Tvardi Therapeutics, Inc. (TVRD) FY 2021 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing at the end of this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read “Cautionary Note Regarding Forward-Looking Statements” and Item 1A. Risk Factors of this Annual Report on Form 10-K for a discussion of material factors that could cause 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

Introduction

We are an early commercial-stage biopharmaceutical company leading a new treatment paradigm to improve the lives of patients suffering from pruritus. Our novel KORSUVA injection is the first and only FDA-approved treatment for moderate-to-severe pruritus associated with CKD in adults undergoing hemodialysis. We are developing an Oral KORSUVA (difelikefalin) formulation and plan to initiate Phase 3 programs in the first quarter of 2022 for the treatment of pruritus in patients with AD and NDD-CKD. Phase 2 trials of Oral KORSUVA (difelikefalin) are ongoing in PBC and NP patients with moderate-to-severe pruritus.

On August 23, 2021, our lead product, KORSUVA injection, was approved by the FDA for the treatment of moderate-to-severe pruritus associated with CKD in adults undergoing hemodialysis in the United States. We expect commercial launch of KORSUVA injection in April 2022 and associated revenues in the second quarter of 2022.

We have partnered with VFMCRP, a joint venture between Vifor Pharma Group and Fresenius Medical Care, and Vifor to commercialize KORSUVA injection in dialysis patients with CKD-aP in the U.S. under profit share agreements. We have partnered with VFMCRP to commercialize KORSUVA worldwide, excluding Japan (Maruishi/sub-licensee Kissei), and South Korea (CKDP). VFMCRP is a leading nephrology commercial organization with a significant presence in nephrology offices and dialysis centers. We are launching KORSUVA injection into a highly concentrated market. The dialysis market in the U.S. is dominated by two key providers, Fresenius and Davita, which combined control about 75% of the market. In addition, about 80% of the CKD hemodialysis patients are insured by Medicare.

Our U.S. commercial partner, Vifor Pharma Group, submitted the payment reimbursement application for TDAPA and the HCPCS to CMS in September 2021. In December 2021, CMS granted TDAPA to KORSUVA injection in the anti-pruritic functional category. TDAPA will apply to KORSUVA injection beginning April 1, 2022 for two years.

We have built a pipeline around an oral formulation of difelikefalin, the active compound in KORSUVA injection. We are developing Oral KORSUVA (difelikefalin) in programs to create potential opportunities across all three disease categories with chronic pruritus. This platform of Oral KORSUVA (difelikefalin) programs is designed to significantly expand the addressable market and patient populations that might benefit from our compound. We have four clinical programs in disease areas with about 16 million potential patients: NDD-CKD associated pruritus, AD, CLD, and NP.

Based on our completed Phase 2 trials and FDA End of Phase 2 meetings, in the first quarter of 2022, we plan to initiate two Phase 3 registrational programs of Oral KORSUVA (difelikefalin) for the treatment of pruritus, one in NDD-CKD and the other in AD.

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In earlier-stage programs, we have a Phase 2 study ongoing for Oral KORSUVA (difelikefalin) in the treatment of NP, a neurologic pruritus in which chronic pruritus is the key manifestation of sensory neuropathic syndrome. This condition has no FDA-approved treatments nor robust data to support the use of any single therapy. We currently anticipate a readout on this trial in the second quarter of 2022. We believe this program could provide insight on Oral KORSUVA’s (difelikefalin) potential in other chronic neurologic pruritus conditions. In addition, we have an ongoing Phase 2 study of Oral KORSUVA (difelikefalin) for the treatment of PBC for which we currently anticipate a readout in

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the second half of 2022. This program could provide insight into whether Oral KORSUVA (difelikefalin) has utility in other chronic liver diseases.

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We were incorporated and commenced operations in 2004, and our primary activities to date have been organizing and staffing our company, developing our lead product and product candidates, including conducting preclinical studies and clinical trials of difelikefalin-based product candidates and raising capital. To date, we have financed our operations primarily through sales of our equity and debt securities and payments from license agreements. KORSUVA injection was approved in the U.S. in August 2021, with commercial launch expected in April 2022.

Recent Developments

COVID-19 Update

The extent of the impact of the ongoing COVID-19 pandemic on our business, operations and clinical development and regulatory timelines and plans remains uncertain, and will depend on certain developments, including the duration and outbreak and spread of variants and its impact on our clinical trial enrollment, trial sites, partners, CROs, third-party manufacturers, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. The timing of our submission of our NDA to the FDA for KORSUVA injection was not affected, as we submitted the NDA in December 2020. The COVID-19 pandemic, however, has affected, and may in the future affect, the initiation of certain trial sites and patient enrollment for our ongoing Phase 2 clinical trials of Oral KORSUVA (difelikefalin) for moderate-to-severe pruritus in patients with NP, and for the treatment of pruritus in patients with hepatic impairment due to PBC. While we currently do not expect any significant delays in our clinical development or commercial timelines, the ultimate impact of the evolving COVID-19 pandemic remains difficult to predict.

To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel and employee work locations. We are continuing to actively monitor the rapidly evolving situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees, partners and other third-parties with whom we do business. The extent to which the ongoing and evolving COVID-19 pandemic may affect our business, operations and clinical development and regulatory timelines and plans, including the resulting impact on our expenditures and capital needs, remains uncertain.

Vifor and VFMCRP Milestone Payments

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In October 2021, after the expiration of the requisite waiting period under the HSR Act, we received a $50.0 million milestone payment from Vifor and issued 3,282,391 shares of our common stock in connection with U.S. regulatory approval of KORSUVA injection on August 23, 2021 (see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Collaboration and License Agreements – Vifor (International) Ltd.).

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Also in October 2021, we received a $15.0 million milestone payment from VFMCRP in connection with U.S. regulatory approval of KORSUVA injection on August 23, 2021 (see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Collaboration and License Agreements – VFMCRP).

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Christopher Posner Appointed as President and Chief Executive Officer

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Christopher Posner was appointed as our President and CEO, effective November 9, 2021. Mr. Posner joins us from LEO Pharma, Inc., the U.S. affiliate of LEO Pharma A/S, a global leader in medical dermatology, where he was President and CEO. Mr. Posner succeeds Dr. Derek Chalmers, who transitioned to a Senior Advisor role to us.

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Collaboration and License Agreements

Vifor (International) Ltd. (Vifor)

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In October 2020, we entered into the Vifor Agreement under which we granted Vifor an exclusive license solely in the United States to use, distribute, offer for sale, promote, sell and otherwise commercialize KORSUVA (difelikefalin) injection for all therapeutic uses relating to the inhibition, prevention or treatment of itch associated with pruritus in hemodialysis and peritoneal dialysis patients in the United States. Under the Vifor Agreement, we retain all rights with respect to the clinical development of, and activities to gain regulatory approvals of, KORSUVA (difelikefalin) injection in the United States.

Under the terms of the Vifor Agreement, we received from Vifor an upfront payment of $100.0 million and an additional payment of $50.0 million for the purchase of an aggregate of 2,939,552 shares of our common stock at a price of $17.0094 per share, which represents a premium over a pre-determined average closing price of our common stock. The purchase of our common stock was governed by the Vifor Stock Purchase Agreement.

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After U.S. regulatory approval of KORSUVA injection in August 2021, we received an additional $50.0 million in October 2021 for the purchase of an aggregate of 3,282,391 shares of our common stock at a price of $15.23 per share, which represents a 20% premium to the 30-day trailing average price of our common stock. The purchase of our common stock was governed by the Vifor Stock Purchase Agreement. The excess of the stock purchase price over the cost of the purchased shares at the closing price of our common stock on the date of the achievement of the milestone of $5.0 million was included as license and milestone fees revenue for accounting purposes for the year ended December 31, 2021. In addition, pursuant to the Vifor Agreement, we are eligible to receive payments of up to $240.0 million upon the achievement of certain sales-based milestones (see Notes 12 and 13 of Notes to Financial Statements, Collaboration and Licensing Agreements and Revenue Recognition, respectively, in this Annual Report on Form 10-K).

