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false2020Q2--12-310001517022As of June 30, 2020, the transaction price totaling $438.7 million is comprised of: (i) the up-front payment of $125.0 million, (ii) the cost share payment with respect to amounts incurred by the Company through December 31, 2016 of $33.8 million, and (iii) the estimate of the net cost share consideration to be received of approximately $279.9 million with respect to amounts incurred by the Company subsequent to December 31, 2016 and the Additional Funding. As of June 30, 2020, no development or regulatory milestones have been assessed as probable of being reached and thus have been fully constrained.As of June 30, 2020, the transaction price totaling $286.2 million is comprised of: (i) the up-front payment of $73.0 million, (ii) the cost share payment with respect to amounts incurred by the Company during the quarter ended June 30, 2017 of $0.2 million, and (iii) an estimate of the net cost share consideration to be received with respect to amounts incurred by the Company subsequent to June 30, 2017 of $213.0 million. As of June 30, 2020, no development or regulatory milestones have been assessed as probable of being reached and thus have been fully constrained.The Company will repay the principal under the Term Loans in equal quarterly payments starting on the 33rd-month anniversary of the applicable Funding Date or, if certain conditions are met, it will have the option to repay the principal in equal quarterly payments starting on the 48th-month anniversary of the applicable Funding Date, or collectively the Amortization Schedule. Under certain circumstances, unless certain liquidity conditions are met, the Maturity Date may decrease by up to one year, and the Amortization Schedule may correspondingly commence up to one year earlier5Options vest either 100% on the first anniversary of the grant date or in installments of (i) 25% at the one year anniversary and (ii) 12 equal quarterly installments beginning after the one year anniversary of the grant date, subject to the individual’s continuous service with the Company1Generally, RSUs granted by the Company vest in one of the following ways: (i) 100% of each RSU grant vests on either the first or the third anniversary of the grant date, (ii) one third of each RSU grant vests on the first, second and third anniversaries of the grant date, subject, in each case, to the individual’s continued service through the applicable vesting date, or (iii) 50% of each RSU grant vests on the first anniversary and 25% of each RSU grant vests in 6 months increment after the one year anniversary of the grant date.0.33330.33330.333313falsefour 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to__________

Commission File Number 001-36352
AKEBIA THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 20-8756903
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
   
245 First Street , Cambridge, MA
 02142
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (617) 871-2098
n/a
(Former name, former address and formal fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $0.00001 per shareAKBAThe Nasdaq Global Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer¨Accelerated filer
ý
    
Non-accelerated filer¨Smaller reporting company
    
  Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Outstanding at July 31, 2020
143,317,407




NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that are being made pursuant to the provisions of the U.S. Private Securities Litigation Reform Act of 1995 with the intention of obtaining the benefits of the “safe harbor” provisions of that Act. All statements contained in this Quarterly Report on Form 10‑Q other than statements of historical fact are forward-looking statements. These forward-looking statements may be accompanied by words such as “anticipate,” “believe,” “build,” “can,” “contemplate,” “continue,” “could,” “should,” “designed,” “estimate,” “project,” “expect,” “forecast,” “future,” “goal,” “intend,” “likely,” “may,” “plan,” “possible,” “potential,” “predict,” “strategy,” “seek,” “target,” “will,” “would,” and other words and terms of similar meaning, but the absence of these words does not necessarily mean that a statement is not forward-looking. These forward-looking statements include, but are not limited to, statements about:
the potential direct or indirect impact of the coronavirus 2 (SARS-CoV-2) pandemic on our business, operations, and the markets and communities in which we and our partners, collaborators, vendors and customers operate;
the potential therapeutic benefits, safety profile, and effectiveness of our product candidates, including the potential for vadadustat to set a new standard of care in the treatment of anemia due to chronic kidney disease; 
the timing, investment and associated activities involved in continued commercialization of Auryxia® (ferric citrate);
the potential indications, demand and market potential and acceptance of our product and product candidates, including our estimates regarding the potential market opportunity for Auryxia, vadadustat or any other product candidates and the size of eligible patient populations; 
the potential therapeutic applications of the hypoxia inducible factor pathway; 
our pipeline, including its potential, and our research and development activities; 
our competitive position, including estimates, developments and projections relating to our competitors and their products and product candidates, and our industry; 
our expectations with respect to (i) the anticipated financial impact and potential benefits to us related to our merger with Keryx Biopharmaceuticals, Inc. that was completed on December 12, 2018, (ii) integration of the businesses subsequent to the merger, and (iii) other matters related to the merger;
our expectations, projections and estimates regarding our capital requirements, need for additional capital, financing our future cash needs, costs, expenses, revenues, capital resources, cash flows, financial performance, profitability, tax obligations, liquidity, growth, contractual obligations, the period of time our cash resources and collaboration funding will fund our current operating plan, internal control over financial reporting and remediation of any deficiencies, and disclosure controls and procedures; 
estimates, beliefs and judgments related to the valuation of intangible assets, goodwill, contingent consideration, debt and other assets and liabilities, including our impairment analysis and our methodology and assumptions regarding fair value measurements;

