TRICIDA, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed financial statements
and related notes included elsewhere in this Quarterly Report on Form 10-Q. Some
of the information contained in this discussion and analysis, including
information with respect to our plans and strategy for our business, include
forward-looking statements that involve risks and uncertainties. Investors in
our securities should review Part II, Item 1A. "Risk Factors" for a discussion
of important factors that could cause our actual results to differ materially
from the results described in or implied by the forward-looking statements
contained in the following discussion and analysis.
Overview
Our goal is to slow the progression of chronic kidney disease, or CKD, in
patients with metabolic acidosis and CKD. We are a pharmaceutical company
focused on the development and commercialization of our investigational drug
candidate, veverimer (also known as TRC101), a non-absorbed, orally-administered
polymer designed to treat metabolic acidosis and slow CKD progression by binding
and removing acid from the gastrointestinal tract. Metabolic acidosis is a
serious condition commonly caused by CKD and is believed to accelerate the
progression of kidney deterioration. It can also lead to bone loss, muscle
wasting and impaired physical function. Metabolic acidosis in patients with CKD
is typically a chronic disease and, as such, requires long-term treatment to
mitigate its deleterious consequences.
There are currently no therapies approved by the U.S. Food and Drug
Administration, or FDA, to slow progression of kidney disease by correcting
chronic metabolic acidosis in patients with CKD. We estimate that metabolic
acidosis affects approximately 3 million patients with CKD in the United States,
and we believe that slowing the progression of CKD in patients with metabolic
acidosis and CKD represents a significant unmet medical need and market
opportunity. In addition, considering that acid retention is thought to occur in
patients with CKD prior to clinical diagnosis of metabolic acidosis (serum
bicarbonate less than 22 mEq/L), we believe there may be potential to pursue a
development pathway for veverimer which, with additional data, could expand the
market opportunity beyond metabolic acidosis to include patients with CKD and
eubicarbonatemia, also known as latent acidosis, who may also benefit from a
therapy that aids in acid removal.
Veverimer is an in-house discovered, new chemical entity. We have a broad
intellectual property estate that we believe will provide patent protection for
veverimer until at least 2038 in the United States, at least 2035 in Europe,
Hong Kong, Israel, Japan, Mexico and Russia, and at least 2034 in Australia,
China, and certain other markets.
Veverimer is a low-swelling, spherical polymer bead that is approximately 100
micrometers in diameter. It is a single, high molecular weight, crosslinked
polyamine molecule. The size of veverimer prevents systemic absorption from the
GI tract. The high degree of cross-linking within veverimer limits swelling and
the overall volume in the GI tract, with the goal of facilitating good GI
tolerability. The high amine content of veverimer provides proton binding
capacity of approximately 10 mEq/gram of polymer. The size exclusion built into
the three-dimensional structure of the polymer enables preferential binding of
chloride versus larger inorganic and organic anions, including phosphate,
citrate, fatty acids and bile acids. This size exclusion mechanism allows a
majority of the binding capacity to be used for hydrochloric acid binding.
We submitted our New Drug Application, or NDA, for veverimer through the
Accelerated Approval Program as a chronic treatment for metabolic acidosis and
slowing of kidney disease progression in patients with metabolic acidosis
associated with CKD for review by the FDA in August 2019. Results from our Phase
3, 12-week efficacy trial, TRCA-301, and a follow-on 40-week extension trial,
TRCA-301E, formed the primary basis of our NDA submission. The TRCA-301 trial
met both its primary and secondary endpoints in a highly statistically
significant manner (p < 0.0001 for both the primary and secondary endpoints).
The TRCA-301E trial met its primary and all secondary endpoints. The Lancet
published the results of the TRCA-301 trial in March 2019 and the results of the
TRCA-301E trial in June 2019. We commenced our ongoing VALOR-CKD renal outcomes
trial in the fourth quarter of 2018 to confirm veverimer's ability to slow CKD
progression through the treatment of metabolic acidosis in patients with CKD.
In August 2020, we received a Complete Response Letter, or CRL, from the FDA
related to our NDA for veverimer. According to the CRL, the FDA is seeking
additional data beyond the TRCA-301/TRCA-301E trial regarding the magnitude and
durability of the treatment effect of veverimer on the surrogate marker of serum
bicarbonate and expressed concern regarding whether the demonstrated effect size
would be reasonably likely to

