10-Q 1 akba-20220331.htm 10-Q akba-20220331
false2022Q1--12-3100015170220http://fasb.org/us-gaap/2021-01-31#AccruedLiabilitiesCurrenthttp://fasb.org/us-gaap/2021-01-31#AccruedLiabilitiesCurrent5WarrantIn connection with the Janssen Agreement, in February 2017, the Company issued a warrant to purchase 509,611 shares of the Company’s common stock at an exercise price of $9.81 per share. The warrant was fully vested upon issuance and exercisable in whole or in part, at any time prior to February 9, 2022. The warrant satisfied the equity classification criteria of ASC 815, and is therefore classified as an equity instrument. The fair value at issuance of $3.4 million was calculated using the Black Scholes option pricing model and was charged to research and development expense as it represented consideration for a license for which the underlying intellectual property was deemed to have no alternative future use. The warrant expired on February 9, 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to__________

Commission File Number 001-36352
AKEBIA THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 20-8756903
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
   
 245 First Street, Cambridge, MA
 02142
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (617871-2098
n/a
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $0.00001 per shareAKBAThe Nasdaq Global Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
ý
Accelerated filer
    
Non-accelerated filer¨Smaller reporting company
    
  Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Outstanding at April 30, 2022
183,533,075



NOTE REGARDING FORWARD-LOOKING

This Quarterly Report on Form 10-Q contains forward-looking statements that are being made pursuant to the provisions of the U.S. Private Securities Litigation Reform Act of 1995 with the intention of obtaining the benefits of the “safe harbor” provisions of that Act. All statements contained in this Quarterly Report on Form 10‑Q other than statements of historical fact are forward-looking statements. These forward-looking statements may be accompanied by words such as “anticipate,” “believe,” “build,” “can,” “contemplate,” “continue,” “could,” “should,” “designed,” “estimate,” “project,” “expect,” “forecast,” “future,” “goal,” “intend,” “likely,” “may,” “plan,” “possible,” “potential,” “predict,” “strategy,” “seek,” “target,” “will,” “would,” and other words and terms of similar meaning, but the absence of these words does not necessarily mean that a statement is not forward-looking. These forward-looking statements include, but are not limited to, statements about:
the potential therapeutic benefits, safety profile, and effectiveness of vadadustat; 
the timing of our conference with the U.S. Food and Drug Administration and next steps with respect to the development of vadadustat, if any, following our receipt of a complete response letter to our new drug application for vadadustat for the treatment of anemia due to chronic kidney disease in adult patients;
that delivering value broadly to the kidney community, as well as others who may benefit from our medicines, will result in delivering value for stockholders;
our pipeline and portfolio, including its potential, and our related research and development activities;
the timing of or likelihood of regulatory filings and approvals, including with respect to labeling or other restrictions, the potential approval of vadadustat and our outlook related thereto, and potential indications for vadadustat;
the timing, investment and associated activities involved in continued commercialization of Auryxia® (ferric citrate), its growth opportunities and our ability to execute thereon;
the potential indications, demand and market opportunity, potential and acceptance of Auryxia and vadadustat, if approved, including the size of eligible patient populations; 
the potential therapeutic applications of the hypoxia inducible factor pathway;
our competitive position, including estimates, developments and projections relating to our competitors and their products and product candidates, and our industry; 
our expectations, projections and estimates regarding our capital requirements, need for additional capital, financing our future cash needs, costs, expenses, revenues, capital resources, cash flows, financial performance, profitability, tax obligations, liquidity, growth, contractual obligations, the period of time our cash resources and collaboration funding will fund our current operating plan, our internal control over financial reporting and disclosure controls and procedures, and remediation of the material weakness we have identified in our internal control over financial reporting relating to our inventory process or any future deficiencies or material weaknesses in our internal controls and procedures; 
the direct or indirect impacts of the coronavirus 2 (SARS-CoV-2) pandemic on our business, operations and the markets and communities in which we and our partners, collaborators, vendors, and customers operate;
our manufacturing, supply and quality matters and any recalls, write-downs, impairments or other related consequences or potential consequences;
estimates, beliefs and judgments related to the valuation of intangible assets, goodwill, contingent consideration, debt and other assets and liabilities, including our impairment analysis and our methodology and assumptions regarding fair value measurements;
the timing of the availability and disclosure of clinical trial data and results;
our and our collaborators’ strategy, plans and expectations with respect to the development, manufacturing, supply, commercialization, launch, marketing and sale of Auryxia and vadadustat, if approved, and the associated timing thereof; 
the designs of our studies, and the type of information and data expected from our studies and the expected benefits thereof;
our ability to maintain any marketing authorizations we currently hold or will obtain, including our marketing authorizations for Auryxia and our ability to complete post-marketing requirements with respect thereto;



our ability to negotiate, secure and maintain adequate pricing, coverage and reimbursement terms and processes on a timely basis, or at all, with third-party payors for Auryxia and vadadustat, if approved;
the targeted timing of enrollment of our clinical trials; 
the timing of initiation of our clinical trials and plans to conduct preclinical studies and clinical trials in the future; 
the timing and amounts of payments from or to our collaborators and licensees, and the anticipated arrangements and benefits under our collaboration and license agreements, including with respect to milestones and royalties; 
our intellectual property position, including obtaining and maintaining patents, and the timing, outcome and impact of administrative, regulatory, legal and other proceedings relating to our patents and other proprietary and intellectual property rights, patent infringement suits that we have filed or may file, or other actions that we may take against companies, and the timing and resolution thereof;
expected ongoing reliance on third parties, including with respect to the development, manufacturing, supply and commercialization of Auryxia and vadadustat, if approved;
accounting standards and estimates, their impact, and their expected timing of completion;
estimated periods of performance of key contracts;
our facilities, lease commitments, and future availability of facilities;
cybersecurity;
insurance coverage;
remediation of our material weakness;
estimates with respect to our ability to operate as a going concern;
management of personnel, including our management team, and our employees, including employee compensation, employee relations, and our ability to attract, train and retain high quality employees;
the implementation of our business model, current operating plan, and strategic plans for our business, product candidates and technology, and business development opportunities including potential collaborations, alliances, mergers, acquisitions or licensing of assets;
our workforce reduction, future charges expected to be incurred in connection therewith and estimated reductions in net cash required for operating activities in connection therewith; and
the timing, outcome and impact of current and any future legal proceedings.

Any or all of these forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. These forward-looking statements involve risks and uncertainties, including those that are discussed below under the heading "Risk Factor Summary", and the risk factors identified further in Part II, Item 1A. "Risk Factors" included in this Quarterly Report on Form 10-Q and elsewhere in this Quarterly Report on Form 10-Q, that could cause our actual results, financial condition, performance or achievements to be materially different from those indicated in these forward-looking statements. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to publicly update or revise these forward-looking statements for any reason. Unless otherwise stated, our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

This Quarterly Report on Form 10-Q also contains estimates and other information concerning our industry and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Unless otherwise expressly stated, we obtained this industry, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

In this Quarterly Report on Form 10-Q, unless otherwise stated or the context otherwise requires, references to “Akebia,” “we,” “us,” “our,” “the Company,” and similar references refer to Akebia Therapeutics, Inc. and, where appropriate, its subsidiaries, including Keryx Biopharmaceuticals, Inc.

AURYXIA®, AKEBIA Therapeutics®, VafseoTM and their associated logos are trademarks of Akebia and/or its affiliates. All other trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. All website addresses given in this Quarterly Report on Form 10-Q are for information only and are not intended to be an active link or to incorporate any website information into this document.