the timing of the availability and disclosure of clinical trial data and results, including with respect to the top-line data readout of our PRO2TECT studies;  
our and our collaborators’ strategy, plans and expectations with respect to the development, manufacturing, commercialization, launch, marketing and sale of our product candidates, and the associated timing thereof; 
the designs of our studies, and the type of information and data expected from our studies and the expected benefits thereof; 
the timing of or likelihood of regulatory filings and approvals, including labeling or other restrictions; 
our ability to maintain any marketing authorizations we currently hold or will obtain, including our marketing authorizations for Auryxia and our ability to complete post-marketing requirements with respect thereto;
our ability to negotiate, secure and maintain adequate pricing, coverage and reimbursement terms and processes on a timely basis, or at all, with third-party payors for Auryxia or any other product candidate that may be approved;



the targeted timing of enrollment of our clinical trials; 
the timing of initiation of our clinical trials and plans to conduct preclinical and clinical studies in the future; 
the timing and amounts of payments from or to our collaborators and licensees, and the anticipated arrangements and benefits under our collaboration and license agreements, including with respect to milestones and royalties; 
our intellectual property position, including obtaining and maintaining patents, and the timing, outcome and impact of administrative, regulatory, legal and other proceedings relating to our patents and other proprietary and intellectual property rights, as well as Abbreviated New Drug Applications filed by generic drug manufacturers and potential U.S. Food and Drug Administration approval thereof, and associated patent infringement suits that we have filed or may file, or other actions that we may take against such companies, and the timing and resolution thereof;  
expected reliance on third parties, including with respect to the development, manufacturing, supply and commercialization of our product and product candidates;
accounting standards and estimates, their impact, and their expected timing of completion;
estimated periods of performance of key contracts;  
our facilities, lease commitments, and future availability of facilities;  
cybersecurity;
insurance coverage;
our employees, including our management team, employee compensation, employee relations, and our ability to attract and retain high quality employees;
the implementation of our business model, current operating plan, and strategic plans for our business, product candidates and technology, and business development opportunities including potential collaborations, alliances, mergers, acquisitions or licensing of assets; and
the timing, outcome and impact of current and any future legal proceedings.

Any or all of these forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. These forward-looking statements involve risks and uncertainties, including those that are described in Part II, Item 1A. Risk Factors included in this Quarterly Report on Form 10-Q and elsewhere in this Quarterly Report on Form 10-Q, that could cause our actual results, financial condition, performance or achievements to be materially different from those indicated in these forward-looking statements. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to publicly update or revise these forward-looking statements for any reason. Unless otherwise stated, our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

This Quarterly Report on Form 10-Q also contains estimates and other information concerning our industry and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Unless otherwise expressly stated, we obtained this industry, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

In this Quarterly Report on Form 10-Q, unless otherwise stated or the context otherwise requires, references to “Akebia,” “we,” “us,” “our,” “the Company,” and similar references refer to Akebia Therapeutics, Inc. and, where appropriate, its subsidiaries, including Keryx.

