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 ) 64 Balance Sheets 66 Statements of Operations and Comprehensive Loss 67 Statements of Stockholders’ Equity 68 Statements of Cash Flows 69 Notes to Financial Statements 70 63 Table of Conten t s 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, 2024 and 2023, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, 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, 2024, 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 20, 2025 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. 64 Table of Conten t s Description of the Matter Estimates of Reserves for Variable Consideration Impacted by Estimated Payor Mix As described in Notes 2 and 6 to the financial statements, the transaction price for product sales, net is reduced for estimates of variable consideration related to gross-to-net (“GTN”) adjustments for discounts and chargebacks, rebates, wholesaler and group purchasing organization (“GPO”) fees, copay assistance and returns. Except for certain wholesaler and GPO fees and discounts, which are based on contracts, these adjustments involve estimation and judgment. The GTN adjustments for rebates, copay assistance and chargebacks are impacted by our estimate of payor mix, which requires significant judgment. The Company’s total estimate of reserves for variable consideration was $27.3 million as of December 31, 2024. During 2024, the Company recorded $109.9 million in total reductions to gross product sales for variable consideration. Auditing the Company’s estimates of reserves for variable consideration relating to rebates, copay assistance and chargebacks was especially challenging as it involved evaluation of management’s subjective judgments with respect to payor mix that considers 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 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 rebates, copay assistance and chargebacks, 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 and the related reserves. We compared the assumptions used by management to third-party industry data and evaluated trends in the data. 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 payor mix assumptions on the reserves recorded for variable consideration impacted by the payor mix. 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 20, 2025 65 Table of Conten t s ARDELYX, INC. BALANCE SHEETS (in thousands, except share and per share amounts) December 31, 2024 2023 Assets Current assets Cash and cash equivalents $ 64,932 $ 21,470 Short-term investments 185,168 162,829 Accounts receivable 57,705 22,031 Inventory 21,173 12,448 Prepaid commercial manufacturing 16,378 18,925 Prepaid expenses and other current assets 11,096 8,408 Total current assets 356,452 246,111 Property and equipment, net 1,495 1,009 Inventory, non-current 70,011 37,039 Prepaid commercial manufacturing, non-current — 4,235 Right-of-use assets 2,380 5,589 Other assets 5,416 3,596 Total assets $ 435,754 $ 297,579 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 16,000 $ 11,138 Accrued compensation and benefits 14,940 12,597 Current portion of operating lease liability 1,562 4,435 Deferred revenue 10,686 7,182 Accrued expenses and other current liabilities 34,642 15,041 Total current liabilities 77,830 50,393 Operating lease liability, net of current portion 1,023 1,725 Long-term debt 150,853 49,822 Deferred revenue, non-current 7,232 8,644 Deferred royalty obligation related to the sale of future royalties 25,527 20,179 Total liabilities 262,465 130,763 Commitments and contingencies (Note 19) Stockholders’ equity Common stock, $ 0.0001 par value; 500,000,000 shares authorized; 238,015,825 and 232,453,190 shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively. 24 23 Additional paid-in capital 1,058,548 1,012,773 Accumulated deficit ( 885,340 ) ( 846,204 ) Accumulated other comprehensive income 57 224 Total stockholders’ equity 173,289 166,816 Total liabilities and stockholders’ equity $ 435,754 $ 297,579 The accompanying notes are an integral part of these financial statements. 66 Table of Conten t s ARDELYX, INC. STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except share and per share amounts) Year Ended December 31, 2024 2023 2022 Revenues Product sales, net $ 319,196 $ 82,526 $ 15,600 Product supply revenue 11,649 6,121 1,527 Licensing revenue 78 35,809 35,031 Non-cash royalty revenue related to the sale of future royalties 2,692 — — Total revenues 333,615 124,456 52,158 Cost of goods sold Cost of product sales 6,851 2,323 566 Other cost of revenue 43,705 15,472 3,551 Total cost of goods sold 50,556 17,795 4,117 Operating expenses Research and development 52,317 35,536 35,201 Selling, general and administrative 258,692 134,401 76,599 Total operating expenses 311,009 169,937 111,800 Loss from operations ( 27,950 ) ( 63,276 ) ( 63,759 ) Interest expense ( 13,006 ) ( 4,950 ) ( 3,400 ) Non-cash interest expense related to the sale of future royalties ( 7,088 ) ( 3,924 ) ( 1,673 ) Other income, net 9,174 6,630 1,633 Loss before provision for income taxes ( 38,870 ) ( 65,520 ) ( 67,199 ) Provision for income taxes 266 547 8 Net loss $ ( 39,136 ) $ ( 66,067 ) $ ( 67,207 ) Net loss per share of common stock - basic and diluted $ ( 0.17 ) $ ( 0.30 ) $ ( 0.42 ) Shares used in computing net loss per share - basic and diluted 235,232,927 219,331,253 158,690,083 Comprehensive loss Net loss $ ( 39,136 ) $ ( 66,067 ) $ ( 67,207 ) Unrealized (losses) gains on available-for-sale securities ( 167 ) 278 ( 48 ) Comprehensive loss $ ( 39,303 ) $ ( 65,789 ) $ ( 67,255 ) The accompanying notes are an integral part of these financial statements. 67 Table of Conten t s 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 Stockholder’ Equity Shares Amount 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 Issuance of common stock under employee stock purchase plan 479,609 — 2,227 — — 2,227 Issuance of common stock for services 40,549 — 257 — — 257 Issuance of common stock upon exercise of options 2,654,370 1 5,910 — — 5,911 Issuance of common stock upon vesting of restricted stock units 2,388,107 — — — — — Stock-based compensation — — 37,381 — — 37,381 Unrealized losses on available-for-sale securities — — — — ( 167 ) ( 167 ) Net loss — — — ( 39,136 ) — ( 39,136 ) Balance as of December 31, 2024 238,015,825 $ 24 $ 1,058,548 $ ( 885,340 ) $ 57 $ 173,289 The accompanying notes are an integral part of these financial statements. 68 Table of Conten t s ARDELYX, INC. STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2024 2023 2022 Operating activities Net loss $ ( 39,136 ) $ ( 66,067 ) $ ( 67,207 ) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization expense 2,063 1,292 1,144 Non-cash lease expense 4,008 3,624 3,457 Stock-based compensation 37,381 13,530 10,750 Non-cash interest expense 7,400 4,220 1,962 Non-cash royalty revenue related to the sale of future royalties ( 2,692 ) — — Gain on sale of equipment — — ( 1,260 ) Other, net ( 4,664 ) ( 2,930 ) 685 Changes in operating assets and liabilities Accounts receivable ( 35,674 ) ( 14,298 ) ( 7,231 ) Inventory ( 41,697 ) ( 21,141 ) ( 28,346 ) Prepaid commercial manufacturing 6,782 ( 9,593 ) ( 4,161 ) Prepaid expenses and other assets ( 4,543 ) ( 6,035 ) 2,299 Accounts payable 4,862 279 6,582 Accrued compensation and benefits 2,343 5,049 2,126 Operating lease liabilities ( 4,588 ) ( 3,928 ) ( 3,491 ) Accrued and other liabilities 21,254 3,691 4,138 Deferred revenue 2,092 2,590 8,509 Net cash used in operating activities ( 44,809 ) ( 89,717 ) ( 70,044 ) Investing activities Proceeds from maturities and redemptions of investments 177,854 84,321 67,000 Purchases of investments ( 195,161 ) ( 215,225 ) ( 50,328 ) Proceeds from sale of property and equipment — — 1,798 Purchases of property and equipment ( 1,011 ) ( 344 ) ( 55 ) Net cash (used in) provided by investing activities ( 18,318 ) ( 131,248 ) 18,415 Financing activities Proceeds from issuance of common stock in at the market offering, net of issuance costs — 119,236 71,625 Proceeds from 2022 Loan Agreement, net of issuance costs 99,451 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 8,138 1,173 202 Payment of the exit fees ( 1,000 ) ( 1,500 ) — Payments for the 2018 Loan, net of costs — — ( 33,038 ) Net cash provided by financing activities 106,589 146,295 75,341 Net increase (decrease) in cash and cash equivalents 43,462 ( 74,670 ) 23,712 Cash and cash equivalents at beginning of period 21,470 96,140 72,428 Cash and cash equivalents at end of period $ 64,932 $ 21,470 $ 96,140 Supplementary disclosure of cash flow information Cash paid for interest $ 11,408 $ 4,240 $ 2,901 Cash paid for income taxes $ 266 $ 51 $ 6 Supplementary disclosure of non-cash activities Right-of-use assets obtained in exchange for lease obligations $ 1,010 $ 339 $ — Issuance of common stock for services $ 257 $ 337 $ 390 Issuance of derivative in connection with issuance of loan payable $ — $ — $ 375 The accompanying notes are an integral part of these financial statements. 69 Table of Conten t s ARDELYX, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1. NATURE OF OPERATIONS We are a biopharmaceutical company founded with a mission to discover, develop and commercialize innovative, first-in-class medicines that meet significant unmet medical needs. 