RISK FACTORS SUMMARY

Investing in our common stock involves numerous risks, including the risks summarized below and described in further detail in “Part II, Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q, any one of which could materially adversely affect our business, financial condition, results of operations, and prospects. These risks include, but are not limited to, the following:
We have incurred significant losses since our inception, and anticipate that we will continue to incur significant losses and cannot guarantee when, if ever, we will become profitable or attain positive cash flows.
We will require substantial additional financing to achieve our goals. A failure to obtain this necessary capital when needed, or on acceptable terms, could force us to delay, limit, reduce or terminate our product development or commercialization efforts.
Our independent registered public accounting firm included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements included in our Annual Report on Form 10-K and any future concerns relating to our ability to continue as a going concern would materially adversely affect us.
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our product and product candidates on unfavorable terms to us.
If we fail to comply with the continued listing requirements of Nasdaq, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted.
We may not be successful in our efforts to identify, acquire, in-license, discover, develop and commercialize additional products or product candidates or our decisions to prioritize the development of certain product candidates over others may not be successful, which could impair our ability to grow.
We may engage in strategic transactions to acquire assets, businesses, or rights to products, product candidates or technologies or form collaborations or make investments in other companies or technologies that could harm our operating results, dilute our stockholders’ ownership, increase our debt, or cause us to incur significant expense
Our business has been and may continue to be, directly or indirectly, adversely affected by the COVID-19 pandemic.
Our obligations in connection with the loan agreement with Pharmakon and requirements and restrictions in the loan agreement could adversely affect our financial condition and restrict our operations.
Our Royalty Interest Acquisition Agreement with HealthCare Royalty Partners IV, L.P. contains various covenants and other provisions, which, if violated, could materially adversely affect our financial condition.
Our business is substantially dependent on the commercial success of Auryxia. If we are unable to continue to successfully commercialize Auryxia, our results or operations and financial condition will be materially harmed.
If we are unable to maintain or expand, or, if vadadustat is approved, initiate, sales and marketing capabilities or enter into additional agreements with third parties, we may not be successful in commercializing Auryxia, vadadustat, if approved, or any other product candidates that may be approved.
Our, or our partners', failure to obtain or maintain adequate coverage, pricing and reimbursement for Auryxia, vadadustat, if approved, or any other future approved products, could have a material adverse effect on our or our collaboration partners’ ability to sell such approved products profitably and otherwise have a material adverse impact on our business.
We face substantial competition, which may result in others discovering, developing or commercializing products before, or more successfully than, we do.
The commercialization of Riona and VafseoTM in Japan and our current and potential future efforts with respect to the development and commercialization of our products and product candidates outside of the United States subject us to a variety of risks associated with international operations, which could materially adversely affect our business.
Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and we will incur additional costs in connection with, and may experience delays in completing, or ultimately be unable to complete, the development and, if approved, commercialization of vadadustat and any other product candidates.
We may find it difficult to enroll patients in our clinical trials, which could delay or prevent clinical trials of Auryxia, vadadustat or any other product or product candidate, including those that may be in-licensed or acquired.
Conducting clinical trials outside of the United States makes us subject to additional risks and complexities and we may not complete such trials successfully, in a timely manner, or at all, which could affect our ability to obtain regulatory approvals.
Auryxia, vadadustat or any other product or product candidate, including those that may be in-licensed or acquired, may cause undesirable side effects or have other properties that may delay or prevent marketing approval or limit their commercial potential.
We may not be able to obtain marketing approval for, or successfully commercialize, vadadustat or any other product candidate, or we may experience significant delays in doing so, any of which would materially harm our business.
Products approved for marketing are subject to extensive post-marketing regulatory requirements and could be subject to post-marketing restrictions or withdrawal from the market, and we may be subject to penalties, including withdrawal of marketing approval, if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, or product candidates, when and if any of them is approved.
We are subject to a complex regulatory scheme that requires significant resources to ensure compliance and our failure to comply with applicable laws could subject us to government scrutiny or enforcement, potentially resulting in costly



investigations, fines, penalties or sanctions, contractual damages, reputational harm, administrative burdens and diminished profits and future earnings.
We will incur significant liability if it is determined that we are promoting any “off-label” use of Auryxia or any other product we may develop, in-license or acquire or if it is determined that any of our activities violates the federal Anti-Kickback Statute.
Disruptions in the FDA, regulatory authorities outside the U.S. and other government agencies caused by global health concerns or funding shortages could prevent new products and services from being developed or commercialized in a timely manner, which could negatively impact our business.
Compliance with privacy and data security requirements could result in additional costs and liabilities to us or inhibit our ability to collect and process data globally, and the failure to comply with such requirements could subject us to significant fines and penalties, which may have a material adverse effect on our business, financial condition or results of operations.
Legislative and regulatory healthcare reform may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain for any products that are approved in the United States or foreign jurisdictions.
We depend on collaborations with third parties for the development and commercialization of Auryxia, Riona, Vafseo and vadadustat and if these collaborations are not successful or if our collaborators terminate their agreements with us, we may not be able to capitalize on the market potential of Auryxia, Riona, Vafseo and vadadustat, and our business could be materially harmed.
We may seek to establish additional collaborations and, if we are not able to establish them on commercially reasonable terms, or at all, we may have to alter our development and commercialization plans.
We rely on third parties to conduct all aspects of our product manufacturing and the loss of these manufacturers, their failure to supply us on a timely basis, or at all, or their failure to successfully carry out their contractual duties or comply with regulatory requirements, cGMP requirements, or guidance could cause delays in or disruptions to our supply chain and substantially harm our business.
We rely on third parties to conduct our clinical trials and certain of our preclinical studies. If they do not successfully carry out their contractual duties, comply with regulatory requirements or meet expected deadlines, we may not be able to obtain or maintain marketing approval for Auryxia, vadadustat or any of our product candidates, and our business could be substantially harmed.
If the licensor of certain intellectual property relating to Auryxia terminates, modifies or threatens to terminate existing contracts or relationships with us, our business may be materially harmed.
If we are unable to adequately protect our intellectual property, third parties may be able to use our intellectual property, which could adversely affect our ability to compete in the market.
We may not be able to protect our intellectual property rights throughout the world.
The intellectual property that we own or have licensed and related non-patent exclusivity relating to our current and future products is, and may be, limited, which could adversely affect our ability to compete in the market and adversely affect the value of Auryxia.
The market entry of one or more generic competitors or any third party’s attempt to challenge our intellectual property rights will likely limit Auryxia sales and have an adverse impact on our business and results of operation.
Litigation, including third party claims of intellectual property infringement, may be costly and time consuming and may delay or harm our drug discovery, development and commercialization efforts.
We are currently involved in an opposition and invalidation proceedings and may in the future be involved in additional lawsuits or administrative proceedings to challenge the patents of our competitors or to protect or enforce our patents, which could be expensive, time consuming, and unsuccessful.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.
If we fail to attract, retain and motivate senior management and qualified personnel, we may be unable to successfully develop, obtain and/or maintain marketing approval of and commercialize vadadustat or commercialize Auryxia.
Our cost savings plan and the associated workforce reduction implemented in April and May 2022 may not result in anticipated savings, could result in total costs and expenses that are greater than expected and could disrupt our business.
We may encounter difficulties in managing our growth, including with respect to our employee base, and managing our operations successfully.
We have identified a material weakness in our internal control over financial reporting relating to our inventory process. If we are not able to remediate this material weakness, or if we experience additional material weaknesses or other deficiencies in the future or otherwise fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.
We are currently subject to legal proceedings that could result in substantial costs and divert management's attention, and we could be subject to additional legal proceedings.
Our stock price has been and may continue to be volatile, which could result in substantial losses for holders or future purchasers of our common stock and lawsuits against us and our officers and directors.



Akebia Therapeutics, Inc.

Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I—FINANCIAL INFORMATION
Item 1.  Financial Statements.

AKEBIA THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share data)
March 31,
2022
December 31,
2021
Assets
Current assets:
Cash and cash equivalents$174,562 $149,800 
Inventory39,422 38,195 
Accounts receivable, net64,582 50,875 
Prepaid expenses and other current assets24,121 33,140 
Total current assets302,687 272,010 
Property and equipment, net6,451 6,754 
Operating lease assets32,631 33,852 
Goodwill55,053 55,053 
Other intangible assets, net99,116 108,127 
Other assets39,418 49,754 
Total assets$535,356 $525,550 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable$19,466 $33,588 
Accrued expenses and other current liabilities109,660 104,456 
Short-term deferred revenue10,440 20,906 
Current portion of refund liability to customer16,500  
Current portion of long-term debt97,848 97,543 
Total current liabilities253,914 256,493 
Deferred revenue, net of current portion65,356 21,474 
Operating lease liabilities, net of current portion32,581 33,703 
Derivative liability1,110 1,820 
Liability related to sale of future royalties, net55,095 53,079 
Refund liability to customer, net of current portion23,441  
Other non-current liabilities77,743 82,525 
Total liabilities509,240 449,094 
Commitments and contingencies (Note 12)
Stockholders' equity:
Preferred stock $0.00001 par value, 25,000,000 shares authorized; 0 shares issued and
   outstanding at March 31, 2022 and December 31, 2021
  
Common stock $0.00001 par value; 350,000,000 shares authorized at March 31, 2022 and December 31, 2021; 183,386,035 and 177,000,963 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively
2 1 
Additional paid-in capital1,548,880 1,536,800 
Accumulated other comprehensive loss6 6 
Accumulated deficit(1,522,772)(1,460,351)
Total stockholders' equity26,116 76,456 
Total liabilities and stockholders' equity$535,356 $525,550 
 
See accompanying notes to unaudited condensed consolidated financial statements.
7


AKEBIA THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands, except share and per share data)
 
Three Months Ended
March 31,
 20222021
Revenues:
Product revenue, net$41,448 $30,408 
License, collaboration and other revenue20,251 21,896 
Total revenues61,699 52,304 
Cost of goods sold:
Product22,333 25,595 
Amortization of intangibles9,011 9,011 
Total cost of goods sold31,344 34,606 
Operating expenses:
Research and development43,833 40,611 
Selling, general and administrative44,327 41,328 
License expense688 695 
Total operating expenses88,848 82,634 
Operating loss(58,493)(64,936)
Other income (expense):
Interest expense(5,062)(4,805)
Other income1,134 161 
Net loss$(62,421)$(69,580)
Net loss per share - basic and diluted$(0.35)$(0.45)
Weighted-average number of common shares - basic and diluted179,599,045 153,820,809 
Comprehensive loss:
Net loss$(62,421)$(69,580)
Other comprehensive loss - unrealized loss on debt securities (4)
Total comprehensive loss$(62,421)$(69,584)
 
See accompanying notes to unaudited condensed consolidated financial statements.


8


AKEBIA THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share data)
 Common Stock  
 Number of
Shares
$0.00001
Par Value
Additional Paid-In
Capital
Unrealized
Gain/(Loss)
Accumulated
Deficit
Total Stockholders'
Equity
Balance at December 31, 2020148,074,085 $1 $1,425,115 $13 $(1,177,511)$247,618 
Issuance of common stock, net of
   issuance costs
9,228,017 1 29,497 — — 29,498 
Proceeds from sale of stock under
   employee stock purchase plan
154,276 — 367 — — 367 
Share-based compensation expense— — 5,992 — — 5,992 
Restricted stock unit vesting1,063,711 — — — — — 
Unrealized loss— — — (4)— (4)
Net loss— — — — (69,580)(69,580)
Balance at March 31, 2021158,520,089 $2 $1,460,971 $9 $(1,247,091)$213,891 
Balance at December 31, 2021177,000,963 $1 $1,536,800 $6 $(1,460,351)$76,456 
Issuance of common stock, net of
   issuance costs
4,404,600 1 7,177 — — 7,178 
Proceeds from sale of stock under
   employee stock purchase plan
191,146 — 367 — — 367 
Share-based compensation expense— — 4,536 — — 4,536 
Restricted stock unit vesting1,789,326 — — — — — 
Net loss— — — — (62,421)(62,421)
Balance at March 31, 2022183,386,035 $2 $1,548,880 $6 $(1,522,772)$26,116 
 
See accompanying notes to unaudited condensed consolidated financial statements
9


AKEBIA THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
 
 Three Months Ended
 March 31, 2022March 31, 2021
Operating activities:
Net loss$(62,421)$(69,580)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization417 513 
Amortization of intangibles9,011 9,011 
Amortization of premium/discount on investments (11)
Non-cash interest expense related to sale of future royalties2,345 2,162 
Non-cash royalty revenue related to sale of future royalties(329)(20)
Non-cash interest expense246 229 
Non-cash operating lease expense(557)(494)
Fair value step-up of inventory sold or written off 21,575 
Write-down of inventory5,344 5,075 
Change in excess inventory purchase commitments(773)(8,945)
Stock-based compensation4,536 5,992 
Change in fair value of derivative liability(710)80 
Changes in operating assets and liabilities:
Accounts receivable(13,707)(8,380)
Inventory(5,247)(19,193)
Prepaid expenses and other current assets9,019 2,268 
Other long-term assets3,297 1,361 
Accounts payable(7,358)(4,912)
Accrued expense4,426 (4,877)
Operating lease liabilities616 407 
Deferred revenue33,416 (3,007)
Other non-current liabilities(3,191) 
Net cash used in operating activities(21,620)(70,746)
Investing activities:
Purchase of equipment(114)(59)
Proceeds from the maturities of available for sale securities 20,000 
Net cash (used in) provided by investing activities(114)19,941 
Financing activities:
Proceeds from sale of future royalties, net 44,783 
Proceeds from refund liabilities to customers40,000  
Proceeds from the issuance of common stock, net of issuance costs7,178 29,327 
Proceeds from the sale of stock under employee stock purchase plan367 367 
Proceeds from the exercise of stock options  
Net cash provided by financing activities47,545 74,477 
Increase in cash, cash equivalents, and restricted cash25,811 23,672 
Cash, cash equivalents, and restricted cash at beginning of the period151,839 231,132 
Cash, cash equivalents, and restricted cash at end of the period$177,650 $254,804 
Non-cash financing activities
Unpaid offering costs$ $171 
 
See accompanying notes to unaudited condensed consolidated financial statements
10


Akebia Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements
(Unaudited)

1.Nature of Organization and Operations

Akebia Therapeutics, Inc., referred to as Akebia or the Company, was incorporated in the State of Delaware in 2007. Akebia is a biopharmaceutical company with the purpose of bettering the lives of people impacted by kidney disease. The Company has one commercial product, Auryxia® (ferric citrate), which is approved by the U.S. Food and Drug Administration, or FDA, and marketed for two indications in the United States: the control of serum phosphorus levels in adult patients with chronic kidney disease, or CKD, on dialysis, or DD-CKD, and the treatment of iron deficiency anemia, or IDA, in adult patients with CKD not on dialysis, or NDD-CKD. Ferric citrate is also approved and marketed in Japan as an oral treatment for IDA in adult patients for the improvement of hyperphosphatemia in such patients with DD-CKD and NDD-CKD under the trade name Riona (ferric citrate hydrate).

Vadadustat, the Company’s lead investigational product candidate, is an investigational oral hypoxia-inducible factor prolyl hydroxylase, or HIF-PH, inhibitor designed to mimic the physiologic effect of altitude on oxygen availability. On March 29, 2022, the Company received a complete response letter, or CRL, from the FDA. The CRL provided that the FDA had completed its review of the Company's new drug application, or NDA, for vadadustat for the treatment of anemia due to CKD in adult patients and had determined that it could not approve the NDA in its present form. The Company is discussing the details of the CRL with the Company's collaboration partners. The Company’s collaboration partner, Otsuka Pharmaceutical Co. Ltd., or Otsuka, submitted a Marketing Authorization Application, or MAA, for vadadustat for the treatment of anemia due to CKD in adult patients with DD-CKD and NDD-CKD to the European Medicines Agency, or EMA, in October 2021. Vadadustat is approved in Japan as a treatment for anemia due to CKD in both DD-CKD and NDD-CKD patients under the trade name VafseoTM , and marketed and sold in Japan by Mitsubishi Tanabe Pharma Corporation, or MTPC.

In addition, the Company continues to explore additional development opportunities to expand its pipeline and portfolio of novel therapeutics.

Since inception, the Company has devoted most of its resources to research and development, including its preclinical and clinical development activities, commercializing Auryxia, and providing general and administrative support for these operations. The Company began recording revenue from the U.S. sales of Auryxia and revenue from sublicensing rights to Auryxia in Japan from the Company’s Japanese partners, Japan Tobacco, Inc. and its subsidiary Torii Pharmaceutical Co., Ltd., collectively JT and Torii, in December 2018. Additionally, following regulatory approval of vadadustat in Japan, the Company began recognizing royalty revenues from MTPC from the sale of Vafseo in August 2020. In February 2021, the Company entered into a royalty interest acquisition agreement with HealthCare Royalty Partners IV, L.P., or HCR, or the Royalty Agreement, whereby the Company sold its right to receive royalties and sales milestones under its Collaboration Agreement with MTPC, or the MTPC Agreement, subject to certain caps and other terms and conditions (see Note 5 for additional information). The Company has not generated a profit to date and may never generate profits from product sales. Vadadustat and the Company’s other potential product candidates are subject to long development cycles, and the Company may be unsuccessful in its efforts to develop, obtain marketing approval for or market vadadustat and its other potential product candidates. If the Company does not successfully commercialize Auryxia, vadadustat, if approved, or any other potential product candidate, it may be unable to achieve profitability.

Going Concern
 
The Company’s management completed its going concern assessment in accordance with Accounting Standards Codification, or ASC, 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, or ASC 205-40. Pursuant to the requirements of ASC 205-40, the Company’s management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued.

When substantial doubt exists under this methodology, the Company’s management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of the Company’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.

11


As of March 31, 2022, the Company had cash and cash equivalents of approximately $174.6 million. The Company believes that its cash resources will be sufficient to allow the Company to fund its current operating plan through at least the next twelve months from the filing of this Quarterly Report on Form 10-Q. However, the Company's operating plan includes assumptions pertaining to cost avoidance measures and the reduction of overhead costs that would result from the planned amendment of certain contractual arrangements, including with certain supply and collaboration partners, and the reduction of certain infrastructure costs. Therefore, because these cost avoidance initiatives and certain other elements of the Company's operating plan are outside of its control, including the amendment of certain contractual arrangements, including with supply and collaboration partners, and the reduction of certain infrastructure costs, there is uncertainty as to whether the Company's cash resources will be adequate to support its operations for a period through at least the next twelve months from the date of issuance of these financial statements.

In addition, on February 18, 2022, the Company and BioPharma Credit PLC, or the Collateral Agent, BPCR Limited Partnership, as a Lender, and BioPharma Credit Investments V (Master) LP, as a Lender, entered into the First Amendment and Waiver, or the First Amendment and Waiver, which amends and waives certain provisions of the Loan Agreement, dated November 11, 2019 (see Note 10). Pursuant to the Loan Agreement, as amended, the Company’s Quarterly Reports on Form 10-Q for the fiscal quarters ending June 30, 2022 and September 30, 2022, and its future Annual Reports on Form 10-K, must not be subject to any qualification as to going concern. If the Company does not satisfy the covenant as to going concern in any of these filings, the Company will be in default under the Loan Agreement. If an event of default occurs and is continuing under the Loan Agreement, the Collateral Agent is entitled to take enforcement action, including acceleration of amounts due under the Loan Agreement, which the Company may not have the available cash resources to repay at such time. There is also uncertainty as to whether or not the Company will meet its quarterly and annual debt covenants under the Loan Agreement.

These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year after the date the financial statements are issued. Management’s plans to alleviate the conditions that raise substantial doubt through cost avoidance measures, including amending certain contractual arrangements, and deprioritizing and cancelling certain infrastructure activities for the Company to continue as a going concern for a period of twelve months from the date the financial statements are issued. However, the Company has concluded that the likelihood that its plan to extend its cash runway from one or more of these approaches will be successful, while reasonably possible, is less than probable. Accordingly, the Company has concluded that substantial doubt exists about our ability to continue as a going concern for a period of at least twelve months from the date of issuance of these financial statements. If conditions that raise substantial doubt regarding the Company's ability to continue as a going concern still exist as of the filing of the Company's Quarterly Report on Form 10-Q for the quarter ending June 30, 2022, the Company will be in default under its Loan Agreement, as amended.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities, other than obligations under the Loan Agreement classified as current, that might result from the outcome of the uncertainties described above.

2.Summary of Significant Accounting Policies

Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S., or GAAP, for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the ASC and Accounting Standards Update, or ASU, of the Financial Accounting Standards Board, or FASB.

In the opinion of management, all adjustments, consisting of normal recurring accruals and revisions of estimates, considered necessary for a fair presentation of the unaudited condensed consolidated financial statements have been included. Interim results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022 or any other future period.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Management has determined that the Company operates in one segment, which is the business of developing and commercializing novel therapeutics for people with kidney disease. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission on March 1, 2022, or the 2021 Annual Report on Form 10-K.

12


The significant accounting policies used in preparation of these unaudited condensed consolidated financial statements for the three months ended March 31, 2022 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s 2021 Annual Report on Form 10-K and are updated below as necessary.
New Accounting Pronouncements – Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating its contracts and the optional expedients provided by the new standard.

Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Estimates are used in the following areas, among others: prepaid and accrued research and development expense, operating lease assets and liabilities, derivative liabilities, refund liabilities to customers, other non-current liabilities, including the excess purchase commitment liability, stock-based compensation expense, product and collaboration revenues including various rebates and reserves related to product sales, non-cash interest expense on the liability related to sale of future royalties, inventories, income taxes, intangible assets and goodwill.

Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances.

3.Product Revenue and Reserves for Variable Consideration
To date, the Company’s only source of product revenue has been from the U.S. sales of Auryxia. Total net product revenue was $41.4 million and $30.4 million for the three months ended March 31, 2022 and 2021, respectively. The following table summarizes activity in each of the product revenue allowance and reserve categories for the three months ended March 31, 2022 and 2021 (in thousands):
 
13


 Chargebacks
and Discounts
Rebates, Fees
and other
Deductions
ReturnsTotal
Balance at December 31, 2021$1,278 $26,625 $475 $28,378 
Current provisions related to sales in current year2,711 21,324 1,359 25,394 
Adjustments related to prior year sales(132)779  647 
Credits/payments made(2,465)(22,491)(1,293)(26,249)
Balance at March 31, 2022$1,392 $26,237 $541 $28,170 
Balance at December 31, 2020$802 $39,912 $649 $41,363 
Current provisions related to sales in current year3,170 33,643 2,152 38,965 
Adjustments related to prior year sales3 (1,241) (1,238)
Credits/payments made(2,646)(29,098)(1,917)(33,661)
Balance at March 31, 2021$1,329 $43,216 $884 $45,429 
 
Chargebacks, discounts and returns are recorded as a direct reduction of revenue on the unaudited condensed consolidated statement of operations with a corresponding reduction to accounts receivable on the unaudited condensed consolidated balance sheets. Rebates, distribution-related fees, and other sales-related deductions are recorded as a reduction in revenue on the unaudited condensed consolidated statement of operations with a corresponding increase to accrued liabilities or accounts payable on the unaudited condensed consolidated balance sheets.

Accounts receivable, net related to product sales was approximately $27.7 million and $24.6 million as of March 31, 2022 and December 31, 2021, respectively.

4.License, Collaboration and Other Significant Agreements
During the three months ended March 31, 2022 and 2021, the Company recognized the following revenues from its license, collaboration and other significant agreements and had the following deferred revenue balances as of March 31, 2022:
 
 Three Months Ended March 31,
 20222021
License, Collaboration and Other Revenue:(in thousands)
MTPC Agreement$7,962 $18 
Otsuka U.S. Agreement5,638 13,674 
Otsuka International Agreement5,503 6,972 
Total Proportional Performance Revenue$19,103 $20,664 
JT and Torii1,148 1,159 
MTPC Other Revenue 73 
Total License, Collaboration and Other Revenue$20,251 $21,896 
 
 Three Months Ended
March 31, 2022
 Short-TermLong-TermTotal
Deferred Revenue:(in thousands)
MTPC Agreement$ $ $ 
Otsuka U.S. Agreement6,192 16,087 22,279 
Otsuka International Agreement4,248 5,973 10,221 
Vifor Pharma Agreement 43,296 43,296 
Total$10,440 $65,356 $75,796 

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The following table presents changes in the Company’s contract assets and liabilities during the three months ended March 31, 2022 and 2021 (in thousands):
Three Months Ended March 31, 2022Balance at
Beginning of
Period
AdditionsDeductionsBalance at End
of Period
Contract assets:    
Accounts receivable(1)$19,094 $19,542 $(14,320)$24,316 
Prepaid expenses and other current assets$4,309 $ $(339)$3,970 
Contract liabilities:
Deferred revenue$42,380 $60,514 $(27,098)$75,796 
Accounts payable$3,171 $ $(2,852)$319 
Accrued expenses and other current liabilities$ $ $ $ 
Three Months Ended March 31, 2021
Contract assets:
Accounts receivable(1)$3,045 $6,740 $(6,246)$3,539 
Prepaid expenses and other current assets$1,722 $194 $ $1,916 
Contract liabilities:
Deferred revenue$40,559 $22,895 $(25,902)$37,552 
Accounts payable$7,227 $ $(7,227)$ 
Accrued expenses and other current liabilities$10,000 $ $ $10,000 
 
(1)Excludes accounts receivable from other services related to clinical and regulatory activities performed by the Company on behalf of MTPC that are not included in the performance obligations identified under the MTPC Agreement as of March 31, 2022 and 2021 and December 31, 2021 and 2020. Also excludes accounts receivable related to amounts due to the Company from product sales which are included in the accompanying unaudited condensed consolidated balance sheet as of March 31, 2022 and December 31, 2021.

During the three months ended March 31, 2022 and 2021, the Company recognized the following revenues as a result of changes in the contract asset and contract liability balances in the respective periods (in thousands):
 
 Three Months Ended March 31,
Revenue Recognized in the Period from:20222021
Amounts included in deferred revenue at the beginning of the period$6,602 $5,382 
Performance obligations satisfied in previous periods$ $ 
 
Mitsubishi Tanabe Pharma Corporation Collaboration Agreement
Summary of Agreement
On December 11, 2015, the Company and MTPC entered into the MTPC Agreement, providing MTPC with exclusive development and commercialization rights to vadadustat in Japan and certain other Asian countries, collectively, the MTPC Territory. In addition, the Company will supply vadadustat for both clinical and commercial use in the MTPC Territory, subject to MTPC’s option to manufacture commercial drug product in the MTPC Territory. In February 2021, the Company entered into the Royalty Agreement with HCR, whereby the Company sold its right to receive royalties and sales milestones under the MTPC Agreement, subject to certain caps and other terms and conditions (see Note 5 for additional information). A more detailed description of the MTPC Agreement and the Company's evaluation of this agreement under ASC 606 can be found in Note 4 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report on Form 10-K.
The Company identified two performance obligations in connection with its material promises under the MTPC Agreement as follows: (i) License, Research and Clinical Supply Performance Obligation and (ii) Rights to Future Know-How Performance Obligation. The Company allocates the transaction price to each performance obligation based on the Company’s best estimate of the relative standalone selling price. The Company developed a best estimate of the standalone selling price for the Rights to
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Future Know-How Performance Obligation primarily based on the likelihood that additional intellectual property covered by the license conveyed will be developed during the term of the arrangement and determined it is immaterial. As such, the Company did not develop a best estimate of standalone selling price for the License, Research and Clinical Supply Performance Obligation and allocated the entire transaction price to this performance obligation. The deliverables associated with the License, Research and Clinical Supply Performance Obligation were satisfied as of June 30, 2018.
As of March 31, 2022, the transaction price was comprised of: (i) the up-front payment of $20.0 million, (ii) the cost for the Phase 2 studies of $20.5 million, (iii) the cost of all clinical supply provided to MTPC for the Phase 3 studies, (iv) $10.0 million in development milestones received, (v) $25.0 million in regulatory milestones received, comprised of $10.0 million relating to the NDA filing in Japan and $15.0 million relating to regulatory approval of vadadustat in Japan, and (vi) $1.6 million in royalties from net sales of Vafseo. As of March 31, 2022, all development milestones and $25.0 million in regulatory milestones have been achieved. No other regulatory milestones have been assessed as probable of being achieved and as a result have been fully constrained. The Company re-evaluates the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur. Revenue for the License, Research and Clinical Supply Performance Obligation for the MTPC Agreement is being recognized using a proportional performance method, for which all deliverables have been completed. The Company recognized $0.3 million of revenue and immaterial revenue from MTPC royalties for the three months ended March 31, 2022 and 2021, respectively. As noted above, in February 2021, the Company entered into the Royalty Agreement, whereby the Company sold its right to receive these royalties and sales milestones under the MTPC Agreement, subject to certain caps and other terms and conditions (see Note 5 for additional information). The revenue is classified as license, collaboration and other revenue in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss. As of March 31, 2022, the Company recorded $0.2 million in accounts receivable, no deferred revenue, and no contract assets. There were no asset or liability balances classified as long-term in the unaudited condensed consolidated balance sheet as of March 31, 2022.
Supply of Drug Product to MTPC
In March 2020, in connection with the MTPC Agreement, the Company and MTPC entered into a letter agreement, pursuant to which the Company agreed to supply MTPC with certain vadadustat process validation drug product for commercial use and MTPC agreed to reimburse the Company for certain manufacturing-related expenses. In connection with this arrangement, the Company invoiced the upfront payment of $10.4 million, which it received during the three months ended June 30, 2020. The Company does not recognize revenue under this arrangement until delivery has occurred and risk of loss passes to MTPC. No revenues were recognized during each of the three months ended March 31, 2022 and 2021 for drug product that was delivered during the applicable period. As of March 31, 2022, the Company recorded no accounts receivable, no deferred revenue, $1.9 million in other current liabilities and no other non-current liabilities for drug product that was subject to return by MTPC.
On July 15, 2020, the Company and its collaboration partner MTPC entered into a supply agreement, or the MTPC Supply Agreement. The MTPC Supply Agreement includes the terms and conditions under which the Company will supply vadadustat drug product to MTPC for commercial use in Japan and certain other Asian countries, as contemplated by the MTPC Agreement. A more detailed description of this supply agreement can be found in Note 4 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report on Form 10-K.

The Company recognized $7.6 million and no revenue under the MTPC Supply Agreement during the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the Company recorded $12.9 million in accounts receivable, no deferred revenue, $18.3 million in other current liabilities and $5.0 million in other non-current liabilities.
U.S. Collaboration and License Agreement with Otsuka Pharmaceutical Co. Ltd.
On December 18, 2016, the Company entered into a collaboration and license agreement with Otsuka, or the Otsuka U.S. Agreement. The collaboration is focused on the development and commercialization of vadadustat in the United States. The Company is responsible for leading the development of vadadustat, for which it submitted an NDA to the FDA in March of 2021, and for which it received a CRL in March 2022. The Company will co-commercialize vadadustat in the United States with Otsuka, subject to the approval of vadadustat by the FDA. The Company controls and retains final decision-making authority with respect to certain matters, including U.S. pricing strategy and manufacturing.
Under the terms of the Otsuka U.S. Agreement, the Company granted to Otsuka a co-exclusive, non-sublicensable license under certain intellectual property controlled by the Company solely to perform medical affairs activities and to conduct non-promotional and commercialization activities related to vadadustat in the United States in accordance with the associated plans. The co-exclusive license relates to activities that will be jointly conducted by the Company and Otsuka pursuant to the terms of the Otsuka U.S. Agreement. Additionally, the parties agreed not to promote, market or sell any competing product in the
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territory covered by the Otsuka U.S. Agreement. A more detailed description of this collaboration agreement and the Company's evaluation of this agreement under ASC 606 can be found in Note 4 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report on Form 10-K.

The Company has identified three performance obligations in connection with its obligations under the Otsuka U.S. Agreement as follows: (i) License and Development Services Combined (License Performance Obligation); (ii) Rights to Future Intellectual Property (Future IP Performance Obligation) and (iii) Joint Committee Services (Committee Performance Obligation). The Company allocates the transaction price to each performance obligation based on the Company’s best estimate of the relative standalone selling price. The Company developed a best estimate of standalone selling price for the Committee Performance Obligation after considering the nature of the services to be performed and estimates of the associated effort and rates applicable to such services that would be expected to be realized under similar contracts. The Company developed a best estimate of standalone selling price for the Future IP Performance Obligation primarily based on the likelihood that additional intellectual property covered by the license conveyed will be developed during the term of the arrangement. The Company did not develop a best estimate of standalone selling price for the License Performance Obligation due to the following: (i) the best estimates of standalone selling price associated with the Future IP Performance Obligation was determined to be immaterial and (ii) the period of performance and pattern of recognition for the License Performance Obligation and the Committee Performance Obligation was determined to be similar.
The Company re-evaluates the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur. The Company determined that under ASC 606, the contract was modified in the second quarter of 2019, when the Company elected to require Otsuka to increase the aggregate percentage of current global development costs it funds under the Otsuka U.S. Agreement and the Otsuka International Agreement, as defined below, from 52.5% to 80%, or the Otsuka Funding Option, and the Company became eligible to receive the Additional Funding (defined below) amount. In connection with the modification, the Company adjusted the transaction price to include the Additional Funding amount as additional variable consideration. The Company constrains the variable consideration to an amount for which a significant revenue reversal is not probable. The Company estimates the additional funding as a result of exercising the Otsuka Funding Option, or the Additional Funding, will total approximately $149.6 million or more, depending on the actual costs incurred toward the current global development plan. The Additional Funding is fully creditable against future payments due to the Company under the arrangement, provided that future payments due to the Company may not be reduced by more than 50% in any calendar year and any remaining creditable amount above 50% in any calendar year will be applied to subsequent future payments until fully credited. As of March 31, 2022, the Additional Funding was $117.4 million.
As of March 31, 2022, the transaction price totaling $514.4 million was comprised of: (i) the up-front payment of $125.0 million, (ii) the cost share payment with respect to amounts incurred by the Company through December 31, 2016 of $33.8 million, and (iii) the estimate of the net cost share consideration to be received of approximately $355.6 million with respect to amounts incurred by the Company subsequent to December 31, 2016.
As of March 31, 2022, the Company is eligible to receive up to $65.0 million in regulatory milestone payments for the first HIF product to achieve the associated event and up to $575 million in commercial milestone payments associated with aggregate sales of licensed products. These future milestones are subject to reduction as a result of the Company's exercise of the Otsuka Funding Option, as described above. As of March 31, 2022, no development or regulatory milestones have been assessed as probable of being reached and thus have been fully constrained.
During the three months ended March 31, 2022 and 2021, the Company recognized revenue totaling approximately $5.6 million and $13.7 million, respectively, with respect to the Otsuka U.S. Agreement. The revenue is classified as collaboration revenue in the accompanying unaudited condensed consolidated statements of operations. As of March 31, 2022, there was approximately $22.3 million of deferred revenue related to the Otsuka U.S. Agreement of which $6.2 million is classified as current and $16.1 million is classified as long-term in the accompanying unaudited condensed consolidated balance sheet based on the performance period of the underlying obligations. Additionally, as of March 31, 2022, there was $9.0 million in accounts receivable and $2.7 million in prepaid expenses and other current assets in the accompanying unaudited condensed consolidated balance sheet. As of December 31, 2021, there was approximately $2.0 million in contract liabilities (included in accounts payable) and $3.0 million in prepaid expenses and other current assets in the consolidated balance sheet.
The Company determined that the medical affairs, commercialization and non-promotional activities elements of the Otsuka U.S. Agreement represent joint operating activities in which both parties are active participants and of which both parties are exposed to significant risks and rewards that are dependent on the success of the activities. Accordingly, the Company is accounting for the joint medical affairs, commercialization and non-promotional activities in accordance with ASC No. 808, Collaborative Arrangements. As a result, the activities conducted pursuant to the medical affairs, commercialization and non-promotional activities plans will be accounted for as a component of the related expense in the period incurred. During the three months ended March 31, 2022 and 2021, the Company incurred approximately $7.6 million and $1.0 million, respectively, of
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costs related to the cost-sharing provisions of the Otsuka U.S. Agreement, of which approximately $3.8 million and $0.5 million are reimbursable by Otsuka and recorded as a reduction to research and development expense during the three months ended March 31, 2022 and 2021, respectively. During the three months ended March 31, 2022, Otsuka incurred no costs related to the cost-sharing provisions of the Otsuka U.S. Agreement. During the three months ended March 31, 2021, Otsuka incurred $0.3 million of costs related to the cost-sharing provisions of the Otsuka U.S. Agreement, of which approximately $0.2 million were reimbursable by the Company and recorded as an increase to research and development expense during the three months ended March 31, 2021.
International Collaboration and License Agreement with Otsuka Pharmaceutical Co. Ltd.
On April 25, 2017, the Company entered into a collaboration and license agreement with Otsuka, or the Otsuka International Agreement. The collaboration is focused on the development and commercialization of vadadustat in Europe, Russia, China, Canada, Australia, the Middle East and certain other territories, collectively, the Otsuka International Territory.
Under the terms of the Otsuka International Agreement, the Company granted to Otsuka an exclusive, sublicensable license under certain intellectual property controlled by the Company to develop and commercialize vadadustat and products containing or comprising vadadustat in the Otsuka International Territory. Additionally, under the terms of this agreement, the Company is responsible for leading the development of vadadustat. Otsuka has the sole responsibility, at its own cost, for the commercialization of vadadustat in the Otsuka International Territory, subject to the approval by the relevant regulatory authorities. A more detailed description of this collaboration agreement and the Company's evaluation of this agreement under ASC 606 can be found in Note 4 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report on Form 10-K.
The Company has accounted for the Otsuka International Agreement separately from the collaboration arrangement with Otsuka with respect to the U.S. due to the lack of interrelationship and interdependence of the elements and payment terms within each of the contracts as they relate to the respective territories. Accordingly, the Company has applied the guidance in ASC 606 solely in reference to the terms and conditions of the Otsuka International Agreement, while the Otsuka U.S. Agreement has continued to be accounted for as a discrete agreement in its own right. The Company evaluated the Otsuka International Agreement in accordance with the provisions of ASC 606 and concluded that the contract counterparty, Otsuka, is a customer.
The Company has identified three performance obligations in connection with its obligations under the Otsuka International Agreement as follows: (i) License and Development Services Combined (License Performance Obligation); (ii) Rights to Future Intellectual Property (Future IP Performance Obligation) and (iii) Joint Committee Services (Committee Performance Obligation). The Company allocates the transaction price to each performance obligation based on the Company’s best estimate of the relative standalone selling price. The Company developed a best estimate of standalone selling price for the Committee Performance Obligation after considering the nature of the services to be performed and estimates of the associated effort and rates applicable to such services that would be expected to be realized under similar contracts. The Company developed a best estimate of standalone selling price for the Future IP Performance Obligation primarily based on the likelihood that additional intellectual property covered by the license conveyed will be developed during the term of the arrangement. The Company did not develop a best estimate of standalone selling price for the License Performance Obligation due to the following: (i) the best estimates of standalone selling price associated with the Future IP Performance Obligation was determined to be immaterial and (ii) the period of performance and pattern of recognition for the License Performance Obligation and the Committee Performance Obligation was determined to be similar.
The Company re-evaluates the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur. As of March 31, 2022, the transaction price totaling $316.9 million was comprised of: (i) the up-front payment of $73.0 million, (ii) the cost share payment with respect to amounts incurred by the Company during the quarter ended March 31, 2017 of $0.2 million, and (iii) an estimate of the net cost share consideration to be received with respect to amounts incurred by the Company subsequent to March 31, 2017 of $243.7 million.
As of March 31, 2022, the Company is eligible to receive up to $17.0 million in regulatory milestone payments for the licensed HIF product if the Company achieves the associated event within 12 to 24 months of the first HIF product approval. Additionally, the Company is eligible for up to $525.0 million in commercial milestone payments associated with the aggregate sales of all licensed products. As of March 31, 2022, no development or regulatory milestones have been assessed as probable of being reached and thus have been fully constrained.
During the three months ended March 31, 2022 and 2021, the Company recognized revenue totaling approximately $5.5 million and $7.0 million, respectively, with respect to the Otsuka International Agreement. The revenue is classified as collaboration revenue in the accompanying unaudited condensed consolidated statements of operations. As of March 31, 2022, there was
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approximately $10.2 million of deferred revenue related to the Otsuka International Agreement of which $4.2 million is classified as current and $6.0 million is classified as long-term in the accompanying unaudited condensed consolidated balance sheet based on the performance period of the underlying obligations. Additionally, as of March 31, 2022, there was $11.3 million in accounts receivable and $1.2 million in prepaid expenses and other current assets in the accompanying unaudited condensed consolidated balance sheet. As of December 31, 2021, there was approximately $0.9 million in contract liabilities (included in accounts payable) and $1.3 million in prepaid expenses and other current assets in the consolidated balance sheet.
Janssen Pharmaceutica NV Research and License Agreement
On February 9, 2017, the Company entered into a Research and License Agreement, or the Janssen Agreement, with Janssen Pharmaceutica NV, or Janssen, a subsidiary of Johnson & Johnson, pursuant to which Janssen granted the Company an exclusive license under certain intellectual property rights to develop and commercialize worldwide certain HIF prolyl hydroxylase targeted compounds. Under the terms of the Janssen Agreement, Janssen granted to the Company a license for a three-year research term to conduct research on the HIF compound portfolio, which research term is now expired. A more detailed description of this collaboration agreement can be found in Note 4 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report on Form 10-K.
Under the terms of the Janssen Agreement, the Company made an upfront payment of $1.0 million in cash to Janssen and issued a warrant, or the Warrant, to purchase 509,611 shares of the Company’s common stock, which expired on February 9, 2022. In addition, Janssen could be eligible to receive up to an aggregate of $16.5 million from the Company in specified development milestone payments on a product-by-product basis. Janssen could also be eligible to receive up to $215.0 million from the Company in specified commercial milestones as well as tiered, escalating royalties ranging from a low- to mid-single digit percentage of net sales, on a product-by-product basis, and subject to reduction upon expiration of patent rights or the launch of a generic product in the territory. A more detailed description of this collaboration agreement can be found in Note 4 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report on Form 10-K.
Cyclerion Therapeutics License Agreement

On June 4, 2021, the Company entered into a License Agreement, the Cyclerion Agreement, with Cyclerion Therapeutics Inc., or Cyclerion, pursuant to which Cyclerion granted the Company an exclusive global license under certain intellectual property rights to research, develop and commercialize praliciguat, an investigational oral soluble guanylate stimulator.

Under the terms of the Cyclerion Agreement, the Company made an upfront payment of $3.0 million in cash to Cyclerion, which was paid during the second quarter of 2021 and recorded to research and development expense in June 2021. Substantially all of the fair value of the assets acquired in conjunction with the Cyclerion Agreement was concentrated in the acquired license. As a result, the Company accounted for this transaction as an asset acquisition under ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The upfront payment was charged to expense at acquisition, as it relates to a development stage compound with no alternative future use. In addition, Cyclerion is eligible to receive up to an aggregate of $222.0 million from the Company in specified development and regulatory milestone payments on a product-by-product basis. Cyclerion will also be eligible to receive specified commercial milestones as well as tiered royalties ranging from a low-single-digit- to mid-double-digit percentage of net sales, on a product-by-product basis, and subject to reduction upon expiration of patent rights or the launch of a generic product in the territory. A more detailed description of this agreement can be found in Note 4 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report on Form 10-K.
Vifor Pharma License Agreement

Summary of Agreement

On May 12, 2017, the Company entered into a License Agreement, or the Vifor Agreement, with Vifor (International) Ltd., or Vifor Pharma, pursuant to which the Company granted Vifor Pharma an exclusive license to sell vadadustat solely to Fresenius Kidney Care Group LLC, or FKC, an affiliate of Fresenius Medical Care North America, or FMCNA, in the United States. On April 8, 2019, the Company and Vifor Pharma entered into an Amended and Restated License Agreement, or the Vifor First Amended Agreement, which amended and restated in full the Vifor Agreement. On February 18, 2022, the Company and Vifor Pharma entered into a Second Amended and Restated License Agreement, or the Vifor Second Amended Agreement, which amends and restates the Vifor First Amended Agreement.

Pursuant to the Vifor Second Amended Agreement, the Company granted Vifor Pharma an exclusive license to sell vadadustat to Fresenius Medical Care North America and its affiliates, including Fresenius Kidney Care Group LLC, to certain third party dialysis organizations approved by the Company, to independent dialysis organizations that are members of certain group
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purchasing organizations, and to certain non-retail specialty pharmacies, or collectively, the Supply Group, in the United States, or the Territory. Pursuant to the Vifor Second Amended Agreement, Vifor Pharma agreed that it would not sell or otherwise supply vadadustat until the FDA has granted regulatory approval for vadadustat in the DD-CKD Indication in the Territory and until Vifor Pharma has entered a supply agreement with the applicable member of the Supply Group.

Similar to the Vifor First Amended Agreement, the Vifor Second Amended Agreement is structured as a profit share arrangement between the Company and Vifor Pharma in which the Company will receive approximately 66% of the profit, net of certain pre-specified costs. Under the Vifor Second Amended Agreement, Vifor Pharma made an upfront payment to the Company of $25.0 million in lieu of the previously disclosed milestone payment of $25.0 million that Vifor Pharma was to pay the Company following approval of vadadustat by the FDA, as established under the Vifor First Amended Agreement.

Unless earlier terminated, the Vifor Second Amended Agreement will expire upon the later of the expiration of all patents that claim or cover vadadustat or expiration of marketing or regulatory exclusivity for vadadustat in the Territory. Vifor Pharma may terminate the Vifor Second Amended Agreement in its entirety upon 30 months' prior written notice after the first anniversary of the receipt of regulatory approval, if approved from the FDA for vadadustat for dialysis-dependent CKD patients. The Company may terminate the Vifor Second Amended Agreement in its entirety for convenience, following the earlier of a certain period of time elapsing or following certain specified regulatory events, and upon six months’ prior written notice. If the Company so terminates for convenience, subject to specified exceptions, the Company will pay a termination fee to Vifor Pharma. In addition, either party may, subject to a cure period, terminate the Vifor Second Amended Agreement in the event of the other party’s uncured material breach or bankruptcy. Vifor Pharma may also terminate the Vifor Second Amended Agreement upon thirty days' notice following receipt of the CRL from the FDA for vadadustat.
Investment Agreement
In connection with the Vifor Agreement, in May 2017, the Company and Vifor Pharma entered into an investment agreement, or the First Investment Agreement, pursuant to which the Company sold an aggregate of 3,571,429 shares of the Company’s common stock, or the 2017 Shares, to Vifor Pharma at a price per share of $14.00 for a total of $50.0 million. The amount representing the premium over the closing stock price of $12.69 on the date of the transaction, totaling $4.7 million, was determined by the Company to represent consideration related to the Vifor Agreement. 

Vifor Pharma agreed to a lock-up restriction such that it agreed not to sell the 2017 Shares for a period of time following the effective date of the First Investment Agreement as well as a customary standstill agreement. In addition, the First Investment Agreement contains voting agreements made by Vifor Pharma with respect to the 2017 Shares. The 2017 Shares have not been registered pursuant to the Securities Act of 1933, as amended, or the Securities Act, and were issued and sold in reliance upon the exemption from registration contained in Section 4(a)(2) of the Securities Act and Rule 506 promulgated thereunder.

In connection with entering into the Vifor Second Amended Agreement, on February 18, 2022, the Company and Vifor Pharma entered into an investment agreement, or the Second Investment Agreement, pursuant to which the Company sold an aggregate of 4,000,000 shares of its common stock, par value $0.00001 per share, or the 2022 Shares, to Vifor Pharma for a total of $20 million on February 22, 2022. The amount representing the premium over the grant date fair value on the date of the transaction, $13.6 million, was determined by the Company to represent the consideration related to the Vifor Second Amended Agreement. Vifor Pharma has agreed to a lock-up restriction to not sell or otherwise dispose of the 2022 Shares for a period of time following the effective date of the Second Investment Agreement as well as a customary standstill agreement. In addition, the Second Investment Agreement contains voting agreements made by Vifor Pharma with respect to the 2022 Shares. The 2022 Shares have not been registered pursuant to the Securities Act and were issued and sold in reliance upon the exemption from registration contained in Section 4(a)(2) of the Securities Act and/or Rule 506 promulgated thereunder, as the transaction does not involve any public offering within the meaning of Section 4(a)(2) of the Securities Act.

Revenue Recognition

The Company evaluated the elements of the Vifor Second Amended Agreement in accordance with the provisions of ASC 606 and concluded that the contract counterparty, Vifor Pharma, is a customer. The Company’s arrangement with Vifor Pharma contains one material promise under the contract at inception, which is the non-sublicensable, non-transferrable license under certain of the Company’s intellectual property to (i) sell vadadustat solely to the Supply Group, (ii) sell vadadustat to Designated Wholesalers solely for resale to members of the Supply Group, (iii) conduct medical affairs with respect to vadadustat in the Territory in the field during the term of the Vifor Second Amended Agreement and (iv) use the Akebia Trademark solely in connection with the sale of vadadustat (the License Deliverable).

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The Company has identified one performance obligation in connection with its obligations under the Vifor Second Amended Agreement, which is the License Deliverable, or License Performance Obligation. The transaction price at inception was comprised of: (i) the up-front payment of $25.0 million, (ii) the premium on paid by Vifor Pharma on the First Investment Agreement of $4.7 million, and (iii) the premium paid by Vifor Pharma on the Second Investment Agreement of $13.6 million. Pursuant to the terms of the Vifor Second Amended Agreement, these payments from Vifor Pharma are non-refundable and non-creditable against any other amount due to the Company. Also pursuant to the Vifor Second Amended Agreement, if the Centers for Medicare & Medicaid Services, or CMS, determines that vadadustat is excluded from the Transitional Drug Add-on Payment Adjustment, or TDAPA, the Company can terminate the Vifor Second Amended Agreement and will be required to repay the up-front payment and the premiums paid by Vifor Pharma in the First Investment Agreement and Second Investment Agreement, respectively. The Company considered whether the transaction price was constrained as required per the guidance in ASC 606-10-32-11. As part of its evaluation of the constraint, the Company considered numerous factors, including the CRL received from the FDA for vadadustat, the uncertainty associated with a potential future approval of vadadustat by the FDA, and if approval of vadadustat is received in the future, whether vadadustat would be included in certain reimbursement bundles by CMS, which are all outside of the Company’s control. Vifor Pharma also agreed that it will not sell or otherwise supply vadadustat until the FDA has granted regulatory approval for vadadustat in the DD-CKD Indication. The Company constrains the variable consideration to an amount for which a significant revenue reversal is not probable. Therefore, the Company determined that the entire transaction price at inception was constrained under ASC 606, and the Company has recorded the transaction price to deferred revenue as of March 31, 2022.

Refund Liability to Customer

Pursuant to the Vifor Second Amended Agreement, Vifor Pharma contributed $40.0 million to a working capital fund established to partially fund the Company’s costs of purchasing vadadustat from its contract manufacturers, or the Working Capital Fund, which amount of funding will fluctuate, and which funding the Company will repay to Vifor over time. The $40 million initial contribution to the Working Capital Fund represents 50% of the amount of purchase orders that the Company has placed with its contract manufacturers for the supply of vadadustat for the Territory already delivered as of the effective date of the Vifor Second Amended Agreement, and to be delivered through the end of 2022. The amount of the Working Capital Fund will be reviewed at specified intervals and is adjusted based on a number of factors including outstanding supply commitments for vadadustat for the Territory and agreed upon vadadustat inventory levels held by the Company for the Territory. Upon termination or expiration of the Vifor Second Amended Agreement for any reason other than convenience by Vifor Pharma (including following receipt of a CRL for vadadustat), the Company will be required to refund the outstanding balance of the Working Capital Fund on the date of termination or expiration.

The Company has recorded the Working Capital Fund as a refund liability under ASC 606. The Company has determined that the refund liability itself does not represent an obligation to transfer goods or services to Vifor Pharma in the future. The Company has therefore determined that this refund liability is not a contract liability under ASC 606. The Company accounted for the refund liability as a debt arrangement with zero coupon interest. The Company imputed interest on the refund liability to the customer at a rate of 15.0% per annum, which was determined based on certain factors, including the Company's credit rating, comparable securities yield, and the expected repayment period of the Working Capital Fund. The Company recorded an initial discount on the refund liability to the customer and a corresponding deferred gain to the refund liability to customer on the condensed consolidated balance sheet as of the date the funds were received from Vifor Pharma, which was March 18, 2022. The discount on the note payable is being amortized to interest expense using the effective interest method over the expected term of the refund liability. The deferred gain is being amortized to interest income on a straight-line basis over the expected term of the refund liability. The amortization of the discount and the amortization of the deferred gain as of March 31, 2022 were not material. Of the $39.9 million total refund liability, net of deferred gain and discount, the Company classified $16.5 million as a short-term refund liability based on management's estimate of potential amounts that could be refundable within a one-year period as a result of anticipated changes to the Company's operating plan following the CRL.
Priority Review Voucher Letter Agreement
On February 14, 2020, the Company entered into a letter agreement, or the Letter Agreement, with Vifor Pharma relating to Vifor Pharma’s agreement with a third party to purchase a Priority Review Voucher, or the PRV, issued by the FDA, subject to satisfaction of customary closing conditions, or the PRV Purchase. A PRV entitles the holder to priority review of an NDA, or a Biologics License Application for a new drug, which reduces the target FDA review time to six months after official acceptance of the submission, and could lead to expedited approval. Pursuant to the Letter Agreement, Akebia paid Vifor Pharma $10.0 million in connection with the closing of the PRV Purchase.
On August 21, 2021, the Company and Vifor Pharma executed an amendment to the Letter Agreement whereby the parties agreed that Vifor Pharma would sell the PRV to a third party, and the Company and Vifor Pharma would share the proceeds from the sale based on certain terms. In the fourth quarter of 2021, Vifor Pharma sold the PRV to a third party, and Vifor
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Pharma paid the Company $8.6 million in proceeds from the sale, which was recorded as contra research and development expense. These proceeds were subsequently paid to Otsuka as reimbursement for their contribution to the purchase of the PRV, as required under a separate letter agreement executed with Otsuka. A more detailed description of this transaction can be found in Note 4 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report on Form 10-K.
License Agreement with Panion & BF Biotech, Inc.
As a result of the merger with Keryx Biopharmaceuticals, Inc., or Keryx, or the Merger, the Company had a license agreement, which was amended from time to time, with Panion & BF Biotech, Inc., or Panion, under which Keryx, the Company's wholly owned subsidiary, was the contracting party, or the Panion License Agreement, pursuant to which Keryx in-licensed the exclusive worldwide rights, excluding certain Asian-Pacific countries, or the Licensor Territory, for the development and commercialization of ferric citrate.
On April 17, 2019, the Company and Panion entered into a second amended and restated license agreement, or the Panion Amended License Agreement, which amends and restates in full the Panion License Agreement, effective as of April 17, 2019. The Panion Amended License Agreement provides Keryx with an exclusive license under Panion-owned know-how and patents with the right to sublicense, develop, make, use, sell, offer for sale, import and export ferric citrate worldwide, excluding the Licensor Territory. The Panion Amended License Agreement also provides Panion with an exclusive license under the Keryx-owned patents, with the right to sublicense (with the Company’s written consent), develop, make, use, sell, offer for sale, import and export ferric citrate in certain countries in the Licensor Territory. Under the Panion Amended License Agreement, Panion is eligible to receive from the Company or any sublicensee royalty payments based on a mid-single digit percentage of sales of ferric citrate in the Company’s licensed territories. The Company is eligible to receive from Panion or any sublicensee royalty payments based on a mid-single digit percentage of net sales of ferric citrate in Panion’s licensed territories. A more detailed description of this license agreement can be found in Note 4 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report on Form 10-K.
The Company recognized royalty payments due to Panion of approximately $2.5 million during each of the three months ended March 31, 2022 and 2021, relating to the Company’s sales of Auryxia in the United States and JT and Torii’s net sales of Riona in Japan, as the Company is required to pay a mid-single digit percentage of net sales of ferric citrate in the Company’s licensed territories to Panion under the terms of the Panion Amended License Agreement.
Sublicense Agreement with Japan Tobacco, Inc. and its subsidiary, Torii Pharmaceutical Co., Ltd.
As a result of the Merger, the Company has an Amended and Restated Sublicense Agreement, which was amended in June 2013, with JT and Torii, or the JT and Torii Sublicense Agreement, under which Keryx, the Company’s wholly owned subsidiary, remains the contracting party. Under the JT and Torii Sublicense Agreement, JT and Torii obtained the exclusive sublicense rights for the development and commercialization of ferric citrate hydrate in Japan. JT and Torii are responsible for the future development and commercialization costs in Japan. A more detailed description of this sublicense agreement can be found in Note 4 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report on Form 10-K.
The Company identified two performance obligations in connection with its obligations under the JT and Torii Sublicense Agreement: (i) License and Supply Performance Obligation and (ii) Rights to Future Know-How Performance Obligation. The Company allocated the transaction price to each performance obligation based on the Company’s best estimate of the relative standalone selling price. The Company developed a best estimate of the standalone selling price for the Rights to Future Know-How Performance Obligation primarily based on the likelihood that additional intellectual property covered by the license conveyed will be developed during the term of the arrangement and determined it immaterial. As such, the Company did not develop a best estimate of standalone selling price for the License and Supply Performance Obligation and allocated the entire transaction price to this performance obligation.
The Company recognized license revenue of $1.1 million and $1.2 million during the three months ended March 31, 2022 and 2021, respectively, related to royalties earned on net sales of Riona in Japan. The Company records the associated mid-single digit percentage of net sales royalty expense due to Panion, the licensor of Riona, in the same period as the royalty revenue from JT and Torii is recorded.

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5.Liability Related to Sale of Future Royalties
On February 25, 2021, the Company entered into the Royalty Agreement with HCR, pursuant to which the Company sold to HCR its right to receive royalties and sales milestones for vadadustat in Japan and certain other Asian countries, such countries, collectively, the MTPC Territory, and such payments collectively the Royalty Interest Payments, in each case, payable to the Company under the MTPC Agreement, subject to an annual maximum “cap” of $13.0 million, or the Annual Cap, and an aggregate maximum “cap” of $150.0 million, or the Aggregate Cap. The Company received $44.8 million from HCR (net of certain transaction expenses) under the Royalty Agreement. The Company retains the right to receive all potential future regulatory milestones for vadadustat under the MTPC Agreement. Although the Company sold its right to receive royalties and sales milestones for vadadustat in the MTPC Territory as described above, as a result of its ongoing involvement in the cash flows related to these royalties, the Company will continue to account for these royalties as revenue. The Company recognized the proceeds received from HCR as a liability that is being amortized using the effective interest method over the life of the arrangement. At the transaction date, the Company recorded the net proceeds of $44.8 million as a liability. In order to determine the amortization of the liability, the Company is required to estimate the total amount of future net royalty payments to be made to HCR over the term of the Royalty Agreement. The total threshold of net royalties to be paid, less the net proceeds received, will be recorded as interest expense over the life of the liability. The Company imputes interest on the unamortized portion of the liability using the effective interest method. The annual effective interest rate as of March 31, 2022 was 17.7% which is reflected as interest expense in the unaudited condensed consolidated statements of operations and comprehensive loss. On a quarterly basis, the Company reassesses the effective interest rate and adjusts the rate prospectively as needed. A more detailed description of Royalty Agreement can be found in Note 5 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report on Form 10-K.

The following table shows the activity within the liability account for the three months ended March 31, 2022:

March 31, 2022
(in thousands)
Liability related to sale of future royalties, net beginning balance at December 31, 2021$53,079 
MTPC royalties payable(329)
Non-cash interest expense recognized2,345
Liability related to sale of future royalties, net — ending balance$55,095 

6.Fair Value of Financial Instruments

The Company utilizes a portfolio management company for the valuation of the majority of its investments. This portfolio management company is an independent, third-party vendor recognized to be an industry leader with access to market information that obtains or computes fair market values from quoted market prices, pricing for similar securities, recently executed transactions, cash flow models with yield curves and other pricing models. For valuations obtained from the pricing service, the Company performs due diligence to understand how the valuation was calculated or derived, focusing on the valuation technique used and the nature of the inputs.

Based on the fair value hierarchy, the Company classifies its cash equivalents within Level 1 or Level 2. This is because the Company values its cash equivalents using quoted market prices or alternative pricing sources and models utilizing market observable inputs.

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Assets measured or disclosed at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 are summarized below:
 Fair Value Measurements Using
 Level 1Level 2Level 3Total
 (in thousands)
March 31, 2022    
Assets:    
Cash and cash equivalents$174,562 $ $ $174,562 
 $174,562 $ $ $174,562 
Liabilities:
Derivative liability$ $ $1,110 $1,110 
 $ $ $1,110 $1,110 
 
 Fair Value Measurements Using
 Level 1Level 2Level 3Total
 (in thousands)
December 31, 2021    
Assets:    
Cash and cash equivalents$149,800 $ $ $149,800 
$149,800 $ $ $149,800 
Liabilities:
Derivative liability$ $ $1,820 $1,820 
 $ $ $1,820 $1,820 
 
The Company’s Loan Agreement with Pharmakon (see Note 10) contains certain provisions that change the underlying cash flows of the debt instrument, including a potential extension to the interest-only period dependent on both (i) no event of default having occurred and continuing and (ii) the Company achieving certain regulatory and revenue conditions. One of the regulatory conditions was approval of vadadustat by August 2022, however, in March 2022, the Company received a CRL from the FDA stating that the FDA had determined that it could not approve the NDA for vadadustat in its present form. Therefore, the Company is no longer eligible for the interest-only extension period and this no longer changes the underlying cash flows of the debt instrument. The Company also assessed the acceleration of the obligations under the Loan Agreement under certain events of default. In addition, under certain circumstances, a default interest rate will apply on all outstanding obligations during the occurrence and continuance of an event of default. In accordance with ASC 815, the Company concluded that these features are not clearly and closely related to the host instrument, and represent a single compound derivative that is required to be re-measured at fair value on a quarterly basis.

The potential events of default assessed include failure to maintain, on an annual basis, a minimum liquidity threshold which started in 2021, and on a quarterly basis, a minimum net sales threshold for Auryxia which started in the fourth quarter of 2020. The Company recorded a derivative liability related to the Company’s Loan Agreement with Pharmakon of $1.1 million and $1.8 million as of March 31, 2022 and December 31, 2021, respectively. The Company classified the derivative liability as a non-current liability on the unaudited condensed consolidated balance sheet as of March 31, 2022 and December 31, 2021. The estimated fair value of the derivative liability on both March 31, 2022 and December 31, 2021 was determined using a scenario-based approach and discounted cash flow model that includes principal and interest payments under various scenarios involving clinical development success for vadadustat and various cash flow assumptions. The Company used a 0% probability of clinical development success due to receipt of a CRL from the FDA for vadadustat. Should the Company’s assessment of the probabilities around these scenarios change, including for changes in market conditions, there could be a change to the fair value of the derivative liability.
 
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The following table provides a roll-forward of the fair value of the derivative liability (in thousands):
 
Balance at December 31, 2021$1,820 
Change in fair value of derivative liability, recorded as other expense(710)
Balance at March 31, 2022$1,110 
 
The Company had no other assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at March 31, 2022 and December 31, 2021.

7.Inventory

The components of inventory are summarized as follows:
 
 March 31, 2022December 31, 2021
 (in thousands)
Raw materials$678 $1,763 
Work in process74,025 62,635 
Finished goods8,207 14,661 
Total inventory$82,910 $79,059 
 
Long-term inventory, which primarily consists of raw materials and work in process, is included in other assets in the Company’s unaudited condensed consolidated balance sheets.
 
 March 31, 2022December 31, 2021
 (in thousands)
Balance Sheet Classification:  
Inventory$39,422 $38,195 
Other assets43,488 40,864 
Total inventory$82,910 $79,059 

Inventory amounts written down as a result of excess, obsolescence, scrap or other reasons and charged to cost of goods sold totaled $5.3 million and $5.1 million during the three months ended March 31, 2022 and 2021, respectively. In addition, there were no related step-up charges during the three months ended March 31, 2022 and $8.7 million related step-up charges during the three months ended March 31, 2021. During the three months ended March 31, 2022, the Company recorded a $3.2 million reduction to the excess purchase commitment liability related to Auryxia inventory previously identified as excess, reflecting Auryxia inventory that was received during the period.

If future sales of Auryxia are lower than expected, the Company may be required to write-down the value of such inventories. Inventory write-downs and losses on purchase commitments are recorded as a component of cost of goods sold in the unaudited condensed consolidated statement of operations.

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8.Intangible Assets and Goodwill
Intangible Assets
The following table presents the Company’s intangible assets at March 31, 2022 and December 31, 2021 (in thousands):
 
 March 31, 2022
 Gross Carrying
Value
Accumulated AmortizationTotal
Intangible assets:   
Developed product rights for Auryxia$213,603 $(114,487)$99,116 
Total$213,603 $(114,487)$99,116 
 December 31, 2021
 Gross Carrying
Value
Accumulated
Amortization
Total
Intangible assets:   
Developed product rights for Auryxia