Akebia Therapeutics, Inc. - Annual Report: 2015 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2015

OR

Commission File Number 001-36352

AKEBIA THERAPEUTICS, INC.

(Exact name of Registrant as specified in its Charter)

Registrant’s telephone number, including area code: (617) 871-2098

Securities registered pursuant to Section 12(b) of the Act: Common Stock, Par Value $0.00001 Per Share; Common stock traded on the NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act: None

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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x  

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on The NASDAQ Stock Market on June 30, 2015, was $259,927,754.

The number of shares of Registrant’s Common Stock outstanding as of March 1, 2016 was 37,942,946.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for our 2016 Annual Meeting of Stockholders scheduled to be held June 16, 2016 are incorporated by reference into Part III of this annual report on Form 10-K.

TABLE OF CONTENTS

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements that are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, or PSLRA, with the intention of obtaining the benefits of the “safe harbor” provisions of the PSLRA. Forward-looking statements involve risks and uncertainties. All statements other than statements of historical facts contained in this Annual Report on Form 10-K 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:

All forward-looking statements in this Annual Report on Form 10-K involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future 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 I, Item 1A. Risk Factors and elsewhere in this Annual Report on Form 10-K. 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, even if new information becomes available in the future.

This Annual Report on Form 10-K 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 that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

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PART I

Overview

Incorporated in Delaware in 2007, we are a biopharmaceutical company focused on the development of novel proprietary therapeutics based on hypoxia inducible factor, or HIF, biology and the commercialization of these products for patients with serious unmet medical needs. HIF is the primary regulator of the production of red blood cells, or RBCs, in the body and a potentially novel mechanism for the treatment of anemia secondary to chronic kidney disease, or CKD. Pharmacologic modulation of the HIF pathway may also have broader therapeutic applications in acute renal failure, organ protection, ischemia-reperfusion injury, cancer, ophthalmology, and inflammatory diseases.

Anemia is a serious medical condition in which blood is deficient in RBCs and hemoglobin, each of which is critical in delivering oxygen to tissue. Anemia generally exists when hemoglobin, a protein in RBCs that carries oxygen, is less than 13 g/dL in men or 12 g/dL in women. 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, as well as in the elderly.

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 these indications is currently treated by injectable recombinant erythropoiesis-stimulating agents, or rESAs,—including Epogen^®, Procrit^® and Aranesp^® — with iron supplementation or RBC transfusion. Based on the reported revenues of companies that market and sell rESAs, we estimate that global sales of injectable rESAs were $7.0 billion in 2014; the vast majority of which were for renal indications.

rESAs are designed to stimulate production of RBCs by binding directly to and saturating erythropoietin, or EPO, receptors. While injectable rESAs and transfusions may be effective in raising hemoglobin levels, they carry significant potential side effects and need to be delivered subcutaneously or intravenously. In particular, injectable rESAs may lead to thrombosis, stroke, myocardial infarction and death. These risks are described in black box warnings on the prescribing information of all products marketed in this class. 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 CKD patients. As a result, we believe that a safe, effective, oral therapeutic option will take significant market share and meaningfully grow the market in patients not requiring dialysis.

Given the burdens of the current standard of care and costs associated with administering an injectable rESA, we believe our lead product candidate, vadadustat, formerly known as AKB-6548, is a promising cost-effective alternative for the treatment of anemia in CKD.  Vadadustat is being developed as a once-daily, oral therapy and has successfully completed Phase 2 development demonstrating that vadadustat can safely and predictably raise hemoglobin levels in patients with anemia related to CKD.  Vadadustat works by a differentiated mechanism of action that we believe has the potential to be safer than that of injectable rESAs and may offer additional beneficial therapeutics effects beyond anemia including delaying CKD progression. This novel mechanism of action is referred to as HIF prolyl-hydroxylase, or HIF-PH, inhibition. Instead of binding directly to the EPO receptors on cells in the bone marrow, vadadustat leads to activation of critical pathways for hemoglobin and RBC production. This approach mimics the physiological adjustment made by the body when exposed to reduced oxygen levels at higher altitudes.

We recently commenced Phase 3 development of vadadustat in non-dialysis patients. Positive results from our Phase 2b study in non-dialysis CKD patients demonstrated that vadadustat raised hemoglobin levels with no safety signal observed. In December 2015, we began dosing patients in our Phase 3 vadadustat program in non-dialysis patients with anemia related to CKD, PRO₂TECT, after obtaining feedback from United States and European regulatory authorities regarding the design of the program. If the results from the PRO₂TECT program support the results observed across our previous clinical studies, including 29,000 days of patient exposure, we anticipate submitting a New Drug Application, or NDA, to the United States Food and Drug Administration, or FDA, for vadadustat in 2019.

We have also completed a Phase 2 study of vadadustat for the treatment of anemia in patients undergoing dialysis, which found that vadadustat, dosed either once daily or three times per week, maintained stable hemoglobin levels following conversion from rESA therapy with no safety signal observed. We expect to initiate our Phase 3 vadadustat program in dialysis-dependent CKD patients, INNO₂VATE, in 2016, anticipating full enrollment by early 2018.

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We have engaged Quintiles, Inc., or Quintiles, as our primary clinical research organization, or CRO, for the PRO₂TECT and INNO₂VATE programs. We expect the cost of the Phase 3 program to be in the range of $80,000 to $85,000 per patient and we plan to enroll approximately 3,100 patients in the PRO₂TECT program and approximately 2,600 patients in the INNO₂VATE program.

A subset of dialysis-dependent CKD patients have shown an inadequate hemoglobin response despite receiving high doses of rESAs. Previous studies have shown that rESA hyporesponsiveness is associated with poor clinical outcomes including increased mortality risk. By increasing iron mobilization, in addition to increasing erythropoietin levels, vadadustat may allow for a more consistent hemoglobin response in these patients. We expect to generate clinical data in hyporesponsive dialysis-dependent patients by 2017.

If approved by regulatory authorities, we plan to commercialize vadadustat in the United States for the treatment of anemia in patients with CKD. These patients are primarily treated by approximately 7,000 nephrologists, and we believe we can reach most of this market with a specialty sales force of approximately 125 people.  In Japan and certain other Asian countries, we plan to commercialize vadadustat through our recently announced collaboration with Mitsubishi Tanabe Pharma Corporation, or Mitsubishi Tanabe. We intend to seek one or more collaborators to commercialize vadadustat in additional markets.  

Our second clinical candidate, AKB-6899, is designed as a small molecule HIF-PH inhibitor with potential therapeutic benefit in oncology and ophthalmology. AKB-6899 has demonstrated the ability in vitro to reduce vascular endothelial growth factor, or VEGF, levels in the presence of hypoxia. In several preclinical mouse models, AKB-6899 has been active in reducing tumor growth and development of metastases. We opened an Investigational New Drug application, or IND, with the FDA at the end of 2015. We expect to commence clinical development of AKB-6899 in 2016 and anticipate completion of the Phase 1 study in oncology in late 2017.

We are led by a team of experienced biopharmaceutical executives with a background in developing and commercializing drugs for the treatment of renal and metabolic disorders. John P. Butler, our CEO, was previously President of Genzyme Corporation’s renal division which grew to over $1 billion in annual revenue under his leadership, and was Chairman of the Board of the American Kidney Fund, the leading patient advocacy organization for kidney disease patients. Earlier in his career, Mr. Butler held sales and marketing positions at Amgen, working on the early commercial launch of injectable rESAs in the renal anemia market.

Our Strategy

Our strategy is to develop and deliver novel therapeutics for patients based on HIF biology, beginning with vadadustat for patients with anemia secondary to CKD. The key elements of our strategy are to:

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Our Product Candidates

The following chart depicts our HIF-based product candidates, their indications and their current development.

Anemia Overview

Anemia is a serious medical condition in which blood is deficient in RBCs and hemoglobin, leading to inadequate oxygen delivery to tissues and cells throughout the body. RBCs are normally formed in the bone marrow from precursor or progenitor cells. EPO, a hormonal factor primarily produced in the kidney and liver, binds to and activates the EPO receptor on these precursor cells. The activation of the EPO receptor stimulates these cells to divide, differentiate into RBCs that contain hemoglobin, and mobilize into circulation. Hemoglobin is an iron-containing protein in RBCs that transports oxygen to the tissues of the body.

Anemia generally exists when hemoglobin is less than 13 g/dL in men and 12 g/dL in women. Anemia is common in patients with CKD, cancer, heart failure, inflammatory diseases and other critical illnesses, as well as in the elderly.  Untreated anemia is associated with chronic fatigue, increased risk of progression of multiple diseases and death. Increased morbidity (largely due to cardiovascular disease) and mortality are well recognized complications of anemia in patients with CKD. Successful treatment of anemia significantly improves patients’ quality of life and is associated with decreased cardiovascular morbidity, less frequent hospitalizations, and lower mortality risk.

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Chronic Kidney Disease

CKD, a common cause of anemia, is a condition in which the kidneys are progressively damaged to the point that they cannot properly filter the blood circulating in the body. This damage causes waste products to build up in the patient’s blood leading to other health problems, including anemia, cardiovascular and bone disease. CKD patients are classified by the degree of their loss of kidney function as measured by the glomerular filtration rate, or GFR, and albuminuria, the level of protein in urine. As illustrated in the table below, CKD affects more than 30 million people in the United States and the prevalence of anemia increases with the severity of CKD.

There are many causes of CKD, the most common of which are diabetes mellitus and hypertension. The prevalence and incidence of CKD is increasing in all segments of the U.S. population, particularly in patients over 65. Risk factors for the development of CKD include concomitant diseases (hypertension, diabetes mellitus and cardiovascular disease), lifestyle factors (tobacco use and inactivity), family history, aging, and prenatal factors (maternal diabetes mellitus, low birth weight and small-for-gestational-age status). According to a Lancet article published in May 2013, projected worldwide population changes suggest that the potential number of cases of CKD, specifically end-stage, will increase disproportionately in developing countries, such as Japan, China and India, where the numbers of elderly people are expanding. This effect will be enhanced further if the trends of increasing hypertension and diabetes prevalence persist, competing causes of death—such as stroke and cardiovascular diseases—are reduced, and access to treatment does not improve.

The prevalence and severity of anemia in CKD increases as renal function deteriorates. Three principal factors contribute to the development of anemia as CKD progresses:

As CKD progresses, the combined effect of decreased RBC production from lower EPO signaling, increased rate of RBC destruction, and reduced iron availability to the bone marrow results in the increased prevalence and severity of anemia.

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Current Treatments Leave a Substantial Unmet Need 

Injectable rESAs are currently the standard of care for treating anemia in patients with CKD and must be administered intravenously or subcutaneously along with iron supplements. Based on the reported revenues of companies that market and sell rESAs, we estimate that global sales of injectable rESAs were $7.0 billion in 2014, as compared to an estimated $12.0 billion in 2006. The 2013 revenues generated in the United States were an estimated $3.6 billion, the vast majority of which were for renal indications.  In 2006, data on the risks of rESA use among these patients started to become available, forcing physicians to balance serious safety concerns against the efficacy of rESAs. The safety concerns with injectable rESA use include increased risk of cardiovascular disease as well as a potentially increased rate of tumor progression in patients with cancer. We believe that the decline in market revenue since 2007 is a direct result of these increased safety concerns, as well as reimbursement pressures, and that an opportunity exists for a safer, well-tolerated alternative to replace injectable rESAs as the standard of care for anemia secondary to CKD.

As a result of the safety concerns related to rESA use, patients have been forced to live with lower hemoglobin levels, higher rates of transfusions, and more intravenous iron, or IV iron, use.  As a result of the increased use of IV iron and RBC transfusions, patients are also subject to safety risks related to these alternative treatments to injectable rESAs. The risks of RBC transfusions include the development of antibodies to foreign antigens, which may negatively impact candidacy for kidney transplantation, transmission of blood-borne pathogens, and iron overload with chronic transfusions. The risks of IV iron include hypersensitivity reactions, including fatal anaphylactic-type reactions.

Currently, there is no scientific consensus regarding the cause of the adverse cardiovascular outcomes associated with the use of injectable rESAs to normalize hemoglobin levels. The results of the four major randomized, controlled clinical trials on the treatment of anemia secondary to CKD with rESAs and adjunctive iron supplementation (Normal Hematocrit Trial/NHCT, CREATE, CHOIR and TREAT) all showed an increased risk of adverse cardiovascular outcomes. These results were surprising at the time and contradicted the extensive body of data from observational studies that showed reduced mortality and improved health outcomes to be associated with higher hemoglobin levels.

A number of critical post-hoc analyses of the data from randomized controlled clinical trials have shifted attention to the potential of dose-related toxicity of injectable rESAs in CKD patients as a contributing factor to the reported adverse cardiovascular outcomes, instead of the achieved hemoglobin levels. The graphs below highlight these findings. The first chart explores the relative risk of serious cardiovascular adverse events, including death, hospitalization for heart failure, stroke or myocardial infarction based upon the hemoglobin achieved during the study as well as the weekly injectable rESA dose. The data clearly show that the risk of adverse cardiovascular events was greatest in those patients receiving the highest injectable rESA doses, regardless of the hemoglobin level that was achieved.

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The second graph explores the probability of reaching one of several adverse events (death, stroke, heart failure or myocardial infarction) over time for two different groups:

Both graphs demonstrate that patients achieving higher hemoglobin levels on lower injectable rESA doses have better outcomes than patients receiving higher injectable rESA doses despite lower achieved hemoglobin levels. Therefore, higher injectable rESA doses, not the achieved hemoglobin level, appears to be most strongly correlated with adverse outcomes.

The significant safety risks associated with rESAs are outlined in a black-box warning in their prescribing information. This warning arose from numerous events highlighting the safety concerns of injectable rESAs and the response by the FDA, as highlighted below.

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We believe there is now substantial evidence to suggest that EPO level, not hemoglobin, is the cause of the safety issues in the above trials.

Vadadustat as a Potential Solution

We are developing our lead product candidate, vadadustat, to be a best-in-class HIF-PH inhibitor for the treatment of anemia secondary to CKD. Vadadustat may potentially offer:  

Novel Mechanism of Action, Which Mimics the Body’s Natural Physiologic Response

Vadadustat is designed to work by a mechanism of action that differs from injectable rESAs. This novel mechanism of action is referred to as HIF-PH inhibition. Instead of binding directly to and saturating the EPO receptors in the bone marrow for prolonged periods of time, HIF-PH inhibitors act by simulating the body’s natural response to anemia. HIF is the primary regulator of the production of RBCs and acts by simulating 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 RBC production and enhancement of the delivery of iron to the bone marrow, ensuring the incorporation of iron into hemoglobin necessary for new RBC production. This is very similar to the natural adaptive response that is induced when a person ascends in altitude. At higher altitudes, lower levels of oxygen circulating in the blood stream lead to reduction in HIF-PH activity which increases intracellular levels of HIFa proteins (HIF1a and HIF2a).  

Both HIF1a and HIF2a protein levels in cells are adjusted by the activity of the HIF-PH enzymes, which target the HIFa proteins for degradation. HIF1a helps cells survive under very low oxygen conditions, whereas HIF2a helps cells to adapt to modest changes in oxygen, such that would occur with a change in altitude from sea level to up to 7,500 feet.

When HIFa is stabilized, it travels to the nucleus of the cell, where it binds to the protein HIFß. When bound together, they induce the production of EPO and iron transfer proteins.  With continued stabilization of HIFa (either by staying at higher altitude or by the

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administration of a HIF-PH inhibitor), the level of hemoglobin and RBCs will rise in order to increase the amount of oxygen circulating in the blood.

By inhibiting HIF-PH, vadadustat leads to increased production of hemoglobin and RBCs, while maintaining normal levels of EPO. In addition, we believe that vadadustat’s mechanism of action provides for the ability to induce a more prominent HIF2a response (as naturally occurs with a moderate increase in altitude), and restores the normal diurnal pattern of EPO, which is the normal rise and fall of EPO during the each day.

This mechanism of action is illustrated in the graphic below.

Potential Best-in-Class Profile

We believe vadadustat has compelling clinical data demonstrating a potential best-in-class profile with several potential safety and efficacy advantages over current injectable rESA therapy for the treatment of anemia secondary to CKD.

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Vadadustat Clinical Development Overview

Akebia is developing vadadustat as oral therapy for the treatment of anemia in CKD subjects who are not on dialysis and in subjects who are on dialysis.  A summary of completed and ongoing clinical and clinical pharmacokinetic studies is presented in Table 1.

To date, the safety, tolerability, pharmacokinetic and pharmacodynamic responses of vadadustat have been demonstrated in:

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In the 14 studies completed to date, 512 unique subjects have received vadadustat, including 164 healthy volunteers (male and female) and 348 subjects with CKD (242 with non-dialysis CKD with GFR categories G3a/b, G4, and G5 for up to 20 weeks and 106 subjects with dialysis-dependent CKD for up to 16 weeks).  A total of more than 29,000 patient days of exposure to vadadustat has been accrued to date.  The adverse effect, or AEs, most frequently reported with vadadustat and which occurred more frequently in subjects on vadadustat than in subjects on placebo have predominantly been nausea and diarrhea.  Generally these symptoms have been mild to moderate in severity, non-serious, and resolved on vadadustat therapy, although they have led to discontinuation of vadadustat in some subjects.

Early Clinical Studies (CI-0001 to CI-0004, and CI-0006):

An IND was filed for vadadustat for the treatment of anemia associated with CKD on July 17, 2009. Under the IND, we may investigate vadadustat in subjects who are not on dialysis and in subjects who are on dialysis. The early clinical studies (CI-0001 through CI-0004) for vadadustat were designed to demonstrate the efficacy and safety of the compound, starting in healthy male volunteers and progressing to CKD patients with anemia. In healthy males, we demonstrated that vadadustat can be dosed daily, and that it induces the desired pharmacodynamics effect, specifically:

Subsequently, we demonstrated a similar induction of a diurnal EPO response in CKD patients. This was followed by a 28-day, dose-titration study to establish the necessary dosing information for increasing hemoglobin levels. Throughout these studies, vadadustat was generally well tolerated. There were no serious adverse events, or SAEs, and treatment emergent adverse events, or TEAEs, were limited in number and duration.

The most common potentially drug-related AEs in our clinical trials were gastro-intestinal disorders, including diarrhea, nausea and constipation. The design and results of each of the 14 completed studies is provided in the following table followed by a more detailed description of three Phase 2 studies in non-dialysis (CI-0005 and CI-0007) and dialysis-dependent (CI-0011) CKD patients treated for up to 20 weeks.

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The individual design and summary results of each of our completed clinical trials are highlighted below:

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AE =adverse event, AUC = area under the curve, CKD = chronic kidney disease, CVA = cerebral vascular accident, ECG = electrocardiogram, EPO = erythropoietin, ESA = erythropoiesis-stimulating agents, ESRD = end-stage renal disease, HCT = hematocrit, HGB = hemoglobin, MI = myocardial infarction, QD = once daily, PK = pharmacokinetics, PD = pharmacodynamics, QTc = corrected QT interval, RBC = red blood cell, SAEs = serious adverse events, TIW = 3 times per week, t_1/2 = terminal half-life

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CI-0005: Positive Phase 2a Proof of Concept Trial in Non-Dialysis CKD Patients

CI-0005 was a randomized, double-blind, placebo controlled trial of vadadustat in non-dialysis patients with CKD GFR categories G3, G4 and G5 designed to evaluate the change in hemoglobin levels over 42 days. The study enrolled 91 CKD patients who received either placebo or one of the following 4 vadadustat doses once daily: 240 mg, 370 mg, 500 mg, or 630 mg.  The primary endpoint for the trial was the mean absolute change in hemoglobin from baseline.

All doses of vadadustat significantly increased hemoglobin in a dose-dependent manner compared with placebo (p<0.0001). The mean increase in hemoglobin in vadadustat treated patients ranged from 0.7 to 1.4 g/dL, while placebo-treated patients experienced a mean decrease in hemoglobin of 0.1 g/dL. The dose-dependent increases in hemoglobin occurred even though, per protocol, 26% of patients receiving the 630 mg vadadustat dose and 11% of patients in the 500 mg vadadustat dose group had their dose reduced due to a hemoglobin increase > 1.5 g/dL by Day 28. No patient’s hemoglobin level exceeded 13 g/dL during the study.

Increases in hemoglobin in the vadadustat group were associated with an increase in reticulocytes and total iron binding capacity, or TIBC, and a decrease in serum hepcidin and ferritin as observed in healthy volunteers, serum EPO levels returned to baseline levels prior the next daily dose of vadadustat, indicating that vadadustat increase hemoglobin without chronically elevating EPO.  

Vadadustat was generally well tolerated with 34 subjects (47.2%) in the vadadustat groups and 11 subjects (57.9%) in the placebo group reporting an adverse event. Adverse events were evenly distributed across the dose groups. Ten subjects (13.9%) treated with vadadustat and one placebo subject (5.3%) had AEs that were considered study drug related. The most frequently reported adverse events in either treatment group were: anemia (placebo, 10.5%), nausea (500 mg, 11.8%) and placebo, (10.5%), urinary tract infection (240 mg, 11.1%), hyperkalemia (500 mg, 17.6%), hypoglycemia (630 mg, 10.5%), headache (240 mg, 11.1%), hypertension (630 mg, 10.5%) and placebo (15.8%), and hypotension (placebo, 10.5%). There were eight serious adverse events (vadadustat 9.7% vs. placebo 5.3%) reported and all were considered unrelated to the study drug. These included fluid overload (placebo patient), gastroenteritis, hypoglycemic event, dizziness, triple vessel coronary artery disease with non-ST elevation myocardial infarction, hypertensive crisis, ventricular pacemaker lead replacement, and azotemia (uremia). One subject died after being hospitalized with uremia due to progression of her CKD and acute pulmonary edema. Following a complicated hospital course, the patient developed sustained ventricular tachycardia resulting in a cardiac arrest.

VEGF is necessary for the maintenance of healthy kidney function and is regulated by HIF1a. Clinical studies have shown that increased VEGF levels are potentially linked to increased growth of tumors in patients with cancer. Vadadustat provides for the ability to induce a more prominent HIF2a response, and consistent with this mechanism, no change in VEGF levels were observed from baseline for any of the vadadustat dose groups. The results of this study were reported at the American Society of Nephrology meeting in November 2012.

Phase 2b Study (CI-0007) in Non-Dialysis CKD Patients

We have completed a Phase 2b study of vadadustat in subjects with anemia secondary to CKD not requiring dialysis. This double-blind, randomized, placebo controlled study evaluated the efficacy and safety of vadadustat over 20 weeks of dosing in 210 subjects (138 vadadustat and 72 placebo) with CKD stages 3-5. Subjects were enrolled into one of three groups: (1) ESA naïve with hemoglobin ≤10.5 g/dL, (2) previously treated with ESA with hemoglobin ≤10.5 g/dL, or (3) actively treated with ESA with hemoglobin ≥9.5 and ≤12.0 g/dL and randomized (2:1) to once daily vadadustat or placebo. The primary endpoint was the percent of subjects with either a mean hemoglobin of ≥11.0 g/dL or an increase in hemoglobin by ≥1.2 g/dL from baseline. A protocol-defined dose adjustment algorithm was used to achieve the primary endpoint and to minimize hemoglobin excursions ≥13 g/dL.

The mean age was 66 years, ~75% of subjects had diabetes mellitus and the mean estimated glomerular filtration rate, or eGFR, was 25 mL/min/1.73m². 54.9% of vadadustat treated subjects compared to 10.3% of placebo treated subjects met the primary endpoint (p=0.0001).  Only 4.3% of subjects in the vadadustat group had any hemoglobin excursion ≥13.0 g/dL. Group 3 placebo treated subjects experienced a decline in the mean hemoglobin within the first 2 weeks, whereas subjects randomized to vadadustat maintained a stable hemoglobin throughout the study. Increases in hemoglobin in the vadadustat group were associated with an increase in reticulocytes and TIBC and a decrease in serum hepcidin and ferritin. There was no difference between the vadadustat and placebo groups in vascular endothelial growth factor, or VEGF, levels during the study.  

Vadadustat was generally well tolerated with similar percentages of subjects experiencing AEs in vadadustat treated and placebo groups (74.6% vs. 73.6%). There was an increase in renal related SAEs reported in the vadadustat-treated subjects (vadadustat 9.4% vs. placebo 2.8%), however, the number of subjects requiring dialysis, an objective measure of the severity of renal disease, was similar in the two treatment groups (vadadustat 8.0% vs. placebo 9.7%). Overall AEs for renal and urinary disorders was balanced (vadadustat 14.5% vs. placebo 13.9%). The disparity in renal SAEs was likely related to variability in reporting between investigators (reasons included proceeding to dialysis in association with a SAE that was not reported in the renal category, or proceeding to

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dialysis without being considered an SAE). Other differences, favoring either vadadustat or placebo, in AEs were as follows: nausea and diarrhea (vadadustat 10.1% vs. placebo 4.2%); gastrointestinal hemorrhage (vadadustat 0.0% vs. placebo 5.6%); upper respiratory tract infection (vadadustat 1.4% vs. placebo 6.9%); hyperkalemia (vadadustat 5.1% vs. placebo 0.0%); and hypertension (vadadustat 8.0% vs. placebo 2.8%). There were three deaths in vadadustat-treated subjects and no deaths in the placebo group. This was the expected number of subject deaths based on previous studies in similar populations.

In summary vadadustat achieved the desired outcomes of raising and maintaining hemoglobin and increasing iron mobilization, while minimizing hemoglobin excursions ≥13 g/dL.  The results of this study were reported in various scientific meetings in 2015, including the World Congress of Nephrology meeting in March 2015.

Phase 2 Study in Dialysis-Dependent Patients (CI-0011)

We recently completed a multi-center, open-label, 16-week trial to assess the hemoglobin response, safety, and tolerability of vadadustat in dialysis dependent CKD patients. The trial enrolled 94 hemodialysis patients (hemoglobin 9 - 12 g/dL), who were maintained on ESAs prior to study entry. Patients were converted from ESA to vadadustat, and assigned to 1 of 3 dose cohorts: 300 mg once daily (QD); 450 mg QD; or 450 mg three times weekly (TIW). For each dose cohort, the mean hemoglobin level at study entry was compared to the average at weeks 7 and 8, and to the average at weeks 15 and 16. To evaluate hemoglobin response to each of the dose regimens, during the first eight weeks of this study patients were to remain on the prescribed starting dose, or decreased if necessary to control hemoglobin. Beginning at week eight, the dose of vadadustat could be increased or decreased to maintain hemoglobin levels as needed.  Intravenous iron use was allowed.

The underlying patient demographics and profile of these CKD patients were well-balanced across the three cohorts, and reflective of the US dialysis dependent CKD population as reported in the literature. Mean age was 58 years, average time on dialysis was 4.6 years, and the most common cause of end-stage renal disease was diabetes mellitus and/or hypertension. Baseline hemoglobin levels were similar (10.4-10.6 g/dL) in all three cohorts and the serum ferritin levels indicated that the patients were iron replete at study entry and throughout the study.

The trial achieved its primary endpoint of maintaining stable hemoglobin levels over 16 weeks, across all three cohorts of patients converting from ESAs to vadadustat. The study supports both daily and three times weekly vadadustat dosing regimens as viable options for patients. Consistent with previous studies, all three starting dose regimens improved iron mobilization, as reflected by increases in TIBC and serum iron, and decreases in serum ferritin and hepcidin levels. Only one subject in the 300mg QD cohort had a single hemoglobin excursion to 13.1 g/dL.

Adverse events were balanced across the three cohorts. There were no discernible trends in the frequency of AEs or SAEs by dose cohort.  SAEs were reported in 13 subjects (13.8%), which was within the expected range (13 - 17 subjects) for this patient population. No SAEs were reported as related to vadadustat and no deaths occurred during the study.

The results of this trial demonstrate that vadadustat maintained hemoglobin levels in dialysis-dependent CKD subjects who were converted from existing ESA therapy to vadadustat. Only one subject had a single hemoglobin rise to 13.1 g/dL. Vadadustat was generally well tolerated and the frequency and type of SAEs were consistent with those expected in a dialysis-dependent CKD population. The results of this study were reported at the American Society of Nephrology meeting in November 2015.

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Phase 3 Clinical Program

Akebia is conducting two global Phase 3 studies to support an indication for the treatment of anemia in non-dialysis dependent patients and two Phase 3 studies to support an indication for the treatment of anemia in dialysis-dependent CKD patients:

In both the PRO₂TECT and INNO₂VATE Phase 3 programs, the primary efficacy endpoint will be the mean change in hemoglobin between baseline (mean pretreatment hemoglobin) and the primary evaluation period, concluding non-inferiority (NI) when the upper 95% confidence interval of the hazard ratio (vadadustat/ESA) does not exceed the NI margin.  Both the PRO₂TECT and INNO₂VATE programs will include the primary safety endpoint of the assessment of major adverse cardiovascular endpoints, or MACE, with a comparison of vadadustat to an ESA.  MACE is defined as the composite endpoint of all-cause mortality, non-fatal myocardial infarction, or non-fatal stroke.  To assess MACE, a pooled analysis of time to first MACE event from the two Phase 3 studies in each program will be performed, concluding NI when the upper 95% confidence interval of the hazard ratio (vadadustat/ESA) does not exceed the NI margin.  The assessment of MACE will also allow for determination of superiority for the composite or individual MACE components.

Overall, the non-dialysis dependent CKD and dialysis-dependent CKD Phase 3 programs will enroll approximately 5,700 CKD patients; approximately 2,850 patients receiving vadadustat and approximately 2,850 patients receiving an ESA. We have engaged Quintiles as our primary CRO for the PRO₂TECT and INNO₂VATE programs. We expect the cost of the Phase 3 program to be in the range of $80,000 to $85,000 per patient and we plan to enroll approximately 3,100 patients in PRO₂TECT and approximately 2,600 patients in INNO₂VATE.

In December 2015, we began dosing patients in our Phase 3 vadadustat program in non-dialysis patients with anemia related to CKD, PRO₂TECT, after obtaining feedback from United States and European regulatory authorities regarding the design of the program. If the results from the PRO₂TECT Phase 3 program support the results observed across our previous clinical studies, we anticipate submitting an NDA to the FDA for vadadustat in 2019. We expect to initiate our Phase 3 vadadustat program in dialysis-dependent CKD patients, INNO₂VATE, in 2016, and also anticipating submitting an NDA to FDA in 2019. 

Additional Studies

We have completed a thorough QT, or TQT, study in accordance with FDA guidance to ensure that vadadustat does not affect the cardiac conduction cycle (CI-0010). A lengthened QT interval is a biomarker for certain ventricular arrhythmias and a risk factor for sudden death. The results from this study confirm that vadadustat does not alter cardiac repolarization intervals in healthy volunteers following a single dose of up to 1200 mg.

In addition, a clinical study was conducted to evaluate the effect of vadadustat on celecoxib, a substrate for the hepatic cytochrome P450 enzyme CYP2C9. The results of the study showed that the co-administration of vadadustat resulted in a minimal (12%) increase in the exposure (AUC) of celecoxib while the C_max of celecoxib increased by approximately 60% when co-administered with vadadustat. Since the potential for interaction is based on total exposure (AUC), it was concluded that vadadustat does not inhibit CYP2C9 to any appreciable extent and, therefore, there is no clinically significant effect of vadadustat on drugs that are CYP2C9 substrates (e.g., losartan, rosuvastatin). Vadadustat was well-tolerated and no SAE occurred.

The results of a standard battery of tests that evaluate for mutations in cells or animals have indicated that vadadustat does not cause mutations that could lead to cancer. However, to satisfy the expected regulatory requirement, carcinogenicity assessments (two years of dosing in rats, and six months of dosing in a transgenic mouse model) will be conducted.  The 2-year rat carcinogenicity study was initiated in Q2 2015 and the six month transgenic mouse study will commence in Q2 2016. Embryo-fetal development studies have been conducted in rats and rabbits, and a fertility study has been conducted in rats with no notable findings.  A peri-postnatal development study in rats is currently ongoing.

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In order to complete the registration package for drug approval, we plan to evaluate the pharmacokinetics and safety of vadadustat in subjects with mild and moderate hepatic impairment. In addition clinical studies are also planned to evaluate the potential of vadadustat to interact with drugs that are substrates of enzymes CYP2B6 and CYP2C8. Clinical studies will also be conducted to determine the effect of vadadustat on substrates of transporters such as P-gp, BCRP, OAT1, OAT3 and OATP1B1.

AKB-6899

Our second clinical candidate, AKB-6899, is designed as a small molecule HIF-PH inhibitor with potential therapeutic application in oncology and ophthalmology. AKB-6899 has demonstrated the ability in vitro to reduce VEGF levels in the presence of hypoxia while stimulating the production of soluble vascular endothelial growth factor receptor 1, or sVEGFr1.  sVEGFr1 sequesters VEGF to inhibit VEGF signaling and thereby can decrease tumor growth. Moreover, AKB-6899 inhibits the expression of phosphoglycerate kinase, or PGK, which has been associated with the growth of cancerous tumors.  In several preclinical mouse models, AKB-6899 has been active in reducing tumor growth and metastases, and has improved survival. We opened an IND with the FDA at the end of 2015. We expect to commence clinical development of AKB-6899 in 2016 and anticipate completion of the Phase 1 study in oncology in late 2017.

Manufacturing and Supply

Vadadustat is a small-molecule that is manufactured from readily available commercial starting materials.  We have no internal manufacturing capabilities and rely on third-party contract manufacturers to produce all lots of drug substance and drug products.

We entered into a Master Services Agreement with Evonik Corporation, or Evonik, pursuant to which Evonik shall further develop and manufacture vadadustat drug substance for use in our Phase 3 development program for vadadustat and other clinical trials.  Evonik is currently manufacturing vadadustat at commercially relevant scale.

The drug substance can be readily formulated into compressed tablets using common manufacturing processes. Tablets have been made at several different potencies with excellent drug product pharmaceutical properties and a fast, reproducible dissolution rate. We entered into a Master Services Agreement with Gregory Pharmaceutical Holdings, Inc. (d/b/a UPM Pharmaceuticals Inc., or UPM), pursuant to which UPM shall further develop and manufacture the drug product for use in our Phase 3 development program for vadadustat and other clinical trials. UPM is currently manufacturing vadadustat tablets at commercially relevant scale.

In our agreements with third-party manufacturers, we retain ownership of our intellectual property and generally own and/or are licensed rights to processes, developments, data, results and other intellectual property relating to our products and generated during the course of the manufacturer’s performance under the agreement.

AKB-6899 will be entering clinical development in 2016.  A scalable manufacturing route has been used to synthesize GMP material required for non-clinical and clinical development.  A capsule formulation has been manufactured for use in clinical trials. We have contracted with several contract manufacturing organizations for the supply of drug substance and finished product to meet our needs for pre-clinical toxicology and early clinical development of AKB-6899. We expect to continue to rely on third-party contract manufacturers for the supply of AKB-6899 drug substance and drug product for the foreseeable future.

Intellectual Property

The proprietary nature of, and protection for, our product candidates and our discovery programs, processes and know-how are important to our business. Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development and implementation of our business. We also rely on know-how, continuing technological innovation and potential in-licensing opportunities to develop and maintain our proprietary position. Additionally, we may benefit from a variety of statutory frameworks in the United States, Europe and other countries that provide periods of non-patent-based exclusivity for qualifying molecules. See “—Regulatory Matters.”

Our commercial success will depend in part on obtaining and maintaining patent protection of our current and future product candidates, methods of their use and the methods used to develop and manufacture them, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our products depends on the extent to which we have rights under valid and enforceable patents that cover these activities. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our product candidates, discovery programs and processes. Even once patents successfully issue,

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third parties may challenge the validity, enforceability, inventorship, or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. For this and more comprehensive risks related to our intellectual property, please see “Risk Factors—Risks Related to Our Intellectual Property.”

Our patent estate, on a worldwide basis, includes 64 allowed applications and issued patents and approximately 81 pending utility and provisional patent applications, with pending and issued claims relating to our current clinical stage candidate vadadustat as well as other product candidates, including AKB-6899. We also hold three patents that claim the crystal of a protein-ligand complex of EGLN-1 as well as methods for identifying compounds that bind to EGLN-1.

Individual patents extend for varying periods of time depending on the date of filing of the patent application or the date of patent issuance and the legal term of patents in the countries in which they are obtained. Generally, patents issued from applications filed in the United States are effective for 20 years from the earliest non-provisional filing date. In addition, in certain instances, a patent term can be extended to recapture a portion of the term effectively lost as a result of the FDA regulatory review period, however, the restoration period cannot be longer than five years and the total patent term including the restoration period must not exceed 14 years following FDA approval. The duration of foreign patents varies in accordance with provisions of applicable local law, but typically is also 20 years from the earliest international filing date. Patent term recapture for loss of term as a result of the regulatory review period is available in some foreign jurisdictions. Our issued patents and pending applications with respect to our composition of matter, methods of treatment, and pharmaceutical compositions are expected to expire in 2027 or 2028 (depending on eligibility for patent term adjustment) and our pending applications with respect to processes for manufacturing vadadustat, dosing regimens, formulations, and various other aspects relating to the treatment of anemia using vadadustat are expected to expire between 2032 and 2034, exclusive of possible patent term adjustments or extensions; however, the actual protection afforded by a patent varies on a product by product basis, from country to country and depends upon many factors, including the type of patent, the scope of its coverage, the availability of extensions of patent term, the availability of legal remedies in a particular country and the validity and enforceability of the patent.

Changes in either the patent laws or interpretations of patent laws in the United States and other countries can diminish our ability to protect our inventions and enforce our intellectual property rights. Accordingly, we cannot predict the breadth or enforceability of claims that may be granted in our patents or in third-party patents. The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights. Our ability to maintain and solidify our proprietary position for our drugs and technology will depend on our success in obtaining effective claims and enforcing those claims once granted. We do not know whether any of the patent applications that we may file or license from third parties will result in the issuance of any patents. The issued patents that we own or may receive in the future may be challenged, invalidated or circumvented, and the rights granted under any issued patents may not provide us with sufficient protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may be able to independently develop and commercialize similar drugs or duplicate our technology, business model or strategy without infringing our patents. Because of the extensive time required for clinical development and regulatory review of a drug we may develop, it is possible that, before any of our drugs can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of any such patent. The patent positions for our most advanced programs are summarized below.

Vadadustat Patent Portfolio

We hold five issued patents and one pending application covering the composition of matter, method of treating anemia, and pharmaceutical compositions of vadadustat in the United States, one issued patent in Europe (registered in most countries of the European Patent Convention), and additional patents issued or pending in many other major jurisdictions worldwide, including Japan, China, South Korea, Brazil, Mexico, Russia, Israel and India. The expected expiration date for these composition of matter patents is 2028 plus any extensions or adjustments of term available under national law.

In July of 2011, a third party filed an opposition to our issued European Patent No. 2044005 (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 final resolution of the opposition proceedings will likely take a number of years. 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.

We also hold patents and patent applications directed to processes for manufacturing vadadustat, dosing regimens, formulations, polymorphs, and various other aspects relating to the treatment of anemia using vadadustat that are expected to expire between 2032 and 2034 exclusive of possible patent term extensions.

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AKB-6899 Patent Portfolio

We hold four issued patents and one pending application covering the AKB-6899 composition of matter and pharmaceutical compositions or methods of use in the United States, and additional patents issued or pending in many other major jurisdictions worldwide, including Europe, Japan, China, South Korea, Brazil, Mexico, Russia and India. The expected expiration date for these composition of matter patents is 2028 plus any extensions or adjustments of term available under national law.

We hold one issued patent that covers the treatment of anemia by administration of AKB-6899, which is expected to expire in 2028. We also hold, either alone or jointly, one issued patent and one pending application covering various methods, including, but not limited to, the treatment of cancer by administration of AKB-6899 in the United States and additional patent applications are pending in many other major jurisdictions worldwide, including Japan, China, South Korea, Mexico, Russia, Israel and India. The expected expiration dates for these method of treatment patent applications are expected to be 2032 exclusive of possible patent term extensions or adjustments. We hold one pending patent application in the United States and approximately 30 pending patent applications worldwide directed to treatment or prevention of ocular conditions using AKB-6899, and one pending patent application in the United States and approximately 30 pending patent applications worldwide directed to dosing regimens of AKB-6899. The expected expiration date of this ocular patent application is 2035, and the expected expiration date of this dosing patent application is 2034, exclusive of possible patent term extensions or adjustments. We also hold two pending patent application directed to polymorphs of vadadustat and AKB-6899 in the United States and various foreign jurisdictions. The expected expiration dates of these polymorph patent applications are 2034 for vadadustat and 2036 for AKB-6899 exclusive of possible patent term extensions or adjustments.

Know-How

In addition to patents, we rely upon unpatented know-how and continuing technological innovation to develop and maintain our competitive position. We seek to protect our proprietary information, in part, using confidentiality agreements with our collaborators, employees and consultants and invention assignment provisions in the confidentiality agreements with our employees. These agreements are designed to protect our proprietary information and, in the case of the invention assignment provisions, to grant us ownership of technologies that are developed by our employees. These agreements may be breached, and we may not have adequate remedies for any breach.

To the extent that our commercial partners, collaborators, employees and consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

Third-Party Filings

We are aware of certain U.S. patents issued to FibroGen, Inc., or FibroGen, directed to, among other things, purportedly new methods of using previously known heterocyclic carboxamide compounds for purposes of treating or affecting specified conditions. We do not believe these currently issued FibroGen U.S. patents conflict with our intellectual property rights; nor do we make any admission that any of such patents are valid or enforceable. Under U.S. law, a person 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 non-obvious. 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 that claim methods of using any of our product candidates for purposes of inhibiting HIF-PHs for the treatment of anemia secondary to CKD.

As explained in more detail below, we have had some positive developments in our opposition and invalidity proceedings against FibroGen.  With regard to the opposition that we filed in Europe against FibroGen’s European Patent No. 1463823, or the ’823 patent, the European Opposition Division issued a non-binding preliminary opinion that none of FibroGen’s ’823 patent claims meet the requirements for patentability.  In an oral proceeding which took place March 8 and 9, 2016, the European Opposition Division confirmed 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.  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 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 ’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 in Europe and Japan in the ’823 and ’131 patents.  In the event FibroGen were to obtain such patents in the United States, we may decide to challenge them like we have done in Europe and Japan.  On May 13, May 20, and July 6, 2015, we also filed oppositions to FibroGen’s European Patent Nos. 2322153, 2322155, and 1633333 respectively, requesting the patents be revoked in their entirety.

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In June 2013, the European Patent Office granted the ’823 patent to FibroGen. The ’823 patent claims, among other things, the use of a heterocyclic carboxamide compound selected from the group consisting of pyridine carboxamides, quinoline carboxamides, isoquinoline carboxamides, cinnoline carboxamides, and beta-carboline carboxamides that inhibits HIF-PH enzyme activity in the manufacture of a medicament for increasing endogenous EPO in the prevention, pretreatment, or treatment of anemia. On December 5, 2013, we filed an opposition with the European Patent Office to the ’823 patent requesting that the ’823 patent be revoked in its entirety. The European Opposition Division scheduled oral proceedings for March 8, 2016 and also issued a non-binding preliminary opinion that none of the ’823 patent’s claims met the requirements for patentability.  In an oral proceeding which took place March 8 and 9, 2016, the European Opposition Division confirmed 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.  If FibroGen appeals the decision of the European Opposition Division, final resolution of the appeal will likely take two to three years.  While, for the reasons set forth in our opposition, we maintain that the ’823 patent should be revoked in its entirety, the ultimate outcome of any appeal remains uncertain. If FibroGen appeals the decision of the European Opposition Division and the Technical Board of Appeal at the European Patent Office decides not to revoke the ’823 patent in its entirety, or only certain claims of the ’823 patent and any surviving claims are determined to encompass our intended use of vadadustat, we may not be able to commercialize vadadustat in the European Union for its intended use, which could materially adversely affect our business, operating results and financial condition.

In August 2011, the Japanese Patent Office granted the ’131 patent to FibroGen. The ’131 patent claimed, among other things, the use of certain heterocyclic carboxamides selected from the group consisting of pyridine carboxamides, quinoline carboxamides, and isoquinoline carboxamides to treat anemia, wherein the heterocyclic carboxamides also suppress HIF prolyl-hydroxylase. On June 2, 2014, we filed an invalidity proceeding in the Japanese Patent Office challenging the validity of the ’131 patent and requesting that certain claims be revoked in their entirety. An oral hearing before the Japanese Patent Office was held on February 9, 2015, and on May 11, 2015 the Japanese Patent Office issued a preliminary decision finding all of the challenged claims to be invalid. In response, FibroGen filed a request for correction in which it requested that the ’131 patent claims be amended to exclude pyridine carboxamides from their scope. On November 18, 2015, Akebia received the final trial decision from the JPO in which it accepted FibroGen’s requested claim amendments. As a result of the JPO’s decision and FibroGen’s subsequent amendments, the FibroGen ’131 patent does not cover vadadustat or any pyridine carboxamide compounds.

In August 2014, the European Patent Office granted European Patent Nos. 2322153, 2322155, and 1633333 (the ’153 patent, the ’155 patent, and the ’333 patent, respectively) to FibroGen.  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 EPO, and microcytosis in microcytic anemia. On May 13, May 20, and July 6, 2015, we filed oppositions to the ’155 patent, the ’333 patent, and the ’153 patent, respectively, requesting that the patents be revoked in their entireties. While, for the reasons set forth in our oppositions, we believe that the ’153 patent, the ’155 patent, and the ’333 patent should be revoked in their entireties, the ultimate outcomes of the oppositions remains uncertain.

Competition

We operate in highly competitive segments of the biotechnology and biopharmaceutical markets. We face competition from many different sources, including commercial pharmaceutical and biotechnology enterprises, academic institutions, government agencies and private and public research institutions. Many of our competitors have significantly greater financial, product development, manufacturing and marketing resources than us. Large pharmaceutical companies have extensive experience in clinical testing and obtaining regulatory approval for drugs. These companies also have significantly greater research capabilities than us. Many universities and private and public research institutes are active in CKD research, some in direct competition with us. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. The key competitive factors affecting the success of vadadustat, if approved, are likely to be its efficacy, convenience and safety profile.

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 partnership 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/Astellas Pharma Inc., in particular, is currently in Phase 3 clinical development of its product candidate, roxadustat (FG-4592). Some of these product candidates may enter the market as early as 2017. In addition, certain companies are developing potential new therapies for renal-related diseases that could potentially reduce rESA utilization and thus

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limit the market for vadadustat if and when it is approved and launched commercially. Such therapies include hepcidin lowering therapies, like PRS-080 from Pieris Pharmaceuticals.  Other new therapies are in development for the treatment of conditions inclusive of renal anemia, like sotatercept from Acceleron Pharma Inc. 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 pursued in the United States, which will compete with vadadustat if it is approved and marketed, and will likely drive down prices for rEPO, which could also adversely affect our reimbursement.

In the dialysis market, it is typical to compete for and enter into long-term supply agreements with the major operators of dialysis clinics in the United States. In particular, two of the largest operators of dialysis clinics in the United States, DaVita Inc., or DaVita, and Fresenius, account for more than half of the rESA sales in the U.S. dialysis market. We believe that it may be challenging to enter into or expand upon long or short-term supply agreements with DaVita, Fresenius or other operators of dialysis clinics.

Regulatory Matters

The FDA and comparable regulatory authorities in state and local jurisdictions and in other countries impose substantial and burdensome requirements upon companies involved in the clinical development, manufacture, marketing, labeling and packaging, storage, distribution, post-approval monitoring and reporting, advertising and promotion, pricing, and export and import of drugs. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Moreover, failure to comply with applicable regulatory requirements may result in, among other things, warning letters, clinical holds, civil or criminal penalties, recall or seizure of products, injunction, disbarment, partial or total suspension of production or withdrawal of the product from the market. Any agency or judicial enforcement action could have a material adverse effect on us.

U.S. Government Regulation

In the United States, the FDA regulates drug products under the Federal Food, Drug, and Cosmetic Act, or FD&C Act, and the FDA’s implementing regulations. If we fail to comply with applicable FDA or other requirements at any time during the drug development process, clinical testing, approval process or after approval, we may become subject to administrative or judicial sanctions. These sanctions could include the FDA’s refusal to approve pending applications, license suspension or revocation, withdrawal of an approval, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties or criminal prosecution. Any FDA enforcement action could have a material adverse effect on us. FDA approval is required before any new unapproved drug or dosage form, including a new use of a previously approved drug, can be marketed in the United States.

The process required by the FDA before a drug may be marketed in the United States generally involves:

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The manufacturing, nonclinical testing, clinical testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be granted on a timely basis, if at all. Nonclinical tests include laboratory evaluation of product chemistry, formulation, stability and toxicity, as well as animal studies to assess the characteristics and potential safety and efficacy of the product.

The results of nonclinical tests, together with manufacturing information, analytical data and a proposed clinical trial protocol, and other information, are submitted as part of an IND to the FDA. The central focus of an IND submission is on the general investigational plan and the protocol(s) for human studies. Some nonclinical testing may continue even after the IND is submitted, but an IND must become effective before human clinical trials may begin in the United States. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions relating to one or more proposed clinical trials and places the clinical trial on a clinical hold, including concerns that human research subjects will be exposed to unreasonable health risks. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Accordingly, submission of an IND may or may not result in the FDA allowing clinical trials to commence.  A separate amendment to an existing IND must also be made for each successive clinical trial conducted during product development.

Clinical trials involve the administration of the investigational drug to human subjects under the supervision of qualified investigators in accordance with cGCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be used. Each protocol in the United States must be submitted to the FDA as part of the IND. In addition, an independent institutional review board, or IRB, or ethics committee for each medical center proposing to conduct a clinical trial must also review and approve a plan for any clinical trial before it can begin at that center and the IRB must monitor the clinical trial until it is completed. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries.

A sponsor who wishes to conduct a clinical trial outside the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor may submit data from the clinical trial to the FDA in support of an NDA so long as the clinical trial is conducted in compliance with an international guideline for the ethical conduct of clinical research known as the Declaration of Helsinki, as set out in the FDA regulations or with the laws and regulations of the country or countries in which the clinical trial is performed, whichever provides the greater protection to the participants in the clinical trial.

Government Regulation Outside U.S.

In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries.

Certain countries outside of the United States have a similar process that requires the submission of a clinical trial application, or CTA, much like the IND, prior to the commencement of human clinical trials. In Europe, for example, a CTA must be approved by each country’s national health authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is approved in accordance with a country’s requirements, the clinical trial may proceed. Outside of the United States, each clinical trial to be conducted in a given country requires submission and approval of a unique CTA.

The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical trials are conducted in accordance with cGCP requirements and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. To obtain regulatory approval of an investigational drug under European Union regulatory systems, we must submit a Marketing Authorization Application (MAA). The application used to file the NDA in the United States is similar to that required in Europe, with the exception of, among other things, country-specific document requirements.

An approved Paediatric Investigation Plan (PIP) is required in Europe prior to submission of the MAA.  Ideally, the pediatric studies in both the U.S. PSP and the EU PIP will be identical, but some differences may be required to meet the respective regulatory requirements (e.g., waiver age).  The PIP outlines the study designs and timing of the pediatric program.  The EMA Pediatric

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Committee (PDCO) and the FDA’s Office of Pediatric Therapeutics have frequent discussions about pediatric drug development, including discussions about specific drugs.  Often, these discussions are conducted in an attempt to harmonize pediatric drug development across the two jurisdictions.  However, this cannot be guaranteed.

For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials must be conducted in accordance with GCP requirements and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.

If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

Clinical Trials

Clinical trials are typically conducted in three or four phases, which may overlap or be combined:

The FDA, the IRB, or the sponsor may suspend or discontinue a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides recommendations for whether or not a trial may move forward at designated check points based on access to certain data from the study. A sponsor may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate.

Concurrent with clinical trials, companies usually complete additional animal testing and must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the drug in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final drug product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life.

New Drug Applications

The clinical trials, together with the results of nonclinical studies and extensive manufacturing information and information on the composition of the drug, are submitted to the FDA in the form of an NDA requesting approval to market the drug for one or more specified indications. The FDA reviews an NDA to determine, among other things, whether a drug is safe and effective for its intended use.

Once the NDA submission has been accepted for review, under the Prescription Drug User Fee Act (PDUFA), the FDA has a goal of responding to standard review NDAs within ten months after the 60-day filing review period, but this timeframe is often extended. The first indication of the FDA’s review progress is provided at the mid-cycle review. This typically occurs five months after the

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NDA is accepted for review. However, the review process is often significantly extended by FDA requests for additional information or clarification. The FDA may refer the application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations.

Before approving an application, the FDA will inspect the facility or the facilities at which the finished drug product, and sometimes the active drug ingredient, is manufactured, and will not approve the drug unless cGMP compliance is satisfactory. The FDA may also inspect the sites at which the clinical trials were conducted to assess their compliance, and will not approve the drug unless compliance with GCP requirements is satisfactory.

After the FDA evaluates the NDA and conducts inspections of manufacturing facilities, it may issue an approval letter or a Complete Response Letter (CRL). An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A CRL indicates that the review cycle of the application is complete but the application is not yet ready for approval. A CRL may require additional clinical data and/or other significant, expensive, and time-consuming requirements related to clinical trials, nonclinical studies and/or manufacturing. Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret data. The FDA could also approve the NDA with a REMS to mitigate risks, which could include medication guides, physician communication plans, or elements to ensure safe use, such as restricted distribution programs, patient registries or other risk minimization tools. The FDA may also condition approval on, among other things, changes to proposed labeling, development of adequate controls and specifications, or a commitment to conduct one or more post-market studies or clinical trials. Such post-market testing may include Phase 4 clinical trials and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization.

An approved Pediatric Study Plan (PSP) is required for vadadustat under the Pediatric Research Equity Act (PREA) prior to submission of the NDA.  The PSP outlines the study designs and timing of the pediatric program.  Once the PSP is approved, Akebia and FDA will have reached agreement on the pediatric studies necessary for vadadustat, any deferrals from pediatric data to be included in the NDA, and any waivers of pediatric age ranges in which vadadustat need not be studied.

Once the FDA approves an NDA, or supplement thereto, the FDA may withdraw the approval if ongoing regulatory requirements are not met or if safety problems are identified after the drug reaches the market. Where a withdrawal may not be appropriate, the FDA still may seize existing inventory of such drug or request a recall of any drug already on the market. In addition, the FDA has the authority to prevent or limit further marketing of a drug based on the results of post-market studies or surveillance programs.

After regulatory approval of a drug is obtained, companies are subject to a number of post-approval requirements. For example, there are reporting obligations regarding certain adverse events received and production problems. Companies are also required to report updated safety and efficacy information and to comply with requirements concerning advertising and promotional labeling. Drugs may be marketed only for the FDA approved indications and in accordance with the provisions of the approved labeling. The FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the Internet. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Failure to comply with these requirements can result in warning letters, adverse publicity, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available drugs for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, impose stringent restrictions on manufacturers’ communications regarding off-label use.

Further, if there are any modifications to the drug, including changes in indications, labeling, or manufacturing processes or facilities, the applicant may be required to submit and obtain FDA approval of a new NDA or NDA supplement, which may require the applicant to develop additional data or conduct additional nonclinical studies and clinical trials. As with new NDAs, the review process is often significantly extended by the FDA requests for additional information or clarification. Also, quality control and manufacturing procedures must continue to conform to cGMP requirements after approval to ensure and preserve the long term identity, strength, quality, and purity of the drug product. The FDA periodically inspects manufacturing facilities to assess compliance with cGMP requirements, which imposes extensive procedural, substantive and record-keeping requirements. In addition, changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP requirements, and impose reporting and documentation requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP requirement and other aspects of regulatory compliance.

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The testing and approval processes require substantial time, effort and financial resources, and each may take several years to complete. The FDA may not grant approval on a timely basis, or at all. Even if we believe a clinical trial has demonstrated safety and efficacy of one of our drug candidates for the treatment of a disease, the results may not be satisfactory to the FDA. Nonclinical and clinical data may be interpreted by the FDA in different ways, which could delay, limit or prevent regulatory approval. We may encounter difficulties or unanticipated costs in our efforts to secure necessary governmental approvals which could delay or preclude us from marketing drugs. The FDA may limit the indications for use or place other conditions on any approvals that could restrict the commercial application of the drugs.

Fraud and Abuse Laws

In the United States, the research, manufacturing, distribution, sale and promotion of drug products and medical devices are subject to regulation by various federal, state and local authorities in addition to the FDA, including the CMS, other divisions of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General), the U.S. Department of Justice, state Attorneys General, and other state and local government agencies.

These laws include the federal Anti-Kickback Statute, which makes it illegal for any person, including a prescription drug manufacturer (or a party acting on its behalf) to knowingly and willfully solicit, receive, offer, or pay any remuneration that is intended to induce the referral of business, including the purchase, order, or prescription of a particular drug, for which payment may be made under a federal healthcare program, such as Medicare or Medicaid. Violations of this law are punishable by up to five years in prison, criminal fines, administrative civil money penalties, and exclusion from participation in federal healthcare programs. In addition, the PPACA, among other things, amends the intent requirement of the federal Anti-Kickback Statute and criminal healthcare fraud statutes created by HIPAA. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. Moreover, the PPACA provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the False Claims Act.

Although we would not submit claims directly to payors, drug manufacturers can be held liable under the federal False Claims Act, which prohibits anyone from knowingly presenting, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services, including drugs, that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. The government may deem manufacturers to have “caused” the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product off-label. In addition, our future activities relating to the reporting of wholesaler or estimated retail prices for our products, the reporting of prices used to calculate Medicaid rebate information and other information affecting federal, state, and third-party reimbursement for our products, and the sale and marketing of our products, are subject to scrutiny under this law. Penalties for a False Claims Act violation include three times the actual damages sustained by the government, plus mandatory civil penalties for each separate false claim, the potential for exclusion from participation in federal healthcare programs, and, although the federal False Claims Act is a civil statute, conduct that results in a False Claims Act violation may also implicate various federal criminal statutes. If the government were to allege that we were, or convict us of, violating these false claims laws, we could be subject to a substantial fine and may suffer a decline in our stock price. In addition, private individuals have the ability to bring actions under the federal False Claims Act and certain states have enacted laws modeled after the federal False Claims Act.

In addition to the laws described above, the PPACA also imposed new reporting requirements on drug manufacturers for payments made to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Failure to submit required information may result in civil monetary penalties for all payments, transfers of value or ownership or investment interests that are not timely, accurately and completely reported in an annual submission. Drug manufacturers were required to begin collecting data on August 1, 2013 and are required to submit reports to CMS by the 90^th day of each subsequent calendar year.

In addition, many states have adopted laws similar to the federal laws discussed above. Some of these state prohibitions apply to the referral of patients for healthcare services reimbursed by any insurer, not just federal healthcare programs such as Medicare and Medicaid. There has also been a recent trend of increased federal and state regulation of payments made to physicians. Certain states mandate implementation of compliance programs, impose restrictions on drug manufacturers’ marketing practices and/or require the tracking and reporting of gifts, compensation and other remuneration to physicians. Because we intend to commercialize products that could be reimbursed under a federal healthcare program and other governmental healthcare programs, we plan to develop a comprehensive compliance program that establishes internal controls to facilitate adherence to the rules and program requirements to which we will or may become subject. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Due to the breadth of and ambiguities in these laws, the absence of guidance in the form of regulations or court decisions, and the potential for additional legal or regulatory change in this area, it is possible that our future sales and marketing practices and/or our future relationships with physicians might be challenged under these laws. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.

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Third-Party Coverage and Reimbursement

Sales of pharmaceutical products depend in significant part on the availability of coverage and adequate reimbursement by third-party payors, such as state and federal governments, including Medicare and Medicaid, and commercial managed care providers. In the United States, no uniform policy of coverage and reimbursement for drug products exists among third-party payors. Accordingly, decisions regarding the extent of coverage and amount of reimbursement to be provided for vadadustat will be made on a payor by payor basis. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our product candidates to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained. Third-party payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drugs for a particular indication. A decision by a third-party payor not to cover our product candidates could reduce physician utilization of our products once approved and have a material adverse effect on our future sales, results of operations and financial condition. Moreover, a payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.

Healthcare Reform

In March 2010, the PPACA was enacted, which includes measures that have or will significantly change the way health care is financed by both governmental and private insurers. Among the provisions of PPACA of greatest importance to the pharmaceutical industry are the following:

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Certain details regarding the implementation of PPACA are yet to be determined and, the full effect that PPACA would have on our business is not fully understood. In addition, we expect that additional state and federal healthcare reform measures will be adopted in the future. Because we anticipate that a significant proportion of patients eligible for vadadustat will be covered by Medicare Part D, any government healthcare reform measures which limit the amounts that federal and state governments will pay for healthcare products and services could result in reduced demand for our products once approved or additional pricing pressures.

Other Regulations

We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control, and disposal of hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws and regulations now or in the future.

Employees

As of December 31, 2015, we had 64 employees, 63 of whom were full-time, 13 of whom hold Ph.D. or M.D. degrees, 39 of whom were engaged in research and development activities and 25 of whom were engaged in business development, finance, information systems, facilities, human resources or administrative support. None of our employees are represented by any collective bargaining unit. We believe that we maintain good relations with our employees.

Facilities

Our corporate headquarters are located in Cambridge, Massachusetts. We currently lease approximately 39,411 square feet of office space in Cambridge, Massachusetts under a lease that expires on August 31, 2026. We believe that our existing facilities are adequate to meet our current needs, and that suitable additional alternative spaces will be available in the future on commercially reasonable terms for our future growth.

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The following risk factors and other information included in this Annual Report on Form 10-K 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 $60.7 million for the year ended December 31, 2015, and $37.0 million for the year ended December 31, 2014. As of December 31, 2015, we had an accumulated deficit of $161.4 million. To date, we have not commercialized any products or generated any revenue from the sale of products, and we do not expect to generate any product revenue in the foreseeable future. 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 initial public offering, or IPO, completed in March 2014, our follow-on offerings completed in April 2015 and January 2016, our at-the-market offering in 2015 and private placements of our preferred stock. 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 collaboration. Our lead product candidate, vadadustat, recently commenced Phase 3 development, and our other product candidate, AKB-6899, may enter clinical development in 2016 with anticipated completion of the Phase 1 study in oncology in late 2017. Therefore, we expect that it will be several years, if ever, before we have a product candidate ready for commercialization. Even if we obtain regulatory approval to market vadadustat, our future revenue will depend upon the size of any markets in which vadadustat has received 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:

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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 or EMA, or other regulatory authorities 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. In any particular quarter or quarters, our operating results could be below the expectations of securities analysts or investors, which could cause our stock price to decline.

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 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.

Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable could depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings or even continue our operations. A decline in the value of our company could cause our stockholders to lose all or part of their investment.  

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 December 31, 2015, our cash and cash equivalents and available for sale securities were $138.5 million. After giving effect to the receipt of the net proceeds of approximately $61.0 million from our January 2016 follow-on offering and $40.0 million received in January 2016 in connection with our collaboration with Mitsubishi, our cash and cash equivalents and available for sale securities would have been approximately $239.5 million. We believe that we will continue to expend substantial resources for the foreseeable future developing vadadustat, AKB-6899 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 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.

Our future capital requirements depend on many factors, including:

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Based on our current operating plan, and absent any future financings or strategic partnerships, we believe that our existing cash and cash equivalents and available for sale securities at December 31, 2015, together with the net proceeds from our January 2016 offering  and the funds received in January 2016 in connection with our collaboration agreement with Mitsubishi Tanabe, will be sufficient to fund our projected operating expenses and capital expenditure requirements through at least the second quarter of 2017.

However, we do not currently estimate that these funds will enable us to complete our Phase 3 development of vadadustat, including both the PRO2TECT and INNO2VATE clinical programs. 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. We intend to secure a second geographic collaboration for the development and commercialization of vadadustat outside the United States with a goal of providing funds sufficient to enable us to complete our Phase 3 development of vadadustat, including both the PRO₂TECT and INNO₂ VATE clinical programs. However, there can be no assurance that our development milestones will be achieved, that we will be able to secure a second geographic collaboration for the development and commercialization of vadadustat outside the United States or that we will secure other sources of financing to complete our Phase 3 development of vadadustat.

We will require additional capital for the further development of our existing product candidates and will also need to raise additional funds sooner to pursue other 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. There can be no assurance that additional funds will 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.

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 equity offerings, debt financings and license, development and commercialization agreements with collaborators. 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‑6899 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.

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Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

We commenced active operations in 2007, and our operations to date have been limited to organizing and staffing our company, business planning, raising capital, identifying potential product candidates, undertaking preclinical studies and conducting clinical trials. We currently have two product candidates. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. Only a small percentage of biopharmaceutical development programs ultimately result in commercial products or even product candidates and a number of events could delay our development efforts and negatively impact our ability to obtain regulatory approval for, and to manufacture, market and sell, a biopharmaceutical product. We have not yet demonstrated our ability to successfully complete later stage clinical trials, obtain regulatory approvals, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization.

In addition, as a relatively young business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to expand our capabilities to support commercial activities. We may not be successful in adding such capabilities.

Risks Related to our Business and the Clinical Development, Regulatory Review and Approval of Vadadustat and AKB-6899

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 are permitted to commence its commercialization. We expect to commence clinical development of our other product candidate, AKB-6899, in 2016. 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 and in other countries where we 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 are not permitted to market vadadustat in the United States until we receive approval from the FDA, or in any jurisdiction outside of the United States until we receive the requisite approval from regulatory authorities in such jurisdiction. As a condition to an NDA to the FDA for vadadustat regarding its ability to treat patients with anemia secondary to CKD, we must complete Phase 3 studies and any additional non-clinical or clinical studies required by the FDA. 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 approval of an NDA 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 and the black box warnings in their prescribing information 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:

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

Any of these factors, many of which are beyond our control, could jeopardize our ability to obtain regulatory approval for and successfully market vadadustat. Because our business is almost entirely dependent upon vadadustat, any such setback in our pursuit of regulatory approval would have a material adverse effect on our business and prospects.

Alternatively, even if we obtain regulatory approval, that approval may be for indications or patient populations that are not as broad as we intend or desire or may require labeling that includes significant use or distribution restrictions or safety warnings. We may also be required to perform additional, unanticipated clinical trials to obtain approval or be subject to additional post-marketing testing requirements to maintain regulatory approval. In addition, regulatory authorities may withdraw their approval of a product or the FDA may require a risk evaluation and mitigation strategy, or REMS, for a product, which could impose restrictions on its distribution. Any of the foregoing scenarios could materially harm the commercial prospects for vadadustat or our other product candidates.  

We have not yet obtained agreement with all regulatory authorities regarding the design of our Phase 3 studies.

