Revenue Recognition

12 Months Ended

Dec. 31, 2022

Revenue Recognition

Revenue Recognition

13. Revenue Recognition

The Company has primarily recognized revenue under its license and collaboration agreements from (1) its share of the profit generated by KORSUVA injection sales; (2) upfront license fees and milestone payments, including development and regulatory milestones; (3) commercial supply revenue from CSL Vifor; (4) royalty revenue from net sales of Kapruvia; and (5) clinical compound sales from certain license agreements. As of December 31, 2022, the Company has not earned any sales-based milestones under its collaboration agreements.

As of December 31, 2022, the Company had license and collaboration agreements with CSL Vifor, Maruishi and CKDP. The following table provides amounts included in the Company’s Statements of Comprehensive (Loss) Income as revenue for the years ended December 31, 2022, 2021 and 2020:

	Year Ended December 31,
	2022		2021		2020
Collaborative revenue
CSL Vifor (KORSUVA injection profit sharing)	$	16,572	$	—	$	—
Maruishi		—		706		—
Total collaborative revenue	$	16,572	$	706	$	—
License and milestone fees
CSL Vifor*		15,000		20,031		133,813
Maruishi		—		1,192		—
CKDP		—		—		626
Total license and milestone fees	$	15,000	$	21,223	$	134,439
Commercial supply revenue
CSL Vifor* (KORSUVA injection)	$	10,223	$	701	$	—
Total commercial supply revenue	$	10,223	$	701	$	—
Royalty revenue
CSL Vifor (Kapruvia ex U.S.)	$	72	$	—	$	—
Total royalty revenue	$	72	$	—	$	—
Clinical compound revenue
CSL Vifor* (difelikefalin injection)	$	—	$	361	$	115
Maruishi		—		37		528
Total clinical compound revenue	$	—	$	398	$	643

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* Includes amounts earned from Vifor Fresenius Medical Care Renal Pharma Ltd. and Vifor International prior to Vifor International’s assignment of its rights and obligations to Vifor Fresenius Medical Care Renal Pharma Ltd. in May 2022.

Collaborative revenue

Beginning in April 2022, the Company began recording its share of the profit generated by KORSUVA injection sales by CSL Vifor to third parties in the United States. Under the license agreements with CSL Vifor, KORSUVA injection net sales are calculated by CSL Vifor which are net of discounts, rebates, and allowances. 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 United States and presents the revenue earned each period as collaborative revenue. During the year ended December 31, 2022, the Company recorded $16,572 as collaborative revenue for its profit-share from the sales of KORSUVA injection in the United States. There was no profit share revenue recorded during the years ended December 31, 2021 or 2020.

The Company’s distinct performance obligations under the Maruishi Agreement included 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 were included as collaborative revenue.

In addition, the Company’s promise in the Maruishi Agreement 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 was 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 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 were not highly interdependent or highly interrelated because the Company was 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.

There were no remaining performance obligations under the Maruishi Agreement as of December 31, 2022.

There was no collaborative revenue recognized under the Maruishi Agreement during the years ended December 31, 2022 and 2020. During the year ended December 31 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 (see Note 2, Summary of Significant Accounting Policies – Revenue Recognition).

License and milestone fees revenue

Under Vifor Agreement No. 1, the Company identified one performance obligation at contract inception: granting of the license to Vifor International. The one performance obligation was satisfied when the license was granted to Vifor International 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 International of $11,551) was recognized as license and milestone fees revenue during the year ended December 31, 2020. There were no remaining performance obligations under Vifor Agreement No. 1 as of December 31, 2022. The remaining potential consideration was considered to be variable consideration and

was constrained at inception of the contract, which included regulatory and sales milestones (see Note 12, Collaboration and Licensing Agreements).

Under Vifor Agreement No. 2, the Company identified two performance obligations at contract inception in 2018: (1) granting of the license to CSL Vifor, and (2) the R&D services. The Company determined that these two performance obligations were not capable of being distinct (i.e., did not have standalone value for CSL Vifor) because CSL Vifor could not benefit (derive potential cash flows) from either one on its own or together with other resources that are readily available to it since CSL Vifor was relying on the Company’s expertise in investigating chronic kidney disease-associated pruritus, or CKD-aP, and its know-how obtained from multiple years of pre-clinical and clinical development, and years of interactions with the FDA which other companies or CROs would not have. The license to CSL Vifor did not provide benefit to CSL Vifor until and unless the Company conducted the pivotal clinical trials and other supportive trials in CKD-aP to gather sufficient clinical data for CSL Vifor to obtain marketing approval in the Territory. Furthermore, CSL Vifor did not have the right to perform development activities on its own unless specifically allocated by the JDC or JSC.

The two identified performance obligations were also not distinct within the context of the contract, (i.e., were not separately identifiable from each other) because of the nature of the promise within the context of the contract. The nature of the promise was to transfer a combined deliverable to CSL Vifor based on the agreement (to support the ability of CSL Vifor to commercialize the Licensed Product) and the Company determined that the license granted to CSL Vifor and the R&D services are inputs rather than a transfer of each of these goods and services individually. In addition, the two identified performance obligations were highly interrelated and interdependent because satisfaction of both performance obligations was required for CSL Vifor to derive benefit from Vifor Agreement No. 2 for commercialization of the Licensed Product in the Territory. Therefore, the two performance obligations were not distinct from each other and were accounted for as a single performance obligation.

Under Vifor Agreement No. 2, 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 Vifor International 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. There were no remaining performance obligations under Vifor Agreement No. 2 as of December 31, 2022. The remaining potential consideration was considered to be variable consideration and was constrained at inception of the contract, which included regulatory approvals and sales milestones and sales royalties. As a result, $22,262 was recorded as license and milestone fee revenue for the year ended December 31, 2020 under Vifor Agreement No. 2 based on the percentage of R&D services that had been completed during 2020 (see Note 2, Summary of Significant Accounting Policies – Revenue Recognition).

After U.S. regulatory approval of KORSUVA injection in August 2021, the Company achieved a $15,000 regulatory milestone payment and was recorded as license and milestone fees revenue for the year ended December 31, 2021, since this regulatory milestone payment was considered variable consideration at contract inception, was not included in the transaction price at the inception of the agreement and was allocated to the one performance obligation identified at contract inception (see Note 2, Summary of Significant Accounting Policies – Revenue Recognition).

In addition, 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 represented 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 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 allocated to the one performance obligation identified at contract inception

and included as license and milestone fees revenue for the year ended December 31, 2021 (see Note 2, Summary of Significant Accounting Policies – Revenue Recognition).

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 CSL Vifor under Vifor Agreement No. 2, which was recorded as license and milestone fees revenue for the year ended December 31, 2022, since this regulatory milestone payment was considered variable consideration at contract inception, was not included in the transaction price at the inception of the agreement and was allocated to the one combined performance obligation identified at contract inception (see Note 2, Summary of Significant Accounting Policies – Revenue Recognition).

There were no license and milestone fees revenue recognized under the Maruishi Agreement during the years ended December 31, 2022 or 2020. During the year ended December 31, 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 (see Note 2, Summary of Significant Accounting Policies – Revenue Recognition).

Under the CKDP Agreement, the Company’s only performance obligation was to transfer the license to the Company’s IP related to difelikefalin. As of December 31, 2022, there was no remaining performance obligation under the CKDP Agreement. As such, future milestones and sales-based payments were not included in the transaction price at inception of the CKDP Agreement and are allocated to the one performance obligation in accordance with Note 2, Significant Accounting Polices: Revenue Recognition. During the year ended December 31, 2020, the criteria for revenue recognition for a milestone event set forth in the CKDP Agreement was achieved, and the Company recorded $626 (net of South Korean taxes) as license and milestone fees revenue. No milestone events were probable of occurrence or achieved during the years ended December 31, 2022 and 2021.

Commercial supply revenue

Under the Vifor International Supply Agreement, the Company’s only performance obligation is the delivery of KORSUVA injection to CSL Vifor in accordance with the receipt of purchase orders. Revenue from the sale of commercial supply product to CSL Vifor is recognized as delivery of the Licensed Product occurs. The Company had commercial supply revenue of $10,223 for the year ended December 31, 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 $7,928 was recognized throughout the remainder of 2022 with associated COGS of $7,266 since these inventory costs were capitalized as inventory subsequent to regulatory approval.

The Company had $701 of commercial supply revenue for the year ended December 31, 2021 with no associated COGS since these inventory costs were incurred prior to regulatory approval on August 23, 2021.

Clinical compound revenue

The Company’s only performance obligation under the Vifor Supply Agreement is to deliver compound to CSL Vifor in accordance with the receipt of purchase orders. There were no sales of clinical compound under the Vifor Supply Agreement during the year ended December 31, 2022. During the years ended December 31, 2021 and 2020, the Company recognized clinical compound revenue of $361 and $115, respectively, from the sale of clinical compound to CSL Vifor and as a result, the Company incurred R&D expense of $343 and $108 during these respective 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 year ended December 31, 2022. During the years ended December 31, 2021 and 2020, the Company

recognized clinical compound revenue of $37 and $528, respectively, from the sale of clinical compound to Maruishi and as a result, the Company incurred R&D expense of $33 and $476 during these respective periods.

Contract balances

As of December 31, 2022, the Company recorded accounts receivable, net – related party of $3,260 which primarily related to its profit-sharing revenue from sales of KORSUVA injection in the United States by CSL Vifor and its commercial supply of KORSUVA injection to CSL Vifor. There were no material balances of receivables as of December 31, 2021, and no other contract assets or contract liabilities related to the CSL Vifor, Maruishi and CKDP agreements as of December 31, 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 December 31, 2022 and December 31, 2021.