ARDELYX, INC. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ARDELYX, INC. INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID : 42 ) 74 Balance Sheets 76 Statements of Operations and Comprehensive Loss 77 Statements of Stockholders’ Equity 78 Statements of Cash Flows 79 Notes to Financial Statements 80 73 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Ardelyx, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of Ardelyx, Inc. (the “Company”) as of December 31, 2023 and 2022, the related statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 22, 2024 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company‘s management. Our responsibility is to express an opinion on the Company‘s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 74 Table of Contents Estimates of Reserves for Variable Consideration Impacted by Estimated Payor Mix Description of the Matter As described in Note 2 to the financial statements, the Company recognizes revenues from product sales at the net sales price (transaction price), which includes estimates of variable consideration relating to off-invoice discounts, chargebacks or rebates, wholesaler fees, group purchasing organization administrative fees, patient copay assistance programs, and estimated product returns. The variable consideration is based on the amounts earned or to be claimed for related sales which may not be known at the point of sale. Government-mandated rebates under the Medicaid Drug Rebate Program (“Medicaid”) and the Medicare Coverage Gap Program (“Medicare”) are estimated based on estimated payor mix and statutory discount rates. Patient copay assistance program amounts are estimated based on payor mix consideration, the terms of the program and redemption information provided by third-party claims processing organizations. The Company’s total estimate of reserves for variable consideration was $8.6 million as of December 31, 2023. During 2023, the Company recorded $31.3 million in total reductions to gross commercial product sales as a result of reserves for variable consideration. Auditing the Company’s estimates of reserves for variable consideration relating to Medicaid and Medicare claims and patient copay assistance was especially challenging as it involved evaluation of management’s subjective judgments with respect to payor mix that is developed based on various data sources. The Company has a limited history upon which to base its assumptions, and changes in these assumptions could have a material impact on the amount of reserves recorded for variable consideration. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’s process to determine the reserves for variable consideration that are impacted by the payor mix. For example, we tested controls over management’s review of the completeness and accuracy of the data used to determine the estimate. To test the Company’s estimates of reserves for variable consideration relating to Medicaid and Medicare claims and patient copay assistance, our audit procedures included, among others, evaluating the methodologies and assumptions used and testing the accuracy and completeness of the underlying data used in the Company’s payor mix analysis. We compared the assumptions used by management to third-party industry data and actual trends. We also evaluated the reasonableness of changes in estimated reserves during the year, and assessed the accuracy of the Company’s estimates against actual results. We also performed sensitivity analyses to determine the effect of changes in management’s assumptions on the amount of reserves recorded for variable consideration impacted by the payor mix, where appropriate. Further, we evaluated the appropriateness of classification and disclosure of the Company’s reserves for variable consideration in the financial statements. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2009. Boston, MA February 22, 2024 75 Table of Contents ARDELYX, INC. BALANCE SHEETS (in thousands, except share and per share amounts) December 31, 2023 2022 Assets Current assets: Cash and cash equivalents $ 21,470 $ 96,140 Short-term investments 162,829 27,769 Accounts receivable 22,031 7,733 Inventory 12,448 3,282 Prepaid commercial manufacturing 18,925 13,567 Prepaid expenses and other current assets 8,408 5,112 Total current assets 246,111 153,603 Property and equipment, net 1,009 1,223 Inventory, non-current 37,039 25,064 Prepaid commercial manufacturing, non-current 4,235 — Right-of-use assets 5,589 9,295 Other assets 3,596 881 Total assets $ 297,579 $ 190,066 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 11,138 $ 10,859 Accrued compensation and benefits 12,597 7,548 Current portion of operating lease liability 4,435 3,894 Current portion of long-term debt — 26,711 Deferred revenue 7,182 4,211 Accrued expenses and other current liabilities 15,041 12,380 Total current liabilities 50,393 65,603 Operating lease liability, net of current portion 1,725 5,855 Long-term debt, net of current portion 49,822 — Deferred revenue, non-current 8,644 9,025 Deferred royalty obligation related to the sale of future royalties 20,179 11,254 Total liabilities 130,763 91,737 Commitments and contingencies (Note 20) Stockholders’ equity: Preferred stock, $ 0.0001 par value; 5,000,000 shares authorized; no shares issued and outstanding — — Common stock, $ 0.0001 par value; 500,000,000 and 300,000,000 shares authorized; 232,453,190 and 198,575,016 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively. 23 20 Additional paid-in capital 1,012,773 878,500 Accumulated deficit ( 846,204 ) ( 780,137 ) Accumulated other comprehensive income (loss) 224 ( 54 ) Total stockholders’ equity 166,816 98,329 Total liabilities and stockholders’ equity $ 297,579 $ 190,066 The accompanying notes are an integral part of these financial statements. 76 Table of Contents ARDELYX, INC. STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except share and per share amounts) Year Ended December 31, 2023 2022 2021 Revenues: Product sales, net $ 82,526 $ 15,600 $ — Licensing revenue 35,809 35,031 5,013 Product supply revenue 6,121 1,527 907 Collaborative development revenue — — 4,177 Total revenues 124,456 52,158 10,097 Cost of goods sold: Cost of product sales 2,323 566 — Other cost of revenue 15,472 3,551 1,000 Total cost of goods sold 17,795 4,117 1,000 Operating expenses: Research and development 35,536 35,201 91,140 Selling, general and administrative 134,401 76,599 72,303 Total operating expenses 169,937 111,800 163,443 Loss from operations ( 63,276 ) ( 63,759 ) ( 154,346 ) Interest expense ( 4,950 ) ( 3,400 ) ( 4,502 ) Non-cash interest expense related to the sale of future royalties ( 3,924 ) ( 1,673 ) — Other income, net 6,630 1,633 687 Loss before provision for income taxes ( 65,520 ) ( 67,199 ) ( 158,161 ) Provision for income taxes 547 8 4 Net loss $ ( 66,067 ) $ ( 67,207 ) $ ( 158,165 ) Net loss per share of common stock - basic and diluted $ ( 0.30 ) $ ( 0.42 ) $ ( 1.52 ) Shares used in computing net loss per share - basic and diluted 219,331,253 158,690,083 104,205,645 Comprehensive loss: Net loss $ ( 66,067 ) $ ( 67,207 ) $ ( 158,165 ) Unrealized gains (losses) on available-for-sale securities 278 ( 48 ) ( 2 ) Comprehensive loss $ ( 65,789 ) $ ( 67,255 ) $ ( 158,167 ) The accompanying notes are an integral part of these financial statements. 77 Table of Contents ARDELYX, INC. STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share amounts) Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive (Loss) Income Total Stockholders' Equity Shares Amount Balance as of December 31, 2020 93,599,975 $ 9 $ 680,872 $ ( 554,765 ) $ ( 4 ) $ 126,112 Issuance of common stock under employee stock purchase plan 386,664 — 819 — — 819 Issuance of common stock for services 25,989 — 190 — — 190 Issuance of common stock upon exercise of options 331,310 — 584 — — 584 Issuance of common stock upon vesting of restricted stock units 167,158 — — — — — Taxes paid for net share settlement of equity awards — — ( 106 ) — — ( 106 ) Issuance of common stock in at the market offering 35,671,439 4 101,142 — — 101,146 Stock-based compensation — — 12,039 — — 12,039 Unrealized losses on available-for-sale securities — — — — ( 2 ) ( 2 ) Net loss — — — ( 158,165 ) — ( 158,165 ) Balance as of December 31, 2021 130,182,535 $ 13 $ 795,540 $ ( 712,930 ) $ ( 6 ) $ 82,617 Issuance of common stock under employee stock purchase plan 308,356 — 195 — — 195 Issuance of common stock for services 711,675 — 390 — — 390 Issuance of common stock upon exercise of options 14,080 — 7 — — 7 Issuance of common stock upon vesting of restricted stock units 3,243,828 — — — — — Issuance of common stock in at the market offering 64,114,542 7 71,618 — — 71,625 Stock-based compensation — — 10,750 — — 10,750 Unrealized losses on available-for-sale securities — — — — ( 48 ) ( 48 ) Net loss — — — ( 67,207 ) — ( 67,207 ) Balance as of December 31, 2022 198,575,016 $ 20 $ 878,500 $ ( 780,137 ) $ ( 54 ) $ 98,329 Issuance of common stock under employee stock purchase plan 435,708 — 808 — — 808 Issuance of common stock for services 86,095 — 337 — — 337 Issuance of common stock upon exercise of options 225,988 — 365 — — 365 Issuance of common stock upon vesting of restricted stock units 855,642 — — — — — Issuance of common stock in at the market offering 32,274,741 3 119,233 — — 119,236 Stock-based compensation — — 13,530 — — 13,530 Unrealized gains on available-for-sale securities — — — — 278 278 Net loss — — — ( 66,067 ) — ( 66,067 ) Balance as of December 31, 2023 232,453,190 $ 23 $ 1,012,773 $ ( 846,204 ) $ 224 $ 166,816 The accompanying notes are an integral part of these financial statements. 78 Table of Contents ARDELYX, INC. STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2023 2022 2021 Operating activities Net loss $ ( 66,067 ) $ ( 67,207 ) $ ( 158,165 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense 1,292 1,144 2,807 Non-cash lease expense 3,624 3,457 3,085 Stock-based compensation 13,530 10,750 12,039 Non-cash interest expense 4,220 1,962 283 Gain on sale of equipment — ( 1,260 ) — Other, net ( 2,930 ) 685 ( 678 ) Changes in operating assets and liabilities: Accounts receivable ( 14,298 ) ( 7,231 ) ( 502 ) Inventory ( 21,141 ) ( 28,346 ) — Prepaid commercial manufacturing ( 9,593 ) ( 4,161 ) ( 9,406 ) Prepaid expenses and other assets ( 6,035 ) 2,299 502 Accounts payable 279 6,582 ( 1,349 ) Accrued compensation and benefits 5,049 2,126 ( 250 ) Operating lease liabilities ( 3,928 ) ( 3,491 ) ( 2,853 ) Accrued and other liabilities 3,691 4,138 1,386 Deferred revenue 2,590 8,509 550 Net cash used in operating activities ( 89,717 ) ( 70,044 ) ( 152,551 ) Investing activities Proceeds from maturities and redemptions of investments 84,321 67,000 125,550 Purchases of investments ( 215,225 ) ( 50,328 ) ( 72,735 ) Proceeds from sale of property and equipment — 1,798 — Purchases of property and equipment ( 344 ) ( 55 ) ( 1,867 ) Net cash (used in) provided by investing activities ( 131,248 ) 18,415 50,948 Financing activities Proceeds from issuance of common stock in at the market offering, net of issuance costs 119,236 71,625 101,146 Proceeds from 2022 Loan, net of issuance costs 22,386 26,971 — Proceeds from the sale of future royalties, net of issuance costs 5,000 9,581 — Proceeds from issuance of common stock under equity incentive and stock purchase plans 1,173 202 1,403 Payment of the 2018 Exit Fee ( 1,500 ) — — Payments for the 2018 Loan, net of costs — ( 33,038 ) ( 19,444 ) Payments for taxes related to net share settlement of equity awards — — ( 106 ) Net cash provided by financing activities 146,295 75,341 82,999 Net (decrease) increase in cash and cash equivalents ( 74,670 ) 23,712 ( 18,604 ) Cash and cash equivalents at beginning of period 96,140 72,428 91,032 Cash and cash equivalents at end of period $ 21,470 $ 96,140 $ 72,428 Supplementary disclosure of cash flow information: Cash paid for interest $ 4,240 $ 2,901 $ 3,469 Cash paid for income taxes $ 51 $ 6 $ 4 Supplementary disclosure of non-cash activities: Right-of-use assets obtained in exchange for lease obligations $ 339 $ — $ 1,604 Issuance of common stock for services $ 337 $ 390 $ 190 Issuance of derivative in connection with issuance of loan payable $ — $ 375 $ — The accompanying notes are an integral part of these financial statements. 79 Table of Contents ARDELYX, INC. NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION Ardelyx, Inc. (Company, we, us or our) is a biopharmaceutical company founded with a mission to discover, develop and commercialize innovative, first-in-class medicines that meet significant unmet medical needs. We developed a unique and innovative platform that enabled the discovery of new biological mechanisms and pathways to develop potent and efficacious therapies that minimize the side effects and drug-drug interactions frequently encountered with traditional, systemically absorbed medicines. The first molecule we discovered and developed was tenapanor, a 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, 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. We operate in one business segment, which is the development and commercialization of biopharmaceutical products. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes thereto. On an ongoing basis, management evaluates its estimates, including those related to recognition of revenue, clinical trial accruals, contract manufacturing accruals, expected demand for inventory, fair value of assets and liabilities, income taxes and stock-based compensation. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could materially differ from those estimates. Liquidity As of December 31, 2023, we had cash, cash equivalents and short-term investments of approximately $ 184.3 million. We have incurred operating losses since inception in 2007 and our accumulated deficit as of December 31, 2023 is $ 846.2 million. Since December 31, 2021 and prior to September 30, 2023, our liquidity position raised substantial doubt about our ability to continue as a going concern. We have addressed our operating cash flow requirements through cash generated from product sales of IBSRELA 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 our Japanese collaboration partner under the second amendment to our License Agreement, and through funds from our loan agreements with SLR Investment Corp. (SLR), as amended. 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. Cash and Cash Equivalents We consider all highly liquid investments purchased with an original maturity date of 90 days or less on the date of purchase to be cash equivalents. 80 Table of Contents Short-Term Investments Short-term investments consist of debt securities classified as available-for-sale and have maturities greater than 90 days, but less than one year, from the date of acquisition. Short-term investments are carried at fair value based upon quoted market prices. Unrealized gains and losses on available-for-sale securities are included in accumulated other comprehensive income (loss) on our balance sheets. The cost of available-for-sale securities sold is based on the specific-identification method. Concentration of Credit Risk Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments and accounts receivable. We are exposed to credit risks in the event of default by the counterparties to the extent of the amount recorded in our balance sheet. Cash, cash equivalents and short-term investments are invested through banks and other financial institutions in the U.S. Foreign Currency We manage our foreign currency exposures with the use of foreign currency purchases. We primarily conduct business in U.S. dollars; however, a portion of our expense and capital activities are transacted in foreign currencies which are subject to exchange rate fluctuations that can affect cash or earnings. We have been in a loss position and therefore our primary objective is to conserve and manage cash. There are generally two methods by which we may manage the cash flow risk of foreign exchange fluctuations when a contract is signed (i) we can purchase the foreign funds, in full or in part, upon the execution of the contract, or (ii) we can obtain the right to purchase such funds, in full or in part, at the execution of the contract, i.e., obtain a forward contract from an appropriate bank, that can be exercised to obtain the currency of interest at a particular point in time. The derivative instruments that we may use to hedge the exposure shall generally not be designated as cash flow hedges, and as a result, changes in their fair value would be recorded in other income (expense), net, in our statements of operations and comprehensive loss. The fair values of forward foreign currency exchange contracts would be estimated using current exchange rates and interest rates and the current creditworthiness of the counterparties is taken into consideration. Property and Equipment Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets, with ranges generally from three to five years . Leasehold improvements are amortized over the lesser of the estimated useful lives or the related remaining lease term. Impairment of Long-Lived Assets The carrying values of long-lived assets, including property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the asset may not be recoverable. An impairment loss is recognized when the total of estimated future undiscounted cash flows, expected to result from the use of the asset and its eventual disposition, are less than the asset’s carrying amount. Impairment, if any, would be assessed using discounted cash flows or other appropriate measures of fair value. Income Taxes We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. Accounts Receivable Accounts receivable are stated at amortized cost less allowance for credit losses. The allowance for credit losses reflects the best estimate of future losses over the contractual life of outstanding accounts receivable and is determined on the basis of historical experience, specific allowances for known troubled accounts, other currently available information including customer financial condition and both current and forecasted economic conditions. To date, we have determined that an allowance for doubtful accounts is not required. As of December 31, 2023 our accounts receivable balance was comprised of $ 4.9 million from our collaboration agreements and $ 17.1 million from commercial customers. As of December 31, 2022 our accounts receivable balance was comprised of $ 0.7 million from our collaboration agreements and $ 7.0 million from commercial customers. 81 Table of Contents Inventory We capitalize inventory costs associated with the production of our products after regulatory approval or when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized. Otherwise, such costs are expensed as research and development. Prior to the regulatory approval of drug product candidates, we incurred expenses for the manufacture of drug product that could potentially be available to support the commercial launch of our products or could be sold to our international partners under product supply agreements. We began to capitalize inventory costs associated with IBSRELA during the fourth quarter of 2021, when our intent to commercialize IBSRELA was established and we commenced preparation for the commercial launch of IBSRELA, which was when it was determined that the inventory had a probable future economic benefit. 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 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, 2023, we have not recorded any write-offs for excess and obsolete inventory. A portion of inventory that represents product that is not expected to be sold or used within the next 12 months is classified as non-current on our balance sheets. Product Sales, Net We account for our commercial product sales, net in accordance with Topic 606 – Revenue from Contracts with Customers . We received approval from the 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. Revenue from product sales is recognized when our performance obligations are satisfied, which is when Customers obtain control of our product and occurs upon delivery. Reserves for Variable Consideration Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration which may be settled in the form of off-invoice discounts, chargebacks, or rebates. Variable consideration includes discounts to customers and government programs, wholesaler fees, group purchasing organization administrative fees, patient copay assistance, and estimated product returns. These estimates are based on the amounts earned or to be claimed for related sales and are classified as reductions of gross accounts receivable if settlement is expected to occur through a reduction in the amounts paid by our Customers or a current liability if settlement is expected to occur through a payment from us. Where appropriate, these estimates are based on factors such as industry data and forecasted customer buying and payment patterns, our experience, current contractual and statutory requirements, specific known market events and trends. These reductions to gross sales reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract. Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we adjust these estimates, which would affect product revenue and earnings in the period such variances become known. As we gain more experience, estimates will be more heavily based on the expected utilization from historical data we have accumulated since the IBSRELA and XPHOZAH product launches. Changes in estimates recorded through December 31, 2023 have not been material. 82 Table of Contents Rebates: Rebates include wholesaler fees, GPO fees, as well as mandated discounts under the Medicaid Drug Rebate Program (Medicaid) and the Medicare Coverage Gap Program (Medicare). Estimates for rebates are recorded in the same period the related gross revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included in accrued expenses on the balance sheets. We estimate our Medicaid and Medicare rebates based upon the estimated payor mix, and statutory discount rates. Our estimates for payor mix are guided by payor information received from specialty pharmacies, expected utilization for wholesaler sales to pharmacies, and available industry payor information and, therefore, require the most estimation and judgment of our gross to net deductions. Chargebacks: Chargebacks are discounts that occur when certain contracted purchasers purchase directly from our wholesalers at a discounted price. The wholesaler, in turn, charges back the difference between the price initially paid to us by the wholesaler and the discounted price paid to the wholesaler by the contracted purchaser. Amounts for estimated chargebacks are established in the same period that the related gross revenue is recognized, resulting in a reduction of product revenue and accounts receivable. The accrual for wholesaler chargebacks is estimated based on known chargeback rates, known sales to wholesalers, and known sales from wholesalers to their chargeback-eligible customers. Discounts and Fees: Our payment terms are generally 30 to 60 days. Wholesalers, GPOs and specialty pharmacies are offered various forms of consideration, including off-invoice discounts which may be paid to GPOs and specialty pharmacies. Wholesalers and GPOs may also receive prompt pay discounts for payment within a specified period. We expect discounts to be earned when offered and, therefore, we deduct the full amount of these discounts from product sales when revenue is recognized, resulting in a reduction of product revenue and accounts receivable. Other Reserves: Patients who have commercial insurance may receive copay assistance when product is dispensed by pharmacies to patients. We estimate the amount of copay assistance provided to eligible patients based on the terms of the program, and redemption information provided by third-party claims processing organizations. 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 returns reserve require estimation and judgment. Collaboration Revenue Recognition We generate collaboration revenue primarily from research and collaboration and license agreements with customers. Goods and services in the agreements may include the grant of licenses for the use of our technology, the provision of services associated with the research and development of product candidates, manufacturing services, and participation in joint steering committees. The terms of these arrangements typically include payment to us of one or more of the following: non-refundable, up-front license fees; research, development, regulatory and commercial milestone payments; reimbursement of research and development services; option payments; reimbursement of certain costs; payments for manufacturing supply services; 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. 83 Table of Contents 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. 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. Royalties: 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. 84 Table of Contents 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. Options : 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. 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 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. 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. 85 Table of Contents Other cost of revenue includes payments due to AstraZeneca, which under the terms of a termination agreement entered into in 2015 (AstraZeneca Termination Agreement) is entitled to (i) future royalties at a rate of 10 % of net sales of tenapanor or other NHE3 products by us or our licensees, and (ii) 20 % of non-royalty revenue received from our collaboration partners in connection with the development and commercialization of tenapanor or other NHE3 products. We have agreed to pay AstraZeneca up to a maximum of $ 75.0 million in the aggregate for (i) and (ii). We recognize these expenses as other cost of revenue when we recognize the corresponding revenue that gives rise to payments due to AstraZeneca. To date, we have recognized an aggregate of $ 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 statement of this Annual Report on Form 10-K. Research and Development Costs Research and development costs are charged to expense as incurred and consisted of costs incurred to further our research and development activities and include salaries and related employee benefits, costs associated with clinical trials, costs related to pre-commercialization manufacturing activities such as manufacturing process validation activities and the manufacturing of clinical drug supply, nonclinical research and development activities, regulatory activities, research-related overhead expenses and fees paid to external service providers and contract research and manufacturing organizations that conduct certain research and development activities on our behalf. Accrued Expenses As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with our service providers and make adjustments if necessary. 