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Item 7. Management’s Discussion and Analysis

2024-02-22 compared with 2023-03-02 · 260 added, 282 removed, 215 unchanged (72% of the section changed)

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Our actual results could differ materially from those discussed in these forward-looking statements.

Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report entitled “Risk Factors .

” These forward-looking statements speak only as of the date hereof.

Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report entitled “Risk Factors .” These forward-looking statements speak only as of the date hereof.

Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason.

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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).

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

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

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.

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

Food and Drug Administration (U.S.

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, as well as commercialization activities, including the marketing and sales of IBSRELA and XPHOZAH.

We realized our first product sales of IBSRELA in March 2022 and realized our first product sales of XPHOZAH in November 2023.

As of December 31, 2023, we had an accumulated deficit of $846.2 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;

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

We expect to continue to incur operating losses for the foreseeable future as we invest in the commercialization of IBSRELA and XPHOZAH, incur manufacturing and development cost for tenapanor, and incur R&D costs related to potential new product candidates.

(SLR), as amended on August 1, 2022, February 9, 2023 and October 17, 2023 (collectively, the 2022 Loan Agreement), as well as from sales of IBSRELA and XPHOZAH.

Our Commercial Products

IBSRELA for IBS-C

Our unique discovery platform and deep understanding of the primary mechanism of sodium transport in the intestine resulted in our discovery and development of IBSRELA, a first-in-class, U.S.

Food and Drug Administration (“FDA") approved, sodium hydrogen exchange 3 ("NHE3") inhibitor for the treatment of IBS-C in adults.

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

IBSRELA acts locally in the gut and is minimally absorbed.

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

IBS-C is a gastrointestinal (GI) disorder characterized by both abdominal pain and altered bowel habits.

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

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

These dynamics enabled a targeted promotional focus on patients currently being managed for IBS-C by the approximately 9,000 high-writing healthcare providers that account for 50% of IBS-C prescriptions.

Central to the go to market strategy for IBSRELA is a highly experienced specialty sales force, many with existing relationships across their GI target base, full company engagement, and innovative peer-to-peer and digital initiatives.

These dynamics enabled a targeted promotional focus on patients currently being managed for IBS-C by the approximately 9,000 high-writing healthcare providers who account for approximately 50% of IBS-C prescriptions.

Central to our go to market strategy for IBSRELA has been our highly experienced specialty sales force, many with existing relationships across their GI target base, and omnichannel digital initiatives.

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

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Generic lubiprostone is also available in the U.S.

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

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

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

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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

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

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

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, a first-in-class phosphate absorption inhibitor, received approval from the U.S.

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.

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

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

It is not a phosphate binder.

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

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

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

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

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

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

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

On average during 2020 through 2023, approximately seventy 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.

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

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

in November 2023.

For our commercial launch of XPHOZAH, we designed a market-responsive commercial strategy and built a commercial organization highly experienced and knowledgeable of the nephrology market.

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

In addition, market research indicated a high level of awareness, interest and intent to adopt XPHOZAH upon approval and favorable response to the XPHOZAH product profile as a novel mechanism therapy.

These dynamics enabled a targeted promotional focus on patients currently being managed for hyperphosphatemia by the approximately 8,000 nephrology healthcare providers who write approximately 80% of phosphate lowering therapy prescriptions.

Central to our go to market strategy for XPHOZAH is our highly experienced specialty sales force, many with existing relationships across their nephrology target base, and innovative omnichannel digital initiatives.

XPHOZAH is indicated 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.

The various types of phosphate binders commercialized in the U.S.

include the following:

Calcium acetate (several prescription brands including PhosLo and Phoslyra);

Lanthanum carbonate (Fosrenol);

Sevelamer hydrochloride (Renagel);

Sevelamer carbonate (Renvela);

Sucroferric oxyhydroxide (Velphoro);

and Ferric citrate (Auryxia).

All of the listed phosphate binders are available as generics in the U.S., with the exception of Velphoro and Auryxia.

Additionally, over-the-counter calcium carbonate, such as Tums and Caltrate, is also used to bind phosphorus.