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 IBS-C. Tenapanor, branded as XPHOZAH ® , is approved in the U.S. 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. We operate in one business segment, which is the development and commercialization of biopharmaceutical products. Refer to Note 17. Segment Reporting for further segment reporting information. NOTE 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). Certain prior year amounts have been reclassified to conform to the current year presentation. Refer to the Summary of Abbreviated Terms at the end of this Annual Report on Form 10-K for definitions of terms used throughout the document. Use of Estimates The preparation of financial statements requires management to make estimates, judgments and assumptions. The most significant assumptions are estimates used in our revenue gross-to-net accruals and other assumptions. 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. Cash and Cash Equivalents Cash and cash equivalents consist of highly liquid investments purchased with an original maturity date of 90 days or less and are recognized at cost, which approximates fair value. 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 or other observable market data. Unrealized (losses) gains on available-for-sale securities are included in accumulated other comprehensive income on our balance sheets. The cost of available-for-sale securities sold is based on the specific-identification method. Marketable debt securities are reviewed for impairment by determining whether the decline in their market value below carrying value is other-than-temporary. This assessment considers the intent and ability to retain the investment for a period of time sufficient for an anticipated recovery in market value, the duration and extent that the market value has been below cost, and the investee’s financial condition. Other-than-temporary impairments and credit losses are recorded in the statements of operations and comprehensive loss. 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 sheets. Cash, cash equivalents and short-term investments are invested through banks and other financial institutions in the U.S. 70 Table of Conten t s Foreign Currency Our business is conducted 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. Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the dates of the transactions. At the end of each reporting period, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at that date. All gains and losses on these foreign currency transactions are recorded in other income, net in our statements of operations and comprehensive loss. Property and Equipment Expenditures for property and equipment are capitalized at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets, ranging from three to five years for laboratory equipment and office equipment and furniture. 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 The asset and liability method of accounting is used for income taxes. Deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax basis 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 a 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 our 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, 2024, our accounts receivable balance was comprised of $ 56.7 million from commercial customers and $ 1.0 million from our collaboration partners. As of December 31, 2023, our accounts receivable balance was comprised of $ 17.1 million from commercial customers and $ 4.9 million from our collaboration partners. Inventory Inventory costs incurred are capitalized after regulatory approval, or if based on management’s judgment, future commercialization is considered probable and future economic benefit is expected to be realized. 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 launch of IBSRELA. 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. Inventory costs incurred prior to regulatory approval were expensed as research and development. Inventories are stated at the lower of cost or estimated net realizable value with cost determined under the specific identification method. 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 assets on our balance sheets. Revenue Recognition The application of ASC 606 Revenue from Contracts with Customers substantially impacts our reported results, particularly product sales, net, which requires certain estimates in determining the transaction price. Total revenues are recognized following a five-step model: (i) identify the customer contract; (ii) identify the contract’s performance obligations; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; and (v) recognize revenue when or as a performance obligation is satisfied. 71 Table of Conten t s Product Sales, Net Recognition The transaction price for product sales, net is reduced for estimates of variable consideration related to GTN adjustments for discounts and chargebacks, rebates, wholesaler and GPO fees, copay assistance and returns. Except for certain wholesaler and GPO fees and discounts, which are based on contracts, these adjustments involve estimation and judgment. The GTN adjustments for rebates, copay assistance and chargebacks are impacted by our estimate of payor mix, which requires significant judgment. We consider legal interpretations of applicable laws and regulations, historical experience, current contract prices under applicable programs, unbilled claims, processing time lags and inventory levels in the distribution channel in determining our estimates. Estimates are assessed each period and adjusted as required to revise information or actual experience. Changes in estimates recorded through December 31, 2024 have not been material. Licensing Revenue Recognition Licensing revenue and product supply revenue result from our collaboration and licensing agreements as discussed in Note 7. Collaboration And Licensing Agreements. Goods and services in these agreements may include the grant of licenses for use of our intellectual property and manufacturing services. Significant judgment is required to determine whether promised goods and services represent distinct performance obligations, which are identified and separated when the other party can benefit from the rights, goods or services either on their own or together with other readily available resources and when the rights, goods or services are not highly interdependent or interrelated. Transaction prices for these arrangements may include non-refundable, up-front license fees; research, development, regulatory and commercial milestone payments; payments for manufacturing supply services; and future royalties on net sales of licensed products. Variable consideration is included in the transaction price only to the extent significant reversal of cumulative revenue recognized is not probable of occurring when the uncertainty associated with the variable consideration is subsequently resolved. Significant judgment is required in estimating variable consideration for each performance obligation identified in the contract. This judgment involves assessing factors outside of our influence, including market conditions, development timelines, likelihood of regulatory success, reimbursement rates for personnel costs, forecasted revenues, potential limitations on the selling price of the product, discount rates, lack of relevant past experience and a large number and broad range of possible amounts. The most likely amount method is used to estimate contingent development, regulatory and sales-based milestones because the ultimate outcomes are binary in nature. The expected value method is used to estimate royalties because a broad range of potential outcomes exists, except in instances where the royalties relate to a license. For arrangements with multiple separable performance obligations, the transaction price assigned to each distinct performance obligation is reflective on the relative stand-along selling price and recognized at a point in time upon the transfer of control. Collaboration agreements typically include: (i) licensing intellectual property to a third party with no further performance obligations and (ii) arrangements that include both a license and an additional performance obligation to supply product upon the request of the third party. Out-licensing arrangements that contain a single performance obligation are satisfied upon execution of the agreement, when development and commercialization rights are transferred to a third party. Upfront fees are immediately recognized as licensing revenue. Contingent development and regulatory milestones are assessed each period for likelihood of achievement, however, they are typically constrained and recognized when uncertainty is subsequently resolved for the full amount of the milestone and included in licensing revenue. Licensing revenue also includes sales-based milestones and royalties, which are recognized when the milestone is achieved or when the subsequent sales occur. Certain collaboration agreements also include contingent performance obligations to supply commercial product to the third party upon its request. The license and supply obligations are accounted for as separate distinct performance obligations as the third party can benefit from the license either on its own or together with the other supply resources readily available to it and the other obligations in the contract. Consideration for the supply obligation is based upon stipulated cost-plus margin contractual terms which represent a standalone selling price. The supply consideration is recognized as product supply revenue at a point in time upon transfer of control of the product to the third party. After considering the stand-alone selling price of these supply arrangements, the upfront fees, contingent development, regulatory and sales-based milestones and royalties are allocated to the license. 