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predict clinical benefit. In addition, the CRL questioned the applicability of
the treatment effect to the U.S. population and the practice of medicine in the
United States. The FDA also expressed concern as to the reliability of the
findings given that the findings for the TRCA-301/TRCA-301E trial, were driven
by a single, high-enrolling trial site located in Eastern Europe. The CRL did
not raise any concerns related to FDA's completed inspection of the highest
enrolling clinical trial site in the TRCA-301/TRCA-301E trial and there was no
FDA Form 483 issued. There were no safety, clinical
pharmacology/biopharmaceutics, CMC, or non-clinical issues identified in the
CRL. The CRL provided multiple options for resolving the identified
deficiencies, including submission of the data from at least one additional
adequate and well-controlled trial demonstrating the efficacy of veverimer for
the treatment of metabolic acidosis associated with CKD.
We held an End-of-Review Type A meeting, or Type A meeting, with the FDA's
Division of Cardiology and Nephrology, or the Division, in October 2020. The
Division agreed, in principle, that an interim analysis of serum bicarbonate
data from the VALOR-CKD trial proposed by Tricida could address the Division's
concerns regarding the reliability of the TRCA-301/TRCA-301E trial data and the
relevance of those trial findings to the U.S. population provided certain
conditions were met. Based on other feedback from the FDA during the Type A
meeting, we believed the Division would also require evidence of veverimer's
effect on CKD progression from a near-term interim analysis of the VALOR-CKD
trial for accelerated approval and that the FDA would be unlikely to rely solely
on serum bicarbonate data for determination of efficacy. Accordingly, we
submitted a Formal Dispute Resolution Request, or FDRR, solely requesting that
the Office of New Drugs, or OND, find that the magnitude of serum bicarbonate
change seen in the TRCA-301/TRCA-301E trial is reasonably likely to predict
clinical benefit in the treatment of metabolic acidosis associated with CKD and
that it can therefore serve as the basis for accelerated approval.
In February 2021, the OND issued a decision on our FDRR. While the OND
acknowledged that the TRCA-301 and TRCA-301E trials met their serum bicarbonate
endpoints with statistical significance, the OND denied the appeal. In its
Appeal Denied Letter, or ADL, the OND not only addressed the issue of magnitude
of serum bicarbonate change, but cited all of the deficiencies in the CRL in
concluding that the data provided in support of the veverimer NDA did not
support approval through the Accelerated Approval Program. The OND concluded
that the magnitude of the increases in serum bicarbonate levels shown in the
TRCA-301/TRCA-301E trial was not of sufficient size or duration to establish
that treatment with veverimer would be reasonably likely to provide a
discernible reduction in CKD progression. In addition, the OND found that the
intended confirmatory trial, VALOR-CKD (also known as TRCA-303), was
underpowered to detect a 13% reduction in slowing of CKD progression. This
finding was based on information included in the initial NDA submission
including the placebo-subtracted LS mean change from baseline in serum
bicarbonate observed in the TRCA-301/TRCA-301E trial and the original Predictive
MA Model. The OND also raised concerns regarding the robustness of the study
results given that the veverimer NDA was supported by a single registrational
trial (TRCA-301/TRCA-301E), which must, alone, provide persuasive evidence of
benefit. Specifically, the OND noted concerns around adequate blinding, the
trial results being strongly influenced by a single site, and the majority of
sites for the TRCA-301/TRCA-301E trial being in Eastern Europe, where
differences in patient management, including concomitant medications and diet,
might affect the treatment response to veverimer and raise a concern of the
applicability to a U.S. patient population. The OND also stated that, while
trial results in the TRCA-301/TRCA-301E trial showed improvement in two
patient-reported measures, the KDQOL Physical Functioning Survey and the
Repeated Chair Stand Test, the OND viewed this subjective data from a single
trial with skepticism in the absence of data from a second trial with similar
results, and noted that both endpoints would require rigorous blinding to
support robust conclusions. However, the OND noted that both of these changes,
if eventually established by one or more additional trials, would indicate a
potentially meaningful benefit of veverimer treatment-especially in CKD patients
who have physical functional impairments. Separate from the ADL, we previously
received feedback from the Division of Clinical Outcome Assessment, or DCOA,
that reliance on these physical function endpoints for approval may require
further validation.
Based on the ADL, we believe that we now have greater clarity on the potential
path for approval of veverimer through the Accelerated Approval Program. The OND
suggested that we meet with the Division to discuss submission of Week 52 serum
bicarbonate results from the full randomized trial population of VALOR-CKD and
that the trial should include a substantial portion of patients from the United
States or from regions with "U.S.-like" patients. If the results of this trial
were to demonstrate that veverimer provides a meaningfully larger treatment
effect than seen in the TRCA-301/TRCA-301E trial, then this trial, along with
the results from the TRCA-301/TRCA-301E trial, could address the concerns raised
in the CRL regarding the limitations and the size of the treatment response
observed in the TRCA-301/TRCA-301E trial. However, whether the extent of
increase in serum bicarbonate in any subsequent submission based on VALOR-CKD
would support accelerated approval would be a review issue, and would, in part,
reflect the Division's assessment of the adequacy (i.e., power) of VALOR-CKD to
detect the