AURYXIA®, AKEBIA® Therapeutics, VAFSEOTM and their associated logos are trademarks of Akebia and/or its affiliates. All other trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. All website addresses given in this Quarterly Report on Form 10-Q are for information only and are not intended to be an active link or to incorporate any website information into this document.



Akebia Therapeutics, Inc.

Table of Contents
 
 
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  




PART I—FINANCIAL INFORMATION
Item 1.  Financial Statements.

AKEBIA THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share data)
June 30,
2020
December 31,
2019
Assets
Current assets:
Cash and cash equivalents$245,406  $147,449  
Available for sale securities49,943  245  
Inventory104,603  116,349  
Accounts receivable, net39,115  38,864  
Prepaid expenses and other current assets10,035  6,626  
Total current assets449,102  309,533  
Property and equipment, net9,380  10,380  
Operating lease assets26,884  29,038  
Goodwill55,053  55,053  
Other intangible assets, net157,484  291,212  
Other assets47,271  75,985  
Total assets$745,174  $771,201  
Liabilities and stockholders' equity
Current liabilities:
Accounts payable$29,413  $39,217  
Accrued expenses and other current liabilities142,832  129,071  
Short-term deferred revenue23,529  39,830  
Total current liabilities195,774  208,118  
Deferred revenue, net of current portion34,542  33,120  
Operating lease liabilities, net of current portion24,862  27,528  
Derivative liability1,890  1,650  
Long-term debt, net76,338  75,805  
Other non-current liabilities41,508  30,223  
Total liabilities374,914  376,444  
Commitments and contingencies (Note 14)
Stockholders' equity:
Preferred stock $0.00001 par value, 25,000,000 shares authorized; 0 shares issued and
   outstanding at June 30, 2020 and December 31, 2019
    
Common stock $0.00001 par value; 350,000,000 and 175,000,000 shares authorized at June 30,
   2020 and December 31, 2019, respectively; 143,129,409 and 121,674,568 shares issued and
   outstanding at June 30, 2020 and December 31, 2019, respectively
1  1  
Additional paid-in capital1,400,820  1,188,810  
Accumulated other comprehensive loss(9)   
Accumulated deficit(1,030,552) (794,054) 
Total stockholders' equity370,260  394,757  
Total liabilities and stockholders' equity$745,174  $771,201  
 
See accompanying notes to unaudited condensed consolidated financial statements.

5


AKEBIA THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands, except share and per share data)
 
Three Months Ended
June 30,
Six Months Ended
June 30,
 2020201920202019
Revenues:
Product revenue, net$30,696  $29,089  $59,905  $52,200  
License, collaboration and other revenue59,446  71,714  118,715  121,269  
Total revenues90,142  100,803  178,620  173,469  
Cost of goods sold:
Product49,988  28,569  68,601  50,726  
Amortization of intangibles9,101  9,100  18,201  18,200  
Impairment of intangible asset115,527    115,527    
Total cost of goods sold174,616  37,669  202,329  68,926  
Operating expenses:
Research and development52,819  85,694  134,050  168,045  
Selling, general and administrative35,482  36,068  73,465  70,359  
License expense1,044  895  1,720  1,631  
Total operating expenses89,345  122,657  209,235  240,035  
Operating loss(173,819) (59,523) (232,944) (135,492) 
Other income (expense):
Interest income (expense)(2,308) 485  (4,280) 1,354  
Other income (expense)376  23  726  (55) 
Net loss before income taxes(175,751) (59,015) (236,498) (134,193) 
Benefit from income taxes  (845)   (3,602) 
Net loss$(175,751) $(58,170) $(236,498) $(130,591) 
Net loss per share - basic and diluted$(1.28) $(0.49) $(1.78) $(1.11) 
Weighted-average number of common shares - basic and diluted136,906,968  118,268,832  132,651,066  117,669,422  
Comprehensive loss:
Net loss$(175,751) $(58,170) $(236,498) $(130,591) 
Other comprehensive gain (loss) - unrealized gain (loss) on debt securities(9) 59  (9) 284  
Total comprehensive loss$(175,760) $(58,111) $(236,507) $(130,307) 
 
See accompanying notes to unaudited condensed consolidated financial statements.

6


AKEBIA THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share data)
 
 Common Stock  
 Number of
Shares
$0.00001
Par Value
Additional Paid-In
Capital
Unrealized
Gain/(Loss)
Accumulated
Deficit
Total Stockholders'
Equity
Balance at December 31, 2018116,887,518  $1  $1,150,583  $(261) $(514,395) $635,928  
Proceeds from sale of stock under
   employee stock purchase plan
39,977  —  188  —  —  188  
Exercise of options62,204  —  365  —  —  365  
Share-based compensation expense—  —  2,094  —  —  2,094  
Restricted stock unit vesting132,563  —  —  —  —    
Unrealized gain—  —  —  225  —  225  
Net loss—  —  —  —  (72,421) (72,421) 
Balance at March 31, 2019117,122,262  $1  $1,153,230  $(36) $(586,816) $566,379  
Issuance of common stock, net of
   issuance costs
1,384,520  —  9,035  —  —  9,035  
Exercise of options300,592  —  195  —  —  195  
Retired shares(55,324) —  (426) —  —  (426) 
Share-based compensation expense—  —  2,284  —  —  2,284  
Restricted stock unit vesting35,251  —  —  —  —    
Unrealized gain—  —  —  59  —  59  
Net loss—  —  —  —  (58,170) (58,170) 
Balance at June 30, 2019118,787,301  $1  $1,164,318  $23  $(644,986) $519,356  
Balance at December 31, 2019121,674,568  $1  $1,188,810  $(794,054) $394,757  
Issuance of common stock, net of
   issuance costs
7,973,967  —  56,575  —  —  56,575  
Proceeds from sale of stock under
   employee stock purchase plan
115,024  —  451  —  —  451  
Share-based compensation expense—  —  4,916  —  —  4,916  
Exercise of options64,126  —  412  —  —  412  
Restricted stock unit vesting423,755  —  —  —  —    
Net loss—  —  —  —  (60,747) (60,747) 
Balance at March 31, 2020130,251,440  $1  $1,251,164  $  $(854,801) $396,364  
Issuance of common stock, net of
   issuance costs
12,650,000  $—  $142,383  $—  $—  $142,383  
Share-based compensation expense—  $—  $6,864  $—  $—  $6,864  
Exercise of options48,103  $—  $409  $—  $—  $409  
Restricted stock unit vesting179,866  $—  $—  $—  $—  $  
Unrealized loss—  $—  $—  $(9) $—  $(9) 
Net loss—  $—  $—  $—  $(175,751) $(175,751) 
Balance at June 30, 2020143,129,409  $1  $1,400,820  $(9) $(1,030,552) $370,260  
 