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. Contract modifications due to the addition of distinct promised goods or services with price increases consistent with stand-alone selling prices are accounted for as a separate contract. Contract modifications that are not considered a separate contract and containing remaining goods or services distinct from the goods or services transferred on or before the date of the contract modification are accounted for as a termination of the existing contract and the subsequent creation of a new contract. Contract modifications not considered a 72 Table of Conten t s separate contract and containing remaining goods or services not distinct are accounted for as an add-on to the existing contract and as an adjustment to revenue on a cumulative catch-up basis. Accrued Expenses As part of the process of preparing our financial statements, we are required to estimate our accrued expenses, which 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 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. Service fee accruals are estimated based on the period over which each component of service will be performed, 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 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. Retirement Savings Plan We offer retirement saving plans through our 401(k) plan, which is available to all full-time employees. In June 2023, we expanded the benefit with the inclusion of a company matching contribution.We contribute to tax-qualified retirement plans for the benefit of employees who meet certain eligibility requirements and choose to participate in the plans. Participating employees specify the percentage of salary they wish to contribute from their compensation, and we make matching contributions. We recognized compensation costs from our contributions of $ 1.1 million and $ 0.2 million in 2024 and 2023, respectively. Stock-Based Compensation Stock-based compensation expense is recognized for all stock-based payment awards made to employees, non-employees and directors based on estimated fair values. The grant date fair value of the awards is determined using the Black-Scholes option-pricing model. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period and is reduced for estimated forfeitures at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Non-cash Interest Expense on Deferred Royalty Obligation Non-cash interest expense related to the sale of future royalties represents imputed interest expense on our deferred royalty obligation related to the sale of future royalties using the effective interest method. Leases Operating leases are included in right-of-use assets, current portion of operating lease liability, and operating lease liability, net of current portion on 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 information available at the lease commencement date. 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 a lease when it is reasonably certain that we will exercise any such option. 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 account 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 because the effects of potentially dilutive securities are antidilutive due to net loses recognized for each period presented. 73 Table of Conten t s Recent Accounting Pronouncements New Accounting Pronouncements - Recently Adopted In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures . This Update requires publicly traded entities to provide enhanced disclosures about significant segment expenses regularly reviewed by the chief operating decision maker, including publicly traded entities with a single reportable segment. The amendments in this update were effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We adopted the ASU in the fourth quarter of 2024 and determined that its adoption did not have a material impact on our financial statements. Refer to Note 17. Segment Reporting for additional information. Recent Accounting Pronouncements Not Yet Adopted 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 our financial statements. In November 2024, the FASB issued ASU No. 2024-03, Income Statement (Topic 220) - Reporting Comprehensive Income - Expense Disaggregation Disclosures, Disaggregation of Income Statement Expenses , which requires public companies to disclose, in interim and reporting periods, additional information about certain expenses in the financial statements. ASU No. 2024-03 is effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted and is effective on either a prospective basis or retrospective basis. Management is currently assessing the impact of this standard on our financial statements. NOTE 3. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS Securities classified as cash, cash equivalents and short-term investments as of December 31, 2024 and 2023 were as follows: December 31, 2024 Gross Unrealized (in thousands) Amortized Cost Gains Losses Fair Value Cash and cash equivalents Cash $ 16,282 $ — $ — $ 16,282 Money market funds 48,650 — — 48,650 Total cash and cash equivalents 64,932 — — 64,932 Short-term investments U.S. treasury securities $ 79,720 $ 58 $ ( 5 ) $ 79,773 U.S. government-sponsored agency bonds 45,960 29 ( 27 ) 45,962 Commercial paper 37,061 19 ( 15 ) 37,065 Corporate bonds 17,415 4 ( 6 ) 17,413 Asset-backed securities 2,983 2 — 2,985 Yankee bonds 1,972 — ( 2 ) 1,970 Total short-term investments 185,111 112 ( 55 ) 185,168 Total cash, cash equivalents and investments $ 250,043 $ 112 $ ( 55 ) $ 250,100 74 Table of Conten t s December 31, 2023 Gross Unrealized (in thousands) 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 Realized gains or losses have not been significant and are included in other income, net, in our statements of operations and comprehensive loss. Unrealized losses in 2024 and 2023 were not material. We determined that none of our available-for-sale securities were other-than-temporarily impaired as of December 31, 2024 and 2023, and no investment was in a continuous unrealized loss position for more than one year. Therefore, 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 not recorded an allowance for credit losses as of December 31, 2024 and 2023. NOTE 4. FAIR VALUE MEASUREMENTS 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 by 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. 75 Table of Conten t s 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: December 31, 2024 December 31, 2023 (in thousands) Total Fair Value Level 1 Level 2 Level 3 Total Fair Value Level 1 Level 2 Level 3 Assets Money market funds $ 48,650 $ 48,650 $ — $ — $ 18,641 $ 18,641 $ — $ — U.S. government-sponsored agency bonds 45,962 — 45,962 — 102,093 — 102,093 — U.S. treasury securities 79,773 — 79,773 — 2,457 — 2,457 — Commercial paper 37,065 — 37,065 — 49,654 — 49,654 — Corporate bonds 17,413 — 17,413 — — — — — Asset-backed securities 2,985 — 2,985 — 8,625 — 8,625 — Yankee bonds 1,970 — 1,970 — — — — — Total $ 233,818 $ 48,650 $ 185,168 $ — $ 181,470 $ 18,641 $ 162,829 $ — Liabilities Derivative liabilities for exit fee $ — $ — $ — $ — $ 675 $ — $ — $ 675 Total $ — $ — $ — $ — $ 675 $ — $ — $ 675 The 2022 Exit Fee valuation as of December 31, 2023 as defined and discussed in Note 10. Derivative Liabilities , was classified as Level 3. During 2024, the conditions for payment of the 2022 Exit Fee were met and the $ 1.0 million contract amount was fully valued and settled accordingly. Fair Value of Debt The principal outstanding under our term loan is subject to a variable interest rate and therefore, we believe the carrying amount of the term loan approximates fair value. See Note 9. Borrowing 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, 2024 and is based on our current estimate of future royalties and commercialization milestones expected to be paid to us by Kyowa Kirin 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. NOTE 5. INVENTORY Inventory consisted of the following: December 31, (in thousands) 2024 2023 Raw materials $ 30,792 $ 22,920 Work in process 58,685 24,582 Finished goods 1,707 1,985 Total $ 91,184 $ 49,487 Reported as Inventory $ 21,173 $ 12,448 Inventory, non-current 70,011 37,039 Total $ 91,184 $ 49,487 Prepaid commercial manufacturing with third-party CMOs not included in inventory was $ 16.4 million and $ 23.2 million at December 31, 2024 and 2023, respectively. There were no prepayments expected to be converted into inventory after 12 months at December 31, 2024, compared to $ 4.2 million at December 31, 2023. 