NOTE 12. COLLABORATION AND LICENSING AGREEMENTS

Kyowa Kirin Co., Ltd., or KKC (formerly known as Kyowa Hakko Kirin Co., Ltd, or KHK)

In November 2017, the Company entered into an exclusive license agreement with KKC, or the KKC Agreement, for the development, commercialization and distribution of tenapanor in Japan for cardiorenal indications. The Company assessed these arrangements in accordance with Topic 606 and concluded that the contract counterparty, KKC, is a customer. Under the terms of the KKC Agreement, the Company received $30.0 million in up-front license fees which was recognized as revenue when the agreement was executed. Based on the Company’s assessment, it identified that the license and the manufacturing supply services were its material performance obligations at the inception of the agreement, and as such each of the performance obligations are distinct. Additionally, on January 1, 2018, the Company recorded unbilled license revenue under current assets of $5.0 million and uncharged license fees under current liabilities of $1.0 million related to the first milestone under the KKC Agreement that KKC achieved in February 2019, reflecting revenues and cost of revenue, respectively, that would have been recognized in the fourth quarter 2017 if the Company had adopted Topic 606 prior to January 1, 2018. On KKC’s achievement of the milestone in February 2019, the balance related to unbilled license revenue was adjusted to zero. Correspondingly, the $1.0 million balance related to uncharged license fees that the Company owed to AstraZeneca was reclassified to accounts payable during the three months ended March 31, 2019, and subsequently paid to AstraZeneca during the three months ended June 30, 2019.

In addition to the up-front license fee received of $30.0 million, the Company may be entitled to receive up to $55.0 million in total development milestones, of which $5.0 million has been received to date, and 8.5 billion yen in commercialization milestones, worth up to $78.5 million at the currency exchange rate on September 30, 2019, as well as reimbursement of cost, plus a reasonable overhead for the supply of product and high-teen royalties on net sales throughout the term of the agreement. The variable consideration related to the remaining development milestone payments has not been included in the transaction price as these were fully constrained at September 30, 2019.

For the three and nine months ended September 30, 2019, $13,000 and $31,000 of other revenue was recorded, and for each of the three and nine months ended September 30, 2018, $0.2 million of other revenue was recorded. For both periods the other revenue recorded was for manufacturing supply of tenapanor and other materials delivered to KKC for its product development and clinical trials in Japan, in accordance with the Company’s agreement with KKC.

Shanghai Fosun Pharmaceutical Industrial Development Co. Ltd., or Fosun Pharma

In December 2017, the Company entered into an exclusive license agreement with Fosun Pharma, or the Fosun Agreement, for the development, commercialization and distribution of tenapanor in China for both hyperphosphatemia and irritable bowel syndrome with constipation, or IBS-C. The Company assessed these arrangements in accordance with Topic 606 and concluded that the contract counterparty, Fosun Pharma, is a customer. Under the terms of the Fosun Agreement, the Company received $12.0 million in up-front license fees which was recognized as revenue when the agreement was executed. Based on the Company’s assessment, it identified that the license and the manufacturing supply services were its material performance obligations at the inception of the agreement, and as such each of the performance obligations are distinct.

In addition, the Company may be entitled to additional development and commercialization milestones of up to $110.0 million, as well as reimbursement of cost plus a reasonable overhead for the supply of product and tiered royalties on net sales ranging from the mid-teens to 20%. The variable consideration related to the remaining development milestone payments has not been included in the transaction price as these were fully constrained at September 30, 2019.

For each of the three and nine months ended September 30, 2019, $3.0 million revenue was recorded related to the Fosun Agreement upon the achievement of a development milestone pursuant to the agreement. In October 2019, the Company received corresponding payment of $2.7 million, net of $0.3 million withholding tax. For each of the three and nine months ended September 30, 2018, no revenue was recorded related to the Fosun Agreement.

Knight Therapeutics, Inc., or Knight

In March 2018, the Company entered into an exclusive license agreement with Knight Therapeutics, Inc., or the Knight Agreement, for the development, commercialization and distribution of tenapanor in Canada for hyperphosphatemia and IBS-C. The Company assessed these arrangements in accordance with Topic 606 and concluded that the contract counterparty, Knight, is a customer. Based on the Company’s assessment, it identified that the license and the manufacturing supply services were its material performance obligations at the inception of the agreement, and as such each of the performance obligations are distinct.

Under the terms of the agreement, the Company is eligible to receive up to CAD 25 million in total payments, worth up to $18.9 million at the currency exchange rate on September 30, 2019, including an up-front payment and development and sales milestones, reimbursement of supply costs on a schedule specifying cost per tablet, with a reasonable mark up for overhead, as well as tiered royalty rates on net sales ranging from the mid-single digits to the low twenties. The variable consideration related to the remaining development milestone payments has not been included in the transaction price as these were fully constrained at September 30, 2019.

For each of the three and nine months ended September 30, 2019, no revenue was recorded related to the Knight Agreement. For the three and nine months ended September 30, 2018, zero and $2.3 million of revenue, respectively, was recorded related to the Knight Agreement, and zero and $0.5 million of cost of revenue, respectively, was recorded pursuant to the AstraZeneca Termination Agreement.

AstraZeneca

In June 2015, the Company entered into a termination agreement with AstraZeneca, or the AstraZeneca Termination Agreement, pursuant to which the Company remains liable to pay AstraZeneca fees for (i) future royalties at a royalty rate of 10% of net sales of tenapanor or other NHE3 products by the Company or its licensees, and (ii) 20% of non-royalty revenue received from a new collaboration partner should the Company elect to license, or otherwise provide rights to develop and commercialize tenapanor or another NHE3 inhibitor, up to a maximum of $75.0 million in aggregate for (i) and (ii). To date in aggregate, the Company has recognized $10.5 million of the $75.0 million, recorded as cost of revenue, as follows:


	Cost of Revenue
	Recognized		Amount Paid
	(in million)
Year 2017	$	8.4	$	6.0
Year 2018		0.5		2.9
Year 2019
First Quarter		1.0		—
Second Quarter		—		1.0
Third Quarter		0.6		—
Total	$	10.5	$	9.9
Maximum payment per termination agreement				75.0
Remaining balance			$	65.1