Revenue Recognition

9 Months Ended

Sep. 30, 2022

Revenue Recognition

Revenue Recognition

12. Revenue Recognition

The Company has primarily recognized revenue under its license and collaboration agreements from (1) profit-sharing revenue following its commercial launch of KORSUVA injection in April 2022; (2) upfront license fees and milestone payments, including development and regulatory milestones; (3) commercial supply revenue from Vifor; and (4) clinical compound sales from certain license agreements. As of September 30, 2022, the Company has not yet received any royalty payments or earned any sales-based milestones under its collaboration agreements.

As of September 30, 2022, the Company had license and collaboration agreements with Vifor, Maruishi and CKDP. The following table provides amounts included in the Company’s Condensed Statements of Comprehensive Loss as revenue for the three and nine months ended September 30, 2022 and 2021:

	Three Months Ended				Nine Months Ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Collaborative revenue
Vifor (KORSUVA injection profit sharing)	$	7,443	$	—	$	15,446	$	—
Maruishi		—		—		—		706
Total collaborative revenue	$	7,443	$	—	$	15,446	$	706
License and milestone fees
Vifor	$	—	$	20,031	$	15,000	$	20,031
Maruishi		—		—		—		1,192
Total license and milestone fees	$	—	$	20,031	$	15,000	$	21,223
Commercial supply revenue
Vifor (KORSUVA injection)	$	3,370	$	—	$	8,160	$	—
Total commercial supply revenue	$	3,370	$	—	$	8,160	$	—
Clinical compound revenue
Vifor (difelikefalin injection)	$	—	$	241	$	—	$	241
Maruishi		—		—		—		37
Total clinical compound revenue	$	—	$	241	$	—	$	278

Collaborative revenue

Beginning in April 2022, the Company began recording its profit-sharing revenue from the sales of KORSUVA injection by Vifor to third parties in the U.S. Under the license agreements with Vifor, KORSUVA injection net sales are calculated and recorded by Vifor in accordance with U.S. GAAP and include gross sales net of discounts, rebates, allowances, sales taxes, freight and insurance charges, and other applicable deductions. These amounts include the use of estimates and judgments, which could be adjusted based on actual results in the future. The Company records its share of the net profits from the sales of KORSUVA injection in the U.S. on a net basis and presents the revenue earned each period as Collaborative revenue. This treatment is in accordance with the Company’s revenue recognition policy, given that the Company is not the primary obligor and does not have the inventory risks in the collaboration agreement with Vifor in the U.S. The Company relies on Vifor to provide accurate and complete information related to the profit-sharing calculation of sales of KORSUVA injection in order to record its collaborative revenue (see Note 2, Basis of Presentation – Revenue Recognition – Profit-Sharing Arrangement). During the three and nine months ended September 30, 2022, the Company recorded $7,443 and $15,446, respectively, as collaborative revenue for its profit-share from the sales of KORSUVA injection in the U.S. There was no profit share revenue recorded during the three and nine months ended September 30, 2021.

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 difelikefalin, for acute pain and uremic pruritus indications in Japan, which occurred at inception of the contract in 2013 (considered license and milestone fees revenue), and performance of R&D services, which occurred from 2013 to 2015 (considered collaborative revenue), as those services were rendered. The Company agreed to conduct limited work on an oral tablet formulation of difelikefalin and to conduct Phase 1 and proof-of-concept Phase 2 clinical trials of an intravenous formulation of 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 and are included as collaborative revenue (see Note 11, Collaboration and Licensing Agreements).

There was no collaborative revenue recognized under the Maruishi Agreement during the three and nine months ended September 30, 2022, or during the three months ended September 30, 2021. During the nine months ended September 30 2021, the criteria for revenue recognition for a milestone event set forth in the Maruishi Agreement was achieved, and the Company recorded $706 as collaborative revenue based on the relative standalone selling prices described above at contract inception.

License and milestone fees revenue

Under Vifor Agreement No. 2, the Company’s performance obligations of granting a license to allow Vifor to commercialize difelikefalin injection worldwide, except in the U.S., 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 were shared with Vifor to allow them to receive regulatory approval to sell 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 11, Collaboration and Licensing 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.

As a result of the European Commission’s regulatory approval of Kapruvia in April 2022, the Company received a $15,000 regulatory milestone payment from Vifor under Vifor Agreement No. 2, which was recorded as license and milestone fees revenue for the nine months ended September 30, 2022. In addition, after U.S. regulatory approval of KORSUVA injection in August 2021, the Company achieved a $15,000 regulatory milestone payment which was received in October 2021 and was recorded as license and milestone fees revenue for the three and nine months ended September 30, 2021. These regulatory milestone payments were considered variable consideration due to the uncertainty of occurrence of these events as specified at inception of the agreement. Therefore, these potential regulatory milestone payments were not included in the transaction price at the inception of the agreement. There were no license and milestone fees recognized under Vifor Agreement No. 2 for the three months ended September 30, 2022.

After U.S. regulatory approval of KORSUVA injection in August 2021, the Company received an additional $50,000 in October 2021 for the purchase of an aggregate of 3,282,391 shares of the Company’s common stock at a price of $15.23 per share, which represents a 20% premium to the 30-day trailing average price of the Company’s common stock as of the date of the achievement of the milestone. The purchase of the Company’s common stock was governed by the Vifor Stock Purchase Agreement. The excess of the stock purchase price over the cost of the purchased shares at the closing price of the Company’s common stock on the date of the achievement of the milestone of $5,031 was included as license and milestone fees revenue for accounting purposes for the three and nine months ended September 30, 2021.

There were no license and milestone fees revenue recognized under the Maruishi Agreement during the three and nine months ended September 30, 2022, or the three months ended September 30, 2021. During the nine months ended

September 30, 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 based on the relative standalone selling prices described above at contract inception.

Commercial supply revenue

Under the Vifor International Supply Agreement, the Company’s only performance obligation is the delivery of KORSUVA injection to Vifor in accordance with the receipt of purchase orders. Revenue from the sale of the Licensed Product to Vifor is recognized as delivery of the Licensed Product occurs. The Company had commercial supply revenue of $3,370 for the three months ended September 30, 2022 with associated COGS of $3,055. The Company has commercial supply revenue of $8,160 for the nine months ended September 30, 2022, of which $2,295 was recognized in January 2022 with no associated COGS since these inventory costs were incurred prior to regulatory approval on August 23, 2021, and $5,865 was recognized with associated COGS of $5,136 since these inventory costs were capitalized as inventory subsequent to regulatory approval.

Clinical compound revenue

The Company’s only performance obligation under the Vifor Supply Agreement is to deliver clinical compound to Vifor in accordance with the receipt of purchase orders. There were no sales of clinical compound under the Vifor Supply Agreement during the three and nine months ended September 30, 2022. During each of the three and nine months ended September 30, 2021, the Company recognized clinical compound revenue of $241 from the sale of clinical compound to Vifor and as a result, the Company incurred R&D expense of $228 during these periods.

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. There were no sales of clinical compound to Maruishi during the three and nine months ended September 30, 2022, or during the three months ended September 30, 2021. During the nine months ended September 30, 2021, the Company recognized clinical compound revenue of $37 from the sale of clinical compound to Maruishi and as a result, the Company incurred R&D expense of $33 during this period.

Contract balances

As of September 30, 2022, the Company recorded accounts receivable, net – related party of $9,623 which related to its profit-sharing revenue from sales of KORSUVA injection in the U.S. by Vifor and its commercial supply of KORSUVA injection to Vifor during the three months ended September 30, 2022. There were no material balances of receivables as of December 31, 2021, and no other contract assets or contract liabilities related to the Vifor, Vifor International, Maruishi and CKDP agreements as of September 30, 2022 and December 31, 2021.

The Company routinely assesses the creditworthiness of its license and collaboration partners. The Company has not experienced any losses related to receivables from its license and collaboration partners as of September 30, 2022 and December 31, 2021.