In addition to the currently available phosphate binders, we are aware of at least four other binders in development, including fermagate (Alpharen), an iron-based binder in Phase 3 being developed by Opko Health, Inc., PT20, an iron-based binder in Phase 3 being developed by Shield Therapeutics, AP-301 in Phase 2 being developed by Alebund Pharmaceutical (Hong Kong) Limited, and Oxylanthanum Carbonate (OLC), which has demonstrated pharmacodynamic bioequivalence to Fosrenol.

OLC is being developed by Unicycive Therapeutics, which has announced its plans to seek U.S.

FDA approval via the 505(b)(2) pathway.

Additionally, Chugai and Alebund are developing EOS789, an inhibitor of phosphate transporters NaPi-2b, PiT-1, and PiT-2, thus far studied in a phase 1 clinical trial.

In November 2023, XPHOZAH was granted orphan drug designation by the U.S.

FDA for the treatment of pediatric hyperphosphatemia.

We have established commercial agreements with Kyowa Kirin, Co.

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

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

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

In July 2023, we announced that a New Drug Application (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 NDA for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis.

Discovery and Developmental Assets

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

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

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

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

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

We have exclusive rights to tenapanor in the U.S.

and we have established agreements with Kyowa Kirin in Japan, Fosun Pharma in China and Knight in Canada for the development and commercialization of tenapanor for certain indications in their respective territories.

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

In March 2021, Knight announced the commercial availability of IBSRELA in Canada, following its approval by Health Canada in April 2020.

Under the terms of the 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 December 31, 2023, of which $0.7 million has been received and recognized as revenue as of December 31, 2023.

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

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 $35.0 million has been recognized as revenue and received as of December 31, 2023.

We may also be eligible to receive approximately ¥8.5 billion for commercialization milestones, or approximately $60.3 million at the currency exchange rate on December 31, 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 8.

Deferred Royalty Obligation Related to the Sale of Future Royalties , the future royalties and commercial milestone payments we may receive under the 2017 Kyowa Kirin Agreement will be remitted to HealthCare Royalty Partners IV, L.P.

pursuant to a Royalty and Sales Milestone Interest Acquisition Agreement.

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

Under the terms of the 2022 Amendment, we and Kyowa Kirin agreed to a reduction in the royalty rate payable to us by Kyowa Kirin upon net sales of tenapanor in Japan.

The royalty rate was 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 royalties we may receive under the 2017 Kyowa Kirin 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, Kyowa Kirin agreed to pay us up to an additional $40.0 million which has been received and recognized as revenue as of September 2023 as described below.

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 resulted 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.

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

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 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.

In October 2023, we announced that the U.S.

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 was received during the first quarter of 2024.

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).

We may be entitled to receive development and commercialization milestones of up to $113.0 million, of which $8.0 million has been recognized as revenue and $5.0 million has been received as of December 31, 2023 and $3.0 million was received in January 2024, 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%.

FINANCIAL OPERATIONS OVERVIEW

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

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

Our revenue to date has been generated primarily through a combination of product sales and payments in connection with license, research and development collaborative agreements with our various collaboration partners.

We realized our first commercial product sales of IBSRELA beginning in March 2022 and our first commercial product sales of XPHOZAH in November 2023.

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

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

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

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

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

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

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

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

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 prospective payment system (ESRD PPS), and the manner in which such introduction into the ESRD PPS 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;

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

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

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

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attracting, hiring, and retaining qualified personnel;

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

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

and the extent to which tenapanor or other licensed products are approved and successfully commercialized by a collaboration partner.

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

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

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.

Cost of Goods Sold

Cost of product 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 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 twelve months ended December 31, 2022 were expensed prior to the fourth quarter of 2021, at which time our intent to commercialize IBSRELA was established and we commenced preparation for the commercial launch of IBSRELA.

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

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

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

A portion of the costs of IBSRELA and XPHOZAH units recognized as revenue during the years ended December 31, 2023 and 2022 were expensed in periods prior to the commencement of capitalization of inventory costs for each respective product.

We believe our cost of goods sold for the years ended December 31, 2023 and 2022 would have been $4.4 million and $1.9 million higher, respectively, if we had not previously expensed certain material and production costs with respect to the units sold.

As of December 31, 2023 and December 31, 2022, we had approximately $21.8 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 and XPHOZAH 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 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.

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 $27.6 million as other cost of revenue under the AstraZeneca Termination Agreement.

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

Research and Development

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

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

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

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

R&D expenses include, but are not limited to, the following:

• external research and development expenses incurred under agreements with consultants, third-party contract research organizations (CROs) and investigative sites where a substantial portion of our clinical studies are conducted, and with contract manufacturing organizations where our clinical supplies are produced;

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

• expenses associated with producing XPHOZAH prior to FDA approval;

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

• expenses associated with producing XPHOZAH prior to U.S.

FDA approval;

• expenses associated with producing discovery and developmental assets prior to U.S.

FDA approval;

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

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Interest Expense

Interest expense represents the interest paid on our loan payable.

Interest expense represents the interest associated with on our 2022 Loan Agreement.

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

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

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

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

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

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

As part of the HCR Agreement, we have received a $10.0 million upfront payment and a $5.0 million milestone payment from HCR, which we recorded as a deferred royalty obligation on our balance sheet.

Other Income, net

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

Other income, net consists of interest income earned on our cash, cash equivalents and available-for-sale investments, the periodic revaluation of the exit fee related to our 2022 Loan Agreement, gains on sales of property and equipment, and currency exchange gains and losses.

Provision for Income Taxes

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Actual results could differ materially from these estimates.

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

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

Product Sales, Net

We account for our commercial product sales, net in accordance with Topic 606 – Revenue from Contracts with Customers .

We received approval from the FDA in September 2019 to market IBSRELA in the U.S.

We began selling IBSRELA in the U.S.

in March 2022.

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

Our Customers subsequently sell IBSRELA to pharmacies and patients.

We received approval from the FDA to market IBSRELA in the U.S.

in September 2019 and to market XPHOZAH in the U.S.

in October 2023.

We began selling IBSRELA and XPHOZAH in the U.S.

in March 2022 and November 2023, respectively.

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

XPHOZAH is principally distributed through a specialty wholesaler (XPHOZAH Customer) to select specialty pharmacies (collectively, IBSRELA Customers and XPHOZAH Customers, “Customers”).

Our Customers subsequently sell IBSRELA and XPHOZAH to pharmacies and patients.

Separately, we enter into arrangements with third parties that provide for government-mandated rebates, chargebacks and discounts.

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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.

As we gain more experience, estimates will be more heavily based on the expected utilization from historical data we have accumulated since the IBSRELA and XPHOZAH product launches.

Changes in estimates recorded through December 31, 2023 have not been material.

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.

Estimates for rebates are recorded in the same period the related gross revenue is recognized, resulting in a reduction of product revenue.

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.

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 and therefore require the most estimation and judgment of our gross to net deductions.

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

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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.

The accrual for wholesaler chargebacks is estimated based on known chargeback rates, known sales to wholesalers, and known sales from wholesalers to their chargeback-eligible customers.

Discounts and Fees:

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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.

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.

We also estimate the amount of copay assistance that will be provided to patients associated with product which we have sold but which has not yet been dispensed to commercial patients, which requires significant estimation and judgment.

Our estimates 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.

As we have experienced limited product returns, establishing the appropriate level of product returns reserve require estimation and judgment.

Collaboration Revenue Recognition

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and future royalties on net sales of licensed products.

When two or more contracts are entered into with the same customer at or near the same time, we evaluate the contracts to determine whether the contracts should be accounted for as a single arrangement.

Contracts are combined and accounted for as a single arrangement if one or more of the following criteria are met:

(i) the contracts are negotiated as a package with a single commercial objective;

(ii) the amount of consideration to be paid in one contract depends on the price or performance of the other contract;

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 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 any constraints on variable consideration;

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

and (v) recognition of revenue when (or as) we satisfy each performance obligation.

As part of the accounting for contracts with customers, we develop assumptions that require judgment to determine whether promised goods and services represent distinct performance obligations and the standalone selling price for each performance obligation identified in the contract.

This evaluation is subjective and requires us to make judgments about the promised goods and services and whether those goods and services are separable from other aspects of the contract.

Further, determining the standalone selling price for performance obligations requires significant judgment, and when an observable price of a promised good or service is not readily available, we consider relevant assumptions to estimate the standalone selling price, including, as applicable, market conditions, development timelines, probabilities of technical and regulatory success, reimbursement rates for personnel costs, forecasted revenues, potential limitations to the selling price of the product and discount rates.

We apply judgment in determining whether a combined performance obligation is satisfied at a point in time or over time, and, if over time, concluding upon the appropriate method of measuring progress to be applied for purposes of recognizing revenue.

We evaluate the measure of progress each reporting period and, as estimates related to the measure of progress change, related revenue recognition is adjusted accordingly.

Changes in our estimated measure of progress are accounted for prospectively as a change in accounting estimate.

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.

Revenues are recognized as the program costs are incurred.

We will re-evaluate the estimate of expected costs to satisfy the performance obligation each reporting period and make adjustments for any significant changes.

Amounts received prior to satisfying the revenue recognition criteria are recorded as contract liabilities in our balance sheets.

If the related performance obligation is expected to be satisfied within the next twelve months, this will be classified in current liabilities.

Amounts recognized as revenue prior to receipt are recorded as contract assets in our balance sheets.

If we expect to have an unconditional right to receive the consideration in the next twelve months, this 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 research and 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.

Milestone payments that are not within the control of us or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received.

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.

Determining the standalone selling price for performance obligations requires significant judgment, and when an observable price of a promised good or service is not readily available, we consider relevant assumptions to estimate the standalone selling price, including, as applicable, market conditions, development timelines, probabilities of technical and regulatory success, reimbursement rates for personnel costs, forecasted revenues, potential limitations to the selling price of the product and discount rates.

We also use judgment to 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.

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, adjust our 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.

Manufacturing supply services:

Arrangements that include a promise for the future supply of drug substance or drug product for either clinical development or commercial supply at the customer’s discretion are generally considered as options.

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

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

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

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

Licenses of intellectual property :

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

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

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

e., an optional good or service offered for free or at a discount) to the customer.

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

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.

Instead, the option is deemed a marketing offer, and additional option fee payments are recognized or being recognized as revenue when the licensee exercises the option.

The exercise of an option that does not represent a material right is treated as a separate contract for accounting purposes.

Contract modifications:

Contract modifications, defined as changes in the scope or price (or both) of a contract that are approved by the parties to the contract, such as a contract amendment, exist when the parties to a contract approve a modification that either creates new or changes existing enforceable rights and obligations of the parties to the contract.

Depending on facts and circumstances, we account for a contract modification as one of the following:

(i) a separate contract;

(ii) a termination of the existing contract and a creation of a new contract;

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.

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 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.

Where applicable, amounts are recorded as unbilled revenue when our right to consideration is unconditional.

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.

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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.

We began to capitalize inventory costs associated with XPHOZAH during the fourth quarter of 2023, following approval by the U.S.

FDA to market XPHOZAH in the U.S., 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 specific identification 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.

We primarily use actual costs to determine the cost basis for inventory, and therefore there is limited estimation or judgment involved.

The determination of whether inventory costs will be realizable requires management review of the expiration dates of IBSRELA and XPHOZAH compared to our forecasted sales.

If actual market conditions are less favorable than projected by management, write-downs of inventory may be required, which would be recorded as cost of revenue in the statement of operations and comprehensive loss.

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

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

Accrued Research and Development Expenses

As of December 31, 2023, we have not recorded any write-downs for excess and obsolete inventory.

Accrued Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses.

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

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

• CROs in connection with clinical studies;

• investigative sites in connection with clinical studies;

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

• vendors in connection with preclinical development activities.

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

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

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

Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical trial milestones.

In accruing service fees, we estimate the time period over which each component of a service will be performed, and estimate, with vendor input if appropriate, the resulting level of completion of each component of the service, with such estimates often involving drivers that provide a surrogate measurement of completion such as number of enrolled subjects and/or number of sites activated in the calculation of clinical trial fee accruals.

In accruing service fees, we estimate the time period over which each component of a service will be performed, and estimate, with vendor input if appropriate.

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

Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, we may report amounts that are too high or too low in any particular period.

Stock-Based Compensation

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

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

These assumptions include:

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

As such, the expected term is 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.

Expected Volatility —We use the historic volatility of our own stock over the retrospective period corresponding to the expected remaining term of the options, or the period since our shares were first quoted on The Nasdaq Global Market, if that is shorter, to compute our expected stock price volatility.

Risk-Free Interest Rate —The risk-free interest rate assumption is based on zero-coupon U.S.

