What changed in this filing

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Item 1. Financial Statements

2020-11-05 compared with 2020-08-10 · 244 added, 247 removed, 1175 unchanged (29% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30,

2020 December 31,

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0 shares issued and

outstanding at June 30, 2020 and December 31, 2019

outstanding at September 30, 2020 and December 31, 2019

Common stock $ 0.00001 par value;

350,000,000 and 175,000,000 shares authorized at June 30,

2020 and December 31, 2019, respectively;

143,129,409 and 121,674,568 shares issued and

outstanding at June 30, 2020 and December 31, 2019, respectively

350,000,000 and 175,000,000 shares authorized at September 30, 2020 and December 31, 2019, respectively;

143,328,652 and 121,674,568 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital 1,408,466 1,188,810

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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Balance at June 30, 2019 118,787,301 $ 1 $ 1,164,318 $ 23 $ ( 644,986 ) $ 519,356

Proceeds from sale of stock under

employee stock purchase plan 47,553 — 195 — — 195

Share-based compensation expense — — 2,613 — — 2,613

Restricted stock unit vesting 28,881 — — — — —

Unrealized loss — — — ( 17 ) — ( 17 )

Net loss — — — — ( 54,585 ) ( 54,585 )

Balance at September 30, 2019 118,863,735 $ 1 $ 1,167,126 $ 6 $ ( 699,571 ) $ 467,562

Balance at December 31, 2019 121,674,568 $ 1 $ 1,188,810 — $ ( 794,054 ) $ 394,757

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Balance at June 30, 2020 143,129,409 $ 1 $ 1,400,820 $ ( 9 ) $ ( 1,030,552 ) $ 370,260

Proceeds from sale of stock under

employee stock purchase plan 120,634 — 649 — — 649

Share-based compensation expense — — 6,592 — — 6,592

Exercise of options 54,404 — 405 — — 405

Restricted stock unit vesting 24,205 — — — — —

Unrealized gain — — — 15 — 15

Net loss — — — — ( 59,959 ) ( 59,959 )

Balance at September 30, 2020 143,328,652 $ 1 $ 1,408,466 $ 6 $ ( 1,090,511 ) $ 317,962

See accompanying notes to unaudited condensed consolidated financial statements

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(in thousands)

Six Months Ended

June 30, 2020 June 30, 2019

Nine Months Ended

September 30, 2020 September 30, 2019

Operating activities:

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Net cash provided by (used in) financing activities 201,209 ( 5,448 )

Increase (decrease) in cash, cash equivalents, and restricted cash 98,036 ( 17,432 )

Increase in cash, cash equivalents, and restricted cash 21,916 18,142

Cash, cash equivalents, and restricted cash at beginning of the period 149,804 107,099

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Akebia is a biopharmaceutical company with the purpose of bettering the lives of people living with kidney disease.

Akebia’s lead investigational product candidate, vadadustat, is an oral therapy in Phase 3 development.

The Company believes vadadustat has the potential to set a new standard of care in the treatment of anemia due to chronic kidney disease, or CKD, acting via a novel hypoxia inducible factor, or HIF, pathway.

HIF is the primary regulator of the production of red blood cells, or RBCs, in the body, as well as other important metabolic functions.

In June 2020, vadadustat was approved in Japan as a treatment for anemia due to CKD in both dialysis-dependent and non-dialysis dependent adult patients under the trade name VAFSEO.

In addition to vadadustat, the Company has a commercial product, Auryxia® (ferric citrate), which is currently approved by the U.S.

Akebia’s lead investigational product candidate, vadadustat, is an oral therapy in Phase 3 development for the treatment of anemia due to chronic kidney disease, or CKD.

Vadadustat is an oral hypoxia-inducible factor prolyl hydroxylase inhibitor, or HIF-PHI, designed to mimic the physiologic effect of altitude on oxygen availability.

At higher altitudes, the body responds to lower oxygen availability with stabilization of hypoxia-inducible factor, or HIF, which can lead to red blood cell, or RBC, production and improved oxygen delivery to tissues.Vadadustat is approved and marketed in Japan as a treatment for anemia due to CKD in both dialysis-dependent and non-dialysis dependent adult patients under the trade name VAFSEO.

In addition, the Company has a commercial product, Auryxia ® (ferric citrate), which is currently approved by the U.S.

Food and Drug Administration, or FDA, and marketed for two indications in the United States:

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and its subsidiary Torii Pharmaceutical Co., Ltd., collectively, JT and Torii, on December 12, 2018 following the consummation of a merger with Keryx Biopharmaceuticals, Inc., or Keryx, or the Merger.

Additionally, following regulatory approval of vadadustat in Japan in the second quarter of 2020, the Company is eligible to receive royalty revenues of up to 20 % from Mitsubishi Tanabe Pharma Corporation, or MTPC, from the sale of VAFSEO.

Additionally, following regulatory approval of vadadustat in Japan, the Company began recognizing royalty revenues from Mitsubishi Tanabe Pharma Corporation, or MTPC, from the sale of VAFSEO since August 2020.

The Company has not generated a profit to date and may never generate profits from product sales.

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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 and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020 or any other future period.

Interim results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020 or any other future period.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

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Securities and Exchange Commission on March 12, 2020, or the 2019 Annual Report on Form 10-K.

The significant accounting policies used in preparation of these unaudited condensed consolidated financial statements for the three and six months ended June 30, 2020 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s 2019 Annual Report on Form 10-K and are updated below as necessary.

The significant accounting policies used in preparation of these unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2020 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s 2019 Annual Report on Form 10-K and are updated below as necessary.

New Accounting Pronouncements – Recently Adopted

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Cash equivalents are reported at fair value.

At June 30, 2020, the Company’s cash is primarily in money market funds.

At September 30, 2020, the Company’s cash is primarily in money market funds.

The Company may maintain balances with its banks in excess of federally insured limits.

Restricted cash represents amounts required for security deposits under the Company’s office and lab space lease agreements and, at June 30, 2019, cash balances held as collateral for the Company’s employee credit card program.

Restricted cash represents amounts required for security deposits under the Company’s office and lab space lease agreements.

Restricted cash is included in “prepaid expenses and other current assets” and “other assets” in the unaudited condensed consolidated balance sheets.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the unaudited condensed consolidated balance sheet that sum to the total of the amounts reported in the unaudited condensed consolidated statement of cash flows (in thousands):

June 30, 2020 June 30, 2019

September 30, 2020 September 30, 2019

Cash and cash equivalents $ 169,286 $ 122,886

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Recorded values of asset groups of equipment that are not expected to be recovered through undiscounted future net cash flows are written down to current fair value, which generally is determined from estimated discounted future net cash flows (assets held for use) or net realizable value (assets held for sale).

The following is the summary of property and equipment and related accumulated depreciation as of June 30, 2020 and December 31, 2019.

Useful Life June 30, 2020 December 31, 2019

The following is the summary of property and equipment and related accumulated depreciation as of September 30, 2020 and December 31, 2019.

Useful Life September 30, 2020 December 31, 2019

(in thousands)

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Net property and equipment $ 8,821 $ 10,380

Depreciation expense was approximately $ 0.5 million and $ 0.6 million for the three months ended June 30, 2020 and 2019, respectively, and approximately $ 1.0 million for each of the six months ended June 30, 2020 and 2019.

Depreciation expense was approximately $ 0.5 million and $ 0.6 million for the three months ended September 30, 2020 and 2019, respectively, and approximately $ 1.6 million and $ 1.7 million for each of the nine months ended September 30, 2020 and 2019, respectively.

The Company values its inventories at the lower-of-cost or net realizable value.

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In addition, the Company compensates (through trade discounts and allowances) its Customers for sales order management, data, and distribution services.

However, the Company has determined such services received to date are not distinct from the Company’s sale of products to the Customer and, therefore, these payments have been recorded as a reduction of revenue within the unaudited condensed consolidated statement of operations and comprehensive loss through June 30, 2020.

The Company records a corresponding reduction of accounts receivable (if the trade discount and/or allowance will be credited to the Customer) or an increase in accrued expense (if the trade discount and/or allowance is payable to a Customer) on the unaudited condensed consolidated balance sheets.

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The Company will recognize sales-based royalties, including milestone payments based on the level of sales, at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

The Company receives royalty payments from JT and Torii, based on net sales of Riona in Japan.

The Company receives royalty payments from JT and Torii, based on net sales of Riona in Japan, and MTPC, based on net sales of VAFSEO in Japan.

Collaborative Arrangements

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Agreement, as defined below in Note 4, as a component of the related expense in the period incurred.

During the three months ended June 30, 2020 and 2019, the Company incurred approximately $ 0.2 million and $ 0.3 million, respectively, of costs related to the cost-sharing provisions of the Otsuka U.S.

Agreement, of which approximately $ 0.1 million are reimbursable by Otsuka and recorded as a reduction to research and development expense during each of the three months ended June 30, 2020 and 2019.

During the three months ended June 30, 2020 and 2019, Otsuka incurred approximately $ 0.4 million and $ 0.1 million, respectively, of costs related to the cost-sharing provisions of the Otsuka U.S.

Agreement, of which approximately $ 0.2 million and $ 0.1 million are reimbursable by the Company and recorded as an increase to research and development expense during the three months ended June 30, 2020 and 2019, respectively.

During the three months ended September 30, 2020 and 2019, the Company incurred approximately $ 1.2 million and $ 0.5 million, respectively, of costs related to the cost-sharing provisions of the Otsuka U.S.

Agreement, of which approximately $ 0.5 million and $ 0.2 million are reimbursable by Otsuka and recorded as a reduction to research and development expense during the three months ended September 30, 2020 and 2019, respectively.

During the three months ended September 30, 2020 and 2019, Otsuka incurred approximately $ 0.5 million and $ 0.3 million, respectively, of costs related to the cost-sharing provisions of the Otsuka U.S.

Agreement, of which approximately $ 0.3 million and $ 0.2 million are reimbursable by the Company and recorded as an increase to research and development expense during the three months ended September 30, 2020 and 2019, respectively.

