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Item 7. Management’s Discussion and Analysis

2023-03-02 compared with 2022-02-28 · 253 added, 181 removed, 244 unchanged (64% of the section changed)

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

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

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

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

We have not generated any revenues from product sales.

We developed a unique and innovative platform that enabled the discovery of new biological mechanisms and pathways to develop potent, and efficacious therapies that minimize the side effects and drug-drug interactions frequently encountered with traditional, systemically absorbed medicines.

The first molecule we discovered and developed was tenapanor, a targeted, first-in-class, oral, small molecule therapy.

Tenapanor, branded as IBSRELA, is approved in the U.S.

for the treatment of adults with irritable bowel syndrome with constipation (“IBS-C”).

Tenapanor is in development for the control of serum phosphorus, or hyperphosphatemia, in adult patients with chronic kidney disease (“CKD”) on dialysis under the brand name XPHOZAH.

We also have a development stage asset, RDX013 for adult patients with CKD and/or heart failure with hyperkalemia, or elevated serum potassium, and a discovery stage asset, RDX020, for adult patients with metabolic acidosis, a serious electrolyte disorder, in patients with CKD.

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

As of December 31, 2022, we had an accumulated deficit of $780.1 million.

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

prepare for the potential commercialization of XPHOZAH, if approved;

incur manufacturing and development cost for, tenapanor;

and incur development costs for RDX013.

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

On February 28, 2022, we received a letter from Nasdaq indicating that we have failed to comply with the minimum bid price requirement of Nasdaq Listing Rule 5550(a)(2).

Nasdaq Listing Rule 5550(a)(2) requires that companies listed on the Nasdaq Capital Market maintain a minimum closing bid price of at least $1.00 per share.

Under Nasdaq Listing Rule 5810(c)(3)(A), we have a 180 calendar day grace period to regain compliance by meeting the continued listing standard.

To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days during this grace period.

We are monitoring the bid price of our common stock and will consider options available to us to achieve compliance.

There can be no assurances that we will be successful in restoring our compliance with the Nasdaq listing requirements.

OUR PRODUCT PIPELINE

We expect to continue to incur substantial operating losses for the foreseeable future as we invest in the commercialization of IBSRELA, seek to gain approval in the U.S.

for XPHOZAH ® (tenapanor);

prepare for and commercialize XPHOZAH in the U.S., if approved;

and incur manufacturing and development cost for tenapanor.

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, funds from our loan agreements with our lenders, as well as from sales of IBSRELA.

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, FDA approved, sodium hydrogen exchanger 3 ("NHE3") inhibitor for the treatment of IBS-C in adults.

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 exchange 3 ("NHE3") inhibitor for the treatment of IBS-C in adults.

IBSRELA acts locally in the gut and is minimally absorbed.

By inhibiting NHE3, IBSRELA exerts a triple action mechanism.

First, it blocks dietary sodium absorption, leading to increased intestinal transit time and softer stool to address constipation.

Second, it decreases intestinal permeability to reduce abdominal pain, and, third, it decreases visceral hypersensitivity to reduce abdominal pain.

The triple action mechanism of IBSRELA is differentiated from existing therapies and has been shown to provide significant improvement in abdominal pain, bloating, and constipation – with a quick onset of action and sustained efficacy.

Treatment with IBSRELA has been demonstrated to result in improved quality of life versus placebo and patient treatment satisfaction.

We plan to launch IBSRELA in the U.S.

in April 2022.

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

IBS-C is a gastrointestinal ("GI") disorder characterized by both abdominal pain and altered bowel movements, and is estimated to affect 12 million people in the U.S.

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

The introduction of new agents over the last decade has led to an established prescription ("RX") treated market with 9,000 writers accounting for 50% of the RXs.

Despite the active use of GCC agonist therapies, 83% of Health Care Providers ("HCPs") report a significant unmet need for new therapies, and report that approximately 35% of the patients currently under their care do not adequately respond to the available treatments.

When presented with the IBSRELA product profile, 75% of HCPs respond favorably, with the efficacy profile and novel method of action rated as the most compelling aspects of the product profile.

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

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 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.

With a concentrated promotional focus on patients currently being managed for IBS-C by high writing HCPs - in contrast to the DTC centered, market building approach taken by the existing GCC agonists - competition for IBSRELA will come largely from the four prescription products indicated for IBS-C:

Linzess (linaclotide);

Amitiza (lubiprostone);

Trulance (plecanatide) and Zelnorm (tegaserod).

Additionally, over the counter products are commonly used to treat the constipation component of IBS-C, both alone, and in combination with the IBS-C indicated RX therapies.

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

in March 2022.

For our commercial launch of IBSRELA, we designed a market-responsive commercial strategy and built a commercial organization highly experienced in launching novel therapies into specialty areas.

The dynamics of the IBS-C market reflect an established patient base, limited number of competitors all confined to a single mechanism of action, concentrated number of prescribers, and recognized unmet need.

In addition, market research indicated a favorable response to the IBSRELA product profile as a novel mechanism therapy.

These dynamics enabled a targeted promotional focus on patients currently being managed for IBS-C by the approximately 9,000 high-writing healthcare 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.

We expect competition for IBSRELA will come largely from the three prescription products indicated for IBS-C:

Linzess (linaclotide), Amitiza (lubiprostone) and Trulance (plecanatide).

Generic lubiprostone is also available in the U.S.

Additionally, over-the-counter products, not indicated for IBS-C are commonly used to treat the constipation component of IBS-C, alone and in combination with the IBS-C-indicated prescription therapies.

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

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

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

("Knight") in Canada for IBSRELA for IBS-C.

Knight is currently marketing IBSRELA in Canada.

OUR PRODUCT PIPELINE

Development Candidate XPHOZAH:

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

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

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

XPHOZAH (tenapanor) is a first-in-class medicine being developed for the control of serum phosphorus, or hyperphosphatemia, in adult patients with CKD on dialysis.

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

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

It is estimated that there are more than 550,000 adult patients with CKD on dialysis in the U.S.

and approximately 80% of those patients are being treated with phosphate lowering therapies.

Seventy-seven percent of patients treated with phosphate binders to treat hyperphosphatemia were unable to consistently maintain phosphorous levels <=5.5 mg/dL over a six-month period.

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

It is not a phosphate binder.

In June 2020, we submitted a new drug application ("NDA") to the U.S.

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

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

In June 2020, we submitted a new drug application ("NDA") to the FDA for XPHOZAH.

The NDA was supported by three Phase 3 trials involving more than 1,200 adult patients that evaluated the use of tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis, with two trials evaluating tenapanor as monotherapy and one trial evaluating tenapanor as part of a dual mechanism approach with phosphate binders.

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

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

According to the CRL, while the FDA agrees “that the submitted data provide substantial evidence that tenapanor is effective in reducing serum phosphorus in adult patients with CKD on dialysis,” the FDA characterizes the magnitude of the treatment effect as “small and of unclear clinical significance.” Following an End-of-Review Type A meeting (“End of Review Meeting”) in October 2021, with the FDA’s Division of Cardiology and Nephrology (the “Division”), we submitted a Formal Dispute Resolution Request (“FDRR”) in December 2021.

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

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

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

If accepted, we expect a decision on the appeal to the OND in April 2022.

While the CRL noted that in order for the NDA to be approved, we need to conduct an additional adequate and well-controlled trial demonstrating a clinically relevant treatment effect on serum phosphorus or an effect on the clinical outcome thought to be caused by hyperphosphatemia in adult patients with CKD on dialysis, the ADL provided a potential additional path forward involving the resubmission of the NDA (without conducting an additional trial) with a number of new analyses of each of our Phase 3 clinical trials;

an assessment of tenapanor’s benefits and risks;

and a proposal of how to label tenapanor for prescribers.

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

RDX013 Program:

Small Molecule for Treating Hyperkalemia

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

On July 28, 2021, we received a Complete Response Letter ("CRL") from the FDA’s Division of Cardiology and Nephrology ("the Division") regarding our NDA for XPHOZAH.

In December 2021 we submitted a Formal Dispute Resolution Request ("FDRR") to the Office of Cardiology, Hematology, Endocrinology and Nephrology ("OCHEN").

At the request of the FDA’s Office of New Drugs ("OND"), as part of our second level of appeal of the CRL, a Cardiovascular and Renal Drug Advisory Committee meeting on was held on November 16, 2022 with the committee voting that the benefits of XPHOZAH outweigh its risks nine to four as a monotherapy and ten to two, with one abstention, in combination with phosphate binder therapy.

In December 2022, the OND granted our appeal to the CRL for the NDA for XPHOZAH and directed the Division to work with us to develop an appropriate label for the commercialization of XPHOZAH.

We believe that a label could reflect an indication for patients whose hyperphosphatemia is insufficiently managed on binder therapy.

On February 13, 2023, we participated in a Type A meeting with the Division where we discussed the resubmission of the NDA, and the information to be contained in the resubmitted NDA.

We currently expect to resubmit the NDA for XPHOZAH early in the second quarter of 2023.

Within thirty (30) days of resubmitting the NDA, we expect to receive notification from the Division as to the classification of the resubmission (Class 1 or Class 2) at which point the expected timing for review will also be known (2-months for a Class 1 and 6-months for a Class 2) as well as a goal review date.

We currently that the FDA will act upon the XPHOZAH NDA in the second half of 2023, and that, if approved, we will launch XPHOZAH in the second half of 2023.

We have established commercial agreements with Kyowa Kirin, Co.

("KKC") in Japan, Fosun Pharma in China and Knight in Canada for tenapanor for hyperphosphatemia.

In October 2022, KKC submitted an NDA to the Japanese Ministry of Health, Labour and Welfare for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis.

Discovery and Developmental Assets

We have a small molecule potassium secretagogue program, RDX013, for the potential treatment of hyperkalemia, or elevated serum potassium.

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

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

While currently available therapies are all ion exchange agents, RDX013 is a first in class secretagogue with demonstrated proof of concept in a Phase 2 dose ranging study evaluating the safety and pharmacodynamics of RDX013 in adult patients with hyperkalemia.

The next steps for RDX013 will be determined based on final analyses of the Phase 2 results, continued formulation development, and sufficient financial resources.

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 completed a Phase 2 dose ranging clinical trial evaluating the safety and efficacy of RDX013 for the treatment of hyperkalemia in CKD patients who are not on dialysis.

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

We have a 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 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.

We do not currently expect to meaningfully advance either of these two assets until such time as we have determined our available resources can support additional activities after prioritization of the commercialization of IBSRELA and, if approved, XPHOZAH.

FINANCIAL OPERATIONS OVERVIEW

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

We have not generated any revenue from commercial product sales.

We currently expect to commence commercialization of IBSRELA in April 2022.

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

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

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

the extent to which we are successful in our efforts to commercialize IBSRELA;

whether we receive regulatory approval for tenapanor for the control of serum phosphorous in adult patients with CKD on dialysis (the “Hyperphosphatemia Indication”), and if such approval is received, the timing of such approval and the extent to which we are successful in our efforts to commercialize XPHOZAH for such indication;

the extent to which we are successful in our commercialization of IBSRELA;

whether we are able to gain approval from the FDA for our NDA for XPHOZAH;

our ability to obtain and sustain an adequate level of coverage and reimbursement for IBSRELA by third-party payors;

whether and the extent to which we are successful in our commercialization of XPHOZAH, if approved;

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

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

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

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

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

If we are not able to obtain market acceptance for IBSRELA;

if we are not successful in our efforts to obtain and sustain an adequate level of coverage and reimbursement for IBSRELA by third-party payors;

if we fail to obtain regulatory approval for tenapanor for the Hyperphosphatemia indication and/or our current collaboration partners or any future collaboration partners fail to obtain regulatory approval for tenapanor in their respective territories, our ability to generate future revenue from our product sales or from our collaborative arrangements, and our results of operations and financial position, would be materially and adversely affected.

addressing any competing technological and market developments;

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

attracting, hiring, and retaining qualified personnel;

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

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

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

See Note 2, Summary of Significant Accounting Policies, in the notes to our financial statements, included in Part II, Item 8, of this Annual Report on Form 10-K, for further details.

Cost of Revenue

Cost of revenue represents payments due to AstraZeneca AB (“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.

Cost of revenue consists of the cost of commercial goods sold to our Customers and international partners under product supply agreements, as well as 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 twelve months ended December 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.

We believe our cost of revenue for the year ended December 31, 2022 would have been $1.9 million higher if we had not previously expensed certain material and production costs with respect to the units sold.

As of December 31, 2022, we had approximately $28.0 million of inventory on hand that was previously expensed as research and development expense and will not be reported as cost of revenue sold in future periods when sales of IBSRELA are recognized as revenue.

Cost of revenue includes payments due to AstraZeneca AB (“AstraZeneca”), which under the terms of a termination agreement entered into in 2015 (“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).

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 recognized an aggregate of $11.6 million as cost of revenue under the AZ Termination Agreement since 2017.

To date, we have recognized an aggregate of $15.3 million as cost of revenue under the AZ Termination Agreement.

See details in Note 7, Collaboration and Licensing Agreements , under AstraZeneca, in the notes to our financial statements, included in Part II, Item 8, of this Annual Report on Form 10-K.

Research and Development

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

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

Pursuant to the October 2021 restructuring plan, we eliminated our internal research organization and we do not currently expect to meaningfully advance our discovery efforts with respect to our discovery and developmental assets until such time as we have determined our available resources can support additional activities after prioritization of the commercialization of IBSRELA and, if approved, XPHOZAH.

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

Research and development expenses include, but are not limited to, the following:

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• expenses associated with supplies and materials consumed in connection with our research operations;

• expenses associated with producing tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis prior to FDA approval;

• expenses associated with producing XPHOZAH prior to FDA approval;

• expenses associated with producing discovery and developmental assets prior to FDA approval;

• other costs associated with research, clinical development and regulatory activities;

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

General and Administrative

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

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

Selling, General and Administrative

Selling, general and administrative expenses relate to sales and marketing, finance, human resources, legal and other administrative activities, including information technology investments.

Selling, general and administrative expenses consist primarily of personnel costs, outside professional services, marketing, advertising and legal expenses, facilities costs not otherwise allocated to research and development and other general and administrative costs.

Interest Expense

Interest expense represents the interest paid on our loan payable.

Non-cash interest expense related to the sale of future royalties

Non-cash interest expense related to the sale of future royalties represents the imputed interest expense on our deferred royalty obligation related to the sale of future royalties using the effective interest method.

As further described in Note 8.

Deferred Royalty Obligation Related to the Sale of Future Royalties , in June 2022, we and HealthCare Royalty Partners IV, L.P.

(“HCR”) entered into a Royalty and Sales Milestone Interest Acquisition Agreement (“HCR Agreement”).

Under the terms of the HCR Agreement, HCR agreed to pay us up to $20.0 million in exchange for the royalty payments and commercial milestone payments (collectively the “Royalty Interest Payments”) that we may receive under our 2017 License Agreement with KKC based upon KKC's net sales of tenapanor in Japan for hyperphosphatemia.

As part of the HCR Agreement, we received a $10.0 million upfront payment from HCR in June 2022 and recorded it as a deferred royalty obligation on our balance sheet.

Non-cash interest expense will be recognized over the life of the HCR Agreement using the effective interest method based on the imputed interest rate derived from estimated amounts and timing of future royalty payments to be received from KKC.

Other Income, net

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

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, gains on sales of property and equipment, and currency exchange gains and losses.

Provision for Income Taxes

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Our deferred tax assets continue to be fully offset by a valuation allowance, including deferred tax assets related to our net operating loss carryforwards, which may be subject to annual limitations as a result of ownership changes that may have occurred or could occur in the future.

CRITICAL ACCOUNTING POLICES AND ESTIMATES

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

A detailed discussion of our significant accounting policies can be found in Note 2, Summary of Significant Accounting Policies , in the notes to our financial statements, included in Part II, Item 8, of this Annual Report on Form 10-K.

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These estimates form the basis for making judgments about the carrying values of assets and liabilities.

We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

We base our estimates and judgments on experience and on various other assumptions that we believe to be reasonable under the circumstances.

Actual results could differ materially from these estimates.

We consider certain accounting policies related to revenue recognition, accrued research and development expenses and stock-based compensation to be critical policies to understanding the judgments and estimates applied in our reported financial results.

Revenue Recognition

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

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 FDA in September 2019 to market IBSRELA in the U.S.

We began selling IBSRELA in the U.S.

in March 2022.

We distribute IBSRELA principally through major wholesalers, specialty pharmacies and group purchasing organizations ("GPOs") (collectively, our "Customers").

Our Customers subsequently sell IBSRELA to pharmacies and patients.

Separately, we enter into arrangements with third parties that provide for government-mandated 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 which may be settled in the form of off-invoice discounts, chargebacks, or rebates.

Variable consideration includes discounts to customers and government programs, wholesaler fees, group purchasing organization administrative fees, patient copay assistance, 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 gross accounts receivable if settlement is expected to occur through a reduction in the amounts paid by our Customers or a current liability if settlement is expected to occur through a payment from us.

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

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

Rebates include wholesaler fees, GPO fees, as well as mandated discounts under the Medicaid Drug Rebate Program ("Medicaid") and the Medicare Coverage Gap Program ("Medicare").

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 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 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 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.

Wholesalers, GPOs and specialty pharmacies are offered various forms of consideration, including off-invoice discounts which may be paid to GPOs and specialty pharmacies.

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

We expect discounts to be earned when offered and therefore, we deduct the full amount of these discounts 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 copay assistance when product is dispensed by pharmacies to patients.

We estimate the amount of copay 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 balance sheets.

Other reserves include estimated product returns which are recorded in the same period the related gross revenue is recognized, resulting in a reduction of product revenue as well as accounts receivable.

We estimate our product returns reserve based upon our experience, and specific known market events and trends.

Collaboration Revenue Recognition

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

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

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

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

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

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

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

To date, royalty revenue resulting from licensing arrangements has not been material.

Licenses of intellectual property :

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

time, to conclude upon the appropriate method of measuring progress for purposes of recognizing revenue related to consideration allocated to the performance obligation.

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

Customer options, such as options granted to allow a licensee to choose to research, develop and commercialize licensed compounds are evaluated at contract inception in order to determine whether those options provide a material right (i.

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

Otherwise, such costs are expensed as research and development.

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 or could be sold to our international partners under product supply agreements.

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 the cost of materials, 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 revenue in the statement of operations and comprehensive loss.

As of December 31, 2022, we have not recorded any write-offs for excess and obsolete inventory.

The portion of inventory that represents product that is not expected to be sold or used within the next 12 months is classified as non-current on our balance sheets.

Accrued Research and Development Expenses

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

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

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

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

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• investigative sites in connection with clinical studies;

• vendors related to contract manufacturing, development and distribution of clinical supplies;

• collaborator entities in connection with our collaboration agreements;

• vendors related to product manufacturing, development and distribution of clinical supplies;

• vendors in connection with preclinical development activities.

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

The financial terms of these agreements are subject to negotiation, vary from contract to

contract, and may result in uneven payment flows.

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

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

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Stock-Based Compensation

We estimate the fair value of stock options and Employee Stock Purchase Plan (“the ESPP”) shares using the Black-Scholes valuation model.

We estimate the fair value of stock options and Employee Stock Purchase Plan (“ESPP”) shares using the Black-Scholes valuation model.

The Black-Scholes model requires the input of highly subjective assumptions which determine the fair value of stock-based awards.

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(i) a specific performance criteria and (ii) the employee’s continuous employment by the company for a stated period of time in order to earn the right to the related PRSUs to vest.

The Company recognizes compensation cost with respect to the vesting of the PRSUs on a ratable basis over the requisite service period, upon the performance conditions being deemed probable of achievement.

We recognize compensation cost with respect to the vesting of the PRSUs on a ratable basis over the requisite service period, upon the performance conditions being deemed probable of achievement.

Restructuring

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

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

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

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2022 2021 2020 $ % $ %

Collaborative development revenue $ 4,177 $ 5,364 $ 459 $ (1,187) (22.1) % $ 4,905 1,068.6 %

Product sales, net $ 15,600 $ — $ — $ 15,600 (a) $ — (a)

Product supply revenue 1,527 907 1,501 620 68.4 % (594) (39.6) %

Licensing revenue 35,031 5,013 706 30,018 598.8 % 4,307 610.1 %

Collaborative development revenue — 4,177 5,364 (4,177) (100.0) % (1,187) (22.1) %

Total revenues $ 52,158 $ 10,097 $ 7,571 $ 42,061 416.6 % $ 2,526 33.4 %

(a) There were no product sales during the prior year period.

Fiscal 2022 compared to 2021 :

The increase to total revenues is primarily attributable to a $5.0 million development milestone which we earned and recognized as licensing revenue during the current year upon the initiation by KKC of phase 3 clinical studies in Japan to evaluate tenapanor for hyperphosphatemia.

The increase was partially offset by lower collaborative development revenue and product supply revenue from KKC during the current year.

The increase to total revenues was primarily attributable to $15.6 million of net product sales for IBSRELA to our Customers, as well as aggregate of $35.0 million in milestone payments and payments under the second amendment to the 2017 KKC Agreement which we earned upon KKC's submission of a New Drug Application to the Japanese Ministry of Health, Labour and Welfare for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis.

We also realized increased product supply revenue in connection with the 2017 KKC Agreement.

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

There were no product sales during 2021 and 2020.

Fiscal 2021 compared to 2020 :

The increase in our revenue was primarily attributable to $4.9 million higher collaborative development revenue recognized in connection with the KKC Agreement, which was entered into in November 2019, a $0.7 million licensing revenue recognized upon Knight’s achievement of a development milestone pursuant to the Knight Agreement and a $1.4 million increase in manufacturing supply of tenapanor and other materials sold to KKC in accordance with the 2017 KKC Agreement, partially offset by $3.0 million revenue related to achievement of a milestone pursuant to the Fosun agreement during the year ended December 31, 2019.

The increase to total revenues was primarily attributable to a $5.0 million development milestone which we earned and recognized as licensing revenue during the twelve months ended December 31, 2021 upon the initiation by KKC of Phase 3 clinical studies in Japan to evaluate tenapanor for hyperphosphatemia.

The increase was partially offset by lower collaborative development revenue and product supply revenue from KKC during the same period.

Operating Expenses

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Research and development 35,201 91,140 65,053 (55,939) (61.4) % 26,087 40.1 %

General and administrative 72,303 33,153 24,267 39,150 118.1 % 8,886 36.6 %

Selling, general and administrative 76,599 72,303 33,153 4,296 5.9 % 39,150 118.1 %

Total operating expenses $ 115,917 $ 164,443 $ 98,351 $ (48,526) (29.5) % $ 66,092 67.2 %

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Fiscal 2022 compared to 2021 :

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

The increase in cost of revenue was primarily attributable to payments due to AstraZeneca under the AZ Termination Agreement for IBSRELA product sales, net and for the milestone payment we received under the second amendment to the 2017 KKC Agreement, which we earned upon KKC's submission of a New Drug Application to the Japanese Ministry of Health, Labour and Welfare for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis.

We also incurred $0.5 million for the cost of product shipped for product sales of IBSRELA during the twelve months ended December 31, 2022.

Fiscal 2021 compared to 2020 :

Cost of revenue was $0.1 million for the year ended December 31, 2020, a decrease of $0.5 million, or 75.8%, compared to $0.6 million for the year ended December 31, 2019.

Cost of revenue in both periods is the portion of tenapanor-related upfront and milestone payment from our collaboration partners that we are required to make to AstraZeneca under the AstraZeneca Termination Agreement.

The increase in cost of revenue was attributable to payment 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.

Research and Development

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Fiscal 2022 compared to 2021 :

The increase in our external R&D expenses is the result of tenapanor manufacturing costs as well as clinical study costs from the advancement of our OPTIMIZE study which were partially offset by lower costs for the PHREEDOM clinical study.

The increase in our employee-related expenses is related to compensation and benefits expenses for our research and development workforce.

Employee-related expenses for twelve months ended December 31, 2021 include $2.7 million severance payments and other employee-related costs as discussed in Note 11 - Restructuring to the financial statements included elsewhere in this Annual Report.

The decrease in our external R&D expenses was primarily the result of lower clinical study costs following the completion of 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 internal research organization in the fourth quarter of 2021.

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

Similarly, the decrease in facilities, equipment and depreciation expenses is primarily due to a smaller proportion of such expenses being attributed to R&D following the restructuring in 2021.

The increase in other expenses is primarily related to disease-related education grants during the twelve months ended December 31, 2022.

Fiscal 2021 compared to 2020 :

The decrease in our external R&D expenses for the year ended December 31, 2020 primarily includes a $9.7 million decrease in our tenapanor-related expenses, partially offset by $3.0 million of higher expenses attributable to KKC Research Agreement-related research and general R&D expenses.

Of the overall tenapanor-related decrease, approximately $11.0 million relates to lower clinical study costs due to the winding down of expenses associated with our Phase 3 clinical program for tenapanor for the control of hyperphosphatemia, offset by an out-of-period adjustment recorded during 2019 that reduced clinical trial expenses by $3.6 million related to our tenapanor clinical trials for the nine months ended September 30, 2019;

and approximately $2.9 million related to lower manufacturing expenses due to reduced validation related expenses for tenapanor in 2020 as compared to 2019;

offset by an increase of $3.1 million related to regulatory expenses that includes $2.9 million paid to the FDA for the filing of a NDA for tenapanor for the control of serum phosphorus in adult patients with CKD on dialysis in June 2020.

General and Administrative

The increase in our external R&D expenses was the result of tenapanor manufacturing costs as well as clinical study costs from the advancement of our OPTIMIZE study which were partially offset by lower costs for the PHREEDOM clinical study.

The increase in our employee-related expenses was related to compensation and benefits expenses for our research and development workforce.

Employee-related expenses for twelve months ended December 31, 2021 include $2.7 million of severance payments and other employee-related costs as discussed in Note 14 - Restructuring to the financial statements included elsewhere in this Annual Report.

Selling, General and Administrative

Fiscal 2022 compared to 2021 :

The increase in selling, general and administrative expenses for the twelve months ended December 31, 2022 was primarily due to increased costs associated with the commercial launch of IBSRELA during 2022.

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

These increases were partially offset by a reduction in ongoing and one-time costs as a result of the restructuring action carried out during the third quarter of 2021.

Fiscal 2021 compared to 2020 :

The increase in general and administrative expenses was primarily due to increased costs associated with building and staffing our commercial infrastructure and teams as we prepared for a potential U.S.

launch of tenapanor.

launch of XPHOZAH.

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

General and administrative expenses for the twelve months ended December 31, 2021 include $3.5 million severance payments and other employee-related costs as discussed in Note 11 - Restructuring to the financial statements included elsewhere in this Annual Report.

Selling, general and administrative expenses for the twelve months ended December 31, 2021 include $3.5 million severance payments and other employee-related costs as discussed in Note 14 - Restructuring to the financial statements included elsewhere in this Annual Report.

Interest Expense

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

Year Ended December 31, Change

2022 2021 2020 $ % $ %

Interest expense $ (3,400) $ (4,502) $ (5,099) $ 1,102 (24.5) % $ 597 (11.7) %

Fiscal 2022 compared to 2021 :

The increase in general and administrative expenses for the year ended December 31, 2020 was primarily due to an increase in costs associated with building and staffing our commercial infrastructure and teams as we prepare for the anticipated U.S.

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

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

The decrease in interest expense was due to lower principal outstanding on our loan payable in 2022 than in 2021 due to principal payments made on our 2018 Loan during the fourth quarter of 2021 through February 2022.

In February 2022, we repaid the remaining outstanding principal balance of the 2018 Loan in the amount of $25.0 million and entered into the new 2022 Loan in the amount of $27.5 million which has an interest-only payment period through March 31, 2024.

Fiscal 2021 compared to 2020 :

The decrease in interest expense was primarily due to lower interest rates on our variable-rate term loan.

Non-Cash Interest Expense Related to the Sale of Future Royalties

Below is a summary of our non-cash interest expense related to the sale of future royalties (dollars in thousands):

Year Ended December 31, Change

2022 2021 2020 $ % $ %

Non-cash interest expense related to the sale of future royalties $ (1,673) $ — $ — $ (1,673) (a) $ — (a)

(a) Percent change is not meaningful.

Fiscal 2022 compared to 2021 :

Non-cash interest expense related to the sale of future royalties reflects the recognized amortization of the deferred royalty obligation that we recorded following the receipt of the $10.0 million upfront payment from HCR in June 2022.

Other Income, net

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2022 2021 2020 $ % $ %

Interest expense $ (4,502) $ (5,099) $ (5,726) $ 597 (11.7) % $ 627 (11.0) %

Other income, net $ 1,633 $ 687 $ 1,568 $ 946 137.7 % $ (881) (56.2) %

Total other income, net $ (3,815) $ (3,531) $ (3,374) $ (284) 8.0 % $ (157) 4.7 %

Fiscal 2022 compared to 2021 :

The decrease in interest expense was primarily due to lower interest rates on our variable-rate term loan.

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

The increase in other income, net was primarily due to sales of certain lab equipment and supplies for a net gain of $1.5 million and increased investment income during the twelve months ended December 31, 2022.

Partially offsetting these increases were fluctuations related to revaluation of our exit fees.

Fiscal 2021 compared to 2020 :

The decrease in interest expense for the year ended December 31, 2020 was primarily due to lower interest rates on our variable-rate term loan.

The decrease in other income, net for the year ended December 31, 2020 was primarily due to a decrease in investment income, a lower exit fee revaluation adjustment related to our loan agreement and a decrease in currency exchange losses.

The changes in other income, net were primarily due to lower income earned on our investments, which was largely offset by the revaluation of our exit fee related to our term loan agreement following receipt of the FDA CRL on July 28, 2021.

LIQUIDITY AND CAPITAL RESOURCES

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

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

Year Ended December 31, Change

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Short-term investments 27,769 44,261 (16,492) (37.3) %

Long-term investments — 2,114 (2,114) (100.0) %

Total liquid funds $ 123,909 $ 116,689 $ 7,220 6.2 %

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

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

Our current level of cash and investments alone is not sufficient to meet our plans for the next twelve months following the filing of these financial statements on February 28, 2022.

As of December 31, 2022, we had cash and short-term investments of approximately $123.9 million.

We have incurred operating losses since inception in 2007 and our accumulated deficit as of December 31, 2022 is $780.1 million.

Our current level of cash and short-term investments alone is not sufficient to meet our plans for the next twelve months following the filing of these financial statements on March 2, 2023.

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 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 short-term investments, cash generated from product sales of IBSRELA, and if approved, cash generated from sales of XPHOZAH, the potential receipt of anticipated milestone payments from our collaboration partners, the potential receipt of anticipated payments from KKC under the 2022 Amendment, with additional financing sources and 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.

If our current cash and short-term investments as well as our plans to meet our operating cash flow requirements are not sufficient to fund necessary expenditures and meet our obligations for at least the next twelve months following the issuance of these financial statements, our liquidity, financial condition and business prospects will be materially affected.

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

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

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

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

of common stock sold under the 2020 Open Market Sales Agreement.

We sold a cumulative total of 23.3 million shares and received gross proceeds of $100.0 million at a weighted average sales price of approximately $4.30 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.

In July 2020, we filed a Form S-3 registration statement, which became effective in August 2020 ("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 an Open Market Sales Agreement with Jefferies LLC ("Jefferies"), as sales agent, deemed to be “at the market offerings” "2020 Open Market Sales Agreement").

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

As of December 31, 2021, we had sold 23.3 million shares and received the maximum gross proceeds of $100.0 million pursuant to the 2020 Open Market Sales Agreement.

In August 2021, we filed an additional prospectus supplement under the 2020 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 ("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.

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As of December 31, 2022 we have sold 79.8 million shares and received gross proceeds of $98.1 million at a weighted average sales price of approximately $1.23 per share under the 2021 Open Market Sales Agreement.

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

and Western Alliance Bank (“the Lenders”).

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

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

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

On October 9, 2020, we and the Lenders entered into an amendment to the 2018 Loan Agreement (“the 2020 Amendment”), as defined and discussed in Note 6, Borrowing , to extend the date through which we were permitted to make interest-only payments on the 2018 Term Loan by twelve months to December 1, 2021.

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

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

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

During November 2021, in compliance with the terms of our 2018 Loan Agreement, we paid the first principal repayment on the loan in the amount of $16.7 million.

See Note 6, Borrowings , in the notes to our financial statements, included in Part II, Item 8, for details on our 2018 Loan Agreement.

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

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

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

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

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

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

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.

Subsequent to December 31, 2022, we received additional gross proceeds of $20.0 million for the sale of an additional 7.7 million shares which were settled between January 1, 2023 to January 12, 2023 and were sold at a weighted average sales price of approximately $2.60 per share under the 2021 Open Market Sales Agreement.

There have been no other sales under the 2021 Open Market Sales Agreement after the January 12, 2023 settlement date.

In January 2023, we filed a Form S-3 registration statement, which became effective in January 2023 ("2023 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 $150.0 million of our common stock that may be issued and sold, from time to time, under a sales agreement with Jefferies, deemed to be “at-the-market offerings” ("2023 Open Market Sales Agreement").

Pursuant to the 2023 Open Market Sales Agreement, Jefferies, as sales agent, may receive a commission of up to 3.0% of the gross sales price for shares of common stock sold under the 2023 Open Market Sales Agreement.

There have been no sales of our common stock under the 2023 Open Market Sales Agreement.

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

The 2022 Loan Agreement provides for a senior secured term loan facility, with $27.5 million funded at closing and an additional $22.5 million that we may borrow on or prior to July 25, 2023;

provided that (i) we had received approval by the FDA for our NDA for XPHOZAH by December 31, 2022, and (ii) we have achieved certain product revenue milestone targets described in the 2022 Loan Agreement.

In August 2022, we entered into an amendment to the 2022 Loan Agreement with SLR that extended the date by which we must receive approval by the FDA for our NDA for XPHOZAH in order to borrow the additional $22.5 million from December 31, 2022 to March 31, 2023.

In February 2023, we further amended the 2022 Loan Agreement (“2023 Amendment”) such that, we may borrow the additional $22.5 million under the 2022 Loan Agreement until December 20, 2023;

provided that (i) we have received FDA approval for our NDA for XPHOZAH by November 30, 2023, or (ii) we have achieved certain product revenue milestone targets described in the 2023 Amendment.

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

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

In connection with entering into the 2022 Loan Agreement, we entered into an agreement, whereby we agreed to pay an exit fee in the amount of 2% of the 2022 Loan funded (“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 ("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 balance sheets.

In October 2022, we announced that our collaboration partner, KKC, submitted a New Drug Application to the Japanese Ministry of Health, Labour and Welfare for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis.

In accordance with the terms of the 2022 Amendment, KKC paid an aggregate of $35.0 million to us in milestone payments and payments associated with the 2022 Amendment during the quarter ended December 31, 2022.

Our primary sources of cash have been from the sale and issuance of common stock (in both public offerings and private placements), private placements of convertible preferred stock, funds from our collaboration partnerships, funds from our 2018 Loan Agreement and 2022 Loan Agreement, as well as from sales of IBSRELA.

Our primary uses of cash have been to fund operating expenses, primarily research and development expenditures, as well as 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.

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

Our future funding requirements will depend on many factors, including, but not limited to:

• 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 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 the time and cost associated with such path;

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

• the manufacturing costs of IBSRELA and XPHOZAH;

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

• whether we are successful in securing approval for our NDA for XPHOZAH, and the time and cost associated with securing such approval;

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

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

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

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

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

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

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

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

• the timing, receipt, and amount of royalties we may receive as a result of sales of tenapanor by our collaboration partners in China and Canada, if any;

• the cash requirements for the discovery and/or development of other potential product candidates, including RDX013 and RDX020;

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

9 unchanged sentences

Net cash provided by financing activities 75,341 82,999 22,776 (7,658) (9.2) % 60,223 264.4 %

Net (decrease) increase in cash and cash equivalents $ (18,604) $ (90,101) $ 102,365 $ 71,497 (79.4) % $ (192,466) (188.0) %

Net increase (decrease) in cash and cash equivalents $ 23,712 $ (18,604) $ (90,101) $ 42,316 (227.5) % $ 71,497 (79.4) %

Cash Flows from Operating Activities

Fiscal 2022 compared to 2021 :

Net cash used in operating activities during the twelve months ended December 31, 2022 decreased by $82.5 million primarily as a result of decreased spending on research and development expenses during the twelve months ended December 31, 2022 as compared to the twelve months ended December 31, 2021, as well net product sales of IBSRELA and $35.0 million of milestone payments and payments under the second amendment to the 2017 KKC Agreement which we earned in 2022 upon KKC's submission of a New Drug Application to the Japanese Ministry of Health, Labour and Welfare for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis.

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.

Fiscal 2021 compared to 2020 :

Net cash used in operating activities during the year ended December 31, 2021 increased by $71.1 million as a result of our increased net loss for the period.

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

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

launch of XPHOZAH.

In addition to the increased net loss, cash flows related to our operating assets and liabilities increased in the amount of $8.7 million.

Fiscal 2020 compared to 2019 :

Net cash used in operating activities during the year ended December 31, 2020 increased $5.0 million as compared to the prior year.

The most significant factors that contributed to the increase was primarily a $6.2 million decrease to changes in operating assets and liabilities, primarily driven by cash received in 2019 and reported as deferred revenue for the KKC Research Agreement that was recognized as revenue in 2020, offset by a $0.6 million increase in non-cash charges and $0.6 million decrease to the net loss.

Cash Flows from Investing Activities

Fiscal 2022 compared to 2021 :

Net cash provided by investing activities increased by $82.4 million as our investment maturities increased to exceed the cost to purchase investments.

Net cash provided by investing activities decreased by $32.5 million due to lower investment balances and the timing of our investment maturities, which was partially offset by $1.8 million proceeds from sale of laboratory equipment and supplies during the twelve months ended December 31, 2022.

Fiscal 2021 compared to 2020 :

Net cash provided by investing activities decreased by $54.8 million during the year ended December 31, 2020, as compared to the year ended December 31, 2019.

This decrease was attributable to a $48.2 million

increase in purchases of available-for-sale investments and a decrease in proceeds from maturities and redemptions of short-term investments of $6.6 million.

Net cash provided by investing activities increased by $82.4 million as our investment maturities increased to exceed the cost to purchase investments.

Cash Flows from Financing Activities

Fiscal 2022 compared to 2021 :

Net cash provided by financing activities increased by $60.2 million due to net proceeds from issuance of our common stock pursuant to our at-the-market offerings, which were partially offset by principal repayments for our loan payable.

Net cash provided by financing activities decreased by $7.7 million primarily due to $29.5 million lower proceeds from issuance of common stock under at-the-market offerings and well as increased payments in the amount of $13.6 million to repay the principal outstanding on the 2018 Loan.

Partially offsetting these amounts were $27.0 million net proceeds received from the 2022 Loan and $9.6 million net proceeds from the sales of future royalties during the twelve months ended December 31, 2022

Fiscal 2021 compared to 2020 :

Net cash provided by financing activities decrea sed by $132.7 million during the year ended December 31, 2020, as compared to the year ended December 31, 2019.

This decrease was predominantly attributable to $134.9 million in net proceeds received in connection with underwritten public offering initiatives that was received in 2019 but did not recur in 2020.

This decrease was partially offset by $2.4 million net additional proceeds received in 2020 as compared to 2019 from sales of our common stock pursuant to our at-the-market sales agreement with Jefferies LLC, employee stock plan purchases and option exercises, and the 2019 sale of common stock in the Private Placement with KKC.

SMALLER REPORTING COMPANY AND NON-ACCELERATED FILER STATUS

On June 28, 2018, the SEC adopted amendments that raise the thresholds in the smaller reporting company ("SRC") definition, whereby we were determined to qualify as an SRC.

We elected to reflect that determination and avail ourselves with most of the SRC scaled disclosure accommodations in our filings subsequent to the adoption.

On June 28, 2018, the SEC adopted amendments that raise the thresholds in the smaller reporting company ("SRC") definition, whereby we were determined to qualify as a SRC.

On March 12, 2020, the SEC amended its rules to allow SRCs that have less than $100.0 million in annual revenue and a public float of less than $700.0 million to qualify as a non-accelerated filer.

As a non-accelerated filer, we were not required to obtain an opinion of our independent auditors with respect to our internal controls over financial reporting for the periods through December 31, 2020.

On June 30, 2021, our public float exceeded $700.0 million and therefore, as of December 31, 2021, we no longer qualify as an SRC and are considered a large accelerated filer.

The disclosures contained within this Annual Report on Form 10-K have been expanded accordingly.

As a non-accelerated filer, we were not required to obtain an opinion of our independent auditors with respect to our internal controls over financial reporting as of December 31, 2020.

On June 30, 2022, our public float did not exceed $700.0 million and we had less than $100.0 million in annual revenue, thereby allowing us to qualify as a SRC and a non-accelerated filer as of December 31, 2022.

We have determined to avail ourselves of most of the SRC scaled disclosure accommodations and we were not required to obtain an opinion of our independent auditors with respect to our internal controls over financial reporting for the period ended December 31, 2022.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis