requires the Company to make judgments about the promised goods and services and whether those goods and services are separable from other aspects of the contract.

Further, determining the standalone selling price for performance obligations requires significant judgment, and when an observable price of a promised good or service is not readily available, the Company considers relevant assumptions to estimate the standalone selling price, including, as applicable, market conditions, development timelines, probabilities of technical and regulatory success, reimbursement rates for personnel costs, forecasted revenues, potential limitations to the selling price of the product and discount rates.

The Company applies judgment in determining whether a combined performance obligation is satisfied at a point in time or over time, and, if over time, concluding upon the appropriate method of measuring progress to be applied for purposes of recognizing revenue.

The Company evaluates the measure of progress each reporting period and, as estimates related to the measure of progress change, related revenue recognition is adjusted accordingly.

Changes in the Company’s estimated measure of progress are accounted for prospectively as a change in accounting estimate.

The Company recognizes collaboration revenue by measuring the progress toward complete satisfaction of the performance obligation using an input measure.

In order to recognize revenue over the research and development period, the Company measures actual costs incurred to date compared to the overall total expected costs to satisfy the performance obligation.

and (v) recognition of revenue when (or as) we satisfy each performance obligation.

As part of the accounting for contracts with customers, we develop assumptions that require judgment to determine whether promised goods and services represent distinct performance obligations and the standalone selling price for each performance obligation identified in the contract.

This evaluation is subjective and requires us to make judgments about the promised goods and services and whether those goods and services are separable from other aspects of the contract.

Further, determining the standalone selling price for performance obligations requires significant judgment, and when an observable price of a promised good or service is not readily available, we consider relevant assumptions to estimate the standalone selling price, including, as applicable, market conditions, development timelines, probabilities of technical and regulatory success, reimbursement rates for personnel costs, forecasted revenues, potential limitations to the selling price of the product and discount rates.

We apply judgment in determining whether a combined performance obligation is satisfied at a point in time or over time, and, if over time, concluding upon the appropriate method of measuring progress to be applied for purposes of recognizing revenue.

We evaluate the measure of progress each reporting period and, as estimates related to the measure of progress change, related revenue recognition is adjusted accordingly.

Changes in our estimated measure of progress are accounted for prospectively as a change in accounting estimate.

We recognize collaboration revenue by measuring the progress toward complete satisfaction of the performance obligation using an input measure.

In order to recognize revenue over the research and development period, we measure actual costs incurred to date compared to the overall total expected costs to satisfy the performance obligation.

Revenues are recognized as the program costs are incurred.

The Company will re-evaluate the estimate of expected costs to satisfy the performance obligation each reporting period and make adjustments for any significant changes.

Amounts received prior to satisfying the revenue recognition criteria are recorded as contract liabilities in the Company’s balance sheets.

If the related performance obligation is expected to be satisfied within the next twelve months this will be classified in current liabilities.

Amounts recognized as revenue prior to receipt are recorded as contract assets in the Company's balance sheets.

If the Company expects to have an unconditional right to receive the consideration in the next twelve months, this will be classified in current assets.

We will re-evaluate the estimate of expected costs to satisfy the performance obligation each reporting period and make adjustments for any significant changes.

Amounts received prior to satisfying the revenue recognition criteria are recorded as contract liabilities in our Balance Sheets.

If the related performance obligation is expected to be satisfied within the next twelve months it will be classified in current liabilities.

Amounts recognized as revenue prior to receipt are recorded as contract assets in our Balance Sheets.

expect to have an unconditional right to receive the consideration in the next twelve months, it will be classified in current assets.

A net contract asset or liability is presented for each contract with a customer.

Milestone Payments:

At the inception of each arrangement that includes development milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method.

At the inception of each arrangement that includes development milestone payments, we evaluate whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method.

Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved.

Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received.

The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied.

At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraints, and if necessary, adjusts its estimate of the overall transaction price.

Milestone payments that are not within our control or the control of the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received.

The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied.

At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraints, and if necessary, adjusts its estimate of the overall transaction price.

Any such adjustments are recorded on a cumulative catch-up basis, which would affect earnings in the period of adjustment.

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Arrangements that include a promise for future supply of drug substance or drug product for either clinical development or commercial supply at the customer’s discretion are generally considered as options.

The Company assess if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations.

If the Company is entitled to additional payments when the customer exercises these options, any payments are recorded in product supply revenue when the customer obtains control of the goods, which is upon delivery.

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and where the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

To date, the Company has not recognized any royalty revenue resulting from any of its licensing arrangements.

We assess if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations.

If we are entitled to additional payments when the customer exercises these options, any payments are recorded in product supply revenue when the customer obtains control of the goods, which is upon delivery.

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and where the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

To date, we have not recognized any royalty revenue resulting from any of its licensing arrangements.

Licenses of intellectual property:

If a license granted to a customer to use the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from consideration allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license.

For licenses that are bundled with other promises, the Company applies judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, to conclude upon the appropriate method of measuring progress for purposes of recognizing revenue related to consideration allocated to the performance obligation.

a material right (i.e., an optional good or service offered for free or at a discount) to the customer.

If a license granted to a customer to use our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenue from consideration allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license.

For licenses that are bundled with other promises, we apply judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, to conclude upon the appropriate method of measuring progress for purposes of recognizing revenue related to consideration allocated to the performance obligation.

Customer options, such as options granted to allow a licensee to choose to research, develop and commercialize licensed compounds are evaluated at contract inception in order to determine whether those options provide a material right (i.e., an optional good or service offered for free or at a discount) to the customer.

If the customer options represent a material right, the material right is treated as a separate performance obligation at the outset of the arrangement.

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Contract modifications, defined as changes in the scope or price (or both) of a contract that are approved by the parties to the contract, such as a contract amendment, exist when the parties to a contract approve a modification that either creates new or changes existing enforceable rights and obligations of the parties to the contract.

Depending on facts and circumstances, the Company accounts for a contract modification as one of the following:

Depending on facts and circumstances, we account for a contract modification as one of the following:

(i) a separate contract;

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or (iii) a combination of the preceding treatments.

A contract modification is accounted for as a separate contract if the scope of the contract increases because of the addition of promised goods or services that are distinct and the price of the contract increases by an amount of consideration that reflects the Company’s standalone selling prices of the additional promised goods or services.

When a contract modification is not considered a separate contract and the remaining goods or services are distinct from the goods or services transferred on or before the date of the contract modification, the Company accounts for the contract modification as a termination of the existing contract and a creation of a new contract.

When a contract modification is not considered a separate contract and the remaining goods or services are not distinct, the Company accounts for the contract modification as an add-on to the existing contract and as an adjustment to revenue on a cumulative catch-up basis.

The Company receives payments from its licensees as established in each contract.

Upfront payments and fees are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements.

Where applicable, amounts are recorded as unbilled revenue when the Company’s right to consideration is unconditional.

The Company does not assess whether a contract with a customer has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less.

A contract modification is accounted for as a separate contract if the scope of the contract increases because of the addition of promised goods or services that are distinct and the price of the contract increases by an amount of consideration that reflects our standalone selling prices of the additional promised goods or services.

When a contract modification is not considered a separate contract and the remaining goods or services are distinct from the goods or services transferred on or before the date of the contract modification, we account for the contract modification as a termination of the existing contract and a creation of a new contract.

When a contract modification is not considered a separate contract and the remaining goods or services are not distinct, we account for the contract modification as an add-on to the existing contract and as an adjustment to revenue on a cumulative catch-up basis.

We receive payments from its licensees as established in each contract.

Upfront payments and fees are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until we perform our obligations under these arrangements.

Where applicable, amounts are recorded as accounts receivable or unbilled revenue when our right to consideration is unconditional.

We do not assess whether a contract with a customer has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less.

Research and Development Costs

Research and development costs are charged to expense as incurred and consist of costs incurred to further the Company’s research and development activities and include salaries and related employee benefits, costs associated with clinical trials, costs related to pre-commercialization manufacturing activities such as manufacturing process validation activities and the manufacturing of clinical drug supply, nonclinical research and development activities, regulatory activities, research-related overhead expenses and fees paid to external service providers and contract research and manufacturing organizations that conduct certain research and development activities on behalf of the Company.

Research and development costs are charged to expense as incurred and consisted of costs incurred to further our research and development activities and include salaries and related employee benefits, costs associated with clinical trials, costs related to pre-commercialization manufacturing activities such as manufacturing process validation activities and the manufacturing of clinical drug supply, nonclinical research and development activities, regulatory activities, research-related overhead expenses and fees paid to external service providers and contract research and manufacturing organizations that conduct certain research and development activities on our behalf.

Accrued Research and Development Expenses

The Company is required to estimate its accrued expenses at the end of each reporting period.

This process involves reviewing open contracts and purchase orders, communicating with Company personnel to identify services that have been performed on the Company’s behalf and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual costs.

The majority of the Company’s service providers submit invoices in arrears for services performed or when contractual milestones are met.

The Company makes estimates of its accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known to the Company at that time.

The Company periodically confirms the accuracy of its estimates with the service providers and makes adjustments if necessary.

We are required to estimate our accrued expenses at the end of each reporting period.

This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual costs.

The majority of our service providers submit invoices in arrears for services performed or when contractual milestones are met.

We make estimates of our accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known to us at that time.

We periodically confirm the accuracy of our estimates with our service providers and make adjustments if necessary.

Examples of estimated accrued research and development expenses include fees paid to:

● contract research organizations, or CROs, in connection with clinical studies;

• contract research organizations ("CROs") in connection with clinical studies;

• investigative sites in connection with clinical studies;

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• vendors in connection with preclinical development activities.

The Company records expenses related to clinical studies and manufacturing development activities based on its estimates of the services received and efforts expended pursuant to contracts with multiple CROs and manufacturing vendors that conduct and manage these activities on the Company’s behalf.

We record expenses related to clinical studies and manufacturing development activities based on our estimates of the services received and efforts expended pursuant to contracts with multiple CROs and manufacturing vendors that conduct and manage these activities on our behalf.

The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows.

There may be instances in which payments made to the Company’s vendors will exceed the level of services provided and result in a prepayment of the expense.

There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense.

Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical trial milestones.

In accruing service fees, the Company estimates the time period over which services will be performed, enrollment of subjects, number of sites activated and the level of effort to be expended in each period.

If the actual timing of the performance of services or the level of effort varies from the Company’s estimate, the Company will adjust the accrued or prepaid expense balance accordingly.

In accruing service fees, we estimate the time period over which services will be performed, enrollment of subjects, number of sites activated and the level of effort to be expended in each period.

If the actual timing of the performance of services or the level of effort varies from our estimate, we will adjust the accrued or prepaid expense balance accordingly.

We consider regulatory approval of product candidates to be uncertain, and product manufactured prior to regulatory approval may not be sold unless regulatory approval is obtained.

We expense manufacturing costs for product candidates incurred prior to regulatory approval as research and development expenses as manufacturing processes are performed.

If and when regulatory approval of a product is obtained and we have plans to commercially launch the approved product, we begin capitalizing manufacturing costs related to the approved product into inventory.

Although we received approval of IBSRELA (tenapanor) for the treatment of IBS-C in adults from the Food and Drug Administration (“FDA”) in September 2019, we did not plan to launch IBSRELA commercially at that time and, therefore, continued to expense manufacturing costs of tenapanor, which is also under development for another indication that has not received FDA approval.

On November 30, 2021, we made the decision and announced our plans to commercially launch IBSRELA and as a result, in December 2021 we began to capitalize the costs of manufacturing processes associated with IBSRELA as those processes are completed.

No manufacturing processes related to IBSRELA were completed in December, resulting in no inventory balance at December 31, 2021.

Stock-Based Compensation

The Company recognizes compensation expense for all stock-based payment awards made to employees, nonemployees and directors based on estimated fair values.

For employee and nonemployee stock options, the Company determines the grant date fair value of the awards using the Black-Scholes option-pricing model and generally recognizes the fair value as stock-based compensation expense on a straight-line basis over the vesting period of the respective awards.

For restricted stock and performance-based restricted stock, to the extent they are probable, the compensation cost for these awards is based on the closing price of the Company’s common stock on the date of grant and recognized as compensation expense on a straight-line basis over the requisite service period.

We recognize compensation expense for all stock-based payment awards made to employees, nonemployees and directors based on estimated fair values.

For employee and nonemployee stock options, we determine the grant date fair value of the awards using the Black-Scholes option-pricing model and generally recognizes the fair value as stock-based compensation expense on a straight-line basis over the vesting period of the respective awards.

For restricted stock and performance-based restricted stock, to the extent they are probable, the compensation cost for these awards is based on the closing price of our common stock on the date of grant and recognized as compensation expense on a straight-line basis over the requisite service period.

Stock-based compensation expense is based on the value of the portion of stock-based payment awards that is ultimately expected to vest.

As such, the Company’s stock-based compensation is reduced for the estimated forfeitures at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

As such, our stock-based compensation is reduced for the estimated forfeitures at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Derivatives and Hedging Activities

The Company accounts for its derivative instruments as either assets or liabilities on the balance sheet and measures them at fair value.

We account for our derivative instruments as either assets or liabilities on the balance sheet and measure them at fair value.

Derivatives are adjusted to fair value through other income (expense), net in the statements of operations and comprehensive loss.

The Company determines if an arrangement is a lease at the inception of the arrangement.

We determine if an arrangement is a lease at the inception of the arrangement.

Operating leases are included in right-of-use assets, current portion of operating lease liability, and operating lease liability, net of current portion in our balance sheets.

Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date.

In determining the present value of lease payments, we use our incremental borrowing rate based on the information available at the lease commencement date.

The operating lease right-of-use assets also include any lease payments made and exclude lease incentives.

The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise any such options.

Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise any such options.

Lease expense is recognized on a straight-line basis over the expected lease term.

The Company has elected not to separate lease and non-lease components, such as common area maintenance charges, and instead it accounts for these as a single lease component.

Comprehensive Loss

Comprehensive loss is composed of two components:

net loss and other comprehensive income (loss).

Other comprehensive income (loss) refers to gains and losses that are recorded as an element of stockholders’ equity but are excluded from net loss.

We have elected not to separate lease and non-lease components, such as common area maintenance charges, and instead it accounts for these as a single lease component.

Restructuring

We recognize restructuring charges related to reorganization plans that have been committed to by management when liabilities have been incurred.

In connection with these activities, we record restructuring charges at fair value for, (a) contractual employee termination benefits when obligations are associated to services already rendered, rights to such benefits have vested, and payment of benefits is probable and can be reasonably estimated, (b) one-time employee termination benefits when management has committed to a plan of termination, the plan identifies the employees and their expected termination dates, the details of termination benefits are complete, it is unlikely changes to the plan will be made or the plan will be withdrawn and communication to such employees has occurred, and (c) contract termination costs when a contract is terminated before the end of its term.

One-time employee termination benefits are recognized in their entirety when communication has occurred and future services are not required.

If future services are required, the costs are recorded ratably over the remaining period of service.

Contract termination costs to be incurred over the remaining contract term without economic benefit are recorded in their entirety when the contract is canceled.

Net Loss per Share

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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 August 2018, the FASB issued ASU No.

2018-15, Intangibles (Topic 350):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract .

The amendments in this Update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

This ASU requires a customer in a cloud computing arrangement (i.e.

hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred.

ASC 350-40 requires that certain costs incurred during the application development stage be capitalized and other costs incurred during the preliminary project and post-implementation stages be expensed as incurred.

We adopted this ASU on January 1, 2020 and the adoption of this standard did not have a material impact on our 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.

We early adopted ASU 2019-12 on April 1, 2020 and this adoption had no material impact on our financial position or results of operations.

We adopted Accounting Standards Update 2016-13, Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), as of December 1, 2021 under the modified retrospective approach.

ASU 2016-13 requires an entity to measure and recognize expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred.

For available-for-sale debt securities with unrealized credit losses, the standard requires allowances to be recorded through net income instead of directly reducing the amortized cost of the investment under the previous other-than-temporary impairment model.

The adoption of this standard did not have a material impact on our financial statements or a significant impact on our internal controls.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , an amendment which modifies the measurement and recognition of credit losses for most financial assets and certain other instruments.

The amendment updates the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model.

Accordingly, these financial assets will be presented at the net amount expected to be collected.

The amendment also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model.

For smaller reporting companies the guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption is permitted.

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

There were various accounting standards and interpretations issued recently, none of which are expected to a have a material impact on our financial position, operations or cash flows.

CASH AND INVESTMENTS

Securities classified as cash and investments as of December 31, 2020 and December 31, 2019 are summarized below (in thousands).

Securities classified as cash and investments as of December 31, 2021 and 2020 are summarized below (in thousands).

Estimated fair value is based on quoted market prices for these investments.

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Gross Unrealized

Amortized Cost

Amortized Cost Gains Losses Fair Value

Cash and cash equivalents:

Money market funds $ 71,175 $ — $ — $ 71,175

Commercial paper

Cash 1,253 — — 1,253

Total cash and cash equivalents 72,428 — — 72,428

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Corporate bonds 7,025 — ( 3 ) 7,022

government-sponsored agency bonds

Asset-backed securities 5,306 — ( 2 ) 5,304

treasury notes — — — —

Total short-term investments 44,267 1 ( 7 ) 44,261

Long-term investments:

Corporate bonds

Total cash equivalents and investments $ 116,695 $ 1 $ ( 7 ) $ 116,689

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Gross Unrealized

Amortized Cost

Amortized Cost Gains Losses Fair Value

Cash and cash equivalents:

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Commercial paper 2,100 — — 2,100

Corporate bonds

Cash 781 — — 781

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

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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

Total cash equivalents and short-term investments

Long-term investments:

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

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

Cash equivalents consist of money market funds and other debt securities with original maturities of three months or less at the time of purchase, and the carrying amount is a reasonable approximation of fair value.

The Company invests its cash in high quality securities of financial and commercial institutions.

These securities are carried at fair value, which is based on readily available market information, with unrealized gains and losses included in accumulated other comprehensive income (loss) within stockholders’ equity on the Company’s balance sheets.

The Company uses the specific identification method to determine the amount of realized gains or losses on sales of marketable securities.

We invest our cash in high quality securities of financial and commercial institutions.

We use the specific identification method to determine the amount of realized gains or losses on sales of marketable securities.

Realized gains or losses have been insignificant and are included in other income (expense), net, in the statement of operations.

As of December 31, 2020, the Company held both short- and long-term investments.

All short-term available-for-sale securities held as of December 31, 2021 and 2020, had contractual maturities of less than one year .

The long-term securities held as of December 31, 2020 had contractual maturities greater 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 its fair value is less than its carrying cost, in which case the Company would further review the investment to determine whether it 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 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 it down through the statement of operations to its fair value and establishes that value as a new cost basis for the investment.

The Company did not identify any of its available-for-sale securities as other-than-temporarily impaired in any of the periods presented.

As of December 31, 2020 and 2019, no investment was in a continuous unrealized loss position for more than one year and 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.

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

We consider a debt security to be impaired when its fair value is less than its carrying cost, in which case we would further review the investment to determine whether it 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 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 it down through the statement of operations to its fair value and establishes that value as a new cost basis for the investment.

We did no t identify any of its available-for-sale securities as other-than-temporarily impaired in any of the periods presented.

As of December 31, 2021 and 2020, no investment was in a continuous unrealized loss position for more than one year and we believe that it is more likely than not that the investments will be held until maturity or a forecasted recovery of fair value.

As of December 31, 2021, the amortized cost and estimated fair value of available-for-sale debt securities by contractual maturity were as follows (in thousands):

Amortized Cost

Amortized Cost Fair Value

Due in one year or less $ 44,267 $ 44,261

Due in one to two years

FAIR VALUE MEASUREMENTS

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.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

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Level 3 – Valuations based on unobservable inputs in 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 measured on a recurring basis by level within the fair value hierarchy (in thousands):

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

December 31, 2021

Total Fair Value Level 1 Level 2 Level 3

Money market funds $ 71,175 $ 71,175 $ — $ —

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Corporate bonds 7,022 — 7,022 —

government-sponsored agency bonds

treasury notes

Asset-backed securities 5,304 — 5,304 —

Total $ 115,436 $ 71,175 $ 44,261 $ —

Derivative liability for exit fee $ 698 $ — $ — $ 698

Total $ 698 $ — $ — $ 698

December 31, 2020

Fair Value Level 1 Level 2 Level 3

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

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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.

We classify money market funds, U.S.

treasury securities 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.

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 6, are classified as Level 3.

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 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 2018 Exit Fee, as defined and discussed in Note 7 - Derivative Liability , are classified as Level 3.

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 December 31, 2021 and December 31, 2020, due to their short-term nature.

Based on our procedures under the expected credit loss model, including an assessment of unrealized losses in our portfolio, we concluded that any unrealized losses on our marketable securities were not attributable to credit and, therefore, we have no t recorded an allowance for credit losses for these securities as of December 31, 2021 and 2020.

Fair Value of Debt

The interest rate of the Company’s term loan facility approximates the rate at which the Company could obtain alternative financing.

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 December 31, 2021 and 2020.

DERIVATIVE LIABILITY

In May 2018, in connection with entering into the Loan Agreement, as defined and discussed in Note 6, the Company entered into an agreement pursuant to which the Company agreed to pay $ 1.5 million in cash, or the Exit Fee, upon any change of control transaction in respect of the Company or if the Company obtains both (i) FDA approval of tenapanor for the treatment of hyperphosphatemia in CKD patients on dialysis and (ii) FDA approval of tenapanor for the treatment of patients with irritable bowel syndrome with constipation, or IBS-C, which was obtained on September 12, 2019 when the FDA approved IBSRELA® (tenapanor), a 50 mg, 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, 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 expense and other current liabilities on the accompanying 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 the Company’s valuation utilized significant unobservable inputs.

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

i) the Company’s 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 the Company's estimated cost of debt, adjusted with current LIBOR.