To the extent product revenue is generated from the collaboration, the Company recognizes its share of the net sales on a gross basis if it is deemed to be the principal in the transactions with customers, or on a net basis if it is instead deemed to be the agent in the transactions with customers, consistent with the guidance in ASC 606.

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The Company amortizes its intangible assets that have finite lives using either the straight-line method, or if reliably determinable, based on the pattern in which the economic benefit of the asset is expected to be utilized.

Amortization for the Company’s intangible asset is recorded over its estimated useful life, which as of June 30, 2020 is estimated to be seven years .

Amortization for the Company’s intangible asset is recorded over its estimated useful life, which as of September 30, 2020 is estimated to be seven years .

The Company reviews intangible assets subject to amortization to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life.

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There were no such remeasurements

to property and equipment during either of the three and six months ended June 30, 2020 and 2019.

to property and equipment during either of the three and nine months ended September 30, 2020 and 2019.

During the three months ended June 30, 2020, the Company identified indicators of impairment related to the developed product rights for Auryxia, an intangible asset measured using Level 3 inputs, and recorded an impairment charge of $ 115.5 million (see Note 9 for additional information).

There were no other impairments to assets measured using Level 3 inputs during either of the three and six months ended June 30, 2020 and no impairments to assets measured using Level 3 inputs during either of the three and six months ended June 30, 2019.

There were no impairments to assets measured using Level 3 inputs during the three months ended September 30, 2020, and no other impairments to assets measured using Level 3 inputs during the nine months ended September 30, 2020, other than as described in the previous sentence.

There were no impairments to assets measured using Level 3 inputs during either of the three and nine months ended September 30, 2019.

The Company’s other financial instruments mainly consists of debt (see Note 11).

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sales of Auryxia, which it began recording on December 12, 2018 following the consummation of the Merger.

Total net product revenue was $ 30.7 million and $ 29.1 million for the three months ended June 30, 2020 and 2019, respectively, and $ 59.9 million and $ 52.2 million for the six months ended June 30, 2020 and 2019, respectively.

The following table summarizes activity in each of the product revenue allowance and reserve categories for the six months ended June 30, 2020 and 2019 (in thousands):

Total net product revenue was $ 34.4 million and $ 30.0 million for the three months ended September 30, 2020 and 2019, respectively, and $ 94.3 million and $ 82.2 million for the nine months ended September 30, 2020 and 2019, respectively.

The following table summarizes activity in each of the product revenue allowance and reserve categories for the nine months ended September 30, 2020 and 2019 (in thousands):

and Discounts Rebates, Fees

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Credits/payments made ( 7,701 ) ( 96,807 ) ( 5,991 ) ( 110,499 )

Balance at June 30, 2020 $ 767 $ 42,593 $ 744 $ 44,104

Balance at September 30, 2020 $ 785 $ 41,869 $ 774 $ 43,428

Balance at December 31, 2018 $ 516 $ 22,861 $ 360 $ 23,737

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Credits/payments made ( 5,481 ) ( 67,890 ) ( 1,907 ) ( 75,278 )

Balance at June 30, 2019 $ 480 $ 21,917 $ 293 $ 22,690

Balance at September 30, 2019 $ 665 $ 29,902 $ 288 $ 30,855

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 $ 20.3 million and $ 23.0 million as of June 30, 2020 and December 31, 2019, respectively.

Accounts receivable, net related to product sales was approximately $ 21.7 million and $ 23.0 million as of September 30, 2020 and December 31, 2019, respectively.

License, Collaboration and Other Significant Agreements

During the three and six months ended June 30, 2020 and 2019, the Company recognized the following revenues from its license, collaboration and other significant agreements and had the following deferred revenue balances as of June 30, 2020:

Three Months Ended June 30, Six Months Ended June 30,

During the three and nine months ended September 30, 2020 and 2019, the Company recognized the following revenues from its license, collaboration and other significant agreements and had the following deferred revenue balances as of September 30, 2020:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Total License, Collaboration and Other Revenue $ 25,596 $ 61,973 $ 144,311 $ 183,242

June 30, 2020

September 30, 2020

Short-Term Long-Term Total

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Total $ 18,034 $ 33,660 $ 51,694

The following table presents changes in the Company’s contract assets and liabilities during the six months ended June 30, 2020 and 2019 (in thousands):

Six Months Ended June 30, 2020 Balance at

The following table presents changes in the Company’s contract assets and liabilities during the nine months ended September 30, 2020 and 2019 (in thousands):

Nine Months Ended September 30, 2020 Balance at

Period Additions Deductions Balance at End

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Accrued expenses and other current liabilities $ — $ 615 $ ( 615 ) $ —

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

Contract assets:

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Accounts payable $ 13,492 $ — $ ( 13,492 ) $ —

(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 June 30, 2020 and 2019 and December 31, 2019 and 2018.

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 June 30, 2020 and December 31, 2019.

During the three and six months ended June 30, 2020 and 2019, 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 June 30, Six Months Ended June 30,

(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 September 30, 2020 and 2019 and December 31, 2019 and 2018.

During the three and nine months ended September 30, 2020 and 2019, 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 September 30, Nine Months Ended September 30,

Revenue Recognized in the Period from:

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Summary of Agreement

On December 11, 2015, the Company and Mitsubishi Tanabe Pharma Corporation, or MTPC, entered into a collaboration agreement, or the MTPC Agreement, providing MTPC with exclusive development and commercialization rights to vadadustat in Japan and certain other Asian countries, collectively, the MTPC Territory.

On December 11, 2015, the Company and MTPC entered into a collaboration agreement, or 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.

The Company and MTPC agreed that, instead of including Japanese patients in the Company’s global Phase 3 program for vadadustat, MTPC would be the sponsor of a Phase 3 program for vadadustat in Japan.

MTPC reported top-line data for the two Phase 3 pivotal trials and data from the two supportive Phase 3 studies in March 2019 and 52-week data for the two Phase 3 pivotal trials in November 2019.

MTPC is responsible for the costs of the Phase 3 program in Japan and other studies required in Japan, and made no funding payments for the global Phase 3 program.

In July 2019, MTPC submitted a Japanese New Drug Application, or JNDA, to the Ministry of Health, Labor and Welfare in Japan for manufacturing and marketing approval of vadadustat, as a treatment for anemia due to CKD, which triggered a $ 10.0 million regulatory milestone payment to the Company.

In June 2020, vadadustat was approved in Japan for the treatment of anemia due to CKD, which triggered a $ 15.0 million regulatory milestone payment to the Company which was received in the third quarter of 2020.

Vadadustat will be marketed by MTPC in Japan under the trade name VAFSEO.

In June 2020, vadadustat was approved in Japan for the treatment of anemia due to CKD, which triggered a $ 15.0 million regulatory milestone payment to the Company that was received in the third quarter of 2020.

In August 2020, MTPC launched vadadustat commercially in Japan under the trade name VAFSEO as a treatment of anemia due to CKD for adult patients on dialysis and not on dialysis.

The Company and MTPC have established a joint steering committee pursuant to the MTPC Agreement to oversee development and commercialization of vadadustat in the MTPC Territory, including approval of any development or commercialization plans.

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In consideration for the exclusive license and other rights contained in the MTPC Agreement, MTPC also made a $ 20.0 million upfront payment as well as a payment of $ 20.5 million for Phase 2 studies in Japanese patients completed by the Company and reimbursed by MTPC.

Additionally, if vadadustat is commercialized, the Company would be entitled to receive tiered double-digit royalty payments of up to 20 % on sales of vadadustat in the MTPC Territory.

The Company is also entitled to receive tiered royalty payments ranging from the low teens to 20 % on annual net sales of vadadustat in the MTPC Territory.

Royalty payments are subject to certain reductions, including upon the introduction of competitive products in certain instances.

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(i) the expiration of the last to expire valid claim within the intellectual property covering the licensed product, (ii) the expiration of marketing or regulatory exclusivity in such country, or (iii) the tenth anniversary of the first commercial sale of such licensed product in such country.

Due to the uncertainty of drug development and commercialization and the high historical failure rates associated therewith, although the Company has received $ 10.0 million in development milestones, a $ 10.0 million regulatory milestone, and earned a $ 15.0 million regulatory milestone following regulatory approval of vadadustat in Japan in the second

quarter of 2020, no additional milestone may ever be received from MTPC.

The Company will recognize any revenue from MTPC royalties in the period in which the sales occur.

Due to the uncertainty of drug development and commercialization and the high historical failure rates associated therewith, although the Company has received $ 10.0 million in development milestones, $ 25.0 million in regulatory milestones, no additional milestone may ever be received from MTPC.

The Company recognizes any revenue from MTPC royalties in the period in which the sales occur.

Revenue Recognition

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(i) license under certain of the Company’s intellectual property to develop and commercialize vadadustat (the License Deliverable) in the MTPC Territory, (ii) clinical supply of vadadustat (the Clinical Supply Deliverable), (iii) knowledge transfer, (iv) Phase 2 dosing study research services (the Research Deliverable), and (v) rights to future know-how.

The Company has identified two performance obligations in connection with its material promises under the MTPC Agreement as follows:

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 .

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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 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.

The Company did not develop a best estimate of standalone selling price for the License, Research and Clinical Supply Performance Obligation because the estimate of standalone selling price associated with the Rights to Future Know-How Performance Obligation was determined to be immaterial.

The Company has concluded that a change in the key assumptions used to determine the best estimate of standalone selling price for each performance obligation would not have a significant impact on the allocation of arrangement consideration.

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.

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No other development and no regulatory milestones were included in the transaction price at inception, as all other milestone amounts were fully constrained.

As part of its evaluation of the constraint, the Company considered numerous factors, including that receipt of the milestones is outside the control of the Company and contingent upon success in future clinical trials and the licensee’s efforts.

The total aggregate amount of development milestones is $ 10.0 million and the total aggregate amount of the regulatory milestones is up to $ 40.0 million.

The total aggregate amount of sales milestones is up to $ 175.0 million.

Subsequent to inception, the transaction price also included certain development and regulatory milestones, as described below.

As part of its evaluation of the constraint, the Company considers numerous factors, including that receipt of the milestones is outside the control of the Company and contingent upon success in future clinical trials and the licensee’s efforts.