Treasury instruments on the date of grant with a maturity date consistent with the expected term of our stock option grants.

Expected Dividend — To date, we have not declared or paid any cash dividends and do not have any plans to do so in the future.

Therefore, we use an expected dividend yield of zero.

As required, we review our valuation assumptions at each grant date and, as a result, we are likely to change our valuation assumptions used to value employee stock-based awards granted in future periods.

Employee and director stock-based compensation costs are to be recognized over the vesting period of the award, and we have elected to use the straight-line attribution method.

Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

We estimate forfeitures based on historical experience.

Restricted stock units ("RSUs") are measured at the fair value of our common stock on the date of grant and expensed over the period of vesting using the straight-line attribution approach.

Performance-based RSUs ("PRSUs") are valued at grant-date fair market value.

The vesting of the PRSUs is based on performance conditions.

Performance conditions include:

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

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

Restructuring

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

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

If future services are required, the costs are recorded ratably over the remaining period of service.

Contract termination costs to be incurred over the remaining contract term without economic benefit are recorded in their entirety when the contract is canceled.

RESULTS OF OPERATIONS

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2023 2022 2021 $ % $ %

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

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

Product sales, net $ 82,526 $ 15,600 $ — $ 66,926 429 % $ 15,600 (a)

Licensing revenue 35,809 35,031 5,013 778 2 % 30,018 599 %

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

Collaborative development revenue — — 4,177 — (a) (4,177) (100) %

Product supply revenue 6,121 1,527 907 4,594 301 % 620 68 %

Total revenues $ 124,456 $ 52,158 $ 10,097 $ 72,298 139 % $ 42,061 417 %

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

(a) Percent change is not meaningful.

Below is a summary of our net product sales by product (dollars in thousands):

Year Ended December 31,

2023 2022 2021

Product sales, net:

IBSRELA $ 80,062 $ 15,600 $ —

XPHOZAH 2,464 — —

Total product sales, net $ 82,526 $ 15,600 $ —

Fiscal 2023 compared to 2022:

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

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

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

There were no product sales during 2021 and 2020.

The increase in product sales, net during the year ended December 31, 2023 as compared to the same period in 2022 is primarily attributable to increased net product sales for IBSRELA and is primarily volume based as 2023 was a full year of sales while IBSRELA sales commenced in March of 2022.

IBSRELA sales volumes increased in 2023 as awareness and prescriber experience with the product continued to grow following its commercial launch in March 2022.

Commercial sales of XPHOZAH commenced in November 2023.

Licensing revenue during the year ended December 31, 2023 was comparable to the same period in 2022.

During the year ended December 31, 2023, we earned 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 an aggregate of $5.0 million in milestones 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 and the U.S.

FDA approval of 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.

The increase in product supply revenue during the year ended December 31, 2023 as compared to the same periods in 2022 is attributable to increased product supply revenue to Kyowa Kirin.

Fiscal 2022 compared to 2021:

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

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

The increase in product sales, net during the year ended December 31, 2022 as compared to the same period in 2021 is attributable to net product sales for IBSRELA that commenced in March 2022.

The increase in licensing revenue during the year ended December 31, 2022 as compared to the same period in 2021 is attributable to an aggregate of $35.0 million in milestone payments and payments under the second amendment to the 2017 KKC Agreement which we earned upon Kyowa Kirin's submission of a New Drug Application to the Japanese MLHW for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis.

The decrease in collaborative development revenue during the year ended December 31, 2022 as compared to the same period in 2021 is attributable to the full recognition of collaborative development revenue for upfront payments associated with the 2019 Kyowa Kirin Agreement through the end of 2021.

The increase in product supply revenue during the year ended December 31, 2022 as compared to the same period in 2021 is attributable to increased product supply revenue in connection with the 2017 Kyowa Kirin Agreement.

Cost of Goods Sold

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

Year Ended December 31, Change

2023 2022 2021 $ % $ %

Cost of product sales 2,323 566 — 1,757 310 % 566 (a)

Other cost of revenue 15,472 3,551 1,000 11,921 336 % 2,551 255 %

Total cost of goods sold $ 17,795 $ 4,117 $ 1,000 $ 13,678 332 % $ 3,117 312 %

(a) Percent change is not meaningful.

Fiscal 2023 compared to 2022:

The increase to cost of product sales for the year ended December 31, 2023 as compared to the same period in 2022 is primarily attributable to cost of goods sold for increased net product sales of IBSRELA.

The increase to other cost of revenue for the year ended December 31, 2023 as compared to the same period in 2022 is primarily attributable to payments due to AstraZeneca under the AstraZeneca Termination Agreement, which include a percentage of milestones earned, as well as cost of goods sold for increased product supply sold to our international partners.

Fiscal 2022 compared to 2021:

The increase to cost of product sales for the year ended December 31, 2022 as compared to the same period in 2021 was primarily attributable to $0.5 million for the cost of goods sold for product sales of IBSRELA during year ended December 31, 2022.

The increase in other cost of revenue for the year ended December 31, 2022 as compared to the same period in 2021 was primarily attributable to payments due to AstraZeneca under the AstraZeneca Termination Agreement for IBSRELA product sales, net and for the milestone payment we received under the second amendment to the 2017 Kyowa Kirin Agreement, which we earned upon Kyowa Kirin's submission of a NDA to the Japanese MHLW for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis.

Operating Expenses

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2023 2022 2021 $ % $ %

Cost of revenue $ 4,117 $ 1,000 $ 145 $ 3,117 311.7 % $ 855 589.7 %

Research and development 35,536 35,201 91,140 335 1 % (55,939) (61) %

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Total operating expenses $ 169,937 $ 111,800 — $ 163,443 $ 58,137 52 % $ (51,643) (32) %

Cost of Revenue

Fiscal 2022 compared to 2021 :

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

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

Fiscal 2021 compared to 2020 :

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

Research and Development

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Fiscal 2023 compared to 2022:

The decrease in our external R&D expenses was primarily the result of lower clinical study costs following the completion of the OPTIMIZE study, lower tenapanor manufacturing expense as we have begun to capitalize costs associated with the production of IBSRELA to inventory, and lower expenses for research following the elimination of our internal research organization in the fourth quarter of 2021.

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

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

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

The change in our R&D expenses for the year ended December 31, 2023 as compared to the same period in 2022 is primarily the result of clinical trial and pharmacovigilance activities related to IBSRELA.

Fiscal 2022 compared to 2021:

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

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

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

The decrease in our external R&D expenses for the year ended December 31, 2022 as compared to the same period in 2021 was primarily the result of lower clinical study costs following the completion of the OPTIMIZE study, lower tenapanor manufacturing expense as we began to capitalize costs associated with the production of IBSRELA to inventory, and lower expenses for research following the elimination of our internal research organization in the fourth quarter of 2021.

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

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

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

Selling, General and Administrative

Fiscal 2023 compared to 2022:

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

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

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

The increase in selling, general and administrative expenses for the year ended December 31, 2023 as compared to the same period in 2022 is primarily due to increased costs associated with the commercial launches of IBSRELA and 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.

Fiscal 2022 compared to 2021:

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

launch of XPHOZAH.

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

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

The increase in selling, general and administrative expenses for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to increased costs associated with the commercial launch of IBSRELA.

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

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

Interest Expense

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Fiscal 2023 compared to 2022:

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

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

The increase in interest expense for the year ended December 31, 2023 as compared to the same period in 2022 is due to a higher variable interest rate applied to our loan balance primarily resulting from market fluctuations, as well as a larger loan balance outstanding following the draw of an additional $22.5 million for the Term B Loan in October 2023.

Fiscal 2022 compared to 2021:

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

The decrease in interest expense for the year ended December 31, 2022 as compared to the same period in 2021 was due to lower principal outstanding on our loan payable in 2022 than in 2021 due to principal payments made on our 2018 Loan during the fourth quarter of 2021 through February 2022.

In February 2022, we repaid the remaining outstanding principal balance of the 2018 Loan in the amount of $25.0 million and entered into the new 2022 Loan in the amount of $27.5 million.

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

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2023 2022 2021 $ % $ %

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

Non-cash interest expense related to the sale of future royalties $ (3,924) $ (1,673) $ — $ (2,251) 135 % $ (1,673) (a)

(a) Percent change is not meaningful.

Fiscal 2023 compared to 2022:

Non-cash interest expense related to the sales of future royalties for the year ended December 31, 2023 is accrued on the deferred royalty obligation that we recorded following the receipt of the $10.0 million upfront payment and the $5.0 million milestone payment received from HCR during June 2022 and October 2023, respectively.

We recognized a full twelve months of expense during the year ended December 31, 2023 compared to approximately six months of expense during the year ended December 31, 2022.

Fiscal 2022 compared to 2021:

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

Other Income, net

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

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

Year Ended December 31, Change

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Fiscal 2023 compared to 2022:

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

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

The increase in other income, net for the year ended December 31, 2023 as compared to the same period in 2022 is primarily due to increased income on our investments resulting from both higher interest rates and larger investment balances throughout the period.

Fiscal 2022 compared to 2021:

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

The increase in other income, net for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to sales of certain lab equipment and supplies for a net gain of $1.5 million and increased investment income during the year ended December 31, 2022.

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

LIQUIDITY AND CAPITAL RESOURCES

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Total liquid funds $ 184,299 $ 123,909 $ 60,390 49 %

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

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

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

These factors raise substantial doubt regarding our ability to continue as a going concern for a period of one year from the issuance of these financial statements.

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

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

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

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

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

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

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

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

In August 2021, we filed an additional prospectus supplement under the 2020 Registration Statement for the offering, issuance and sale by us of up to a maximum aggregate offering price of $150.0 million of our common stock that may be issued and sold, from time to time, under an additional sales agreement we entered into with Jefferies ("2021 Open Market Sales Agreement"), pursuant to which we may, from time to time, sell up to $150.0 million in shares of our common stock through Jefferies.

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

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

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

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

As of December 31, 2023, we had cash, cash equivalents and short-term investments of approximately $184.3 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 3.0% of the gross sales price for shares of common stock sold 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 at a weighted average share price of approximately $1.57 per share, which included 15.5 million shares of our common stock for which we received gross proceeds of $51.9 million at a weighted average share price of approximately $3.35 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;

1 unchanged sentence

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.

During the year ended December 31, 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).

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

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

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

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

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

The 2022 Loan Agreement was subsequently amended on August 1, 2022 and February 9, 2023.

The 2022 Loan Agreement as amended through February 9, 2023 provides for a senior secured term loan facility, with $27.5 million funded at closing (the Term A Loan) and an additional $22.5 million that we could borrow on or prior to December 20, 2023;

provided that (i) we received approval by the U.S.

FDA for our NDA for XPHOZAH by November 30, 2023 and (ii) we achieved certain product revenue milestone targets described in the 2022 Loan Agreement (the Term B Loan).

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

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

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

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.

We paid the 2018 Exit Fee in October 2023 following approval from the U.S.

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 10.

Derivative Liabilities , in connection with entering into the 2022 Loan Agreement, we entered into the 2022 Exit Fee agreement, as amended, whereby we agreed to pay an exit fee in the amount of 2% of the amounts funded for the Term A Loan and Term B Loan by SLR if certain conditions are met.

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

We concluded that the 2022 Exit Fee is a freestanding derivative which should be accounted for at fair value on a recurring basis.

The estimated fair value of the 2022 Exit Fee is recorded as a derivative liability and included in accrued expenses and other current liabilities on the accompanying balance sheets.

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

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

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

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

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 9.

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.

In October 2023, we provided the Agent with notice of our decision to draw the Term B Loan to support the commercial launch of XPHOZAH and received the proceeds of the Term B Loan.

We expect to provide the Agent with notice of our decision to draw the Term C Loan prior to the expiry of the option on March 15, 2024 to further support the commercial launch of XPHOZAH.

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.

We received these payments in October 2023.

We have incurred operating losses since inception in 2007 and our accumulated deficit as of December 31, 2023 is $846.2 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 and XPHOZAH.

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

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

Between December 31, 2021 and 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 and XPHOZAH, proceeds from the sale of shares of our common stock under our at-the-market offering, from the receipt of milestones payments from our collaboration partners and payments from Kyowa Kirin under the 2022 Amendment to our License Agreement, which were received in October 2023, and from proceeds of the Term B Loan.

We believe our available cash, cash equivalents and short-term investments as of December 31, 2023 will be sufficient to fund our planned operations for at least a period of one year from the issuance of these 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.

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 following the issuance of these financial statements, our liquidity, financial condition and business prospects will be materially affected.

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;

• 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 by KKC in connection with the 2022 KKC Amendment;

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

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

in February 2022.

• 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 the 2022 Loan Agrememt, as amended to date.

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

CASH FLOW ACTIVITIES

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Net cash used in operating activities $ (89,717) $ (70,044) $ (152,551) $ (19,673) 28 % $ 82,507 (54) %

Net cash provided by (used in) investing activities 18,415 50,948 (31,442) (32,533) (63.9) % 82,390 (262.0) %

Net cash (used in) provided by investing activities (131,248) 18,415 50,948 (149,663) (813) % (32,533) (64) %

Net cash provided by financing activities 146,295 75,341 82,999 70,954 94 % (7,658) (9) %

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

Net (decrease) increase in cash and cash equivalents $ (74,670) $ 23,712 $ (18,604) $ (98,382) (415) % $ 42,316 (227) %

Cash Flows from Operating Activities

Fiscal 2023 compared to 2022:

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

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

Net cash used in operating activities during the year ended December 31, 2023 increased by $19.7 million as compared to the same period in 2022 primarily as a result of changes in our working capital, including a $13.8 million increase in prepaid expenses primarily related to the timing of upfront payments to contract manufacturing organizations for the commercial manufacturing for the production of IBSRELA and XPHOZAH.

Fiscal 2022 compared to 2021:

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

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

launch of XPHOZAH.

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

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

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

Cash Flows from Investing Activities

Fiscal 2023 compared to 2022:

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

Net cash provided by investing activities during the year ended December 31, 2023 decreased as compared to the same period in 2022 by $149.7 million primarily due to increased investment purchases during 2023, as we invested higher levels of cash as compared to the same period in 2022.

The decrease due to investment purchases of $215.3 million was partially offset by investment maturities and redemptions of $84.3 million,

Fiscal 2022 compared to 2021:

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

Net cash provided by investing activities during the year ended December 31, 2022 decreased as compared to the same period in 2021 by $32.5 million due to lower investment balances and the timing of our investment maturities, which was partially offset by $1.8 million proceeds from sale of laboratory equipment and supplies during the year ended December 31, 2022.

Cash Flows from Financing Activities

Fiscal 2023 compared to 2022 :

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

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

Net cash provided by financing activities during the year ended December 31, 2023 increased by $71.0 million as compared to the same period 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 year ended December 31, 2023 compared to $71.6 million during the year ended December 31, 2022, as well as net proceeds received of $22.4 million from drawing the Term B Loan as compared to net expenditure of $6.1 million during the year ended December 31, 2022 in conjunction with entering into the 2022 Loan and repaying the principal outstanding under the 2018 Loan.

In addition we received net proceeds of $5.0 million from the sale of future royalties to HCR during the year ended December 31, 2023 as compared to $10.0 million during the year ended December 31, 2022.

Fiscal 2022 compared to 2021:

Net cash provided by financing activities increased by $60.2 million due to net proceeds from issuance of our common stock pursuant to our at-the-market offerings, which were partially offset by principal repayments for our 2018 Loan.

SMALLER REPORTING COMPANY AND NON-ACCELERATED FILER STATUS

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

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

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

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

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

Net cash provided by financing activities during the year ended December 31, 2022 decreased as compared to the same period in 2021 by $7.7 million primarily due to $29.5 million lower proceeds from issuance of common stock under at-the-market offerings and well as increased payments in the amount of $13.6 million to repay the principal outstanding on the 2018 Loan.

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

SMALLER REPORTING COMPANY AND LARGE ACCELERATED FILER STATUS

As a non-accelerated filer, we were not required to obtain an opinion of our independent auditors with respect to our internal controls over financial reporting for the year ended December 31, 2022.

On June 30, 2023, our public float exceeded $700.0 million and therefore, as of January 1, 2024, we are considered a large accelerated filer and we will be required to reflect the determination that we are no longer a smaller reporting company in our Quarterly Report on Form 10-Q for the fiscal quarter ending March 31, 2024.

This Annual Report on Form 10-K includes an opinion of Ernst & Young LLP, our independent auditors with respect to our internal control over financial reporting as of December 31, 2023.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis