Revenue Recognition

9 Months Ended

Sep. 30, 2024

Revenue Recognition

Revenue Recognition

13. Revenue Recognition

The Company has recognized revenue under its license and collaboration agreements from (1) its share of the profit generated by KORSUVA injection sales in the United States during the three and nine months ended September 30, 2024 and the three and nine months ended September 30, 2023; (2) commercial supply revenue from the Company’s sales of commercial product to CSL Vifor during the nine months ended September 30, 2024 and the three and nine months ended September 30, 2023; (3) royalty revenue from net sales of Kapruvia in Europe during each of the three and nine months ended September 30, 2023; (4) clinical compound sales from certain license agreements during each of the nine months ended September 30, 2024 and 2023; and (5) other revenue which represents royalty payments earned by the Company under Vifor Agreement No. 2 and the Maruishi Agreement under the HCR Agreement during the three and nine months ended September 30, 2024. As of September 30, 2024, the Company has not earned any sales-based milestones under its collaboration agreements.

As of September 30, 2024, the Company had license and collaboration agreements with CSL Vifor, Maruishi and CKDP. The following table provides amounts included in the Company’s Condensed Consolidated Statements of Comprehensive Loss as revenue for each of the three and nine months ended September 30, 2024 and 2023, respectively:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023			2024	2023
Collaborative revenue
CSL Vifor (KORSUVA injection profit sharing)	$	1,298	$	1,932	$	2,086	$	10,092
Maruishi		—		539		—		539
Total collaborative revenue	$	1,298	$	2,471	$	2,086	$	10,631
Commercial supply revenue
CSL Vifor (KORSUVA injection)	$	—	$	1,252	$	640	$	5,843
Total commercial supply revenue	$	—	$	1,252	$	640	$	5,843
License and milestone fees
Maruishi	$	—	$	910	$	—	$	910
Total license and milestone fees	$	—	$	910	$	—	$	910
Royalty revenue
CSL Vifor (Kapruvia ex-U.S.)	$	—	$	167	$	—	$	415
Total royalty revenue	$	—	$	167	$	—	$	415
Clinical compound revenue
Maruishi	$	—	$	66	$	84	$	165
Total clinical compound revenue	$	—	$	66	$	84	$	165
Other revenue (non-cash)
CSL Vifor (Kapruvia ex-U.S.)	$	435	$	—	$	1,084	$	—
Maruishi		823		—		1,788		—
Total other revenue	$	1,258	$	—	$	2,872	$	—

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 on a net basis (since the Company is not the primary obligor and does not retain inventory risk) and presents the revenue earned each period as collaborative revenue.

For the three months ended September 30, 2024, CSL Vifor recorded net sales of KORSUVA injection in the United States of approximately $3,004, which resulted in the Company’s profit share amount of $1,298. For the three months ended September 30, 2023, CSL Vifor recorded net sales of approximately $4,400, which resulted in the Company’s profit share amount of $1,932. For the nine months ended September 30, 2024, CSL Vifor recorded net sales of KORSUVA injection in the United States of approximately $2,146, which included negative net sales reported by CSL Vifor for the second quarter of 2024 primarily due to higher rebates and chargebacks due to price decreases on KORSUVA injection related to the expiration of Transition Drug Add-on Payment Adjustment in April 2024. For the nine months ended September 30, 2023, CSL Vifor recorded net sales of KORSUVA injection in the United States of approximately $21,500. For the nine months ended September 30, 2024 and 2023, the Company recorded associated collaborative revenue of $2,086 and $10,092, respectively. However, the Company has recorded an expense in other general and administrative, or G&A, expense for $1,447 for the nine months ended September 30, 2024 as a result of the negative profit share amount in the second quarter of 2024.

The Company’s distinct performance obligations under the Maruishi Agreement include transfer of the license to the Company’s intellectual property, 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.

During each of the three and nine months ended September 30, 2023, the criteria for revenue recognition for a regulatory milestone event set forth in the Maruishi Agreement was achieved, and the Company earned $1,449, of which $539 was recorded as collaborative revenue based on the relative standalone selling prices described at contract inception. This regulatory milestone payment was considered variable consideration due to the uncertainty of occurrence of this event as specified at inception of the agreement. Therefore, this potential regulatory milestone payment was not included in the transaction price at the inception of the agreement. 

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 product occurs. There was no commercial supply revenue for the three months ended September 30, 2024. The Company had commercial supply revenue of $1,252 for the three months ended September 30, 2023, with associated COGS of $1,558, and $640 and $5,843 for the nine months ended September 30, 2024 and 2023, respectively, with associated COGS of $620 and $5,566, respectively.

License and milestone fees revenue

Under Vifor Agreement No. 2, the Company’s performance obligations of granting a license to allow Vifor Fresenius Medical Care Renal Pharma Ltd. to commercialize 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 were shared with Vifor Fresenius Medical Care Renal Pharma Ltd. 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 the that the R&D services were rendered (see Note 12, 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.

During each of the three and nine months ended September 30, 2023, the criteria for revenue recognition for a regulatory milestone event set forth in the Maruishi Agreement was achieved and the Company earned $1,449, of which $910 was recorded as license and milestone fees revenue based on the relative standalone selling prices described at contract inception. This regulatory milestone payment was considered variable consideration due to the uncertainty of occurrence of this event as specified at inception of the agreement. Therefore, this potential regulatory milestone payment was not included in the transaction price at the inception of the agreement.

Royalty revenue

Royalty revenue includes amounts related to the Company’s royalties earned from CSL Vifor on the net sales of Kapruvia in Europe, based on the amount of net sales in a licensed territory during a calendar year. Sales-based royalty payments related to a license of IP are recognized as revenue when the respective sales occur, and the net sales tier is achieved. The Company recognized royalty revenue of approximately $167 and $415 for the three and nine months ended September 30, 2023, respectively, which were related to the Company’s royalties on the net sales of Kapruvia in Europe. Beginning on October 1, 2023, royalty revenue is no longer recognized until the Company has fulfilled its obligations under the HCR Agreement (see Note 10, Royalty Purchase and Sale Agreement).

Clinical compound revenue

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 was no clinical compound revenue for the three months ended September 30, 2024. During the nine months ended September 30, 2024, the Company recognized clinical compound revenue of $84 from the sale of clinical compound to Maruishi. During the three and nine months ended September 30, 2023, the Company recognized clinical compound revenue of $66 and $165, respectively, from the sale of clinical compound to Maruishi.

Other revenue

The Company recorded other non-cash revenue of $1,258 and $2,872 which represents the royalty payments earned by the Company under Vifor Agreement No. 2 and the Maruishi Agreement during the three and nine months ended September 30, 2024, respectively, in conjunction with ex-U.S. sales of KORSUVA/Kapruvia, which will be remitted to HCR under the terms of the HCR Agreement. This non-cash revenue will continue to be recorded until the Company has fulfilled its obligations under the HCR Agreement. There was no other revenue recorded for the three and nine months

ended September 30, 2023 as the HCR Agreement went into effect during the fourth quarter of 2023 (see Note 10, Royalty Purchase and Sale Agreement).

Contract balances

As of September 30, 2024 and December 31, 2023, the Company recorded accounts receivable, net – related party of $435 and $2,765, respectively, which primarily related to royalty payments from CSL Vifor in the current period and its profit-sharing revenue from sales of KORSUVA injection in the United States by CSL Vifor, its commercial supply of KORSUVA injection to CSL Vifor, and royalty payments from CSL Vifor in the prior period. The Company also recorded $835 and $415 within other receivables which primarily related to royalty payments from Maruishi as of September 30, 2024 and December 31, 2023, respectively. There were no other contract assets or contract liabilities related to the CSL Vifor, Maruishi and CKDP agreements as of September 30, 2024 and December 31, 2023.

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, 2024 and December 31, 2023.