We retain the right to make and have made KORSUVA injection, on a non-exclusive basis, in the United States for commercial sale of KORSUVA injection for use in all therapeutic uses to prevent, inhibit or treat itch associated with pruritus in hemodialysis and peritoneal-dialysis patients anywhere in the world and for supply of Licensed Product to Vifor under the terms of a supply agreement, or the Vifor Supply Agreement, which was executed in September 2021. The supply price is our COGS, as calculated under GAAP, plus an agreed upon margin. The Vifor Supply Agreement will co-terminate with the Vifor Agreement.

The Vifor Agreement provides full commercialization rights in dialysis clinics to Vifor in the United States under a profit-sharing arrangement. Pursuant to the profit-sharing arrangement, we will generally be entitled to 60% of the net profits (as defined in the Vifor Agreement) from sales of KORSUVA injection in the United States (excluding sales to Fresenius Medical Center dialysis clinics, compensation for which is governed by the VFMCRP Agreement) and Vifor is entitled to 40% of such net profits, subject to potential temporary adjustment in future years based on certain conditions. Under the Vifor Agreement, in consideration of Vifor’s conduct of the marketing, promotion, selling and distribution of KORSUVA injection in the United States, we will pay a marketing and distribution fee to Vifor based on the level of annual net sales. This fee will be deducted from product sales in calculating the net profits that are subject to the profit-sharing arrangement under the Vifor Agreement.

The Vifor Agreement will continue in effect until its expiration upon the cessation of commercial sale of KORSUVA injection in the United States by Vifor and its affiliates and sublicensees, or until the earlier termination of the Vifor Agreement.

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In connection with the Vifor Agreement, the parties entered into the Vifor Purchase Agreement, governing the issuance of our common stock to Vifor. Pursuant to the Vifor Purchase Agreement, Vifor will not, and will not cause any direct or indirect affiliate to, during the period beginning on October 15, 2020 and ending at the close of business on October 15, 2022, or the Restricted Period, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock (including without limitation, common stock or such other securities

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which may be deemed to be beneficially owned by Vifor in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a stock option or warrant) owned by Vifor as of the date hereof or acquired prior to the end of the Restricted Period (collectively with the common stock, referred to as the Lock-Up Securities, except any such sale, option or contract by and between Vifor and one of its affiliates (including Vifor Pharma Group Ltd. or VFMCRP), (ii) enter into any hedging, swap or other agreement or transaction that transfers, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Lock-Up Securities, in cash or otherwise, (iii) make any demand for or exercise any right with respect to the registration of any Lock-Up Securities, or (iv) publicly disclose the intention to do any of the foregoing.

Under the Vifor Purchase Agreement, the parties also agreed that, in certain circumstances, upon the request of Vifor, the parties will enter into a registration rights agreement prior to the end of the Restricted Period that would provide Vifor (or its affiliate transferee) customary registration rights with respect to the shares of common stock issued pursuant to the stock purchase agreement following the expiration of the Restricted Period.

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Vifor Fresenius Medical Care Renal Pharma Ltd. (VFMCRP)

In May 2018, we entered into the VFMCRP Agreement with VFMCRP, a joint venture between Vifor Pharma Group and Fresenius Medical Care, under which we granted VFMCRP a license to seek regulatory approval to commercialize, import, export, use, distribute, offer for sale, promote, sell and otherwise commercialize KORSUVA (difelikefalin) injection for all therapeutic uses to prevent, inhibit or treat itch associated with pruritus in hemodialysis and peritoneal-dialysis patients worldwide (excluding the United States, Japan and South Korea). We retain full development and commercialization rights for KORSUVA injection for the treatment of CKD-aP in dialysis patients in the U.S. except in the dialysis clinics of Fresenius Medical Care North America, or FMCNA, where we and VFMCRP will promote KORSUVA injection under a profit-sharing arrangement.

Upon entry into the VFMCRP Agreement, VFMCRP made a non-refundable, non-creditable $50 million upfront payment to us and Vifor purchased 1,174,827 shares of our common stock for $20 million, at a premium for the price of $17.024 per share, which represented a premium over a pre-determined average closing price of our common stock. The purchase of our common stock was governed by a separate stock purchase agreement.

After U.S. regulatory approval of KORSUVA injection in August 2021, we received a $15.0 million regulatory milestone payment in October 2021, which was recorded as license and milestone fees revenue for the year ended December 31, 2021 (see Notes 12 and 13 of Notes to Financial Statements, Collaboration and Licensing Agreements and Revenue Recognition, respectively, in this Annual Report on Form 10-K).

We are eligible to receive from VFMCRP additional regulatory and commercial milestone payments in the aggregate of up to $455.0 million, consisting of up to $15.0 million in regulatory milestones and up to $440.0 million in tiered commercial milestones, all of which are sales-related. We are also eligible to receive tiered double-digit royalty payments based on annual net sales, as defined, of KORSUVA (difelikefalin) injection in the licensed territories. In the United States, we and VFMCRP will promote KORSUVA (difelikefalin) injection in the dialysis clinics of FMCNA under a profit-sharing arrangement (subject to the terms and conditions of the VFMCRP Agreement) based on net FMCNA clinic sales recorded by us.

We retain the right to make and have made KORSUVA (difelikefalin) injection worldwide (excluding the United States, Japan and South Korea), or the Territory, for commercial sale by VFMCRP in or outside the Territory, and for supply of KORSUVA (difelikefalin) injection to VFMCRP under the terms of a supply agreement, or the VFMCRP Supply Agreement, which was executed in May 2020. The supply price is our COGS, as calculated under GAAP, plus an agreed upon margin. The VFMCRP Supply Agreement will co-terminate with the VFMCRP Agreement.

Maruishi Pharmaceutical Co., Ltd. (Maruishi)

In April 2013, we entered into a license agreement with Maruishi, or the Maruishi Agreement, under which we granted Maruishi an exclusive license to develop, manufacture and commercialize drug products containing difelikefalin

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in Japan in the acute pain and uremic pruritus fields. Maruishi has a right of first negotiation for any other indications for which we develop difelikefalin and, under certain conditions, Maruishi may substitute another pruritus indication for the uremic pruritus indication originally included in its license from us. Maruishi is required to use commercially reasonable efforts, at its expense, to develop, obtain regulatory approval for and commercialize difelikefalin in Japan. We are required to use commercially reasonable efforts, at our expense, to develop, obtain regulatory approval for and commercialize difelikefalin in the United States.

In January 2022, Maruishi and its sublicensee Kissei confirmed the primary endpoint was achieved in a Japanese Phase 3 clinical study (double-blind, placebo-controlled period) of difelikefalin injection for the treatment of pruritus in hemodialysis patients. In the Phase 3 study, 178 patients were administered difelikefalin or placebo for 6 weeks followed by an open-label extension period of difelikefalin administration for 52 weeks. The primary endpoint, change in itch NRS score, and the secondary endpoint, change in itching scores of Shiratori severity criteria, were significantly improved from baseline compared to the placebo group. Difelikefalin was well-tolerated.