 
See accompanying notes to unaudited condensed consolidated financial statements

7


AKEBIA THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
 
 Six Months Ended
 June 30, 2020June 30, 2019
Operating activities:
Net loss$(236,498) $(130,591) 
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization1,045  1,026  
Amortization of intangibles18,201  18,200  
Intangible asset impairment charge115,527    
Amortization of premium/discount on investments(2) (685) 
Non-cash interest expense872  339  
Non-cash operating lease expense(1,164) (1,097) 
Fair value step-up of inventory sold or written off31,116  33,587  
Write-down of inventory10,089  3,023  
Change in excess inventory purchase commitments10,954    
Stock-based compensation11,780  4,378  
Deferred income taxes  (3,602) 
Change in fair value of derivative liability240    
Changes in operating assets and liabilities:
Accounts receivable(251) (12,222) 
Inventory(5,680) (17,188) 
Prepaid expenses and other current assets(3,277) (11,337) 
Other long-term assets57  3,371  
Accounts payable(4,979) (19,628) 
Accrued expense13,611  (28,126) 
Operating lease liabilities869  1,072  
Deferred revenue(14,879) (16,815) 
Net cash used in operating activities(52,369) (176,295) 
Investing activities:
Purchase of equipment(45) (3,906) 
Purchase of available for sale securities(49,950)   
Proceeds from the maturities of available for sale securities245  103,691  
Proceeds from sales of available for sale securities  64,721  
Net cash provided by (used in) investing activities(49,750) 164,506  
Financing activities:
Proceeds from the issuance of common stock, net of issuance costs198,883  9,035  
Proceeds from the sale of stock under employee stock purchase plan451  188  
Proceeds from the exercise of stock options821  560  
Retirement of treasury stock  (426) 
Payments on debt  (15,000) 
Net cash provided by (used in) financing activities200,155  (5,643) 
Increase (decrease) in cash, cash equivalents, and restricted cash98,036  (17,432) 
Cash, cash equivalents, and restricted cash at beginning of the period149,804  107,099  
Cash, cash equivalents, and restricted cash at end of the period$247,840  $89,667  
Non-cash financing activities
Unpaid offering costs$75  $  
 
See accompanying notes to unaudited condensed consolidated financial statements
8


Akebia Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements
(Unaudited)

1.Nature of Organization and Operations

Akebia Therapeutics, Inc., referred to as Akebia or the Company, was incorporated in the State of Delaware in 2007. Akebia is a biopharmaceutical company with the purpose of bettering the lives of people living with kidney disease. Akebia’s lead investigational product candidate, vadadustat, is an oral therapy in Phase 3 development. The Company believes vadadustat has the potential to set a new standard of care in the treatment of anemia due to chronic kidney disease, or CKD, acting via a novel hypoxia inducible factor, or HIF, pathway. HIF is the primary regulator of the production of red blood cells, or RBCs, in the body, as well as other important metabolic functions. In June 2020, vadadustat was approved in Japan as a treatment for anemia due to CKD in both dialysis-dependent and non-dialysis dependent adult patients under the trade name VAFSEO. In addition to vadadustat, the Company has a commercial product, Auryxia® (ferric citrate), which is currently approved by the U.S. Food and Drug Administration, or FDA, and marketed for two indications in the United States: the control of serum phosphorus levels in adult patients with CKD on dialysis, or DD-CKD, and the treatment of iron deficiency anemia, or IDA, in adult patients with CKD not on dialysis, or NDD-CKD. Ferric citrate is also approved and marketed in Japan as an oral treatment for the improvement of hyperphosphatemia in patients with DD-CKD and NDD-CKD under the trade name Riona® (ferric citrate hydrate).

Since inception, the Company has devoted most of its resources to research and development, including its preclinical and clinical development activities, and providing general and administrative support for these operations. The Company began recording revenue from the U.S. sales of Auryxia and revenue from sublicensing rights to Auryxia in Japan to the Company’s Japanese partners Japan Tobacco, Inc. and its subsidiary Torii Pharmaceutical Co., Ltd., collectively, JT and Torii, on December 12, 2018 following the consummation of a merger with Keryx Biopharmaceuticals, Inc., or Keryx, or the Merger. Additionally, following regulatory approval of vadadustat in Japan in the second quarter of 2020, the Company is eligible to receive royalty revenues of up to 20% from Mitsubishi Tanabe Pharma Corporation, or MTPC, from the sale of VAFSEO. The Company has not generated a profit to date and may never generate profits from product sales. The Company’s product candidates are subject to long development cycles, and the Company may be unsuccessful in its efforts to develop, obtain marketing approval for or market its product candidates. If the Company does not successfully commercialize any of its products or product candidates, it may be unable to achieve profitability.
 
The Company’s management completed its going concern assessment in accordance with ASC 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, or ASC 205-40. The Company believes that its cash resources will be sufficient to allow the Company to fund its current operating plan beyond the next twelve months from the filing of this Quarterly Report on Form 10-Q, as required by ASC 205-40. There can be no assurance, however, that the current operating plan will be achieved in the time frame anticipated by the Company, or that its cash resources will fund the Company’s operating plan for the period anticipated by the Company or that additional funding will be available on terms acceptable to the Company, or at all. The Company will require additional capital to pursue development and commercial activities related to expanded indications for current products and any additional products and product candidates. The Company expects to finance future cash needs through product revenue, public or private equity or debt transactions, payments from its collaborators, royalty transactions, strategic transactions, or a combination of these approaches. However, adequate additional financing may not be available to the Company on acceptable terms, or at all. If the Company is unable to raise capital in sufficient amounts when needed or on attractive terms, it may not be able to pursue development and commercial activities related to expanded indications for current products and any additional products and product candidates.

2.Summary of Significant Accounting Policies

Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S., or GAAP, for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification, or ASC, and Accounting Standards Update, or ASU, of the Financial Accounting Standards Board, or FASB.

9


In the opinion of management, all adjustments, consisting of normal recurring accruals and revisions of estimates, considered necessary for a fair presentation of the unaudited condensed consolidated financial statements have been included. Interim results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020 or any other future period.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Management has determined that the Company operates in one segment, which is the business of developing and commercializing novel therapeutics for people with kidney disease. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the U.S. Securities and Exchange Commission on March 12, 2020, or the 2019 Annual Report on Form 10-K.

The significant accounting policies used in preparation of these unaudited condensed consolidated financial statements for the three and six months ended June 30, 2020 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s 2019 Annual Report on Form 10-K and are updated below as necessary.

New Accounting Pronouncements – Recently Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. Previously, U.S. GAAP delayed recognition of the full amount of credit losses until the loss was probable of occurring. Under this ASU, the income statement will reflect an entity’s current estimate of all expected credit losses. The Company adopted this new standard on January 1, 2020 using the modified retrospective approach, which requires a cumulative-effect adjustment, if any, to the opening balance of retained earnings to be recognized on the date of adoption with prior periods not restated. The cumulative-effect adjustment recorded on January 1, 2020, is not material. Please see the description of the Company’s “Credit Losses” accounting policy in the “Significant Accounting Policies” section below.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for fair value measurements. The Company adopted this new standard on January 1, 2020 using the prospective approach for amendments applicable to the Company. The adoption of this standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangible-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This standard clarifies the accounting for implementation costs in cloud computing arrangements. This standard became effective for us on January 1, 2020, and was adopted on a prospective basis. The adoption of this standard did not have a material impact to the Company’s unaudited condensed consolidated financial statements and disclosures.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This standard makes targeted improvements for collaborative arrangements as follows:
Clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606, Revenue from Contracts with Customers, when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in ASC 606 should be applied, including recognition, measurement, presentation and disclosure requirements;
Adds unit-of-account guidance to ASC 808, Collaborative Arrangements, to align with the guidance in ASC 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of ASC 606; and
Precludes a company from presenting transactions with collaborative arrangement participants that are not directly related to sales to third parties with revenue recognized under ASC 606 if the collaborative arrangement participant is not a customer.

This standard became effective for the Company on January 1, 2020, and did not have a material impact on the Company’s unaudited condensed consolidated financial statements and related disclosures.

10


New Accounting Pronouncements – Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods therein, and is applicable to the Company in fiscal year 2021. Early adoption is permitted. ASU 2019-12 requires certain amendments to be applied using a modified retrospective approach, which requires a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption, while other amendments should be applied on a prospective basis. The Company does not expect that the adoption of this standard will have a material impact on the Company’s unaudited condensed consolidated financial statements and related disclosures.

Derivative Financial Instruments
The Company accounts for warrants and other derivative financial instruments as either equity or liabilities in accordance with ASC Topic 815, Derivatives and Hedging, or ASC 815, based upon the characteristics and provisions of each instrument. Warrants classified as equity are recorded at fair value as of the date of issuance on the Company’s unaudited condensed consolidated balance sheets and no further adjustments to their valuation are made. Warrants classified as derivative liabilities and other derivative financial instruments that require separate accounting as liabilities are recorded on the Company’s unaudited condensed consolidated balance sheets at their fair value on the date of issuance and will be revalued on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting periods recorded as other income or expense. The warrant issued by the Company in connection with the Janssen Pharmaceutica NV Research and License Agreement, the Janssen Agreement, is classified as equity in the Company’s unaudited condensed consolidated balance sheet. (See Note 12). The derivative liability recorded in connection with the Company’s Loan Agreement with Pharmakon is classified as a liability in the Company’s unaudited condensed consolidated balance sheet. (See Note 11).

Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Estimates are used in the following areas, among others: prepaid and accrued research and development expense, operating lease assets and liabilities, derivative liabilities, other non-current liabilities, stock-based compensation expense, product and collaboration revenues including various rebates and reserves related to product sales, inventories, income taxes, intangible assets and goodwill. The Company has made estimates of the impact of COVID-19 within the unaudited condensed consolidated financial statements and there may be changes to those estimates in future periods including changes to sales, payer mix, reserves and allowances, intangible assets and goodwill. While the COVID-19 pandemic has not had a material adverse impact on the Company’s financial condition, the future impacts of the pandemic and any resulting economic impact is largely unknown and rapidly evolving.

Credit Losses
Available for sale debt securities. Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each balance sheet date. The Company classifies all securities as available for sale and includes them in current assets as they are intended to fund current operations. The Company's investment portfolio at any point in time contains investments in money market mutual funds, U.S. government debt securities, certificates of deposit and corporate debt securities. The Company segments its portfolio based on the underlying risk profiles of the securities and have a zero loss expectation for money market mutual funds, U.S. government debt securities and certificates of deposit. The Company regularly reviews the securities in an unrealized loss position and evaluates the current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions. Factors considered also include whether a decline in fair value below the amortized cost basis is due to credit-related factors or noncredit-related factors, the financial condition and near-term prospects of the issuer, and our intent and ability to hold the investment to allow for an anticipated recovery in fair value. Any unrealized loss that is not credit related is recognized in other comprehensive (loss) income in the unaudited condensed consolidated statements of operations. A credit-related unrealized loss is recognized as an allowance on the unaudited condensed consolidated balance sheets with a corresponding adjustment to earnings in the unaudited condensed consolidated statements of operations.
11



Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents consist of all cash on hand, deposits and funds invested in available for sale securities with original maturities of three months or less at the time of purchase. Cash equivalents are reported at fair value. At June 30, 2020, the Company’s cash is primarily in money market funds. The Company may maintain balances with its banks in excess of federally insured limits.

Restricted cash represents amounts required for security deposits under the Company’s office and lab space lease agreements and, at June 30, 2019, cash balances held as collateral for the Company’s employee credit card program. Restricted cash is included in “prepaid expenses and other current assets” and “other assets” in the unaudited condensed consolidated balance sheets.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the unaudited condensed consolidated balance sheet that sum to the total of the amounts reported in the unaudited condensed consolidated statement of cash flows (in thousands):
 
 June 30, 2020June 30, 2019
Cash and cash equivalents$245,406  $87,212  
Prepaid expenses and other current assets395  363  
Other assets2,039  2,092  
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows$247,840  $89,667