We recently obtained agreement with both the FDA and the EMA on vadadustat’s global Phase 3 program in non-dialysis patients with anemia related to CKD; however, we have not yet obtained agreement with all regulatory authorities on the design of these studies, nor have we obtained agreement with all regulatory authorities regarding our Phase 3 studies in dialysis patients with anemia related to CKD.  A regulatory authority may suggest we include, or we may choose to include, certain elements in our Phase 3 development programs, such as any or all of the following:

If we choose to change some or all of these elements in our Phase 3 development programs, the costs of our vadadustat development program could increase materially and the potential market introduction of vadadustat could be delayed or we could risk not obtaining regulatory authority approval even if the Phase 3 trials meet their primary endpoints. The regulatory authorities also may require that we conduct additional clinical, nonclinical or manufacturing validation studies and submit that data before it will consider an NDA, MAA or other application for regulatory approval.  Furthermore, regulatory authorities may differ in terms of their requirements for our Phase 3 program, which would make it difficult for us to conduct a global Phase 3 program and to use the results from such program to support regulatory approval in multiple jurisdictions.

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We cannot predict what additional requirements may be imposed by any regulatory authorities or how such requirements might delay or increase costs for our planned Phase 3 development program. Because our business is almost entirely dependent upon the successful development, regulatory approval, and commercialization of vadadustat, any such delay or increase in costs would have an adverse effect on our business.

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 from 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 controlling their disease 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:

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.

We may not be able to obtain regulatory approval 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, should we attempt to do so, is subject to numerous risks unique to conducting business in international markets, including:

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If we fail to successfully meet requirements for the conduct of clinical trials outside of the United States, we may be delayed in obtaining, or be unable to obtain, regulatory approval for vadadustat in countries outside of the United States.

Regulatory authorities outside of the United States will require compliance with numerous and varying regulatory 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 drug product is also subject to approval. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside of the United States does not ensure approval by regulatory authorities in other countries or by the FDA. 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. 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.

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 we cannot replicate the positive results observed to date in our Phase 3 clinical studies, 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 pharmaceutical and biotechnology industries 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 IRBs at the sites at which such trials are being conducted, by the Data Safety Monitoring Board, or DSMB, 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 or our clinical protocols, inspection of clinical trial operations, clinical trial site or manufacturing facilities by the FDA or other regulatory authorities resulting in 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. 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.

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. 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 current Good Manufacturing Practices, or cGMPs, and GCPs for any clinical trials that we conduct post-approval.

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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:

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 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 to be our primary CRO for the PRO₂TECT and INNO₂VATE programs.  If Quintiles cannot perform as agreed or terminates their 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. We compete with many other companies for the resources of these third parties. The third parties on whom we rely may terminate their engagements with us, and having to enter into alternative arrangements would delay development and commercialization of our product candidates.

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 trial sponsors, principal investigators and trial sites. If we or any of our CROs 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 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 to 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, preclinical 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.

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We also expect to 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 losses and depriving us of potential product revenue. In addition, we will be using an active comparator for our Phase 3 clinical trials in CKD patients.  If our distributors are unable to obtain sufficient supply of the active comparator for any reason, our clinical trials may be extended, delayed, suspended or terminated.

We intend to 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 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 terminate their engagement with us. On February 28, 2014, we entered into an agreement with Evonik Corporation, or Evonik, for the manufacture of the drug substance for the Phase 3 development program of vadadustat. If Evonik 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. Also, if we choose to engage a second source for the production of drug substance, we may incur additional costs. We also have an agreement in place 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. In addition, we have to enter into technical 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.

Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured the product candidates ourselves, including:

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

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The facilities and processes used by our contract manufacturers to manufacture our product candidates will be inspected by the FDA prior to or after we submit our NDA to the FDA. 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 the strict regulatory requirements of the FDA, 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, our failure, or 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.

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 that might be capable of manufacturing for us.

Our current and anticipated future dependence upon others for the manufacture of our product candidates or products may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.

If we are unable to manufacture 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, any of our product candidates in the volumes that will be necessary to support large-scale clinical trials or commercial sales. Efforts to establish these capabilities may not meet 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. These problems may include:

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 establishing and maintaining 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 ourselves in the United States and have entered into a collaboration agreement with Mitsubishi Tanabe to develop and commercialize vadadustat in Japan and certain other Asian countries. We will likely seek one or more strategic

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collaborators to commercialize vadadustat in additional markets. We face competition in seeking appropriate collaborators for our product candidates, and the negotiation process is time-consuming and complex. In order for us to successfully collaborate with a third party on our product candidates, potential collaborators must view these product candidates as economically valuable. Even if we are successful in our efforts to establish strategic collaborations, the terms that we agree upon may not be favorable to us, and we may not be able to maintain such strategic collaborations if, for example, development or approval of a product is delayed or sales of an approved product are disappointing. Any delay in entering into strategic collaboration agreements related to our product candidates could delay the development and commercialization of our product candidates and reduce their competitiveness even if they reach the market.

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 will likely negotiate 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 collaboration with Mitsubishi Tanabe or other strategic collaborations related to our product candidates, we will bear all of the risk and costs related to the development and commercialization of any such product candidate, and we may need to seek additional financing, hire additional employees and otherwise develop expertise. This could negatively affect the development of any such product candidate.

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 final resolution of the opposition proceeding will likely take a year or more. 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.

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 and 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 thereof, which 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,

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our product candidates. Further, 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 which 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 that is not patentable, processes for which patents are difficult to enforce and any other elements of our drug discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. Although we require all of our employees to assign their inventions to us, and 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, 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, 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, in addition to the opportunity to 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 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.

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 may become a party to, or 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.

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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. 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.

In addition, we are aware of subsequent U.S. patents issued to FibroGen directed to purportedly new methods of using such previously known heterocyclic carboxamide compounds for purposes of treating or affecting specified conditions. We do not believe these currently issued FibroGen U.S. patents conflict with our intellectual property rights; nor do we make any admission that any of such patents are valid or enforceable. 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.

There may be patents of third parties, including FibroGen, of which we are currently unaware with claims to 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 these patents or others 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 or AKB-6899. If any third-party patents were held by a court of competent 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.

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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.

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 Item 3 – Legal Proceedings.

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.

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. 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. An unfavorable outcome could require us to cease using the related 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.

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 procedural, documentary, fee payment (such as annuities) and other similar provisions during the patent application process. While an inadvertent lapse can in many cases 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,

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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.

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-6899 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 addition, market acceptance of any approved products depends on a number of other factors, including:

For example, 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 long or short-term supply agreements with DaVita, Fresenius or other operators of dialysis clinics.

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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 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.

If we are unable to establish sales, marketing and distribution capabilities or to enter into 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 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 with third parties to perform these services.

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.

Factors that may inhibit our efforts to commercialize our products on our own include:

If we are unable to establish our own sales, marketing and distribution capabilities 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.

Coverage and reimbursement may be limited or unavailable in certain market segments for any approved products, 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 pay for and establish formularies and 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:

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 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 gain acceptance with respect to coverage and reimbursement. We cannot be sure that coverage or adequate reimbursement will be available

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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, or the price of, our products. If reimbursement is not available or 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 and the level of reimbursement of new drugs. As a result, significant uncertainty exists as to whether and how much third-party payors will provide reimbursement for newly approved drugs, which in turn will put pressure on the pricing of drugs.

In addition, if vadadustat is used in an outpatient dialysis facility, such facilities often receive fixed reimbursement for all dialysis services furnished to patients with end-stage renal disease, or ESRD. For example, Medicare payments to ESRD facilities for such services are based on a prospective payment system known as the basic case-mix adjusted composite payment system. These payments cover a bundle of items and services routinely required for dialysis treatments furnished to Medicare beneficiaries in Medicare-certified ESRD facilities or at their home, including the cost of certain routine drugs such as our product candidates. 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. 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.

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

In the United States, the Medicare Prescription Drug, Improvement and Modernization Act of 2003, also called the MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. In addition, this legislation provided authority for limiting the number of drugs that will be covered in any therapeutic class. As a result of this legislation and the expansion of federal coverage of drug products, we expect that there will be additional pressure to reduce costs. For example, the Centers for Medicare and Medicaid Services, or CMS, has enacted regulations that reduced capitated payments to dialysis providers. These cost reduction initiatives and other provisions of this legislation could decrease the scope of coverage and the price that we receive for any approved products and could seriously harm our business. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policies and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement that results from the MMA may cause a similar reduction in payments from private payors. Similar regulations or reimbursement policies may be enacted in international markets which could similarly impact our business.

In addition, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively PPACA, was enacted in 2010 with a goal of reducing the cost of healthcare and substantially changing the way healthcare is financed by both government and private insurers. The PPACA, among other things, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and creates a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. In addition, other legislative changes have been proposed and

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adopted in the United States since the PPACA was enacted. On August 2, 2011, the Budget Control Act of 2011 created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of up to 2% per fiscal year, which went into effect on April 1, 2013.

It is likely that federal and state legislatures within the United States and governments in other countries 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:

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. The laws that may affect our ability to operate include:

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 PPACA, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of the statute or specific intent to

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violate it. The PPACA also amended the False Claims Act, such that violations of the anti-kickback statute are now deemed violations of the False Claims Act. To constitute a false claim prior to this amendment, an anti-kickback violation had to be accompanied by a false statement, such as false certification of compliance.

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 penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs and imprisonment, any of which could materially adversely affect our ability to operate our business and our financial results.

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/Astellas Pharma Inc., in particular, is currently in Phase 3 clinical development of its product candidate, FG-4592 (roxadustat). Some of these product candidates may enter the market as early as 2017.  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 it is approved and launched commercially. Other new therapies are in development for the treatment of conditions inclusive of renal anemia, like sotatercept from Acceleron Pharma Inc. 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 securing government contracts and grants to support their research and development efforts, 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 products before, or more effectively than, we do. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and be commercially successful. If we are not able to compete effectively against potential competitors, our business will not grow and our financial condition and operations will suffer.

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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 potential product liability claims. In our Phase 2b study of vadadustat for the treatment of anemia secondary to CKD in patients not on dialysis, the incidence of the most common treatment emergent adverse events were well balanced overall between the vadadustat and placebo treatment groups. There was a higher incidence of serious adverse events (SAEs) reported in the vadadustat treatment group, the most common being renal-related. 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.

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:

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

Risks Related to our Business and Industry

If we fail to attract and keep senior management and key scientific 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, manufacturing and sales and marketing personnel will also be critical to our success. We are highly dependent on certain members of our senior management. The loss of the services of our executive officers 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 executive officers and 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 scientific and clinical personnel from universities, research institutions and other biopharmaceutical companies. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating 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 (1) FDA regulations, including those laws that require the reporting of true, complete and accurate information to the FDA, (2) quality standards, including Good Laboratory Practices (GLP), GCP and GMP, (3) federal

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and state healthcare fraud and abuse laws and regulations, (4) laws that require the reporting of true and accurate financial information and data or (5) 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, 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, and curtailment of our operations, 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 development, regulatory, manufacturing, marketing and sales capabilities or contract with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with various strategic collaborators, 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 and integrate additional 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.  

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:

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

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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.

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:

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 if the market value of our common stock held by non-affiliates exceeds $700 million as of any June 30 before that time or if we have total annual gross revenue of $1 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, 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.

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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 IPO 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 has recently been filed against us. 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.

We and certain of our directors and executive officers are currently subject to securities class action litigation in connection with our initial public offering, which could result in substantial costs and divert management's attention.

A purported securities class action was filed against us and certain of our directors and executive officers alleging violation of federal securities laws. We believe such claims are without merit, and will engage in a vigorous defense of such litigation. In connection with such litigation, we could incur substantial costs and such costs and any related settlements or judgments may not be covered by insurance. We could also suffer an adverse impact on our reputation and a diversion of management's attention and resources, which could have a material adverse effect on our business.

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

Our executive officers, directors and principal stockholders, together with their respective affiliates, collectively control a majority of our common stock. Accordingly, these stockholders will be able to exert a significant degree of influence over our management and affairs and over matters requiring stockholder approval, including the election of our Board of Directors and approval of significant corporate transactions. This concentration of ownership could have the effect of entrenching our management and/or the Board of Directors, delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material and adverse effect on the fair market value of our common stock.

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 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:

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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.

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.

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None

Our corporate headquarters are located in Cambridge, Massachusetts. We currently lease approximately 39,411 square feet of office space in Cambridge, Massachusetts under a lease that expires on August 31, 2026. We believe that our existing facilities are adequate to meet our current needs, and that suitable additional alternative spaces will be available in the future on commercially reasonable terms for our future growth.

Shareholder Litigation

In September 2015, a purported securities class action lawsuit was filed against the Company, including its Chief Executive Officer, its Chief Financial Officer, and members of its Board of Directors, in the Business Litigation Section of the Suffolk County Superior Court of Massachusetts.  The complaint is brought on behalf of an alleged class of those who purchased common stock of the Company pursuant or traceable to our initial public offering, and purports to allege claims arising under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended (the “Securities Act”).  The complaint generally alleges that the defendants violated the federal securities laws by, among other things, making material misstatements or omissions concerning the Phase 2b clinical study of vadadustat.  The complaint seeks, among other relief, unspecified compensatory damages, rescission of certain stock purchases, attorneys’ fees, and costs.  In October 2015, we removed the case to the United States District Court for the District of Massachusetts, and the plaintiff filed a motion to remand the case back to the Business Litigation Section of the Suffolk County Superior Court of Massachusetts.  The plaintiff’s motion to remand is currently pending.  We believe such claims are without merit, and we will engage in a vigorous defense of such litigation.

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 Division and final resolution of the opposition proceedings will likely take a year or more. 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.

As explained in more detail below, we have had some 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, the European Opposition Division issued a non-binding preliminary opinion that none of FibroGen’s ’823 patent claims meet the requirements for patentability.  In an oral proceeding which took place March 8 and 9, 2016, the European Opposition Division confirmed 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.  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 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 ’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 in Europe and Japan in the ’823 and ’131 patents.  In the event FibroGen were to obtain such patents in the United States, we may decide to challenge them like we have done in Europe and Japan.  On May 13, May 20, and July 6, 2015, we also filed oppositions to FibroGen’s European Patent Nos. 2322153, 2322155, and 1633333 respectively, requesting the patents be revoked in their entirety.

In June 2013, the European Patent Office granted the ’823 patent, to FibroGen. The ’823 patent claims, among other things, the use of a heterocyclic carboxamide compound selected from the group consisting of pyridine carboxamides, quinoline carboxamides, isoquinoline carboxamides, cinnoline carboxamides, and beta-carboline carboxamides that inhibits HIF-PH enzyme activity in the manufacture of a medicament for increasing endogenous EPO in the prevention, pretreatment or treatment of anemia. On December 5,

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2013, we filed an opposition to the ’823 patent requesting that the ’823 patent be revoked in its entirety. The European Opposition Division scheduled oral proceedings for March 8, 2016 and also issued a non-binding preliminary opinion that none of the ’823 patent’s claims met the requirements for patentability. In an oral proceeding which took place March 8 and 9, 2016, the European Opposition Division confirmed 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.  If FibroGen appeals the decision of the European Opposition Division, final resolution of the appeal will likely take two to three years.  While, for the reasons set forth in our opposition, we maintain that the ’823 patent should be revoked in its entirety, the ultimate outcome of any appeal remains uncertain. If FibroGen appeals the decision of the European Opposition Division and the Technical Board of Appeal at the European Patent Office decides not to revoke the ’823 patent in its entirety, or only certain claims of the ’823 patent and any surviving claims are determined to encompass our intended use of vadadustat, we may not be able to commercialize vadadustat in the European Union for its intended use, which could materially adversely affect our business, operating results and financial condition.

In August 2011, the Japanese Patent Office granted the ’131 patent, to FibroGen. The ’131 patent claims, among other things, the use of certain heterocyclic carboxamides selected from the group consisting of pyridine carboxamides, quinoline carboxamides, and isoquinoline carboxamides to treat anemia, wherein the heterocyclic carboxamides also suppress HIF prolyl hydroxylase. On June 2, 2014, we filed an invalidity proceeding in the Japanese Patent Office challenging the validity of the ’131 patent and requesting that certain claims be revoked in their entirety.  An oral hearing before the Japanese Patent Office was held on February 9, 2015, and on May 11, 2015 the Japanese Patent Office issued a preliminary decision finding all of the challenged claims to be invalid.  In response, FibroGen filed a request for correction in which it requested that the ’131 patent claims be amended to exclude pyridine carboxamides from their scope. On November 18, 2015, Akebia received the final trial decision from the JPO in which it accepted FibroGen’s requested claim amendments. As a result of the JPO’s decision and FibroGen’s subsequent amendments, the FibroGen ’131 patent does not cover vadadustat or any pyridine carboxamide compounds.

In August 2014, the European Patent Office granted European Patent Nos. 2322153, 2322155, and 1633333, or the ’153 patent, the ’155 patent, and the ’333 patent, respectively, to FibroGen.  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 EPO, and microcytosis in microcytic anemia.  On May 13, May 20, and July 6, 2015, we filed oppositions to the ’155 patent, the ’333 patent, and the ’153 patent, respectively, requesting that the patents be revoked in their entireties.  While, for the reasons set forth in our oppositions, we believe that the ’153 patent, the ’155 patent, and the ’333 patent should be revoked in their entireties, the ultimate outcomes of the oppositions remains uncertain. If the European Patent Office decides not to revoke the ’153 patent, the ’155 patent, or the ’333 patent in their entireties, or only certain claims of those patents, and any surviving claims are determined to encompass our intended use of our lead product candidate, we may not be able to commercialize our lead product candidate in the European Union for its intended use, which could materially adversely affect our business, operating results and financial condition.

Not applicable.

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PART II

Market Price Information

Our common stock began trading on the NASDAQ Global Market on March 20, 2014 under the symbol “AKBA”. Prior to that date, there was no established public trading market for our common stock. The following table sets forth, for the periods indicated, the high and low intraday sales prices of our common stock as reported by the NASDAQ Global Market:

Holders

At March 1, 2016, there were approximately 28 holders of record of our common stock. 

Dividends

We have never declared or paid any cash dividends on our common stock and our ability to pay cash dividends is currently prohibited by the terms of our debt financing arrangements. We currently intend to retain earnings, if any, for use in our business and do not anticipate paying cash dividends on our common stock in the foreseeable future. Payment of future dividends, if any, on our common stock will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, anticipated cash needs, and plans for expansion.

Issuer Purchases of Equity Securities

There were no repurchases of shares of common stock made during the year ended December 31, 2015.

Comparative Stock Performance Graph

The information included under the heading “Comparative Stock Performance Graph” in this Item 5 of Part II of this annual report on Form 10-K shall not be deemed to be “soliciting material” or subject to Regulation 14A or 14C, 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.

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Set forth below is a graph comparing the total cumulative returns of Akebia Therapeutics, Inc., the NASDAQ Composite Index and the NASDAQ Biotechnology Index. The graph assumes $100 was invested on March 20, 2014 in our common stock and each of the indices and that all dividends, if any, are reinvested.

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Equity Compensation Plan Information

We have two equity compensation plans, which have both been approved by our shareholders: the 2014 Incentive Plan and the 2014 Employee Stock Purchase Plan.

The following table sets forth the number and weighted-average exercise price of ordinary shares to be issued upon exercise of outstanding options and the number of securities remaining available for future issuance under all of our equity compensation plans, at December 31, 2015.

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The selected statements of operations data for the years ended December 31, 2015, 2014 and 2013 and the balance sheet data as of December 31, 2015 and 2014 are derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The balance sheet data as of December 31, 2013 is derived from our audited consolidated financial statements not included in this Annual Report. You should read this data together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K under the captions “Consolidated Financial Statements and Supplementary Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results for any prior period are not necessarily indicative of results to be expected in any future period, and our interim period results are not necessarily indicative of results to be expected for a full year or any other interim period.

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You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing in this annual report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this annual report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Operating Overview

We are a biopharmaceutical company focused on the development of novel proprietary therapeutics based on hypoxia inducible factor, or HIF, biology and the commercialization of these products for patients with serious unmet medical needs. HIF is the primary regulator of the production of red blood cells, or RBCs, in the body and a potentially novel mechanism for the treatment of anemia secondary to chronic kidney disease, or CKD. Pharmacologic modulation of the HIF pathway may also have broader therapeutic applications in acute renal failure, organ protection, ischemia-reperfusion injury, cancer, ophthalmology, and inflammatory diseases.

Anemia is a serious medical condition in which blood is deficient in RBCs and hemoglobin, each of which is critical in delivering oxygen to tissue. Anemia generally exists when hemoglobin, a protein in RBCs that carries oxygen, is less than 13 g/dL in men or 12 g/dL in women. 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, as well as in the elderly.

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 these indications is currently treated by injectable recombinant erythropoiesis-stimulating agents, or rESAs,—including Epogen^®, Procrit^® and Aranesp^® — with iron supplementation or RBC transfusion. Based on the reported revenues of companies that market and sell rESAs, we estimate that global sales of injectable rESAs were $7.0 billion in 2014; the vast majority of which were for renal indications.

rESAs are designed to stimulate production of RBCs by binding directly to and saturating erythropoietin, or EPO, receptors. While injectable rESAs and transfusions may be effective in raising hemoglobin levels, they carry significant potential side effects and need to be delivered subcutaneously or intravenously. In particular, injectable rESAs may lead to thrombosis, stroke, myocardial infarction and death. These risks are described in black box warnings on the prescribing information of all products marketed in this class. 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 CKD patients. As a result, we believe that a safe, effective, oral therapeutic option will take significant market share and meaningfully grow the market in patients not requiring dialysis.

Given the burdens of the current standard of care and costs associated with administering an injectable rESA, we believe our lead product candidate, vadadustat, formerly known as AKB-6548, is a promising cost-effective alternative for the treatment of anemia in CKD.  Vadadustat is being developed as a once-daily, oral therapy and has successfully completed Phase 2 development demonstrating that vadadustat can safely and predictably raise hemoglobin levels in patients with anemia related to CKD.  Vadadustat works by a differentiated mechanism of action that we believe has the potential to be safer than that of injectable rESAs and may offer additional beneficial therapeutics effects beyond anemia including delaying CKD progression. This novel mechanism of action is referred to as HIF prolyl-hydroxylase, or HIF-PH, inhibition. Instead of binding directly to the EPO receptors on cells in the bone marrow, vadadustat leads to activation of critical pathways for hemoglobin and RBC production. This approach mimics the physiological adjustment made by the body when exposed to reduced oxygen levels at higher altitudes.

We recently commenced Phase 3 development of vadadustat in non-dialysis patients. Positive results from our Phase 2b study in non-dialysis CKD patients demonstrated that vadadustat raised hemoglobin levels with no safety signal observed. In December 2015, we began dosing patients in our Phase 3 vadadustat program in non-dialysis patients with anemia related to CKD, PRO₂TECT, after obtaining feedback from United States and European regulatory authorities regarding the design of the program. If the results from the PRO₂TECT program support the results observed across our previous clinical studies, including 29,000 days of patient exposure, we anticipate submitting a New Drug Application, or NDA, to the United States Food and Drug Administration, or FDA, for vadadustat in 2019.

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We have also completed a Phase 2 study of vadadustat for the treatment of anemia in patients undergoing dialysis, which found that vadadustat, dosed either once daily or three times per week, maintained stable hemoglobin levels following conversion from rESA therapy with no safety signal observed. We expect to initiate our Phase 3 vadadustat program in dialysis-dependent CKD patients, INNO₂VATE, in 2016, anticipating full enrollment by early 2018.

We have engaged Quintiles, Inc., or Quintiles, as our primary clinical research organization, or CRO, for the PRO₂TECT and INNO₂VATE programs. We expect the cost of the Phase 3 program to be in the range of $80,000 to $85,000 per patient and we plan to enroll approximately 3,100 patients in the PRO₂TECT program and approximately 2,600 patients in the INNO₂VATE program.

A subset of dialysis-dependent CKD patients have shown an inadequate hemoglobin response despite receiving high doses of rESAs. Previous studies have shown that rESA hyporesponsiveness is associated with poor clinical outcomes including increased mortality risk. By increasing iron mobilization, in addition to increasing erythropoietin levels, vadadustat may allow for a more consistent hemoglobin response in these patients. We expect to generate clinical data in hyporesponsive dialysis-dependent patients by 2017.

If approved by regulatory authorities, we plan to commercialize vadadustat in the United States for the treatment of anemia in patients with CKD. These patients are primarily treated by approximately 7,000 nephrologists, and we believe we can reach most of this market with a specialty sales force of approximately 125 people.  In Japan and certain other Asian countries, we plan to commercialize vadadustat through our recently announced collaboration with Mitsubishi Tanabe Pharma Corporation, or Mitsubishi Tanabe. We intend to seek one or more collaborators to commercialize vadadustat in additional markets.  

Our second clinical candidate, AKB-6899, is designed as a small molecule HIF-PH inhibitor with potential therapeutic benefit in oncology and ophthalmology. AKB-6899 has demonstrated the ability in vitro to reduce vascular endothelial growth factor, or VEGF, levels in the presence of hypoxia. In several preclinical mouse models, AKB-6899 has been active in reducing tumor growth and development of metastases. We opened an Investigational New Drug application, or IND, with the FDA at the end of 2015. We expect to commence clinical development of AKB-6899 in 2016 and anticipate completion of the Phase 1 study in oncology in late 2017.

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 our IPO, our follow-on public offering, our at-the-market offering and the private placements of preferred stock, common stock and convertible notes.

We have never been profitable and have incurred net losses in each year since inception. Our net losses were $60.7 million and $37.0 million for the year ended December 31, 2015 and 2014, 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:

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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.

On March 6, 2014, we effected a 1.75-for-1 stock split of our outstanding common stock. Our historical share and per share information have been retroactively adjusted to give effect to this stock split. Shares of common stock underlying outstanding stock options and other equity instruments were proportionately increased and the respective exercise prices, if applicable, were proportionately reduced in accordance with the terms of the agreements governing such securities. Shares of common stock reserved for issuance upon the conversion of our Series A Redeemable Convertible Preferred Stock, Series B Redeemable Convertible Preferred Stock and Series C Redeemable Convertible Preferred Stock were proportionately increased, and the respective conversion prices were proportionately reduced.

On March 25, 2014, we completed our IPO whereby we sold 6,762,000 shares of common stock, including 879,647 shares of common stock pursuant to the full exercise of an over-allotment option granted to the underwriters, at a price of $17.00 per share. The shares began trading on the NASDAQ Global Market on March 20, 2014. The aggregate net proceeds received by us from the offering were approximately $104.4 million, net of underwriting discounts and commissions and estimated offering expenses. Upon the closing of the IPO, all of our outstanding shares of convertible redeemable preferred stock converted into 12,115,183 shares of common stock. Additionally, we are now authorized to issue 175,000,000 shares of common stock and 25,000,000 shares of preferred stock.

On April 22, 2015, we completed a follow-on public offering whereby we sold 8,363,636 shares of common stock, including 1,090,909 share of common stock pursuant to the full exercise of an over-allotment granted to the underwriters in connection with the offering, at a price of $8.25 per share.  The aggregate net proceeds received by us from the offering were approximately $64.6 million, net of underwriting discounts and commissions and estimated offering expenses.

In August 2015, we entered into a Sales Agreement with Cantor Fitzgerald & Co. to periodically sell up to $50 million of shares of our common stock in an at-the-market, or ATM, offering.  In January 2016, we terminated the Sales Agreement in order to use the shares for the January 2016 follow-on offering.  During 2015, prior to the termination, we sold 1,719,434 shares of common stock pursuant to the Sales Agreement.  The aggregate net proceeds received by the Company were approximately $18.4 million, net of commissions.  No additional shares of our common stock will be sold pursuant to the Sales Agreement.

In December 2015, we entered into a collaboration agreement with Mitsubishi Tanabe to develop and commercialize vadadustat in Japan and certain other countries in Asia for total milestone payments of up to $350 million, including up to $100 million in upfront and development payments, of which $40 million was received in January 2016. Of the $40.0 million received, $20.0 million is subject to refund to Mitsubishi depending on the outcome of discussions with the Japanese regulator about the global trial design.  In addition, we will receive tiered double-digit royalty payments on vadadustat sales.

In January 2016, we completed a follow-on public whereby we sold 7,250,000 shares of common stock at a price of $9.00 per share.  The aggregate net proceeds received by us from the offering were approximately $61.0 million, net of underwriting discounts and commissions and estimated offering expenses payable by us.

Financial Overview

In the quarter ended December 31, 2015, we identified and corrected an error in the historical classification of certain operating costs between research and development and general and administrative expenses.  We concluded the effect of this classification error was not material to our consolidated financial statements for any prior period.  The classification correction had no effect on our current or historical total operating expenses or net loss.

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Revenue

To date, we have not generated any revenue from the sales of products or other means. 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 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.

We will begin to recognize revenue starting in 2016 related to our agreement with Mitsubishi Tanabe (see Note 12).

Research and Development Expenses

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

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:

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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 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 December 31, 2015, we have incurred $116.1 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 AKB-6899. Our current and/or planned research and development activities include the following:

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

We currently have two 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 expense 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 Annual Report on Form 10-K, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

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

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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:

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 these contracts 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.

 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 and shares of common stock. 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 FASB 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. Since the consummation of our IPO, stock option, common stock and restricted stock values are determined based on 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 a public market for the trading of our common stock and a lack of company-specific historical and implied volatility data, we have based our estimate of expected volatility on the historical volatility of a group of similar companies 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. We are a company in the product development stage with no 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

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using the Black-Scholes option pricing model. Post IPO, 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 either service or performance-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. Compensation expense related to awards to employees with performance-based vesting conditions is recognized based on the grant date fair value over the requisite service period using the accelerated attribution method to the extent achievement of the performance condition is probable. Consistent with the guidance in ASC 505-50, compensation expense related to awards to non-employees with performance-based vesting conditions is recognized based on the then-current fair value at each financial reporting date prior to the measurement date over the requisite service period using the accelerated attribution method to the extent achievement of the performance condition is probable.

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

In June 2011, certain of our employees purchased shares of our restricted stock in exchange for promissory notes. Although these notes were 50% recourse to the employees, we have accounted for the promissory notes as nonrecourse in their entirety since the promissory notes are not aligned with a corresponding percentage of the underlying shares. Accordingly, we have accounted for the combination of the promissory note and restricted stock as a grant of an option, as the substance is similar to the grant of an option. The exercise price of this stock option is the principal and interest due on the promissory note. The fair value of the stock option is recognized over the requisite service period (not the term of the promissory note) through a charge to compensation cost. The maturity date of the promissory notes reflects the legal term of the stock option for purposes of valuing the award. The outstanding principal and interest on the promissory notes was paid in full during the third quarter of 2014.  

Stock-based compensation expense totaled approximately $4.7 million and $6.0 million for the years ended December 31, 2015 and 2014, 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.

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 Years Ended December 31, 2015 and 2014

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Research and Development Expenses. Research and development expenses were $43.0 million for the year ended December 31, 2015, compared to $23.3 million for the year ended December 31, 2014. The increase of $19.7 million was primarily due to the following:

General and Administrative Expenses. General and administrative expenses were $18.5 million for the year ended December 31, 2015, compared to $14.7 million for the year ended December 31, 2014. The increase of $3.8 million was primarily due to the following expense increases: $1.2 million of wage and personnel-related costs due to additional headcount, $1.4 million in commercial planning costs, $0.7 million in legal costs and $0.7 million related to facilities.

Other Income, Net. Other income, net, was $0.8 million for the year ended December 31, 2015, compared to $0.9 million for the year ended December 31, 2014. Other income, net for the year ended December 31, 2015, is primarily related to reimbursements under a services agreement for employee-related costs of approximately $0.3 million and interest income of approximately $0.5 million.  Other income, net for the year ended December 31, 2014 is primarily related to reimbursements under a services agreement for employee-related costs of approximately $0.7 million and interest income of approximately $0.2 million.  The decrease in reimbursements related to the services agreement for employee-related costs is principally the result of reduced time spent by our employees on the services agreement related activities.  

Comparison of the Years Ended December 31, 2014 and 2013

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Research and Development Expenses. Research and development expenses were $23.3 million for the year ended December 31, 2014, compared to $8.9 million for the year ended December 31, 2013. The increase of $14.4 million was primarily due to the following:

General and Administrative Expenses. General and administrative expenses were $14.7 million for the year ended December 31, 2014, compared to $7.0 million for the year ended December 31, 2013. The increase of $7.6 million was primarily due to the following expense increases: $1.8 million of stock-based compensation, $0.7 million of professional fees, $2.7 million related to additional headcount, severance and consulting costs, $1.1 million related to insurance and facilities, $0.7 million in commercial planning costs and $0.7 million in legal costs.

Other Income, Net. Other income, net, was $0.9 million for the year ended December 31, 2014, compared to $2.8 million for the year ended December 31, 2013. Other income, net for the year ended December 31, 2014, is primarily related to reimbursements under a services agreement for employee-related costs of approximately $0.7 million and interest income of approximately $0.2 million.  Other income, net for the year ended December 31, 2013 included $1.0 million in reimbursements under a services agreement for employee-related costs and a $2.4 million gain on the extinguishment of debt, partially offset by net interest expense of $0.7 million.  The decrease in reimbursements related to the services agreement for employee-related costs is principally the result of reduced time spent by our employees on services agreement related activities.  

Liquidity and Capital Resources

We have incurred losses and cumulative negative cash flows from operations since our inception in February 2007, and as of December 31, 2015, we had an accumulated deficit of $161.4 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 from the sale of common stock and preferred stock. As of December 31, 2015, we had cash and cash equivalents and available for sale securities of approximately $138.5 million. We also received approximately $61.0 million of net proceeds from our follow-on public offering of common stock in January 2016 and $40.0 million from Mitsubishi in January 2016 in connection with our collaboration agreement.  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.

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Cash Flows

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

Operating Activities. During the years ended December 31, 2015, 2014 and 2013, our operating activities used net cash of $52.4 million, $27.5 million and $11.3 million respectively. The net cash used in operating activities in these periods primarily resulted from our net losses and changes in our working capital accounts. The increase in net cash used in operations for the year ended December 31, 2015 as compared to the year ended December 31, 2014 was due primarily to higher operating expenses during the year ended December 31, 2015 of $61.5 million as compared to $37.9 million for the year ended December 31, 2014 adjusted for non-cash items, including stock-based compensation of $4.7 million in 2015. The increase in net cash used in operations for the year ended December 31, 2014 as compared to the year ended December 31, 2013 was due primarily to higher operating expenses during the year ended December 31, 2014 of $37.9 million as compared to $15.9 million for the year ended December 31, 2013 adjusted for non-cash items, including stock-based compensation of $6.0 million in 2014.

Investing Activities. During the years ended December 31, 2015, 2014 and 2013, our investing activities used net cash of $13.7 million, $65.4 million and $11.4 million, respectively.  Net cash used in investing activities for the years ended December 31, 2015, 2014 and 2013 was comprised primarily of purchases of available for sale securities and purchases of equipment, offset by proceeds from the maturities of available for sale securities.

Financing Activities. During the years ended December 31, 2015, 2014 and 2013 our net cash provided by financing activities was $83.1 million, $104.4 million and $42.3 million, respectively. Net cash provided by financing activities for the year ended December 31, 2015 consisted primarily of net proceeds from the issuance of common stock from our follow-on public offerings and ATM offering.  Net cash provided by financing activities for the year ended December 31, 2014 consisted primarily of net proceeds from the issuance of common stock in connection with our IPO. Net cash provided by financing activities for the year ended December 31, 2013 consisted primarily of net proceeds from the issuance of preferred stock.

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 also, we anticipate that we will need substantial additional funding in connection with our continuing operations.

Our existing cash and cash equivalents and available for sale securities of $138.5 million at December 31, 2015, the net proceeds from our January 2016 public offering of approximately $61.0 million, together with the $40.0 million received in January 2016 in connection with our collaboration with Mitsubishi, are sufficient to fund our projected operating requirements through at least the second quarter of 2017.

However, we do not currently estimate that these funds will enable us to complete our Phase 3 development of vadadustat, including both the PRO2TECT and INNO2VATE clinical programs. 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. We intend to secure a second geographic collaboration for the development and commercialization of vadadustat outside the United States with a goal of providing funds sufficient to enable us to complete our Phase 3 development of vadadustat, including both the PRO₂TECT and INNO₂ VATE clinical programs. However, there can be no assurance that our development milestones will be achieved, that we will be able to secure a second geographic collaboration for the development and commercialization of vadadustat outside the United States or that we will secure other sources of financing to complete our Phase 3 development of vadadustat.

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We will require additional capital for the further development of our existing product candidates and will also need to raise additional funds sooner to pursue other 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. There can be no assurance that additional funds will 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 Annual Report on Form 10-K.

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

In December 2013, we entered into a three-year lease for 6,837 square feet of office space in Cambridge, Massachusetts. The lease has monthly lease payments of approximately $31,000 for the first twelve months, with annual rent escalation thereafter, and provides a rent abatement of approximately $31,000 for the first full calendar month of the lease term. The lease term commenced and rental payments began in January 2014. We recorded a deferred lease obligation in 2014 which represents the cumulative difference between actual facility lease payments and lease expense recognized ratably over the lease period.  In accordance with the lease, we entered into a cash-collateralized irrevocable standby letter of credit in the amount of $125,345, naming the landlord as beneficiary.  

In December 2014, we entered into a First Amendment to Lease for additional office space contiguous to its current office space in Cambridge, Massachusetts.  The First Amendment included leasing an additional 8,530 square feet of office space, or the Expansion Space, with an occupancy date of March 13, 2015.  The First Amendment provided for additional monthly lease payments of approximately $45,000 for the 8,530 square feet for the first twelve months and provided for annual rent escalations thereafter.  The monthly rent on the existing 6,837 square feet remained at approximately $32,000 through December 31, 2016, the expiration of the lease.  The First Amendment included a Landlord’s contribution for leasehold improvements in the amount of approximately $100,000 which was accounted for as a deferred lease incentive and reduction in monthly rent expense over the term of the lease.  We recorded an additional deferred lease obligation for the Expansion Space which represented the cumulative difference between actual facility lease payments and lease expense recognized ratably over the lease period. We had an existing cash-collateralized irrevocable standby letter of credit of $125,345, naming the landlord as beneficiary.  In connection with the First Amendment, we paid an additional cash security deposit to the landlord of $179,130.  

In November 2015, we entered into a Second Amendment to Lease amending the Lease to extend its existing lease for 16,222 square feet on the 11^th floor, which was due to expire on December 31, 2016, and lease an additional 23,189 square feet of office space on the 11^th and 14^th floors.  Monthly lease payments for the existing 16,222 square feet on the 11^th floor remain unchanged until December 31, 2016 and will be approximately $107,000 per month commencing on May 1, 2017.  The new space leased by the Company under the Second Amendment includes (i) 3,066 square feet on the 14^th floor which was delivered on November 23, 2015 and additional monthly lease payments of approximately $20,000 commencing on March 1, 2016, (ii) 16,739 square feet on the 14^th floor with an estimated delivery date of April 1, 2016 and additional monthly lease payments of approximately $110,000 commencing September 1, 2016 and (iii) 3,384 square feet on the 1th floor with an estimated delivery date of January 1, 2017 and additional monthly lease payments of approximately $23,000 commencing May 1, 2017.  The above rents are subject to annual rent escalations, commencing on either February 1, 2017 or February 1, 2018 depending upon the delivery date of each respective suite.  The Second Amendment includes a Landlord’s contribution for leasehold improvements for both the new leased space and our existing premises.  The term of the lease, as amended, expires on the later of August 31, 2026 or 10 years after the Landlord delivers the entirety of the 14^th floor to us.  In connection with the Second Amendment, we paid an additional cash security deposit to the landlord of $976,382.  Total cash security deposits of $1,280,857 and $304,475 are included in other assets in our consolidated balance sheets as of December 31, 2015 and 2014, respectively.

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

At December 31, 2015, our future minimum payments required under these leases are as follows:

Under our agreement with Quintiles for the PRO₂TECT and INNO₂VATE programs, the total cost of committed work not yet paid as of December 31, 2015 was approximately $246.0 million.  The estimated period of performance for the committed work is through the third quarter of 2019.  The scope of the services under this agreement can be modified and the agreement cancelled by the Company upon written notice.

Off-Balance Sheet Arrangements

As of December 31, 2015 we did not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC.  

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We are exposed to market risk related to changes in interest rates. As of December 31, 2015 and 2014, we had cash and cash equivalents and available for sale securities of $138.5 million and $108.9 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.

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Akebia Therapeutics, Inc.

Table of Contents

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of

Akebia Therapeutics, Inc.

We have audited the accompanying consolidated balance sheets of Akebia Therapeutics, Inc. (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Akebia Therapeutics, Inc. at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Boston, Massachusetts

March 14, 2016

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AKEBIA THERAPEUTICS, INC.

Consolidated Balance Sheets

(in thousands, except share and per share data)