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anticipated treatment effect of CKD progression in a reasonable timeframe.
We believe the timeline to meet the requirements for accelerated approval as
suggested in the ADL may not result in the most rapid pathway for resubmission
of the NDA for veverimer or be achievable with our current resources. Based on
the current enrollment rate, the week 52 serum bicarbonate data from the fully
enrolled VALOR-CKD trial suggested in the ADL would not be available until at
least early 2023, but there are scenarios where renal outcomes data from the
VALOR-CKD trial would become available earlier and could potentially enable
resubmission of the NDA through the traditional approval process, but it may or
may not be sufficient. At this time, we no longer believe it is practical to
pursue approval on the basis of serum bicarbonate data alone and we are focused
on obtaining outcomes data from the VALOR-CKD trial.
Our ongoing VALOR-CKD trial is a randomized double-blind, placebo-controlled
time-to-event trial. The primary endpoint event in VALOR-CKD is defined as renal
death, end-stage renal disease, or ESRD, or a confirmed ? 40% reduction in
estimated glomerular filtration rate (eGFR) (DD40). We designed the study to
randomize approximately 1,600 subjects and the trial is currently designed to
terminate when the independent blinded Clinical Endpoint Adjudication Committee,
or CEAC, has positively adjudicated 511 subjects with primary endpoint events,
which is anticipated to occur in the first half of 2024. The current VALOR-CKD
trial protocol includes the ability to stop the trial early for administrative
reasons and for a single interim analysis for early stopping for efficacy after
250 subjects with primary endpoint events have accrued (anticipated in mid-2022,
based on the current rate of primary endpoint event accrual). The current
protocol provides for the interim analysis to be conducted by an independent
unblinded Interim Analysis Committee. If the Interim Analysis Committee
recommends stopping the trial early for efficacy, and we agree with that
recommendation, the study will be terminated and data from the trial will be
analyzed according to the pre-specified statistical analysis plan. However, if
the Interim Analysis Committee does not recommend stopping the trial early for
efficacy, we will receive no information from the interim analysis. The
VALOR-CKD trial protocol also includes, as its first two secondary efficacy
endpoints, evaluation of the effect of veverimer versus placebo after one year
of treatment on patient-reported and objective measures of physical functioning,
using the KDQOL Physical Functioning Survey and the Repeated Chair Stand test,
respectively. Although not part of any efficacy endpoints, the VALOR-CKD trial
will also provide information regarding the change from baseline in serum
bicarbonate in veverimer and placebo-treated subjects.
There is a substantial likelihood that we will not have, or be able to obtain on
reasonable terms in the necessary timeframe, adequate resources to continue the
VALOR-CKD trial until we reach the current target of 511 subjects with
positively adjudicated primary endpoint events, which we anticipate would not be
reached until 2024. As such, we have considered various options to terminate the
VALOR-CKD trial early. We requested and were granted a Type A meeting with the
FDA to discuss approaches to stopping the VALOR-CKD trial early based on
financial resources and the procedures for study close-out. Consistent with
feedback provided by the FDA in its preliminary comments for the Type A meeting,
we believe that, among the alternatives considered, stopping the VALOR-CKD trial
early for administrative reasons pursuant to the existing protocol is likely to
provide the most complete and interpretable data, reduce the risk of missing
data required for key efficacy analyses, and maintain the integrity of the
trial. While the exact timing of the administrative stop will be determined by
our financial runway, we anticipate that an administrative stop would occur in
the first half of 2022. Accordingly, we are not likely to conduct the 250-event
interim analysis. Based on feedback from the FDA, we will halt enrollment of
additional patients in the VALOR-CKD trial in order to focus resources on
maximizing the duration of follow-up in subjects who are currently enrolled in
the trial. Stopping the VALOR-CKD trial early could increase the risk that the
trial will not be successful. For the VALOR-CKD trial to be successful if
stopped early, veverimer will need to demonstrate greater efficacy compared to
placebo than if the trial were continued to 511 subjects with primary endpoint
events. Even if the VALOR-CKD trial meets its primary endpoint, the data
obtained from the trial may not be sufficient to support a resubmission and/or
approval of the NDA.
We initiated enrollment in the VALOR-CKD trial in the fourth quarter of 2018 and
have established sites throughout North America, Europe, Latin America and
Asia-Pacific. As of November 5, 2021, the VALOR-CKD trial has randomized over
1,470 of 1,600 subjects with an average treatment duration of approximately 19
months and has accrued 159 subjects with positively adjudicated primary endpoint
events. In November 2020, based on feedback from the FDA, recruitment for
VALOR-CKD was closed in all regions except for the United States, Canada and
Western Europe; however, we later reopened recruitment at sites in Latin America
and Asia-Pacific. Based on feedback from the FDA in its preliminary comments for
the Type A meeting received November 4, 2021, we will halt enrollment of
additional patients in the VALOR-CKD trial. As of November 5, 2021, 72% of
subjects have been enrolled at Eastern European sites, 11% at U.S., Western
European and Canadian sites, and the remainder at Latin American and
Asia-Pacific region sites. Due to the time required for enrolled subjects to
experience endpoint

