Deferred Royalty Obligation Related To The Sale Of Future Royalties

12 Months Ended

Dec. 31, 2024

Deferred Royalty Obligation Related To The Sale Of Future Royalties

DEFERRED ROYALTY OBLIGATION RELATED TO THE SALE OF FUTURE ROYALTIES

In June 2022, we and HCR entered into the HCR Agreement in which HCR agreed to pay up to $20.0 million in exchange for royalty payments and commercial milestone payments that we may receive under our Kyowa Kirin License Agreement. See Note 7. Collaboration And Licensing Agreements for further detail. The $20.0 million is payable as follows:

•$10.0 million upfront upon agreement execution, received in June 2022;

•$5.0 million upon Kyowa Kirin’s receipt of regulatory approval to market tenapanor for hyperphosphatemia in Japan, received in October 2023; and

•$5.0 million in the event net sales by Kyowa Kirin in Japan exceed a certain annual target level by the end of 2025.

The HCR Agreement is effective until terminated by the mutual agreement of the parties and contains customary representations and warranties and customary affirmative and negative covenants.

Payments received from HCR are recorded as a deferred royalty obligation on our balance sheets. Due to our ongoing manufacturing obligations under the Kyowa Kirin Agreement, we account for the proceeds as imputed debt and therefore recognize royalties earned under the Kyowa Kirin Agreement as non-cash royalty revenue. In conjunction with the HCR Agreement, we incurred approximately $0.4 million in transaction costs, which, along with the deferred royalty obligation, are being amortized as non-cash interest expense over the estimated life of the HCR Agreement using the effective interest method, which is based on the imputed interest rate derived from estimated amounts and timing of future royalty payments to be received from Kyowa Kirin. The deferred royalty obligation will be effectively repaid over the life of the HCR Agreement as we remit royalties paid to us from Kyowa Kirin, recorded as non-cash royalty revenue related to the sale of future royalties, to HCR. We periodically assess the estimated royalty payments from Kyowa Kirin and, to the extent that the amount or timing of such payments is materially different than our original estimates, we prospectively adjust the imputed interest rate and the related amortization of the deferred royalty obligation.

A summary of financial information related to the HCR Agreement is as follows:


	Year Ended December 31,
($ in thousands)	2024			2023			2022
Non-cash interest expense related to the sale of future royalties	$	(7,088)		$	(3,924)		$	(1,673)
Effective interest rate	31.0		%	34.7		%	34.4		%