76 Table of Conten t s NOTE 6. REVENUE Disaggregation of total revenues by nature is as follows: Year Ended December 31, (in thousands) 2024 2023 2022 Product sales, net $ 319,196 $ 82,526 $ 15,600 Product supply revenue 11,649 6,121 1,527 Licensing revenue 78 35,809 35,031 Non-cash royalty revenue related to the sale of future royalties 2,692 — — Total revenues $ 333,615 $ 124,456 $ 52,158 Product Sales, Net Total product sales, net was as follows: Year Ended December 31, (in thousands) 2024 2023 2022 Product sales, net IBSRELA $ 158,286 $ 80,062 $ 15,600 XPHOZAH 160,910 2,464 — Total product sales, net $ 319,196 $ 82,526 $ 15,600 Product sales, net approximated 95.7 %, 66.3 % and 29.9 % of total revenues in 2024, 2023 and 2022, respectively. Products are primarily sold to wholesalers, GPOs and specialty pharmacies, and to a lesser extent, directly to retailers, hospitals, clinics and government agencies. Customer orders are generally fulfilled within a few days from receipt. Contractual performance obligations are fulfilled once control of product is transferred to our customer, which occurs when our customer receives the product and obtains legal title. At this point, our customers are able to direct the use of and obtain substantially all of the remaining benefits of the product. GTN Adjustments Wholesalers, GPOs and specialty pharmacies are initially invoiced at contract list prices. Wholesalers and GPOs may also receive prompt pay discounts for payment within a specified period, generally approximating two percent of the invoiced sales price. Our payment terms are generally 30 to 60 days. At the time of recognition, revenue is reduced from contract list price for estimates of variable consideration related to GTN adjustments for chargebacks and cash discounts, rebates, wholesaler and GPO fees, and copay assistance and returns. These GTN adjustments are attributed to governmental programs such as Medicare, Medicaid and the 340B program, which involve various pricing implications, including mandatory discounts and discounts when Medicare Part D beneficiaries are in the coverage gap. Chargebacks and specialty pharmacies fees are reflected as reductions to receivables and are typically settled within contractual terms through credits to our customers. All other GTN adjustments are reflected as a liability and settled through cash payments to our customer or government payor program, typically over various time periods that may span for multiple quarters. Significant judgment is required to estimate certain of our GTN adjustments, considering factors such as legal interpretations of applicable laws and regulations, historical experience, payor mix (e.g., Medicare or Medicaid), current contract prices under applicable programs, unbilled claims, processing time lags and inventory levels in the distribution channel. 77 Table of Conten t s The activities and ending reserve balances for each significant category of GTN adjustments on product sales, net, which constitute variable consideration, were as follows: (in thousands) Discounts and chargebacks Rebates, wholesaler and GPO fees Copay assistance and returns Total 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 Provisions 15,099 65,833 28,925 109,857 Credits/payments ( 13,934 ) ( 55,592 ) ( 21,671 ) ( 91,197 ) Balance as of December 31, 2024 $ 1,643 $ 14,475 $ 11,170 $ 27,288 Adjustments to prior period provisions recorded in the current period were not material. 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 revenues by geographic area is as follows: Year Ended December 31, (in thousands) 2024 2023 2022 United States (1) $ 319,196 $ 83,276 $ 15,600 International Asia Pacific (2) 14,341 41,121 36,527 North America (3) 78 59 31 Total revenues $ 333,615 $ 124,456 $ 52,158 (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 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. Gross product sales from Customers and revenues from collaboration partners, each accounting for more than 10% of total revenues, were as follows: Year Ended December 31, 2024 2023 2022 Customers BioRidge Pharma, LLC 75.4 % 24.0 % 3.2 % Cencora 16.4 % 19.1 % 11.1 % Cardinal Health 14.5 % 19.8 % 9.6 % McKesson Corporation 14.1 % 15.7 % 8.9 % Collaboration partners Kyowa Kirin 4.3 % 29.0 % 70.0 % NOTE 7. COLLABORATION AND LICENSING AGREEMENTS We out-licensed to external partners the development of tenapanor and commercialization of tenapanor through agreements with Kyowa Kirin in Japan, Fosun Pharma in China and Knight in Canada for the development and commercialization of tenapanor for certain indications in their respective territories. We recognize revenue from such arrangements as licensing revenue, product supply revenue or non-cash royalty revenue related to the sale of future royalties. Our significant accounting policies for such revenue streams are as follows: 78 Table of Conten t s Licensing revenue includes: • upfront license fees, as well as developmental, regulatory and commercialization milestone payments. We assess upfront and milestone payments using the most likely amount method, including variable payments only when it is probable that no significant revenue reversal will occur. Upfront license fees are recognized upon receipt. Milestones tied to external factors, such as regulatory approvals, are considered probable when those accomplishments are achieved. • sales-based royalties, other than non-cash royalty revenue related to the sale of future royalties as discussed below, are recognized when sales occur or when related performance obligations are met. Product supply revenue includes drug substance or drug supply revenue received from our out-licensing agreements. Product supply revenue is recognized when control of goods is transferred upon delivery. Advanced payments from partners for drug substance are recognized as deferred revenue until delivery. Non-cash royalty revenue related to the sale of future royalties includes royalties earned and received under the Kyowa Kirin Agreement, which are remitted to HCR upon receipt, pursuant to the HCR Agreement as discussed in Note 8. Deferred Royalty Obligation Related To The Sale Of Future Royalties . The following table summarizes total revenue by collaboration partner: Year Ended December 31, (in thousands) 2024 2023 2022 Licensing revenue Kyowa Kirin $ — $ 30,000 $ 35,000 Fosun Pharma — 5,000 — METiS — 750 — Knight 78 59 31 Total licensing revenue $ 78 $ 35,809 $ 35,031 Product supply revenue Kyowa Kirin 11,649 6,092 1,518 Fosun Pharma — 29 9 Total supply revenue $ 11,649 $ 6,121 $ 1,527 Non-cash royalty revenue related to the sale of future royalties Kyowa Kirin $ 2,692 $ — $ — Kyowa Kirin We granted Kyowa Kirin an exclusive license (Kyowa Kirin Agreement) to develop and commercialize certain NHE3 inhibitors including tenapanor in Japan for the treatment of cardiorenal diseases and conditions, excluding cancer, in exchange for future royalties defined below, an upfront license fee of $ 30.0 million, and potential future development and regulatory milestones up to $ 55.0 million, of which $ 35.0 million has been received and recognized as revenue to date, as well as approximately ¥ 8.5 billion for commercialization milestones, or approximately $ 54.0 million at the currency exchange rate on December 31, 2024. In addition, we are eligible to receive royalties on net sales of tenapanor in Japan throughout the term of the agreement. Under a Commercial Supply Agreement, we supply tenapanor drug substance that will be used to satisfy Kyowa Kirin’s commercial needs which includes advanced payments for reimbursement of costs plus a reasonable overhead for the supply of product. In February 2024, Kyowa Kirin announced the launch of tenapanor, marketed as PHOZEVEL ® , for patients with CKD with hyperphosphatemia in Japan. The Kyowa Kirin Agreement was amended to reduce the royalty rate Kyowa Kirin would pay on tenapanor sales in Japan from 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 (2022 Amendment). As consideration for 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 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. As discussed in Note 8. Deferred Royalty Obligation Related To The Sale Of Future Royalties , future royalties and commercial milestone payments we may receive under the license, as amended, will be remitted to HCR pursuant to the HCR Agreement. 79 Table of Conten t s The following table presents changes in our current and non-current deferred revenue balances, which are all attributable to Kyowa Kirin: 2024 2023 (in thousands) Current Non-Current Current Non-Current Balance at January 1, $ 7,182 $ 8,644 $ 4,211 $ 9,025 Prepaid product supply 3,716 8,212 1,547 5,629 Product supply delivered ( 9,836 ) — ( 4,586 ) — Reclassify amounts to be recognized in the next twelve months 9,624 ( 9,624 ) 6,010 ( 6,010 ) Balance at December 31, $ 10,686 $ 7,232 $ 7,182 $ 8,644 Fosun Pharma We have 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. The Fosun Agreement granted exclusive license rights to Fosun Pharma in exchange for an upfront license fee of $ 12.0 million, recognized upon execution of the agreement, and potential regulatory milestone payments up to $ 113.0 million, of which $ 8.0 million has been received and recognized to date. In addition, we are eligible to receive 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 %. Knight We have an exclusive license agreement with Knight (Knight Agreement) for the development, commercialization and distribution of tenapanor in Canada for hyperphosphatemia and IBS-C. The Knight Agreement granted exclusive license rights to Knight in exchange for an upfront license fee of $ 2.3 million, recognized upon execution, and potential regulatory and commercialization milestones up to CAD 22.2 million, or approximately $ 15.4 million at the currency exchange rate on December 31, 2024, of which $ 0.7 million has been received and recognized to date. In addition, we are 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 supply services. METiS We have an exclusive license agreement with METiS Therapeutics Inc., (METiS Agreement) for the development and commercialization of a portfolio of TGR5 agonist compounds that we discovered and developed for all therapeutic areas in exchange for an upfront license fee of $ 0.8 million, recognized upon execution in 2023. In addition, we may be eligible to receive 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. 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). Royalty expense recognized under this agreement as other cost of revenue on our statements of operations and comprehensive loss was $ 34.7 million, $ 12.4 million and $ 3.6 million in 2024, 2023 and 2022, respectively. As of December 31, 2024, we have recognized $ 62.3 million of the total $ 75.0 million outstanding royalty obligation. NOTE 8. DEFERRED ROYALTY OBLIGATION RELATED TO THE SALE OF FUTURE ROYALTIES In June 2022, we and HCR entered into the HCR Agreement in which HCR agreed to pay up to $ 20.0 million in exchange for royalty payments and commercial milestone payments that we may receive under our Kyowa Kirin License Agreement. See Note 7. Collaboration And Licensing Agreements for further detail. The $ 20.0 million is payable as follows: • $ 10.0 million upfront upon agreement execution, received in June 2022; • $ 5.0 million upon Kyowa Kirin’s receipt of regulatory approval to market tenapanor for hyperphosphatemia in Japan, received in October 2023; and 80 Table of Conten t s • $ 5.0 million in the event net sales by Kyowa Kirin in Japan exceed a certain annual target level by the end of 2025. The HCR Agreement is effective until terminated by the mutual agreement of the parties and contains customary representations and warranties and customary affirmative and negative covenants. Payments received from HCR are recorded as a deferred royalty obligation on our balance sheets. Due to our ongoing manufacturing obligations under the Kyowa Kirin Agreement, we account for the proceeds as imputed debt and therefore recognize royalties earned under the Kyowa Kirin Agreement as non-cash royalty revenue. In conjunction with the HCR Agreement, we incurred approximately $ 0.4 million in transaction costs, which, along with the deferred royalty obligation, are being amortized as non-cash interest expense over the estimated life of the HCR Agreement using the effective interest method, which is based on the imputed interest rate derived from estimated amounts and timing of future royalty payments to be received from Kyowa Kirin. The deferred royalty obligation will be effectively repaid over the life of the HCR Agreement as we remit royalties paid to us from Kyowa Kirin, recorded as non-cash royalty revenue related to the sale of future royalties, to HCR. 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. A summary of financial information related to the HCR Agreement is as follows: Year Ended December 31, ($ in thousands) 2024 2023 2022 Non-cash interest expense related to the sale of future royalties $ ( 7,088 ) $ ( 3,924 ) $ ( 1,673 ) Effective interest rate 31.0 % 34.7 % 34.4 % (in thousands) 2024 2023 2022 Beginning deferred royalty obligation $ 20,179 $ 11,254 $ — Upfront payment, net of transaction costs — — 9,581 Regulatory approval milestone — 5,000 — Non-cash interest expense related to sale of future royalties 7,088 3,924 1,673 Royalty distributed to HCR ( 1,740 ) — — Other — 1 — Ending deferred royalty obligation $ 25,527 $ 20,179 $ 11,254 NOTE 9. BORROWING Long-term borrowing was as follows: December 31, (in thousands) 2024 2023 Interest rate Principal Term A Loan $ 27,500 $ 27,500 7.95 % + 0.022 % + SOFR (subject to a floor of 1.0 %) Term B Loan 22,500 22,500 7.95 % + 0.022 % + SOFR (subject to a floor of 1.0 %) Term C Loan 50,000 — 4.25 % + 0.022 % + SOFR (subject to a floor of 4.7 %) Term D Loan 50,000 — 4.00 % + 0.022 % + SOFR (subject to a floor of 4.7 %) Total principal $ 150,000 $ 50,000 Adjustments to principal value Unamortized discount and debt issuance costs ( 1,136 ) ( 912 ) Accreted value of final fee 1,989 734 Total long-term debt 150,853 49,822 Less: Current portion of long-term debt — — Long-term debt, net of current portion $ 150,853 $ 49,822 On February 23, 2022 (Closing Date), we entered into a loan and security agreement with SLR (2022 Loan Agreement) as collateral agent (Agent) and the lenders listed in the 2022 Loan Agreement (collectively, the 2022 Lenders), which was subsequently amended in August 2022 (the First Amendment) and February 2023 (the Second Amendment). The 2022 Loan Agreement, as amended, provided for a senior secured loan facility (the Term A Loan) funded on the Closing Date and Term B Loan borrowable on or prior to December 20, 2023; provided that (i) we received approval by the U.S. FDA for our NDA for 81 Table of Conten t s XPHOZAH by November 30, 2023, and (ii) we achieved certain product revenue milestone targets described in the 2022 Loan Agreement. We met the requirements to borrow Term B Loan and subsequently drew it in October 2023. In October 2023, we entered into a Third Amendment (the Third Amendment) with the 2022 Lenders. The Third Amendment provided us with the option to draw the Term C Loan by March 15, 2024, contingent upon having drawn the Term B Loan; and provided us with the option to draw the Term D Loan of uncommitted capital by December 31, 2026, subject to approval by the Agent’s investment committee. We provided the Agent with notice of our decision to draw the Term C Loan in February 2024 and received the proceeds in March 2024. In October 2024, we entered into a Fourth Amendment (the Fourth Amendment) with the 2022 Lenders. The Fourth Amendment, among other things, provided for the immediate draw of the Term D Loan on the closing date of the Fourth Amendment and provides us with the option to draw an additional $ 50.0 million of committed capital by June 30, 2025 (the Term E Loan and together with the Term A, B, C and D Loans, the Five Loans). The interest rate for the Term E Loan will be 4.00 % 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 %. We drew the Term D Loan in October 2024. Under the Fourth Amendment, the maturity date for the Five Loans was extended to July 1, 2028 (the Maturity Date) and the period under which we are permitted to make interest-only payments on the Five Loans was extended to the Maturity Date. We paid fees of $ 0.2 million, $ 0.1 million, $ 0.3 million and $ 0.3 million on each funding date of the Term A, Term B, Term C and Term D Loans, respectively. In addition, we will be obligated to pay 0.5 % of the aggregate original principal amount of the Term E Loan commitment, which shall be due on the earliest of (1) the funding of the Term E Loan, (2) June 30, 2025, or (3) the prepayment, refinancing, substitution or replacement of any of the Five Loans on or prior to the date immediately preceding June 30, 2025. We are obligated to pay a final fee equal to 4.95 % of the aggregate original principal amount of the Five Loans, to the extent such loans are funded, upon the earliest to occur of the maturity date, the acceleration of the Five Loans, and the prepayment, refinancing, substitution, or replacement of the Five Loans. The total unaccreted final fee was $ 5.4 million and $ 1.7 million at December 31, 2024 and December 31, 2023, respectively. We may voluntarily prepay all amounts outstanding under the Five Loans, subject to a prepayment premium of 2 % of the outstanding principal amount of the Five Loans if prepaid through and including October 17, 2025 or 1 % of the outstanding principal amount of the Five Loans if prepaid after October 17, 2025 and prior to the maturity date. The Five 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 Term A and Term B Loans (Original Loans), we paid an exit fee in the amount of $ 1.0 million in October 2024. The 2022 Loan Agreement, as amended, contains customary representations and warranties that place restrictions on disposition of assets, granting liens, occurring additional debt and other matters, as well as customary events of default. We have agreed to not allow our cash, cash equivalents and available-for-sale investments to be less than the eighty percent ( 80 %) of the outstanding balance of the Five Loans 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 balance of the Five Loans. We have concluded that the provisions that could cause acceleration of the principal repayment are remote as of December 31, 2024. As of December 31, 2024, our total future payment obligation related to the outstanding balance of the Five Loans, excluding interest payments, was $ 157.4 million, which is due on July 1, 2028. NOTE 10. DERIVATIVE LIABILITIES 2018 Exit Fee In October 2023, 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. In connection with a previous loan agreement (2018 Loan), we became obligated to pay an exit fee of $ 1.5 million, which was paid in 2023. 2022 Exit Fee The 2022 Loan Agreement obligated us to pay an exit fee in the amount of 2 % of the Original Loans 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 82 Table of Conten t s greater than $ 100.0 million, measured on a six (6) months basis (Revenue Milestone), tested monthly at the end of each month. The 2022 Exit Fee was accounted for as a freestanding derivative and recorded at fair value. The estimated fair value of the 2022 Exit Fee of $ 0.7 million was recorded as a derivative liability and included in accrued expenses and other current liabilities at December 31, 2023. The Revenue Milestone was achieved in the second quarter of 2024, resulting in a $ 1.0 million payment in October 2024 to settle the obligation. The Term C and Term D Loans do not contain an exit fee obligation. The fair value of the derivative liability 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 prior to June 30, 2024. Specifically, the key assumptions included in the calculation of the estimated fair value of the 2022 Exit Fee derivative liability included: (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 all of the noted valuation estimates had been removed, as the Term B Loan had been funded, 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, and we had achieved the Revenue Milestone. Changes in the fair value of recurring measurements are presented as other income, net in our statements of operations and comprehensive loss and were as follows: (in thousands) 2024 2023 January 1, $ 675 $ 1,656 Changes in estimated fair value 2018 Exit Fee — 292 2022 Exit Fee 325 227 2018 Exit Fee payment — ( 1,500 ) 2022 Exit Fee payment ( 1,000 ) — Fair value of exit fee derivative liabilities at December 31, $ — $ 675 NOTE 11. LEASES Our lease obligation is comprised of operating leases for our offices and research facilities with remaining lease terms ranging from two months to four years and each containing customary rent escalation clauses. Our leases contain one renewal, at our option, which is generally for a five-year period. We have not included these renewal periods in the calculation of the right-of-use asset and lease liability since it is uncertain whether we will exercise the renewal option. Our leased offices and research facilities in Fremont, California expired on February 10, 2025 and our sub-lease agreement for office space at that facility, entered into with Chronus Health in 2023 expired on February 1, 2025. 83 Table of Conten t s The following table provides additional details of our facility leases presented in our balance sheets: ($ in thousands) December 31, Facilities 2024 2023 Right-of-use assets $ 2,380 $ 5,589 Current portion of lease liabilities 1,562 4,435 Operating lease liability, net of current portion 1,023 1,725 Total lease liabilities $ 2,585 $ 6,160 Weighted-average remaining term (in years) 1.8 1.6 Weighted-average discount rate 6.5 % 6.8 % The lease costs, which are included in operating expenses in our statements of operations and comprehensive loss, were as follows: Year Ended December 31, (in thousands) 2024 2023 2022 Operating lease expense $ 4,699 $ 3,857 $ 4,257 Cash paid for operating leases $ 4,931 $ 4,481 $ 4,292 The following table summarizes our undiscounted cash payment obligations for our operating lease liabilities as of December 31, 2024: (in thousands) Operating Leases 2025 $ 1,660 2026 702 2027 238 2028 124 Thereafter 21 Total undiscounted operating lease payments 2,745 Imputed interest expenses ( 160 ) Total operating lease liabilities 2,585 Less: Current portion of operating lease liability ( 1,562 ) Operating lease liability, net of current portion $ 1,023 NOTE 12. STOCKHOLDERS’ EQUITY Under a registration statement filed in 2020, we had the ability to sell up to $ 150.0 million of our common stock through Jefferies, as our sales agent. As of March 2023, we had received the maximum gross proceeds of $ 150.0 million at a weighted average share price of approximately $ 1.57 . In January 2023, we filed a registration statement on Form S-3, which became effective in January 2023, 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. As of December 31, 2024, we have completed sales pursuant to the 2023 Open Market Sales Agreement resulting in the issuance of 16.8 million shares of our common stock and receipt of gross proceeds of $ 70.0 million at a weighted average sales price of approximately $ 4.17 . 84 Table of Conten t s NOTE 13. EQUITY INCENTIVE PLANS 2008 Plan The 2008 Stock Incentive Plan (2008 Plan), which governed the granting of stock options, stock purchase rights and other equity awards, was terminated in June 2014 for future awards. When the 2014 Equity Incentive Award Plan (2014 Plan) was approved by the board of directors and stockholders on June 18, 2014, all remaining shares available for future award under the 2008 Plan were transferred to the 2014 Plan, as discussed below. 2014 Plan The 2014 Equity Incentive Plan (2014 Plan), effective on June 18, 2014, provided for the stock-based compensation awards, including stock options, stock appreciation rights, restricted stock, service-based RSUs, performance-based RSUs, deferred stock, deferred stock units, dividend equivalents, stock payments and performance awards. The 2014 Plan initially reserved 1.5 million shares, including the 35 thousand shares remaining for future awards under the 2008 Plan, with up to 1.2 million additional shares which could be added from forfeited or lapsed awards from the 2008 Plan. The 2014 Plan allowed for an annual increase in the number of shares available for issuance on the first day of each year through 2024, equal to the lesser of four percent ( 4.0 %) of our outstanding common stock on the last day of the immediately preceding year or a smaller amount determined by the board of directors (2014 Plan evergreen provision). On June 14, 2024, stockholders approved the Amended and Restated 2014 Equity Incentive Award Plan (2014 A&R Plan). The key provisions pursuant to the 2014 A&R Plan include: (1) 19.0 million shares were added to the total existing share reserve; (2) the 2014 Plan evergreen provision was removed such that any increase to the total number of shares that may be issued must be approved by our stockholders; and (3) the limit of shares that may be issued upon exercise of incentive stock options was increased from 10.7 million to 58.5 million shares. In addition to increases resulting from repurchases, forfeitures, expirations and cancellations of awards under the 2008 Plan, shares reserved for issuance under the 2014 A&R Plan will be increased by the number of shares subject to awards granted under the Inducement Plan, as discussed below, that are repurchased, forfeited, expire or are cancelled on or after June 14, 2024. As a result, no new awards will be made under the Inducement Plan after June 14, 2024. As of December 31, 2024, approximately 18.1 million shares of our common stock were available for future issuance under the 2014 A&R 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, 2024, 8.8 million shares of our common stock were subject to inducement grants that were issued pursuant to the Inducement Plan. As of December 31, 2024, approximately 3.9 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, 2024 is as follows: Options Issued and Outstanding Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Number of Shares (in thousands) Weighted-Average Exercise Price per Share Balance at December 31, 2023 22,168 $ 4.20 Options granted 9,674 $ 7.95 Options exercised ( 2,654 ) $ 2.24 Options canceled ( 1,103 ) $ 5.35 Balance at December 31, 2024 28,085 $ 5.63 7.1 $ 31,830 Vested and expected to vest at December 31, 2024 28,085 $ 5.63 7.1 $ 31,830 Exercisable at December 31, 2024 14,968 $ 5.52 5.7 $ 19,161 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, 2024, based on our common stock closing price of $ 5.07 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. 85 Table of Conten t s The intrinsic value of options exercised during the years ended December 31, 2024, 2023 and 2022 was $ 19.6 million, $ 1.1 million and $ 30 thousand, respectively. The total fair value of options vested during the years ended December 31, 2024, 2023 and 2022 was $ 61.0 million, $ 24.9 million and $ 7.0 million, respectively. The weighted-average grant-date estimated fair value of options granted during the years ended December 31, 2024, 2023 and 2022 was $ 6.22 , $ 2.36 and $ 0.63 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, 2024 2023 2022 Expected term (in years) 5.4 5.1 4.9 Expected volatility 100.8 % 97.6 % 92.1 % Risk-free interest rate 4.0 % 3.8 % 2.2 % Dividend yield — % — % — % Expected Term —We estimate the expected term of our options based upon historical exercises and post-vesting termination behavior. Expected Volatility —We use the historic volatility of our own stock over the retrospective period corresponding to the expected remaining term of the options, or the period since our shares were first quoted on The Nasdaq Global Market, if that is shorter, to compute our expected stock price volatility. Risk-Free Interest Rate —The risk-free interest rate assumption is based on 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, 2024 is as follows: Number of RSUs (in thousands) Weighted-Average Grant Date Fair Value Per Share Non-vested restricted stock units at December 31, 2023 3,646 $ 3.09 Granted 7,382 $ 7.94 Vested ( 2,430 ) $ 5.65 Forfeited ( 585 ) $ 5.68 Non-vested restricted stock units at December 31, 2024 8,013 $ 6.59 The total estimated fair value of RSUs vested during the years ended December 31, 2024, 2023 and 2022 was $ 16.4 million, $ 3.5 million and $ 2.6 million, respectively. Issuance of Common Stock for Services During the years ended December 31, 2024, 2023 and 2022, we issued approximately 41 thousand, 0.1 million and 0.7 million shares, respectively, of common stock to members of the board of directors who elected to receive stock in lieu of their cash fees under our Non-Employee Director Compensation Program. The shares issued during the years ended December 31, 2024, 2023 and 2022 were valued at $ 0.3 million, $ 0.3 million and $ 0.4 million, respectively, based on the fair value of the common stock on the date of grant. Employee Stock Purchase Plan The 2014 ESPP, effective on June 18, 2014, initially reserved approximately 0.2 million shares of common stock for our eligible employees to purchase shares of our common stock at a discount. If approved by the administrator of the ESPP, on the first day of each calendar year through 2024, the number of shares in the reserve increased 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 86 Table of Conten t s (ii) such number of shares of common stock as determined by the board of directors (2014 ESPP evergreen provision); provided, however, no more than 2.2 million shares of our common stock could be issued under the ESPP. On June 14, 2024, stockholders approved the Amended and Restated 2014 ESPP (A&R ESPP). The key provisions pursuant to the A&R ESPP include: (1) 3.0 million shares were added to the total existing share reserve and (2) the 2014 ESPP evergreen provision was eliminated and no evergreen increases will be made after June 14, 2024. During the years ended December 31, 2024, 2023 and 2022, we issued approximately 0.5 million, 0.4 million and 0.3 million shares, respectively, at an average share price of $ 4.64 , $ 1.85 and $ 0.63 , respectively, pursuant to the ESPP. As of December 31, 2024, approximately 3.7 million shares of our common stock were available for future issuance under the A&R 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, 2024 2023 2022 Expected term (in years) 0.5 0.5 0.5 Expected volatility 82.8 % 86.0 % 97.2 % Risk-free interest rate 5.0 % 5.3 % 1.9 % Dividend yield — % — % — % Stock-based Compensation Expense Stock-based compensation expense recognized for stock options, RSUs and our ESPP is recorded as operating expenses in our statements of operations and comprehensive loss, as follows: Year Ended December 31, (in thousands) 2024 2023 2022 Selling, general and administrative $ 27,791 $ 9,952 $ 7,525 Research and development 9,590 3,578 3,225 Total $ 37,381 $ 13,530 $ 10,750 A summary of our total unrecognized stock-based compensation expense, net of estimated forfeitures, as of December 31, 2024 is as follows: December 31, 2024 Unrecognized Compensation Expense (in thousands) Average Remaining Vesting Period (in years) Stock option grants $ 55,610 2.71 RSU grants $ 49,930 2.96 ESPP $ 162 0.1 NOTE 14. PROPERTY AND EQUIPMENT, NET Property and equipment consisted of the following: December 31, (in thousands) 2024 2023 Laboratory equipment $ 46 $ 46 Office equipment and furniture 2,923 2,433 Leasehold improvements 9,144 8,731 Property and equipment, gross 12,113 11,210 Less: Accumulated depreciation ( 10,618 ) ( 10,201 ) Total property and equipment, net $ 1,495 $ 1,009 87 Table of Conten t s We recognized depreciation expense in the amount of $ 0.5 million, $ 0.6 million and $ 0.7 million in 2024, 2023 and 2022, respectively. NOTE 15. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consisted of the following: December 31, (in thousands) 2024 2023 Accrued payments due to AstraZeneca $ 12,077 $ 3,680 Accrued gross to net revenue liabilities 10,112 3,258 Accrued sales and marketing expenses 3,696 3,223 Other 8,757 4,880 Total accrued expenses and other current liabilities $ 34,642 $ 15,041 NOTE 16. INCOME TAXES The components of our provision for income taxes were as follows: Year Ended December 31, (in thousands) 2024 2023 2022 Current State $ 266 $ 47 $ 8 Foreign — 500 — Total current 266 547 8 Deferred Federal — — — Total deferred — — — Provision for income taxes $ 266 $ 547 $ 8 A reconciliation of the statutory federal income tax rate to our effective tax rate is as follows: Year Ended December 31, 2024 2023 2022 Income tax at the federal statutory rate 21.0 % 21.0 % 21.0 % State taxes, net of federal benefit 4.0 3.4 1.9 Tax credits 0.6 1.7 1.5 Stock based compensation 5.2 0.1 ( 2.3 ) Foreign withholding tax — ( 0.8 ) — Executive compensation disallowed under IRC Sec 162(m) ( 5.8 ) ( 1.9 ) ( 1.6 ) Other ( 0.6 ) — ( 0.8 ) Change in valuation allowance ( 25.0 ) ( 24.3 ) ( 19.7 ) Effective tax rate ( 0.6 ) % ( 0.8 ) % — % 88 Table of Conten t s Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their income tax bases, as well as from net operating loss and tax credit carryforwards. Significant components of our deferred tax assets were as follows: December 31, (in thousands) 2024 2023 Deferred tax assets Amortization and depreciation $ 64,237 $ 64,919 Net operating loss carryforwards 103,643 98,702 Tax credits 15,529 15,375 Stock-based compensation 11,226 6,946 Deferred royalty obligation 6,409 4,907 Other 8,122 6,707 Deferred tax assets 209,166 197,556 Valuation allowance ( 208,568 ) ( 196,197 ) Deferred tax assets net of valuation allowance 598 1,359 Deferred tax liabilities Right-of-use asset ( 598 ) ( 1,359 ) Deferred tax liabilities ( 598 ) ( 1,359 ) Net deferred taxes $ — $ — 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, 2024. 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, 2024, 2023 and 2022, a full valuation allowance has been recorded against our deferred tax assets. The valuation allowance increased by $ 12.4 million in 2024 primarily attributable to net operating loss carryforwards and stock-based compensation. The amount of the deferred tax assets considered realizable could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased, or if objective negative evidence, such as cumulative losses, are no longer present. In such cases, additional weight may be given to subjective evidence, such as our projections for growth. As of December 31, 2024, we had net operating loss carryforwards for federal income tax purposes of approximately $ 495.0 million, of which approximately $ 344.8 million can be carried forward indefinitely and the remaining net operating losses begin to expire in 2030, if not utilized. We had approximately $ 17.8 million of federal research and development tax credit carryforwards and approximately $ 1.7 million of foreign tax credit carryforwards that begin to expire in 2027, if not utilized. In addition, we had net operating loss carryforwards for California income tax purposes of approximately $ 94.7 million that begin to expire in 2030, if not utilized, and state research and development tax credit carryforwards of approximately $ 9.2 million that do not expire. We had approximately $ 0.1 million of minimum tax credit carryovers for California income tax purposes that do not expire. We had other state net operating losses of approximately $ 64.0 million that begin to expire in 2031. The future utilization of net operating loss and tax credit carryforwards 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. Effective January 1, 2022, research and development expenses are required to be capitalized and amortized for U.S. tax purposes. 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 capitalize research and development expenses for tax purposes. 89 Table of Conten t s A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: December 31, (in thousands) 2024 2023 2022 Balance at beginning of year $ 23,625 $ 24,075 $ 24,426 Additions based on tax positions related to current year 105 262 460 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 $ 22,919 $ 23,625 $ 24,075 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, 2024, 2023 and 2022, 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. NOTE 17. SEGMENT REPORTING We operate in a single reportable segment with a mission to discover, develop and commercialize innovative, first-in-class medicines that meet significant unmet medical needs. A centralized research and development organization, supply chain organization and commercial organization are all responsible for the discovery, development, manufacturing, supply and sale of our products. Our business is also supported by centralized corporate functions. We currently operate primarily in the U.S. and earn revenues from sales of IBSRELA and XPHOZAH, both branded products derived from tenapanor, a molecule developed from our unique and innovative platform. Licensing agreements with international partners are utilized for development and commercialization activities outside the U.S. Currently, we maintain such agreements for certain indications of tenapanor in Japan (Kyowa Kirin), China (Fosun Pharma) and Canada (Knight). Refer to Note 7. Collaboration And Licensing Agreements for further detail. We recognize other revenue in the form of product supply revenue and licensing revenue under the Kyowa Kirin and Knight agreements. Revenue streams associated with the Kyowa Kirin Agreement are subject to a separate agreement where such future royalties and commercial milestones were sold to a third-party. Refer to Note 8. Deferred Royalty Obligation Related To The Sale Of Future Royalties for further information. Our Chief Executive Officer (CEO) is our Chief Operating Decision Maker (CODM), responsible for allocating resources and assessing Company performance using aggregated financial information. Utilizing aggregated financial information enables the CODM to determine the most appropriate resource allocation across the commercial organization, research and development projects or other initiatives consistent with our long-term corporate wide strategic goals. The CODM primarily uses aggregated net loss as reported on the statements of operations and comprehensive loss to measure segment loss, supplemented by certain additional significant expense details reflected in the table below. 90 Table of Conten t s Detailed information regarding our single operating segment’s significant revenues, expenses and operating loss are as follows: Year Ended December 31, (in thousands) 2024 2023 2022 Revenues Product sales, net $ 319,196 $ 82,526 $ 15,600 Other revenues (1) 14,419 41,930 36,558 Total revenues 333,615 124,456 52,158 Less: Cost of product sales 6,851 2,323 566 Other cost of revenue 43,705 15,472 3,551 Total cost of goods sold 50,556 17,795 4,117 Research and development (2) 39,480 29,231 28,777 Selling expenses (2) 162,957 80,028 10,750 General and administrative expenses (2) 52,916 34,020 34,895 Stock-based compensation 37,381 13,530 25,144 Other segment expenses (3) 18,275 13,128 12,234 Total operating expenses 311,009 169,937 111,800 Segment and consolidated loss from operations ( 27,950 ) ( 63,276 ) ( 63,759 ) Other reconciliation items (4) ( 11,186 ) ( 2,791 ) ( 3,448 ) Segment and consolidated net loss $ ( 39,136 ) $ ( 66,067 ) $ ( 67,207 ) (1) “Other revenues” includes revenues from our collaboration partnerships, including license fees, milestone payments, product supply revenue and non-cash royalty revenue related to the sale of future royalties. (2) Research and development, selling and general administrative expenses herein do not include certain allocated items, such as stock-based compensation expenses. (3) “Other segment expenses” primarily consists of allocated facilities, information technology, and employee costs of approximately $ 16.9 million,$ 12.3 million and $ 11.4 million in 2024, 2023 and 2022, respectively. (4) “Other reconciliation items” includes interest expense, non-cash interest expense related to the sale of future royalties, provision for income taxes and other income, net. NOTE 18. 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, 2024, 2023 and 2022, all potential common shares were determined to be anti-dilutive. The following table sets forth the computation of net loss per common share: Year Ended December 31, (in thousands, except per share amounts) 2024 2023 2022 Numerator: Net loss $ ( 39,136 ) $ ( 66,067 ) $ ( 67,207 ) Denominator: Weighted average common shares outstanding - basic and diluted 235,233 219,331 158,690 Net loss per share of common stock - basic and diluted $ ( 0.17 ) $ ( 0.30 ) $ ( 0.42 ) 91 Table of Conten t s 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: Year Ended December 31, (in thousands) 2024 2023 2022 Options to purchase common stock 27,800 20,877 13,522 Restricted stock units 7,883 3,086 2,694 ESPP shares issuable 230 249 166 Total 35,913 24,212 16,382 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, 2024, 2023 and 2022, was approximately 9.2 million, 6.3 million and 0.6 million, respectively. NOTE 19. 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 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 (the Exchange Act), 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 a second amended complaint under which 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 March 22, 2024, the court granted defendants’ motion to dismiss. The court provided plaintiffs a third opportunity to amend and plaintiffs filed a third amended complaint on April 19, 2024. Defendants filed a motion to dismiss the third amended complaint on June 3, 2024. The case was dismissed with prejudice on September 12, 2024. On October 9, 2024, plaintiff appealed the District Court’s dismissal of the case to the Ninth Circuit. We believe the plaintiffs’ claims are without merit. 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. The consolidated case remains stayed pending resolution of the appeal in the Securities Class Action. We believe the plaintiffs’ claims are without merit. 92 Table of Conten t s On July 17, 2024, in partnership with the AAKP and the NMQF, we filed a lawsuit in the U.S. District Court for the District of Columbia against the CMS, claiming that CMS has violated its statutory and regulatory authority under the MIPPA, which established the ESRD PPS bundled payment system for dialysis services in 2008. Specifically, the lawsuit claims that CMS’s plan to move XPHOZAH, along with all oral-only drugs, into the ESRD PPS is inconsistent with MIPPA’s statutory provision, and contradicts CMS’s own regulations. XPHOZAH and other oral-only drugs, which are currently available to patients under Medicare Part D, are not administered by dialysis providers and cannot be taken during the delivery of maintenance dialysis. The Company, AAKP and NMQF are seeking relief under the Administrative Procedure Act to enjoin CMS from proceeding with its plan to include XPHOZAH in the ESRD PPS and eliminate coverage under Medicare Part D beginning on January 1, 2025. On November 8, 2024, the U.S. District Court for the District of Columbia granted defendants’ Motion to Dismiss and denied plaintiffs Motion for Preliminary Injunction, or in the Alternative, for Expedited Summary Judgment. Following the District Court’s denial of plaintiffs’ Motion to Alter or Amend the Judgment, or in the Alternative, for an Injunction Pending Appeal, plaintiffs filed an Emergency Motion for an Administrative Stay and Injunction Pending Appeal, which was denied by the United States Court of Appeals for the District of Columbia Circuit. Appellants filed a brief in the appeal on February 4, 2025, and Appellee’s brief is due March 6, 2025. Final briefs in the appeal are currently expected to be filed on April 10, 2025. On August 16, 2024, a complaint was filed against us in the U.S. District Court of Massachusetts, captioned Yarborough v. Ardelyx, Inc., et al., No. 24-cv-12119 (D. Mass.). The complaint names the Company, Mike Raab, and Justin Renz as defendants and alleges violations of Sections 10(b) and 20(a) the Exchange Act and Rule 10b-5 promulgated thereunder, related to the our announcement on July 2, 2024 that it had chosen not to file an application for Transitional Drug Add-on Payment Adjustment for XPHOZAH (the “Yarborough Action”). The plaintiffs seek damages and interest, and an award of costs, including attorneys’ fees. Two shareholders filed motions to be appointed lead plaintiff in the Yarborough Action on October 15, 2024. The Court appointed Tate Wood as lead plaintiff on October 30, 2024. Lead Plaintiff filed an amended complaint on January 13, 2025, alleging violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder related to our announcement on July 2, 2024 regarding TDAPA. Lead Plaintiff purports to bring claims on behalf of all those who acquired Ardelyx common stock between February 23, 2024 and July 1, 2024. Defendants’ motion to dismiss the amended complaint is due March 14, 2025. We believe the plaintiff’s claims are without merit. On September 6 and 13, 2024, certain Ardelyx shareholders filed two verified derivative complaints purportedly on behalf of the Company in the United States District Court for the District of Massachusetts alleging violations of Sections 10(b) and/or 14(a) of the Exchange Act, breaches of fiduciary duty, unjust enrichment, waste, and aiding and abetting breaches of fiduciary duty against certain members of our board of directors and management based on substantially the same factual allegations in the Yarborough Action. The complaints seek unspecified damages and corporate governance reforms, as well as costs and attorneys’ fees. On September 25, 2024, the Court consolidated the two derivative actions into the case In re Ardelyx, Inc. Stockholder Derivative Litigation, Case No. 1:24-cv-12302-LTS (D. Mass.). On November 7, 2024, the Court stayed the consolidated derivative action pending resolution of any and all motion(s) to dismiss in the Yarborough Action. We believe the plaintiffs’ claims are without merit. From time to time, we may be involved in legal proceedings arising in the ordinary course of business. As of December 31, 2024, there is no litigation pending that would reasonably be expected to have a material adverse effect on our results of operations and financial condition. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.