Any consideration related to sales-based milestones (including royalties) will be recognized when the related sales occur as they were determined to relate predominantly to the license granted to MTPC and therefore have also been excluded from the transaction price.

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 June 30, 2020, the transaction price is 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, comprised of a $ 6.0 million and a $ 4.0 million development milestone, (v) the $ 10.0 million regulatory milestone relating to the JNDA filing, and (vi) the $ 15.0 million regulatory milestone relating to regulatory approval of vadadustat in Japan.

As of June 30, 2020, all development milestones, a $ 10.0 million regulatory milestone related to the filing of the JNDA and a $ 15.0 million regulatory milestone relating to regulatory approval of vadadustat in Japan have been achieved.

The Company determined that the remaining consideration that may be payable to the Company subsequent to MTPC's commercial launch of VAFSEO in the third quarter of 2020 is quarterly royalties on net sales, sales milestones, and certain regulatory milestones.

As of September 30, 2020, the transaction price is 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 JNDA filing and the $ 15.0 million relating to regulatory approval of vadadustat in Japan, and (vi) $ 0.4 million in royalties from net sales of VAFSEO.

As of September 30, 2020, 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.

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.

Accordingly, the Company recognized the $ 15.0 million regulatory milestone relating to regulatory approval of vadadustat in Japan as revenue during the three and six months ended June 30, 2020, as the regulatory milestone was both deemed probable of being achieved and the required performance obligations had been satisfied as of June 30, 2020.

The payment for this $ 15.0 million regulatory milestone was received in the third quarter of 2020.

The Company recognized the $ 10.0 million regulatory milestone for the filing of the JNDA as revenue during the three and six months ended June 30, 2019, as the regulatory milestone was both deemed probable of being achieved and the required performance obligations had been satisfied as of June 30, 2019.

June 30, 2020, there is no deferred revenue, $ 15.0 million in accounts receivable, and no contract assets.

There were no asset or liability balances classified as long-term in the unaudited condensed consolidated balance sheet as of June 30, 2020.

Supply of Validation Drug Product

Accordingly, the Company recognized the $ 15.0 million regulatory milestone relating to regulatory approval of vadadustat in Japan as revenue during the nine months ended September 30, 2020 and the $ 10.0 million regulatory milestone for the filing of the JNDA as revenue during the nine months ended September 30, 2019, as the regulatory milestones were both deemed probable of being achieved and the required performance obligations had been satisfied as of September 30, 2020 and September 30, 2019, respectively.

The Company recognized $ 0.4 million and $ 0 in revenues for the three months ended September 30, 2020 and 2019, respectively.

As of September 30, 2020, there is $ 0.4 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 September 30, 2020.

Supply of Drug Product to MTPC

In March 2020, in connection with the MTPC Agreement, the Company agreed to supply MTPC with certain vadadustat drug product for commercial use and MTPC agreed to reimburse the Company for certain manufacturing-related expenses.

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The Company does not recognize revenue under this arrangement until risk of loss passes to MTPC and delivery has occurred.

During the three and six months ended June 30, 2020, the Company recognized $ 4.0 million in revenue for drug product that was delivered during the three months ended June 30, 2020.

As of June 30, 2020, the Company recorded no accounts receivable, no deferred revenue, and $ 6.4 million in other current liabilities for drug product that is subject to return by MTPC.

During the three and nine months ended September 30, 2020, the Company recognized $ 0.5 million and $ 4.5 million, respectively, in revenue for drug product that was delivered during the three and nine months ended September 30, 2020, respectively.

As of September 30, 2020, the Company recorded no accounts receivable, no deferred revenue, and $ 5.9 million in other current liabilities for drug product that is subject to return by MTPC.

Subsequent to September 30, 2020, risk of loss passed to MTPC and delivery occurred with respect to an additional $ 1.7 million of vadadustat drug product, which reduced the liability to $ 4.2 million.

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.

Pursuant to the MTPC Supply Agreement, MTPC will provide a rolling forecast, or the MTPC Forecast, to the Company on a quarterly basis.

The MTPC Forecast will reflect MTPC’s needs for vadadustat drug product over a certain number of months, represented as a quantity of vadadustat drug product per calendar quarter.

MTPC will make an up-front payment for a certain percentage of each batch of vadadustat drug product ordered.

The term of the MTPC Supply Agreement will exist throughout the term of the MTPC Agreement, and the termination provisions of the MTPC Agreement govern termination of the MTPC Supply Agreement.

The Company did no t recognize any revenue under the MTPC Supply Agreement during the three and nine months ended September 30, 2020, respectively.

Subsequent to September 30, 2020, the Company invoiced MTPC for $ 18.9 million in up-front payments for vadadustat drug product ordered by MTPC.

Collaboration and License Agreement with Otsuka Pharmaceutical Co.

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Agreement, the parties jointly conduct, and have equal responsibility for, all medical affairs, commercialization and non-promotional activities pursuant to underlying plans as agreed to by the parties.

If approved by the FDA, Otsuka will purchase all of its supply requirements of vadadustat for commercial use from the Company pursuant to a separate supply agreement to be negotiated.

If approved by the FDA, Otsuka is obligated to purchase all of its supply requirements of vadadustat for commercial use from the Company pursuant to a separate supply agreement to be negotiated.

The activities under the Otsuka U.S.

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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 June 30, 2020, the Additional Funding was $ 71.5 million.

As of September 30, 2020, the Additional Funding was $ 80.9 million.

In addition, Otsuka is required to make certain milestone payments to the Company upon the achievement of specified development, regulatory and commercial events.

More specifically, as of June 30, 2020, the Company is eligible to receive up to $ 105.0 million in development milestone payments, up to $ 65.0 million in regulatory milestone payments for the first product to achieve the associated event, and up to $ 575.0 million in commercial milestone payments associated with aggregate sales of licensed products.

More specifically, as of September 30, 2020, the Company is eligible to receive up to $ 65.0 million in regulatory milestone payments for the first product to achieve the associated event and up to $ 575.0 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.

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Otsuka may terminate the Otsuka U.S.

Agreement in its entirety upon 12 months’ prior written notice at any time after the release of the first top-line data from the global Phase 3 development program for vadadustat, which occurred in the second quarter of 2020 with the release of the top-line data from the INNO 2 VATE program.

Agreement in its entirety upon 12 months’ prior written notice at any time after the release of the first top-line data from the global Phase 3 development program for vadadustat, which release occurred in the second quarter of 2020 with the announcement of top-line data from the INNO 2 VATE program.

In the event of termination of the Otsuka U.S.

Agreement, all rights and licenses granted to Otsuka under the Otsuka U.S.

Agreement, all

rights and licenses granted to Otsuka under the Otsuka U.S.

Agreement will automatically terminate and the licenses granted to the Company will become freely sublicensable.

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The Company has identified three performance obligations in connection with its obligations under the Otsuka U.S.

Factors considered in making the assessment of which material promises will be accounted for as separate performance

obligations included, among other things, the capabilities of the collaboration partner, whether any other vendor sells the item separately, whether the good or service is highly interdependent or highly interrelated to the other elements in the arrangement, and whether there are other vendors that can provide the items.

Factors considered in making the assessment of which material promises will be accounted for as separate performance obligations included, among other things, the capabilities of the collaboration partner, whether any other vendor sells the item separately, whether the good or service is highly interdependent or highly interrelated to the other elements in the arrangement, and whether there are other vendors that can provide the items.

Additionally, the Otsuka U.S.

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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.

Performance Obligation was determined to be similar.

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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 Otsuka Funding Option became effective and the Company became eligible to receive the Additional Funding

In connection with the modification, the Company adjusted the transaction price to include the Additional Funding amount as additional variable consideration.

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Effectively, the Company has treated the arrangement as if the License Performance Obligation and the Committee Performance Obligation are a single performance obligation.

As of June 30, 2020, the transaction price totaling $ 449.4 million is comprised of:

As of September 30, 2020, the transaction price totaling $ 471.2 million is 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 $ 312.4 million with respect to amounts incurred by the Company subsequent to December 31, 2016 and the Additional Funding.

As of June 30, 2020, no development or regulatory milestones have been assessed as probable of being reached and thus have been fully constrained.

During the three months ended June 30, 2020 and 2019, the Company recognized revenue totaling approximately $ 25.9 million and $ 37.5 million, respectively, and approximately $ 64.5 million and $ 63.7 million during the six months ended June 30, 2020 and 2019, respectively, with respect to the Otsuka U.S.

As of September 30, 2020, no development or regulatory milestones have been assessed as probable of being reached and thus have been fully constrained.

During the three months ended September 30, 2020 and 2019, the Company recognized revenue totaling approximately $ 16.3 million and $ 39.7 million, respectively, and approximately $ 80.7 million and $ 103.5 million during the nine months ended September 30, 2020 and 2019, respectively, with respect to the Otsuka U.S.

The revenue is classified as collaboration revenue in the accompanying unaudited condensed consolidated statements of operations.

As of June 30, 2020, there is approximately $ 35.9 million of deferred revenue related to the Otsuka U.S.

As of September 30, 2020, there is approximately $ 31.4 million of deferred revenue related to the Otsuka U.S.

Agreement of which $ 10.7 million is classified as current and $ 20.8 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 June 30, 2020, there are approximately $ 3.9 million in contract liabilities (included in accounts payable) and $ 0.5 million in prepaid expenses and other current assets in the accompanying unaudited condensed consolidated balance sheet.

Additionally, as of September 30, 2020, there are approximately $ 3.1 million in contract liabilities (included in accounts payable) and $ 0.9 million in prepaid expenses and other current assets in the accompanying unaudited condensed consolidated balance sheet.

As of December 31, 2019, there was $ 8.9 million in accounts receivable in the consolidated balance sheet.

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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.

Agreement of which approximately $ 0.1 million are reimbursable by Otsuka and recorded as a reduction to research and development expense during each of the three months ended June 30, 2020 and 2019.

During the three months ended June 30, 2020 and 2019, Otsuka incurred approximately $ 0.4 million and $ 0.1 million of costs related to the cost-sharing provisions of the Otsuka U.S.

During the three months ended September 30, 2020 and 2019, the Company incurred

approximately $ 1.2 million and $ 0.5 million, respectively, of costs related to the cost-sharing provisions of the Otsuka U.S.

Agreement of which approximately $ 0.5 million and $ 0.2 million are reimbursable by Otsuka and recorded as a reduction to research and development expense during the three months ended September 30, 2020 and 2019, respectively.

During the three months ended September 30, 2020 and 2019, Otsuka incurred approximately $ 0.5 million and $ 0.3 million of costs related to the cost-sharing provisions of the Otsuka U.S.

International Collaboration and License Agreement with Otsuka Pharmaceutical Co.

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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 is responsible for leading the development of vadadustat, including the

ongoing global Phase 3 development program.

Under the terms of the Otsuka International Agreement, the Company is responsible for leading the development of vadadustat, including the ongoing global Phase 3 development program.

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.

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The Company also received a payment of approximately $ 0.2 million which represents reimbursement for Otsuka’s share of costs previously incurred by the Company in implementing the current global development plan in excess of a specified threshold during the quarter ended March 31, 2017.

Commencing in the second quarter of 2017, Otsuka began to contribute, as required by the Otsuka International Agreement, a percentage of the remaining costs incurred under the current global development plan.

Commencing in the second quarter of 2017, Otsuka began to contribute, as required by the Otsuka International Agreement, a percentage of the remaining costs incurred under the current

global development plan.

The Company estimates that Otsuka’s funding of the current global development plan costs subsequent to March 31, 2017 will total roughly $ 224.7 million or more, depending on the actual current global development plan costs incurred.

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In addition, Otsuka would be required to make certain milestone payments to the Company upon the achievement of specified development, regulatory and commercial events.

More specifically, as of June 30, 2020, the Company is eligible to receive up

to $ 65.0 million in development milestone payments and up to $ 52.0 million in regulatory milestone payments for the first licensed product to achieve the associated event.

More specifically, as of September 30, 2020, the Company is eligible to receive up to $ 52.0 million in regulatory milestone payments for the first licensed product to achieve the associated event.

Moreover, the Company is eligible for up to $ 525.0 million in commercial milestone payments associated with aggregate sales of all licensed products.

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Either party may terminate the Otsuka International Agreement in its entirety upon an uncured material breach or insolvency on the part of the other party.

Otsuka may terminate the Otsuka International Agreement in its entirety or for a specific region in the Otsuka International Territory upon 12 months’ prior written notice at any time after the release of the first top-line data from the global Phase 3 development program for vadadustat.

In the event of termination of the Otsuka International Agreement, all rights and licensees granted to Otsuka under the Otsuka International Agreement will automatically terminate, and the licenses granted to the Company will become freely sublicensable, but potentially subject to a future royalty.

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Factors considered in making this assessment of which material promises will be accounted for as a separate performance obligation included, among other things, the capabilities of the collaboration partner, whether any other vendor sells the item separately, whether the good or service is highly interdependent or highly interrelated to the other elements in the arrangement, and whether there are other vendors that can provide the items.

Additionally, the Otsuka International Agreement does not include a general right of return.

Additionally, the Otsuka International Agreement

does not include a general right of return.

The three performance obligations identified in connection with the Company’s obligations under the Otsuka International Agreement are as follows:

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(ii) Rights to Future Intellectual Property (Future IP Performance Obligation)

The License and Development Services Deliverable is distinct from the Future IP Deliverable because Otsuka can obtain the value of the license using the clinical trial materials implicit in the development services without the receipt of any other

intellectual property that may be discovered or developed in the future.

The Future IP Deliverable is distinct from the Committee Deliverable because the Committee Deliverable has no bearing on the value to be derived from the rights to potential future intellectual property.

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No amounts were allocated to the Future IP Performance Obligation because the associated best estimate of standalone selling price was determined to be immaterial.

Due to the similar performance period and recognition pattern between the License Performance Obligation and the Committee Performance Obligation, the transaction price has been allocated to the License Performance Obligation and the Committee Performance Obligation on a combined basis.

Due to the similar performance period and recognition pattern between the License

Performance Obligation and the Committee Performance Obligation, the transaction price has been allocated to the License Performance Obligation and the Committee Performance Obligation on a combined basis.

Accordingly, the Company will recognize revenue related to the allocable arrangement consideration on a proportional performance basis as the underlying development services are performed pursuant to the current global development plan which is commensurate with the period and consistent with the pattern over which the Company’s obligations are satisfied for both the License Performance Obligation and the Committee Performance Obligation.

Effectively, the Company has treated the arrangement as if the License Performance Obligation and the Committee Performance Obligation are a single performance obligation.

As of June 30, 2020, the transaction price totaling $ 287.5 million is comprised of:

As of September 30, 2020, the transaction price totaling $ 297.9 million is 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 $ 224.7 million.

As of June 30, 2020, no development or regulatory milestones have been assessed as probable of being reached and thus have been fully constrained.

During the three months ended June 30, 2020 and 2019, the Company recognized revenue totaling approximately $ 12.8 million and $ 22.5 million, respectively, and approximately $ 32.2 million and $ 44.4 million during the six months ended June 30, 2020 and 2019, 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 June 30, 2020, there is approximately $ 17.5 million of deferred revenue related to the Otsuka International Agreement of which $ 8.2 million is classified as current and $ 9.3 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 June 30, 2020, there are approximately $ 1.8 million in contract liabilities (included in accounts payable) and $ 0.2 million in prepaid expenses and other current assets in the accompanying unaudited condensed consolidated balance sheet.

As of September 30, 2020, no development or regulatory milestones have been assessed as probable of being reached and thus have been fully constrained.

During the three months ended September 30, 2020 and 2019, the Company recognized revenue totaling approximately $ 7.2 million and $ 20.2 million, respectively, and approximately $ 39.4 million and $ 64.6 million during the nine months ended September 30, 2020 and 2019, 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 September 30, 2020, there is approximately $ 15.6 million of deferred revenue related to the Otsuka International Agreement of which $ 7.4 million is classified as current and $ 8.2 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 September 30, 2020, there are approximately $ 1.4 million in contract liabilities (included in accounts payable) and $ 0.4 million in prepaid expenses and other current assets in the accompanying unaudited condensed consolidated balance sheet.

As of December 31, 2019, there was $ 4.0 million in accounts receivable in the consolidated balance sheet.

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The Warrant is exercisable by JJDC, in whole or in part, at any time prior to February 9, 2022.

The Warrant and the shares issuable upon exercise of the Warrant will be sold and issued without registration under the Securities Act of 1933, as amended, or the Securities Act.

The Warrant and the shares issuable upon exercise of the Warrant will be sold and issued without registration under the Securities Act of 1933, as

amended, or the Securities Act.

The Company recorded the fair value of the Warrant in the amount of $ 3.4 million to additional paid-in capital and research and development expense in March 2017.

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Unless earlier terminated, the Vifor 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 United States.

Vifor Pharma may terminate the Vifor Amended Agreement in its entirety upon 12 months’ prior written notice after the release of the first top-line data in the vadadustat global Phase 3 program for DD-CKD patients, which release occurred in the second quarter of 2020 with the announcement of top-line data from the INNO 2 VATE program.

In addition, either party may, subject to a cure period, terminate the Vifor Amended Agreement in the event of the other party’s uncured material breach or bankruptcy.

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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.

As the parties’ rights under the Vifor Agreement are conditioned upon (a) the approval of vadadustat for DD-CKD patients by the FDA;

As the parties’ rights under the Vifor

Agreement are conditioned upon (a) the approval of vadadustat for DD-CKD patients by the FDA;

(b) the earlier of a determination by CMS that vadadustat will be reimbursed using Medicare’s bundled reimbursement model or that vadadustat will be reimbursed using the Transitional Drug Add-On Payment Adjustment;

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In addition, the Company may terminate the Panion Amended License Agreement (i) in its entirety or (ii) with respect to one or more countries in the Company’s licensed territory, in either case upon 90 days’ notice.

The Company and Panion also each have the right to terminate the Panion Amended License Agreement upon the occurrence of a material breach of the Panion Amended License Agreement by the other party, subject to certain cure provisions, or certain insolvency events.

insolvency events.

The Panion Amended License Agreement also provides that, on a country-by-country basis, until the second anniversary of the expiration of the obligation of the Company or Panion, as applicable, to pay royalties in a country in which such party has ferric citrate for sale on the date of such expiration, neither the other party nor its affiliates will, directly or indirectly, sell, distribute or otherwise commercialize or supply or cause to supply ferric citrate to a third party for sale or distribution in such country.

1 unchanged sentence

In addition, the Panion Amended License Agreement provides that each of the Company and Panion has the right, but not the obligation, to conduct litigation against any infringer of certain patent rights under the Panion Amended License Agreement in certain territories.

The Company recognized royalty payments due to Panion of approximately $ 2.8 million and $ 2.6 million during the three months ended June 30, 2020 and 2019, respectively, and approximately $ 5.3 million and $ 4.7 million during the six months ended June 30, 2020 and 2019, respectively, 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.

The Company recognized royalty payments due to Panion of approximately $ 2.9 million and $ 2.7 million during the three months ended September 30, 2020 and 2019, respectively, and approximately $ 8.2 million and $ 7.5 million during the nine months ended September 30, 2020 and 2019, respectively, 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.

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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.

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.

Additionally, as of the consummation of the Merger, the services associated with the License and Supply Performance Obligation were completed and JT and Torii had secured their own source to manufacture ferric citrate hydrate.

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In accordance with ASC 606, the Company recognizes sales-based royalties, including milestone payments based on the level of sales, when the related sales occur as these amounts have been determined to relate predominantly to the license granted to JT and Torii and therefore are recognized at the later of when the performance obligation is satisfied, or the related sales occur.

The Company recognized license revenue of $ 1.7 million and $ 1.5 million during the three months ended June 30, 2020 and 2019, respectively, and $ 2.9 million and $ 2.7 million during the six months ended June 30, 2020 and 2019, respectively, related to royalties earned on net sales of Riona in Japan.

The Company recognized license revenue of $ 1.2 million and $ 1.5 million during the three months ended September 30, 2020 and 2019, respectively, and $ 4.0 million and $ 4.3 million during the nine months ended September 30, 2020 and 2019, 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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The fair value of the developed product rights for Auryxia was determined using the multi-period excess earnings method which is a variation of the income approach, and is a valuation technique that provides an estimate of the fair value of an asset based on the principle that the value of an intangible asset is equal to the present value of the incremental after-tax cash flows attributable to the asset, after taking charges for the use of other assets employed by the business.

Key estimates and

assumptions used in this model were projected revenues and expenses related to the asset, estimated contributory asset charges, and a risk-adjusted discount rate of 20.0 % used to calculate the present value of the future expected cash inflows from the asset.

Key estimates and assumptions used in this model were projected revenues and expenses related to the asset, estimated contributory asset charges, and a risk-adjusted discount rate of 20.0 % used to calculate the present value of the future expected cash inflows from the asset.

The intangible asset is being amortized on a straight-line basis over its estimated useful life, which at the time of the Merger was estimated to be nine years .

During the second quarter of 2020, the Company identified indicators of impairment related to the developed product rights for Auryxia and recorded an impairment charge of $ 115.5 million and made a corresponding adjustment to the estimated useful life of the developed product rights for Auryxia from nine years to seven years (see Note 9 for additional information).

The Company also identified an executory contract in the supply agreement between Keryx and BioVectra Inc., or BioVectra, which includes future firm purchase commitments.

This executory contract was deemed to have an off-market element related to the amount of purchase commitments that exceed the current forecast and as such, the Company recorded a liability in purchase accounting.

The Company also identified executory contracts in the commercial supply agreements between Keryx and its contract manufacturers for Auryxia, which include future firm purchase commitments.

These executory contracts were deemed to have an off-market element related to the amount of purchase commitments that exceed the current forecast and as such, the Company recorded a liability in purchase accounting.

As of the acquisition date, the fair value of the off-market element was $ 29.5 million.

During the second quarter of 2020, the Company recorded an $ 11.0 million increase to the liability for excess purchase commitments and a corresponding charge to cost of goods sold (see Note 14 for additional information).

During the second quarter of 2020, the Company recorded an $ 11.0 million increase to the liability for excess purchase commitments, for a total liability of $ 41.5 million, and a corresponding charge to cost of goods sold largely driven by a reduction in the short-term and long-term Auryxia revenue sales forecast.

As of September 30, 2020, the Company's liability for excess purchase commitments was $ 41.0 million (see Note 14 for additional information).

The goodwill represents the excess of the purchase price over the estimated fair value of net assets acquired.

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Available For Sale Securities

Cash, cash equivalents, and available for sale securities at June 30, 2020 and December 31, 2019 consisted of the following :

Cash, cash equivalents, and available for sale securities at September 30, 2020 and December 31, 2019 consisted of the following:

Amortized Cost Gross

1 unchanged sentence

(in thousands)

June 30, 2020

September 30, 2020

Cash and cash equivalents $ 169,286 $ — $ — $ 169,286

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Total cash, cash equivalents, and available for sale securities $ 147,694 $ — $ — $ 147,694

The estimated fair value of the Company’s available for sale securities balance at June 30, 2020, by contractual maturity, was as follows (in thousands):

The estimated fair value of the Company’s available for sale securities balance at September 30, 2020, by contractual maturity, was as follows (in thousands):

Due in one year or less $ 99,969

1 unchanged sentence

Total available for sale securities $ 99,969

There were no realized gains or losses on available for sale securities for the three and six months ended June 30, 2020 and 2019.

The following table summarizes the Company’s available for sale securities that were in a continuous unrealized loss position, but were not deemed to be other-than temporarily impaired, as of June 30, 2020:

Unrealized Loss for

Less Than 12 Months Unrealized Loss for

12 Months or More Total

Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses Estimated Fair Value

(in thousands)

June 30, 2020

Available for sale securities:

government debt securities $ ( 9 ) $ 49,943 $ — $ — $ ( 9 ) $ 49,943

Total $ ( 9 ) $ 49,943 $ — $ — $ ( 9 ) $ 49,943

There were five securities as of June 30, 2020, that were in an unrealized loss position.

The contractual terms of these securities do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investment.

As of June 30, 2020, the Company does not intend to sell these securities and it was not more likely than not that the Company would be required to sell these securities before the recovery of their amortized cost basis, which may be at maturity.

The unrealized loss was determined to be non-credit related and was recognized in other comprehensive loss in the Company's unaudited condensed consolidated statements of operations and comprehensive loss during the three and six months ended June 30, 2020.

As such, the Company did no t recognize any credit losses during the three and six months ended June 30, 2020.

Additionally, the Company did no t have any available for sale securities that were in an unrealized loss position as of December 31, 2019.

There were no realized gains or losses on available for sale securities for the three and nine months ended September 30, 2020 and 2019.

Additionally, the Company did no t have any available for sale securities that were in an unrealized loss position as of September 30, 2020 and December 31, 2019.

As such, the Company did no t recognize any credit losses during the three and nine months ended September 30, 2020.

Fair Value of Financial Instruments

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This is because the Company values its cash equivalents and available for sale securities using quoted market prices or alternative pricing sources and models utilizing market observable inputs.

Assets measured or disclosed at fair value on a recurring basis as of June 30, 2020 and December 31, 2019 are summarized below:

Assets measured or disclosed at fair value on a recurring basis as of September 30, 2020 and December 31, 2019 are summarized below:

Fair Value Measurements Using

1 unchanged sentence

(in thousands)

June 30, 2020

September 30, 2020

Cash and cash equivalents $ 169,286 $ — $ — $ 169,286

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The events of default include maintaining, on an annual basis, a minimum liquidity threshold starting in 2021, and on a quarterly basis, a minimum net sales threshold for Auryxia starting in the fourth quarter of 2020.

The Company recorded a derivative liability related to the Company’s Loan Agreement with Pharmakon of $ 1.9 million and $ 1.7 million as of June 30, 2020 and December 31, 2019, respectively.

The Company classified the derivative liability as a non-current liability on the unaudited condensed consolidated balance sheet as of June 30, 2020 and December 31, 2019.

The estimated fair value of the derivative liability on both June 30, 2020 and December 31, 2019 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 recorded a derivative liability related to the Company’s Loan Agreement with Pharmakon of $ 2.0 million and $ 1.7 million as of September 30, 2020 and December 31, 2019, respectively.

The Company classified the derivative liability as a non-current liability on the unaudited condensed consolidated balance sheet as of September 30, 2020 and December 31, 2019.

The estimated fair value of the derivative liability on both September 30, 2020 and December 31, 2019 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.

Probabilities surrounding clinical development success were derived using industry benchmarks.

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Change in fair value of derivative liability, recorded as other expense 90

Balance at Balance at March 31, 2020 $ 1,740

Balance at March 31, 2020 $ 1,740

Change in fair value of derivative liability, recorded as other expense 150

Balance at June 30, 2020 $ 1,890

The Company had no other assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at June 30, 2020 and December 31, 2019.

Change in fair value of derivative liability, recorded as other expense $ 100

Balance at September 30, 2020 $ 1,990

The Company had no other assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at September 30, 2020 and December 31, 2019.

Investment securities are exposed to various risks such as interest rate, market and credit risks.

1 unchanged sentence

The components of inventory, inclusive of step-up as a result of bringing Keryx’s inventory onto Akebia’s books at fair value in connection with the Merger, are summarized as follows:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

(in thousands)

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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.

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

(in thousands)

3 unchanged sentences

Total inventory $ 120,177 $ 182,232

Inventory amounts written down as a result of excess, obsolescence, scrap or other reasons and charged to cost of goods sold totaled $ 9.9 million and $ 10.1 million during the three and six months ended June 30, 2020, respectively, in addition to related step-up charges of $ 6.0 million during the three and six months ended June 30, 2020.

Inventory write downs charged to cost of goods sold totaled $ 1.3 million and $ 3.0 million during the three and six months ended June 30, 2019, respectively, in addition to related step-up charges of $ 1.9 million and $ 2.8 million during the three and six months ended June 30, 2019, respectively.

The increase for the three and six months ended June 30, 2020 was primarily related to the write-down of inventory associated with specific lots of Auryxia because it was determined that these lots were not manufactured in conformance with the FDA's GMP guidance relating to validation.

Inventory amounts written down as a result of excess, obsolescence, scrap or other reasons and charged to cost of goods sold totaled $ 8.5 million and $ 18.6 million during the three and nine months ended September 30, 2020, respectively, in addition to related step-up charges of $ 1.4 million and $ 7.4 million during the three and nine months ended September 30, 2020, respectively.

Inventory write downs charged to cost of goods sold totaled $ 2.9 million and $ 6.0 million during the three and nine months ended September 30, 2019, respectively, in addition to related step-up charges of $ 8.1 million and $ 10.9 million during the three and nine months ended September 30, 2019, respectively.

The increase for the three and nine months ended September 30, 2020 was primarily related to the write-down of inventory associated with specific lots of Auryxia because it was determined that these lots were not manufactured in conformance with the FDA's GMP guidance relating to validation.

This write-down was largely related to a previously disclosed manufacturing quality issue related to Auryxia.

If future sales of Auryxia are lower than expected, the Company may be required to write-down the value of such inventories.

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Intangible Assets

The following table presents the Company’s intangible assets at June 30, 2020 and December 31, 2019 (in thousands):

June 30, 2020

The following table presents the Company’s intangible assets at September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020

Gross Carrying

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As a result of the adoption of ASC 842 on January 1, 2019, the Company reclassed the remaining balance of the favorable lease intangible asset into the operating lease asset.

The Company recorded $ 9.1 million in amortization expense related to the developed product rights for Auryxia during each of the three months ended June 30, 2020 and 2019 and $ 18.2 million during each of the six months ended June 30, 2020 and 2019.

Estimated future amortization expense for the intangible asset as of June 30, 2020 is as follows (in thousands):

2020 $ 14,317

The Company recorded $ 6.1 million and $ 9.1 million in amortization expense related to the developed product rights for Auryxia during the three months ended September 30, 2020 and 2019, respectively, and $ 24.3 million and $ 27.3 million during the nine months ended September 30, 2020 and 2019, respectively.

Estimated future amortization expense for the intangible asset as of September 30, 2020 is as follows (in thousands):

Thereafter 28,834

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This reduction was primarily driven by the compounding impact of the September 2018 CMS decision that rescinded Medicare Part D coverage of Auryxia for the IDA Indication and the related imposition by CMS of a prior authorization requirement for Auryxia for the Hyperphosphatemia Indication.

As a result, the Company determined indicators of impairment existed for the developed product rights for Auryxia and performed an undiscounted cash flow analysis pursuant to ASC 360-10, Impairment or Disposal of Long-lived Assets, to determine if the cash flows expected to be generated by the Auryxia asset group over the estimated remaining useful life of the primary assets were sufficient to recover the carrying value of the Auryxia asset group.

the carrying value of the Auryxia asset group.

Based on this analysis, the undiscounted cash flows were not sufficient to recover the carrying value of the Auryxia asset group.

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In the event the estimates and assumptions used in the valuation of the Auryxia asset group, including the forecasted projections, change in the future, additional impairment charges could be recorded in the future.

Goodwill was $ 55.1 million as of June 30, 2020 and December 31, 2019, derived as follows (in thousands):

Goodwill was $ 55.1 million as of September 30, 2020 and December 31, 2019, derived as follows (in thousands):

Total Merger consideration $ 527,754

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Goodwill is evaluated at the reporting unit level for impairment on an annual basis as of October 1, and more frequently if indicators are present or changes in circumstances suggest that an impairment may exist.

There were no impairments of goodwill during either of the three and six months ended June 30, 2020 or 2019, respectively.

There were no impairments of goodwill during either of the three and nine months ended September 30, 2020 or 2019, respectively.

Accrued Expenses

Accrued expenses as of June 30, 2020 and December 31, 2019 are as follows:

June 30, 2020 December 31, 2019

Accrued expenses as of September 30, 2020 and December 31, 2019 are as follows:

September 30, 2020 December 31, 2019

(in thousands)

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Royalties 2,868 2,713

Accrued commercial manufacturing 2,676 2,680

Professional fees 2,262 3,444

Accrued commercial manufacturing 634 2,680

Accrued severance 528 725

1 unchanged sentence

Total accrued expenses $ 123,021 $ 129,071

Future principal payments on the Term Loans (as defined below) as of June 30, 2020 are as follows (in thousands):

Future principal payments on the Term Loans (as defined below) as of September 30, 2020 are as follows (in thousands):

(in thousands)

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Total term loans $ 76,608

On November 11, 2019, the Company, with Keryx as guarantor, entered into a loan agreement, or the Loan Agreement, with BioPharma Credit PLC as collateral agent and a lender, or the Collateral Agent, and BioPharma Credit Investments V (Master) LP as a lender, pursuant to which term loans in an aggregate principal amount of $ 100.0 million are made available to the Company in two tranches, subject to certain terms and conditions, or the Term Loans.

On November 11, 2019, the Company, with Keryx as guarantor, entered into a loan agreement, or the Loan Agreement, with BioPharma Credit PLC as collateral agent and a lender, or the Collateral Agent, and BioPharma Credit Investments V (Master) LP as a lender, pursuant to which term loans in an aggregate principal amount of $ 100.0 million were made available to the Company in two tranches, subject to certain terms and conditions, or the Term Loans.

BioPharma Credit PLC subsequently transferred its interest in the term loans, solely in its capacity as a lender, to its affiliate, BPCR Limited Partnership.

The Collateral Agent and BPCR Limited Partnership are collectively referred to as Pharmakon.

The Collateral Agent and the lenders are collectively referred to as Pharmakon.

The first tranche of $ 80.0 million, or Tranche A, was drawn on November 25, 2019, or the Tranche A Funding Date.

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The Loan Agreement permits voluntary prepayment at any time in whole or in part, subject to a prepayment premium.

The prepayment premium would be 2.00 % of the principal amount being prepaid prior to the third anniversary of the applicable Funding Date, 1.00 % on or after the third anniversary, but prior to the fourth anniversary, of the applicable Funding Date, and 0.50 % on or after the fourth anniversary of the applicable Funding Date but prior to the Maturity Date, and a make-whole premium on or prior to the second anniversary of the applicable Funding Date in an amount equal to foregone interest through the second anniversary of the applicable Funding Date.

the second anniversary of the applicable Funding Date.

A change of control triggers a mandatory prepayment of the Term Loans.

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Under certain circumstances, a default interest rate will apply on all outstanding obligations during the occurrence and continuance of an event of default.

As of June 30, 2020 and December 31, 2019, the Company determined that no events of default had occurred.

As of September 30, 2020 and December 31, 2019, the Company determined that no events of default had occurred.

The Company assessed the terms and features of the Loan Agreement in order to identify any potential embedded features that would require bifurcation or any beneficial conversion feature.

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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 fair value of the derivative liability related to the Company’s Loan Agreement with Pharmakon was $ 1.9 million and $ 1.7 million as of June 30, 2020 and December 31, 2019, respectively.

The Company classified the derivative liability as a non-current liability on the unaudited condensed consolidated balance sheet as of June 30, 2020.

During the three and six months ended June 30, 2020, the Company recognized approximately $ 2.2 million and $ 4.4 million, respectively, of interest expense related to the Loan Agreement.

The fair value of the derivative liability related to the Company’s Loan Agreement with Pharmakon was $ 2.0 million and $ 1.7 million as of September 30, 2020 and December 31, 2019, respectively.

The Company classified the derivative liability as a non-current liability on the unaudited condensed consolidated balance sheet as of September 30, 2020.

During the three and nine months ended September 30, 2020, the Company recognized approximately $ 2.2 million and $ 6.6 million, respectively, of interest expense related to the Loan Agreement.

In 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.

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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.

As of June 30, 2020, the warrant remains outstanding and expires on February 9, 2022 .

As of September 30, 2020, the warrant remains outstanding and expires on February 9, 2022.

Stockholders’ Equity

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On June 5, 2020, the Company filed a Certificate of Amendment to its Ninth Amended and Restated Certificate of Incorporation, or its Charter, to increase the number of authorized shares of common stock from 175,000,000 to 350,000,000 .

As of June 30, 2020, the authorized capital stock of the Company included 350,000,000 shares of common stock, par value $ 0.00001 per share, of which 143,129,409 and 121,674,568 shares were issued and outstanding at June 30, 2020 and December 31, 2019, respectively;

and 25,000,000 shares of undesignated preferred stock, par value $ 0.00001 per share, of which no shares were issued and outstanding at June 30, 2020 and December 31, 2019.

As of September 30, 2020, the authorized capital stock of the Company included 350,000,000 shares of common stock, par value $ 0.00001 per share, of which 143,328,652 and 121,674,568 shares were issued and outstanding at September 30, 2020 and December 31, 2019, respectively;

and 25,000,000 shares of undesignated preferred stock, par value $ 0.00001 per share, of which no shares were issued and outstanding at September 30, 2020 and December 31, 2019.

At-the-Market Facility

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During the three months ended March 31, 2020, the Company sold 7,973,967 shares of common stock under this program with net proceeds (after deducting commissions and other offering expenses) of $ 56.7 million.

On March 12, 2020, the Company filed an additional prospectus supplement, pursuant to which it is able to offer and sell up to $ 65.0 million in its common stock at current market prices from time to time.

During the three and six months ended June 30,

2020 and through the date of this Quarterly Report on Form 10-Q, the Company did no t sell any shares of common stock pursuant to the March 12, 2020 prospectus supplement.

March 12, 2020, the Company filed an additional prospectus supplement, pursuant to which it is able to offer and sell up to $ 65.0 million in its common stock at current market prices from time to time.

During the three and nine months ended September 30, 2020 and through the date of this Quarterly Report on Form 10-Q, the Company did no t sell any shares of common stock pursuant to the March 12, 2020 prospectus supplement.

Equity Offering

On May 14, 2020, the Company sold 11,000,000 shares of its common stock in a public offering at a price to the public of $ 12.00 per share.

In May 2020, the Company sold 12,650,000 shares of its common stock in a public offering at a price of $ 12.00 per share, including 1,650,000 shares from the full exercise of the underwriters' option to purchase additional shares.

The aggregate net proceeds received by the Company from the offering were $ 142.4 million, net of underwriting discounts and commissions and offering expenses payable by the Company.

Additionally, on May 19, 2020, the underwriters exercised their option to purchase an additional 1,650,000 shares of the Company's common stock at the public offering price of $ 12.00 per share.

The aggregate net proceeds received by the Company from the underwriters' exercise of their option were $ 18.6 million, net of underwriting discounts and commissions and offering expenses payable by the Company.

The total aggregate net proceeds received by the Company from the public offering, including the underwriters' exercise of their option, were $ 142.4 million.

On February 28, 2014, the Company’s Board of Directors adopted its 2014 Incentive Plan and its 2014 Employee Stock Purchase Plan, or the 2014 ESPP, which were subsequently approved by its shareholders and became effective upon the closing of the Company’s initial public offering on March 25, 2014.

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In May 2016, the Company’s Board of Directors approved an inducement award program that was separate from the Company’s equity plans and which, consistent with Nasdaq Listing Rule 5635(c)(4), did not require shareholder approval, or the Inducement Award Program.

During the six months ended June 30, 2020, the Company granted 786,750 options to purchase shares of the Company’s common stock to new hires under the Inducement Award Program, of which all 786,750 options to purchase Akebia Shares remained outstanding at June 30, 2020.

During the nine months ended September 30, 2020, the Company granted 948,250 options to purchase shares of the Company’s common stock to new hires under the Inducement Award Program, of which 907,250 options to purchase Akebia Shares remained outstanding at September 30, 2020.

The 2014 Plan allows for the granting of stock options, stock appreciation rights, or SARs, restricted stock, unrestricted stock, RSUs, performance awards and other awards convertible into or otherwise based on shares of the Company’s common stock.