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events, if the VALOR-CKD trial is terminated in 2022, the number of endpoint
events being contributed from subjects in the United States or regions with
"U.S.-like" subjects will likely be smaller as a percentage of total events than
if the trial were continued until 511 events. If the VALOR-CKD trial is
terminated in 2022, the number of endpoint events from subjects in the United
States or regions with "U.S.-like" subjects is likely to be less than 10%. We
intend that no single site in the VALOR-CKD trial provides ? 5% of the total
number of trial subjects. However, if the trial is terminated in 2022, it is
possible that one or more sites may slightly exceed this threshold.
We believe data from the VALOR-CKD trial will be very important to inform our
decisions regarding the viability of and the appropriate regulatory path for
resubmission of the NDA for veverimer. For example, if the VALOR-CKD trial is
stopped in 2022, additional data on the effect of veverimer on (1) CKD
progression; (2) physical functioning; and (3) serum bicarbonate will become
available then. The data obtained from the VALOR-CKD trial may or may not be
sufficient to support resubmission and/or approval of the NDA. Regardless of the
regulatory pathway, the FDA's acceptance of the VALOR-CKD data in support of an
NDA resubmission, including its assessment of the magnitude and durability of
the veverimer treatment effect across the various geographic regions where the
study is conducted and the acceptability of the data from non-U.S. countries or
regions which will comprise a substantial proportion of the data from the trial,
will ultimately be a review issue. Resubmission and approval of the veverimer
NDA could also require additional clinical data beyond that provided by the
VALOR-CKD trial.
Together with our investigators, contract research organizations, or CROs, and
other contract service providers, we are regularly assessing the impact of the
COVID-19 pandemic on recruitment and retention of subjects in, and power of, our
ongoing VALOR-CKD trial. At this time, safety monitoring activities,
adjudication of endpoint events and provision of clinical trial supplies have
not been materially affected by COVID-19. The annualized rate of all-cause
mortality in VALOR-CKD is higher than we estimated when designing the trial, in
part due to the COVID-19 pandemic. We estimated the study would have an
annualized study discontinuation rate, which comprises deaths, subjects lost to
follow up and those who withdraw their consent to continue to participate and be
followed in the study, of 5%; currently the annualized study discontinuation
rate is approximately 7%. To the extent current trends continue, there may be
negative impacts on the trial in the future, including but not limited to
patient retention, compliance with the study protocol and powering due to the
impact of COVID-19. We have provided investigators additional guidance per
general FDA and European Medicines Agency, or EMA, recommendations on clinical
trial conduct during COVID-19 to ensure the ongoing VALOR-CKD trial is
effectively conducted with the utmost attention to trial subject and
investigator safety while maintaining compliance with applicable clinical trial
regulations and principles of Good Clinical Practice and minimizing risks to the
trial's integrity. We will continue to monitor the potential impact that
COVID-19 may have on our ongoing VALOR-CKD trial.
At this time, we believe we have sufficient drug substance and access to
sufficient drug product manufacturing capacity to supply the anticipated demand
of our ongoing VALOR-CKD trial through conclusion of the trial. Veverimer drug
substance manufacturing is conducted for us by Patheon Austria GmbH & Co KG, or
Patheon, in their Linz, Austria facility. We are in regular communication with
Patheon and PCI Pharma Services, our drug product manufacturer and, to our
knowledge, there have not been business disruptions at these sites due to
COVID-19 affecting the production of veverimer drug substance and drug product.
At this time, we have not experienced any material disruption in the
distribution network for veverimer, including the provision of raw materials,
the shipping of drug substance and drug product and the provision of clinical
trial supplies to trial participants.
We have no products approved for marketing, and we have not generated any
revenue from product sales or other arrangements. From our inception in 2013
through September 30, 2021, we have primarily funded our operations through the
sale of $152.4 million of convertible preferred stock, net proceeds of $237.7
million from our initial public offering, or IPO, on July 2, 2018, net proceeds
of $217.9 million from our underwritten public offering on April 8, 2019 and net
proceeds of $193.3 million from the issuance of $200.0 million aggregate
principal amount of 3.50% convertible senior notes due 2027, or the Convertible
Senior Notes, on May 22, 2020 and net borrowing of $72.1 million after fees of
$2.9 million under the Loan and Security Agreement, or Term Loan, entered into
with Hercules Capital Inc., or Hercules, on February 28, 2018. We have incurred
losses in each year since our inception in 2013. Our net losses were $39.7
million and $77.7 million for the three months ended September 30, 2021 and
2020, respectively, and $126.6 million and $209.9 million for the nine months
ended September 30, 2021 and 2020, respectively. As of September 30, 2021, we
had an accumulated deficit of $760.4 million. Substantially all of our operating
losses resulted from expenses incurred in connection with advancing veverimer
through development activities and general and administrative costs associated
with pre-commercialization activities and administrative functions. At this
time, COVID-19 has not materially impacted our current financial resources or
our outlook.

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We expect to continue to incur significant expenses and increasing operating
losses for at least the next several years. Our net losses may fluctuate
significantly from quarter to quarter and year to year. We expect our expenses
will continue in connection with our ongoing activities as we:
•conduct clinical studies of veverimer, including the ongoing VALOR-CKD trial;
•continue to optimize the manufacturing processes and manufacture drug substance
and drug product to support the ongoing VALOR-CKD trial and the commercial
launch, if approved;
•increase our research and development efforts;
•create additional infrastructure to support our product development;
•seek regulatory approval for veverimer, including any activities necessary for
the resubmission of the NDA for veverimer;
•maintain, expand and protect our intellectual property portfolio; and
•maintain operational, financial and management information systems to support
ongoing operations, including operating as a public company.
We do not expect to generate any revenue from product sales until we
successfully complete development and obtain regulatory approval for veverimer.
If we obtain regulatory approval for veverimer, we expect to incur significant
commercialization expenses related to product sales, marketing, manufacturing
and distribution. Accordingly, we will seek to fund our operations through
available cash from our prior equity offerings and the Convertible Senior Note
issuance, and, as necessary, through additional public or private equity or debt
financings or other sources. However, we may be unable to raise additional funds
or enter into such other arrangements when needed on favorable terms or at all.
Our failure to raise capital or enter into such other arrangements when needed
would have a negative impact on our financial condition and ability to develop
veverimer. We believe that our existing cash, cash equivalents and investments
are not likely to be sufficient to fund our operations following the end of
2022.
Components of Our Results of Operations
Research and Development Expense
Research and development expense consists primarily of costs associated with the
development of veverimer and includes salaries, bonuses, benefits, travel and
other related costs, including stock-based compensation expense, for personnel
engaged in research and development functions; expenses incurred under
agreements with CROs, investigative sites and consultants that conduct our
nonclinical and clinical studies; manufacturing processes optimization and the
cost of manufacturing drug substance for commercial and clinical use as well as
drug product to support the ongoing VALOR-CKD trial; payments to consultants
engaged in the development of veverimer, including stock-based compensation,
travel and other expenses; costs related to compliance with quality and
regulatory requirements; research and development facility-related expenses,
which include direct and allocated expenses, and other related costs. Research
and development expense is charged to operations as incurred when these
expenditures relate to our research and development efforts and have no
alternative future uses. Payments made prior to the receipt of goods or services
to be used in research and development are capitalized until the goods or
services are received.
All of our research and development expense to date has been incurred in
connection with veverimer. We expect our research and development expense to
increase for the foreseeable future as we optimize our manufacturing processes
and advance veverimer through clinical development, including our ongoing
VALOR-CKD trial. The process of conducting clinical studies necessary to obtain
regulatory approval is costly and time consuming and the successful development
of veverimer is highly uncertain. As a result, we are unable to determine the
duration and completion costs of our research and development projects or when,
and to what extent, we will generate revenue from commercialization and sale of
veverimer, if approved. Therefore, we are unable to estimate with any certainty
the costs we will incur in the continued development of veverimer. The degree of
success, timelines and cost of development can differ materially from
expectations. We may never succeed in achieving regulatory approval for
veverimer.
General and Administrative Expense

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General and administrative expense consists primarily of salaries, bonuses,
benefits, travel, stock-based compensation expense and facility-related expenses
for personnel in finance and administrative functions. General and
administrative expense also includes professional fees for legal, patent,
consulting, accounting and audit services, pre-commercial preparation, medical
affairs costs and recruiting services for the potential launch of veverimer and
other related costs.
Restructuring Costs
Expenses related to restructuring activities are recorded in operating expenses
as part of research and development expense and general and administrative
expense as appropriate.
On September 10, 2020, the Compensation Committee of the Board of Directors
approved the Tricida, Inc. 2020 Reduction in Force Severance Benefit Plan, or
2020 Restructuring Plan. On September 18, 2020, we implemented a restructuring,
or Third Quarter 2020 Restructuring, under the 2020 Restructuring Plan to
streamline the organization and preserve capital that included the elimination
of approximately 21.5% of our workforce and other cost reductions. On October
25, 2020, our Board of Directors approved and on October 28, 2020, we
implemented a restructuring under the 2020 Restructuring Plan, or Fourth Quarter
2020 Restructuring, to reduce operating costs and better align our workforce
with the needs of our business following the completion of the Type A meeting
with the FDA in October 2020. The Fourth Quarter 2020 Restructuring resulted in
the elimination of approximately 60.0% of our workforce and included one-time
termination severance payments and other employee-related costs, and exit costs
including contract termination costs and accelerated depreciation of capitalized
software. Restructuring costs of $0.1 million were recorded in operating
expenses in our condensed statements of operations and comprehensive loss for
the nine months ended September 30, 2021.
Results of Operations
The following table presents our results of operations for the three and nine
months ended September 30, 2021 and 2020.
                                             Three Months Ended                                                         Nine Months Ended
                                                September 30,                           Change                            September 30,                            Change
(in thousands)                             2021               2020                $                 %               2021                2020                 $                 %
Operating expenses:
Research and development               $  26,635          $  42,996          $ (16,361)            (38) %       $   78,591          $  121,134          $ (42,543)             (35) %
General and administrative                 9,052             29,273            (20,221)            (69) %           28,497              81,217            (52,720)             (65) %
Total operating expenses                  35,687             72,269            (36,582)            (51) %          107,088             202,351            (95,263)             (47) %
Loss from operations                     (35,687)           (72,269)            36,582             (51) %         (107,088)           (202,351)            95,263              (47) %

Other income (expense), net                    6                907               (901)            (99) %              155               4,395             (4,240)             (96) %
Interest expense                          (3,994)            (6,267)             2,273             (36) %          (13,533)            (12,043)            (1,490)              12  %
Loss on early extinguishment of
Term Loan                                      -                  -                  -                N/M           (6,124)                  -             (6,124)                N/M
Loss before income taxes                 (39,675)           (77,629)            37,954             (49) %         (126,590)           (209,999)            83,409              (40) %
Income tax benefit (expense)                   -                (36)                36            (100) %                -                  50                (50)            (100) %
Net loss                               $ (39,675)         $ (77,665)         $  37,990             (49) %       $ (126,590)         $ (209,949)         $  83,359              (40) %


N/M = Not meaningful
Research and Development Expense
The following table presents our research and development expense for the three
months ended September 30, 2021 and 2020.
                                                Three Months Ended
                                                  September 30,                   Change
(in thousands)                                  2021           2020            $            %
Clinical development costs                  $   20,060      $ 36,473      $ (16,413)      (45) %
Personnel and related costs                      2,880         2,937            (57)       (2) %
Stock-based compensation expense                 2,819         2,937           (118)       (4) %
Other research and development costs               876           649        

227 35 % Total research and development expense $ 26,635 $ 42,996 $ (16,361) (38) %

Comparison of the three months ended September 30, 2021 and 2020
Research and development expense was $26.6 million and $43.0 million for the
three months ended September 30, 2021 and 2020, respectively. The decrease of
$16.4 million was due to decreased activities in connection with our veverimer
clinical development program, resulting in a decrease of clinical development
costs of $16.4 million related to manufacturing process optimization and drug
substance manufacturing costs related to our VALOR-CKD trial; decreased
personnel and related costs of $0.1 million related to the workforce reduction
following the Third Quarter 2020 Restructuring and the Fourth Quarter 2020
Restructuring; decreased stock-based compensation expense of $0.1 million
related to performance awards granted in August 2019 and our workforce
reduction, partially offset by higher costs related to annual awards granted in
January 2021; partially offset by an increase in other research and development
costs of $0.2 million due to facilities related costs.
The following table presents our research and development expense for the nine
months ended September 30, 2021 and 2020.
                                                Nine Months Ended
                                                  September 30,                  Change
(in thousands)                                 2021          2020             $            %
Clinical development costs                  $ 58,855      $  98,530      $ (39,675)      (40) %
Personnel and related costs                    9,160         10,818         (1,658)      (15) %
Stock-based compensation expense               7,948          9,261         (1,313)      (14) %
Other research and development costs           2,628          2,525         