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 recognize compensation expense for all stock-based payment awards made to employees, non-employees and directors based on estimated fair values. For employee and non-employee stock options, we determine the grant date fair value of the awards using the Black-Scholes option-pricing model and generally recognize the fair value as stock-based compensation expense on a straight-line basis over the vesting period of the respective awards. For restricted stock and performance-based restricted stock, to the extent they are probable, the compensation cost for these awards is based on the closing price of our common stock on the date of grant and recognized as compensation expense on a straight-line basis over the requisite service period. Stock-based compensation expense is based on the value of the portion of stock-based payment awards that is ultimately expected to vest. As such, our stock-based compensation is reduced for the estimated forfeitures at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Derivatives and Hedging Activities We account for our derivative instruments as either assets or liabilities on the balance sheet and measure them at fair value. Derivatives are adjusted to fair value through other income (expense), net in the statements of operations and comprehensive loss. 86 Table of Contents Non-cash Interest Expense on Deferred Royalty Obligation Non-cash interest expense related to the sale of future royalties represents the imputed interest expense on our deferred royalty obligation related to the sale of future royalties using the effective interest method. As further described in Note 8. Deferred Royalty Obligation Related to the Sale of Future Royalties , in June 2022, we and HealthCare Royalty Partners IV, L.P. (HCR) entered into a Royalty and Sales Milestone Interest Acquisition Agreement (HCR Agreement). Under the terms of the HCR Agreement, HCR agreed to pay us up to $ 20.0 million in exchange for the royalty payments and commercial milestone payments (collectively the Royalty Interest Payments) that we may receive under our 2017 License Agreement with Kyowa Kirin, as amended, based upon Kyowa Kirin'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. In September 2023, we announced that Kyowa Kirin received approval from the Japanese MHLW for the New Drug Application for tenapanor for the improvement of hyperphosphatemia in adult patients with chronic kidney disease on dialysis, which entitled us to a $ 5.0 million payment under the terms of the HCR Agreement, which we received in October 2023. 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 Kyowa Kirin. Leases We determine if an arrangement is a lease at the inception of the arrangement. Operating leases are included in right-of-use assets, current portion of operating lease liability, and operating lease liability, net of current portion in our balance sheets. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, we use our incremental borrowing rate based on the information available at the lease commencement date. The operating lease right-of-use assets also include any lease payments made and exclude lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise any such options. Lease expense is recognized on a straight-line basis over the expected lease term. We have elected not to separate lease and non-lease components, such as common area maintenance charges, and instead it accounts for these as a single lease component. Net Loss per Share Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, without consideration of potential shares of common stock. Diluted net loss per common share in the periods presented is the same as basic net loss per common share, since the effects of potentially dilutive securities are antidilutive due to the net loss for all periods presented. Recent Accounting Pronouncements New Accounting Pronouncements - Recently Adopted In July 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-03, Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718) Presentation of Financial Statements (ASU 2023-03). ASU 2023-03 amends the FASB Accounting Standards Codification to include Amendments to SEC Paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and SEC Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. As the ASU does not provide any new guidance, there is no transition or effective date associated with its adoption. Accordingly, we adopted ASU 2023-03 immediately upon its issuance. The adoption of ASU 2023-03 did not have any impact on our financial statement presentation or related disclosures. 87 Table of Contents Recent Accounting Pronouncements Not Yet Adopted In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements - Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative . The amendments in this Update modify the disclosure or presentation requirements of a variety of Topics in the Codification. The amendments are in response to the U.S. Securities and Exchange Commission's (SEC) Release No. 33-10532, Disclosure Update and Simplification , in which the SEC referred certain of its disclosure requirements that overlap with, but require incremental information to, generally accepted accounting principles to the FASB for potential incorporation into the Codification. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. For all other entities, the amendments will be effective two years later. For all entities, if by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity. Management is currently assessing the impact of this standard on the Company’s financial statements. In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures . The amendments in this Update improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this update improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. Management is currently assessing the impact of this standard on the Company’s financial statements. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures , an amendment which modifies the measurement and recognition of credit losses for most financial assets and certain other instruments. The amendments in this Update provide more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2024. Early adoption is permitted on a prospective basis for annual financial statements that have not yet been issued or made available for issuance. Management is currently assessing the impact of this standard on the Company’s financial statements. There were various other accounting standards and interpretations issued recently, none of which are expected to have a material impact on our financial position, operations or cash flows. 3. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS Securities classified as cash, cash equivalents and short-term investments as of December 31, 2023 and 2022 are summarized below (in thousands): December 31, 2023 Gross Unrealized Amortized Cost Gains Losses Fair Value Cash and cash equivalents: Cash $ 2,829 $ — $ — $ 2,829 Money market funds 18,641 — — 18,641 Total cash and cash equivalents 21,470 — — 21,470 Short-term investments: U.S. government-sponsored agency bonds $ 101,892 $ 235 $ ( 34 ) $ 102,093 Commercial paper $ 49,630 $ 41 $ ( 17 ) $ 49,654 Asset-backed securities 8,628 2 ( 5 ) 8,625 U.S. treasury securities 2,455 2 — 2,457 Total short-term investments 162,605 280 ( 56 ) 162,829 Total cash, cash equivalents and investments $ 184,075 $ 280 $ ( 56 ) $ 184,299 88 Table of Contents December 31, 2022 Gross Unrealized Amortized Cost Gains Losses Fair Value Cash and cash equivalents: Cash $ 11,827 $ — $ — $ 11,827 Money market funds 84,313 — — 84,313 Total cash and cash equivalents 96,140 — — 96,140 Short-term investments Commercial paper $ 25,336 $ 6 $ ( 51 ) $ 25,291 Corporate bonds 1,000 — ( 1 ) 999 U.S. government-sponsored agency bonds 1,487 — ( 8 ) 1,479 Total short-term investments 27,823 6 ( 60 ) 27,769 Total cash, cash equivalents and investments $ 123,963 $ 6 $ ( 60 ) $ 123,909 Cash equivalents consist of money market funds with original maturities of three months or less at the time of purchase, and the carrying amount is a reasonable approximation of fair value. We invest our cash in high quality securities of financial and commercial institutions. These securities are carried at fair value, which is based on readily available market information, with unrealized gains and losses included in accumulated other comprehensive income (loss) within stockholders’ equity on our balance sheets. We use the specific identification method to determine the amount of realized gains or losses on sales of marketable securities. Realized gains or losses have been insignificant and are included in other income, net, in the statement of operations and comprehensive loss. All of the short-term available-for sale securities held as of December 31, 2023 and 2022 had contractual maturities of less than one year . Our available-for-sale securities are subject to a periodic impairment review. We consider a debt security to be impaired when its fair value is less than its carrying cost, in which case we would further review the investment to determine whether it is other-than-temporarily impaired. When we evaluate an investment for other-than-temporary impairment, we review factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, intent to sell, and whether it is more likely than not we will be required to sell the investment before the recovery of its cost basis. If an investment is other-than-temporarily impaired or subject to credit losses, we write it down through the statement of operations and comprehensive loss to its fair value and establish that value as a new cost basis for the investment. Our unrealized losses as of December 31, 2023 and 2022 were not material. We determined that none of our available-for-sale securities were other-than-temporarily impaired as of December 31, 2023 and 2022, and no investment was in a continuous unrealized loss position for more than one year. As such, we believe that it is more likely than not that the investments will be held until maturity or a forecasted recovery of fair value. Based on our procedures under the expected credit loss model, including an assessment of unrealized losses in our portfolio, we concluded that any unrealized losses on our marketable securities were not attributable to credit and, therefore, we have no t recorded an allowance for credit losses for these securities as of December 31, 2023 and 2022. 89 Table of Contents 4. FAIR VALUE MEASUREMENTS Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows: Level 1 – Valuations are based on quoted prices in active markets for identical assets or liabilities and readily accessible to us at the reporting date. Level 2 – Valuations based on inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Valuations based on unobservable inputs for which there is little or no market data, which require us to develop our own assumptions. The following table sets forth the fair value of our financial assets and liabilities that are measured or disclosed on a recurring basis by level within the fair value hierarchy (in thousands): December 31, 2023 Total Fair Value Level 1 Level 2 Level 3 Assets: Money market funds $ 18,641 $ 18,641 $ — $ — U.S. government-sponsored agency bonds 102,093 — 102,093 — Commercial paper 49,654 — 49,654 — Asset-backed securities 8,625 — 8,625 — U.S. treasury securities 2,457 — 2,457 — Total $ 181,470 $ 18,641 $ 162,829 $ — Liabilities: Derivative liabilities for exit fee $ 675 $ — $ — $ 675 Total $ 675 $ — $ — $ 675 December 31, 2022 Total Fair Value Level 1 Level 2 Level 3 Assets: Money market funds $ 84,313 $ 84,313 $ — $ — Commercial paper 25,291 — 25,291 — U.S. government-sponsored agency bonds 1,479 — 1,479 — Corporate bonds 999 — 999 — Total $ 112,082 $ 84,313 $ 27,769 $ — Liabilities: Derivative liability for exit fees $ 1,656 $ — $ — $ 1,656 Total $ 1,656 $ — $ — $ 1,656 90 Table of Contents Where quoted prices are available in an active market, securities are classified as Level 1. We classify money market funds as Level 1. When quoted market prices are not available for the specific security, we estimate fair value by using benchmark yields, reported trades, broker/dealer quotes and issuer spreads. We classify U.S. government-sponsored agency bonds, U.S. treasury securities, corporate bonds, commercial paper, and asset-backed securities as Level 2. In certain cases, where there is limited activity or less transparency around inputs to valuation, securities or derivative liabilities, such as the 2018 Exit Fee and 2022 Exit Fee, as defined and discussed in Note 10. Derivative Liabilities , are classified as Level 3. The carrying amounts reflected in the balance sheets for cash equivalents, short-term investments, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values at both December 31, 2023 and 2022, due to their short-term nature. Based on our procedures under the expected credit loss model, including an assessment of unrealized losses in our portfolio, we concluded that any unrealized losses on our marketable securities were not attributable to credit and, therefore, we have no t recorded an allowance for credit losses for these securities as of December 31, 2023 and 2022. Fair Value of Debt The principal amount outstanding under our term loan facilities is subject to a variable interest rate. Therefore, we believe the carrying amount of the term loan facility approximates fair value as of December 31, 2023 and 2022. See Note 9. Borrowings for a description of the Level 2 inputs used to estimate the fair value of the liability. The carrying value of the deferred royalty obligation related to the sale of future royalties approximates its fair value as of December 31, 2023 and is based on our current estimates of future royalties and commercialization milestones expected to be paid to us by Kyowa Kirin Co., Ltd. (KKC) over the life of the agreement. See Note 8. Deferred Royalty Obligation Related to the Sale of Future Royalties for a description of the Level 3 inputs used to estimate the fair value of the liability. 