S-1/A 1 d545667ds1a.htm AMENDMENT NO.2 ON FORM S-1 Amendment No.2 on Form S-1
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As filed with the Securities and Exchange Commission on November 1, 2013.

Registration No. 333-191437

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2

to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Relypsa, Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   2834
  26-0893742

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

700 Saginaw Drive

Redwood City, CA 94063

(650) 421-9500

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

John A. Orwin

President and Chief Executive Officer

Relypsa, Inc.

700 Saginaw Drive

Redwood City, CA 94063

(650) 421-9500

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Alan C. Mendelson, Esq.

Mark V. Roeder, Esq.

Latham & Watkins LLP

140 Scott Drive

Menlo Park, CA 94025

Telephone: (650) 328-4600

Facsimile: (650) 463-2600

 

Ronald A. Krasnow, Esq.

General Counsel, Senior Vice President

Relypsa, Inc.

700 Saginaw Drive

Redwood City, CA 94063

Telephone: (650) 421-9500

Facsimile: (650) 421-9700

 

Patrick O’Brien, Esq.

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, Massachusetts 02199

Telephone: (617) 951-7000

Facsimile: (617) 951-7050

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ¨       Accelerated filer  ¨
Non-accelerated filer  x   (Do not check if a smaller reporting company)     Smaller reporting company  ¨

 

 

CALCULATION OF REGISTRATION FEE

 

Title of each class of

securities to be registered

 

Amount to be

registered(1)

  Proposed maximum
aggregate offering
price per share(2)
 

Proposed maximum

aggregate

offering price(2)

 

Amount of

registration fee(3)

Common Stock, $0.001 par value per share

  7,877,500   $19.00   $149,672,500   $20,241

 

 

(1) Includes shares that the underwriters have the option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rules 457(a) under the Securities Act of 1933, as amended.
(3) Registration fees totaling $18,737 were previously paid in connection with the initial filing and amendment of this registration statement. The amounts paid in connection with this filing for the aggregate registration fee of $20,241, which includes $18,737 previously paid and $1,504 for the additional amount of $11,672,500 of securities included in this amendment to the registration statement, is offset by the $18,737 previously paid.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

 

Subject to completion, November 1, 2013

 

LOGO

6,850,000 Shares

Relypsa, Inc.

Common Stock

 

 

This is the initial public offering of shares of common stock of Relypsa, Inc.

We are offering 6,850,000 shares of our common stock. Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $16.00 and $19.00. We have applied to list our common stock on The NASDAQ Global Market under the trading symbol “RLYP.”

We are an emerging growth company under the federal securities laws and will be subject to reduced public company reporting requirements.

 

 

Investing in our common stock involves a high degree of risk. See “Risk factors” beginning on page 12.

 

     Per Share      Total  

Initial public offering price

   $                        $                        

Underwriting discounts and commissions(1)

   $         $     

Proceeds, before expenses, to us

   $         $     

 

(1) See “Underwriting” for additional disclosure regarding underwriting discounts, commissions and estimated offering expenses.

To the extent that the underwriters sell more than 6,850,000 shares of common stock, the underwriters have an over-allotment option to purchase up to an additional 1,027,500 shares from us at the initial public offering price, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

Certain of our existing investors, including a limited partner of two of our existing investors, have indicated an interest in purchasing an aggregate of up to approximately $20.0 million in shares of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, these entities may determine to purchase fewer shares than they indicate an interest in purchasing or not to purchase any shares in this offering. It is also possible that these entities could indicate an interest in purchasing more shares of our common stock. In addition, the underwriters could determine to sell fewer shares to any of these entities than the entities indicate an interest in purchasing or not to sell any shares to these entities.

The underwriters expect to deliver the shares against payment in New York, New York on         , 2013.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

Morgan Stanley  

BofA Merrill Lynch

Cowen and Company

Stifel

 

Wedbush PacGrow Life Sciences

              , 2013


Table of Contents

Table of Contents

 

     Page  

PROSPECTUS SUMMARY

     1   

RISK FACTORS

     12   

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     50   

MARKET, INDUSTRY AND OTHER DATA

     52   

USE OF PROCEEDS

     53   

DIVIDEND POLICY

     54   

CAPITALIZATION

     55   

DILUTION

     58   

SELECTED FINANCIAL DATA

     61   

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

     63   

BUSINESS

     85   

MANAGEMENT

     127   

EXECUTIVE COMPENSATION

     140   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     162   

PRINCIPAL STOCKHOLDERS

     166   

DESCRIPTION OF CAPITAL STOCK

     171   

SHARES ELIGIBLE FOR FUTURE SALE

     178   

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS

     181   

UNDERWRITING

     186   

LEGAL MATTERS

     194   

EXPERTS

     194   

WHERE YOU CAN FIND MORE INFORMATION

     194   

INDEX TO FINANCIAL STATEMENTS

     F-1   

 

 

Neither we nor the underwriters have authorized anyone to provide you with information that is different from that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are offering to sell shares of common stock and seeking offers to buy shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date on the front of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock.

Until             , 2013 (the 25th day after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Relypsa and our logo are some of our trademarks used in this prospectus. This prospectus also includes trademarks, tradenames, and service marks that are the property of other organizations. Solely for convenience, our trademarks and tradenames referred to in this prospectus appear without the ™ symbol, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor to these trademarks and tradenames.

When we refer to patiromer in this document we are referring to our product candidate, RLY5016 for oral suspension.

 

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Prospectus Summary

The items in the following summary are described in greater detail later in this prospectus. This summary provides a general overview of selected information and does not contain all of the information you should consider before buying our common stock. Therefore, you should read the entire prospectus carefully, including the “Risk Factors” section beginning on page 12 and our financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our common stock. In this prospectus, unless the context otherwise requires, references to “we,” “us,” “our” or “Relypsa,” refer to Relypsa, Inc.

Our Company

We are a pharmaceutical company focused on the development and commercialization of non-absorbed polymeric drugs to treat disorders in the areas of renal, cardiovascular and metabolic diseases. We have completed our two-part pivotal Phase 3 trial of our lead product candidate, patiromer, for the treatment of hyperkalemia, a life-threatening condition defined as abnormally elevated levels of potassium in the blood. The design of this pivotal Phase 3 trial was agreed to under a special protocol assessment, or SPA, with the U.S. Food and Drug Administration, or FDA. Each part of this trial met both its primary and secondary efficacy endpoints, with the results being both statistically significant and clinically meaningful. We expect to submit a New Drug Application, or NDA, in the third quarter of 2014. Patiromer is a non-absorbed, optimized potassium binding polymer administered as a convenient oral suspension powder. In our clinical program, we have observed that daily administration of patiromer lowered, and maintained control of, serum potassium levels into the normal range in hyperkalemic subjects and was well tolerated. We have global royalty-free commercialization rights to patiromer, which has intellectual property protection in the U.S. until at least 2030. Upon FDA approval, we plan to commercialize patiromer for the treatment of hyperkalemia in the U.S. with an approximately 100 person specialty sales force targeting nephrologists and cardiologists.

Overview of Hyperkalemia

Hyperkalemia, which can present chronically or acutely, can lead to severe medical complications, including life-threatening cardiac arrhythmias and sudden death. Hyperkalemia is typically defined as a serum potassium, or potassium in the blood, level greater than 5.0 milliequivalents per liter (mEq/L). Patients with serum potassium greater than or equal to 5.5 mEq/L, which we define as moderate-to-severe hyperkalemia, were found in an independent study to have a 10-fold increase in their mortality rate within 24 hours. Causes and risk factors for hyperkalemia include reduced renal function, diabetes, extensive soft tissue injury, age, high dietary potassium intake and the use of medications such as renin-angiotensin-aldosterone system, or RAAS, inhibitors.

Hyperkalemia occurs most frequently in patients with chronic kidney disease, or CKD, where the ability of the patient’s kidney to excrete potassium has been compromised. Treatment guidelines recommend the use of RAAS inhibitors to preserve kidney function and delay the progression of renal failure to end stage renal disease, or ESRD; however, RAAS inhibitors have the well-recognized side effect of causing or worsening hyperkalemia, thereby limiting their use. In addition to CKD patients, hyperkalemia is also observed in heart failure, or HF, patients, for whom RAAS inhibitors have demonstrated a decrease in all-cause mortality.

 

 

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Unmet Need in Hyperkalemia

In the United States, current treatment options for the chronic management of hyperkalemia are limited. These options include dietary potassium restriction, potassium-wasting diuretics or sodium polystyrene sulfonate, or SPS (e.g., Kayexalate®). SPS, first marketed in 1958, is currently the only drug on the market in the United States that is indicated for the treatment of hyperkalemia; however, it has a poor tolerability profile. SPS’ product labeling includes warnings of serious and potentially fatal gastrointestinal, or GI, side effects, and therefore, we believe that its use as a daily treatment option over the long term is limited.

The discontinuation or reduction in the dose of RAAS inhibitors is a common intervention for patients taking RAAS inhibitors who show abnormally elevated serum potassium levels. RAAS inhibitors are a first-line treatment for hypertension and to delay CKD progression under widely accepted treatment guidelines and are recommended in the majority of patients with CKD and/or HF. However, due to their side effect of causing or worsening hyperkalemia, physicians have indicated that they are caught in a dilemma of choosing to treat their HF and CKD patients with RAAS inhibitors, thereby running the risk of inducing a life-threatening hyperkalemic state or avoiding these drugs and depriving patients of the morbidity and mortality benefits that RAAS inhibitors confer. To manage this dilemma, both HF and CKD guidelines, as well as the drug labels, advise dose reductions or discontinuation of the RAAS inhibitors if a patient develops hyperkalemia.

Our Solution—Patiromer for the Treatment of Hyperkalemia

We have designed patiromer to efficiently bind and remove potassium from the body, thereby treating hyperkalemia. Top line data from the first part, Part A, of our pivotal Phase 3 trial showed a statistically significant mean serum potassium reduction of 1.01 mEq/L, which was also clinically meaningful with 76% of subjects having their serum potassium in the normal range at week 4. In addition, top line data from the second part of the trial, Part B, showed that, after controlling serum potassium in Part A, the estimated median increase from Part B baseline in serum potassium was 0.72 and zero in subjects randomized to placebo and in subjects that remained on patiromer, respectively, with the difference between the groups being statistically significant. Further, the difference was clinically meaningful with hyperkalemia recurring at any time during Part B in significantly more subjects randomized to placebo than in subjects who continued to receive patiromer. The positive results from both parts of the pivotal study indicate that patiromer is an effective treatment for hyperkalemia and that chronic dosing with patiromer reduces the recurrence of hyperkalemia. These positive Phase 3 results are supported by top-line results from our 52-week Phase 2b trial, which also demonstrated statistically significant and clinically meaningful reductions in serum potassium at 4 weeks, with 86% to 90% of subjects having their serum potassium in the target range at 52 weeks, demonstrating the ability of patiromer to control serum potassium over the long term. We believe that patiromer, if approved, will be the first drug approved for the treatment of hyperkalemia with a tolerability profile that enables chronic daily administration.

Patient Populations of Interest

We believe a significant commercial opportunity exists for patiromer, and we plan to initially market patiromer in the U.S. to a subset of the approximately 7,000 nephrologists, as well as cardiologists

 

 

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associated with a targeted group of major HF centers, who treat patients in one or more of the following categories:

 

   

Patients with existing moderate-to-severe hyperkalemia.    We believe the prevalence of moderate-to-severe hyperkalemia is between 20 to 40% in stage 3 and 4 CKD patients and HF patients. Therefore, we estimate that there are approximately 2.4 million CKD and HF patients in the United States with moderate-to-severe hyperkalemia being treated by a nephrologist or cardiologist. Many of these patients are being treated with RAAS inhibitors due to their benefits for CKD and HF patients. Based on our market research, approximately 80% of physicians surveyed indicated that they are likely to intervene with some form of treatment for hyperkalemia by the time a patient’s serum potassium level reaches 5.5 mEq/L. Accordingly, we view these patients as a readily identifiable initial patient population likely to be prescribed patiromer.

 

   

Patients with existing mild hyperkalemia.    While physicians surveyed indicated that they are most likely to intervene with a treatment for hyperkalemia when a patient has a serum potassium level of greater than or equal to 5.5 mEq/L, approximately 40% of these physicians indicated that they would likely intervene with a treatment for hyperkalemia at a serum potassium level of less than 5.5 mEq/L, which we define as mild hyperkalemia. We believe that a safe, effective and well-tolerated daily use chronic therapy such as patiromer would be useful for patients in this category, in particular for those patients who have a history of recurrent episodes of hyperkalemia.

 

   

Patients not currently taking a RAAS inhibitor or who have had their RAAS inhibitor dose reduced to address their hyperkalemia.    There are approximately 13.9 million stage 3 or 4 CKD patients and 3.7 million non-CKD HF patients in the U.S. We believe that 60 to 70% of these patients are treated by a nephrologist or cardiologist, and that the majority of these patients currently are not receiving RAAS inhibitors, or are receiving sub-optimal RAAS inhibitor dosing, in part because they have developed hyperkalemia from these treatments. Our market research indicates that for about 90% of nephrologists, hyperkalemia is the top concern with RAAS inhibitor therapy, and that about 90% of specialist physicians would use a drug with patiromer’s clinical profile for the treatment of hyperkalemia in this type of patient. We believe that, with the introduction of a safe, effective and well-tolerated daily use chronic treatment option for hyperkalemia, physicians may increase their RAAS inhibitor usage in patients who have hyperkalemia by either maintaining their RAAS inhibitor therapy, increasing the doses of their RAAS inhibitor where indicated or by reinitiating RAAS inhibitor medications.

Clinical Development

We have conducted a robust clinical development program in which daily administration of patiromer has been observed by us to lower, and maintain control of, serum potassium levels in hyperkalemic subjects with an acceptable safety and tolerability profile. Our clinical development program consists of our completed two-part pivotal Phase 3 trial, four completed Phase 2 trials, two completed Phase 1 trials and one ongoing Phase 1 onset-of-action trial. In our Phase 3 and Phase 2b trials, we observed that patiromer, when administered in pre-dialysis CKD subjects on RAAS inhibitors:

 

   

Provided statistically significant and clinically meaningful reductions in serum potassium levels, meeting the primary efficacy endpoints in each trial;

 

 

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Reduced serum potassium levels into the normal range in the substantial majority of subjects;

 

   

Significantly reduced the recurrence of hyperkalemia in subjects after serum potassium levels were controlled compared to subjects taking placebo; and

 

   

Maintained average serum potassium within the normal range for up to 1 year, demonstrating the ability of patiromer to control serum potassium over the long-term.

The completed pivotal Phase 3 trial was conducted under an SPA and consisted of two parts: an open-label treatment part (Part A) and a placebo-controlled, randomized withdrawal part (Part B). As part of the SPA, each part of the trial was intended to serve as one of two pivotal trials required for NDA submission. Part A, which met both the primary and secondary efficacy endpoints, with the results being both statistically significant and clinically meaningful, was designed to assess the safety and efficacy of patiromer in the treatment of hyperkalemia. Part B, which also met both the primary and secondary efficacy endpoints, was designed to provide additional evidence that chronic administration with patiromer maintains control of serum potassium levels and that once patiromer treatment is withdrawn, hyperkalemia recurs.

Our Strategy

Our strategy is to develop and commercialize a product portfolio of novel therapeutics to treat disorders in the areas of renal, cardiovascular and metabolic diseases. The key elements of our strategy are to:

 

   

Obtain FDA approval to market our lead product candidate, patiromer, for the treatment of hyperkalemia.

 

   

Commercialize patiromer in the U.S. with a specialty sales force of approximately 100 sales representatives focused on a subset of the approximately 7,000 nephrologists, as well as cardiologists associated with a targeted group of major HF centers, treating our patient populations of interest.

 

   

Leverage our commercial and research infrastructure to create a pipeline over time using our proprietary polymer drug discovery technology and/or by selectively pursuing commercially synergistic in-licensing or acquisition of additional compounds.

Management Team

Members of our management team have played central roles at prior companies, including Affymax, Inc., KAI Pharmaceuticals, Inc., Pfizer Inc., Ilypsa, Inc., Fibrogen, Inc. and Saltigo GmbH, in discovering, developing and commercializing therapeutics, several in the renal field, including Omontys, KAI-4169 and Kiklin®.

Risks to Our Business

Our business is subject to numerous risks, as more fully described in the section entitled “Risk Factors” immediately following this prospectus summary. These risks include, among others:

 

   

We have a limited operating history, have incurred significant losses and anticipate that we will continue to incur losses for the foreseeable future.

 

   

We will require substantial additional financing.

 

   

We are substantially dependent on the success of our lead product candidate, patiromer.

 

   

We may be unable to obtain regulatory approval for the commercialization of patiromer.

 

 

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Even if patiromer obtains regulatory approval, it may never achieve market acceptance or commercial success.

 

   

If our intellectual property related to patiromer or any future product candidates is not adequate, we may not be able to compete effectively.

Corporate Information

We were founded in August 2007 as a Delaware corporation. Our principal executive offices are located at 700 Saginaw Drive, Redwood City, CA 94063, and our telephone number is (650) 421-9500. Our web site address is www.relypsa.com. The information on, or that can be accessed through, our web site is not part of this prospectus. We have included our web site address as an inactive textual reference only.

 

 

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The Offering

 

Issuer

Relypsa, Inc.

 

Common stock we are offering

6,850,000 shares

 

Common stock to be outstanding after the offering

28,710,088 shares

 

Over-allotment option

1,027,500 shares

 

Use of proceeds

We estimate that the net proceeds from this offering will be approximately $108.5 million, or approximately $125.2 million if the underwriters exercise their over-allotment option in full, at an assumed initial public offering price of $17.50 per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We currently expect to use the net proceeds from this offering: for development costs relating to the validation of our commercial manufacturing process for patiromer, manufacturing commercial supply of patiromer; for development costs to prepare for and submit our NDA for patiromer, and to support the FDA’s review and approval process; for pre-commercialization marketing activities for patiromer; and the balance for working capital and general corporate purposes. See “Use of Proceeds” on page 53 for a more complete description of the intended use of proceeds from this offering.

 

Risk factors

See “Risk Factors” beginning on page 12 and other information included in this prospectus for a discussion of factors that you should consider carefully before deciding to invest in our common stock.

 

Proposed symbol on The NASDAQ Global Market

“RLYP”

The number of shares of common stock to be outstanding after this offering is based on 21,860,088 shares of common stock outstanding as of October 10, 2013, and excludes the following:

 

   

3,437,282 shares of common stock issuable upon the exercise of outstanding stock options as of October 10, 2013 having a weighted-average exercise price of $5.33 per share;

 

   

90,183 shares of common stock issuable upon the exercise of outstanding warrants as of October 10, 2013 having a weighted-average exercise price of $11.70 per share, which warrants are expected to remain outstanding at the consummation of this offering;

 

   

67,287 shares of common stock reserved for issuance pursuant to future awards under our Amended and Restated 2007 Equity Incentive Plan, as amended, as of October 10, 2013,

 

 

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which will become available for issuance under our 2013 Equity Incentive Award Plan after consummation of this offering;

 

   

1,276,587 shares of common stock reserved for issuance pursuant to future awards under our 2013 Equity Incentive Award Plan, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan, which will become effective immediately prior to the consummation of this offering; and

 

   

255,317 shares of common stock reserved for future issuance under our Employee Stock Purchase Plan, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan.

Unless otherwise indicated, the number of shares of our common stock described above gives effect to:

 

   

a 1-for-17.2 reverse stock split of our capital stock to be effected prior to the effectiveness of the registration statement of which this prospectus is a part;

 

   

the conversion of all outstanding shares of our convertible preferred stock pursuant to a stockholder vote under our amended and restated certificate of incorporation into an aggregate of 18,946,971 shares of common stock, which includes 22,088 shares of our Series B-1 convertible preferred stock issued upon exercise of outstanding warrants and 1,633,126 shares of our Series C-2 convertible preferred stock that were issued in October 2013, immediately prior to the consummation of this offering;

 

   

the net exercise, based on an assumed initial public offering price of $17.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, of our Series B-1 Warrants into 46,640 shares of our common stock upon conversion of the Series B-1 convertible preferred stock issuable upon exercise of such warrants, at an exercise price of $13.502 per share, which will expire upon completion of this offering if not exercised;

 

   

the net exercise, based on an assumed initial public offering price of $17.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, of our Series C-1 Financing Warrants into 2,056,230 shares of our common stock upon conversion of the Series C-1 convertible preferred stock issuable upon exercise of such warrants, at an exercise price of $0.17 per share, which will automatically exercise in connection with this offering;

 

   

the net exercise, based on an assumed initial public offering price of $17.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, of our Series C-2 Financing Warrants into 474,507 shares of our common stock upon conversion of the Series C-2 convertible preferred stock issuable upon exercise of such warrants, at an exercise price of $0.17 per share, which will automatically exercise in connection with this offering;

 

   

the filing and effectiveness of our amended and restated certificate of incorporation, which will occur immediately prior to the consummation of this offering; and

 

   

assumes no exercise of the underwriters’ over-allotment option.

We refer to our Series A, Series A-1, Series B-1, Series B-2, Series C, Series C-1 and Series C-2 convertible preferred stock collectively as “convertible preferred stock” in this prospectus, as well as for financial reporting purposes and in the financial tables included in this prospectus, as more fully explained in Note 10 to our audited financial statements. In this prospectus (other than for financial reporting purposes and in the financial tables included in this prospectus), we refer to our outstanding

 

 

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warrants to purchase shares of our Series B-1 convertible preferred stock issued in April and July 2010 as our Series B-1 Warrants, and we refer to (i) our outstanding warrants to purchase shares of our Series C-1 convertible preferred stock issued in July and November 2012 as our Series C-1 Financing Warrants and (ii) our outstanding warrants to purchase shares of our Series C-2 convertible preferred stock issued in October 2013 as our Series C-2 Financing Warrants.

 

 

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Summary Financial Data

The following tables set forth a summary of our historical financial data as of, and for the period ended on, the dates indicated. The statement of operations data for the years ended December 31, 2011 and 2012 are derived from our audited financial statements included elsewhere in this prospectus. The statement of operations data for the nine months ended September 30, 2012 and 2013 and the period from October 29, 2007 (date of inception) through September 30, 2013 and balance sheet data as of September 30, 2013 have been derived from our unaudited financial statements appearing elsewhere in this prospectus. You should read this data together with our audited financial statements and related notes appearing elsewhere in this prospectus and the information under the captions “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results are not necessarily indicative of our future results, and results for the nine months ended September 30, 2013 are not necessarily indicative of results to be expected for the full year ending December 31, 2013.

 

   

 

Year Ended
December 31,

    Nine Months
Ended
September 30,
    Period From
October 29, 2007
(Inception)
Through
September  30,
2013
 
    2011     2012     2012     2013    
                (unaudited)     (unaudited)  
    (in thousands, except share and per share data)  

Statement of Operations Data:

         

Operating expenses:

         

Research and development

  $ 20,363      $ 36,052      $ 27,519      $ 48,057      $ 157,210   

General and administrative

    5,164        7,285        4,593        8,208        32,081   

Acquired in-process research and development

                                6,823   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    25,527        43,337        32,112        56,265        196,114   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (25,527     (43,337     (32,112     (56,265     (196,114

Interest and other income (expense), net

    123        (382     58        (14,795     (13,777

Interest expense

    (419     (6     (6     (1,046     (4,526
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (25,823     (43,725     (32,060     (72,106     (214,417

Preferred stock extinguishment

                                9,711   

Deemed dividend to preferred stockholders

           (18,716     (15,972            (18,716
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

  $ (25,823   $ (62,441   $ (48,032   $ (72,106   $ (223,422
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Per share information:

         

Net loss attributable to common stockholders, basic and diluted

  $ (104.33   $ (205.45   $ (158.93   $ (229.40  
 

 

 

   

 

 

   

 

 

   

 

 

   

Weighted-average common shares used to compute net loss per share attributable to common stockholders, basic and diluted(1)

    247,507        303,927        302,219        314,321     
 

 

 

   

 

 

   

 

 

   

 

 

   

Pro forma net loss per share attributable to common stockholders, basic and diluted(1)

    $ (4.49     $ (2.90  
   

 

 

     

 

 

   

Weighted-average number of shares used in computing pro forma net loss per share of common stock, basic and diluted(1)

      13,795,856          19,713,990     
   

 

 

     

 

 

   

 

(1) The pro forma net loss per share of common stock, basic and diluted, for the year ended December 31, 2012 and the nine months ended September 30, 2013 (unaudited) reflects the conversion of all then-outstanding shares of our convertible preferred stock into shares of common stock immediately prior to the consummation of this offering. The pro forma net loss per share of common stock, basic and diluted, does not give effect to the issuance of shares from the proposed initial public offering nor do they give effect to potential dilutive securities where the impact would be anti-dilutive. See Note 2 to our audited financial statements included elsewhere in this prospectus.

 

 

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The table below presents our balance sheet data as of September 30, 2013:

 

   

on an actual basis;

 

   

on a pro forma basis to give effect to:

 

   

a 1-for-17.2 reverse stock split of our capital stock to be effected prior to the effectiveness of the registration statement of which this prospectus is a part;

 

   

the conversion of all outstanding shares of our convertible preferred stock pursuant to a stockholder vote under our amended and restated certificate of incorporation into an aggregate of 18,946,971 shares of common stock, which includes 22,088 shares of our Series B-1 convertible preferred stock issued upon exercise of outstanding warrants and 1,633,126 shares of our Series C-2 convertible preferred stock that were issued in October 2013, immediately prior to the consummation of this offering;

 

   

the net exercise, based on an assumed initial public offering price of $17.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, of our Series B-1 Warrants into 46,640 shares of our common stock upon conversion of the Series B-1 convertible preferred stock issuable upon exercise of such warrants, at an exercise price of $13.502 per share, which will expire upon completion of this offering if not exercised;

 

   

the conversion of all of our warrants for convertible preferred stock that will not net exercise in connection with this offering into warrants for common stock immediately prior to the consummation of this offering, and the related reclassification of convertible preferred stock warrant liability to additional paid-in capital;

 

   

the net exercise, based on an assumed initial public offering price of $17.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, of our Series C-1 Financing Warrants into 2,056,230 shares of our common stock upon conversion of the Series C-1 convertible preferred stock issuable upon exercise of such warrants, at an exercise price of $0.17 per share, which will automatically exercise in connection with this offering;

 

   

the net exercise, based on an assumed initial public offering price of $17.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, of our Series C-2 Financing Warrants into 474,507 shares of our common stock upon conversion of the Series C-2 convertible preferred stock issuable upon exercise of such warrants, at an exercise price of $0.17 per share, which will automatically exercise in connection with this offering;

 

   

the filing and effectiveness of our amended and restated certificate of incorporation, which will occur immediately prior to the consummation of this offering; and

 

   

on a pro forma as adjusted basis to give further effect to the sale of 6,850,000 shares of common stock in this offering at an assumed initial public offering price of $17.50 per share, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

 

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     As of September 30, 2013  
     Actual     Pro Forma     Pro Forma
As Adjusted(1)
 
     (unaudited)(in thousands)  

Balance Sheet Data:

      

Cash, cash equivalents and short-term investments

   $ 16,467      $ 16,467      $ 124,951   

Working capital (deficit)

     (33,798     809        109,293   

Total assets

     25,957        25,957        134,441   

Convertible preferred stock warrant liability

     34,607                 

Debt

     13,631        13,631        13,631   

Convertible preferred stock

     177,418                 

Deficit accumulated during development stage

     (219,490     (219,490     (219,490

Total stockholders’ (deficit) equity

     (216,775     (4,750     103,734   

 

(1) Each $1.50 increase (decrease) in the assumed initial public offering price of $17.50 per share, the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) each of pro forma as adjusted cash, cash equivalents and short-term investments, working capital and stockholders’ equity by approximately $9.6 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease) each of pro forma as adjusted cash, cash equivalents and short-term investments, working capital and stockholders’ equity by approximately $16.3 million, assuming the assumed initial public offering price per share, as set forth on the cover page of this prospectus, remains the same. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.

 

 

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Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.

Risks Related to Our Limited Operating History, Financial Condition and Capital Requirements

We have a limited operating history, have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. We have only one product candidate in clinical trials and no commercial sales, which, together with our limited operating history, makes it difficult to assess our future viability.

We are a clinical-stage pharmaceutical company with a limited operating history. Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. To date, we have focused principally on developing our lead product candidate, patiromer, which is our only product in clinical development. We are not profitable and have incurred losses in each year since our inception in August 2007. We have only a limited operating history upon which you can evaluate our business and prospects. In addition, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical industry. We have not generated any revenue from product sales to date. We continue to incur significant research and development and other expenses related to our ongoing operations. Our net loss for the years ended December 31, 2011 and 2012 and for the nine months ended September 30, 2013 was approximately $25.8 million, $43.7 million and $72.1 million, respectively. As of September 30, 2013, we had a deficit accumulated during the development stage of $219.5 million. We expect to continue to incur losses for the foreseeable future, and we anticipate these losses will increase as we continue our development of, and seek regulatory approval for, patiromer, and begin to commercialize patiromer. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts.

Since our inception, most of our resources have been dedicated to the nonclinical and clinical development of our lead product candidate, patiromer. As of September 30, 2013, we had a working capital deficit of $33.8 million and capital resources consisting of cash, cash equivalents and short-term investments of $16.5 million. We believe that we will continue to expend substantial resources for the foreseeable future as we continue clinical development, seek regulatory approval, and prepare for the commercialization of patiromer and develop any other product candidates we may choose to pursue. These expenditures will include costs associated with research and development, sales and marketing, conducting nonclinical studies and clinical trials, obtaining regulatory approvals, and

 

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manufacturing and supply. In addition, other unanticipated costs may arise. Because the outcome of any clinical trial and/or regulatory approval process is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development, regulatory approval process and commercialization of patiromer and any future product candidates.