103 4 % Total research and development expense $ 78,591 $ 121,134 $ (42,543) (35) %

Comparison of the nine months ended September 30, 2021 and 2020
Research and development expense was $78.6 million and $121.1 million for the
nine months ended September 30, 2021 and 2020, respectively. The decrease of
$42.5 million was due to decreased activities in connection with our veverimer
clinical development program, resulting in a decrease of clinical development
costs of $39.7 million related to manufacturing process optimization and drug
substance manufacturing costs related to our VALOR-CKD trial; decreased
personnel and related costs of $1.7 million related to the workforce reduction
following the Third Quarter 2020 Restructuring and the Fourth Quarter 2020
Restructuring; decreased stock-based compensation expense of $1.3 million
related to performance awards granted in August 2019 and our workforce
reduction, partially offset by higher costs related to annual awards granted in
January 2021; partially offset by an increase in other research and development
costs of $0.1 million due to facilities related costs.
General and Administrative Expense
The following table presents our general and administrative expense for the
three months ended September 30, 2021 and 2020.
                                                  Three Months Ended
                                                    September 30,                   Change
(in thousands)                                    2021           2020            $            %
Personnel and related costs                   $    2,255      $ 10,174      $  (7,919)      (78) %
Stock-based compensation expense                   3,830         4,718           (888)      (19) %
Other general and administrative costs             2,967        14,381      

(11,414) (79) % Total general and administration expense $ 9,052 $ 29,273 $ (20,221) (69) %

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Comparison of the three months ended September 30, 2021 and 2020
General and administrative expense was $9.1 million and $29.3 million for the
three months ended September 30, 2021 and 2020, respectively. The decrease of
$20.2 million was due to a decrease in pre-commercialization and administrative
activities in connection with our veverimer clinical development program,
resulting in decreased personnel and related costs of $7.9 million due to the
workforce reduction following the Third Quarter 2020 Restructuring and the
Fourth Quarter 2020 Restructuring; decreased stock-based compensation expense of
$0.9 million related to our workforce reduction and performance awards granted
in August 2019, partially offset by higher costs related to annual awards
granted in January 2021; and a decrease in other general and administrative
costs of $11.4 million primarily related to reduction in pre-commercialization
activities, medical affairs activities, legal, recruiting and training costs.
The following table presents our general and administrative expense for the nine
months ended September 30, 2021 and 2020.
                                                  Nine Months Ended
                                                    September 30,                  Change
(in thousands)                                   2021           2020            $            %
Personnel and related costs                   $   7,097      $ 24,848      $ (17,751)      (71) %
Stock-based compensation expense                 11,352        15,847         (4,495)      (28) %
Other general and administrative costs           10,048        40,522       

(30,474) (75) % Total general and administration expense $ 28,497 $ 81,217 $ (52,720) (65) %

Comparison of the nine months ended September 30, 2021 and 2020
General and administrative expense was $28.5 million and $81.2 million for the
nine months ended September 30, 2021 and 2020, respectively. The decrease of
$52.7 million was due to a decrease in pre-commercialization and administrative
activities in connection with our veverimer clinical development program,
resulting in decreased personnel and related costs of $17.8 million due to the
workforce reduction following the Third Quarter 2020 Restructuring and the
Fourth Quarter 2020 Restructuring; decreased stock-based compensation expense of
$4.5 million related to our workforce reduction and performance awards granted
in August 2019, partially offset by higher costs related to annual awards
granted in January 2021; and a decrease in other general and administrative
costs of $30.5 million primarily related to reduction in pre-commercialization
activities, medical affairs activities, recruiting and training costs.
Liquidity and Capital Resources
Sources of Liquidity
From our inception in 2013 through September 30, 2021, we have primarily funded
our operations through the sale of $152.4 million of convertible preferred
stock, net proceeds of $237.7 million from our IPO on July 2, 2018, net proceeds
of $217.9 million from our underwritten public offering of common stock on April
8, 2019, net proceeds of $193.3 million from the issuance of Convertible Senior
Notes on May 22, 2020 and net borrowing of $72.1 million under the Term Loan. As
of September 30, 2021, we had cash, cash equivalents and investments of $146.8
million.
Hercules Loan and Security Agreement
On March 12, 2021, we repaid the outstanding principal of $75.0 million and fees
in the amount of $8.3 million to Hercules under the Term Loan. We recognized a
loss on early debt extinguishment of $6.1 million which represents the remaining
unamortized issuance costs.
Convertible Senior Notes
On May 22, 2020, we issued $200.0 million aggregate principal amount of
Convertible Senior Notes pursuant to an indenture, dated as of May 22, 2020, or
the Indenture, between us and U.S. Bank National Association, as trustee, or the
Trustee. Net proceeds from the offering were $193.3 million after deducting
underwriting discounts and commissions and other offering costs of approximately
$6.7 million.
Our Convertible Senior Notes are senior unsecured obligations, and interest is
payable semi-annually in arrears at a rate of 3.5% per year on May 15 and
November 15 of each year, beginning on November 15, 2020. The

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Convertible Senior Notes mature on May 15, 2027, unless earlier repurchased,
redeemed or converted and are not redeemable prior to May 20, 2024. We may
redeem for cash all or any portion of the Convertible Senior Notes, at our
option, on or after May 20, 2024 and on or before the 40th scheduled trading day
immediately prior to the maturity date, if the last reported sale price of our
common stock has been at least 130% of the conversion price then in effect for
at least 20 trading days (whether or not consecutive), including the trading day
immediately preceding the date on which we provide notice of redemption, during
any 30 consecutive trading day period ending on, and including, the trading day
immediately preceding the date on which we provide notice of redemption at a
redemption price equal to 100% of the principal amount of the Convertible Senior
Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the
redemption date. We are not required to and no sinking fund is provided for the
Convertible Senior Notes.
The Convertible Senior Notes are convertible into cash, shares of our common
stock or a combination of cash and shares of our common stock at our election at
an initial conversion rate of 30.0978 shares of our common stock per $1,000
principal amount of the Convertible Senior Notes, which is equivalent to an
initial conversion price of approximately $33.23 per share of our common stock.
The conversion rate is subject to customary adjustments for certain events as
described in the Indenture. It is our current intent to settle conversions
through combination settlement, which involves repayment of the principal
portion in cash and any excess of the conversion value over the principal amount
in shares of our common stock. As of September 30, 2021, the "if-converted
value" did not exceed the remaining principal amount of the Convertible Senior
Notes.
Funding Requirements
We have incurred losses and negative cash flows from operations since our
inception in 2013 and anticipate that we will continue to incur net losses for
the foreseeable future. As of September 30, 2021, we had an accumulated deficit
of $760.4 million. Based on our cash, cash equivalents and investments as of
September 30, 2021, we believe we have sufficient capital to continue funding
our operations for the twelve-month period following the filing of this
Quarterly Report on Form 10-Q. However, our existing cash, cash equivalents and
investments are not likely to be sufficient to fund our operations following the
end of 2022 as we expect to incur additional losses in the future to conduct
research and development and to conduct pre-commercialization activities and
recognize that we will need to raise additional capital to fully implement our
business plan.
Such future capital requirements are difficult to forecast and will depend on
many factors, including:
•the progress, outcome and results of our ongoing VALOR-CKD trial;
•the impact of termination of our VALOR-CKD trial;
•the costs, timing and success of addressing the deficiencies identified by the
FDA in the CRL and issues raised in the ADL related to our NDA for veverimer;
•our ability to obtain approval of our NDA for veverimer from the FDA under
either traditional approval or the Accelerated Approval Program, if at all;
•the findings of the FDA during their routine inspections of our facility and
the facilities of our contract manufacturers and clinical trial sites during the
NDA review process and our ability to promptly and adequately address any such
findings;
•the revenue, if any, received from commercial sales of veverimer should we
receive regulatory approval;
•our ability to maintain and enforce our intellectual property rights and defend
any intellectual property-related claims;
•the costs, timing and success of the scale-up and optimization of the process
of manufacturing veverimer, and our minimum and maximum commitments under the
Manufacturing and Commercial Supply Agreement with Patheon, as the same may be
amended from time to time;
•the costs, timing and success of future commercialization activities, including
product manufacturing, marketing, sales and distribution, for veverimer if we
receive regulatory approval and do not partner for commercialization;
•the cost of fulfilling our minimum contractual obligations to our suppliers and
vendors; and

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•the extent to which we acquire or in-license other products and technologies.
Until such time, if ever, as we can generate substantial product revenues, we
expect to finance our cash needs through a combination of equity offerings, debt
financings, collaborations, strategic partnerships and licensing arrangements.
To the extent that we raise additional capital through the sale of equity or
convertible debt securities, the ownership interest of our stockholders will be
or could be diluted, and the terms of these securities may include liquidation
or other preferences that adversely affect the rights of our common
stockholders. If we raise additional funds through collaborations, strategic
partnerships or licensing arrangements with third parties, we may have to
relinquish valuable rights to veverimer, associated intellectual property, our
other technologies, future revenue streams or research programs or grant
licenses on terms that may not be favorable to us.
However, there can be no assurance that we will be successful in securing
additional funding at levels sufficient to fund our operations or on terms
acceptable to us. If we are unsuccessful in our efforts to raise additional
financing, we could be required to significantly reduce operating expenses and
delay, reduce the scope of or eliminate some of our development programs or our
future commercialization efforts, out-license intellectual property rights to
our investigational drug candidates and sell unsecured assets, cease operations
altogether or a combination of the above, any of which may have a material
adverse effect on our business, results of operations, financial condition
and/or our ability to fund our scheduled obligations on a timely basis or at
all.
On July 2, 2018, we completed our IPO and issued and sold an aggregate of
13,455,000 shares of common stock, including the underwriters' exercise in full
of their over-allotment option, a public offering price of $19.00 per share. Net
proceeds were approximately $237.7 million, after deducting underwriting
discounts and commissions of $17.9 million.
On April 8, 2019, we consummated an underwritten public offering and issued
6,440,000 shares of common stock, which included the exercise in full by the
underwriters of their option to purchase 840,000 additional shares of common
stock at an offering price of $36.00 per share for net proceeds of approximately
$217.9 million, after deducting underwriting discounts and commissions of $13.9
million.
On May 22, 2020, we issued $200.0 million aggregate principal amount of
Convertible Senior Notes due 2027. The issuance included the exercise in full by
the initial purchasers of their option to purchase an additional $25.0 million
aggregate principal amount of Convertible Senior Notes. Net proceeds from the
offering were $193.3 million after deducting underwriting discounts and
commissions and other offering costs of approximately $6.7 million.
Cash Flows
The following table presents a summary of the net cash flow activity for the
nine months ended September 30, 2021 and 2020.
                                                                 Nine Months Ended
                                                                   September 30,
(in thousands)                                                  2021            2020
Net cash provided by (used in):
Operating activities                                        $ (101,996)     $ (188,818)
Investing activities                                            63,988         (10,140)
Financing activities                                           (82,861)        210,096

