What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-31 compared with 2023-08-02 · 109 added, 108 removed, 202 unchanged (52% of the section changed)

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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.

The first molecule we discovered and developed was tenapanor, a minimally absorbed, 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).

On May 17, 2023, the U.S.

Food and Drug Administration (“FDA”) accepted our resubmission of the New Drug Application (“NDA”) for tenapanor, branded XPHOZAH for the control of serum phosphorus in adult patients with chronic kidney disease (“CKD”) on dialysis who have had an inadequate response or intolerance to a phosphate binder therapy.

The FDA set a user fee goal date for review of the NDA of October 17, 2023.

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

Tenapanor, branded as XPHOZAH®, was approved by the U.S.

Food and Drug Administration (FDA) on October 17, 2023, to reduce serum phosphorus in adults with chronic kidney disease (CKD) on dialysis as add-on therapy in patients who have an inadequate response to phosphate binders or who are intolerant of any dose of phosphate binder therapy.

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.

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

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

As of June 30, 2023, we had an accumulated deficit of $824.0 million.

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

for XPHOZAH ® (tenapanor);

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

As of September 30, 2023, we had an accumulated deficit of $817.4 million.

We expect to continue to incur substantial operating losses for the foreseeable future as we invest in the commercialization of IBSRELA and XPHOZAH (tenapanor);

and incur manufacturing and development cost for tenapanor.

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

Our Commercial Product

Our Commercial Products

IBSRELA for IBS-C

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Knight is currently marketing IBSRELA in Canada.

Our Product Pipeline

Development Candidate XPHOZAH:

A Potential New Approach for the Control of Serum Phosphorus in Adult Patients with CKD on Dialysis Who Have Had an Inadequate Response or Intolerance to a Phosphate Binder Therapy

XPHOZAH (tenapanor) is a first-in-class medicine being developed for the control of serum phosphorus, or hyperphosphatemia, in adult patients with CKD on dialysis who have had an inadequate response or intolerance to a phosphate binder therapy.

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

In October 2023, we announced that Fosun Pharma received approval from the Hong Kong Department of Health for the marketing application for tenapanor for the treatment of irritable bowel syndrome with constipation (IBS-C).

XPHOZAH to Reduce Serum Phosphorus in Adults with CKD on dialysis as Add-on Therapy in Patients who have an Inadequate Response to Phosphate Binders or who are Intolerant of any Dose of Phosphate Binder Therapy

On October 17, 2023, XPHOZAH (tenapanor) is a first-in-class medicine received approval from the FDA to market XPHOZAH in the U.S.

to reduce serum phosphorus in adults with chronic kidney disease (CKD) on dialysis as add-on therapy in patients who have an inadequate response to phosphate binders or who are intolerant of any dose of phosphate binder therapy XPHOZAH has a differentiated mechanism of action and acts locally in the gut to inhibit NHE3.

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

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

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

and approximately eighty percent of those patients are being treated with phosphate lowering therapies.

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

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

In June 2020, we submitted a NDA to the FDA for XPHOZAH.

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

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

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

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

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

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

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

In April 2023, we resubmitted a NDA to the FDA for the approval of XPHOZAH for the control of serum phosphorus in adult patients with CKD on dialysis who have had an inadequate response or intolerance to a phosphate binder therapy.

In May 2023, we announced that the FDA accepted our resubmission of our NDA for XPHOZAH, and that the FDA determined that the NDA is a class 2 review, which results in a six-month review period from the date of resubmission.

The FDA set a user fee goal date of October 17, 2023.

If approved, we expect XPHOZAH to be commercially available in the fourth quarter of 2023, as soon as possible following an approval from the FDA.

XPHOZAH is the first therapy for phosphate management that blocks phosphate absorption at the primary site of uptake.

We currently expect XPHOZAH to be available to patients in November 2023.

We have established commercial agreements with Kyowa Kirin, Co.

(Kyowa Kirin) in Japan, Fosun Pharma in China and Knight in Canada for tenapanor for hyperphosphatemia.

In October 2022, Kyowa Kirin 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.

In July 2023, we announced that an NDA for tenapanor had been accepted for review by China’s Center for Drug Evaluation of the National Medical Products Administration ("NMPA") for the control of serum phosphorus in adult patients with chronic kidney disease on hemodialysis.

In July 2023, we announced that an NDA for tenapanor had been accepted for review by China’s Center for Drug Evaluation of the National Medical Products Administration (NMPA) for the control of serum phosphorus in adult patients with CKD on hemodialysis.

In September 2023, we announced that Kyowa Kirin received approval from the Japanese Ministry of Health, Labour and Welfare (MHLW) for the new drug application (NDA) for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis.

Discovery and Developmental Assets

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

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

Collaboration Partners

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Under the terms of the Knight Agreement, Knight paid us a $2.3 million non-refundable, one-time payment in March 2018.

We may also be eligible to receive approximately CAD 22.2 million for development and commercialization milestones, or approximately $16.7 million at the currency exchange rate on June 30, 2023, of which $0.7 million has been received and recognized as revenue as of June 30, 2023.

We may also be eligible to receive approximately CAD 22.2 million for development and commercialization milestones, or approximately $16.4 million at the currency exchange rate on September 30, 2023, of which $0.7 million has been received and recognized as revenue as of September 30, 2023.

We are also eligible to receive royalties throughout the term of the agreement, and a transfer price for manufacturing services.

The variable consideration related to the remaining development milestone payments has not been included in the transaction price as they were fully constrained at June 30, 2023.

The variable consideration related to the remaining development milestone payments has not been included in the transaction price as they were fully constrained at September 30, 2023.

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

Under the terms of the 2017 Kyowa Kirin Agreement, we received a $30.0 million upfront payment from Kyowa Kirin, and 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 June 30, 2023.

We may also be eligible to receive approximately ¥8.5 billion for commercialization milestones, or approximately $58.8 million at the currency exchange rate on June 30, 2023, 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.

Under the terms of the 2017 Kyowa Kirin Agreement, we received a $30.0 million upfront payment from Kyowa Kirin, and we may be entitled to receive up to $55.0 million in total development and regulatory milestones, of which $35.0 million has been recognized as revenue and $20.0 million has been received as of September 30, 2023.

We may also be eligible to receive approximately ¥8.5 billion for commercialization milestones, or approximately $57.0 million at the currency exchange rate on September 30, 2023, as well as reimbursement of costs plus a reasonable overhead for the supply of product and royalties on net sales throughout the term of the agreement.

As discussed in Note 7.

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pursuant to a Royalty and Sales Milestone Interest Acquisition Agreement.

As consideration for the reduction in the royalty rate, Kyowa Kirin agreed to pay us up to an additional $40.0 million payable in two tranches, with the first payment received in the fourth quarter of 2022 following Kyowa Kirin’s October 2022 filing with the Japanese Ministry of Health, Labour and Welfare of its application for marketing approval for tenapanor and the second payment due following Kyowa Kirin’s receipt of regulatory approval to market tenapanor for hyperphosphatemia in Japan.

In October 2022, we announced that Kyowa Kirin submitted a 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 Kyowa Kirin for an aggregate of $35.0 million for milestone payments and payments under the 2022 Amendment.

As consideration for the reduction in the royalty rate, Kyowa Kirin agreed to pay us up to an additional $40.0 million payable in two tranches, with the first payment received in the fourth quarter of 2022 following Kyowa Kirin’s October 2022 filing with the Japanese MHLW of its application for marketing approval for tenapanor and the second payment due following Kyowa Kirin’s receipt of regulatory approval to market tenapanor for hyperphosphatemia in Japan.

In October 2022, we announced that Kyowa Kirin submitted an NDA to the Japanese MHLW for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis, which resulted in payment to us from Kyowa Kirin for an aggregate of $35.0 million for milestone payments and payments under the 2022 Amendment.

In September 2023, we announced that Kyowa Kirin received approval from the Japanese MHLW for the NDA for tenapanor for the improvement of hyperphosphatemia in adult patients with chronic kidney disease on dialysis, which results in payment to us from Kyowa Kirin for an aggregate of $30.0 million for milestone payments and payments under the 2022 Amendment.

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

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In July 2023, we announced that an NDA for tenapanor had been accepted for review by China’s Center for Drug Evaluation of the NMPA for the control of serum phosphorus in adult patients with chronic kidney disease on hemodialysis.

This acceptance triggers a $2.0 million milestone payment to us under the terms of the Fosun Agreement, which we expect to receive in the third quarter of 2023.

We may be entitled to receive development and commercialization milestones of up to $113.0 million, of which $3.0 million has been received and recognized as revenue as of June 30, 2023, 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%.

This acceptance triggered a $2.0 million milestone payment to us under the terms of the Fosun Agreement, which we received in the third quarter of 2023.

We may be entitled to receive development and commercialization milestones of up to $113.0 million, of which $5.0 million has been received and recognized as revenue as of September 30, 2023, 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%.

In October 2023, we announced that the FDA has approved XPHOZAH to reduce serum phosphorus in adults with CKD on dialysis as add-on therapy in patients who have an inadequate response to phosphate binders or who are intolerant of any dose of phosphate binder therapy.

This triggered an additional $3.0 million milestone payment to us under the terms of the Fosun Agreement, which we expect to receive during the fourth quarter of 2023.

Also, in October 2023, we announced that Fosun Pharma received approval from the Hong Kong Department of Health for the marketing application for tenapanor for the treatment of irritable bowel syndrome with constipation (IBS-C).

Critical Accounting Policies and Significant Judgments and Estimates

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The critical accounting policies that we believe impact significant judgments and estimates used in the preparation of our condensed financial statements presented in this report are described in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , in our Annual Report on Form 10-K filed with the SEC on March 2, 2023.

During the six months ended June 30, 2023, we did not adopt any new critical accounting policies and significant judgements and estimates.

During the nine months ended September 30, 2023, we did not adopt any new critical accounting policies and significant judgements and estimates.

Recent Accounting Pronouncements

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

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

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

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

whether or when XPHOZAH, if approved, along with other oral ESRD-related drugs without an injectable or intravenous equivalent, are bundled into the end stage renal disease (“ESRD”) prospective payment system, and the manner in which such introduction into the ESRD prospective payment system may occur, including the length of any applicable Transitional Drug Add-on Payment Adjustment ("TDAPA") period and the amount of the add-on payment available during the TDAPA period;

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

whether or when XPHOZAH, along with other oral ESRD-related drugs without an injectable or intravenous equivalent, are bundled into the end stage renal disease (ESRD) prospective payment system, and the manner in which such introduction into the ESRD prospective payment system may occur, including the length of any applicable Transitional Drug Add-on Payment Adjustment (TDAPA) period, the amount of the add-on payment available during the TDAPA period and whether, and the extent to which, the ESRD PPS base rate is adjusted following any applicable TDAPA period;

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

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Cost of sales consists of the cost of commercial goods sold to our Customers.

Other cost of revenue consists of the cost of materials sold to our international partners under product supply agreements, as well as royalty expense based on sales of tenapanor.

Other cost of revenue consists of the cost of materials sold to our international partners under product supply agreements, as well as payments due to AstraZeneca AB (AstraZeneca) based on sales of tenapanor.

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

Otherwise, such costs are expensed as research and development.

A portion of the costs of IBSRELA units recognized as revenue during the three and six months ended June 30, 2023 were expensed prior to the fourth quarter of 2021, at which time our intent to commercialize IBSRELA was established and we commenced preparation for the commercial launch of IBSRELA.

We believe our cost of goods sold for the three and six months ended June 30, 2023 would have been $2.0 million and $2.4 million higher, respectively, if we had not previously expensed certain material and production costs with respect to the units sold.

We believe our cost of goods sold for the three and six months ended June 30, 2022 would have been $140 thousand and $149 thousand higher, respectively, if we had not previously expensed certain material and production costs with respect to the units sold.

As of June 30, 2023 and December 31, 2022, we had approximately $24.5 million and $28.0 million, respectively, of inventory on hand that was previously expensed as research and development expense and will not be reported as cost of goods sold in future periods when sales of IBSRELA are recognized as revenue.

Other cost of revenue includes payments due to AstraZeneca AB (“AstraZeneca”), which under the terms of a termination agreement entered into in 2015 (“AZ Termination Agreement”) is entitled to (i) future royalties at a rate of 10% of net sales of tenapanor or other NHE3 products by us or our licensees, and (ii) 20% of non-royalty revenue received from our collaboration partners in connection with the development and commercialization of tenapanor or other NHE3 products.

A portion of the costs of IBSRELA units recognized as revenue during the three and nine months ended September 30, 2023 were expensed prior to the fourth quarter of 2021, at which time our intent to commercialize IBSRELA was established and we commenced preparation for the commercial launch of IBSRELA.

We believe our cost of goods sold for the three and nine months ended September 30, 2023 would have been $1.0 million and $3.4 million higher, respectively, if we had not previously expensed certain material and production costs with respect to the units sold.

We believe our cost of goods sold for the three and nine months ended September 30, 2022 would have been $0.2 million and $1.2 million higher, respectively, if we had not previously expensed certain material and production costs with respect to the units sold.

As of September 30, 2023 and December 31, 2022, we had approximately $25.0 million and $28.0 million, respectively, of inventory on hand that was previously expensed as research and development expense and will not be reported as cost of goods sold in future periods when sales of IBSRELA are recognized as revenue.

Other cost of revenue includes payments due to AstraZeneca, which under the terms of a termination agreement entered into in 2015 (AstraZeneca Termination Agreement) is entitled to (i) future royalties at a rate of 10% of net sales of tenapanor or other NHE3 products by us or our licensees, and (ii) 20% of non-royalty revenue received from our collaboration partners in connection with the development and commercialization of tenapanor or other NHE3 products.

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 other 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 $18.3 million as other cost of revenue under the AZ Termination Agreement.

To date, we have recognized an aggregate of $23.9 million as other cost of revenue under the AstraZeneca Termination Agreement.

See details in Note 6, Collaboration and Licensing Agreements , under AstraZeneca, in the notes to our financial statement of this Quarterly Report on Form 10-Q.

Research and Development

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

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

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RESULTS OF OPERATIONS

The results of operations as of June 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, for any other interim period, or for any other future year.

Comparison of the three and six months ended June 30, 2023 and 2022

The results of operations as of September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, for any other interim period, or for any other future year.

Comparison of the three and nine months ended September 30, 2023 and 2022

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

Three Months Ended June 30, Change

2022 Six Months Ended June 30, Change

Three Months Ended September 30, Change

2022 Nine Months Ended September 30, Change

2023 2022 $ % 2023 2022 $ %

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Total revenues $ 56,391 $ 4,986 $ 51,405 1,031 % $ 90,093 $ 7,980 $ 82,113 1,029 %

The increase in total revenues during the three and six months ended June 30, 2023 as compared to the same periods in 2022 is primarily attributable to increased net product sales for IBSRELA as well as increased product supply revenue to Kyowa Kirin.

The increase in product sales, net during the three and nine months ended September 30, 2023 as compared to the same periods in 2022 is attributable to increased net product sales for IBSRELA.

The increase in product supply revenue during the three and nine months ended September 30, 2023 as compared to the same periods in 2022 is attributable to increased product supply revenue to Kyowa Kirin.

The increase in licensing revenue during the three and nine months ended September 30, 2023 as compared to the same periods in 2022 is attributable to earning an aggregate of $30.0 million for milestones under the 2017 Kyowa Kirin Agreement and payments under the 2022 Kyowa Kirin Amendment upon approval from the Japanese MHLW for the NDA for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis.

