# Travere Therapeutics, Inc. (TVTX) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Travere Therapeutics, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1438533/000143853323000008/tvtx-20221231.htm
Accession: 0001438533-23-000008
Filing date: 2023-02-23
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/TVTX/
All MD&A years: /company/TVTX/mda/
Previous year: /company/TVTX/mda/fy2021/ (FY 2021)
Next year: /company/TVTX/mda/fy2023/ (FY 2023)

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our discussion and analysis of our financial condition and results of operations for 2022 as compared to 2021 are discussed below, and should be read in conjunction with our audited Consolidated Financial Statements, including the notes thereto. For a discussion of our financial condition and results of operations for 2021 as compared to 2020, except as set forth below, please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual Report on Form 10-K, which discussion is incorporated by reference herein.

Overview

We are a biopharmaceutical company headquartered in San Diego, California, focused on identifying, developing and delivering life-changing therapies to people living with rare kidney, liver, and metabolic diseases. Our approach centers on advancing our innovative pipeline with multiple late-stage clinical programs targeting rare diseases with significant unmet medical needs. Upon approval of any of our late-stage programs, we intend to leverage the skills of our talented commercial organization which has successfully identified, supported and treated patients prescribed our approved products over the last nine years.

FILSPARI™ (sparsentan)

On February 17, 2023, the FDA granted accelerated approval of FILSPARI™ (sparsentan) to reduce proteinuria in adults with primary IgAN at risk of rapid disease progression, generally at UPCR ≥1.5 gram/gram. We expect FILSPARI to be available beginning the week of February 27, 2023, and will be providing a comprehensive patient support program throughout the patient’s treatment journey.

This indication is granted under accelerated approval based on reduction in proteinuria. It has not been established whether FILSPARI slows kidney function decline in patients with IgAN. The continued approval of FILSPARI may be contingent upon confirmation of a clinical benefit in the ongoing Phase 3 PROTECT Study, which is designed to demonstrate whether FILSPARI slows kidney function decline. Topline results from the two-year confirmatory endpoints in the PROTECT Study are expected in the fourth quarter of 2023 and are intended to support traditional approval of FILSPARI.

FILSPARI, a once-daily, oral medication is designed to selectively target two critical pathways in the disease progression of IgAN (endothelin 1 and angiotensin-II) and is the first and only non-immunosuppressive therapy approved for the treatment of this condition.

FILSPARI (sparsentan) is a dual endothelin angiotensin receptor antagonist (DEARA). Pre-clinical data have shown that blockade of both endothelin type A and angiotensin II type 1 pathways in forms of rare chronic kidney disease, reduces proteinuria, protects podocytes and prevents glomerulosclerosis and mesangial cell proliferation. Sparsentan has been granted Orphan Drug Designation for the treatment of IgAN in the U.S. and Europe. We expect that FILSPARI will be granted seven years of Orphan Drug Exclusivity for proteinuria in adults with primary IgAN at risk of rapid disease progression.

IgAN is characterized by hematuria, proteinuria, and variable rates of progressive renal failure. With an estimated prevalence of up to 150,000 people in the United States and greater numbers in Europe and Asia, IgAN is the most common primary glomerular disease. Most patients are diagnosed between the ages of 16 and 35, with up to 40% progressing to end stage kidney disease within 15 years. FILSPARI is the first and only non-immunosuppressive therapy approved for this condition. At launch, we expect approximately 30,000 to 50,000 patients in the United States to be addressable under FILSPARI's accelerated approval indication statement.

The approval of FILSPARI, granted under the FDA’s accelerated approval pathway, is based on clinically meaningful and statistically significant improvements in proteinuria compared to an active comparator in the pivotal and ongoing Phase 3 PROTECT Study, the largest head-to-head interventional study to date in IgAN. It is a global, randomized, multicenter, double-blind, parallel-arm, active-controlled clinical trial evaluating the

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safety and efficacy of 400mg of sparsentan, compared to 300mg of irbesartan, in 404 patients ages 18 years and up with IgAN and persistent proteinuria despite available ACE or ARB therapy.

The PROTECT Study protocol provided for an unblinded analysis of at least 280 patients to be performed after 36 weeks of treatment to evaluate the primary efficacy endpoint - the change in proteinuria (UPCR) at week 36 from baseline. Secondary efficacy endpoints include the rate of change in eGFR following the initiation of randomized treatment over 58-week and 110-week periods, as well as the rate of change in eGFR over 52-week and 104-week periods following the first six weeks of randomized treatment in approximately 380 patients. In August 2021, we announced positive topline interim results from the ongoing Phase 3 PROTECT Study. The PROTECT Study met its pre-specified interim primary efficacy endpoint with statistical significance. After 36 weeks of treatment, patients receiving FILSPARI achieved a mean reduction in proteinuria from baseline of 49.8 percent, compared to a mean reduction in proteinuria from baseline of 15.1 percent for irbesartan-treated patients (p0.0001). We believe that preliminary eGFR data available at the time of the interim analysis are indicative of a potential clinically meaningful treatment effect after two years of treatment. Results from the interim assessment in the PROTECT Study showed that FILSPARI was well tolerated with a clearly defined safety profile that has been consistent across all clinical trials conducted to date. In PROTECT, the most common adverse reactions (≥ 5%) are peripheral edema, hypotension (including orthostatic hypotension), dizziness, hyperkalemia, and anemia. Because of the risks of liver injury and birth defects, FILSPARI is available only through a REMS approved by the FDA.

Per request from the FDA, the efficacy data contained in the FDA-approved label is a post-hoc sensitivity analysis that evaluates the first 281 randomized patients, a subset of the full trial population. The mean reduction in proteinuria from baseline in the post-hoc sensitivity analysis is 45% for FILSPARI versus 15% for the active control, irbesartan. Both the pre-specified and post-hoc sensitivity analyses have demonstrated that FILSPARI achieves a rapid and sustained reduction in proteinuria, with statistically significant and clinically meaningful improvement compared to the active comparator irbesartan. The PROTECT Study is fully enrolled and is scheduled to continue as planned on a blinded basis to assess the treatment effect on eGFR slope over 110 weeks in the confirmatory endpoint analysis.

Beginning in 2023, we plan to expand data generation through a sub study in the open-label extension of the ongoing PROTECT Study, as well as an open-label clinical study to investigate the safety and efficacy of sparsentan in combination with sodium glucose cotransporter-2 inhibitors (SGLT2i) for the treatment of IgAN.

In August 2022, we and Vifor (International) Ltd. ("CSL Vifor"), with whom we entered into a license and collaboration agreement ("License Agreement") in September 2021, announced that the European Medicines Agency ("EMA") had accepted for review the conditional marketing authorization application of sparsentan for the treatment of IgAN in Europe. A review decision is expected in the second half of 2023.

Clinical-Stage Programs:

Sparsentan for the treatment of FSGS

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

FSGS is a leading cause of end-stage kidney disease (ESKD) and nephrotic syndrome. There are currently no FDA-approved pharmacologic treatments for FSGS and there remains a high unmet need for patients living with FSGS as off-label treatments such as ACE/ARBs, steroids, and immunosuppressant agents are effective in only a subset of patients and use of some of these off-label treatments may be further inhibited by their safety profiles. Every year approximately 5,400 patients are diagnosed with FSGS and we estimate that there are more than 40,000 FSGS patients in the United States and a similar number in Europe with approximately half of them being candidates for sparsentan. In 2016, we generated positive data from our Phase 2 DUET study in FSGS. In 2018, we announced the initiation of the Phase 3 DUPLEX study of sparsentan in FSGS. The DUPLEX Study is a global, randomized, multicenter, double-blind, parallel-arm, active-controlled clinical trial evaluating the safety and efficacy of sparsentan in 371 patients. The DUPLEX Study protocol provided for an unblinded analysis of at least 190 patients to be performed after 36 weeks of treatment to evaluate the interim efficacy endpoint - the proportion of patients achieving a FSGS partial remission of proteinuria endpoint (FPRE), which is defined as urine protein-to-creatinine ratio (UPCR) ≤1.5 g/g and a 40% reduction in UPCR from baseline, at week 36. In February 2021, we announced that the ongoing Phase 3 DUPLEX Study achieved its pre-specified interim FSGS partial remission of proteinuria endpoint following the 36-week interim period. After 36 weeks of treatment, 42.0 percent of patients receiving sparsentan achieved FPRE, compared to 26.0 percent of irbesartan-treated patients (p=0.0094). A preliminary review of the results from the interim analysis suggests that, as of the data cut-off, sparsentan has been generally well-tolerated and the overall safety results have been generally comparable between treatment groups. The confirmatory primary endpoint of the DUPLEX Study to support traditional regulatory approval is the rate of change in eGFR over 108 weeks of treatment. As of the time of the interim analyses, available long-term eGFR data for the confirmatory endpoint were limited. Consistent with the DUPLEX Study protocol, patients will continue in a blinded manner to assess the treatment effect on eGFR slope over 108 weeks in the confirmatory endpoint analysis. The DUPLEX Study is fully enrolled and topline results from the confirmatory endpoint are expected in the second quarter of 2023.

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In May 2021, we provided a regulatory update regarding the sparsentan FSGS program, including feedback from the FDA that additional data would be needed to potentially support a submission for accelerated approval under subpart H. We and the FDA subsequently aligned on a plan for us to provide the FDA with additional eGFR data from a 2022 data-cut to potentially support a submission for accelerated approval for FSGS. We provided the FDA with such additional eGFR data from the ongoing DUPLEX Study in the first half of 2022 and held a subsequent Type A meeting with the FDA to discuss the data and the potential for a submission for accelerated approval. Following review of the data, the FDA has communicated that it does not deem such data sufficiently supportive for an accelerated approval submission, but indicated that the DUPLEX Study as designed maintains the potential for traditional approval pending completion of the study. We are planning to continue the study to completion which is expected to occur in the second quarter of 2023, and if the data are supportive, file for traditional approval in the second half of 2023.

Pending completion of the DUPLEX Study and data supportive of approval, we and CSL Vifor are targeting to submit by the end of 2023 a subsequent variation of sparsentan for the treatment of FSGS in Europe. If sparsentan receives marketing authorization in any of the licensed territories, CSL Vifor will be responsible for all commercialization activities in such licensed territories. We remain responsible for the clinical development of sparsentan and will retain all rights to sparsentan in the United States and rest of world outside of the licensed territories, provided that CSL Vifor has a right of negotiation to expand the licensed territories into Canada, China, Brazil and/or Mexico.

Pegtibatinase (TVT-058)

Pegtibatinase (TVT-058) is a novel investigational human enzyme replacement candidate being evaluated for the treatment of classical homocystinuria (HCU). Classical HCU is a rare metabolic disorder characterized by elevated levels of plasma homocysteine that can lead to vision, skeletal, circulatory and central nervous system complications. It is estimated that there are at least 3,500 people living with HCU in the United States with similar numbers in Europe. Pegtibatinase has been granted Rare Pediatric Disease, Fast Track and Breakthrough Therapy designations by the FDA, as well as orphan drug designation in the United States and European Union. Pegtibatinase is currently being evaluated in the Phase 1/2 COMPOSE Study, a double blind, randomized, placebo-controlled dose escalation study to assess its safety, tolerability, pharmacokinetics, pharmacodynamics and clinical effects in patients with classical HCU.

In December 2021, we announced positive topline results from the Phase 1/2 COMPOSE Study. Pegtibatinase demonstrated dose-dependent reductions in total homocysteine (tHcy) during the 12 weeks of treatment, and in the highest dose cohort to date evaluating 1.5mg/kg of pegtibatinase twice weekly (BIW), treatment with pegtibatinase resulted in rapid and sustained reductions in total homocysteine (tHcy) through 12 weeks of treatment, including a 55.1% mean relative reduction in tHcy from baseline as well as maintenance of tHcy below a clinically meaningful threshold of 100 μmol. Additionally, in a dose-dependent manner in the study to date, methionine levels were substantially reduced and cystathionine levels were substantially elevated following treatment with pegtibatinase, suggesting that pegtibatinase acts in a manner similar to the native CBS enzyme. To date in the study, pegtibatinase has been generally well-tolerated, with no discontinuations due to treatment-related adverse events.

Following positive results from the first five cohorts of the ongoing Phase 1/2 COMPOSE Study, we are evaluating pegtibatinase in a final cohort in the COMPOSE Study to further inform our pivotal development program to ultimately support potential approval of pegtibatinase for the treatment of HCU. The additional cohort was initiated to inform and refine formulation work for future development and commercial purposes and to further evaluate the dose response curve for pegtibatinase. In the fourth quarter of 2022, enrollment completed in the sixth and final cohort of the ongoing Phase 1/2 COMPOSE Study. We anticipate reporting additional data from COMPOSE in mid-2023. In parallel with completing the final cohort in the COMPOSE Study, we are preparing for the potential initiation of a pivotal Phase 3 clinical trial of pegtibatinase in patients with HCU in the second half of 2023, subject to communications and feedback from the FDA and associated program assessments.

We acquired pegtibatinase as part of the November 2020 acquisition of Orphan Technologies Limited.

Chenodal

Chenodal (chenodeoxycholic acid or CDCA) is a naturally occurring bile acid that is approved for the treatment of people with radiolucent stones in the gallbladder. While indicated for radiolucent stones in the gallbladder, Chenodal has been recognized as the standard of care for cerebrotendinous xanthomatosis (CTX) for more than three decades, although it is not currently labeled for this indication. CTX is a rare, progressive and underdiagnosed bile acid synthesis disorder affecting many parts of the body. In September 2022, we were granted Fast Track designation by the FDA for the investigation of Chenodal for CTX. In January 2020, we randomized the first patients in our Phase 3 RESTORE Study to evaluate the effects of Chenodal in adult and pediatric patients with CTX, and the study enrollment remains open. The pivotal study is intended to support an NDA submission for marketing authorization of Chenodal for CTX in the United States. During 2023, we expect to complete the ongoing Phase 3 RESTORE Study in CTX. Pending supportive data, we anticipate being in position to subsequently submit an NDA for a CTX indication.

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Preclinical Programs:

We are a participant in a Cooperative Research and Development Agreement (CRADA), which forms a multi-stakeholder approach to pool resources with leading experts, and incorporate the patient perspective early in the therapeutic identification and development process. We are partnering with the National Institutes of Health’s National Center for Advancing Translational Sciences (NCATS) and a leading patient advocacy organization, Alagille Syndrome Alliance, aimed at the identification of potential small molecule therapeutics for Alagille syndrome (ALGS). There are no treatment options currently approved for ALGS.

We are party to a collaboration agreement with PharmaKrysto Limited and their early-stage cystinuria discovery program, whereby we are responsible for funding all research and development expenses for the pre-clinical activities associated with the cystinuria program.

Other Commercial Products:

Thiola and Thiola EC (tiopronin)

Thiola and Thiola EC are approved by the FDA for the treatment of cystinuria, a rare genetic cystine transport disorder that causes high cystine levels in the urine and the formation of recurring kidney stones. Due to the larger stone size, cystine stones may be more difficult to pass, often requiring surgical procedures to remove. More than 80 percent of people with cystinuria develop their first stone by the age of 20. More than 25 percent will develop cystine stones by the age of 10. Recurring stone formation can cause loss of kidney function in addition to substantial pain and loss of productivity associated with renal colic and stone passage. While a portion of people living with the disease are able to manage symptoms through diet and fluid intake, the prevalence of cystinuria in the US is estimated to be 10,000 to 12,000, indicating that there may be as many as 4,000 to 5,000 affected individuals with cystinuria in the US that would be candidates for Thiola or Thiola EC.

In June 2019 we announced that the FDA approved 100 mg and 300 mg tablets of Thiola EC, an enteric-coated formulation of Thiola, to be used for the treatment of cystinuria. Thiola EC offers the potential for administration with or without food, and the ability to reduce the number of tablets necessary to manage cystinuria. Thiola EC became available to patients in July 2019.

In May 2021, a generic option for the 100 mg version of the original formulation of Thiola (tiopronin tablets) became available and in June 2022, a second option for the 100 mg version of the original formulation of Thiola (tiopronin tablets) was approved. These generic versions of the original formulation of Thiola have impacted sales, and these or additional generic versions of either formulation could have a material adverse impact on sales.

Cholbam (cholic acid)

The FDA approved Cholbam (cholic acid capsules) in March 2015, the first FDA-approved treatment for pediatric and adult patients with bile acid synthesis disorders due to single enzyme defects, and for adjunctive treatment of patients with peroxisome biogenesis disorder-Zellweger spectrum disorder. The effectiveness of Cholbam has been demonstrated in clinical trials for bile acid synthesis disorders and the adjunctive treatment of peroxisomal disorders. An estimated 200 to 300 patients are current candidates for therapy.

Chenodal (chenodiol)

Chenodal is a synthetic oral form of chenodeoxycholic acid ("CDCA"), a naturally occurring primary bile acid synthesized from cholesterol in the liver. The FDA approved Chenodal for the treatment of people with radiolucent stones in the gallbladder. In 2010, Chenodal was granted orphan drug designation for the treatment of cerebrotendinous xanthomatosis ("CTX"), a rare autosomal recessive lipid storage disease. We acquired Chenodal in March 2014.

While Chenodal is not labeled for CTX, it received a medical necessity determination in the US by the FDA and has been used as the standard of care for more than three decades. We are working to obtain FDA approval of Chenodal for the treatment of CTX and initiated a Phase 3 clinical trial for this indication in January 2020. The prevalence of CTX is estimated in the literature to be as high as 1 in 70,000 in the overall population. Pathogenesis of CTX involves deficiency of the enzyme 27-hydroxylase (encoded by the gene CYP27A1), a rate-limiting enzyme in the synthesis of primary bile acids, including CDCA, from cholesterol. The disruption of primary bile acid synthesis in CTX leads to toxic accumulation of cholesterol and cholestanol in most tissues. Patients may present with intractable diarrhea, premature cataracts, tendon xanthomas, atherosclerosis, and cardiovascular disease in childhood and adolescence. Neurological manifestations of the disease, including dementia and cognitive and cerebellar deficiencies, emerge during late adolescence and adulthood. The types, combinations and severity of symptoms can be different from person to person, and making diagnosis challenging and often delayed. Oral administration of CDCA has been shown to normalize primary bile acid synthesis in patients with CTX.

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Critical Accounting Estimates

Management makes certain judgments and uses certain estimates and assumptions when applying accounting principles generally accepted in the United States (“GAAP”) in the preparation of our Consolidated Financial Statements. We evaluate our estimates and judgments on an ongoing basis and base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what we anticipate and different assumptions or estimates about the future could change our reported results. We believe the following accounting policies are the most critical to us, in that they require our most difficult, subjective or complex judgments in the preparation of our Consolidated financial statements. For further information, see Note 2, Summary of Significant Accounting Policies, to our Consolidated Financial Statements, which outlines our application of significant accounting policies.

Revenue Recognition

We recognize revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to contracts when it is probable that the entity will collect substantially all the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

We recognize revenues from product sales when the customer obtains control of the product, which occurs upon delivery to our customer. We receive payments from our product sales based on terms that generally are within 30 days of delivery of product to the patient.

Revenues from product sales are recorded at the net sales price, which includes provisions resulting from discounts, rebates and co-pay assistance that are offered to its customers, health care providers, payers and other indirect customers relating to the sale of our products. In order to determine the transaction price, we estimate, utilizing the expected value method, the amount of variable consideration to which we will be entitled. These provisions are based on the amounts earned or to be claimed on the related sales and are classified as a reduction of accounts receivable (if the amount is payable to the customer) or as a current liability (if the amount is payable to a party other than a customer). Calculating these provisions involves estimates and judgements. Where appropriate, these reserves take into consideration our historical experience, current contractual and statutory requirements and specific known market events and trends. Overall, these reserves reflect our best estimates of the amount of consideration to which it is entitled based on the terms of the contract. If actual results in the future vary from the provisions, we will adjust the provision, which would affect net product revenue and earnings in the period such variances become known. For the years ended December 31, 2022, 2021 and 2020, the Company recorded a net product revenue increase of $0.8 million, $0.4 million, and $0.4 million, respectively, related to performance obligations satisfied in previous periods.

