What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-05 · 108 added, 91 removed, 213 unchanged (48% of the section changed)

9 unchanged sentences

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.

As of June 30, 2022, we had an accumulated deficit of $767.9 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;

2 unchanged sentences

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 agreements with our lenders.

Our Product Pipeline

Our Commercial Product

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.

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

IBSRELA acts locally in the gut and is minimally absorbed.

1 unchanged sentence

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.

For our commercial launch of IBSRELA, we 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.

The established nature of the market, limited number of players, concentration of prescribers, recognized unmet need, and favorable response to the novel mechanism IBSRELA product profile enable a targeted promotional effort centered on the 9,000 health care providers that account for 50% of IBS-C prescriptions.

Central to the go to market strategy for IBSRELA is a highly experienced specialty sales force, many with existing relationships across their GI target base, full company engagement, and innovative peer-to-peer and digital initiatives leveraging the rapidly evolving market dynamics in how HCPs receive information and interact with industry.

Our Product Pipeline

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

12 unchanged sentences

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.

On April 25, 2022, we announced that OND had 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.

Accordingly, the OND directed the Division of Cardiology and Nephrology to convene the Advisory Committee, and indicated that a response to our appeal could be expected within thirty calendar days after the conclusion of the Advisory Committee meeting.

On June 21, 2022 we announced that the FDA has informed us that a meeting of the Advisory Committee is tentatively scheduled for November 16, 2022.

There can be no assurances that the response from the Advisory Committee will be positive, or if the outcome of the Advisory Committee is positive, that approval of our NDA will ultimately be granted by the FDA.

RDX013 Program:

5 unchanged sentences

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.

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 the commercialization of IBSRELA and preparations for the Advisory Committee meeting 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

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

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

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.

7 unchanged sentences

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.

Under the terms of the Knight Agreement, Knight paid us a $2.3 million upfront payment.

We may also be eligible to receive approximately CAD22.2 million for development and commercialization milestones, or approximately $17.2 million at the currency exchange rate on June 30, 2022, of which $0.7 million has been received and recognized as revenue as of June 30, 2022.

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 June 30, 2022.

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

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

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

a phosphate binder-combination parallel-group comparative study;

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

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

Under the terms of the agreement with KKC, we received a $30.0 million upfront payment from KKC, and we may be entitled to receive up to $55.0 million in total development milestones, of which $10.0 million has been received and recognized as revenue as of 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.

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 and regulatory milestones, of which $10.0 million has been received and recognized as revenue as of June 30, 2022.

We may also be eligible to receive approximately ¥8.5 billion for commercialization milestones, or approximately $62.3 million at the currency exchange rate on June 30, 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.

As discussed in Note 7.

Deferred Royalty Obligation , the future royalties and commercial milestone payments we may receive under the 2017 KKC Agreement will be remitted to HealthCare Royalty Partners IV, L.P.

pursuant to a Royalty and Sales Milestone Interest Acquisition Agreement.

On April 11, 2022, we entered into a second amendment (the "Amendment") to the 2017 KKC Agreement.

Under the terms of the Amendment, we and KKC 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%.

As discussed in Note 7.

Deferred Royalty Obligation , the future royalties we may receive under the 2017 KKC Agreement will be remitted to HealthCare Royalty Partners IV, L.P.

pursuant to a Royalty and Sales Milestone Interest Acquisition Agreement.

As consideration for the reduction in the royalty rate, KKC has agreed to pay us up to an additional $40.0 million payable in two tranches, with the first payment due following KKC's filing with the Japanese Ministry of Health, Labour and Welfare 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 of tenapanor in China for both hyperphosphatemia and IBS-C.

Under the terms of the Fosun Agreement, Fosun paid us a $12.0 million upfront license fee.

We may be entitled to receive development and commercialization milestones of up to $113.0 million, of which $3.0 million has been received and recognized as revenue as of June 30, 2022, 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%.

Impact of COVID-19

15 unchanged sentences

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 February 28, 2022.

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

During the six months ended June 30, 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 received approval from the FDA in September 2019 to market IBSRELA, the first and only NHE3 inhibitor for the treatment of IBS-C in adults, in the United States (the "U.S.").

We began selling IBSRELA in the U.S.

6 unchanged sentences

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.

These estimates are based on the amounts earned or to be claimed for related sales and are classified as reductions of gross 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.

9 unchanged sentences

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.

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

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

The wholesaler, in turn, charges back the difference between the price initially paid to us by the wholesaler and the discounted price paid to the wholesaler 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.

The accrual for wholesaler chargebacks is estimated based on known chargeback rates, known sales to wholesalers, 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.

Wholesalers and specialty pharmacies are offered various forms of consideration, including service fees.

Wholesalers may also receive prompt pay discounts for payment within a specified period.

We expect prompt pay discounts to be earned when offered 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.

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 and accrued expenses and other current liabilities on the condensed balance sheets.

Non-cash Interest Expense on Deferred Royalty Obligation

The net proceeds we receive from the sale of certain future royalties are amortized to non-cash interest expense over the estimated life of the associated agreement using the effective interest method.

As we earn royalties and remit those royalties pursuant to the agreement, the balance of the deferred royalty obligation will be effectively repaid over the life of agreement.

To determine the amortization of our deferred royalty obligation, we are required to estimate the total amount of future royalty payments we expect to earn.

There are a number of factors that could materially affect the amount and timing of royalty payments, most of which are not within our control.

We periodically assess the amount of royalty payments we expect to receive which are subject to the agreement and, to the extent that the amount or timing of such payments is materially different than our original estimates, we prospectively adjust the imputed interest rate and the related amortization of the deferred royalty obligation.

Recent Accounting Pronouncements

16 unchanged sentences

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.

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.

A portion of the costs of IBSRELA units recognized as revenue during the three and six months ended June 30, 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 and six months ended June 30, 2022 would have been $140 thousand and $149 thousand higher, respectively, if we had not previously expensed certain material and production costs with respect to the units sold.

As of June 30, 2022, we had approximately $31.2 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).

17 unchanged sentences

Other Income, net

Other income, net consists of interest income earned on our cash and cash equivalents and available-for-sale investments, the periodic revaluation of the exit fee related to our loan and currency exchange gains and losses.

RESULTS OF OPERATIONS

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 months ended March 31, 2022 and 2021

Comparison of the three and six months ended June 30, 2022 and 2021

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

Three Months Ended March 31, Change

Three Months Ended June 30, Change

2021 Six Months Ended June 30, Change

2022 2021 $ % 2022 2021 $ %

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

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

Product sales, net $ 1,564 $ — $ 1,564 (a) $ 2,014 $ — $ 2,014 (a)

Product supply revenue 952 — 952 (a) 966 126 840 666.7 %

Licensing revenue 10 3 7 233.3 % 14 5,005 (4,991) (99.7) %

2 unchanged sentences

(a) Percent change is not meaningful.

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.

The increase to total revenues during the three months ended June 30, 2022 is primarily attributable to $1.6 million of net product sales for IBSRELA to our Customers in connection with the commercial launch of IBSRELA, as well as $1.0 million product supply revenue for which there was no comparable revenue during the three months ended June 30, 2021.

Partially offsetting these increases was the full recognition of upfront payments associated with the 2019 KKC Agreement through the end of 2021.

The decrease to total revenues during the six months ended June 30, 2022 is primarily attributable to a $5.0 million development milestone that was earned during the prior year 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 six months ended June 30, 2022.

Partially offsetting these decreases is recognition of $2.0 million of net product sales for 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 March 31, Change

Three Months Ended June 30, Change

2021 Six Months Ended June 30, Change

2022 2021 $ % 2022 2021 $ %

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

Cost of revenue $ 138 $ — $ 138 (a) $ 223 $ 1,000 $ (777) (77.7) %

Research and development 9,741 26,021 (16,280) (62.6) % 18,592 46,477 (27,885) (60.0) %

1 unchanged sentence

Total operating expenses $ 28,741 $ 46,145 $ (17,404) (37.7) % $ 57,016 $ 84,732 $ (27,716) (32.7) %

(a) Percent change is not meaningful.

Cost of Revenue

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.

The fluctuations in cost of revenue for the three and six months ended June 30, 2022 are primarily attributable to payments due to AstraZeneca under the AZ Termination Agreement related to the commercial sales of IBSRELA during the three and six months ended June 30, 2022 and a development milestone we earned during the six months ended June 30, 2021.

In addition, during the three and six months ended June 30, 2022, we incurred cost of revenue from 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 March 31, Change

Three Months Ended June 30, Change

2021 Six Months Ended June 30, Change

2022 2021 $ % 2022 2021 $ %

4 unchanged sentences

Total research and development expenses $ 9,741 $ 26,021 $ (16,280) (62.6) % $ 18,592 $ 46,477 $ (27,885) (60.0) %

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.

The decrease in our external R&D expenses for the three months ended June 30, 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 and six months ended June 30, 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.

The fluctuations in general and administrative expenses for the three and six months ended June 30, 2022 is primarily due to the timing of 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.

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

Interest Expense

Below is a summary of our interest expense (dollars in thousands):

Three Months Ended June 30, Change

2021 Six Months Ended June 30, Change

2022 2021 $ % 2022 2021 $ %

Interest expense $ (787) $ (1,202) $ 415 (34.5) % $ (1,533) $ (2,302) $ 769 (33.4) %

The decrease in interest expense for the three and six months ended June 30, 2022 was primarily due to lower principal outstanding on our loan payable.

Other Income, net

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

Three Months Ended March 31, Change

Three Months Ended June 30, Change

2021 Six Months Ended June 30, Change

2022 2021 $ % 2022 2021 $ %

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

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 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.

Other income, net $ 70 $ 847 $ (777) (91.7) % $ 554 $ 798 $ (244) (30.6) %

The decrease in other income, net for the three and months ended June 30, 2022 is primarily due to revaluation of our 2018 Exit Fee during the three months ended June 30, 2021 following the receipt of the CRL from the FDA.

Partially offsetting this decrease are sales of certain lab equipment and supplies for a net gain of $1.1 million.

Liquidity and Capital Resources

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

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

June 30, 2022 December 31, 2021 Change $ Change %

Cash and cash equivalents $ 53,408 $ 72,428 $ (19,020) (26.3) %

1 unchanged sentence

Total liquid funds $ 81,012 $ 116,689 $ (35,677) (30.6) %

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.

As of June 30, 2022, we had cash, cash equivalents and investments totaling $81.0 million compared to $116.7 million as of December 31, 2021.

We have incurred operating losses since inception and our accumulated deficit as of June 30, 2022 is $767.9 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 August 4, 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.

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, and execute asset monetization strategies, 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.

4 unchanged sentences

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.

During the six months ended June 30, 2021 we sold 9.0 million shares and received gross proceeds of $63.8 million at a weighted average sales price of approximately $7.10 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.

1 unchanged sentence

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.

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.

During the six months ended June 30, 2022 we sold 20.5 million shares and received gross proceeds of $18.9 million at a weighted average sales price of approximately $0.92 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.

2 unchanged sentences

The initial funding of $27.5 million is being used to repay the 2018 Loan and to fund our ongoing operations.

On August 1, 2022, we entered into an amendment to the 2022 Loan Agreement with SLR Investment Corp.

that extends the date by which we must receive approval by the FDA for our NDA for the control of serum phosphorus in chronic kidney disease patients on dialysis in order to borrow the additional $22.5 million from December 31, 2022 to March 31, 2023.

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.

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 have been 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, pre-commercial and 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.

1 unchanged sentence

• 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;

• 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 XPHOZAH, 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;

9 unchanged sentences

• 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.

• the payment of interest and principal related to the 2022 Loan Agreement.

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.

1 unchanged sentence

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

Three Months Ended March 31,

Six Months Ended June 30,

2022 2021 Change $ Change %

1 unchanged sentence

Net cash provided by investing activities 17,806 10,719 7,087 66.1 %

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

Net cash provided by financing activities 22,075 63,487 (41,412) (65.2) %

Net decrease in cash and cash equivalents $ (19,020) $ (4,287) $ (14,733) 343.7 %

Cash Flows from Operating Activities

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.

Net cash used in operating activities during the six months ended June 30, 2022 decreased by $19.6 million primarily as a result of our net loss which was $23.3 million less than during the six months ended June 30, 2021.

Partially offsetting the net loss improvement were changes to our operating assets and liabilities related to expenditures for commercial manufacturing and inventory for the production of IBSRELA.

Cash Flows from Investing Activities

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.

Net cash provided by investing activities increased by $7.1 million due to the timing of our investment maturities and purchases, as well as $1.3 million proceeds from sale of laboratory equipment and supplies during the six months ended June 30, 2022.

Cash Flows from Financing Activities

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.

Net cash provided by financing activities decreased by $41.4 million primarily due to net proceeds from issuance of our common stock pursuant to the at the market offerings of $62.4 million during the six months ended June 30, 2021 compared to $18.5 million during the six months ended June 30, 2022.

In addition, during the six months ended June 30, 2022, we received net proceeds of $27.0 million pursuant to the 2022 Loan Agreement, $9.6 million in proceeds for the sale of certain future royalties, and repaid $33.0 million, net of settlement costs, to repay the 2018 Loan.

Off-Balance Sheet Arrangements

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.

As of June 30, 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