We also earned a $2.0 million milestone under the terms of the Fosun Agreement upon acceptance of the NDA for tenapanor by China’s Center for Drug Evaluation of the NMPA for the control of serum phosphorus in adult patients with CKD on hemodialysis.

Cost of Goods Sold

Below is a summary of our cost of goods sold (dollars in thousands):

Three Months Ended June 30, Change

2022 Six Months Ended June 30, Change

Three Months Ended September 30, Change

2022 Nine Months Ended September 30, Change

2023 2022 $ % 2023 2022 $ %

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Total cost of goods sold $ 7,692 $ 732 $ 6,960 951 % $ 12,718 $ 955 $ 11,763 1,232 %

The increase to cost of sales for the three and six months ended June 30, 2023 as compared to the same periods in 2022 is attributable to cost of goods sold for increased net product sales of IBSRELA.

The increase to other cost of revenue for the three and six months ended June 30, 2023 as compared to the same periods in 2022 is primarily attributable to payments due to AstraZeneca under the AZ Termination Agreement as well as cost of goods sold for product supply sold to our international partners.

The increase to cost of sales for the three and nine months ended September 30, 2023 as compared to the same periods in 2022 is attributable to cost of goods sold for increased net product sales of IBSRELA.

The increase to other cost of revenue for the three and nine months ended September 30, 2023 as compared to the same periods in 2022 is primarily attributable to payments due to AstraZeneca under the AstraZeneca Termination Agreement as well as cost of goods sold for product supply sold to our international partners.

Operating Expenses

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

Three Months Ended June 30, Change

2022 Six Months Ended June 30, Change

Three Months Ended September 30, Change

2022 Nine Months Ended September 30, Change

2023 2022 $ % 2023 2022 $ %

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

Three Months Ended June 30, Change

2022 Six Months Ended June 30, Change

Three Months Ended September 30, Change

2022 Nine Months Ended September 30, Change

2023 2022 $ % 2023 2022 $ %

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Total research and development expenses $ 8,637 $ 7,467 $ 1,170 16 % $ 26,012 $ 26,059 $ (47) — %

The decrease in our external R&D expenses for the three and six months ended June 30, 2023 as compared to the same periods in 2022 is primarily the result of tenapanor manufacturing expenses as well as regulatory consulting expenses related to the FDA appeal of XPHOZAH.

The change in our external R&D expenses for the three months ended September 30, 2023 as compared to the same period in 2022 is primarily the result of tenapanor manufacturing expenses as well as regulatory consulting expenses related to the FDA appeal of XPHOZAH.

The change in our external R&D expenses for the nine months ended September 30, 2023 as compared to the same period in 2022 is primarily the result of clinical trial and pharmacovigilance activities related to IBSRELA.

Selling, General and Administrative

The increase in selling, general and administrative expenses for the three and six months ended June 30, 2023 as compared to the same periods in 2022 is primarily due to increased costs associated with the commercial launch of IBSRELA.

The increase in selling, general and administrative expenses for the three and nine months ended September 30, 2023 as compared to the same periods in 2022 is primarily due to increased costs associated with the commercial launch of IBSRELA as well as preparation for the commercial launch of XPHOZAH and increases in expenses associated with administrative support functions as our company has grown in headcount and activity level.

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

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

Three Months Ended June 30, Change

2022 Six Months Ended June 30, Change

Three Months Ended September 30, Change

2022 Nine Months Ended September 30, Change

2023 2022 $ % 2023 2022 $ %

Interest expense $ (1,107) $ (886) $ (221) 25 % $ (3,210) $ (2,409) $ (801) 33 %

The increase in interest expense for the three and six months ended June 30, 2023 as compared to the same periods in 2022 is due to a higher variable interest rate applied to our loan balance primarily resulting from market fluctuations.

The increase in interest expense for the three and nine months ended September 30, 2023 as compared to the same periods in 2022 is due to a higher variable interest rate applied to our loan balance primarily resulting from market fluctuations.

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

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

Three Months Ended June 30, Change

2022 Six Months Ended June 30, Change

Three Months Ended September 30, Change

2022 Nine Months Ended September 30, Change

2023 2022 $ % 2023 2022 $ %

Non-cash interest expense related to the sale of future royalties $ (968) $ (10) $ (958) (a) $ (1,937) $ (10) $ (1,927) (a)

(a) Not meaningful

Non-cash interest expense related to the sales of future royalties for the three and six months ended June 30, 2023 is accrued on the deferred royalty obligation that we recorded following the receipt of the $10.0 million upfront payment from HCR during June 2022.

Non-cash interest expense related to the sale of future royalties $ (922) $ (831) $ (91) 11 % $ (2,859) $ (841) $ (2,018) 240 %

Non-cash interest expense related to the sales of future royalties for the three and nine months ended September 30, 2023 is accrued on the deferred royalty obligation that we recorded following the receipt of the $10.0 million upfront payment from HCR during June 2022.

We recognized nine months of expense during the nine months ended September 30, 2023 compared to approximately three months of expense during the nine months ended September 30, 2022.

Other Income, net

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

Three Months Ended June 30, Change

2022 Six Months Ended June 30, Change

Three Months Ended September 30, Change

2022 Nine Months Ended September 30, Change

2023 2022 $ % 2023 2022 $ %

Other income, net $ 1,460 $ 704 $ 756 107 % $ 4,308 $ 1,258 $ 3,050 242 %

The increase in other income, net for the three and six months ended June 30, 2023 as compared to the same periods in 2022 is primarily due to increased income on our investments resulting from both higher returns and larger investment balances throughout the period.

The increase in other income, net for the three and nine months ended September 30, 2023 as compared to the same periods in 2022 is primarily due to increased income on our investments resulting from both higher interest rates and larger investment balances throughout the period.

Liquidity and Capital Resources

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

June 30, 2023 December 31, 2022 Change $ Change %

September 30, 2023 December 31, 2022 Change $ Change %

Cash and cash equivalents $ 33,767 $ 96,140 $ (62,373) (65) %

1 unchanged sentence

Total liquid funds $ 165,080 $ 123,909 $ 41,171 33 %

As of June 30, 2023, we had cash, cash equivalents and short-term investments of approximately $127.6 million.

We have incurred operating losses since inception in 2007 and our accumulated deficit as of June 30, 2023 is $824.0 million.

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

We plan to address our operating cash flow requirements with our current cash, cash equivalents and short-term investments, cash generated from product sales of IBSRELA, and if approved, cash generated from sales of XPHOZAH, the potential receipt of anticipated milestone payments from our collaboration partners, the potential receipt of anticipated payments from Kyowa Kirin under the 2022 Amendment, with additional financing sources and through the implementation of cash preservation activities to reduce or defer discretionary spending.

There are no assurances that our efforts to meet our operating cash flow requirements will be successful.

If our current cash, cash equivalents 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 condensed financial statements, our liquidity, financial condition and business prospects will be materially affected.

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

In August 2021, we filed an additional prospectus supplement under a Registration Statement which was filed in July 2020 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 was authorized for issuance and sale, from time to time, under a sales agreement we entered into with Jefferies (the "2021 Open Market Sales Agreement"), pursuant to which we, from time to time, sold up to $150.0 million in shares of our common stock through Jefferies.

As of September 30, 2023, we had cash, cash equivalents and short-term investments of approximately $165.1 million.

In August 2021, we filed a prospectus supplement under a Registration Statement which was filed in July 2020 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 was authorized for issuance and sale, from time to time, under a sales agreement (2021 Open Market Sales Agreement) we entered into with Jefferies LLC (Jefferies), pursuant to which we, from time to time, sold up to $150.0 million in shares of our common stock through Jefferies.

Pursuant to the 2021 Open Market Sales Agreement, Jefferies, as our sales agent, received a commission of up to 3% of the gross sales price for shares of common stock sold under the 2021 Open Market Sales Agreement.

During the three months ended March 31, 2023 we sold 15.5 million shares and received gross proceeds of $51.9 million at a weighted average sales price of approximately $3.35 per share under the 2021 Open Market Sales Agreement.

As of March 31, 2023, we had sold a total of 95.2 million shares and received the maximum gross proceeds of $150.0 million under the 2021 Open Market Sales Agreement.

As of March 2023, we had received the maximum gross proceeds of $150.0 million under the 2021 Open Market Sales Agreement, which included 15.5 million shares of our common stock for which we received gross proceeds of $51.9 million during the quarter ended March 31, 2023.

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").

and (ii) a prospectus supplement for the offering, issuance and sale by us of up to a maximum aggregate offering price of $150.0 million of our common stock that may be issued and sold, from time to time, under a sales agreement with Jefferies, deemed to be “at-the-market offerings” (2023 Open Market Sales Agreement).

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

During the three months ended June 30, 2023, we initiated sales pursuant to the 2023 Open Market Sales Agreement resulting in the issuance of 3.0 million shares of our common stock and receipt of gross proceeds of $11.6 million at a weighted average sales price of approximately $3.83 per share.

During the three months ended September 30, 2023, we initiated sales pursuant to the 2023 Open Market Sales Agreement resulting in the issuance of 13.8 million shares of our common stock and receipt of gross proceeds of $58.4 million at a weighted average sales price of approximately $4.24 per share.

During the nine months ended September 30, 2023, we completed sales pursuant to the 2023 Open Market Sales Agreement resulting in the issuance of 16.8 million shares of our common stock and receipt of gross proceeds of $70.0 million at a weighted average sales price of approximately $4.17 per share.

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

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We had $25.0 million principal from the 2018 Loan outstanding as of the closing date, as well as the 2018 Exit Fee in the amount of $1.5 million.

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

We paid the 2018 Exit Fee in October 2023 following approval from the FDA for XPHOZAH to reduce serum phosphorus in adults with chronic kidney disease (CKD) on dialysis as add-on therapy in patients who have an inadequate response to phosphate binders or who are intolerant of any dose of phosphate binder therapy.

As discussed in Note 9.

Derivative Liabilities , in connection with entering into the 2022 Loan Agreement, we entered into the 2022 Exit Fee agreement, whereby we agreed to pay an exit fee in the amount of 2% of the 2022 Loan funded if certain conditions are met.

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

Notwithstanding the prepayment or termination of the 2022 Loan, the 2022 Exit Fee will expire on February 23, 2032.

In October 2022, we announced that our collaboration partner, Kyowa Kirin, submitted an NDA to the Japanese MHLW for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis.

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

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

We received these payments in October 2023.

In October 2023, we entered into a Third Amendment (the Third Amendment) to the 2022 Loan Agreement by and between us and the 2022 Lenders.

As discussed in Note 8.

Borrowing , the Third Amendment, among other things, (1) provides us with the option to draw an additional $50.0 million of committed capital by March 15, 2024 (the Term C Loan);

(2) provides us with the option to draw up to an additional $50.0 million of uncommitted capital, subject to approval by the Agent's investment committee (the Term D Loan);

and (3) extends the interest-only period for the Four Loans to December 31, 2026, effective upon our decision to draw the Term B Loan in the amount of $22.5 million.

We provided the Agent with notice of our decision to draw the Term B Loan in October 2023 to support the commercial launch of XPHOZAH.

We have incurred operating losses since inception in 2007 and our accumulated deficit as of September 30, 2023 is $817.4 million.

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

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

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

Since December 31, 2021 and prior to September 30, 2023, our liquidity position raised substantial doubt about our ability to continue as a going concern.

We have addressed our operating cash flow requirements through cash generated from product sales of IBSRELA, proceeds from the sale of shares of our common stock under our at-the-market offering, and from the receipt of milestones payments from our collaboration partners and payments from our Japanese collaboration partner under the second amendment to our License Agreement, which were received in October 2023.

We believe our available cash, cash equivalents and short-term investments as of September 30, 2023 will be sufficient to fund our operations for at least a period of one year from the issuance of these condensed financial statements.

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

In particular, our operating plan may change and we may require significant additional capital to fund our operations.

There are no assurances that our efforts to meet our operating cash flow requirements will be successful.

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

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

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

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

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

• whether or when XPHOZAH, if approved, along with other oral ESRD-related drugs without an injectable or intravenous equivalent, are bundled into the ESRD prospective payment system, and the manner in which such introduction into the ESRD prospective payment system may occur, including the length of any applicable TDAPA period and the amount of the add-on payment available during the TDAPA period;

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

• the availability of adequate third-party reimbursement for IBSRELA and XPHOZAH;

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

• whether or when XPHOZAH, along with other oral ESRD-related drugs without an injectable or intravenous equivalent, are bundled into the ESRD prospective payment system (ESRD PPS), the manner in which such introduction into the ESRD PPS may occur, including the length of any applicable TDAPA period and the amount of the add-on payment available during the TDAPA period and whether, and the extent to which, the ESRD PPS base rate is adjusted following any applicable TDAPA period;

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

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

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

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

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

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

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

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

in February 2022.

in February 2022, as amended to date.

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

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

Six Months Ended June 30, Change 2023 vs.

Nine Months Ended September 30, Change 2023 vs.

2023 2022 $ %

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Cash Flows from Operating Activities

Net cash used in operating activities during the six months ended June 30, 2023 increased by $0.6 million as compared to the same periods in 2022 primarily as a result of our lower net loss and expenditures for commercial manufacturing and inventory for the production of IBSRELA.

Net cash used in operating activities during the nine months ended September 30, 2023 decreased by $3.3 million as compared to the same period in 2022 primarily as a result of our lower net loss, partially offset by changes in our working capital, including a $30.8 million increase in accounts receivable.

Accounts receivable was elevated at September 30, 2023 due to $30.0 million receivable from Kyowa Kirin for milestone payments and payments under the 2022 Amendment that were earned in September 2023 and received in October 2023.

Cash Flows from Investing Activities

Net cash (used in) provided by investing activities during the six months ended June 30, 2023 decreased by $86.8 million as compared to the same periods in 2022 due to increased investment purchases during 2023 as we invested higher levels of cash as compared to the same period in 2022.

Net cash (used in) provided by investing activities during the nine months ended September 30, 2023 decreased by $118.7 million as compared to the same periods in 2022 due to increased investment purchases during 2023, as we invested higher levels of cash as compared to the same period in 2022.

Cash Flows from Financing Activities

Net cash provided by financing activities during the six months ended June 30, 2023 increased by $40.4 million as compared to the same periods in 2022 primarily due to net proceeds from issuance of our common stock pursuant to the at the market offerings of $62.1 million during the six months ended June 30, 2023 compared to $18.5 million during the six months ended June 30, 2022.

In addition, during the six months ended June 30, 2022 we expended net $6.1 million in conjunction with entering into the 2022 Loan and repaying the principal outstanding under the 2018 Loan and received net proceeds of $9.6 million from the sale of future royalties to HCR.

Net cash provided by financing activities during the nine months ended September 30, 2023 increased by $63.8 million as compared to the same periods in 2022 primarily due to net proceeds from issuance of our common stock pursuant to the at the market offerings of $119.2 million during the nine months ended September 30, 2023 compared to $52.8 million during the nine months ended September 30, 2022.

In addition, during the nine months ended September 30, 2022 we expended net $6.1 million in conjunction with entering into the 2022 Loan and repaying the principal outstanding under the 2018 Loan and received net proceeds of $9.6 million from the sale of future royalties to HCR.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis