What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-01 compared with 2020-02-24 · 185 added, 107 removed, 190 unchanged (61% of the section changed)

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The following discussion should be read in conjunction with our audited Consolidated Financial Statements, including the notes thereto.

We are a biopharmaceutical company headquartered in San Diego, California, focused on identifying, developing and delivering life-changing therapies to people living with rare diseases.

We are a biopharmaceutical company headquartered in San Diego, California, focused on identifying, developing and delivering life-changing therapies to people living with rare kidney, liver, and metabolic diseases.

Uncertainty Related to the COVID-19 Pandemic

While the impact of the ongoing COVID-19 pandemic did not have a material adverse effect on our financial position or results of operations for the year ended December 31, 2020, we have been monitoring the developments and assessing areas where there is potential for our business to be impacted.

Our labor force is currently working remotely, which could, among other things, negatively impact our ability to conduct research and development activities, engage in sales-related initiatives, or efficiently conduct day-to-day operations, and we are aware that other businesses with which we engage are likely operating under similar restrictions and experiencing disruptions in their own operations, which may create obstacles in the coordination of business activities.

Circumstances arising from the pandemic have slowed and could continue to slow the pace of enrollment in our clinical trials or otherwise hinder patients' abilities to comply with the clinical trial protocols and could ultimately delay the availability of results and analysis of outcomes.

Disruptions in the supply chain could negatively impact our ability to source materials or manufacture and distribute product.

While we do not currently anticipate a material reduction in demand for our commercialized products, we could experience a decrease in new patient identification and increased requests for patient assistance due to increased levels of unemployment, either of which would negatively impact our revenues and hinder our cash flows.

Similarly, we could face challenges with regard to healthcare programs, including access and changes in coverage.

Growth in revenue could also be impeded by these factors.

The financial markets have been subject to significant volatility that could impact our ability to enter into, modify, and negotiate favorable terms and conditions relative to equity and debt financing activities.

We had $361.6 million in cash and cash equivalents and available-for-sale securities as of December 31, 2020, which does not take into account $189.0 million in net proceeds we received in February 2021 pursuant to an underwritten public offering, which we believe provides sufficient capital to fund our operations for at least the next twelve months.

While we have not yet experienced a material impact to date, the full magnitude of the pandemic cannot be measured at this time, and therefore any of the aforementioned circumstances, as well as other factors, may cause our results of operations to vary substantially from year to year and quarter to quarter.

Acquisition of Orphan Technologies Limited

On November 12, 2020, we completed the acquisition of Orphan Technologies Limited (“Orphan”), which included Orphan’s rare metabolic disorder drug OT-58, which we refer to internally as TVT-058.

We acquired Orphan by purchasing all of the outstanding shares.

In exchange for the shares, we made an upfront cash payment at closing of $90.0 million plus closing adjustments, net liabilities assumed, and transaction expenses of $1.2 million, $1.8 million, and $4.2 million, respectively.

Under the Agreement, we have also agreed to make contingent cash payments up to an aggregate of $427.0 million based on the achievement of certain development, regulatory and commercialization events as set forth in the Agreement, as well as additional tiered mid-single digit royalty payments based upon future net sales of any TVT-058 products in the US and Europe, subject to certain reductions as set forth in the Agreement, and a contingent payment in the event a pediatric rare disease voucher for any TVT-058 product is granted.

Research and Development

Sparsentan, also known as RE-021, is an investigational product candidate with a dual mechanism of action, a selective endothelin receptor antagonist (“ERA”), with in vitro selectivity toward endothelin receptor type A and a potent angiotensin receptor blocker (“ARB”).

Sparsentan is currently being evaluated in two pivotal Phase 3 clinical studies in the following indications:

Focal segmental glomerulosclerosis ("FSGS") , a leading cause of end-stage renal disease and nephrotic syndrome ("NS").

There are currently no United States Food and Drug Administration ("FDA") approved pharmacologic treatments for FSGS and off-label treatments are limited to ACE/ARBs, steroids, and immunosuppressant agents, which are effective in only a subset of patients.

Every year approximately 5,400 patients are diagnosed with FSGS and we estimate that there are approximately 40,000 FSGS patients in the United States and a similar number in Europe with approximately half of them being candidates for sparsentan.

Sparsentan has orphan drug designation in the United States and European Union.

Sparsentan, also known as RE-021, is a novel investigational product candidate with a dual mechanism of action, a selective endothelin receptor antagonist (“ERA”), with in vitro selectivity toward endothelin receptor type A and a potent angiotensin receptor blocker (“ARB”), in a single molecule.

Sparsentan is currently being evaluated in two pivotal Phase 3 clinical studies in rare kidney diseases, including:

• Focal segmental glomerulosclerosis ("FSGS") , a leading cause of end-stage kidney disease (ESKD) and nephrotic syndrome.

There are currently no United States Food and Drug Administration ("FDA") approved pharmacologic treatments for FSGS and there remains a high unmet need for patients living with FSGS as off-label treatments such as ACE/ARBs, steroids, and immunosuppressant agents are effective in only a subset of patients and use of some of these off-label treatments may be further inhibited by their safety profiles.

Every year approximately 5,400 patients are diagnosed with FSGS and we estimate that there are more than 40,000 FSGS patients in the United States and a similar number in Europe with approximately half of them being candidates for sparsentan.

Sparsentan has orphan drug designation for FSGS in the United States and European Union.

In 2016, we generated positive data from our Phase 2 DUET study in FSGS.

In 2018, we announced the initiation of the Phase 3 DUPLEX study of sparsentan in FSGS.

The Company continues to enroll patients with FSGS in the pivotal Phase 3 DUPLEX Study, a global, randomized, multicenter, double-blind, parallel-arm, active-controlled clinical trial evaluating the safety and efficacy of sparsentan in approximately 300 patients.

The DUPLEX Study protocol provides for an unblinded analysis of at least 190 patients to be performed after 36 weeks of treatment to evaluate the interim efficacy endpoint - the proportion of patients achieving a FSGS partial remission of proteinuria endpoint (FPRE), which is defined as urine protein-to-creatinine ratio (Up/C) ≤1.5 g/g and a >40 percent reduction in Up/C from baseline, at week 36.

While the confirmatory endpoint of the study is the change in slope of estimated glomerular filtration rate (eGFR) after 108 weeks of treatment, successful achievement of the interim 36-week proteinuria endpoint is expected to serve as the basis for submission of a New Drug Application (NDA) under the Subpart H accelerated approval pathway in the U.S.

and Conditional Marketing Authorization ("CMA") consideration in Europe.

Top-line data from the interim analysis are expected to become available in the first half of 2021.

The DUPLEX Study is a global, randomized, multicenter, double-blind, parallel-arm, active-controlled clinical trial evaluating the safety and efficacy of sparsentan in 371 patients.

The DUPLEX Study protocol provided for an unblinded analysis of at least 190 patients to be performed after 36 weeks of treatment to evaluate the interim efficacy endpoint - the proportion of patients achieving a FSGS partial remission of proteinuria endpoint (FPRE), which is defined as urine protein-to-creatinine ratio (Up/C) ≤1.5 g/g and a >40% reduction in Up/C from baseline, at week 36.

In February 2021, we announced that the ongoing Phase 3 DUPLEX Study achieved its pre-specified interim FSGS partial remission of proteinuria endpoint following the 36-week interim period.

After 36 weeks of treatment, 42.0 percent of patients receiving sparsentan achieved FPRE, compared to 26.0 percent of irbesartan-treated patients (p=0.0094).

A preliminary review of the results from the interim analysis suggest that to date in the study, sparsentan has been generally well-tolerated and the overall safety results in the study to date have been generally comparable between treatment groups.

The confirmatory primary endpoint of the DUPLEX Study to support full regulatory approval is the rate of change in eGFR over 108 weeks of treatment.

As of the time of the interim analyses, available long-term eGFR data for the confirmatory endpoint were limited.

Consistent with the DUPLEX Study protocol, patients will continue in a blinded manner to assess the treatment effect on eGFR slope over 108 weeks in the confirmatory endpoint analysis.

The DUPLEX Study is fully enrolled and topline results from the confirmatory endpoint are expected in the first half of 2023.

Based on the data from the interim analysis, we intend to pursue submissions for accelerated approval of sparsentan for FSGS under the Subpart H regulatory pathway in the United States and pursuant to Conditional Marketing Authorization ("CMA") in Europe.

During the first half of 2021, we plan to have a pre-NDA meeting with the U.S.

Food and Drug Administration ("FDA"), and to initiate corresponding interactions with the European Medicines Agency ("EMA"), to discuss the ongoing study and to establish next steps for filing with the available data set.

• Immunoglobulin A nephropathy ("IgAN") is characterized by hematuria, proteinuria, and variable rates of progressive renal failure.

With an estimated prevalence of more than 100,000 people in the United States and greater numbers in Europe and Asia, IgAN is the most common primary glomerular disease.

Most patients are diagnosed between the ages of 16 and 35, with up to 40% progressing to end stage renal disease within 15 years.

Most patients are diagnosed between the ages of 16 and 35, with up to 40% progressing to end stage kidney disease within 15 years.

There are currently no FDA approved treatments for IgAN.

The current standard of care is renin-angiotensin-aldosterone system ("RAAS") blockade with immunosuppression also being commonly used for patients with significant proteinuria or rapidly progressive glomerulonephritis.

In 2018, we announced that the first patient had been dosed in the PROTECT Study, a global, pivotal Phase 3 clinical trial evaluating the long-term nephroprotective potential of sparsentan for the treatment of IgAN.

The PROTECT Study, a global, randomized, multicenter, double-blind, parallel-arm, active-controlled pivotal Phase 3 clinical trial evaluating the safety and efficacy of sparsentan in approximately 280 patients with IgAN, continues to enroll.

The primary efficacy endpoint in the PROTECT Study is the change in proteinuria (urine protein-to-creatinine ratio) from baseline after 36 weeks of treatment.

Successful achievement of this endpoint is expected to support submission of an NDA under the Subpart H accelerated approval pathway in the U.S., as well as an application for CMA consideration in Europe.

Secondary efficacy endpoints include change in eGFR from baseline to four weeks post-cessation of randomized treatment, as well as the rate of change in eGFR over 52-week and 104-week periods following the first six weeks of randomized treatment.

Top-line data from the primary endpoint are expected to become available in the first half of 2022.

In January 2020, we randomized the first patients in a Phase 3 clinical trial to evaluate the effects of Chenodal in adult and pediatric patients with cerebrotendinous xanthomatosis (“CTX”).

The pivotal study, known as the RESTORE study, is intended to support a new drug application (“NDA”) submission for marketing authorization of Chenodal for CTX in the United States.

Chenodal has also been the standard of care for CTX patients for more than three decades but is not currently labeled for this indication.

Cooperative Research and Development Agreements ("CRADAs"):

The Company is a participant in two CRADAs, which form a multi-stakeholder approach to pool resources with leading experts, and incorporates the patient perspective early in the identification and development process.

Retrophin has partnered with the National Institutes of Health’s National Center for Advancing Translational Sciences ("NCATS") and leading patient advocacy organizations, NGLY1.org and Alagille Syndrome Alliance ("ALGSA"), aimed at the identification of potential small molecule therapeutics for NGLY1 deficiency and Alagille syndrome, respectively.

In 2018, we announced that the first patient had been dosed in the PROTECT Study, a global, randomized, multicenter, double-blind, parallel-arm, active-controlled pivotal Phase 3 clinical trial evaluating the safety and efficacy of sparsentan in patients with IgAN, and the study continues to enroll.

The PROTECT Study protocol provides for an unblinded analysis of at least 280 patients to be performed after 36 weeks of treatment to evaluate the primary efficacy endpoint - the change in proteinuria (urine protein-to-creatinine ratio) at week 36 from baseline.

Successful achievement of the proteinuria endpoint is expected to support submission of an NDA under the Subpart H accelerated approval pathway in the U.S., as well as an application for CMA consideration in Europe.

Secondary efficacy endpoints include the rate of change in eGFR following the initiation of randomized treatment over 58-week and 110-week periods, as well as the rate of change in eGFR over 52-week and 104-week periods following the first six weeks of randomized treatment in approximately 380 patients.

At this time, top-line data from the 36-week proteinuria endpoint analysis are expected to become available in the third quarter of 2021 and we are monitoring the potential impact the evolving COVID-19 pandemic may have on this timing.

Sparsentan has orphan drug designation for IgAN in the United States and European Union.

TVT-058 ( previously OT-58) is a novel investigational human enzyme replacement candidate being evaluated for the treatment of classical homocystinuria (HCU).

Classical HCU is a rare metabolic disorder characterized by elevated levels of plasma homocysteine that can lead to vision, skeletal, circulatory and central nervous system issues.

TVT-058 is currently being tested in a Phase 1/2 double blind, randomized, placebo-controlled dose escalation study to assess its safety, tolerability, pharmacokinetics, pharmacodynamics and clinical effects in patients with classical HCU.

At this time, preliminary data from the ongoing Phase 1/2 study are expected to become available in 2021 and we are monitoring the potential impact the evolving COVID-19 pandemic may have on this timing.

TVT-058 has been granted Rare Pediatric Disease and Fast Track designations by the FDA, as well as orphan drug designation in the United States and European Union.

It is estimated that there are at least 3,500 people living with HCU in the US with similar numbers in Europe.

We acquired TVT-058 as part of the November 2020 acquisition of Orphan Technologies Limited.

Chenodal (chenodeoxycholic acid or CDCA) is a naturally occurring bile acid that is approved for the treatment of people with radiolucent stones in the gallbladder.

While indicated for radiolucent stones in the gallbladder, Chenodal has been recognized as the standard of care for cerebrotendinous xanthomatosis (CTX) for more than three decades, although it is not currently labeled for this indication.

CTX is a rare, progressive and underdiagnosed bile acid synthesis disorder affecting many parts of the body.

In January 2020, we randomized the first patients in our Phase 3 RESTORE Study to evaluate the effects of Chenodal in adult and pediatric patients with CTX, and the study continues to enroll.

The pivotal study is intended to support an NDA submission for marketing authorization of Chenodal for CTX in the United States.

Preclinical Programs

We are a participant in two Cooperative Research and Development Agreements ("CRADAs"), which form a multi-stakeholder approach to pool resources with leading experts, and incorporate the patient perspective early in the therapeutic identification and development process.

We have partnered with the National Institutes of Health’s National Center for Advancing Translational Sciences ("NCATS") and leading patient advocacy organizations, CDG Care and Alagille Syndrome Alliance, aimed at the identification of potential small molecule therapeutics for NGLY1 deficiency and Alagille syndrome ("ALGS"), respectively.

There are no treatment options currently approved for these diseases.

We currently sell the following products:

Chenodal (chenodiol tablets)

Chenodal is a synthetic oral form of chenodeoxycholic acid, a naturally occurring primary bile acid synthesized from cholesterol in the liver, indicated for the treatment of radiolucent stones in well-opacifying gallbladders in patients in whom selective surgery would be undertaken except for the presence of increased surgical risk due to systemic disease or age.

Chenodal administration is known to reduce biliary cholesterol and the dissolution of radiolucent gallstones through suppression of hepatic synthesis of cholesterol, cholic acid and deoxycholic acid in the bile pool.

Chenodal was first approved by the FDA in 1983 for the management of gallstones but its marketing was later discontinued due to lack of commercial success.

In 2009, Nexgen Pharma Inc.'s ANDA for Chenodal was approved by the FDA for the treatment of gallstones.

Chenodal is manufactured under this ANDA.

In 2010, Chenodal was granted orphan drug designation for the treatment of CTX, a rare autosomal recessive lipid storage disease.

Approved Products

Thiola and Thiola EC (tiopronin)

Thiola and Thiola EC are approved by the FDA for the treatment of cystinuria, a rare genetic cystine transport disorder that causes high cystine levels in the urine and the formation of recurring kidney stones.

Due to the larger stone size, cystine stones may be more difficult to pass, often requiring surgical procedures to remove.

More than 80 percent of people with cystinuria develop their first stone by the age of 20.

More than 25 percent will develop cystine stones by the age of 10.

Recurring stone formation can cause loss of kidney function in addition to substantial pain and loss of productivity associated with renal colic and stone passage.

While a portion of people living with the disease are able to manage symptoms through diet and fluid intake, the prevalence of cystinuria in the US is estimated to be 10,000 to 12,000, indicating that there may be as many as 4,000 to 5,000 affected individuals with cystinuria in the US that would be candidates for Thiola or Thiola EC.

In June 2019 we announced that the FDA approved 100 mg and 300 mg tablets of Thiola EC, a new enteric-coated formulation of Thiola, to be used for the treatment of cystinuria.

Thiola EC offers the potential for administration with or without food, and the ability to reduce the number of tablets necessary to manage cystinuria.

Thiola EC became available to patients in July of 2019.

Cholbam (cholic acid)

The FDA approved Cholbam (cholic acid capsules) in March 2015, the first FDA-approved treatment for pediatric and adult patients with bile acid synthesis disorders due to single enzyme defects, and for adjunctive treatment of patients with peroxisome biogenesis disorder-Zellweger spectrum disorder.

The effectiveness of Cholbam has been demonstrated in clinical trials for bile acid synthesis disorders and the adjunctive treatment of peroxisomal disorders.

An estimated 200 to 300 patients are current candidates for therapy.

Cholbam was previously marketed in Europe under the branded name Kolbam.

Sales of Kolbam in Europe were not a material component of our business, and in July 2020, we withdrew our European marketing approval application for Kolbam.

Chenodal (chenodiol)

Chenodal is a synthetic oral form of chenodeoxycholic acid ("CDCA"), a naturally occurring primary bile acid synthesized from cholesterol in the liver.

The FDA approved Chenodal for the treatment of people with radiolucent stones in the gallbladder.

In 2010, Chenodal was granted orphan drug designation for the treatment of cerebrotendinous xanthomatosis ("CTX"), a rare autosomal recessive lipid storage disease.

We acquired Chenodal in March 2014.

While Chenodal is not labeled for CTX, it has been used as the standard of care for over three decades.

While Chenodal is not labeled for CTX, it received a medical necessity determination in the US by the FDA and has been used as the standard of care for more than three decades.

We are working to obtain FDA approval of Chenodal for the treatment of CTX and initiated a Phase 3 clinical trial for this indication in January 2020.

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The disruption of primary bile acid synthesis in CTX leads to toxic accumulation of cholesterol and cholestanol in most tissues.

Most patients present with intractable diarrhea, premature cataracts, tendon xanthomas, atherosclerosis, and cardiovascular disease in childhood and adolescence.

Patients may present with intractable diarrhea, premature cataracts, tendon xanthomas, atherosclerosis, and cardiovascular disease in childhood and adolescence.

Neurological manifestations of the disease, including dementia and cognitive and cerebellar deficiencies, emerge during late adolescence and adulthood.

The types, combinations and severity of symptoms can be different from person to person, and making diagnosis challenging and often delayed.

Oral administration of CDCA has been shown to normalize primary bile acid synthesis in patients with CTX.

Cholbam (cholic acid capsules)

The FDA approved Cholbam (cholic acid capsules) in March 2015, the first FDA approved treatment for pediatric and adult patients with bile acid synthesis disorders due to single enzyme defects, and for adjunctive treatment of patients with peroxisomal disorders (including Zellweger spectrum disorders).

The effectiveness of Cholbam has been demonstrated in clinical trials for bile acid synthesis disorders and the adjunctive treatment of peroxisomal disorders.

An estimated 200 to 300 patients are current candidates for therapy.

Thiola and Thiola EC (tiopronin)

The resulting long-term damage can cause loss of kidney function in addition to substantial pain and loss of productivity associated with renal colic and stone passage.

The prevalence of cystinuria in the United States is estimated to be 10,000 to 12,000, indicating that there may be as many as 4,000 to 5,000 affected individuals with cystinuria in the United States that would be candidates for Thiola.

On June 28, 2019, we announced that the FDA approved 100 mg and 300 mg tablets of Thiola EC , a new enteric-coated formulation of Thiola, to be used for the treatment of cystinuria.

Thiola EC offers the potential for administration with or without food, and the ability to reduce the number of tablets necessary to manage cystinuria.

Thiola EC became available to patients in July of 2019.

Financial Overview

Acquired IPR&D

We assess whether IPR&D assets acquired from others in an asset acquisition have alternative future use (in research and development projects or otherwise) at the acquisition date.

If such assets have alternative future use, they are capitalized and recognized as an intangible asset.

If such assets do not have alternative use, nor is there an alternative indication that the Company plans to pursue, the upfront consideration transferred, including any contingent consideration that is probable and reasonably estimable, is charged to expense at the acquisition date.

We applied this treatment in accounting for the acquisition of Orphan Technologies, which included the developmental product candidate for the treatment of classical homocystinuria (HCU), TVT-058, or OT-58 as it was known to Orphan.

Research and Development Costs

Research and development costs include expenses related to sparsentan, discontinued programs fosmetpantotenate and CNSA-001, and our other pipeline programs.

Research and development costs include expenses related to sparsentan, discontinued programs fosmetpantotenate and CNSA-001, and our other pipeline programs, including the recently acquired TVT-058 program.

We expense all research and development costs as they are incurred.

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(in thousands)

2020 2019 2018

External service provider costs:

Sparsentan $ 70,486 $ 48,533 $ 39,826

Fosmetpantotenate (discontinued) (2,295) 1 31,193 21,330

Censa (discontinued) — 3,166 16,831

TVT-058 1,962 — —

Other product candidates — 496 242

General 15,433 19,638 16,258

Total external service provider costs 85,586 103,026 94,487

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Total research and development $ 131,773 $ 140,963 $ 123,757

1 Credit received in 2020.

Most of our product development programs are in clinical trials which are highly uncertain and may not result in approved products.

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Through 2020, we made milestone payments to Ligand of $7.2 million under the license agreement.

Under the terms of the license agreement, BMS has a right of first negotiation and Ligand has a right of second negotiation with respect to any license arrangement for a licensed compound, except to the extent such rights may be waived.

Under the terms of the license agreement, Bristol-Myers Squibb Company (“BMS”) has a right of first negotiation and Ligand has a right of second negotiation with respect to any license arrangement for a licensed compound, except to the extent such rights may be waived.

The license agreement will continue until neither party has any further payment obligations under the agreement and is expected to continue for approximately 10 to 20 years from the effective date.

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Thiola License Agreement

In 2014, we entered into a license agreement with Mission, pursuant to which we obtained an exclusive, royalty-bearing license to market, sell and commercialize Thiola (tiopronin) in the United States and Canada, and a non-exclusive license to use know-how relating to Thiola to the extent necessary to market Thiola.

In 2014, we entered into a license agreement with Mission Pharmacal ("Mission"), pursuant to which we obtained an exclusive, royalty-bearing license to market, sell and commercialize Thiola (tiopronin) in the United States and Canada, and a non-exclusive license to use know-how relating to Thiola to the extent necessary to market Thiola.

We paid Mission an up-front license fee of $3.0 million and will pay guaranteed minimum royalties during each calendar year the greater of $2.0 million or 20% of our net sales of Thiola in the United States and Canada.

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The following table provides information regarding net product sales ( in thousands ):

Year Ended December 31,

Year Ended December 31, Year Ended December 31,

2020 2019 Change 2019 2018 Change

Tiopronin products $ 108,883 $ 95,638 $ 13,245 $ 95,638 $ 89,176 $ 6,462

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Total net product revenues $ 198,321 $ 175,338 $ 22,983 $ 175,338 $ 164,246 $ 11,092

Net product sales for the years ended December 31, 2019 , 2018 and 2017 were $175.3 million , $164.2 million and $154.9 million , respectively, and consisted of sales of Thiola ("Tiopronin products"), Chenodal and Cholbam ("Bile acid products"), less allowances for government and commercial rebates and patient assistance programs.

On June 28, 2019, the Company announced that the FDA approved 100 mg and 300 mg tablets of Thiola EC (tiopronin) , a new enteric-coated formulation of THIOLA® (tiopronin), to be used for the treatment of cystinuria.

Net product sales for the years ended December 31, 2020, 2019 and 2018 were $198.3 million, $175.3 million and $164.2 million, respectively, and consisted of sales of Thiola ("Tiopronin products"), Chenodal and Cholbam ("Bile acid products").

In June 2019, the Company announced that the FDA approved 100 mg and 300 mg tablets of Thiola EC (tiopronin), a new enteric-coated formulation of THIOLA® (tiopronin), to be used for the treatment of cystinuria.

The increase in net product sales for the year ended December 31, 2020 as compared to the same period in 2019, is due to increased patient counts for all products.

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The following table provides information regarding operating expenses ( in thousands ):

Year Ended December 31,

Year Ended December 31, Year Ended December 31,

2020 2019 Change 2019 2018 Change

Cost of goods sold $ 6,126 $ 5,234 $ 892 $ 5,234 $ 5,527 $ (293)

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Restructuring — — — — (242) 242

Legal fee settlement

Impairment of L-UDCA IPR&D intangible asset — 25,500 (25,500) 25,500 — 25,500

Write off of L-UDCA contingent consideration — (18,000) 18,000 (18,000) — (18,000)

Acquired IPR&D expense 97,131 — 97,131 — — —

Impairment of long-term investment — 15,000 (15,000) 15,000 — 15,000

$ 374,484 $ 312,699 $ 61,785 $ 312,699 $ 244,286 $ 68,413

2020 versus 2019 results

Operating expenses for the year ended December 31, 2020, were $374.5 million compared to $312.7 million for the year ended December 31, 2019, an increase of $61.8 million.

Cost of goods sold decreased by $0.3 million due primarily to higher inventory reserves in 2018.

Research and development costs increased by $17.2 million due to increased clinical trial expenses and internal costs related to our two ongoing Phase 3 studies for sparsentan in FSGS and IgAN, as well as the discontinued Phase 3 FORT Study of fosmetpantotenate in PKAN.

Selling, general and administrative expenses increased by $25.3 million due to increased legal and compensation expenses.

The Company impaired the $15.0 million long-term investment during the third quarter 2019 following the decision to decline to exercise its option to acquire Censa Pharmaceuticals and accordingly discontinue its joint development program for CNSA-001.

The following table provides the change in the fair value of contingent consideration of $3.5 million , which were due to changes in revenue forecasts, discount factors and timing of payments ( in thousands ):

Year Ended December 31,

Bile acid products

Cost of goods sold increased by $0.9 million due increased sales and higher FDA fees in 2020.

Research and development costs decreased by $9.2 million due to decreased clinical trial expenses and internal costs related to our ongoing Phase 3 studies, as well as the Phase 3 FORT Study of fosmetpantotenate in PKAN, which was discontinued in the third quarter of 2019.

Selling, general and administrative expenses increased by $6.8 million due to increased personnel expenses arising from increased headcount, as well as increased distribution fees and marketing expenses.

Acquired IPR&D of $97.1 million arises in 2020 as a result of the November 2020 acquisition of Orphan Technologies Limited, which included the developmental rare metabolic disorder drug OT-58.

We impaired the $15.0 million long-term investment during the third quarter of 2019 following the decision to decline to exercise our option to acquire Censa Pharmaceuticals and accordingly discontinue our joint development program for CNSA-001.

Write off of L-UDCA Contingent Consideration and impairment of L-UDCA IPR&D intangible assets:

In June 2016, the Company acquired certain rights to its product candidate L-UDCA for $0.5 million cash.

At the same time the Company established a related non-cash asset of $25.5 million and liability of $25.0 million for IPR&D and contingent consideration (deferred financing) related net sales royalties and milestones.

In June 2016, we acquired certain rights to our product candidate L-UDCA for $0.5 million cash.

At the same time, we established a related non-cash asset of $25.5 million and liability of $25.0 million for IPR&D and contingent consideration (deferred financing) related net sales royalties and milestones.

As a result of our ongoing quarterly valuation update process the resulting balance of the L-UDCA contingent liability at December 31, 2018 was $18.0 million.

During the first quarter of 2019, the Company elected to discontinue development of the L-UDCA program, resulting in the removal of the intangible asset of $25.5 million which was originally recorded in 2016, and the reversal of associated contingent consideration of $18.0 million.

This resulted in a net $7.5 million non-cash charge to first quarter operations.

Restructuring expense decreased $0.2 million as we completed the consolidation of our research and development function to San Diego in 2018.

During the first quarter of 2019, we elected to discontinue development of the L-UDCA program, resulting in the removal of the intangible asset of $25.5 million which was originally recorded in 2016, and the reversal of associated contingent consideration of $18.0 million.

This resulted in a net $7.5 million non-cash charge to operations in that quarter.

The following table provides the change in the fair value of contingent consideration of $11.4 million, which was primarily due to changes in discount factors, along with changes in revenue forecasts and timing of payments (in thousands):

Year Ended December 31,

2020 2019 Change

Bile acid products 3,655 15,051 (11,396)

2019 versus 2018 results

Our operating expenses for the year ended December 31, 2019 were $312.7 million compared to $244.3 million for the year ended December 31, 2018, an increase of $68.4 million.

Cost of goods sold increased by $1.9 million due primarily to higher inventory reserves.

Research and development costs increased by $45.6 million due to ongoing clinical trials for sparsentan, fosmetpantotenate and CNSA-001, and non-clinical studies to support the clinical trials.

Selling, general and administrative expenses increased by $2.3 million , which reflects additional marketing initiatives to support our commercial portfolio and corporate initiatives.

Cost of goods sold decreased by $0.3 million due primarily to higher inventory reserves in 2018.

Research and development costs increased by $17.2 million due to increased clinical trial expenses and internal costs related to our two ongoing Phase 3 studies for sparsentan in FSGS and IgAN, as well as the Phase 3 FORT Study of fosmetpantotenate in PKAN, which was discontinued in the third quarter of 2019.

Selling, general and administrative expenses increased by $25.3 million due to increased legal and compensation expenses.

Restructuring expenses decreased by $0.2 million as we completed the consolidation of our research and development function to San Diego in 2018.

The following table provides the change in the fair value of contingent consideration of $3.5 million, which was due to changes in revenue forecasts, discount factors and timing of payments (in thousands):

Year Ended December 31,

2019 2018 Change

Bile acid products $ 15,051 $ 10,590 $ 4,461

R estructuring expense decreased $3.9 million as we completed the consolidation of our research and development function to San Diego in 2017.

Legal fee settlement expense of $2.6 million in 2017 relates to amounts we advanced for legal fees to our former executive in defense of litigation for his actions.

See Note 11 to the Consolidated Financial Statements for further discussion.

L-UDCA — 1,000 (1,000)

$ 15,051 $ 11,590 $ 3,461

Write off of L-UDCA Contingent Consideration and impairment of L-UDCA IPR&D intangible assets:

In June 2016, we acquired certain rights to our product candidate L-UDCA for $0.5 million cash.

As a result of our ongoing quarterly valuation update process the resulting balance of the L-UDCA contingent liability at December 31, 2018 was $18.0 million.

This resulted in a net $7.5 million non-cash charge to operations in that quarter.

Other Income/Expenses

The following table provides information regarding other income (expenses) ( in thousands ):

Year Ended December 31,

Year Ended December 31, Year Ended December 31,

2020 2019 Change 2019 2018 Change

Other income (expense), net $ 1,420 $ (314) $ 1,734 $ (314) $ (474) $ 160

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Loss on extinguishment of debt — — — — (17,042) 17,042

Change in fair value of derivative instruments

Other expense for the year ended December 31, 2019 was $9.1 million compared to other expense of $21.8 million for the year ended December 31, 2018 , which represents change of $12.7 million .

The change was primarily attributable to the 2018 loss on the partial extinguishment of our 4.5% senior convertible notes due in 2019 offset by increase in interest expense related to the 2.50% senior convertible notes due 2025.

Other expense for the year ended December 31, 2018 was $21.8 million compared to other expense of $4.6 million for the year ended December 31, 2017 , which represents an increase of $17.3 million .

The change was primarily attributable to the loss on the partial extinguishment of our 4.5% senior convertible notes due in 2019 and the increase in interest expense related to the 2.50% senior convertible notes due 2025, offset by a loss on the change in fair value of derivative instruments in 2017.

$ (12,627) $ (9,087) $ (3,540) $ (9,087) $ (21,827) $ 12,740

Other expense for the year ended December 31, 2020 was $12.6 million compared to other expense of $9.1 million for the year ended December 31, 2019, which represents a change of $3.5 million.

The change was primarily attributable to a decrease in interest income earned on our available-for-sale debt securities.

Other expense for the year ended December 31, 2019 was $9.1 million compared to other expense of $21.8 million for the year ended December 31, 2018, which represents a change of $12.7 million.

The change was primarily attributable to the 2018 loss on the partial extinguishment of our 4.5% senior convertible notes due in 2019 and the increase in interest expense related to the 2.50% senior convertible notes due 2025.

Income Tax Benefit (Provision):

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The standard addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.

Under ASC 740, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position.

Under ASC 740, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax

position will be sustained on examination by the tax authorities, based on the technical merits of the position.

The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

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Our policy is to record estimated interest and penalty related to the underpayment of income taxes or unrecognized tax benefits as a component of its income tax provision.

Tax benefit for fiscal 2019 of $0.02 million decreased from the fiscal 2018 tax expense of $0.8 million.

Tax benefit for fiscal 2020 of $19.4 million increased from the fiscal 2019 tax benefit of $0.02 million due to the income tax benefit related to the CARES Act NOL carryback.

Off-Balance Sheet Arrangements

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Liquidity and Capital Resources

We believe that our available cash and short-term investments as of the date of this filing will be sufficient to fund our anticipated level of operations for more than the next 12 months.

We believe that our available cash and short-term investments as of the date of this filing will be sufficient to fund our anticipated level of operations beyond the next 12 months.

Management believes that our operating results will vary from quarter to quarter and year to year depending upon various factors including revenues, general and administrative expenses, and research and development expenses.

For the years ended December 31, 2019 and 2018 , we had the following financial performance ( in thousands ):

December 31, 2019

December 31, 2018

For the years ended December 31, 2020 and 2019, we had the following balances and financial performance ( in thousands ):

December 31, 2020 December 31, 2019

Revenue $ 198,321 $ 175,338

Net loss (169,431) (146,427)

Cash & cash equivalents 84,772 62,436

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Working capital ratio 4.43 4.50

Operating Leases

Future Minimum Rental Commitments

We have future minimum rental commitments totaling $46.1 million arising from our operating leases.

These commitments consist of $0.2 million in aggregate base rent for our existing office lease estimated to expire in January 2021 and $49.2 million in aggregate base rent through August 2028 for the new lease space, less rent abatement totaling $3.2 million and $0.1 million in advance rent.

Equity Offerings

2021 Underwritten Public Offering of Common Stock

In February 2021, we sold an aggregate of 7.5 million shares of our common stock in an underwritten public offering, at a price of $26.75 per share.

The net proceeds to us from the offering, after deducting the underwriting discounts and offering expenses, was $189.0 million.

2020 Underwritten Public Offering of Common Stock

In June 2020, we sold an aggregate of 7.5 million shares of our common stock in an underwritten public offering, at a price of $15.50 per share.

The net proceeds to us from the offering, after deducting the underwriting discounts and offering expenses, were $108.7 million.

At-the-Market Equity Offering

In February 2020, we entered into an Open Market Sale Agreement ("ATM Agreement") with Jefferies LLC, as agent (“Jefferies”), pursuant to which we may offer and sell, from time to time through Jefferies, shares of our common stock having an aggregate offering price of up to $100.0 million.

Shares will be sold pursuant to our effective registration statement on Form S-3 (Registration Statement No.

333-227182), as previously filed with the Securities and Exchange Commission.

Through the period ended December 31, 2020, we have sold 867,806 shares under the ATM Agreement, resulting in net proceeds of $22.8 million.

As of December 31, 2020, an aggregate amount of $76.5 million remained eligible for sale under the facility.

Convertible Senior Notes Due 2025

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The 2025 Notes will mature on September 15, 2025 ("Maturity Date”), unless earlier repurchased, redeemed, or converted.

The 2025 Notes are senior unsecured obligations of ours and bear interest at an annual rate of 2.50%, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2019.

The 2025 Notes are senior unsecured obligations of ours and bear interest at an annual rate of 2.50%, payable semi-annually in arrears on March 15 and September 15 of each year.

The net proceeds from the issuance of the 2025 Notes were approximately $267.2 million, after deducting commissions and the offering expenses payable by us.

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Funding Requirements

We believe that our available cash and short-term investments as of the date of this filing will be sufficient to fund our anticipated level of operations for more than the next 12 months.

This belief is based on many factors;

however, some factors are beyond our control.

Factors affecting our financing requirements include, but are not limited to:

revenue growth of our marketed products;

the rate of progress and cost of our clinical trials, preclinical studies and other discovery and research and development activities;

We believe that our available cash and short-term investments as of the date of this filing will be sufficient to fund our anticipated level of operations for at least the next 12 months.

This belief is based on many factors, some factors are beyond our control.

Factors that may affect funding requirements include, but are not limited to:

• the rate of progress and cost of our clinical trials, preclinical studies and other discovery and research and development activities, including any delays resulting from the COVID-19 pandemic;

• the timing of, and costs involved in, seeking and obtaining marketing approvals for our products, and in maintaining quality systems standards for our products;

• increases or decreases in revenue from our marketed products, including decreases in revenue resulting from the COVID-19 pandemic, if any;

• debt service obligations on the 2025 Notes;

• our ability to manufacture sufficient quantities of our products to meet expected demand;

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• the potential need to expand our business, resulting in additional payroll and other overhead expenses;

the potential acquisition or in-licensing of other products or technologies;

the emergence of competing products or other adverse market developments.

• the potential in-licensing of other products or technologies;

• the emergence of competing technologies or other adverse market or technological developments.

Future capital requirements will also depend on the extent to which we acquire or invest in additional complementary businesses, products and technologies.

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Twelve Months Ended December 31,

2020 2019 2018

Net cash provided by (used in) operating activities $ (42,743) $ (58,214) $ (24,958)

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Effect of exchange rate changes on cash (1,307) (9) (135)

Net increase (decrease) in cash

Net increase (decrease) in cash & cash equivalents 22,336 (40,437) 3,479

Cash & cash equivalents, beginning of period 62,436 102,873 99,394

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Operating activities used $42.7 million of cash during the year ended December 31, 2020 compared to $58.2 million of cash used for the year ended December 31, 2019.

The decrease in cash used is attributable to increased revenue arising from increase patient counts across all products offset by changes in operating assets and liabilities, including accounts receivable and accounts payable and an increase in the tax receivable.

Operating activities used $58.2 million of cash during the year ended December 31, 2019 compared to $25.0 million of cash used for the year ended December 31, 2018.

The increase in cash used is attributable to increased research and development and legal expenses and changes in working capital.

Operating activities used $25.0 million of cash during the year ended December 31, 2018 compared to $7.4 million of cash provided for the year ended December 31, 2017 .

After excluding non-cash adjustments, the variance is primarily due to changes in operating accounts, payments related to the change in fair value of contingent consideration, and increased research and development expenses.

Cash Flows from Investing Activities

Cash used in investing activities for the year ended December 31, 2020 was $61.3 million compared to cash provided of $19.9 million for the year ended December 31, 2019.

The change was due to cash paid to Orphan Technologies and the related IPR&D.

Cash provided by investing activities for the year ended December 31, 2019 was $19.9 million compared to $203.3 million of cash used for the year ended December 31, 2018.

The change was due to timing differences associated with the purchases and sales and maturities of our available-for-sale investments, as well as changes in our portfolio-mix between cash equivalents and short-term and long-term investment holdings, along with our $15.0 million investment in Censa in the first quarter of 2018.

Cash used by investing activities for the year ended December 31, 2018 was $203.3 million compared to $45.6 million of cash provided for the year ended December 31, 2017 .

The variance was primarily driven by the proceeds from the issuance of the 2025 Notes being invested in marketable securities, offset by higher maturities for marketable securities in 2018 and proceeds from a note receivable payment of $47.5 million in 2017.

Cash Flows from Financing Activities

For the year ended December 31, 2020, cash provided by financing activities was $127.7 million compared to $2.1 million of cash used for the year ended December 31, 2019.

The change was due to the June 2020 issuance of stock through an underwritten public offering that provided $108.7 million and an At-The-Market public offering facilitated during the fourth quarter of 2020 that provided $22.8 million.

For the year ended December 31, 2019, cash used by financing activities was $2.1 million compared to cash provided of $231.9 million during the year ended December 31, 2018.

The change was due to the issuance of convertible debt in 2018 and lower proceeds from the exercise of stock options in 2019.

For the year ended December 31, 2018 , cash provided by financing activities was $231.9 million compared to cash provided of $5.4 million during the year ended December 31, 2017 .

The variance is primarily due to net proceeds received from the issuance of the 2025 Notes offset by the repurchase of the 2019 Notes.

Contractual Commitments

The following table summarizes our principal contractual commitments, excluding open orders that support normal operations, as of December 31, 2020 ( in thousands ):

Less than 1 year

More than 5 years

Operating lease

Note payable, including contractual interest

Total Less than 1 year 1-3 years 3-5 years More than 5 years

Operating leases $ 46,131 $ 2,412 $ 12,220 $ 12,964 $ 18,535

Convertible notes, including contractual interest 326,338 9,000 18,000 291,988 7,350

Sales support services 1,388 416 833 139 —

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Purchase order commitments 1,954 1,954 — — —

$ 380,371 $ 15,818 $ 32,336 $ 306,332 $ 25,885

Excluded from the above table are certain contingent cash payments associated with our acquisition of Orphan Technologies Limited (“Orphan”), including Orphan’s rare metabolic disorder drug OT-58, which amount to an aggregate of $427.0 million based on the achievement of certain development, regulatory and commercialization events as set forth in the Agreement.

In accordance with ASC 450, contingent cash payments will be accrued for when it is probable that a liability has been incurred and the amount can be reasonably estimated.

As of December 31, 2020, no contingent cash payments have been accrued.

Critical Accounting Policies and Estimates

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

What changed 10-K

Item 7. Management’s Discussion and Analysis