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In addition, the number of Keryx Shares available for issuance under the Keryx 2018 Plan, as adjusted by the Exchange Multiplier pursuant to the terms of the Merger Agreement, may be used for awards granted by the Company under its 2014 Plan, or the Assumed Shares, provided that the Company uses the Assumed Shares for individuals who were not employees or directors of the Company prior to the consummation of the Merger.

During the six months ended June 30, 2020, the Company granted 1,714,800 options to purchase Akebia Shares to employees under the 2014 Plan, 786,750 options to purchase Akebia Shares to employees under the Inducement Award Program, 2,367,500 Akebia RSUs to employees under the 2014 Plan, 479,000 Akebia PSUs to employees under the 2014 plan, 220,900 options to purchase Akebia Shares to directors under the 2014 Plan, and 95,900 Akebia RSUs to directors under the 2014 Plan.

During the nine months ended September 30, 2020, the Company granted 1,714,800 options to purchase Akebia Shares to employees under the 2014 Plan, 948,250 options to purchase Akebia Shares to employees under the Inducement Award Program, 2,400,650 Akebia RSUs to employees under the 2014 Plan, 515,500 Akebia PSUs to employees under the 2014 plan, 220,900 options to purchase Akebia Shares to directors under the 2014 Plan, and 95,900 Akebia RSUs to directors under the 2014 Plan.

The ESPP provides for the issuance of options to purchase shares of the Company’s common stock to participating employees at a discount to their fair market value.

As noted above, the Company’s stockholders approved the ESPP, which amended and restated the Company’s 2014 ESPP, on June 6, 2019.

The maximum aggregate number of shares at June 30, 2020 of the Company’s common stock available for future issuance under the ESPP is 5,600,968 .

Under the ESPP, each offering period is six months , at the end of which employees may purchase shares of the Company’s common stock through payroll deductions

made over the term of the offering.

The maximum aggregate number of shares at September 30, 2020 of the Company’s common stock available for future issuance under the ESPP is 5,480,334 .

Under the ESPP, each offering period is six months , at the end of which employees may purchase shares of the Company’s common stock through payroll deductions made over the term of the offering.

The per-share purchase price at the end of each offering period is equal to the lesser of eighty-five percent ( 85 %) of the closing price of the Company’s common stock at the beginning or end of the offering period.

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The Company has reserved for future issuance the following number of shares of common stock:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Common stock options and RSUs outstanding (1) 15,653,443 12,195,031

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Options generally expire ten years after the date of grant.

The Company recorded approximately $ 2.4 million and $ 1.1 million of stock-based compensation expense related to stock options during the three months ended June 30, 2020 and 2019, respectively, and approximately $ 4.0 million and $ 2.2 million during the six months ended June 30, 2020 and 2019, respectively.

The Company recorded approximately $ 2.3 million and $ 1.3 million of stock-based compensation expense related to stock options during the three months ended September 30, 2020 and 2019, respectively, and approximately $ 6.3 million and $ 3.5 million during the nine months ended September 30, 2020 and 2019, respectively.

Performance-Based Stock Options

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The Company did not have any performance-based options outstanding in fiscal year 2018 prior to the Merger.

The Company did no t issue any performance-based options during the six months ended June 30, 2020 and 2019.

As of June 30, 2020, the Company had no performance-based options outstanding compared to 46,790 performance-based options outstanding at December 31, 2019.

The potential range of shares issuable pursuant to the Company’s performance-based options range from 0 % to 100 % of the target shares based on financial

Performance-based options vest up to 50 % upon achievement of performance condition and up to 50 % one year following achievement of the performance condition.

The Company did no t issue any performance-based options during the nine months ended September 30, 2020 and 2019.

As of September 30, 2020, the Company had no performance-based options outstanding compared to 46,790 performance-based options outstanding at December 31, 2019.

Restricted Stock Units

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The expense recognized for these awards is based on the grant date fair value of the Company’s common stock multiplied by the number of units granted and recognized on a straight-line basis over the vesting period.

The Company recorded approximately $ 4.2 million and $ 1.2 million of stock-based compensation expense related to employee RSUs during the three months ended June 30, 2020 and 2019, respectively, and approximately $ 7.2 million and $ 2.1 million during the six months ended June 30, 2020 and 2019, respectively.

The Company recorded approximately $ 3.9 million and $ 1.2 million of stock-based compensation expense related to employee RSUs during the three months ended September 30, 2020 and 2019, respectively, and approximately $ 11.1 million and $ 3.3 million during the nine months ended September 30, 2020 and 2019, respectively.

Performance-Based Restricted Stock Units

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The expense recognized for these awards is based on the grant date fair value of the Company’s common stock multiplied by the number of units granted and recognized over time based on the probability of meeting such commercial and regulatory milestones.

The Company recorded approximately $ 0.2 million and $ 0 of stock-based compensation expense related to employee PSUs during the three months ended June 30, 2020 and 2019, respectively, and approximately $ 0.3 million and $ 0 during the six months ended June 30, 2020 and 2019, respectively.

The Company recorded approximately $ 0.1 million and $ 0 of stock-based compensation expense related to employee PSUs during the three months ended September 30, 2020 and 2019, respectively, and approximately $ 0.4 million and $ 0 during the nine months ended September 30, 2020 and 2019, respectively.

Employee Stock Purchase Plan

The first offering period under the ESPP opened on January 2, 2015.

The Company issued 115,024 shares during the six months ended June 30, 2020.

The Company recorded approximately $ 0.2 million and $ 43,000 of stock-based compensation expense related to the ESPP during the three months ended June 30, 2020 and 2019, respectively, and approximately $ 0.3 million and $ 0.1 million during the six months ended June 30, 2020 and 2019, respectively.

The Company issued 235,658 shares during the nine months ended September 30, 2020.

The Company recorded approximately $ 0.3 million and $ 0.1 million of stock-based compensation expense related to the ESPP during the three months ended September 30, 2020 and 2019, respectively, and approximately $ 0.6 million and $ 0.2 million during the nine months ended September 30, 2020 and 2019, respectively.

Compensation Expense Summary

The Company has classified its stock-based compensation expense related to share-based awards as follows:

Three Months Ended Six Months Ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Three Months Ended Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

(in thousands) (in thousands)

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Compensation expense by type of award:

Three Months Ended Six Months Ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Three Months Ended Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

(in thousands) (in thousands)

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The lease agreements do not contain residual value guarantees.

Operating lease costs were $ 1.6 million for each of the three months ended June 30, 2020 and 2019 and $ 3.3 million for each of the six months ended June 30, 2020 and 2019.

Cash paid for amounts included in the measurement of operating lease liabilities was $ 1.8 million and $ 1.7 million for the three months ended June 30, 2020 and 2019, respectively, and $ 3.5 million and $ 3.4 million for the six months ended June 30, 2020 and 2019, respectively.

Operating lease costs were $ 1.7 million for each of the three months ended September 30, 2020 and 2019 and $ 5.0 million for each of the nine months ended September 30, 2020 and 2019.

Cash paid for amounts included in the measurement of operating lease liabilities was $ 1.8 million and $ 1.7 million for the three months ended September 30, 2020 and 2019, respectively, and $ 5.3 million and $ 5.2 million for the nine months ended September 30, 2020 and 2019, respectively.

In September 2019, Keryx entered into an agreement to sublease the Boston office space to Foundation Medicine, Inc., or Foundation.

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Keryx continues to be obligated for all payment terms pursuant to the Boston Lease, and the Company will guaranty Keryx’s obligations under the sublease.

Keryx recorded $ 0.5 million and $ 0.9 million in sublease rental income from Foundation during the three and six months ended June 30, 2020, respectively.

The Company has not entered into any material short-term leases or financing leases as of June 30, 2020.

The total security deposit in connection with the Cambridge Lease is $ 1.6 million as of June 30, 2020.

Keryx recorded $ 0.4 million and $ 1.3 million in sublease rental income from Foundation during the three and nine months ended September 30, 2020, respectively.

The Company has not entered into any material short-term leases or financing leases as of September 30, 2020.

The total security deposit in connection with the Cambridge Lease is $ 1.6 million as of September 30, 2020.

Additionally, the Company recorded $ 0.8 million for the security deposit under the Boston Lease.

Both the Cambridge Lease and the Boston Lease have their security deposits in the form of a letter of credit, all of which are included in prepaid expenses and other current assets in the Company’s unaudited condensed consolidated balance sheets as of June 30, 2020.

As of June 30, 2020, undiscounted minimum rental commitments under non-cancelable leases, for each of the next five years and total thereafter are as follows:

As of September 30, 2020, undiscounted minimum rental commitments under non-cancelable leases, for each of the next five years and total thereafter are as follows:

Leases Lease Payments

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In arriving at the operating lease liabilities, the Company applied incremental borrowing rates ranging from 5.91 % to 6.94 %, which were based on the remaining lease term at the date of adoption of ASC 842, which was January 1, 2019.

As of June 30, 2020, the remaining lease terms ranged from 1.42 years to 6.20 years.

As of June 30, 2020, the following represents the difference between the remaining undiscounted minimum rental commitments under non-cancelable leases and the operating lease liabilities:

As of September 30, 2020, the remaining lease terms ranged from 1.17 years to 5.95 years.

As of September 30, 2020, the following represents the difference between the remaining undiscounted minimum rental commitments under non-cancelable leases and the operating lease liabilities:

(in thousands)

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Manufacturing Agreements

As part of the Merger, the Company retained Keryx’s commercial supply agreements with BioVectra and Siegfried Evionnaz SA, or Siegfried, to supply commercial drug substance for Auryxia.

Pursuant to the Manufacture and Supply Agreement with BioVectra and the Product Manufacture and Supply and Facility Construction Agreement with BioVectra, collectively the BioVectra Agreement, the Company has agreed to purchase a minimum quantity of drug substance of Auryxia at predetermined prices.

The price per kilogram will decrease with an increase in quantity above the minimum purchase quantity.

In addition, the BioVectra Agreement contained contingent milestone payments for capital developments in connection with construction of an expansion of the site of the BioVectra production facility for the manufacture of drug substance for Auryxia.

These milestone payments were achieved by BioVectra and fully recorded prior to the Merger.

These milestone payments are recorded in other assets and amortized into drug substance as inventory is released to the Company.

The term of the BioVectra Agreement expires in late 2026 , after which, it automatically renews for specified terms until terminated.

The Company may terminate the BioVectra Agreement prior to the expiration of the contract term, which could result in early termination fee.

As of June 30, 2020, the Company is required to purchase a minimum quantity of drug substance for Auryxia annually at a total cost of approximately $ 127.0 million through the end of the contract term.

As part of purchase accounting, the Company identified an executory contract in the BioVectra Agreement, which includes future firm purchase commitments.

This executory contract was deemed to have an off-market element related to the amount of purchase commitments that exceed the current forecast.

As a result, the Company recorded a liability of $ 29.5 million in purchase accounting as of the acquisition date for the fair value of the off-market element.

In the second quarter of 2020, in connection with the reduced short-term and long-term Auryxia revenue forecast discussed in Note 9, the Company increased its liability for excess purchase commitments by $ 11.0 million for a total liability of $ 41.5 million and recorded a corresponding charge to cost of goods sold.

Additionally, through June 30, 2020, the Company recorded $ 1.0 million in accretion expense related to the present value discount associated with this liability.

As a result of the Merger, the Company's contractual obligations include Keryx’s commercial supply agreements with BioVectra and Siegfried Evionnaz SA, or Siegfried, to supply commercial drug substance for Auryxia.

Pursuant to the Manufacture and Supply Agreement with BioVectra and the Product Manufacture and Supply and Facility Construction Agreement with BioVectra, collectively the BioVectra Agreement, the Company agreed to purchase minimum quantities of Auryxia drug substance annually at predetermined prices.

On September 4, 2020, the Company and BioVectra entered into an Amended and Restated Product Manufacture and Supply and Facility Construction Agreement, which provided for reduced minimum quantity commitments and revised the predetermined prices.

The price per kilogram decreases with an increase in quantity above the predetermined purchase quantity tiers.

In addition, the Manufacture and Supply Agreement with BioVectra and the Amended and Restated Product Manufacture and Supply and Facility Construction Agreement with BioVectra, collectively the Amended BioVectra Agreement, requires the Company to reimburse BioVectra for certain costs in connection with construction of a new facility for the manufacture and supply of Auryxia drug substance.

These construction costs are recorded in other assets and amortized into drug substance as inventory is released to the Company from BioVectra.

The term of the Manufacture and Supply Agreement with BioVectra expires on December 31, 2022.

The term of the Amended and Restated Product Manufacture and Supply and Facility Construction Agreement expires on December 31, 2026, after which it automatically renews for successive one-year terms unless either party gives notice of its intention to terminate within a specified time prior to the end of the then-current term.

In addition, the Company and BioVectra each have the ability to terminate these agreements upon the occurrence of certain conditions.

As of September 30, 2020, the Company is required to reimburse BioVectra for certain costs in connection with the construction of the new facility and to purchase minimum quantities of Auryxia drug substance annually for a total cost of approximately $ 96.2 million through the end of the contract term.

Pursuant to the Siegfried Master Manufacturing Services and Supply Agreement, or the Siegfried Agreement, the Company has agreed to purchase a minimum quantity of drug substance of Auryxia at predetermined prices.

2 unchanged sentences

The Siegfried Agreement provides for certain termination rights prior to December 31, 2021 for the Company.

As of June 30, 2020, the Company is required to purchase a minimum quantity of drug substance for Auryxia annually at a total cost of approximately $ 51.8 million through the year ending December 31, 2021.

As of September 30, 2020, the Company is required to purchase a minimum quantity of drug substance for Auryxia annually at a total cost of approximately $ 51.4 million through the year ending December 31, 2021.

As part of purchase accounting, the Company identified executory contracts in the commercial supply agreements between Keryx and its contract manufacturers for Auryxia, which include firm purchase commitments.

These executory contracts were deemed to have an off-market element related to the amount of purchase commitments that exceed the current forecast.

The liability related to the amount of purchase commitments that exceed the current forecast was $ 41.0 million and $ 30.2 million as of September 30, 2020 and December 31, 2019, respectively.

The $ 10.8 million increase in liability, which was largely driven by a reduction in the short-term and long-term Auryxia revenue sales forecast during the second quarter of 2020, was primarily recorded to cost of goods sold.

On April 9, 2019, the Company entered into a Supply Agreement with Esteve Química, S.A., or Esteve, or the Esteve Agreement.

The Esteve Agreement includes the terms and conditions under which Esteve will manufacture vadadustat drug substance, or API, for commercial use.

The Esteve Agreement includes the terms and conditions under which Esteve will manufacture vadadustat drug substance for commercial use.

Pursuant to the Esteve Agreement, the Company provides rolling forecasts to Esteve on a quarterly basis, or the Esteve Forecast.

The Esteve Forecast reflects the Company’s needs for API produced by Esteve over a certain number of months, represented as a quantity of API per calendar quarter.

The Esteve Forecast reflects the Company’s needs for vadadustat drug substance produced by Esteve over a certain number of months, represented as a quantity of vadadustat drug substance per calendar quarter.

The parties have agreed to a volume-based pricing structure under the Esteve Agreement.

The Esteve Agreement has an initial term of four years , beginning April 9, 2019 and ending April 9, 2023.

As of June 30, 2020, the Company had a minimum commitment with Esteve for $ 13.6 million through the second quarter of 2021.

Subsequent to June 30, 2020, the minimum commitment with Esteve increased to $ 23.9 million through the third quarter of 2021.

As of September 30, 2020, the Company has committed to purchase $ 26.0 million of vadadustat drug substance from Esteve through the second quarter of 2022.

On March 11, 2020, the Company entered into a Supply Agreement with Patheon Inc., or Patheon, or the Patheon Agreement.

4 unchanged sentences

The Patheon Agreement has an initial term beginning March 11, 2020 and ending June 30, 2023.

As of June 30, 2020, the Company had a minimum commitment with Patheon for $ 0.4 million through the fourth quarter of 2020.

Subsequent to June 30, 2020, the minimum commitment with Patheon increased to $ 1.3 million through the third quarter of 2021.

Pursuant to the Patheon Agreement, the Company has agreed to purchase a certain percentage of its or its affiliates' global demand for vadadustat drug product from Patheon.

As of September 30, 2020, the Company had a minimum commitment with Patheon for $ 1.3 million through the third quarter of 2021.

On April 2, 2020, the Company entered into a Supply Agreement with STA Pharmaceutical Hong Kong Limited, a subsidiary of WuXi AppTec, or WuXi STA, or the WuXi STA Agreement.

The WuXi STA Agreement includes the terms and conditions under which WuXi STA will manufacture vadadustat API for commercial use.

The WuXi STA Agreement includes the terms and conditions under which WuXi STA will manufacture vadadustat drug substance for commercial use.

Pursuant to the WuXi STA Agreement, the Company provides rolling forecasts to WuXi STA on a quarterly basis, or the WuXi STA Forecast.

The WuXi STA Forecast reflects the Company’s needs for API produced by WuXi STA over a certain number of months, represented as a quantity of API per calendar quarter.

The WuXi STA Forecast reflects the Company’s needs for vadadustat drug substance produced by WuXi STA over a certain number of quarters.

The parties have agreed to a volume-based pricing structure under the WuXi STA Agreement.

The WuXi STA Agreement has an initial term of four years , beginning April 2, 2020 and ending April 2, 2024.

There were no minimum commitments under the WuXi STA Agreement as of June 30, 2020.

Subsequent to June 30, 2020, the Company has a minimum commitment with WuXi STA for $ 44.7 million through the fourth quarter of 2021.

As of September 30, 2020, the Company has committed to purchase $ 44.7 million of vadadustat drug substance from WuXi STA through the fourth quarter of 2021.

Other Third Party Contracts

Under the Company’s agreement with IQVIA to provide contract research organization services for the PRO 2 TECT and INNO 2 VATE programs, the total remaining contract costs as of June 30, 2020 were approximately $ 23.2 million, of which Otsuka reimburses a significant portion back to the Company.

Under the Company’s agreement with IQVIA to provide contract research organization services for the PRO 2 TECT and INNO 2 VATE programs, the total remaining contract costs as of September 30, 2020 were approximately $ 17.6 million, of which Otsuka reimburses a significant portion back to the Company.

The estimated period of substantive performance for the committed work with IQVIA is through the end of 2020.

The Company also contracts with various other organizations to conduct research and development activities with remaining contract costs to the Company of approximately $ 68.1 million at June 30, 2020.

The Company also contracts with various other organizations to conduct research and development activities with remaining contract costs to the Company of approximately $ 119.8 million at September 30, 2020.

The scope of the services under these research and development contracts can be modified and the contracts cancelled by the Company upon written notice.

7 unchanged sentences

Changes in Company estimates could have a material impact on the Company’s results and financial position.

As of June 30, 2020, the Company does not have any significant legal disputes that require a loss liability to be recorded.

As of September 30, 2020, the Company does not have any significant legal disputes that require a loss liability to be recorded.

The Company continually monitors the need for a loss liability for litigation and related matters.

1 unchanged sentence

The shares in the table below were excluded from the calculation of diluted net loss per share, prior to the use of the treasury stock method, due to their anti-dilutive effect:

As of June 30,

As of September 30,

Warrant 509,611 509,611

2 unchanged sentences

Total 16,163,054 13,128,410

Subsequent Events

On July 15, 2020, the Company and its collaboration partner MTPC entered into a supply agreement, or the MTPC Supply Agreement.

Pursuant to the MTPC Supply Agreement, MTPC will provide a rolling forecast, or the MTPC Forecast, to the Company on a quarterly basis.

The MTPC Forecast will reflect MTPC’s needs for vadadustat drug product over a certain number of months, represented as a quantity of vadadustat drug product per calendar quarter.

MTPC will make an up-front payment for a certain percentage of each batch of vadadustat drug product ordered.

The term of the MTPC Supply Agreement will exist throughout the term of the MTPC Agreement, and the termination provisions of the MTPC Agreement govern termination of the MTPC Supply Agreement.

The MTPC Supply Agreement includes customary indemnification, intellectual property protection, confidentiality, remedies, and warranty terms, as well as certain quality requirements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements