What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-02 compared with 2022-02-28 · 492 added, 369 removed, 657 unchanged (57% of the section changed)

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We have audited the accompanying balance sheets of Ardelyx, Inc.

(the “Company”) as of December 31, 2021 and 2020, the related statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

(“Company”) as of December 31, 2022 and 2021, the related statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S.

generally accepted accounting principles.

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

The Company’s Ability to Continue as a Going Concern

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Our responsibility is to express an opinion on the Company‘s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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

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

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

Accordingly, we express no such opinion.

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

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

Accounting for Restructuring activities

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Estimates of Reserves for Variable Consideration

Description of the Matter As described in Note 2 to the financial statements, the Company recognizes revenues from product sales at the net sales price (transaction price), which includes estimates of variable consideration relating to off-invoice discounts, chargebacks or rebates, wholesaler fees, group purchasing organization administrative fees, patient copay assistance programs, and estimated product returns.

These estimates are based on the amounts earned or to be claimed for related sales which may not be known at the point of sale.

Government-mandated rebates under the Medicaid Drug Rebate Program (“Medicaid”) and the Medicare Coverage Gap Program (“Medicare") are estimated based on estimated payor mix and statutory discount rates.

Patient copay assistance program amounts are estimated based on terms of the program and redemption information provided by third-party claims processing organizations.

Product returns are estimated based on the Company’s experience and specific known market events and trends.

The Company’s total estimate of reserves for variable consideration was $2.8 million as of December 31, 2022.

During 2022, the Company recorded $6.0 million in total reductions to gross commercial product sales as a result of reserves for variable consideration.

Auditing the Company’s estimates of reserves for variable consideration relating to Medicaid and Medicare claims, patient copay assistance and product returns involved evaluation of management’s subjective judgments regarding the reasonableness of various assumptions used.

The Company has a limited history upon which to base such estimates, and changes in these estimated assumptions may have a material effect on the amount of reserves recorded for variable consideration.

How We Addressed the Matter in Our Audit To test the Company’s estimates of reserves for variable consideration relating to Medicaid and Medicare claims, patient copay assistance and product returns, our audit procedures included, among others, evaluating the methodologies and assumptions used and testing the accuracy and completeness of the underlying data used in the Company’s analysis.

We evaluated the assumptions used by management against third-party industry data and actual trends, evaluated the reasonableness of changes in estimated reserves during the year, and assessed the accuracy of the Company’s estimates against actual results.

We also performed sensitivity analyses to determine the effect of changes in management’s assumptions on the amount of reserves recorded for variable consideration, where appropriate.

Further, we evaluated the appropriateness of classification and disclosure of the Company’s reserves for variable consideration in the financial statements.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2009.

Redwood City, California

February 28, 2022

San Mateo, California

March 2, 2023

ARDELYX, INC.

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Accounts receivable 7,733 502

Inventory 3,282 —

Prepaid commercial manufacturing 13,567 9,406

Prepaid expenses and other current assets 5,112 7,052

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Property and equipment, net 1,223 2,362

Long-term investments — 2,114

Inventory, non-current 25,064 —

Right-of-use assets 9,295 12,752

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Current portion of operating lease liability 3,894 3,492

Loan payable, current portion 32,264 4,167

Current portion of long-term debt 26,711 32,264

Deferred revenue 4,211 —

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Operating lease liability, net of current portion 5,855 9,748

Loan payable, net of current portion — 46,621

Deferred revenue, non-current 9,025 4,727

Deferred royalty obligation related to the sale of future royalties 11,254 —

Total liabilities 91,737 67,296

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Accumulated deficit ( 780,137 ) ( 712,930 )

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

Accumulated other comprehensive loss ( 54 ) ( 6 )

Total stockholders’ equity 98,329 82,617

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2022 2021 2020

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

Product sales, net $ 15,600 $ — $ —

Product supply revenue 1,527 907 1,501

Licensing revenue 35,031 5,013 706

Collaborative development revenue — 4,177 5,364

Total revenues 52,158 10,097 7,571

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Research and development 35,201 91,140 65,053

General and administrative 72,303 33,153 24,267

Selling, general and administrative 76,599 72,303 33,153

Total operating expenses 115,917 164,443 98,351

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Interest expense ( 3,400 ) ( 4,502 ) ( 5,099 )

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

Other income, net 1,633 687 1,568

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Net loss $ ( 67,207 ) $ ( 158,165 ) $ ( 94,313 )

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

Net loss per share of common stock - basic and diluted $ ( 0.42 ) $ ( 1.52 ) $ ( 1.05 )

Shares used in computing net loss per share - basic and diluted 158,690,083 104,205,645 89,582,138

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Net loss $ ( 67,207 ) $ ( 158,165 ) $ ( 94,313 )

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

Unrealized losses on available-for-sale securities ( 48 ) ( 2 ) ( 24 )

Comprehensive loss $ ( 67,255 ) $ ( 158,167 ) $ ( 94,337 )

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

Unrealized gains on available-for-sale securities — — — — 58 58

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

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

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

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

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

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

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

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

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

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

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

Unrealized losses on available-for-sale securities — — — — ( 2 ) ( 2 )

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

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Issuance of common stock upon vesting of restricted stock units 3,243,828 — — — — —

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

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

Unrealized gains on available-for-sale securities — — — — ( 2 ) ( 2 )

Issuance of common stock in at the market offering 64,114,542 7 71,618 — — 71,625

Stock-based compensation — — 10,750 — — 10,750

Unrealized losses on available-for-sale securities — — — — ( 48 ) ( 48 )

Net loss — — — ( 67,207 ) — ( 67,207 )

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

Depreciation expense 1,441 1,824 2,501

Amortization of deferred financing costs 638 496 670

Amortization of deferred compensation for services 240 313 309

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

Depreciation and amortization expense 1,144 2,807 2,541

Non-cash lease expense 3,457 3,085 2,147

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Change in derivative liabilities 583 ( 678 ) 407

Non-cash interest associated with debt discount accretion 283 413 478

Debt refinancing costs 102 — —

Gain on sale of equipment ( 1,260 ) — —

Non-cash interest expense 1,962 283 413

Changes in operating assets and liabilities:

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Accounts receivable ( 7,231 ) ( 502 ) —

Inventory ( 28,346 ) — —

Prepaid commercial manufacturing ( 4,161 ) ( 9,406 ) —

Prepaid expenses and other assets 2,299 502 ( 4,653 )

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Purchases of investments ( 50,328 ) ( 72,735 ) ( 150,852 )

Proceeds from sale of property and equipment 1,798 — —

Purchases of property and equipment ( 55 ) ( 1,867 ) ( 324 )

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Financing activities

Proceeds from underwritten public offering, net of issuance costs — — 134,927

Proceeds from issuance of common stock upon private placement, net of issuance costs — — 19,975

Proceeds from 2022 Loan, net of issuance costs 26,971 — —

Payments for 2018 Loan, net of costs ( 33,038 ) ( 19,444 ) ( 125 )

Proceeds from the sale of future royalties, net of issuance costs 9,581 — —

Proceeds from issuance of common stock in at the market offering, net of issuance costs 71,625 101,146 21,047

Proceeds from issuance of common stock under equity incentive and stock purchase plans 202 1,403 1,854

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

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

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

Net cash provided by financing activities 75,341 82,999 22,776

Net (decrease) increase in cash and cash equivalents ( 18,604 ) ( 90,101 ) 102,365

Net increase (decrease) in cash and cash equivalents 23,712 ( 18,604 ) ( 90,101 )

Cash and cash equivalents at beginning of period 72,428 91,032 181,133

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Issuance of common stock for services $ 390 $ 190 $ 310

Issuance of derivative in connection with issuance of loan payable $ 375 $ — $ —

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

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Ardelyx, Inc.

(the “Company,” “we,” “us” or “our”) is a biopharmaceutical company founded with a mission to discover, develop and commercialize innovative first-in-class medicines that meet significant unmet medical needs.

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

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

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

(“Company,” “we,” “us” or “our”) is a biopharmaceutical company founded with a mission to discover, develop and commercialize innovative first-in-class medicines that meet significant unmet medical needs.

We 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 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 phase asset, RDX020 for adult patients with metabolic acidosis, a serious electrolyte disorder, in patients with CKD.

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

Prior Period Errors

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

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

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

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

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

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

Use of Estimates

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes.

GAAP requires management to make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes thereto.

On an ongoing basis, management evaluates its estimates, including those related to recognition of revenue, clinical trial accruals, contract manufacturing accruals, fair value of assets and liabilities, income taxes and stock-based compensation.

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Actual results could materially differ from those estimates.

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

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

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

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 issuance 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 milestones from our collaboration partners, our ability to access the capital markets, as well as through the implementation of cash preservation activities to reduce or defer discretionary spending.

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, our potential receipt of anticipated milestones payments from our collaboration partners, our potential receipt of anticipated payments from our Japanese collaboration partner under the second amendment to our License Agreement, 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.

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

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

Unrealized gains and losses on available-for-sale securities are included in accumulated other comprehensive loss on our balance sheets.

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

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A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Revenue Recognition

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

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

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

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

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

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

Accounts Receivable

Accounts receivable is reported net of allowances for returns, chargebacks and contractual off-invoice and prompt-pay discounts offered to our customers.

Our estimate of the allowance for doubtful accounts is based on an evaluation of the aging of our receivables.

Trade receivable balances are written off against the allowance when it is probable that the receivable will not be collected.

To date, we have determined that an allowance for doubtful accounts is not required.

As of December 31, 2022 our accounts receivable balance was comprised of $ 0.7 million from our collaboration agreements and $ 7.0 million from commercial customers.

As of December 31, 2021 our accounts receivable balance was comprised of $ 0.5 million from our collaborators.

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.

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.

A 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.

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

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

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

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

(ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract;

(iii) measurement of the transaction price, including the constraints on variable consideration;

(iii) measurement of the transaction price, including any constraints on variable consideration;

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

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

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

In order to recognize revenue over the research and

development period, we measure actual costs incurred to date compared to the overall total expected costs to satisfy the performance obligation.

Revenues are recognized as the program costs are incurred.

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

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

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

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

Milestone Payments:

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

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

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

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

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

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

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

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

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

Licenses of intellectual property:

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

The Company allocates the transaction price to material rights based on the standalone selling price, and revenue is recognized when or as the future goods or services are transferred or when the option expires.

We allocate the transaction price to material rights based on the standalone selling price, and revenue is recognized when or as the future goods or services are transferred or when the option expires.

Customer options that are not material rights do not give rise to a separate performance obligation, and as such, the additional consideration that would result from a customer exercising an option in the future is not included in the transaction price for the current contract.

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or (iii) a combination of the preceding treatments.

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

our standalone selling prices of the additional promised goods or services.

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

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

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

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

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

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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.

Cost of Revenue

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.

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.

Cost of revenue includes payments due to 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 as a result of the development and commercialization of tenapanor or certain other NHE3 inhibitors.

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

We recognize these expenses as cost of revenue when we recognize the corresponding revenue that gives rise to payments due to AstraZeneca.

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

Research and Development Costs

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

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

We 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 our service providers and make adjustments if necessary.

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

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

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

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

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

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

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

Stock-Based Compensation

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

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

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

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

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

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

Non-cash Interest Expense on Deferred Royalty Obligation

The net proceeds we receive from the sale of certain future royalties are recorded as deferred royalty obligation related to the sale of future royalties on our balance sheets.

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 and non-cash interest expense related to the sale of future royalties is recorded using the effective interest method.

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.

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

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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.

when management has committed to a plan of termination, the plan identifies the employees and their expected termination dates, the details of termination benefits are complete, it is unlikely changes to the plan will be made or the plan will be withdrawn and communication to such employees has occurred, and (c) contract termination costs when a contract is terminated before the end of its term.

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

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Net Loss per Share

Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration of potential common shares.

Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, without consideration of potential shares of common stock.

Diluted net loss per common share in the periods presented is the same as basic net loss per common share, since the effects of potentially dilutive securities are antidilutive due to the net loss for all periods presented.

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New Accounting Pronouncements - Recently Adopted

In December 2019, as part of its initiative to reduce complexity in the accounting standards, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes.

The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.

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

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

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

CASH AND INVESTMENTS

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

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

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Securities classified as cash, cash equivalents and short-term investments as of December 31, 2022 and 2021 are summarized below (in thousands):

December 31, 2022

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Cash and cash equivalents:

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

Cash $ 11,827 $ — $ — $ 11,827

Money market funds 84,313 — — 84,313

Total cash and cash equivalents 96,140 — — 96,140

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Corporate bonds 1,000 — ( 1 ) 999

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

treasury notes — — — —

government-sponsored agency bonds 1,487 — ( 8 ) 1,479

Total short-term investments 27,823 6 ( 60 ) 27,769

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Cash and cash equivalents:

Cash $ 1,253 $ — $ — $ 1,253

Money market funds 71,175 — — 71,175

Commercial Paper — — — —

Cash 781 — — 781

Corporate bonds — — — —

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

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Corporate bonds 7,025 — ( 3 ) 7,022

government-sponsored agency bonds 9,277 2 — 9,279

treasury notes 1,000 — — 1,000

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

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

Long-term investments:

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

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

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

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

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

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

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

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

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

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

The long-term securities held as of December 31, 2020 had contractual maturities greater than one year .

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

All of the short-term available-for sale securities held as of December 31, 2022 and 2021 had contractual maturities of less than one year .

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

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When we evaluate an investment for other-than-temporary impairment, we review factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, intent to sell, and whether it is more likely than not we will be required to sell the investment before the recovery of its cost basis.

If an investment is other-than-temporarily impaired, we write it down through the statement of operations to its fair value and establishes that value as a new cost basis for the investment.

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

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

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

Amortized Cost Fair Value

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

If an investment is other-than-temporarily impaired or subject to credit losses, we write it down through the statement of operations and comprehensive loss to its fair value and establish that value as a new cost basis for the investment.

Our unrealized losses as of December 31, 2022 and 2021 were not material.

We determined that none of our available-for-sale securities were other-than-temporarily impaired as of December 31, 2022 and 2021, and no investment was in a continuous unrealized loss position for more than one year.

As such, we believe that it is more likely than not that the investments will be held until maturity or a forecasted recovery of fair value.

FAIR VALUE MEASUREMENTS

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The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:

Level 1 – Valuations are based on quoted prices in active markets for identical assets or liabilities and readily accessible by the Company at the reporting date.

Examples of assets and liabilities utilizing Level 1 inputs are certain money market funds, U.S.

treasuries and trading securities with quoted prices on active markets.

Level 1 – Valuations are based on quoted prices in active markets for identical assets or liabilities and readily accessible to us at the reporting date.

Level 2 – Valuations based on inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;

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or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Examples of assets and liabilities utilizing Level 2 inputs are corporate bonds, commercial paper, certificates of deposit and over-the-counter derivatives.

Level 3 – Valuations based on unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions.

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

Level 3 – Valuations based on unobservable inputs for which there is little or no market data, which require us to develop our own assumptions.

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

December 31, 2022

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Commercial paper 25,291 — 25,291 —

government-sponsored agency bonds 1,479 — 1,479 —

Corporate bonds 999 — 999 —

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

Total $ 112,082 $ 84,313 $ 27,769 $ —

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

Derivative liabilities for exit fees $ 1,656 $ — $ — $ 1,656

Total $ 1,656 $ — $ — $ 1,656

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Corporate bonds 7,022 — 7,022 —

government-sponsored agency bonds 9,279 — 9,279 —

treasury notes 1,000 — 1,000 —

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

Total $ 115,436 $ 71,175 $ 44,261 $ —

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Where quoted prices are available in an active market, securities are classified as Level 1.

We classify money market funds, U.S.

treasury securities and U.S.

treasury notes as Level 1.

We classify money market funds as Level 1.

When quoted market prices are not available for the specific security, we estimate fair value by using benchmark yields, reported trades, broker/dealer quotes and issuer spreads.

We classify corporate bonds, commercial paper, asset-backed securities and foreign currency derivative contracts as Level 2.

In certain cases, where there is limited activity or less transparency around inputs to valuation, securities or derivative liabilities such as the 2018 Exit Fee, as defined and discussed in Note 7 - Derivative Liability , are classified as Level 3.

The carrying amounts reflected in the balance sheets for cash equivalents, short-term investments, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values at both December 31, 2021 and December 31, 2020, due to their short-term nature.

We classify U.S.

government-sponsored agency bonds, U.S.

treasury notes, corporate bonds, commercial paper, and asset-backed securities as Level 2.

In certain cases, where there is limited activity or less transparency around inputs to valuation, securities or derivative liabilities, such as the 2018 Exit Fee and 2022 Exit Fee, as defined and discussed in Note 10.

Derivative Liabilities , are classified as Level 3.

Based on our procedures under the expected credit loss model, including an assessment of unrealized losses in our portfolio, we concluded that any unrealized losses on our marketable securities were not attributable to credit and, therefore, we have no t recorded an allowance for credit losses for these securities as of December 31, 2022 and 2021.

Fair Value of Debt

The interest rate of our term loan facility approximates the rate at which we could obtain alternative financing.

Therefore, the carrying amount of the term loan facility approximated its fair value at December 31, 2021 and 2020.

The principal amount outstanding under our term loan facilities is subject to a variable interest rate.

Therefore, we believe the carrying amount of the term loan facility approximates fair value as of December 31, 2022 and 2021.

Borrowings for a description of the Level 2 inputs used to estimate the fair value of the liability.

The carrying value of the deferred royalty obligation related to the sale of future royalties approximates its fair value as of December 31, 2022 and is based on our current estimates of future royalties and commercialization milestones expected to be

paid to us by Kyowa Kirin Co., Ltd.

("KKC") over the life of the agreement.

Deferred Royalty Obligation Related to the Sale of Future Royalties for a description of the Level 3 inputs used to estimate the fair value of the liability.

We began capitalizing inventory during the fourth quarter of 2021, at which time our intent to commercialize IBSRELA was established and we commenced preparation for the commercial launch of IBSRELA.

Inventory as of December 31, 2021 was not material.

Inventory as of December 31, 2022 consisted of the following (in thousands):

December 31, 2022

Raw materials $ 22,299

Work in process 5,324

Finished goods 723

Total $ 28,346

Inventory $ 3,282

Inventory, non-current 25,064

Total $ 28,346

Prepaid commercial manufacturing of $ 13.6 million and $ 9.4 million as of December 31, 2022 and 2021, respectively, consisted of prepayments to third party contract manufacturing organizations for the manufacture of IBSRELA for production orders which we expect work to commence within the next 12 months.

PRODUCT REVENUE, NET

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 recorded net revenue for IBSRELA of $ 15.6 million during the twelve months ended December 31, 2022.

Sales to AmerisourceBergen Drug Corporation, Cardinal Health, and McKesson Corporation made up 26.8 %, 23.1 %, and 21.6 %, respectively, of our gross product revenue during the twelve months ended December 31, 2022.

The activities and ending reserve balances for each significant category of discounts and allowances, which constitute variable consideration, were as follows (in thousands):

Discounts and Chargebacks Rebates, Wholesaler and GPO Fees Copay and Returns Total

Balance as of December 31, 2021 $ — $ — $ — $ —

Activity related to 2022 sales 825 2,721 2,502 6,048

Credits/deductions issued ( 683 ) ( 1,277 ) ( 1,244 ) ( 3,204 )

Balance as of December 31, 2022 $ 142 $ 1,444 $ 1,258 $ 2,844

There were no product sales or gross-to-net accruals during the twelve months ended December 31, 2021 or 2020.

COLLABORATION AND LICENSING AGREEMENTS

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2019 KKC Agreement

In November 2019, we entered into a research collaboration and option agreement with KKC (the "2019 KKC Agreement”), to undergo research to identify two preclinical study-ready compounds for designation as development compounds, with one compound inhibiting the first undisclosed target (“Program 1”) and a second inhibiting the second undisclosed target (“Program 2”).

In November 2019, we entered into a research collaboration and option agreement with KKC ("2019 KKC Agreement”), to undergo research to identify two preclinical study-ready compounds for designation as development compounds, with one compound inhibiting the first undisclosed target (“Program 1”) and a second inhibiting the second undisclosed target (“Program

Pursuant to the 2019 KKC Agreement, upon completion of the research and designation by the research steering committee of one or more development candidates (“DCs”), KKC has the right to execute one or more separate collaborative agreements relating to the development and commercialization of one or both DCs in certain specified territories.

Under the terms of the 2019 KKC Agreement, KKC agreed to pay us a non-refundable, non-creditable upfront fee of $ 10.0 million, which was payable as follows:

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

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

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

Under the terms of the 2019 KKC Agreement, KKC paid us a non-refundable, non-creditable upfront fee of $ 10.0 million, in two installments as follows:

the first installment of $ 5.0 million within 30 days of November 11, 2019 ("Effective Date"), and the second installment of $ 5.0 million on the first anniversary of the Effective Date.

The original term of the 2019 KKC Agreement commenced on the Effective Date and was to end on the earliest of:

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

We entered into three amendments to the 2019 KKC Agreement, which have resulted in the extension of the original term.

Under the third amendment to the 2019 KKC Agreement entered into on June 28, 2022, the 2019 KKC Agreement ended on February 28, 2023.

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

Management also considered the modification guidance prescribed in ASC 606 and concluded that the 2019 KKC Agreement should be accounted for as a separate contract from the 2017 KKC Agreement, as defined and discussed below.

We identified various promises in the 2019 KKC Agreement, including the grant of an initial research license, the Program 1 research, the Program 2 research, the right to obtain certain development and commercialization rights with Program 1 in certain territories and the right to obtain development and commercialization rights with Program 2 in certain territories, and participation in a joint steering committee (“the JSC”) and determined that KKC could not benefit from either of the research programs without the research license and participation in the JSC.

We also considered the modification guidance prescribed in ASC 606 and concluded that the 2019 KKC Agreement should be accounted for as a separate contract from the 2017 KKC Agreement, as defined and discussed below.

We identified various promises in the 2019 KKC Agreement, including the grant of an initial research license, the Program 1 research, the Program 2 research, the right to obtain certain development and commercialization rights with Program 1 in certain territories and the right to obtain development and commercialization rights with Program 2 in certain territories, and participation in a joint steering committee (“JSC”) and determined that KKC could not benefit from either of the research programs without the research license and participation in the JSC.

As such, the combined license, research programs and participation in the JSC were deemed to be the highest level of goods and services that can be deemed distinct for each of the Program 1 research and Program 2 research.

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Since transfer of control occurs over time, in management’s judgment this input method is the best measure of progress towards satisfying the performance obligations and reflects a faithful depiction of the transfer of goods and services.

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

Management will re-evaluate the estimates related to the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur and adjust the timing of revenue recognition as necessary.

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

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

As of December 31,

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

There were no significant changes in estimates associated with the 2019 KKC Agreement during the twelve months ended December 31, 2021.

Revenue was recognized over the Program 1 and Program 2 research periods which concluded in 2021.

During the years ended December 31, 2022 and 2021, we recognized zero and $ 4.2 million, respectively, as revenue under the 2019 KKC Agreement in the statement of operations and comprehensive loss.

The transaction price had been fully allocated to revenue as of December 31, 2021 and there was no associated deferred revenue presented on the balance sheet as of December 31, 2022 or 2021.

As of December 31, 2022 and 2021, we had no material future obligations under the 2019 KKC Agreement.

2017 KKC Agreement

In November 2017, we entered into an exclusive license agreement with KKC (the "2017 KKC Agreement") for the development, commercialization and distribution of tenapanor in Japan for cardiorenal indications.

We granted KKC an exclusive license to develop and commercialize certain sodium hydrogen exchanger 3 ("NHE3") inhibitors, including tenapanor in Japan for the treatment of cardiorenal diseases and conditions, excluding cancer.

In November 2017, we entered into an exclusive license agreement with KKC (“2017 KKC Agreement”), under which we granted KKC an exclusive license to develop and commercialize certain NHE3 inhibitors including tenapanor in Japan for the treatment of cardiorenal diseases and conditions, excluding cancer.

We retained the rights to tenapanor outside of Japan, and also retained the rights to tenapanor in Japan for indications other than those stated above.

Pursuant to the License Agreement, KKC is responsible for all of the development and commercialization costs for tenapanor in treatment of cardiorenal diseases and conditions, excluding cancer in Japan.

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

Additionally, we are responsible for supplying the tenapanor drug substance for KKC’s use in development and commercialization throughout the term of the 2017 KKC Agreement, provided that KKC may exercise an option to manufacture the tenapanor drug substance under certain conditions

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

Pursuant to the 2017 KKC Agreement, KKC is responsible for all costs and expenses incurred in the development and commercialization of tenapanor for all licensed indications in Japan.

We are responsible for supplying the tenapanor drug substance for KKC’s use in development and commercialization throughout the term of the 2017 KKC Agreement, provided that KKC may exercise an option to manufacture the tenapanor drug substance under certain conditions.

In October 2022, we entered into a Commercial Supply Agreement with KKC to further define the obligations of the parties with respect to the commercial supply of tenapanor drug substance (“2022 KKC Supply Agreement”).

As detailed below under the heading “Deferred revenue’ we have received advanced payments from KKC for the manufacturing of tenapanor drug substance that will be used to satisfy KKC needs.

We assessed these arrangements in accordance with Accounting Standards Update (“ASU”) No.

2014-09, Revenue from Contracts with Customers (Topic 606) and related amendments (“ASC 606”) and concluded that the contract counterparty, KKC, is a customer.

Under the terms of the 2017 KKC Agreement, we received $ 30.0 million in up-front license fees, which was recognized as revenue when the agreement was executed.

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

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

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

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

In addition to the up-front license fee received of $ 30.0 million, we may be entitled to receive up to $ 55.0 million in total development milestones, of which $ 10.0 million has been received to date, ¥ 8.5 billion Japanese yen for commercialization milestones, or approximately $ 73.9 million at the currency exchange rate on December 31, 2021, as well as reimbursement of cost, plus a reasonable overhead for the supply of product and high-teen royalties on net sales throughout the term of the agreement.

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

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

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

Based on our assessment, management determined that the

license and the manufacturing supply services were the material performance obligations at the inception of the 2017 KKC Agreement and, as such, each of the performance obligations is distinct.

Under the terms of the 2017 KKC Agreement, KKC paid us an up-front license fee of $ 30.0 million,.

We may be entitled to receive up to $ 55.0 million in total development and regulatory milestones, of which $ 20.0 million has been received and recognized as revenue as of December 31, 2022.

We may also be eligible to receive approximately ¥ 8.5 billion for commercialization milestones, or approximately $ 64.6 million at the currency exchange rate on December 31, 2022, as well as reimbursement of costs plus a reasonable overhead for the supply of product and royalties on net sales throughout the term of the agreement.

As discussed in Note 8.

Deferred Royalty Obligation Related to the Sale of Future Royalties , 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.

The variable consideration related to the remaining milestone payments was fully constrained at December 31, 2022 and 2021.

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

Under the terms of the 2022 Amendment, we and KKC have agreed to a reduction in the royalty rate payable to us by KKC upon net sales of tenapanor for hyperphosphatemia 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 discussed in Note 8.

Deferred Royalty Obligation Related to the Sale of Future Royalties , the future commercial milestones and 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 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.

In October 2022, we announced that 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, which resulted in payment to us from KKC for an aggregate of $ 35.0 million for milestone payments and payments under the 2022 Amendment.

We received these payments during the fourth quarter of 2022 and recorded them as licensing revenue on our statement of operations and comprehensive loss.

The remaining variable consideration related to the reduction in the royalty rate was fully constrained at December 31, 2022.

For the year ended December 31, 2021, $ 5.0 million of licensing revenue was recorded upon the initiation of phase 3 clinical studies by KKC in Japan to evaluate tenapanor for hyperphosphatemia.

For the years ended December 31, 2022 and 2021, $ 1.5 million and $ 0.9 million, respectively, of product supply revenue was recorded for manufacturing supply of tenapanor and other materials to KKC for product development and clinical trials in Japan, in accordance with our agreement with the 2017 KKC Agreement.

For the years ended December 31, 2022 and 2021, $ 35.0 million and $ 5.0 million, respectively, of licensing revenue was recorded.

The 2022 licensing revenue was earned upon KKC's submission of 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.

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

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

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

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

Shanghai Fosun Pharmaceutical Industrial Development Co.

, or Fosun Pharma

In December 2017, we entered into an exclusive license agreement with Fosun Pharma (the "Fosun Agreement") for the development, commercialization and distribution of tenapanor in China for both hyperphosphatemia and IBS-C.

("Fosun Pharma")

In December 2017, we entered into an exclusive license agreement with Fosun Pharma ("Fosun Agreement") for the development, commercialization and distribution of tenapanor in China for both hyperphosphatemia and IBS-C.

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

Under the terms of the Fosun Agreement, we received $ 12.0 million in up-front license fees which was recognized as revenue when the agreement was executed.

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

In addition, we may be entitled to additional development and commercialization milestones of up to $ 110.0 million, as well as reimbursement of cost plus a reasonable overhead for the supply of product and tiered royalties on net sales ranging from the mid-teens to 20 %.

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

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

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

We may be entitled to additional development and commercialization milestones of up to $ 110.0 million, as well as reimbursement of cost plus a reasonable overhead for the supply of product and tiered royalties on net sales ranging from the mid-teens to 20 %.

The variable consideration related to the remaining development milestone payments was fully constrained at December 31, 2022 and 2021.

We recorded no revenue related to the Fosun Agreement during the years ended December 31, 2022 and 2021.

Knight Therapeutics, Inc.

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

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

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

Under the terms of the agreement, we received a $ 2.3 million nonrefundable, one-time upfront payment in March 2018 and are eligible to receive additional development and commercialization milestone payments worth up to CAD 22.2 million, or $ 17.4 million at the currency exchange rate on December 31, 2021, reimbursement of supply costs on a schedule specifying cost per tablet, with a reasonable mark up for overhead, as well as tiered royalty rates on net sales ranging from the mid-single digits to the low twenties.

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

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

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

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

Xuanzhu (HK) Biopharmaceutical Limited, or XuanZhu

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

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

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

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

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

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

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

In June 2015, we entered into a termination agreement with AstraZeneca (the "AstraZeneca Termination Agreement") pursuant to which we remain liable to pay AstraZeneca license fees for (i) future royalties at a royalty rate of 10 % of net sales of tenapanor or other NHE3 products by us or our licensees, and (ii) 20 % of non-royalty revenue received from a licensee of tenapanor or certain other NHE3 inhibitors, up to a maximum of $ 75.0 million in aggregate for (i) and (ii).

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

Cost of Revenue

Recognized Amount Paid

Year 2017 $ 9,400 * $ 6,000

Year 2018 466 2,864

Year 2019 600 1,002

Year 2020 145 742

Year 2021 1,000 1,003

Total $ 11,611 $ 11,611

Maximum payment per termination agreement 75,000

Remaining potential commitment $ 63,389

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

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

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

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

Under the terms of the Knight Agreement, we received a $ 2.3 million non-refundable, one-time upfront payment in March 2018 and may be eligible to receive additional development and commercialization milestone payments worth up to CAD 22.2 , or approximately $ 16.3 million at the currency exchange rate on December 31, 2022.

We are also eligible to receive royalties ranging from the mid-single digits to the low twenties throughout the term of the agreement, and a transfer price for manufacturing services.

The variable consideration related to the remaining development milestone payments were fully constrained at December 31, 2022 and 2021.

For the years ended December 31, 2022 and 2021, $ 31 thousand and $ 13 thousand of licensing revenue was recorded, respectively, related to the Knight Agreement.

For the years ended December 31, 2022 and 2021, no product supply revenue was recorded, respectively, related to the Knight Agreement.

AstraZeneca AB ("AstraZeneca")

In June 2015, we entered into a termination agreement with AstraZeneca ("AstraZeneca Termination Agreement") pursuant to which we have agreed to pay AstraZeneca (i) future royalties at a royalty rate of 10 % of net sales of tenapanor or other NHE3 products by us or our licensees, and (ii) 20 % of non-royalty revenue received from a new collaboration partner should we elect to license, or otherwise provide rights to develop and commercialize tenapanor or another NHE3 inhibitor, up to a maximum of $ 75.0 million in aggregate for (i) and (ii).

For the years ended December 31, 2022 and 2021, we recognized $ 3.6 million and $ 1.0 million, respectively, as cost of revenue related to the AstraZeneca Termination Agreement.

To date in aggregate, we have recognized $ 15.3 million of the $ 75.0 million aggregate maximum related to the AstraZeneca Termination Agreement.

Deferred Revenue

The following tables present changes in our current and non-current deferred revenue balances during the reporting period.

The current deferred revenue balance is attributable entirely to the 2019 KKC Agreement and the non-current deferred revenue balance is attributable entirely to the 2017 KKC Agreement (in thousands):

The December 31, 2022 deferred revenue current and non-current balances are attributable entirely to prepayments for product supply under the 2017 KKC Agreement, while the December 31, 2021 current deferred revenue balance is attributable to the 2019 KKC Agreement and the December 31, 2021 non-current deferred revenue balance is attributable prepayments for product supply under the 2017 KKC Agreement (in thousands):

Deferred revenue - current 2022 2021

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

Increases due to cash received, excluding amounts recognized as revenue during the period 42 —

Increases due to amounts reclassified from non-current, to be recognized in the next twelve months 3,961 —

Increases to amounts invoiced, for which cash has not yet been received 208 —

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

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

Balance at December 31, $ 4,211 $ —

Deferred revenue - non-current 2022 2021

1 unchanged sentence

Increases due to cash received during the period 7,794 3,242

Increases to amounts invoiced, for which cash has not yet been received 465 —

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

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

Decreases due to amounts reclassified as current, to be recognized in the next twelve months ( 3,961 ) —

Balance at December 31, $ 9,025 $ 4,727

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 has 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 consideration for the sale of the Royalty Interest Payments, HCR paid to us a $ 10.0 million upfront payment, and we are eligible to receive a $ 5.0 million payment following KKC's receipt of regulatory approval to market tenapanor for hyperphosphatemia in Japan, and another $ 5.0 million payment in the event net sales by KKC in Japan exceed a certain annual target level by the end of 2025.

The HCR Agreement is effective until terminated by the mutual agreement of the parties and contains customary representations and warranties and customary affirmative and negative covenants, including, among others, requirements as to prosecution, maintenance, defense and enforcement of certain patent rights in Japan, restrictions regarding our ability to forgive, release or reduce any Royalty Interest Payments due to us under the 2017 KKC Agreement, to create or incur any liens with respect to the Royalty Interest Payments, the 2017 KKC Agreement or certain patents, or to sell, license or transfer certain patents in the field and territory described in the 2017 KKC Agreement.

In addition, the HCR Agreement contains customary events of default with respect to which we may incur indemnification obligations to HCR for any losses incurred by HCR and related parties as a result of the event of default, subject to a specified limitation of liability cap.

Under the HCR Agreement, an event of default will occur if, among other things, any of the representations and warranties included in the HCR Agreement proves not to have been true and correct in all material respects, at the time it was made, we breach any of our covenants under the HCR Agreement, subject to specified cure periods with respect to certain breaches, we are in breach or default under the 2017 KKC Agreement in any manner which is likely to cause a material adverse effect on the Royalty Interest Payments, the occurrence of a termination of the 2017 KKC Agreement under certain circumstances or we or our assets become subject to certain legal proceedings, such as bankruptcy proceedings, or we are unable to pay our debts as they become due.

We received the $ 10.0 million upfront payment from HCR during June 2022 and recorded it as a deferred royalty obligation related to the sale of future royalties ("deferred royalty obligation") on our balance sheet.

Due to our ongoing manufacturing obligations under the 2017 KKC Agreement, we account for the proceeds as imputed debt and therefore will recognize royalties received under the arrangement as non-cash royalty revenue.

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.

As part of the sale, we incurred approximately $ 0.4 million in transaction costs, which, along with the deferred royalty obligation, are being amortized to non-cash interest expense over the estimated life of the HCR Agreement using the effective interest method.

As future royalties are remitted to us by KKC, and subsequently from us to HCR, the balance of the deferred royalty obligation will be effectively repaid over the life of the HCR Agreement.

There are a number of factors that could materially affect the fair value of the deferred royalty obligation.

Such factors include, but are not limited to, the amount and timing of potential future royalty payments to be received from KKC under the 2017 KKC agreement, changing standards of care, the introduction of competing products, manufacturing or other delays, intellectual property matters, adverse events that result in governmental health authority imposed restrictions on the use of the drug products, significant changes in foreign exchange rates as the royalties remitted to HCR are made in U.S.

dollars while the underlying sales of the products by KKC are made in Japanese yen, and other events or circumstances that could result in reduced royalty payments from KKC, which are not within our control, and all of which would result in a reduction of non-cash royalty revenues and the non-cash interest expense over the life of the deferred royalty obligation.

We periodically assess the estimated royalty payments from KKC 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.

As of December 31, 2022, our effective interest rate used to amortize the liability is 34.4 %.

During the twelve months ended December 31, 2022, we recognized approximately $ 1.7 million of non-cash interest expense for the amortization of the deferred royalty obligation.

As of December 31, 2022, we have received no royalty payments from KKC and, therefore, the deferred royalty obligation has not begun to be reduced.

Solar Capital and Western Alliance Bank Loan 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”).

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

and Western Alliance Bank ("Lenders”).

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

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

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

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

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

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

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

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

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

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

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

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

Accordingly, beginning on December 1, 2021 through

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

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

Accordingly, beginning on December 1, 2021 through the maturity date, we would have been required to make monthly payments of interest plus repayment of the 2018 Term Loan in consecutive equal monthly installments of principal.

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

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

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

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

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

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

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

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

We may voluntarily prepay the outstanding 2018 Term Loan, subject to a prepayment premium of (i) 3 % of the principal amount of the 2018 Term Loan if prepaid prior to or on the first anniversary of the Closing Date, (ii) 2 % of the principal amount of the 2018 Term Loan if prepaid after the first anniversary of the Closing Date through and including the second anniversary of the Closing Date, or (iii) 1 % of the principal amount of the 2018 Term Loan if prepaid after the second anniversary of the Closing Date and prior to the maturity date.

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

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

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

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

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

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.

Accordingly, during November 2021, in compliance with the terms of our 2018 Loan Agreement, we began to repay principal on the 2018 Term Loan.

As of the Closing Date for the 2022 Loan, as discussed below, we owed $ 25.0 million in principal payments from the 2018 Loan, which we repaid in full at that time.

SLR Investment Corp.

Loan Agreement

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

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

The 2022 Loan Agreement provides for a senior secured loan facility, with $ 27.5 million (“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 XPHOZAH by December 31, 2022, and (ii) we have achieved certain product revenue milestone targets described in the 2022 Loan Agreement (“Term B Loan”, and collectively, the Term A Loan and the Term B Loan, the “2022 Loan”).

On February 9, 2023, 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 adult patients with CKD on dialysis in order to borrow the additional $ 22.5 million from December 31, 2022 to November 30, 2023 and extended the period during which we are permitted to make interest only payments until March 31,

2025 if we receive approval by the FDA for our NDA for XPHOZAH on or prior to November 30, 2023 or achieve a defined net product revenue threshold for 2023.

The 2022 Term A Loan funds were used to repay the 2018 Loan with the 2018 Lenders.

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

Borrowings under the 2022 Loan bear interest at a floating per annum rate equal to 7.95 % plus the greater of (i) one tenth percent ( 0.10 %) and (ii) the one-month rate published by the Intercontinental Exchange Benchmark Administration Ltd or its successor.

We are permitted to make interest-only payments on the 2022 Loan through March 31, 2024 or if certain conditions described above are achieved, through March 31, 2025.

Accordingly, beginning on April 1, 2024 or April 1, 2025, we will be required to make monthly payments of interest plus repay the 2022 Loan in consecutive equal monthly installments of principal over 36 months or 24 months, respectively.

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

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

We may voluntarily prepay the outstanding 2022 Loan balance, subject to a prepayment premium of (i) 3 % of the outstanding principal amount of the 2022 Loan if prepaid prior to or on the first anniversary of the Closing Date, (ii) 2 % of the outstanding principal amount of the 2022 Loan if prepaid after the first anniversary of the Closing Date through and including the second anniversary of the Closing Date, or (iii) 1 % of the outstanding principal amount of the 2022 Loan if prepaid after the second anniversary of the Closing Date and prior to the maturity date.

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

Additionally, in connection with the 2022 Loan, we entered into an agreement, whereby we agreed to pay an exit fee in the amount 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, tested monthly at the end of each month.

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

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

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

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

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

Upon the occurrence and for the duration of an event of default, an additional default interest rate equal to 4 % per annum will apply to all obligations owed under the 2022 Loan Agreement.

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

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

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

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

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

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

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

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

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

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

2022 $ 33,031

We have classified the 2022 Loan balance as a current liability as of December 31, 2022 due to the determination of the existence of substantial doubt about our ability to continue operating as a going concern discussed in Note 2.

Summary of Significant Accounting Policies:

Liquidity and our assessment that the material adverse change clause under the 2022 Loan Agreement is not within our control.

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

As discussed in Note 21.

Subsequent Events , on February 9, 2023, we entered into a second amendment (“Second Amendment”) to our Loan Agreement with the Lenders.

The Second Amendment extends the interest-only term of the loan by twelve months to March 31, 2025 provided that we either (i) receive approval from the FDA for our NDA for the control of serum phosphorus in adult patients with CKD on dialysis on or prior to November 30, 2023 or (ii) achieve certain product revenue milestone targets as described in the Second Amendment for the year ending December 31, 2023.

The Second Amendment also extends the period under which we may draw the Term B Loan from July 25, 2023 to December 20, 2023, and amends the milestone that we must achieve in order to draw the Term B Loan by extending the time period for the receipt of approval by the FDA of the NDA for the control of serum phosphorus in adult patients with CKD on dialysis until November 30, 2023.

In addition, the Second Amendment replaces the floating per annum interest rate with 7.95 % plus the greater of (a) one percent ( 1.00 %) per annum and (b)(i) 0.022 % plus (ii) 1-month CME Term SOFR reference rate as published by the CME Term SOFR Administrator on the CME Term SOFR Administrator’s Website.

As of December 31, 2022, our future payment obligations related to the 2022 Loan, excluding interest payments and the 2022 final fee, were as follows (in thousands) and may be condensed to the 24 months ending March 1, 2027 if certain conditions noted above to extend the interest-only period are achieved:

Total repayment obligations 28,861

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Unaccreted value of final fee ( 1,040 )

Loan payable 32,264

Loan payable, current portion ( 32,264 )

Loan payable, net of current portion $ —

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

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

DERIVATIVE LIABILITY

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

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

Long-term debt 26,711

Current portion of long-term debt ( 26,711 )

Long-term debt, net of current portion $ —

DERIVATIVE LIABILITIES

2018 Exit Fee

In May 2018, in connection with entering into the 2018 Loan Agreement, we entered into an agreement pursuant to which we agreed to pay $ 1.5 million in cash ("2018 Exit Fee") upon any change of control transaction in respect of the Company or if we obtain both (i) FDA approval of XPHOZAH and (ii) FDA approval of IBSRELA, which was obtained on September 12, 2019 (“2018 Exit Fee Agreement”).

Notwithstanding the February 2022 prepayment of the 2018 Loan, our obligation to pay the 2018 Exit Fee will expire on May 16, 2028.

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

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

As of December 31, 2022 and 2021, the estimated fair value of the 2018 Exit Fee was $ 1.2 million and $ 0.7 million, respectively.

The fair value of the derivative liability was determined using a discounted cash flow analysis and is classified as a Level 3 measurement within the fair value hierarchy since our valuation utilized significant unobservable inputs.

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Generally, increases or decreases in the probability of occurrence would result in a directionally similar impact in the fair value measurement of the derivative instrument and it is estimated that a 10 % increase (decrease), not to exceed 100%, in the probability of occurrence would result in a fair value fluctuation of no more than $ 0.1 million.

Changes in the fair value of recurring measurements included in Level 3 of the fair value hierarchy are presented as other income (expense), net in our Statements of Operations and were as follows for the years ended December 31, 2021, 2020 and 2019 (in thousands):

2022 Exit Fee

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

As of December 31, 2022, the estimated fair value of the 2022 Exit Fee is $ 0.4 million.

Specifically, the key assumptions included in the calculation of the estimated fair value of the 2022 derivative liability include:

(i) our estimates of both the probability and timing of achieving the Revenue Milestone and (ii) the probability and timing of funding the Term B Loan, which is dependent upon (a) approval by the FDA for our NDA for the control of serum phosphorus in adult patients with CKD on dialysis by December 31, 2022, and (b) achievement of certain product revenue milestone targets.

Generally, increases or decreases in the probability of occurrence would result in a directionally similar impact in the fair value measurement of the derivative liability and it is estimated that a 10 % increase (decrease) in the probability of occurrence would not result in a material fair value fluctuation.

Changes in the fair value of recurring measurements included in Level 3 of the fair value hierarchy are presented as other income, net in our Statements of Operations and were as follows for the years ended December 31, 2022, 2021 and 2020 (in thousands):

2022 2021 2020

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

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

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

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

Balance at January 1, $ 698 $ 1,376 $ 969

2022 Exit Fee addition at fair value 375 — —

Changes in estimated fair value:

2018 Exit Fee 510 ( 678 ) 407

2022 Exit Fee 73 — —

Fair value of exit fee derivative liabilities at December 31, $ 1,656 $ 698 $ 1,376

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

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

We have performed

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

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

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

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

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

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

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

We have recorded a right-of-use operating lease asset located in Fremont, California under a lease agreement entered into in September 2008 that was amended multiple times to add space and to extend the lease term through March 2025.

The office space consists of 72,500 square feet.

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

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Certain of the leases have both lease and non-lease components.

We have as elected to account for each separate lease component and the non-lease components associated with that lease component as a single lease component for all classes of underlying assets.

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

As of Dec 31,

We have elected to account for each separate lease component and the non-lease components associated with that lease component as a single lease component for all classes of underlying assets.

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

Facilities 2022 2021

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STOCKHOLDERS’ EQUITY

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").

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 a sales agreement with Jefferies LLC ("Jefferies"), deemed to be “at-the-market offerings” ("2020 Open Market Sales Agreement").

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

We sold 8.2 million shares of our common stock between the dates of November 13, 2020 through February 19, 2021, 4.0 million shares between the dates of May 11, 2021 through June 18, 2021, 3.3 million shares between the dates of August 24, 2021 through September 10, 2021 and 7.7 million between the dates of October 21, 2021 through December 31, 2021 for a cumulative total of 23.3 million shares and gross proceeds of $ 100.0 million at a weighted average sales price of approximately $ 4.30 per share which resulted in full utilization of the $ 100.0 million authorized amount under the 2020 Open Market Sales Agreement.

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

We are not required to sell shares under the 2021 Open Market Sales Agreement.

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 required to sell shares under the 2021 Open Market Sales Agreement.

Pursuant to the 2021 Open Market Sales Agreement, Jefferies, as our sales agent, receives a commission of up to 3.0 % of the gross sales price for shares of common stock sold under the 2021 Open Market Sales Agreement.

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

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

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

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

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

The Private Placement closed on November 25, 2019.

During the twelve months ended December 31, 2022, we sold 64.1 million shares and received gross proceeds of $ 73.1 million at a weighted average sales price of approximately $ 1.14 per share under the 2021 Open Market Sales Agreement.

As of December 31, 2022 we sold a total of 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.

During the period January 1, 2023 to January 12, 2023, we received additional gross proceeds of $ 20.0 million for the sale of an additional 7.7 million shares which 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 December 31, 2022.

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 LLC ("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.

EQUITY INCENTIVE PLANS

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

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

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

Stock options granted generally vest over a period of four years from the date of grant.

In connection with the Board of Directors and stockholders’ approval of the 2014 Plan, all remaining shares available for future award under the 2008 Plan were transferred to 2014 Plan, and the 2008 Plan was terminated.

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

Stock options granted generally vested over a period of four years from the date of grant.

In connection with the board of directors and stockholders’ approval of the 2014 Plan, all remaining shares available for future award under the 2008 Plan were transferred to 2014 Plan, as discussed below, and the 2008 Plan was terminated.

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

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

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

The number of shares initially reserved for issuance or transfer pursuant to awards under the 2014 Plan will be increased by (i) the number of shares represented by awards outstanding under 2008 Plan on June 18, 2014, that are either forfeited or lapse unexercised or that are repurchased for the original purchase price thereof, up to a maximum of 1.2 million shares, and (ii) if approved by the Administrator of the 2014 Plan, an annual increase on the first day of each fiscal year ending in 2024 equal to the lesser of (A) four percent ( 4.0 %) of the shares of stock outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year and (B) such smaller number of shares of stock as determined by our board of directors;

The number of shares initially reserved for

issuance or transfer pursuant to awards under the 2014 Plan will be increased by (i) the number of shares represented by awards outstanding under 2008 Plan on June 18, 2014, that are either forfeited or lapse unexercised or that are repurchased for the original purchase price thereof, up to a maximum of 1.2 million shares, and (ii) if approved by the administrator of the 2014 Plan, an annual increase on the first day of each fiscal year ending in 2024 equal to the lesser of (A) four percent ( 4.0 %) of the shares of stock outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year and (B) such smaller number of shares of stock as determined by our board of directors;

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

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

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

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

In January 2021, January 2022 and December 2022, 0.5 million, 2.0 million and 3.0 million shares, respectively, were added to the Inducement Plan.

As of December 31, 2022, 2.1 million shares of our common stock were subject to inducement grants that were issued pursuant to the Inducement Plan.

Stock Options

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

A summary of our stock option activity and related information during the twelve months ended December 31, 2022 is as follows (in thousands, except per share dollar amounts and years):

Shares Available for Grant Options Issued and Outstanding Weighted

Contractual Term Aggregate

Contractual Term

(in Years) Aggregate

Intrinsic Value

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Exercise Price

(in Years) (in thousands)

Balance at December 31, 2021 4,974 10,417 $ 7.00

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Exercisable at December 31, 2022 8,283 $ 6.32 6.3 $ 2,727

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

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

The aggregate intrinsic value represents the difference between the total pre-tax value (i.e., the difference between our stock price and the exercise price) of stock options outstanding as of December 31, 2022, based on our common stock closing price of $ 2.85 per share, which would have been received by the option holders if all their in-the-money options had been exercised as of that date.

The intrinsic value of options exercised during the years ended December 31, 2022, 2021 and 2020, was $ 30 thousand, $ 1.7 million, and $ 2.7 million, respectively.

The weighted-average grant-date estimated fair value of options granted during the years ended December 31, 2022, 2021 and 2020 was $ 0.63 , $ 3.92 and $ 4.82 per share, respectively.

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

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

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

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

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Restricted Stock Units

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

A summary of our RSUs activity and related information for the twelve months ended December 31, 2022 is as follows (in thousands, except per share dollar amounts):

RSUs Weighted-Average

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Non-vested restricted stock units at December 31, 2022 1,406 $ 2.17

The total estimated fair value of RSUs vested during the years ended December 31, 2022, 2021 and 2020 was $ 2.6 million, $ 0.8 million and zero , respectively.

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

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All 0.9 million of these PRSUs vested in September 2020.

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

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

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

Issuance of Common Stock for Services

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

During the years ended December 31, 2022, 2021 and 2020, we issued approximately 0.7 million, 26 thousand and 42 thousand shares, respectively, of common stock to members of the board of directors who elected to receive stock in lieu of their cash fees under our Non-Employee Director Compensation Program.

The shares issued during the years ended December 31, 2022, 2021 and 2020 were valued at $ 0.4 million, $ 0.2 million and $ 0.3 million for each year, respectively, based on the fair value of the common stock on the date of grant.

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

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

A summary of our ESPP activity during the twelve months ended December 31, 2022 is as follows (in thousands, except per share dollar amounts):

Shares Available

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per Share Gross Proceeds

(in thousands)

Balance at December 31, 2021 899 1,048

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Stock-based Compensation Expense

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

Stock-based compensation expense recognized for stock options, RSUs, PRSUs and our ESPP are recorded as operating expenses in our statements of operations and comprehensive loss, as follows (in thousands):

Year Ended December 31,

2022 2021 2020

Selling, general and administrative $ 7,525 $ 7,923 $ 6,522

Research and development 3,225 4,116 4,061

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

Total $ 10,750 $ 12,039 $ 10,583

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

A summary of our total unrecognized stock-based compensation expense, net of estimated forfeitures, as of December 31, 2022 is as follows (dollars in thousands):

December 31, 2022

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RESTRUCTURING

On July 29, 2021, our Board of Directors approved, and on August 2, 2021, we began implementing a restructuring plan to better align our workforce and anticipated commercial and development spend with our capital resources and the needs of our business following the receipt of the CRL.

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

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

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

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

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

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

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

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

During 2021, we implemented restructuring plans in August and October following the receipt of a Complete Response Letter (“CRL”) from the U.S.

FDA relating to our new drug application (“NDA”) for XPHOZAH and following the conclusion of an End of Review Type A meeting with the FDA, respectively.

Both restructuring plans were substantially completed in December 2021 and most of the cash payments related to the reduction in workforce were disbursed prior to December 31, 2021.

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

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

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

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

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

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

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

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

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

We reported the remaining estimated restructuring liability of zero and $ 0.5 million as accrued compensation and benefits in our balance sheet as of December 31, 2022 and 2021, respectively.

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

PROPERTY AND EQUIPMENT, NET

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We recognized depreciation expense in the amount of $ 0.7 million, $ 1.4 million, and $ 1.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.

During the year ended December 31, 2022, following the elimination of our internal research organization in the fourth quarter of 2021, we sold laboratory equipment with total net carrying value of $ 0.5 million and received cash proceeds of $ 1.8 million, resulting in a gain of $ 1.3 million which has been reported within other income, net on our statement of operations and comprehensive loss.

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following (in thousands):

Accrued clinical expenses $ 2,522 $ 2,197

Accrued payments due to AstraZeneca $ 3,385 $ 69

Accrued gross to net revenue liabilities 1,991 —

Accrued contract manufacturing expenses 1,657 2,485

Derivative liability for exit fee 698 1,376

Derivative liability for exit fees 1,656 698

Accrued non-clinical research and development expenses 1,188 265

Accrued professional and consulting services 808 597

Accrued sales and marketing expenses 587 256

Accrued interest expense 203 123

Accrued clinical expenses 223 2,522

Other 885 474

Total accrued expenses and other current liabilities $ 12,380 $ 7,366

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

The components of our provision for income taxes for the years ended December 31, 2022, 2021 and 2020, are as follows (in thousands):

Year Ended December 31,

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Provision for income taxes $ 8 $ 4 $ 2

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

A reconciliation of the statutory federal income tax rate to our effective tax rate is as follows:

Year Ended December 31,

2022 2021 2020

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

Income tax at the federal statutory rate 21.0 % 21.0 % 21.0 %

Tax credits 1.0 1.3 1.6

State taxes, net of federal benefit 1.9 0.4 0.7

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

Tax credits 1.5 1.0 1.3

Executive compensation disallowed under IRC Sec 162(m) ( 1.6 ) ( 1.1 ) ( 0.5 )

Stock based compensation ( 2.3 ) ( 1.3 ) ( 0.1 )

Other ( 0.8 ) — ( 0.1 )

Change in valuation allowance ( 19.7 ) ( 20.0 ) ( 22.3 )

Income tax provision — % — % — %

17 unchanged sentences

A significant component of objective negative evidence evaluated was our cumulative loss incurred over the three-year period ended December 31, 2022.

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

Such objective evidence limits the

ability to consider other subjective evidence, such as our projections for future growth.

On the basis of this evaluation, as of December 31, 2022, December 31, 2021 and December 31, 2020, a full valuation allowance has been recorded against our net deferred tax asset.

The valuation allowance increased by $ 20.5 million in 2022 primarily due to increases in net operating losses.

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

7 unchanged sentences

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

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

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

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

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

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

the taxable year of the loss.

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

With the enactment of the CARES Act, the company does not expect a financial statement impact from income taxes.

Under the Tax Cuts and Jobs Act of 2017, research and development costs are no longer fully deductible and are required to be capitalized and amortized for U.S.

tax purposes effective January 1, 2022.

The mandatory capitalization requirement did not have a material impact on our deferred tax assets and did not result in a cash tax liability as we have historically elected to capitalized research and development expenses for tax purposes.

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

1 unchanged sentence

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

Additions (subtractions) based on tax positions related to prior year ( 811 ) ( 1,388 ) 755

Additions based on tax positions related to current year 460 1,613 474

Subtractions related to lapse of statute of limitation ( 811 ) — —

Subtractions based on tax positions related to prior year — ( 811 ) ( 1,388 )

Balance at end of year $ 24,075 $ 24,426 $ 23,624

5 unchanged sentences

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

We file income tax returns in the U.S.

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

We file a U.S.

federal income tax return and income tax returns in various state and local jurisdictions.

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

federal and state tax examinations.

The Company is not currently under examination in any tax jurisdiction.

We are not currently under examination in any tax jurisdiction.

GEOGRAPHIC INFORMATION AND CONCENTRATIONS

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

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

Revenues are attributed to geographical areas based on the location at which we earned revenue for product sales of IBSRELA or the domicile of our collaboration partners.

A summary of our revenue by geographic areas for the years ended December 31, 2022, 2021 and 2020, is as follows (in thousands):

Year Ended December 31,

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International:

North America (1) 13 806 —

Asia Pacific (2) 36,527 10,084 6,765

North America (3) 31 13 806

Total revenue $ 52,158 $ 10,097 $ 7,571

_________________________________

(1) Revenues from the United States are comprised of amounts earned from sales of IBSRELA.

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

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

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

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

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

Collaboration partnerships accounting for more than 10% of total revenues during the years ended December 31, 2021, 2020 and 2019 are as follows:

Revenues from Customers and collaboration partnerships accounting for more than 10% of total revenues during the years ended December 31, 2022, 2021 and 2020 were as follows:

Year Ended December 31,

2 unchanged sentences

Knight 0.1 % — % 11 %

Fosun Pharma — % — % 57 %

XuanZhu — % — % 28 %

AmerisourceBergen Drug Corporation 11.1 % — % — %

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

4 unchanged sentences

As we had net losses for the years ended December 31, 2022, 2021 and 2020, all potential common shares were determined to be anti-dilutive.

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

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

Year Ended December 31,

3 unchanged sentences

Net loss per share - basic and diluted $ ( 0.42 ) $ ( 1.52 ) $ ( 1.05 )

For the years ended December 31, 2021, 2020 and 2019, the total numbers of securities that could potentially dilute net income per share in the future that were not considered in the diluted net loss per share calculations because the effect would have been anti-dilutive were as follows:

For the years ended December 31, 2022, 2021 and 2020, the total numbers of securities that could potentially dilute net income per share in the future that were not considered in the diluted net loss per share calculations because the effect would have been anti-dilutive were as follows (in thousands):

Year Ended December 31,

4 unchanged sentences

Warrants to purchase common stock — — 932

Performance-based restricted stock units — — 867,506

Total 16,382 13,680 10,299

2 unchanged sentences

Guarantees and Indemnifications

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

certificate of incorporation and bylaws.

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

4 unchanged sentences

Legal Proceedings and Claims

From time to time we may be involved in claims arising in connection with our business.

Based on information currently available, management believes that the amount, or range, of reasonably possible losses in connection with any pending actions against us will not be material to our financial condition or cash flows, and no contingent liabilities were accrued as of December 31, 2021 or 2020.

On July 30 and August 12, 2021, two putative securities class action lawsuits were commenced in the U.S.

District Court for the Northern District of California naming as defendants Ardelyx and two current officers captioned Strezsak v.

Ardelyx, Inc., et al.

4:21-cv-05868-HSG, and Siegel v.

Ardelyx, Inc., et al.

5:21-cv-06228-HSG (together, the “Securities Class Actions”).

The complaints allege that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder, by making false and misleading statements and omissions of material fact related to tenapanor.

The plaintiffs seek to represent all persons who purchased or otherwise acquired Ardelyx securities between August 6, 2020, and July 19, 2021.

The plaintiffs seek damages and interest, and an award of costs, including attorneys’ fees.

On July 19, 2022, the court consolidated the two putative class actions and appointed a lead plaintiff and lead counsel.

The lead plaintiff filed an amended complaint on September 29, 2022.

Defendants filed a motion to dismiss the amended complaint on December 2, 2022.

In January and February 2023, in lieu of filing a response to defendant’s motion to dismiss, plaintiffs filed a motion seeking leave to further amend their compliant and defendants filed an opposition to the motion for leave to further amend the complaint.

A hearing on the motion for leave to further amend the complaint is scheduled for mid-May 2023.

We believe the plaintiff’s claims are without merit and we have not recorded any accrual for a contingent liability associated with these legal proceedings.

On December 7, 2021 and March 29, 2022, two verified shareholders derivative lawsuits were filed in the U.S.

District Court for the Northern District of California purportedly on behalf of Ardelyx against certain of Ardelyx’s executive officers and members of our board of directors, captioned Go v.

Raab, et al., Case No.

4:21-cv-09455-HSG, and Morris v.

Raab, et al., Case No.

4:22-cv-01988-JSC.

The complaints allege that the defendants violations of Section 14(a) of the Securities Exchange Act of 1934, as amended, breaches of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets, for personally making and/or causing Ardelyx to make materially false and misleading statements regarding the Company’s business, operations and prospects.

The complaint seeks contribution under Sections 10(b) and 21D of the Securities Exchange Act of 1934 from two executive officers.

On January 19, and April 27, 2022, the court granted the parties’ stipulation to stay the Go and Morris actions, respectively, until resolution of the anticipated motion(s) to dismiss in the Securities Class Actions.

On October 25, 2022, the parties filed a stipulation to consolidate and stay the Go and Morris actions,

and on October 27, 2022, the court consolidated the Go and Morris action and stayed the consolidated action pending resolution of the anticipated motion(s) to dismiss in the Securities Class Action.

We believe the plaintiff’s claims are without merit and we have not recorded any accrual for a contingent liability associated with these legal proceedings.

From time to time, we may be involved in legal proceedings arising in the ordinary course of business.

As of December 31, 2022, there is no litigation pending that would reasonably be expected to have a material adverse effect on our results of operations and financial condition, and no contingent liabilities were accrued as of December 31, 2022.

SUBSEQUENT EVENTS

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

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

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

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

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

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

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

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

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

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

We may voluntarily prepay the outstanding 2022 Term Loan, subject to a prepayment premium of (i) 3 % of the principal amount of the 2022 Term Loan if prepaid prior to or on the first anniversary of the Closing Date, (ii) 2 % of the principal amount of the 2022 Term Loan if prepaid after the first anniversary of the Closing Date through and including the second anniversary of the Closing Date, or (iii) 1 % of the principal amount of the 2022 Term Loan if prepaid after the second anniversary of the Closing Date and prior to the maturity date.

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

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

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

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

Upon the occurrence and for the duration of an event of default, an additional default interest rate equal to 4 % per annum will apply to all obligations owed under the 2022 Loan Agreement.

On February 9, 2023, we entered into a second amendment (“Second Amendment”) to our Loan Agreement with the Lenders.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data