We believe that the net proceeds from this offering, together with our existing cash, cash equivalents and short-term investments, will allow us to fund our operating plan through at least the next 12 months. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity, debt financings or other sources, such as strategic collaborations. Such financing may result in dilution to stockholders, imposition of debt covenants and repayment obligations, or other restrictions that may affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

Our future funding requirements will depend on many factors, including, but not limited to:

 

   

the time and cost necessary to obtain regulatory approvals for patiromer and the costs of post-marketing studies that could be required by regulatory authorities;

 

   

the costs of obtaining commercial supplies of patiromer;

 

   

our ability to successfully commercialize patiromer;

 

   

the manufacturing, selling and marketing costs associated with patiromer, including the cost and timing of expanding our sales and marketing capabilities;

 

   

the amount of sales and other revenues from patiromer, including the sales price and the availability of adequate third-party reimbursement;

 

   

the cash requirements of any future acquisitions or discovery of product candidates;

 

   

the progress, timing, scope and costs of our nonclinical studies and clinical trials, including the ability to enroll patients in a timely manner for potential future clinical trials;

 

   

the draw down of the $7.5 million tranche pursuant to our term loan, if any;

 

   

the time and cost necessary to respond to technological and market developments; and

 

   

the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate:

 

   

clinical trials or other development activities for patiromer or any future product candidate;

 

   

our research and development activities; or

 

   

our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize patiromer or any future product candidate.

 

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Our recurring operating losses have raised substantial doubt regarding our ability to continue as a going concern.

Our recurring operating losses raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our consolidated financial statements as of, and for the year ended, December 31, 2012. We have no current source of revenue to sustain our present activities, and we do not expect to generate revenue until, and unless, we receive regulatory approval of and successfully commercialize patiromer. Accordingly, our ability to continue as a going concern will require us to obtain additional financing to fund our operations. The perception of our ability to continue as a going concern may make it more difficult for us to obtain financing for the continuation of our operations and could result in the loss of confidence by investors, suppliers and employees.

Risks Related to Our Business

We are substantially dependent on the success of our lead product candidate, patiromer.

To date, we have invested substantially all of our efforts and financial resources in the research and development of patiromer, which is currently our lead product candidate and only product candidate in clinical trials. In particular, we have completed two Phase 1 and four Phase 2 trials and our pivotal Phase 3 trial, for which we reported positive primary and secondary efficacy endpoint results for the first part in September 2013 and positive primary and secondary efficacy endpoint results for the second part in October 2013.

Our near-term prospects, including our ability to finance our operations and generate revenue, will depend heavily on the successful development and commercialization of patiromer. The clinical and commercial success of patiromer will depend on a number of factors, including the following:

 

   

the timely completion of our ongoing Phase 1 onset-of-action trial, which will depend substantially upon the satisfactory performance of third-party contractors;

 

   

our ability to demonstrate patiromer’s safety and efficacy to the satisfaction of the FDA;

 

   

whether we are required by the FDA to conduct additional clinical trials prior to approval to market patiromer;

 

   

the prevalence and severity of adverse side effects of patiromer;

 

   

the timely receipt of necessary marketing approvals from the FDA and foreign regulatory authorities;

 

   

our ability to successfully commercialize patiromer, if approved for marketing and sale by the FDA or foreign regulatory authorities, whether alone or in collaboration with others;

 

   

the ability of our third-party manufacturers to manufacture quantities of patiromer using commercially sufficient processes and at a scale sufficient to meet anticipated demand and enable us to reduce our cost of manufacturing;

 

   

our success in educating physicians and patients about the benefits, administration and use of patiromer;

 

   

achieving and maintaining compliance with all regulatory requirements applicable to patiromer;

 

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acceptance of patiromer as safe and effective by patients and the medical community;

 

   

the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing treatments;

 

   

our ability to obtain and sustain an adequate level of reimbursement for patiromer by third-party payors;

 

   

the effectiveness of our own or any future strategic collaborators’ marketing, sales and distribution strategy and operations;

 

   

the ability of our third-party manufacturers to manufacture supplies of patiromer or any future product candidates and to develop, validate and maintain a commercially viable manufacturing process that is compliant with current good manufacturing practices, or cGMP;

 

   

our ability to enforce our intellectual property rights in and to patiromer;

 

   

our ability to avoid third-party patent interference or patent infringement claims; and

 

   

a continued acceptable safety profile of patiromer following approval.

Many of these factors are beyond our control. Accordingly, we cannot assure you that we will ever be able to generate revenue through the sale of patiromer. If we are not successful in commercializing patiromer, or are significantly delayed in doing so, our business will be materially harmed.

We may be unable to obtain regulatory approval for patiromer under applicable regulatory requirements.

To gain approval to market a drug product, we must provide the FDA and foreign regulatory authorities with clinical data that adequately demonstrates the safety and efficacy of the product for the intended indication applied for in the NDA or other respective regulatory filing. Drug development is a long, expensive and uncertain process, and delay or failure can occur at any stage of any of our clinical trials. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in clinical trials even after promising results in earlier nonclinical or clinical studies. These setbacks have been caused by, among other things, nonclinical findings made while clinical studies were underway and safety or efficacy observations made in clinical studies, including previously unreported adverse events. Success in nonclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and the results of clinical trials by other parties may not be indicative of the results in trials we may conduct.

Our business currently depends entirely on the successful development, regulatory approval and commercialization of our lead product candidate, patiromer. Based on the results of our Phase 2b and pivotal Phase 3 clinical trials, we plan to prepare and file an NDA with the FDA seeking marketing approval for the use of patiromer for the treatment of hyperkalemia. We believe that these results warrant this filing. However, the clinical data have only become available recently and we only have topline efficacy and safety data from our Phase 2b and pivotal Phase 3 clinical trials. Additional information will arise from our continuing analysis of the data and such additional data may be less favorable than the information we have currently or than what we anticipate.

Furthermore, patiromer may not receive marketing approval despite having achieved its specified endpoints in clinical trials. Although the design of our pivotal Phase 3 clinical trial was agreed to under

 

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an SPA with the FDA, the FDA and other foreign regulatory authorities have substantial discretion in evaluating the results of this trial and our earlier trials. For example, notwithstanding our view to the contrary, the FDA may determine that the efficacy data and/or safety data from our Phase 2b and pivotal Phase 3 clinical trials do not support approval of an NDA for patiromer. Clinical data often is susceptible to varying interpretations and many companies that have believed that their products performed satisfactorily in clinical trials have nonetheless failed to obtain FDA approval for their products. The FDA or foreign regulatory authorities may disagree with our trial design and our interpretation of data from pre-clinical studies and clinical trials. Upon the FDA’s review of the data from our pivotal clinical trial, it may request that we conduct additional analyses of the data and, if it believes that the data are not satisfactory, could advise us to delay our filing of an NDA. Accordingly, we may not file our NDA for patiromer within our anticipated time frame and, even after we make the filing, the FDA may not accept the filing, may request additional information from us, including data from additional clinical trials, and, ultimately, may not grant marketing approval for patiromer.

The denial or delay of regulatory approval for patiromer would delay commercialization of patiromer and adversely impact our ability to generate revenue, our business and our results of operations.

If we are not successful in commercializing patiromer, or are significantly delayed in doing so, our business will be materially harmed and we may need to curtail or cease operations. We currently have no drug products approved for sale, and we may never obtain regulatory approval to commercialize patiromer. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, and such regulations differ from country to country. We are not permitted to market patiromer in the United States until we receive approval of an NDA from the FDA.

The FDA or any foreign regulatory bodies can delay, limit or deny approval to market patiromer for many reasons, including:

 

   

our inability to demonstrate to the satisfaction of the FDA or the applicable foreign regulatory body that patiromer is safe and effective for the requested indication;

 

   

the FDA’s or the applicable foreign regulatory agency’s disagreement with the interpretation of data from nonclinical studies or clinical trials;

 

   

our inability to demonstrate that the clinical and other benefits of patiromer outweigh any safety or other perceived risks;

 

   

the FDA’s or the applicable foreign regulatory agency’s requirement for additional nonclinical or clinical studies;

 

   

the FDA’s or the applicable foreign regulatory agency’s non-approval of the formulation, labeling and/or the specifications of patiromer;

 

   

the FDA’s or the applicable foreign regulatory agency’s failure to approve the manufacturing processes or third-party manufacturers with which we contract; or

 

   

the potential for approval policies or regulations of the FDA or the applicable foreign regulatory agencies to significantly change in a manner rendering our clinical data insufficient for approval.

Of the large number of drugs in development, only a small percentage successfully complete the FDA or other regulatory approval processes and are commercialized.

 

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Even if we eventually complete clinical testing and receive approval of an NDA or foreign marketing authorization for patiromer, the FDA or the applicable foreign regulatory agency may grant approval contingent on the performance of costly additional clinical trials which may be required after approval. The FDA or the applicable foreign regulatory agency may also approve patiromer for a more limited indication and/or a narrower patient population than we originally request, and the FDA, or applicable foreign regulatory agency, may not approve the labeling that we believe is necessary or desirable for the successful commercialization of patiromer. Any delay in obtaining, or inability to obtain, applicable regulatory approval would delay or prevent commercialization of patiromer and would materially adversely impact our business and prospects.

Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Furthermore, we rely on contract research organizations, or CROs, and clinical trial sites to ensure the proper and timely conduct of our clinical trials and, while we have agreements governing their committed activities, we have limited influence over their actual performance. Failure can occur at any time during the clinical trial process. The results of nonclinical and clinical studies of our product candidates may not be predictive of the results of later-stage clinical trials. For example, the positive results generated to date in clinical studies for patiromer do not ensure that our Phase 3 clinical trials will demonstrate similar results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through nonclinical studies and initial clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies, and we cannot be certain that we will not face similar setbacks. Even if our clinical trials are completed, the results may not be sufficient to obtain regulatory approval for our product candidates.

Although we have an ongoing Phase 1 onset-of-action trial for patiromer, we may experience delays in this trial, and we do not know whether future clinical trials, if any, will begin on time, need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. Clinical trials can be delayed or aborted for a variety of reasons, including delay or failure to:

 

   

obtain regulatory approval to commence a trial, if applicable;

 

   

reach agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

   

obtain institutional review board, or IRB, approval at each site;

 

   

recruit suitable patients to participate in a trial;

 

   

have patients complete a trial or return for post-treatment follow-up;

 

   

ensure that clinical sites observe trial protocol or continue to participate in a trial;

 

   

address any patient safety concerns that arise during the course of a trial;

 

   

address any conflicts with new or existing laws or regulations;

 

   

initiate or add a sufficient number of clinical trial sites; or

 

   

manufacture sufficient quantities of product candidate for use in clinical trials.

 

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Patient enrollment is a significant factor in the timing of clinical trials and is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs or treatments that may be approved for the indications we are investigating.

We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by an independent Safety Review Board, or SRB, for such trial or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

Further, conducting clinical trials in foreign countries, as we have historically done, presents additional risks that may delay completion of our clinical trials. These risks include the failure of physicians or enrolled patients in foreign countries to adhere to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes, as well as political and economic risks relevant to such foreign countries. In addition, the FDA may determine that our clinical trial results obtained in foreign subjects do not represent the safety and efficacy of patiromer when administered in US patients and are thus not supportive of an NDA approval in the US.

If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates may be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

We rely on third parties to conduct some of our nonclinical studies and all of our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize patiromer or any future product candidates.

We do not have the ability to independently conduct clinical trials and, in some cases, nonclinical studies. We rely on medical institutions, clinical investigators, contract laboratories, collaborative partners and other third parties, such as CROs, to conduct clinical trials on our drug candidates. The third parties with whom we contract for execution of our clinical trials play a significant role in the conduct of these trials and the subsequent collection and analysis of data. However, these third parties are not our employees, and except for contractual duties and obligations, we have limited ability to control the amount or timing of resources that they devote to our programs. Although we rely on these third parties to conduct some of our nonclinical studies and all of our clinical trials, we remain responsible for ensuring that each of our nonclinical studies and clinical trials is conducted in

 

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accordance with its investigational plan and protocol. Moreover, the FDA and foreign regulatory authorities require us to comply with regulations and standards, including some regulations commonly referred to as good clinical practices, or cGCPs, for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the trial subjects are adequately informed of the potential risks of participating in clinical trials.

In addition, the execution of nonclinical studies and clinical trials, and the subsequent compilation and analysis of the data produced, requires coordination among various parties. In order for these functions to be carried out effectively and efficiently, it is imperative that these parties communicate and coordinate with one another. Moreover, these third parties may also have relationships with other commercial entities, some of which may compete with us. These third parties may terminate their agreements with us upon as little as 30 days’ prior written notice. Some of these agreements may also be terminated by such third parties under certain other circumstances, including our insolvency. If the third parties conducting our clinical trials do not perform their contractual duties or obligations, experience work stoppages, do not meet expected deadlines, terminate their agreements with us or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical trial protocols or GCPs, or for any other reason, we may need to enter into new arrangements with alternative third parties, which could be difficult, costly or impossible, and our clinical trials may be extended, delayed or terminated or may need to be repeated. If any of the foregoing were to occur, we may not be able to obtain regulatory approval for or commercialize the product candidate being tested in such trials.

We rely completely on third-party suppliers to manufacture our clinical drug supply of patiromer, and we intend to rely on third parties to produce commercial supply of patiromer and nonclinical, clinical and commercial supplies of any future product candidate.

We do not currently have, nor do we plan to acquire, the infrastructure or internal capability to produce our commercial supply of patiromer and we lack the internal resources and the capability to manufacture any product candidates on a nonclinical, clinical or commercial scale. The FDA and other comparable foreign regulatory agencies must, pursuant to inspections that will be conducted after we submit our NDA or relevant foreign regulatory submission, approve our contract manufactures to manufacture the active pharmaceutical ingredient and final drug for patiromer, or any future product candidates.

We do not directly control the manufacturing of, and are completely dependent on, our contract manufacturers for compliance with the cGMP for manufacture of both active drug substances and finished drug products. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or foreign regulatory agencies, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no direct control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. Furthermore, all of our contract manufacturers are engaged with other companies to supply and/or manufacture materials or products for such companies, which exposes our manufacturers to regulatory risks for the production of such materials and products. As a result, failure to meet the regulatory requirements for the production of those materials and products may generally affect the regulatory clearance of our contract manufacturers’ facility. If the FDA or a comparable foreign regulatory agency does not approve these facilities for the manufacture of our product candidates or if it withdraws its approval in the future, we may need to find alternative manufacturing facilities, which would negatively impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved.

 

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We and our third-party suppliers continue to refine and improve the manufacturing process, certain aspects of which are complex and unique, and we may encounter difficulties with new or existing processes, particularly as we seek to significantly increase our capacity to commercialize patiromer. For example, we have analyzed the impurities identified in the most recently manufactured registration batches of patiromer and we believe the levels of impurities, including the levels of genotoxic and special toxicological concern impurities, are below the suggested guidance recommendations; however, toxicological assessments might change based on our future findings. Our reliance on contract manufacturers also exposes us to the possibility that they, or third parties with access to their facilities, will have access to and may appropriate our trade secrets or other proprietary information.

Our current drug substance and finished drug product are acquired from our single-source suppliers. The loss of these suppliers, or their failure to supply us with the drug substance or the finished drug product, would materially and adversely affect our business.

We currently operate under a multi-year purchase order arrangement with Saltigo GmbH, or Saltigo, a subsidiary of LANXESS AG, or Lanxess, as our drug substance manufacturer; however, we do not have an alternative supplier of drug substance. We currently have an arrangement with Patheon Inc., or Patheon, under which we issue purchase orders for the supply of finished drug product; however, we do not have an alternative supplier of finished drug product. We may be unable to enter into long-term commercial supply arrangements with Lanxess, Patheon or alternative suppliers and manufacturers or do so on commercially reasonable terms, which would have a material adverse impact upon our business.

In addition, we currently rely on our contract manufacturers to purchase from third-party suppliers the materials necessary to produce patiromer, including all of the starting/raw materials and excipient for our drug substance, including methyl-2-fluoro-acrylate monomer, or MFA. We do not have direct control over the acquisition of those materials by our contract manufacturers. Moreover, outside of our single-source suppliers, we currently do not have any agreements for the commercial production of those materials.

We are dependent on the approval of additional drug substance and drug product suppliers to ensure sufficient supply to meet our anticipated market demand and to reduce the manufacturing cost of patiromer. Our inability to obtain approval for additional suppliers and/or the inability of our suppliers to achieve larger scale production, would materially and adversely affect our business.

Polymeric-based drugs like patiromer generally require large quantities of drug substance, as compared to small molecule drugs. Thus, we will require larger scale and/or multiple suppliers of drug substance and drug product in order to produce sufficient quantities of patiromer to meet our anticipated market demand. Our current supplier of drug substance, Lanxess, does not currently have the capacity to manufacture patiromer in the quantities that we believe will be sufficient to meet anticipated market demand or to enable us to achieve the economies of scale necessary to reduce the manufacturing cost of patiromer. Our business plan assumes that we are able to develop a supply chain with multiple suppliers and significantly decrease our cost of goods within the first several years of commercialization of patiromer, enabling us to achieve gross margins similar to those achieved by other companies who produce non-absorbed polymeric drugs. If we are unable to reduce the manufacturing cost of patiromer, our operating results will suffer and our ability to achieve profitability will be significantly jeopardized.

 

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Because we plan to file our NDA with single source suppliers for drug substance and drug product, we will need to obtain approval from the FDA for these additional suppliers, including approval for the testing necessary to prove equivalence of drug substance and product produced by the additional suppliers. Further, we are dependent on our drug substance and product suppliers to be able to fully scale up the production of patiromer as well as validate certain process improvements in order to reach the quantities we anticipate needing.

We are also dependent upon the appropriate sourcing of starting/raw material, including large quantities, measured in metric tons, of MFA. While we believe there are multiple alternative suppliers of MFA, we will need our drug substance suppliers to qualify these alternate MFA suppliers to prevent a possible disruption of the manufacture of the starting materials necessary to produce patiromer. If our drug substance manufacturer is unable to source, or we are unable to purchase, MFA on acceptable terms, of sufficient quality, and in adequate quantities, if at all, the ability of patiromer to reach its market potential, or any future product candidates to be launched would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of patiromer or any future product candidates.

If there is a disruption to our contract manufacturers’ or suppliers’ relevant operations, we will have no other means of producing patiromer until they restore the affected facilities or we or they procure alternative manufacturing facilities. Additionally, any damage to or destruction of our contract manufacturers’ or suppliers’ facilities or equipment may significantly impair our ability to manufacture patiromer on a timely basis.

If we fail to establish an effective distribution process utilizing cold chain logistics for patiromer, our business may be adversely affected.

We do not currently have the infrastructure necessary for distributing pharmaceutical products to patients. We intend to contract with a third-party logistics company to warehouse these products and distribute them, and we will require that patiromer be maintained at a controlled temperature for some of the distribution chain. This distribution network will require significant coordination with our sales and marketing and finance teams. Failure to secure contracts with a logistics company could negatively impact the distribution of patiromer, and failure to coordinate financial systems could negatively impact our ability to accurately report product revenue. If we are unable to effectively establish and manage the distribution process, the commercial launch and sales of patiromer will be delayed or severely compromised and our results of operations may be harmed.

In addition, the use of cold chain logistics for patiromer involves certain risks, including, but not limited to, risks that distributors or pharmacies will:

 

   

not provide us with accurate or timely information regarding their inventories, the number of patients who are using patiromer, or complaints regarding it;

 

   

not effectively sell or support patiromer with sufficient cold storage;

 

   

reduce their efforts or discontinue to sell or support patiromer;

 

   

not devote the resources necessary to sell patiromer in the volumes and within the time frames that we expect;

 

   

be unable to satisfy financial obligations to us or others; or

 

   

cease operations.

 

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Patiromer has a limited room temperature shelf life, and if we do not effectively maintain our cold chain supply logistics, then we may experience an unusual number of product returns or out of date product. Any such failure may result in decreased product sales and lower product revenue, which would harm our business.

Even if patiromer or any future product candidates obtain regulatory approval, they may never achieve market acceptance or commercial success, which will depend, in part, upon the degree of acceptance among physicians, patients, patient advocacy groups, health care payors and the medical community.

Even if we obtain FDA or other regulatory approvals, patiromer or any future product candidates may not achieve market acceptance among physicians and patients, and may not be commercially successful. Patiromer may not gain market acceptance among physicians, patients, patient advocacy groups, health care payors and the medical community. Market acceptance of patiromer or any future product candidates for which we receive approval depends on a number of factors, including:

 

   

the efficacy of the product as demonstrated in clinical trials;

 

   

the prevalence and severity of any side effects and overall safety profile of the product;

 

   

the clinical indications for which the product is approved;

 

   

advantages over existing therapies, such as, in the case of patiromer, sodium polystyrene sulfonate (e.g., Kayexalate®);

 

   

acceptance by physicians, major operators of clinics and patients of the product as a safe and effective chronic daily treatment;

 

   

relative convenience and ease of administration of our products;

 

   

the potential and perceived advantages of our product candidates over current treatment options or alternative treatments, including future alternative treatments;

 

   

the cost of treatment in relation to alternative treatments and willingness to pay for our products, if approved, on the part of physicians and patients;

 

   

relative convenience and ease of administration;

 

   

the availability of products and their ability to meet market demand, including a reliable supply for long-term daily treatment;

 

   

the strength of our marketing and distribution organizations;

 

   

the quality of our relationships with patient advocacy groups; and

 

   

sufficient third-party coverage or reimbursement.

Any failure by our product candidates that obtain regulatory approval to achieve market acceptance or commercial success would adversely affect our results of operations.

Patiromer, if approved, may face significant competition and our failure to effectively compete may prevent us from achieving significant market penetration.

The pharmaceutical market is highly competitive and dynamic, and is characterized by rapid and substantial technological development and product innovations. We are seeking regulatory approval of

 

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patiromer for the treatment of hyperkalemia. While current options for the chronic management of hyperkalemia are limited, we expect to compete against well-known treatment options, including sodium polystyrene sulfonate (e.g., Kayexalate®). In addition, we believe ZS Pharma is developing a zirconium silicate particle to treat hyperkalemia, which we believe is currently in Phase 3 clinical trials. In order to compete successfully in this market, we will have to demonstrate that the treatment of hyperkalemia with patiromer is a worthwhile treatment and is a superior alternative to existing or new therapies for hyperkalemia.

We face significant competition from many pharmaceutical and biotechnology companies that are also researching and selling products designed to address these markets. Many of our competitors have materially greater financial, manufacturing, marketing, research and drug development resources than we do. Large pharmaceutical companies in particular have extensive expertise in nonclinical and clinical testing and in obtaining regulatory approvals for drugs. In addition, academic institutions, government agencies, and other public and private organizations conducting research may seek patent protection with respect to potentially competitive products or technologies. These organizations may also establish exclusive collaborative or licensing relationships with our competitors.

Failure to effectively compete against established treatment options for hyperkalemia or in the future with new products currently in development would harm our business, financial condition and results of operations.

We currently have no sales organization. If we are unable to establish sales capabilities on our own or through third parties, we may not be able to market and sell patiromer, if approved, or any future product candidates or generate product revenue.

We currently do not have a sales organization. In order to commercialize patiromer in the United States, we must build our marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. If patiromer receives regulatory approval, we expect to establish a specialty sales organization with technical expertise and supporting distribution capabilities to commercialize our product candidates, which will be expensive and time consuming. We have no prior experience in the marketing, sale and distribution of pharmaceutical products and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain, and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products. Further, given our lack of prior experience in marketing, selling and distributing pharmaceutical products, our initial estimate of 100 specialty sales representatives may be materially less than the actual number of sales representatives actually required to effectively commercialize patiromer. As such, we may be required to hire substantially more sales representatives to adequately support the commercialization of patiromer.

We may choose to collaborate with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize patiromer. If we are not successful in commercializing patiromer or any future product candidates, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we would incur significant additional losses.

 

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If we fail to obtain and sustain an adequate level of reimbursement for our products by third-party payors, sales would be adversely affected.

We expect patients who have hyperkalemia to need treatment throughout their lifetimes but anticipate that most patients will not be capable of paying for this treatment themselves. There will be no commercially viable market for patiromer without reimbursement from third-party payors. Additionally, even if there is a commercially viable market, if the level of reimbursement is below our expectations, our revenue and gross margins will be adversely affected.

Obtaining hospital formulary approval can be an expensive and time-consuming process. We cannot be certain if and when we will obtain formulary approval to allow us to sell patiromer or any future products into our target markets. Even if we do obtain formulary approval, third-party payors, such as government or private health care insurers, carefully review and increasingly question the coverage of, and challenge the prices charged for, drugs. Reimbursement rates from private health insurance companies vary depending on the company, the insurance plan and other factors. A current trend in the United States health care industry is toward cost containment. Large public and private payors, managed care organizations, group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding the use of, and reimbursement levels for, particular treatments. Such third-party payors, including Medicare, are questioning the coverage of, and challenging the prices charged for medical products and services, and many third-party payors limit coverage of, or reimbursement for, newly approved health care products.

Cost-control initiatives could decrease the price we might establish for products, which could result in product revenues being lower than anticipated. If the prices for our products decrease or if governmental and other third-party payors do not provide adequate coverage and reimbursement levels, our revenue and prospects for profitability will suffer. Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis.

Our clinical drug development program may not uncover all possible adverse events that patients who take patiromer may experience. The number of subjects exposed to patiromer treatment and the average exposure time in the clinical development program may be inadequate to detect rare adverse events, or chance findings, that may only be detected once patiromer is administered to more patients and for greater periods of time.

Clinical trials by their nature utilize a sample of the potential patient population. However, with a limited number of subjects and limited duration of exposure, we cannot be fully assured that rare and severe side effects of patiromer may only be uncovered with a significantly larger number of patients exposed to the drug. Further, we have not designed our clinical trials to determine the effect and safety consequences on total body potassium levels of lowering serum potassium over a multi-year period, nor have designed our clinical trials to measure the safety of immediate reductions in serum potassium.

Although we have monitored the subjects in our studies for certain safety concerns and we have not seen evidence of significant safety concerns in our clinical trials, patients treated with patiromer, if approved, may experience adverse reactions. For example, we have seen some reductions in blood pressure in some of our clinical trials, which can lead to hypotension, and some reductions in serum magnesium in some patients in our clinical trials, which can lead to weakness, muscle cramps, cardiac arrhythmia, increased irritability of the nervous system with tremors and jerking, confusion or seizures. Although we have not seen any evidence of these reductions causing a safety concern in our clinical

 

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programs, it is possible that the FDA may ask for additional data regarding such matters. Further, a degradant of patiromer is calcium fluoride, which may lead to increased levels of fluoride in patients who take patiromer. Although none of the symptoms associated with acute fluoride toxicity have been reported in patiromer clinical studies, patients may experience this side effect. If safety problems occur or are identified after patiromer reaches the market, the FDA may require that we amend the labeling of patiromer, recall patiromer, or even withdraw approval for patiromer.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of patiromer or any future product candidates.

We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

 

   

decreased demand for patiromer or any future product candidates;

 

   

injury to our reputation;

 

   

withdrawal of clinical trial participants;

 

   

costs to defend the related litigation;

 

   

a diversion of management’s time and our resources;

 

   

substantial monetary awards to trial participants or patients;

 

   

regulatory investigations, product recalls or withdrawals, or labeling, marketing or promotional restrictions;

 

   

loss of revenue; and

 

   

the inability to commercialize patiromer or any future product candidates.

Our inability to obtain and maintain sufficient product liability insurance at an acceptable cost and scope of coverage to protect against potential product liability claims could prevent or inhibit the commercialization of patiromer or any future products we develop. We currently carry product liability insurance covering use in our clinical trials in the amount of $5.0 million in the aggregate. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions and deductibles, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. If and when we obtain approval for marketing patiromer, we intend to expand our insurance coverage to

 

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include the sale of patiromer. However, we may be unable to obtain this liability insurance on commercially reasonable terms.

We will need to significantly increase the size of our organization, and we may experience difficulties in managing growth.

As of September 30, 2013, we had 69 full-time employees. We will need to continue to expand our managerial, operational, finance and other resources in order to manage our operations, regulatory filings, manufacturing and supply activities, marketing and commercialization activities, and clinical trials, and commercialize patiromer or any future product candidates. Our management, personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively execute our growth strategy requires that we:

 

   

expand our general and administrative and sales and marketing organizations;

 

   

identify, recruit, retain, incentivize and integrate additional employees;

 

   

manage our internal development efforts effectively while carrying out our contractual obligations to third parties; and

 

   

continue to improve our operational, legal, financial and management controls, reporting systems and procedures.

If we fail to attract and keep senior management, we may be unable to successfully develop patiromer or any future product candidates, conduct our clinical trials and commercialize patiromer or any future product candidates.

Our success depends in part on our continued ability to attract, retain and motivate highly qualified personnel. In particular, we are highly dependent upon our experienced senior management. The loss of services of any of these individuals could delay or prevent the successful development of our product pipeline, completion of our planned clinical trials or the commercialization of patiromer or any future product candidates. Although we have entered into employment agreements with our senior management team, these agreements do not provide for a fixed term of service.

Although we have not historically experienced unique difficulties attracting and retaining qualified employees, we could experience such problems in the future. For example, competition for qualified personnel in the biotechnology and pharmaceuticals field is intense due to the limited number of individuals who possess the skills and experience required by our industry. We will need to hire additional personnel as we expand our clinical development and commercial activities. We may not be able to attract and retain quality personnel on acceptable terms, or at all. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited or that they have divulged proprietary or other confidential information, or that their former employers own their research output.

Our loan and security agreements contain restrictions that limit our flexibility in operating our business.

