The Company currently recognizes revenue in accordance with FASB Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers, as amended, or ASC 606, for the Vifor, VFMCRP, Maruishi and CKDP agreements (see Note 10, Collaboration and Licensing Agreements). Under each of these agreements, the Company has recognized revenue from upfront payments and, under the Maruishi and CKDP agreements, from clinical development milestone payments. The Company has also recognized revenue from a sub-license payment earned under the Maruishi Agreement. Under the Maruishi and CKDP agreements, the Company may earn additional future milestone payments upon the achievement of defined clinical events, and under the Vifor, VFMCRP, Maruishi and CKDP agreements, upon the achievement of defined regulatory events, and under the Vifor, VFMCRP and Maruishi agreements, from sales milestones. The Company may also recognize revenue in the future from royalties on net sales under the VFMCRP, Maruishi and CKDP agreements. In addition, the Company has recognized revenue upon the delivery of clinical compound to VFMCRP and Maruishi in accordance with separate supply agreements.

As of June 30, 2021 and December 31, 2020, there were no material balances of receivables, and no other assets or deferred revenue related to the Vifor, VFMCRP, Maruishi and CKDP agreements.

Under the Vifor Agreement, the Company’s only performance obligation is granting a license to allow Vifor to commercialize CR845/difelikefalin in the United States, which occurred at inception of the contract in October 2020 (see Note 10, Collaboration and Licensing Agreements).

Under the VFMCRP Agreement, the Company’s performance obligations of granting a license to allow VFMCRP to commercialize CR845/difelikefalin injection worldwide, except in the United States, Japan and South Korea, which occurred at inception of the contract in May 2018, and performing R&D services by the Company to obtain sufficient clinical data which will be shared with VFMCRP to allow them to receive regulatory approval to sell CR845/difelikefalin in the licensed territory, were not distinct, and were accounted for as a single performance obligation during the period that the R&D services were rendered (see Note 10, Collaboration and Licensing Agreements).

The Company’s distinct performance obligations under the Maruishi Agreement include transfer of the license to the Company’s IP, which allowed Maruishi to develop and commercialize CR845/difelikefalin, for acute pain and uremic pruritus indications in Japan, which occurred at inception of the contract in 2013, and performance of R&D services, which occurred from 2013 to 2015, as those services were rendered. The Company agreed to conduct limited work on an oral tablet formulation of CR845/difelikefalin and to conduct Phase 1 and proof-of-concept Phase 2 clinical trials of an intravenous formulation of CR845/difelikefalin to be used to treat patients with uremic pruritus. The Company agreed to transfer the data and information from such development to Maruishi for its efforts to obtain regulatory approval in Japan. These activities are referred to as R&D services (see Note 10, Collaboration and Licensing Agreements).

The Company’s only performance obligation under the supply agreement with Maruishi is to deliver clinical compound to Maruishi in accordance with the receipt of purchase orders. The Company’s only performance obligation under the VFMCRP Supply Agreement is to deliver CR845/difelikefalin injection to VFMCRP in accordance with the receipt of purchase orders.

Under the CKDP Agreement, the Company’s only performance obligation is to transfer the license to the Company’s IP related to CR845/difelikefalin, which occurred at inception of the contract in 2012 (see Note 10, Collaboration and Licensing Agreements).

Upon execution of the Vifor, VFMCRP, Maruishi and CKDP agreements, the Company received a single fixed payment from each counterparty in exchange for granting the respective licenses and performing its other obligations. In addition, each of the counterparties made an equity investment in the Company’s common stock.

At inception of the Vifor Agreement, the entire transaction price of $111,551 was allocated to the one performance obligation, as described above, and was recognized as license and milestone fees revenue for the year ended December 31, 2020 as the license was granted to Vifor in October 2020. As of June 30, 2021, there were no remaining performance obligations under the Vifor Agreement. The Company is eligible to receive milestone payments in the future.

At inception of the VFMCRP Agreement, the entire transaction price of $55,444 was allocated to the one combined performance obligation, as described above. As of June 30, 2021, there were no remaining performance obligations, and the entire transaction price has been recognized as license and milestone fees revenue through December 31, 2020 since R&D services have been completed during 2020. The Company is eligible to receive milestone payments and sales royalties in the future.

As of June 30, 2021, there were no remaining performance obligations under either the Maruishi or CKDP agreements, although the Company is eligible to receive milestone payments and sales royalties in the future.

In applying ASC 606, as amended, to its four contracts, the Company made the following judgments that significantly affect the timing and amount of revenue recognition:

The VFMCRP Agreement contains one combined performance obligation, which includes the Company’s two performance obligations to grant a license to VFMCRP and conduct R&D services. Both of those performance obligations are inputs to the promise, within the context of the contract, to transfer a combined output for which VFMCRP has contracted (the ability of VFMCRP to commercialize the Licensed Product) (see Note 10, Collaboration and Licensing Agreements, for further discussion).

The Maruishi Agreement contains two distinct performance obligations: the granting of the license and the promise to deliver defined R&D services. Under the Maruishi Agreement, the license and the R&D services represent distinct goods or services from each other because Maruishi is able to benefit from the license on its own or together with other resources that are readily available to it (i.e., capable of being distinct). Maruishi’s ability to benefit from the license without the R&D services is indicated by its ability to conduct clinical trials of CR845/difelikefalin on its own and by the provision in the Maruishi Agreement whereby if the Company suspends or discontinues its development activity, the Company will provide information regarding its development efforts up to that point so that Maruishi may continue development and commercialization of the product in Japan. Therefore, the R&D services do not significantly affect Maruishi’s ability to use and benefit from the license.

In addition, the Company’s promise in the Maruishi contract to transfer the license is separately identifiable from the promise to provide defined R&D services (i.e., distinct within the context of the contract) because the Company is not using the goods or services as inputs to produce or deliver the combined output or outputs specified by the customer. The combined output specified by Maruishi is its right to conduct development activities related to CR845/difelikefalin in Japan, which could result in regulatory approval in Japan. That right is derived from the Company’s grant of the license. Maruishi is conducting clinical trials on its own and does not require the R&D services provided by the Company. Furthermore, the R&D services do not significantly modify or customize the license and vice versa. Finally, the license and R&D services are not highly interdependent or highly interrelated because the Company is able to fulfill its promise to transfer the initial license independently from its promise to subsequently provide the R&D services, which Maruishi can obtain on its own.

The only performance obligation in the Vifor and CKDP agreements is the granting of the license.

The transaction price is the amount of consideration that the Company expects to be entitled to in exchange for transferring promised goods or services to the customer. The transaction price must be determined at inception of a contract and may include amounts of variable consideration. However, there is a constraint on inclusion of variable consideration, such as milestone payments or sales-based royalty payments, in the transaction price related to licenses of IP, if there is uncertainty at inception of the contract as to whether such consideration will be recognized in the future.

The decision as to whether or not it is probable that a significant reversal of revenue will occur in the future, depends on the likelihood and magnitude of the reversal and is highly susceptible to factors outside the entity’s influence (for example, the Company cannot determine the outcome of clinical trials; the Company cannot determine if or when they or the counterparty will initiate or complete clinical trials; and the Company’s ability to obtain regulatory approval is difficult). In addition, the uncertainty is not expected to be resolved for a long period of time (in the order of years) and finally, the Company has limited experience in the field.

Therefore, at inception of the Vifor, VFMCRP, Maruishi and CKDP agreements, milestones and sales-based royalty payments were not included in the transaction price based on the factors noted above.

Under the Vifor Agreement, the one performance obligation was satisfied when the license was granted to Vifor in October 2020, and as a result, $111,551 (including the upfront payment of $100,000 and the premium on the common stock purchased by Vifor of $11,551) was recognized as license and milestone fees revenue during the year ended December 31, 2020. The remaining potential consideration was considered to be variable consideration and was constrained at inception of the contract, which includes regulatory and sales milestones (see Note 10, Collaboration and Licensing Agreements).

Under the VFMCRP Agreement, the single combined performance obligation was satisfied as the R&D services were rendered and the transaction price, including the upfront payment of $50,000 and the premium on the common stock purchased by VFMCRP of $5,444, was recognized as revenue as the R&D services were performed based on the costs incurred as a percentage of the estimated total costs to be incurred to complete the performance obligation. The remaining potential consideration was considered to be variable consideration and was constrained at inception of the contract, including regulatory and sales milestones and sales royalties (see Note 10, Collaboration and Licensing Agreements).

All performance obligations under the Maruishi and CKDP agreements were satisfied by the end of 2015. In the future, any milestone event will be recognized as milestone and license fee revenue and collaboration revenue based upon the relative standalone selling prices of the two performance obligations at inception of the Maruishi Agreement, and as milestone and license fee revenue under the CKDP Agreement. The remaining potential consideration was considered to be variable consideration and was constrained at inception of the contract, including clinical, regulatory and sales milestones, and sales royalties (see Note 10, Collaboration and Licensing Agreements).

In order to recognize revenue under ASC 606, as amended, for contracts for which more than one distinct performance obligation has been identified, the Company must allocate the transaction price to the performance obligations based upon their standalone selling prices. The best evidence of standalone selling price is an observable price of a good or service when sold separately by an entity in similar circumstances to similar customers. If such evidence is not available, standalone selling price should be estimated so that the amount that is allocated to each performance obligation equals the amount that the entity expects to receive for transferring goods or services. The Company has identified more than one performance obligation only in the Maruishi Agreement. Since evidence based on observable prices is not available for the performance obligations under the Maruishi Agreement, the Company considered market conditions and entity-specific factors, including those contemplated in negotiating the agreements, as well as certain internally developed estimates.

At inception of the Maruishi Agreement, the Company determined the estimate of standalone selling price for the license performance obligation by using the adjusted market assessment approach. Under this method, the Company forecasted and analyzed CR845/difelikefalin in the Japanese market, the phase of clinical development as well as considered recent similar license arrangements within the same phase of clinical development, therapeutic area, type of agreement, etc. To estimate the standalone selling price of the R&D services, the Company forecasted its expected costs of satisfying that performance obligation and added a margin for that service.

At inception of the Maruishi Agreement, the Company allocated the transaction price of $15,337 between the two performance obligations based on their relative standalone selling prices, determined as described above. The Company determined that the license and the R&D services had estimated standalone selling prices of $10,200 and $6,200, respectively. The resulting percentage allocations were applied to the $15,337 of total transaction price, which resulted in $9,637 being allocated to the license performance obligation, which was recognized immediately as license revenue, while $5,700 was allocated to the R&D services performance obligation. The amount allocated to the R&D services performance obligation was initially recorded as deferred revenue and was recognized as collaborative revenue as the R&D services were provided through July 2015.

Since the Vifor, VFMCRP and CKDP agreements each contain only one distinct performance obligation, at the inception of each of those agreements, the entire transaction price was allocated to the respective performance obligation.

Revenue should be recognized when, or as, an entity satisfies a performance obligation by transferring a promised good or service to a customer; i.e., when the customer obtains control of the good or service. The licenses granted to Vifor, Maruishi and CKDP were accounted for as distinct performance obligations. As discussed below, both licenses

relate to functional IP for which revenue is recognized at a point in time – in the case of these three license agreements, the point in time is at inception of the contract because the customer obtained control of the license at that point.

The licenses grant Vifor, Maruishi and CKDP the right to use the Company’s IP relating to CR845/difelikefalin as it existed at the point in time that the licenses were granted. That IP has significant standalone functionality as it provides the customer with the ability to perform a function or task, such as to manufacture CR845/difelikefalin and conduct clinical trials and is considered to be functional IP.

During the license periods, the Company is continuing to develop and advance CR845/difelikefalin by conducting clinical trials. Those development efforts are for its own benefit and do not substantively change the significant standalone functionality of the licensed IP granted to Vifor, Maruishi or CKDP. Therefore, the Company’s ongoing development efforts do not significantly affect the IP’s utility to which Vifor, Maruishi or CKDP have rights. Furthermore, if the Company abandons its development efforts, Vifor, Maruishi or CKDP may still continue to develop CR845/difelikefalin in their respective countries.

The R&D services performance obligation under the Maruishi Agreement represents a separate performance obligation. The R&D services were provided to Maruishi by the Company from inception of the agreement in 2013 through the third quarter of 2015, at which time the Company had fulfilled its promise related to the R&D services. Revenue related to the R&D services performance obligation was recognized as services were performed based on the costs incurred as a percentage of the estimated total costs to be incurred to complete the performance obligation.

Similarly, under the VFMCRP Agreement, revenue related to the single distinct performance obligation, which includes both granting of the license and performance of the R&D services, was recognized as the R&D services were performed, based on the costs incurred as a percentage of the estimated total costs to be incurred to complete the performance obligation. As of June 30, 2021, there is no remaining amount of the transaction price to be recognized as license and milestone fees revenue as all R&D services were completed in 2020.

The Vifor, VFMCRP, Maruishi and CKDP agreements contain potential payments related to achievement of defined milestone events and royalties (excluding Vifor) upon net sales of future products, which are considered to be variable consideration because of the uncertainty of occurrence of any of those events specified in those agreements at inception of the agreements. Therefore, those potential payments were not included in the transaction price at the inception of the agreements.

Revenue related to achievement of milestone events is recognized when the Company has determined that it is probable that a milestone event will be achieved and there will not be a significant reversal of revenue in future periods. Upon probability of achievement of a milestone event, the most likely amount of variable consideration is included in the transaction price. Subsequent changes to the transaction price, after contract initiation, are allocated to the performance obligations in the contract on the same basis as at contract inception. Revenue for variable consideration is recognized in the same manner (point in time or over time) as for the performance obligations to which the payment amounts were allocated.

The Maruishi Agreement and the CKDP Agreement specify that certain development milestones will be achieved at pre-specified defined phases of a clinical trial (such as initiation or completion or other pre-specified time during a clinical trial as specified in the agreements).

In January 2021, the criteria for revenue recognition for a milestone event set forth in the Maruishi Agreement was achieved, and the Company recorded $1,192 as license and milestone fees revenue and $706 as collaboration revenue based on the relative standalone selling prices described above at contract inception for the six months ended June 30, 2021. In May 2021, the Company received the $1,898 payment (after contractual foreign currency exchange adjustments) from Maruishi for the milestone event achieved.

There were no milestone events related to the Maruishi Agreement that were probable of occurrence or achieved during the three months ended June 30, 2021, or during the three and six months ended June 30, 2020.

Vifor’s, VFMCRP’s, Maruishi’s and CKDP’s right to grant sub-licenses is explicitly stated in their respective license agreements. The amount of any potential sub-license fees to be received by the Company, which is based on a formula, is considered to be variable consideration and is constrained from inclusion in the transaction price at inception of the contract since at that time it was probable that there would be a reversal of such revenue in the future because the Company did not know if a sublicense would be granted in the future.

The VFMCRP, Maruishi and CKDP agreements each allow the Company to earn sales-based royalty payments in exchange for a license of intellectual property. In that case, the Company will recognize revenue for a sales-based royalty only when (or as) the later of the following events occurs:

Since the sale (item a, above) occurs after the license was delivered (item b, above), the sales-based royalty exception, to exclude such royalty payments from the transaction price, applies to the overall revenue stream. Therefore, sales-based royalty payments are recognized as revenue when the customer’s sales occur. To date, no royalties have been earned or were otherwise due to the Company.