What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-03-01 · 214 added, 129 removed, 246 unchanged (58% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Our discussion and analysis of our financial condition and results of operations for 2021 as compared to 2020 are discussed below, and should be read in conjunction with our audited Consolidated Financial Statements, including the notes thereto.

For a discussion of our financial condition and results of operations for 2020 as compared to 2019, please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Annual Report on Form 10-K , except as set forth below.

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.

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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, 2021, 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.

As of December 31, 2021, the majority of our labor force is remote, 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.

Remote work operations also heighten the risk of cyber-attacks and make it more difficult for companies to protect their confidential information.

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.

While to date we have not experienced a material reduction in demand for our commercialized products as a result of the pandemic, 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.

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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.

We had $552.9 million in cash and cash equivalents and available-for-sale securities as of December 31, 2021, 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.

License and Collaboration Agreement with Vifor Pharma

On September 15, 2021, we entered into a License Agreement with Vifor Pharma, pursuant to which we granted an exclusive license to Vifor Pharma for the commercialization of sparsentan in the Licensed Territories.

Under the terms of the License Agreement, we received an upfront payment of $55.0 million in September 2021, and will be eligible for up to $135.0 million in aggregate regulatory and market access related milestone payments and up to $655.0 million in aggregate sales-based milestone payments for a total potential value of up to $845.0 million.

We are also entitled to receive tiered double-digit royalties of up to 40 percent of annual net sales of sparsentan in the Licensed Territories.

The Agreement includes a sublicense to Vifor Pharma under our license agreement with Ligand Pharmaceuticals, Inc.

We remain obligated to make payments to Ligand upon achievement of certain regulatory and sales milestones, as well as an escalating annual royalty between 15 percent and 17 percent of global net sales of licensed products.

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.

In November 2020, we completed the acquisition of Orphan Technologies Limited (“Orphan”), including Orphan’s rare metabolic disorder drug pegtibatinase (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.

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 pegtibatinase 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 pegtibatinase product is granted.

In December 2021, Orphan was re-domiciled and renamed Travere Therapeutics Switzerland Gmbh ("TTSG").

Research and Development

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, a Dual Endothelin Angiotensin Receptor Antagonist (DEARA), is a novel investigational product candidate.

Pre-clinical data have shown that blockade of both endothelin type A and angiotensin II type 1 pathways in forms of rare chronic kidney disease, reduces proteinuria, protects podocytes and prevents glomerulosclerosis and mesangial cell proliferation.

Sparsentan has been granted Orphan Drug Designation for the treatment of FSGS and IgAN in the U.S.

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.

• Focal segmental glomerulosclerosis ("FSGS") is 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.

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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.

In May 2021, we provided a regulatory update regarding the sparsentan FSGS program, including feedback from the FDA that additional data would be needed to potentially support a submission for accelerated approval under subpart H.

At a subsequent Type A meeting, we and the FDA reached alignment on a pathway for us to proceed with a submission for accelerated approval, pending additional supportive eGFR data.

We intend to provide the FDA with additional eGFR data from the ongoing DUPLEX Study in the first half of 2022, and if such data are supportive, submit an application for accelerated approval in the U.S.

In mid-2022, we and Vifor (International) Ltd.

("Vifor Pharma"), with whom we entered into a license and collaboration agreement ("License Agreement") in September 2021, plan to submit an application for conditional marketing authorization ("CMA") of sparsentan for the treatment of FSGS and IgAN in Europe.

If sparsentan receives marketing authorization in any of the licensed territories, Vifor Pharma will be responsible for all commercialization activities in such licensed territories.

We remain responsible for the clinical development of sparsentan and will retain all rights to sparsentan in the United States and rest of world outside of the licensed territories, provided that Vifor Pharma has a right of negotiation to expand the licensed territories into Canada, China, Brazil and/or Mexico.

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

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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, 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.

There are currently no non-immunosuppressive treatments for IgAN approved by the FDA.

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.

The PROTECT Study protocol provided 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.

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).

In August 2021, we announced positive topline interim results from the ongoing Phase 3 PROTECT Study.

The PROTECT Study met its pre-specified interim primary efficacy endpoint with statistical significance.

After 36 weeks of treatment, patients receiving sparsentan achieved a mean reduction in proteinuria from baseline of 49.8 percent, compared to a mean reduction in proteinuria from baseline of 15.1 percent for irbesartan-treated patients (p<0.0001).

We believe that preliminary eGFR data available at the time of the interim analysis are indicative of a potential clinically meaningful treatment effect after two years of treatment.

Preliminary results at the time of the interim assessment suggested that sparsentan had been generally well-tolerated to date in the study and consistent with its overall observed safety profile.

The PROTECT Study is fully enrolled and is scheduled to continue as planned on a blinded basis to assess the treatment effect on eGFR slope over 110 weeks in the confirmatory endpoint analysis.

Topline results from the confirmatory endpoint analysis are expected in the second half of 2023.

Subsequent to the announcement of the interim results from the PROTECT Study, we conducted pre-NDA interactions with the FDA, during which we confirmed alignment with our plan to submit in the first quarter of 2022 an NDA for accelerated approval of sparsentan for IgAN.

In mid-2022, we and Vifor Pharma plan to submit a combined application for conditional marketing authorization ("CMA") of sparsentan for the treatment of FSGS and IgAN in Europe.

Pegtibatinase (TVT-058)

Pegtibatinase (TVT-058) 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.

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

Pegtibatinase 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.

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

In December 2021, we announced positive topline results from the Phase 1/2 COMPOSE Study.

Pegtibatinase demonstrated dose-dependent reductions in total homocysteine (tHcy) during the 12 weeks of treatment, and in the highest dose cohort to date evaluating 1.5mg/kg of pegtibatinase twice weekly (BIW), treatment with pegtibatinase resulted in rapid and sustained reductions in total homocysteine (tHcy) through 12 weeks of treatment, including a 55.1% mean relative reduction in tHcy from baseline as well as maintenance of tHcy below a clinically meaningful threshold of 100 μmol.

Additionally, in a dose-dependent manner in the study to date, methionine levels were substantially reduced and cystathionine levels were substantially elevated following treatment with pegtibatinase, suggesting that pegtibatinase acts in a manner similar to the native CBS enzyme.

To date in the study, pegtibatinase has been generally well-tolerated , with no discontinuations due to treatment-related adverse events.

Based on these results, the Company is in the process of engaging with regulators to establish next steps for a pivotal development program to ultimately support potential approvals of pegtibatinase for the treatment of HCU.

In parallel, the Company has initiated one additional cohort in the COMPOSE Study to inform and refine formulation work for future development and commercial purposes and to further evaluate the dose response curve for pegtibatinase.

We acquired pegtibatinase 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.

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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.

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 enrollment remains open.

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

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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.

In June 2019 we announced that the FDA approved 100 mg and 300 mg tablets of Thiola EC, an 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.

Thiola EC became available to patients in July 2019.

In May 2021, a generic option for the 100 mg version of the original formulation of Thiola (tiopronin tablets) became available.

While the impact to our business has been minimal to date, we are not able to estimate any future impact, including the impact of additional generic entrants, if any.

Cholbam (cholic acid)

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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)

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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.

We expensed the

acquired IPR&D associated with the acquisition of Orphan Technologies, which included the developmental product candidate for the treatment of classical homocystinuria (HCU), pegtibatinase (TVT-058).

Research and Development Costs

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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Censa (discontinued) — — 3,166

TVT-058 1,962 — —

Pegtibatinase 27,823 1,962 —

Other product candidates 6 — 496

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Total research and development $ 210,328 $ 131,773 $ 140,963

1 Credit received in 2020.

1 Credit received in 2021 and 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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Other Income/Expenses

Other income/expenses consists of interest income and expense, finance expense, loss on the extinguishment of debt, change in fair value of derivative instruments and miscellaneous other income/expenses.

Other income/expenses consists of interest income and expense, finance expense and miscellaneous other income/expenses.

License Agreements

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See Note 9 to Consolidated Financial Statements for further discussion.

License and Collaboration Agreement with Vifor Pharma

We are also entitled to receive tiered double-digit royalties of up to 40 percent of annual net sales of sparsentan in the Licensed Territories.

The License Agreement includes a sublicense to Vifor Pharma under our license agreement with Ligand Pharmaceuticals, Inc.

See Note 4 to Consolidated Financial Statements for further discussion.

Results of Operations

Net Product Sales

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

The following table provides information regarding revenue, including net product sales and license and collaboration revenue ( in thousands ):

Year Ended December 31, Year Ended December 31,

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Bile acid products 95,654 89,438 6,216 89,438 79,700 9,738

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

Total net product sales 210,776 198,321 12,455 198,321 175,338 22,983

License and collaboration revenue 16,714 — 16,714 — — —

Total revenue $ 227,490 $ 198,321 $ 29,169 $ 198,321 $ 175,338 $ 22,983

Net product sales for the years ended December 31, 2021, 2020 and 2019 were $210.8 million, $198.3 million and $175.3 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, 2021 as compared to the same period in 2020, is due to increased patient counts for all products.

The increase in net product sales for the year ended December 31, 2019 as compared to the same period in 2018, is due to increased patient counts for all products.

We use a direct-to-patient distributor.

Under this distribution model, we record revenues when customers take control of the product (at delivery).

License and collaboration revenue for the year ended December 31, 2021 was $16.7 million.

We had no license or collaboration revenue for the years ended December 31, 2020 and 2019.

License and collaboration revenue recognized in 2021 was attributable to the license and collaboration agreement entered into with Vifor Pharma in September 2021.

We recognized $12.0 million from the license based upon the allocation of the stand-alone selling price, and $4.7 million from the clinical development activities based upon the ratio of costs incurred to total estimated costs.

Operating Expenses

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Change in fair value of contingent consideration 22,260 3,655 18,605 3,655 15,051 (11,396)

Restructuring — — — — (242) 242

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

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Operating expenses for the year ended December 31, 2021, were $389.3 million compared to $374.5 million for the year ended December 31, 2020, an increase of $14.8 million.

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, 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, 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 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

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.

Cost of goods sold increased by $0.7 million due to increased sales.

Research and development costs increased by $78.6 million due to increases in clinical trial expenses, chemistry manufacturing and control costs, preclinical study expenses, and related expenses associated with the advancement of our programs in development, particularly sparsentan and pegtibatinase, which saw increases in external service provider costs of $32.9 million and $25.9 million, respectively.

Internal personnel costs to support these programs also increased by $14.3 million.

Selling, general and administrative expenses increased by $14.1 million due to increased personnel expenses, including increased headcount as we prepare for commercialization of sparsentan and enhance support for other programs in development.

Fair value of contingent consideration increased by $18.6 million due to changes in discount factors, along with changes in revenue forecasts and timing of payments.

Acquired IPR&D of $97.1 million in 2020 was due to the November 2020 acquisition of Orphan Technologies Limited, which included the developmental rare metabolic disorder drug pegtibatinase.

Other Income/Expenses

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2021 2020 Change 2020 2019 Change

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

Interest income $ 1,993 $ 5,003 $ (3,010) $ 5,003 $ 10,055 $ (5,052)

Interest expense (20,141) (19,050) (1,091) (19,050) (18,828) (222)

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

Other income (expense), net 231 1,420 (1,189) 1,420 (314) 1,734

$ (17,917) $ (12,627) $ (5,290) $ (12,627) $ (9,087) $ (3,540)

Other expense for the year ended December 31, 2021 was $17.9 million compared to other expense of $12.6 million for the year ended December 31, 2020, which represents a change of $5.3 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.

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

The decrease in interest income earned was due to a decline in short-term interest rates.

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 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

We do not have any off-balance sheet arrangements.

The change in tax provision of $0.4 million for fiscal 2021 as compared to a tax benefit of $19.4 million for fiscal 2020 was due to the income tax benefit related to the CARES Act NOL carryback that was recognized in 2020.

Inflation generally affects us by increasing our salaries and fees paid to third-party contract service providers.

Liquidity and Capital Resources

We have financed our operations through a combination of borrowings, sales of our equity securities, and revenues generated from our commercialized products and license and collaboration agreements.

Research and development activities have required significant capital investment and are expected to continue to require significant cash expenditure in the future, particularly as our pipeline of drug candidates and our employee headcount have expanded.

In addition, we continue to evaluate potential opportunities to expand our pipeline and approved products through licenses and acquisitions of products in areas that we believe offer attractive growth characteristics, which may require considerable upfront capital to pursue as well as possible contingent payments upon the future achievement of certain milestones.

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.

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Cash & cash equivalents 165,753 84,772

Short-term investments 276,817 336,088

Marketable debt securities 387,129 276,817

Accumulated deficit (765,966) (585,875)

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Working capital ratio 4.70 4.43

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.

Collaboration and License Proceeds

License and Collaboration Agreement with Vifor Pharma

We are also entitled to receive tiered double-digit royalties of up to 40 percent of annual net sales of sparsentan in the Licensed Territories.

The Agreement includes a sublicense to Vifor Pharma under our license agreement with Ligand Pharmaceuticals, Inc.

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.

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

The net proceeds to us from the offering, after deducting the underwriting discounts and offering expenses, were $189.3 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.

In June 2020, we sold an aggregate of 7.5 million shares of our common stock in an underwritten public offering, at a price to the public 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.

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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.

Of the $100.0 million originally authorized for sale under the ATM Agreement, approximately $28.6 million were sold under our prior registration statement on Form S-3 (Registration Statement No.

An additional $31.7 million were sold under our effective registration statement on Form S-3 (Registration Statement No.

In 2020, the Company sold 867,806 shares under the ATM Agreement, resulting in gross proceeds of $23.5 million.

In 2021, the Company sold a combined 1,240,640 shares under the ATM Agreement, resulting in gross proceeds of $36.8 million.

Through December 31, 2021, we have sold a

total of 2,108,446 shares under the ATM Agreement, resulting in gross proceeds of $60.3 million.

As of December 31, 2021, an aggregate amount of $39.7 million remained eligible for sale under the facility.

Authorized Shares of Common Stock

On May 14, 2021, in connection with the Company’s 2021 Annual Meeting of Stockholders, the Company’s stockholders approved, among other matters, a Certificate of Amendment (“Certificate of Amendment”) to the Company’s Certificate of Incorporation to increase the number of shares of common stock authorized for issuance thereunder from 100,000,000 to 200,000,000.

Effective May 18, 2021, the Certificate of Amendment was filed with the Secretary of State of the State of Delaware.

Operating Leases

Future Minimum Rental Commitments

We have future minimum rental commitments totaling $43.7 million arising from our operating leases.

These commitments represent the aggregate base rent through August 2028.

Contingent Cash Payments

Acquisition Agreement with Orphan Technologies Limited

In November 2020, we completed the acquisition of Orphan Technologies Limited (“Orphan”), including Orphan’s rare metabolic disorder drug pegtibatinase.

We acquired Orphan by purchasing all of its outstanding shares.

Under the Agreement, we 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 pegtibatinase 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 pegtibatinase product is granted.

License Agreement Obligations

See discussion above under the heading "License Agreements".

Convertible Senior Notes Due 2025

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Total interest expense recognized for the years ended December 31, 2021, 2020 and 2019 was $20.1 million, $19.1 million, and $18.8 million, respectively.

License Agreement Obligations

See discussion above under the heading "License Agreements".

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 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:

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.

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

Factors that may affect financing 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;

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• 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.

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

The following table summarizes our cash flows for the periods set forth below ( in thousands ):

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2021 2020 2019

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

Net cash provided by (used in) investing activities (61,327) 19,863 (203,291)

Net cash used in operating activities $ (14,792) $ (42,743) $ (58,214)

Net cash (used in) provided by investing activities (137,623) (61,327) 19,863

Net cash provided by (used in) financing activities 231,683 127,713 (2,077)

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Cash & cash equivalents, end of period $ 165,753 $ 84,772 $ 62,436

Management considers marketable securities to be available to fund current operations, and they are classified as available for sale and included within current assets in our Consolidated Balance Sheets.

Management considers marketable debt securities to be available to fund current operations, and they are classified as available for sale and included within current assets in our Consolidated Balance Sheets.

Therefore, cash and short-term investments available to fund operations is $552.9 million as of December 31, 2021.

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Operating activities used $14.8 million of cash during the year ended December 31, 2021 compared to $42.7 million of cash used for the year ended December 31, 2020.

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.

The decrease in cash used was primarily attributable to the $55.0 million upfront payment received in connection with the license and collaboration agreement entered into with Vifor Pharma in September 2021, along with increased net product sales, offset by 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 in investing activities for the year ended December 31, 2021 was $137.6 million compared to cash used of $61.3 million for the year ended December 31, 2020.

The increase in cash used was due to the increase in net purchases of marketable debt securities, offset by expenses arising from the acquisition of Orphan Technologies in 2020.

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.

Contractual Commitments

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

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 —

Product supply contracts 4,560 2,036 1,283 1,241 —

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.

For the year ended December 31, 2021, cash provided by financing activities was $231.7 million compared to cash provided of $127.7 million for the year ended December 31, 2020.

The increase in cash provided was due to the February 2021 issuance of stock through an underwritten public offering that provided $189.3 million and an At-The-Market public offering that provided $36.8 million.

Critical Accounting Policies and Estimates

See Note 2 to the Consolidated Financial Statements for discussion.

Management makes certain judgments and uses certain estimates and assumptions when applying accounting principles generally accepted in the United States (“GAAP”) in the preparation of our Consolidated Financial Statements.

We evaluate our estimates and judgments on an ongoing basis and base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances.

Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Actual results may vary from what we anticipate and different assumptions or estimates about the future could change our reported results.

We believe the following accounting policies are the most critical to us, in that they require our most difficult, subjective or complex judgments in the preparation of our Consolidated financial statements.

For further information, see Note 2, Summary of Significant Accounting Policies, to our Consolidated Financial Statements, which outlines our application of significant accounting policies.

Revenue Recognition

We recognize revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that an entity determines are within the scope of Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), the entity performs the following five steps:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

We only apply the five-step model to contracts when it is probable that the entity will collect substantially all the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

We recognize revenues from product sales are recognized when the customer obtains control of the product, which occurs upon delivery to our customer.

We receive payments from our product sales based on terms that generally are within 30 days of delivery of product to the patient.

Revenues from product sales are recorded at the net sales price, which includes provisions resulting from discounts, rebates and co-pay assistance that are offered to its customers, health care providers, payors and other indirect customers relating to the sale of our products.

In order to determine the transaction price, we estimate, utilizing the expected value method, the amount of variable consideration to which we will be entitled.

These provisions are based on the amounts earned or to be claimed on the related sales and are classified as a reduction of accounts receivable (if the amount is payable to the customer) or as a current liability (if the amount is payable to a party other than a customer).

Calculating these provisions involves estimates and judgements.

Where appropriate, these reserves take into consideration our historical experience, current contractual and statutory requirements and specific known market events and trends.

Overall, these reserves reflect our best estimates of the amount of consideration to which it is entitled based on the terms of the contract.

If actual results in the future vary from the provisions, we will adjust the provision, which would affect net product revenue and earnings in the period such variances become known.

Our historical experience is that such adjustments have been immaterial.

Payments received under collaboration and licensing agreements may include non-refundable fees at the inception of the arrangements, milestone payments for specific achievements and royalties on the sale of products.

At the inception of arrangements that include milestone payments, we use judgement to evaluate whether the milestones are probable of being achieved and estimates the amount to include in the transaction price utilizing the most likely amount method.

If it is probable that a significant revenue reversal will not occur, the estimated amount is included in the transaction price.

Milestone payments that are not within our or the licensee’s control, such as regulatory approvals are not included in the transaction price until those approvals are received.

At the end of each reporting period, we re-evaluate the probability of achievement of development milestones and any related constraint and adjusts the estimate of the overall transaction price, if necessary.

We recognize aggregate sales-based milestones and royalty payments from product sales at the later of when the related sales occur or when the performance obligation to which the sales-based milestone or royalty has been allocated has been satisfied.

If it is probable that a significant revenue reversal will not occur, we estimate the sales-based milestone and royalty payments using the most likely amount method.

We utilize significant judgement to develop estimates of the stand-alone selling price for each distinct performance obligation based upon the relative stand-alone selling price.

Variable consideration that relates specifically to our efforts to satisfy specific performance obligations is allocated entirely to those performance obligations.

The stand-alone selling price for license-related performance obligations requires judgement in developing assumptions to project probability-weighted cash flows based upon estimates of forecasted revenues, clinical and regulatory timelines and discount rates.

The stand-alone selling price for clinical development performance obligations is based on forecasted expected costs of satisfying a performance obligation plus an appropriate margin.

If the licenses to intellectual property are determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to benefit from the license.

For licenses that are not distinct from other promises, we apply judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees.

We evaluate the measure of progress each reporting period and, if necessary, adjust the related revenue recognition accordingly.

The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided.

Revenue is recorded proportionally as costs are incurred.

We generally utilize the cost-to-cost method of progress because it best measures the transfer of control to the customer which occurs as we incur costs.

Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.

We use judgment to estimate the total costs expected to complete the clinical development performance obligations, which include subcontractor costs, labor, materials, other direct costs and an allocation of indirect costs.

We evaluate these cost estimates and the progress each reporting period and adjusts the measure of progress, if necessary.

Changes in assumptions where management utilizes significant judgement could have a material impact on the revenue we recognize.

Clinical Trial Expenses

We record expenses in connection with our clinical trials under contracts with contract research organizations (CROs) that support conducting and managing clinical trials.

The financial terms and activities of these agreements vary from contract to contract and may result in uneven expense levels.

Generally, these agreements set forth activities that drive the recording of expenses such as start-up and initiation activities, enrollment and treatment of patients, or the completion of other clinical trial activities.

Expenses related to clinical trials are accrued based on our estimates and/or representations from service providers regarding work performed, including actual level of patient enrollment, completion of patient studies and progress of the clinical trials.

We currently have three Phase 3 clinical trials in process that are in varying stages of activity, with ongoing non-clinical support trials that are significant and changes in estimates and representations from service providers could have a material impact on expenses we recognize.

Stock-Based Compensation

We account for share-based compensation arrangements in accordance with ASC 718, Compensation – Stock Compensation , which requires the measurement and recognition of compensation expense for all share-based payment awards to be based on estimated fair values.

We use the Black-Scholes option valuation model to estimate the fair value of its stock options at the date of grant.

The Black-Scholes option valuation model requires the input of subjective assumptions to calculate the value of stock options.

For restricted stock units, the value of the award is based on our stock price at the grant date.

For performance-based restricted stock unit awards, the value of the award is based on our stock price at the grant date, with consideration given to the probability of the performance condition being achieved.

We use historical data and other information to estimate the expected price volatility for stock option awards and the expected exercise activity for all awards.

Expense is recognized over the vesting period for all awards and commences at the grant date for time-based awards and upon our determination that the achievement of such performance conditions is probable for performance-based awards.

The valuation, including the assumptions, require significant judgment by management.

Contingent Consideration

We record contingent consideration resulting from a business combination at its fair value on the acquisition date.

On a quarterly basis, we revalue these obligations and record increases or decreases from their fair value as an adjustment to the Consolidated Statements of Operations and Comprehensive Loss.

In estimating the fair value of our contingent consideration, we use a Monte Carlo Simulation.

Changes to contingent consideration obligations can result from changes to discount rates, accretion of the liability due to the passage of time, changes in revenue forecasts and changes in our estimates of the likelihood or timing of achieving commercial revenue milestones.

The determination of the contingent consideration liabilities requires significant judgments including the appropriateness of the valuation model and reasonableness of estimates and assumptions included in the forecasts of future net sales and the discount rates applied to such forecasts.

Changes in these estimates and assumptions could have a significant impact on the fair value of the contingent consideration liabilities.

Impairment of Intangible Assets subject to amortization

Intangible assets subject to amortization include certain license agreements and purchased technologies.

Intangible assets subject to amortization are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable and are also reviewed annually to determine whether any impairment is necessary.

We follow ASC 740, Income Taxes , which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.

Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the asset will not be realized.

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.

Recently Issued Accounting Pronouncements

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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.

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Item 7. Management’s Discussion and Analysis