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Under the terms of the Maruishi Agreement, we received a non-refundable and non-creditable upfront license fee of $15.0 million and are eligible to receive up to an aggregate of $10.5 million in clinical development and regulatory milestones (before contractual foreign currency exchange adjustments). In January 2021, we met the milestone criteria, as set forth in the Maruishi Agreement, for Maruishi’s first initiation of a Phase 3 trial for uremic pruritus in Japan. As a result, we received the $2.0 million milestone payment ($1.9 million after contractual foreign currency exchange adjustments) in May 2021. As of December 31, 2021, we have received $4.5 million (before contractual foreign currency exchange adjustments) of clinical development and regulatory milestones from Maruishi. We are also eligible to receive a one-time sales milestone of one billion Yen when a certain sales level is attained. We also receive a mid-double-digit percentage of all non-royalty payments received by Maruishi from its sublicensees, if any. We are also eligible to receive tiered royalties based on net sales, if any, with minimum royalty rates in the low double digits and maximum royalty rates in the low twenties. Maruishi’s obligation to pay us royalties continues, on a product-by-product basis, until the expiration of the last-to-expire licensed patent covering such product or the later expiration of any market exclusivity period.

The Maruishi Agreement continues until terminated. Either we or Maruishi may terminate the Maruishi Agreement for the other party’s breach of the agreement or bankruptcy. Maruishi may terminate the agreement at any time at will. We may terminate the agreement as a whole if Maruishi challenges the licensed patent rights, and we may terminate the agreement with respect to any indication if Maruishi discontinues its development activities. In addition, in connection with the Maruishi Agreement, Maruishi made an $8.0 million equity investment in our company.

Chong Kun Dang Pharmaceutical Corporation (CKDP)

In April 2012, we entered into a license agreement with CKDP, or the CKDP Agreement, under which we granted CKDP an exclusive license to develop, manufacture and commercialize drug products containing difelikefalin in South Korea. CKDP is required to use commercially reasonable efforts, at its expense, to develop, obtain regulatory approval for and commercialize difelikefalin in South Korea. We are required to use commercially reasonable efforts, at our expense, to develop, obtain regulatory approval for and commercialize difelikefalin in the United States.

Under the terms of the CKDP Agreement, we received a non-refundable and non-creditable $0.6 million upfront payment and are eligible to receive up to an aggregate of $3.8 million in development and regulatory milestones (before South Korean withholding taxes). During the year ended December 31, 2020, we received a milestone payment of $0.6 million (net of South Korean withholding tax) from CKDP, as set forth in the CKDP Agreement, for completion of a Phase 3 trial for uremic pruritus in the United States. As of December 31, 2021, we have received $2.3 million (before South Korean withholding tax) of development and regulatory milestones. We are also eligible to receive a mid-double-digit percentage of all non-royalty payments received by CKDP from its sublicensees, if any, and tiered royalties ranging from the high single digits to the high teens based on net sales, if any. CKDP’s obligation to pay us royalties continues, on a product-by-product basis, until the expiration of the last-to-expire licensed patent covering such product or the later expiration of any market exclusivity period.

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The CKDP Agreement continues until CKDP no longer has any obligation to pay us royalties on any product. Either we or CKDP may terminate the CKDP Agreement for the other party’s breach of the CKDP Agreement or bankruptcy. CKDP may terminate the CKDP Agreement if any of the licensed patent rights is invalid, unenforceable, is narrowed in scope or is deemed unpatentable, except as a result of a challenge by CKDP, or a third party commercializes a product containing a compound identical to difelikefalin without infringing any of the licensed patent rights in South Korea. We may terminate the CKDP Agreement if CKDP challenges the licensed patent rights or if a third party in South Korea owns an issued patent that claims difelikefalin and CKDP’s sale of products would infringe that patent. In addition, in connection with the CKDP Agreement, CKDP made a $0.4 million equity investment in our company.

Manufacturing and License Agreements

Polypeptide Laboratories S.A. (PPL)

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In July 2021, we entered into an API Commercial Supply Agreement with PPL that defines each party’s responsibilities with respect to PPL’s manufacture and supply of API for the difelikefalin injection product candidate. Under the API Commercial Supply Agreement, PPL shall manufacture API at its facility for sale and supply to us, in the amounts as set forth in purchase orders to be provided by us. We will be required to purchase our requirements of API for each year of the term of the agreement, based on internal forecasts.

The API Commercial Supply Agreement will continue until the fifth anniversary of the approval by the FDA of the new drug application for KORSUVA injection, unless the API Commercial Supply Agreement is earlier terminated, and will automatically be extended for successive five-year periods unless either party gives notice to the other party of its intention to terminate.

Enteris Biopharma, Inc. (Enteris)

In August 2019, we entered into the Enteris License Agreement with Enteris. Pursuant to the Enteris License Agreement, Enteris granted to us a non-exclusive, royalty-bearing license, including the right to grant sublicenses, under certain proprietary technology and patent rights related to or covering formulations for oral delivery of peptide active pharmaceutical ingredients with functional excipients to enhance permeability and/or solubility, known as Enteris’s Peptelligence® technology, to develop, manufacture and commercialize products using such technology worldwide, excluding Japan and South Korea.

As consideration for the licensed rights under the Enteris License Agreement, we paid an upfront fee equal to $8.0 million, consisting of $4.0 million in cash and $4.0 million in shares of our common stock pursuant to the Enteris Purchase Agreement described below. As a result, we recognized $8.0 million of R&D expense related to the Enteris License Agreement during the year ended December 31, 2019.

We are also obligated, pursuant to the Enteris License Agreement, to pay Enteris (1) milestone payments upon the achievement of certain development, regulatory and commercial milestones and (2) low-single digit royalty percentages on net sales of licensed products, subject to reductions in specified circumstances. Until the second anniversary of the entry into the Enteris License Agreement, we had the right, but not the obligation, to terminate our obligation to pay any royalties under the Enteris License Agreement in exchange for a lump sum payment in cash, or the Royalty Buyout. We did not exercise our Royalty Buyout right and such right expired in August 2021. During the years ended December 31, 2021 and 2020, we paid $15.0 million and $5.0 million, respectively, to Enteris for milestones earned in relation to the Enteris License Agreement, which were recorded in R&D expense for the respective periods.

The Enteris License Agreement will expire on a country-by-country, licensed product-by-licensed product basis upon the later of (1) the expiration (or invalidation) of all valid claims in licensed patent rights that cover such product in such country, (2) the end of the calendar quarter in which generic competition (as defined in the Enteris License Agreement) occurs for such product in such country and (3) ten years from the first commercial sale of such product.

Either party may terminate the Enteris License Agreement upon written notice if the other party has failed to remedy a material breach within 60 days (or 30 days in the case of a material breach of a payment obligation). Enteris

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may terminate the Enteris License Agreement upon 30 days’ written notice to us if we or any of our affiliates formally challenge the validity of any licensed patent rights or assists a third party in doing so. We may terminate the Enteris License Agreement for any reason or no reason (a) prior to receipt of first regulatory approval for a licensed product in the United States for any indication upon 30 days’ prior written notice to Enteris or (b) on or after receipt of first regulatory approval for a licensed product in the United States for any indication upon 60 days’ prior written notice to Enteris.

In August 2019, in connection with the Enteris License Agreement, we entered into the Enteris Purchase Agreement with Enteris and its affiliate, EBP Holdco LLC, collectively referred to as Purchaser, pursuant to which we issued and sold to Purchaser 170,793 shares of our common stock in a private placement. Such shares were issued in satisfaction of the $4.0 million portion of the upfront fee payable in shares of our common stock pursuant to the Enteris License Agreement and for no additional consideration, based on a purchase price of $23.42 per share, which was equal to the 30-day volume weighted average price of our common stock on August 20, 2019. Pursuant to the Enteris Purchase Agreement, we effected the registration and sale of the shares issued and sold to Purchaser thereunder in accordance with the applicable requirements of the Securities Act of 1933, as amended, or the Securities Act, which included the filing of a registration statement with the SEC on September 9, 2019. In addition, the Purchase Agreement includes customary representations, warranties and covenants by us.

