ARDELYX, INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS ARDELYX, INC. CONDENSED BALANCE SHEETS (in thousands, except share and per share amounts) March 31, 2022 December 31, 2021 (Unaudited) Assets Current assets: Cash and cash equivalents $ 47,077 $ 72,428 Short-term investments 42,627 44,261 Accounts receivable 4,394 502 Inventory 3,487 — Prepaid expenses and other current assets 16,640 16,458 Total current assets 114,225 133,649 Right-of-use assets 11,910 12,752 Property and equipment, net 2,045 2,362 Other assets 1,228 1,150 Total assets $ 129,408 $ 149,913 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 5,030 $ 4,277 Accrued compensation and benefits 6,304 5,422 Current portion of long-term debt 26,139 32,264 Current portion of operating lease liability 3,592 3,492 Accrued expenses and other current liabilities 6,778 7,366 Total current liabilities 47,843 52,821 Operating lease liability, net of current portion 8,812 9,748 Deferred revenue, non-current 8,563 4,727 Total liabilities 65,218 67,296 Commitments and contingencies (Note 13) Stockholders’ equity: Preferred stock, $ 0.0001 par value; 5,000,000 shares authorized; no shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively. — — Common stock, $ 0.0001 par value; 300,000,000 shares authorized; 136,330,360 and 130,182,535 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively. 14 13 Additional paid-in capital 805,265 795,540 Accumulated deficit ( 741,001 ) ( 712,930 ) Accumulated other comprehensive loss ( 88 ) ( 6 ) Total stockholders’ equity 64,190 82,617 Total liabilities and stockholders’ equity $ 129,408 $ 149,913 The accompanying notes are an integral part of these condensed financial statements. 2 Table of Contents ARDELYX, INC. CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) (in thousands, except share and per share amounts) Three Months Ended March 31, 2022 2021 Revenues: Product sales, net $ 450 $ — Product supply revenue 14 126 Licensing revenue 4 5,002 Collaborative development revenue — 1,454 Total revenues 468 6,582 Operating expenses: Cost of revenue 85 1,000 Research and development 8,851 20,456 Selling, general and administrative 19,339 17,131 Total operating expenses 28,275 38,587 Loss from operations ( 27,807 ) ( 32,005 ) Interest expense ( 746 ) ( 1,100 ) Other income (expense), net 484 ( 49 ) Loss before provision for income taxes ( 28,069 ) ( 33,154 ) Provision for income taxes 2 1 Net loss $ ( 28,071 ) $ ( 33,155 ) Net loss per common share, basic and diluted $ ( 0.21 ) $ ( 0.34 ) Shares used in computing net loss per share - basic and diluted 130,934,795 97,179,241 Comprehensive loss: Net loss $ ( 28,071 ) $ ( 33,155 ) Unrealized losses on available-for-sale securities ( 82 ) ( 3 ) Comprehensive loss $ ( 28,153 ) $ ( 33,158 ) The accompanying notes are an integral part of these condensed financial statements. 3 Table of Contents ARDELYX, INC. CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY For the Three Months ended March 31, 2022 and 2021 (Unaudited) (in thousands, except shares) Three Months Ended March 31, 2022 Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Stockholders' Equity Shares Amount Balance as of December 31, 2021 130,182,535 $ 13 $ 795,540 $ ( 712,930 ) $ ( 6 ) $ 82,617 Issuance of common stock under employee stock purchase plan 127,100 — 83 — — 83 Issuance of common stock upon vesting of restricted stock units 113,469 — — — — — Issuance of common stock in at the market offering 5,907,256 1 5,920 — — 5,921 Stock-based compensation — — 3,722 — — 3,722 Unrealized losses on available-for-sale securities — — — — ( 82 ) ( 82 ) Net loss — — — ( 28,071 ) — ( 28,071 ) Balance as of March 31, 2022 136,330,360 $ 14 $ 805,265 $ ( 741,001 ) $ ( 88 ) $ 64,190 Three Months Ended March 31, 2021 Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Stockholders' Equity Shares Amount Balance as of December 31, 2020 93,599,975 $ 9 $ 680,872 $ ( 554,765 ) $ ( 4 ) $ 126,112 Issuance of common stock under employee stock purchase plan 102,208 — 478 — — 478 Issuance of common stock upon exercise of options 10,507 — 20 — — 20 Issuance of common stock upon vesting of restricted stock units 35,100 — — — — — Issuance of common stock in at the market offering 4,940,787 1 34,271 34,272 Stock-based compensation — — 3,087 — — 3,087 Unrealized losses on available-for-sale securities — — — — ( 3 ) ( 3 ) Net loss — — — ( 33,155 ) — ( 33,155 ) Balance as of March 31, 2021 98,688,577 $ 10 $ 718,728 $ ( 587,920 ) $ ( 7 ) $ 130,811 The accompanying notes are an integral part of these condensed financial statements. 4 Table of Contents ARDELYX, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Three Months Ended March 31, 2022 2021 Operating activities Net loss $ ( 28,071 ) $ ( 33,155 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 232 422 Amortization of deferred financing costs 169 157 Amortization of deferred compensation for services 47 77 Amortization of (discount) premium on investment securities 15 157 Non-cash lease expense 842 607 Stock-based compensation 3,722 3,087 Change in derivative liabilities 15 36 Debt refinancing costs 102 — Gain on sale of equipment ( 710 ) — Non-cash interest associated with debt discount accretion 109 70 Changes in operating assets and liabilities: Accounts receivable ( 3,892 ) ( 5,783 ) Inventory ( 3,487 ) — Prepaid expenses and other assets ( 307 ) ( 13,662 ) Accounts payable 753 ( 248 ) Accrued compensation and benefits 882 ( 1,324 ) Operating lease liabilities ( 836 ) ( 721 ) Accrued and other liabilities ( 1,041 ) 7,517 Deferred revenue 3,836 ( 1,454 ) Net cash used in operating activities ( 27,620 ) ( 44,217 ) Investing activities Proceeds from maturities and redemptions of investments 27,300 35,370 Purchases of investments ( 25,763 ) ( 32,107 ) Proceeds from sale of equipment 795 — Purchases of property and equipment — ( 778 ) Net cash provided by investing activities 2,332 2,485 Financing activities Proceeds from 2022 Loan, net of issuance costs 26,971 — Repayment of 2018 Loan, net of settlement costs ( 33,038 ) — Proceeds from issuance of common stock in at the market offering, net of issuance costs 5,921 34,272 Proceeds from issuance of common stock under equity incentive and stock purchase plans 83 498 Net cash provided by (used in) financing activities ( 63 ) 34,770 Net decrease in cash and cash equivalents ( 25,351 ) ( 6,962 ) Cash and cash equivalents at beginning of period 72,428 91,032 Cash and cash equivalents at end of period $ 47,077 $ 84,070 Supplementary disclosure of cash flow information: Cash paid for interest $ 741 $ 963 Cash paid for income taxes $ 1 $ — Supplementary disclosure of non-cash activities: Right-of-use assets obtained in exchange for lease obligations $ — $ 450 Issuance of derivative in connection with issuance of loan payable $ 375 $ — 5 Table of Contents The accompanying notes are an integral part of these condensed financial statements. 6 Table of Contents ARDELYX, INC . NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) (amounts in thousands, except per share amounts and where otherwise noted) NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION Ardelyx, Inc. (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. We operate in one business segment, which is the development and commercialization of biopharmaceutical products. Basis of Presentation These condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules and regulations, certain footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted. These condensed financial statements have been prepared on the same basis as our most recent annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary to present fairly our financial position, results of operations, changes in stockholders’ equity, and cash flows for the interim periods presented. The accompanying condensed financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021. The results for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the entire year ending December 31, 2022, or for any other interim period or future year. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes thereto. On an ongoing basis, management evaluates its estimates, including those related to recognition of revenue, clinical trial accruals, contract manufacturing accruals, the fair value of assets and liabilities, income taxes and stock-based compensation. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could materially differ from those estimates. Liquidity As of March 31, 2022, we had cash and investments of approximately $ 89.7 million. 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 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 sales 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. Summary of Significant Accounting Policies Our significant accounting policies are described in Note 1 to our audited financial statements for the fiscal year ended December 31, 2021, included in our Annual Report on Form 10-K. Our significant accounting policies for the three months ended March 31, 2022 also included the policies discussed below related to accounts receivable, inventory, revenue and cost of 7 Table of Contents revenue for commercial product sales. With the exception of those noted below, there have been no material changes in our significant accounting policies as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Accounts Receivable Accounts receivable is reported net of allowances for returns, chargebacks and contractual discounts offered to our customers. Our estimate of the allowance for doubtful accounts is based on an evaluation of the aging of our receivables. Trade receivable balances are written off against the allowance when it is probable that the receivable will not be collected. To date, we have determined that an allowance for doubtful accounts is not required. As of March 31, 2022 our accounts receivable balance is comprised of $ 3.8 million from our collaborators and $ 0.6 million from commercial customers. As of December 31, 2021 our accounts receivable balance was comprised of $ 0.5 million from our collaborators. Inventory Prior to the regulatory approval of drug product candidates, we incurred expenses for the manufacture of drug product that could potentially be available to support the commercial launch of our products. We began to capitalize inventory costs associated with IBSRELA during the fourth quarter of 2021, when our intent to commercialize IBSRELA was established and we commenced preparation for the commercial launch of IBSRELA, which was when it was determined that the inventory had a probable future economic benefit. Inventory is stated at the lower of cost or estimated net realizable value with cost determined under the first-in first-out method. Inventory costs include third-party contract manufacturing, third-party packaging services, freight, labor costs for personnel involved in the manufacturing process, and indirect overhead costs. We primarily use actual costs to determine the cost basis for inventory. The determination of whether inventory costs will be realizable requires management review of the expiration dates of IBSRELA compared to our forecasted sales. If actual market conditions are less favorable than projected by management, write-downs of inventory may be required, which would be recorded as cost of goods sold in the condensed statement of operations and comprehensive loss. 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 ("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: 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 8 Table of Contents 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 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: 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. Cost of Revenue Cost of revenue consists of the cost of commercial goods sold to our Customers, international 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, at which time our intent to commercialize IBSRELA was established and we commenced preparation for the commercial launch of IBSRELA. 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 as a result of 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). We recognize these expenses as cost of revenue when we recognize the corresponding revenue that gives rise to payments due to AstraZeneca. To date, we have recognized an aggregate of $ 11.7 million as cost of revenue under the AZ Termination Agreement. Recent Accounting Pronouncements New Accounting Pronouncements - Recently Adopted We have adopted no new accounting pronouncements other than those disclosed in our most recent Annual Report on Form 10-K. Recent Accounting Pronouncements Not Yet Adopted 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. 9 Table of Contents NOTE 2. CASH, CASH EQUIVALENTS AND INVESTMENTS Securities classified as cash, cash equivalents and investments as of March 31, 2022 and December 31, 2021 are summarized below (in thousands): March 31, 2022 Gross Unrealized Amortized Cost Gains Losses Fair Value Cash and cash equivalents: Cash $ 7,555 $ — $ — $ 7,555 Money market funds 34,524 — — 34,524 Commercial paper 4,999 — ( 1 ) 4,998 Total cash and cash equivalents 47,078 — ( 1 ) 47,077 Short-term investments: Commercial paper $ 28,409 $ — $ ( 52 ) $ 28,357 U.S. government-sponsored agency bonds 10,777 — ( 22 ) 10,755 Corporate bonds 2,521 — ( 10 ) 2,511 Asset-backed securities 1,007 — ( 3 ) 1,004 Total short-term investments 42,714 — ( 87 ) 42,627 Total cash equivalents and investments $ 89,792 $ — $ ( 88 ) $ 89,704 December 31, 2021 Gross Unrealized Amortized Cost Gains Losses Fair Value Cash and cash equivalents: Cash $ 1,253 $ — $ — $ 1,253 Money market funds 71,175 — — 71,175 Total cash and cash equivalents 72,428 — — 72,428 Short-term investments Commercial paper $ 31,936 $ 1 $ ( 2 ) $ 31,935 Corporate bonds 7,025 — ( 3 ) 7,022 Asset backed securities 5,306 — ( 2 ) 5,304 Total short-term investments 44,267 1 ( 7 ) 44,261 Total cash equivalents and investments $ 116,695 $ 1 $ ( 7 ) $ 116,689 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. We invest our 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 our balance sheets. 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 and comprehensive loss. All short-term available-for-sale securities held as of March 31, 2022 had contractual maturities of less than one year . Our available-for-sale securities are subject to a periodic impairment review. We consider a debt security to be impaired when 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 and comprehensive loss to its fair value and establishes that value as a new cost basis for the investment. We did no t identify any of our available-for-sale securities as other-than-temporarily impaired in any of the periods presented. As of March 31, 2022 no 10 Table of Contents 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. NOTE 3. 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. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows: Level 1 – Valuations are based on quoted prices in active markets for identical assets or liabilities and readily accessible by us at the reporting date. Level 2 – Valuations based on inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Valuations based on unobservable inputs for which there is little or no market data, which require us to develop our own assumptions. The following table sets forth the fair value of our financial assets and liabilities that are measured or disclosed on a recurring basis by level within the fair value hierarchy (in thousands): March 31, 2022 Total Fair Value Level 1 Level 2 Level 3 Assets: Money market funds $ 34,524 $ 34,524 $ — $ — Commercial paper 33,355 — 33,355 — U.S. government-sponsored agency bonds 10,755 — 10,755 — Corporate bonds 2,511 — 2,511 — Asset-backed securities 1,004 — 1,004 — Total $ 82,149 $ 34,524 $ 47,625 $ — Liabilities: Derivative liability for exit fees $ 1,088 $ — $ — $ 1,088 Total $ 1,088 $ — $ — $ 1,088 December 31, 2021 Total Fair Value Level 1 Level 2 Level 3 Assets: Money market funds $ 71,175 $ 71,175 $ — $ — Commercial paper 31,935 — 31,935 — Corporate bonds 7,022 — 7,022 — Asset-backed securities 5,304 — 5,304 — Total $ 115,436 $ 71,175 $ 44,261 $ — Liabilities: Derivative liability for exit fee $ 698 $ — $ — $ 698 Total $ 698 $ — $ — $ 698 11 Table of Contents Where quoted prices are available in an active market, securities are classified as Level 1. We classify money market funds as Level 1. When quoted market prices are not available for the specific security, we estimate fair value by using benchmark yields, reported trades, broker/dealer quotes and issuer spreads. We classify U.S. government-sponsored agency bonds, U.S. treasury notes, corporate bonds, commercial paper, and asset-backed securities 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 8, 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 March 31, 2022 and December 31, 2021, due to their short-term nature. Fair Value of Debt The interest rate of our term loan facility approximates the rate at which we could obtain alternative financing. Therefore, the carrying amount of the term loan facility approximated its fair value at March 31, 2022 and December 31, 2021. NOTE 4. INVENTORY We began capitalizing inventory during the fourth quarter of 2021, at which time our intent to commercialize IBSRELA was established and we commenced preparation for the commercial launch of IBSRELA. Inventory consisted of the following (in thousands): March 31, 2022 Raw materials $ 460 Work in process 2,507 Finished goods 520 Total $ 3,487 NOTE 5. PRODUCT REVENUE, NET We received approval from the 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 U.S. We began selling IBSRELA in the U.S. in March 2022. We recorded net revenue for IBSRELA of $ 0.5 million during the three months ended March 31, 2022. Sales to Cardinal Health, AmerisourceBergen Drug Corporation, and McKesson Corporation made up 17.9 %, 17.1 %, and 15.4 % of our gross product revenue during the three months ended March 31, 2022. The activities and ending reserve balances for each significant category of discounts and allowances, which constitute variable consideration, were as follows (in thousands): Discounts and Chargebacks Rebates Other Fees, Copay and Returns Total Balance as of December 31, 2021 $ — $ — $ — $ — Activity related to 2022 sales 24 40 90 154 Balance as of March 31, 2022 $ 24 $ 40 $ 90 $ 154 There were no product sales or gross-to-net accruals during the three months ended March 31, 2021. 12 Table of Contents NOTE 6 . COLLABORATION AND LICENSING AGREEMENTS Kyowa Kirin Co., Ltd. (“KKC”) 2019 KKC Agreement In November 2019, we entered into a research collaboration and option agreement with KKC (the “2019 KKC Agreement”) for research associated with identifying two preclinical compounds that are ready for designation as development compounds (“DCs”), with one compound inhibiting the first undisclosed target (“Program 1”), and a second inhibiting the second undisclosed target (“Program 2”). Pursuant to the 2019 KKC Agreement, upon completion of the research and designation by the research steering committee of one or more DCs, KKC has the right to execute one or more separate collaborative agreements relating to the development and commercialization of one or both DCs in certain specified territories. Under the terms of the 2019 KKC Agreement, KKC paid us a non-refundable, non-creditable upfront fee of $ 10.0 million in two installments as follows: the first installment of $ 5.0 million within 30 days of November 11, 2019 (the “Effective Date”), and the second installment of $ 5.0 million on the first anniversary of the Effective Date. The term of the 2019 KKC Agreement commenced on the Effective Date and ends on the earliest of: (i) 2 years following the Effective Date, (ii) the nomination of a program DC for both programs, (iii) the nomination of one program DC and the decision by the parties to cease research for the other program, or (iv) the decision by the parties to cease research for both programs. We have no material future obligations under the 2019 KKC Agreement and recorded no revenue under the 2019 KKC Agreement during the three months ended March 31, 2022. During the three months ended March 31, 2021, we recognized $ 1.5 million as collaborative development revenue under the 2019 KKC Agreement in the accompanying condensed statement of operations and comprehensive loss. 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 NHE3 inhibitors including tenapanor in Japan for the treatment of cardiorenal diseases and conditions, excluding cancer. We retained the rights to tenapanor outside of Japan, and also retained the rights to tenapanor in Japan for indications other than those stated above. Pursuant to the 2017 KKC Agreement, KKC is responsible for all costs and expenses incurred in the development and commercialization of tenapanor for all licensed indications in Japan. We are responsible for supplying the tenapanor drug substance for KKC’s use in development and commercialization throughout the term of the 2017 KKC Agreement, provided that KKC may exercise an option to manufacture the tenapanor drug substance under certain conditions. We assessed these arrangements in accordance with Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) and related amendments (“ASC 606”) and concluded that the contract counterparty, KKC, is a customer. Under the terms of the 2017 KKC Agreement, we received $ 30.0 million in upfront license fees, which was recognized as revenue when the agreement was executed. Based on our assessment, management determined that the license and the manufacturing supply services were its material performance obligations at the inception of the 2017 KKC Agreement, and as such, each of the performance obligations is distinct. In addition to the up-front license fee received of $ 30.0 million, we may be entitled to receive up to $ 55.0 million in total development milestones, of which $ 10.0 million has been 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 reimbursement of costs plus a reasonable overhead for the supply of product and royalties on net sales throughout the term of the agreement. The variable consideration related to the remaining development milestone payments has not been included in the transaction price as these were fully constrained at March 31, 2022. 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. 13 Table of Contents During the three months ended March 31, 2022 we recognized no licensing revenue upon the achievement of development milestones. During the three months ended March 31, 2021, we recognized $ 5.0 million licensing revenue upon the initiation of phase 3 clinical studies by KKC in Japan to evaluate tenapanor for hyperphosphatemia. During the three months ended March 31, 2022, we recognized $ 14 thousand as product supply revenue related to the manufacturing supply of tenapanor and other materials to KKC pursuant to the 2017 KKC Agreement. During the three months ended March 31, 2021, we recognized $ 0.1 million as product supply revenue pursuant to the 2017 KKC Agreement. As detailed below under the heading Deferred revenue - non-current , we have received prepayments from KKC for the manufacturing of tenapanor drug substance that will be used to satisfy KKC needs. We also have recorded certain unbilled prepayments 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 condensed balance sheet as of March 31, 2022. The prepayment is reflected within prepaid and other current assets and deferred revenue, non-current on our condensed balance sheet as of March 31, 2022. Shanghai Fosun Pharmaceutical Industrial Development Co. Ltd. (“Fosun Pharma”) In December 2017, we entered into an exclusive license agreement with Fosun Pharma (the “Fosun Agreement”), for the development, commercialization and distribution of tenapanor in China for both hyperphosphatemia and IBS-C. We assessed these arrangements in accordance with ASC 606 and concluded that the contract counterparty, Fosun Pharma, is a customer. Under the terms of the Fosun Agreement, we received $ 12.0 million in upfront license fees which was recognized as revenue when the agreement was executed. Based on management’s assessment, we determined that the license and the manufacturing supply services represented the material performance obligations at the inception of the agreement, and as such, each of the performance obligations is distinct. We may be entitled to additional development and commercialization milestones of up to $ 110.0 million, as well as reimbursement of cost plus a reasonable overhead for the supply of product and tiered royalties on net sales ranging from the mid-teens to 20 %. The variable consideration related to the remaining development milestone payments has not been included in the transaction price as these were fully constrained at March 31, 2022. We have recorded no revenue during the three months ended March 31, 2022 or 2021 related to the Fosun Agreement. Knight Therapeutics, Inc. (“Knight“) In March 2018, we entered into an exclusive license agreement with Knight (the “Knight Agreement”) for the development, commercialization and distribution of tenapanor in Canada for hyperphosphatemia and IBS-C. We assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, Knight, is a customer. Based on management’s assessment, we determined that the license and the manufacturing supply services represented the material performance obligations at the inception of the agreement, and as such, each of the performance obligations is distinct. Under the terms of the agreement, we received a $ 2.3 million nonrefundable, one-time upfront payment in March 2018 and are eligible to receive additional development and commercialization milestone payments worth up to $ 17.8 million. We are also eligible to receive royalties throughout the term of the agreement, and a transfer price for manufacturing services. The variable consideration related to the remaining development milestone payments has not been included in the transaction price as they were fully constrained at March 31, 2022. AstraZeneca AB (“AstraZeneca”) In June 2015, we entered into a termination agreement with AstraZeneca (the “AstraZeneca Termination Agreement”) pursuant to which we have agreed to pay AstraZeneca (i) future royalties at a royalty rate of 10 % of net sales of tenapanor or other NHE3 products by us or our licensees, and (ii) 20 % of non-royalty revenue received from a licensee of tenapanor or another NHE3 inhibitor, up to a maximum of $ 75.0 million in aggregate for (i) and (ii). As of March 31, 2022, to date in aggregate, we have recognized $ 11.7 million of the $ 75.0 million, which has been recorded as cost of revenue, and have paid AstraZeneca $ 11.6 million. During the three months ended March 31, 2022 we recognized and recorded as cost of revenue $ 0.1 million related to the AstraZeneca Termination Agreement. During the three months ended March 31, 2021 we recognized $ 1.0 million cost of revenue related to the AstraZeneca Termination Agreement. 14 Table of Contents Deferred Revenue The following tables present changes in our current and non-current deferred revenue balances during the reporting period. The March 31, 2021 current deferred revenue balance is attributable entirely to the 2019 KKC Agreement and the non-current deferred revenue balances at March 31, 2022 and 2021 are attributable entirely to the 2017 KKC Agreement (in thousands): Deferred revenue - current 2022 2021 Balance at January 1, $ — $ 4,177 Decreases due to revenue recognized in the period for which cash has been received — ( 1,454 ) Balance at March 31, $ — $ 2,723 Deferred revenue - non-current 2022 2021 Balance at January 1, $ 4,727 $ — Increases to amounts invoiced, for which cash has not yet been received 3,829 2,947 Increase due to unbilled prepayments recorded during the period 7 — Balance at March 31, $ 8,563 $ 2,947 NOTE 7. BORROWING Solar Capital and Western Alliance Bank Loan Agreement On May 16, 2018, we entered into a loan and security agreement (as amended on October 9, 2020, March 1, 2021, May 5, 2021, and July 29, 2021) (the "2018 Loan Agreement") with Solar Capital Ltd. and Western Alliance Bank (collectively the “2018 Lenders”). The 2018 Loan Agreement provided for a $ 50.0 million loan facility with a maturity date of November 1, 2022 (the “2018 Loan”). As of the Closing Date for the 2022 Loan, as discussed below, we owed $ 25.0 million in principal payments from the 2018 Loan, which we repaid in full at that time. As discussed in Note 8. Derivative Liability , in connection with entering into the 2018 Loan Agreement, we entered into an agreement pursuant to which we agreed to pay $ 1.5 million in cash upon the occurrence of certain conditions (the "2018 Exit Fee"). Our obligations for the 2018 Exit Fee remain outstanding following the full repayment of the 2018 Loan in February 2022. SLR Investments Loan Agreement 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 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 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 Loan”). The 2022 Term A Loan funds were used to repay the 2018 Loan with the 2018 Lenders. The 2022 Loan has a maturity date of March 1, 2027. Borrowings under the 2022 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) the one-month rate published by the Intercontinental Exchange Benchmark Administration Ltd or its successor. We are permitted to make interest-only payments on the 2022 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 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 final fee equal to 4.95 % of the aggregate original principal amount of the 2022 Loan funded upon the earliest to occur of the maturity date, the acceleration of the 2022 Loan, and the prepayment, refinancing, substitution, or replacement of the 2022 Loan. We may voluntarily prepay the outstanding 2022 Loan balance, subject to a prepayment premium of (i) 3 % of the 15 Table of Contents outstanding principal amount of the 2022 Loan if prepaid prior to or on the first anniversary of the Closing Date, (ii) 2 % of the outstanding principal amount of the 2022 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 outstanding principal amount of the 2022 Loan if prepaid after the second anniversary of the Closing Date and prior to the maturity date. The 2022 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 Loan, we entered into an agreement, whereby we agreed to pay an exit fee in the amount 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, tested monthly at the end of each month. Notwithstanding the prepayment or termination of the 2022 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 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. We have classified the 2022 Loan balance as a current liability as of March 31, 2022 due to the determination of the existence of substantial doubt about our ability to continue operating as a going concern discussed in Note 1. Organization and Basis of Presentation: Liquidity and our assessment that the material adverse change clause under the 2022 Loan Agreement is not within our control. The lenders have not invoked the material adverse change clause as of the date of issuance of these financial statements. As of March 31, 2022, our future payment obligations related to the 2022 Loan, excluding interest payments and the 2022 final fee, are as follows (in thousands): Total repayment obligations $ 28,862 Less: Unamortized discount ( 1,399 ) Less: Unaccreted value of final fee ( 1,324 ) Long-term debt 26,139 Less: Current portion of long-term debt ( 26,139 ) Long-term debt, net of current portion $ — NOTE 8. DERIVATIVE LIABILITY 2018 Exit Fee In May 2018, in connection with entering into the 2018 Loan Agreement, 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 control of serum phosphorus 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® (tenapanor), a 50 milligram, twice daily oral pill for the treatment of IBS-C in adults (the “2018 Exit Fee Agreement”). Notwithstanding the February 2022 prepayment of the 2018 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 16 Table of Contents 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 expenses and other current liabilities on the accompanying condensed balance sheets. The fair value of the derivative liability was determined using a discounted cash flow analysis and is classified as a Level 3 measurement within the fair value hierarchy since our valuation utilized significant unobservable inputs. Specifically, the key assumptions included in the calculation of the estimated fair value of the 2018 derivative liability include: (i) our estimates of both the probability and timing of a potential $ 1.5 million payment to the 2018 Lenders as a result of the FDA approvals and (ii) a discount rate which was derived from our estimated cost of debt, adjusted with current LIBOR (or a comparable successor rate if LIBOR no longer exists). Generally, increases or decreases in the probability of occurrence would result in a directionally similar impact in the fair value measurement of the derivative liability and it is estimated that a 10.0 % 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. 2022 Exit Fee On February 23, 2022, 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. 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 2022 derivative liability include: (i) our estimates of both the probability and timing of achieving the Revenue Milestone and (ii) the probability and timing of funding the Term B Loan, which is dependent upon (a) 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 (b) achievement of certain product revenue milestone targets. Generally, increases or decreases in the probability of occurrence would result in a directionally similar impact in the fair value measurement of the derivative liability and it is estimated that a 10.0 % increase (decrease) in the probability of occurrence would not result in a material fair value fluctuation. Changes in the fair value of our exit fee derivative liabilities recurring measurements included in Level 3 of the fair value hierarchy are presented as other income, net in our statements of operations and were as follows for the three months ended March 31, 2022 and 2021 (in thousands): Three Months Ended March 31, 2022 2021 Beginning balance $ 698 $ 1,376 2022 Exit Fee addition at fair value 375 — Changes in estimated fair value 15 36 Ending balance $ 1,088 $ 1,412 NOTE 9. LEASES All of our leases are operating leases and each contain customary rent escalation clauses. Certain of the leases have both lease and non-lease components. We have elected to account for each separate lease component and the non-lease components associated with that lease component as a single lease component for all classes of underlying assets. 17 Table of Contents The following table provides additional details of our facility leases presented in our condensed balance sheets as of March 31, 2022 and December 31, 2021 (dollars in thousands): Facilities March 31, 2022 December 31, 2021 Right-of-use assets $ 11,910 $ 12,752 Current portion of lease liabilities 3,592 3,492 Operating lease liability, net of current portion 8,812 9,748 Total $ 12,404 $ 13,240 Weighted-average remaining life (years) 3.2 3.4 Weighted-average discount rate 6.9 % 6.9 % Lease costs, which are included in operating expenses in our statements of operations, were as follows (in thousands): Three Months Ended March 31, 2022 2021 Operating lease expense $ 1,064 $ 673 Cash paid for operating lease $ 1,058 $ 1,565 The following table summarizes our undiscounted cash payment obligations for our operating lease liabilities as of March 31, 2022 (in thousands): Remainder of 2022 $ 3,234 2023 4,440 2024 4,589 2025 1,321 2026 252 Total undiscounted operating lease payments 13,836 Imputed interest expenses ( 1,432 ) Total operating lease liabilities 12,404 Less: Current portion of operating lease liability ( 3,592 ) Operating lease liability, net of current portion $ 8,812 NOTE 10. STOCKHOLDERS’ EQUITY At the Market Offerings Agreement 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"). 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 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 18 Table of Contents 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. 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. We sold 8.3 million shares of our common stock pursuant to the 2021 Open Market Sales Agreement which were settled between the dates of April 1, 2022 through April 27, 2022 for gross proceeds of $ 9.0 million at a weighted average sales price of approximately $ 1.09 per share. We did not sell any additional shares of our common stock after April 25, 2022 and through the date of filing this Quarterly Report on Form 10-Q. NOTE 11. EQUITY INCENTIVE PLANS Stock-Based Compensation Stock-based compensation expense recognized for stock options, restricted stock units ("RSUs"), performance-based restricted stock units ("PRSUs") and our employee stock purchase program (the "ESPP") are recorded as operating expenses in our condensed statements of operations and comprehensive loss, as follows (in thousands): Three Months Ended March 31, 2022 2021 Research and development $ 1,214 $ 1,092 Selling, general and administrative 2,508 1,995 Total $ 3,722 $ 3,087 As of March 31, 2022, our total unrecognized stock-based compensation expense, net of estimated forfeitures, and average remaining vesting period, included the following (dollars in thousands): Unrecognized Compensation Expense Average Remaining Vesting Period (Years) Stock option grants $ 14,865 3.0 RSU grants $ 4,894 1.3 ESPP $ 53 0.8 Stock Options A summary of our stock option activity and related information for the three months ended March 31, 2022 is as follows (in thousands, except dollar amounts): Number of Shares Weighted-Average Exercise Price per Share Balance at December 31, 2021 10,417 $ 7.00 Options granted 3,535 $ 0.98 Options exercised — $ — Options forfeited or canceled ( 1,006 ) $ 7.18 Balance at March 31, 2022 12,946 $ 5.34 Exercisable at March 31, 2022 6,476 $ 7.16 19 Table of Contents Restricted Stock Units A summary of our RSUs activity and related information for the three months ended March 31, 2022 is as follows (in thousands, except dollar amounts): Number of RSUs Weighted-Average Grant Date Fair Value Per Share Non-vested restricted stock units at December 31, 2021 3,529 $ 2.04 Granted 1,120 $ 0.98 Vested ( 113 ) $ 3.62 Forfeited ( 88 ) $ 2.02 Non-vested restricted stock units at March 31, 2022 4,448 $ 1.73 Employee Stock Purchase Plan In February 2022, we sold approximately 0.1 million shares of our common stock under the ESPP. The shares were purchased by employees at a purchase price of $ 0.65 per share resulting in proceeds to us of approximately $ 0.1 million. Issuance of Common Stock for Services Under Our Amended and Restated Non-Employee Director Compensation Program, members of our board of directors may elect to receive shares of our stock in lieu of their cash fees. During the three months ended March 31, 2022, we issued no shares of our common stock to members of the board of directors in accordance with the program. NOTE 12. NET LOSS PER SHARE Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, less shares subject to repurchase, and excludes any dilutive effects of stock-based awards and warrants. 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 we had net losses for the three months ended March 31, 2022 and 2021, 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): Three Months Ended March 31, Numerator: 2022 2021 Net loss $ ( 28,071 ) $ ( 33,155 ) Denominator: Weighted average common shares outstanding - basic and diluted 130,935 97,179 Net loss per share - basic and diluted $ ( 0.21 ) $ ( 0.34 ) For the three months ended March 31, 2022, the total number of securities that could potentially dilute basic net loss per share in the future that were not included in the computation of diluted net loss per share because the effect would have been antidilutive was 13.3 million. For the three months ended March 31, 2021, the total number of securities that could potentially dilute basic net loss per share in the future that were not included in the computation of diluted net loss per share because the effect would have been antidilutive was 13.0 million. NOTE 13. CONTINGENCIES 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 March 31, 2022 or 2021. 20 Table of Contents 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.