Payments received under collaboration and licensing agreements may include non-refundable fees at the inception of the arrangements, milestone payments for specific achievements and royalties on the sale of products. At the inception of arrangements that include milestone payments, we use judgement to evaluate whether the milestones are probable of being achieved and estimates the amount to include in the transaction price utilizing the most likely amount method. If it is probable that a significant revenue reversal will not occur, the estimated amount is included in the transaction price. Milestone payments that are not within our or the licensee’s control, such as regulatory approvals, are considered to be constrained due to a high degree of uncertainty and are not included in the transaction price until such uncertainty is resolved. At the end of each reporting period, we re-evaluate the probability of achievement of development milestones and any related constraint and adjust the estimate of the overall transaction price, if necessary. As of December 31, 2022, our evaluation concluded that all such milestones associated with our collaboration and licensing agreements remained constrained and therefore no adjustment to the respective transaction price was necessary. We recognize aggregate sales-based milestones and royalty payments from product sales of which the license is deemed to be the predominant item to which the royalties relate, at the later of when the related sales occur or when the performance obligation to which the sales-based milestone or royalty has been allocated has been satisfied.

We utilize significant judgement to develop estimates of the stand-alone selling price for each distinct performance obligation based upon the relative stand-alone selling price. Variable consideration that relates specifically to our efforts to satisfy specific performance obligations is allocated entirely to those performance obligations. The stand-alone selling price for license-related performance obligations requires judgement in developing assumptions to project probability-weighted cash flows based upon estimates of forecasted revenues, clinical and regulatory timelines and discount rates. The stand-alone selling price for clinical development performance obligations is based on forecasted expected costs of satisfying a performance obligation plus an appropriate margin. In 2022, there were no new collaboration and licensing agreements with customers which required an estimate of the stand-alone selling price for an underlying performance obligation.

If the licenses to intellectual property are determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to benefit from the license. For licenses that are not distinct from other promises, we apply judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or a point in time and, if over time, the

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appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the related revenue recognition accordingly.

The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. Revenue is recorded proportionally as costs are incurred. We generally utilize the cost-to-cost method of progress because it best measures the transfer of control to the customer which occurs as we incur costs. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. We use judgment to estimate the total costs expected to complete the clinical development performance obligations, which include subcontractor costs, labor, materials, other direct costs and an allocation of indirect costs. We evaluate these cost estimates and the progress each reporting period and adjust the measure of progress, if necessary.

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

Clinical Trial Expenses

We record expenses in connection with our clinical trials under contracts with contract research organizations ("CROs") that support conducting and managing clinical trials, as well as contract manufacturing organizations ("CMOs") for the manufacture of drug product supplies to support clinical development. The financial terms and activities of these agreements vary from contract to contract and may result in uneven expense levels. Generally, these agreements set forth activities that drive the recording of expenses such as start-up, initiation activities, enrollment, treatment of patients, or the completion of other clinical trial activities, and in the case of CMOs, costs associated with the production of drug product supplied and the procurement of raw materials to be consumed in the manufacturing process.

Expenses related to clinical trials are accrued based on our estimates of the progress of services performed, including actual level of patient enrollment, completion of patient studies and progress of the clinical trials or the delivery of goods. We currently have three Phase 3 clinical trials in process that are in varying stages of activity, with ongoing non-clinical support trials that are significant and changes in estimates could have a material impact on expenses we recognize.

Stock-Based Compensation

We account for share-based compensation arrangements in accordance with ASC 718, Compensation – Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payment awards to be based on estimated fair values. We use the Black-Scholes option valuation model to estimate the fair value of our stock options at the date of grant. The Black-Scholes option valuation model requires the input of subjective assumptions to calculate the value of stock options. For restricted stock units, the value of the award is based on our stock price at the grant date. For performance-based restricted stock unit awards, the value of the award is based on our stock price at the grant date, with consideration given to the probability of the performance condition being achieved. We use historical data and other information to estimate the expected price volatility for stock option awards and the expected exercise activity for all awards. Expense is recognized over the vesting period for all awards and commences at the grant date for time-based awards and upon our determination that the achievement of such performance conditions is probable for performance-based awards. The valuation, including the assumptions, require significant judgment by management.

The following weighted average assumptions were used in the Black-Scholes options pricing model to estimate the fair value of stock options for the specified reporting periods:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","2020"],["Risk free rate","1.7","%","","0.6","%","","1.5","%"],["Expected volatility","50","%","","59","%","","64","%"],["Expected life (in years)","6.4","","6.4","","6.3"],["Expected dividend yield","\u2014","","","\u2014","","","\u2014"]]
[[/GREPCENT_TABLE]]

Total non-cash stock-based compensation expense consisted of the following for the years ended December 31, 2022, 2021 and 2020: $39.2 million, $30.8 million and $23.6 million, respectively.

Contingent Consideration

We record contingent consideration resulting from a business combination at its fair value on the acquisition date. On a quarterly basis, we revalue these obligations and record increases or decreases from their fair value as an adjustment to the Consolidated Statements of Operations and Comprehensive Loss. In estimating the fair value of our contingent consideration, we use a Monte Carlo Simulation. Changes to contingent

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consideration obligations can result from changes to discount rates, accretion of the liability due to the passage of time, changes in revenue forecasts and long-term growth rates. The determination of the contingent consideration liabilities requires significant judgments including the reasonableness of estimates and assumptions included in the forecasts of future net sales and the discount rates applied to such forecasts. Changes in these estimates and assumptions could have a significant impact on the fair value of the contingent consideration liabilities.

We acquired two businesses, related to the Cholbam and Chenodal products, whose purchase price included potential future payments that are contingent on the achievement of certain milestones and percentages of future net sales derived from the products acquired. Discount rates used to determine the fair value at December 31, 2022 and 2021 are as follows:

[[GREPCENT_TABLE]]
[["","","Revenue Discount","","Payment Discount"],["","","Cholbam","","Chenodal"],["December 31, 2022","","7.75%","","8.00%","","8.10%"],["December 31, 2021","","6.25%","","7.25%","","6.48%"]]
[[/GREPCENT_TABLE]]

For the years ended December 31, 2022, 2021 and 2020 we recognized a change in the fair value of contingent consideration of $15.0 million, $22.3 million, and $3.7 million, respectively.

Impairment of Intangible Assets subject to amortization

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

We are subject to generic competition, and if additional generic versions of Thiola, any generic versions of Thiola EC, any generic versions of FILSPARI following the expiration of patent or regulatory exclusivity for the product, or generic versions of Cholbam or Chenodal or any of our current or future products, are approved, sales of that product likely would be negatively impacted, which could have a material adverse impact on the recoverability of certain related intangible assets. Generic versions of the original formulation of Thiola have been approved and have impacted sales, and these or additional generic versions of either formulation could have a material adverse impact on sales.

Recently Issued Accounting Pronouncements

See Note 2 to the Consolidated Financial Statements for discussion.

Results of Operations

Revenue

For further background on our net product sales and license and collaboration revenue, see Revenue Recognition under our Critical Accounting Estimates.

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Year Ended December 31,"],["","2022","","2021","","Change","","2021","","2020","","Change"],["Bile acid products","$","102,558","","","$","95,654","","","$","6,904","","","$","95,654","","","$","89,438","","","$","6,216"],["Tiopronin products","97,970","","","115,122","","","(17,152)","","","115,122","","","108,883","","","6,239"],["Total net product sales","200,528","","","210,776","","","(10,248)","","","210,776","","","198,321","","","12,455"],["License and collaboration revenue","11,490","","","16,714","","","(5,224)","","","16,714","","","\u2014","","","16,714"],["Total revenue","$","212,018","","","$","227,490","","","$","(15,472)","","","$","227,490","","","$","198,321","","","$","29,169"]]
[[/GREPCENT_TABLE]]

Net product sales

Net product sales for the years ended December 31, 2022, 2021 and 2020 were $200.5 million, $210.8 million and $198.3 million, respectively, and consisted of sales of Chenodal and Cholbam ("Bile acid products") and Thiola ("Tiopronin products").

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The decrease in net product sales for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to a decrease in Thiola net sales, partially offset by an increase in net sales of our bile acid products. The increase in sales of our bile acid products was driven organically, whereas the decrease in Thiola net sales was a result of generic competition.

License and collaboration revenue

The decrease in license and collaboration revenue for the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to the recognition of $12.0 million in license revenue upon entering into the CSL Vifor License Agreement in September 2021, offset by an increase in collaboration revenue associated with the CSL Vifor License Agreement. Collaboration revenue, derived from the performance of clinical development activities and based upon the ratio of costs incurred to total estimated costs, increased by $6.8 million from $4.7 million in 2021 to $11.5 million in 2022, primarily due to a full year of performance in 2022 as compared to a partial year of performance in 2021.

Operating Expenses

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Year Ended December 31,"],["","2022","","2021","","Change","","2021","","2020","","Change"],["Cost of goods sold","$","7,592","","","$","6,784","","","$","808","","","$","6,784","","","$","6,126","","","$","658"],["Research and development","235,780","","","210,328","","","25,452","","","210,328","","","131,773","","","78,555"],["Selling, general and administrative","220,206","","","149,883","","","70,323","","","149,883","","","135,799","","","14,084"],["Change in fair value of contingent consideration","15,006","","","22,260","","","(7,254)","","","22,260","","","3,655","","","18,605"],["Acquired IPR&D expense","\u2014","","","\u2014","","","\u2014","","","\u2014","","","97,131","","","(97,131)"],["Total operating expenses","$","478,584","","","$","389,255","","","$","89,329","","","$","389,255","","","$","374,484","","","$","14,771"]]
[[/GREPCENT_TABLE]]

Operating expenses for the year ended December 31, 2022, were $478.6 million compared to $389.3 million for the year ended December 31, 2021, an increase of $89.3 million.

Cost of goods sold

Cost of goods sold includes the cost of inventory sold, third party manufacturing and supply chain costs, product shipping and handling costs, and provisions for excess and obsolete inventory.

Cost of goods sold increased by $0.8 million due to increased sales quantities.

Research and development expenses

Research and development costs include expenses related to sparsentan, pegtibatinase (TVT-058) and our other pipeline programs. We expense all research and development costs as they are incurred. Our research and development costs are comprised of salaries and bonuses, benefits, non-cash share-based compensation, license fees, milestones under license agreements, costs paid to third-party contractors to perform research, conduct clinical trials, and develop drug materials and delivery methods, and associated overhead expenses and facilities costs. We charge direct internal and external program costs to the respective development programs. We also incur indirect costs that are not allocated to specific programs because such costs benefit multiple development programs and allow us to increase our pharmaceutical development capabilities. These consist of internal shared resources related to the development and maintenance of systems and processes applicable to all of our programs.

We currently have one Phase 1/2 clinical trial and three Phase 3 clinical trials in process that are in varying stages of activity, with ongoing non-clinical support studies. As such, clinical trial expenses will vary depending on the all the factors set forth above and may fluctuate significantly from quarter to quarter.

We routinely engage vendors and service providers for scientific research, clinical trial, regulatory compliance, manufacturing and other consulting services. We also make grants to research and non-profit organizations to conduct research which may lead to new intellectual properties that we may subsequently license under separately negotiated license agreements. Such grants may be funded in lump sums or installments.

The following table summarizes our research and development expenses during the years ended December 31, 2022, 2021 and 2020. The internal costs include personnel, facility costs, and discovery and research related activities associated with our pipeline. The external program costs reflect external costs attributable to our clinical development candidates and preclinical candidates selected for further development. Such expenses primarily include third-party contract costs relating to clinical trial activities, nonclinical studies and manufacturing.

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[[GREPCENT_TABLE]]
[["","For the Year Ended December 31,"],["","","","(in thousands)"],["","2022","","2021","","2020"],["External service provider costs:"],["Sparsentan","$","87,598","","","$","103,350","","","$","70,486"],["Pegtibatinase","42,100","","","27,823","","","1,962"],["General","30,465","","","18,786","","","15,433"],["Fosmetpantotenate (discontinued)","(56)","","1","(124)","","1","(2,295)","","1"],["Total external service provider costs","160,107","","","149,835","","","85,586"],["Internal personnel costs","75,673","","","60,493","","","46,187"],["Total research and development","$","235,780","","","$","210,328","","","$","131,773"]]
[[/GREPCENT_TABLE]]

1Credit received in 2022, 2021 and 2020.

Research and development costs increased by $25.5 million due to increases in clinical trial expenses, chemistry manufacturing and control costs, and related expenses associated with the advancement of our programs in development. Internal personnel costs to support all programs increased by $15.2 million, reflecting increased headcount along with rising labor costs. External service provider costs increased by $10.3 million, which included a $14.3 million increase in such costs for the development of pegtibatinase along with a $11.7 million increase in other general research and development costs, offset by a $15.8 million decrease in external service provider costs associated with the development of sparsentan as the program progresses through the development cycle. Certain costs associated with the production of inventory that could potentially be available to support the commercial launch of FILSPARI (sparsentan) have been recognized as research and development expense prior to regulatory approval. As of December 31, 2022, we have recognized approximately $7.5 million in research and development expenses related to the production of active pharmaceutical ingredient that could potentially support the commercial launch of FILSPARI.

Selling, general and administrative expenses

Selling, general and administrative expenses consist of salaries and bonuses, benefits, non-cash share-based compensation, legal and other professional fees, rent, depreciation and amortization, travel, insurance, business development, sales and marketing programs, and other operating expenses.

Selling, general and administrative expenses increased by $70.3 million due to increased headcount as a result of operational growth, including rising labor costs, and commercial launch preparations in anticipation of the U.S. launch of FILSPARI. Increases include combined employee compensation and stock compensation costs of $31.6 million, increases in commercial support expenses of $15.5 million and increases in various professional services expenses of $11.9 million. A combined increase in selling, general and administrative expenses of $7.2 million was primarily attributable to incremental increases in information technology expense, legal fees, travel expense, and depreciation and amortization.

Change in the valuation of contingent consideration

Fair value of contingent consideration decreased by $7.3 million due to increases in market driven discount rates, including increases in treasury rates and credit spreads.

Other Income/Expenses

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

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Year Ended December 31,"],["","2022","","2021","","Change","","2021","","2020","","Change"],["Interest income","$","6,276","","","$","1,993","","","$","4,283","","","$","1,993","","","$","5,003","","","$","(3,010)"],["Interest expense","(11,275)","","","(20,141)","","","8,866","","","(20,141)","","","(19,050)","","","(1,091)"],["Other income, net","974","","","231","","","743","","","231","","","1,420","","","(1,189)"],["Loss on extinguishment of debt","(7,578)","","","\u2014","","","(7,578)","","","\u2014","","","\u2014","","","\u2014"],["Total other expense, net","$","(11,603)","","","$","(17,917)","","","$","6,314","","","$","(17,917)","","","$","(12,627)","","","$","(5,290)"]]
[[/GREPCENT_TABLE]]

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Total other expense, net for the year ended December 31, 2022 was $11.6 million compared to total other expense, net of $17.9 million for the year ended December 31, 2021, which represents a change of $6.3 million. The change was primarily due to loss on extinguishment of debt in connection with the partial repurchase in 2022 of the Convertible Senior Notes due 2025, offset by reduced interest expense due to adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06") as debt discount is no longer amortized. In 2021, we recognized $10.3 million in interest expense for the amortization of the debt discount in accordance with the previous accounting guidance. The increase in interest income was driven by the impact of increases in short-term interest rates on our interest-bearing security investments.

Income Tax Benefit (Provision)

The tax provision was $0.3 million for fiscal 2022 as compared to $0.4 million for fiscal 2021, a decrease of $0.1 million.

Inflation

Inflation generally affects us by increasing our salaries and fees paid to third-party contract service providers. Recent inflationary pressures have primarily impacted our operations through increased labor costs. While we continue to monitor the effects of macroeconomic factors, inflationary pressures have not affected our current outlook or business objectives.

Liquidity and Capital Resources

We have financed our operations through a combination of borrowings, sales of our equity securities, and revenues generated from our commercialized products, including Chenodal, Cholbam, Thiola and Thiola EC, along with proceeds from license and collaboration agreements. We have experienced significant growth in recent years in the number of our employees and the scope of our operations. We have expanded our sales and marketing, compliance and legal functions in addition to expansion of all functions to support a commercial organization, including by adding additional members to our sales force in anticipation of the commercialization of FILSPARI in the United States for the treatment of IgAN. We anticipate that our expenses will continue to increase as we expand our sales and marketing infrastructure to commercialize FILSPARI and our other current approved products and any other new products for which we may obtain regulatory approval, advance the research and development of sparsentan for the treatment of IgAN and FSGS, along with the research and development for additional product candidates including pegtibatinase (TVT-058), and expand operational, financial, and management information systems and personnel, including personnel to support product development efforts and our obligations as a public company.

We believe that our available cash and short-term investments as of the date of this filing, together with anticipated cash generated from operations, will be sufficient to fund our anticipated level of operations beyond the next 12 months. We expect that our operating results will vary from quarter-to-quarter and year-to-year depending upon various factors including revenues, selling, general and administrative expenses, and research and development expenses, particularly with respect to our clinical and preclinical development activities. Our ability to fund our operations in subsequent years will depend upon certain factors which are beyond our control and may require us to obtain additional debt or equity capital or refinance all or a portion of our debt, including the 2025 Notes and 2029 Notes, on or before maturity. Though we generate revenues from product sales arrangements, we may incur significant operating losses over the next several years. Our ability to achieve profitable operations in the future will depend in large part upon completing development of products in our pipeline, obtaining regulatory approvals for these products and bringing these products to market, along with potential in-licensing of additional products approved by the FDA and selling and manufacturing these products.

For the years ended December 31, 2022 and 2021, we had the following balances and financial performance (in thousands):

[[GREPCENT_TABLE]]
[["","December 31, 2022","","December 31, 2021"],["Revenue","$","212,018","","","$","227,490"],["Net loss","$","(278,482)","","","$","(180,091)"],["Cash and cash equivalents","$","61,688","","","$","165,753"],["Marketable debt securities, at fair value","$","388,557","","","$","387,129"],["Accumulated deficit","$","(1,014,223)","","","$","(765,966)"],["Stockholders' equity","$","42,851","","","$","302,112"],["Net working capital*","$","344,274","","","$","458,739"],["Net working capital ratio**","3.42","","","4.70"],["* Current assets less current liabilities **Current assets divided by current liabilities"]]
[[/GREPCENT_TABLE]]

As of December 31, 2022, we had cash and cash equivalents of $61.7 million and available-for-sale marketable debt securities of $388.6 million. Substantial sources of funds over the past two fiscal years, as summarized further below, have included an upfront payment of $55.0 million in connection with a license agreement, net proceeds of $189.3 million from an underwritten public offering of our common stock, net proceeds of $55.2

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million from the sale of our shares of common stock under an ATM facility, and net proceeds of $95.0 million from the issuance of debt after giving effect to the partial repurchase of our previously outstanding debt, along with collections from sales of our commercialized products.

Over the next 12 months, our expected financial obligations include, but are not limited to, funding our operations, operating lease payments, interest payments on our outstanding debt, royalties on sales of our existing commercialized products, research and development expenses pertaining to clinical and preclinical development activities across our pipeline, expenses associated with the potential launch of FILSPARI, including purchase commitments for manufactured product, and, if approved, related milestone payments. Additional sources of cash over this period include net revenues from sales of our products, the sale or maturity of investments in our portfolio of marketable debt securities, and certain earned and potential milestone payments associated with sparsentan in connection with our license and collaboration arrangement with CSL Vifor.

Beyond the next 12 months and over the foreseeable future, our known commitments and potential financial obligations will likely include ongoing operations funding, operating lease payments, interest payments on our outstanding debt, royalties on sales of our existing commercialized products, research and development expenses pertaining to clinical and preclinical development activities across our pipeline, milestone and royalty payments associated with FILSPARI, pegtibatinase (TVT-058), and other developmental programs based upon the achievement of certain agreement-specific criteria, along with sales-based royalties and the repayment of principal on the outstanding 2025 Notes and 2029 Notes upon their respective maturities. Potential sources of cash over this time horizon may include net revenues from sales of our existing products and, if commercialized, our pipeline products, licensing revenue, the sale or maturity of marketable debt securities in our investment portfolio, the refinancing of all or a portion of our debt, including the 2025 Notes and 2029 Notes, on or before maturity, or the issuance of additional debt or equity. In addition, depending on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors, we may also from time to time seek to retire or purchase our outstanding debt, including the 2025 Notes or 2029 Notes, through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. In light of global and macroeconomic conditions, including rising interest rates and volatility in the capital markets, we may not be able to successfully conduct financing or refinancing activity on favorable terms or at all.

Collaboration and License Proceeds

License and Collaboration Agreement with CSL Vifor

On September 15, 2021, we entered into a License Agreement with CSL Vifor, pursuant to which we granted an exclusive license to CSL Vifor for the commercialization of sparsentan in the Licensed Territories. Under the terms of the License Agreement, we received an upfront payment of $55.0 million in September 2021, and will be eligible for up to $135.0 million in aggregate regulatory and market access related milestone payments and up to $655.0 million in aggregate sales-based milestone payments for a total potential value of up to $845.0 million. We are also entitled to receive tiered double-digit royalties of up to 40 percent of annual net sales of sparsentan in the Licensed Territories.

See Note 4 to Consolidated Financial Statements for further discussion.

Equity Offerings

2021 Underwritten Public Offering of Common Stock

In February 2021, we sold an aggregate of 7.5 million shares of our common stock in an underwritten public offering, at a price of $26.75 per share. The net proceeds to us from the offering, after deducting the underwriting discounts and offering expenses, were $189.3 million.

At-the-Market Equity Offering

In February 2020, we entered into an Open Market Sale Agreement ("ATM Agreement") with Jefferies LLC, as agent (“Jefferies”), pursuant to which we may offer and sell, from time to time through Jefferies, shares of our common stock having an aggregate offering price of up to $100.0 million. Of the $100.0 million originally authorized for sale under the ATM Agreement, approximately $28.6 million were sold under our prior registration statement on Form S-3 (Registration Statement No. 333-227182). An additional $51.9 million were sold under our effective registration statement on Form S-3 (Registration Statement No. 333-259311), which included $20.1 million from the settlement of 701,600 shares under the ATM Agreement in the year ended December 31, 2022. As of December 31, 2022, an aggregate amount of $19.5 million remained eligible for sale under the ATM Agreement.

Authorized Shares of Common Stock

On May 14, 2021, in connection with our 2021 Annual Meeting of Stockholders, the Company’s stockholders approved, among other matters, a Certificate of Amendment (“Certificate of Amendment”) to our Certificate of Incorporation to increase the number of shares of common stock authorized for issuance thereunder from 100,000,000 to 200,000,000. Effective May 18, 2021, the Certificate of Amendment was filed with the Secretary of State of the State of Delaware.

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Operating Leases

Future Minimum Rental Commitments

We have future minimum rental commitments totaling $38.2 million arising from our operating leases. These commitments represent the aggregate base rent through August 2028.

See Note 18 to Consolidated Financial Statements for further discussion.

Purchase Commitments

Manufactured Product

Certain of the Company's contractual arrangements with contract manufacturing organizations ("CMOs") require binding forecasts or commitments to purchase minimum amounts for the manufacture of drug product supply, which may be material to the Company's financial statements. As of December 31, 2022, we have a commitment to purchase $36.3 million in active pharmaceutical ingredient to be delivered in 2023.

Royalties and Contingent Cash Payments

Ligand License Agreement

In 2012, we entered into an agreement with Ligand Pharmaceuticals, Inc. ("Ligand") for a worldwide sublicense to develop, manufacture and commercialize sparsentan (the “Ligand License Agreement”). As consideration for the license, we are required to make substantial payments upon the achievement of certain milestones, totaling up to $114.1 million, including a $23.0 million milestone payment to Ligand (and Bristol-Myers Squibb Company ("BMS")) that we plan to make in the first quarter of 2023, which was triggered upon the accelerated approval of FILSPARI in February 2023. Through December 31, 2022, we have made payments under this arrangement totaling $18.4 million. In addition, we are obligated to pay to Ligand (and BMS) an escalating annual royalty between 15% and 17% of net sales of FILSPARI and any other products containing sparsentan or related compounds.

The license agreement will continue until neither party has any further payment obligations under the agreement and is expected to continue for approximately 10 to 20 years from the effective date. Ligand may terminate the license agreement due to (i) our insolvency, (ii) our material uncured breach of the agreement, (iii) our failure to use commercially reasonable efforts to develop and commercialize sparsentan as described above or (iv) certain other conditions. We may terminate the license agreement due to a material uncured breach of the agreement by Ligand.

See Note 9 to Consolidated Financial Statements for further discussion.

Thiola License Agreement

In 2014, we entered into a license agreement with Mission Pharmacal ("Mission"), pursuant to which we obtained an exclusive, royalty-bearing license to market, sell and commercialize Thiola (tiopronin) in the United States and Canada, and a non-exclusive license to use know-how relating to Thiola to the extent necessary to market Thiola. We paid Mission an up-front license fee of $3.0 million and during the term of the agreement will pay guaranteed minimum royalties during each calendar year the greater of $2.0 million or 20% of our net sales of Thiola in the United States and Canada.

In November 2017, we amended the license agreement to extend the term through May 2029.

In November 2018, the license agreement was amended to remove all territorial restrictions on our license rights. As consideration for the expanded territory we paid an up-front fee of $0.3 million and will pay guaranteed minimum royalties equaling the greater of $0.1 million or 20% of our Thiola net sales generated outside of the United States during each calendar year.

See Note 9 to Consolidated Financial Statements for further discussion.

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Acquisition of Orphan Technologies Limited

In November 2020, we completed the acquisition of Orphan Technologies Limited (“Orphan”), including Orphan’s rare metabolic disorder drug pegtibatinase. We acquired Orphan by purchasing all of its outstanding shares. In exchange for the shares, we made an upfront cash payment at closing of $90.0 million plus closing adjustments, net liabilities assumed, and transaction expenses of $1.2 million, $1.8 million, and $4.2 million, respectively. Under the Agreement, we also agreed to make contingent cash payments up to an aggregate of $427.0 million based on the achievement of certain development, regulatory and commercialization events as set forth in the Agreement, as well as additional tiered mid-single digit royalty payments based upon future net sales of any pegtibatinase products in the US and Europe, subject to certain reductions as set forth in the Agreement, and a contingent payment in the event a pediatric rare disease voucher for any pegtibatinase product is granted.

See Note 5 to Consolidated Financial Statements for further discussion.

Stock Purchase and Collaboration Agreement with PharmaKrysto

On March 8, 2022, the Company entered into a Collaboration Agreement with PharmaKrysto Limited (“PharmaKrysto”), a privately held pre-clinical stage company related to PharmaKrysto's early-stage cystinuria discovery program, and concurrently therewith entered into a Stock Purchase Agreement with PharmaKrysto (together, the "Agreements"). Pursuant to the terms of the Agreements, the Company paid PharmaKrysto's shareholders $0.6 million in cash to purchase 5% of the outstanding common shares of PharmaKrysto and $0.4 million to PharmaKrysto as a one-time signing fee. Under the Collaboration Agreement, the Company will fund all research and development expenses for the pre-clinical activities associated with the cystinuria program, which are estimated to be approximately $5.0 million. The Agreements require the Company to purchase an additional 5% of the outstanding common shares for $1.0 million upon the occurrence of a specified pre-clinical milestone, and grant an option to the Company to purchase the remaining outstanding shares of PharmaKrysto for $5.0 million upon the occurrence of a subsequent pre-clinical milestone prior to expiration of the option on March 8, 2025. If the Company elects to exercise the option, it would be required to perform commercially reasonable clinical diligence obligations. In addition, it would be required to make cash milestone payments totaling up to an aggregate $16.0 million upon the achievement of certain development and regulatory milestones, plus tiered royalty payments of less than 4% on future net sales of a product, if approved. The Company has the right to terminate the Agreements and return the shares for a nominal price at any time upon 60 days' notice, subject to survival of contingent obligations, if any.

See Note 5 to Consolidated Financial Statements for further discussion.

Borrowings

Convertible Senior Notes Due 2029

On March 11, 2022, we completed a registered underwritten public offering of $316.3 million aggregate principal amount of 2.25% Convertible Senior Notes due 2029 (“2029 Notes”). We issued the 2029 Notes under an indenture, dated as of September 10, 2018, as supplemented by the second supplemental indenture, dated as of March 11, 2022 (collectively, the “2029 Indenture”). The 2029 Notes will mature on March 1, 2029, unless earlier repurchased, redeemed, or converted. The 2029 Notes are senior unsecured obligations of ours and bear interest at an annual rate of 2.25%, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2022. The 2029 Notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, the issuance of other indebtedness or the issuance or repurchase of securities by us.

Convertible Senior Notes Due 2025

On September 10, 2018, we completed a registered underwritten public offering of $276.0 million aggregate principal amount of 2.50% Convertible Senior Notes due 2025 ("2025 Notes"), and entered into a base indenture and supplemental indenture agreement ("2025 Indenture") with respect to the 2025 Notes. The 2025 Notes will mature on September 15, 2025, unless earlier repurchased, redeemed, or converted. The 2025 Notes are senior unsecured obligations of the Company and bear interest at an annual rate of 2.50%, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2019. On March 11, 2022, coinciding with the issuance of the 2029 Notes, we completed our repurchase of $207.1 million aggregate principal amount of 2025 Notes for cash. After giving effect to the repurchase, the total remaining principal amount outstanding under the 2025 Notes as of December 31, 2022 was $68.9 million. The 2025 Notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, the issuance of other indebtedness or the issuance or repurchase of securities by us.

See Note 7 to Consolidated Financial Statements for further discussion.

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Funding Requirements

We believe that our available cash and short-term investments as of the date of this filing will be sufficient to fund our anticipated level of operations beyond the next 12 months. We expect to use cash flows from operations and outside financings to meet our current and future financial obligations, including funding our operations, debt service and capital expenditures. Our ability to make these payments depends on our future performance, which will be affected by financial, business, economic, regulatory and other factors, many of which we cannot control. Factors that may affect financing requirements include, but are not limited to:

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

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

•the timing of, and costs involved in, commercial activities, including product marketing, sales and distribution;

•our ability to successfully commercialize FILSPARI for IgAN and to obtain regulatory approval for, and successfully commercialize, sparsentan for FSGS and our other or future product candidates;

•increases or decreases in revenue from our marketed products, including decreases in revenue resulting from generic entrants or health epidemics or pandemics such as COVID-19;

•debt service obligations on the 2025 Notes and 2029 Notes;

•the number and development requirements of other product candidates that we pursue;

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

•the costs of preparing, filing, prosecuting, maintaining and enforcing any patent claims and other intellectual property rights, litigation costs and the results of litigation;

•our ability to enter into collaboration, licensing or distribution arrangements and the terms and timing of these arrangements;

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

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

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

•the impacts of inflation and resulting cost increases.

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

Cash Flows

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","2020"],["Net cash used in operating activities","$","(186,291)","","","$","(14,792)","","","$","(42,743)"],["Net cash used in investing activities","(32,553)","","","(137,623)","","","(61,327)"],["Net cash provided by financing activities","117,573","","","231,683","","","127,713"],["Effect of exchange rate changes on cash","(2,794)","","","1,713","","","(1,307)"],["Net (decrease) increase in cash and cash equivalents","(104,065)","","","80,981","","","22,336"],["Cash and cash equivalents, beginning of year","165,753","","","84,772","","","62,436"],["Cash and cash equivalents, end of year","$","61,688","","","$","165,753","","","$","84,772"]]
[[/GREPCENT_TABLE]]

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Management considers marketable debt securities to be available to fund current operations, and they are classified as available for sale and included within current assets in our Consolidated Balance Sheets. Therefore, cash and short-term investments available to fund operations is $450.2 million as of December 31, 2022.

Cash Flows from Operating Activities

Operating activities used $186.3 million of cash during the year ended December 31, 2022 compared to $14.8 million of cash used for the year ended December 31, 2021. The increase in cash used was primarily attributable to increased research and development and sales, general and administrative expenses, driven largely by the advancement of our programs in development and operational growth, including increases in clinical trial expenses, chemistry and manufacturing control costs, employee-related costs, commercial support expenses, and various professional expenses. The receipt of the $55.0 million upfront payment in September 2021 in connection with the CSL Vifor License Agreement also contributed to the change.

Cash Flows from Investing Activities

Cash used in investing activities for the year ended December 31, 2022 was $32.6 million compared to cash used of $137.6 million for the year ended December 31, 2021. The decrease in cash used was due to the decrease in net purchases of marketable debt securities attributable to the investment in such securities of funds received in the February 2021 underwritten public offering of common stock.

Cash Flows from Financing Activities

For the year ended December 31, 2022, cash provided by financing activities was $117.6 million compared to cash provided of $231.7 million for the year ended December 31, 2021. The decrease in cash provided was primarily due to the February 2021 issuance of stock through an underwritten public offering that provided $189.3 million, offset by net proceeds of $95.0 million from the March 2022 issuance of the 2029 Notes and repurchase of the 2025 Notes. Net proceeds from the issuance of common stock under the ATM Agreement also decreased by $16.1 million.