Patheon UK Limited (Patheon)

In July 2019, we entered into an MSA with Patheon. The MSA governs the general terms under which Patheon, or one of its affiliates, will provide non-exclusive manufacturing services to us for the drug products specified by us from time to time. Pursuant to the MSA, we have agreed to order from Patheon at least a certain percentage of our commercial requirements for a product under a related Product Agreement. Each Product Agreement that we may enter into from time to time will be governed by the terms of the MSA, unless expressly modified in such Product Agreement.

The MSA has an initial term ending December 31, 2023, and will automatically renew after the initial term for successive terms of two years each if there is a Product Agreement in effect, unless either party gives notice of its intention to terminate the MSA at least 18 months prior to the end of the then current term.

Either party may terminate the MSA or a Product Agreement upon written notice if the other party (1) has failed to remedy a material breach within a specified time or (2) is declared insolvent or bankrupt, voluntarily files a petition of bankruptcy or assigns such agreement for the benefit of creditors. We may terminate a Product Agreement (a) upon 90 days’ prior written notice if any governmental agency takes any action that prevents us from selling the relevant product in the relevant territory, (b) upon six months’ prior written notice if we do not intend to order manufacturing services due to a product’s discontinuance in the market, or (c) upon 90 days’ prior written notice if we determine that the manufacture or supply of a product likely infringes third-party rights. Patheon may terminate the MSA or a Product Agreement (i) upon six months’ prior written notice if we assign such agreement to an assignee that is unacceptable to Patheon for certain reasons, or (ii) upon 30 days’ prior written notice if, after the first year of commercial sales, we forecast zero volume for 12 months.

The MSA contains, among other provisions, customary representations and warranties by the parties, a grant to Patheon of certain limited license rights to our intellectual property in connection with Patheon’s performance of the services under the MSA, certain indemnification rights in favor of both parties, limitations of liability and customary confidentiality provisions.

Also in July 2019, we entered into two related Product Agreements under the MSA, one with each of Patheon and Patheon Greenville, to govern the terms and conditions of the manufacture of commercial supplies of difelikefalin injection, our lead product candidate. Pursuant to the Product Agreements, Patheon and Patheon Greenville will manufacture commercial supplies of difelikefalin injection at the Monza, Italy and Greenville, North Carolina manufacturing sites, respectively, from API supplied by us. Patheon and Patheon Greenville will be responsible for supplying the other required raw materials and packaging components, and will also provide supportive manufacturing services such as quality control testing for raw materials, packaging components and finished product.

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Components of Operating Results

Revenue

Substantially all of our revenue recognized to date has consisted of upfront and milestone payments under license agreements with Vifor, VFMCRP, Maruishi and CKDP, some or all of which was deferred upon receipt, sub-license payments under our license agreement with Maruishi for difelikefalin, as well as license agreements for CR665, our first-generation drug program for which development efforts have ceased, clinical compound sales from certain license agreements, and commercial supply revenue from Vifor in 2021. Through December 31, 2021, we have earned a total of $74.7 million in clinical development or regulatory milestone payments (including the $50.0 million equity investment from Vifor and $15.0 million milestone payment from VFMCRP for the U.S. regulatory approval of KORSUVA injection in August 2021) and clinical compound and commercial sales from certain license agreements. Of the $50.0 million equity milestone, $5.0 million, representing the premium of the purchase price over the market price of our common stock, was recognized as revenue during the year ended December 31, 2021. We have not yet received any royalties under any of our collaborations.

We and Vifor began commercializing KORSUVA injection in the U.S. in December 2021 and we expect commercial launch of KORSUVA injection in April 2022 and associated revenues in the second quarter of 2022.

Revenue from sales of KORSUVA injection in future periods is subject to uncertainties and will depend on several factors, including the success of our and our commercial partners’ commercialization efforts in the U.S., the number of new patients switching to KORSUVA injection, patient retention and demand, the number of physicians prescribing KORSUVA injection, the rate of monthly prescriptions, reimbursement from third-party payors, the conversion of patients from our clinical trials to commercial customers, and market trends. More specifically, in December 2021, CMS granted TDAPA to KORSUVA injection in the anti-pruritic functional category. TDAPA will apply to KORSUVA injection beginning April 1, 2022 for two years. CMS expressed in its written communication to us and Vifor Pharma, a continuing interest in engaging with the companies regarding potential post-TDAPA support to ensure all beneficiaries with ESRD have access to innovative products such as KORSUVA injection. However, there is no assurance that KORSUVA injection will be able to maintain its price established in the TDAPA period in the post-TDAPA timeframe, which could significantly impact our revenues in future periods. We will continue to monitor and analyze this data during the initial launch period in 2022.

Cost of Goods Sold (COGS)

COGS includes costs related to sales of our commercial product, KORSUVA injection, to Vifor. Costs related to the sales of KORSUVA injection are generally recognized upon receipt of shipment by Vifor. Our COGS for KORSUVA injection includes the cost of producing commercial product that correspond with commercial supply revenue, such as third-party supply and overhead costs, as well as certain period costs related to freight, packaging, stability, and quality testing. We expect our COGS to increase as Vifor generates additional sales of KORSUVA injection in the future.

Research and Development (R&D)

Our R&D expenses relate primarily to the development of difelikefalin. R&D expenses consist of expenses incurred in performing R&D activities, including compensation and benefits for full-time R&D employees, clinical trial and related clinical manufacturing expenses, third-party formulation expenses or milestone payments, fees paid to CROs and other consultants, stock-based compensation for R&D employees and consultants, and other outside expenses. Our R&D expenses also included expenses related to preclinical activities for our earlier stage programs in prior periods and may include such expenses in the future.

R&D costs are expensed as incurred. Non-refundable advance payments for goods or services to be received in the future for use in R&D activities are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed. Most of our R&D costs have been external costs, which we track on a

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program-by program basis. Our internal R&D costs are primarily compensation expenses for our full-time R&D employees. We do not track internal R&D costs on a program-by-program basis.

R&D activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. Based on our current development plans, we presently expect that our R&D expenses for 2022 will be higher than 2021. However, it is difficult to determine with certainty the duration and completion costs of our current or future nonclinical programs and clinical trials of our product candidates, or if, when or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates.

The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors including, but not limited to:

In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate’s commercial potential.

General and Administrative (G&A)

G&A expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in executive, finance, accounting, legal, business development, information technology, or IT, and human resources functions. Other costs include facility costs not otherwise included in R&D expenses, legal fees, insurance costs, investor relations costs, patent costs and fees for accounting and consulting services.

We anticipate that our G&A expenses for 2022 will be consistent with 2021 to support our continued R&D activities and for our product candidates. These expenses will likely include costs related to the hiring of additional personnel, fees to outside consultants, lawyers, accountants and investor relations firms. In addition, if Oral KORSUVA (difelikefalin) or any future product candidate obtains regulatory approval for marketing, we expect to incur expenses associated with building a sales and marketing team.

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Our license agreement with Vifor provides full commercialization rights of KORSUVA injection to Vifor under a profit-sharing arrangement. Under this profit-sharing arrangement, in consideration of Vifor’s conduct of the marketing, promotion, selling and distribution of KORSUVA injection in the U.S., we will pay a marketing and distribution fee to Vifor based on the level of annual net sales. This fee will be deducted from product sales in calculating the net profits that are subject to the profit-sharing arrangement (see Note 12 of Notes to Financial Statements, Collaboration and Licensing Arrangements, in this Annual Report on Form 10-K).

