EDIon of U

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-36352

AKEBIA THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	20-8756903
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
245 First Street, Suite 1100, Cambridge, MA	02142
(Address of Principal Executive Offices)	(Zip Code)

(617) 871-2098

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

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

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at October 31, 2017
Common Stock, $0.00001 par value	47,269,153

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements made with the intention of obtaining the benefits of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report on Form 10-Q, other than statements of historical fact, are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

• the projected timing of (1) our clinical programs for vadadustat, including the release of topline data, (2) submission of marketing applications for vadadustat, and (3) preclinical development of AKB-5169 and other product candidates;

• enrollment in the PRO₂TECT and INNO₂VATE clinical programs;

• our development program for vadadustat, including the FO₂RWARD and TRILO₂GY clinical studies, and for our other product candidates;

• our anticipated funding from our collaborations;

• the timing or likelihood of regulatory filings and approvals, including any labeling or other restrictions;

• our plans to commercialize vadadustat, if it is approved;

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

• our commercialization, marketing and manufacturing capabilities and strategy;

• our competitive position;

• our intellectual property position;

• developments and projections relating to our competitors and our industry;

• our estimates regarding expenses (including those associated with the PRO₂TECT and INNO₂VATE clinical programs), future revenue, capital requirements and needs for additional financing; and

• other risks and uncertainties, including those listed under Part II, Item 1A. Risk Factors.

All forward-looking statements in this Quarterly Report on Form 10-Q involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. Risk Factors and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainty and may prove inaccurate. 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.

Akebia Therapeutics, Inc.

Table of Contents

Part I. Financial Information
Item 1 – Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016	4
Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2017 and 2016	5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016	6
Notes to Condensed Consolidated Financial Statements	7
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3 – Quantitative and Qualitative Disclosures about Market Risk	43
Item 4 – Controls and Procedures	43
Part II. Other Information
Item 1 – Legal Proceedings	43
Item 1A – Risk Factors	44
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	67
Item 3 – Defaults upon Senior Securities	67
Item 4 – Mine Safety Disclosures	67
Item 5 – Other Information	67
Item 6 – Exhibits	68
Signatures	69

PART I—FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

AKEBIA THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)  

	September 30,			December 31,
	2017			2016
Assets
Current assets:
Cash and cash equivalents	$	89,599		$	187,335
Available for sale securities		240,106			73,008
Unbilled receivable		281			33,823
Prepaid expenses and other current assets		3,952			2,155
Total current assets		333,938			296,321
Property and equipment, net		3,364			2,612
Other assets		1,287			1,283
Total assets	$	338,589		$	300,216
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	8,705		$	2,039
Accrued expenses		21,427			30,261
Short-term deferred revenue		121,031			81,968
Short-term deferred rent		194			—
Total current liabilities		151,357			114,268
Deferred rent, net of current portion		2,633			2,480
Deferred revenue, net of current portion		84,701			115,321
Other non-current liabilities		23			27
Total liabilities		238,714			232,096
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock $0.00001 par value, 25,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2017 and December 31, 2016		—			—
Common stock: $0.00001 par value; 175,000,000 shares authorized; 47,238,001 and 38,615,709 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		—			—
Additional paid-in capital		486,386			365,298
Accumulated other comprehensive loss		(181	)		(42	)
Accumulated deficit		(386,330	)		(297,136	)
Total stockholders' equity		99,875			68,120
Total liabilities and stockholders' equity	$	338,589		$	300,216

See accompanying notes to unaudited condensed consolidated financial statements.

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AKEBIA THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Collaboration revenue	$	41,283		$	—		$	90,668		$	—
Operating expenses:
Research and development		58,711			31,238			162,511			82,350
General and administrative		6,748			4,944			19,441			16,066
Total operating expenses		65,459			36,182			181,952			98,416
Operating loss		(24,176	)		(36,182	)		(91,284	)		(98,416	)
Other income (expense):
Interest income		842			219			1,886			722
Other income		200			(345	)		204			(191	)
Net loss	$	(23,134	)	$	(36,308	)	$	(89,194	)	$	(97,885	)
Net loss per share - basic and diluted	$	(0.49	)	$	(0.96	)	$	(2.11	)	$	(2.61	)
Weighted-average number of common shares - basic and diluted		46,938,618			37,897,902			42,202,560			37,528,869
Comprehensive loss:
Net loss	$	(23,134	)	$	(36,308	)	$	(89,194	)	$	(97,885	)
Other comprehensive gain/(loss) - unrealized gain/(loss) on  securities		73			(44	)		(181	)		(7	)
Total comprehensive loss	$	(23,061	)	$	(36,352	)	$	(89,375	)	$	(97,892	)

See accompanying notes to unaudited condensed consolidated financial statements.

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AKEBIA THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	Nine months ended
	September 30, 2017			September 30, 2016
Operating activities:
Net loss	$	(89,194	)	$	(97,885	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		420			172
Amortization of premium/discount on investments		543			399
Loss on disposal of property and equipment		—			306
Stock-based compensation - equity awards		6,674			4,101
Fair value of warrants issued for license		3,413			—
Changes in operating assets and liabilities:
Unbilled receivable		33,542			—
Prepaid expenses and other current assets		(1,797	)		(1,263	)
Other long-term assets		(4	)		—
Accounts payable		6,666			6,196
Accrued expense		(8,834	)		8,017
Deferred revenue		8,443			40,000
Deferred rent		347			2,193
Net cash used in operating activities		(39,781	)		(37,764	)
Investing activities:
Purchase of equipment		(1,172	)		(2,614	)
Proceeds from the maturities of available for sale securities		97,868			125,151
Purchases of available for sale securities		(265,648	)		(132,138	)
Net cash used in investing activities		(168,952	)		(9,601	)
Financing activities:
Proceeds from the issuance of common stock, net of issuance costs		109,541			63,205
Proceeds from the sale of stock under employee stock purchase plan		352			106
Proceeds from the exercise of stock options		1,108			125
Payments on capital lease obligations		(4	)		(19	)
Net cash provided by financing activities		110,997			63,417
(Decrease) increase in cash and cash equivalents		(97,736)			16,052
Cash and cash equivalents at beginning of the period		187,335			49,778
Cash and cash equivalents at end of the period	$	89,599		$	65,830
Non-cash financing activities
Unpaid follow-on offering costs	$	—		$	65

See accompanying notes to unaudited condensed consolidated financial statements

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Akebia Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

September 30, 2017

1. Nature of Organization and Operations

The Company is a biopharmaceutical company focused on developing and delivering novel therapeutics for patients based on hypoxia-inducible factor, or HIF, biology, and building our pipeline while leveraging our development and commercial expertise in renal disease. HIF is the primary regulator of the production of red blood cells, or RBCs, in the body, as well as other important metabolic functions.  Pharmacologic modulation of the HIF pathway may have broad therapeutic applications. The Company’s lead product candidate, vadadustat, is an oral therapy in Phase 3 development, which has the potential to set a new standard of care in the treatment of anemia associated with chronic kidney disease, or CKD. The Company’s management team has extensive experience in developing and commercializing drugs for the treatment of renal and metabolic disorders, as well as a deep understanding of HIF biology. This unique combination of HIF and renal expertise is enabling the Company to advance a pipeline of HIF-based therapies to address serious diseases.

The Company’s operations to date have been limited to organizing and staffing the Company, business planning, raising capital, acquiring and developing its technology, identifying potential product candidates and undertaking preclinical and clinical studies. The Company has not generated any product revenue to date and may never generate any product revenue in the future. The Company’s product candidates are subject to long development cycles and the Company may be unsuccessful in its efforts to develop, obtain regulatory approval for or market its product candidates.

The Company is subject to a number of risks including possible failure of preclinical testing or clinical trials, reliance on contract manufacturing organizations and contract research organizations, the need to obtain marketing approval for its product candidates, the development of new technological innovations by competitors, the need to successfully commercialize and gain market acceptance of any of the Company’s products that are approved and uncertainty around intellectual property matters. If the Company does not successfully commercialize any of its products, it will be unable to generate product revenue or achieve profitability.

The Company believes that its existing cash resources of approximately $329.7 million at September 30, 2017, together with committed funding from its collaboration partners, will be sufficient to allow the Company to fund its current operating plan into the second quarter of 2019, and as a result, through at least twelve months from the filing of the Company’s 2017 third quarter Form 10-Q. There can be no assurance, however, that the current operating plan will be achieved in the time frame anticipated by the Company, or that its cash resources will fund the Company’s operating plan for the period anticipated by the Company or that additional funding will be available on terms acceptable to the Company, or at all. We will require additional capital for the further development of our existing product candidates and will need to raise additional funds sooner to pursue development activities related to additional product candidates. If and until we can generate a sufficient amount of revenue from our products, we expect to finance future cash needs through public or private equity, debt offerings, or strategic transactions.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Akebia Therapeutics Securities Corporation and Akebia Europe Limited.  All intercompany balances and transactions have been eliminated in consolidation.  These condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).  Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB).

In the quarter ended June 30, 2017, we identified and corrected an immaterial error in the amount of research and development expenses related to our global Phase 3 study of vadadustat.  This adjustment also affected the amount of revenue recognized pursuant to our license and collaboration agreements with Otsuka.  The adjustments impacted our results of operations in each quarter of 2016 and the first quarter of 2017.  We concluded the effect of these adjustments was not material to our consolidated financial statements for any prior period.

7

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard-setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.

In May 2014, the FASB issued a new revenue recognition standard which amends revenue recognition principles and provides a single, comprehensive set of criteria for revenue recognition within and across all industries. The new standard provides a five-step framework whereby revenue is recognized when promised goods or services are transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires enhanced disclosures pertaining to revenue recognition in both interim and annual periods. In August 2015, the FASB deferred the effective date of the new revenue standard from January 1, 2017 to January 1, 2018. Early adoption is permitted any time after the original effective date, which for us was January 1, 2017. The Company intends to adopt the new standard on January 1, 2018. The standard allows for adoption using a full retrospective method or a modified retrospective method. The Company’s historical revenue has been derived from its collaboration agreements with Otsuka Pharmaceutical Co. Ltd., or Otsuka. The Company will commence revenue recognition under its collaboration agreement with Mitsubishi Tanabe Pharma Corporation, or MTPC, when it begins to deliver the clinical supply of vadadustat to MTPC which the Company expects to be in the fourth quarter of 2017. These arrangements contain multiple-elements and have been accounted for pursuant to ASC Topic 605‑25, Revenue Recognition Multiple‑Element Arrangements (ASC 605‑25). The new revenue standard provides guidance in assessing what comprises the distinct service being provided to a customer that may have implications to our performance obligations and unit of account identified in our three existing collaborations which could be defined differently under the new guidance. As a result, there could be changes to the timing of revenue recognition upon adoption of the new standard. The Company is currently assessing the impact of the new revenue recognition standard on its collaboration agreements with MTPC and Otsuka and evaluating which method it will adopt.

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment, which is the business of developing and commercializing proprietary therapeutics based on HIF biology.

Derivative Financial Instruments

The Company accounts for warrants and other derivative financial instruments as either equity or liabilities in accordance with ASC Topic 815, Derivatives and Hedging (ASC 815) based upon the characteristics and provisions of each instrument. Warrants classified as equity are recorded at fair value as of the date of issuance on the Company’s consolidated balance sheets and no further adjustments to their valuation are made. Warrants classified as derivative liabilities and other derivative financial instruments that require separate accounting as liabilities are recorded on the Company’s consolidated balance sheets at their fair value on the date of issuance and will be revalued on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting periods recorded as other income or expense.  The warrant issued by the Company in connection with the Janssen Pharmaceutica NV Research and License Agreement, the Janssen Agreement, is classified as equity in the Company’s condensed consolidated balance sheet.  (See Note 7).

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including: expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Estimates are used in the

8

following areas, among others: prepaid and accrued research and development expense, stock-based compensation expense, revenue and income taxes.

Cash and Cash Equivalents

Cash and cash equivalents consist of all cash on hand, deposits and funds invested in available-for-sale securities with original maturities of three months or less at the time of purchase. At September 30, 2017, the Company’s cash is primarily in money market funds. The Company may maintain balances with its banks in excess of federally insured limits.

Investments

Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each balance sheet date. Currently, the Company classifies all securities as available-for-sale which are included in current assets as they are intended to fund current operations. The Company carries available-for-sale securities at fair value. The Company conducts periodic reviews to identify and evaluate each investment that has an unrealized loss, in accordance with the meaning of other-than-temporary impairment and its application to certain investments. When assessing whether a decline in the fair value of a security is other-than-temporary, the Company considers the fair market value of the security, the duration of the security’s decline, and prospects for the underlying business.  Based on these considerations, the Company did not identify any other-than-temporary unrealized losses at September 30, 2017. Unrealized losses on available-for-sale securities that are determined to be temporary, and not related to credit loss, are recorded in accumulated other comprehensive loss, a component of stockholders’ equity. The amortized cost of debt securities in this category reflects amortization of premiums and accretion of discounts to maturity computed under the effective interest method. The Company includes this amortization in the caption “Interest income” within the consolidated statements of operations and comprehensive loss. The Company also includes in net investment income, realized gains and losses and declines in value determined to be other than temporary. The Company bases the cost of securities sold upon the specific identification method, and includes interest and dividends on securities in interest income.

Revenue Recognition

To date, the Company has not generated any revenue from the sales of products. For the foreseeable future, the Company expects substantially all of its revenues will be generated from its collaborations with MTPC and Otsuka (see Note 3) and any other collaborations the Company may enter into.

Multiple-Element Arrangements

The Company recognizes revenue in accordance with ASC Topic 605, Revenue Recognition (ASC 605). Accordingly, revenue is recognized for each unit of accounting when all of the following criteria are met:

• Persuasive evidence of an arrangement exists;

• Delivery has occurred or services have been rendered;

• The seller’s price to the buyer is fixed or determinable; and

• Collectability is reasonably assured.

Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified in current liabilities. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.

Revenue recognition from our MTPC collaboration will commence when we begin to deliver the clinical supply of vadadustat to MTPC which the Company expects to begin in the fourth quarter of 2017.  Therefore, collaboration revenue in the current period is exclusively from our collaborations agreements with Otsuka. The terms of these arrangements contain multiple deliverables, which include at inception: (i) license, (ii) development services, (iii) rights to future intellectual property and (iv) joint committee services. Non-refundable payments to the Company under these arrangements include: (i) up-front fee, (ii) payments for development services and (iii) payments based on the achievement of certain milestones. Also, under the Otsuka U.S. Agreement, the Company and Otsuka share costs incurred with respect to jointly conducted medical affairs and commercialization and non-promotional activities under the collaboration. Additionally, the Company may receive its share of net sales and bear its share of shared costs from the sale of products containing or comprising vadadustat in the United States through its U.S. collaboration with Otsuka.  The Company will recognize revenue related to amounts allocated to the License Unit of Accounting on a proportional performance basis as the underlying services are performed.

9

The Company evaluates multiple‑element arrangements based on the guidance in ASC 605‑25. Pursuant to the guidance in ASC 605‑25, the Company evaluates multiple‑element arrangements to determine (i) the deliverables included in the arrangement and (ii) whether the individual deliverables represent separate units of accounting or whether they must be accounted for as a combined unit of accounting. This evaluation involves subjective determinations and requires the Company to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship. Deliverables are considered separate units of accounting provided that: (i) the delivered item(s) has value to the customer on a standalone basis and (ii) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the Company’s control. In assessing whether an item has standalone value, the Company considers factors such as the research, development, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, the Company considers whether the collaboration partner can use the other deliverable(s) for their intended purpose without the receipt of the remaining deliverable(s), whether the value of the deliverable is dependent on the undelivered item and whether there are other vendors that can provide the undelivered item(s). The Company’s collaboration arrangements do not contain a general right of return relative to delivered item(s). 

Arrangement consideration that is fixed or determinable is allocated among the separate units of accounting using the relative selling price method. The Company determines the selling price for a unit of accounting following the hierarchy of evidence prescribed by ASC 605-25.  Accordingly, the Company determines the estimated selling price for units of accounting within each arrangement using vendor‑specific objective evidence (VSOE) of selling price, if available, third‑party evidence (TPE) of selling price if VSOE is not available, or best estimate of selling price (BESP) if neither VSOE nor TPE is available. Determining the BESP for a unit of accounting requires significant judgment. In developing the BESP for a unit of accounting, the Company considers applicable market conditions and relevant entity‑specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. The Company validates the BESP for units of accounting by evaluating whether changes in the key assumptions used to determine the BESP will have a significant effect on the allocation of arrangement consideration between multiple units of accounting.

The Company recognizes arrangement consideration allocated to each unit of accounting when all of the revenue recognition criteria in ASC 605 are satisfied for that particular unit of accounting. The Company recognizes as revenue arrangement consideration attributed to licenses that have standalone value from other deliverables to be provided in an arrangement upon delivery.  The Company recognizes as revenue arrangement consideration attributed to licenses that do not have standalone value from the other deliverables to be provided in an arrangement over the contractual or estimated performance period associated with the undelivered elements included in the combined unit of accounting, which is typically the term of the Company’s development obligations. If there is no discernible pattern of performance and/or objectively measurable performance measures do not exist, then the Company recognizes revenue under the arrangement on a straight‑line basis over the period the Company is expected to complete its performance obligations. Conversely, if the pattern of performance in which the service is provided to the customer can be determined and objectively measurable performance measures exist, then the Company recognizes revenue under the arrangement using the proportional performance method. Revenue recognized is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined using the straight‑line method or proportional performance method, as applicable, as of the period ending date.

The Company recognizes revenue associated with milestones in accordance with the provisions of ASC Topic 605-28, Revenue Recognition-Milestone Method.  Accordingly, at the inception of an arrangement that includes milestone payments, the Company evaluates whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone. This evaluation includes an assessment of whether: (i) the consideration is commensurate with either the Company’s performance to achieve the milestone or the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from its performance to achieve the milestone, (ii) the consideration relates solely to past performance and (iii) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the respective milestone and the level of effort and investment required to achieve the respective milestone in making this assessment. There is considerable judgment involved in determining whether a milestone satisfies all of the criteria required to conclude that a milestone is substantive. Milestones that are considered substantive are recognized as revenue in their entirety upon achievement, assuming all other revenue recognition criteria are met.  Milestones that are not considered substantive are recognized as revenue upon achievement if there are no remaining performance obligations or over the remaining period of performance if there are remaining performance obligations, assuming all other revenue recognition criteria are met.  Revenue from commercial milestone payments will be accounted for as royalties and recorded as revenue upon achievement of the milestone, assuming all other revenue recognition criteria are met.

The Company will recognize royalty revenue in the period of sale of the related product(s), based on the underlying contract terms, provided that the reported sales are reliably measurable and the Company has no remaining performance obligations, assuming all other revenue recognition criteria are met.

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Collaborative Arrangements

The Company records the elements of its collaboration agreements that represent joint operating activities in accordance with ASC Topic 808, Collaborative Arrangements (ASC 808).  Accordingly, the elements of the collaboration agreements that represent activities in which both parties are active participants and to which both parties are exposed to the significant risks and rewards that are dependent on the commercial success of the activities are recorded as collaborative arrangements.  The Company considers the guidance in ASC Topic 605-45, Revenue Recognition—Principal Agent Considerations (ASC 605-45) in determining the appropriate treatment for the transactions between the Company and its collaborative partner and the transactions between the Company and third parties.  Generally, the classification of transactions under the collaborative arrangements is determined based on the nature and contractual terms of the arrangement along with the nature of the operations of the participants.  The Company recognizes its allocation of the shared costs incurred with respect to the jointly conducted medical affairs and commercialization and non-promotional activities under the U.S. collaboration with Otsuka as a component of the related expense in the period incurred. During the three months ended September 30, 2017, the Company incurred approximately $0.3 million of costs related to the cost-sharing provisions of the Otsuka U.S. Agreement of which approximately $0.1 million are reimbursable by Otsuka and recorded as a reduction to research and development expense during the three months ended September 30, 2017. To the extent product revenue is generated from the collaboration, the Company will recognize its share of the net sales on a gross basis if it is deemed to be the principal in the transactions with customers, or on a net basis if it is instead deemed to be the agent in the transactions with customers, consistent with the guidance in ASC 605-45.

Patents

Costs incurred in connection with the application for and issuance of patents are expensed as incurred.

Income Taxes

Income taxes are recorded in accordance with FASB Topic 740, Income Taxes (ASC 740), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position, as well as consideration of the available facts and circumstances. As of September 30, 2017 and 2016, the Company does not have any significant uncertain tax positions. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.

Stock-Based Compensation

The Company accounts for its stock-based compensation awards in accordance with ASC Topic 718, Compensation—Stock Compensation (ASC 718). ASC 718 requires all stock-based payments to employees, including grants of employee stock options, restricted stock, restricted stock units, or RSUs, and modifications to existing stock awards, to be recognized in the statements of operations and comprehensive loss based on their fair values. The Company accounts for stock-based awards to non-employees in accordance with ASC Topic 505-50, Equity-Based Payments to Non-Employees (ASC 505-50), which requires the fair value of the award to be re-measured at fair value until a performance commitment is reached or counterparty performance is complete. The Company’s stock-based awards are comprised of stock options, shares of restricted stock, shares of common stock and warrants. The Company estimates the fair value of options granted using the Black-Scholes option pricing model. The Company uses a blend of its stock price and the quoted market price of comparable public companies to determine the fair value of restricted stock awards and common stock awards.

The Black-Scholes option pricing model requires the input of certain subjective assumptions, including (a) the expected stock price volatility, (b) the calculation of expected term of the award, (c) the risk-free interest rate and (d) expected dividends. Due to the lack of company-specific historical and implied volatility data for trading the Company’s stock in the public market, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. The computation of expected volatility is based on the historical volatility of a representative group of companies with similar characteristics to the Company, including stage of product development and life science industry focus. During 2017, the Company began to estimate its volatility by using a blend of its stock price history for the length of time it has market data for its stock and the historical volatility of similar public companies for the expected term of each grant. The Company is in the product development stage with no product revenue and

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the representative group of companies has certain similar characteristics to the Company. The Company believes the group selected has sufficient similar economic and industry characteristics, and includes companies that are most representative of the Company.  The Company uses the simplified method as prescribed by the SEC Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate the expected term for options granted to employees as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The expected term is applied to the stock option grant group as a whole, as the Company does not expect substantially different exercise or post-vesting termination behavior among its employee population. For options granted to non-employees, the Company utilizes the contractual term of the arrangement as the basis for the expected term assumption. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock, which is similar to the Company’s peer group.

The Company’s stock-based awards are subject to service based vesting conditions. Compensation expense related to awards to employees with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term. Consistent with the guidance in ASC 505- 50, compensation expense related to awards to non-employees with service-based vesting conditions is recognized on a straight-line basis based on the then-current fair value at each financial reporting date prior to the measurement date over the associated service period of the award, which is generally the vesting term.  

The Company adopted ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, effective in the first quarter of the year ended December 31, 2017. Prior to adoption, share-based compensation expense was recognized on a straight line basis, net of estimated forfeitures, such that expense was recognized only for share-based awards that are expected to vest. A forfeiture rate was estimated annually and revised, if necessary, in subsequent periods if actual forfeitures differed from initial estimates. Upon adoption, the Company will no longer apply a forfeiture rate and instead will account for forfeitures as they occur.

Fair Value of Financial Instruments

The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. ASC Topic 820, Fair Value Measurements and Disclosures (ASC 820), establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available.

Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments, and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below:

• Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

• Level 2 – Valuations based on quoted prices for similar assets or liabilities in markets that are not active, or for which all significant inputs are observable, either directly or indirectly.

• Level 3 – Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Items measured at fair value on a recurring basis include short-term investments (see Note 4). The carrying amounts of prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values due to their short-term maturities. The rate implicit within the Company’s capital lease obligation approximates market interest rates.

Concentrations of Credit Risk and Off-Balance Sheet Risk

Cash and investments are the only financial instruments that potentially subject the Company to concentrations of credit risk. The Company maintains its cash with high quality, accredited financial institutions and, accordingly, such funds are subject to minimal credit risk. The Company has no significant off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements.

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Net Loss per Share

Basic net loss per share is calculated by dividing net loss by the weighted-average shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting weighted-average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. For purposes of the diluted net loss per share calculation, preferred stock, stock options, warrants, unvested restricted stock and RSUs are considered to be common stock equivalents, but have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive for all periods presented. Therefore, basic and diluted net loss per share were the same for all periods presented.

Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation. Assets under capital lease are included in property and equipment. Property and equipment is depreciated using the straight-line method over the estimated useful lives of the assets, generally three to seven years. Such costs are periodically reviewed for recoverability when impairment indicators are present. Such indicators include, among other factors, operating losses, unused capacity, market value declines and technological obsolescence. Recorded values of asset groups of equipment that are not expected to be recovered through undiscounted future net cash flows are written down to current fair value, which generally is determined from estimated discounted future net cash flows (assets held for use) or net realizable value (assets held for sale).

The following is the summary of property and equipment and related accumulated depreciation as of September 30, 2017 and December 31, 2016.

	Useful Life	September 30, 2017			December 31, 2016
		(in thousands)
Computer equipment and software	3	$	589		$	476
Furniture and fixtures	5		800			729
Equipment	7		348			50
Leasehold improvements	Shorter of the useful life or remaining lease term (10 years)		2,453			1,763
Office equipment under capital lease	3		36			36
			4,226			3,054
Less accumulated depreciation			(862	)		(442	)
Net property and equipment		$	3,364		$	2,612

Depreciation expense, including expense associated with assets under capital leases, was approximately $0.2 millionand $0.1 million for the three months ended September 30, 2017 and 2016, respectively and approximately $0.4 and $0.2 million for the nine months ended September 30, 2017 and 2016, respectively.

3. Strategic Collaborations and Other Significant Agreements

Mitsubishi Tanabe Pharma Corporation Collaboration Agreement

Summary of Agreement

On December 11, 2015, the Company and MTPC entered into a collaboration agreement, the MTPC Agreement, providing MTPC with exclusive development and commercialization rights to vadadustat, the Company’s product candidate for the treatment of anemia related to chronic kidney disease, in Japan and certain other Asian countries, collectively, the Territory.

Pursuant to the MTPC Agreement, MTPC has an exclusive license to develop and commercialize vadadustat in the Territory. In addition, the Company will supply vadadustat for both clinical and commercial use in the Territory.  

The Company and MTPC agreed to pursue a local development plan and, following consultation with the Japanese Pharmaceuticals and Medical Devices Agency, or the PMDA, MTPC initiated a local Phase 3 development for vadadustat in Japan, the Local Scenario.

In consideration for the exclusive license and other rights contained in the MTPC Agreement, under the Local Scenario Japanese patients would not be included in the Phase 3 program and MTPC would make payments totaling up to $245.0 million based on the

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achievement of certain development, regulatory and sales milestones, as well as tiered double-digit royalty payments up to 20% on sales of vadadustat in the Territory.

Under the Local Scenario, MTPC is responsible for the costs of local development in Japan and will make no additional funding payments for the global Phase 3 program. The Company recently completed its Phase 2 study of vadadustat in non-dialysis-dependent, NDD, Japanese patients and is currently conducting its Phase 2 study of vadadustat in dialysis-dependent Japanese patients in Japan and expects findings by the end of 2017.  Under the Local Scenario, these Phase 2 studies are considered local development costs and reimbursable by MTPC.  Therefore, of the $40.0 million received by the Company in 2016, $20.0 million is being applied towards costs already incurred by the Company for the Phase 2 studies and MTPC will reimburse the Company for costs in excess of $20.0 million to complete the studies. The Company has incurred approximately $17.4 million in Phase 2 costs through September 2017 and anticipates incurring an additional approximately $8.0 million in Phase 2 costs through the end of the studies. As a result, MTPC would be required to reimburse the Company an additional approximately $5.0 million related to the two Phase 2 studies.

Pursuant to the terms of the MTPC Agreement for the Local Scenario, MTPC is responsible for performing all Phase 3 activities related to the development of vadadustat in the Territory and has sole responsibility for the commercialization of vadadustat in the Territory as well as for Medical Affairs (as defined in the MTPC Agreement) in the Territory.  Akebia is responsible for the completion of Phase 2 dosing studies as reimbursed by MTPC, manufacturing and supplying vadadustat for clinical use in the Territory and, if approved by the FDA, will enter into a supply agreement with MTPC for the commercial supply of vadadustat prior to commercial launch.  

The Company and MTPC have established a joint steering committee pursuant to the agreement to oversee development and commercialization of vadadustat in the Territory, including approval of any development or commercialization plans. Unless earlier terminated, the MTPC Agreement will continue in effect on a country-by-country basis until the later of: expiration of the last-to-expire patent covering vadadustat in such country in the Territory; expiration of marketing or regulatory exclusivity in such country in the Territory; or ten years after the first commercial sale of vadadustat in such country in the Territory. MTPC may terminate the MTPC Agreement upon twelve months’ notice at any time after the second anniversary of the effective date of the MTPC Agreement. Either party may terminate the MTPC Agreement upon the material breach of the other party that is not cured within a specified time period or upon the insolvency of the other party.

Under the Local Scenario, MTPC is required to make certain milestone payments to the Company aggregating to approximately $225.0 million upon the achievement of specified development, regulatory and commercial events.  More specifically, the Company is eligible to receive up to $10.0 million in development milestone payments, up to $40.0 million in regulatory milestone payments for the first product to achieve the associated event and up to $175.0 million in commercial milestone payments associated with aggregate sales of all products.  Additionally, if vadadustat is commercialized, the Company would be entitled to receive tiered royalty payments in the low double digits based on a percentage of net sales. Royalty payments are subject to certain reductions, including upon the introduction of competitive products in certain instances.  Royalties are due on a country-by-country basis from the date of first commercial sale of a licensed product in a country until the last to occur of: (i) the expiration of the last to expire valid claim within the intellectual property covering the licensed product, (ii) the expiration of marketing or regulatory exclusivity in such country, or (iii) the tenth anniversary of the first commercial sale of such licensed product in such country. Due to the uncertainty of pharmaceutical development and the high historical failure rates associated with drug development, no milestone or royalty payments may ever be received from MTPC.

In September 2017, the Company and MTPC entered into a new agreement that provided MTPC with an option to access data from the Company’s global Phase 3 vadadustat program for payments to the Company of up to $25.0 million.   

Revenue Recognition

The Company evaluated the elements of the MTPC Agreement in accordance with the provisions of ASC 605-25. The Company’s arrangement with MTPC contains the following deliverables: (i) license under certain of the Company’s intellectual property to develop and commercialize vadadustat (the License Deliverable), (ii) clinical supply of vadadustat, (iii) knowledge transfer, (iv) Phase 2 dosing study research services, and (v) rights to future know-how.

The Company has identified two units of accounting in connection with its obligations under the MTPC Agreement. Factors considered in making the assessment of standalone value included, among other things, the capabilities of the collaboration partner, whether any other vendor sells the item separately, whether the value of the deliverable is dependent on the other elements in the arrangement, whether there are other vendors that can provide the items and if the customer could use the item for its intended purpose without the other deliverables in the arrangement. Additionally, the License Agreement does not include a general right of return. The two units of accounting identified in connection with the Company’s obligations under the MTPC Agreement are as follows:

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(i) License, Research Services and Clinical Supply Unit of Accounting

The License Deliverable does not have standalone value and qualify for separation from the clinical supply of vadadustat. More specifically, the license delivered to MTPC does not provide the contractual right to manufacture vadadustat. MTPC is contractually prohibited from manufacturing any Licensed Product covered by the licenses during clinical trials.  Accordingly, MTPC must obtain the clinical trial products from the Company which significantly limits the ability for MTPC to use the license for their intended use on a standalone basis.

The License Deliverable does not have standalone value and qualify for separation from the knowledge transfer because MTPC cannot fully utilize the license for its intended purpose without the corresponding information regarding know-how, development data and regulatory materials possessed by the Company.

The License Deliverable does not have standalone value and qualify for separation from the Phase 2 dosing study research services because MTPC cannot fully utilize the license for its intended purpose without the performance of the Phase 2 dosing studies.  The Phase 2 dosing studies need to be performed prior to the PMDA approving any Phase 3 study to be performed in the Territory. Furthermore, MTPC cannot benefit from the Phase 2 dosing studies without the license and the undelivered Phase 3 clinical supply.

The License Deliverable does not have standalone value from the clinical supply, knowledge transfer or Phase 2 studies.  As a result, the License Deliverable, clinical supply, knowledge transfer and Phase 2 studies have been combined as a single unit of accounting (the License, Research and Clinical Supply Unit of Accounting)

(ii) Rights to Future Know-How

The License, Research and Clinical Supply Unit of Accounting has standalone value and qualifies for separation from the rights to future know how because MTPC can obtain the value of the License, Research and Clinical Supply Unit of Accounting without receipt of any rights to future know how that may be discovered or developed in the future.

The Company has determined that neither VSOE of selling price nor TPE of selling price is available for either of the units of accounting identified at inception of the arrangement with MTPC. Accordingly, the selling price of each unit of accounting was determined based on the Company’s BESP. The Company developed the BESP with the objective of determining the price at which it would sell such an item if it were to be sold regularly on a standalone basis. The Company developed the BESP for the Rights to Future Know How Unit of Accounting primarily based on the likelihood that additional intellectual property covered by the license conveyed will be developed during the term of the arrangement. The Company did not develop a BESP for the License, Research and Clinical Supply Unit of Accounting because the BESP associated with the Rights to Future Know How Unit of Accounting was determined to be immaterial. The Company has concluded that a change in the key assumptions used to determine the BESP for each unit of accounting would not have a significant impact on the allocation of arrangement consideration.

Allocable arrangement consideration is comprised of: (i) the up-front payment of $20.0 million, (ii) the estimate of the cost for the Phase 2 studies of at least $20.0 million, and (iii) the cost of all clinical supply provided to MTPC for the Phase 3 studies. No amounts were allocated to the Rights to Know How Unit of Accounting because the associated BESP was determined to be immaterial therefore the arrangement consideration will be allocated to the License, Research Services and Clinical Supply Unit of Accounting.

TheCompanyhasevaluatedallofthedevelopment,regulatoryandsalesmilestonesthatmaybereceivedinconnectionwiththe MTPC Agreement.Inevaluatingifamilestone  issubstantive,theCompanyassesseswhether:(i)theconsiderationiscommensuratewitheithertheCompany’sperformancetoachievethemilestoneortheenhancementofthevalueofthedelivereditem(s)asaresultofaspecificoutcomeresultingfromtheCompany’sperformancetoachievethemilestone,(ii)theconsiderationrelatessolelytopastperformance,and(iii)theconsiderationisreasonablerelativetoallofthedeliverablesandpaymenttermswithinthearrangement.Alldevelopmentandregulatorymilestones, with the exception of one development milestone associated with the near term progress of the Phase 3 study, areconsideredsubstantiveonthebasisofthecontingentnatureofthemilestone,specificallyreviewingfactorssuchasthescientific,clinical,regulatory,commercialandotherrisksthatmustbeovercometoachievethemilestoneas wellasthe levelofeffortandinvestmentrequired. Accordingly, suchamountswillbe recognizedas revenuein fullintheperiodinwhichtheassociatedmilestoneisachieved,assumingallotherrevenuerecognitioncriteria are met. The non-substantive development milestone will be included in the arrangement consideration, if and when received, and allocated to the License, Research Services and Clinical Unit of Accounting within the arrangement and recognized as revenue when those underlying obligations are satisfied. The total aggregate amount of developmentmilestonesis$10.0millionandthetotalaggregateamountofapprovalmilestonesisupto$65.0million.Allsalesmilestones,upto$175.0million,willbeaccountedforinthesamemannerasroyaltiesandrecordedasrevenueuponachievementofthemilestone,assumingallotherrevenue recognition criteria are met.

TheCompanywillrecognizeroyaltyrevenueintheperiodofsaleoftherelatedproduct(s),basedontheunderlyingcontractterms,providedthatthereportedsalesarereliablymeasurableandtheCompanyhasnoremainingperformanceobligations,assumingallotherrevenuerecognitioncriteriaaremet.

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Revenue for the fixed and determinable consideration of $40.0 million that was received in January 2016, will be recognized, using a proportional performance method, as the Company delivers clinical supply of vadadustat to MTPC for the Phase 3 study. The Company expects to begin to deliver the clinical supply of vadadustat to MTPC in the fourth quarter of 2017. Therefore, at September 30, 2017 the $40.0 million is recorded as deferred revenue in the accompanying consolidated balance sheets.

Otsuka Pharmaceutical Co. Ltd. U.S. Collaboration and License Agreement

Summary of Agreement

On December 18, 2016, the Company entered into a collaboration and license agreement with Otsuka, or the Otsuka U.S. Agreement. The collaboration is focused on the development and commercialization of vadadustat in the United States. Under the terms of the Otsuka U.S. Agreement, the Company will continue to lead the development of vadadustat, including the ongoing Phase 3 development program. The Company and Otsuka will co-commercialize vadadustat in the United States, subject to the approval of vadadustat by the FDA.

Under the terms of the Otsuka U.S. Agreement, the Company granted to Otsuka a co-exclusive, non-sublicensable license under certain intellectual property controlled by the Company solely to perform medical affairs activities and to conduct non-promotional and commercialization activities related to vadadustat in accordance with the associated plans. The co-exclusive license relates to activities that will be jointly conducted by the Company and Otsuka pursuant to the terms of the Otsuka U.S. Agreement.

Pursuant to the terms of the Otsuka U.S. Agreement, the Company is responsible for performing all activities related to the development of vadadustat as outlined in the current global development plan. The current global development plan encompasses all activities with respect to the ongoing PRO₂TECT and INNO₂VATE clinical programs that are necessary through the filing for regulatory approval, as well as other studies. Under the Otsuka U.S. Agreement, the Company controls and retains final decision‑making authority with respect to the development of vadadustat. The Company’s obligations related to the conduct of the current global development plan include the associated manufacturing and supply services for vadadustat.

Under the Otsuka U.S. Agreement, the parties jointly conduct, and have equal responsibility for, all medical affairs, commercialization and non-promotional activities pursuant to underlying plans as agreed to by the parties. If approved by the FDA, the Company will provide vadadustat to Otsuka for commercialization pursuant to a separate supply agreement to be negotiated.

The activities under the Otsuka U.S. Agreement are governed by a joint steering committee, or JSC, formed by an equal number of representatives from the Company and Otsuka. The JSC coordinates and monitors the parties’ activities under the collaboration. Among other responsibilities, the JSC manages the overall strategic alignment between the parties, oversees the current global development plan and reviews the other detailed plans setting forth the parties’ activities under the arrangement, including the medical affairs plan and commercialization and non-promotional activities plan. Additionally, the parties established a joint development committee, or JDC, which is comprised of an equal number of representatives from the Company and Otsuka. Among other responsibilities, the JDC will share information related to, and review and discuss activities and progress under, the current global development plan and any other development that may be conducted pursuant to the collaboration. In support of the potential commercialization of vadadustat, the parties will establish a joint commercialization committee, or JCC, which will be comprised of an equal number of representatives from the Company and Otsuka. Among other responsibilities, the JCC will manage the activities and progress under the commercialization and non-promotional activities plan and all other sales and marketing activities. The Company has retained the final decision‑making authority with respect to all development matters, pricing strategy and certain other key commercialization matters.

Under the terms of the Otsuka U.S. Agreement, the Company received a $125.0 million up-front, non-refundable, non-creditable cash payment in December 2016. In March 2017, the Company received a payment of approximately $33.8 million, which represents reimbursement for Otsuka’s share of costs previously incurred by the Company in implementing the current global development plan through December 31, 2016. Going forward, Otsuka will contribute a percentage of the remaining costs to be incurred under the current global development plan subsequent to December 31, 2016, commencing upon the date on which the Company has incurred a specified amount of incremental costs. The Company estimates that Otsuka’s funding of the current global development plan costs subsequent to December 31, 2016 will total $153.6 million or more. The costs associated with the performance of any development activities in addition to those outlined in the current global development plan will be subject to a cost sharing or reimbursement mechanism to be determined by the parties. Costs incurred with respect to medical affairs and commercialization and non-promotional activities will generally be shared equally by the parties. Either party’s share of the medical affairs and/or commercialization activities may be increased at such party’s request upon mutual agreement of the parties. In addition, if the costs incurred in completing the activities under the current global development plan exceed a certain threshold, then the Company may elect to require Otsuka to fund a higher percentage of the current global development costs. In such event, the excess of the payments made under such election and Otsuka’s allocated share of the current global development costs is fully creditable against future payments due to the Company under the arrangement.

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In addition, Otsuka would be required to make certain milestone payments to the Company upon the achievement of specified development, regulatory and commercial events. More specifically, the Company is eligible to receive up to $125.0 million in development milestone payments and up to $65.0 million in regulatory milestone payments for the first product to achieve the associated event. Moreover, the Company is eligible for up to $575.0 million in commercial milestone payments associated with aggregate sales of all products. Due to the uncertainty of pharmaceutical development and the high historical failure rates associated therewith, no milestone payments may ever be received from Otsuka.

Under the Otsuka U.S. Agreement, the Company and Otsuka share the costs of developing and commercializing vadadustat in the United States and the profits from the sales of vadadustat after approval by the FDA. In connection with the profit share calculation, net sales include gross sales to third-party customers net of discounts, rebates, chargebacks, taxes, freight and insurance charges and other applicable deductions. Shared costs generally include costs attributable or reasonably allocable to the manufacture of vadadustat for commercialization purposes and the performance of medical affairs activities, non-promotional activities and commercialization activities.

Under the Otsuka U.S. Agreement, Otsuka originally had a limited period of time in which it can exercise an option to convert the arrangement from a profit share to a right to receive a mid-single digit royalty on future net sales of commercialized products (the Royalty Conversion Option). On August 4, 2017, Otsuka agreed to waive its right to exercise the Royalty Conversion Option in advance of its expiration, consequently, Otsuka has no further right to elect to exercise this option.

Unless earlier terminated, the Agreement will expire on a country-by-country and product-by-product basis on the date that one or more generic versions of vadadustat first achieves 90% market penetration. Either party may terminate the Otsuka U.S. Agreement in its entirety upon an uncured breach or insolvency on the part of the other party. Otsuka may terminate the Otsuka U.S. Agreement in its entirety upon 12 months’ prior written notice at any time after the release of the first topline data from the global Phase 3 development program. In the event of termination of the Otsuka U.S. Agreement, all rights and licensees granted to Otsuka under the Otsuka U.S. Agreement will automatically terminate and the licenses granted to the Company will become freely sublicensable.  In addition, the upfront payment, all development costs and milestone payments received by the Company prior to such termination will not be refunded to Otsuka.

Revenue Recognition

The Company evaluated the elements of the Otsuka US Agreement in accordance with the provisions of ASC 605-25. The Company’s arrangement with Otsuka contains the following deliverables: (i) license under certain of the Company’s intellectual property to develop, perform medical affairs activities with respect to and conduct non-promotional and commercialization activities related to vadadustat and products containing or comprising vadadustat (the License Deliverable), (ii) development services to be performed pursuant to the current global development plan (the Development Services Deliverable), (iii) rights to future intellectual property (the Future IP Deliverable), and (iv) joint committee services (the Committee Deliverable).

The Company has identified three units of accounting in connection with its obligations under the Otsuka U.S. Agreement. Factors considered in making the assessment of standalone value included, among other things, the capabilities of the collaboration partner, whether any other vendor sells the item separately, whether the value of the deliverable is dependent on the other elements in the arrangement, whether there are other vendors that can provide the items and if the customer could use the item for its intended purpose without the other deliverables in the arrangement. Additionally, the Otsuka U.S. Agreement does not include a general right of return. The three units of accounting identified in connection with the Company’s obligations under the Otsuka U.S. Agreement are as follows:

(i) License and Development Services Combined (License Unit of Accounting)

The License Deliverable does not qualify for separation from the Development Services Deliverable, due to the contractual limitations inherent in the license conveyed.  More specifically, Otsuka does not have the contractual right to manufacture vadadustat and products containing or comprising vadadustat. However, the manufacturing and supply services that are conducted as part of the services to be performed pursuant to the current global development plan are necessary for Otsuka to fully exploit the associated license for its intended purpose. The value of the rights provided through the license conveyed will be realized when the underlying products covered by the intellectual property progress through the development cycle, receive regulatory approval and are commercialized. Products containing or comprising vadadustat cannot be commercialized until the development services under the current global development plan are completed. Accordingly, Otsuka must obtain the manufacturing and supply of the associated products that is included within the development services to be performed pursuant to the current global development plan from the Company in order to derive benefit from the license which significantly limits the ability for Otsuka to utilize the License Deliverable for its intended purpose on a standalone basis.

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(ii) Rights to Future Intellectual Property

The License Deliverable and the Development Services Deliverable qualify for separation from the Future IP Deliverable because Otsuka can obtain the value of the license using the clinical trial materials implicit in the development services without the receipt of any other intellectual property that may be discovered or developed in the future. The Future IP Deliverable qualifies for separation from the Committee Deliverable because the joint committee services have no bearing on the value to be derived from the rights to potential future intellectual property.

(iii) Joint Committee Services

The License Deliverable and Development Services Deliverable qualify for separation from the Committee Deliverable because Otsuka can obtain the value of the license using the clinical trial materials implicit in the development services without the joint committee services. The Committee Deliverable has standalone value from the rights to Future IP Deliverable because the joint committee services have no bearing on the value to be derived from the rights to potential future intellectual property.

The Company has determined that neither VSOE of selling price nor TPE of selling price is available for any of the units of accounting identified at inception of the arrangement with Otsuka. Accordingly, the selling price of each unit of accounting was determined based on the Company’s BESP. The Company developed the BESP with the objective of determining the price at which it would sell such an item if it were to be sold regularly on a standalone basis. In developing the BESP for the Joint Committee Services Unit of Accounting, the Company considered the nature of the services to be performed and estimates of the associated effort and rates applicable to such services that would be expected to be realized under similar contracts. The Company developed the BESP for the Rights to Future Intellectual Property Unit of Accounting primarily based on the likelihood that additional intellectual property covered by the license conveyed will be developed during the term of the arrangement. The Company did not develop a BESP for the License Unit of Accounting due to the following: (i) the BESP associated with the Rights to Future Intellectual Property Unit of Accounting was determined to be immaterial and (ii) the period of performance and pattern of recognition for the License Unit of Accounting and the Joint Committee Services Unit of Accounting was determined to be similar. The Company has concluded that a change in the key assumptions used to determine the BESP for each unit of accounting would not have a significant impact on the allocation of arrangement consideration.

Allocable arrangement consideration at inception is comprised of: (i) the up-front payment of $125.0 million, (ii) the cost share payment with respect to amounts incurred by the Company through December 31, 2016 of $33.8 million, and (iii) an estimate of the cost share payments to be received with respect to amounts incurred by the Company subsequent to December 31, 2016 of $153.6 million. No amounts were allocated to the Rights to Future Intellectual Property Unit of Accounting because the associated BESP was determined to be immaterial. Due to the similar performance period and recognition pattern between the License Unit of Accounting and the Joint Committee Services Unit of Accounting, the arrangement consideration totaling $312.4 million has been allocated to the License Unit of Accounting and the Joint Committee Services Unit of Accounting on a combined basis.  Accordingly, the Company will recognize revenue related to the allocable arrangement consideration on a proportional performance basis as the underlying development services are performed pursuant to the current global development plan which is commensurate with the period and consistent with the pattern over which the Company’s obligations are satisfied for both the License Unit of Accounting and the Joint Committee Services Unit of Accounting.  Effectively, the Company has treated the arrangement as if the License Unit of Accounting and the Joint Committee Services Unit of Accounting are a single unit of accounting.

TheCompanyhasevaluatedallofthedevelopment,regulatoryandcommercialmilestonesthatmaybereceivedinconnectionwiththe Otsuka U.S. Agreement.Inevaluatingifamilestone  issubstantive,theCompanyassesseswhether:(i)theconsiderationis commensuratewitheithertheCompany’sperformancetoachievethemilestoneortheenhancementofthevalueofthedelivereditem(s)asaresultofaspecificoutcomeresultingfromtheCompany’sperformancetoachievethemilestone,(ii)theconsiderationrelatessolelytopastperformance,and(iii)theconsiderationisreasonablerelativetoallofthedeliverablesandpaymenttermswithinthearrangement. Alldevelopmentandregulatorymilestonesareconsideredsubstantiveonthebasisofthecontingentnatureofthemilestone,specificallyreviewingfactorssuchasthescientific,clinical,regulatory,commercialandotherrisksthatmustbeovercometoachievethemilestoneas wellasthe levelofeffortandinvestmentrequired. Accordingly, suchamountswillbe recognizedas revenuein fullintheperiodinwhichtheassociatedmilestoneisachieved,assumingallotherrevenuerecognitioncriteriaaremet.Allcommercial milestones will be recordedasrevenueuponachievementof themilestone,assumingallotherrevenuerecognitioncriteriaaremet.

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During the three and nine months ended September 30, 2017, the Company recognized revenue totaling approximately $22.5 million and $60.0 million, respectively, with respect to the Otsuka U.S. Agreement. The revenue is classified as collaboration revenue in the accompanying consolidated statement of operations. As of September 30, 2017, there is approximately $97.3 million of deferred revenue related to the Otsuka U.S. Agreement of which $48.5 million is classified as current and $48.8 million is classified as long-term in the accompanying consolidated balance sheet based on the performance period of the underlying obligations.

The Company determined that the medical affairs, commercialization and non-promotional activities elements of the Otsuka U.S. Agreement represent joint operating activities in which both parties are active participants and of which both parties are exposed to significant risks and rewards that are dependent on the success of the activities. Accordingly, the Company is accounting for the joint medical affairs, commercialization and non-promotional activities in accordance with ASC No. 808, Collaborative Arrangements (ASC 808). Additionally, the medical affairs, commercialization and non-promotional activities were not deemed to be deliverables under ASC No. 605-25, Revenue Recognition–Multiple-Element Arrangements (ASC 605-25). As a result, the activities conducted pursuant to the medical affairs, commercialization and non-promotional activities plans will be accounted for as a component of the related expense in the period incurred. During the three months ended September 30, 2017, the Company incurred approximately $0.3 million of costs related to the cost-sharing provisions of the Otsuka U.S. Agreement of which approximately $0.1 million are reimbursable by Otsuka and recorded as a reduction to research and development expense during the three months ended September 30, 2017.

Otsuka Pharmaceutical Co. Ltd. EU Collaboration and License Agreement

Summary of Agreement

On April 25, 2017, the Company entered into a collaboration and license agreement with Otsuka, the Otsuka EU Agreement. The collaboration is focused on the development and commercialization of vadadustat in Europe, Russia, China, Canada, Australia, the Middle East and certain other territories, collectively, the Territory. Under the terms of the Otsuka EU Agreement, the Company will continue to lead the development of vadadustat, including the ongoing global Phase 3 development program.  Otsuka has the sole responsibility, at its own cost, for the commercialization of vadadustat in the Territory, subject to the approval by the relevant regulatory authorities.

Under the terms of the Otsuka EU Agreement, the Company granted to Otsuka an exclusive, sublicensable license under certain intellectual property controlled by the Company to develop and commercialize vadadustat and products containing or comprising vadadustat in the Territory.  

Pursuant to the terms of the Otsuka EU Agreement, the Company is responsible for performing all activities related to the development of vadadustat as outlined in the current global development plan; however, the parties may agree to allocate certain responsibilities to Otsuka.  The current global development plan encompasses all activities with respect to the ongoing PRO₂TECT and INNO₂VATE program, as well as other studies, through the filing for regulatory approval. The current global development plan also includes other derivative and ancillary studies.  Under the Otsuka EU Agreement, the Company controls and retains final decision-making authority with respect to the development of vadadustat other than with respect to certain development matters specific to the Territory. Per the terms of the Otsuka EU Agreement, Otsuka is generally responsible for the conduct of any development activities that may be required for regulatory approval in the Territory or otherwise performed with respect to the Territory that are incremental to those included in the current global development plan.  The Company’s obligations related to the conduct of the current global development plan include the associated manufacturing and supply services for vadadustat.

Under the Otsuka EU Agreement, Otsuka is to be solely responsible for the conduct of all medical affairs and commercialization activities in the Territory pursuant to underlying plans as reviewed and discussed by the parties. If approved by the relevant jurisdictional regulatory health authorities in the Territory, the Company will provide vadadustat to Otsuka for commercialization pursuant to a separate supply agreement to be negotiated.

The activities under the Otsuka EU Agreement are governed by a JSC formed by up to a specified number of representatives from the Company and Otsuka.  The JSC coordinates and monitors the parties’ activities under the collaboration.  Among other responsibilities, the JSC manages the overall strategic alignment between the parties, oversees the current global development plan and reviews the other detailed plans setting forth any other development activities that may be conducted under the arrangement.  Additionally, the parties established a JDC which is be comprised of up to a specified number of representatives from the Company and Otsuka.  Among other responsibilities, the JDC shares information related to, and reviews and discusses activities and progress under, the current global development plan and any other development that may be conducted pursuant to the collaboration.  The Company and Otsuka also established a joint manufacturing committee, or JMC, which is comprised of up to a specified number of representatives from each of the parties.  Among other responsibilities, the JMC oversees the manufacturing plan and related manufacturing activities.  In support of the potential commercialization of vadadustat, the parties established a JCC which is comprised of up to a specified number of representatives from the Company and Otsuka.  Among other responsibilities, the JCC reviews and discusses the activities and progress under the commercialization plan and all other sales and marketing activities.  The Company has retained the final

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decision‑making authority with respect to all development matters, other than decisions related to certain development matters specific to the Territory.  Otsuka has retained the final decision‑making authority with respect to all commercialization matters, other than decisions related to certain marketing matters.

Under the terms of the Otsuka EU Agreement, the Company received a $73.0 million up-front, non-refundable, non-creditable cash payment.  The Company also received a payment of approximately $0.2 million which represents reimbursement for Otsuka’s share of costs previously incurred by the Company in implementing the current global development plan in excess of a specified threshold during the quarter-ended March 31, 2017.  Additionally, Otsuka will contribute a percentage of the remaining costs to be incurred under the current global development plan subsequent to March 31, 2017.  The Company estimates that Otsuka’s funding of the current global development plan costs subsequent to March 31, 2017 will total roughly $163.6 million.  The costs associated with the performance of any mutually agreed upon development activities in addition to those outlined in the current global development plan will be subject to a cost sharing or reimbursement mechanism to be determined by the parties.  Otsuka may elect to conduct additional studies of vadadustat in the EU, subject to the Company’s right to delay such studies based on its objectives outside the Territory.  Otsuka will pay a percentage of the costs of any such studies, and the Company will pay its portion of the costs in the form of a credit against future amounts due to the Company under the Otsuka EU Agreement. The costs incurred related to any other development activities, which are pursued solely for obtaining or maintaining regulatory approval in the Territory or otherwise performed solely with respect to the Territory that are incremental to the development activities included in the current global development plan will be borne in their entirety by Otsuka. Otsuka will pay costs incurred with respect to medical affairs and commercialization activities in the Territory.  

In addition, Otsuka would be required to make certain milestone payments to the Company upon the achievement of specified development, regulatory and commercial events.  More specifically, the Company is eligible to receive up to $80.0 million in development milestone payments and up to $52.0 million in regulatory milestone payments for the first product to achieve the associated event.  Moreover, the Company is eligible for up to $525.0 million in commercial milestone payments associated with aggregate sales of all products. Additionally, to the extent vadadustat is commercialized, the Company would be entitled to receive tiered royalty payments ranging from the low double digits to the low thirties based on a percentage of net sales.  Royalties are due on a country-by-country basis from the date of the first commercial sale of a licensed product in a country until the latest to occur of:  (i) the expiration date in such country of the last to expire valid claim within the intellectual property covering the licensed product, (ii) the date of expiration of data or regulatory exclusivity in such country or (iii) the tenth anniversary of the first commercial sale of such licensed product in such country.  Due to the uncertainty of pharmaceutical development and the high historical failure rates associated therewith, no milestone or royalty payments may ever be received from Otsuka.  There are no cancellation, termination or refund provisions in the Otsuka EU Agreement that contain material financial consequences to the Company.

Unless earlier terminated, the Otsuka EU Agreement will expire upon the expiration of the royalty term in the last country in the Territory.  Either party may terminate the Otsuka EU Agreement in its entirety upon an uncured material breach or insolvency on the part of the other party. Otsuka may terminate the Otsuka EU Agreement in its entirety or for a specific sub-division of the Territory upon 12 months’ prior written notice at any time after the release of the first topline data from either the PRO₂TECT Phase 3 development program or the INNO₂VATE Phase 3 development program, whichever comes first. In the event of termination of the Otsuka EU Agreement, all rights and licensees granted to Otsuka under the Otsuka U.S. Agreement will automatically terminate and the licenses granted to the Company will become freely sublicensable, but potentially subject to a future royalty.  In addition, the upfront payment, all development costs and milestone payments received by the Company prior to such termination will not be eligible for refund to Otsuka.

Revenue Recognition

The Company has accounted for the Otsuka EU Agreement separately from the collaboration arrangement with Otsuka with respect to the U.S. due to the lack of interrelationship and interdependence of the elements and payment terms within each of the contracts as it relates to the respective territories.  Accordingly, the Company has applied the guidance in ASC No. 605-25, Revenue Recognition–Multiple-Element Arrangements (ASC 605-25) solely in reference to the terms and conditions of the Otsuka EU Agreement, while the collaboration arrangement with Otsuka related to the U.S. has continued to be accounted for as a discrete agreement in its own right.  The Company evaluated the Otsuka EU Agreement in accordance with the provisions of ASC 605-25.  The Company’s arrangement with Otsuka related to the Territory contains the following deliverables:  (i) license under certain of the Company’s intellectual property to develop and commercialize (including the associated packaging) vadadustat and products containing or comprising vadadustat (the License Deliverable), (ii) development services to be performed pursuant to the current global development plan (the Development Services Deliverable), (iii) rights to future intellectual property (the Future IP Deliverable) and (iv) joint committee services (the Committee Deliverable).

The Company has identified three units of accounting in connection with its obligation under the Otsuka EU Agreement. Factors considered in making this assessment included, among other things, the capabilities of the collaboration partner, whether any other vendor sells the item separately, whether the value of the deliverable is dependent on the other elements in the arrangement, whether there are other vendors that can provide the items and if the customer could use the item for its intended purpose without the other

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deliverables in the arrangement.  Additionally, the Otsuka EU Agreement does not include a general right of return. The three units of accounting identified in connection with the Company’s obligations under the Otsuka EU Agreement are as follows:  

(i) License and Development Services Combined (License Unit of Accounting)

The License Deliverable does not qualify for separation from the Development Services Deliverable due to the contractual limitations inherent in the license conveyed.  More specifically, Otsuka does not have the contractual right to manufacture vadadustat and products containing or comprising vadadustat.  However, the manufacturing and supply services that are conducted as part of the services to be performed pursuant to the current global development plan are necessary for Otsuka to fully exploit the associated license for its intended purpose.  The value of the rights provided through the license conveyed will be realized when the underlying products covered by the intellectual property progress through the development cycle, receive regulatory approval and are commercialized. Products containing or comprising vadadustat cannot be commercialized until the development services under the current global development plan are completed.  Accordingly, Otsuka must obtain the manufacturing and supply of the associated products that is included within the development services to be performed pursuant to the current global development plan from the Company in order to derive benefit from the license which significantly limits the ability for Otsuka to utilize the License Deliverable for its intended purpose on a standalone basis.  Therefore, the License Deliverable does not have standalone value from the Development Services Deliverable. As a result, the License Deliverable and the Development Services Deliverable have been combined as a single unit of accounting (the License Unit of Accounting).  

(ii) Rights to Future Intellectual Property

The License Deliverable and the Development Services Deliverable qualify for separation from the Future IP Deliverable because Otsuka can obtain the value of the license using the clinical trial materials implicit in the development services without the receipt of any other intellectual property that may be discovered or developed in the future. The Future IP Deliverable qualifies for separation from the Committee Deliverable because the Committee Services Deliverable has no bearing on the value to be derived from the rights to potential future intellectual property.

(iii) Joint Committee Services

The License Deliverable and the Development Services deliverable qualify for separation from the Committee Deliverable because Otsuka can obtain the value of the license using the clinical trial materials implicit in the development service without the joint committee services. The Committee Deliverable qualifies for separation from the Future IP Deliverable because the Committee Deliverable has no bearing on the value to be derived from the rights to potential future intellectual property.

The Company has determined that neither VSOE of selling price nor TPE of selling price is available for any of the units of accounting identified at inception of the arrangement with Otsuka.  Accordingly, the selling price of each unit of accounting was determined based on the Company’s BESP.  The Company developed the BESP with the objective of determining the price at which it would sell such an item if it were to be sold regularly on a standalone basis.  In developing the BESP for the Joint Committee Services Unit of Accounting, the Company considered the nature of the services to be performed and estimates of the associated effort and rates applicable to such services that would be expected to be realized under similar contracts.  The Company developed the BESP for the Rights to Future Intellectual Property Unit of Accounting primarily based on the likelihood that additional intellectual property covered by the license conveyed will be developed during the term of the arrangement.  The Company did not develop a BESP for the License Unit of Accounting due to the following:  (i) the BESP associated with the rights to future intellectual property unit of accounting was determined to be immaterial and (ii) the period of performance and pattern of recognition for the License Unit of Accounting and the joint committee services unit of accounting was determined to be similar.  The Company has concluded that a change in the key assumptions used to determine the BESP for each unit of accounting would not have a significant impact on the allocation of arrangement consideration.

Allocable arrangement consideration at inception is comprised of: (i) the up-front payment of $73.0 million, (ii) the cost share payment with respect to amounts incurred by the Company during the quarter ended March 31, 2017 of $0.2 million and (iii) an estimate of the cost share payments to be received with respect to amounts incurred by the Company subsequent to March 31, 2017 of $163.6 million. No amounts were allocated to the Rights to Future Intellectual Property Unit of Accounting because the associated BESP was determined to be immaterial.  Due to the similar performance period and recognition pattern between the License Unit of Accounting and the Joint Committee Services Unit of Accounting, the arrangement consideration totaling $236.7 million has been allocated to the License Unit of Accounting and the Joint Committee Services Unit of Accounting on a combined basis.  Accordingly, the Company will recognize revenue related to the allocable arrangement consideration on a proportional performance basis as the underlying development services are performed pursuant to the current global development plan which is commensurate with the period and consistent with the pattern over which the Company’s obligations are satisfied for both the License Unit of Accounting and the Joint Committee Services Unit of Accounting.  Effectively, the Company has treated the arrangement as if the License Unit of Accounting and the Joint Committee Services Unit of Accounting are a single unit of accounting.

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TheCompanyhasevaluatedallofthedevelopment,regulatoryandcommercial milestonesthatmaybereceivedinconnectionwiththeOtsuka EU Agreement.Inevaluatingifamilestoneissubstantive,theCompanyassesseswhether:(i)theconsiderationis commensuratewitheithertheCompany’sperformancetoachievethemilestoneortheenhancementofthevalueofthedelivereditem(s)asaresultofaspecificoutcomeresultingfromtheCompany’sperformancetoachievethemilestone,(ii)theconsiderationrelatessolelytopastperformance,and(iii)theconsiderationisreasonablerelativetoallofthedeliverablesandpaymenttermswithinthearrangement.Alldevelopmentandregulatorymilestonesareconsideredsubstantiveonthebasisofthecontingentnatureofthemilestone,specificallyreviewingfactorssuchasthescientific,clinical,regulatory,commercialandotherrisksthatmustbeovercometoachievethemilestoneas wellasthe levelofeffortandinvestmentrequired. Accordingly, suchamountswillbe recognizedas revenueinfullintheperiodinwhichtheassociatedmilestoneisachieved,assumingallotherrevenuerecognitioncriteriaaremet.Allcommercial milestones willbeaccountedforinthesamemannerasroyaltiesandrecordedasrevenueuponachievementofthemilestone,assumingallotherrevenuerecognitioncriteriaaremet.  The Company will recognize royalty revenue in the period of sale of the related product(s), based on the underlying contract terms, provided that the reported sales are reliably measurable and the Company has no remaining performance obligations, assuming all other revenue recognition criteria are met.

During the three and nine months ended September 30, 2017, the Company recognized revenue totaling approximately $18.8 million and $30.7 million, respectively, with respect to the Otsuka EU Agreement.  The revenue is classified as collaboration revenue in the accompanying consolidated statement of operations.  As of September 30, 2017, there is approximately $63.8 million of deferred revenue related to the Otsuka EU Agreement of which $32.5 million is classified as current and $31.3 million is classified as long-term in the accompanying consolidated balance sheet based on the performance period of the underlying obligations.

Janssen Pharmaceutica NV Research and License Agreement

Summary of Agreement

In February 2017, the Company entered into a Research and License Agreement, the Janssen Agreement, with Janssen Pharmaceutica NV, one of the Janssen Pharmaceutical Companies of Johnson and Johnson, Janssen, pursuant to which Janssen granted the Company an exclusive license under certain intellectual property rights to develop and commercialize worldwide certain HIF-PH targeted compounds.

Under the terms of the Janssen Agreement, Janssen granted to the Company a license for a three-year research term to conduct research on the HIF compound portfolio, unless the Company elects to extend such research term for up to two additional one-year periods upon payment of an extension fee. During the research term, the Company may designate one or more compounds as candidates for development and commercialization. Once a compound is designated for development and commercialization, the Company will be solely responsible for the development and commercialization of the compound worldwide at its own cost and expense. The Janssen Agreement includes a license to develop and commercialize AKB-5169, a preclinical compound in development as an oral treatment for inflammatory bowel disease, or IBD.

Under the terms of the Janssen Agreement, the Company made an upfront payment of $1.0 million in cash to Janssen and issued a warrant to purchase 509,611 share of the Company’s common stock, the fair value of which was approximately $3.4 million, the total of which was recorded in research and development expenses for the three months ended March 31, 2017. In addition, Janssen could be eligible to receive up to an aggregate of $16.5 million from the Company in specified development milestone payments on a product-by-product basis. Janssen will also be eligible to receive up to $215.0 million from the Company in specified commercial milestones as well as tiered, escalating royalties ranging from a low to mid-single digit percentage of net sales, on a product-by-product basis.

Unless earlier terminated, the Janssen Agreement will expire on a product-by-product and country-by-country basis upon the expiration of the last royalty term, which ends upon the longer of the expiry of the patents licensed under the Janssen Agreement, the expiry of regulatory exclusivity for such product, or 10 years from first commercial sale of such product. The Company may terminate the Janssen Agreement in its entirety or only with respect to a particular licensed compound or product upon 180 days’ prior written notice to Janssen. The parties also have customary termination rights, subject to a cure period, in the event of the other party’s material breach of the Janssen Agreement or in the event of certain additional circumstances.

As discussed above, the Company issued a Common Stock Purchase Warrant, the Warrant, to Johnson & Johnson Innovation – JJDC, Inc., or JJDC, an affiliate of Janssen, for 509,611 shares of the Company’s common stock at an exercise price of $9.81 per share. The Warrant is exercisable by JJDC, in whole or in part, at any time prior to the fifth anniversary of the date of issuance. The Warrant and the shares issuable upon exercise of the Warrant will be sold and issued without registration under the Securities Act of 1933, or the Securities Act. The Company recorded the fair value of the warrant in the amount of $3.4 million to additional paid in capital and research and development expense in March 2017.

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Vifor (International) Ltd. License Agreement

Summary of Agreement

In May 2017, the Company entered into a License Agreement with Vifor (International) Ltd., or Vifor, the Vifor Agreement, pursuant to which the Company will grant Vifor an exclusive license to sell vadadustat solely to Fresenius Kidney Care Group LLC, or FKC, an affiliate of Fresenius Medical Care North America, in the United States (the “Territory”).

The parties’ rights under the Vifor Agreement are conditioned upon the approval of vadadustat for DD-CKD patients by the FDA, inclusion of vadadustat in a bundled reimbursement model, and payment by Vifor of a $20.0 million milestone upon the occurrence of these two events. The Vifor Agreement is structured as a profit share arrangement between the Company and Vifor in which the Company will receive a majority of the profit from Vifor’s sales of vadadustat to FKC in the Territory. The Company will share the milestone payment and the revenue from the profit share with Otsuka pursuant to the Otsuka U.S Agreement. The Company retains all rights to commercialize vadadustat for use in the NDD-CKD market and in other dialysis organizations in the Territory, which will be done in collaboration with Otsuka following FDA approval.

Prior to FDA approval of vadadustat, the Company and Vifor will enter into a commercial supply agreement for vadadustat pursuant to which the Company will supply all of Vifor’s requirements for vadadustat in the Territory. In addition, Vifor will enter into a supply agreement with FKC that will govern the terms pursuant to which Vifor will supply vadadustat to FKC for use in patients at its dialysis centers. During the term of the Vifor Agreement, Vifor will not sell to FKC or its affiliates any HIF product that competes with vadadustat in the Territory.

Unless earlier terminated, the Vifor Agreement will expire upon the later of the expiration of all patents that claim or cover vadadustat, or expiration of data or regulatory exclusivity for vadadustat in the Territory. Vifor may terminate the Vifor Agreement in its entirety upon 12 months’ prior written notice after the release of the first topline data in the vadadustat global Phase 3 program for dialysis-dependent CKD patients. Either party may terminate the Vifor Agreement in the event of the other party’s uncured material breach. The Company may also terminate the Vifor Agreement upon the occurrence of other events, such as for specific violations of the Vifor Agreement or if there are changes in Vifor’s relationship with FKC.

Investment Agreement

In connection with the Vifor Agreement, in May 2017, the Company and Vifor entered into an investment agreement, the Investment Agreement, pursuant to which the Company sold an aggregate of 3,571,429 shares of common stock, the Shares, par value $0.00001 per share, to Vifor at a price per share of $14.00 for a total of $50.0 million dollars.  The amount representing the premium over the closing stock price of $12.69 on the date of the transaction, totaling $4.7 million, was determined by the Company to represent consideration related to the Vifor Agreement.  As the parties’ rights under the Vifor Agreement are conditioned upon (a) the approval of vadadustat for DD-CKD patients by the FDA; (b) inclusion of vadadustat in a bundled reimbursement model; and (c) payment by Vifor of a $20.0 million milestone upon the occurrence of these two events, in accordance with ASC 605, the Company cannot currently determine the extent of its responsibility to supply all of Vifor’s requirements for vadadustat in the Territory.  Accordingly, the $4.7 million is recorded as deferred revenue in the accompanying consolidated balance sheets.  Upon the satisfaction of the aforementioned conditions, revenue will be recognized as the Company supplies vadadustat to Vifor using a proportional performance method.

Vifor has agreed to a lock-up restriction such that it agrees not to sell its shares for a period of time following the effective date of the Investment Agreement as well as a customary standstill agreement. In addition, the Investment Agreement contains voting agreements made by Vifor with respect to the Shares. The Shares have not been registered pursuant to Securities Act of 1933, the “Act”, and were issued and sold in reliance upon the exemption from registration contained in Section 4(a)(2) of the Act and Rule 506 promulgated thereunder.

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4. Available for sale securities

Available for sale securities at September 30, 2017 and December 31, 2016 consist of the following:

			Gross		Gross
			Unrealized		Unrealized
	Amortized Cost		Gains		Losses			Fair Value
	(in thousands)
September 30, 2017
Cash and cash equivalents	$	89,599	$	—	$	—		$	89,599
Available for sale securities:
Certificates of deposit	$	17,788	—		—			$	17,788
U.S. Government debt securities		152,913	—			(144	)		152,769
Corporate debt securities		69,587		2		(40	)		69,549
Total available for sale securities	$	240,288	$	2	$	(184	)	$	240,106
Total cash, cash equivalents, and available for sale securities	$	329,887	$	2	$	(184	)	$	329,705

			Gross		Gross
			Unrealized		Unrealized
	Amortized Cost		Gains		Losses			Fair Value
	(in thousands)
December 31, 2016
Cash and cash equivalents	$	187,335	$	—	$	—		$	187,335
Available for sale securities:
Certificates of deposit	$	12,698	—			—		$	12,698
U.S. Government debt securities		50,952	—			(32	)		50,920
Corporate debt securities		9,398	—			(8	)		9,390
Total available for sale securities	$	73,048	$	—	$	(40	)	$	73,008
Total cash, cash equivalents, and available for sale securities	$	260,383	$	—	$	(40	)	$	260,343

The estimated fair value of the Company’s available for sale securities balance at September 30, 2017, by contractual maturity, is as follows:

Due in one year or less	$	217,429
Due after one year		22,677
Total available for sale securities	$	240,106

5. Fair Value of Financial Instruments

The Company utilizes a portfolio management company for the valuation of the majority of its investments. This company is an independent, third-party vendor recognized to be an industry leader with access to market information that obtains or computes fair market values from quoted market prices, pricing for similar securities, recently executed transactions, cash flow models with yield curves and other pricing models. For valuations obtained from the pricing service, the Company performs due diligence to understand how the valuation was calculated or derived, focusing on the valuation technique used and the nature of the inputs.

Based on the fair value hierarchy, the Company classifies its cash equivalents and marketable securities within Level 1 or Level 2. This is because the Company values its cash equivalents and marketable securities using quoted market prices or alternative pricing sources and models utilizing market observable inputs.

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Assets measured or disclosed at fair value on a recurring basis as of September 30, 2017 and December 31, 2016 are summarized below:

	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
	(in thousands)
September 30, 2017
Assets:
Cash and cash equivalents	$	89,599	$	—	$	—	$	89,599
Certificates of deposit		—		17,788		—		17,788
U.S. Government debt securities		—		152,769		—		152,769
Corporate debt securities		—		69,549		—		69,549
	$	89,599	$	240,106	$	—	$	329,705

	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
	(in thousands)
December 31, 2016
Assets:
Cash and cash equivalents	$	187,335	$	—	$	—	$	187,335
Certificates of deposit		—		12,698		—		12,698
U.S. Government debt securities		—		50,920		—		50,920
Corporate debt securities		—		9,390		—		9,390
	$	187,335	$	73,008	$	—	$	260,343

The Company’s corporate debt securities are all investment grade.

The Company had no assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at September 30, 2017 and December 31, 2016.

Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in risks in the near term would result in material changes in the fair value of investments.

6. Accrued Expenses

Accrued expenses are as follows:

	September 30, 2017		December 31, 2016
	(in thousands)
Accrued clinical expenses	$	13,977	$	23,643
Accrued bonus		2,403		2,995
Accrued professional fees		1,541		539
Accrued vacation		691		513
Accrued payroll		536		596
Accrued other		2,279		1,975
Total accrued expenses	$	21,427	$	30,261

7. Warrant

In connection with the Janssen Agreement, in February 2017 the Company issued a warrant to purchase 509,611 shares of the Company’s common stock at an exercise price of $9.81 per share.  The warrant is fully vested upon issuance and exercisable in whole or in part, at any time prior to the fifth anniversary of the date of issuance. The warrant satisfied the equity classification criteria of ASC 815, and is therefore classified as an equity instrument.  The fair value at issuance of $3.4 million was calculated using the Black Scholes option pricing model and was charged to research and development expense as it represented consideration for a license for which the underlying intellectual property was deemed to have no alternative future use. As of September 30, 2017, the warrant remains outstanding and expires on February 9, 2022.

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8. Stockholders’ Equity

Authorized and Outstanding Capital Stock

As of September 30, 2017, the authorized capital stock of the Company included 175,000,000 shares of common stock, par value $0.00001 per share, of which 47,238,001 and 38,615,709 shares are issued and outstanding at September 30, 2017 and December 31, 2016, respectively; and 25,000,000 shares of undesignated preferred stock, par value $0.00001 per share, of which 0 shares are issued and outstanding at September 30, 2017 and December 31, 2016.

Equity Plans

On February 28, 2014, the Company’s Board of Directors adopted its 2014 Incentive Plan (the “2014 Plan”) and its 2014 Employee Stock Purchase Plan (the “ESPP”), which were subsequently approved by its stockholders and became effective upon the closing of the Company’s initial public offering on March 25, 2014. The 2014 Plan replaced the 2008 Equity Incentive Plan (as amended, the “2008 Plan”); however, options or other awards granted under the 2008 Plan prior to the adoption of the 2014 Plan that have not been settled or forfeited remain outstanding and effective. In May 2016 the Company’s Board of Directors approved an inducement award program that was separate from the Company’s equity plans and which, consistent with NASDAQ listing rules, did not require shareholder approval (the 2016 program and similar programs, each an “Inducement Award Program”) under which 350,000 shares were reserved to be issued in 2016 and awards relating to 255,000 shares were granted and remain eligible to vest. The Company continues to grant inducement awards to new hires under a 2017 authorization.

The 2014 Plan allows for the granting of stock options, stock appreciation rights (SARs), restricted stock, unrestricted stock, restricted stock units (RSUs), performance awards and other awards convertible into or otherwise based on shares of our common stock. Dividend equivalents may also be provided in connection with an award under the 2014 Plan. The Company’s employees, officers, directors and consultants and advisors are eligible to receive awards under the 2014 Plan. The Company initially reserved 1,785,000 shares of its common stock for the issuance of awards under the 2014 Plan. The 2014 Plan provides that the number of shares reserved and available for issuance under the 2014 Plan will automatically increase annually on January 1^st of each calendar year, by an amount equal to three percent (3%) of the number of shares of stock outstanding on a fully diluted basis as of the close of business on the immediately preceding December 31^st (the “2014 Plan Evergreen Provision”). The Company’s Board of Directors may act prior to January 1^st of any year to provide that there will be no automatic increase in the number of shares available for grant under the 2014 Plan for that year (or that the increase will be less than the amount that would otherwise have automatically been made). During the first nine months of 2017, the Company granted 1,124,400 stock options to employees, of which 405,000 were granted under the Inducement Award program, 439,900 RSUs to employees and 87,500 stock options to directors under the 2014 Plan.  

The ESPP provides for the issuance of options to purchase shares of the Company’s common stock to participating employees at a discount to their fair market value. The maximum aggregate number of shares of common stock available for purchase pursuant to the exercise of options granted under the ESPP will be the lesser of (a) 262,500 shares, increased on each anniversary of the adoption of the ESPP by one percent (1%) of the total shares of common stock then outstanding (the “ESPP Evergreen Provision”) and (b) 739,611 shares (which is equal to five percent (5%) of the total shares of common stock outstanding on the date of the adoption of the ESPP on a fully diluted, as converted basis. Under the ESPP, each offering period is six months, at the end of which employees may purchase shares of common stock through payroll deductions made over the term of the offering. The per-share purchase price at the end of each offering period is equal to the lesser of eighty-five percent (85%) of the closing price of our common stock at the beginning or end of the offering period. 

Shares Reserved for Future Issuance

The Company has reserved for future issuance the following number of shares of common stock:

	September 30, 2017		December 31, 2016
Common stock options and RSUs outstanding		4,471,741		3,579,694
Shares available for issuance under the 2014 Plan (1)		1,003,137		885,328
Warrant to purchase common stock		509,611		—
Shares available for issuance under the ESPP (2)		652,290		803,105
Total		6,636,779		5,268,127

⁽¹⁾ On January 1, 2017 and January 1, 2016, the shares reserved for future grants under the 2014 Plan increased by 1,265,863 and 986,800 shares, respectively, pursuant to the 2014 Plan Evergreen Provision.

⁽²⁾ On February 28, 2016, the shares reserved for future issuance under the ESPP increased by 273,404 shares pursuant to the ESPP Evergreen Provision.

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Stock-Based Compensation

Stock Options

On February 21, 2017, as part of the Company’s annual grant of equity, the Company issued 719,400 stock options to employees. In addition, the Company issues stock options to new hires and occasionally to other employees not in connection with the annual grant process.  Options granted by the Company vest over periods of between 12 and 48 months, subject, in each case, to the individual’s continued service through the applicable vesting date. Options vest in installments of (i) 25% at the one year anniversary and (ii) in either 36 or 48 equal monthly or 12 equal quarterly installments beginning in the thirteenth month after the initial vesting commencement date or grant date, subject to the individual’s continuous service with the Company. Options generally expire ten years after the date of grant. The Company recorded approximately $1.6 million and approximately $1.2 million of stock-based compensation expense related to stock options during the three months ended September 30, 2017 and 2016, respectively and approximately $4.9 million and $3.4 million during the nine months ended September 30, 2017 and 2016, respectively.

Restricted Stock

On December 23, 2013, the Company issued 450,224 shares of restricted stock to employees and 79,067 shares of restricted stock to non-employees at a grant date fair value of $7.42 per share.  The aggregate grant date fair value for the shares of restricted stock issued on December 23, 2013 totaled approximately $3.9 million. The awards of restricted stock contained a performance condition wherein vesting is contingent upon the Company’s consummation of a liquidity event, as defined, prior to the fifth anniversary of the date of grant. Certain of the awards of restricted stock have a requisite service period that was complete upon grant. The remainder of the awards of restricted stock have a requisite service period of four years whereby the award vests 25% on the one year anniversary of the Vesting Commencement Date (as defined), then ratably on the first day of each calendar quarter for 12 quarters, subject to continuous service by the individual and achievement of the performance target. Due to the nature of the performance condition, the Company had concluded that the performance condition was not probable of achievement and therefore, recognition of compensation cost had been deferred until the occurrence of a liquidity event, as defined.  Compensation expense related to the restricted stock awards is being recognized over the associated requisite service period which commenced on March 25, 2014. The Company recorded approximately $0.1 million of stock-based compensation expense related to restricted stock during each of the three months ended September 30, 2017 and 2016, and approximately $0.2 million and $0.1 million during the nine months ended September 30, 2017 and 2016, respectively, as a result of mark to market adjustments related to non-employees.  

Restricted Stock Units

On February 21, 2017, as part of the Company’s annual grant of equity, the Company issued 423,650 RSUs to employees.  In addition, the Company occasionally issues RSUs not in connection with the annual grant process to employees.  100% of each RSU grant vests on the third anniversary of the grant date, subject, in each case, to the individual’s continued service through the applicable vesting date. Total stock-compensation expense to be recognized over the life of the RSUs is $2.9 million and will be recognized on a straight-line basis over the vesting period. The Company recorded approximately $0.4 million and $0.2 million of stock-based compensation expense related to the RSUs during the three months ended September 30, 2017 and 2016, respectively, and approximately $1.5 million and $0.5 million during the nine months ended September 30, 2017 and 2016, respectively.

Employee Stock Purchase Plan

The first offering period under the ESPP opened on January 2, 2015.  The Company issued 44,789 shares during the first nine months of 2017.  The Company recorded approximately $47,000 and $32,000 of stock-based compensation expense related to ESPP during the three months ended September 30, 2017 and 2016, respectively, and approximately $0.1 million during each of the nine months ended September 30, 2017 and 2016.

Stock-Based Compensation Expense Summary

The Company has classified its stock-based compensation expense related to share-based awards as follows:

	Three months ended				Nine months ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
	(in thousands)				(in thousands)
Research and development	$	569	$	636	$	5,741	$	1,393
General and administrative		1,584		992		4,346		2,708
Total	$	2,153	$	1,628	$	10,087	$	4,101

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Compensation expense by type of award:

	Three months ended				Nine months ended
	September 30, 2017		September 30, 2016		September 30, 2017			September 30, 2016
	(in thousands)				(in thousands)
Stock options	$	1,606	$	1,229	$	4,927		$	3,378
Restricted stock		93		135		158			148
Restricted stock units		407		232		1,458			496
Employee stock purchase plan		47		32		131			79
Warrant		—		—		3,413			—
Total	$	2,153	$	1,628	$	10,087	(1)	$	4,101

⁽¹⁾ This amount includes $3.4 million of fair value related to the warrants issued to Janssen

9. Income Taxes

Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using statutory rates. A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized. There were no significant income tax provisions or benefits for the three months ended September 30, 2017 and 2016. Due to the uncertainty surrounding the realization of the favorable tax attributes in future tax returns, the Company has recorded a full valuation allowance against the Company’s otherwise recognizable net deferred tax assets.

10. Commitments and Contingencies

The Company leases approximately 45,362 square feet of office and lab space in Cambridge, Massachusetts under a lease which was most recently amended in July 2016, collectively, the Lease.  Total monthly lease payments for base rent are approximately $242,000 per month which is subject to annual rent escalations. In addition to such annual rent escalations, base rent payments for a portion of said premises commenced on January 1, 2017 in the monthly amount of approximately $22,000.  Landlord contributions included in the Lease from the landlord totaled $2,169,920, including $70,526 in leasehold improvements not yet utilized.  The landlord contributions are being accounted for as a deferred lease incentive and reduction in monthly rent expense over the term of the Lease. The term of the Lease with respect to the office space expires on September 11, 2026, with one five year extension option available.  The term of the Lease for the lab space is five years, with an extension option for one additional period of two years. The total security deposit in connection with the Lease of $1,280,857 is included in other assets in the Company’s condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016.  

The Company recognizes rent expense and records a deferred lease obligation representing the cumulative difference between actual facility lease payments and lease expense recognized ratably over the lease period, which is included in the Company’s condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016. 

Under the Lease, the Company took possession of the remaining 3,384 square feet of office space on January 1, 2017, and subleased this space on that date (the Sublease) as it did not intend to use the space for its operations. The term of the Sublease is two years and the monthly rent to be received by the Company is approximately $22,000. Under the Sublease, the Company’s operating lease obligations through 2018 are partially offset by the receipt of future Sublease payments of approximately $0.3 million. The total security deposit in connection with the Sublease of $21,432, which is due within 30 days from the execution of the Sublease, is included in other current assets and other liabilities in the Company’s condensed consolidated balance sheets.

The Company leases office equipment under three year capital leases with payments commencing in February 2014, April 2015 and February 2016, respectively.  The capital lease amounts are included in accrued expenses and other liabilities.      

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At September 30, 2017, the Company’s future minimum payments required under these leases are as follows:

			Lease Payments
	Operating		to be Received		Net Operating		Capital
	Lease		from Sublease		Lease Payments		Lease		Total
	(in thousands)
2017	$	886	$	64	$	822	$	2	$	824
2018		3,545		257	$	3,288		5	$	3,293
2019		3,545		—	$	3,545		—	$	3,545
2020		3,545		—	$	3,545		—	$	3,545
2021		3,510		—	$	3,510		—	$	3,510
Thereafter		14,666		—	$	14,666		—	$	14,666
Total	$	29,697	$	321	$	29,376		7	$	29,383
Less amount representing interest								—
Present value of minimum lease    payments at September 30, 2017							$	7

The Company recorded approximately $0.8 million and $0.6 million in rent expense for the three months ended September 30, 2017 and 2016, respectively, and approximately $2.4 million and $1.7 million for the nine months ended September 30, 2017 and 2016, respectively.

Under the Company’s agreement with a subsidiary of Quintiles IMS Holdings, Inc., or Quintiles, to provide services for the PRO₂TECT and INNO₂VATE programs, the total remaining contract costs as of September 30, 2017 were approximately $293.8 million including change orders totaling $32.9 million of additional costs entered into in October 2017. The estimated period of performance for the committed work with Quintiles is through the fourth quarter of 2019.  The Company contracts with various other organizations to conduct research and development activities with remaining contract costs to the Company of approximately $43.8 million and $24.9 million at September 30, 2017 and December 31, 2016, respectively. The scope of the services under these research and development contracts can be modified and the contracts cancelled by the Company upon written notice. In some instances, the contracts may be cancelled by the third party upon written notice.

In July 2011, a third party filed an opposition to our issued European Patent No. 2044005, or the ’005 Patent. During the oral proceedings, which took place on April 10, 2013, the Opposition Division of the European Patent Office maintained the ’005 Patent on the basis of the third auxiliary request filed during the oral proceedings. This decision resulted in the maintenance of a claim directed to a compound chosen from a group of eight compounds, including vadadustat, as well as claims to compositions and methods for treating various diseases, including, but not limited to, anemia. Both parties have appealed the decision of the Opposition Division and a hearing has been scheduled for May 8, 2018. The Company cannot be assured of the breadth of the claims that will remain in the ’005 Patent or that the patent will not be revoked in its entirety.

The Company has had a number of positive developments in its opposition and invalidity proceedings against FibroGen, Inc., or FibroGen. With regard to the opposition that the Company filed in Europe against FibroGen’s European Patent No. 1463823, or the ’823 patent, an oral proceeding took place March 8 and 9, 2016. Following the oral proceeding, the European Opposition Division ruled that the patent as granted did not meet the requirements for patentability under the European Patent Convention and, therefore, revoked the patent in its entirety. FibroGen has appealed that decision and the appeal process is expected to take 2 to 3 years. Likewise, with regard to the invalidity proceeding that the Company filed in Japan against certain claims of FibroGen’s Japanese Patent No. 4804131, or the ’131 patent, which is the Japanese counterpart to the ’823 patent, the Japan Patent Office, or JPO, issued a preliminary decision finding all of the challenged claims to be invalid. FibroGen subsequently amended the claims and the JPO accepted the amendments. The resulting FibroGen Japanese ’131 patent does not cover vadadustat or any pyridine carboxamide compounds. To date, FibroGen has been unsuccessful in its attempts to obtain a patent in the United States covering the same claim scope as it obtained initially in Europe and Japan in the ’823 and ’131 patents. In the event FibroGen were to obtain such a patent in the United States, the Company may decide to challenge them like the Company has done in Europe and Japan.

With regard to the opposition that we filed in Europe against FibroGen’s European Patent No. 163333, or the ’333 patent, an oral proceeding took place December 8 and 9, 2016.  Following the oral proceeding, the European Opposition Division ruled that the patent as granted did not meet the requirements for patentability under the European Patent Convention and, therefore, revoked the patent in its entirety.  FibroGen has appealed that decision.

On May 13, 2015, May 20, 2015 and July 6, 2015, the Company filed oppositions to FibroGen’s European Patent Nos. 2322153, 2322155, and 1633333, or the ’153 patent, the ’155 patent, and the ’333 patent, respectively, requesting the patents be revoked in their entirety. These related patents claim, among other things, various compounds that either stabilize HIFα or inhibit a HIF hydroxylase or a HIF prolyl hydroxylase for treating or preventing various conditions, including, inter alia, iron deficiency, microcytosis associated

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with iron deficiency, anemia of chronic disease, anemia wherein the subject has a transferrin saturation of less than 20%, anemia refractory to treatment with exogenously administered erythropoietin, or EPO, and microcytosis in microcytic anemia. Such method of use patents do not prevent persons from using the compound for other uses, including any previously known use of the compound. In particular, these patents do not claim methods of using any of our product candidates for purposes of inhibiting hypoxia-inducible factor prolyl hydroxylases, or HIF-PHs, for the treatment of anemia secondary to CKD. While the Company does not believe these patents will prevent it from commercializing vadadustat for treatment of anemia secondary to CKD, the Company filed these oppositions to provide us and our partners with maximum flexibility for developing vadadustat and our pipeline of HIF PH inhibitors. Oppositions to the ’155 patent and the ’153 patent were also filed by Glaxo Group Limited, or Glaxo, and by Bayer Intellectual Property GmbH, Bayer Pharma Aktiengesellschaft, and Bayer Animal Health GmbH.  In oral proceedings held on May 29, 2017, the European Opposition Division ruled that the '155 patent as granted did not meet the requirements for patentability under the European Patent Convention and, therefore, revoked the patent in its entirety. Subsequently, in related oral proceedings held on May 31, 2017 and June 1, 2017 for the '153 patent, FibroGen significantly narrowed the claims to an indication for which vadadustat is not intended to be developed.

The Company’s policy is to record a liability if a loss in a significant legal dispute is considered probable and an amount can be reasonably estimated. The Company provides disclosure when a loss in excess of any reserve is reasonably possible, and the Company is in a position to estimate the potential loss or range of possible loss. Significant judgment is required to assess the likelihood of various potential outcomes and the quantification of loss in those scenarios. The Company’s estimates change as litigation progresses and new information comes to light. Changes in Company estimates could have a material impact on the Company’s results and financial position.

11. Employee Retirement Plan

During 2008, the Company established a retirement plan (the Plan) authorized by Section 401(k) of the Internal Revenue Code. In accordance with the Plan, all employees who have attained the age of 21 are eligible to participate in the Plan as of the first Entry Date, as defined therein, following their date of employment. Each employee can contribute a percentage of compensation up to a maximum of the statutory limits per year. Company contributions are discretionary and contributions in the amount of approximately $27,000 and $21,000 were made during the three months ended September 30, 2017 and 2016, respectively, and approximately $0.2 million and $0.1 million during the nine months ended September 30, 2017 and 2016, respectively.

12. Net Loss per Share

The shares in the table below were excluded from the calculation of diluted net loss per share, prior to the use of the treasury stock method, due to their anti-dilutive effect:

	As of September 30,
	2017		2016
Warrants		509,611		—
Outstanding stock options		3,743,303		2,977,986
Unvested restricted stock		13,982		132,739
Unvested restricted stock units		728,438		438,563
Total		4,995,334		3,549,288

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q and the condensed consolidated financial statements and notes thereto for the year ended December 31, 2016, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in our annual report on Form 10-K filed with the United States Securities and Exchange Commission, or the SEC, on March 6, 2017, which we refer to as our annual report.

This report contains forward-looking statements made with the intention of obtaining the benefits of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. In this Quarterly Report on Form 10-Q, words such as “may,” “will,” “expect,” “anticipate,” “estimate,” “intend,” and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements.

Forward-looking statements involve risk and uncertainties that may cause our actual results, and the timing of events, to differ materially from the results and timing discussed, projected, anticipated, or indicated in any forward-looking statements. We caution readers that forward-looking statements are not guarantees of future performance.

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The following information, including all forward-looking statements, should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, including those risks identified under Part II, Item 1A. Risk Factors.

We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as required by law, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

Operating Overview

We are a biopharmaceutical company focused on developing and delivering novel therapeutics for patients based on hypoxia-inducible factor, or HIF, biology, and building our pipeline while leveraging our development and commercial expertise in renal disease. HIF is the primary regulator of the production of red blood cells, or RBCs, in the body, as well as other important metabolic functions.  Pharmacologic modulation of the HIF pathway may have broad therapeutic applications. Our lead product candidate, vadadustat, is an oral therapy in Phase 3 development, which has the potential to set a new standard of care in the treatment of anemia associated with chronic kidney disease, or CKD. Our management team has extensive experience in developing and commercializing drugs for the treatment of renal and metabolic disorders, as well as a deep understanding of HIF biology. This unique combination of HIF and renal expertise is enabling us to advance a pipeline of HIF-based therapies to address serious diseases.

HIF, a pathway involving hundreds of genes, is responsible for orchestrating the body’s natural response to lower levels of oxygen, or hypoxia. In response to hypoxia, a coordinated adaptive response occurs resulting in both an increase in red blood cell production, a normal biological process known as erythropoiesis, and enhancement of the delivery of iron to the bone marrow to support erythropoiesis. The significance of the HIF pathway was recognized by the 2016 Albert Lasker Basic Medical Research Award, which honored the three physician-scientists who discovered the HIF pathway and elucidated this primary oxygen sensing mechanism that is essential for survival. HIF protein is constantly being produced under normal oxygen conditions, but is quickly degraded by prolyl hydroxylases, or PH.  Under hypoxic conditions, HIF-PH’s are inhibited, allowing HIF to stimulate erythropoiesis.  These findings have opened up new possibilities for developing therapeutics, such as HIF-PH inhibitors, which have the potential to treat many diseases.

Our lead product candidate, vadadustat, is a HIF-PH inhibitor in Phase 3 development for the treatment of anemia of CKD. Anemia is a serious medical condition in which blood is deficient in hemoglobin, which is critical for delivering oxygen to organs and tissue. Untreated anemia is associated with chronic fatigue, increased risk of progression of multiple diseases and death. Anemia is common in patients with CKD, cancer, heart failure, inflammatory diseases and other critical illnesses.

More than 30 million people in the United States have CKD, with estimates that over 1.8 million of these patients suffer from anemia. Anemia from CKD is currently treated by injectable recombinant erythropoiesis-stimulating agents, or rESAs, such as EPOGEN^® and Aranesp^®, as well as with iron supplementation or red blood cell transfusion. Based on the reported revenues of companies that market and sell rESAs, global sales of injectable rESAs were estimated to be between $6.5 and $7.0 billion in 2015. The vast majority of these sales were for the treatment of anemia associated with renal disease.

rESAs deliver supra-physiological levels of exogenous erythropoietin, or EPO, to stimulate production of RBCs. While injectable rESAs may be effective in raising hemoglobin levels, they carry significant potential side effects, and need to be injected under the skin (subcutaneously) or into a vein (intravenously). In particular, injectable rESAs may lead to thrombosis, stroke, myocardial infarction and death. These safety concerns, which became evident starting in 2006, have led to a significant reduction in the use of injectable rESAs. Today, anemia is either not treated or inadequately treated in the majority of non-dialysis dependent (NDD) CKD patients. We believe that novel treatment options that address these concerns are needed and would have significant market potential. Because it mimics the body’s natural adaptive response to hypoxia, vadadustat’s HIF-PH inhibition may raise hemoglobin levels without causing supra-physiological levels of EPO.

Vadadustat has the potential to set a new standard of care for the treatment of anemia in CKD. Early clinical studies of vadadustat demonstrated that diurnal variation of EPO was maintained resulting in predictable increases in hemoglobin in normal human volunteers and similar results were seen in NDD-CKD. These data led us to the design of our Phase 3 clinical program. The vadadustat Phase 3 program in NDD-CKD patients with anemia, called PRO₂TECT, and in dialysis dependent (DD) CKD patients with anemia, called INNO₂VATE, is designed to enroll up to 6,700 patients evaluating once daily oral dosing of vadadustat against an rESA active comparator, darbepoetin alfa. The enrollment numbers and the completion of the Phase 3 program will be driven by the rate of major adverse cardiovascular events, or MACE. In December 2015, the first patient was dosed in PRO₂TECT, and the first patient was dosed in INNO₂VATE in August 2016. We expect the remaining aggregate cost of the Phase 3 program to be in the range of $450.0 million to $480.0 million. We expect to report top-line clinical data for the PRO₂TECT and INNO₂VATE studies in 2019.  If the results from our Phase 3 program are favorable, we currently anticipate submitting marketing applications for vadadustat for the treatment of anemia associated with CKD in the United States and Europe in 2019.

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In May 2017, we initiated a Phase 2 study of vadadustat in the rESA hyporesponder population, called FO₂RWARD.  Patients who do not adequately respond to rESA treatment represent approximately 10-15% of DD-CKD patients, yet hyporesponders account for 30-40% of total rESA use.  These patients have demonstrated a persistently higher risk of mortality than non-hyporesponders, and represent a high unmet need.  We believe that, given its differentiated mechanism of action, vadadustat may provide a treatment option for these patients, and we anticipate results from FO₂RWARD in the second half of 2018.  We plan to initiate a Phase 3 dosing study, called TRILO₂GY, in late 2017 or early 2018 to evaluate three-times weekly dosing of vadadustat patients receiving hemodialysis.  This is an important dosing option for dialysis providers, and we previously investigated this dosing regimen in our Phase 2 dialysis study.

If vadadustat is approved by the United States Food and Drug Administration, or FDA, we plan to establish our own commercial organization in the United States while leveraging our collaborations with Otsuka Pharmaceutical Co. Ltd., or Otsuka, and its well-established commercial organization in the United States, Europe, China and other markets. In Japan and other countries in Asia, we plan to commercialize vadadustat through our collaboration with Mitsubishi Tanabe Pharma Corporation, or MTPC. In May 2017, we entered into an exclusive license agreement with Vifor Pharma, or Vifor, to sell vadadustat solely to Fresenius Kidney Care Group LLC Fresenius Medical Care, or FKC, dialysis clinics in the United States upon approval by the FDA and inclusion of vadadustat in a bundled reimbursement model.  During the term of the license agreement, Vifor may not sell to FKC or its affiliates any HIF product that competes with vadadustat in the United States.

In addition to vadadustat, we are developing a HIF-based portfolio of product candidates that target serious diseases of high unmet need. Our portfolio includes product candidates developed internally as well as in-licensed product candidates, such as AKB-5169. In February 2017, we signed an exclusive agreement with Janssen Pharmaceutica NV, or Janssen, a subsidiary of Johnson & Johnson, for access to an extensive library of well-characterized HIF pathway compounds with potential applications across multiple therapeutic areas.  The lead compound, AKB-5169, is a differentiated preclinical compound in development as an oral treatment for inflammatory bowel disease, or IBD. We intend to complete further preclinical development of this compound with the goal of submitting an Investigational New Drug application to the FDA in 2018.

Since our inception in 2007, we have devoted the largest portion of our resources to our development efforts relating to vadadustat, including preparing for and conducting clinical studies of vadadustat, providing general and administrative support for these operations and protecting our intellectual property. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations primarily through equity offerings and strategic collaborations.

We have never been profitable and have incurred net losses in each year since inception. Our net losses were $89.2 million and $97.9 million for the nine months ended September 30, 2017 and 2016, respectively. Substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

We expect to continue to incur significant operating expenses and increased operating losses for at least the next several years. We expect our expenses will increase substantially in connection with our ongoing activities, as we:

• complete the development of vadadustat for anemia secondary to CKD;

• conduct the FO₂RWARD and TRILO₂GY clinical studies;

• seek regulatory approvals for our product candidates that successfully complete clinical trials;

• have our product candidates manufactured for clinical trials and for commercial sale;

• establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;

• initiate and continue preclinical and clinical development of our HIF compounds and product candidates;

• initiate additional preclinical, clinical or other studies for vadadustat;

• seek to discover and develop additional product candidates;

• acquire, in-license and develop other commercial products, product candidates and technologies;

• make royalty, milestone or other payments under our license agreement with Janssen and any future in-license agreements;

• maintain, protect and expand our intellectual property portfolio;

• attract and retain skilled personnel; and

• continue to create additional infrastructure to support our operations as a public company.

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We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. We have no manufacturing facilities, and all of our manufacturing activities are contracted out to third parties. Additionally, we currently utilize third-party contract research organizations, or CROs, to carry out our clinical development activities, and we do not yet have a sales organization. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we will seek to fund our operations through public or private equity or debt financings or other sources including geographic partnerships. However, we may be unable to raise additional funds or enter into other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our products.

Through September 2017, we have raised approximately $318.3 million of net proceeds, including $292.6 million from four underwritten public offerings, $25.7 million from an at-the-market offering, or ATM, pursuant to a Sales Agreement with Cantor Fitzgerald & Co and $50.0 million from the sale of 3,571,429 shares of common stock to Vifor Pharma. Our collaborators have committed up to $373.0 million or more in license payments and cost-share funding, which the Company continues to receive on a quarterly prepaid basis.

Financial Overview

In the quarter ended June 30, 2017, we identified and corrected an immaterial error in the amount of research and development expenses related to our global Phase 3 study of vadadustat.  This adjustment also affected the amount of revenue recognized pursuant to our license and collaboration agreements with Otsuka. The adjustments impacted our results of operations in each quarter of 2016 and the first quarter of 2017.  We concluded the effect of these adjustments was not material to our consolidated financial statements for any prior period.

Revenue

To date, we have not generated any revenue from the sales of products. Our revenues have been derived from collaboration agreements.

Revenue recognition for our MTPC collaboration will commence when we begin to deliver the clinical supply of vadadustat to MTPC, which we expect to begin in the fourth quarter of 2017. Therefore, collaboration revenue in the current period is generated exclusively from our collaboration arrangements with Otsuka. The terms of the Otsuka U.S. Agreement contain multiple deliverables, which include at inception: (i) license under certain of our intellectual property to develop, perform medical affairs activities with respect to and conduct non-promotional and commercialization activities related to vadadustat  (the License Deliverable), (ii) development services to be performed pursuant to the current global development plan (the Development Services Deliverable), (iii) rights to future intellectual property (the Future IP Deliverable) and (iv) joint committee services (the Committee Deliverable). We have identified three units of accounting in connection with our obligations under the U.S. collaboration agreement with Otsuka as follows: (i) License Unit of Accounting, which combines the License Deliverable and the Development Services Deliverable (ii) Rights to Future Intellectual Property Unit of Accounting and (iii) Joint Committee Services Unit of Accounting.

The terms of the Otsuka EU Agreement contain multiple deliverables, which include at inception: (i) license under certain of our intellectual property to develop and commercialization activities related to vadadustat (the License Deliverable), (ii) development services to be performed pursuant to the current global development plan (the Development Services Deliverable), (iii) rights to future intellectual property (the Future IP Deliverable), and (iv) joint committee services (the Committee Deliverable). We have identified three units of accounting in connection with our obligations under the EU collaboration agreement with Otsuka as follows: (i) License Unit of Accounting, which combines the License Deliverable and the Development Services Deliverable (ii) Rights to Future Intellectual Property Unit of Accounting, and (iii) Joint Committee Services Unit of Accounting.

We recognize arrangement consideration allocated to each unit of accounting when all of the revenue recognition criteria in Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 605, Revenue Recognition, or ASC 605, are satisfied for that particular unit of accounting.

The Company will recognize revenue related to amounts allocated to the License Unit of Accounting on a proportional performance basis as the underlying services are performed.

Our ability to generate product revenue and become profitable depends upon our ability to successfully develop and commercialize products. We expect to incur losses for the foreseeable future, and we expect these losses to increase as we continue our development of, and seek regulatory approvals for, our product candidates and begin to commercialize any approved products. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenue from the sale of

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our products, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce our operations.

For the foreseeable future, we expect substantially all of our revenue will be generated from our collaborations with Otsuka and MTPC and any other collaborations we may enter into.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:

• employee-related expenses, including salaries, benefits, recruiting fees, travel and stock-based compensation expense;

• expenses incurred under agreements with the CROs and investigative sites that conduct our clinical studies;

• the cost of acquiring, developing and manufacturing clinical study materials;

• facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies; and

• costs associated with preclinical and clinical activities.

Research and development costs are expensed as incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites.

We cannot determine with certainty the duration and completion costs of the current or future clinical studies of our product candidates or if, when, or to what extent we will generate revenue from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates.

The duration, costs and timing of clinical studies and development of our product candidates will depend on a variety of factors, including:

• the results of our meetings with the FDA and the EMA and other regulatory authorities and the consequential effect on our study design, study size and resulting operating costs;

• the size, rate of progress, results and costs of completing our global Phase 3 development of vadadustat;

• difficulties or delays in enrolling patients in our clinical trials;

• assuming favorable Phase 3 clinical results, the timing of, and the costs involved in, obtaining regulatory approvals for vadadustat in dialysis and non-dialysis indications, including to fund the preparation and filing of regulatory submissions for vadadustat with the FDA, the EMA and other regulatory authorities, and whether we will seek regulatory approval for both indications simultaneously;

• the cost of conducting the FO₂RWARD and TRILO₂GY clinical studies;

• the cost, timing and outcome of our efforts to obtain marketing approval for vadadustat in the United States, Europe and other regions;

• the scope, progress, results and costs of additional preclinical, clinical, or other studies for vadadustat, as well as any studies of AKB-5169 and other product candidates that we may develop or acquire;

• the timing of, and the costs involved in, obtaining regulatory approvals for AKB-5169 and other product candidates that we may develop or acquire, if clinical studies are successful;

• the cost of having our product candidates manufactured and obtaining comparator product for clinical trials;

• the cost and timing of future commercialization activities for our products, if any of our product candidates are approved for marketing, including product manufacturing, marketing, sales and distribution costs;

• our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements; and

• unanticipated changes to laws or regulations applicable to our clinical trials.

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA, EMA or another regulatory authority were to require us to conduct clinical studies in addition to or different from those that we currently anticipate, or

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if we experience significant delays in enrollment in any of our clinical studies, we could be required to expend significant additional financial resources and time on the completion of clinical development.

From inception through September 30, 2017, we have incurred $394.4 million in research and development expenses. We plan to increase our research and development expenditures for the foreseeable future as we continue the development of vadadustat and our other product candidates. Our current and/or planned research and development activities include the following:

• global development of vadadustat;

• research and development of compounds in our HIF portfolio, including product candidates such as AKB-5169; and

• diversification of our pipeline in kidney disease and other HIF-modulated diseases.

Our direct research and development expenses consist principally of external costs, such as fees paid to clinical trial sites, consultants, central laboratories and CROs in connection with our clinical studies, and costs related to acquiring and manufacturing clinical study materials.

We currently have four programs to which our research and development costs are attributable. Historically, we have not accumulated and tracked our research and development costs or our personnel and personnel-related costs on a program-by-program basis. Our employee and infrastructure resources, and many of our costs, were directed broadly to applicable research endeavors. As a result, we are unable to specify precisely the historical costs incurred for each of our programs on a program-by-program basis.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs for personnel, including stock-based compensation and travel expenses. Other general and administrative expenses include facility-related costs, fees for directors, accounting and legal services fees, recruiting fees and expenses associated with obtaining and maintaining patents.  

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates. We also anticipate increased expenses related to finance, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, and our other costs associated with being a public company. Additionally, we anticipate an increase in payroll and related expenses if and when we prepare for commercial operations, especially in sales and marketing.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to prepaid and accrued research and development expenses and stock-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue  

We recognize revenue in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 605, Revenue Recognition, or ASC 605. Accordingly, revenue is recognized for each unit of accounting when all of the following criteria are met:

• persuasive evidence of an arrangement exists;

• delivery has occurred or services have been rendered;

• the seller’s price to the buyer is fixed or determinable; and

• collectability is reasonably assured.

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Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in our consolidated balance sheets.

Multiple Element Arrangements

Determination of Accounting Units

We analyze multiple element arrangements based on the guidance in ASC Topic 605‑25, Revenue Recognition—Multiple Element Arrangements, or ASC 605‑25. Pursuant to the guidance in ASC 605‑25, we evaluate multiple element arrangements to determine (1) the deliverables included in the arrangement and (2) whether the individual deliverables represent separate units of accounting or whether they must be accounted for as a combined unit of accounting. This evaluation involves subjective determinations and requires management to make judgments about the individual deliverables and whether such deliverables are separate from other aspects of the contractual relationship. Deliverables are considered separate units of accounting provided that: (i) the delivered item(s) has value to the customer on a standalone basis and (ii) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially within our control. In assessing whether an item under a collaboration has standalone value, we consider factors such as the research, manufacturing, and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. We also consider whether our collaboration partner can use the other deliverable(s) for their intended purpose without the receipt of the remaining element(s), whether the value of the deliverable is dependent on the undelivered item(s), and whether there are other vendors that can provide the undelivered element(s).

Options under a collaboration are considered substantive if, at the inception of the arrangement, we are at risk as to whether the collaboration partner will choose to exercise the option. Factors that we consider in evaluating whether an option is substantive include the cost to exercise the option, the overall objective of the arrangement, the benefit the collaboration partner might obtain from the arrangement without exercising the option, and the likelihood the option will be exercised. When an option is considered substantive, we would not consider the option or item underlying the option to be a deliverable at the inception of the arrangement and the associated option fees are not included in allocable consideration, assuming the option is not priced at a significant and incremental discount. Conversely, when an option is not considered substantive, we would consider the option, including other deliverables contingent upon the exercise of the option, to be a deliverable at the inception of the arrangement and a corresponding amount would be included in allocable arrangement consideration. In addition, if the price of the option includes a significant incremental discount, the discount would be included as a deliverable at the inception of the arrangement.

Allocation of Arrangement Consideration

Arrangement consideration that is fixed or determinable is allocated among the separate units of accounting using the relative selling price method. The applicable revenue recognition criteria in ASC 605 are applied to each of the separate units of accounting in determining the appropriate period and pattern of recognition. We determine the selling price of a unit of accounting following the hierarchy of evidence prescribed by ASC 605‑25. Accordingly, we determine the estimated selling price for units of accounting within each arrangement using vendor specific objective evidence, or VSOE, of selling price, if available, third‑party evidence, or TPE, of selling price if VSOE is not available, or best estimate of selling price, or BESP, if neither VSOE or TPE is available. We have only used BESP to estimate selling price, since we have not had VSOE or TPE of selling price for any units of accounting to date. Determining BESP for a unit of accounting requires significant judgment. In developing the BESP for a unit of accounting, we consider applicable market conditions and relevant entity‑specific factors, including factors that were contemplated in negotiating the applicable agreement and estimated costs. We validate BESP for units of accounting by evaluating whether changes in the key assumptions used by us to determine the BESP will have a significant effect on the allocation of arrangement consideration between multiple units of accounting.

Pattern of Recognition

We recognize the arrangement’s consideration allocated to each unit of accounting when all of the revenue recognition criteria in ASC 605 are satisfied for that particular unit of accounting. We recognize revenue associated with licenses, license options, or the discount related to a license option upon (i) delivery of the license or (ii) the earlier of exercise or expiration of the license option, if the underlying license has standalone value from the other deliverables to be provided after delivering that license. If the license does not have standalone value, the amounts allocated to the license are combined with the related undelivered items as a single unit of accounting.

We recognize the amounts associated with collaboration research and development services, joint research committees, or other services ratably over the associated period of performance. If there is no discernible pattern of performance or objectively measurable performance measures do not exist, then we recognize revenue under the arrangement on a straight‑line basis over the period that we are expected to complete our performance obligations. Conversely, if the pattern of performance in which the service is provided to the collaboration partner can be determined and objectively measureable performance exists, then we

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recognize revenue under the arrangement using the proportional performance method. Revenue to be recognized is limited to the lesser of the cumulative amount of payments received or the cumulative revenue earned determined using the straight line method or proportional performance, as applicable, as of the period end date.

Recognition of Milestones and Royalties

At the inception of an arrangement that includes milestone payments, we evaluate whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone. This evaluation includes an assessment of whether: (1) the consideration is commensurate with either our performance to achieve the milestone or the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from our performance to achieve the milestone, (2) the consideration relates solely to past performance, and (3) the consideration is reasonably relative to all of the deliverables and payment terms within the arrangement. We evaluate factors such as clinical, regulatory, commercial, and other risks that must be overcome to achieve the respective milestones and the level of effort and investment required to achieve the respective milestones in making this assessment. There is considerable judgment involved in determining whether a milestone satisfies all of the criteria required to conclude that a milestone is substantive. In accordance with ASC Topic 605‑28, Revenue Recognition—Milestone Method, or ASC 605‑28, a clinical or regulatory milestone that is considered substantive will be recognized as revenue in its entirety upon successful accomplishment of the milestone, assuming all other revenue recognition criteria are met. Milestones that are not considered substantive would be recognized as revenue over the remaining period of performance, assuming all other revenue recognition criteria are met. Revenue from a commercial milestone payment will be accounted for as royalties and recorded as revenue upon achievement of the milestone, assuming all other revenue recognition criteria are met.

We will recognize royalty revenue in the period of sale of the related product(s), based on the underlying contract terms, provided that the reported sales are reliably measurable, we have no remaining performance obligations, and assuming all other revenue recognition criteria are met.

Prepaid and Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our prepaid and accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our prepaid and accrued research and development expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated prepaid and accrued research and development expenses include expenses for:

• CROs in connection with clinical studies;

• investigative sites in connection with clinical studies;

• vendors in connection with preclinical development activities; and

• vendors related to product manufacturing, development and distribution of clinical materials.

We base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple CROs that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. The scope of services under contracts for research and development activities can be modified and some of the agreements may be cancelled by either party upon written notice. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical study milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid accordingly.

Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed we may report amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates and the amount actually incurred.  

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Stock-Based Compensation

Stock-Based Awards

We issue stock-based awards to employees and non-employees, generally in the form of stock options, restricted stock, RSUs, shares of common stock and warrants. We account for our stock-based compensation awards in accordance with Financial Accounting Standards Board, (FASB) ASC Topic 718, Compensation—Stock Compensation, or ASC 718. ASC 718 requires all stock-based payments to employees, including grants of employee stock options and restricted stock and modifications to existing stock awards, to be recognized in the statements of operations and comprehensive loss based on their fair values. We account for stock-based awards to non-employees in accordance with ASC Topic 505-50, Equity-Based-Payments to Non-Employees, or ASC 505-50, which requires the fair value of the award to be re-measured at fair value until a performance commitment is reached or counterparty performance is complete. Described below is the methodology we have utilized in measuring stock-based compensation expense. Stock option, common stock and restricted stock values are determined based on a blend of our stock price and the quoted market price of our comparable public companies.

We estimate the fair value of our stock-based awards of options to purchase shares of common stock to employees and non-employees using the Black-Scholes option pricing model, which requires the input of highly 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 the lack of company-specific historical and implied volatility data for trading our stock in the public market, we have based our estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. The computation of expected volatility is based on the historical volatility of a representative group of companies with similar characteristics to our company, including stage of product development and life science industry focus. During 2017, we began to estimate our volatility by using a blend of our stock price history for the length of time we have market data for our stock and the historical volatility of similar public companies for the expected term of each grant. We are a company in the product development stage with no product revenue and the representative group of companies has certain similar characteristics. We believe the group selected has sufficient similar economic and industry characteristics, and includes companies that are most representative of our company. We use the simplified method as prescribed by the SEC Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate the expected term for options granted to employees as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The expected term is applied to the stock option grant group as a whole, as we do not expect substantially different exercise or post-vesting termination behavior among our employee population. For options granted to non-employees, we utilize the contractual term of the arrangement as the basis for the expected term assumption. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. The expected dividend yield is assumed to be zero as we have never paid dividends and have no current plans to pay any dividends on our common stock, similar to our peer group. We estimate grant date fair value of restricted stock awards with corresponding promissory notes using the Black-Scholes option pricing model. The grant date fair value of restricted stock awards and awards of common stock has been based on the estimated value of our common stock at the date of grant.

Our stock-based awards are subject to service-based vesting conditions. Compensation expense related to awards to employees with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term. Consistent with the guidance in ASC 505-50, compensation expense related to awards to non-employees with service-based vesting conditions is recognized on a straight-line basis based on the then-current fair value at each financial reporting date prior to the measurement date over the associated service period of the award, which is generally the vesting term.

The Company adopted ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, effective in the first quarter of the year ended December 31, 2017. Prior to adoption, share-based compensation expense was recognized on a straight line basis, net of estimated forfeitures, such that expense was recognized only for share-based awards that are expected to vest. A forfeiture rate was estimated annually and revised, if necessary, in subsequent periods if actual forfeitures differed from initial estimates. Upon adoption, the Company will no longer apply a forfeiture rate and instead will account for forfeitures as they occur.

Stock-based compensation expense totaled approximately $2.2 million and $1.6 million for the three months ended September 30, 2017 and 2016, respectively, and approximately $10.1 and $4.1 million for the nine months ended September 30, 2017 and 2016, respectively.

We expect the impact of our stock-based compensation expense for stock options and restricted stock granted to employees and non-employees to grow in future periods due to the potential increases in the fair value of our common stock and the increase in the number of grants as a result of an increase in headcount.

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Emerging Growth Company Status

The JOBS Act permits an “emerging growth company” to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We chose to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

Results of Operations

Comparison of the Three Months Ended September 30, 2017 and 2016

	Three months ended						Increase
	September 30, 2017			September 30, 2016			(Decrease)
	(In Thousands)
Collaboration revenue	$	41,283		$	—		$	41,283
Operating expenses:
Research and development		58,711			31,238			27,473
General and administrative		6,748			4,944			1,804
Total operating expenses		65,459			36,182			29,277
Loss from operations		(24,176	)		(36,182	)		(12,006	)
Other income, net		1,042			(126	)		1,168
Net loss	$	(23,134	)	$	(36,308	)	$	(13,174	)

Collaboration Revenue. Collaboration revenue was $41.3 million for the three months ended September 30, 2017 and related entirely to our agreements with Otsuka. We did not recognize any collaboration revenue in the three month period ended September 30, 2016 as the Otsuka agreements were not consummated in that time period, and all revenue recognition criteria for the MTPC Agreement, as required under ASC 605, had not been satisfied.

Research and Development Expenses. Research and development expenses were $58.7 million for the three months ended September 30, 2017, compared to $31.2 million for the three months ended September 30, 2016, an increase of $27.5 million. The increase was primarily due to the following:

	(inmillions)
PRO2TECT and INNO2VATE Phase 3 program	$	20.1
FO2RWARD and TRILO2GY studies		2.6
Japan Phase 3 studies		2.1
Regulatory and other clinical and non-clinical activities		1.3
Manufacture of drug substance		(0.1	)
Total increase related to the continued development of vadadustat		26.0
Headcount, consulting and facilities		1.4
Other		0.1
Total net increase	$	27.5

The increase in the costs related to the development of vadadustat is primarily attributable to external costs related to the PRO₂TECT and INNO₂VATE Phase 3 program, the Phase 2 studies in Japan and activities related to the FO₂RWARD and TRILO₂GY studies. We expect to incur a total of approximately $25.0 million for the Phase 2 studies in Japan of which MTPC has already paid $20.0 million and MTPC will reimburse us for the remaining costs once incurred. The increase in headcount, consulting and facility related costs relates to additional resources required to support our expanding research and development programs. We expect our research and development expenses to increase in future periods in support of the Phase 3 programs and other studies and our pipeline development.

General and Administrative Expenses. General and administrative expenses were $6.7 million for the three months ended September 30, 2017, compared to $4.9 million for the three months ended September 30, 2016. The increase of $1.8 million was primarily due to an increase in costs to support our research and development programs, including headcount and compensation-related costs, and associated facility-related costs as well as an increase in patent costs. We expect our general and administrative expenses to increase in future periods to support our continued research and development and potential commercialization of our product candidates.

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Other Income, Net. Other income, net, was $1.0 million for the three months ended September 30, 2017 and was primarily comprised of interest income. Other expense, net for the three months ended September 30, 2016 consisted of interest income of $0.2 million offset by expenses related to the write-off of capitalized software.

Results of Operations

Comparison of the Nine Months Ended September 30, 2017 and 2016

	Nine Months Ended						Increase
	September 30, 2017			September 30, 2016			(Decrease)
	(In Thousands)
Collaboration revenue	$	90,668		$	—		$	90,668
Operating expenses:
Research and development	$	162,511		$	82,350		$	80,161
General and administrative		19,441			16,066			3,375
Total operating expenses		181,952			98,416			83,536
Loss from operations		(91,284	)		(98,416	)	$	(7,132	)
Other income, net		2,090			531			1,559
Net loss	$	(89,194	)	$	(97,885	)	$	(8,691	)

Collaboration Revenue. Collaboration revenue was $90.7 million for the nine months ended September 30, 2017 under our agreement with Otsuka. We did not recognize any collaboration revenue in the nine month period ended September 30, 2016 as the Otsuka agreements were not consummated in that time period, and all revenue recognition criteria for the MTPC Agreement, as required under ASC 605, had not been satisfied.  

Research and Development Expenses. Research and development expenses were $162.5 million for the nine months ended September 30, 2017, compared to $82.4 million for the nine months ended September 30, 2016, an increase of $80.2 million. The increase was primarily due to the following:

	(in millions)
PRO2TECT and INNO2VATE Phase 3 program	$	51.0
Japan Phase 2 studies		11.0
FO2WARD and TRILO2GY studies		5.6
Regulatory and other clinical and non-clinical activities		2.6
Medical affairs		0.6
Manufacture of drug substance		(1.3	)
Total increase related to the continued development of vadadustat		69.5
Headcount, consulting and facilities		5.9
Fair value of warrant issued in connection with Janssen Agreement		3.4
License fee in connection with Janssen Agreement		1.0
Other		0.4
Total net increase	$	80.2

The increase in the costs related to the development of vadadustat is primarily attributable to external costs related to the PRO₂TECT and INNO₂VATE Phase 3 program, the Phase 2 studies in Japan and activities related to the FO₂RWARD and TRILO₂GY studies. We expect to incur a total of approximately $25.0 million for the Phase 2 studies in Japan of which MTPC has already paid $20.0 million and MTPC will reimburse us for the remaining costs once incurred The increase in headcount, consulting and facility related costs relates to additional resources required to support our expanding research and development programs.  We expect our research and development expenses to increase in future periods in support of the Phase 3 programs and other studies and our pipeline development.

General and Administrative Expenses. General and administrative expenses were $19.4 million for the nine months ended September 30, 2017, compared to $16.1 million for the nine months ended September 30, 2016. The increase of $3.4 million was primarily due to an increase in costs to support our research and development programs, including headcount and compensation-related costs, and associated facility-related costs partially offset by lower commercial planning costs and patent related costs. We expect our general and administrative expenses to increase in future periods to support our continued research and development and potential commercialization of our product candidates.

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Other Income, Net. Other income, net was $2.1 million for the nine months ended September 30, 2017 and $0.5 million for the nine months ended September 30, 2016. Other income, net for the nine months ended September 30, 2017 is primarily comprised of interest income.  Other income, net for the nine months ended September 30, 2016 is primarily comprised of interest income partially offset by expenses related to the write-off of capitalized software.

Liquidity and Capital Resources

We have incurred losses and cumulative negative cash flows from operations since our inception in February 2007, and as of September 30, 2017, we had an accumulated deficit of $386.3 million. We anticipate that we will continue to incur losses for at least the next several years. We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may raise through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.

We have funded our operations principally through sales of our common stock and payments received from our collaboration partners. As of September 30, 2017, we had cash and cash equivalents and available for sale securities of approximately $329.7 million.  Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Accordingly, available for sale securities, consisting principally of corporate and government debt securities stated at fair value, are also available as a source of liquidity.  

Cash Flows

The following table sets forth the primary sources and uses of cash for each of the periods set forth below:

	Nine Months Ended
	September 30, 2017			September 30, 2016
	(In Thousands)
Net cash provided by (used in):
Operating activities	$	(39,781	)	$	(37,764	)
Investing activities		(168,952	)		(9,601	)
Financing activities		110,997			63,417
Net (decrease) increase in cash and cash equivalents	$	(97,736	)	$	16,052

Operating Activities. The net cash used in operating activities was $39.8 million for the nine months ended September 30, 2017 and consisted primarily of a net loss of $89.2 million adjusted for non-cash items, including stock-based compensation expense of $10.1 million, amortization of premium/discount on investments of $0.5 million, depreciation and amortization of $0.4 million and a net increase in operating assets and liabilities of $38.4 million. The significant items in the change in operating assets and liabilities include an increase in deferred revenue of $8.4 million and a decrease in unbilled receivable of approximately $33.5 million related to unbilled payments from Otsuka received in the first quarter of 2017, an increase in deferred rent of approximately $0.3 million partially offset by a decrease in accounts payable and accrued expenses of approximately $2.2 million and a decrease of approximately $1.8 million in prepaid expenses and other current assets. The net decrease in accounts payable and accrued expenses is primarily driven by clinical and non-clinical study costs associated with vadadustat.

The net cash used in operating activities was $37.8 million for the nine months ended September 30, 2016 and consisted primarily of a net loss of $97.9 million adjusted for non-cash items, including stock-based compensation expense of $4.1 million, amortization of premium/discount on investments of $0.4 million, depreciation and amortization of $0.2 million, loss on disposal of property and equipment of $0.3 million and a net increase in operating assets and liabilities of $55.1 million. The significant items in the change in operating assets and liabilities include an increase in deferred revenue of $40.0 million attributableto payments made to us pursuant to our collaboration with MTPC, an increase in deferred rent of $2.2 million and an increase in accounts payable and accrued expenses of approximately $14.2 million partially offset by a decrease of approximately $1.3 million in prepaid expenses and other current assets. The net increase in accounts payable and accrued expenses is primarily driven by clinical and non-clinical study costs associated with vadadustat and AKB-6899.

Investing Activities. Net cash used in investing activities for the nine months ended September 30, 2017 was $169.0 million and was comprised primarily of purchases of available for sale securities of $265.6 million and purchases of equipment of $1.2 million, offset by proceeds from the maturities of available for sale securities of $97.9 million.

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Net cash used in investing activities for the nine months ended September 30, 2016 was $9.6 million and was comprised primarily of purchases of available for sale securities of $132.1 million and purchases of equipment of $2.6 million, offset by proceeds from the maturities of available for sale securities of $125.1 million.

Financing Activities. Net cash provided by financing activities for the nine months ended September 30, 2017 was $111.0 million and consisted primarily of net proceeds from the public issuance of common stock, proceeds from the exercise of stock options and proceeds from the sale of stock under our employee stock purchase plan.

Net cash provided by financing activities for the nine months ended September 30, 2016 was $63.4 million and consisted primarily of net proceeds from the public issuance of common stock, proceeds from the exercise of stock options and proceeds from the sale of stock under our employee stock purchase plan.

Operating Capital Requirements

To date, we have not generated any revenue from product sales. We do not know when, or if, we will generate revenue from product sales. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize one of our current or future product candidates. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. We are subject to all risks incident to the development and commercialization of novel therapeutics, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We expect to incur additional costs associated with operating as a public company, and we anticipate that we will need substantial additional funding in connection with our continuing operations.

We ended the third quarter of 2017 with cash, cash equivalents and available for sale securities of $329.7 million. Our collaborators have committed up to $373.0 million or more in license payments and cost-share funding, which the Company continues to receive on a quarterly prepaid basis. The Company expects its existing cash resources, including the timing of committed research and development funding from its collaborators, to fund the Company’s current operating plan into the second of 2019. Thereafter committed research and development funding will continue to be received from Otsuka on a prepaid, quarterly basis.

We will require additional capital for the further development of our existing product candidates and will need to raise additional funds sooner to pursue development activities related to additional product candidates. If and until we can generate a sufficient amount of revenue from our products, we expect to finance future cash needs through public or private equity, debt offerings, or strategic transactions. We have based these estimates on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Furthermore, our development milestones may not be achieved, we may not receive the anticipated funding from our collaboration partners, and we may not secure other sources of financing. Additional funds may not be available to us on acceptable terms or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing stockholders or increased fixed payment obligations, and any such securities may have rights senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects.

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors. We have based this estimate on assumptions that may be substantially different than actual results, and we could utilize our available capital resources sooner than we currently expect. Our future funding requirements, both near- and long-term, will depend on many factors including, but not limited to, those described under Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q.

If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition and results of operations could be materially adversely affected.

Contractual Obligations and Commitments

There have been no material changes to our contractual obligations from those described in our Annual Report on Form 10-K that was filed with the SEC on March 6, 2017 other than change orders totaling $32.9 million of additional costs entered into in October 2017 under our agreement with Quintiles. Under our agreement with Quintiles our total remaining contract costs were $293.8 million, including the change orders signed in October 2017.

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Off-Balance Sheet Arrangements

As of September 30, 2017 we did not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk related to changes in interest rates. As of September 30, 2017 and December 31, 2016, we had cash and cash equivalents and available-for-sale securities of $329.7 million and $260.3 million, respectively, primarily money market mutual funds consisting of U.S. government debt securities, certificates of deposit and corporate debt securities. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in short-term securities. Our investments are subject to interest rate risk and will fall in value if market interest rates increase. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our portfolio.

Item 4. Controls and Procedures

Management’s Evaluation of our Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

As of September 30, 2017, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

During the second quarter of fiscal 2017, we identified a material weakness in our internal control over financial reporting resulting from inadequate control over expense recognition of certain cash advance payments made to one of our clinical research organizations supporting our global Phase 3 program.  Specifically, we did not have adequate controls in place to properly determine the portion of the cash advance payments that should be recorded as an expense in the period and the portion that should be recorded as a prepaid expense.  In addition, the amount of revenue recognized pursuant to certain of our collaboration agreements was consequently affected, as such revenue is recognized based on the percentage of expense incurred on the total of the expected cost of the global Phase 3 program.  Based upon that discovery, our principal executive officer and principal financial officer have concluded that, as of September 30, 2017, our disclosure controls and procedures were not effective at a level that provides reasonable assurance.

To remediate the material weakness described above, we have added additional resources and have initiated compensating controls and are enhancing and revising the design of existing controls and procedures to properly account for certain research and development expenses. The revised and enhanced controls will not be considered effective until they operate for a sufficient period of time and management has concluded, through testing, that these controls are operating as designed.

Changes in Internal Control over Financial Reporting

Other than with respect to the ongoing remediation of the material weakness noted above, during the quarter ended September 30, 2017, there have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Securities Exchange Act of 1934, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

Opposition Proceeding Against Our ’005 Patent

In July 2011, a third party filed an opposition to our issued European Patent No. 2044005, or the ’005 Patent. During the oral proceedings, which took place on April 10, 2013, the Opposition Division of the European Patent Office maintained the ’005 Patent on the basis of the third auxiliary request filed during the oral proceedings. This decision resulted in the maintenance of a claim directed to a compound chosen from a group of eight compounds, including vadadustat, as well as claims to compositions and methods for treating various diseases, including, but not limited to, anemia. Both parties have appealed the decision of the Opposition

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Division and a hearing has been scheduled for May 8, 2018. We cannot be assured of the breadth of the claims that will remain in the ’005 Patent or that the patent will not be revoked in its entirety.

Opposition and Invalidity Proceedings Against FibroGen Inc.

We have had a number of positive developments in our opposition and invalidity proceedings against FibroGen, Inc., or FibroGen.  With regard to the opposition that we filed in Europe against FibroGen’s European Patent No. 1463823, or the ’823 patent, an oral proceeding took place March 8 and 9, 2016. Following the oral proceeding, the European Opposition Division ruled that the patent as granted did not meet the requirements for patentability under the European Patent Convention and, therefore, revoked the patent in its entirety. FibroGen has appealed that decision and the appeal process is expected to take 2 to 3 years. Likewise, with regard to the invalidity proceeding that we filed in Japan against certain claims of FibroGen’s Japanese Patent No. 4804131, or the ’131 patent, which is the Japanese counterpart to the ’823 patent, the Japan Patent Office, or JPO, issued a preliminary decision finding all of the challenged claims to be invalid. FibroGen subsequently amended the claims and the JPO accepted the amendments. The resulting FibroGen Japanese ’131 patent does not cover vadadustat or any pyridine carboxamide compounds. To date, FibroGen has been unsuccessful in its attempts to obtain a patent in the United States covering the same claim scope as it obtained initially in Europe and Japan in the ’823 and ’131 patents. In the event FibroGen were to obtain such a patent in the United States, we may decide to challenge the patent like we have done in Europe and Japan.  

With regard to the opposition that we filed in Europe against FibroGen’s European Patent No. 163333, or the ’333 patent, an oral proceeding took place December 8 and 9, 2016.  Following the oral proceeding, the European Opposition Division ruled that the patent as granted did not meet the requirements for patentability under the European Patent Convention and, therefore, revoked the patent in its entirety.  FibroGen has appealed that decision.

On May 13, 2015, May 20, 2015 and July 6, 2015, we filed oppositions to FibroGen’s European Patent Nos. 2322153, 2322155, and 163333, or the ’153 patent, the ’155 patent, and the ’333 patent, respectively, requesting the patents be revoked in their entirety. These related patents claim, among other things, various compounds that either stabilize HIFα or inhibit a HIF hydroxylase or a HIF prolyl hydroxylase for treating or preventing various conditions, including, inter alia, iron deficiency, microcytosis associated with iron deficiency, anemia of chronic disease, anemia wherein the subject has a transferrin saturation of less than 20%, anemia refractory to treatment with exogenously administered erythropoietin, or EPO, and microcytosis in microcytic anemia. Such method of use patents do not prevent persons from using the compound for other uses, including any previously known use of the compound. In particular, these patents do not claim methods of using any of our product candidates for purposes of inhibiting hypoxia-inducible factor prolyl hydroxylases, or HIF-PHs, for the treatment of anemia secondary to CKD. While we do not believe these patents will prevent us from commercializing vadadustat for the treatment of anemia secondary to CKD, we filed these oppositions to provide us and our partners with maximum flexibility for developing vadadustat and our pipeline of HIF PH inhibitors. Oppositions to the ’155 patent and the ’153 patent were also filed by Glaxo Group Limited, or Glaxo, and by Bayer Intellectual Property GmbH, Bayer Pharma Aktiengesellschaft, and Bayer Animal Health GmbH.  In oral proceedings held on May 29, 2017, the European Opposition Division ruled that the '155 patent as granted did not meet the requirements for patentability under the European Patent Convention and, therefore, revoked the patent in its entirety. Subsequently, in related oral proceedings held on May 31, 2017 and June 1, 2017 for the '153 patent, FibroGen significantly narrowed the claims to an indication for which vadadustat is not intended to be developed. 

Item 1A. Risk Factors

The following risk factors and other information included in this Quarterly Report on Form 10-Q should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. Please reference our “Cautionary Note Regarding Forward-Looking Statements,” which identifies certain forward-looking statements contained in this report that are qualified by these risk factors. If any of the following risks occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected.

Risks Related to our Financial Position and Need for Additional Capital

We have incurred significant losses since inception and anticipate that we will continue to incur significant losses for the foreseeable future and may never achieve or maintain profitability.

We have incurred net losses each year since our inception, including net losses of $89.2 million for the nine months ended September 30, 2017, and $97.9 million for the nine months ended September 30, 2016. As of September 30, 2017, we had an accumulated deficit of $386.3 million. To date, we have not commercialized any products or generated any revenue from the sale of products. We do not know whether or when we will generate revenue or become profitable.

We have devoted most of our financial resources to research and development, including our clinical and preclinical development activities. To date, we have financed our operations primarily through our public offerings of common stock, private placements of

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our preferred stock and strategic collaborations. The amount of our future net losses will depend, in part, on the rate of our future expenditures, and our financial position will depend, in part, on our ability to obtain funding through equity or debt financings or strategic collaborations. Even if we obtain regulatory approval to market vadadustat, our future revenue will depend upon the timing of such approval, the size of any markets in which vadadustat receives approval, our ability to achieve sufficient market acceptance, the availability and extent of reimbursement from third-party payors and other factors.

We expect to continue to incur significant expenses and increased operating losses for the foreseeable future. We anticipate that our expenses will increase significantly if and as we:

• conduct our development program of vadadustat for the treatment of anemia secondary to CKD, including PRO₂TECT,  INNO₂VATE, FO₂RWARD and TRILO₂GY;

• develop plans for the preclinical and clinical development of AKB-5169 and our other product candidates;

• seek regulatory approvals for our product candidates that successfully complete clinical studies;

• have our product candidates manufactured for clinical trials and for commercial sale;

• establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;

• initiate additional preclinical, clinical or other studies for vadadustat, AKB-5169 and other product candidates that we may develop or acquire;

• seek to discover and develop additional product candidates;

• acquire, in-license and develop other commercial products, product candidates and technologies;

• make royalty, milestone or other payments under our license agreement with Janssen and any future in-license agreements;

• maintain, protect and expand our intellectual property portfolio;

• attract and retain skilled personnel; and

• continue to create additional infrastructure to support our operations as a public company.

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, if at all, we will be able to achieve profitability. If we are required by the FDA, EMA, or other regulatory authorities or if we otherwise believe it is necessary in order to obtain regulatory approval to perform studies in addition to, different from or larger than those currently expected, or if there are any delays in completing our clinical trials or the development of any of our product candidates, our expenses could increase.

The net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance.

To become and remain profitable, we must succeed in developing and commercializing our product candidates, which must generate significant revenue. This will require us to be successful in a range of challenging activities, including completing preclinical testing and development, conducting clinical trials of our product candidates, discovering or acquiring additional product candidates, obtaining regulatory approval for these product candidates, and manufacturing, marketing and selling any products for which we may obtain regulatory approval. We are only in the preliminary stages of most of these activities. We may never succeed in these activities and, even if we do, may never generate revenue that is significant enough to achieve profitability.

We will require substantial additional financing. A failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development or commercialization efforts.

As of September 30, 2017, our cash and cash equivalents and available for sale securities were $329.7 million. We believe that we will continue to expend substantial resources for the foreseeable future developing vadadustat, AKB-5169 and any other product candidates that we may develop or acquire. These expenditures will include costs associated with research and development, potentially obtaining regulatory approvals and having our products manufactured, as well as marketing and selling products approved for sale, if any. In addition, other unanticipated costs may arise as a result of our decision to include certain elements in our development programs. Because the outcome of our current and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amount of funding necessary to successfully complete the development and commercialization of our product candidates.

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Our future capital requirements depend on many factors, including:

• significant costs associated with our Phase 3 clinical studies of vadadustat for the treatment of anemia secondary to CKD; we expect the remaining aggregate cost of the Phase 3 program to be in the range of $450.0 million to $480.0 million and the PRO₂TECT and INNO₂VATE Phase 3 programs are designed to enroll up to approximately 6,700 CKD patients; such estimated costs could increase significantly if the Phase 3 program takes longer to complete or if we choose to add additional investigative sites, add additional patients, modify the clinical trial protocol, or perform other studies in support of the Phase 3 program, or if we choose to add third-party vendors to support the program;

• the results of our meetings with the FDA and the EMA and other regulatory authorities and the consequential effect on study design, study size and resulting operating costs;

• difficulties or delays in enrolling patients in our clinical trials;

• assuming favorable Phase 3 clinical results, the timing of, and the costs involved in, obtaining regulatory approvals for vadadustat in dialysis and non-dialysis indications, including to fund the preparation and filing of regulatory submissions for vadadustat with the FDA, the EMA and other regulatory authorities, and whether we will seek regulatory approval for both indications simultaneously;

• the cost of conducting the FO₂RWARD and TRILO₂GY clinical studies;

• the cost, timing and outcome of our efforts to obtain marketing approval for vadadustat in the United States, Europe and in other jurisdictions;

• the scope, progress, results and costs of additional preclinical, clinical, or other studies for vadadustat, as well as any studies of AKB-5169 and other product candidates that we may develop or acquire;

• the timing of, and the costs involved in, obtaining regulatory approvals for AKB-5169 and other product candidates that we may develop or acquire, if clinical studies are successful;

• the cost of securing and validating commercial manufacturing of vadadustat;

• the cost and timing of future commercialization activities for our products, if any of our product candidates are approved by regulatory authorities, including product manufacturing, marketing, sales and distribution costs;

• the costs involved in preparing, filing and prosecuting patent applications and maintaining, defending and enforcing our intellectual property rights, including litigation costs, and the outcome of such litigation; and

• the extent to which we acquire or in-license other products, product candidates or technologies.

We ended the third quarter of 2017 with cash, cash equivalents and available for sale securities of $329.7 million. Our collaborators have committed up to $373.0 million or more in license payments and cost-share funding, which we continue to receive on a prepaid quarterly basis. The Company expects its existing cash resources, including the timing of committed research and development funding from its collaborators, to fund the Company’s current operating plan into the second quarter of 2019. Thereafter committed research and development funding will continue to be received from Otsuka on a prepaid, quarterly basis. If and until we can generate a sufficient amount of revenue from our products, we expect to finance future cash needs through public or private equity, debt offerings, or strategic transactions. We have based these estimates on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Furthermore, our development milestones may not be achieved, we may not receive the anticipated funding from our collaboration partners, and we may not secure other sources of financing.

We will require additional capital for the further development of our existing product candidates and will need to raise additional funds sooner to pursue development activities related to additional product candidates. If and until we can generate a sufficient amount of revenue from our products, we expect to finance future cash needs through public or private equity, debt offerings, or strategic collaborations. Additional funds may not be available to us on acceptable terms or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing stockholders or increased fixed payment obligations, and any such securities may have rights senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects.

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Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to product candidates on unfavorable terms to us.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of collaboration funding, equity offerings, debt financings and strategic collaborations. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders will be diluted, and the terms may include liquidation or other preferences and anti-dilution protections that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through strategic collaborations with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams, research programs or product candidates or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts for vadadustat, AKB-5169 or any other product candidates that we develop or acquire, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Risks Related to our Business and the Clinical Development, Regulatory Review and Approval of Vadadustat and our Other Product Candidates

We depend heavily on the success of one product candidate, vadadustat, which is in Phase 3 development. Even if we obtain favorable clinical results in our Phase 3 studies, we may not be able to obtain regulatory approval for, or successfully commercialize, vadadustat.

We currently have only one product candidate, vadadustat, in clinical development, and our business depends almost entirely on the successful clinical development, regulatory approval and commercialization of that product candidate, which may never occur. We currently have no drug products for sale, generate no revenue from sales of any drugs, and may never be able to develop marketable drug products. Vadadustat, which is in Phase 3 development, will require substantial additional clinical development, testing, manufacturing process development, and regulatory approval before we or our collaborators are permitted to commence its commercialization. The clinical trials of our product candidates are, and the manufacturing and marketing of our product candidates will be, subject to extensive and rigorous review and regulation by numerous government authorities in the United States, the European Union, Japan, and in other countries where we and our collaborators intend to test and, if approved, market any product candidates. Before obtaining regulatory approval for the commercial sale of any product candidate, we must demonstrate through extensive preclinical testing and clinical trials that the product candidate is safe and effective for use in each target indication. This process can take many years. Of the large number of drugs in development in the United States, only a small percentage successfully complete the FDA regulatory approval process and are commercialized. Accordingly, even if we are able to obtain the requisite capital to continue to fund our development and clinical programs, we may be unable to successfully develop or commercialize vadadustat.

We and Otsuka, our collaboration partner, are not permitted to market vadadustat in the United States until we receive approval from the FDA, in the European Union until we receive approval from the EMA, or in any jurisdiction outside of the United States until we receive the requisite approval from regulatory authorities in such jurisdiction. MTPC, our collaboration partner in Asia, will not be permitted to market vadadustat in Japan without approval from the PMDA. As a condition to receiving regulatory approval for vadadustat, we must complete Phase 3 studies and any additional non-clinical or clinical studies required by the FDA, EMA, PMDA or other regulatory authorities. Vadadustat may not be successful in clinical trials or receive regulatory approval. Further, vadadustat may not receive regulatory approval even if it is successful in clinical trials. Obtaining regulatory approval in the United States is a complex, lengthy, expensive and uncertain process that typically takes many years following the completion of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, the safety concerns associated with injectable rESAs may affect the FDA’s review of the safety results of compounds of this class, including vadadustat. Further, the policies or regulations, or the type and amount of clinical data necessary to gain approval, may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that vadadustat will never obtain regulatory approval. The FDA may delay, limit or deny approval of vadadustat for many reasons including, among others:

• we may not be able to demonstrate that vadadustat is safe and effective in treating anemia secondary to CKD to the satisfaction of the FDA;

• the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA for marketing approval;

• the FDA may disagree with the number, design, size, conduct or implementation of our clinical trials;

• the FDA may not approve the formulation, labeling or specifications we request for vadadustat;

• the FDA may approve vadadustat for use only in a small patient population;

• the FDA may require that we conduct additional clinical trials;

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• we, or our CROs or vendors, may fail to comply with good clinical practice, or GCP, requirements;

• the contract research organizations, or CROs, that we retain to conduct our clinical trials may not perform effectively or take actions outside of our control that materially adversely impact our clinical trials;

• we or our contract manufacturers may fail to perform in accordance with the FDA’s current good manufacturing practice, or cGMP, requirements;

• the FDA may disagree with inclusion of data obtained from certain regions outside the United States to support the NDA for potential reasons such as differences in clinical practice from United States standards;

• the FDA may disagree with our interpretation of data from our nonclinical studies and clinical trials;

• the FDA may not approve the manufacturing processes or facilities of third-party manufacturers with whom we contract; or

• the policies or regulations of the FDA may significantly change in a manner that renders our clinical data insufficient for approval, or requires us to amend or submit new clinical protocols.

In addition, similar reasons may cause the EMA or PMDA or other regulatory authorities to delay, limit or deny approval of vadadustat outside the United States.

We may find it difficult to enroll patients in our clinical studies, which could delay or prevent clinical studies of our product candidates.

Identifying and qualifying patients to participate in clinical studies of our product candidates is critical to our success. The timing of our clinical studies depends on the speed at which we can recruit patients to participate in testing our product candidates. Patients may be unwilling to participate in our clinical studies for vadadustat because of concerns about adverse events observed with injectable rESAs, other investigational agents and commercial products in CKD or for other reasons, including competitive clinical studies for similar patient populations. In addition, patients currently receiving treatment with injectable rESAs may be reluctant to participate in a clinical trial with an investigational drug. Finally, competition for clinical trial sites may limit our access to subjects appropriate for studies of vadadustat. As a result, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of potential products may be delayed. These delays could result in increased costs, delays in advancing our development of vadadustat, or termination of the clinical studies altogether.

We may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics, to complete our clinical studies in a timely manner. Patient enrollment is affected by many factors, including:

• severity of the disease under investigation;

• design of the study protocol;

• size and nature of the patient population;

• eligibility criteria for, and design of, the study in question;

• perceived risks and benefits of the product candidate under study;

• proximity and availability of clinical study sites for prospective patients;

• availability of competing therapies and clinical studies and clinicians’ and patients’ perceptions as to the potential advantages of vadadustat in relation to available therapies or other products in development;

• efforts to facilitate timely enrollment in clinical studies;

• patient referral practices of physicians; and

• ability to monitor patients adequately during and after treatment.

We may not be able to initiate or continue clinical studies if we cannot enroll a sufficient number of eligible patients to participate in the clinical studies required by regulatory agencies. If we have difficulty enrolling a sufficient number of patients to conduct our clinical studies as planned, we may need to delay, limit or terminate on-going or planned clinical studies, any of which would have an adverse effect on our business.

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We may not be able to conduct clinical trials in some jurisdictions outside of the United States.

We currently expect to seek regulatory approval of vadadustat for the treatment of anemia secondary to CKD in markets outside the United States, including the European Union and Japan. Our ability to successfully initiate, enroll and complete a clinical study in any country outside of the United States is subject to numerous risks unique to conducting business in international markets, including:

• difficulty in establishing or managing relationships with qualified CROs, physicians and clinical trial sites;

• different local standards for the conduct of clinical studies;

• difficulty in complying with various and complex import laws and regulations when shipping drug to certain countries; and

• the potential burden of complying with a variety of laws, medical standards and regulatory requirements, including the regulation of pharmaceutical and biotechnology products and treatments.

Data obtained from studies conducted in the United States may not be accepted by the EMA, PMDA and other regulatory authorities outside of the United States. Also, certain jurisdictions require data from studies conducted in their country in order to obtain approval in that country.

We may be delayed in obtaining, or be unable to obtain, regulatory approval or reimbursement for vadadustat in certain countries outside of the United States.

Regulatory authorities outside of the United States will require compliance with numerous and varying requirements. The approval procedures vary among jurisdictions and may involve requirements for additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval. In addition, in many countries outside the United States, a drug product must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for our product is also subject to approval. Approval by the FDA does not ensure approval by regulatory or reimbursement authorities in other countries or jurisdictions, and approval by one regulatory authority outside of the United States does not ensure approval by the FDA or regulatory or reimbursement authorities in other countries. However, the failure to obtain approval in one jurisdiction may negatively impact our ability to obtain approval in another jurisdiction. The regulatory approval process in countries outside of the United States may include all of the risks associated with obtaining FDA approval and, in some cases, additional risks. We may not obtain such regulatory approvals on a timely basis, if at all. We may not be able to file for regulatory approvals and may not receive the necessary approvals to commercialize our product candidates in any market. Also, favorable pricing in certain countries depends on a number of factors, some of which are outside the Company’s control.

Clinical drug development is a lengthy and expensive process with an uncertain outcome, and positive results from the clinical studies of vadadustat thus far are not necessarily predictive of the results of any future clinical studies of vadadustat. If, in our Phase 3 studies, we cannot replicate the positive clinical results observed to date, we may be unable to successfully develop, obtain regulatory approval, for and commercialize vadadustat.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. Success in preclinical studies may not be predictive of similar results in humans during clinical trials, and successful results from early or small clinical trials may not be replicated in later and larger clinical trials. For example, our encouraging preclinical and clinical results for vadadustat thus far do not ensure that the results of any future clinical trials will demonstrate similar results. Our vadadustat Phase 3 development program will enroll a larger number of subjects and will treat subjects for longer periods than our prior trials, which will result in a greater likelihood that adverse events may be observed. Many companies in the biopharmaceutical industry have suffered significant setbacks in late-stage clinical trials after achieving positive results in early stage development, and we may face similar setbacks. If the results of our ongoing or future clinical trials for vadadustat are inconclusive with respect to efficacy, if we do not meet our clinical endpoints with statistical significance, or if there are safety concerns or adverse events, we may be prevented from or delayed in obtaining marketing approval for vadadustat.

We could encounter delays if a clinical trial is suspended or terminated by us, by the relevant independent institutional review boards at the sites at which such trials are being conducted, by the Independent Data Monitoring Committee, or IDMC, for such trial or by the FDA or other regulatory authorities. Such suspension or termination may be due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements, GCP requirements or our clinical protocols. A suspension or termination may also be due to critical findings resulting from inspection by the FDA or other regulatory authorities of the clinical trial operations, a clinical trial site or manufacturing facilities. The imposition of a clinical hold, unforeseen safety issues or adverse side effects, changes in laws or regulations, or lack of adequate funding to continue the clinical trial may also result in a suspension or termination. 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 revenue. Any of these occurrences may harm our business, financial condition and prospects significantly.

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

Any regulatory approvals that we receive for our product candidates may be subject to limitations on the approved indicated uses for which the product may be marketed or other conditions of approval, or contain requirements for potentially costly post-marketing studies and surveillance to monitor the safety and efficacy of the product including Risk Evaluation and Mitigation Strategies, or REMS. In addition, if the FDA approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, as well as continued compliance with cGMPs and GCPs for any clinical trials that we conduct post-approval.

Post-approval discovery of previously unknown problems with an approved drug product, including adverse events of unanticipated severity or frequency or relating to manufacturing operations or processes, or failure to comply with regulatory requirements, may result in, among other things:

• restrictions on the marketing or manufacturing of the drug product, withdrawal of the drug product from the market, or drug product recalls;

• fines, warning letters or clinical holds;

• refusal by the FDA or other regulatory authorities to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product approvals;

• product seizure or detention, or refusal to permit the import or export of products;

• Risk Evaluation and Mitigation Strategies; and

• injunctions or the imposition of civil or criminal penalties.

The FDA’s policies may change and additional government regulations may be enacted. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business.

Risks Related to our Reliance on Third Parties

We rely on third parties to conduct preclinical and clinical studies for our product candidates. If they do not properly and successfully perform their obligations to us, we may not be able to obtain regulatory approvals for our product candidates.

We are currently relying, and expect to continue to rely, on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators, to conduct our current and future clinical trials, including our Phase 3 development program for vadadustat. We compete with many other companies for the resources of these third parties. The third parties on whom we rely may fail to perform effectively or terminate their engagement with us, and having to enter into alternative arrangements would delay development and commercialization of our product candidates.

We entered into an agreement with Quintiles IMS Holdings, Inc., or Quintiles, to be our primary CRO for the PRO₂TECT and INNO₂VATE programs. Pursuant to this agreement, Quintiles may engage subcontractors to perform some of their obligations. If Quintiles or its subcontractors cannot perform effectively or if Quintiles terminates its engagement with us, the progress of our Phase 3 clinical studies may be impacted and we may incur significant added costs in identifying, qualifying and contracting with a new CRO.

Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities. For example, the FDA and equivalent regulatory authorities outside of the United States require compliance with regulations and standards, including GCP requirements, for designing, conducting, monitoring, recording, analyzing and reporting the results of clinical trials to ensure that the data and results are credible and accurate and that the rights, integrity and confidentiality of study subjects are protected. Although we rely on third parties to conduct our clinical trials, we are responsible for ensuring that each of these clinical trials is conducted in accordance with its general investigational plan and protocol in compliance with legal and regulatory requirements. Regulatory authorities enforce these GCP requirements through periodic inspections of clinical trial sponsors, principal investigators and clinical trial sites. If we or any of our CROs, their subcontractors, or clinical trial sites fail to comply with applicable GCP requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, EMA or other regulatory authorities may require us to perform additional clinical trials before approving our marketing

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applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements. In addition, our clinical trials must be conducted with product that meets certain specifications and is manufactured under applicable cGMP regulations. Failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.

If these third parties do not successfully carry out their duties under their agreements, if the quality or accuracy of the data they obtain is compromised due to their failure to adhere to clinical trial protocols or regulatory requirements, or if they otherwise fail to comply with clinical trial protocols or meet expected deadlines, the clinical trials of our product candidates may not meet regulatory requirements. If clinical trials do not meet regulatory requirements or if these third parties need to be replaced, pre-clinical development activities or clinical trials may be extended, delayed, suspended or terminated. If any of these events occur, we may not be able to obtain regulatory approval of our product candidates on a timely basis or at all.

We also rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of our products, resulting in additional costs and depriving us of potential product revenue. In addition, we are using an active comparator in our PRO₂TECT and INNO₂VATE clinical programs. If our distributors are unable to obtain sufficient supply of the active comparator for any reason, or supply active comparator to clinical trial sites in a timely manner, our clinical trials may be extended, delayed, suspended or terminated.

We rely on third parties to conduct some or all aspects of our product manufacturing, and these third parties may not perform satisfactorily.

We do not have any manufacturing facilities and do not expect to independently manufacture our product candidates for research and preclinical and clinical studies. We currently rely, and expect to continue to rely, on third parties to manufacture and supply drug product for our vadadustat clinical trials, and we expect to rely on third parties for the manufacture of clinical and commercial quantities of all of our product candidates. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or such quantities at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts.

Also, these third parties may fail to perform effectively or terminate their engagement with us. We entered into agreements with Evonik Corporation and Esteve Quimica for the manufacture of the drug substance for the Phase 3 development program of vadadustat. If either of these contract manufacturers cannot perform as agreed or terminates their engagement with us, we may be required to find replacement manufacturers. We may incur significant delays and added costs in identifying, qualifying and contracting with any such replacement, as well as producing the drug substance. We also have an agreement with Gregory Pharmaceutical Holdings (d/b/a UPM Pharmaceuticals Inc., or UPM) for the manufacture of finished drug product for the Phase 3 development program. Although we believe that there are several other manufacturers who also could manufacture our drug product if UPM cannot perform as agreed or terminates their engagement with us, we may incur significant delays and added costs in identifying, qualifying, and contracting with another manufacturer. When we engage a second source for the manufacture of drug product, we will incur additional costs. In addition, we have to enter into technology transfer agreements and share our know-how with such third-party manufacturers, which can be time-consuming and may result in delays. These delays could result in a suspension of our clinical trials or, if vadadustat is approved and marketed, a failure to satisfy patient demand.

Any of these events could lead to clinical study delays or failure to obtain regulatory approval, or affect our ability to successfully commercialize our future products. Some of these events could be the basis for FDA action, including injunction, recall, seizure or total or partial suspension of production.

The facilities and processes used by our contract manufacturers to manufacture our product candidates will be inspected by the FDA and other regulatory authorities prior to or after we submit our marketing application. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturers for compliance with cGMP requirements for manufacture of both drug substance and finished drug product. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and regulatory requirements, we will not be able to secure and/or maintain regulatory approval for our product candidates. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA, EMA or other regulatory authorities do not approve these facilities for the manufacture of our product candidates, or if they withdraw any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. Moreover, the failure of our contract manufacturers to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect the supply of our products or product candidates. Also, if our drug substance or drug product is damaged or lost while in our contract manufacturers’ control, it may impact our ability to supply our products or product candidates and we may incur significant financial harm.

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In addition, our product candidates and any products that we may develop may compete with other product candidates and products for access to manufacturing facilities. Certain of these manufacturing facilities may be contractually prohibited from manufacturing our product candidates or products due to exclusivity provisions in agreements with our competitors. There are a limited number of manufacturers that operate under cGMP regulations and are capable of manufacturing our product candidates for us.

If we are unable to obtain our product candidates in sufficient quantities and at sufficient yields, we may experience delays in product development, clinical trials, regulatory approval and commercial distribution.

Completion of our clinical trials and commercialization of our product candidates require access to facilities to manufacture our product candidates at sufficient yields and at clinical and commercial scale. We have limited experience manufacturing,or managing third parties in manufacturing, our product candidates in the volumes that will be necessary to support large-scale clinical trials or commercial sales. Our contract manufacturers may not meet our initial expectations as to scheduling, scale-up, reproducibility, yield, purity, cost, potency or quality.

Our reliance on contract manufacturers may adversely affect our operations or result in unforeseen delays or other problems beyond our control. Because of contractual restraints and the limited number of contract manufacturers with the expertise, required regulatory approvals and facilities to manufacture our bulk drug substance and drug product on a commercial scale, replacement of a manufacturer may be expensive and time-consuming and may cause interruptions in the production of our product candidates. A contract manufacturer may also encounter difficulties in production.

Any delay or interruption in our supply of product candidates or products could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We may not be successful in maintaining our strategic collaborations which could adversely affect our ability to develop and commercialize our product candidates, negatively impacting our operating results.

We plan to commercialize vadadustat in the United States, Europe, and other territories pursuant to our collaboration agreement with Otsuka and have entered into a collaboration agreement with MTPC to develop and commercialize vadadustat in Japan and certain other Asian countries. We may not be able to maintain such strategic collaborations.

In addition, our strategic collaborators may terminate any agreements they enter into with us, and we may not be able to adequately protect our rights under these agreements. Furthermore, our strategic collaborators have negotiated for certain rights to control decisions regarding the development and commercialization of our product candidates, if approved, and may not conduct those activities in the same manner as we do.

If we fail to maintain our current collaborations with Otsuka or MTPC, we will bear all of the risk and costs related to the development and commercialization of vadadustat, and we may need to seek additional financing, hire additional employees and otherwise develop additional expertise. This could negatively affect the development and commercialization of vadadustat.

Risks Related to our Intellectual Property

If our efforts to protect our proprietary technologies are not adequate, we may not be able to compete effectively in our market. We are currently involved in an opposition proceeding involving one of our European patents, and the outcome of that proceeding may affect our ability to establish a competitive advantage in the market or successfully commercialize our lead product candidate in the European Union.

We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our technologies. We will only be able to protect our product candidates, proprietary technologies and their uses from unauthorized use by third parties to the extent that valid and enforceable patents or trade secrets cover them. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in the market.

In July 2011, a third party filed an opposition to one of our issued European patents, European Patent No. 2044005, or the ’005 Patent. During the oral proceedings, which took place on April 10, 2013, the Opposition Division of the European Patent Office decided to maintain certain claims of the patent directed to a compound chosen from a group of eight compounds, including vadadustat, as well as claims to compositions and methods for treating various diseases including, but not limited to, anemia. Both parties have appealed the decision of the Opposition Division and a hearing has been scheduled for May 8, 2018. We cannot be assured of the breadth of the claims that will remain in the ’005 Patent or that the patent will not be revoked in its entirety. If the European Patent Office decides to narrow the scope of the claims or revoke the ’005 Patent, we may not be able to establish a competitive advantage in the European Union in our market or successfully commercialize our product candidates in the European Union, which could materially adversely affect our business, operating results and financial condition.

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Composition-of-matter patents on the active pharmaceutical ingredient are generally considered to be the strongest form of intellectual property protection for pharmaceutical products, as such patents provide protection without regard to any method of use. Method-of-use patents protect the use of a product for the specified method. A method-of-use patent does not prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted indications, physicians may prescribe these products “off-label.” Although off-label prescriptions may infringe or contribute to the infringement of method-of-use patents, the practice is common and such infringement is difficult to prevent or prosecute.

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 other countries. Our competitors have taken, and we expect that they will continue to undertake, formal efforts to oppose the issuance of claims in our patent applications. We do not control decisions made by the United States Patent and Trademark Office, or US PTO, or equivalent bodies outside the United States. Even if our patents do successfully issue, third parties may challenge the validity, enforceability, inventorship, or scope of these patents, such actions may result in such patents being narrowed, invalidated or held unenforceable. 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. If the breadth or strength of protection provided by the patents and patent applications we hold with respect to our product candidates is threatened, it could dissuade companies from collaborating with us to develop, and threaten our ability to commercialize, our product candidates. If we encounter delays in our clinical trials, the period of time during which we could market our product candidates under patent protection would be reduced. Since patent applications in the United States and most other countries 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. Furthermore, for applications in which all claims are entitled to a priority date before March 16, 2013, an interference proceeding can be provoked by a third-party or instituted by the US PTO to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. For applications containing a claim not entitled to priority before March 16, 2013, there is greater level of uncertainty in the patent law with the passage of the America Invents Act (2011), which brings into effect significant changes to the U.S. patent laws and introduces new procedures for challenging pending patent applications and issued patents. A primary change under this reform is creating a “first to file” system in the United States. This will require us to be cognizant of the time from invention to filing of a patent application.

In addition to the protection afforded by patents, we seek to rely on trade secret protection and confidentiality agreements to protect proprietary know-how processes, and any other elements of our drug discovery and development process and information or technology that are not covered by patents. Although we require all of our employees to assign their inventions to us, and require all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot be certain that our trade secrets and other confidential or 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. Furthermore, the laws of some 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 unauthorized material disclosure of our intellectual property to third parties, we will not be able to establish or maintain a competitive advantage in the market, which could materially adversely affect our business, operating results and financial condition.

Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

Because we rely on third parties to research, develop and manufacture our product candidates, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, services agreements, material transfer agreements, consulting agreements, research agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.

In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication rights. For example, any academic institution that we may collaborate with will usually expect to be granted rights to publish data arising out of such collaboration. We often grant such rights, provided that we are notified in advance and given the opportunity to delay publication for a limited time period in order for us to secure patent protection of intellectual property rights arising from the collaboration and remove confidential or trade secret information from any such publication. In the future, we may also conduct joint research and development programs that may require us to share trade secrets under the terms of our research and development or similar agreements. Despite

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our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development or publication of information by any of our third-party collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.

Some of the intellectual property that protects our product candidates is owned by third parties and is licensed to us.  Any dispute that might arise under any such license agreement could jeopardize our rights in such product candidates and materially harm our business.

We license intellectual property rights from third parties that protect some of our product candidates.  If a dispute were to arise with a licensor pursuant to such a license agreement, our rights to use the licensed intellectual property and to develop and commercialize the compounds that such intellectual property covers could be jeopardized.  If we have expended significant resources developing these compounds, such a dispute could have a material adverse effect on our business.

Third-party claims of intellectual property infringement may be costly and time consuming, and may delay or harm our drug discovery and development efforts.

Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. The pharmaceutical and biotechnology industries are characterized by extensive litigation over patent and other intellectual property rights. We have in the past and may in the future become a party to, or be threatened with, future adversarial litigation or other proceedings regarding intellectual property rights with respect to our drug candidates. As the pharmaceutical and biotechnology industries expand and more patents are issued, the risk increases that our drug candidates may give rise to claims of infringement of the patent rights of others.

While our product candidates are in preclinical studies and clinical trials, we believe that the use of our product candidates in these preclinical studies and clinical trials in the United States falls within the scope of the exemptions provided by 35 U.S.C. Section 271(e), which provides that it shall not be an act of infringement to make, use, offer to sell, or sell within the United States or import into the United States a patented invention solely for uses reasonably related to the development and submission of information to the FDA. As our product candidates progress toward commercialization, the possibility of a patent infringement claim against us increases. We attempt to ensure that our product candidates and the methods we employ to manufacture them, as well as the methods for their use which we intend to promote, do not infringe other parties’ patents and other proprietary rights. There can be no assurance they do not, however, and competitors or other parties may assert that we infringe their proprietary rights in any event.

Third parties may hold or obtain patents or other intellectual property rights and allege in the future, that the use of our product candidates infringes these patents or intellectual property rights, or that we are employing their proprietary technology without authorization. We do not believe that there are any currently issued U.S. patents that will prevent us from commercializing vadadustat; nor do we make any admission that any of such patents are valid, enforceable or infringed. Under U.S. law, a party may be able to patent a discovery of a new way to use a previously known compound, even if such compound itself is patented, provided the newly discovered use is novel and nonobvious. Such a method-of-use patent, however, if valid, only protects the use of a claimed compound for the specified methods claimed in the patent. This type of patent does not prevent persons from using the compound for any previously known use of the compound. Further, this type of patent does not prevent persons from making and marketing the compound for an indication that is outside the scope of the patented method. We are not aware of any valid U.S. patents issued to FibroGen, or any other person, that claim methods of using any of our product candidates for purposes of inhibiting hypoxia-inducible factor prolyl hydroxylases, or HIF-PHs, for the treatment of anemia secondary to CKD. For example, we are aware of certain patents that have been acquired by FibroGen directed to certain heterocyclic carboxamide compounds that are described as inhibitors of prolyl-4-hydroxylase. Those patents, however, are believed to have expired as of December 2014.

FibroGen has also filed other patent applications in the U.S. and other countries directed to purportedly new methods of using such previously known heterocyclic carboxamide compounds for purposes of treating or affecting specified conditions, and some of these applications have since issued as patents. To the extent any such patents issue or have been issued, we may initiate opposition or other legal proceedings with respect to such patents. We have discussed the status of the opposition proceedings against FibroGen’s European ’823, ’153,’155 and ’333 patents above in Part II, Item 1. Legal Proceedings.

There may be other patents of FibroGen or patents of third parties of which we are currently unaware with claims to compounds, materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our drug candidates. Also, because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our product candidates may infringe.

Third parties, including FibroGen, may in the future claim that our product candidates and other technologies infringe upon their patents and may challenge our ability to commercialize vadadustat. Parties making claims against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize vadadustat, AKB-6899, AKB-5169 or other product candidates that we may develop or acquire. If any third-party patents were held by a court of competent

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jurisdiction to cover the manufacturing process of any of our product candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire or they are finally determined to be held invalid or unenforceable. Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or our intended methods of use, including patient selection methods, the holders of any such patent may be able to block or impair our ability to develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires or is finally determined to be held invalid or unenforceable. We may also elect to enter into a license in order to settle litigation or in order to resolve disputes prior to litigation. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates. Should a license to a third-party patent become necessary, we cannot predict whether we would be able to obtain a license or, if a license were available, whether it would be available on commercially reasonable terms. If such a license is necessary and a license under the applicable patent is unavailable on commercially reasonable terms, or at all, our ability to commercialize our product candidates may be impaired or delayed, which could in turn significantly harm our business.

Further, defense of infringement claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties or redesign our products, which may be impossible or require substantial time and monetary expenditure.

We are currently involved in opposition and invalidity proceedings and may in the future be involved in lawsuits or administrative proceedings to challenge the patents of our competitors or to protect or enforce our patents, which could be expensive, time consuming, and unsuccessful.

Competitors may infringe our patents or misappropriate our trade secrets or confidential information. To counter infringement or unauthorized use, we may be required to file infringement or misappropriation claims, which can be expensive and time-consuming. We may not be able to prevent infringement of our patents or misappropriation of our trade secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the United States. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not issuing.

In addition, there may be a challenge or dispute regarding inventorship or ownership of patents or applications currently identified as being owned by or licensed to us. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. Interference proceedings provoked by third parties or brought by the US PTO may be necessary to determine the priority of inventions with respect to our patents or patent applications.

Various administrative proceedings are also available for challenging patents, including interference, reexamination, inter partes review, and post-grant review proceedings before the US PTO or oppositions and other comparable proceedings in foreign jurisdictions. An unfavorable outcome in any current or future proceeding in which we are challenging third party patents could require us to cease using the patented technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms or at all. Even if we are successful, participation in interference or other administrative proceedings before the US PTO or a foreign patent office may result in substantial costs and distract our management and other employees.

For example, we are currently involved in five opposition proceedings in the European Patent Office. These proceedings may be ongoing for a number of years and may involve substantial expense and diversion of employee resources from our business. In addition, we may become involved in additional opposition proceedings or other legal or administrative proceedings in the future. For more information, see the other risk factors under “Risks Related to Intellectual Property” and Part II, Item 1 – Legal Proceedings.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation and some administrative proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.

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.

Periodic maintenance fees on any issued patent are due to be paid to the US PTO and foreign patent agencies in several stages over the lifetime of the patent. The US PTO and various foreign governmental patent agencies also require compliance with a number of

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procedural, documentary, fee payment (such as annuities) and other similar provisions during the patent application process. While an inadvertent lapse in many cases can be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees, and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect on our business.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.

We have received confidential and proprietary information from potential collaborators, prospective licensees and other third parties. In addition, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or our employees’ former employers. We may also be subject to claims that former employees, collaborators or other third parties have an ownership interest in our patents or other intellectual property. We may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing our drug candidates. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees.

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

Filing, prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive. Consequently, the breadth of our intellectual property rights in some countries outside the United States may be less extensive than those in the United States. In addition, the laws of some countries do not protect intellectual property rights to the same extent as laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other countries. Competitors may use our technologies in countries where we have not obtained patent protection to develop their own products and, further, may infringe our patents in territories where we have patent protection, but enforcement is not as strong as in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in certain countries. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property, particularly those relating to pharmaceutical and biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in countries outside of the United States could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Security breaches and unauthorized use of our IT systems and information, or the IT systems or information in the possession of our vendors, could damage the integrity of our clinical studies or compromise our ability to protect our intellectual property.

We are highly dependent on contract research organizations to carry out our clinical studies.  A security breach, cyber-attack or unauthorized access of our clinical data could cause significant risk to our business, and could compromise our ability to protect our intellectual property. Cyber-attacks can include malware, computer viruses, hacking or other significant compromise of our computer, communications and related systems. Although we take steps to manage and avoid these risks and to be prepared to respond to attacks, our preventive and any remedial actions may not be successful. Likewise, although we believe our vendors and service providers take steps to manage and avoid information security risks and respond to attacks, we may be vulnerable to attacks against our vendors or service providers, and we may not have adequate contractual remedies against such vendors and service providers in such event. Such attacks, whether successful or unsuccessful, could result in our incurring costs related to, for example, rebuilding internal systems, defending against litigation, responding to regulatory inquiries or actions, paying damages or fines, or taking other remedial steps with respect to third parties. Publicity about vulnerabilities and attempted or successful incursions could damage the integrity of our studies or delay their completion. In addition, such attacks could compromise our ability to protect our trade secrets and proprietary information from unauthorized access or misappropriation.

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Risks Related to Commercialization

Our future commercial success depends upon attaining significant market acceptance of our product candidates, if approved, among physicians, patients, third-party payors and others in the medical community.

Even if we obtain marketing approval for vadadustat, AKB-5169 or any other product candidates that we may develop or acquire in the future, these product candidates may not gain market acceptance among physicians, third-party payors, patients and others in the medical community in the United States or in other countries. In addition, market acceptance of any approved product depends on a number of other factors, including:

• the safety and efficacy of the product, as demonstrated in clinical trials, and in the post-marketing setting;

• the prevalence of the disease treated by our product;

• the clinical indications for which the product is approved and the product label approved by regulatory authorities, including any warnings or limitations that may be required on the label or as a consequence of potential safety risks associated with the product;

• the claims we are able to make regarding the safety and efficacy of our products;

• acceptance by physicians and patients of the product as a safe and effective treatment and the willingness of the target patient population to try new therapies and of physicians to prescribe new therapies;

• the cost, safety and efficacy of the product in relation to alternative treatments;

• the timing of product launch relative to competing products;

• the availability of adequate coverage and reimbursement by third-party payors and governmental authorities;

• relative convenience and ease of administration;

• the prevalence and severity of adverse side effects;

• the effectiveness of our sales and marketing efforts; and

• the restrictions on the use of our products together with other medications, if any.

Market acceptance of any of our product candidates, if approved, may also depend on factors specific to such candidates, such as our ability to contract with dialysis providers. Two of the largest operators of dialysis clinics in the United States, DaVita, Inc., or DaVita, and Fresenius Medical Care, or Fresenius, account for more than half of the injectable rESA sales in the U.S. dialysis market. We believe that it may be challenging to enter into supply agreements with certain dialysis clinics.

Market acceptance is critical to our ability to generate significant revenue. In addition, any product candidate, if approved and commercialized, may be accepted in only limited capacities or not at all. If any of our approved products are not accepted by the market to the extent that we expect, we may not be able to generate significant revenue and our business would suffer.

Our products may cause undesirable side effects or have other properties that delay or prevent their regulatory approval or limit their commercial potential.

Undesirable side effects caused by our products or even competing products in development that utilize a common mechanism of action could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA or other regulatory authorities and could lead to potential product liability claims.

The patients in our clinical studies have CKD, a serious disease that increases the risk of cardiovascular disease including heart attacks and stroke, and, ultimately may cause kidney failure.  Many of patients with CKD are elderly with comorbidities making them susceptible to significant health risks.  Therefore, the likelihood of these patients having adverse events, including serious adverse events, while participating in our studies is high.  

Serious adverse events deemed to be possibly or probably related to vadadustat could have a material adverse effect on the development of our product candidates and our business as a whole. Our understanding of adverse events in future clinical trials of our product candidates may change as we gather more information, and additional unexpected adverse events may be observed in future clinical trials.

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If we or others identify undesirable side effects caused by our product candidates, either before or after receipt of marketing approval, a number of potentially significant negative consequences could result, including:

• our clinical trials may be put on hold;

• patient recruitment could be slowed, and enrolled patients may not want to complete the clinical trial;

• we may be unable to obtain regulatory approval for our product candidates or regulatory authorities may withdraw approvals of product candidates;

• regulatory authorities may require additional warnings on the label;

• Risk Evaluation and Mitigation Strategies outlining the risks of such side effects for distribution to patients may be required;

• we could be sued and held liable for harm caused to patients; and

• our reputation may suffer.

Any of these events could prevent us from achieving or maintaining marketing approval and, ultimately, market acceptance of our products and could substantially increase our costs.

If we are unable to establish sales, marketing and distribution capabilities or to enter into additional agreements with third parties to market and sell our product candidates, we may not be successful in commercializing our product candidates if and when they are approved.

We are currently collaborating with Otsuka to develop and commercialize vadadustat in the United States, Europe and certain other regions and MTPC to develop and commercialize vadadustat in Japan and certain other Asian countries. We do not have a sales or marketing infrastructure and we have not yet sold, marketed or distributed any of our products. To achieve commercial success for any product for which we obtain marketing approval, we will need to establish a sales and marketing organization or make arrangements for sales and marketing services, either by establishing our own or entering into additional geographic collaborations.

There are risks involved with establishing our own sales, marketing and distribution capabilities. For example, recruiting and training a sales force are expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

If we are unable to establish our own sales, marketing and distribution capabilities for the United States and Latin America and have to enter into arrangements with third parties to perform these services, our profitability, if any, is likely to be lower than if we were to market, sell and distribute any products that we develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell, market and distribute our product candidates or may be unable to do so on terms that are favorable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.

We have entered into collaboration agreements with Otsuka and MTPC which are key to our success.  If either Otsuka or MTPC fails to perform under these agreements, our future results could be materially harmed.

In addition to certain substantial upfront payments and development milestones, our agreement with Otsuka for the United States establishes a profit sharing arrangement with respect to net sales of vadadustat and our agreement with Otsuka for the European Union and other regions provides us with royalty payments on net sales of vadadustat. Similarly, our agreement with MTPC grants them the exclusive right to develop and commercialize vadadustat in Japan and certain Asian countries in exchange for upfront, milestone, and royalty payments.  We partnered with each company, in part, because they have a well-established commercial presence and infrastructure in their territories, and we expect them to help us prepare for and execute on an optimal launch of vadadustat in those geographies.  If either of these companies fails to perform their obligations diligently under their agreement with us, including failing to diligently commercialize vadadustat in their territories, our sales potential in these regions may be materially harmed and we may not have an adequate remedy for such harm under our agreements with either company. Furthermore, if a contractual dispute with either Otsuka or MTPC were to arise, it could result in costly litigation for the Company and jeopardize important revenue streams, which could materially harm our financial condition.

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Coverage and reimbursement may be limited or unavailable in certain market segments for our products, if approved, which could make it difficult for us to sell our products profitably.

Market acceptance and sales of any approved products will depend significantly on the availability of adequate coverage and reimbursement from third-party payors and may be affected by existing and future healthcare reform measures. Government authorities and third-party payors decide which drugs they will cover, as well as establish formularies or implement other mechanisms to manage utilization of products, and determine reimbursement levels. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:

• a covered benefit under its health plan;

• safe, effective and medically necessary;

• appropriate for the specific patient; and

• cost-effective.

Obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time consuming and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data for the use of our products to the payor. Additionally, we may be required to enter into contracts with third-party payors offering rebates or discounts on our products in order to obtain favorable formulary status. We may not be able to agree upon commercially reasonable terms with such third-party payors or provide data sufficient to obtain favorable coverage and reimbursement. We cannot be sure that coverage or adequate reimbursement will be available for any of our product candidates. Even if we obtain coverage for our product candidates, third-party payors may not establish adequate reimbursement amounts, which may reduce the demand for our product, and prompt us to have to reduce pricing for the products. If reimbursement is not available or is limited, we may not be able to commercialize certain of our products. In addition, in the United States third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage reimbursement levels for new drugs. As a result, significant uncertainty exists as to whether and how much reimbursement third-party payors will provide for newly approved drugs, which, in turn, will put downward pressure on the pricing of drugs.

In addition, if vadadustat is used in an outpatient dialysis facility, such facilities often receive fixed reimbursement for a bundle of dialysis services, including certain drugs and supplies used to treat patients with end-stage renal disease, or ESRD. For example, Medicare payments to ESRD facilities for dialysis treatments are based on a prospective payment system with a standard per treatment payment (subject to certain adjustments such as patient level-case-mix adjustment). The per treatment payment covers a bundle of items and services routinely required for dialysis treatments furnished to Medicare beneficiaries in Medicare-certified ESRD facilities or at home and includes the cost of certain routine drugs. At this time, we believe that vadadustat, if approved, will likely be included in the bundle. We may be unable to sell vadadustat, if approved, to dialysis providers on a profitable basis if third-party payors reduce their current levels of payment or if our costs of production increase faster than increases in reimbursement levels. Patient and provider access to adequate coverage and reimbursement by government and private insurance plans is central to the acceptance of any products for which we receive regulatory approval. If vadadustat is not included in the bundle, the Vifor Agreement would not become effective.  We would be required to enter into contracts with third-party payors and we would be subject to the risks and uncertainties described above.

Price controls may be imposed, which may adversely affect our future profitability.

In some countries, particularly member states of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various European Union member states and parallel distribution, or arbitrage between low-priced and high-priced member states, can further reduce prices, and even, in some instances, render commercialization in a market infeasible or disadvantageous from a financial perspective. In some countries, we may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of our product candidates to other available products in order to obtain or maintain reimbursement or pricing approval. Publication of discounts by third-party payors or government authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be adversely affected.

The impact of recent healthcare reform legislation and other changes in the healthcare industry and in healthcare spending on us is currently unknown, and may adversely affect our business model.

Our revenue prospects could be affected by changes in healthcare spending and policy in the United States and abroad. We operate in a highly regulated industry and new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or

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decisions related to healthcare availability or the method of delivery or payment for healthcare products and services could negatively impact our business, operations and financial condition.

The United States and state governments continue to propose and pass legislation designed to reduce the cost of healthcare. In March 2010, the U.S. Congress enacted the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act, or the Health Care Reform Act, which include changes to the coverage and reimbursement of drug products under government healthcare programs such as:

• increasing drug rebates under state Medicaid programs for brand name prescription drugs and extending those rebates to Medicaid managed care;

• extending discounted rates on drug products available under the Public Health Service pharmaceutical pricing program to additional hospitals and other providers;

• assessing a fee on manufacturers and importers of brand name prescription drugs reimbursed under certain government programs, including Medicare and Medicaid; and

• requiring drug manufacturers to provide a 50% discount on Medicare Part D brand name prescription drugs sold to Medicare beneficiaries whose prescription drug costs cause the beneficiaries to be subject to the Medicare Part D coverage gap (i.e., the so‑called “donut hole”).

It is likely that federal and state legislatures within the United States and foreign governments will continue to consider changes to existing healthcare legislation. We cannot predict the reform initiatives that may be adopted in the future or whether initiatives that have been adopted will be repealed or modified. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect:

• the demand for any products for which we may obtain regulatory approval;

• our ability to set a price that we believe is fair for our products;

• our ability to obtain coverage and reimbursement approval for a product;

• our ability to generate revenues and achieve or maintain profitability; and

• the level of taxes that we are required to pay.

Modifications to or repeal of all or certain provisions of the Health Care Reform Act are expected based on recent statements made by the current President and members of Congress. We cannot predict the ultimate content, timing or effect of any changes to the Healthcare Reform Act, and significant changes to, or repeal of, the Healthcare Reform Act could have a material adverse effect on our business, financial condition and profitability.

In addition, other legislative changes have been proposed and adopted since the 2010 healthcare reform legislation. The Budget Control Act of 2011, as amended, or the Budget Control Act, includes provisions intended to reduce the federal deficit. The Budget Control Act resulted in the imposition of 2% reductions in Medicare payments to providers beginning in 2013. Recent legislation extends reductions through 2023. Any significant spending reductions affecting Medicare, Medicaid or other publicly funded or subsidized health programs that may be implemented, or any significant taxes or fees that may be imposed on us, as part of any broader deficit reduction effort or legislative replacement to the Budget Control Act, could have an adverse impact on our anticipated product revenues.

Even prior to approval, we are subject to a complex regulatory scheme that requires Company resources to ensure compliance. Failure to comply with applicable laws could subject the Company to government scrutiny or government enforcement, potentially resulting in costly investigations and/or fines or sanctions, or impacting our relationship with key regulatory agencies such as FDA or EMA.

Even before we have obtained approval for vadadustat or any product, certain laws apply to the Company or may otherwise restrict its activities, including the following:

• United States federal securities laws restricting the purchase or sale of any securities while in possession of material, non-public information;

• laws and regulations governing the conduct of clinical and preclinical studies in the United States and in countries in which we are conducting such studies;

• laws and regulations in the United States and in countries in which we are interacting with health care providers, patients, patient organizations and other constituencies that prohibit promoting a drug prior to approval and/or reimbursement;

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• laws, regulations and industry codes that vary from country to country and govern Akebia’s relationships with health care providers, patients, patient organizations, and other constituencies, and prohibit certain types of gifts and entertainment, establish codes of conduct and, in some instances, require disclosure to, or approval by, regulatory authorities for Akebia to engage in arrangements with such constituencies;

• anti-corruption and anti-bribery laws, including the Foreign Corrupt Practices Act, or FCPA, the U.K. Bribery Act and various other anti-corruption laws in countries outside of the United States. The FCPA generally prohibits companies and their intermediaries, such as the CROs, contract manufacturing organizations, and distributors with which we do business outside the United States from making improper payments to foreign government officials for the purposes of obtaining or keeping business and/or other benefits;

• data privacy laws existing in the European Union and other countries in which we operate, including the United States’ federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and state privacy and data protection laws, as well as state consumer protection laws; and

• international trade laws, which are laws that regulate the sale, purchase, import, export, re-export, transfer and shipment of goods, products, materials, services and technology.

Compliance with these laws and regulations requires us to expend significant Company resources.  Failure to comply with these laws and regulations may subject us to penalties, damages, fines, the restructuring of our operations, or the imposition of a clinical hold, any of which could materially adversely affect our business and would result in increased costs and diversion of management attention.

If our product candidates obtain marketing approval, we will be subject to healthcare laws, regulation and enforcement and our failure to comply with those laws could have a material adverse effect on our results of operations and financial conditions.

If we obtain approval for any of our product candidates and begin commercializing them, our operations may be directly, or indirectly through our customers, subject to additional healthcare regulation and enforcement by the federal government, states and governments outside of the United States in which we conduct our business. In addition to the laws mentioned above, the laws that may affect our ability to operate include:

• the Federal Food, Drug & Cosmetic Act, or FD&C Act, which among other things, strictly regulates drug product marketing and promotion and prohibits manufacturers from marketing such products for off-label use;

• the federal anti-kickback law, which prohibits, among other things, persons from soliciting, receiving or providing remuneration, directly or indirectly, to induce the referral for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid;

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

• federal laws that require pharmaceutical manufacturers to report certain calculated product prices to the government or provide certain discounts or rebates to government authorities or private entities, often as a condition of reimbursement under government healthcare programs;

• the so-called “federal sunshine” law (also known as “open payments”) which requires pharmaceutical and medical device manufacturers to report certain financial interactions to the federal government for re-disclosure to the public;  

• the federal law known as HIPAA, which, in addition to privacy protections, prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

• state law equivalents 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 state gift ban and transparency laws, many of which state laws differ from each other in significant ways and often are not preempted by federal laws, thus complicating compliance efforts; and

• state laws restricting interactions with healthcare providers and other members of the healthcare community or requiring pharmaceutical manufacturers to implement certain compliance standards.

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. In addition, recent healthcare reforms have strengthened these laws. For example, the Healthcare Reform Act, among other things, amended the intent requirement of the federal anti-kickback law. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate the law. The

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Healthcare Reform Act also amended the False Claims Act, such that violations of the anti-kickback statute are now deemed violations of the False Claims Act.

If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to, on a corporate or individual basis, 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 even imprisonment, any of which could materially adversely affect our ability to operate our business and our financial results. In addition, the cost of implementing sufficient systems, controls, and processes to ensure compliance with all of the aforementioned laws could be significant.

We face substantial competition, which may result in others discovering, developing or commercializing products before, or more successfully than, we do.

The development and commercialization of new drug products is highly competitive. Our future success depends on our ability to demonstrate and maintain a competitive advantage with respect to the development and commercialization of our product candidates. Our objective is to develop and commercialize new products with superior efficacy, convenience, tolerability and/or safety. In many cases, the products that we commercialize will compete with existing, market-leading products.

If vadadustat is approved and launched commercially, competing drugs may include EPOGEN^® and Aranesp^®, commercialized by Amgen, Procrit^® and Eprex^®, commercialized by Johnson & Johnson, and Mircera^®, commercialized by Roche Holding Ltd., or Roche. We may face competition from potential new anemia therapies. There are several other HIF product candidates in various stages of active development for anemia indications that may be in direct competition with vadadustat if and when they are approved and launched commercially. These candidates are being developed by such companies as FibroGen, in collaboration with AstraZeneca PLC in the United States and China and with Astellas Pharma Inc. in Europe and Asia, Japan Tobacco International, GlaxoSmithKline plc and Bayer HealthCare AG. FibroGen is currently in Phase 3 clinical development of its product candidate, roxadustat, and GlaxoSmithKline plc has commenced Phase 3 studies of its product candidate, daprodustat. Some of these product candidates may enter certain markets as early as 2018. In addition, certain companies are developing potential new therapies for renal-related diseases that could potentially reduce rESA utilization and thus limit the market for vadadustat if and when they are approved and launched commercially. Other new therapies are in development for the treatment of conditions inclusive of renal anemia that may impact the market for anemia-targeted treatment.

Since rESAs are biologic products, the introduction of biosimilars into the rESA market in the United States will constitute additional competition for vadadustat if we are able to obtain approval for and commercially launch our product. A biosimilar product is a follow-on version of an existing, branded biologic product. The patents for the existing, branded product must expire in a given market before biosimilars may enter that market without risk of being sued for patent infringement. In addition, an application for a biosimilar product cannot be approved by the FDA until 12 years after the existing, branded product was approved under a Biologics License Application, or BLA. The patents for epoetin alfa, an rESA, expired in 2004 in the European Union, and the remaining patents expired between 2012 and 2015 in the United States. Several biosimilar versions of rESAs are available for sale in the European Union and biosimilar versions of rESAs are currently being studied in clinical trials in the United States.

Many of our potential competitors have significantly greater financial, manufacturing, marketing, drug development, technical and human resources than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and manufacturing pharmaceutical products. Large and established companies such as Amgen and Roche, among others, compete in the market for drug products to treat anemia. In particular, these companies have greater experience and expertise in conducting pre-clinical testing and clinical trials, obtaining regulatory approvals to market products, manufacturing such products on a broad scale and marketing approved products. These companies also have significantly greater research and marketing capabilities than we do and may also have products that have been approved or are in late stages of development, and have collaborative arrangements in our target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the product that we develop obsolete. As a result of all of these factors, our competitors may succeed in obtaining patent protection and/or FDA approval or discovering, developing and commercializing competitive products before, or more effectively than, we do. If we are not able to compete effectively against potential competitors, our business will not grow and our financial condition and operations will suffer.

Risks Related to our Business and Industry

If we fail to attract and keep senior management and key personnel, we may be unable to successfully develop our products, conduct our clinical trials and commercialize our product candidates.

Recruiting and retaining qualified scientific, clinical, medical, manufacturing and sales and marketing personnel is critical to our success. We are highly dependent on certain members of our senior management. The loss of the services of our executives, senior

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managers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executives and other key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize products. We may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the intense competition among numerous biopharmaceutical companies for similar personnel.

We also experience competition for the hiring of personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating and executing our research and development and commercialization strategy. Our consultants and advisors may become employed by companies other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to grow and pursue our business strategy will be limited.

Our employees, independent contractors, principal investigators, CROs, consultants and vendors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

We are exposed to the risk that our employees, independent contractors, principal investigators, CROs, consultants and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or unauthorized activities that violate applicable laws, including (1) FDA and other healthcare authorities’ regulations, including those laws that require the reporting of true, complete and accurate information to regulatory authorities, and those prohibiting the promotion of unapproved drugs or approved drugs for an unapproved use, (2) quality standards, including Good Laboratory Practices (GLP), GCP and GMP, (3) federal and state healthcare fraud and abuse laws and regulations, (4) anti-bribery and anti-corruption laws, such as the FCPA and the U.K. Bribery Act, that prohibit the making of improper payments to foreign officials or individuals for the purposes of obtaining any business advantage, (5) laws that require the reporting of true and accurate financial information and data, and (6) securities laws and regulations. Specifically, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. It is not always possible to identify and deter misconduct by employees and third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, or if any such action is instituted against our employees, consultants, vendors or principal investigators, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, curtailment of our operations, and imprisonment, any of which could adversely affect our ability to operate our business and our results of operations.

We may encounter difficulties in managing our growth and expanding our operations successfully

As we seek to advance our product candidates through clinical trials and commercialization, we will need to expand our clinical, medical, regulatory, manufacturing, marketing and sales capabilities or contract with third parties to provide these capabilities for us. We have recently entered into a number of strategic collaborations for the development and commercialization of vadadustat. As our operations expand, we expect that we will need to manage additional relationships with various strategic collaborators, consultants, vendors, suppliers and other third parties. Future growth will impose significant added responsibilities on members of management. Our future financial performance and our ability to commercialize vadadustat, if approved, and any other product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train, integrate and retain additional qualified personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our company.  

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If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our 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 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 a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, product liability claims may result in:

• decreased demand for any product candidates or products that we may develop;

• injury to our reputation and significant negative media attention;

• withdrawal of clinical trial participants;

• significant costs to defend the related litigation;

• a diversion of management’s time and our resources;

• substantial monetary awards to study participants or patients;

• product recalls or withdrawals, or labeling, marketing or promotional restrictions;

• loss of revenue;

• the inability to commercialize any product candidates that we may develop; and

• a decline in our stock price.

Failure to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop. We currently carry product liability insurance that we believe is appropriate for our stage of development and may need to obtain higher levels prior to marketing any of our product candidates. Although we maintain product liability 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 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.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the use and disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from the use of hazardous materials by our employees or consultants, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

Our business and operations and our ability to protect our intellectual property may be materially adversely affected in the event of computer system failures or security breaches.

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We deploy defenses against computer system failures and work to secure the integrity of our data systems using techniques, hardware and software typical of companies our size and scope. Despite the implementation of security measures, our internal computer systems, and those of our CRO’s and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, and cyber attacks by increasingly sophisticated intruders or others who try to cause harm to or interfere with our normal use of our systems, as well as natural disasters, fire, terrorism, war and telecommunication and electrical failures.  Likewise, although we believe our vendors and service providers take steps to manage and avoid information security risks and respond to attacks, we may be vulnerable to attacks against our vendors or service providers, and we may not have adequate contractual remedies against such vendors and service providers in such event. If any of these events were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur costs related to, for example, rebuilding internal systems, defending against litigation, responding to regulatory inquiries or actions, paying damages or fines, or taking other remedial steps.  Publicity about vulnerabilities and attempted or successful incursions could damage the integrity of our studies or delay their completion.  In addition, such attacks could compromise our ability to protect our trade secrets and proprietary information from unauthorized access or misappropriation.

Risks Related to our Common Stock

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. As a result, we intend to continue to take advantage of certain reduced disclosure requirements.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

• not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

• reduced disclosure obligations regarding executive compensation; and

• exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and obtaining shareholder approval of any golden parachute payments not previously approved.

Investors may find our common stock less attractive if we continue to 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. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

We could be an emerging growth company for up to five years from our initial public offering in March 2014, although circumstances could cause us to lose that status earlier, including (1) if the market value of our common stock held by non-affiliates exceeds $700 million as of any June 30 before that time or (2) if we have total annual gross revenue of $1.07 billion or more during any fiscal year before that time, in which cases we would no longer be an emerging growth company as of the following December 31, or (3) if we issue more than $1 billion in non-convertible debt during any three-year period before that time, we would cease to be an emerging growth company immediately.

Our stock price has been and may continue to be volatile, and, as a result you may not be able to resell your shares at or above the public offering price.

Our stock price has been and may continue to be volatile. Since our initial public offering in March 2014, the price of our common stock as reported on The NASDAQ Global Market has ranged from a low of $5.91 on August 25, 2015 to a high of $31.00 on June 20, 2014. The market price of shares of our common stock could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control.

In addition, the stock market has recently experienced significant volatility, particularly with respect to pharmaceutical, biotechnology and other life sciences company stocks. The volatility of pharmaceutical, biotechnology and other life sciences company stocks often does not relate to the operating performance of the companies represented by the stock. As we operate in a single industry, we are especially vulnerable to the factors listed above to the extent that they affect our industry, markets or products. In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price, and such an action

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was filed against us but has since been dismissed. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.

Provisions in our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our Ninth Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws contain provisions that may have the effect of discouraging, delaying or preventing a change in control of us or changes in our management. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our Board of Directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board of Directors. Among other things, these provisions:

• authorize “blank check” preferred stock, which could be issued by our Board of Directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock;

• create a classified Board of Directors whose members serve staggered three-year terms;

• specify that special meetings of our stockholders can be called only by our Board of Directors pursuant to a resolution adopted by a majority of the total number of directors;

• prohibit stockholder action by written consent;

• establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our Board of Directors;

• provide that our directors may be removed only for cause;

• provide that vacancies on our Board of Directors may be filled only by a majority of directors then in office, even though less than a quorum;

• require a supermajority vote of the holders of our common stock or the majority vote of our Board of Directors to amend our Amended and Restated By-Laws; and

• require a supermajority vote of the holders of our common stock to amend the classification of our Board of Directors into three classes and to amend certain other provisions of our Amended and Restated Certificate of Incorporation.

These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

Any provision of our Amended and Restated Certificate of Incorporation, our Amended and Restated By-Laws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.

In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income. Our existing NOLs may be subject to substantial limitations arising from previous ownership changes and our ability to utilize NOLs could be further limited by Section 382 of the Code. Future changes in our stock ownership, many of which are outside of our control, could result in an ownership change under Section 382 of the Code. Our NOLs may also be impaired under state law. Accordingly, we may not be able to utilize a material portion of our NOLs. Furthermore, our ability to utilize our NOLs is conditioned upon our attaining profitability and generating U.S. federal taxable income. As described above under “—Risks related to our financial position and need for additional capital,” we have incurred significant net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future; thus, we do not know whether or when we will generate the U.S. federal taxable income necessary to utilize our NOLs. A full valuation allowance has been provided for the entire amount of our NOLs.

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Our Amended and Restated Certificate of Incorporation designates the state or federal courts located in the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our Amended and Restated Certificate of Incorporation provides that, subject to limited exceptions, the state and federal courts located in the State of Delaware will be the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law, our Amended and Restated Certificate of Incorporation or our Amended and Restated By-Laws, or (4) any other action asserting a claim against us that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our Amended and Restated Certificate of Incorporation described above. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our Amended and Restated Certificate of Incorporation inapplicable to, or unenforceable with respect to, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

During the quarter ended September 30, 2017, we did not have any sales of unregistered securities.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

The following disclosure is provided in accordance with and in satisfaction of the requirements of Item 2.02 “ Results of Operations and Financial Condition ” of Form 8-K:

On November 8, 2017, Akebia announced its financial results for the quarter ended September 30, 2017 and commented on certain corporate accomplishments and plans. The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 hereto.

The information furnished in Item 5 (including Exhibit 99.1) shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.

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Item 6. Exhibits.

Exhibits
10.1#	Letter Agreement between Akebia Therapeutics, Inc. and Mitsubishi Tanabe Pharma Corporation, dated September 26, 2017.
31.1	Certification of Principal Executive Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	Certification of Principal Financial Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1	Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. 1350.
99.1	Press Release issued by Akebia Therapeutics, Inc. on August 8, 2017 (furnished herewith).
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

# Indicates portions of the exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AKEBIA THERAPEUTICS, INC.
Date: November 8, 2017	By:	/s/ John P. Butler
		John P. Butler
		President and Chief Executive Officer
Under the requirements of the Securities and Exchange Act of 1934, this report was signed by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Date: November 8, 2017	By:	/s/ John P. Butler
		John P. Butler
		President and Chief Executive Officer
Date: November 8, 2017	By:	/s/ Jason A. Amello
		Jason A. Amello
		Senior Vice President, Chief Financial Officer and Treasurer

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