8. Commitments and Contingencies

In December 2013, the Company entered into a three-year lease for 6,837 square feet of office space in Cambridge, Massachusetts. The lease has monthly lease payments of approximately $31,000 for the first twelve months, with annual rent escalation thereafter, and provides a rent abatement of approximately $31,000 for the first full calendar month of the lease term. The lease term commenced and rental payments began in January 2014. The Company recorded a deferred lease obligation in 2014 which represents the cumulative difference between actual facility lease payments and lease expense recognized ratably over the lease period, which is included in other liabilities. In accordance with the lease, the Company entered into a cash-collateralized irrevocable standby letter of credit in the amount of $125,345, naming the landlord as beneficiary.

In December 2014, the Company entered into a First Amendment to Lease, or the Amendment, for additional office space contiguous to its current office space in Cambridge, Massachusetts. The Amendment included leasing an additional 8,530 square feet of office space, or the Expansion Space, with an occupancy date of March 13, 2015. The Amendment provided for additional monthly lease payments of approximately $45,000 for the 8,530 square feet for the first twelve months and provided for annual rent escalations thereafter. The monthly rent on the existing 6,837 square feet remained at approximately $32,000 through December 31, 2016, the expiration of the lease. The Amendment included a Landlord’s contribution for leasehold improvements in the amount of approximately $100,000 which was accounted for as a deferred lease incentive and reduction in monthly rent expense over the term of the lease. The Company recorded an additional deferred lease obligation for the Expansion Space which represented the cumulative difference between actual facility lease payments and lease expense recognized ratably over the lease period. The Company had an existing cash-collateralized irrevocable standby letter of credit of $125,345, naming the landlord as beneficiary. In connection with the Amendment, the Company paid an additional cash security deposit to the landlord of $179,130. These amounts are included in other assets.

In November 2015, the Company entered into a Second Amendment to Lease amending the Lease to extend its existing lease for 16,222 square feet on the 11^th floor, which was due to expire on December 31, 2016, and lease an additional 23,189 square feet of office space on the 11^th and 14^th floors. Monthly lease payments for the existing 16,222 square feet on the 11^th floor remain unchanged until December 31, 2016 and will be approximately $107,000 per month commencing on May 1, 2017. The new space leased by the Company under the Second Amendment includes (i) 3,066 square feet on the 14^th floor which was delivered on November 23, 2015 and additional monthly lease payments of approximately $20,000 commencing on March 1, 2016, (ii) 16,739 square feet on the 14^th floor with an estimated delivery date of April 1, 2016 and additional monthly lease payments of approximately $110,000 commencing September 1, 2016 and (iii) 3,384 square feet on the 1th floor with an estimated delivery date of January 1, 2017 and additional monthly lease payments of approximately $23,000 commencing May 1, 2017. The above rents are subject to annual rent escalations, commencing on either February 1, 2017 or February 1, 2018 depending upon the delivery date of each respective suite. The Second Amendment includes a Landlord’s contribution for leasehold improvements for both the new leased space and the Company’s existing premises. The Landlord’s contribution will be accounted for as a deferred lease incentive and reduction in monthly rent expense over the term of the lease. In connection with the Second Amendment, the Company paid an additional cash security deposit to the Landlord of $976,382. The term of the lease, as amended, expires on the later of August 31, 2026 or 10 years after the Landlord delivers the entirety of the 14^th floor to the Company. In connection with the Second Amendment, the Company paid an additional cash security deposit to the landlord of $976,382. Total cash security deposits of $1,280,857 and $304,475 are included in other assets in the Company’s consolidated balance sheets as of December 31, 2015 and 2014, respectively.

The Company leases office equipment under a two three year capital leases with payments commencing in February 2014 and April 2015, respectively. The capital lease amounts are included in accrued expenses and other liabilities.

At December 31, 2015, the Company’s future minimum payments required under these leases are as follows:

	Operating		Capital
	Lease		Lease		Total
	(in thousands)
2016	$	2,522	$	8	$	2,530
2017		3,122		5		3,127
2018		3,122		1		3,123
2019		3,122		—		3,122
2020		3,122		—		3,122
Thereafter		17,687		—		17,687
Total	$	32,697		14	$	32,711
Less amount representing interest				—
Present value of minimum lease payments at December 31, 2015			$	14

The Company recorded approximately $0.9 million and $0.4 million in rent expense for the years ended December 31, 2015 and 2014 respectively.

Under the Company’s agreement with Quintiles to conduct the PRO₂TECT and INNO₂VATE programs, the total cost of committed work not yet paid as of December 31, 2015 was approximately $246.0 million. The estimated period of performance for the committed work with Quintiles is through the third quarter of 2019. The Company contracts with various other organizations to conduct research and development activities with remaining contract costs to the Company of approximately $5.2 million and $4.3 million at December 31, 2015 and December 31, 2014, respectively. The scope of the services under the research and development contracts can be modified and the contracts cancelled by the Company upon written notice. In some instances the contracts may be cancelled by the third party upon written notice.

In September 2015, a purported securities class action lawsuit was filed against the Company, including its Chief Executive Officer, its Chief Financial Officer, and members of its Board of Directors, in the Business Litigation Section of the Suffolk County Superior Court of Massachusetts. The complaint is brought on behalf of an alleged class of those who purchased common stock of the Company pursuant or traceable to our initial public offering, and purports to allege claims arising under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended (the “Securities Act”). The complaint generally alleges that the defendants violated the federal securities laws by, among other things, making material misstatements or omissions concerning the Phase 2b clinical study of vadadustat. The complaint seeks, among other relief, unspecified compensatory damages, rescission of certain stock purchases, attorneys’ fees, and costs. In October 2015, we removed the case to the United States District Court for the District of Massachusetts, and the plaintiff filed a motion to remand the case back to the Business Litigation Section of the Suffolk County Superior Court of Massachusetts. The plaintiff’s motion to remand is currently pending. The Company believes such claims are without merit, and will engage in a vigorous defense of such litigation.

As explained in more detail below, we have had some positive developments in our opposition and invalidity proceedings against FibroGen, Inc., or FibroGen. With regard to the opposition that we filed in Europe against FibroGen’s European Patent No. 1463823, or the ’823 patent, the European Opposition Division issued a non-binding preliminary opinion that none of FibroGen’s ’823 patent claims meet the requirements for patentability. In an oral proceeding which took place March 8 and 9, 2016, the European Opposition Division confirmed that the patent as granted did not meet the requirements for patentability under the European Patent Convention and, therefore, revoked the patent in its entirety. Likewise, with regard to the invalidity proceeding that we filed in Japan against certain claims of FibroGen’s Japanese Patent No. 4804131, or the ’131 patent, which is the Japanese counterpart to the ’823 patent, the JPO issued a preliminary decision finding all of the challenged claims to be invalid. FibroGen subsequently amended the claims and the JPO accepted the amendments. The resulting FibroGen ’131 patent does not cover vadadustat or any pyridine carboxamide compounds. To date, FibroGen has been unsuccessful in its attempts to obtain a patent in the United States covering the same claim scope as it obtained in Europe and Japan in the ’823 and ’131 patents. In the event FibroGen were to obtain such patents in the United States, we may decide to challenge them like we have done in Europe and Japan. On May 13, May 20, and July 6, 2015, we also filed oppositions to FibroGen’s European Patent Nos. 2322153, 2322155, and 1633333 respectively, requesting the patents be revoked in their entirety.

In June 2013, the European Patent Office granted the ’823 patent, to FibroGen. The ’823 patent claims, among other things, the use of a heterocyclic carboxamide compound selected from the group consisting of pyridine carboxamides, quinoline carboxamides, isoquinoline carboxamides, cinnoline carboxamides, and beta-carboline carboxamides that inhibits HIF-PH enzyme activity in the manufacture of a medicament for increasing endogenous EPO in the prevention, pretreatment or treatment of anemia. On December 5, 2013, we filed an opposition to the ’823 patent requesting that the ’823 patent be revoked in its entirety. The European Opposition Division scheduled oral proceedings for March 8, 2016 and also issued a non-binding preliminary opinion that none of the ’823 patent’s claims met the requirements for patentability. In an oral proceeding which took place March 8 and 9, 2016, the European Opposition Division confirmed that the patent as granted did not meet the requirements for patentability under the European Patent Convention and, therefore, revoked the patent in its entirety. If FibroGen appeals the decision of the European Opposition Division, final resolution of the appeal will likely take two to three years. While, for the reasons set forth in our opposition, we maintain that the ’823 patent should be revoked in its entirety, the ultimate outcome of any appeal remains uncertain. If FibroGen appeals the decision of the European Opposition Division and the Technical Board of Appeal at the European Patent Office decides not to revoke the ’823 patent in its entirety, or only certain claims of the ’823 patent and any surviving claims are determined to encompass our intended use of vadadustat, we may not be able to commercialize vadadustat in the European Union for its intended use, which could materially adversely affect our business, operating results and financial condition.

In August 2011, the Japanese Patent Office granted the ’131 patent, to FibroGen. The ’131 patent claims, among other things, the use of certain heterocyclic carboxamides selected from the group consisting of pyridine carboxamides, quinoline carboxamides, and isoquinoline carboxamides to treat anemia, wherein the heterocyclic carboxamides also suppress HIF prolyl hydroxylase. On June 2, 2014, we filed an invalidity proceeding in the Japanese Patent Office challenging the validity of the ’131 patent and requesting that certain claims be revoked in their entirety. An oral hearing before the Japanese Patent Office was held on February 9, 2015, and on May 11, 2015 the Japanese Patent Office issued a preliminary decision finding all of the challenged claims to be invalid. In response, FibroGen filed a request for correction in which it requested that the ’131 patent claims be amended to exclude pyridine carboxamides from their scope. On November 18, 2015, Akebia received the final trial decision from the JPO in which it accepted FibroGen’s requested claim amendments. As a result of the JPO’s decision and FibroGen’s subsequent amendments, the FibroGen ’131 patent does not cover vadadustat or any pyridine carboxamide compounds.

In August 2014, the European Patent Office granted European Patent Nos. 2322153, 2322155, and 1633333, or the ’153 patent, the ’155 patent, and the ’333 patent, respectively, to FibroGen. These related patents claim, among other things, various compounds that either stabilize HIFα or inhibit a HIF hydroxylase or a HIF prolyl hydroxylase for treating or preventing various conditions, including, inter alia, iron deficiency, microcytosis associated with iron deficiency, anemia of chronic disease, anemia wherein the subject has a transferrin saturation of less than 20%, anemia refractory to treatment with exogenously administered EPO, and microcytosis in microcytic anemia. On May 13, May 20, and July 6, 2015, we filed oppositions to the ’155 patent, the ’333 patent, and the ’153 patent, respectively, requesting that the patents be revoked in their entireties. While, for the reasons set forth in our oppositions, we believe that the ’153 patent, the ’155 patent, and the ’333 patent should be revoked in their entireties, the ultimate outcomes of the oppositions remains uncertain. If the European Patent Office decides not to revoke the ’153 patent, the ’155 patent, or the ’333 patent in their entireties, or only certain claims of those patents, and any surviving claims are determined to encompass our intended use of our lead product candidate, we may not be able to commercialize our lead product candidate in the European Union for its intended use, which could materially adversely affect our business, operating results and financial condition.

The Company is not able to predict the outcome of the lawsuit described above or estimate the amount or range of any possible loss the Company might incur if the Company does not prevail in the final, non-appealable determination of this lawsuit. Therefore, we have not accrued any amounts in connection with this lawsuit.