Our loan and security agreements contain various covenants that limit our ability to engage in specified types of transactions without our lenders’ prior consent. These covenants limit our ability to, among other things:

 

   

sell, transfer, lease or dispose of our assets;

 

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create, incur or assume additional indebtedness;

 

   

encumber or permit liens on certain of our assets;

 

   

make restricted payments, including paying dividends on, repurchasing or making distributions with respect to our common stock;

 

   

make specified investments (including loans and advances);

 

   

consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and

 

   

enter into certain transactions with our affiliates.

The covenants in our loan and security agreements may limit our ability to take certain actions and, in the event that we breach one or more covenants, our lenders may choose to declare an event of default and require that we immediately repay all amounts outstanding, plus penalties and interest, terminate their commitments to extend further credit and foreclose on the collateral granted to them to secure such indebtedness. Such repayment could have a material adverse effect on our business, operating results and financial condition.

We will incur significant costs as a result of operating as a public company, and our management will devote substantial time to new compliance initiatives. We may fail to comply with the rules that apply to public companies, including Section 404 of the Sarbanes-Oxley Act of 2002, which could result in sanctions or other penalties that would harm our business.

We will incur significant legal, accounting and other expenses as a public company, including costs resulting from public company reporting obligations under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and regulations regarding corporate governance practices. The listing requirements of The NASDAQ Global Market require that we satisfy certain corporate governance requirements relating to director independence, distributing annual and interim reports, stockholder meetings, approvals and voting, soliciting proxies, conflicts of interest and a code of conduct. Our management and other personnel will need to devote a substantial amount of time to ensure that we comply with all of these requirements. Moreover, the reporting requirements, rules and regulations will increase our legal and financial compliance costs and will make some activities more time consuming and costly. Any changes we make to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis, or at all. These reporting requirements, rules and regulations, coupled with the increase in potential litigation exposure associated with being a public company, could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or board committees or to serve as executive officers, or to obtain certain types of insurance, including directors’ and officers’ insurance, on acceptable terms.

In addition, we expect that we will need to implement an enterprise resource planning, or ERP, system for our company. An ERP system is intended to combine and streamline the management of our financial, accounting, human resources, sales and marketing and other functions, enabling us to manage operations and track performance more effectively. However, an ERP system would likely require us to complete many processes and procedures for the effective use of the system or to run our business using the system, which may result in substantial costs. Additionally, during the conversion process, we may be limited in our ability to convert any business that we acquire to the ERP. Any disruptions or difficulties in implementing or using an ERP system could adversely affect our controls and harm our business, including our ability to forecast or make sales and collect our receivables. Moreover, such disruption or difficulties could result in unanticipated costs and diversion of management attention.

 

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After this offering, we will be subject to Section 404 of The Sarbanes-Oxley Act of 2002, or Section 404, and the related rules of the Securities and Exchange Commission, or SEC, which generally require our management and independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting. Beginning with the second annual report that we will be required to file with the SEC, Section 404 requires an annual management assessment of the effectiveness of our internal control over financial reporting. However, for so long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404. Once we are no longer an emerging growth company or, if prior to such date, we opt to no longer take advantage of the applicable exemption, we will be required to include an opinion from our independent registered public accounting firm on the effectiveness of our internal controls over financial reporting. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than an aggregate of $1.0 billion in non-convertible debt during the prior three-year period.

To date, we have never conducted a review of our internal control for the purpose of providing the reports required by these rules. During the course of our review and testing, we may identify deficiencies and be unable to remediate them before we must provide the required reports. Furthermore, if we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We or our independent registered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial information and cause the trading price of our stock to fall. In addition, as a public company we will be required to file accurate and timely quarterly and annual reports with the SEC under the Exchange Act. Any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from The NASDAQ Global Market or other adverse consequences that would materially harm our business.

If we are not successful in discovering, developing, acquiring or commercializing additional product candidates, our ability to expand our business and achieve our strategic objectives would be impaired.

Although a substantial amount of our effort will focus on the continued clinical testing, potential approval and commercialization of patiromer, a key element of our strategy is to discover, develop and commercialize a portfolio of products utilizing proprietary discovery and development technology. We are seeking to do so through our internal research programs and/or by selectively pursuing commercially synergistic in-licensing or acquisition of additional compounds. All of our other potential product candidates remain in the discovery stage. Research programs to identify product candidates require substantial technical, financial and human resources, whether or not any product candidates are ultimately identified. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for many reasons, including the following:

 

   

the research methodology used may not be successful in identifying potential product candidates;

 

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competitors may develop alternatives that render our product candidates obsolete or less attractive;

 

   

product candidates we develop may nevertheless be covered by third parties’ patents or other exclusive rights;

 

   

the market for a product candidate may change during our program so that such a product may become unreasonable to continue to develop;

 

   

a product candidate may on further study be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;

 

   

a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and

 

   

a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors, if applicable.

If we fail to develop and successfully commercialize other product candidates, our business and future prospects may be harmed and our business will be more vulnerable to any problems that we encounter in developing and commercializing patiromer.

Any collaboration arrangements that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize patiromer and potential future product candidates.

We may seek collaboration arrangements with pharmaceutical or biotechnology companies for the development or commercialization of patiromer and potential future product candidates. We may enter into these arrangements on a selective basis depending on the merits of retaining commercialization rights for ourselves as compared to entering into selective collaboration arrangements with leading pharmaceutical or biotechnology companies for our product candidates, both in the United States and internationally. We will face, to the extent that we decide to enter into collaboration agreements, significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming to negotiate, document and implement. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements should we so chose to enter into such arrangements. The terms of any collaborations or other arrangements that we may establish may not be favorable to us.

Any future collaborations that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations.

Disagreements between parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in the development process or commercializing the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision-making authority.

Collaborations with pharmaceutical or biotechnology companies and other third parties often are terminated or allowed to expire by the other party. Any such termination or expiration would adversely affect us financially and could harm our business reputation.

 

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If we engage in acquisitions, we will incur a variety of costs and we may never realize the anticipated benefits of such acquisitions.

Although we currently have no intent to do so, we may attempt to acquire businesses, technologies, services, products or product candidates that we believe are a strategic fit with our business. If we do undertake any acquisitions, the process of integrating an acquired business, technology, service, products or product candidates into our business may result in unforeseen operating difficulties and expenditures, including diversion of resources and management’s attention from our core business. In addition, we may fail to retain key executives and employees of the companies we acquire, which may reduce the value of the acquisition or give rise to additional integration costs. Future acquisitions could result in additional issuances of equity securities that would dilute the ownership of existing stockholders. Future acquisitions could also result in the incurrence of debt, contingent liabilities or the amortization of expenses related to other intangible assets, any of which could adversely affect our operating results. In addition, we may fail to realize the anticipated benefits of any acquisition.

If we seek and obtain approval to commercialize patiromer outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.

If patiromer is approved for commercialization outside the United States, we may enter into agreements with third parties to market patiromer outside the United States. We expect that we will be subject to additional risks related to entering into these international business relationships, including:

 

   

different regulatory requirements for drug approvals in foreign countries;

 

   

differing United States and foreign drug import and export rules;

 

   

reduced protection for intellectual property rights in foreign countries;

 

   

unexpected changes in tariffs, trade barriers and regulatory requirements;

 

   

different reimbursement systems, and different competitive drugs indicated to treat hyperkalemia;

 

   

economic weakness, including inflation, or political instability in particular foreign economies and markets;

 

   

compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

   

foreign taxes, including withholding of payroll taxes;

 

   

foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;

 

   

workforce uncertainty in countries where labor unrest is more common than in the United States;

 

   

production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;

 

   

potential liability resulting from development work conducted by these distributors; and

 

   

business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters.

 

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Our business involves the use of hazardous materials and we and our third-party manufacturers and suppliers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.

Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use and disposal of hazardous materials, including the components of our product and product candidates and other hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. We do not currently carry biological or hazardous waste insurance coverage.

Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations.

Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. The recent global financial crisis caused extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn, such as the recent global financial crisis, could result in a variety of risks to our business, including reduced ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

We or the third parties upon whom we depend may be adversely affected by earthquakes or other natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

Our corporate headquarters and other facilities are located in the San Francisco Bay Area, which in the past has experienced severe earthquakes. We do not carry earthquake insurance. Earthquakes or other natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition and prospects.

If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as our enterprise financial systems or manufacturing resource planning and enterprise quality systems, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business

 

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for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business.

Furthermore, integral parties in our supply chain are operating from single sites, increasing their vulnerability to natural disasters or other sudden, unforeseen and severe adverse events. If such an event were to affect our supply chain, it could have a material adverse effect on our business.

Risks Related to Government Regulation

The regulatory approval process is highly uncertain and we may not obtain regulatory approval for the commercialization of patiromer or any future product candidates.

The research, testing, manufacturing, labeling, approval, selling, import, export, marketing and distribution of drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, which regulations differ from country to country. Neither we nor any future collaboration partner is permitted to market patiromer or any future product candidate in the United States until we receive approval of an NDA from the FDA. We have not submitted an application or obtained marketing approval for patiromer anywhere in the world. Obtaining regulatory approval of an NDA can be a lengthy, expensive and uncertain process. In addition, failure to comply with FDA and other applicable United States and foreign regulatory requirements may subject us to administrative or judicially imposed sanctions or other actions, including:

 

   

warning letters;

 

   

civil and criminal penalties;

 

   

injunctions;

 

   

withdrawal of regulatory approval of products;

 

   

product seizure or detention;

 

   

product recalls;

 

   

total or partial suspension of production; and

 

   

refusal to approve pending NDAs or supplements to approved NDAs.

Prior to obtaining approval to commercialize a drug candidate in the United States or abroad, we or our collaborators must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA or other foreign regulatory agencies, that such drug candidates are safe and effective for their intended uses. The number of nonclinical studies and clinical trials that will be required for FDA approval varies depending on the drug candidate, the disease or condition that the drug candidate is designed to address, and the regulations applicable to any particular drug candidate. Results from nonclinical studies and clinical trials can be interpreted in different ways. Even if we believe the nonclinical or clinical data for our drug candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. Administering drug candidates to humans may produce undesirable side effects, which could interrupt, delay or halt

 

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clinical trials and result in the FDA or other regulatory authorities denying approval of a drug candidate for any or all targeted indications.

Regulatory approval of an NDA or NDA supplement is not guaranteed, and the approval process is expensive and may take several years. The FDA also has substantial discretion in the approval process and we may encounter matters with the FDA that requires us to expend additional time and resources and delay or prevent the approval of our product candidates. For example, the FDA may require us to conduct additional studies or trials for patiromer either prior to or post-approval, such as additional drug-drug interaction studies or safety or efficacy studies or trials, or it may object to elements of our clinical development program such as the number of subjects in our current clinical trials from the United States. Further, there have been subject deaths in our clinical programs. While the incidence of subject deaths are not unexpected in view of the morbidity and mortality for the patient populations in our trials and have been determined by the study investigators and by us as unrelated to patiromer, the FDA may require us to perform additional studies or otherwise delay regulatory approval of patiromer. Despite the time and expense exerted, failure can occur at any stage. The FDA can delay, limit or deny approval of a drug candidate for many reasons, including, but not limited to, the following:

 

   

a drug candidate may not be deemed safe or effective;

 

   

FDA officials may not find the data from nonclinical studies and clinical trials sufficient;

 

   

the FDA might not approve our third party manufacturers’ processes or facilities; or

 

   

the FDA may change its approval policies or adopt new regulations.

If patiromer or any future product candidate fails to demonstrate safety and efficacy in clinical trials or does not gain regulatory approval, our business and results of operations will be materially and adversely harmed. Additionally, if the FDA requires that we conduct additional clinical studies, places limitations on patiromer in our label, delays approval to market patiromer or limits the use of patiromer, our business and results of operations may be harmed.

Although we have entered into a Special Protocol Assessment agreement with the FDA relating to our pivotal Phase 3 trial of patiromer, this agreement does not guarantee any particular outcome with respect to regulatory review of the pivotal trial or with respect to regulatory approval of patiromer.

The protocol for our pivotal Phase 3 trial of patiromer was reviewed and agreed upon by the FDA under a Special Protocol Assessment, or SPA, which allows for FDA evaluation of whether a clinical trial protocol could form the primary basis of an efficacy claim in support of an NDA. The SPA is an agreement that a Phase 3 trial’s design, clinical endpoints, patient population and statistical analyses are sufficient to support the efficacy claim. Agreement on an SPA is not a guarantee of approval, and there is no assurance that the design of, or data collected from, the trial will be adequate to obtain the requisite regulatory approval. The SPA is not binding on the FDA if public health concerns unrecognized at the time the SPA was entered into become evident or other new scientific concerns regarding product safety or efficacy arise. In addition, upon written agreement of both parties, the SPA may be changed. The FDA retains significant latitude and discretion in interpreting the terms of an SPA and any resulting trial data in determining whether a drug is safe and effective and whether it will be approved. As a result, we do not know how the FDA will interpret the parties’ respective commitments under the SPA, how it will interpret the data and results from the pivotal Phase 3 trial, whether the FDA will require that we conduct or complete one or more additional clinical trials to

 

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support potential approval, including the completion of our ongoing Phase 1 onset-of-action trial for patiromer, or whether patiromer will receive any regulatory approvals.

Even if we receive regulatory approval for patiromer or any future product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense. Additionally, any product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal, and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.

Even if a drug is FDA-approved, regulatory authorities may still impose significant restrictions on a product’s indicated uses or marketing or impose ongoing requirements for potentially costly post-marketing studies. Furthermore, any new legislation addressing drug safety issues could result in delays or increased costs to assure compliance.

If patiromer is approved it will be subject to ongoing regulatory requirements for labeling, packaging, storage, advertising, promotion, sampling, record-keeping and submission of safety and other post-market information, including both federal and state requirements in the United States. In addition, manufacturers and manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to current Good Manufacturing Practices, or cGMP. As such, we and our contract manufacturers are subject to continual review and periodic inspections to assess compliance with cGMP. Accordingly, we and others with whom we work must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production, and quality control. We will also be required to report certain adverse reactions and production problems, if any, to the FDA, and to comply with requirements concerning advertising and promotion for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved label. As such, we may not promote our products for indications or uses for which they do not have FDA approval.

If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing, or labeling of a product, a regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may:

 

   

issue warning letters;

 

   

impose civil or criminal penalties;

 

   

suspend regulatory approval;

 

   

suspend any of our ongoing clinical trials;

 

   

refuse to approve pending applications or supplements to approved applications submitted by us;

 

   

impose restrictions on our operations, including closing our contract manufacturers’ facilities; or

 

   

seize or detain products or require a product recall.

 

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Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenues from patiromer. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected. Additionally, if we are unable to generate revenues from the sale of patiromer our potential for achieving profitability will be diminished and the capital necessary to fund our operations will be increased.

Currently we plan to seek regulatory approval to market patiromer solely for the treatment of hyperkalemia and, unless we seek regulatory approval for additional indications, we will be prohibited from marketing patiromer for any other indication.

We intend to seek approval to market patiromer for the treatment of hyperkalemia. We do not have plans to seek approval of patiromer for any other indication at this time. Even if we obtain regulatory approval to market patiromer with an indication statement for the treatment of hyperkalemia, we will likely be prohibited from marketing patiromer using any promotional claims relating to maintaining more patients on, or enabling the increased or optimized usage of, RAAS inhibitors. The FDA strictly regulates the promotional claims that may be made about prescription products. While patiromer has been studied in the setting of hyperkalemia associated with the use of RAAS inhibitors, patiromer may not be promoted for uses that are not approved by the FDA as reflected in its approved labeling. Under applicable regulations, the ability of a company to make marketing statements about the effectiveness of its drug outside of the statements made in the label, referred to as “off-label” marketing, is prohibited. If we are found to have promoted such off-label uses, we may become subject to significant liability.

If we fail to comply or are found to have failed to comply with FDA and other regulations related to the promotion of patiromer for unapproved uses, we could be subject to criminal penalties, substantial fines or other sanctions and damage awards.

The regulations relating to the promotion of products for unapproved uses are complex and subject to substantial interpretation by the FDA and other government agencies. If we receive marketing approval for patiromer, physicians may nevertheless prescribe it to their patients in a manner that is inconsistent with the approved label. We intend to implement compliance and training programs designed to ensure that our sales and marketing practices comply with applicable regulations. Notwithstanding these programs, the FDA or other government agencies may allege or find that our practices constitute prohibited promotion of patiromer for unapproved uses. We also cannot be sure that our employees will comply with company policies and applicable regulations regarding the promotion of products for unapproved uses.

Over the past several years, a significant number of pharmaceutical and biotechnology companies have been the target of inquiries and investigations by various federal and state regulatory, investigative, prosecutorial and administrative entities in connection with the promotion of products for unapproved uses and other sales practices, including the Department of Justice and various U.S. Attorneys’ Offices, the Office of Inspector General of the Department of Health and Human Services, the FDA, the Federal Trade Commission and various state Attorneys General offices. These investigations have alleged violations of various federal and state laws and regulations, including claims asserting antitrust violations, violations of the Food, Drug and Cosmetic Act, the False Claims Act, the Prescription Drug Marketing Act, anti-kickback laws, and other alleged violations in connection with the promotion of products for unapproved uses, pricing and Medicare and/or Medicaid reimbursement. Many of these investigations originate as “qui tam” actions under the False Claims Act. Under the False Claims Act, any individual can bring a claim on behalf of the government alleging that a person or entity has

 

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presented a false claim, or caused a false claim to be submitted, to the government for payment. The person bringing a qui tam suit is entitled to a share of any recovery or settlement. Qui tam suits, also commonly referred to as “whistleblower suits,” are often brought by current or former employees. In a qui tam suit, the government must decide whether to intervene and prosecute the case. If it declines, the individual may pursue the case alone.

If the FDA or any other governmental agency initiates an enforcement action against us or if we are the subject of a qui tam suit and it is determined that we violated prohibitions relating to the promotion of products for unapproved uses, we could be subject to substantial civil or criminal fines or damage awards and other sanctions such as consent decrees and corporate integrity agreements pursuant to which our activities would be subject to ongoing scrutiny and monitoring to ensure compliance with applicable laws and regulations. Any such fines, awards or other sanctions would have an adverse effect on our revenue, business, financial prospects and reputation.

If approved, patiromer or any future products may cause or contribute to adverse medical events that we are required to report to regulatory agencies and if we fail to do so we could be subject to sanctions that would materially harm our business.

Some participants in our clinical studies have reported adverse effects after being treated with patiromer. If we are successful in commercializing patiromer or any other products, FDA and foreign regulatory agency regulations require that we report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events we become aware of within the prescribed timeframe. We may also fail to appreciate that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we fail to comply with our reporting obligations, the FDA or a foreign regulatory agency could take action, including criminal prosecution, the imposition of civil monetary penalties, seizure of our products or delay in approval or clearance of future products.

If third-party manufacturers fail to comply with manufacturing regulations, our financial results and financial condition will be adversely affected.

Before they can begin commercial manufacture of patiromer, contract manufacturers must obtain regulatory approval of their manufacturing facilities, processes and quality systems. In addition, pharmaceutical manufacturing facilities are continuously subject to inspection by the FDA and foreign regulatory authorities, before and after product approval. Due to the complexity of the processes used to manufacture pharmaceutical products and product candidates, any potential third-party manufacturer may be unable to continue to pass or initially pass federal, state or international regulatory inspections in a cost-effective manner.

If a third-party manufacturer with whom we contract is unable to comply with manufacturing regulations, patiromer may not be approved, or we may be subject to fines, unanticipated compliance expenses, recall or seizure of our products, total or partial suspension of production and/or enforcement actions, including injunctions, and criminal or civil prosecution. These possible sanctions would adversely affect our financial results and financial condition.

 

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We are currently only seeking regulatory approval to market patiromer in the United States, and if we want to expand the geographies in which we may market patiromer, we will need to obtain additional regulatory approvals.

We currently plan to seek regulatory approval for patiromer in the United States for the treatment of hyperkalemia. In the future, we may attempt to develop and seek regulatory approval to promote and commercialize patiromer outside of the United States. In order to obtain such approvals, we may be required to conduct additional clinical trials or studies to support our applications, which would be time consuming and expensive, and may produce results that do not result in regulatory approvals. Further, we will have to expend substantial time and resources in order to establish the commercial infrastructure or pursue a collaboration arrangement that would be necessary to promote and commercialize patiromer outside of the United States. If we do not obtain regulatory approvals for patiromer in foreign jurisdictions, our ability to expand our business outside the United States will be severely limited.

Our failure to obtain regulatory approvals in foreign jurisdictions for patiromer would prevent us from marketing our products internationally.

In order to market any product in the European Economic Area, or EEA (which is composed of the 28 Member States of the European Union plus Norway, Iceland and Liechtenstein), and many other foreign jurisdictions, separate regulatory approvals are required. In the EEA, medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA. Before granting the MA, the European Medicines Agency, or EMA, or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.

The approval procedures vary among countries and can involve additional clinical testing, and the time required to obtain approval may differ from that required to obtain FDA approval. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one or more foreign regulatory authorities does not ensure approval by regulatory authorities in other foreign countries or by the FDA. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not be able to file for regulatory approvals or to do so on a timely basis, and even if we do file we may not receive necessary approvals to commercialize our products in any market.

We may be subject to healthcare laws, regulation and enforcement; our failure to comply with these laws could have a material adverse effect on our results of operations and financial conditions.

Although we do not currently have any products on the market, once we begin commercializing our products, we may be subject to additional healthcare statutory and regulatory requirements and enforcement by the federal government and the states and foreign governments in which we conduct our business. The laws that may affect our ability to operate as a commercial organization include:

 

   

the federal healthcare programs’ Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;

 

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federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent;

 

   

federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

 

   

the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information;

 

   

state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers; and

 

   

U.S. and European reporting requirements detailing interactions with and payments to healthcare providers.

If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to market our products and adversely impact our financial results. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Further, the Patient Protection and Affordable Care Act, or PPACA, among other things, amends the intent requirement of the federal anti-kickback and criminal health care fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the PPACA provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims statutes. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.

The PPACA also imposes new reporting and disclosure requirements on drug manufacturers for any “transfer of value” made or distributed to prescribers and other healthcare providers. In addition, drug manufacturers will also be required to report and disclose any investment interests held by physicians and their immediate family members during the preceding calendar year. Failure to submit required information may result in civil monetary penalties of up to an aggregate of $150,000 per year (and up to an aggregate of $1 million per year for “knowing failures”), for all payments, transfers of value or ownership or investment interests not reported in an annual submission. Manufacturers will be required to begin data collection on August 1, 2013 and report such data to the government by March 31, 2014 and by the 90th calendar day of each year thereafter.

In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians for marketing. Some states mandate implementation of compliance programs and/or the tracking and reporting of gifts, compensation, and other remuneration to physicians. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements.

 

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Legislative or regulatory healthcare reforms in the United States may make it more difficult and costly for us to obtain regulatory clearance or approval of patiromer or any future product candidates and to produce, market and distribute our products after clearance or approval is obtained.

From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory clearance or approval, manufacture, and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of patiromer or any future product candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require:

 

   

additional clinical trials to be conducted prior to obtaining approval;

 

   

changes to manufacturing methods;

 

   

recall, replacement, or discontinuance of one or more of our products; and

 

   

additional record keeping.

Each of these would likely entail substantial time and cost and could materially harm our business and our financial results. In addition, delays in receipt of or failure to receive regulatory clearances or approvals for any future products would harm our business, financial condition and results of operations.

Risks Related to Intellectual Property

We may become subject to claims alleging infringement of third parties’ patents or proprietary rights and/or claims seeking to invalidate our patents, which would be costly, time consuming and, if successfully asserted against us, delay or prevent the development and commercialization of patiromer or any future product candidates.

There have been many lawsuits and other proceedings asserting patents and other intellectual property rights in the pharmaceutical and biotechnology industries. We cannot assure you that patiromer or any future product candidates will not infringe existing or future third-party patents. Because patent applications can take many years to issue and may be confidential for 18 months or more after filing, there may be applications now pending of which we are unaware and which may later result in issued patents that we may infringe by commercializing patiromer or future product candidates. Moreover, we may face claims from non-practicing entities that have no relevant product revenue and against whom our own patent portfolio may thus have no deterrent effect. In addition, patiromer has a complex structure that makes it difficult to conduct a thorough search and review of all potentially relevant third-party patents. We may be unaware of one or more issued patents that would be infringed by the manufacture, sale or use of patiromer.

We may be subject to third-party claims in the future against us or our collaborators that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages, including treble damages and attorney’s fees if we are found to be willfully infringing a third party’s patents. We may be required to indemnify future collaborators against such claims. If a patent

 

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infringement suit were brought against us or our collaborators, we or they could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit. As a result of patent infringement claims, or in order to avoid potential claims, we or our collaborators may choose to seek, or be required to seek, a license from the third party and would most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we or our collaborators were able to obtain a license, the rights may be nonexclusive, which would give our competitors access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or forced to redesign it, or to cease some aspect of our business operations if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into licenses on acceptable terms. Even if we are successful in defending against such claims, such litigation can be expensive and time consuming to litigate and would divert management’s attention from our core business. Any of these events could harm our business significantly.

In addition to infringement claims against us, if third parties prepare and file patent applications in the United States that also claim technology similar or identical to ours, we may have to participate in interference or derivation proceedings in the United States Patent and Trademark Office, or the USPTO, to determine which party is entitled to a patent on the disputed invention. We may also become involved in similar opposition proceedings in the European Patent Office or similar offices in other jurisdictions regarding our intellectual property rights with respect to our products and technology. Since patent applications are confidential for a period of time after filing, we cannot be certain that we were the first to file any patent application related to our product candidates.

If our intellectual property related to patiromer or any future product candidates is not adequate, we may not be able to compete effectively in our market.

We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to patiromer and our development programs. Any disclosure to or misappropriation by third parties of our confidential or proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market.

The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that we own or license may fail to result in issued patents in the United States or in foreign countries. Even if patents do successfully issue, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. For example, patents granted by the European Patent Office may be opposed by any person within nine months from the publication of the grant. Similar proceedings are available in other jurisdictions, and in some jurisdictions third parties can raise questions of validity with a patent office even before a patent has granted. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. For example, a third party may develop a competitive product that provides therapeutic benefits similar to patiromer but has a sufficiently different composition to fall outside the scope of our patent protection. If the breadth or strength of protection provided by the patents and patent applications we hold or pursue with respect to patiromer or any future product candidates is successfully challenged, then our ability to commercialize patiromer or any future product candidates could be negatively affected, and we may face unexpected competition that could have a material adverse impact on our business. Further, if we encounter delays

 

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in our clinical trials, the period of time during which we could market patiromer or any future product candidates under patent protection would be reduced.

Even where laws provide protection, costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and the outcome of such litigation would be uncertain. If we or one of our future collaborators were to initiate legal proceedings against a third party to enforce a patent covering patiromer or one of our future products, the defendant could counterclaim that our patent is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to validity, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability against our intellectual property related to patiromer, we would lose at least part, and perhaps all, of the patent protection on patiromer. Such a loss of patent protection would have a material adverse impact on our business. Moreover, our competitors could counterclaim that we infringe their intellectual property, and some of our competitors have substantially greater intellectual property portfolios than we do.

We also rely on trade secret protection and confidentiality agreements to protect proprietary know-how that may not be patentable, processes for which patents may be difficult to obtain and/or enforce and any other elements of our product development processes that involve proprietary know-how, information or technology that is not covered by patents. Although we require all of our employees to assign their inventions to us, and endeavor to execute confidentiality agreements with all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology, we cannot be certain that we have executed such agreements with all parties who may have helped to develop our intellectual property or who had access to our proprietary information, nor can we be certain that our agreements will not be breached. We cannot guarantee that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent material disclosure of the intellectual property related to our technologies to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition.

If we fail to comply with our obligations under our IP License and Assignment Agreement, we could lose license rights that are important to our business.

We are a party to an IP License and Assignment Agreement with Ilypsa, Inc., or Ilypsa, which is a subsidiary of Amgen Inc., pursuant to which we license key intellectual property relating to our drug discovery and development technology. Although our obligations under the license are limited, the license agreement does impose certain diligence, notice and other obligations not currently applicable

 

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to us. If we fail to comply with these obligations, Ilypsa (Amgen) may have the right to terminate the license, other than in respect of patiromer.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity. Therefore, obtaining and enforcing biopharmaceutical patents is costly, time consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. The United States Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents once obtained. Depending on future actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

The USPTO and various foreign patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions to maintain patent applications and issued patents. Noncompliance with these requirements can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.

We have not yet registered trademarks for a commercial trade name for patiromer in the United States or elsewhere and failure to secure such registrations could adversely affect our business.

We have not yet registered trademarks for a commercial trade name for patiromer in the United States or elsewhere. During trademark registration proceedings, our trademark application may be rejected. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties can oppose pending trademark applications and seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. Moreover, any name we propose to use with our product candidates in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.

 

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We may not be able to enforce our intellectual property rights throughout the world.

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to life sciences. This could make it difficult for us to stop the infringement of our patents or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit.

Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business. Furthermore, while we intend to protect our intellectual property rights in our expected significant markets, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market patiromer or any future products. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain and enforce adequate intellectual property protection for our technology.

Risks Related to Our Common Stock and This Offering

Our stock price may be volatile and you may not be able to resell shares of our common stock at or above the price you paid.

The trading price of our common stock following this offering could be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors include those discussed in this “Risk Factors” section of this prospectus and others such as:

 

   

announcements of regulatory approval or a complete response letter to patiromer, or specific label indications or patient populations for its use, or changes or delays in the regulatory review process;

 

   

announcements of therapeutic innovations or new products by us or our competitors;

 

   

adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;

 

   

changes or developments in laws or regulations applicable to patiromer;

 

   

any adverse changes to our relationship with any manufacturers or suppliers;

 

   

the success of our testing and clinical trials;

 

   

the success of our efforts to acquire or license or discover additional product candidates;

 

   

any intellectual property infringement actions in which we may become involved;

 

   

announcements concerning our competitors or the pharmaceutical industry in general;

 

   

achievement of expected product sales and profitability;

 

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manufacture, supply or distribution shortages;

 

   

actual or anticipated fluctuations in our operating results;

 

   

changes in financial estimates or recommendations by securities analysts;

 

   

trading volume of our common stock;

 

   

sales of our common stock by us, our executive officers and directors or our stockholders in the future;

 

   

general economic and market conditions and overall fluctuations in the United States equity markets; and

 

   

the loss of any of our key scientific or management personnel.