5. INVENTORY Inventory as of December 31, 2023 and 2022 consisted of the following (in thousands): December 31, 2023 December 31, 2022 Raw materials $ 22,920 $ 22,299 Work in process 24,582 5,324 Finished goods 1,985 723 Total $ 49,487 $ 28,346 Reported as: Inventory $ 12,448 $ 3,282 Inventory, non-current 37,039 25,064 Total $ 49,487 $ 28,346 In addition to inventory, we had prepaid commercial manufacturing of $ 23.2 million and $ 13.6 million as of December 31, 2023 and 2022, respectively, which consisted of prepayments to third party contract manufacturing organizations, including prepayments of $ 4.2 million and zero as of December 31, 2023 and 2022, respectively, that are expected to be converted into inventory after 12 months. 91 Table of Contents 6. REVENUE Total revenues during the years ended December 31, 2023, 2022, and 2021 were as follows (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 — Licensing revenue 35,809 35,031 5,013 Product supply revenue 6,121 1,527 907 Collaborative development revenue — — 4,177 Total revenues $ 124,456 $ 52,158 $ 10,097 Revenue from the following Customers who contributed greater than 10% of our gross product revenue during the years ended December 31, 2023 and 2022 as a percentage of total gross product revenue was as follows: Year Ended December 31, 2023 2022 BioRidge Pharma, LLC 26.3 % — % Cardinal Health 21.6 % 23.1 % AmerisourceBergen Drug Corporation 20.9 % 26.8 % McKesson Corporation 17.2 % 21.6 % The activities and ending reserve balances for each significant category of discounts and allowances, which constitute variable consideration, were as follows (in thousands): Discounts and Chargebacks Rebates, Wholesaler and GPO Fees Copay and Returns Total Balance as of December 31, 2021 $ — $ — $ — $ — Provisions 825 2,721 2,502 6,048 Credits/payments ( 683 ) ( 1,277 ) ( 1,244 ) ( 3,204 ) Balance as of December 31, 2022 142 1,444 1,258 2,844 Provisions 5,341 15,365 10,629 31,335 Credits/payments ( 5,005 ) ( 12,575 ) ( 7,971 ) ( 25,551 ) Balance as of December 31, 2023 $ 478 $ 4,234 $ 3,916 $ 8,628 Adjustments to prior period provisions recorded in the current period were not material. 92 Table of Contents 7. COLLABORATION AND LICENSING AGREEMENTS Kyowa Kirin Co., Ltd. (Kyowa Kirin) In November 2017, we entered into an exclusive license agreement with Kyowa Kirin (2017 Kyowa Kirin Agreement), under which we granted Kyowa Kirin an exclusive license to develop and commercialize certain NHE3 inhibitors including tenapanor in Japan for the treatment of cardiorenal diseases and conditions, excluding cancer. We retained the rights to tenapanor outside of Japan, and also retained the rights to tenapanor in Japan for indications other than those stated above. Pursuant to the 2017 Kyowa Kirin Agreement, Kyowa Kirin is responsible for all costs and expenses incurred in the development and commercialization of tenapanor for all licensed indications in Japan. We are responsible for supplying the tenapanor drug substance for Kyowa Kirin’s use in development and commercialization throughout the term of the 2017 Kyowa Kirin Agreement, provided that Kyowa Kirin may exercise an option to manufacture the tenapanor drug substance under certain conditions. In October 2022, we entered into a Commercial Supply Agreement with Kyowa Kirin to further define the obligations of the parties with respect to the commercial supply of tenapanor drug substance (2022 Kyowa Kirin Supply Agreement). As detailed below under the heading Deferred Revenue we have received advanced payments from Kyowa Kirin for the manufacturing of tenapanor drug substance that will be used to satisfy Kyowa Kirin needs. We assessed these arrangements in accordance with Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606) and related amendments (ASC 606) and concluded that the contract counterparty, Kyowa Kirin, is a customer. Under the terms of the 2017 Kyowa Kirin Agreement, we received $ 30.0 million in upfront license fees, which was recognized as revenue when the agreement was executed. Based on our assessment, management determined that the license and the manufacturing supply services were its material performance obligations at the inception of the 2017 Kyowa Kirin Agreement, and as such, each of the performance obligations is distinct. We may be entitled to receive up to $ 55.0 million in total development and regulatory milestones, of which $ 35.0 million has been received and recognized as revenue 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. The variable consideration related to the remaining milestone payments was fully constrained at December 31, 2023. In April 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 for hyperphosphatemia in Japan. The royalty rate will be reduced from the high teens to low double digits for a two-year period of time following the first commercial sale in Japan, and then to mid-single digits for the remainder of the royalty term. As discussed in Note 8. Deferred Royalty Obligation Related to the Sale of Future Royalties , the future commercial milestones and royalties we may receive under the 2017 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 payable in two tranches, with the first payment due following Kyowa Kirin's filing with the Japanese Ministry of Health, Labour and Welfare (MHLW) of its application for marketing approval for tenapanor and the second payment due following Kyowa Kirin’s receipt of regulatory approval to market tenapanor for hyperphosphatemia in Japan, both of which occurred as of September 30, 2023. In October 2022, we announced that Kyowa Kirin submitted a New Drug Application (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. We received these payments during the fourth quarter of 2022 and recorded them as licensing revenue on our statement of operations and comprehensive income (loss). 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 CKD 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. We received these payments in October 2023 and recorded them as licensing revenue on our statement of operations and comprehensive income (loss) when earned during the three months ended September 30, 2023. 93 Table of Contents During the years ended December 31, 2023, 2022, and 2021, we recognized $ 30.0 million, $ 35.0 million, and $ 5.0 million of licensing revenue pursuant to the 2017 Kyowa Kirin Agreement, as amended. During the years ended December 31, 2023, 2022, and 2021, we recognized $ 6.1 million, $ 1.5 million, and $ 0.9 million respectively, of product supply revenue pursuant to the 2017 Kyowa Kirin Agreement. Shanghai Fosun Pharmaceutical Industrial Development Co. Ltd. (Fosun Pharma) In December 2017, we entered into an exclusive license agreement with Fosun Pharma (Fosun Agreement) for the development, commercialization and distribution of tenapanor in China for both hyperphosphatemia and IBS-C. We assessed these arrangements in accordance with ASC 606 and concluded that the contract counterparty, Fosun Pharma, is a customer. Under the terms of the Fosun Agreement, we received $ 12.0 million in upfront license fees which was recognized as revenue when the agreement was executed. Based on our assessment, we determined that the license and the manufacturing supply services represented the material performance obligations at the inception of the agreement and, as such, each of the performance obligations are distinct. We may be entitled to 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 %. The variable consideration related to the remaining development milestone payments was fully constrained at December 31, 2023. In July 2023, we announced that an NDA for tenapanor had been accepted for review by China’s Center for Drug Evaluation of the National Medical Products Administration (NMPA) for the control of serum phosphorus in adult patients with CKD on hemodialysis. This acceptance triggered a $ 2.0 million milestone payment to us under the terms of the Fosun Agreement. We received this payment during the third quarter of 2023 and recorded it as licensing revenue on our statement of operations and comprehensive loss when earned during the three months ended September 30, 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). During the year ended December 31, 2023, we recognized $ 5.0 million of licensing revenue pursuant to the Fosun Agreement. During the years ended December 31, 2022, and 2021, we did not recognize a material amount of revenue pursuant to the Fosun Agreement. Knight Therapeutics, Inc. (Knight) In March 2018, we entered into an exclusive license agreement with Knight Therapeutics, Inc., (Knight Agreement) for the development, commercialization and distribution of tenapanor in Canada for hyperphosphatemia and IBS-C. We assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, Knight, is a customer. Based on our assessment, we determined that the license and the manufacturing supply services were the material performance obligations at the inception of the agreement and, as such, each of the performance obligations are distinct. Under the terms of the Knight Agreement, we received a $ 2.3 million non-refundable, one-time upfront payment in March 2018 and may be eligible to receive additional development and commercialization milestone payments worth up to CAD 22.2 million, 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 ranging from the mid-single digits to the low twenties throughout the term of the agreement, and a transfer price for manufacturing services. The variable consideration related to the remaining development milestone payments was fully constrained at December 31, 2023. During the years ended December 31, 2023, 2022, and 2021, we did not recognize a material amount of revenue pursuant to the Knight Agreement. 94 Table of Contents METiS Therapeutics Inc. (METiS) In April 2023, we entered into an exclusive, worldwide license agreement with METiS Therapeutics Inc., (METiS Agreement) for the development and commercialization of a portfolio of TGR5 agonist compounds that were discovered and developed by Ardelyx for all therapeutic areas. We assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, METiS, is a customer. Based on our assessment, we determined that the license was the material performance obligation at the inception of the agreement. Under the terms of the METiS Agreement, we received a $ 0.8 million non-refundable, one-time upfront payment in April 2023 and may be eligible to receive additional development and commercialization milestone payments worth up to $ 243.0 million. We are also eligible to receive royalties ranging within the mid-single digits throughout the term of the agreement. The variable consideration related to the remaining development and commercialization milestone payments was fully constrained at December 31, 2023. During the year ended December 31, 2023, we recognized $ 0.8 million of licensing revenue pursuant to the METiS Agreement upon delivery of the license. AstraZeneca AB (AstraZeneca) In June 2015, we entered into a termination agreement with AstraZeneca (AstraZeneca Termination Agreement) pursuant to which we have agreed to pay AstraZeneca (i) future royalties at a royalty rate of 10 % of net sales of tenapanor or other NHE3 products by us or our licensees, and (ii) 20 % of non-royalty revenue received from a new collaboration partner should we elect to license, or otherwise provide rights to develop and commercialize tenapanor or other NHE3 products, up to a maximum of $ 75.0 million in aggregate for (i) and (ii). As of December 31, 2023, to date in aggregate, we have recognized $ 27.6 million of the $ 75.0 million, which has been recorded as other cost of revenue on our statements of operations and comprehensive income (loss). During the years ended December 31, 2023, 2022, and 2021, we recognized $ 12.4 million and $ 3.6 million, and $ 1.0 million, respectively, as other cost of revenue related to the AstraZeneca Termination Agreement. Deferred Revenue The following tables present changes in our current and non-current deferred revenue balances during the reporting period, which are all attributable to the 2017 Kyowa Kirin Agreement (in thousands): 2023 2022 Current Non-Current Current Non-Current Balance at January 1, $ 4,211 $ 9,025 $ — $ 4,727 Amounts invoiced as prepayments for product supply 1,547 5,629 250 8,259 Decrease for revenue recognized for product supply ( 4,586 ) — — — Reclassify amounts to be recognized in the next twelve months 6,010 ( 6,010 ) 3,961 ( 3,961 ) Balance at December 31, $ 7,182 $ 8,644 $ 4,211 $ 9,025 8. DEFERRED ROYALTY OBLIGATION RELATED TO THE SALE OF FUTURE ROYALTIES In June 2022, we and HealthCare Royalty Partners IV, L.P. (HCR) entered into a Royalty and Sales Milestone Interest Acquisition Agreement (HCR Agreement). Under the terms of the HCR Agreement, HCR has agreed to pay us up to $ 20.0 million in exchange for the royalty payments and commercial milestone payments (collectively the Royalty Interest Payments) that we may receive under our 2017 License Agreement with Kyowa Kirin, as amended, based upon Kyowa Kirin's net sales of tenapanor in Japan for hyperphosphatemia. As consideration for the sale of the Royalty Interest Payments, HCR paid to us a $ 10.0 million upfront payment, and we were eligible to receive a $ 5.0 million payment as a result of Kyowa Kirin's receipt of regulatory approval to market tenapanor for hyperphosphatemia in Japan, and another $ 5.0 million payment in the event net sales by Kyowa Kirin in Japan exceed a certain annual target level by the end of 2025. In September 2023, we announced that Kyowa Kirin received approval from the Japanese MHLW for the New Drug Application for tenapanor for the improvement of hyperphosphatemia in adult patients with chronic kidney disease on dialysis, which entitled us to a $ 5.0 million payment under the terms of the HCR Agreement. We received the payment in October 2023. 