Generally, increases or decreases in the probability of occurrence would result in a directionally similar impact in the fair value measurement of the derivative instrument 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 the Company's statements of operations and were as follows for the years ended December 31, 2020, 2019 and 2018 (in thousands):

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 December 31

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”), to undergo research to identify two preclinical study-ready compounds for designation as development compounds, 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 development candidates (“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, which was payable as follows:

the first installment of $ 5.0 million within 30 days of the Effective Date, and the second installment of $ 5.0 million on the first anniversary of the effective date, unless the 2019 KKC Agreement was earlier terminated by KKC due to material breach by us.

The term of the 2019 KKC Agreement commenced on November 11, 2019 (“the Effective Date”) and ends on the earliest of:

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

We 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.

We 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 with Program 1 in certain territories and the right to obtain development and commercialization rights with Program 2 in certain territories, and participation in a joint steering committee (“the JSC”) and 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.

We 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, we determined that the initial transaction price was $ 10.0 million and that revenue associated with the combined performance obligations should be recognized as services are provided using the 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.

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 years ended December 31, 2021 and 2020, we recognized $ 4.2 million and $ 5.4 million, respectively, as revenue under the 2019 KKC Agreement in the statement of operations and comprehensive loss.

The aggregate amount of the transaction price allocated to our partially unsatisfied performance obligations as of December 31, 2021 and 2020 was zero and $ 4.2 million, which was presented in the Balance Sheet as deferred revenue for each respective period.

As of December 31,

2021, we have no material future obligations under the 2019 KKC Agreement.

There were no significant changes in estimates associated with the 2019 KKC Agreement during the twelve months ended December 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 License Agreement, KKC is responsible for all of the development and commercialization costs for tenapanor in treatment of cardiorenal diseases and conditions, excluding cancer in Japan.

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

Additionally, 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 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 up-front license fees which was recognized as revenue when the agreement was executed.

Based on our assessment, we identified that the license and the manufacturing supply services were our material performance obligations at the inception of the agreement, and as such each of the performance obligations are distinct.

Additionally, on January 1, 2018, we recorded unbilled revenue under current assets of $ 5.0 million and an increase in uncharged license fees under current liabilities of $ 1.0 million related to the first milestone under the 2017 KKC Agreement that KKC achieved in February 2019, reflecting revenues and cost of revenue, respectively, that would have been recognized in the fourth quarter 2017 if we had adopted ASC 606 prior to January 1, 2018.

On KKC’s achievement of the milestone in February 2019, the balance related to unbilled revenue was adjusted to zero .

Correspondingly, the $ 1.0 million balance related to uncharged license fees that we owed to AstraZeneca was reclassified to accounts payable during the first quarter of 2019, and subsequently paid to AstraZeneca during the second quarter of 2019.

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 received to date, ¥ 8.5 billion Japanese yen for commercialization milestones, or approximately $ 73.9 million at the currency exchange rate on December 31, 2021, as well as reimbursement of cost, 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 December 31, 2021.

For the years ended December 31, 2021 and 2020, $ 0.9 million and $ 1.4 million, respectively, of product supply revenue was recorded for manufacturing supply of tenapanor and other materials to KKC for product development and clinical trials in Japan, in accordance with our agreement with KKC, including $ 0.5 million accounts receivable as of December 31, 2021

For the years ended December 31, 2021 and 2020, $ 5.0 million and zero , respectively, of licensing revenue was recorded.

The 2021 licensing revenue was recorded upon the initiation of phase 3 clinical studies by KKC in Japan to evaluate tenapanor for hyperphosphatemia.

During the twelve months ended December 31, 2021, we received a $ 3.2 million prepayment from KKC for the manufacturing of tenapanor drug substance.

In addition, we have unbilled prepayments of $ 1.5 million from KKC for the manufacturing of tenapanor drug product reflected within prepaid and other current assets.

Both amounts are reflected within our deferred revenue, non-current on our balance sheet as of December 31, 2021.

Shanghai Fosun Pharmaceutical Industrial Development Co.

, or 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 up-front license fees which was recognized as revenue when the agreement was executed.

Based on our assessment, we identified that the license and the manufacturing supply services were its material performance obligations at the inception of the agreement, and as such each of the performance obligations are distinct.

In addition, 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 December 31, 2021 and 2020.

For the years ended December 31, 2021 and 2020, no revenue was recorded related to the Fosun Agreement.

Knight Therapeutics, Inc.

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

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

Based on our assessment, it identified that the license and the manufacturing supply services were its material performance obligations at the inception of the agreement, and as such each of the performance obligations are distinct.

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 CAD 22.2 million, or $ 17.4 million at the currency exchange rate on December 31, 2021, reimbursement of supply costs on a schedule specifying cost per tablet, with a reasonable mark up for overhead, as well as tiered royalty rates on net sales ranging from the mid-single digits to the low twenties.

The variable consideration related to the remaining development milestone payments has not been included in the transaction price as these were fully constrained at December 31, 2021 and 2020.

For the years ended December 31, 2021 and 2020, $ 13 thousand and $ 0.7 million of licensing revenue was recorded, respectively, related to the Knight Agreement.

For the years ended December 31, 2021 and 2020, zero and $ 0.1 million product supply revenue was recorded, respectively, related to the Knight Agreement.

Pursuant to the AstraZeneca Termination Agreement, $ 1.0 million and $ 0.1 million of cost of revenue was recorded during 2021 and 2020, respectively.

Xuanzhu (HK) Biopharmaceutical Limited, or XuanZhu

In November 2019, we entered into a license agreement with XuanZhu (“the XuanZhu Agreement") for a license to certain specific patent and patent applications.

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

Under the terms of the XuanZhu Agreement, we recognized $ 1.5 million in license fees when the agreement was executed, of which, $ 0.8 million was received upfront in November 2019 and achievement for the second $ 0.8 million payment was determined to be not materially at risk and probable of achievement and it was included in the transaction price as the amount was not probable of revenue reversal.

Based on our assessment, we determined that we had one combined performance obligation, which is the license and the specific patent grant.

In addition to the license fee of $ 1.5 million, we may be entitled to receive milestone payments.

The variable consideration related to the remaining milestone payments has not been included in the transaction price as these were fully constrained at December 31, 2021 and 2020.

For the years ended December 31, 2021 and 2020, no license revenue was recorded related to the XuanZhu Agreement.

In June 2015, we entered into a termination agreement with AstraZeneca (the "AstraZeneca Termination Agreement") pursuant to which we remain liable to pay AstraZeneca license fees for (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 licensee of tenapanor or certain other NHE3 inhibitors, up to a maximum of $ 75.0 million in aggregate for (i) and (ii).

To date in aggregate, we have recognized $ 11.6 million of the $ 75.0 million, recorded as cost of revenue, as follows (in thousands):

Cost of Revenue

Recognized Amount Paid

Year 2017 $ 9,400 * $ 6,000

Year 2018 466 2,864

Year 2019 600 1,002

Year 2020 145 742

Year 2021 1,000 1,003

Total $ 11,611 $ 11,611

Maximum payment per termination agreement 75,000

Remaining potential commitment $ 63,389

* Includes $ 1.0 million adjustment recorded pursuant to the adoption of ASC 606, as discussed in Note 2.

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 (in thousands):

Deferred revenue - current 2021 2020

Balance at Balance at January 1, $ 4,177 $ 4,541

Decreases due to revenue recognized in the period for which cash has been received ( 4,177 ) ( 364 )

Balance at Balance at December 31, $ — $ 4,177

Deferred revenue - non-current 2021 2020

Balance at Balance at January 1, $ — $ —

Increases due to cash received during the period 3,242 —

Increase due to unbilled prepayments recorded during the period 1,485 —

Balance at Balance at December 31, $ 4,727 $ —

Solar Capital and Western Alliance Bank Loan Agreement

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

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

and Western Alliance Bank (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”).

The full amount of the Tern Loan was funded on May 16, 2018.

The Company received net proceeds from the loan of approximately $ 49.3 million, after deducting the closing fee, legal expenses and issuance costs.

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

Borrowings under the Term Loan bear interest at a floating per annum rate equal to 7.45 % plus the one-month London Inter-bank Offered Rate, or LIBOR.

The Company was permitted to make interest-only payments on the Term Loan through June 1, 2020, until it achieved its primary endpoint in the Phase 3 study of tenapanor for the treatment of hyperphosphatemia in end-stage renal disease patients on dialysis, prior to June 1, 2020, in which case the Company would have been permitted to make interest-only payments on the Term Loan through December 1, 2020.

On December 3, 2019, the Company reported positive topline results for PHREEDOM, a long-term Phase 3 study evaluating the efficacy and safety of tenapanor as monotherapy for the treatment of hyperphosphatemia in patients with CKD on dialysis.

The 2018 Loan Agreement provides for a $ 50.0 million term loan facility with a maturity date of November 1, 2022 (the "2018 Term Loan”).

The full amount of the 2018 Term Loan was funded on May 16, 2018.

We received net proceeds from the loan of approximately $ 49.3 million, after deducting the closing fee, legal expenses and issuance costs.

On October 9, 2020, we and the Lenders entered into an amendment to the 2018 Loan Agreement (“the 2020 Amendment”) to extend the date through which we were permitted to make interest-only payments on the 2018 Term Loan by twelve months to December 1, 2021 subject to the repayment terms noted below.

Borrowings under the 2018 Term Loan bear interest at a floating per annum rate equal to 7.45 % plus the one-month London Inter-bank Offered Rate ("LIBOR").

We were permitted to make interest-only payments on the 2018 Term Loan through June 1, 2020, or until we achieved our primary endpoint in the Phase 3 study of tenapanor for the treatment of hyperphosphatemia in end-stage renal disease patients on dialysis prior to June 1, 2020, in which case we would have been permitted to make interest-only payments on the 2018 Term Loan through December 1, 2020.

On December 3, 2019, we reported positive topline results for PHREEDOM, a long-term Phase 3 study evaluating the efficacy and safety of tenapanor as monotherapy for the treatment of hyperphosphatemia in adult patients with CKD on dialysis.

The Lenders were in agreement that these positive data from the Phase 3 PHREEDOM study achieve the “Phase 3 Endpoint” required by the 2018 Term Loan to extend the interest only period by six months to December 1, 2020.

Subsequent to the 2020 Amendment, the interest only period was extended an additional twelve months to December 1, 2021.

Accordingly, beginning on December 1, 2021 through the maturity date, the Company will be required to make monthly payments of interest plus repayment of the Term Loan in consecutive equal monthly installments of principal.

If however, either the FDA does not approve the Company’s New Drug Application for tenapanor for control of serum phosphorus in adult CKD on dialysis on or before May 31, 2021 or the FDA issues a complete response letter (“CRL”) for tenapanor for the control of serum phosphorus in adult CKD on dialysis, then the Company is 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 a CRL to the Company.

The Company paid a closing fee of $ 0.5 million, upon the closing of the Term Loan and $ 0.1 million upon closing of the 2020 Amendment.

Under the Term Loan, the Company was 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.

Accordingly, beginning on December 1, 2021 through

the maturity date, we would have been required to make monthly payments of interest plus repayment of the 2018 Term Loan in consecutive equal monthly installments of principal.

If however, either the FDA did not approve our NDA for tenapanor for control of serum phosphorus in adult patients with CKD on dialysis on or before May 31, 2021 or the FDA issued a Complete Response Letter ("CRL") for tenapanor for the control of serum phosphorus in adult CKD on dialysis, then we would begin principal payments on the earlier of June 1, 2021 or the first day of the month immediately following the date that the FDA issued a CRL to us.

In May and July 2021, we and the Lenders entered into additional amendments to the 2018 Loan Agreement (“the 2021 Amendments”) which together extended the period of time that we were permitted to make interest-only payments on the 2018 Term Loan to December 1, 2021;

provided that if we had not received FDA approval for our NDA for tenapanor for the control of serum phosphorus in adult patients with CDK on dialysis on or before October 25, 2021, the interest-only period would expire and principal repayments would be required to begin on November 1, 2021.

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

Accordingly, during November 2021, in compliance with the terms of our 2018 Loan Agreement, we paid the first principal repayment on the 2018 Term Loan in the amount of $ 16.7 million and have paid all other subsequently due principal payments through December 31, 2021.

We paid a closing fee of $ 0.5 million, upon the closing of the 2018 Term Loan and $ 0.1 million upon closing of the 2020 Amendment.

Under the 2018 Term Loan, we were obligated to pay a final fee equal to 3.95 % of the 2018 Term Loan upon the earliest to occur of the maturity date, the acceleration of the 2018 Term Loan, the prepayment or repayment of the 2018 Term Loan or the termination of the 2018 Loan Agreement.

Under the 2020 Amendment, the final fee was increased to 4.95 % of the 2018 Term Loan.

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.

We may voluntarily prepay the outstanding 2018 Term Loan, subject to a prepayment premium of (i) 3 % of the principal amount of the 2018 Term Loan if prepaid prior to or on the first anniversary of the Closing Date, (ii) 2 % of the principal amount of the 2018 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 2018 Term Loan if prepaid after the second anniversary of the Closing Date and prior to the maturity date.

The 2018 Term Loan is secured by substantially all of our assets, except for our intellectual property and certain other customary exclusions.

Additionally, in connection with the 2018 Term Loan, we entered into the 2018 Exit Fee Agreement, as discussed in Note 7 - Derivative Liability .

The 2018 Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants, including restrictions on payment of dividends for our common stock.

As of December 31, 2020, the Company was in compliance with all of the covenants set forth in the Loan Agreement.

In addition, the Loan Agreement 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 its cash.

As of December 31, 2021, we were in compliance with all of the covenants set forth in the 2018 Loan Agreement.

In addition, the 2018 Loan Agreement contains customary events of default that entitle the Lender to cause our indebtedness under the 2018 Loan Agreement to become immediately due and payable, and to exercise remedies against us and the collateral securing the 2018 Term Loan, including its 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 obligations owed under the 2018 Loan Agreement.

As of December 31, 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 December 31, 2020, the Company’s future debt payment obligations towards the Term Loan principal and final fee, excluding interest payments and the Exit Fee are as follows (in thousands):

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

As discussed in Note 18 - Subsequent Events , on February 23, 2022 (the “Closing Date”), we entered into a loan and security agreement (the “2022 Loan Agreement”) with SLR Investment Corp.

as collateral agent (the “Agent”), and the lenders listed in the 2022 Loan Agreement (collectively the “2022 Lenders”).

The 2022 Loan Agreement provides for a senior secured term loan facility, with $ 27.5 million (the “Term A Loan”) funded on the Closing Date and an additional $ 22.5 million that we may borrow on or prior to July 25, 2023;

provided that (i) we have received approval by the FDA for our NDA for tenapanor the control of serum phosphorus in chronic kidney disease patients on dialysis by December 31, 2022, and (ii) we have achieved certain product revenue milestone targets described in the 2022 Loan Agreement (the “Term B Loan”, and collectively, the Term A Loan and the Term B Loan, the “2022 Term Loan”).

The Term A Loan funds are being used to repay the Term Loan with the Lenders as discussed in Note 6 - Borrowings and to fund our ongoing operations.

We had $ 25.0 million principal from the 2018 Term Loan outstanding as of the Closing Date.

We have continued to classify the 2018 Term Loan balance as a current liability as of December 31, 2021 due to the determination of the existence of substantial doubt about our ability to continue operating as a going concern discussed in Note 2 – Summary of Significant Accounting Policies and our assessment that the material adverse change clause under the 2022 Loan Agreement is not within the Company's control.

The lender has not invoked the material adverse change clause as of the date of issuance of these financial statements.

As of December 31, 2021, prior to restructuring our debt as discussed in Note 18 - Subsequent Events , our future payment obligations towards the 2018 Term Loan principal and final fee, excluding interest payments and the 2018 Exit Fee were as follows (in thousands):

2022 $ 33,031

Total repayment obligations $ 33,031

1 unchanged sentence

Unaccreted value of final fee ( 532 )

Loan payable 32,264

Loan payable, current portion ( 32,264 )

Loan payable, net of current portion $ —

Subsequent to restructuring the 2018 Term Loan, we will have no debt repayment obligations in 2022 or 2023.

We will be required to repay $ 6.9 million, $ 9.2 million, $ 9.2 million, and $ 2.3 million in Term A Loan principal repayments per year during 2024, 2025, 2026 and 2027, respectively, as well as a final fee in the amount of $ 1.4 million in 2027.

DERIVATIVE LIABILITY

In May 2018, in connection with entering into the 2018 Loan Agreement, as defined and discussed in Note 6 - Borrowing , we entered into an agreement pursuant to which we agreed to pay $ 1.5 million in cash (the "2018 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 treatment of hyperphosphatemia in adult patients with CKD on dialysis and (ii) FDA approval of tenapanor for the treatment of patients with IBS-C, which was obtained on September 12, 2019 when the FDA approved IBSRELA, a 50 mg, twice daily oral pill for the treatment of IBS-C in adults (the “2018 Exit Fee Agreement”).

Notwithstanding the prepayment or termination of the 2018 Term Loan, our obligation to pay the 2018 Exit Fee will expire on May 16, 2028.

We concluded that the 2018 Exit Fee is a freestanding derivative which should be accounted for at fair value on a recurring basis.

The estimated fair value of the 2018 Exit Fee is recorded as a derivative liability and included in accrued expense and other current liabilities on the accompanying 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 instrument 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.

Generally, increases or decreases in the probability of occurrence would result in a directionally similar impact in the fair value measurement of the derivative instrument 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 years ended December 31, 2021, 2020 and 2019 (in thousands):

2021 2020 2019

Fair value of exit fee derivative liability at January 1 $ 1,376 $ 969 $ 533

Change in estimated fair value of derivative liability $ ( 678 ) $ 407 $ 436

Fair value of exit fee derivative liability at December 31 $ 698 $ 1,376 $ 969

As discussed in Note 18 - Subsequent Events , on February 23, 2022, we entered into an additional exit fee agreement with Solar whereby we agreed to pay an exit fee in the amount 2 % of the 2022 Term Loan funded upon the first to occur of a specified exit event or revenue achievement event.

We have recorded right-of-use operating lease assets under three lease agreements.

We have evaluated our facility leases and determined that, effective upon the adoption of Topic 842, the leases evaluated are all operating leases.

We have performed

an evaluation of our other contracts with suppliers and collaborators in accordance with Topic 842 and have determined that, except for the facility leases described below, none of our contracts contain a lease.

We have recorded a right-of-use operating lease asset located in Fremont, California under a lease agreement entered into in September 2008 that was amended in December 2012 to extend the lease agreement to September 2016.

In September 2014, we signed the second amendment to our facility lease agreement to add space and to extend the lease term through September 2019.

In May 2016, we signed a third amendment to our facility lease agreement in Fremont, California to add space and to extend the lease term through September 2021 (the “Third Amendment”).

During May 2021, we entered into an additional amendment to the lease for our Fremont, California facility that extended the term of the lease to March 2025.

The office space consists of 72,500 square feet, which includes 10,716 square feet added in September 2019.

We do not have an option to renew the lease at our current Fremont location beyond March 2025.

We have recorded a right-of-use operating lease asset located in Waltham, Massachusetts under a lease agreement entered into in October 2018.

The office space consisted of 3,520 square feet with the lease terminating in September 2021.

We did not renew the lease at our original Waltham, Massachusetts facility.

During April 2021 and May 2021, we recorded right-of-use operating lease assets for a new facility in Waltham, Massachusetts under a lease agreement entered into during December 2020 with lease commencement dates during April and May 2021.

The office space consists of 12,864 square feet with the lease terminating in June 2026.

We have an option to extend the lease term for one additional five year period.

This option to extend the lease term has not been included in the calculation since currently the exercise of the option is uncertain and therefore deemed not probable.

We recorded a $ 1.6 million right-of-use asset and lease liability for the Waltham lease upon commencement of the lease.

We have recorded a right-of-use operating lease asset located in Milwaukee, Wisconsin under a lease agreement entered into in October 2020 with a lease commencement date in November 2020.

The office space consists of 4,768 square feet with the lease terminating in February 2026.

We have an option to extend the lease term by one additional five-year period.

This option to extend the lease term has not been included in the calculation since currently the exercise of the option is uncertain and therefore deemed not probable.

We recorded a $ 0.4 million right-of use asset and lease liability for the Milwaukee lease upon commencement of the lease.

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 as 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 the leases presented in the balance sheets (dollars in thousands):

As of Dec 31,

Facilities 2021 2020

Right-of-use assets $ 12,752 $ 2,274

Current portion of lease liabilities 3,492 2,117

Operating lease liability, net of current portion 9,748 413

Total $ 13,240 $ 2,530

Weighted-average remaining life (years) 3.40 1.50

Weighted-average discount rate 6.9 % 11.7 %

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

Year Ended December 31,

2021 2020 2019

Operating lease expense $ 3,671 $ 2,608 $ 2,592

Cash paid for operating lease $ 3,438 $ 3,065 $ 2,645

The following table summarizes our undiscounted cash payment obligations for our operating lease liabilities as of December 31, 2021 (in thousands):

Ending December 31,

Total undiscounted operating lease payments 14,894

Imputed interest expenses ( 1,654 )

Total operating lease liabilities 13,240

Current portion of operating lease liability ( 3,492 )

Operating lease liability, net of current portion $ 9,748

STOCKHOLDERS’ EQUITY

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 $ 250.0 million 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 $ 100.0 million of its common stock that may be issued and sold, from time to time, under an Open Market Sales Agreement with Jefferies LLC, as sales agent, deemed to be “at the market offerings.” As of December 31, 2020, we had sold 3.3 million shares of our common stock for aggregate gross proceeds of $ 21.7 million at a weighted average price of $ 6.65 per share under the Open Market Sales Agreement.

From the period of January 2, 2021 through February 28, 2021, we sold an additional 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.

In aggregate during the life of the Open Market Sales Agreement, we have sold 8.2 million shares of our common stock for aggregate 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.

On December 9, 2019, the Company completed an underwritten public offering of 20.0 million shares of common stock at a price of $ 6.25 per share before underwriting discounts and commissions, or the 2019 Offering.

In connection with the 2019 Offering, the Company entered into an underwriting agreement, or the 2019 Underwriting Agreement, with Citigroup Global Markets Inc., Cowen and Company LLC, SVB Leerink LLC and Piper Jaffray & Co., or collectively the 2019 Underwriters, pursuant to which the Company granted to the 2019 Underwriters a 30-day option to purchase up to an additional 3.0 million shares of the Company’s common stock, or the 2019 Overallotment.

The Company completed the sale of 23.0 million shares, inclusive of the 2019 Overallotment, to the 2019 Underwriters and that sale resulted in the receipt by the Company of aggregate gross proceeds of approximately $ 143.8 million, less underwriting discounts, commissions and offering expenses totaling approximately $ 8.9 million, which resulted in net proceeds of approximately $ 134.9 million.

On November 22, 2019, the Company and KKC entered into a stock purchase agreement, pursuant to which the Company sold an aggregate of approximately 2.9 million shares of its common stock at $ 6.96 per share for net proceeds of approximately $ 20.0 million, or the Private Placement.

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 its common stock that may be issued and sold, from time to time, under an Open Market Sales Agreement with Jefferies LLC, as sales agent, deemed to be “at-the-market offerings” (the "2020 Open Market Sales Agreement").

Pursuant to the 2020 Open Market Sales Agreement, Jefferies, as 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.

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, 3.3 million shares between the dates of August 24, 2021 through September 10, 2021 and 7.7 million between the dates of October 21, 2021 through December 31, 2021 for a cumulative total of 23.3 million shares and gross proceeds of $ 100.0 million at a weighted average sales price of approximately $ 4.30 per share which resulted in full utilization of the $ 100.0 million authorized amount under the 2020 Open Market Sales Agreement.

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 we entered into 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 December 31, 2021 we have sold 15.7 million shares and received gross proceeds of $ 25.0 million at a weighted average sales price of approximately $ 1.60 per share under the 2021 Open Market Sales Agreement.

On December 9, 2019, we completed an underwritten public offering of 20.0 million shares of common stock at a price of $ 6.25 per share before underwriting discounts and commissions (the "2019 Offering").

In connection with the 2019 Offering, we entered into an underwriting agreement, or the 2019 Underwriting Agreement, with Citigroup Global Markets Inc., Cowen and Company LLC, SVB Leerink LLC and Piper Jaffray & Co., or collectively the 2019 Underwriters, pursuant to which we granted to the 2019 Underwriters a 30 -day option to purchase up to an additional 3.0 million shares of our common stock, or the 2019 Overallotment.

We completed the sale of 23.0 million shares, inclusive of the 2019 Overallotment, to the 2019 Underwriters and that sale resulted in the receipt by us of aggregate gross proceeds of approximately $ 143.8 million, less underwriting discounts, commissions and offering expenses totaling approximately $ 8.9 million, which resulted in net proceeds of approximately $ 134.9 million.

On November 22, 2019, we and KKC entered into a stock purchase agreement, pursuant to which we sold an aggregate of approximately 2.9 million shares of its common stock at $ 6.96 per share for net proceeds of approximately $ 20.0 million, or the Private Placement.

The Private Placement closed on November 25, 2019.

On May 25, 2018, the Company completed an underwritten public offering of 12.5 million shares of common stock at a price of $ 4.00 per share before underwriting discounts and commissions, or the 2018 Offering.

In connection with the 2018 Offering, the Company entered into an underwriting agreement, or the 2018 Underwriting Agreement, with Jefferies LLC and SVB Leerink (formerly known as Leerink Partners LLC) (together the “2018 Underwriters”) pursuant to which the Company granted to the 2018 Underwriters a 30-day option to purchase up to an additional 1.9 million shares of the Company’s common stock, or the 2018 Overallotment.

The Company completed the sale of 14.4 million shares, inclusive of the 2018 Overallotment, to the 2018 Underwriters, and that sale resulted in the receipt by the Company of aggregate gross proceeds of approximately $ 57.5 million, less underwriting discounts, commissions and offering expenses totaling approximately $ 3.7 million, which resulted in net proceeds of approximately $ 53.8 million.

In June 2015, the Company sold and issued warrants to purchase 2.2 million 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.

EQUITY INCENTIVE PLANS

The Company granted options under its 2008 Stock Incentive Plan (the “2008 Plan”) until June 2014 when it was terminated as to future awards, although it continues to govern the terms of options that remain outstanding under the 2008 Plan.

We granted options under its 2008 Stock Incentive Plan (the “2008 Plan”) until June 2014 when it was terminated as to future awards, although it continues to govern the terms of options that remain outstanding under the 2008 Plan.

The 2008 Plan provided for the granting of incentive and non-qualified stock options, and stock purchase rights to employees, directors and consultants at the discretion of the Board of Directors.

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The 2014 Equity Incentive Award Plan (the “2014 Plan”) became effective on June 18, 2014.

Under the 2014 Plan, 1,419,328 shares of common stock were initially reserved for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock appreciation rights, or SARs, restricted stock awards, service-based restricted stock unit (“RSU”) awards, performance-based restricted stock unit (“PRSU”) awards, deferred stock awards, deferred stock unit awards, dividend equivalent awards, stock payment awards and performance awards.

Under the 2014 Plan, 1.4 million shares of common stock were initially reserved for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock appreciation rights ("SARs"), restricted stock awards, service-based restricted stock unit (“RSU”) awards, performance-based restricted stock unit (“PRSU”) awards, deferred stock awards, deferred stock unit awards, dividend equivalent awards, stock payment awards and performance awards.

In addition, 35 thousand shares that had been available for future awards under the 2008 Plan as of June 18, 2014, were added to the initial reserve available under the 2014 Plan, bringing the total reserve upon the effective date of the 2014 Plan to 1.5 million shares.

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provided, however, that no more than 10.7 million shares of stock may be issued upon the exercise of incentive stock options.

In November 2016, the Company’s board of directors approved the 2016 Employment Commencement Incentive Plan (the “Inducement Plan”) under which 1.0 million shares were reserved.

As of December 31, 2020, 0.4 million shares of the Company’s common stock were subject to inducement grants that were issued pursuant to the Inducement Plan.

Stock Plan Activity

In November 2016, our board of directors approved the 2016 Employment Commencement Incentive Plan (the “Inducement Plan”) under which 1.0 million shares were reserved.

In January 2021 and 2022, 0.5 million and 2.0 million shares, respectively, were added to the Inducement Plan.

As of December 31, 2021, 0.4 million shares of our common stock were subject to inducement grants that were issued pursuant to the Inducement Plan.

Stock Options

The following table summarizes activity under the 2008 Plan and the 2014 Plan, including grants issued to nonemployees, in the year ended December 31, 2021:

Options Issued and Outstanding

Weighted-Average

Shares Available

Exercise Price per

Number of Shares

Contractual Term

Shares Available for Grant Options Issued and Outstanding Weighted

Contractual Term Aggregate

Intrinsic Value

(in thousands)

Number of Shares Weighted-Average

Exercise Price

(in Years) (in thousands)

Balance at December 31, 2020 1,757,058 9,790,049 $ 6.76

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Options granted ( 3,409,719 ) 3,409,719 $ 6.60

( 3,727,947 )

Options exercised — ( 331,310 ) $ 1.96

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Issuance of common stock for services ( 25,989 ) — —

Forfeitures of PRSUs granted in prior years

Balance at December 31, 2021 4,974,422 10,417,152 $ 7.00 6.57 $ —

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Exercisable at December 31, 2021 6,772,289 $ 7.39 5.58 $ —

The aggregate intrinsic value represents the difference between the total pre-tax value (i.e., the difference between the Company’s stock price and the exercise price) of stock options outstanding as of December 31, 2020, based on the Company’s common stock closing price of $ 6.47 per share, which would have been received by the option holders had all their in-the-money options been exercised as of that date.

The intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018, was $ 2.7 million, $ 0.4 million, and zero , respectively.

The aggregate intrinsic value represents the difference between the total pre-tax value (i.e., the difference between our stock price and the exercise price) of stock options outstanding as of December 31, 2021, based on our common stock closing

price of $ 1.10 per share, which would have been received by the option holders had all their in-the-money options been exercised as of that date.

The intrinsic value of options exercised during the years ended December 31, 2021, 2020 and 2019, was $ 1.7 million, $ 2.7 million, and $ 0.4 million, respectively.

The weighted-average grant-date estimated fair value of options granted during the years ended December 31, 2021, 2020 and 2019 was $ 3.92 , $ 4.82 and $ 1.79 per share, respectively.

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Year Ended December 31,

2021 2020 2019

Expected term (years) 4.97 6.00 6.00

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Dividend yield — % — % — %

Expected Term —The Company has limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock-option grants.

As such, the expected term was estimated using the simplified method whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option.

Expected Volatility —Since January 1, 2017, the Company has used the historic volatility of its own stock over the retrospective period corresponding to the expected remaining term of the options, or the period since its shares were first quoted on The Nasdaq Global Market, if that is shorter, to compute its expected stock price volatility .

Expected Term —We have limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock-option grants.

As such, the expected term has been estimated using the simplified method whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option.

Beginning in 2021, we estimate the expected term of our options based upon historical exercises and post-vesting termination behavior, which has not resulted in a material difference as compared to using the simplified method.

Expected Volatility —Since January 1, 2017, we use the historic volatility of our own stock over the retrospective period corresponding to the expected remaining term of the options, or the period since our shares were first quoted on The Nasdaq Global Market, if that is shorter, to compute our expected stock price volatility.

Risk-Free Interest Rate —The risk-free interest rate assumption is based on the zero-coupon U.S.

treasury instruments on the date of grant with a maturity date consistent with the expected term of the Company’s stock option grants.

Dividend Yield —To date, the Company has not declared or paid any cash dividends and does not have any plans to do so in the future.

Therefore, the Company used an expected dividend yield of zero.

treasury instruments on the date of grant with a maturity date consistent with the expected term of our stock option grants.

Dividend Yield —To date, we have not declared or paid any cash dividends and does not have any plans to do so in the future.

Therefore, we use an expected dividend yield of zero .

Restricted Stock Units

The following table summarizes restricted stock unit activity under the 2014 Plan in the year ended December 31, 2021, and includes restricted stock units with time or service-based vesting and those restricted stock units with performance-based vesting:

Weighted-Average

Average Grant

RSUs Weighted-Average

Grant Date Fair

Date Fair Value

Value Per Share

Non-vested restricted stock units at December 31, 2020 158,626 $ 5.64

Granted 4,144,051 $ 2.71

Vested ( 193,147 ) $ 6.39

Forfeited ( 580,848 ) $ 6.38

Non-vested restricted stock units at December 31, 2021 3,528,682 $ 2.04

In July 2018, the Company granted 0.9 million PRSUs to its employees that vest upon the achievement of certain performance conditions, subject to the employees’ continued service relationship with the Company through the achievement date.

During 2020, the Company granted an additional 30 thousand PRSUs subject to the same performance conditions.

In July 2018, we granted 0.9 million PRSUs to our employees that vested upon the achievement of certain performance conditions, subject to the employees’ continued service relationship with us through the achievement date.

During 2020, we granted an additional 30 thousand PRSUs subject to the same performance conditions.

All 0.9 million of these PRSUs vested in September 2020.

None of these PRSUs vested during the years ended December 31, 2019 or 2018.

The Company recognized $ 1.2 million and zero of related expense during the year ended December 31, 2020 and 2019, respectively.

The Company recognized $ 30 thousand, $ 0.3 million and $ 0.9 million of RSU related expense during the year ended December 31, 2020, 2019 and 2018, respectively.

The total estimated fair value of RSUs vested during the years ended December 31, 2020, 2019 and 2018 was zero , $ 0.2 million and $ 0.6 million, respectively.

We recognized zero and $ 1.2 million of related expense during the years ended December 31, 2021 and 2020, respectively.

The total estimated fair value of RSUs vested during the years ended December 31, 2021, 2020 and 2019 was $ 0.8 million, zero and $ 0.2 million, respectively.

Issuance of Common Stock for Services

During the years ended December 31, 2020, 2019 and 2018, the Company issued approximately 42 thousand, 113 thousand and 75 thousand shares, respectively, of common stock to members of the board of directors who elected to receive stock in lieu of their cash fees under the Company’s Non-Employee Director Compensation Program.

The shares issued during the years ended December 31, 2020, 2019 and 2018 were valued at $ 0.3 million for each year, respectively, based on the fair value of the common stock on the date of grant.

During the years ended December 31, 2021, 2020 and 2019, we issued approximately 26 thousand, 42 thousand and 113 thousand shares, respectively, of common stock to members of the board of directors who elected to receive stock in lieu of their cash fees under our Non-Employee Director Compensation Program.

The shares issued during the years ended December 31, 2021, 2020 and 2019 were valued at $ 0.2 million, $ 0.3 million and $ 0.3 million for each year, respectively, based on the fair value of the common stock on the date of grant.

Employee Stock Purchase Plan

The Company adopted the 2014 Employee Stock Purchase Plan (“ESPP”) and initially reserved approximately 0.2 million shares of common stock as of its effective date of June 18, 2014.

We adopted the 2014 Employee Stock Purchase Plan (“ESPP”) and initially reserved approximately 0.2 million shares of common stock as of its effective date of June 18, 2014.

If approved by the Administrator of the ESPP, on the first day of each calendar year, ending in 2024, the number of shares in the reserve will increase by an amount equal to the lesser of (i) one percent ( 1.0 %) of the shares of common stock outstanding on the last day of the immediately preceding fiscal year and (ii) such number of shares of common stock as determined by the board of directors;

provided, however, no more than 2,230,374 shares of our common stock may be issued under the ESPP.

The following table summarizes ESPP activity in the year ended December 31, 2020:

provided, however, no more than $ 2.2 million shares of our common stock may be issued under the ESPP.

The following table summarizes our ESPP activity during the year ended December 31, 2021:

Shares Available

Number of Shares

Purchase Price

Gross Proceeds

for Grant Number of Shares

Purchased Average Purchase Price

per Share Gross Proceeds

(in thousands)

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Balance at December 31, 2021 898,982 1,048,275

The following table illustrates the weighted-average assumptions for the Black-Scholes option-pricing model used in determining the fair value of ESPP purchase rights granted to employees:

The following table illustrates the weighted-average assumptions for the Black-Scholes option-pricing model used in determining the fair value of ESPP purchase rights granted to our employees:

Year Ended December 31,

2021 2020 2019

Expected term (years) 0.50 0.50 0.50

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Dividend yield — % — % — %

Stock-based Compensation

Stock-based Compensation Expense

Total stock-based compensation recognized was as follows (in thousands):

Year Ended December 31,

2021 2020 2019

Research and development $ 4,116 $ 4,061 $ 4,104

General and administrative 7,923 6,522 5,832

Total $ 12,039 $ 10,583 $ 9,936

At December 31, 2021, the Company had total unrecognized stock-based compensation expense, net of estimated forfeitures, of the following (dollars in thousands):

At December 31, 2020

Unrecognized Compensation Expense

Average Remaining Vesting Period (Years)

December 31, 2021

Unrecognized Compensation Expense Average Remaining Vesting Period (Years)

Stock options grant $ 14,506 2.4

PROPERTY AND EQUIPMENT

RSU grants $ 2,262 0.8

ESPP $ 44 0.1

RESTRUCTURING

On July 29, 2021, 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.

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

Impacted employees received cash payments equal to their base pay for a notice period of sixty ( 60 ) days and Company funded COBRA premiums through such notice period.

Following the conclusion of an End of Review Type A meeting with the FDA, on October 8, 2021, our Board of Directors approved and, on October 12, 2021, we began to implement an additional restructuring plan to further reduce operating costs and better align our workforce with the needs of our business.

Under the additional restructuring plan, we planned to reduce our workforce by approximately 100 of our remaining employees (approximately 60 %).

The impacted employees received notice that their positions would be eliminated during December 2021.

On November 30, 2021, we announced plans to launch IBSRELA, our approved treatment for IBS-C in adults.

In connection with the planned launch of IBSRELA, which we currently expect to commence in April 2022, we retained 28 of the employees whose positions were originally eliminated as part of the additional restructuring plan, thereby reducing the number of employees terminated as part of the restructuring plan to 72 .

The additional restructuring plan, which resulted in the elimination of our research organization and significantly altered our commercial sales and marketing organizations, was substantially completed in December 2021.

Impacted employees were eligible to receive severance benefits and additional Company funded COBRA premiums, contingent upon an impacted employee’s execution (and non-revocation) of a separation agreement, which included a general release of claims against us.

In connection with restructuring, we have incurred restructuring charges of $ 6.2 million, which were recorded during the twelve months ended December 31, 2021, related to one-time termination notice and severance payments and other employee-related costs.

We did not incur any significant contract termination costs pursuant to restructuring.

Of the charges, $ 2.7 million was recorded in research and development expenses, and $ 3.5 million was recorded in general and administrative expense in the accompanying statements of operations and comprehensive loss.

Most of the cash payments related to the reduction in workforce were disbursed during the twelve months ended December 31, 2021.

We have reported the remaining estimated restructuring liability of $ 0.5 million as accrued compensation and benefits in our Balance Sheet as of December 31, 2021.

In addition, on October 8, 2021, our Board approved, and management has implemented a retention program consisting of cash payments and grants of RSUs to our employees, including our executives, not impacted by the reduction in force.

PROPERTY AND EQUIPMENT, NET

Property and equipment consist of the following (in thousands):

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Total property and equipment, net $ 2,362 $ 1,936

Depreciation expense totaled $ 1.8 million, $ 2.5 million, and $ 2.7 million for the years ended December 31, 2020, 2019 and 2018, respectively.

We recognized depreciation expense in the amount of $ 1.4 million, $ 1.8 million, and $ 2.5 million for the years ended December 31, 2021, 2020 and 2019, respectively.

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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Derivative liability for exit fee 698 1,376

Accrued sales and marketing expenses

Accrued professional and consulting services 597 243

Accrued regulatory services

The Company has recorded right-of-use operating lease assets under three lease agreements.

The Company has evaluated its facility leases and determined that, effective upon the adoption of Topic 842, the leases evaluated are all operating leases.

The Company has performed an evaluation of its other contracts with suppliers and collaborators in accordance with Topic 842 and has determined that, except for the facility leases described below, none of the Company’s contracts contain a lease.

The Company has recorded a right-of-use operating lease asset located in Fremont, California under a lease agreement entered into in September 2008 that was amended in December 2012 to extend the lease agreement to September 2016.

In September 2014, the Company signed the second amendment to its facility lease agreement to add space and to extend the lease term through September 2019.

In May 2016, the Company signed a third amendment to its facility lease agreement in Fremont, California to add space and to extend the lease term through September 2021 (the “Third Amendment”).

The office space consists of 72,500 square feet, that includes an additional 10,716 square feet added in September 2019, with the entire lease terminating in September 2021.

The Company will not exercise its option to renew the lease at our current Fremont location and expect to enter into a new facility lease in Fremont, California during the first quarter of 2021.

The Company has recorded a right-of-use operating lease asset located in Waltham, Massachusetts under a lease agreement entered into in October 2018.

The office space consists of 3,520 square feet with the lease terminating in September 2021.

We have not renewed the lease at our current Waltham, Massachusetts facility.

During December 2020, we entered into a new lease agreement for a different location in Waltham, Massachusetts which has an expected lease commencement date in April 2021.

The Company has recorded a right-of-use operating lease asset located in Milwaukee, Wisconsin under a lease agreement entered into in October 2020 with a lease commencement date in November 2020.

The office space consists of 4,768 square feet with the lease terminating in February 2026.

The Company has an option to extend the lease term by one five-year period.

This option to extend the lease term has not been included in the calculation since currently the exercise of the option is uncertain and therefore deemed not probable.

The Company recorded a $ 0.4 million right-of use asset and lease liability for the Milwaukee lease upon commencement of the lease.

All of the Company’s leases are operating leases and each contain customary rent escalation clauses.

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.

As of December 31, 2020, the weighted average discount rate used for the calculations was 11.7 % and the weighted average remaining lease term was 1.5 years.

The following table provides additional details of the leases presented in the balance sheets (dollars in thousands):

Right-of-use assets

Current portion of lease liabilities

Operating lease liability, net of current portion

Weighted-average remaining life (years)

Weighted-average discount rate

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

Accrued sales and marketing expenses 256 593

Accrued interest expense 203 123

Other 605 285

Total accrued expenses and other current liabilities $ 7,366 $ 6,657

The components of our provision for income taxes for the year ended December 31, 2021, 2020 and 2019, are as follows (in thousands):

Year Ended December 31,

Operating lease expense

Cash paid for operating lease

The following table summarizes the Company’s undiscounted cash payment obligations for its operating lease liabilities as of December 31, 2020 (in thousands):

Ending December 31,

Total undiscounted operating lease payments

Imputed interest expenses

Total operating lease liabilities

Current portion of operating lease liability

Operating lease liability, net of current portion

Rent expense under operating leases was $ 2.6 million, $ 2.6 million and $ 1.8 million for the years ended December 31, 2020, 2019 and 2018, 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”), to undergo research to identify two pre-clinical study-ready compounds for designation as development compounds, 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, which was payable as follows:

the first installment of $ 5.0 million within 30 days of the Effective Date, and the second installment of $ 5.0 million on the first anniversary of the Effective Date, unless the 2019 KKC Agreement was earlier terminated by KKC due to material breach by the Company.

The term of the 2019 KKC Agreement commenced on November 11, 2019 (“the Effective Date”) and ends on the earliest of:

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

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 with Program 1 in certain territories and the right to obtain development and commercialization rights with Program 2 in certain territories, and participation in a joint steering committee (“the JSC”) and determined that KKC could not benefit from either of the research programs without the research license and participation in the JSC.

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 is $ 10.0 million and that revenue associated with the combined performance obligations will be recognized as services are provided using the input method.

Revenue will be recognized over the Program 1 and Program 2 research periods.

During the years ended December 31, 2020 and 2019, the Company recognized $ 5.4 million and $ 0.5 million, respectively, as revenue under the 2019 KKC Agreement in the statement of operations and comprehensive loss.

The aggregate amount of the transaction price allocated to the Company’s partially unsatisfied performance obligations as of December 31, 2019 was $ 9.5 million, of which $ 4.5 million was presented in the balance sheet as deferred revenue for the respective period.

As of December 31, 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 are currently expected to extend through the end of 2021.

Xuanzhu (HK) Biopharmaceutical Limited, or XuanZhu

In November 2019, the Company entered into a license agreement with XuanZhu (“the XuanZhu Agreement for a license to certain specific patent and patent applications.

The Company assessed these arrangements 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 when the agreement was executed, of which, $ 0.8 million was received upfront in November 2019 and achievement for the second $ 0.8 million payment was determined to be not materially at risk and probable of achievement and it was included in the transaction price and the amount was not probable of revenue reversal.

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

In addition to the license fee of $ 1.5 million, the Company may be entitled to receive milestone payments.

The variable consideration related to the remaining milestone payments has not been included in the transaction price as these were fully constrained at December 31, 2019.

For the years ended December 31, 2020 and 2019, zero and $ 1.5 million, respectively, of license revenue was recorded with no cost of revenue related to the XuanZhu Agreement.

2017 KKC Agreement

In November 2017, the Company entered into an exclusive license agreement with KKC, or 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 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.

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 up-front license fees which was recognized as revenue when the agreement was executed.

Based on the Company’s assessment, it identified that the license and the manufacturing supply services were its material performance obligations at the inception of the agreement, and as such each of the performance obligations are distinct.

Additionally, on January 1, 2018, the Company recorded unbilled revenue under current assets of $ 5.0 million and an increase in uncharged license fees under current liabilities of $ 1.0 million related to the first milestone under the 2017 KKC Agreement that KKC achieved in February 2019, reflecting revenues and cost of revenue, respectively, that would have been recognized in the fourth quarter 2017 if the Company had adopted ASC 606 prior to January 1, 2018.

On KKC’s achievement of the milestone in February 2019, the balance related to unbilled revenue was adjusted to zero .

Correspondingly, the $ 1.0 million balance related to uncharged license fees that the Company owed to AstraZeneca was reclassified to accounts payable during the first quarter of 2019, and subsequently paid to AstraZeneca during the second quarter of 2019.

In addition to the up-front license fee received of $ 30.0 million, 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, 8.5 billion Japanese yen for commercialization milestones, or approximately $ 82.4 million at the currency exchange rate on December 31, 2020, as well as reimbursement of cost, 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 December 31, 2020 and 2019.

For the years ended December 31, 2020, 2019 and 2018, $ 1.4 million, $ 0.3 million, and $ 0.3 million, respectively, of product supply revenue was recorded for manufacturing supply of tenapanor and other materials to KKC for its product development and clinical trials in Japan, in accordance with the Company’s agreement with KKC, and for each period, negligible cost of revenue was recorded pursuant to the AstraZeneca Termination Agreement.

Shanghai Fosun Pharmaceutical Industrial Development Co.

, or Fosun Pharma

In December 2017, the Company entered into an exclusive license agreement with Fosun Pharma, or the Fosun Agreement, for the development, commercialization and distribution of tenapanor in China for both hyperphosphatemia and irritable bowel syndrome with constipation, or 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 up-front license fees which was recognized as revenue when the agreement was executed.

In addition, 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 December 31, 2019.

For the year ended December 31, 2019, $ 3.0 million revenue was recorded towards achievement of a milestone related to the Fosun Agreement, and for the years ended December 31, 2020 and 2018, no revenue was recorded.

Knight Therapeutics, Inc.

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

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

Under the terms of the agreement, the Company is eligible to receive up to CAD 25.0 million in total payments, or $ 19.6 million at the currency exchange rate on December 31, 2020, including an up-front payment and development and sales milestones, reimbursement of supply costs on a schedule specifying cost per tablet, with a reasonable mark up for overhead, as well as tiered royalty rates on net sales ranging from the mid-single digits to the low twenties.

The variable consideration related to the remaining development milestone payments has not been included in the transaction price as these were fully constrained at December 31, 2020.

For the years ended December 31, 2020, 2019 and 2018, $ 0.7 million, zero and $ 2.3 million of revenue was recorded, respectively, related to the Knight Agreement.

For the year ended December 31, 2020, $ 0.1 million product supply revenue was recorded related to the Knight Agreement.

There was no product revenue related to the Knight Agreement in 2019 or 2018.

Pursuant to the AstraZeneca Termination Agreement, $ 0.1 million, zero and $ 0.5 million of cost of revenue was recorded during 2020, 2019 and 2018, respectively.

In June 2015, the Company entered into a termination agreement with AstraZeneca, or the AstraZeneca Termination Agreement, pursuant to which the Company remains liable to pay AstraZeneca license fees for (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 certain other NHE3 inhibitors, up to a maximum of $ 75.0 million in

aggregate for (i) and (ii).

To date in aggregate, the Company has recognized $ 10.6 million of the $ 75.0 million, recorded as cost of revenue, as follows (in thousands):

Cost of Revenue

Maximum payment per termination agreement

Remaining potential commitment

2021 2020 2019

* Includes the $ 1,000 adjustment recorded pursuant to the adoption of ASC 606, as discussed in Note 2.

The components of the provision for income taxes for the year ended December 31, 2020, 2019 and 2018, are as follows (in thousands):

Year Ended December 31,

State $ 4 $ 2 $ 2

Foreign — — 301

Total current 4 2 303

Federal — — —

Total deferred — — —

Provision for income taxes $ 4 $ 2 $ 303

The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate:

The following is a reconciliation of the statutory federal income tax rate to our effective tax rate:

Year Ended December 31,

2021 2020 2019

Change in valuation allowance ( 20.0 ) % ( 22.3 ) % ( 21.9 ) %

Income tax at the federal statutory rate 21.0 21.0 21.0

Tax credits 1.0 1.3 1.6

State taxes, net of federal benefit 0.4 0.7 0.3

Stock based compensation ( 1.3 ) ( 0.1 ) ( 0.4 )

Executive compensation disallowed under IRC Sec 162(m) ( 1.1 ) ( 0.5 ) ( 0.5 )

Other — ( 0.1 ) ( 0.4 )

Income tax provision — % — % ( 0.3 ) %

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred tax assets are as follows as of December 31, 2020 and 2019 (in thousands):

Significant components of our deferred tax assets are as follows as of December 31, 2021 and 2020 (in thousands):

Deferred tax assets:

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Net operating loss carryforwards 74,989 53,436

Tax credits 13,827 11,777

Stock-based compensation 4,054 5,524

Lease obligation

Other 3,867 1,804

Gross deferred tax assets 157,835 123,911

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Right-of-use asset ( 2,689 ) ( 479 )

Revenue recognition

Other ( 5 ) ( 30 )

Net deferred tax assets $ — $ —

Realization of deferred tax assets is dependent on future taxable income, if any, the timing and the amount of which are uncertain.

The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets.

A significant component of objective negative evidence evaluated was the Company’s cumulative loss incurred over the three-year period ended December 31, 2020.

We assess the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets.

A significant component of objective negative evidence evaluated was our cumulative loss incurred over the three-year period ended December 31, 2021.

Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.

On the basis of this evaluation, as of December 31, 2020, December 31, 2019 and December 31, 2018, a full valuation allowance has been recorded against Company’s net deferred tax asset.

On the basis of this evaluation, as of December 31, 2021, December 31, 2020 and December 31, 2019, a full valuation allowance has been recorded against our net deferred tax asset.

The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.

As of December 31, 2020, the Company had net operating loss carryforwards for federal income tax purposes of approximately $ 287.9 million, of which approximately $ 151.0 million can be carried forward indefinitely and the remaining net operating losses expire beginning in 2030, if not utilized.

As of December 31, 2021, we had net operating loss carryforwards for federal income tax purposes of approximately $ 386.3 million, of which approximately $ 236.1 million can be carried forward indefinitely and the remaining net operating losses expire beginning in 2030, if not utilized.

Federal research and development tax credit carryforwards of approximately $ 16.4 million that expire beginning in 2027, if not utilized, and foreign tax credit carryforwards of approximately $ 1.2 million that expire in 2027, if not utilized.

In addition, the Company had net operating loss carryforwards for California income tax purposes of approximately $ 88.3 million that expire beginning of 2030, if not utilized, and state research and development tax credit carryforwards of approximately $ 7.4 million which can be carried forward indefinitely.

The Company had approximately $ 0.1 million of minimum tax credit carryovers for California income tax purposes.

In addition, we had net operating loss carryforwards for California income tax purposes of approximately $ 88.3 million that expire beginning of 2030, if not utilized, and state research and development tax credit carryforwards of approximately $ 8.4 million which can be carried forward indefinitely.

We had approximately $ 0.1 million of minimum tax credit carryovers for California income tax purposes.

The minimum tax credits have no expiration date.

The Company had other state net operating losses of approximately $ 1.9 million that begin to expire in 2035.

We had other state net operating losses of approximately $ 4.5 million that begin to expire in 2035.

The future utilization of net operating loss and tax credit carryforwards and credits may be subject to an annual limitation, pursuant to Internal Revenue Code Sections 382 and 383, as a result of ownership changes that may have occurred previously or that could occur in the future.

Due to the existence of the valuation allowance, limitations under Section 382 and 383 will not impact the Company’s effective tax rate.

Due to the existence of the valuation allowance, limitations under Section 382 and 383 will not impact our effective tax rate.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted and signed into law in response to coronavirus disease 2019 (“COVID-19”).

The CARES Act, among other things, included several significant provisions that impacted corporate taxpayers’ accounting for income taxes.

Prior to the enactment of the CARES Act, the 2017 Tax Cuts and Jobs Act generally eliminated the ability to carryback net operating losses (“NOLs”),

and permitted the NOLs arising in tax years beginning after December 31, 2017 to be carried forward indefinitely, limited to 80% of the taxpayer’s income.

Prior to the enactment of the CARES Act, the 2017 Tax Cuts and Jobs Act generally eliminated the ability to carryback net operating losses (“NOLs”), and permitted the NOLs arising in tax years beginning after December 31, 2018 to be carried forward indefinitely, limited to 80% of the taxpayer’s income.

The CARES Act amended the NOL rules, suspending the 80% limitation on the utilization of NOLs generated after December 31, 2018 and before January 1, 2021.

Additionally, the CARES Act allows corporate NOLs arising in taxable years beginning after December 31, 2017 and before January 1, 2021, to be carried back to each of the five taxable years preceding the taxable year of the loss.

Additionally, the CARES Act allows corporate NOLs arising in taxable years beginning after December 31, 2018 and before January 1, 2021, to be carried back to each of the five taxable years preceding

the taxable year of the loss.

Also, the CARES Act allows companies to defer making certain payroll tax payments until future years.

1 unchanged sentence

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

2021 2020 2019

Balance at beginning of year $ 23,624 $ 24,538 $ 23,052

2 unchanged sentences

Balance at end of year $ 24,426 $ 23,624 $ 24,538

The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.

We recognize a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.

Income tax positions must meet a more likely than not recognition at the effective date to be recognized.

The unrecognized tax benefits, if recognized and in absence of full valuation allowance, would impact the income tax provision by $ 13.3 million, $ 13.2 million, and $ 9.8 million as of December 31, 2020, 2019 and 2018, respectively.

The Company has elected to include interest and penalties as a component of tax expense.

During the years ended December 31, 2020, 2019 and 2018, the Company did not recognize accrued interest and penalties related to unrecognized tax benefits.

Although the timing and outcome of an income tax audit is highly uncertain, the Company does not anticipate that the amount of existing unrecognized tax benefits will significantly change during the next 12 months.

The Company files income tax returns in the U.S.

federal, Arizona, California, Colorado, DC, Florida, Georgia, Illinois, Indiana, Massachusetts, Michigan, New York, New York MTA, Oregon, Tennessee, Texas and Wisconsin tax jurisdictions.

Due to the Company’s net operating loss and tax credit carryforwards, the income tax returns remain open to U.S.

None of our unrecognized tax benefits would impact the effective tax rate if recognized, because the benefit would be offset by an increase in the valuation allowance.

We have elected to include interest and penalties as a component of tax expense.

During the years ended December 31, 2021, 2020 and 2019, we did not recognize accrued interest and penalties related to unrecognized tax benefits.

Although the timing and outcome of an income tax audit is highly uncertain, we do not anticipate that the amount of existing unrecognized tax benefits will significantly change during the next 12 months.

We file income tax returns in the U.S.

federal, Alabama, Arizona, California, Colorado, Connecticut, DC, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Kentucky, Massachusetts, Maryland, Michigan, Missouri, Kansas City (MO), Mississippi, New York & New York MTA, New York City, Nebraska, New Jersey, New Mexico, North Carolina, Cincinnati (OH), Maineville (OH), Oklahoma, Pennsylvania, Tennessee, Texas, Virginia and Wisconsin tax jurisdictions.

Due to our net operating loss and tax credit carryforwards, the income tax returns remain open to U.S.

federal and state tax examinations.

1 unchanged sentence

GEOGRAPHIC INFORMATION AND CONCENTRATIONS

Revenue by geographic areas for the years ended December 31, 2020, 2019 and 2018, are as follows (in thousands):

Revenues are attributed to geographical areas based on the domicile of our collaboration partners.

Our r evenue by geographic areas for the years ended December 31, 2021, 2020 and 2019, are as follows (in thousands):

Year Ended December 31,

2021 2020 2019

United States $ — $ — $ —

3 unchanged sentences

Total revenue $ 10,097 $ 7,571 $ 5,281

_________________________________

(1) Revenues from North America are comprised of amounts earned from Canada in accordance with the Knight Agreement.

Revenues from Asia Pacific in 2020 are comprised of amounts earned from Japan in accordance with the 2017 KKC Agreement and 2019 KKC Agreement.

(2) Revenues from Asia Pacific in 2021 and 2020 are comprised of amounts earned from Japan in accordance with the 2017 KKC Agreement and 2019 KKC Agreement.

(3) Revenues from Asia Pacific in 2019 were comprised of $ 0.8 million from Japan in accordance with the 2017 KKC Agreement and 2019 KKC Agreement, $ 1.5 million from Hong Kong in accordance with the XuanZhu Agreement and $ 3.0 million from China in accordance with the Fosun Agreement.

(4) Revenues from Asia Pacific in 2018 were comprised of amounts earned from Japan in accordance with the 2017 KKC Agreement.

Revenues are attributed to geographical areas based on the domicile of the Company’s collaboration partners.

Revenues recorded in the years ended December 31, 2021, 2020 and 2019, were wholly from collaboration partnerships.

1 unchanged sentence

Year Ended December 31,

2021 2020 2019

KKC 100 % 89 % 15 %

Knight — % 11 % — %

Fosun Pharma — % — % 57 %

XuanZhu — % — % 28 %

Historically, we have not experienced credit losses from our accounts receivable.

We have not recorded a reserve for credit losses as of December 31, 2021 and 2020.

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 years ended December 31, 2020, 2019 and 2018, all potential common shares were determined to be anti-dilutive.

As we had net losses for the years ended December 31, 2021, 2020 and 2019, all potential common shares were determined to be anti-dilutive.

The following table sets forth the computation of net loss per common share (in thousands, except per share amounts):

Year Ended December 31,

2021 2020 2019

Net loss $ ( 158,165 ) $ ( 94,313 ) $ ( 94,940 )

Weighted average common shares outstanding - basic and diluted 104,205,645 89,582,138 64,478,066

2 unchanged sentences

Year Ended December 31,

2021 2020 2019

Options to purchase common stock 11,870,778 9,246,047 7,128,247

Warrants to purchase common stock

Restricted stock units 1,602,384 26,121 —

Performance-based restricted stock units

ESPP shares issuable 206,522 94,466 78,761

Warrants to purchase common stock — 932,091 2,172,899

Performance-based restricted stock units — — 867,506

Total 13,679,684 10,298,725 10,247,413

The number of potential common shares that would have been included in diluted income per share had it not been for the anti-dilutive effect caused by the net loss, computed by converting these securities using the treasury stock method during the years ended December 31, 2021, 2020 and 2019, was approximately 1.1 million, 2.1 million and 1.1 million, respectively.

1 unchanged sentence

Guarantees and Indemnifications

The Company indemnifies each of its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at our request in such capacity, as permitted under Delaware law and in accordance with our certificate of incorporation and bylaws.

We indemnify each of our officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at our request in such capacity, as permitted under Delaware law and in accordance with our

certificate of incorporation and bylaws.

The term of the indemnification period lasts as long as an officer or director may be subject to any proceeding arising out of acts or omissions of such officer or director in such capacity.

The maximum amount of potential future indemnification is unlimited;

however, the Company currently holds director and officer liability insurance, which allows the transfer of risk associated with our exposure and may enable the Company to recover a portion of any future amounts paid.

The Company believes that the fair value of these indemnification obligations is minimal.

Accordingly, the Company has not recognized any liabilities relating to these obligations for any period presented.

however, we currently hold director and officer liability insurance, which allows the transfer of risk associated with our exposure and may enable us to recover a portion of any future amounts paid.

We believe that the fair value of these indemnification obligations is minimal.

Accordingly, we have not recognized any liabilities relating to these obligations for any period presented.

Legal Proceedings and Claims

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 December 31, 2020 or 2019.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected quarterly financial results from operations for the years ended December 31, 2020 and 2019 are as follows (in thousands, except per share amounts):

2020 Quarter Ended

Total revenue

Operating expenses

Net loss per share - basic and diluted

2019 Quarter Ended

Total revenue

Operating expenses

Net loss per share - basic and diluted

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE

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 will not be material to our financial condition or cash flows, and no contingent liabilities were accrued as of December 31, 2021 or 2020.

SUBSEQUENT EVENTS

On February 23, 2022 (the “Closing Date”), we entered into a loan and security agreement (the “2022 Loan Agreement”) with SLR Investment Corp.

as collateral agent (the “Agent”), and the lenders listed in the 2022 Loan Agreement (collectively the “2022 Lenders”).

provided that (i) we have received approval by the FDA for our NDA for the control of serum phosphorus in chronic kidney disease patients on dialysis by December 31, 2022, and (ii) we have achieved certain product revenue milestone targets described in the 2022 Loan Agreement (the “Term B Loan”, and collectively, the Term A Loan and the Term B Loan, the “2022 Term Loan”).

The 2022 Term A Loan funds are being used to repay the 2018 Term Loan with the Lenders as discussed in Note 6 - Borrowings and to fund our ongoing operations.

We owed $ 25.0 million in principal payments from the 2018 Term Loan as of the Closing Date.

The 2022 Term Loan has a maturity date of March 1, 2027.

Borrowings under the 2022 Term Loan bear interest at a floating per annum rate equal to 7.95 % plus the greater of (i) one tenth percent ( 0.10 %) and (ii) one-month LIBOR.

We are permitted to make interest-only payments on the 2022 Term Loan through March 31, 2024.

Accordingly, beginning on April 1, 2024, we will be required to make monthly payments of interest plus repay the 2022 Term Loan in consecutive equal monthly installments of principal.

We were obligated to pay $ 0.2 million, upon the closing of the Term A Loan, and we are obligated to pay $ 0.1 million on the earliest of (i) the funding date of the Term B Loan, (ii) July 25, 2023, and (iii) the prepayment, refinancing, substitution, or replacement of the Term A Loan on or prior to July 25, 2023.

We are obligated to pay a fee equal to 4.95 % of the aggregate original principal amount of the 2022 Term Loan funded upon the earliest to occur of the maturity date, the acceleration of the 2022 Term Loan, and the prepayment, refinancing, substitution, or replacement of the 2022 Term Loan.

We may voluntarily prepay the outstanding 2022 Term Loan, subject to a prepayment premium of (i) 3 % of the principal amount of the 2022 Term Loan if prepaid prior to or on the first anniversary of the Closing Date, (ii) 2 % of the principal amount of the 2022 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 2022 Term Loan if prepaid after the second anniversary of the Closing Date and prior to the maturity date.

The 2022 Term Loan is secured by substantially all of our assets, except for our intellectual property and certain other customary exclusions.

Additionally, in connection with the 2022 Term Loan, we entered into an agreement, whereby we agreed to pay an exit fee in the amount 2 % of the 2022 Term Loan funded (the “2022 Exit Fee”) upon (i) any change of control transaction or (ii) our achievement of net revenue from the sale of any products equal to or greater than $ 100.0 million, measured on a six (6) months basis, tested monthly at the end of each month.

Notwithstanding the prepayment or termination of the 2022 Term Loan, the 2022 Exit Fee will expire 10 years from the Closing Date.

The 2022 Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among others, requirements as to financial reporting and insurance and restrictions on our ability to dispose of our business or property, to change our line of business, to liquidate or dissolve, to enter into any change in control transaction, to merge or consolidate with any other entity or to acquire all or substantially all the capital stock or property of another entity, to incur additional indebtedness, to incur liens on our property, to pay any dividends or other distributions on capital stock other than dividends payable solely in capital stock or to redeem capital stock.

We have agreed to not allow our cash and cash equivalents to be less than the eighty percent ( 80 %) of the outstanding 2022 Term Loan balance for any period in which our net revenue from the sale of any products, calculated on a trailing six (6) month basis and tested monthly, is less than sixty percent ( 60 %) of the outstanding 2022 Term Loan balance.

In addition, the 2022 Loan Agreement contains customary events of default that entitle the Agent to cause our indebtedness under the 2022 Loan Agreement to become immediately due and payable, and to exercise remedies against us and the collateral securing the 2022 Term Loan, including our cash.

Under the 2022 Loan Agreement, an event of default will occur if, among other things, we fail to make payments under the 2022 Loan Agreement, we breach any of our covenants under the 2022 Loan Agreement, subject to specified cure periods with respect to certain breaches, certain Lenders determine that a material adverse change has occurred, we or our assets become subject to certain legal proceedings, such as bankruptcy proceedings, we are unable to pay our debts as they become due or we default on contracts with third parties which would permit the holder of indebtedness to accelerate the maturity of such indebtedness or that could have a material adverse change on us.

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 obligations owed under the 2022 Loan Agreement.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data