In addition, the stock markets in general, and the markets for pharmaceutical, biopharmaceutical and biotechnology stocks in particular, have experienced extreme volatility that may have been unrelated to the operating performance of the issuer. These broad market fluctuations may adversely affect the trading price or liquidity of our common stock. In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer. If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our management would be diverted from the operation of our business, which could seriously harm our financial position. Any adverse determination in litigation could also subject us to significant liabilities.

An active, liquid and orderly market for our common stock may not develop, and you may not be able to resell your common stock at or above the public offering price.

Prior to this offering, there has been no public market for shares of our common stock, and an active public market for our shares may not develop or be sustained after this offering. We and the representatives of the underwriters will determine the initial public offering price of our common stock through negotiation. This price will not necessarily reflect the price at which investors in the market will be willing to buy and sell our shares following this offering. In addition, an active trading market may not develop following the consummation of this offering or, if it is developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other businesses, applications or technologies using our shares as consideration.

If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no or few securities or industry analysts commence coverage of us, the trading price for our stock would be negatively impacted. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our clinical trials and operating results fail to meet the expectations of analysts, our

 

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stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

We are an “emerging growth company” and as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common stock may be less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

The initial public offering price of our common stock is substantially higher than the pro forma net tangible book value per share of our common stock before giving effect to this offering. Accordingly, if you purchase our common stock in this offering, you will incur immediate substantial dilution of approximately $13.89 per share, based on the assumed initial public offering price of $17.50 per share, the midpoint of the price range on the cover of this prospectus, and our pro forma net tangible book value as of September 30, 2013. In addition, following this offering, purchasers in this offering will have contributed approximately 38.3% of the total gross consideration paid by stockholders to us to purchase shares of our common stock, through October 10, 2013, but will own only approximately 23.9% of the shares of common stock outstanding immediately after this offering. Furthermore, if the underwriters exercise their over-allotment option, or outstanding options and warrants are exercised, you could experience further dilution. For a further description of the dilution that you will experience immediately after this offering, see the section titled “Dilution.”

If we sell shares of our common stock in future financings, stockholders may experience immediate dilution and, as a result, our stock price may decline.

We may from time to time issue additional shares of common stock at a discount from the current trading price of our common stock. As a result, our stockholders would experience immediate dilution upon the purchase of any shares of our common stock sold at such discount. In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future,

 

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including the issuance of debt securities, preferred stock or common stock. If we issue common stock or securities convertible into common stock, our common stockholders would experience additional dilution and, as a result, our stock price may decline.

Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline. Based upon the number of shares outstanding as of October 10, 2013, upon the closing of this offering, we will have outstanding a total of 28,710,088 shares of common stock, assuming no exercise of the underwriters’ over-allotment option. Of these shares, approximately 6,850,000 shares of our common stock, plus any shares sold upon exercise of the underwriters’ over-allotment option, will be freely tradable, without restriction, in the public market immediately following this offering. Morgan Stanley & Co. LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, however, may, in their sole discretion, permit our officers, directors and other stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements.

The lock-up agreements pertaining to this offering will expire 180 days from the date of this prospectus. After the lock-up agreements expire, as of October 10, 2013, up to an additional 21,860,088 shares of common stock will be eligible for sale in the public market, 20,865,166 of which shares are held by current directors, executive officers and other affiliates and may be subject to Rule 144 under the Securities Act.

In addition, as of October 10, 2013, 7,704,033 shares of common stock that are either subject to outstanding options, reserved for future issuance under our equity incentive plans or subject to outstanding warrants will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

After this offering, the holders of approximately 22.0 million shares of our common stock, or approximately 76.6% of our total outstanding common stock as of October 10, 2013, will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to vesting schedules and to the lock-up agreements described above. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.

Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

As of October 10, 2013, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned approximately 95.7% of our outstanding voting stock and, upon the closing of this offering, that same group will hold approximately 72.7% of our outstanding voting stock (assuming no exercise of the underwriters’ over-allotment option and no exercise of outstanding options). Therefore, even after this offering these stockholders will have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control

 

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elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.

We have broad discretion to determine how to use the funds raised in this offering, and may use them in ways that may not enhance our operating results or the price of our common stock.

Our management will have broad discretion over the use of proceeds from this offering, and we could spend the proceeds from this offering in ways our stockholders may not agree with or that do not yield a favorable return, if at all. We currently intend to use substantially all of the net proceeds of this offering for development costs relating to the validation of our commercial manufacturing process for patiromer, manufacturing commercial supply of patiromer, costs related to the submission and support of our NDA for patiromer and pre-commercialization marketing activities for patiromer, and the balance for working capital and general corporate purposes. However, our use of these proceeds may differ substantially from our current plans. If we do not invest or apply the proceeds of this offering in ways that improve our operating results, we may fail to achieve expected financial results, which could cause our stock price to decline.

Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management.

Our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect immediately prior to the consummation of this offering will contain provisions that could significantly reduce the value of our shares to a potential acquirer or delay or prevent changes in control or changes in our management without the consent of our board of directors. The provisions in our charter documents will include the following:

 

   

a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors;

 

   

no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

   

the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

 

   

the required approval of at least 662/3% of the shares entitled to vote to remove a director for cause, and the prohibition on removal of directors without cause;

 

   

the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror;

 

   

the ability of our board of directors to alter our bylaws without obtaining stockholder approval;

 

   

the required approval of at least 662/3% of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors;

 

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a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

 

   

the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer, the president or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and

 

   

advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us.

In addition, these provisions would apply even if we were to receive an offer that some stockholders may consider beneficial.

We are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction. For a description of our capital stock, see the section titled “Description of Capital Stock.”

In addition, certain provisions in our IP License and Assignment Agreement may discourage certain takeover or acquisition attempts, including that in the event we undergo a change of control, we shall pay to Ilypsa (Amgen) an increasing amount of the purchase price, less certain expenses, of such transaction, ranging from approximately 6.7% to 10% of such amount, up to a cap of $30.0 million.

Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

Our amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.

In addition, as permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws to be effective immediately prior to the completion of this offering and our indemnification agreements that we have entered into with our directors and officers provide that:

 

   

We will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful.

 

   

We may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.

 

   

We are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.

 

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We will not be obligated pursuant to our amended and restated bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification.

 

   

The rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons.

 

   

We may not retroactively amend our amended and restated bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.

We may be required to pay severance benefits to our executive officers who are terminated in connection with a change in control, which could harm our financial condition or results.

Certain of our executive officers are parties to severance arrangements that contain change in control and severance provisions providing for aggregate cash payments of up to approximately $1.0 million for severance and other benefits and acceleration of vesting of stock options with a value of approximately $17.6 million (as of October 10, 2013, based on an assumed initial public offering price of $17.50 per share, the midpoint of the price range on the cover of this prospectus) in the event of a termination of employment in connection with a change in control of us. The accelerated vesting of options could result in dilution to our existing stockholders and harm the market price of our common stock. The payment of these severance benefits could harm our financial condition and results. In addition, these potential severance payments may discourage or prevent third parties from seeking a business combination with us.

We do not currently intend to pay dividends on our common stock, and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We do not currently intend to pay any cash dividends on our common stock for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Additionally, the terms of our loan and security agreements restrict our ability to pay dividends. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future. Since we do not intend to pay dividends, your ability to receive a return on your investment will depend on any future appreciation in the market value of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at which our holders have purchased it.

Our ability to use our net operating loss carryforwards may be limited.

As of December 31, 2012, we had net operating loss carryforwards of approximately $101.7 million and $98.4 million for both U.S. federal and California income tax purposes, respectively, which begin to expire in 2027 for U.S. federal income tax purposes and 2017 for California income tax purposes. If we experience an “ownership change” for purposes Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, we may be subject to annual limits on our ability to utilize net operating loss carryforwards. An ownership change is, as a general matter, triggered by sales or acquisitions of our stock in excess of 50% on a cumulative basis during a three-year period by persons owning 5% or more of our total equity value. We have performed an initial analysis under Section 382 of the Code. As a result of this analysis, we have removed the deferred tax assets for net operating losses of $24.0 million generated through December 31, 2012 from our deferred tax asset schedule and have recorded a corresponding decrease to our valuation allowance.

 

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Special Note Regarding Forward-Looking Statements

This prospectus contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

 

   

our expectations regarding the timing of submitting an NDA to the FDA for patiromer;

 

   

the potential market opportunities for commercializing patiromer;

 

   

our expectations regarding the potential market size and the size of the patient populations for patiromer, if approved for commercial use;

 

   

our expectations regarding the timing of reporting results from our Phase 1 onset-of-action trial for patiromer;

 

   

estimates of our expenses, future revenue, capital requirements and our needs for additional financing;

 

   

our expectations regarding the number of nephrologists and cardiologists that we plan to target;

 

   

the likelihood of regulatory approvals for patiromer;

 

   

our ability to develop, acquire and advance product candidates into, and successfully complete, clinical trials;

 

   

the implementation of our business model, strategic plans for our business and technology;

 

   

our expectations regarding our future costs of goods;

 

   

the initiation, timing, progress and results of future preclinical studies and clinical trials, and our research and development programs;

 

   

the scope of protection we are able to establish and maintain for intellectual property rights covering patiromer and our drug discovery platform technology;

 

   

our ability to maintain and establish collaborations or obtain additional funding;

 

   

our expectations regarding the time during which we will be an emerging growth company under the JOBS Act;

 

   

our use of proceeds from this offering;

 

   

our financial performance; and

 

   

developments and projections relating to our competitors and our industry.

These forward-looking statements are based on management’s current expectations, estimates, forecasts, and projections about our business and the industry in which we operate and management’s

 

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beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this prospectus may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and elsewhere in this prospectus. Potential investors are urged to consider these factors carefully in evaluating the forward-looking statements. These forward-looking statements speak only as of the date of this prospectus. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this prospectus. See “Where You Can Find More Information.”

 

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Market, Industry and Other Data

This prospectus also contains estimates, projections and other information concerning our industry, our business, and the markets for patiromer, including data regarding the estimated patient population in those markets, their projected growth rates, the perceptions and preferences of patients and physicians regarding certain therapies for the treatment of hyperkalemia, prescriber and patient data, as well as data regarding market research, estimates and forecasts prepared by our management. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.

 

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Use of Proceeds

We estimate that the net proceeds from the sale of 6,850,000 shares of common stock in this offering will be approximately $108.5 million at an assumed initial public offering price of $17.50 per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their over-allotment option in full, we estimate that net proceeds will be approximately $125.2 million after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. Each $1.50 increase (decrease) in the assumed initial public offering price of $17.50 per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) the net proceeds to us from this offering, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, by approximately $9.6 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease) the net proceeds to us from this offering, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, by approximately $16.3 million, assuming the assumed initial public offering price stays the same. We do not expect that a change in the offering price or the number of shares by these amounts would have a material effect on our intended uses of the net proceeds from this offering, although it may impact the amount of time prior to which we may need to seek additional capital.

We currently expect to use our net proceeds from this offering as follows:

 

   

approximately $15.0 to $20.0 million for development costs relating to the validation of our commercial manufacturing process and other expenses related to preparing for commercial production of patiromer;

 

   

approximately $25.0 to $30.0 million for manufacturing commercial supply of patiromer;

 

   

approximately $15.0 to $20.0 million for development costs to prepare and submit our New Drug Application, or NDA, for patiromer, and to support our activities during the FDA’s review and approval process;

 

   

approximately $10.0 to $15.0 million for pre-commercialization marketing activities for patiromer; and

 

   

any remaining proceeds for working capital and general corporate purposes.

However, due to the uncertainties inherent in the clinical development and regulatory approval process, it is difficult to estimate with certainty the exact amounts of the net proceeds from this offering that may be used for the above purposes. As such, our management will retain discretion over the use of the net proceeds from this offering. The amounts and timing of our expenditures will depend upon numerous factors, including: the timing of our ongoing Phase 1 onset-of-action trial for patiromer; the draw down of the $7.5 million tranche pursuant to our term loan, if any; the timing of our NDA submission to the FDA; and unforeseen delays or problems in the development of our manufacturing and supply chain.

Pending the use of the proceeds from this offering, we intend to invest the net proceeds in interest-bearing, investment-grade securities, certificates of deposit or government securities.

 

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Dividend Policy

We have never declared or paid cash dividends on our capital stock. We intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. In addition, unless waived, the terms of our loan and security agreements prohibit us from paying any cash dividends. Any future determination related to dividend policy will be made at the discretion of our board of directors.

 

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Capitalization

The following table sets forth our capitalization as of September 30, 2013:

 

   

on an actual basis;

 

   

on a pro forma basis to give effect to:

 

   

a 1-for-17.2 reverse stock split of our capital stock to be effected prior to the effectiveness of the registration statement of which this prospectus is a part;

 

   

the conversion of all outstanding shares of our convertible preferred stock pursuant to a stockholder vote under our amended and restated certificate of incorporation into an aggregate of 18,946,971 shares of common stock, which includes 22,088 shares of our Series B-1 convertible preferred stock issued upon exercise of outstanding warrants and 1,633,126 shares of our Series C-2 convertible preferred stock that were issued in October 2013, immediately prior to the consummation of this offering;

 

   

the net exercise, based on an assumed initial public offering price of $17.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, of our Series B-1 Warrants into 46,640 shares of our common stock upon conversion of the Series B-1 convertible preferred stock issuable upon exercise of such warrants, at an exercise price of $13.502 per share, which will expire upon completion of this offering if not exercised;

 

   

the net exercise, based on an assumed initial public offering price of $17.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, of our Series C-1 Financing Warrants into 2,056,230 shares of our common stock upon conversion of the Series C-1 convertible preferred stock issuable upon exercise of such warrants, at an exercise price of $0.17 per share, which will automatically exercise in connection with this offering;

 

   

the net exercise, based on an assumed initial public offering price of $17.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, of our Series C-2 Financing Warrants into 474,507 shares of our common stock upon conversion of the Series C-2 convertible preferred stock issuable upon exercise of such warrants, at an exercise price of $0.17 per share, which will automatically exercise in connection with this offering;

 

   

the conversion of all of our warrants for convertible preferred stock that will not net exercise in connection with this offering into warrants for common stock immediately prior to the consummation of this offering, and the related reclassification of convertible preferred stock warrant liability to additional paid-in capital; and

 

   

the filing and effectiveness of our amended and restated certificate of incorporation, which will occur immediately prior to the consummation of this offering; and

 

   

on a pro forma as adjusted basis to give further effect to the issuance and sale by us of 6,850,000 shares of our common stock in this offering at an assumed initial public offering price of $17.50 per share (the midpoint of the range set forth on the cover page of this prospectus), after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

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You should read this information together with our audited financial statements and related notes appearing elsewhere in this prospectus and the information set forth under the headings “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

    As of September 30, 2013  
    Actual     Pro Forma     Pro Forma
As Adjusted
 
   

(unaudited)

(in thousands, except per share data)

 

Convertible preferred stock warrant liability

  $ 34,607      $      $   

Debt

    13,631        13,631        13,631   

Convertible preferred stock, $0.001 par value per share; 424,293 shares authorized, 16,059 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

    177,418                 

Stockholders’ equity (deficit):

     

Preferred stock, $0.001 par value per share; no shares authorized, issued and outstanding, actual; 5,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted

                    

Common stock, $0.001 par value per share; 494,603 shares authorized, 329 shares outstanding, actual; 300,000 shares authorized, 21,854 shares issued and outstanding, pro forma; 300,000 shares authorized, 28,704 shares issued and outstanding, pro forma as adjusted

           22        29   

Additional paid-in capital

    2,715        214,718        323,195   

Accumulated other comprehensive income

                    

Deficit accumulated during the development stage

    (219,490     (219,490     (219,490
 

 

 

   

 

 

   

 

 

 

Total stockholders’ (deficit) equity

    (216,775     (4,750     103,734   
 

 

 

   

 

 

   

 

 

 

Total capitalization

  $ 8,881      $ 8,881      $ 117,365   
 

 

 

   

 

 

   

 

 

 

Each $1.50 increase (decrease) in the assumed initial public offering price of $17.50 per share, the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) each of pro forma as adjusted additional paid-in capital, stockholders’ equity and total capitalization by approximately $9.6 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease) each of pro forma as adjusted additional paid-in capital, stockholders’ equity and total capitalization by approximately $16.3 million, assuming the assumed initial public offering price per share, as set forth on the cover page of this prospectus, remains the same. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.

The outstanding share information in the table above excludes the following:

 

   

3,438,977 shares of common stock issuable upon the exercise of outstanding stock options as of September 30, 2013 having a weighted-average exercise price of $5.33 per share;

 

   

90,183 shares of common stock issuable upon the exercise of outstanding warrants as of September 30, 2013 having a weighted-average exercise price of $11.70 per share, which warrants are expected to remain outstanding at the consummation of this offering;

 

   

67,287 shares of common stock reserved for issuance as of September 30, 2013 pursuant to future awards under our Amended and Restated 2007 Equity Incentive Plan, as amended;

 

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1,276,587 shares of common stock reserved for issuance pursuant to future awards under our 2013 Equity Incentive Award Plan as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan, which will become effective immediately prior to the consummation of this offering; and

 

   

255,317 shares of common stock reserved for future issuance under our Employee Stock Purchase Plan, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan.

 

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Dilution

If you invest in our common stock in this offering, your interest will be immediately diluted to the extent of the difference between the initial public offering price per share of our common stock in this offering and the net tangible book value per share of our common stock after this offering. As of September 30, 2013, we had a historical net tangible book value of $(216.8) million, or $(648.99) per share of common stock. Our net tangible book value represents total tangible assets less total liabilities and convertible preferred stock, all divided by the number of shares of common stock outstanding on September 30, 2013. Our pro forma net tangible book value at September 30, 2013, before giving effect to this offering, was $(4.8) million, or $(0.22) per share of our common stock. Pro forma net tangible book value, before the issuance and sale of shares in this offering, gives effect to:

 

   

a 1-for-17.2 reverse stock split of our capital stock to be effected prior to the effectiveness of the registration statement of which this prospectus is a part;

 

   

the conversion of all outstanding shares of our convertible preferred stock pursuant to a stockholder vote under our amended and restated certificate of incorporation into an aggregate of 18,946,971 shares of common stock, which includes 22,088 shares of our Series B-1 convertible preferred stock issued upon exercise of outstanding warrants and 1,633,126 shares of our Series C-2 convertible preferred stock that were issued in October 2013, immediately prior to the consummation of this offering;

 

   

the net exercise, based on an assumed initial public offering price of $17.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, of our Series B-1 Warrants into 46,640 shares of our common stock upon conversion of the Series B-1 convertible preferred stock issuable upon exercise of such warrants, at an exercise price of $13.502 per share, which will expire upon completion of this offering if not exercised;

 

   

the net exercise, based on an assumed initial public offering price of $17.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, of our Series C-1 Financing Warrants into 2,056,230 shares of our common stock upon conversion of the Series C-1 convertible preferred stock issuable upon exercise of such warrants, at an exercise price of $0.17 per share, which will automatically exercise in connection with this offering;

 

   

the net exercise, based on an assumed initial public offering price of $17.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, of our Series C-2 Financing Warrants into 474,057 shares of our common stock upon conversion of the Series C-2 convertible preferred stock issuable upon exercise of such warrants, at an exercise price of $0.17 per share, which will automatically exercise in connection with this offering;

 

   

the conversion of all of our warrants for convertible preferred stock that will not net exercise in connection with this offering into warrants for common stock immediately prior to the consummation of this offering, and the related reclassification of convertible preferred stock warrant liability to additional paid-in capital; and

 

   

the filing and effectiveness of our amended and restated certificate of incorporation, which will occur immediately prior to the consummation of this offering.

After giving effect to the sale of shares of common stock in this offering at an assumed initial public offering price of $17.50 per share (the midpoint of the price range set forth on the cover page of this prospectus) and after deducting the underwriting discounts and commissions and estimated offering

 

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expenses, our pro forma as adjusted net tangible book value at September 30, 2013 would have been approximately $103.7 million, or $3.61 per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $3.83 per share to existing stockholders and an immediate dilution of $13.89 per share to new investors. The following table illustrates this per share dilution:

 

                       

Assumed initial public offering price per share

     $ 17.50   

Historical net tangible book value per share as of September 30, 2013

   $ (648.99  

Pro forma increase in net tangible book value per share

   $ 648.78     

Pro forma net tangible book value per share as of September 30, 2013

   $ (0.22  

Increase in pro forma net tangible book value per share attributable to new investors

   $ 3.83     
  

 

 

   

Pro forma as adjusted net tangible book value per share after this offering

     $ 3.61   
    

 

 

 

Dilution per share to new investors participating in this offering

     $ 13.89   
    

 

 

 

A $1.50 increase (decrease) in the assumed initial public offering price of $17.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value as of September 30, 2013 after this offering by approximately $9.6 million, or approximately $0.34 per share, and dilution to investors in this offering by approximately $1.16 per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease) our pro forma as adjusted net tangible book value as of September 30, 2013 after this offering by approximately $16.3 million, or approximately $0.43 per share, and would decrease (increase) dilution to investors in this offering by approximately $0.43 per share, assuming the assumed initial public offering price per share remains the same, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.

If the underwriters fully exercise their over-allotment option, pro forma as adjusted net tangible book value after this offering would increase to approximately $4.05 per share, and there would be an immediate dilution of approximately $13.45 per share to new investors.

To the extent that outstanding options or warrants with an exercise price per share that is less than the pro forma as adjusted net tangible book value per share, before giving effect to the issuance and sale of shares in this offering, are exercised, new investors will experience further dilution. If all of our outstanding options and warrants described above were exercised, our pro forma net tangible book value as of September 30, 2013, before giving effect to the issuance and sale of shares in this offering, would have been approximately $(4.5) million, or approximately $(0.21) per share, and our pro forma as adjusted net tangible book value as of September 30, 2013 after this offering would have been approximately $104.0 million, or approximately $3.62 per share, causing dilution to new investors of approximately $13.88 per share.

In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

 

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The following table shows, as of September 30, 2013, on a pro forma as adjusted basis, after giving effect to the pro forma adjustments described above, the number of shares of common stock purchased from us, the total consideration paid to us and the average price paid per share by existing stockholders and by new investors purchasing common stock in this offering at an assumed initial public offering price of $17.50 per share, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us (in thousands, except share and per share amounts and percentages):

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
      Number      Percent     Amount      Percent    

Existing stockholders

     21,858,393         76.1   $ 193,375         61.7   $ 8.85   

Investors participating in this offering

     6,850,000         23.9     119,875         38.3   $ 17.50   
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     28,708,393         100   $ 313,250         100   $ 10.91   
  

 

 

    

 

 

   

 

 

    

 

 

   

The information and tables in this section are based on shares of common stock outstanding as of September 30, 2013 and exclude the following:

 

   

3,438,977 shares of common stock issuable upon the exercise of outstanding stock options as of September 30, 2013 having a weighted-average exercise price of $5.33 per share;

 

   

90,183 shares of common stock issuable upon the exercise of outstanding warrants as of September 30, 2013 having a weighted-average exercise price of $11.70 per share, which warrants are expected to remain outstanding at the consummation of this offering;

 

   

67,287 shares of common stock reserved for issuance as of September 30, 2013 pursuant to future awards under our Amended and Restated 2007 Equity Incentive Plan, as amended;

 

   

1,276,587 shares of common stock reserved for issuance pursuant to future awards under our 2013 Equity Incentive Award Plan as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan, which will become effective immediately prior to the consummation of this offering; and

 

   

255,317 shares of common stock reserved for future issuance under our Employee Stock Purchase Plan, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan.

If the underwriters exercise their option to purchase additional shares of our common stock in full, our existing stockholders would own 73.5% and our new investors would own 26.5% of the total number of shares of our common stock outstanding upon completion of this offering. The total consideration paid by our existing stockholders would be approximately $193.4 million, or 58.4%, and the total consideration paid by our new investors would be $137.9 million, or 41.6%.

 

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Selected Financial Data

You should read the following selected financial data together with our audited financial statements, the related notes appearing at the end of this prospectus and the information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The selected financial data included in this section are not intended to replace the financial statements and the related notes included elsewhere in this prospectus.

We derived the selected statement of operations data for the years ended December 31, 2011 and 2012 and the balance sheet data as of December 31, 2011 and 2012 from our audited financial statements appearing elsewhere in this prospectus. The statement of operations data for the nine months ended September 30, 2012 and 2013 and the period from October 29, 2007 (date of inception) through September 30, 2013 and balance sheet data as of September 30, 2013 have been derived from our unaudited financial statements appearing elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future, and results for the nine months ended September 30, 2013 are not necessarily indicative of results to be expected for the full year ending December 31, 2013.

 

    Year Ended
December 31,
    Nine Months
Ended
September 30,
    Period From
October 29, 2007
(Inception)
Through
September  30,
2013
 
    2011     2012     2012     2013    
                (unaudited)     (unaudited)  
    (in thousands, except share and per share data)  

Statement of Operations Data:

         

Operating expenses:

         

Research and development

  $ 20,363      $ 36,052      $ 27,519      $ 48,057      $ 157,210   

General and administrative

    5,164        7,285        4,593        8,208        32,081   

Acquired in-process research and development

                                6,823   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    25,527        43,337        32,112        56,265        196,114   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (25,527     (43,337     (32,112     (56,265     (196,114

Interest and other income (expense), net

    123        (382     58        (14,795     (13,777

Interest expense

    (419     (6     (6     (1,046     (4,526
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (25,823     (43,725     (32,060     (72,106     (214,417

Preferred stock extinguishment

                                9,711   

Deemed dividend to preferred stockholders

           (18,716     (15,972            (18,716
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

  $ (25,823   $ (62,441   $ (48,032   $ (72,106   $ (223,422
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Per share information:

         

Net loss attributable to common stockholders, basic and diluted

  $ (104.33   $ (205.45   $ (158.93   $ (229.40  
 

 

 

   

 

 

   

 

 

   

 

 

   

Weighted-average common shares used to compute net loss per share attributable to common stockholders, basic and diluted(1)

    247,507        303,927        302,219        314,321     
 

 

 

   

 

 

   

 

 

   

 

 

   

Pro forma net loss per share attributable to common stockholders, basic and diluted(1)

    $ (4.49     $ (2.90  
   

 

 

     

 

 

   

Weighted-average number of shares used in computing pro forma net loss per share of common stock, basic and diluted(1)

      13,795,856          19,713,990     
   

 

 

     

 

 

   

 

(1) The pro forma net loss per share of common stock, basic and diluted, for the year ended December 31, 2012 and the nine months ended September 30, 2013 (unaudited) reflects the conversion of all outstanding shares of our convertible preferred stock into shares of common stock immediately prior to the consummation of this offering. The pro forma net loss per share of common stock, basic and diluted, does not give effect to the issuance of shares from the proposed initial public offering nor do they give effect to potential dilutive securities where the impact would be anti-dilutive. See Note 2 to our audited financial statements included elsewhere in this prospectus.

 

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     As of
December 31,
    As of
September 30,
 
     2011     2012     2013  
                 (unaudited)  
     (in thousands)  

Balance Sheet Data:

      

Cash, cash equivalents and short-term investments

   $ 28,543      $ 54,355      $ 16,467   

Working capital (deficit)

     25,660        27,922        (33,798

Total assets

     30,484        64,132        25,957   

Convertible preferred stock warrant liability

     348        19,529        34,607   

Debt

                   13,631   

Convertible preferred stock

     112,847        177,418        177,418   

Deficit accumulated during development stage

     (98,586     (147,384     (219,490

Total stockholders’ (deficit) equity

     (86,275     (147,361     (216,775

 

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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 the section entitled “Selected Financial Data” and our financial statements and related notes included elsewhere in this prospectus. This discussion and other parts of this prospectus contain forward-looking statements that involve risks and uncertainties, such as our plans, objectives, expectations, intentions and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled “Risk Factors” included elsewhere in this prospectus.

Overview

We are a pharmaceutical company focused on the development and commercialization of non-absorbed polymeric drugs to treat disorders in the areas of renal, cardiovascular and metabolic diseases. We have completed our two-part pivotal Phase 3 trial of our lead product candidate, patiromer, for the treatment of hyperkalemia, a life-threatening condition defined as abnormally elevated levels of potassium in the blood. The design of this pivotal Phase 3 trial was agreed to under a special protocol assessment, or SPA, with the U.S. Food and Drug Administration, or FDA. Each part of this trial met both its primary and secondary efficacy endpoints, with the results being both statistically significant and clinically meaningful. We expect to submit a New Drug Application, or NDA, in the third quarter of 2014. Patiromer is a non-absorbed, optimized potassium binding polymer administered as a convenient oral suspension powder.

Since commencing operations in October 2007, we have devoted substantially all our efforts to identify and develop products utilizing our proprietary polymer drug discovery technology, including patiromer, and we have devoted substantially all of our financial resources to the clinical development of patiromer. We have not generated any revenue from product sales and, as a result, we have incurred significant losses. Through September 30, 2013, we have funded substantially all of our operations through the sale and issuance of our convertible preferred stock and convertible promissory notes and through various credit facilities.

Patiromer was developed utilizing our proprietary polymer drug discovery technology, which we acquired pursuant to an IP License and Assignment Agreement and an Exchange Agreement with Ilypsa, Inc., or Ilypsa, which is a subsidiary of Amgen, Inc., or Amgen. In November 2009, we entered into an Amended and Restated License and Assignment Agreement pursuant to which we hold an exclusive sublicense under patent rights originally licensed to Ilypsa for the development and commercialization of pharmaceutical products developed using its polymer-based technology, including patiromer. In March 2013, we satisfied our sole milestone payment obligation with respect to patiromer with a payment of $12.5 million in connection with the dosing of the first patient in our pivotal Phase 3 trial. We have global royalty-free commercialization rights to patiromer, which has intellectual property protection in the U.S. until at least 2030. Upon FDA approval, we plan to commercialize patiromer for hyperkalemia in the U.S. with an approximately 100 person specialty sales force targeting nephrologists and cardiologists.

Utilizing our proprietary polymer drug discovery technology, we have also developed a pre-clinical product candidate, RLY6002, which is currently being evaluated as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes mellitus. While we have developed a clinical plan, we have not yet initiated a clinical trial for RLY6002. We currently intend to focus substantially all of our resources on the advancement of patiromer through NDA submission and commercialization.

 

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We have never been profitable and, as of September 30, 2013, we had a deficit accumulated during development stage of $219.5 million. We incurred net losses of approximately $25.8 million and $43.7 million in the years ended December 31, 2011 and 2012, respectively, and $32.1 million and $72.1 million for the nine months ended September 30, 2012 and 2013, respectively. We expect to continue to incur net operating losses as we advance patiromer through clinical development, seek regulatory approval, prepare for and, if approved, proceed to commercialization.

We have no manufacturing facilities and all of our manufacturing activities are contracted out to third parties. Additionally, we currently utilize third-party clinical research organizations, or CROs, to carry out our clinical trials and we do not yet have a sales organization. We expect to significantly increase our investment in costs relating to our commercial manufacturing process and inventory of patiromer, as well as for commercialization and marketing related activities as we prepare for a possible commercial launch of patiromer.

Polymeric-based drugs like patiromer generally require large quantities of drug substance, as compared to small molecule drugs. Our current supplier of drug substance, Lanxess, does not, at present, have the capacity to manufacture patiromer in the quantities that we believe will be sufficient to enable us to meet anticipated market demand or to achieve economies of scale necessary to reduce the manufacturing cost of patiromer. Our business plan assumes that we are able to develop a supply chain with multiple suppliers and significantly decrease our cost of goods within the first several years of commercialization of patiromer, enabling us to achieve gross margins similar to those achieved by other companies who produce non-absorbed polymeric drugs.

We will need substantial additional funding to support our operating activities, especially as we approach commercial launch in the United States and as we build our sales capabilities. Adequate funding may not be available to us on acceptable terms, or at all. In its report accompanying our audited financial statements for the year ended December 31, 2012, our independent registered public accounting firm included an explanatory paragraph stating that our recurring losses from operations and our need for additional sources of capital to fund our ongoing operations raise substantial doubt as to our ability to continue as a going concern. A report with this type of explanatory paragraph could impair our ability to finance our operations through the sale of debt or equity securities or to obtain commercial bank loans. Our ability to continue as a going concern will depend, in large part, on our ability to obtain necessary financing, which is uncertain. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations, and financial condition.

Certain of our existing investors agreed, at the time of our Series C-1 convertible preferred stock financing, to invest approximately $15.0 million in consideration of the issuance of shares of our Series C-2 convertible preferred stock and warrants to purchase our Series C-2 convertible preferred stock, subject to certain conditions. We consummated this financing in October 2013.

Financial Overview

Research and Development Expenses

Our research and development expenses consist primarily of:

 

   

salaries and related costs, including stock-based compensation expense, for personnel in our research and development functions;

 

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fees paid to clinical consultants, clinical trial sites and vendors, including clinical research organizations in conjunction with implementing and monitoring our clinical trials and acquiring and evaluating clinical trial data, including all related fees, such as for investigator grants, patient screening fees, laboratory work and statistical compilation and analysis;

 

   

costs related to production of clinical supplies, including fees paid to contract manufacturers;

 

   

costs related to compliance with drug development regulatory requirements;

 

   

a one-time milestone payment of $12.5 million made pursuant to our IP License and Assignment Agreement; and

 

   

depreciation and other allocated facility-related and overhead expenses.

We expense both internal and external research and development expenses to operations as they are incurred. We are focusing substantially all of our resources and development efforts on the development of patiromer. We expect our research and development expenses to increase during the next few years as we seek to complete our clinical program, pursue regulatory approval of patiromer in the United States and prepare for a possible commercial launch of patiromer, which will require a significant investment in contract manufacturing and inventory build-up related costs. Predicting the timing or the final cost to complete our clinical program and/or validation of our commercial manufacturing and supply processes is difficult and delays may occur because of many factors, including factors outside of our control. Furthermore, we are unable to predict when or if patiromer will receive regulatory approval in the United States with any certainty. We currently have no pharmaceutical products that have received marketing approval, and we have generated no revenues to date from the sale of such products.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation expense, and travel expenses for personnel in our executive, finance, business and corporate development and other administrative functions. Other general and administrative expenses include allocated depreciation and facility-related costs, legal costs of pursuing patent protection of our intellectual property, and professional fees for auditing, tax and legal services. We expect our general and administrative expenses will increase as we expand our operating activities and increase our headcount as we begin to prepare for a potential commercial launch of patiromer and to support our operations as a public company. These increased expenses associated with being a public company will likely include increased expenses related to legal, accounting, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, directors’ and officers’ liability insurance premiums and investor relations related fees.

Interest and Other Income (Expense), Net

Interest income consists primarily of interest received or earned on our cash, cash equivalents and short-term investments balances. Other income (expense) primarily includes gains and losses from the remeasurement of our liabilities related to our convertible preferred stock warrants. We will continue to record adjustments to the estimated fair value of the convertible preferred stock warrants until such time as these instruments are exercised, expire or convert into warrants to purchase shares of our common stock. At that time, the convertible preferred stock warrant liability will be reclassified to additional paid-in capital, a component of stockholders’ equity (deficit), and we will no longer record

 

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any related periodic fair value adjustments. See also “Estimated Fair Value of Convertible Preferred Stock Warrants” under Critical Accounting Policies and Significant Estimates below.

Interest Expense

Interest expense consists of cash and noncash interest costs related to our borrowings. The noncash interest costs consist of the amortization of the fair value of warrants that were issued in connection with our borrowings, with the initial fair value of the warrants being amortized to interest expense over the term of the governing agreements.

Critical Accounting Polices and Significant Estimates

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. In many instances, we could have reasonably used different accounting estimates, and in other instances changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from management’s estimates. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

While our significant accounting policies are described in the Notes to our financial statements, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.

Clinical Trial Accruals

Clinical trial costs are a component of research and development expenses. We accrue and expense clinical trial activities performed by third parties based upon actual work completed in accordance with agreements established with clinical research organizations and clinical sites. We determine the actual expense accrual through discussions with internal personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services less any payments made. During the course of a clinical trial, we may adjust our rate of clinical expense recognition if actual results differ from our estimates. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on the facts and circumstances known to us at that time. Our clinical trial accrual is dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party vendors. Through September 30, 2013, there have been no material adjustments to our prior period estimates of accrued expenses for clinical trials.

Stock-Based Compensation

We account for all stock-based awards issued to employees, consultants and directors using the Black-Scholes option pricing model for estimating fair value. Accordingly, stock-based compensation expense is measured based on the estimated fair value of the awards on the date of grant, net of

 

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forfeitures, and is recognized for the portion that is ultimately expected to vest over the period during which the recipient renders the required services to us using the straight-line single option method. The fair value of stock-based awards granted to non-employees is measured using the Black-Scholes option pricing model reflecting the same assumptions as applied to employee options in each of the reported periods, other than the expected life, which is assumed to be the remaining contractual life of the option. The compensation costs of these arrangements are subject to remeasurement over the vesting terms as earned.

Total compensation cost recorded in the statements of operations is allocated as follows:

 

     Year Ended
December 31,
     Nine Months Ended
September 30,
 
     2011      2012      2012      2013  
                   (unaudited)  
     (in thousands)  

Research and development

   $ 611       $ 485       $ 325       $ 1,662   

General and administrative

     446         692         470         974   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,057       $ 1,177       $ 795       $ 2,636   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of September 30, 2013, we had $11.9 million of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over an estimated weighted-average period of 2.7 years. For stock option awards subject to ratable vesting, we recognize compensation cost on a straight-line basis over the service period for the entire award. In future periods, our stock-based compensation expense is expected to increase as a result of recognizing our existing unrecognized stock-based compensation for awards that will vest and as we issue additional stock-based awards to attract and retain our employees.

The table below shows the intrinsic value of our outstanding vested and unvested options as of September 30, 2013 based upon an assumed initial public offering price of $17.50 per share, which is the mid-point of the range reflected on the cover page of this prospectus (in thousands).

 

     Number of shares
underlying options
     Intrinsic
Value
 

Total vested options outstanding

     993       $ 13,259   

Total unvested options outstanding

     2,446       $ 28,591   
  

 

 

    

 

 

 

Total options outstanding

     3,439       $ 41,850   
  

 

 

    

 

 

 

Significant Factors, Assumptions and Methodologies Used in Determining the Estimated Fair Value of Our Stock Options

We estimate the fair value of our stock-based awards to employees and directors using the Black-Scholes option pricing model. The Black-Scholes model requires the input of subjective assumptions, including (a) the expected stock price volatility, (b) the calculation of the expected term of the award, (c) the risk free interest rate and (d) expected dividends. Due to our limited operating history and a lack of company specific historical and implied volatility data, we have based our estimate of expected volatility on the historical volatility of a group of similar companies, which are publicly-traded. When selecting these public companies on which we have based our expected stock price volatility, we selected companies with comparable characteristics to us, including enterprise value, risk profiles,

 

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position within the industry, and with historical share price information sufficient to meet the expected life of our stock-based awards. The historical volatility data was computed using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of our stock-based awards. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available. We have estimated the expected life of our employee stock options using the “simplified” method, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option. The risk-free interest rates for periods within the expected life of the option are based on the U.S. Treasury yield curve in effect during the period the options were granted. We have never paid, and do not expect to pay, dividends in the foreseeable future.

The assumptions used to estimate the fair value of stock options granted to employees using the Black-Scholes option pricing model were as follows:

 

     Year Ended
December 31,
  

Nine Months
Ended
September 30,

2013

     2011    2012   

Weighted-average exercise price of options granted

   $4.13    $3.96    $7.34

Expected volatility

   77-93%    87-95%    94.7% - 97.0%

Expected term (in years)

   5-6    6    5.96 - 6.25

Risk-free rate

   0.9-2.2%    0.8-1.1%    1.14% - 1.7%  

Expected dividends

   0%    0%    0%

We are also required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from our estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. To the extent that actual forfeitures differ from our estimates, the difference is recorded as a cumulative adjustment in the period the estimates were revised.

Fair Value Estimate of Our Common Stock

We are required to estimate the fair value of the common stock underlying our stock-based awards when performing the fair value calculations with the Black-Scholes option pricing model. The fair value of the common stock underlying our stock-based awards was determined on each grant date by our board of directors, with input from management. All options to purchase shares of our common stock are intended to be granted with an exercise price per share no less than the fair value per share of our common stock underlying those options on the date of grant, based on the information known to us on the date of grant. In the absence of a public trading market for our common stock, on each grant date, we develop an estimate of the fair value of our common stock in order to determine an exercise price for the option grants based in part on input from an independent third-party valuation. Our determinations of the fair value of our common stock was done using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants, or AICPA, Audit and Accounting Practice Aid Series: Valuation of Privately Held Company Equity Securities Issued as Compensation, or the AICPA Practice Guide. In addition, our board of directors considered various objective and subjective factors, along with input from management and the independent third-party valuation, to determine the fair value of our common stock, including:

 

   

external market conditions affecting the pharmaceutical and biotechnology industry and trends within the industry;

 

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the prices at which we sold shares of convertible preferred stock;

 

   

the superior rights and preferences of the convertible preferred stock relative to our common stock at the time of each grant;

 

   

our results of operations, financial position and available capital resources;

 

   

the progress of our research and development efforts, our stage of development and business strategy;

 

   

the lack of an active public market for our common stock and our convertible preferred stock; and

 

   

the likelihood of achieving a liquidity event such as an initial public offering, or IPO, or sale of our company in light of prevailing market conditions.

The per share estimated fair value of common stock in the table below represents the determination by our board of directors of the fair value of our common stock as of the date of grant, taking into consideration the various objective and subjective factors described above, including the conclusions, if applicable, of contemporaneous valuations of our common stock as discussed below. We computed the per share estimated fair value of common stock for stock option grants based on the Black-Scholes option pricing model. The following table presents the grant dates, related exercise prices and per share estimated fair value of common stock for stock options granted to employees since January 1, 2011:

 

Date of issuance

   Number of
shares
underlying
option grants
     Exercise price
per share ($)
     Per share
estimated
fair value of
common
stock ($)
 

March 31, 2011

     2,906         4.65         4.65   

June 9, 2011

     135,620         4.65         4.65   

September 14, 2011

     642,427         3.96         3.96   

December 14, 2011

     110,054         3.96         3.96   

March 7, 2012

     40,746         3.96         3.96   

September 28, 2012

     421,054         3.96         3.96   

October 24, 2012

     203,488         3.96         3.96   

November 21, 2012

     55,232         3.96         3.96   

December 5, 2012

     171,021         3.96         3.96   

March 7, 2013

     33,137         4.99         4.99   

July 24, 2013

     1,297,774         7.40         7.40   
  

 

 

    

 

 

    

 

 

 

Contemporaneous Valuations

To assist our board of directors with the determination of the exercise price of our stock options and the estimated fair value of the common stock underlying the options, we obtained third-party valuations of our common stock as of September 7, 2010, July 28, 2011, July 31, 2012, December 31, 2012 and June 30, 2013; however, management and our board of directors have assumed full responsibility for the estimates. In addition, in connection with determining the fair value of our warrants for purposes of recording our convertible preferred stock warrant liability, we commissioned an independent third-party valuation as of March 31, 2013 and September 15, 2013.

In determining the estimated fair value of our common stock, we used one or more of the methodologies discussed below depending on the timing of the valuation relative to our stage of

 

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development to first estimate an enterprise value for the company. The per share common stock fair value was estimated by allocating the derived enterprise value using the option pricing method, or OPM, at the September 7, 2010, July 28, 2011 and July 31, 2012, valuation dates, and the probability-weighted expected return method, or PWERM, beginning with the December 31, 2012 valuation date.

For each of the September 7, 2010, July 28, 2011 and July 31, 2012 valuations, the company’s enterprise value was derived predominantly from a market multiple approach. The market multiple approach estimates the value of a business by comparing a company to similar publicly-traded companies. When selecting the comparable companies to be used for the market multiple approaches, we focused on companies within the pharmaceutical and biotechnology industry in a similar stage of clinical development to us at the time of the valuation. Specifically, for the September 7, 2010 valuation we identified development stage companies focused on the cardiovascular space, while in the July 28, 2011 valuation, we identified companies with at least one product candidate in Phase 2 clinical development (our stage of development at the time) and in the July 31, 2012 valuation, we identified companies in either Phase 2b or Phase 3 clinical development. The mix of comparable companies was reviewed at each valuation date to assess whether to add or delete companies based on their comparability to us. To derive our enterprise value from the selected group of comparable publicly-traded companies, market multiples are calculated using each company’s stock price and other financial data. An estimate of value for our company is computed by applying selected market multiples based on forecasted results for both the comparable companies and our company. Given that we were several years away from generating product revenue at each of these valuations dates, our analysis applied the market approach based on research and development spending, which we determined to be the most relevant financial measure.

For each of the December 31, 2012, March 31, 2013, June 30, 2013 and September 15, 2013 valuations, the company’s enterprise value was derived predominantly from the IPO value approach. The IPO value approach estimates the value of a business by estimating a future value of the business based on the value of similarly situated pharmaceutical and biotechnology IPOs for companies of a comparable stage over approximately the preceding 24-month period, discounted to the present value. When selecting the comparable companies within the pharmaceutical and biotechnology industry, we focused on companies that were in a similar development stage as we expected to be at the time of our IPO, which was Phase 3 or later. For this reason, we also chose companies that had filed an NDA by the time of their respective IPOs or were forecasted to file an NDA within a short time period following their respective IPOs. Additionally, given the proximity of our IPO to the valuation dates, we focused on companies that had completed an IPO within the preceding 18 month period.

The OPM is appropriate to use when the range of possible future outcomes is so difficult to predict that forecasts would be highly speculative. The OPM treats common stock and convertible preferred stock as call options on the enterprise value, with exercise prices based on the liquidation preference of the convertible preferred stock. Therefore, the common stock has value only if the funds available for distribution to the stockholders exceed the value of the liquidation preference at the time of a liquidity event such as a merger, sale or IPO, assuming the enterprise has funds available to make a liquidation preference meaningful and collectible by the stockholders. The common stock is modeled to be a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after the convertible preferred stock is liquidated. The OPM uses the Black-Scholes option pricing model to price the call option.

 

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As more certainty developed regarding possible exit event outcomes, including an IPO, the allocation methodology utilized to allocate our enterprise value of our common stock transitioned from the OPM to the PWERM. The PWERM is a scenario-based analysis that estimates the value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the rights of each share class. The PWERM estimates the common stock value to our stockholders under each of four possible future scenarios: (1) an IPO, (2) a strategic merger or sale of our company, (3) remaining a private company, or (4) a liquidation of our company at a value below the cumulative liquidation preference of the preferred stockholders. The timing of the future liquidity event scenarios is determined based primarily on input from our board of directors and management. The value per share under each scenario was then probability-weighted and the resulting weighted values per share were summed to determine the fair value per share of our common stock. In the sale, remain-a-private-company and liquidation scenarios, the value per share was allocated taking into account the liquidation preferences and participation rights of our convertible preferred stock consistent with the method outlined in the AICPA Practice Aid. In the IPO scenario, it was assumed all outstanding shares of our convertible preferred stock would convert into common stock.

We also considered the fact that our stockholders cannot freely trade our common stock in the public markets. The estimated fair value of our common stock at each grant date reflected a non-marketability discount partially based on the likelihood and timing of a future liquidity event. The non-marketability discount applied ranged from approximately 32% in connection with our September 7, 2010 valuation to approximately 12% in connection with the IPO scenario in our June 30, 2013 valuation, reflecting the increase in likelihood of, and decrease in the estimated time, to a liquidity event.

Stock Option Grants January 1, 2011 through June 30, 2011

Our board of directors granted stock options on March 31, 2011 and June 9, 2011, with each having an exercise price of $4.65 per share. The exercise price per share was supported by the independent third-party valuation as of September 7, 2010. The specific facts and circumstances considered by our board of directors for the September 7, 2010 valuation included the following:

 

   

The company consummated its Series B-1 convertible preferred stock financing just prior to the valuation date issuing its shares of Series B-1 convertible preferred stock at a purchase price of $13.502 per share.

 

   

In mid-2010, the company received positive Phase 2 data for patiromer and positive feedback from the FDA in regards to the clinical development program.

In light of the proximity of the Series B-1 preferred stock financing, we placed significant weight on the valuation ascribed by our outside investors in determining the enterprise value of the company. In particular, we considered two potential exit scenarios, the first approximately nine months from the valuation date, pre-Phase 3 initiation, and the second approximately 30 months from the valuation, based on estimated Phase 3 trial completion. Together with the market multiple estimated enterprise valuation, we factored these estimated enterprise valuations into the OPM in determining the estimated fair value per share, resulting in an estimated fair value of $4.65 per share of common stock as of September 7, 2010. At each grant date, our board of directors considered whether any events occurred that would trigger any material changes to the business or would require adjustment to the estimated fair value. At March 31, 2011 and June 9, 2011, the board of directors did not identify any such material events or require adjustment to the estimated fair value from September 7, 2010.

 

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Stock Option Grants July 1, 2011 through June 30, 2012

Our board of directors granted stock options on September 14, 2011, December 14, 2011 and March 7, 2012, with each having an exercise price of $3.96 per share. The exercise price per share was supported by an independent third-party valuation as of July 28, 2011. The specific facts and circumstances considered by our board of directors for the July 28, 2011 valuation included the following:

 

   

The company consummated its Series B-2 convertible preferred stock financing just prior to the valuation date issuing its shares of Series B-2 convertible preferred stock at a purchase price of $9.1848 per share, which was negotiated at the time of the Series B-1 preferred stock financing.

 

   

In June 2011, the company initiated a Phase 2b clinical study for patiromer.

 

   

Subsequent to the last valuation date, the company shifted its commercial focus for patiromer from heart failure to chronic kidney disease.

Due to the fact that the valuation ascribed to the company by the investors in the Series B-2 preferred stock financing, which was determined at the time of the Series B-1 preferred stock financing, we considered the market multiple approach in determining the enterprise value of the company. We estimated a time to liquidity of approximately 18 months based on management’s estimates and in light of our stage of clinical development. The resulting enterprise value of the company increased relative to the prior valuation; however, given the significant dilution resulting from the issuance of the Series B-2 convertible preferred stock, the resulting estimated per share fair value decreased to $3.96 under the OPM. At each grant date, our board of directors considered whether any events occurred that would trigger any material changes to the business or would require adjustment to the estimated fair value. At September 14, 2011, December 14, 2011 and March 7, 2012, the board of directors did not identify any such material events or require adjustment to the estimated fair value from July 28, 2011.

Stock Option Grants July 1, 2012 through December 31, 2012

Our board of directors granted stock options on September 28, 2012, October 24, 2012, November 21, 2012 and December 5, 2012, with each having an exercise price of $3.96 per share. The exercise price per share was supported by an independent third-party valuation as of July 31, 2012. The specific facts and circumstances considered by our board of directors for the July 31, 2012 valuation included the following:

 

   

The company consummated its Series C-1 convertible preferred stock financing just prior to the valuation date issuing its shares of Series C-1 convertible preferred stock at a purchase price of $9.1848 per share, representing a flat valuation, or no increase in valuation, relative to the Series B-2 preferred stock financing. In addition, certain investors in the financing received warrants to purchase Series C-1 preferred stock at an exercise price of $0.17 per share and an option to invest up to an aggregate of $15.0 million at a later date at the Series C-1 convertible preferred stock purchase price.

 

   

The company completed a dose finding interim data analysis of its Phase 2b study to select the starting doses for its Phase 3 trial. The analysis was based on a pre-specified sample size of approximately 120 subjects who had completed the initial treatment period of the first 8 weeks of treatment. For the primary endpoint of mean reduction in serum potassium level at four weeks compared with baseline, each dose group demonstrated statistically significant and clinically meaningful reductions in serum potassium.

 

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The company’s plans to initiate a pivotal Phase 3 trial for patiromer in the fourth quarter of 2012 or first quarter of 2013.

 

   

Positive feedback from the FDA with regard to the design of its pivotal Phase 3 trial, which the company determined to pursue under an SPA with the FDA.

In light of the flat valuation ascribed to the company by the investors in the Series C-1 preferred stock financing and the fact that the valuation for the financing round was set by existing investors, we considered the market multiple approach in determining the enterprise value of the company focusing on companies with at least one drug in either Phase 2b or Phase 3 clinical development. In addition, we excluded companies focusing solely on the development of niche market drugs given our shift in focus to the larger target market of chronic kidney disease. We estimated a time to liquidity of approximately 17 months based on management’s estimates and in light of our stage of clinical development. The resulting enterprise value of the company increased significantly relative to the prior valuation; however, given the significant dilution resulting from the issuance of the Series C-1 convertible preferred stock and warrants to purchase Series C-1 convertible preferred stock with a $0.17 exercise price per share, representing an aggregate of approximately 8.5 million shares, the resulting estimated per share fair value remained at $3.96 under the OPM. At each grant date, our board of directors considered whether any events occurred that would trigger any material changes to the business or would require adjustment to the estimated fair value. At September 28, 2012, October 24, 2012, November 21, 2012 and December 5, 2012, the board of directors did not identify any such material events or require adjustment to the estimated fair value from July 31, 2012.

Stock Option Grants January 1, 2013 through June 30, 2013

Our board of directors granted stock options on March 7, 2013, with an exercise price of $4.99 per share. The exercise price per share was supported by an independent third-party valuation as of December 31, 2012. The specific facts and circumstances considered by our board of directors for the December 31, 2012 valuation included the following:

 

   

The FDA agreed to an SPA for the design of the company’s pivotal Phase 3 trial for patiromer.

 

   

The company completed a second interim data analysis of the Phase 2b study following completion of the initial 8-week treatment period. In this second interim analysis, the study met its primary endpoint of mean reduction in serum potassium level at four weeks compared with baseline, confirming what we had previously observed in the dose finding interim data analysis.

 

   

Management’s determination to begin actively planning for an IPO at the end of 2013.

As a result of the increased certainty regarding a potential exit event outcome, and, in particular an IPO at the end of 2013, we transitioned to utilizing the PWERM methodology for determining the estimated fair value of our common stock as of December 31, 2012. Under the PWERM, we considered four scenarios and assigned the following probability weighting: (1) 35% probability was assigned as the probability of an IPO at the end of 2013, (2) 20% probability was assigned to a strategic merger or sale scenario by the end of 2013, (3) 25% probability was assigned to the scenario of remaining a private company and (4) 20% probability was assigned to a liquidation at a price below the preferred stock liquidation preference. The probability weightings assigned to the respective scenarios were primarily based on consideration of our stage of clinical development, industry clinical success rates, our expected near-term and long-term funding requirements, and an assessment of the current financing

 

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and pharmaceutical and biotechnology industry environments at the time of the valuation. The estimated enterprise value of the company was derived using the approach described above focused on pharmaceutical and biotechnology IPOs within the past 18 months. For the strategic merger or sale scenario, we applied a premium over the derived enterprise value for the IPO scenario. The resulting value, which represented the estimated fair value of our common stock as of December 31, 2012, was $4.99 per share. At March 7, 2013, the Board did not identify any material events or required adjustment to the estimated fair value from December 31, 2012.

Stock Option Grants post-June 30, 2013

Our board of directors granted stock options on July 24, 2013, with an exercise price of $7.40 per share. The exercise price per share was supported by an independent third-party valuation as of June 30, 2013. The specific facts and circumstances considered by our board of directors for the June 30, 2013 valuation included the following:

 

   

Hiring of John Orwin, an experienced public company President and Chief Executive Officer.

 

   

Completing enrollment of our pivotal Phase 3 trial.

 

   

Completing new market research supporting our belief that there is an unmet medical need and significant potential market for patiromer.

 

   

Progress towards an IPO along with the continued recent improvement in market conditions for clinical stage pharmaceutical and biotechnology companies.

As a result of the increased certainty regarding a potential exit event outcome, and, in particular an IPO at the end of 2013, utilizing the PWERM methodology, we adjusted the probability weighting for the same four exit scenarios as follows: (1) 45% probability was assigned as the probability of an IPO at the end of 2013, (2) 20% probability was assigned to a strategic merger or sale scenario by the end of 2013, (3) 20% probability was assigned to the scenario of remaining a private company and (4) 15% probability was assigned to a liquidation at a price below the preferred stock liquidation preference. The probability weightings assigned to the respective scenarios were primarily based on consideration of our stage of clinical development, industry clinical success rates, our expected near-term and long-term funding requirements, and an assessment of the current financing and pharmaceutical and biotechnology industry environments at the time of the valuation. In addition, in light of recent improvements in the market conditions for clinical stage pharmaceutical and biotechnology IPOs, the enterprise value of the company increased over the December 31, 2012 valuation. The resulting value, which represented the estimated fair value of our common stock as of June 30, 2013 was $7.40 per share. At July 24, 2013, the Board did not identify any material events or required adjustment to the estimated fair value from June 30, 2013.

We have not granted any stock options since July 24, 2013.

Convertible Preferred Stock Warrant Liability

Freestanding warrants for shares that are either puttable or redeemable are classified as liabilities on the balance sheet at their estimated fair value. At the end of each reporting period, changes in estimated fair value during the period are recorded in interest income and other income (expense), net. We will continue to adjust the carrying value of the warrants until such time as these instruments are exercised, expire or convert into warrants to purchase shares of our common stock. At that time, the liabilities will be reclassified to additional paid-in capital, a component of stockholders’ equity (deficit). The consummation of this initial public offering will result in this reclassification.

 

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The fair values of the outstanding warrants for Series A-1 and B-1 convertible preferred stock are measured using the Black-Scholes option pricing model. Inputs used to determine estimated fair value include the estimated fair value of the underlying stock at the valuation measurement date, volatility of the price of the underlying stock, the remaining contractual term of the warrants, risk-free interest rates and expected dividends. In connection with the Series C financing, we issued warrants to purchase 1.8 million and 0.3 million shares of Series C-1 convertible preferred stock at an exercise price of $0.17 per share on September 24, 2012 and November 30, 2012, respectively. We determined the fair value of Series C-1 convertible preferred stock to be $9.1848 per share at the time of issuance using the option pricing method. The warrants were valued at $9.013 per share at the time of issuance based on their intrinsic value. The warrants have been determined to be a deemed dividend to preferred stockholders, and the $18.7 million fair value has been classified as an increase to stockholders’ deficit and as a convertible preferred stock warrant liability.

Until December 31, 2012, the fair value of our common stock and convertible preferred stock was estimated by allocating its enterprise value using the OPM. As of December 31, 2012 and for each balance sheet reporting date following, our common stock and convertible preferred stock was revalued utilizing the PWERM.

Net Operating Loss Carryforwards

As of December 31, 2012, we had net operating loss carryforwards of approximately $101.7 million and $98.4 million that may be available, subject to the limitations described below, to reduce future taxable income, if any, for federal and California state income tax purposes, respectively. The federal and state net operating loss carryforwards will begin to expire in 2027 and 2017, respectively.

Additionally, the future utilization of our net operating loss carry forwards to offset future taxable income may be subject to an annual limitation, pursuant to Internal Revenue Code Section 382, as a result of ownership changes that may have occurred previously or that could occur in the future. We have performed an initial analysis under Section 382. As a result of this analysis, we have removed the deferred tax assets for net operating losses of $24.0 million generated through December 31, 2012 from our deferred tax asset schedule and have recorded a corresponding decrease to our valuation allowance. When this analysis is finalized, the deferred tax asset-schedule and associated valuation allowance will be updated. Due to the existence of the valuation allowance, future changes in our unrecognized tax benefits will not impact our effective tax rate.

As of December 31, 2012, we had research and development credit carryforwards of approximately $1.6 million and $2.9 million available to reduce future tax expense, if any, for federal and California state income tax purposes, respectively. The federal credits expire beginning in 2027, and the California credits carry forward indefinitely.

JOBS Act

In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other companies.

 

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We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

Results of Operations

Comparison of the Nine Months Ended September 30, 2012 and 2013 (unaudited)

 

     Nine Months Ended
September 30,
    Change  
     2012     2013     $     %  
     (unaudited)              
     (in thousands, except percentages)  

Operating expenses:

        

Research and development

   $ 27,519      $ 48,057      $ 20,538        75

General and administrative

     4,593        8,208        3,615        79   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     32,112        56,265        24,153        75   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (32,112     (56,265     (24,153     75   

Interest and other income (expense), net

     58        (14,795     (14,853     *   

Interest expense

     (6     (1,046     (1,040     *   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (32,060   $ (72,106   $ (40,046     125
  

 

 

   

 

 

   

 

 

   

 

 

 

 

* Percentage not meaningful

Research and Development.    Research and development expenses increased $20.5 million, or 75%, from $27.5 million for the nine months ended September 30, 2012 to $48.1 million for the nine months ended September 30, 2013. The increase was primarily the result of a $12.5 million milestone payment we made to Amgen in March 2013 pursuant to our amended and restated IP license and assignment agreement, resulting from the initiation of dosing in our pivotal Phase 3 trial for patiromer. The increase was also due to an increase in clinical trial related expenses of $6.0 million related to our Phase 2 and Phase 3 clinical trials, as well as an increase of $3.3 million and $0.8 million in consulting and outside services costs and personnel costs, respectively. These increases were partially offset by a decrease of $2.6 million in contract manufacturing related expenses due to significant active pharmaceutical ingredient manufacturing that occurred during the nine months ended September 30, 2012.

General and Administrative.    General and administrative expenses increased $3.6 million, or 79%, from $4.6 million for the nine months ended September 30, 2012 to $8.2 million for the nine months ended September 30, 2013. The increase was primarily due to an increase of $1.9 million in

 

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commercial and marketing related expenses resulting from us starting to prepare for a potential commercial launch of patiromer and $1.4 million in personnel costs resulting from an increase in headcount.

Interest and Other Income (Expense), Net.    Interest and other expense increased $14.9 million from $58,000 of interest and other income for the nine months ended September 30, 2012 to $14.8 million of interest and other expense for the nine months ended September 30, 2013. The increase in interest and other expense is primarily related to the increased value of $14.9 million of warrants issued to purchase Series C-1 convertible preferred stock that were issued in connection with our Series C-1 convertible preferred stock financing.

Interest Expense.    Interest expense increased $1.0 million from $6,000 for the nine months ended September 30, 2012 to $1.0 million for the nine months ended September 30, 2013. The increase is due to interest expense associated with our $12.5 million loan drawn in January 2013 under our term loan and our equipment line of credit.

Comparison of the Years Ended December 31, 2011 and 2012

 

     Year Ended December 31,     Change  
         2011             2012         $     %  
     (in thousands, except percentages)  

Operating expenses:

        

Research and development

   $ 20,363      $ 36,052      $ 15,689        77

General and administrative

     5,164        7,285        2,121        41   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     25,527        43,337        17,810        70   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (25,527     (43,337     (17,810     70   

Interest and other income (expense), net

     123        (382     (505     *   

Interest expense

     (419     (6     413        *   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (25,823   $ (43,725   $ (17,902     69
  

 

 

   

 

 

   

 

 

   

 

 

 

 

* Percentage not meaningful

Research and Development.    Research and development expenses increased $15.7 million, or 77%, from $20.4 million for the year ended December 31, 2011 to $36.1 million for the year ended December 31, 2012. The increase was primarily due to increases in clinical trial related expenses of $6.3 million and contract manufacturing related expenses of $6.2 million, in each case attributable to conducting and supporting our Phase 2 studies and preparation for the initiation of our pivotal Phase 3 trial. In addition, personnel costs increased by $2.7 million and consulting costs increased by $0.2 million in connection with our expanded clinical and manufacturing activities.

General and Administrative.    General and administrative expenses increased $2.1 million, or 41%, from $5.2 million for the year ended December 31, 2011 to $7.3 million for the year ended December 31, 2012. The increase was primarily due to increases of $0.8 million in personnel costs as a result of an increase in headcount, $0.8 million in legal fees related to intellectual property matters and $0.5 million in consulting costs.

Interest and Other Income (Expense), Net.    Interest and other expense increased $0.5 million from interest and other income of $0.1 million for the year ended December 31, 2011 to interest and other expense of $0.4 million for the year ended December 31, 2012. The increase is primarily due to the

 

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increased value of warrants to acquire convertible preferred stock that were issued in connection with our Series C preferred stock financing, a convertible note, a capital loan and an equipment line of credit.

Interest Expense.    Interest expense decreased $413,000 from $419,000 for the year ended December 31, 2011 to $6,000 for the year ended December 31, 2012. The decrease is due to the repayment of a capital loan during January 2012 and a decrease in the outstanding borrowings under our equipment line of credit.

Liquidity and Capital Resources

Since inception through September 30, 2013, our operations have been financed primarily through net proceeds of $177.4 million pursuant to sales of shares of our convertible preferred stock and the issuance of promissory notes. In addition, we have received financing through our capital loans and equipment lines of credit. As of December 31, 2012 and September 30, 2013, we had $54.4 million and $16.5 million of cash, cash equivalents and short-term investments, respectively. Our cash, cash equivalents and investments are held in a variety of interest-bearing instruments, including corporate debt securities, commercial paper and money market accounts. Cash in excess of immediate requirements is invested with a view toward liquidity and capital preservation, and we seek to minimize the potential effects of concentration and degrees of risk.

Our primary uses of cash are to fund operating expenses, which have historically been primarily research and development related expenditures. From inception through September 30, 2013, we have incurred cumulative net losses of $214.4 million. Management expects to incur additional losses in the future to conduct product research and development and to conduct pre-commercialization and marketing activities.

Our recurring operating losses from operations and our need for additional sources of capital to fund our ongoing operations raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2012 with respect to this uncertainty. We have no current source of revenue to sustain our present activities, and we do not expect to generate revenue for the foreseeable future. Accordingly, our ability to continue as a going concern will require us to obtain additional financing to fund our operations and there can be no assurance that additional financing will be available to us or that such financing, if available, will be available on terms favorable to us. Certain of our existing investors agreed, at the time of our Series C-1 convertible preferred stock financing, to invest approximately $15.0 million in consideration of the issuance of shares of our Series C-2 convertible preferred stock and warrants to purchase our Series C-2 convertible preferred stock, subject to certain conditions. We consummated this financing in October 2013. In addition, since we achieved the primary endpoints of our pivotal Phase 3 trial, we now have access to the $7.5 million tranche pursuant to our term loan.

We believe that our existing cash, cash equivalents and short-term investments of $16.5 million as of September 30, 2013, along with the estimated net proceeds from this offering, will be sufficient to meet our anticipated cash requirements for at least the next 12 months. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

 

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Summary Statement of Cash Flows

The following table shows a summary of our cash flows for each of the years ended December 31, 2011 and 2012 and the nine months ended September 30, 2012 and 2013.

 

     Years Ended December 31,     Nine Months Ended
September 30,
 
         2011             2012             2012             2013      
                 (unaudited)  
     (in thousands)  

Net cash (used in) provided by

        

Operating activities

   $ (23,561   $ (35,510   $ (30,125   $ (46,897

Investing activities

     (1,277     (28,478     (19,458     32,819   

Financing activities

     29,810        63,960        61,413        13,571   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

   $ 4,972      $ (28   $ 11,830      $ (507
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows from Operating Activities.    Net cash used in operating activities was $30.1 million for the nine months ended September 30, 2012 and consisted primarily of our net loss of $32.1 million, which includes noncash charges such as stock-based compensation expense of $0.8 million. The cash used in operating activities was partially offset by an increase of $1.8 million in accrued and other liabilities. Net cash used in operating activities was $46.9 million for the nine months ended September 30, 2013 and consisted primarily of our net loss of $72.1 million, which includes the $12.5 million milestone payment to Amgen in March 2013, less noncash charges including $14.9 million related to the revaluation of warrants to purchase convertible preferred stock and stock-based compensation expense of $2.6 million. The cash used in operating activities was partially offset by a decrease of $3.0 million in other receivables and increases in accrued and other liabilities, accounts payable and deferred rent of $2.4 million, $2.0 million and $0.6 million, respectively.

Net cash used in operating activities was $23.6 million for the year ended December 31, 2011 and consisted primarily of our net loss of $25.8 million, less noncash charges such as stock-based compensation expense of $1.1 million and depreciation and amortization expense of $0.8 million. The significant items in the change in operating assets and liabilities include an increase in accounts payable of $0.9 million, which is partially offset by an increase in prepaid expenses and other current assets of $0.5 million.

Net cash used in operating activities was $35.5 million for the year ended December 31, 2012 and consisted primarily of our net loss of $43.7 million, less noncash charges such as stock-based compensation expense of $1.2 million and $0.5 million related to the revaluation of warrants to purchase convertible preferred stock. The significant items in the change in operating assets and liabilities include increases in accrued liabilities of $3.5 million, deferred rent of $4.3 million and accounts payable of $1.5 million, which are partially offset by an increase in other receivables of $3.0 million. The increase in deferred rent and other receivables is related to the tenant allowance provided to us as part of the lease agreement we entered into for our new corporate headquarters during 2012.

Cash Flows from Investing Activities.    Net cash used by investing activities for the nine months ended September 30, 2012 was $19.5 million and was primarily due to the purchase of short-term investments of $33.1 million with the proceeds from the sale of our Series C-1 convertible preferred stock. These purchases were partially offset by proceeds from the maturities of short-term investments of $13.8 million. Net cash provided by investing activities for the nine months ended September 30,

 

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2013 was $32.8 million and was primarily due to the proceeds from the maturities of short-term investments of $47.5 million. These proceeds were partially offset by purchases of short-term investments of $10.1 million and purchases of fixed assets of $4.5 million.

Net cash used in investing activities for the years ended December 31, 2011 and 2012 was $1.3 million and $28.5 million, respectively. For the year ended December 31, 2011, net cash used in investing activities was comprised mainly of purchases of short-term investments of $18.1 million, partially offset by proceeds from the maturities of short-term investments of $17.0 million. For the year ended December 31, 2012, net cash used in investing activities was comprised mainly of purchases of short-term investments of $46.2 million and purchases of fixed assets of $2.7 million, partially offset by proceeds from the maturities of short-term investments of $20.4 million.

Cash Flows from Financing Activities.    Net cash provided by financing activities for the nine months ended September 30, 2012 was $61.4 million and consisted primarily of the $62.0 million in proceeds from the sale of our Series C-1 convertible preferred stock. These proceeds were partially offset by payments under a capital loan and an equipment line of credit of $0.8 million. Net cash provided by financing activities for the nine months ended September 30, 2013 was $13.6 million resulting from proceeds under our capital loan and equipment line of credit.

Net cash provided by financing activities for the years ended December 31, 2011 and 2012 was $29.8 million and $64.0 million, respectively. For the year ended December 31, 2011, net cash provided by financing activities consisted mainly of the net proceeds from the issuance of our convertible preferred stock of $34.9 million, partially offset by principal payments under a capital loan and an equipment line of credit $5.2 million. For the year ended December 31, 2012 net cash provided by financing activities consisted mainly of the net proceeds from the issuance of our convertible preferred stock of $64.6 million, partially offset by principal payments under a capital loan and an equipment line of credit of $0.8 million.

Operating and Capital Expenditure Requirements

We have not achieved profitability on a quarterly or annual basis since our inception and we expect to continue to incur net losses for the foreseeable future. We expect our cash expenditures to increase in the near term as we work to complete our Phase 3 clinical program, pursue regulatory approval of patiromer in the U.S., and to prepare for a possible commercial launch of patiromer. In particular, our pre-commercialization activities for patiromer, including development costs relating to the validation of our commercial manufacturing process and inventory supply, will require a significant investment in contract manufacturing and other commercial launch related costs. We currently anticipate utilizing a significant portion of the proceeds from this offering to support these activities. Additionally, as a public company, we will incur significant audit, legal, and other expenses that we did not incur as a private company. We believe that our existing capital resources, including access to the $7.5 million tranche pursuant to our term loan, together with the net proceeds from this offering, will be sufficient to fund our operations for at least the next 12 months. However, we anticipate that we will need to raise substantial additional financing in the future to fund our operations. In order to meet these additional cash requirements, we may seek to sell additional equity or convertible debt securities that may result in dilution to our stockholders. If we raise additional funds through the issuance of convertible debt securities, these securities could have rights senior to those of our common stock and could contain covenants that restrict our operations. There can be no assurance that we will be able to obtain additional equity or debt financing on terms acceptable to us, if at all. Our failure to obtain

 

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sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations, and financial condition.

Our future funding requirements will depend on many factors, including, but not limited to:

 

   

the time and cost necessary to obtain regulatory approvals for patiromer and the costs of post-marketing studies that could be required by regulatory authorities;

 

   

the costs of obtaining commercial supplies of patiromer;

 

   

our ability to successfully commercialize patiromer;

 

   

the manufacturing, selling and marketing costs associated with patiromer, including the cost and timing of expanding our sales and marketing capabilities;

 

   

the amount of sales and other revenues from patiromer, including the sales price and the availability of adequate third-party reimbursement;

 

   

the cash requirements of any future acquisitions or discovery of product candidates;

 

   

the progress, timing, scope and costs of our nonclinical studies and clinical trials, including the ability to enroll patients in a timely manner for potential future clinical trials;

 

   

the draw down of the $7.5 million tranche pursuant to our term loan, if any;

 

   

the time and cost necessary to respond to technological and market developments; and

 

   

the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

Please see “Risk Factors” for additional risks associated with our substantial capital requirements.

Contractual Obligations and Other Commitments

The following table summarizes our contractual obligations as of December 31, 2012 (in thousands):

 

      Payments Due by Period  
     Total      Less than
One Year
     1-3 Years      3-5 Years      More than
5 Years
 
     (in thousands)  
Contractual Obligations(1)               

Operating lease obligations(2)

   $ 9,532       $ 735       $ 2,661       $ 2,968       $ 3,168   

Purchase obligations(3)

     30,308         7,800         22,508                   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 39,840       $ 8,535       $ 25,169       $ 2,968       $ 3,168   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table summarizes our contractual obligations as of September 30, 2013 (in thousands):

 

      Payments Due by Period  
     Total      Less than
One Year
     1-3 Years      3-5 Years      More than
5 Years
 
     (in thousands)  

Contractual Obligations(1)

  

Long-term debt obligation(4)

   $ 16,207       $ 4,461       $ 11,746       $       $   

Operating lease obligations(2)

     9,018         1,179         2,797         3,043         1,999   

Purchase obligations(3)

     30,223         11,563         18,660                   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 55,448       $ 17,203       $ 33,203       $ 3,043       $ 1,999   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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(1) Per the terms of our IP License and Assignment Agreement, upon a change in control transaction we are required to pay to Ilypsa (Amgen) an increasing amount of the purchase price, less certain expenses, of such transaction, ranging from approximately 6.7% to 10% of such amount, up to a cap of $30.0 million. This payment has been excluded from the tables above due to the uncertainty of the occurrence and/or timing of a change of control transaction.
(2) Operating leases include total future minimum rent payments under non-cancelable operating lease agreements.
(3) The purchase commitment is related to our commercial manufacturing agreement with Lanxess. The timing of some of the payments is based on estimates and forecasts that could change.
(4) The long-term debt obligation is comprised of a venture debt agreement that was executed during January 2013 and an equipment line of credit that was obtained during May 2013.

Purchase Commitments

Our only material non-cancelable purchase commitment with contract manufacturers or service providers is with LANXESS Corporation, or Lanxess. Lanxess serves as a commercial manufacturer and commercial supplier of the active ingredient of patiromer and provides manufacturing services in relation to the product. Other than the foregoing purchase commitment, we have generally contracted with all contract manufacturers and service providers on a cancelable purchase order basis.

Loan and Security Agreements

Term Loan

On January 31, 2013, we entered into a loan and security agreement with Oxford Finance LLC and Silicon Valley Bank, which provides for up to $20.0 million of loan financing through December 31, 2013 in two separate tranches. In January 2013, we drew the full amount of the first tranche, $12.5 million. The second tranche of $7.5 million became available upon achievement of the primary endpoints of our pivotal Phase 3 trial for patiromer, and must be drawn prior to December 31, 2013. All outstanding debt drawn under the loan and security agreement is due in full by July 1, 2016, along with a final payment of 6% of the amounts advanced, and we are repaying the principal and amortized interest our current debt obligation over a period of 30 months with an interest rate of 7.80%. The outstanding debt is secured by substantially all of our assets, subject to the security priority of our equipment line of credit discussed below, and except for intellectual property, which is subject to a negative pledge. The negative pledge on our intellectual property generally does not permit us to grant a security interest in the covered intellectual property to another party without the consent of Oxford Finance and Silicon Valley Bank; however, the negative pledge does not generally restrict our ability to license out intellectual property.

In accordance with the terms of the loan and security agreement, in January 2013, we issued warrants to Oxford Finance to purchase an aggregate of 40,828 shares, and to Silicon Valley Bank to purchase 13,609 shares, of our Series C-1 convertible preferred stock with an exercise price per share of $9.1848.

The loan and security agreement includes customary operating but non-financial covenants, including limitations on our ability to incur additional indebtedness, issue dividends and transfer or encumber any collateral securing the debt, as well as a cross-default provision with regard to our equipment line of credit. As of September 30, 2013, principal of $12.5 million was outstanding under the loan and security agreement, and we were in compliance with all required covenants.

Equipment Line of Credit

On May 2, 2013, we entered into a loan and security agreement with Silicon Valley Bank, which provides for a line of credit to finance certain equipment purchases up to an aggregate of $1.6 million

 

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through June 30, 2013. All outstanding debt drawn under the equipment line of credit is amortized and payable in 36 monthly installments of principal and interest commencing on the month following the draw with an effective interest rate of 5.75%. The outstanding balance on the credit line is secured by a first priority lien over all equipment purchased using the line of credit.

In accordance with the terms of the equipment line of credit, we issued a warrant to Silicon Valley Bank in May 2013 to purchase 6,968 shares of our Series C-1 convertible preferred stock at an exercise price per share of $9.1848.

The equipment line of credit includes customary operating but non-financial covenants, including limitations on our ability to incur additional indebtedness, issue dividends and transfer or encumber any collateral securing the debt, as well as a cross-default provision with regard to our term loan. We utilized $1.3 million of the line of credit in the second quarter of 2013, and the remaining $0.3 million balance available under the line of credit expired unused on June 30, 2013. As of September 30, 2013, principal of $1.1 million was outstanding under the line of credit, and we were in compliance with all required covenants.

Operating Lease

In September 2012, we entered into a lease agreement for office and laboratory facilities in Redwood City, California. The lease term commenced on January 1, 2013 for a period of seven years with options to extend for two additional three-year terms. The operating lease agreement contains an initial two month rent holiday and rent escalation provisions over the term of the lease.

The lease agreement provides us with a tenant improvement allowance of $4.7 million in order for us to complete an office renovation and a lab build out. We will account for the aggregate tenant improvement allowance received as a leasehold improvement asset and a deferred rent liability on the accompanying balance sheets. The tenant improvement allowance asset will be amortized as depreciation expense and the deferred rent liability balance as a credit to rent expense over the period from which the improvements were placed in service until the end of their useful life or until the end of the lease term, whichever is shorter. As of December 31, 2012, we had $2.9 million in other receivables and $4.1 million in capitalized costs related to the tenant improvement allowance. The tenant improvements will be placed into service during 2013 as the renovation and build out are completed.

Indemnification

In the normal course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. Our exposure under these agreements is unknown because it involves claims that may be made against us in the future, but have not yet been made. To date, we have not paid any claims or been required to defend any action related to our indemnification obligations. However, we may record charges in the future as a result of these indemnification obligations.

In accordance with our certificate of incorporation and bylaws, we have indemnification obligations to our officers and directors for specified events or occurrences, subject to some limits, while they are serving at our request in such capacities. There have been no claims to date, and we have director and officer insurance that may enable us to recover a portion of any amounts paid for future potential claims.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.

 

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Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate and foreign exchange sensitivities as follows:

Interest Rate Risk

As of December 31, 2012 and September 30, 2013, we had cash, cash equivalents and short-term investments of $54.4 million and $16.5 million, respectively, which consist of bank deposits, money market funds, corporate bonds, commercial paper and certificates of deposit. Such interest-earning instruments carry a degree of interest rate risk; however, historical fluctuations in interest income have not been significant. All of our outstanding debt obligations carry fixed interest rates.

We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our financial statements.

Foreign Exchange Risk

We are exposed to some degree of foreign exchange risk as a result of entering into transactions denominated in currencies other than U.S. dollars, particularly in Euros. In particular, we pay our CROs and CMOs outside of the United States in the currencies of their respective jurisdictions. Due to the uncertain timing of expected payments in foreign currencies, we do not utilize any forward foreign exchange contracts. All foreign transactions settle on the applicable spot exchange basis at the time such payments are made.

A hypothetical 10% change in foreign exchange rates during any of the preceding periods presented would not have had a material impact on our financial statements.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (FASB) issued a new accounting standard on fair value measurements that clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles, and requires additional disclosure about fair value measurements that are estimated using significant unobservable (Level 3) inputs. This standard became effective for us on January 1, 2012, was adopted on a retrospective basis and did not have a material impact on its financial statements.

In June 2011, the FASB issued a new accounting standard on the presentation of comprehensive income. The new standard requires the presentation of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or two separate but consecutive statements. The new standard also requires the presentation of adjustments for items that are reclassified from other comprehensive income to net income in the statement, where the components of net income and the components of other comprehensive income are presented. This standard became effective for us on January 1, 2012, was adopted on a retrospective basis and did not have a material impact on its financial statements.

 

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Business

Overview

We are a pharmaceutical company focused on the development and commercialization of non-absorbed polymeric drugs to treat disorders in the areas of renal, cardiovascular and metabolic diseases. We have completed our two-part pivotal Phase 3 trial of our lead product candidate, patiromer, for the treatment of hyperkalemia, a life-threatening condition defined as abnormally elevated levels of potassium in the blood. The design of this pivotal Phase 3 trial was agreed to under a special protocol assessment, or SPA, with the U.S. Food and Drug Administration, or FDA. Each part of this trial met both its primary and secondary efficacy endpoints, with the results being both statistically significant and clinically meaningful. We expect to submit a New Drug Application, or NDA, in the third quarter of 2014. Patiromer is a non-absorbed, optimized potassium binding polymer administered as a convenient oral suspension powder. In our clinical program, we have observed that daily administration of patiromer lowered, and maintained control of, serum potassium levels into the normal range in hyperkalemic subjects and was well tolerated. We have global royalty-free commercialization rights to patiromer, which has intellectual property protection in the U.S. until at least 2030. Upon FDA approval, we plan to commercialize patiromer for the treatment of hyperkalemia in the U.S. with an approximately 100 person specialty sales force targeting nephrologists and cardiologists.

Hyperkalemia, which can present chronically or acutely, can lead to severe medical complications, including life-threatening cardiac arrhythmias and sudden death. Hyperkalemia is typically defined as a serum potassium level, or potassium in the blood, greater than 5.0 milliequivalents per liter (mEq/L). Patients with serum potassium levels greater than or equal to 5.5 mEq/L, which we define as moderate-to-severe hyperkalemia, were found in an independent study to have a 10-fold increase in their mortality rate within 24 hours. Hyperkalemia occurs most frequently in patients with chronic kidney disease, or CKD, where the ability of the patient’s kidney to excrete potassium has been compromised. Treatment guidelines recommend the use of renin-angiotensin-aldosterone system, or RAAS, inhibitors, to preserve kidney function and delay the progression of renal failure to end stage renal disease, or ESRD; however, RAAS inhibitors have the well-recognized side effect of causing or worsening hyperkalemia, thereby limiting their use. In addition to CKD patients, hyperkalemia is also commonly observed in heart failure, or HF, patients, for whom RAAS inhibitors are indicated as a first-line treatment for hypertension and to avoid CKD progression and have demonstrated a decrease in cause mortality in the HF patient population.

In the United States, the current treatment options for the chronic management of hyperkalemia are limited. These options include dietary potassium restriction, potassium-wasting diuretics or sodium polystyrene sulfonate, or SPS. SPS was first marketed in 1958 (e.g., Kayexalate®) and is currently the only drug on the market in the United States that is indicated for the treatment of hyperkalemia; however, it has a poor tolerability profile. SPS’ product labeling includes warnings of serious and potentially fatal gastrointestinal, or GI, side effects, and therefore we believe that its use as a daily treatment option over the long-term is limited. We believe that patiromer, if approved, would be the first drug approved for the treatment of hyperkalemia with a tolerability profile that enables chronic daily administration.

We believe a significant commercial opportunity exists for patiromer, and we plan to initially market patiromer in the U.S. to a subset of the approximately 7,000 nephrologists, as well as cardiologists associated with HF centers, who treat patients in one or more of the following categories:

 

   

Patients with existing moderate-to-severe hyperkalemia. We believe the prevalence of moderate-to-severe hyperkalemia (serum potassium level greater than or equal to 5.5 mEq/L)

 

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is between 20 to 40% in stage 3 and 4 CKD patients and HF patients. Therefore, we estimate that there are approximately 2.4 million CKD and HF patients in the United States with moderate-to-severe hyperkalemia being treated by a nephrologist or cardiologist. Many of these patients are being treated with RAAS inhibitors due to their benefits for CKD and HF patients. Based on our market research, approximately 80% of physicians surveyed indicated that they are likely to intervene with some form of treatment for hyperkalemia by the time a patient’s serum potassium level reaches 5.5 mEq/L. Accordingly, we view these patients as a readily identifiable initial patient population likely to be prescribed patiromer.

 

   

Patients with existing mild hyperkalemia. While physicians surveyed indicated that they are most likely to intervene with a treatment for hyperkalemia when a patient has a serum potassium level of greater than or equal to 5.5 mEq/L, approximately 40% of these physicians indicated that they would likely intervene with a treatment for hyperkalemia at a serum potassium level of less than 5.5 mEq/L, which we define as mild hyperkalemia. We believe that a safe, effective and well-tolerated daily use chronic therapy such as patiromer would be useful for patients in this category, in particular for those patients who have a history of recurrent episodes of hyperkalemia.

 

   

Patients not currently taking a RAAS inhibitor or who have had their RAAS inhibitor dose reduced to address their hyperkalemia. There are approximately 13.9 million stage 3 or 4 CKD patients and 3.7 million non-CKD HF patients in the U.S. We believe that 60 to 70% of these patients are treated by a nephrologist or cardiologist, and that the majority of these patients currently are not receiving RAAS inhibitors, or are receiving sub-optimal RAAS inhibitor dosing, in part because they have developed hyperkalemia from these treatments. As current CKD and HF treatment guidelines recommend the use of RAAS inhibitors to preserve kidney function in CKD patients and decrease all-cause mortality in HF patients, we believe that, with the introduction of a safe, effective and well-tolerated daily use chronic treatment option for hyperkalemia, physicians may increase their RAAS inhibitor usage in patients who have hyperkalemia by either maintaining their RAAS inhibitor therapy, increasing the doses of their RAAS inhibitor where indicated or by reinitiating RAAS inhibitor medications. Our market research indicates that for about 90% of nephrologists, hyperkalemia is the top concern with RAAS inhibitor therapy, and that about 90% of specialist physicians would use a drug with patiromer’s clinical profile in this type of patient. We believe that patiromer would provide physicians with an important tool to treat such hyperkalemia in this patient population.

Daily administration of patiromer has been observed by us in our clinical program to lower, and maintain control of, serum potassium levels while maintaining an acceptable safety and tolerability profile. Our completed two-part pivotal Phase 3 trial was agreed to under an SPA with the FDA. The primary and secondary endpoints for both parts of this trial were met, with the results being both statistically significant and clinically meaningful. In addition to our pivotal Phase 3 trial, our development program consists of four completed Phase 2 trials (including a long-term Phase 2b trial), two completed Phase 1 trials and one ongoing Phase 1 onset-of-action trial. We observed from our clinical trial program that patiromer was well tolerated across the trial populations, which included healthy volunteers, hemodialysis subjects, HF subjects and CKD subjects. Across all of our trials, no drug-related serious adverse events were reported, and the most commonly reported adverse events were mild-to-moderate GI symptoms. In our completed Phase 3 and Phase 2b trials, we observed that patiromer, when administered in pre-dialysis CKD subjects on RAAS inhibitors:

 

   

Provided statistically significant and clinically meaningful reductions in serum potassium levels, meeting the primary efficacy endpoints in each trial;

 

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Reduced serum potassium levels into the normal range in the substantial majority of subjects;

 

   

Significantly reduced the recurrence of hyperkalemia in subjects after serum potassium levels were controlled compared to subjects taking placebo; and

 

   

Maintained average serum potassium within the normal range for up to 1 year, demonstrating the ability of patiromer to control serum potassium over the long term.

Patiromer was developed using our proprietary polymer drug discovery technology, which is a high throughput screening platform for therapeutic drugs, and allows us to create and test non-absorbed polymers that will selectively bind in the GI tract moieties to treat disorders in the areas of renal, cardiovascular and metabolic disease.

Our Strategy

Our strategy is to develop and commercialize a product portfolio of novel therapeutics to treat disorders in the areas of renal, cardiovascular and metabolic diseases. The key elements of our strategy are to:

 

   

Obtain FDA approval to market our lead product candidate, patiromer for the treatment of hyperkalemia.    All subjects have completed our two-part pivotal Phase 3 trial, which was designed and agreed to by the FDA under an SPA. The first part of this trial met both its primary and secondary efficacy endpoints, with the results being both statistically significant and clinically meaningful. We expect to report primary endpoint results from the second part of this trial in the fourth quarter of 2013. Our five completed Phase 1 and 2 trials, together with our ongoing Phase 1, Phase 2b and pivotal Phase 3 trials, if positive, will serve as a basis for demonstrating safety and efficacy in an NDA submission in the third quarter of 2014.

 

   

Commercialize patiromer in the U.S.    If approved, we plan to commercialize patiromer with a U.S.-based sales force of approximately 100 sales representatives focused on a subset of the approximately 7,000 nephrologists, as well as cardiologists associated with a targeted group of major HF centers, treating our patient populations of interest. We estimate that specialist physicians treat 60 to 70% of stage 3 or 4 CKD patients and HF patients. Many of these patients have hyperkalemia due to their compromised kidney function and/or use of RAAS inhibitors, or have a history of multiple episodes of hyperkalemia. We believe that patiromer will be a useful chronic therapy for these patients to treat their hyperkalemia, whether due to underlying CKD or the use of RAAS inhibitors.

 

   

Leverage our commercial and research infrastructure to create a pipeline over time.    Over time, we intend to build a pipeline of products using our proprietary polymer drug discovery technology, which targets indications susceptible to treatment by non-absorbed binders in the GI tract and/or by selectively pursuing the in-licensing or acquisition of additional compounds that would be commercially synergistic with patiromer. For example, we have developed a pre-clinical candidate, RLY6002, which is currently being evaluated as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes mellitus (T2DM).

 

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Attributes of Patiromer

We believe patiromer has the following attributes that support its potential use as a chronic daily treatment for hyperkalemia:

 

1) Patiromer, if approved, will have been demonstrated to safely and effectively lower and maintain serum potassium levels. In Part A of our two-part pivotal Phase 3 trial and in the treatment initiation phase of our Phase 2b trial, our key observations were that patiromer, when administered in predialysis CKD subjects on RAAS inhibitors, provided statistically significant and clinically meaningful reductions in serum potassium levels (p<0.001 in both trials), meeting the primary efficacy endpoints in each trial. Top line data from both our Phase 2b trial and Part A of our pivotal Phase 3 trial showed that 86-90% and 76% of subjects had their serum potassium in the normal range at Week 52 and Week 4, respectively. In addition, statistically significant top line data from Part B of our Phase 3 trial showed that when patiromer was withdrawn after having controlled serum potassium in Part A, significantly more placebo subjects than patiromer subjects developed recurrent hyperkalemia. These positive results from the second part of the Phase 3 trial support chronic dosing with patiromer in order to reduce the recurrence of hyperkalemia. Notably, all subjects in these trials were on RAAS inhibitor therapy, which is known to raise serum potassium levels.

Pivotal Phase 3 Trial - Part A Results

LOGO

 

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Pivotal Phase 3 Trial - Part B Results

 

LOGO

  * Or earlier time point if subject first had serum potassium < 3.8 mEq/L or ³ 5.5 mEq/L

Statistical significance is denoted by p-values in the figures above. The p-value is the probability that the reported result was achieved purely by chance (e.g., a p-value <0.001 in the Pivotal Phase 3 Trial - Part A Results chart means that there is a less than a 0.1% chance that the reduction in serum potassium level from baseline to week 4 was purely due to chance and, similarly, a p-value <0.001 in the Pivotal Phase 3 Trial – Part B Results chart means that there was a less than a 0.1% chance that the difference in median change in serum potassium between the placebo subjects and patiromer subjects was purely due to chance).

 

2) We believe that patiromer, if approved, would be the first drug approved for the treatment of hyperkalemia with a tolerability profile that enables chronic daily administration. Patiromer was observed to have an acceptable safety profile and was well tolerated over the 52 week-treatment period. In the completed trials, the most commonly reported adverse events were mild-to-moderate GI symptoms. No serious adverse events were assessed as related to patiromer. In contrast, the product labels of existing potassium-binding treatment options, such as SPS, include warnings of severe GI side effects which can be fatal and include GI necrosis, bleeding and perforation. Additionally, as shown in the graph below, the positive Phase 3 results are supported by top line results from the 52-week Phase 2b trial, which also demonstrated statistically significant and clinically meaningful reductions in serum potassium at 4 weeks (the primary endpoint), with 86-90% of subjects having their serum potassium in the normal range at week 52, demonstrating the ability of patiromer to control serum potassium over the long term.

 

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Phase 2b Trial - One Year Efficacy Results

 

LOGO

 

3) Patiromer was easily taken by subjects in our studies. Patiromer is an odorless, free flowing powder that is conveniently mixed with water. During our trials, very few subjects reported problems taking the medication, and approximately 64% of subjects completed one year of treatment in our long-term Phase 2b trial.

Background of Potassium Regulation and Hyperkalemia

Potassium is an essential dietary mineral. Potassium is essential because it is the main cation that functions both inside and outside of cells to facilitate a number of physiological actions, including membrane activation (important for the propagation of electrochemical signaling between neurons), ion and solute transport (or moving ions or solutes through the cell wall), and the regulation of cell volume. A cation is an atom that has lost one or more electrons and, as a result, has a net positive charge or an available site for sharing electrons, which allows it to bond to other atoms. Approximately 98% of potassium in the body resides inside cells, or intracellular, and about 2% of total body potassium is in the blood, or extracellular and potassium can shift back and forth from extracellular to intracellular compartments. Due to this central role in cell physiology, a stable equilibrium of potassium, or potassium homeostasis, in the normal range is essential. Although clinical definitions and laboratory assays have some variability, we define the normal range of serum potassium level to be 3.8 to 5.0 mEq/L.

Potassium homeostasis in the body is achieved through a balance of absorption and excretion processes. Absorption of potassium from the diet is passive, occurring in the small intestine, while excretion of potassium is mostly a regulated active process. Since dietary potassium may vary considerably from day to day, it is necessary to increase potassium excretion when dietary potassium is high and decrease excretion when dietary potassium is low. Excretion in response to variable potassium intake is primarily handled by the kidneys, which excrete 90 to 95% of the absorbed dietary potassium, with the remaining 5 to 10% excreted in the colon. When renal function is impaired, the

 

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body adapts to reduced renal excretion of potassium by increasing the amount of colonic potassium secretion. Additionally, the elevation in the blood potassium concentration decreases the ratio of intracellular to extracellular potassium. The lowering of this ratio leads, partially, to electrical signals failing to pass through the cell membrane (cell depolarization).

Hyperkalemia is defined as a serum potassium level greater than 5.0 mEq/L. Based on our research, approximately 80% of physicians surveyed indicated that they are most likely to intervene with some form of treatment for hyperkalemia by the time serum potassium levels reach 5.5 mEq/L, and we define moderate-to-severe hyperkalemia as a serum potassium level greater than or equal to 5.5 mEq/L. Given the processes that maintain potassium balance, hyperkalemia can result from either shifts in the balance of potassium in the extracellular and intracellular fluid compartments or from decreased excretion by the kidneys. This in turn can cause muscle weakness, paralysis and life-threatening effects on cardiac conduction, along with arrhythmias, such as ventricular fibrillation, and sudden death. Because hyperkalemia can precipitate life-threatening arrhythmias, the treatment of elevated serum potassium levels represents a clinically important goal. In fact, in an independent 2009 retrospective analysis of veteran records by Einhorn et al., patients with moderate-to-severe hyperkalemia were found to have a 10-fold increase in their mortality rate within 24 hours.

Causes and risk factors for hyperkalemia include reduced renal function, diabetes, extensive soft tissue injury, age, high dietary potassium intake, and the use of medications such as RAAS inhibitors. The majority of hyperkalemia cases are precipitated by reduced potassium excretion caused by renal insufficiency and, in an independent article in the New England Journal of Medicine published in 2004, approximately three-fourths of hyperkalemia cases were associated with renal failure. In addition, while RAAS inhibitors were shown to reduce CKD progression and HF mortality in landmark clinical trials, they are particularly prone to inducing hyperkalemia.

Importance of Treatment of CKD and HF patients with RAAS Inhibitors

RAAS inhibitor therapy is a particularly important treatment option in patients with CKD and HF. RAAS inhibitors are a first line treatment for hypertension and to delay CKD progression under widely accepted treatment guidelines such as the National Kidney Foundation’s Kidney Disease Outcomes Quality Initiative, or KDOQI, and the American College of Cardiology and the American Heart Association, or ACC/AHA, and are recommended in the majority of patients with CKD and/or HF. RAAS inhibitors have been shown through outcomes studies to preserve kidney function and delay the time to ESRD in CKD patients and decrease all-cause mortality in HF patients. In particular, a study published in a 2001 article in the New England Journal of Medicine of type 2 diabetic patients administered the RAAS inhibitor losartan showed a 28% reduction in progression to ESRD, after an average follow up of 3.4 years, corresponding to an approximate 2 year delay to ESRD. However, the adoption of these treatments has been limited in many cases by hyperkalemia.

In HF management, hyperkalemia also prevents usage of medications that have proven, major clinical benefit. A subset of RAAS inhibitors called aldosterone antagonists, or AAs, which includes both spironolactone and eplerenone, when added to standard HF therapy provide significantly improved cardiac outcomes in patients with class 3 and 4 HF. Both morbidity and mortality is improved with the use of AAs and they have been shown to work in the post myocardial infarction setting. In the widely cited RALES study published in the New England Journal of Medicine in 1999, severe HF patients receiving a daily 25 mg dose of spironolactone were found to have a 30% reduction in the risk of death and a 35% reduction in frequency of hospitalization for worsening heart failure, in each case, as compared to patients administered placebo over a 24-month period. The 2004 New England Journal of

 

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Medicine article also describes the increased use of spironolactone, as well as significant increases in hospitalization for hyperkalemia and mortality. The HF patients most at risk for hyperkalemic complications are those with impaired renal function.

Physicians have indicated that they are caught in the dilemma of choosing to treat their HF and CKD patients with RAAS inhibitors, thereby running the risk of inducing a life-threatening hyperkalemic state or avoiding these drugs and depriving patients of the morbidity and mortality benefits RAAS inhibitors confer. To manage this dilemma, both HF and CKD guidelines developed by expert clinicians, as well as the drug labels, advise dose reduction or discontinuation of the RAAS inhibitors if a patient develops hyperkalemia. These dose modifications may limit the use of these important medications and could potentially reduce the number of patients who can benefit from them. In many cases, just the risk that hyperkalemia might develop prevents physicians from prescribing RAAS inhibitors for patients that could likely benefit from their use.

We believe hyperkalemia is the leading factor in decisions by physicians to avoid use of RAAS inhibitor therapy or to limit the dosage of RAAS inhibitor medication to a sub-optimal level. Based on our market research, we believe that the majority of patients seen by a nephrologist or cardiologist in the U.S. for whom a RAAS inhibitor is indicated are not receiving any RAAS inhibitor therapy or are receiving sub-optimal doses of RAAS inhibitor therapy.

 

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The table below outlines selected hyperkalemia statements and warnings on the labels of certain well-known RAAS inhibitors:

 

RAAS Product    2012 U.S.
Retail Total
Prescriptions
   Selected FDA Labeled Hyperkalemia Statements or Warnings

Aldosterone Antagonists (AAs)

     
Spironolactone    11.3 million    Aldactone® Label: Hyperkalemia may be fatal. It is critical to monitor and manage serum potassium in patients with severe heart failure receiving Aldactone. Discontinue or interrupt treatment for serum potassium greater than 5 mEq/L.
   
Eplerenone    0.3 million    Inspra® Label: Serum potassium should be measured before initiating Inspra therapy, within the first week, and at one month after the start of treatment or dose adjustment. Serum potassium should be assessed periodically thereafter. Decrease treatment if serum potassium is 5.5 to 5.9 mEq/L. Withhold treatment if serum potassium is greater than or equal to 6.0 mEq/L.

Angiotensin-Converting-Enzyme Inhibitors (ACE Inhibitors)

   

 

Enalapril

  

 

11.2 million

   Vasotec®/Accupril® Label: Risk factors for the development of hyperkalemia include renal insufficiency, diabetes mellitus, and the concomitant use of potassium-sparing diuretics1, potassium supplements and/or potassium-containing salt substitutes, which should be used cautiously, if at all, with Vasotec/Accupril.
Quinapril

 

  

4.2 million

 

  

Angiotensin Receptor Blockers (ARBs)

   
Irbesartan    3.0 million    Avapro® Label: In one study of 1,715 patients with type 2 diabetes, hypertension and nephropathy, the percent of patients with hyperkalemia (serum potassium greater than 6 mEq/L) was 18.6% in the Avapro group versus 6.0% in the placebo group.
   
Telmisartan    1.8 million    Micardis® Label: Hyperkalemia may occur in patients on ARBs, particularly in patients with advanced renal impairment, heart failure, on renal replacement therapy, or on potassium supplements, potassium-sparing diuretics1, potassium-containing salt substitutes or other drugs that increase potassium levels. Consider periodic determinations of serum electrolytes, particularly in patients at risk.
   
Losartan    27.1 million    Cozaar® Label: Electrolyte imbalances are common in patients with renal impairment, with or without diabetes, and should be addressed. In a clinical study conducted in type 2 diabetic patients with proteinuria, the incidence of hyperkalemia was higher in the group treated with losartan potassium tablets as compared to the placebo group; however, few patients discontinued therapy due to hyperkalemia.

 

(1) Examples of potassium-sparing diuretics include spironolactone and eplerenone.

 

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Limitations of Current Treatment Options for Hyperkalemia

In the United States, current treatment options for the chronic management of hyperkalemia are limited. These options include dietary potassium restriction, potassium-wasting diuretics or SPS. Dietary potassium restriction is difficult due to the ubiquitous presence of potassium in foods. Because fat, carbohydrates (in diabetics), sodium and phosphorus tend to be restricted in CKD patients, the addition of a potassium restriction severely limits food options for these patients, which results in significant patient compliance issues. Diuretics, a mainstay for managing sodium, water balance and hypertension, are highly efficient at removing potassium in patients with normal renal function; however, the effectiveness of these drugs is greatly diminished in patients with CKD. SPS drugs are currently the only drugs approved by the FDA for the treatment of hyperkalemia; however, their product labeling calls attention to serious and potentially fatal GI effects.

SPS’ product labeling includes warnings of serious and potentially fatal GI side effects, such as intestinal necrosis and GI bleeding and perforation. Certain publications in the medical and scientific literature indicate that SPS may not adequately lower serum potassium levels unless administered with sufficient amounts of sorbitol to induce diarrhea. However, SPS’ product labeling warns against concurrent use of sorbitol due to the increased risk of these serious GI side effects. Furthermore, intestinal re-absorption of sodium during SPS treatment can aggravate hypertension and fluid retention.

The discontinuation or reduction in the dose of RAAS inhibitors, which are indicated for renal and cardiovascular outcome benefits in CKD and HF patients, is common for patients who show abnormally elevated serum potassium levels.

Key Properties of Patiromer

Patiromer is a non-absorbed, potassium-binding polymer being developed for the treatment of hyperkalemia. Patiromer is formulated as a dry, odorless powder that is filled into packets, a well-established configuration for the dosing of polymer drugs, and is easily suspendable in small amounts of water. Patiromer is designed for the binding and removal of potassium from the GI tract, particularly the colon. We are developing patiromer to be administered orally twice a day at daily doses ranging from 8.4 grams to 50.4 grams, with the starting doses for the Phase 3 program at 8.4 grams/day for patients with a serum potassium level at baseline in the range of 5.1 to 5.5 mEq/L and 16.8 grams/day for patients with a serum potassium level at baseline above 5.5 mEq/L.

 

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We have designed patiromer to efficiently bind and remove potassium secreted into the colonic lumen to reduce serum potassium levels, thereby treating hyperkalemia. Patiromer is insoluble in typical solvents and passes through the GI tract without degradation. Based on in vitro studies, patiromer has approximately twice the total potassium binding capacity of SPS. Unlike SPS, the exchange cation for patiromer is not sodium, thereby removing risks related to fluid retention or hypertension caused by sodium. Moreover, patiromer does not require co-administration with a laxative, which may lead to better GI tolerability compared to SPS. The following graphic illustrates the binding and removal of potassium by patiromer as well as compromised renal function, shown as a reduced glomerular filtration rate, or GFR, along with RAAS inhibitor therapy, which can trigger hyperkalemia:

 

LOGO

Patiromer is substantially in a spherical bead form, having an average diameter of about 100 micrometers, which is too large to be absorbed into the body. As a bead, patiromer has good bulk flow properties, with a lower viscosity and higher yield stress than polymeric drugs that are made as a bulk to be ground into a powder, such as SPS. We believe the flow properties of patiromer lead to fewer GI tract adverse events.

Patiromer Clinical Development Program

We have conducted a robust clinical development program, in which daily administration of patiromer has been observed by us to lower, and maintain control of, serum potassium levels while maintaining an acceptable tolerability profile. Top line data from the first part, Part A, of our pivotal Phase 3 trial showed clinically meaningful reductions in serum potassium that were statistically significant, with 76% of subjects having their serum potassium in the normal range at week 4. In addition, statistically significant top line data from the second part of the trial, Part B, showed that when patiromer was withdrawn after having controlled serum potassium in Part A, significantly more placebo subjects than patiromer subjects developed recurrent hyperkalemia.

 

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We believe that the positive results from both parts of the trial demonstrate that patiromer is an effective treatment for hyperkalemia and reduces the recurrence of hyperkalemia, thereby supporting chronic dosing in order to maintain serum potassium levels in the normal range. These positive Phase 3 results are supported by top line results from the 52-week Phase 2b trial which also demonstrated statistically significant and clinically meaningful reductions in serum potassium at 4 weeks, with 86% to 90% of subjects having their serum potassium in the normal range at 52 weeks, demonstrating the ability of patiromer to control serum potassium over the long term.

Our pivotal Phase 3 trial was conducted under an SPA and was comprised of two parts: an open-label treatment phase (Part A) and a placebo-controlled, randomized withdrawal phase (Part B). As part of the SPA, each part of the trial is intended to serve as one of two pivotal trials required for NDA submission. Part A, which met both its primary and secondary efficacy endpoints, with the results being both statistically significant and clinically meaningful, was designed to assess the safety and efficacy of patiromer in the treatment of hyperkalemia and Part B, which also met both the primary and secondary efficacy endpoints, was designed to assess what happens after hyperkalemia is brought under control, and treatment with patiromer is subsequently removed.

Clinical Program Overview

The table below summarizes our clinical development program for patiromer, which began with two Phase 1 studies in healthy volunteers. Following the first two Phase 1 studies, a Phase 2a proof-of-concept study was performed in hemodialysis subjects to assess the ability of patiromer to lower serum potassium levels. We then continued the Phase 2 program with two prevention-of-hyperkalemia studies in HF subjects both with and without CKD. In the prevention trials, normokalemic subjects were given patiromer together with a RAAS inhibitor with the objective of demonstrating that patiromer prevents hyperkalemia from developing when co-administered with a RAAS inhibitor. Following the prevention studies, a long-term Phase 2b treatment-of-hyperkalemia trial was completed in CKD subjects. In this 52-week treatment trial, subjects with hyperkalemia were treated with patiromer to reduce their serum potassium levels into the normal range. We have also completed a two-part pivotal Phase 3 trial under an SPA and are conducting a final Phase 1 trial to determine the time to onset of action of patiromer.

The indication we plan to seek approval for is the treatment of hyperkalemia. The NDA will include the pivotal Phase 3 trial (RLY5016-301), the long-term Phase 2b treatment trial (RLY5016-205) and the Phase 1 onset-of-action trial (RLY5016-103), together with our five completed Phase 1 and Phase 2 trials.

 

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Patiromer Clinical Development
         
Trial  

Subjects
(active/

placebo)

  Objectives   Status   Selected Results
 

  Phase 1 Trials

RLY5016-101

  33 (25/8)   Safety and tolerability of single and multiple doses of patiromer. Effects on urinary and fecal potassium excretion.   Completed  

•   Significant dose-dependent increase in fecal potassium excretion at doses of 15–60 grams/day compared with placebo.

•   Corresponding decrease in urinary potassium excretion.

•   Well-tolerated.

RLY5016-102

  12 (12/0)   Pharmacological activity/safety of TID, BID and QD dosing of patiromer.   Completed  

•   Significant increase in fecal potassium excretion and a concomitant decrease in urinary potassium excretion across the QD/BID/TID dosing regimen.

RLY5016-103

  15 (15/0)   Time to onset of potassium-lowering action in subjects with CKD and hyperkalemia.   Ongoing  

•   Results expected first half of 2014.

 

  Phase 2a Proof-of-Concept Trial

RLY5016-201

  6 (6/0)   Efficacy/safety of a fixed-dose of patiromer in subjects with hyperkalemia despite receiving hemodialysis 3 times weekly.   Completed  

•   Patiromer was pharmacologically active in reducing serum potassium levels and was well-tolerated.

 

  Phase 2 Prevention Trials

RLY5016-202 (PEARL-HF)   105 (56/49)   Efficacy/safety in preventing hyperkalemia in HF patients on a RAAS inhibitor.   Completed  

•   Statistically significant difference in mean serum potassium levels for those subjects on patiromer versus placebo.

•   Patiromer reduced incidence of hyperkalemia.

•   A significantly greater percentage of HF subjects on patiromer were able to increase the dose of the spironolactone compared to subjects on placebo.

RLY5016-204   63 (63/0)   Efficacy/safety of a titration regimen in preventing hyperkalemia in subjects with HF and CKD on a RAAS inhibitor.   Completed  

•   When titrated, patiromer provided reliable control of serum potassium levels in over 90% of subjects.

 

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Patiromer Clinical Development
         
Trial  

Subjects
(active/

placebo)

  Objectives   Status   Selected Results
 

  Phase 2b Treatment Trial

RLY5016-205

(AMETHYST-DN)

  306 (306/0)  

•    Efficacy/safety in treating hyperkalemia in CKD patients.

•    Determination of starting dose.

•    Long-term safety in chronic treatment.

 

Completed

 

Treatment Initiation Period:

•    Met primary endpoint, statistically significant reduction in mean serum potassium at week 4.

Long-term Maintenance Period:

•    Significant majority of subjects in normal range at 52 weeks.

     

  Pivotal Phase 3 Trial

       
RY5016-301  

Part A: 243/0

 

Part B:

107 (55/52)

 

Part A:

 

To evaluate the efficacy and safety of patiromer for the treatment of hyperkalemia.

 

Part B:

 

•    To evaluate the effect of withdrawing patiromer on control of serum potassium levels.

•    To assess whether chronic treatment with patiromer prevents the recurrence of hyperkalemia.

•    To provide placebo-controlled safety data.

 

Completed

 

Part A:

 

•    Met primary endpoint: statistically significant reduction in mean serum potassium at week 4.

 

Part B:

 

•    Met primary endpoint: Statistically significant difference between patiromer and placebo in the change from baseline in serum potassium.

•    Met secondary endpoints: Significantly higher recurrence of hyperkalemia, after being controlled in Part A, in placebo as compared to patiromer.

Patiromer is currently administered according to the amount of polymer anion, which is the active form. Prior to our pivotal Phase 3 trial, we utilized a different nomenclature describing the dosing of subjects based on the amount of polymer anion plus calcium. Accordingly, an 8.4 gram dose of patiromer in the pivotal Phase 3 trial and our ongoing Phase 1 trial is equivalent to a 10 gram dose in our prior clinical trials. References to dosing correspond to the actual dosing regimen utilized in the respective trials.

Safety and tolerability data from those completed trials for which full results are available indicate that patiromer appears to be safe and well-tolerated. Adverse events potentially related to patiromer for which full results are available have primarily been mild-to-moderate GI symptoms in approximately 20% of subjects, the most common of which were constipation or diarrhea in approximately 5-10% of subjects. In addition, small reductions in serum magnesium levels were seen within the first two weeks of treatment, which remained stable thereafter, and without symptoms being observed. All serious adverse events reported thus far have been assessed as unrelated to patiromer by the study investigators and by us.

Phase 1 Trials

 

   

RLY5016-101 (completed):    In this first trial, healthy volunteers received either a fixed dose of patiromer or placebo. The primary trial objective was to assess the safety and tolerability

 

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of single and multiple doses of patiromer. The secondary objective was to assess the effects of patiromer on urinary and fecal potassium excretion. This trial demonstrated that administration of patiromer resulted in a significant, dose-dependent, increase in fecal potassium excretion at doses of 15 to 60 grams/day compared with placebo, with a corresponding decrease in urinary potassium excretion. As expected for individuals with normal renal function, there was no change in serum potassium levels. This was the first study of patiromer to be conducted in humans. These dose responsive increases in fecal potassium and decreases in urinary potassium excretion provided a clear indication for the first time that patiromer was pharmacologically active. Single and multiple dose (up to three times a day) administration of patiromer was well-tolerated.

 

   

RLY5016-102 (completed):    In this second completed Phase 1 trial, healthy volunteers were administered a daily dose of 30 grams of patiromer, either once a day (QD), twice a day (BID) or three times a day (TID), in order to assess the pharmacologic effects of different dosing regimens of patiromer on fecal and urinary potassium excretion. The results demonstrated a significant increase in fecal potassium excretion and a concomitant decrease in urinary potassium excretion across the QD/BID/TID dosing regimens, indicating these are appropriate dosing intervals for administration of patiromer. Patiromer was well tolerated by all subjects.

 

   

RLY5016-103 (ongoing):    This third Phase 1 trial is an open-label, single arm trial designed to evaluate the time to onset of the potassium lowering action of patiromer in subjects with CKD and hyperkalemia. The trial design includes a 48-hour treatment period and a 7-day post-treatment visit for adverse event collection and measurement of serum potassium levels. Approximately 15 subjects will be enrolled. The change from baseline in serum potassium levels will be assessed at 48 hours and at earlier time points to determine when the onset of potassium-lowering action occurs.

Phase 2a Proof-of-Concept Trial

 

   

RLY5016-201 (completed):    This proof-of-concept trial was an open-label, multiple-dose trial in 6 hemodialysis subjects with serum potassium levels greater than or equal to 5.5 mEq/L despite receiving hemodialysis 3 times weekly. This was the first trial to be conducted after the completion of the initial Phase 1 trial in healthy volunteers, and showed that patiromer was pharmacologically active and was well tolerated in patients with impaired renal function.

Phase 2 Prevention Trials

 

   

RLY5016-202 (PEARL-HF) (completed):    This was a placebo controlled prevention trial in normokalemic subjects with HF with or without CKD. The objective of the trial was to demonstrate that, compared to placebo, a fixed daily dose of 30 grams of patiromer would prevent more subjects from developing hyperkalemia despite the use of higher doses of a RAAS inhibitor, specifically, the aldosterone antagonist, spironolactone. Entry criteria included a requirement that subjects have a normal serum potassium level at screening and baseline and that subjects either had an estimated GFR less than 60 mL/minute, the onset of Stage 3 CKD, and/or had a history of hyperkalemia that led to discontinuation of a RAAS inhibitor or beta-blocker therapy. Randomized subjects were treated for four weeks. In the trial, the fixed dose of patiromer compared with placebo significantly reduced mean serum potassium levels within 48 hours, prevented hyperkalemia, and allowed a significantly greater percentage of HF subjects to increase the dose of spironolactone. The statistically significant

 

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difference between groups in serum potassium level was sustained throughout the trial despite the fact that subjects treated with patiromer received a higher mean dose of spironolactone compared with placebo. Spironolactone doses were able to be increased in significantly more patiromer-treated subjects than placebo: 91% vs. 74%, respectively (p=0.019).

The incidence of adverse events was higher in patiromer-treated subjects than in placebo-treated patients, the majority of which were GI symptoms. Adverse events were generally mild or moderate with one subject reporting severe flatulence. Serious adverse events were reported in 4 subjects, 2 in each treatment group, and all such events were assessed by the study investigators and by us as not related to the study drug. In general, there were no clinically meaningful treatment-related changes in most laboratory parameters. Hypokalemia (defined in this trial as a serum potassium level less than 3.5 mEq/L) occurred in 4 subjects (7%), none of whom had any complications related to hypokalemia. In addition to changes in serum potassium levels described earlier, there was a small decrease in the average serum magnesium levels in the patiromer group which was statistically different to the mean change from baseline in the placebo group. No potentially serious complications associated with low magnesium levels were reported by subjects in the trial.

 

   

RLY5016-204 (completed):    The next Phase 2 prevention trial was designed to assess whether, in a similar population to the PEARL-HF study, initiating patiromer at a lower dose followed by a dose titration regimen, or varying of the dosage of patiromer required for maintaining serum potassium in the normal range, would lower the incidence of hypokalemia while still preventing hyperkalemia in subjects starting on the RAAS inhibitor, spironolactone. In this trial, all subjects had to have both HF and CKD. The results showed that at the end of 8 weeks, 91% of subjects had serum potassium levels in the range of 3.5 to 5.5 mEq/L and 84% had serum potassium levels in the range of 4.0 to 5.1 mEq/L. Using this improved dosing regimen, only 1 of 63 subjects (1.6%) developed hypokalemia. Fifty-seven percent of subjects reported at least one adverse event, with GI adverse events being the most frequently reported. Adverse events were mostly mild-to-moderate. Serious adverse events were reported in 10% of subjects and all such events were assessed by the study investigators as not related to the trial.

 

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Phase 2b Treatment Trial

 

   

RLY5016-205 (AMETHYST-DN) (completed):    This was an open-label, randomized, dose ranging trial to determine the optimal starting dose, efficacy and safety of patiromer in treating hyperkalemia. The trial enrolled 306 subjects and had two treatment periods with the following design:

LOGO

In the 8-week Treatment Initiation Phase, subjects were eligible for enrollment in the trial if they had CKD and T2DM and were taking a RAAS inhibitor prior to screening. The subjects were assigned to stratum 1 (subjects with baseline serum potassium levels above 5.0 to 5.5 mEq/L) or stratum 2 (subjects with baseline serum potassium levels above 5.5 to less than 6.0 mEq/L) and given one of three different starting doses of patiromer depending on the stratum. All subjects were titrated to an individual patiromer dose based on their serum potassium levels. All subjects were eligible to continue into the 44-week Long-term Maintenance Phase and continued to receive patiromer, so that subjects were on patiromer for up to one year. Of the 306 subjects enrolled in the study, approximately 64% of subjects completed one year of treatment.

The primary efficacy endpoint for the Treatment Initiation Phase was the mean change from baseline in serum potassium levels at week 4 or at the time of the first patiromer dose titration if earlier. To select the starting doses for our pivotal Phase 3 trial, a dose finding interim data analysis was performed based on a pre-specified sample size of approximately 120 subjects who had completed the initial treatment period of the first 8 weeks of treatment. For the primary endpoint, each dose group in each stratum demonstrated statistically significant and clinically meaningful reductions in serum potassium levels, although there was no clear starting dose-dependent effect for most parameters. In the absence of a clear starting dose-dependent response to patiromer, we determined that the lowest effective dose tested was the appropriate starting dose for the Phase 3 trial. Based on the interim data, the starting doses selected for the Phase 3 program were 8.4 grams/day for subjects having a serum potassium level at baseline in the range of 5.1 to 5.5 mEq/L and 16.8 grams/day for patients having a serum potassium level at baseline above 5.5 mEq/L. In this dose finding interim analysis, the number of titrations was

 

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acceptable in each of the proposed starting doses, with most titrations occurring in the first two weeks.

Top line results for the Treatment Initiation Period show that patiromer as a treatment for hyperkalemia met the primary efficacy endpoint of the trial. Additionally, results from the Long-Term Maintenance Period demonstrated that patiromer maintained mean serum potassium within the normal range for up to one year, supporting persistence of the potassium lowering effect of patiromer over time. These clinically meaningful results provide supportive evidence for the efficacy, safety and tolerability of patiromer as a treatment for hyperkalemia when dosed twice daily over the long term.

Phase 2b Trial - Treatment Initiation Period

 

LOGO

As shown in the graph above, in the Treatment Initiation Period, the primary endpoint was met with a statistically significant mean change in serum potassium from baseline to week 4 or time of first dose titration irrespective of the subjects’ serum potassium at baseline. For subjects with a baseline serum potassium above 5.0 to 5.5 mEq/L, the change from baseline in serum potassium was -0.47 mEq/L (95% CI -0.55, -0.40; p < 0.001). For subjects with a baseline serum potassium 5.5 to less than 6.0 mEq/L, the change from baseline in serum potassium was -0.92 mEq/L (95% CI -1.07, -0.78; p < 0.001). During the Treatment Initiation Period, statistically significant reductions from baseline in serum potassium were observed in each stratum at each study visit, including the first post baseline study visit two days after initiating treatment with patiromer.

 

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Throughout the 44-week Long-Term Maintenance Period (following the 8-week Treatment Initiation Period), the mean serum potassium in both Stratum 1 and Stratum 2 remained in the target serum potassium range (3.8 to 5.0 mEq/L), as shown in the graph below. At week 52, the proportion of patients with a serum potassium in the target range was 85.5% in Stratum 1 (95% CI 78.7%, 90.8%) and 89.8% in Stratum 2 (95% CI 77.8%, 96.6%). Full data from the trial will be received throughout the fourth quarter of 2013.

Phase 2b Trial - One Year Efficacy Results

 

LOGO

Patiromer was well tolerated in this trial when dosed twice daily for up to one year. The most common adverse events were mild to moderate gastrointestinal symptoms, with constipation and diarrhea reported in 5-10% of patients. The incidence of gastrointestinal adverse events did not increase over time with chronic dosing. Mild to moderate hypomagnesemia was reported in less than 10% of patients. There were no reports of severe hypomagnesemia. Other common adverse events reported in less than 10% of patients included hypertension and worsening of the underlying chronic renal failure. Serious adverse events were reported in 15% of patients, and all such events were assessed by the trial investigators and us as not related to patiromer.

 

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Pivotal Phase 3 Trial

 

   

RLY5016-301 (completed):    The two-part pivotal Phase 3 trial was conducted under an SPA agreed upon with the FDA. The trial was designed with two parts, with each part serving as a pivotal trial:

 

LOGO

Part A was a 4-week, single arm, single-blind, patiromer treatment phase and Part B was an 8-week, parallel group, single-blind placebo-controlled randomized withdrawal phase. Subjects were enrolled into Part A and were placed in Dose Group 1 if their screening serum potassium was equal to 5.1 to less than 5.5 mEq/L (starting dose 8.4 g/day), or in Dose Group 2 if their screening serum potassium was 5.5 to less than 6.5 mEq/L (starting dose 16.8 g/day). All subjects were titrated to an individual patiromer dose based on their serum potassium levels in order to achieve a serum potassium in the 3.8 to less than 5.1 mEq/L range. Subjects with a Part A baseline serum potassium level greater than or equal to 5.5 mEq/L and who were defined as responders at the end of Part A were eligible for randomization into Part B.

Part A was designed to demonstrate the safety and efficacy of patiromer in the treatment of hyperkalemia. Given that all subjects entering Part A of the trial were hyperkalemic at study entry, it was deemed unethical and unsafe to use a placebo control arm in this part of the trial. The primary endpoint for Part A was the change from baseline to week 4 in mean serum potassium levels. A target reduction in serum potassium level of at least 0.7 mEq/L (p < 0.05) for the Part A primary endpoint was agreed to with the FDA. Part A of the trial achieved both the primary and secondary efficacy endpoints. As shown in the graph below, the change in serum potassium from baseline to week 4 was a reduction of 1.01 mEq/L (95% confidence interval -1.07, -0.95), p < 0.001, which is statistically significant. Looking at the reduction in serum potassium by dose group, in Dose Group 1 the reduction in serum

 

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potassium was 0.65 mEq/L (95% confidence interval of -0.74, -0.55) and in Dose Group 2 was 1.23 mEq/L (95% confidence interval of -1.31, -1.16), both of which are statistically significant. For the secondary endpoint of Part A, the proportion of subjects with a serum potassium in the target range of 3.8 to < 5.1 mEq/L at week 4, 76% of subjects had their serum potassium in the normal range at week 4 (95% CI 70, 81), which is statistically significant.

Pivotal Phase 3 Trial - Part A Results

 

 

LOGO

Adverse events were reported by 44% of subjects in Part A. The most common adverse events during Part A were mild to moderate gastrointestinal symptoms (19% of subjects), with mild to moderate constipation reported the most frequently (10% of subjects). Diarrhea and nausea were reported infrequently (3%). There were no reports of severe gastrointestinal events. Although mean serum magnesium levels remained in the normal range, 3% of subjects developed physician-reported hypomagnesemia. The lowest level of serum magnesium reported was 1.2 mg/dL, which is classified as Grade 1 by the Common Terminology Criteria for Adverse Events. Other adverse events which occurred in 2% or greater of subjects in Part A included anemia, left ventricular hypertrophy, chronic renal failure, dyslipidemia, flatulence, decreased glomerular filtration rate and hyperglycemia, each of which occurred in between 2% and 2.5% of subjects in Part A. There were four serious adverse events, or SAEs, reported in Part A of the trial. All were assessed as unrelated to patiromer by the study investigator and by us. The four events each resulted in hospitalization and included: paroxysmal atrial fibrillation with tachyarrhythmia; a urinary tract infection with bacteremia and sub-therapeutic anticoagulant blood levels, and in the same subject, after study discontinuation, endocarditis; and worsening renal function.

 

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Part B was designed to demonstrate that chronic administration with patiromer reduces the recurrence of hyperkalemia. Subjects with a baseline serum potassium level greater than or equal to 5.5 mEq/L at Part A enrollment and whose serum potassium level was controlled at week 4 of Part A were entered into Part B in order to maximize the ability of the trial to capture the full treatment effect of patiromer in treating hyperkalemia. The rationale for the use of a placebo control in this part of the trial was to provide a comparator for safety data evaluation and continued control of serum potassium level. Since subjects’ serum potassium levels were controlled upon randomization into Part B, use of a placebo control arm was ethical. The primary endpoint for the Part B trial is the difference between the patiromer and placebo groups in the change in serum potassium levels (p < 0.05). This change in serum potassium level was assessed by measuring the difference in potassium values measured at the start of the Part B period and at week 4 of the Part B period or earlier if changes to patiromer or RAAS inhibitor therapy was required to control rising serum potassium levels. If subjects developed recurrent hyperkalemia, defined as a serum potassium greater than or equal to 5.5 mEq/L during the first four weeks of Part B, then those randomized to patiromer increased the patiromer dose while those randomized to placebo decreased the RAAS inhibitor dose. If subjects developed recurrent hyperkalemia, defined as a serum potassium greater than or equal to 5.1 mEq/L during the second four weeks of Part B, then those randomized to patiromer increased the patiromer dose while those randomized to placebo decreased the RAAS inhibitor dose. Throughout the 8 weeks of Part B, if the patiromer dose increase or the RAAS inhibitor dose decrease did not control the recurrent hyperkalemia, then the RAAS inhibitor therapy was withdrawn. As shown in the graph below, Part B of the trial met this primary endpoint, with the difference between the placebo and the patiromer groups in the median change from Part B baseline in serum potassium equal to 0.72 mEq/L (95% CI 0.46, 0.97), p < 0.001.

Pivotal Phase 3 Trial - Part B Results

 

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  * Or earlier time point if subject first had serum potassium < 3.8 mEq/L or ³ 5.5 mEq/L

 

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Differences between patiromer and placebo groups for the Part B secondary endpoints, the proportion of subjects who developed recurrent hyperkalemia, were also significant. The two secondary endpoints evaluated in Part B were the proportion of subjects in each group who developed recurrent hyperkalemia (defined as having a serum potassium ³ 5.1 mEq/L and ³ 5.5 mEq/L) after having been controlled on patiromer in Part A. More placebo subjects (91%) developed recurrent hyperkalemia with a serum potassium ³ 5.1 mEq/L at any time during Part B than patiromer subjects (43%). This difference between groups of 48% (95% CI 33, 63) was statistically significant, p < 0.001. Also more placebo subjects (60%) developed recurrent hyperkalemia with a serum potassium ³ 5.5 mEq/L at any time during Part B than patiromer subjects (15%). This difference between groups of 45% (95% CI 29, 61) was also statistically significant, p < 0.001. Full data from the trial will be received throughout the fourth quarter of 2013.

 

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LOGO

The time to event curves above illustrate the cumulative proportion of subjects who develop a recurrent hyperkalemic event at any time by treatment group during Part B of the study. More placebo subjects developed recurrent hyperkalemia than patiromer subjects, and this occurred earlier and more rapidly in the placebo group compared to the patiromer group.

During Part B, a similar proportion of placebo (46%) and patiromer (47%) subjects reported at least one adverse event. More subjects in the patiromer group (13%) reported gastrointestinal adverse events than in the placebo group (6%). Constipation, diarrhea and nausea were each reported in 4% of patiromer subjects, with no placebo subjects reporting these symptoms. There were no severe gastrointestinal adverse events reported in the patiromer group, with one severe gastrointestinal event reported in the placebo group (mesenteric artery thrombosis as discussed below). Although mean serum magnesium levels remained in the normal range throughout Part B of the study, 2% of subjects in each group developed physician-reported hypomagnesemia, with no severe cases of hypomagneseia reported. The frequency of other commonly reported adverse events in the patiromer group were either similar to, or less than, the placebo group. Other adverse events which occurred in 2% or greater of subjects in Part B included headaches (8% placebo group; 4% patiromer group), increased hepatic enzyme (4% placebo group; 2% patiromer group), hyperkalemia (4% placebo group; 2% patiromer group), influenza (4% placebo group; 2% patiromer group), supraventricular extrasystoles (2% placebo group; 4% patiromer group), upper abdominal pain (2% placebo group; 2% patiromer group), insomnia (2% placebo group; 2% patiromer group), pruritus (2% placebo group; 2% patiromer group) and chronic renal failure (2% placebo group; 2% patiromer group). 4% of patients in the placebo group experienced hypertension or hypercholesterolemia compared to none in the patiromer group. There was

 

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one SAE reported in Part B of the trial, which was assessed as unrelated to patiromer by the study investigator and by us. This was a placebo subject who developed fatal mesenteric artery and gallbladder artery thrombosis. Full data from the trial will be received throughout the fourth quarter of 2013.

The positive results from both parts of the trial indicate that patiromer is an effective treatment for hyperkalemia.

The population enrolled into the pivotal Phase 3 trial was substantially the same as that studied in the Phase 2b trial and the trial designs for the first parts of each trial are substantially similar as well. Patients were eligible for enrollment if they had CKD stage 3 or 4, were hyperkalemic and were being treated with at least one RAAS inhibitor. The design of Part A of the pivotal Phase 3 trial is substantially similar to the design of the Treatment Initiation Phase of the Phase 2b treatment trial. The primary difference between the studies lies in the second parts of the trials: in the pivotal Phase 3 trial subjects were randomized to either placebo or patiromer whereas in the Phase 2b trial, in the Long-term Maintenance Phase all subjects automatically continued on patiromer in a 44-week long-term maintenance phase to generate long-term safety data. Both the Phase 2b and Phase 3 trials placed subjects into two groups: one group for mild hyperkalemia and another for moderate-to-severe hyperkalemia. Among the reasons for excluding subjects from the trials were those subjects requiring emergency treatment for hyperkalemia, those on another polymeric binder (such as a phosphate binder or a bile acid sequestrant), those with low serum magnesium at screening or those with unstable cardiovascular disease.

 

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The pivotal Phase 3 trial was conducted world-wide with subjects enrolled in the United States, Italy, Denmark, Ukraine, Hungary, Republic of Georgia, Croatia, Serbia, Slovenia and the Czech Republic. The table below summarizes the study population:

 

      Part A    Part B

Demographics and Baseline Characteristics

    
             

Characteristic

   Mild HK

N=92

   Mod – Severe HK

N=151

   Total

N=243

   Placebo

N=52

   Patiromer

N=55

   Total

N=107

             

Male, n (%)

   49 (53%)    91 (60%)    140 (58%)    30 (58%)    28 (51%)    58 (54%)
             

Age (yr), mean (SD)

   64.6 (11.0)    63.9 (10.2)    64.2 (10.5)    65.0 (9.1)    65.5 (9.4)    65.3 (9.2)
             

Caucasian, n (%)

   88 (96%)    151 (100%)    239 (98%)    52 (100%)    55 (100%)    107 (100%)
             

eGFR (mL/min/1.73 m2), n (%)

                             
             

60 £ to £ 90

   6 (7%)    16 (11%)    22 (9%)    4 (8%)    8 (15%)    12 (11%)
             

45 £ to < 60

   22 (24%)    27 (18%)    49 (20%)    11 (21%)    11 (20%)    22 (21%)
             

30 £ to < 45

   24 (26%)    39 (26%)    63 (26%)    14 (27%)    15 (27%)    29 (27%)
             

< 30

   40 (43%)    69 (46%)    109 (45%)    23 (44%)    21 (38%)    44 (41%)
             

Type 2 diabetes, n (%)

   52 (57%)    87 (58%)    139 (57%)    33 (63%)    34 (62%)    67 (63%)
             

Heart Failure, n (%)

   39 (42%)    63 (42%)    102 (42%)    22 (42%)    27 (49%)    49 (46%)
             

NYHA* Class I, n (%)

   7 (18%)    12 (19%)    19 (19%)    4 (18%)    5 (19%)    9 (18%)
             

NYHA Class II, n (%)

   25 (64%)    41 (65%)    66 (65%)    14 (64%)    18 (67%)    32 (65%)
             

NYHA Class III, n (%)

   7 (18%)    10 (16%)    17 (17%)    4 (18%)    4 (15%)    8 (16%)
             

Myocardial Infarction, n (%)

   19 (21%)    41 (27%)    60 (25%)    14 (27%)    18 (33%)    32 (30%)
             

Hypertension, n (%)

   90 (98%)    146 (97%)    236 (97%)    50 (96%)    54 (98%)    104 (97%)

 

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      Part A    Part B

Baseline RAAS Inhibitor Medications

    
             

Medication

   Mild
HK

N=92

   Mod –Severe HK

N=151

   Total

N=243

   Placebo

N=52

   Patiromer

N=55

   Total

N=107

             

ACE Inhibitor, n (%)

   68 (74%)    102 (68%)    170
(70%)
   38 (73%)    37 (67%)    75 (70%)
             

ARB, n (%)

   33 (36%)    59 (39%)    92
(38%)
   16 (31%)    24 (44%)    40 (37%)
             

AA, n (%)

   11 (12%)    11 (7%)    22
(9%)
   4 (8%)    4 (7%)    8 (7%)
             

Renin Inhibitor, n (%)

   1 (1%)    1 (1%)    2 (1%)    0    0    0
             

Dual RAAS Blockade**

   19 (21%)    22 (15%)    41
(17%)
   6 (12%)    10 (18%)    16 (15%)
             

On maximal dose***

   42 (46%)    64 (42%)    106
(44%)
   N/A    N/A    N/A
             

Not on maximal dose***

   50 (54%)    87 (58%)    137
(56%)
   N/A    N/A    N/A

 

 

** Any combination of two or more of the following: ACE Inhibitor, ARB, AA, Renin Inhibitor.
*** As described by the investigator.

Safety

In our completed trials for which full data are available patiromer was observed to be well tolerated across subject populations, including healthy subjects, hemodialysis patients, HF patients and CKD patients with HF. Adverse events potentially related to patiromer for which full results are available have primarily been mild-to-moderate GI symptoms in approximately 20% of subjects, the most common of which were constipation or diarrhea in approximately 5-10% of subjects. In addition, small reductions in serum magnesium levels were seen within the first two weeks of treatment, which remained stable thereafter, and without symptoms being observed. All serious adverse events reported thus far have been assessed as unrelated to patiromer by the study investigators and by us. No drug-related serious adverse events were reported.

All fatal serious adverse events have been assessed by the study investigators and by us as unrelated to patiromer. Given that hypo- and hyperkalemia can be associated with fatal cardiac arrhythmias, all fatal serious adverse events, and in particular sudden death, occurring in the patiromer clinical development program are being adjudicated by an independent Safety Review Board, or SRB, to determine whether any of these deaths may have been related to changes in serum potassium levels. Determining causality in sudden death or cardiac death due to hyperkalemia or hypokalemia may be difficult however due to lack of a proximate serum potassium measurement relative to the time of death and the underlying high risk of mortality in these subjects. In all of our trials to date, there have been 19 deaths, which is not unexpected in view of the morbidity and mortality for the patient populations in our trials.

For the subject population in our Phase 2b long-term trial and pivotal Phase 3 trials, we have determined that the overall annualized mortality is expected to range from approximately 3% for the lowest risk subjects (e.g., those with CKD stage 3, but without T2DM, HF or prior myocardial infarction) to approximately 19% for the most seriously ill subjects (e.g., those aged 30 to 80 years, with CKD stage 4

 

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or 5 not on dialysis, T2DM, and with HF and a previous myocardial infarction). Comparing these rates with the recruited population in our treatment studies (aged 18 to 80 years with CKD stage 3 to 5, not on dialysis, with T2DM and independent of comorbidities) the overall annualized mortality is expected to be approximately 6% for the subjects in our trials. The mortality rates in the Phase 2b long term safety trial (14 deaths) and in the pivotal Phase 3 trial (1 death, in the placebo group) did not exceed what would be expected for the general population of patients with CKD not on dialysis.

This expected overall annualized mortality range was calculated based on independent retrospective analyses of U.S. patients (with CKD stages 3, 4 and 5 during calendar year 2009 who were not on dialysis) in the MarketScan® Commercial, Medicare and Medicare Supplemental databases. The analyses described the mortality rates by subject age, race, gender and comorbidity such as T2DM, HF and significant history of ischemic heart disease. The analyses excluded the subjects that the Phase 2b and Phase 3 clinical trials exclude (e.g., subjects younger than 30 and older than 80 years of age and subjects with the most severe HF and with cardiovascular events within 2 months of the analysis start date) and consequently reflect expected mortality rates in CKD subjects with similar comorbidity and demographic profiles as those in the studies. Upon completing the full data analyses, we may update the expected mortality estimates if the subjects enrolled in the studies have baseline demographics substantially different from the overall database populations described above (for example different average age, different rates of pre existing HF, etc.).

In addition, we have monitored a number of possible adverse effects related to the use of patiromer, including: low serum potassium levels (hypokalemia), undesired changes in the serum concentration of other cations or molecules, and other clinically meaningful changes to subjects. Among the completed clinical studies for which full data are available hypokalemia, which we define as a serum potassium level less than 3.5 mEq/L, occurred in 3.0-6.0% of all subjects treated with patiromer. Among other molecules and ions, we have evaluated possible changes in serum sodium, serum calcium, serum magnesium, serum phosphorus, and serum fluoride. Our clinical trials for which full data are available have shown no clinically significant effect of patiromer treatment on serum sodium, calcium or phosphorus levels. In some of our trials, we observed a small decrease in mean serum magnesium levels within the first two weeks of treatment with patiromer. Mean serum magnesium levels remained stable after such decrease and throughout the remaining trial treatment periods. In addition, in our completed Phase 2 trials for which full data are available no subjects who began with normal serum magnesium levels developed a serum magnesium level of less than 1.0 mg/dL at any time in the study. No symptoms commonly associated with low magnesium have been reported by subjects in the studies, where full analysis has been completed. While some subjects have developed a small increase in serum fluoride, such levels have not accumulated and we have not observed any acute serum fluoride toxicity symptoms in our completed clinical trials.

Regulatory Pathway

We currently plan to submit an NDA for patiromer for the treatment of hyperkalemia in the third quarter of 2014. The core of the NDA will include the three treatment trials, which are ongoing, namely the long-term treatment Phase 2b trial (RLY5016-205), pivotal Phase 3 trial (RLY5016-301) and a small Phase 1 onset-of-action trial (RLY5016-103). All patients have completed our two-part pivotal Phase 3 trial, which was designed and agreed to by the FDA under an SPA, with positive primary and secondary efficacy endpoint results announced in September 2013 for Part A of this trial and positive primary and secondary efficacy endpoint results from the second part of this trial announced in October 2013. All patients have completed the Phase 2b trial, with interim analysis data

 

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published in November 2012 and final data announced in October 2013. The Phase 1 onset of action trial is expected to be completed in the first half of 2014.

Nonclinical and Toxicology Studies

Nonclinical pharmacology studies have shown that patiromer binds potassium in simple ionic matrices as well as in complex environments, such as ex vivo human colonic and fecal extracts and in vivo animal models. Nonclinical safety data showed that patiromer was not genotoxic and was not associated with adverse effects in cardiovascular, central nervous system, gastrointestinal motility or pulmonary safety pharmacology studies. In addition, using a variety of animal models, patiromer was not absorbed from the intestinal tract. Results of preliminary nonclinical drug-drug interaction studies indicated that patiromer did not interfere with the absorption of common drugs used in our target patient population when evaluated in animal models. We are currently conducting additional non-clinical drug-drug interaction studies. Long-term chronic exposure toxicology studies with patiromer demonstrated that the drug was not associated with adverse effects or abnormal pathology in various animal models using doses up to 15 times the maximum human daily dose.

Commercialization

Patients with CKD stage 3 or 4 and/or HF will often present at a nephrologist or cardiologist for their renal and cardiovascular care. We estimate that there are approximately 7,000 nephrologists in the U.S. that currently treat the CKD population, a subset of which we plan to target based on their prescribing potential for patiromer. We also intend to target 1,000 or fewer of the major centers treating HF in the U.S. If patiromer is approved by the FDA, we plan to hire an approximately 100 person specialty sales force, which we estimate can effectively cover the target nephrologists and cardiologists. In addition to our sales force, our commercial organization will further be supported by a marketing team and an account management team covering managed care customers.

We believe there are opportunities for expanding patiromer usage beyond physician specialists in the U.S., including as follows:

 

   

Treating patients in the United States who are outside of specialty care.    Although our marketing effort will be focused initially on a specialty audience, we are aware that a significant number of patients with hyperkalemia are under the care of primary care physicians.

 

   

Clinical need outside of the United States.    The need for a chronic and better hyperkalemia treatment is not exclusive to the United States. We are currently in the process of evaluating the opportunities for patiromer outside the United States.

We may explore collaborating with one or more partners to commercialize patiromer in these markets.

Third-Party Reimbursement

Sales of pharmaceutical products depend in significant part on the availability of coverage and adequate reimbursement by third-party payors, such as state and federal governments, including Medicare and Medicaid, and commercial managed care providers. Decisions regarding the extent of coverage and amount of reimbursement to be provided for patiromer will be made on a plan by plan basis. We anticipate that a significant proportion of patients eligible for patiromer will be covered by

 

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Medicare. Within the Medicare program, as a self-administered drug, we expect that patiromer will be reimbursed under the expanded prescription drug benefit, known as Medicare Part D.

Competition

We compete in the segments of the pharmaceutical, biotechnology and other related markets that address chronic kidney disease, HF and metabolic diseases. We face significant competition from many pharmaceutical and biotechnology companies that are also researching and selling products designed to address these markets. Many of our competitors have materially greater financial, manufacturing, marketing, research and drug development resources than we do. Large pharmaceutical companies in particular have extensive expertise in preclinical and clinical testing and in obtaining regulatory approvals for drugs. In addition, academic institutions, government agencies, and other public and private organizations conducting research may seek patent protection with respect to potentially competitive products or technologies. These organizations may also establish exclusive collaborative or licensing relationships with our competitors.

In the United States, current treatment options for the chronic management of hyperkalemia are limited. These options include dietary potassium restriction, potassium-wasting diuretics or SPS (e.g., Kayexalate®). Dietary potassium restriction is difficult due to the ubiquitous presence of potassium in foods. Because fat, carbohydrates (in diabetics), sodium and phosphorus tend to be restricted in CKD patients, the addition of a potassium restriction severely limits food options for these patients, which results in significant patient compliance issues. Diuretics, a mainstay for managing sodium, water balance and hypertension, are highly efficient at removing potassium in patients with normal renal function; however, the effectiveness of these drugs is greatly diminished in patients with CKD. SPS’ product labeling includes warnings of serious and potentially fatal gastrointestinal, or GI, side effects, and therefore, we believe that its use as a daily treatment option over the long-term is limited.

Other companies may also develop drugs specifically for the treatment of hyperkalemia. We are currently aware of one other company, ZS Pharma, Inc., which is developing potassium removal medications. We do not know whether these medications will be introduced to the market and if so, the timing or success of such introduction. However, in the event that ZS Pharma, or other companies developing treatment options for hyperkalemia, are successful, we will face additional competition for patiromer.

Manufacturing and Distribution

We contract with third parties for the manufacture of patiromer. We currently have no manufacturing facilities and limited personnel with manufacturing experience. We rely on third-party manufacturers to produce bulk drug substance and drug product. We plan to continue to rely upon contract manufacturers to manufacture commercial quantities of our drug substance and drug product if we receive approval for marketing by the applicable regulatory authorities.

Patiromer, the drug product, is a dry, odorless blend of the polymeric active pharmaceutical ingredient, or API, and a small amount of xanthan gum, an excipient, which acts as a suspending agent. The API is manufactured using a straightforward two-step process. The initial step is a suspension polymerization, a well-established technique that is widely used for the manufacturing of polymers. The second step activates the polymer for binding and creates a calcium sorbitol counterion complex. The API is blended with xanthan gum, the excipient to form a free flowing powder drug product which is filled into packets, a well-established configuration for the dosing of polymer drugs for oral suspension. One starting material for our drug substance is methyl-2-fluoro-acrylate monomer, or MFA, which is

 

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available from multiple suppliers. With Phase 3 starting doses of 8.4 grams/day and 16.8 grams/day and a current dosing range for patiromer of 8.4 grams to 50.4 grams, we plan to secure large quantities, measured in metric tons, of MFA.

We completed manufacturing of registration batches of patiromer at a scale that is about half of the expected commercial scale. Registration batches are being used for our pivotal Phase 3 trial and stability studies, including an ongoing 36 month stability study. We expect that our next manufacturing campaign will involve validation lots at commercial scale. We have completed development of most analytical methods for impurities and commercial release testing, and we are now validating those methods, and we have completed testing for impurities in drug substance registration stability batches and clinical batches using analytical procedures developed in-house, finding that the purity of drug substance is high. We believe the levels of impurities, including the levels of genotoxic and special toxicological concern impurities, are below the suggested guidance recommendations. Control of impurities during API and drug product manufacturing will be confirmed through process validation; we are using the maximum daily dose to establish the allowable levels of genotoxic impurities, impurities of special toxicological concern and residual solvents.

We are engaged with experienced polymeric drug manufacturers to produce patiromer. We currently rely on a single source supplier, Saltigo GmbH, a subsidiary of LANXESS AG as our drug substance manufacturer, which we plan to include as the drug substance manufacturer in our NDA for patiromer. Purchase orders have been issued and accepted under a multi-year commercial supply arrangement to cover our currently projected API demand for the initial time period after patiromer product launch. We plan to procure packaged patiromer drug product from Patheon Inc. on a purchase order basis. We plan to