Net increase (decrease) in cash and cash equivalents $ (120,869) $ 11,138

Cash Used in Operating Activities
During the nine months ended September 30, 2021, cash used in operating
activities was $102.0 million, which consisted of a net loss of $126.6 million,
adjusted by non-cash charges of $33.6 million and changes in cash used in
operating assets and liabilities of $9.0 million. The non-cash charges consisted
primarily of stock-based compensation of $19.3 million, accretion of Term Loan
and Convertible Senior Notes of $7.0 million, loss on early extinguishment of
Term Loan of $6.1 million, non-cash operating lease costs of $0.6 million, net
amortization of premiums and accretion of discounts on investments of $0.4
million and depreciation and amortization of $0.4 million, partially offset by
changes in compound derivative liability of $0.2 million. The changes in cash
used in our operating assets and liabilities were primarily due to a decrease in
accrued expenses and other liabilities of $8.9

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million and a decrease in accounts payable of $0.2 million, partially offset by
a decrease in prepaid expenses and other assets of $0.1 million.
During the nine months ended September 30, 2020, cash used in operating
activities was $188.8 million, which consisted of a net loss of $209.9 million,
adjusted by non-cash charges of $30.7 million and changes in cash used in
operating assets and liabilities of $9.5 million. The non-cash charges consisted
primarily of stock-based compensation of $25.1 million, accretion of Term Loan
and Convertible Senior Notes of $5.2 million, depreciation and amortization of
$0.7 million and non-cash operating lease costs of $0.6 million, partially
offset by changes in fair value of compound derivative liability of $0.7 million
and net amortization of premiums and accretion of discounts on investments of
$0.3 million. The changes cash used in our operating assets and liabilities were
primarily due to a decrease in accounts payable of $4.1 million, an increase in
prepaid expenses and other assets of $3.3 million and a decrease in accrued
expenses and other liabilities of $2.1 million.
Cash Provided by (Used in) Investing Activities
Net cash provided by investing activities was $64.0 million for the nine months
ended September 30, 2021 and net cash used in investing activities was $10.1
million for the nine months ended September 30, 2020. The net cash provided by
investing activities during the nine months ended September 30, 2021 was due to
maturities of investments of $200.4 million, partially offset by purchases of
investments of $136.3 million and purchases of property and equipment of $0.1
million. The net cash used in investing activities during the nine months ended
September 30, 2020 was due to purchases of investments of $277.0 million and
purchases of property and equipment of $1.2 million, partially offset by
maturities of investments of $268.0 million.
Cash Provided by (Used in) Financing Activities
Net cash used in financing activities was $82.9 million for the nine months
ended September 30, 2021 and net cash provided by financing activities was
$210.1 million for the nine months ended September 30, 2020. The net cash used
in financing activities during the nine months ended September 30, 2021 was
primarily due to cash paid for early extinguishment of the Term Loan of $83.3
million, partially offset by proceeds from issuance of common stock under equity
incentive plans of $0.5 million. The net cash provided by financing activities
during the nine months ended September 30, 2020 was primarily due to net
proceeds from the issuance of Convertible Senior Notes of $193.3 million, Term
Loan funding of $15.0 million and proceeds from issuance of common stock under
equity incentive plans of $1.9 million.
Off-Balance Sheet Arrangements
During the periods presented, we did not have, nor do we currently have, any
off-balance sheet arrangements as defined under the rules of the Securities and
Exchange Commission.
Contractual Obligations and Commitments
Based on our cash, cash equivalents and investments as of September 30, 2021, we
believe we have sufficient capital to continue meeting our contractual
obligations for the twelve-month period following the filing of this Quarterly
Report on Form 10-Q. However, our existing cash, cash equivalents and
investments are not likely to be sufficient to meet our contractual obligations
following the end of 2022. For additional details regarding our contractual
obligations, see Note 5. "Commitments and Contingencies" to our condensed
financial statements in Part I, Item 1. of this Quarterly Report on Form 10-Q.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of financial condition and results of
operations is based on our condensed financial statements, which have been
prepared in accordance with generally accepted accounting principles in the
United States. The preparation of these condensed financial statements requires
us to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements, as well as the reported expenses during the
reporting periods. These items are monitored and analyzed by us for changes in
facts and circumstances, and material changes in these estimates could occur in
the future. We base our estimates on historical experience and on various other
factors that we believe are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Changes in
estimates are reflected in reported results for the period in which they become
known. Actual results

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may differ significantly from these estimates under different assumptions or conditions. There have been no material changes to the critical accounting estimates discussed in our Annual Report on Form 10-K for the year ended December 31, 2020.

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