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Other Income, Net

Other income, net consists of interest and dividend income earned primarily on our cash, cash equivalents, and marketable securities, realized gains and losses on the sale of marketable securities and property and equipment as well as accretion of discounts/amortization of premiums on purchases of marketable securities. In the event we record a credit loss expense on our available-for-sale debt securities, those expenses would be offset against other income.

Benefit from Income Taxes

The benefit from income taxes relates to state R&D tax credits exchanged for cash pursuant to the Connecticut R&D Tax Credit Exchange Program, which permits qualified small businesses engaged in R&D activities within Connecticut to exchange their unused R&D tax credits for a cash amount equal to 65% of the value of the exchanged credits. Because our revenue in 2020 exceeded $70.0 million, we are not eligible to exchange our 2021 R&D tax credit for cash, therefore there was no benefit from income taxes for the year ended December 31, 2021.

Results of Operations

Comparison of the years ended December 31, 2021, 2020 and 2019

Revenue

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License and milestone fee revenue

License and milestone fees revenue of $21.2 million for the year ended December 31, 2021 was related to milestone payments of $20.0 million we earned from Vifor and VFMCRP that was allocated to the license fee performance obligation under the Vifor and VFMCRP agreements, as the variable consideration was deemed probable upon the regulatory approval of KORSUVA injection in August 2021, and a milestone payment of $1.2 million that we earned in January 2021 from Maruishi’s first initiation of a Phase 3 trial for uremic pruritus in Japan that was allocated to the license fee performance obligation under the Maruishi Agreement (see Notes 12 and 13 of Notes to Financial Statements, Collaboration and Licensing Agreements and Revenue Recognition, respectively, in this Annual Report on Form 10-K).

License and milestone fees revenue of $134.4 million for the year ended December 31, 2020 was related to license fees of $111.6 million earned by us in connection with the Vifor Agreement that we entered into in October 2020, license fees of $22.3 million earned by us in connection with the VFMCRP Agreement, and $0.6 million (net of South Korean withholding taxes) earned by us for achieving a development milestone under the CKDP Agreement (see

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Notes 12 and 13 of Notes to Financial Statements, Collaboration and Licensing Agreements and Revenue Recognition, respectively, in this Annual Report on Form 10-K).

License and milestone fees revenue of $19.7 million for the year ended December 31, 2019 was related to license fees earned by us during the period in connection with the VFMCRP Agreement (see Notes 12 and 13 of Notes to Financial Statements, Collaboration and Licensing Agreements and Revenue Recognition, respectively, in this Annual Report on Form 10-K).

Collaborative Revenue

Collaborative revenue of $706,000 for the year ended December 31, 2021 was related to the milestone payment we earned in January 2021 from Maruishi’s first initiation of a Phase 3 trial for uremic pruritus in Japan that was allocated to the R&D services performance obligation under the Maruishi Agreement. There were no collaborative revenues for each of the years ended December 31, 2020 and 2019 (see Notes 12 and 13 of Notes to Financial Statements, Collaboration and Licensing Agreements and Revenue Recognition, respectively, in this Annual Report on Form 10-K).

Commercial Supply Revenue

Commercial supply revenue of $701,000 for the year ended December 31, 2021 was related to sales of KORSUVA injection to Vifor. We and Vifor began commercializing KORSUVA injection in the U.S. in December 2021 and anticipate commercial launch in April 2022.

Clinical compound revenue

Clinical compound revenue of $398,000 for the year ended December 31, 2021 was related to the sale of clinical compound to VFMCRP for $361,000 and to Maruishi for $37,000. Clinical compound revenue of $643,000 for the year ended December 31, 2020 was related to the sales of clinical compound to VFMCRP for $115,000 and to Maruishi for $528,000. Clinical compound revenue of $140,000 for the year ended December 31, 2019 was related to the sale of clinical compound to Maruishi.

Cost of Goods Sold (COGS)

For the year ended December 31, 2021, no COGS was recognized as all inventory costs for KORSUVA injection prior to regulatory approval on August 23, 2021 were expensed as incurred (see Note 2 of Notes to Financial Statements, Summary of Significant Accounting Policies – Inventories and Cost of Goods Sold (COGS), in this Annual Report on Form 10-K).

Research and Development (R&D) Expense

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For the year ended December 31, 2021 compared to the year ended December 31, 2020, the net decrease in direct clinical trial costs and related consultant costs primarily resulted from decreases totaling $40.3 million, mainly from activities related to the KALM-2 Phase 3 efficacy trial of KORSUVA injection in CKD patients undergoing hemodialysis, the Phase 3 (up to 12 weeks) safety trial of KORSUVA injection in CKD patients undergoing

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hemodialysis, the KALM-1 Phase 3 efficacy trial and the 52-week open-label extension study of KORSUVA injection in CKD patients undergoing hemodialysis, the Phase 2 efficacy trial for pruritus associated with AD-aP, the Phase 2 efficacy trial of Oral KORSUVA (difelikefalin) in CKD-aP patients, costs associated with supportive Phase 1 studies, and costs associated with preparing for our NDA submission. There was also a decrease of $4.8 million in clinical and commercial drug manufacturing costs. These decreases were partially offset by an increase of $6.4 million, mainly from the Phase 2 efficacy and safety trial for pruritus associated with NP, start-up costs related to Oral CKD Phase 3 programs in non-hemodialysis patients, and other general costs. The increase in stock-based compensation expense was primarily related to additional stock option and time-based restricted stock unit grants to new and existing employees, partially offset by lower stock-based compensation expense associated with the vesting of performance-based restricted stock units during the year ended December 31, 2021, as compared to the comparable period in 2020. The increase in other R&D operating expenses primarily resulted from $15.0 million in milestones earned by Enteris during the year ended December 31, 2021 as compared to $5.0 million during the year ended December 31, 2020, and increases in payroll and related costs.

For the year ended December 31, 2020 compared to the year ended December 31, 2019, the net decrease in direct clinical trial costs and related consultant costs primarily resulted from decreases totaling $33.2 million, mainly from activities related to the KALM-1 Phase 3 efficacy trial and the 52-week open-label extension study of KORSUVA injection in CKD patients undergoing hemodialysis, the Phase 2 efficacy trial of Oral KORSUVA (difelikefalin) in CKD-aP patients, the KALM-2 Phase 3 efficacy trial of KORSUVA injection in CKD patients undergoing hemodialysis, the Phase 2 efficacy trial for CLD-aP, costs associated with a supportive Phase 1 study and other license fees. Those costs were partially offset by an increase of $19.4 million, mainly from the Phase 2 efficacy trial for pruritus associated with AD, the Phase 2 efficacy and safety trial for pruritus associated with NP, costs associated with a supportive Phase 1 study, costs associated with the preparation our NDA submission and other general costs. There was also an increase of $4.1 million in clinical and commercial drug manufacturing costs. The increase in stock-based compensation expense was primarily the result of additional stock option and restricted stock unit grants to new and existing employees, as well as additional stock-based compensation expense relating to the vesting of performance-based restricted stock units that were achieved in 2020 as compared to 2019 by certain executives. The increase in other R&D operating expenses primarily resulted from a $5.0 million milestone earned by Enteris during the year ended December 31, 2020, as well as increases in payroll and related costs and cost of clinical compound sales, partially offset by the upfront payment of $8.0 million made to Enteris upon entering the Enteris License Agreement during the year ended December 31, 2019 and decreases in travel and related costs.

The following table summarizes our R&D expenses by product candidate for the years ended December 31, 2021, 2020 and 2019:

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1 Includes milestone payments of $15.0 million and $5.0 million to Enteris for the years ended December 31, 2021 and 2020, respectively.

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General and Administrative (G&A) Expense

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For the year ended December 31, 2021 compared to the year ended December 31, 2020, the increase in professional fees and public/investor relations expenses was primarily the result of an increase in legal fees, partially offset by a decrease in consultants’ costs. The increase in stock-based compensation expense was primarily related to the modification of our former CEO’s stock option and time-based restricted stock unit awards in November 2021 resulting in additional compensation expense of approximately $5.1 million in 2021, additional time-based restricted stock unit grants to existing employees, and higher stock-based compensation expense associated with the vesting of performance-based restricted stock units during the year ended December 31, 2021, as compared to the comparable period in 2020. The increase in other G&A operating expenses was primarily the result of increases in payroll and related costs and insurance costs, partially offset by a decrease in commercial costs.

For the year ended December 31, 2020 compared to the year ended December 31, 2019, the decrease in professional fees and public/investor relations expenses was primarily the result of a decrease in consultants’ costs, partially offset by increases in accounting fees. The decrease in stock-based compensation expense was primarily the result of the resignation of our former Chief Financial Officer, or CFO, in December 2019, a decrease in stock-based compensation expense due to fewer performance-based restricted stock units vesting during 2020 as compared to 2019, and the issuance of common stock relating to the consulting agreement that ended in 2019, partially offset by additional stock option grants and restricted stock unit grants to employees and members of our Board of Directors, including our current CFO beginning in October 2020. The increase in other G&A operating expenses was primarily the result of increases in commercial costs, insurance costs, and payroll and related costs.

Other Income, Net

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For the year ended December 31, 2021 compared to the year ended December 31, 2020, the decrease in other income, net was primarily due to an increase in net amortization expense of available-for-sale marketable securities and a decrease in interest income resulting from a lower yield on our portfolio of investments in the 2021 period.

For the year ended December 31, 2020 compared to the year ended December 31, 2019, the decrease in other income, net was primarily due to a decrease in net accretion income and a decrease in interest income resulting from a lower yield on our portfolio of investments in the 2020 period, partially offset by a realized gain of approximately $0.3 million from the sale of our available-for-sale marketable securities in the 2020 period.

We reviewed our available-for-sale debt securities as of December 31, 2021 and 2020 and determined that no credit loss expense was necessary as a result of unrealized losses on various securities not being considered material individually or in aggregate, and we expect that the cost basis of these available-for-sale securities is recoverable. We do not expect that unrealized losses on our available-for-sale debt securities will impact our liquidity in the short-term or long-term since our investments all mature at various dates through November 2024 based on capital requirements, and

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it is not more likely than not that we will be required to sell these investments before recovery of their amortized cost bases.

Benefit from Income Taxes

For the years ended December 31, 2021, 2020 and 2019, pre-tax (losses) income were $(88.4) million, $7.7 million and $(107.2) million, respectively, and we recognized a benefit from income taxes of $691,000 and $816,000 for the years ended December 31, 2020 and 2019, respectively. Because our revenue in 2020 exceeded $70.0 million, we are not eligible to exchange our 2021 R&D tax credit for cash, therefore there was no benefit from income taxes for the year ended December 31, 2021.

The benefit from income taxes relates to state R&D tax credits exchanged for cash pursuant to the Connecticut R&D Tax Credit Exchange Program, as discussed above. We recognized a full valuation allowance against deferred tax assets at December 31, 2021, 2020 and 2019.

Cash Requirements, Liquidity, and Capital Resources

Short-Term and Long-Term Cash Requirements

Our primary uses of capital have been, and we expect will continue to be, compensation and related expenses, third-party clinical R&D services, and clinical costs related to the Oral KORSUVA (difelikefalin) program.

As of December 31, 2021, we have no commitments for capital expenditures in either the short-term or long-term. The following discussion summarizes our current and long-term material cash requirements as of December 31, 2021, which we expect to fund primarily with current unrestricted cash and cash equivalents and available-for-sale marketable securities:

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As we anticipate revenue increasing in the short-term and long-term with the commercialization of KORSUVA injection, our costs of manufacturing will also increase.

Based on the Enteris License Agreement that we entered into in August 2019, we are obligated to pay (1) milestone payments upon the achievement of certain development, regulatory and commercial milestones and (2) low-single digit royalty percentages on net sales of licensed products, subject to reductions in specified circumstances. As

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these milestone payments may or may not be achieved, and royalties may or may not be owed depending on our future commercial success, there were no future payments that were considered cash requirements in the table above as of December 31, 2021. See Note 18 of Notes to Financial Statements, Commitments and Contingencies, in this Annual Report on Form 10-K for details about our Enteris License Agreement.

We do not have any other requirements or off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources.

Since inception, we have incurred significant operating and net losses. We incurred net losses of $88.4 million and $106.4 million for the years ended December 31, 2021 and 2019, respectively. As of December 31, 2021, we had an accumulated deficit of $480.8 million. Although we generated net income for the year ended December 31, 2020 as a result of a commercial license transaction, we expect to continue to incur long-term significant expenses and operating and net losses in the foreseeable future, as we and our partner Vifor Pharma prepare for the commercial launch of KORSUVA injection and to develop and seek marketing approval for Oral KORSUVA (difelikefalin). However, we will not incur any material commercial costs on KORSUVA injection due to the licensing agreement with Vifor. Our financial results may fluctuate significantly from quarter to quarter and year to year, depending on the success of our commercialization efforts, timing of our clinical trials, the receipt of additional milestone payments, if any, under our licensing and collaborations with Vifor, VFMCRP, Maruishi and CKDP, the receipt of payments under any future collaborations and/or licensing agreements we may enter into, and our expenditures on other R&D activities.

We anticipate that our expenses will increase as we:

The successful commercialization of KORSUVA injection and the successful development of any of our other product candidates is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to successfully commercialize KORSUVA injection, complete the development of I.V. difelikefalin, oral difelikefalin or our other current and future programs. We are also unable to predict when, if ever, we will generate any further material net cash inflows from difelikefalin. This is due to the numerous risks and uncertainties associated with developing medicines, including the uncertainty of:

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A change in the outcome of any of these variables with respect to the development of I.V. difelikefalin, oral difelikefalin or any of our future product candidates would significantly change the costs and timing associated with the development of that product candidate. Further, the timing of any of the above may be impacted by the ongoing COVID-19 pandemic, introducing additional uncertainty.

Although we and Vifor began commercializing KORSUVA injection in the U.S. in December 2021 and we expect commercial launch of KORSUVA injection in April 2022, and our other product candidates are still in clinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the commercialization of KORSUVA injection and the development and commercialization of our other product candidates or whether, or when, we may achieve profitability. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements, including our existing licensing and collaboration agreements with Vifor, VFMCRP, Maruishi and CKDP.

We will require additional capital beyond our current balances of cash and cash equivalents and available-for-sale marketable securities and anticipated amounts as described above, and this additional capital may not be available when needed, on reasonable terms, or at all, and our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the continuing disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic and its variants. If we are not able to do so, we could be required to postpone, scale back or eliminate some, or all, of these objectives. To the extent that we raise additional capital through the future sale of equity or convertible debt, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds through the issuance of debt securities, these securities could contain covenants that would restrict our operations. If we raise additional funds through collaboration arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Sources of Liquidity

Since our inception to date, we have raised an aggregate of $842.5 million to fund our operations, including (1) net proceeds of $446.3 million from the sale of shares of our common stock in five public offerings, including our initial public offering; (2) proceeds of $73.3 million from the sale of shares of our convertible preferred stock and from debt financings prior to our initial public offering; (3) payments of $224.9 million under our license and supply agreements, primarily with Vifor, VFMCRP, Maruishi, CKDP and an earlier product candidate for which development efforts ceased in 2007; and (4) net proceeds of $98.0 million from the purchase of our common stock in relation to the license agreements with Vifor and VFMCRP (see Note 12 of Notes to Financial Statements, Collaboration and Licensing Agreements, in this Annual Report on Form 10-K).

In order to fund our future operations, including our planned clinical trials, on March 1, 2022, we filed a universal shelf registration statement, or the Shelf Registration Statement, which provides for aggregate offerings of up to $300.0 million of common stock, preferred stock, debt securities, warrants or any combination thereof. The Shelf Registration Statement has not yet been declared effective by the Securities and Exchange Commission. The securities registered under the Shelf Registration Statement include $154.5 million of unsold securities that had been registered under our

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previous Registration Statement on Form S-3 (File No. 333-230333) that was declared effective on April 4, 2019. We believe that our Shelf Registration Statement, once effective, will provide us with the flexibility to raise additional capital to finance our operations as needed.

We may offer additional securities under our Shelf Registration Statement, when declared effective, from time to time in response to market conditions or other circumstances if we believe such a plan of financing is in the best interests of our stockholders. On March 1, 2022, we entered into an open market sales agreement, or the Sales Agreement, with Jefferies LLC, as sales agent, pursuant to which we may, subject to the effectiveness of the Shelf Registration Statement, from time to time, issue and sell common stock with an aggregate value of up to $80.0 million in an at-the-market offering. Jefferies is acting as sole sales agent for any sales made under the Sales Agreement for a 3% commission on gross proceeds. The common stock will be sold at prevailing market prices at the time of the sale, and, as a result, prices may vary. Unless otherwise terminated earlier, the Sales Agreement continues until all shares available under the Sales Agreement have been sold.

As of December 31, 2021, we had $236.8 million in unrestricted cash and cash equivalents and available-for-sale marketable securities. We believe our current unrestricted cash and cash equivalents and available-for-sale marketable securities will be sufficient to fund our currently anticipated operating expenses and capital requirements through 2023, without giving effect to any additional potential milestone payments or potential product revenue we may receive under our licensing and collaboration agreements with Vifor, VFMCRP, Maruishi and CKDP. Our anticipated operating expenses include contractually committed costs as well as non-contractually committed clinical trial costs for trials that may be delayed or not initiated and other non-committed controllable costs.

Under the Vifor Agreement, we are eligible to receive commercial milestone payments in the aggregate of up to $240.0 million upon the achievement of certain sales-based milestones. In October 2021, we received a $50.0 million milestone payment from Vifor in exchange for the issuance of 3,282,391 shares of our common stock to Vifor as a result of the regulatory approval of KORSUVA injection in August 2021. As of December 31, 2021, we have received $50.0 million of regulatory milestones from Vifor.

Under the VFMCRP Agreement, we are eligible to receive additional regulatory and commercial milestone payments in the aggregate of up to $455.0 million, consisting of up to $15.0 million in regulatory milestones and up to $440.0 million in tiered commercial milestones, all of which are sales-related. We are also eligible to receive tiered double-digit royalty payments based on annual net sales, as defined in the VFMCRP Agreement, of difelikefalin injection in the licensed territories. In October 2021, we received a $15.0 million milestone payment from VFMCRP as a result of the regulatory approval of KORSUVA injection in August 2021. As of December 31, 2021, we have received $15.0 million of regulatory milestones from VFMCRP.

Under the Maruishi Agreement, we are also potentially eligible to earn up to an aggregate of $6.0 million in clinical development milestones and $4.5 million in regulatory milestones, before any foreign exchange adjustment, as well as tiered royalties, with percentages ranging from the low double digits to the low twenties, based on net sales of products containing difelikefalin in Japan, if any, and share in any sub-license fees. As of December 31, 2020, we have received milestone payments of $2.5 million before contractual foreign currency exchange adjustments under the Maruishi Agreement. In May 2021, we received a $2.0 million milestone payment ($1.9 million after contractual foreign currency exchange adjustments) for Maruishi’s first initiation of a Phase 3 trial for uremic pruritus in Japan in January 2021. As of December 31, 2021, we have received $4.5 million (before contractual foreign currency exchange adjustments) of clinical development and regulatory milestone from Maruishi.

Under the CKDP Agreement, we are potentially eligible to earn up to an aggregate of $2.3 million in clinical development milestones and $1.5 million in regulatory milestones, before South Korean withholding tax, as well as tiered royalties with percentages ranging from the high single digits to the high teens, based on net sales of products containing difelikefalin in South Korea, if any, and share in any sub-license fees. During the year ended December 31, 2020, we received $0.6 million (net of South Korean withholding tax) relating to a milestone payment received from CKDP. As of December 31, 2021, $2.3 million (before South Korean withholding tax) of development and regulatory milestones have been received under the CKDP Agreement.

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Additionally, Vifor Pharma Group submitted the payment reimbursement application for TDAPA and HCPCS to CMS in September 2021. In December 2021, CMS granted TDAPA to KORSUVA injection in the anti-pruritic functional category. TDAPA will apply to KORSUVA injection beginning April 1, 2022 for two years. CMS expressed in its written communication to us and Vifor Pharma, a continuing interest in engaging with the companies regarding potential post-TDAPA support to ensure all beneficiaries with ESRD have access to innovative products such as KORSUVA injection. We and Vifor began commercializing KORSUVA injection in the U.S. in December 2021 and we expect commercial launch of KORSUVA injection in April 2022 and associated revenues in the second quarter of 2022.

Our ability to earn these payments and their timing is dependent upon the outcome of I.V. and oral difelikefalin development activities and successful commercialization of KORSUVA injection. However, our receipt of any further such amounts is uncertain at this time and we may never receive any more of these amounts.

Outlook

Based on timing expectations and projected costs for our current clinical development plans, which include conducting supportive Phase 1 trials, Phase 2 trials, and Phase 3 trials of Oral KORSUVA (difelikefalin) in patients with pruritus associated with CKD, CLD, AD, and NP, we expect that our existing cash and cash equivalents and available-for-sale marketable securities as of December 31, 2021 will be sufficient for us to fund our currently anticipated operating expenses and capital requirements through 2023, without giving effect to any potential milestone payments or potential product revenue we may receive under our collaboration agreements with Vifor, VFMCRP, Maruishi and CKDP. Our anticipated operating expenses include contractually committed costs as well as non-contractually committed clinical trial costs for trials that may be delayed or not initiated and other non-committed controllable costs. Because the process of testing product candidates in clinical trials is costly and the timing of progress in these trials is uncertain, it is possible that the assumptions upon which we have based this estimate may prove to be wrong, and we could use our capital resources sooner than we presently expect.

The CARES Act of 2020 and Consolidated Appropriations Act of 2021

On March 27, 2020, President Trump signed into law the CARES Act (H.R. 748), which was further expanded with the signing of the Consolidation Appropriations Act of 2021 (H.R. 133) on December 27, 2020. The CARES Act (and December expansion) includes a variety of economic and tax relief measures intended to stimulate the economy, including loans for small businesses, payroll tax credits/deferrals, and corporate income tax relief. Due to our history of tax loss carryforwards and full valuation allowance, the CARES Act did not have a significant effect to the income tax provision for the years ended December 31, 2021 and 2020, as the corporate income tax relief was directed towards cash taxpayers.

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Cash Flows

The following is a summary of the net cash flows provided by (used in) our operating, investing and financing activities for the years ended December 31, 2021, 2020 and 2019:

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Net cash used in operating activities

Net cash used in operating activities for the year ended December 31, 2021 consisted primarily of a net loss of $88.4 million, partially offset by a $23.1 million cash inflow from net non-cash charges and a $5.3 million cash inflow

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from net changes in operating assets and liabilities. Net non-cash charges primarily consisted of stock-based compensation expense of $20.8 million, which includes incremental expense related to the modification of our former CEO’s equity awards in 2021 of $5.1 million, the amortization expense component of lease expense of $1.3 million relating to our Stamford operating leases, and the amortization of available-for-sale marketable securities, net of $0.9 million. The change in operating assets and liabilities primarily consisted of an decrease in prepaid expenses of $9.6 million, primarily related to an decrease in prepaid clinical costs, partially offset by a $2.6 million increase in inventory, net as a result of FDA approval of KORSUVA injection in August 2021, a cash outflow of $1.6 million relating to operating lease liabilities associated with our lease agreements for our operating facility in Stamford, Connecticut, and a cash outflow of $1.0 million from a decrease in accounts payable and accrued expenses.

Net cash used in operating activities for the year ended December 31, 2020 consisted primarily of a $7.4 million cash outflow from net changes in operating assets and liabilities and a $6.5 million cash outflow from net non-cash charges, partially offset by net income of $8.4 million (which includes $111.6 million of licensing and milestone fees revenue from the Vifor Agreement). Net non-cash charges primarily consisted of a decrease of $22.3 million in deferred revenue associated with our VFMCRP Agreement, partially offset by stock-based compensation expense of $14.8 million and the amortization expense component of lease expense of $0.8 million relating to our Stamford operating leases. The change in operating assets and liabilities primarily consisted of a cash outflow of $3.2 million from an increase in prepaid expenses, primarily related to an increase in prepaid clinical costs, a cash outflow of $2.8 million from a decrease in accounts payable and accrued expenses, and a cash outflow of $1.1 million relating to operating lease liabilities associated with our Stamford operating leases.

Net cash used in operating activities for the year ended December 31, 2019 consisted primarily of a net loss of $106.4 million and a $3.8 million cash outflow from net non-cash charges, partially offset by a $0.9 million cash inflow from net changes in operating assets and liabilities. Net non-cash charges primarily consisted of a decrease of $19.7 million in deferred revenue associated with our VFMCRP Agreement and $1.4 million related to accretion of available-for-sale securities, partially offset by stock-based compensation expense of $12.6 million and a noncash expense of $4.0 million related to the Enteris License Agreement. The change in operating assets and liabilities primarily consisted of a cash inflow of $6.0 million from an increase in accounts payable and accrued expenses, partially offset by a cash outflow of $4.1 million from an increase in prepaid expense, primarily related to an increase in prepaid clinical costs and a cash outflow of $0.9 million from operating lease liability relating to lease payments made for the Stamford Lease as a result of our adoption of ASC 842: Leases.

Net cash used in investing activities

Net cash used in investing activities was $4.8 million for the year ended December 31, 2021, which primarily included cash outflows of $208.8 million for the purchases of available-for-sale marketable securities, partially offset by cash inflows of $194.0 million from maturities and redemptions of available-for-sale marketable securities and proceeds of $10.0 million from the sales of available-for-sale marketable securities.

Net cash used in investing activities was $20.3 million for the year ended December 31, 2020, which primarily included cash outflows of $232.9 million for the purchases of available-for-sale marketable securities, partially offset by cash inflows of $171.4 million from maturities and redemptions of available-for-sale marketable securities and proceeds of $41.6 million from sales of available-for-sale marketable securities.

Net cash used in investing activities was $30.5 million for the year ended December 31, 2019, which primarily included cash outflows of $286.1 million for the purchases of available-for-sale marketable securities, partially offset by $255.6 million from maturities and redemptions of available-for-sale marketable securities.

Net cash provided by financing activities

Net cash provided by financing activities for the year ended December 31, 2021 consisted of proceeds of $45.0 million from the sale of our common stock relating to a milestone payment received in accordance with the Vifor Agreement and $1.6 million received from the exercise of stock options.

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Net cash provided by financing activities for the year ended December 31, 2020 consisted of proceeds of $38.4 million from the sale of our common stock relating to the Vifor Agreement and $0.7 million received from the exercise of stock options.

Net cash provided by financing activities for the year ended December 31, 2019 consisted of gross proceeds of $145.5 million from our issuance and sale of our common stock in July 2019, partially offset by $9.0 million of underwriting discounts and commissions and offering expenses paid by us during the year ended December 31, 2019, and proceeds of $6.1 million received from the exercise of stock options.

Critical Accounting Estimates

The preparation of our financial statements and related disclosures in conformity with GAAP and our discussion and analysis of financial condition and results of operations require us to make estimates, judgments 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 and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances at the time such estimates are made. Actual results and outcomes may differ materially from our estimates, judgments, and assumptions. We periodically review our estimates in light of changes in circumstances, facts, and experience. The effects of material revisions in estimates are reflected in the financial statements prospectively from the date of the change in estimate. Note 2 of Notes to Financial Statements, Summary of Significant Accounting Policies, in this Annual Report on Form 10-K describes the significant accounting policies and methods used in the preparation of our financial statements.

We define our critical accounting estimates as those subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply GAAP.

Revenue Recognition

In October 2020, we entered into a royalty-free license agreement with Vifor. Under the Vifor Agreement, we granted Vifor an exclusive license solely in the United States to use, distribute, offer for sale, promote, sell and otherwise commercialize KORSUVA (difelikefalin) injection for all therapeutic uses relating to the inhibition, prevention or treatment of itch associated with pruritus in hemodialysis and peritoneal dialysis patients in the United States. Under the Vifor Agreement, we retain all rights with respect to the clinical development of, and activities to gain regulatory approvals of, KORSUVA (difelikefalin) injection in the United States.

Under the terms of the Vifor Agreement in 2020, we received from Vifor an upfront payment of $100.0 million and an additional payment of $50.0 million for the purchase of an aggregate of 2,939,552 shares of our common stock at a price of $17.0094 per share, which represents a premium over a pre-determined average closing price of our common stock. The purchase of our common stock was governed by the Vifor Stock Purchase Agreement. The excess of the stock purchase price over the cost of the Vifor shares at the closing price of our common stock on the purchase date of $11.6 million was added to the upfront payment and included as license and milestone fees revenue for accounting purposes for the year ended December 31, 2020.

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Under the terms of the Vifor Agreement in 2021, we were eligible to receive a non-refundable milestone payment of $50.0 million as consideration for an additional purchase of our common stock upon the regulatory approval by the FDA of KORSUVA injection.

After U.S. regulatory approval of KORSUVA injection by the FDA on August 23, 2021, we received the additional $50.0 million in October 2021 for the purchase of an aggregate of 3,282,391 shares of our common stock at a price of $15.23 per share, which represents a 20% premium to the 30-day trailing average price of our common stock. The purchase of our common stock was governed by the Vifor Stock Purchase Agreement. The excess of the stock purchase price over the cost of the purchased shares at the closing price of our common stock on the date of the

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achievement of the milestone of $5.0 million was included as license and milestone fees revenue for accounting purposes for the year ended December 31, 2021.

We determined that this critical accounting estimate is subject to uncertainty in 2021 due to the following:

Accounting Pronouncements Recently Adopted; Recent Accounting Pronouncements Not Yet Adopted

We do not expect that any recently issued accounting pronouncements will have a material effect on our financial statements. Refer to Note 2 of Notes to Financial Statements, Summary of Significant Accounting Policies, in this Annual Report on Form 10-K, for a full description of accounting pronouncements recently adopted, and issued but not yet adopted.