95 Table of Contents The HCR Agreement is effective until terminated by the mutual agreement of the parties and contains customary representations and warranties and customary affirmative and negative covenants, including, among others, requirements as to prosecution, maintenance, defense and enforcement of certain patent rights in Japan, restrictions regarding our ability to forgive, release or reduce any Royalty Interest Payments due to us under the 2017 Kyowa Kirin Agreement, to create or incur any liens with respect to the Royalty Interest Payments, the 2017 Kyowa Kirin Agreement or certain patents, or to sell, license or transfer certain patents in the field and territory described in the 2017 Kyowa Kirin Agreement. In addition, the HCR Agreement contains customary events of default with respect to which we may incur indemnification obligations to HCR for any losses incurred by HCR and related parties as a result of the event of default, subject to a specified limitation of liability cap. Under the HCR Agreement, an event of default will occur if, among other things, any of the representations and warranties included in the HCR Agreement proves not to have been true and correct in all material respects, at the time it was made, we breach any of our covenants under the HCR Agreement, subject to specified cure periods with respect to certain breaches, we are in breach or default under the 2017 Kyowa Kirin Agreement in any manner which is likely to cause a material adverse effect on the Royalty Interest Payments, the occurrence of a termination of the 2017 Kyowa Kirin Agreement under certain circumstances or we or our assets become subject to certain legal proceedings, such as bankruptcy proceedings, or we are unable to pay our debts as they become due. The $ 10.0 million upfront payment from HCR received in June 2022 and the $ 5.0 million payment received in October 2023 have been recorded as a deferred royalty obligation related to the sale of future royalties (deferred royalty obligation) on our balance sheets. Due to our ongoing manufacturing obligations under the 2017 Kyowa Kirin Agreement, we account for the proceeds as imputed debt and therefore will recognize royalties earned under the arrangement as non-cash royalty revenue. Non-cash interest expense will be recognized over the life of the HCR Agreement using the effective interest method based on the imputed interest rate derived from estimated amounts and timing of future royalty payments to be received from Kyowa Kirin. As part of the sale, we incurred approximately $ 0.4 million in transaction costs, which, along with the deferred royalty obligation, are being amortized to non-cash interest expense over the estimated life of the HCR Agreement using the effective interest method. As future royalties are remitted to us by Kyowa Kirin, and subsequently from us to HCR, the balance of the deferred royalty obligation will be effectively repaid over the life of the HCR Agreement. There are a number of factors that could materially affect the fair value of the deferred royalty obligation. Such factors include, but are not limited to, the amount and timing of potential future royalty payments to be received from Kyowa Kirin under the 2017 Kyowa Kirin agreement, changing standards of care, the introduction of competing products, manufacturing or other delays, intellectual property matters, adverse events that result in governmental health authority imposed restrictions on the use of the drug products, significant changes in foreign exchange rates as the royalties remitted to HCR are made in U.S. dollars while the underlying sales of the products by Kyowa Kirin are made in Japanese yen, and other events or circumstances that could result in reduced royalty payments from Kyowa Kirin, which are not within our control, and all of which would result in a reduction of non-cash royalty revenues and the non-cash interest expense over the life of the deferred royalty obligation. We periodically assess the estimated royalty payments from Kyowa Kirin and, to the extent that the amount or timing of such payments is materially different than our original estimates, we prospectively adjust the imputed interest rate and the related amortization of the deferred royalty obligation. As of December 31, 2023, our effective interest rate used to amortize the liability is 34.7 %. During the years ended December 31, 2023 and 2022, we recognized approximately $ 3.9 million and $ 1.7 million, respectively, of non-cash interest expense related to the deferred royalty obligation. As of December 31, 2023, we have received no royalty payments from Kyowa Kirin and, therefore, the deferred royalty obligation has not begun to be reduced. 9. BORROWING Solar Capital and Western Alliance Bank Loan Agreement In May 2018, we entered into a loan and security agreement (as amended on October 9, 2020, March 1, 2021, May 5, 2021, and July 29, 2021) (2018 Loan Agreement) with Solar Capital Ltd. and Western Alliance Bank (collectively, the 2018 Lenders). The 2018 Loan Agreement provided for a loan facility for up to $ 50.0 million with a maturity date of November 1, 2022 (2018 Loan). As of the Closing Date for the 2022 Loan, as discussed below, we owed $ 25.0 million in principal payments from the 2018 Loan, which we repaid in full at that time. As discussed in Note 10. Derivative Liabilities , in connection with entering into the 2018 Loan Agreement, we entered into an agreement pursuant to which we agreed to pay $ 1.5 million in cash upon the occurrence of certain conditions (2018 Exit Fee). Our obligations for the 2018 Exit Fee remained outstanding following the full repayment of the 2018 Loan in February 2022 until October 2023 when we received approval from the U.S. FDA for 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 our obligation to pay the 2018 Exit Fee to the 2018 Lenders and we subsequently paid the 2018 Exit Fee in October 2023. 96 Table of Contents SLR Investment Corp. Loan Agreement On February 23, 2022 (Closing Date), we entered into a loan and security agreement (2022 Loan Agreement) with SLR Investment Corp. as collateral agent (Agent), and the lenders listed in the 2022 Loan Agreement (collectively, the 2022 Lenders). The 2022 Loan Agreement was subsequently amended in August 2022 (the First Amendment) and February 2023 (the Second Amendment). We concluded that the First Amendment and the Second Amendment were modifications to the 2022 Loan Agreement. The 2022 Loan Agreement, as amended by the First Amendment and the Second Amendment, provided for a senior secured loan facility, with $ 27.5 million (Term A Loan) funded on the Closing Date and an additional $ 22.5 million which we may borrow on or prior to December 20, 2023; provided that (i) we have received approval by the U.S. FDA for our NDA for XPHOZAH by November 30, 2023, and (ii) we have achieved certain product revenue milestone targets described in the 2022 Loan Agreement (Term B Loan, and together with the Term A Loan, the 2022 Original Loans). The 2022 Term A Loan funds were used to repay the 2018 Loan with the 2018 Lenders. On October 17, 2023, we entered into a Third Amendment (the Third Amendment) to the 2022 Loan Agreement by and between us and the 2022 Lenders. 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) provided we have drawn the Term B Loan; and (2) provides us with the option to draw up to an additional $ 50.0 million of uncommitted capital by December 31, 2026, subject to approval by the Agent’s investment committee (the Term D Loan and together with the Term A, B, and C Loans, the Four 2022 Loans). We concluded that the Third Amendment was a modification to the 2022 Loan Agreement and is accounted for accordingly. 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. Under the Third Amendment, the maturity date for the Four 2022 Loans is March 1, 2027. The interest rate for each of the Term A Loan and the Term B Loan is 7.95 % plus a SOFR value equal to 0.022 % plus the 1-month CME Term SOFR reference rate as published by the CME Term SOFR Administrator on the CME Term SOFR Administrator’s Website, subject to a SOFR floor of one percent. The interest rate for each of the Term C Loan and the Term D Loan is 4.25 % plus a SOFR value equal to 0.022 % plus the 1-month CME Term SOFR reference rate as published by the CME Term SOFR Administrator on the CME Term SOFR Administrator’s Website, subject to a SOFR floor of 4.7 %. In addition, the period under which we are permitted to make interest-only payments on the Four 2022 Loans was extended 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 were obligated to pay $ 0.2 million, upon the closing of the Term A Loan, and we were obligated to pay $ 0.1 million on the funding date of the Term B Loan. We are obligated to pay $ 0.3 million on the earliest of (1) the funding date of the Term C Loan, (2) March 15, 2024, and (3) the prepayment, refinancing, substitution or replacement of the Term B Loans on or prior to March 15, 2024. In addition, we will be obligated to pay 0.5 % of the aggregate original principal amount of the Term D Loan commitment, if requested by us and approved by the Agent’s investment committee, which shall be due on the earliest of (1) the funding of the Term D Loan, (2) if we request and the 2022 Lenders provide the Term D Loan commitment, the day immediately preceding the amortization date, and (3) if we request and the 2022 Lenders provide the Term D Loan commitment, the prepayment, refinancing, substitution or replacement of the Term C Loan on or prior to the date immediately preceding the amortization date. We are obligated to pay a final fee equal to 4.95 % of the aggregate original principal amount of the Four 2022 Loans, to the extent such loans are funded, upon the earliest to occur of the maturity date, the acceleration of the Four 2022 Loans, and the prepayment, refinancing, substitution, or replacement of the Four 2022 Loans. We may voluntarily prepay all amounts outstanding under the Four 2022 Loans, subject to a prepayment premium of (i) 3 % of the outstanding principal amount of the Four 2022 Loans if prepaid prior to or on October 17, 2024, (ii) 2 % of the outstanding principal amount of the Four 2022 Loans if prepaid after October 17, 2024 through and including October 17, 2025, or (iii) 1 % of the outstanding principal amount of the Four 2022 Loans if prepaid after October 17, 2025 and prior to the maturity date. The Four 2022 Loans are secured by substantially all of our assets, except for our intellectual property and certain other customary exclusions. Additionally, as discussed in Note 10. Derivative Liabilities , in connection with the 2022 Original Loans, we entered into an agreement whereby we agreed to pay an exit fee in the amount of 2 % of the 2022 Original Loans funded (2022 Exit Fee). Notwithstanding the prepayment or termination of the 2022 Loan, the 2022 Exit Fee will expire 10 years from the Closing Date. 97 Table of Contents The 2022 Loan Agreement, as amended, contains customary representations and warranties and customary affirmative and negative covenants, including, among others, requirements as to financial reporting and insurance and restrictions on our ability to dispose of our business or property, to change our line of business, to liquidate or dissolve, to enter into any change in control transaction, to merge or consolidate with any other entity or to acquire all or substantially all the capital stock or property of another entity, to incur additional indebtedness, to incur liens on our property, to pay any dividends or other distributions on capital stock other than dividends payable solely in capital stock or to redeem capital stock. We have agreed to not allow our cash and cash equivalents to be less than the eighty percent ( 80 %) of the outstanding Four 2022 Term Loan balance for any period in which our net revenue from the sale of any products, calculated on a trailing six ( 6 ) month basis and tested monthly, is less than sixty percent ( 60 %) of the outstanding Four 2022 Loan balance. In addition, the 2022 Loan Agreement, as amended, contains customary events of default that entitle the Agent to cause our indebtedness under the 2022 Loan Agreement to become immediately due and payable, and to exercise remedies against us and the collateral securing the Four 2022 Term Loans, including our cash. Under the 2022 Loan Agreement, an event of default will occur if, among other things, we fail to make payments under the 2022 Loan Agreement, we breach any of our covenants under the 2022 Loan Agreement, subject to specified cure periods with respect to certain breaches, certain Lenders determine that a material adverse change has occurred, we or our assets become subject to certain legal proceedings, such as bankruptcy proceedings, we are unable to pay our debts as they become due or we default on contracts with third parties which would permit the holder of indebtedness to accelerate the maturity of such indebtedness or that could have a material adverse change on us. Upon the occurrence and for the duration of an event of default, an additional default interest rate equal to 4 % per annum will apply to all obligations owed under the 2022 Loan Agreement. We have classified the 2022 Original Loan balance as a non-current liability as of December 31, 2023 due to principal repayments beginning in January 2027. We have concluded that the provisions that could cause acceleration of the principal repayments are remote. As of December 31, 2023, our future payment obligations related to the 2022 Loan, excluding interest payments and the 2022 final fee, were as follows (in thousands): 2024 $ — 2025 — 2026 — 2027 52,475 Thereafter — Total repayment obligations 52,475 Less: Unamortized discount and debt issuance costs ( 912 ) Less: Unaccreted value of final fee ( 1,741 ) Long-term debt 49,822 Less: Current portion of long-term debt — Long-term debt, net of current portion $ 49,822 10. DERIVATIVE LIABILITIES 2018 Exit Fee In May 2018, in connection with entering into the 2018 Loan Agreement, we entered into an agreement pursuant to which we agreed to pay $ 1.5 million in cash (2018 Exit Fee) upon any change of control transaction in respect of the Company or if we obtain both (i) U.S. FDA approval of XPHOZAH and (ii) U.S. FDA approval of IBSRELA, which was obtained on September 12, 2019 (2018 Exit Fee Agreement). Notwithstanding the February 2022 prepayment of the 2018 Loan, our obligation to pay the 2018 Exit Fee would have expired on May 16, 2028. We concluded that the 2018 Exit Fee was a freestanding derivative which should be accounted for at fair value on a recurring basis. In October 2023, we received 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. This triggered our obligation to pay the 2018 Exit Fee to the 2018 Lenders, which we subsequently paid in October 2023. The estimated fair value of the 2018 Exit Fee was recorded as a derivative liability and included in accrued expense and other current liabilities on the accompanying balance sheets. As of December 31, 2023 and December 31, 2022, the estimated fair value of the 2018 Exit Fee was zero and $ 1.2 million, respectively. 98 Table of Contents The fair value of the derivative liability at December 31, 2022 was determined using a discounted cash flow analysis and was classified as a Level 3 measurement within the fair value hierarchy since our valuation utilized significant unobservable inputs. Specifically, the key assumptions included in the calculation of the estimated fair value of the derivative instrument included: (i) our estimates of both the probability and timing of a potential $ 1.5 million payment to the 2018 Lenders as a result of the U.S. FDA approvals, and (ii) a discount rate which was derived from our estimated cost of debt, adjusted with current LIBOR. 2022 Exit Fee In February 2022, in connection with entering into the 2022 Original Loans, we entered into an agreement, whereby we agreed to pay an exit fee in the amount of 2 % of the 2022 Original 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. The Term C and Term D Loans do not result in payment of an additional exit fee. Notwithstanding the prepayment or termination of the 2022 Original Loans, the 2022 Exit Fee will expire on February 23, 2032. We concluded that the 2022 Exit Fee is a freestanding derivative which should be accounted for at fair value on a recurring basis. The estimated fair value of the 2022 Exit Fee is recorded as a derivative liability and included in accrued expenses and other current liabilities on the accompanying balance sheets. As of December 31, 2023 and December 31, 2022, the estimated fair value of the 2022 Exit Fee was $ 0.7 million and $ 0.4 million, respectively. The fair value of the derivative liability was determined using a discounted cash flow analysis and is classified as a Level 3 measurement within the fair value hierarchy since our valuation utilized significant unobservable inputs. Specifically, the key assumptions included in the calculation of the estimated fair value of the 2022 Exit Fee derivative liability include: (i) our estimates of both the probability and timing of achieving the Revenue Milestone and (ii) the probability and timing of funding the Term B Loan, which was dependent upon (a) approval by the U.S. FDA for our NDA for the control of serum phosphorus in adult patients with CKD on dialysis by November 30, 2023, and (b) achievement of certain product revenue milestone targets. As of December 31, 2023, uncertainty around two of the noted valuation estimates had been removed, as the Term B Loan had been funded and the U.S. FDA had approved our NDA for the control of serum phosphorus in adult patients with CKD on dialysis prior to November 30, 2023. Generally, increases or decreases in the probability of occurrence would result in a directionally similar impact in the fair value measurement of the derivative liability and it is estimated that a 10 % increase (decrease) in the probability of occurrence would not result in a material fair value fluctuation. Changes in the fair value of recurring measurements included in Level 3 of the fair value hierarchy are presented as other income, net in our statements of operations and comprehensive income (loss) and were as follows for the years ended December 31, 2023, 2022, and 2021 (in thousands): 2023 2022 Balance at January 1, $ 1,656 $ 698 2022 Exit Fee addition at fair value — 375 Changes in estimated fair value: 2018 Exit Fee 292 510 2022 Exit Fee 227 73 2018 Exit Fee payment $ ( 1,500 ) $ — Fair value of exit fee derivative liabilities at December 31, $ 675 $ 1,656 11. LEASES We have recorded right-of-use operating lease assets under three lease agreements. We have evaluated our facility leases and determined that, effective upon the adoption of Topic 842, the leases evaluated are all operating leases. We have performed an evaluation of our other contracts with suppliers and collaborators in accordance with Topic 842 and have determined that, except for the facility leases described below, none of our contracts contain a lease. 99 Table of Contents We recorded right-of-use operating lease assets for our facility in Waltham, Massachusetts under a lease agreement entered into during December 2020 with lease commencement dates during April and May 2021. In August 2023, we entered into an amendment to the lease agreement to expand the leased premises to include an additional 4,247 square feet of office space. As of December 31, 2023, the Waltham office space consists of 17,111 square feet with the lease terminating in June 2026. We have an option to extend the lease term for one additional five year period. This option to extend the lease term has not been included in the calculation of the right-of-use asset and lease liability since the exercise of the option is uncertain and therefore deemed not probable. We recorded a $ 1.6 million right-of-use asset and lease liability for the Waltham lease upon commencement of the lease and an additional $ 0.3 million right-of-use asset and lease liability upon commencement of the lease amendment. We have also recorded a right-of-use operating lease asset for our facility located in Fremont, California under a lease agreement entered into in September 2008 that was amended multiple times to add space and to extend the lease term through March 2025. The office space consists of 72,500 square feet. We do not have an option to renew the lease at our current Fremont location beyond March 2025. In March 2023, we entered into a sub-lease Agreement (Sub-lease) with Chronus Health, Inc. (Chronus). We have sub-leased to Chronus approximately 21,644 square feet of the 72,500 square foot building's interior space, plus corresponding exterior support space and parking. The term of the Sub-lease expires on February 1, 2025. In accordance with the Sub-lease, we recognized an impairment of long-lived assets totaling $ 0.4 million during the three months ended March 31, 2023, which consisted primarily of impairment to the Fremont facility right-of-use asset, as determined by measuring the undiscounted future cash flows from the sub-leased space. The Sub-lease commenced in April 2023 and we recognized $ 0.8 million of income from the Sub-lease during the year ended December 31, 2023. We have recorded a right-of-use operating lease asset for our facility located in Milwaukee, Wisconsin under a lease agreement entered into in October 2020 with a lease commencement date in November 2020. The office space consists of 4,768 square feet with the lease terminating in February 2026. We have an option to extend the lease term by one additional five-year period. This option to extend the lease term has not been included in the calculation of the right-of-use asset and lease liability since the exercise of the option is uncertain and therefore deemed not probable. We recorded a $ 0.4 million right-of use asset and lease liability for the Milwaukee lease upon commencement of the lease. All of our leases are operating leases and each contain customary rent escalation clauses. Certain of the leases have both lease and non-lease components. We have elected to account for each separate lease component and the non-lease components associated with that lease component as a single lease component for all classes of underlying assets. The following table provides additional details of our facility leases presented in our balance sheets (dollars in thousands): December 31, Facilities 2023 2022 Right-of-use assets $ 5,589 $ 9,295 Current portion of lease liabilities 4,435 3,894 Operating lease liability, net of current portion 1,725 5,855 Total lease liabilities $ 6,160 $ 9,749 Weighted-average remaining life (years) 1.6 2.4 Weighted-average discount rate 6.8 % 6.8 % The lease costs, which are included in operating expenses in our statements of operations, were as follows (in thousands): Year Ended December 31, 2023 2022 2021 Operating lease expense $ 3,857 $ 4,257 $ 3,671 Cash paid for operating lease $ 4,481 $ 4,292 $ 3,438 100 Table of Contents The following table summarizes our undiscounted cash payment obligations for our operating lease liabilities as of December 31, 2023 (in thousands): Ending December 31, 2024 $ 4,715 2025 1,450 2026 329 Thereafter — Total undiscounted operating lease payments 6,494 Imputed interest expenses ( 334 ) Total operating lease liabilities 6,160 Less: Current portion of operating lease liability ( 4,435 ) Operating lease liability, net of current portion $ 1,725 12. STOCKHOLDERS’ EQUITY In July 2020, we filed a Form S-3 registration statement, which became effective in August 2020 (2020 Registration Statement), containing (i) a base prospectus for the offering, issuance and sale by us of up to a maximum aggregate offering price of $ 250.0 million of our common stock, preferred stock, debt securities, warrants and/or units, from time to time in one or more offerings; and (ii) a prospectus supplement for the offering, issuance and sale by us of up to a maximum aggregate offering price of $ 100.0 million of our common stock that may be issued and sold, from time to time, under a sales agreement with Jefferies LLC (Jefferies), deemed to be “at-the-market offerings” (2020 Open Market Sales Agreement). Pursuant to the 2020 Open Market Sales Agreement, Jefferies, as sales agent, received a commission of up to 3.0 % of the gross sales price for shares of common stock sold under the 2020 Open Market Sales Agreement. 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 at a weighted average share prices of $ 4.30 per share. In August 2021, we filed an additional prospectus supplement under the 2020 Registration Statement for the offering, issuance and sale by us of up to a maximum aggregate offering price of $ 150.0 million of our common stock that may be issued and sold, from time to time, under an additional sales agreement we entered into with Jefferies (2021 Open Market Sales Agreement), pursuant to which we may, from time to time, sell up to $ 150.0 million in shares of our common stock through Jefferies. We are required to sell shares under the 2021 Open Market Sales Agreement. Pursuant to the 2021 Open Market Sales Agreement, Jefferies, as our sales agent, receives a commission of up to 3.0 % of the gross sales price for shares of common stock sold under the 2021 Open Market Sales Agreement. As of 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; and (ii) a prospectus supplement for the offering, issuance and sale by us of up to a maximum aggregate offering price of $ 150.0 million of our common stock that may be issued and sold, from time to time, under a sales agreement with Jefferies, deemed to be “at-the-market offerings” (2023 Open Market Sales Agreement). Pursuant to the 2023 Open Market Sales Agreement, Jefferies, as sales agent, may receive a commission of up to 3.0 % of the gross sales price for shares of common stock sold under the 2023 Open Market Sales Agreement. During the year ended December 31, 2023, we sold 16.8 million shares of our common stock and received gross proceeds of $ 70.0 million at a weighted average sales price of approximately $ 4.17 per share under the 2023 Open Market Sales Agreement. 101 Table of Contents 13. EQUITY INCENTIVE PLANS 2008 Plan We granted options under our 2008 Stock Incentive Plan (2008 Plan) until June 2014 when it was terminated as to future awards, although it continues to govern the terms of options that remain outstanding under the 2008 Plan. The 2008 Plan provided for the granting of incentive and non-qualified stock options, and stock purchase rights to employees, directors and consultants at the discretion of the board of directors. Stock options granted generally vested over a period of four years from the date of grant. In connection with the board of directors and stockholders’ approval of the 2014 Plan, all remaining shares available for future award under the 2008 Plan were transferred to 2014 Plan, as discussed below, and the 2008 Plan was terminated. 2014 Plan The 2014 Equity Incentive Award Plan (2014 Plan) became effective on June 18, 2014. Under the 2014 Plan, 1.4 million shares of common stock were initially reserved for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock appreciation rights (SARs), restricted stock awards, service-based restricted stock unit (RSU) awards, performance-based restricted stock unit (PRSU) awards, deferred stock awards, deferred stock unit awards, dividend equivalent awards, stock payment awards and performance awards. In addition, 35 thousand shares that had been available for future awards under the 2008 Plan as of June 18, 2014, were added to the initial reserve available under the 2014 Plan, bringing the total reserve upon the effective date of the 2014 Plan to 1.5 million shares. The number of shares initially reserved for issuance or transfer pursuant to awards under the 2014 Plan will be increased by (i) the number of shares represented by awards outstanding under 2008 Plan on June 18, 2014, that are either forfeited or lapse unexercised or that are repurchased for the original purchase price thereof, up to a maximum of 1.2 million shares, and (ii) if approved by the administrator of the 2014 Plan, an annual increase on the first day of each fiscal year ending in 2024 equal to the lesser of (A) four percent ( 4.0 %) of the shares of stock outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year and (B) such smaller number of shares of stock as determined by our board of directors; provided, however, that no more than 10.7 million shares of stock may be issued upon the exercise of incentive stock options. As of December 31, 2023, approximately 2.5 million shares of our common stock were available for future issuance under the 2014 Plan. 2016 Plan In November 2016, our board of directors approved the 2016 Employment Commencement Incentive Plan (Inducement Plan) under which 1.0 million shares were reserved. In January 2021, January 2022, December 2022 and January 2024, 0.5 million, 2.0 million, 3.0 million and 5.8 million shares, respectively, were added to the Inducement Plan. As of December 31, 2023, 6.0 million shares of our common stock were subject to inducement grants that were issued pursuant to the Inducement Plan. As of December 31, 2023, approximately 0.9 million shares of our common stock were available for future issuance under the 2016 Plan. Stock Options A summary of our stock option activity and related information during the year ended December 31, 2023 is as follows (in thousands, except per share dollar amounts and years): Options Issued and Outstanding Weighted Average Remaining Contractual Term (in Years) Aggregate Intrinsic Value Number of Shares Weighted-Average Exercise Price per Share Balance at December 31, 2022 13,963 $ 4.83 Options granted 8,914 $ 3.14 Options exercised ( 226 ) $ 1.61 Options canceled ( 483 ) $ 3.83 Balance at December 31, 2023 22,168 $ 4.20 7.3 $ 58,606 Vested and expected to vest at December 31, 2023 22,168 $ 4.20 7.3 $ 58,606 Exercisable at December 31, 2023 12,199 $ 5.30 6.1 $ 25,116 102 Table of Contents The aggregate intrinsic value represents the difference between the total pre-tax value (i.e., the difference between our stock price and the exercise price) of stock options outstanding as of December 31, 2023, based on our common stock closing price of $ 6.20 per share, which would have been received by the option holders if all their in-the-money options had been exercised as of that date. The intrinsic value of options exercised during the years ended December 31, 2023, 2022 and 2021, was $ 1.1 million, $ 30 thousand, and $ 1.7 million, respectively. The weighted-average grant-date estimated fair value of options granted during the years ended December 31, 2023, 2022 and 2021 was $ 2.36 , $ 0.63 and $ 3.92 per share, respectively. The estimated grant date fair value of employee stock options was calculated using the Black-Scholes option-pricing model, based on the following weighted-average assumptions: Year Ended December 31, 2023 2022 2021 Expected term (years) 5.1 4.9 5.0 Expected volatility 97.6 % 92.1 % 77.0 % Risk-free interest rate 3.8 % 2.2 % 4.7 % Dividend yield — % — % — % Expected Term —We have limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock-option grants. As such, the expected term was initially estimated using the simplified method whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option. Beginning in 2021, we estimate the expected term of our options based upon historical exercises and post-vesting termination behavior, which has not resulted in a material difference as compared to using the simplified method. Expected Volatility —Since January 1, 2017, 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 the 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. Dividend Yield —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 . Restricted Stock Units A summary of our RSUs activity and related information for the year ended December 31, 2023 is as follows (in thousands, except per share dollar amounts): Number of RSUs Weighted-Average Grant Date Fair Value Per Share Non-vested restricted stock units at December 31, 2022 1,406 $ 2.17 Granted 3,269 $ 3.39 Vested ( 942 ) $ 2.76 Forfeited ( 87 ) $ 3.05 Non-vested restricted stock units at December 31, 2023 3,646 $ 3.09 The total estimated fair value of RSUs vested during the years ended December 31, 2023, 2022 and 2021 was $ 3.5 million, $ 2.6 million and $ 0.8 million, respectively. Issuance of Common Stock for Services During the years ended December 31, 2023, 2022 and 2021, we issued approximately 0.1 million, 0.7 million and 26 thousand shares, respectively, of common stock to members of the board of directors who elected to receive stock in lieu of 103 Table of Contents their cash fees under our Non-Employee Director Compensation Program. The shares issued during the years ended December 31, 2023, 2022 and 2021 were valued at $ 0.3 million, $ 0.4 million and $ 0.2 million for each year, respectively, based on the fair value of the common stock on the date of grant. Employee Stock Purchase Plan We adopted the 2014 Employee Stock Purchase Plan (ESPP) and initially reserved approximately 0.2 million shares of common stock as of its effective date of June 18, 2014. If approved by the administrator of the ESPP, on the first day of each calendar year, ending in 2024, the number of shares in the reserve will increase by an amount equal to the lesser of (i) one percent ( 1.0 %) of the shares of common stock outstanding on the last day of the immediately preceding fiscal year and (ii) such number of shares of common stock as determined by the board of directors; provided, however, no more than 2.2 million shares of our common stock may be issued under the ESPP. During the years ended December 31, 2023, 2022 and 2021, we issued approximately 436 thousand, 308 thousand and 387 thousand shares, respectively, at an average share price of $ 1.85 , $ 0.63 and $ 2.12 , respectively, pursuant to the ESPP. As of December 31, 2023, approximately 1.1 million shares of our common stock were available for future issuance under the ESPP. The following table illustrates the weighted-average assumptions for the Black-Scholes option-pricing model used in determining the fair value of ESPP purchase rights granted to our employees: Year Ended December 31, 2023 2022 2021 Expected term (years) 0.5 0.5 0.5 Expected volatility 86.0 % 97.2 % 123.0 % Risk-free interest rate 5.3 % 1.9 % 0.7 % Dividend yield — % — % — % Stock-based Compensation Expense Stock-based compensation expense recognized for stock options, RSUs, and our ESPP are recorded as operating expenses in our statements of operations and comprehensive loss, as follows (in thousands): Year Ended December 31, 2023 2022 2021 Selling, general and administrative $ 9,952 $ 7,525 $ 7,923 Research and development 3,578 3,225 4,116 Total $ 13,530 $ 10,750 $ 12,039 A summary of our total unrecognized stock-based compensation expense, net of estimated forfeitures, as of December 31, 2023 is as follows (dollars in thousands): December 31, 2023 Unrecognized Compensation Expense Average Remaining Vesting Period (Years) Stock option grants $ 19,960 2.75 RSU grants $ 10,579 3.03 ESPP $ 154 0.2 14. RESTRUCTURING During 2021, we implemented restructuring plans in August and October following the receipt of a Complete Response Letter (CRL) from the U.S. FDA relating to our NDA for XPHOZAH and following the conclusion of an End of Review Type A meeting with the U.S. FDA, respectively. Both restructuring plans were substantially completed in December 2021 and most of the cash payments related to the reduction in workforce were disbursed prior to December 31, 2021. In connection with restructuring, we incurred restructuring charges of $ 6.2 million, which were recorded during the year ended December 31, 2021, related to one-time termination notice and severance payments and other employee-related costs. 104 Table of Contents We did not incur any significant contract termination costs pursuant to restructuring. Of the charges, $ 2.7 million was recorded in research and development expenses, and $ 3.5 million was recorded in selling, general and administrative expense in the accompanying statements of operations and comprehensive loss. 15. PROPERTY AND EQUIPMENT, NET Property and equipment consist of the following (in thousands): December 31, 2023 2022 Laboratory equipment $ 46 $ 46 Office equipment and furniture 2,433 2,089 Leasehold improvements 8,731 8,745 Property and equipment, gross 11,210 10,880 Less: accumulated depreciation ( 10,201 ) ( 9,657 ) Total property and equipment, net $ 1,009 $ 1,223 We recognized depreciation expense in the amount of $ 0.6 million, $ 0.7 million, and $ 1.4 million for the years ended December 31, 2023, 2022 and 2021, respectively. During the year ended December 31, 2022, following the elimination of our internal research organization in the fourth quarter of 2021, we sold laboratory equipment with total net carrying value of $ 0.5 million and received cash proceeds of $ 1.8 million, resulting in a gain of $ 1.3 million which has been reported within other income, net on our statement of operations and comprehensive loss. 16. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following (in thousands): December 31, 2023 2022 Accrued payments due to AstraZeneca $ 3,680 $ 3,385 Accrued gross to net revenue liabilities 3,258 1,991 Accrued contract manufacturing expenses 1,946 1,657 Accrued sales and marketing expenses 3,223 587 Accrued professional and consulting services 486 808 Derivative liability for exit fees 675 1,656 Accrued clinical expenses 377 223 Accrued non-clinical research and development expenses 30 1,188 Other 1,366 885 Total accrued expenses and other current liabilities $ 15,041 $ 12,380 105 Table of Contents 17. INCOME TAXES The components of our provision for income taxes for the years ended December 31, 2023, 2022 and 2021, are as follows (in thousands): Year Ended December 31, 2023 2022 2021 Current: State $ 47 $ 8 $ 4 Foreign 500 — — Total current 547 8 4 Deferred: Federal — — — Total deferred — — — Provision for income taxes $ 547 $ 8 $ 4 A reconciliation of the statutory federal income tax rate to our effective tax rate is as follows: Year Ended December 31, 2023 2022 2021 Income tax at the federal statutory rate 21.0 % 21.0 % 21.0 % State taxes, net of federal benefit 3.4 1.9 0.4 Tax credits 1.7 1.5 1.0 Stock based compensation 0.1 ( 2.3 ) ( 1.3 ) Foreign withholding tax ( 0.8 ) — — Executive compensation disallowed under IRC Sec 162(m) ( 1.9 ) ( 1.6 ) ( 1.1 ) Other — ( 0.8 ) — Change in valuation allowance ( 24.3 ) ( 19.7 ) ( 20.0 ) Income tax provision ( 0.8 ) % — % — % Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets are as follows as of December 31, 2023 and 2022 (in thousands): 106 Table of Contents December 31, 2023 2022 Deferred tax assets: Amortization and depreciation $ 64,919 $ 64,111 Net operating loss carryforwards 98,702 86,547 Tax credits 15,375 14,411 Stock-based compensation 6,946 5,244 Deferred royalty obligation 4,907 2,577 Other 6,707 4,909 Gross deferred tax assets 197,556 177,799 Valuation allowance ( 196,197 ) ( 175,670 ) Deferred tax assets net of valuation allowance 1,359 2,129 Deferred tax liabilities: Right-of-use asset ( 1,359 ) ( 2,129 ) Other — — Net deferred tax assets $ — $ — Realization of deferred tax assets is dependent on future taxable income, if any, the timing and the amount of which are uncertain. We assess the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant component of objective negative evidence evaluated was our cumulative loss incurred over the three-year period ended December 31, 2023. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. On the basis of this evaluation, as of December 31, 2023, 2022 and 2021, a full valuation allowance has been recorded against our net deferred tax asset. The valuation allowance increased by $ 20.5 million in 2023 primarily due to increases in net operating losses. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth. As of December 31, 2023, we had net operating loss carryforwards for federal income tax purposes of approximately $ 479.0 million, of which approximately $ 328.8 million can be carried forward indefinitely and the remaining net operating losses expire beginning in 2030, if not utilized. Federal research and development tax credit carryforwards of approximately $ 17.8 million that expire beginning in 2027, if not utilized, and foreign tax credit carryforwards of approximately $ 1.7 million that begin to expire in 2027, if not utilized. In addition, we had net operating loss carryforwards for California income tax purposes of approximately $ 92.9 million that expire beginning of 2030, if not utilized, and state research and development tax credit carryforwards of approximately $ 8.9 million which can be carried forward indefinitely. We had approximately $ 0.1 million of minimum tax credit carryovers for California income tax purposes. The minimum tax credits have no expiration date. We had other state net operating losses of approximately $ 50.5 million that begin to expire in 2031. The future utilization of net operating loss and tax credit carryforwards and credits may be subject to an annual limitation, pursuant to Internal Revenue Code Sections 382 and 383, as a result of ownership changes that may have occurred previously or that could occur in the future. Due to the existence of the valuation allowance, limitations under Section 382 and 383 will not impact our effective tax rate. Under the Tax Cuts and Jobs Act of 2017, research and development costs are no longer fully deductible and are required to be capitalized and amortized for U.S. tax purposes effective January 1, 2022. The mandatory capitalization requirement did not have a material impact on our deferred tax assets and did not result in a cash tax liability as we have historically elected to capitalized research and development expenses for tax purposes. 107 Table of Contents A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): December 31, 2023 2022 2021 Balance at beginning of year $ 24,075 $ 24,426 $ 23,624 Additions based on tax positions related to current year 262 460 1,613 Additions based on tax positions related to prior year 99 — — Subtractions based on tax positions related to prior year ( 811 ) ( 811 ) ( 811 ) Balance at end of year $ 23,625 $ 24,075 $ 24,426 We recognize a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more likely than not recognition at the effective date to be recognized. None of our unrecognized tax benefits would impact the effective tax rate if recognized, because the benefit would be offset by an increase in the valuation allowance. We have elected to include interest and penalties as a component of tax expense. During the years ended December 31, 2023, 2022 and 2021, we did not recognize accrued interest and penalties related to unrecognized tax benefits. Although the timing and outcome of an income tax audit is highly uncertain, we do not anticipate that the amount of existing unrecognized tax benefits will significantly change during the next 12 months. We file a U.S. federal income tax return and income tax returns in various state and local jurisdictions. Due to our net operating loss and tax credit carryforwards, the income tax returns remain open to U.S. federal and state tax examinations. We are not currently under examination in any tax jurisdiction. 18. GEOGRAPHIC INFORMATION AND CONCENTRATIONS Revenues are attributed to geographical areas based on the location at which we earned revenue for product sales of IBSRELA and XPHOZAH or the domicile of our collaboration partners. A summary of our revenue by geographic areas for the years ended December 31, 2023, 2022 and 2021, is as follows (in thousands): Year Ended December 31, 2023 2022 2021 United States (1) $ 83,276 $ 15,600 $ — International: Asia Pacific (2) 41,121 36,527 10,084 North America (3) 59 31 13 Total revenue $ 124,456 $ 52,158 $ 10,097 (1) Revenues from the United States are primarily comprised of amounts earned from sales of IBSRELA and XPHOZAH, as well as the upfront license fee from the METiS Agreement. (2) Revenues from Asia Pacific are primarily comprised of amounts earned in accordance with the 2017 Kyowa Kirin Agreement, the 2019 Kyowa Kirin Agreement and the Fosun Agreement. (3) Revenues from North America are comprised of amounts earned from Canada in accordance with the Knight Agreement. Revenues from Customers and collaboration partnerships accounting for more than 10% of total revenues during the years ended December 31, 2023, 2022 and 2021 were as follows: 108 Table of Contents Year Ended December 31, 2023 2022 2021 Kyowa Kirin 29.0 % 70.0 % 100.0 % Bioridge Phama 24.0 % 3.2 % — % Cardinal 19.8 % 9.6 % — % AmerisourceBergen Drug Corporation 19.1 % 11.1 % — % McKesson 15.7 % 8.9 % — % 19. NET LOSS PER SHARE Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period and excludes any dilutive effects of stock-based awards and warrants. Diluted net loss per common share is computed giving effect to all potential dilutive common shares, including common stock issuable upon exercise of stock options, and unvested restricted common stock and stock units. As we had net losses for the years ended December 31, 2023, 2022 and 2021, all potential common shares were determined to be anti-dilutive. The following table sets forth the computation of net loss per common share (in thousands, except per share dollar amounts): Year Ended December 31, 2023 2022 2021 Numerator: Net loss $ ( 66,067 ) $ ( 67,207 ) $ ( 158,165 ) Denominator: Weighted average common shares outstanding - basic and diluted 219,331 158,690 104,206 Net loss per share - basic and diluted $ ( 0.30 ) $ ( 0.42 ) $ ( 1.52 ) For the years ended December 31, 2023, 2022 and 2021, the total numbers of securities that could potentially dilute net income per share in the future that were not considered in the diluted net loss per share calculations because the effect would have been anti-dilutive were as follows (in thousands): Year Ended December 31, 2023 2022 2021 Options to purchase common stock 20,877 13,522 11,871 Restricted stock units 3,086 2,694 1,602 ESPP shares issuable 249 166 207 Total 24,212 16,382 13,680 The number of potential common shares that would have been included in diluted income per share had it not been for the anti-dilutive effect caused by the net loss, computed by converting these securities using the treasury stock method during the years ended December 31, 2023, 2022 and 2021, was approximately 6.3 million, 0.6 million and 1.1 million, respectively. 20. COMMITMENTS AND CONTINGENCIES Guarantees and Indemnifications We indemnify each of our officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at our request in such capacity, as permitted under Delaware law and in accordance with our certificate of incorporation and bylaws. The term of the indemnification period lasts as long as an officer or director may be subject to any proceeding arising out of acts or omissions of such officer or director in such capacity. The maximum amount of potential future indemnification is unlimited; however, we currently hold director and officer liability insurance, which allows the transfer of risk associated with our exposure and may enable us to recover a portion of any 109 Table of Contents future amounts paid. We believe that the fair value of these indemnification obligations is minimal. Accordingly, we have not recognized any liabilities relating to these obligations for any period presented. Legal Proceedings and Claims On July 30 and August 12, 2021, two putative securities class action lawsuits were commenced in the U.S. District Court for the Northern District of California naming as defendants Ardelyx and two current officers captioned Strezsak v. Ardelyx, Inc., et al. , Case No. 4:21-cv-05868-HSG, and Siegel v. Ardelyx, Inc., et al. , Case No. 5:21-cv-06228-HSG (together, the Securities Class Actions). The complaints allege that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder, by making false and misleading statements and omissions of material fact related to tenapanor. The plaintiffs seek damages and interest, and an award of costs, including attorneys’ fees. On July 19, 2022, the court consolidated the two putative class actions and appointed a lead plaintiff and lead counsel. The lead plaintiff filed an amended complaint on September 29, 2022. Defendants filed a motion to dismiss the amended complaint on December 2, 2022. In January and February 2023, in lieu of filing a response to defendant’s motion to dismiss, plaintiffs filed a motion seeking leave to further amend their complaint and defendants filed an opposition to the motion for leave to further amend the complaint. On April 6, 2023, the court granted plaintiff’s motion for leave to further amend the complaint. With the second amended complaint, the plaintiffs seek to represent all persons who purchased or otherwise acquired Ardelyx securities between March 6, 2020 and July 19, 2021. Defendants filed a motion to dismiss the amended complaint on June 2, 2023. On August 22, 2023, the court cancelled the hearing scheduled for September 14, 2023 on the motion to dismiss the amended complaint and indicated its decisions to instead rule on the filed briefs. We believe the plaintiff’s claims are without merit and we have not recorded any accrual for a contingent liability associated with these legal proceedings. On December 7, 2021 and March 29, 2022, two verified shareholders derivative lawsuits were filed in the U.S. District Court for the Northern District of California purportedly on behalf of Ardelyx against certain of Ardelyx’s executive officers and members of our board of directors, captioned Go v. Raab , et al., Case No. 4:21-cv-09455-HSG, and Morris v. Raab , et al., Case No. 4:22-cv-01988-JSC. The complaints allege that the defendants' violations of Section 14(a) of the Securities Exchange Act of 1934, as amended, breaches of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets for personally making and/or causing Ardelyx to make materially false and misleading statements regarding the Company’s business, operations and prospects. The complaint seeks contribution under Sections 10(b) and 21D of the Securities Exchange Act of 1934 from two executive officers. On January 19, and April 27, 2022, the court granted the parties’ stipulation to stay the Go and Morris actions, respectively, until resolution of the anticipated motion(s) to dismiss in the Securities Class Actions. On October 25, 2022, the parties filed a stipulation to consolidate and stay the Go and Morris actions, and on October 27, 2022, the court consolidated the Go and Morris action and stayed the consolidated action pending resolution of the anticipated motion(s) to dismiss in the Securities Class Action. We believe the plaintiff’s claims are without merit and we have not recorded any accrual for a contingent liability associated with these legal proceedings. From time to time, we may be involved in legal proceedings arising in the ordinary course of business. As of December 31, 2023, there is no litigation pending that would reasonably be expected to have a material adverse effect on our results of operations and financial condition, and no contingent liabilities were accrued as of December 31, 2023. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.