What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-12 · 187 added, 142 removed, 117 unchanged (74% of the section changed)

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

We are a biopharmaceutical company focused on the discovery, development, and commercialization of innovative first-in-class medicines to improve treatment for people with kidney and cardiorenal diseases.

This includes patients with chronic kidney disease ("CKD") on dialysis suffering from elevated serum phosphorus, or hyperphosphatemia;

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

Tenapanor has a unique mechanism of action and acts locally in the gut to inhibit the sodium hydrogen exchanger 3 ("NHE3").

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

We are a biopharmaceutical company founded with a mission to discover, develop and commercialize innovative first-in-class medicines that meet significant unmet medical needs.

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

We have not generated any revenues from product sales.

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

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

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

and incur development costs for RDX013.

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

and Western Alliance Bank.

We realized our first product sales of IBSRELA ® (tenapanor) in March 2022.

As of March 31, 2022, we had an accumulated deficit of $741.0 million.

We expect to continue to incur substantial operating losses for the foreseeable future as we commercialize IBSRELA, seek to gain approval for XPHOZAH ® (tenapanor) for the control of serum phosphorus in adult patients with CKD on dialysis;

prepare for the potential commercialization of XPHOZAH, if approved;

and incur manufacturing and development cost for, tenapanor.

Our Product Pipeline

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

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

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

IBSRELA for IBS-C

Our unique discovery platform and deep understanding of the primary mechanism of sodium transport in the intestine resulted in our discovery and development of IBSRELA, a first-in-class, U.S.

Food and Drug Administration (“FDA”) approved, sodium hydrogen exchanger 3 ("NHE3") inhibitor for the treatment of IBS-C in adults.

IBSRELA acts locally in the gut and is minimally absorbed.

IBS-C is a gastrointestinal disorder characterized by both abdominal pain and altered bowel movements, estimated to affect 11 million people in the U.S.

IBS-C is associated with significantly impaired quality of life, reduced productivity, and substantial economic burden.

In preparation for our commercial launch of IBSRELA, we have built a commercial organization highly experienced in launching novel therapies into specialty areas.

We recognized our first sales of IBSRELA in the U.S.

in March 2022.

We have established commercial agreements with Shanghai Fosun Pharmaceutical Industrial Development Co.

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

(“Knight”) in Canada for IBSRELA for IBS-C.

Knight is currently marketing IBSRELA in Canada.

Development Candidate XPHOZAH for The Control of Serum Phosphorus in Adult Patients with CKD on Dialysis

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

XPHOZAH has a unique mechanism of action and acts locally in the gut to inhibit NHE3.

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

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

If approved, XPHOZAH would be the first therapy for phosphate management that blocks phosphorus absorption at the primary site of uptake.

It is not a phosphate binder.

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

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

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

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

In June 2020, we submitted a new drug application ("NDA") to the FDA for XPHOZAH for the control of serum phosphorus in adult patients with CKD on dialysis.

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

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

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

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

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

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

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

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

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

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

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

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

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

IBS-C is a burdensome gastrointestinal (“GI”) disorder.

It is characterized by significant abdominal pain, constipation, straining during bowel movements, bloating and/or gas.

According to the CRL, while the FDA agrees “that the submitted data provide substantial evidence that tenapanor is effective in reducing serum phosphorus in adult patients with CKD on dialysis,” the FDA characterizes the magnitude of the treatment effect as “small and of unclear clinical significance.” In December 2021, we submitted a Formal Dispute Resolution Request (“FDRR”).

The FDRR was focused on demonstrating that the data submitted in the NDA supported the clinical significance of the treatment effect of tenapanor.

On February 4, 2022, we received an Appeal Denied Letter (“ADL”) from the FDA’s Office of Cardiology, Hematology, Endocrinology and Nephrology (“OCHEN”).

On February 18, 2022, we submitted an appeal of the ADL to the FDA’s Center for Drug Evaluation and Research, Office of New Drugs (“OND”).

On April 25, 2022, we announced that OND has provided an interim response to our second level of appeal of the CRL.

The OND noted that additional input from the Cardiovascular and Renal Drug Advisory Committee (“Advisory Committee”) in general, and specifically, from experts, including expert clinicians, would be valuable in further considering the clinical meaningfulness of the phosphate lowering effect observed in our phase 3 clinical program for XPHOZAH.

Accordingly, the OND intends to direct the Division of Cardiology and Nephrology to bring the XPHOZAH NDA to the Advisory Committee, and to provide a response to our appeal within thirty (30) days after the conclusion of the Advisory Committee meeting.

There can be no assurances that the Advisory Committee will recommend approval of our NDA for XPHOZAH, or that if approval is recommended, that such approval will ultimately be granted by the FDA.

RDX013 Program:

Small Molecule for Treating Hyperkalemia

We are also advancing a small molecule potassium secretagogue program, RDX013, for the potential treatment of hyperkalemia.

Hyperkalemia is a common problem in patients with heart and kidney disease, particularly in patients taking common blood pressure medications known as renin-angiotensin-aldosterone system (“RAAS”) inhibitors.

Similar to what we have done with tenapanor in developing a non-binder approach for the treatment of elevated serum phosphate levels, RDX013 is designed to target the underlying biological mechanisms of potassium secretion to lower elevated potassium.

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

Our small molecule potassium secretagogue program, RDX013, is focused on the development of a potential treatment for hyperkalemia.

Hyperkalemia is a common problem in patients with heart and kidney disease, particularly in patients taking customary blood pressure medications known as renin-angiotensin-aldosterone system (“RAAS”) inhibitors.

RDX013 is a novel mechanism agent designed to target the underlying biological mechanisms of potassium secretion to lower elevated potassium.

On April 25, 2022, we reported that we have completed our data analyses of the Phase 2 dose ranging clinical trial for RDX013 evaluating the safety and efficacy of our potassium secretagogue for the treatment of hyperkalemia, or elevated potassium, in chronic kidney disease patients who are not on dialysis.

While the results of the study demonstrated an acceptable safety and tolerability profile for RDX013 and supported proof of concept in its ability to lower serum potassium levels, with statistically significant reductions compared to placebo after eight days of treatment, the study did not meet its primary endpoint of significantly reducing serum potassium levels compared to placebo after four weeks of treatment.

We currently expect that the next steps for the program will be to evaluate a new formulation that potentially enhances subject compliance and the efficacy of RDX013 in an additional Phase 2 clinical study at such time as we have determined our available resources support conducting such an additional clinical study after prioritization of our launch of IBSRELA and preparations for the Advisory Committee for XPHOZAH.

RDX020 Program:

Small molecule for Treating Metabolic Acidosis

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

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

Our research organization was eliminated as part of our October 2021 restructuring, and therefore, we currently expect to continue to advance this discovery program utilizing third-party resources managed by internal non-clinical expertise.

Collaboration Partners

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

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

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

Under the terms of the agreement with Knight, we received a $2.3 million nonrefundable, one-time upfront payment in March 2018 and are eligible to receive additional development and commercialization milestone payments worth up to $17.8 million.

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

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

Under the terms of the agreement with KKC, we received a $30.0 million upfront payment from KKC, and we may be entitled to receive up to $55.0 million in total development milestones, of which $10.0 million has been received and recognized as revenue as of March 31, 2022, and approximately ¥8.5 billion for commercialization milestones, or approximately $69.7 million at the currency exchange rate on March 31, 2022, as well as royalties on net sales throughout the term of the agreement.

As discussed in Note 14 - Subsequent events , on April 11, 2022, we entered into a second amendment (the "Amendment") to the 2017 KKC Agreement.

Under the terms of the Amendment, the parties have agreed to a reduction in the royalty rate payable to us by KKC upon net sales of tenapanor in Japan.

The royalty rate will be reduced from the high teens to low double digits for a two-year period of time following the first commercial sale in Japan, and then to mid-single digits for the remainder of the royalty term.

As consideration for the reduction in the royalty rate, KKC has agreed to pay us up to an additional U.S.

$40.0 million payable in two tranches, with the first payment due following KKC's filing with the Japanese Ministry Health, Labour and Welfare (MHLW) of its application for marketing approval for tenapanor and the second payment due following KKC's receipt of regulatory approval to market tenapanor for hyperphosphatemia in Japan.

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

Under the terms of the Fosun Agreement, we received $12.0 million in upfront license, and we may be entitled to additional development and commercialization milestones of up to $110.0 million, as well as reimbursement of cost plus a reasonable overhead for the supply of product and tiered royalties on net sales ranging from the mid-teens to 20%.

Corporate Restructurings

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

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

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

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

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

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

Impact of COVID-19

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For a discussion of risks of COVID-19 relating to our business, see “Part II:

Other Information-Item 1A.- Risk Factors- Risks Related to Our Business- The ongoing COVID-19 pandemic, or any other outbreak of epidemic diseases, or the perception of their effects, could have a material adverse effect on our business, financial condition, results of operations or cash flows .” As of the date of issuance of this financial report, we are not aware of any specific event or circumstance that would require updates to our estimates and judgments or revisions to the carrying value of our assets or liabilities.

Other Information-Item 1A.- Risk Factors- Risks Related to Our Business- The ongoing effects of the COVID-19 pandemic, or any other outbreak of epidemic diseases, or the perception of their effects, could have a material adverse effect on our business, financial condition, results of operations or cash flows .” As of the date of issuance of this financial report, we are not aware of any specific event or circumstance that would require updates to our estimates and judgments or revisions to the carrying value of our assets or liabilities.

These estimates may change as new events occur and additional information is obtained.

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Actual results could differ materially from these estimates.

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

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

During the three months ended March 31, 2022, we adopted the following critical accounting policies and significant judgements and estimates:

Product Sales, Net

We account for our commercial product sales, net in accordance with Topic 606 - Revenue from Contracts with Customers .

We received approval from the U.S.

Food and Drug Administration (“FDA”) in September 2019 to market IBSRELA, the first and only sodium hydrogen exchanger 3 (“NHE3”) inhibitor for the treatment of irritable bowel syndrome with constipation ("IBS-C") in adults, in the United States (the "U.S.").

We began selling IBSRELA in the U.S.

in March 2022.

We distribute our products principally through a limited number of distributors and specialty pharmacy providers (collectively, our "Customers").

Our Customers subsequently sell our products to pharmacies and patients.

Separately, we enter into arrangements with third parties that provide for government-mandated and privately-negotiated rebates, chargebacks and discounts.

Revenue from product sales is recognized when our performance obligations are satisfied, which is when Customers obtain control of our product and occurs upon delivery.

Reserves for Variable Consideration

Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration, including rebates, discounts, patient copay assistance programs, and estimated product returns.

These estimates are based on the amounts earned or to be claimed for related sales and are classified as reductions of accounts receivable if the amount is payable to our Customers or a current liability if the amount is payable to a party other than a Customer.

Where appropriate, these estimates are based on factors such as industry data and forecasted customer buying and payment patterns, our historical experience, current contractual and statutory requirements, specific known market events and trends.

Overall, these reductions to gross sales reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract.

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

Actual amounts of consideration ultimately received may differ from our estimates.

If actual results in the future vary from our estimates, we adjust these estimates, which would affect product revenue and earnings in the period such variances become known.

As we gain more historical experience, estimates will be more heavily based on the expected utilization from historical data we have accumulated since the IBSRELA product launch.

Rebates are generally invoiced and paid quarterly in arrears.

Rebates include mandated discounts under the Medicaid Drug Rebate Program ("Medicaid") and the Medicare Coverage Gap Program ("Medicare").

Rebates are amounts owed after the final dispensing of products to a benefit plan participant and are based upon contractual agreements or legal requirements with the public-sector benefit providers.

These estimates for rebates are recorded in the same period the related gross revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included in accrued expenses on the condensed balance sheets.

We estimate our Medicaid and Medicare rebates based upon the estimated payor mix, and statutory discount rates.

Our Our estimates for payor mix are guided by payor information received from specialty pharmacies, expected utilization for specialty distributor sales to pharmacies, and available industry payor information.

Chargebacks are discounts that occur when contracted purchasers purchase directly from our specialty distributors at a discounted price.

The specialty distributor, in turn, charges back the difference between the price initially paid to us by the specialty distributor and the discounted price paid to the specialty distributor by the contracted purchaser.

Amounts for estimated chargebacks are established in the same period that the related gross revenue is recognized, resulting in a reduction of product revenue and accounts receivable.

The accrual for specialty distributor chargebacks is estimated based on known chargeback rates, known sales to specialty distributors, and estimated utilization by types of contracted purchasers.

Discounts and Fees:

Our payment terms are generally 30 to 60 days.

Specialty distributors and specialty pharmacies are offered various forms of consideration, including service fees and prompt pay discounts for payment within a specified period.

We expect these Customers will earn prompt pay discounts and therefore, we deduct the full amount of these discounts and service fees from product sales when revenue is recognized, resulting in a reduction of product revenue and accounts receivable.

Other Reserves:

Patients who have commercial insurance may receive co-pay assistance when product is dispensed by pharmacies to patients.

We estimate the amount of co-pay assistance provided to eligible patients based on the terms of the program and redemption information provided by third-party claims processing organizations and are recorded in accounts payable, accrued expenses and other current liabilities on the condensed balance sheets.

Recent Accounting Pronouncements

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Our revenue to date has been generated primarily through license, research and development collaborative agreements with various collaboration partners.

We have not generated any revenue from commercial product sales.

We realized our first commercial product sales of IBSRELA in March 2022.

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

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

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

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

whether and the extent to which we are successful in our commercialization of IBSRELA, whether we are able to gain approval from the FDA for our NDA for XPHOZAH;

the timing and progress of goods and services provided pursuant to our current or future collaborative partnerships;

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

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

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

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

and the extent to which tenapanor is approved and successfully commercialized by a collaboration partner.

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

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

Cost of Revenue

Cost of revenue currently represents payments due to AstraZeneca, which under the terms of a termination agreement entered into in 2015 (the "AZ Termination Agreement") is entitled to (i) future royalties at a rate of 10% of net sales of tenapanor or other NHE3 products by us or our licensees, and (ii) 20% of non-royalty revenue received from our collaboration partners to which we may elect to provide rights to develop and commercialize tenapanor or certain other NHE3 inhibitors.

Cost of revenue consists of the cost of commercial goods sold to Customers, collaboration partners under product supply agreements, and royalty expense based on sales of tenapanor.

We capitalize inventory costs associated with the production of our products after regulatory approval or when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized.

Otherwise, such costs are expensed as research and development.

A portion of the costs of IBSRELA units recognized as revenue during the three months ended March 31, 2022 were expensed prior to the fourth quarter of 2021, when our intent to commercialize IBSRELA was established and we commenced preparation for the commercial launch of IBSRELA.

We believe our cost of goods sold for the three months ended March 31, 2022 would have been $9 thousand higher, if we had not previously expensed certain material and production costs with respect to the units sold.

As of March 31, 2022, we had approximately $32.3 million of inventory on hand that was previously expensed as research and development expense and will not be reported as cost of goods sold in future periods when sales of IBSRELA are recognized as revenue.

Cost of revenue includes payments due to AstraZeneca, which under the terms of a termination agreement entered into in 2015 (the "AZ Termination Agreement") is entitled to (i) future royalties at a rate of 10% of net sales of tenapanor or other

NHE3 products by us or our licensees, and (ii) 20% of non-royalty revenue received from our collaboration partners in connection with the development and commercialization of tenapanor or certain other NHE3 inhibitors.

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

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Research and Development

Pursuant to the October 2021 restructuring plan, we eliminated our internal research organization and expect to continue our discovery efforts with respect to RDX020 through the use of third-parties managed internally by non-clinical expertise.

We recognize all research and development expenses as they are incurred to support the discovery, research, development and manufacturing of our product candidates.

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

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

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

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

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

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

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

General and Administrative

General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, for certain of our executives, our board members, and our finance, legal, business development, market development, commercial and support staff.

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

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

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

Selling, General and Administrative

Selling, general and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, for certain of our executives, our board members, and our finance, legal, business development, market development, commercial and support staff.

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

Interest Expense

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The results of operations are not necessarily indicative of the results to be expected for the year ending December 31, 2022, for any other interim period, or for any other future year.

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

Comparison of the three months ended March 31, 2022 and 2021

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

Three Months Ended

September 30, Change

2020 Nine Months Ended September 30, Change

Three Months Ended March 31, Change

2022 2021 $ %

Collaborative development revenue $ 886 $ 1,356 $ (470) (34.7) % $ 3,650 $ 3,656 $ (6) (0.2) %

Product sales, net $ 450 $ — $ 450 (a)

Product supply revenue 14 126 (112) (88.9) %

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

Licensing revenue 4 5,002 (4,998) (99.9) %

Collaborative development revenue — 1,454 (1,454) (100.0) %

Total revenues $ 468 $ 6,582 $ (6,114) (92.9) %

(a) Percent change is not meaningful.

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

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

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

The decrease to total revenues during the three months ended March 31, 2022 is primarily attributable to a $5.0 million milestone that was earned during the prior year upon the initiation of phase 3 clinical studies by KKC in Japan to evaluate tenapanor for hyperphosphatemia that did not recur during the current year, as well as the full recognition of upfront payments associated with the 2019 KKC Agreement through the end of 2021, for which there was no comparable revenue during the three months ended March 31, 2022.

Partially offsetting these decreases was recognition of $0.5 million of product sales, net for initial sales of IBSRELA to our Customers in connection with the commercial launch of IBSRELA.

Operating Expenses

Below is a summary of our operating expenses (dollars in thousands):

Three Months Ended

September 30, Change

2020 Nine Months Ended September 30, Change

Three Months Ended March 31, Change

2022 2021 $ %

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

Cost of revenue $ 85 $ 1,000 $ (915) (91.5) %

Research and development 8,851 20,456 (11,605) (56.7) %

General and administrative 19,714 7,634 12,080 158.2 % 56,969 21,810 35,159 161.2 %

Selling, general and administrative 19,339 17,131 2,208 12.9 %

Total operating expenses $ 28,275 $ 38,587 $ (10,312) (26.7) %

(a) Percent change is not meaningful.

Cost of revenue

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

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

The decrease in cost of revenue for the three months ended March 31, 2022 was primarily attributable to $1.0 million payment due to AstraZeneca under the AZ Termination Agreement related to the development milestone we earned upon the initiation by KKC of phase 3 clinical studies in Japan to evaluate tenapanor for hyperphosphatemia during the three months ended March 31, 2021, compared to $0.1 million due to AstraZeneca during the three months ended March 31, 2022.

In addition, during the three months ended March 31, 2022, we incurred cost of revenue from initial sales of IBSRELA to our Customers in connection with the commercial launch of IBSRELA.

Research and Development

Below is a summary of our research and development expenses (dollars in thousands):

Three Months Ended

September 30, Change

2020 Nine Months Ended September 30, Change

Three Months Ended March 31, Change

2022 2021 $ %

4 unchanged sentences

Total research and development expenses $ 8,851 $ 20,456 $ (11,605) (56.7) %

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

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

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

General and Administrative

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

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

The decrease in our external R&D expenses for the three months ended March 31, 2022 is primarily the result of lower clinical study costs from the OPTIMIZE study, lower tenapanor manufacturing expense as we have begun to capitalize costs associated with the production of IBSRELA to inventory, and lower expenses for research following the elimination of our research function in the fourth quarter of 2021.

The decrease in our employee-related expenses for the three months ended March 31, 2022 is due to lower compensation and benefits expenses for our research and development workforce following restructuring actions in 2021.

Selling, General and Administrative

The increase in general and administrative expenses for the three months ended March 31, 2022 was primarily due to increased costs associated with building and staffing our commercial infrastructure and teams as we prepared for the U.S.

launch of IBSRELA.

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

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

Other Income, net

Below is a summary of our other income, net (dollars in thousands):

Three Months Ended

September 30, Change

2020 Nine Months Ended September 30, Change

Three Months Ended March 31, Change

2022 2021 $ %

Interest expense $ (746) $ (1,100) $ 354 (32.2) %

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

Other income (expense), net 484 (49) 533 (1,087.8) %

Total other income, net $ (262) $ (1,149) $ 887 (77.2) %

Interest Expense

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

Other Income, net

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

The decrease in interest expense for the three months ended March 31, 2022 was primarily due to lower principal outstanding on our loan payable.

Other Expense, net

The increase in other income (expense), net for the three months ended March 31, 2022 primarily resulted from sales of certain lab equipment and supplies for a net gain of $0.7 million.

The gain was partially offset by $0.1 million expense incurred upon the settlement of our 2018 Loan, as well as higher unrealized foreign currency exchange losses.

Liquidity and Capital Resources

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021 Change $ Change %

Cash and cash equivalents $ 47,077 $ 72,428 $ (25,351) (35) %

Investments - current 66,363 95,452

Investments - non-current — 2,114

Short-term investments 42,627 44,261 (1,634) (4) %

Total liquid funds $ 89,704 $ 116,689 $ (26,985) (23) %

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

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

As of March 31, 2022, we had cash, cash equivalents and investments totaling $89.7 million compared to $116.7 million as of December 31, 2021.

We have incurred operating losses since inception and our accumulated deficit as of March 31, 2022 is $741.0 million.

Our current level of cash and investments alone is not sufficient to meet our plans for the next twelve months following the filing of these financial statements on May 5, 2022.

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 milestone payments from our collaboration partners, our potential receipt of anticipated payments from KKC under the Amendment, 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.

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

and (ii) a prospectus supplement for the offering, issuance and sale by us of up to a maximum aggregate offering price of $100.0 million of our common stock that may be issued and sold, from time to time, under a sales agreement with Jefferies LLC ("Jefferies"), deemed to be “at the market offerings” (the "2020 Open Market Sales Agreement").

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

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

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

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

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

The 2020 Open Market Sales Agreement was fully utilized as of December 31, 2021.

During the three months ended March 31, 2021 we sold 4.9 million shares and received gross proceeds of $35.0 million at a weighted average sales price of approximately $7.09 per share under the 2021 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% of the gross sales price for shares of common stock sold under the 2021 Open Market Sales Agreement.

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

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

During the three months ended March 31, 2022 we sold 5.9 million shares and received gross proceeds of $6.0 million at a weighted average sales price of approximately $1.02 per share under the 2021 Open Market Sales Agreement.

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

The 2022 Loan Agreement provides for a senior secured term loan facility, with $27.5 million funded at closing 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 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 initial funding of $27.5 million is being used to repay the 2018 Loan and to fund our ongoing operations.

We had $25.0 million principal from the 2018 Loan outstanding as of the closing date.

In connection with entering into the 2022 Loan Agreement, we entered into an agreement, whereby we agreed to pay an exit fee in the amount of 2% of the 2022 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 (the "Revenue Milestone"), tested monthly at the end of each month.

Notwithstanding the prepayment or termination of the 2022 Loan, the 2022 Exit Fee will

expire on February 23, 2032.

We concluded that the 2022 Exit Fee is a freestanding derivative which should be accounted for at fair value on a recurring basis.

The estimated fair value of the 2022 Exit Fee is recorded as a derivative liability and included in accrued expenses and other current liabilities on the accompanying condensed balance sheets.

Our primary sources of cash have been from the sale and issuance of common stock (in both public offerings and private placements) and private placements of convertible preferred stock, funds from our collaboration partnerships and funds from our 2018 Loan Agreement.

Our primary uses of cash are to fund operating expenses, primarily research and development expenditures and pre-commercial expenses.

Our primary uses of cash have been to fund operating expenses, primarily research and development expenditures and pre-commercial expenses.

Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

Funding Requirements

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

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

In particular, our operating plan can change, and we may require significant additional capital to fund our operations, including to support the development, commercialization and manufacturing efforts for tenapanor.

We may seek to obtain such additional capital through debt financings, credit facilities, additional equity offerings and/or strategic collaborations.

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

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

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

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

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

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

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

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

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

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

• addressing any competing technological and market developments;

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

• attracting, hiring, and retaining qualified personnel.

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

• the extent to which we are able to generate product revenue from sales of IBSRELA;

• whether we are successful in our efforts under the FDR process, including the Advisory Committee meeting to be convened as part of the FDR process, to secure approval for our NDA for tenapanor for the Hyperphosphatemia Indication, or to reach resolution with the FDA regarding a path to address the deficiencies in the NDA noted in the CRL and ADL, and the time and cost associated with such path;

• the availability of adequate third-party reimbursement for IBSRELA and, if approved, the sales price and the availability of adequate third-party reimbursement for XPHOZAH;

• the manufacturing costs of IBSRELA and XPHOZAH;

• the selling and marketing costs associated with IBSRELA and, if approved, XPHOZAH;

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

• the timing, receipt and amount of any milestones that may be received from our collaboration partners in connection with tenapanor, if any;

• the timing, receipt and amount of revenue, if any, that may be received from KKC in connection with the 2022 KKC Amendment;

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

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

• any clinical trials we are required to or decide to pursue for tenapanor or RDX013;

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

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

• the payment of interest and principal related to our loan and security agreement entered into with SLR Investment Corp.

in February 2022.

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

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

Nine Months Ended September 30,

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

Cash (used in) provided by investing activities 28,852 (27,872)

Cash provided by financing activities 68,486 1,593

Three Months Ended March 31,

2022 2021 Change $ Change %

Net cash used in operating activities $ (27,620) $ (44,217) $ 16,597 (38) %

Net cash provided by investing activities 2,332 2,485 (153) (6) %

Net cash provided by (used in) financing activities (63) 34,770 (34,833) (100) %

Net decrease in cash and cash equivalents $ (25,351) $ (6,962) $ (18,389) 264 %

Cash Flows from Operating Activities

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

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

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

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

Net cash used in operating activities during the three months ended March 31, 2022 decreased by $16.6 million primarily as a result of changes to our operating assets and liabilities as we built and staffed our commercial infrastructure and teams in preparation for the U.S.

launch of tenapanor.

In addition to the changes in our operating assets and liabilities, our net loss was $5.1 million less than during the three months ended March 31, 2021.

Cash Flows from Investing Activities

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

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

Net cash provided by investing activities decreased by $0.2 million due to the timing of our investment maturities and purchases, as well as $0.8 million proceeds from sale of laboratory equipment and supplies during the three months ended March 31, 2022.

Cash Flows from Financing Activities

Net cash provided by financing activities increased by $66.9 million due to net proceeds from issuance of our common stock pursuant to the 2020 Open Market Sales Agreement, or at-the-market offering.

Net cash provided by financing activities decreased by $34.8 million primarily due to net proceeds from issuance of our common stock pursuant to the at the market offerings of $34.3 million during the three months ended March 31, 2021 compared to $5.9 million during the three months ended March 31, 2022.

In addition, during the three months ended March 31, 2022, we received net proceeds of $27.0 million pursuant to the 2022 Loan Agreement and repaid $33.0 million, net of settlement costs, to repay the 2018 Loan.

Off-Balance Sheet Arrangements

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

As of March 31, 2022 and 2021, respectively, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K as promulgated by the SEC.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis