Akebia Therapeutics, Inc. 10-K

Item 8. Financial Statements and Supplementary Data Akebia Therapeutics, Inc. Table of Contents Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 125 Financial Statements Consolidated Balance Sheets 127 Consolidated Statements of Operations and Comprehensive Loss 128 Consolidated Statements of Stockholders’ Equity 129 Consolidated Statements of Cash Flows 130 Notes to Consolidated Financial Statements 131 124 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Akebia Therapeutics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Akebia Therapeutics, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2022 expressed an adverse opinion thereon. The Company’s Ability to Continue as a Going Concern The accompanying consolidated statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and managements’ plans regarding these matters are described in Note 1. The consolidated financial statements do not include any adjustments that might results from the outcome of uncertainty. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 125 Valuation of Excess Purchase Commitment Liability Description of the Matter At December 31, 2021, the Company’s liability for excess purchase commitments related to executory contracts for Auryxia was $76.7 million. As described in Note 16, the Company records a liability for its future firm purchase commitments that exceed the Company’s current forecasts. The Company re-evaluates its excess purchase commitments each reporting period to assess whether any adjustments to its excess purchase commitments liability are necessary. This evaluation includes reviewing the contractual minimums, expiration and utilization assumptions, and sales forecasts. Inventory receipts that have been previously identified as excess are recorded as a reduction to the excess purchase commitment liability. The Company’s quarterly evaluations of for Auryxia sales forecasts, along with an amendment to a supplier agreement, resulted in the Company recording total charges to cost of sales to increase its liability for excess purchase commitments of $33.4 million during the year ended December 31, 2021. These charges are offset by inventory receipts that had been previously identified as excess totaling $12.5 million. Auditing the Company's evaluation of its excess purchase commitment liability involved complex judgment due to the significant management judgments required to estimate the value of the total excess commitment. The Company's model for estimating the liability involves significant assumptions, including projected sales volumes, which is sensitive to and affected by economic, industry and company-specific qualitative factors. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested controls over the Company's evaluation of its excess purchase commitment liability. This included controls over the model, significant assumptions, and completeness and accuracy of the data used in the evaluation. To test the Company’s evaluation of its excess purchase commitment liability, we performed audit procedures that included, among others, testing the significant inputs and assumptions discussed above, including the completeness and accuracy of the underlying data used by the Company in its analyses. We compared the significant assumptions used by management to current industry and economic trends, historical financial results, contractual obligations, and other relevant factors. We also performed a sensitivity analysis of the significant assumptions to evaluate the change in the liability that would result from changes in underlying assumptions. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2013. Boston, Massachusetts March 1, 2022 126 AKEBIA THERAPEUTICS, INC. Consolidated Balance Sheets (in thousands, except share and per share data) December 31, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 149,800 $ 228,698 Available for sale securities — 39,992 Inventory 38,195 61,017 Accounts receivable, net 50,875 26,853 Prepaid expenses and other current assets 33,140 14,877 Total current assets 272,010 371,437 Property and equipment, net 6,754 8,622 Operating lease assets 33,852 26,876 Goodwill 55,053 55,053 Other intangible assets, net 108,127 144,170 Other assets 49,754 37,981 Total assets $ 525,550 $ 644,139 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 33,588 $ 41,308 Accrued expenses and other current liabilities 104,456 130,624 Short-term deferred revenue 20,906 15,214 Current portion of long-term debt 97,543 — Total current liabilities 256,493 187,146 Deferred revenue, net of current portion 21,474 25,345 Operating lease liabilities, net of current portion 33,703 24,621 Derivative liability 1,820 2,420 Long-term debt, net — 96,378 Liability related to sale of future royalties, net 53,079 — Other non-current liabilities 82,525 60,611 Total liabilities 449,094 396,521 Commitments and contingencies (Note 16) Stockholders' equity: Preferred stock $ 0.00001 par value, 25,000,000 shares authorized at December 31, 2021 and 2020; 0 shares issued and outstanding at December 31, 2021 and 2020 — — Common stock: $ 0.00001 par value; 350,000,000 shares authorized at December 31, 2021 and 2020, respectively; 177,000,963 and 148,074,085 shares issued and outstanding at December 31, 2021 and 2020, respectively 1 1 Additional paid-in capital 1,536,800 1,425,115 Accumulated other comprehensive gain 6 13 Accumulated deficit ( 1,460,351 ) ( 1,177,511 ) Total stockholders' equity 76,456 247,618 Total liabilities and stockholders' equity $ 525,550 $ 644,139 See accompanying notes to consolidated financial statements. 127 AKEBIA THERAPEUTICS, INC. Consolidated Statements of Operations and Comprehensive Loss (in thousands, except share and per share data) Year Ended December 31, 2021 2020 2019 Revenues: Product revenue, net $ 142,216 $ 128,901 $ 111,119 License, collaboration and other revenue 71,362 166,406 223,882 Total revenues 213,578 295,307 335,001 Cost of goods sold: Product 117,352 148,866 108,935 Amortization of intangibles 36,042 31,515 36,401 Impairment of intangible asset — 115,527 — Total cost of goods sold 153,394 295,908 145,336 Operating expenses: Research and development 147,852 218,485 322,969 Selling, general and administrative 174,161 153,947 149,455 License expense 3,489 3,409 3,529 Total operating expenses 325,502 375,841 475,953 Operating loss ( 265,318 ) ( 376,442 ) ( 286,288 ) Other income (expense): Interest income (expense) ( 19,936 ) ( 8,871 ) 792 Other income (expense) 2,414 1,856 ( 794 ) Net loss before income taxes ( 282,840 ) ( 383,457 ) ( 286,290 ) Benefit from income taxes — — ( 6,631 ) Net loss $ ( 282,840 ) $ ( 383,457 ) $ ( 279,659 ) Net loss per share - basic and diluted $ ( 1.70 ) $ ( 2.77 ) $ ( 2.36 ) Weighted-average number of common shares - basic and diluted 165,949,695 138,463,152 118,395,919 Comprehensive loss: Net loss $ ( 282,840 ) $ ( 383,457 ) $ ( 279,659 ) Other comprehensive gain - unrealized gain on securities ( 7 ) 13 261 Total comprehensive loss $ ( 282,847 ) $ ( 383,444 ) $ ( 279,398 ) See accompanying notes to consolidated financial statements. 128 Akebia Therapeutics, Inc. Consolidated Statements of Stockholders’ Equity (in thousands, except share and per share data) Common Stock Additional Paid-In Capital Unrealized Gain/Loss Accumulated Deficit Total Stockholders' Equity Number of Shares $ 0.00001 Par Value Balance at December 31, 2018 116,887,518 $ 1 $ 1,150,583 $ ( 261 ) $ ( 514,395 ) $ 635,928 Issuance of common stock, net of issuance costs 4,068,912 — 25,785 — — 25,785 Proceeds from sale of stock under employee stock purchase plan 87,530 — 383 — — 383 Exercise of options 362,796 — 560 — — 560 Retired shares ( 55,324 ) — ( 426 ) — — ( 426 ) Share-based compensation expense — — 11,925 — — 11,925 Restricted stock unit vesting 323,136 — — — — — Unrealized gain — — — 261 — 261 Net loss — — — — ( 279,659 ) ( 279,659 ) Balance at December 31, 2019 121,674,568 $ 1 $ 1,188,810 $ — $ ( 794,054 ) $ 394,757 Issuance of common stock, net of issuance costs 24,133,348 — 209,519 — — 209,519 Proceeds from sale of stock under employee stock purchase plan 235,658 — 1,100 — — 1,100 Exercise of options 166,633 — 1,226 — — 1,226 Share-based compensation expense — — 24,460 — — 24,460 Restricted stock unit vesting 1,863,878 — — — — — Unrealized gain — — — 13 — 13 Net loss — — — — ( 383,457 ) ( 383,457 ) Balance at December 31, 2020 148,074,085 $ 1 $ 1,425,115 $ 13 $ ( 1,177,511 ) $ 247,618 Issuance of common stock, net of issuance costs 26,352,343 — 88,204 — — 88,204 Proceeds from sale of stock under employee stock purchase plan 307,193 — 746 — — 746 Share-based compensation expense — — 22,735 — — 22,735 Restricted stock unit vesting 2,267,342 — — — — — Unrealized gain — — — ( 7 ) — ( 7 ) Net loss — — — — ( 282,840 ) ( 282,840 ) Balance at December 31, 2021 177,000,963 $ 1 $ 1,536,800 $ 6 $ ( 1,460,351 ) $ 76,456 See accompanying notes to consolidated financial statements. 129 Akebia Therapeutics, Inc. Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, 2021 2020 2019 Operating activities: Net loss ( 282,840 ) ( 383,457 ) ( 279,659 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,927 2,075 2,245 Amortization of intangibles 36,043 31,515 36,401 Intangible asset impairment charge — 115,527 — Non-cash interest expense related to sale of future royalties 9,117 — — Non-cash royalty revenue related to sale of future royalties ( 821 ) — — Amortization of premium/discount on investments ( 15 ) ( 47 ) ( 819 ) Non-cash interest expense 1,165 1,534 786 Non-cash operating lease expense ( 1,842 ) ( 2,037 ) ( 2,229 ) Write-off of property and equipment — — 2,053 Fair value step-up of inventory sold or written off 21,575 68,240 70,444 Write-down of inventory 15,618 20,072 7,112 Change in excess inventory purchase commitments 33,391 25,114 — Stock-based compensation 22,735 24,460 11,925 Deferred income taxes — — ( 6,631 ) Change in fair value of derivative liability ( 600 ) 286 — Changes in operating assets and liabilities: Accounts receivable ( 24,022 ) 12,011 ( 22,198 ) Inventory ( 25,847 ) 6,163 ( 29,142 ) Prepaid expenses and other current assets ( 18,658 ) ( 8,119 ) 10,541 Operating lease assets ( 13,888 ) — — Other long-term assets 5,674 ( 2,779 ) 4,917 Accounts payable ( 11,735 ) 3,678 1,372 Accrued expense ( 24,680 ) 6,356 ( 27,351 ) Operating lease liabilities 15,398 1,411 2,531 Deferred revenue 1,821 ( 32,391 ) ( 39,739 ) Other non-current liabilities ( 12,481 ) — — Net cash used in operating activities ( 252,965 ) ( 110,388 ) ( 257,441 ) Investing activities: Purchase of property and equipment ( 59 ) ( 317 ) ( 6,655 ) Purchase of available for sale securities — ( 99,932 ) — Proceeds from the maturities of available for sale securities 40,000 60,245 153,110 Proceeds from sales of available for sale securities — — 64,721 Net cash provided by (used in) investing activities 39,941 ( 40,004 ) 211,176 Financing activities: Proceeds from sale of future royalties, net 44,783 — — Proceeds from the issuance of common stock, net of issuance costs 88,202 209,419 25,785 Proceeds from the sale of stock under employee stock purchase plan 746 1,100 383 Proceeds from the exercise of stock options — 1,226 560 Retirement of treasury stock — — ( 426 ) Proceeds from the issuance of debt, net — 19,975 77,668 Payments on debt — — ( 15,000 ) Net cash provided by financing activities 133,731 231,720 88,970 Increase (decrease) in cash, cash equivalents, and restricted cash ( 79,293 ) 81,328 42,705 Cash, cash equivalents, and restricted cash at beginning of the period 231,132 149,804 107,099 Cash, cash equivalents, and restricted cash at end of the period $ 151,839 $ 231,132 $ 149,804 Non-cash financing activities Unpaid offering costs $ 2 $ 100 $ — Cash paid for: Interest 9,632 7,843 781 See accompanying notes to consolidated financial statements. 130 Akebia Therapeutics, Inc. Notes to Consolidated Financial Statements 1. Nature of Organization and Operations Akebia Therapeutics, Inc., referred to as Akebia or the Company, was incorporated in the State of Delaware in 2007. Akebia is a biopharmaceutical company with the purpose of bettering the lives of people living with kidney disease. Akebia’s lead investigational product candidate, vadadustat, is an oral therapy for the treatment of anemia due to chronic kidney disease, or CKD. Vadadustat is an oral hypoxia-inducible factor prolyl hydroxylase, or HIF-PH inhibitor 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 stimulates erythropoietin, or EPO, production and can lead to red blood cell, or RBC, production and improved oxygen delivery to tissues. The Company submitted a New Drug Application, or NDA, to the U.S. Food and Drug Administration, or FDA, for vadadustat in March of 2021 for the treatment of anemia due to CKD in adult patients with CKD on dialysis, or DD-CKD, and adult patients with CKD not on dialysis, or NDD-CKD. The Company's NDA submission was accepted for filing by the FDA in May 2021 and the FDA has indicated that they are not currently planning to hold an Advisory Committee meeting to discuss the application for vadadustat. The FDA also assigned the application standard review and a Prescription Drug User Fee Act, or PDUFA, target action date of March 29, 2022. The Company’s collaboration partner, Otsuka Pharmaceutical Co. Ltd., submitted a Marketing Authorization Application, or MAA, for vadadustat for the treatment of anemia due to CKD in both DD-CKD and NDD-CKD adult patients to the European Medicines Agency, or EMA, in October 2021 . 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 TM . 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, the control of serum phosphorus levels in adult patients with CKD on dialysis, or DD-CKD, and the treatment of iron deficiency anemia, or IDA, in adult patients with CKD not on dialysis, or NDD-CKD. Ferric citrate is also approved and marketed in Japan as an oral treatment for the improvement of hyperphosphatemia in patients with DD-CKD and NDD-CKD under the trade name Riona (ferric citrate hydrate). Since inception, the Company has devoted most of its resources to research and development, including its preclinical and clinical development activities and commercializing Auryxia, and providing general and administrative support for these operations. The Company began recording revenue from the U.S. sales of Auryxia and revenue from sublicensing rights to Auryxia in Japan to the Company’s Japanese partners Japan Tobacco, Inc. and its subsidiary Torii Pharmaceutical Co., Ltd., collectively JT and Torii, on December 12, 2018 following the consummation of the Merger with Keryx. 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 in August 2020. In February 2021, the Company entered into a royalty interest acquisition agreement with HealthCare Royalty Partners IV, L.P., or the Royalty Agreement, whereby the Company sold its right to receive royalties and sales milestones under its Collaboration Agreement with MTPC, or the MTPC Agreement, subject to certain caps and other terms and conditions (see Note 5 for additional information). The Company has not generated a profit to date and may never generate profits from product sales. Vadadustat and the Company’s other potential product candidates are subject to long development cycles, and the Company may be unsuccessful in its efforts to develop, obtain marketing approval for or market vadadustat and its other potential product candidates. If the Company does not successfully commercialize Auryxia, vadadustat or any other potential product candidate, it may be unable to achieve profitability. Going Concern As of December 31, 2021, the Company had cash and cash equivalents of approximately $ 149.8 million. The Company expects its cash resources to fund its current operating plan for at least twelve months from the date of this filing. However, the potential timely regulatory approval of vadadustat and the receipt of associated regulatory milestones is an important source of funding of our cash runway, which is outside of the Company’s control. There can be no assurance that the current operating plan, including with respect to vadadustat, if approved, will be achieved in the time frame anticipated by the Company, or that its cash resources will fund the Company’s operating plan for the period anticipated by the Company or that additional funding will be available on terms acceptable to the Company, or at all. In addition, on February 18, 2022, the Company and BioPharma Credit PLC, or the Collateral Agent, BPCR Limited Partnership, as a Lender, and BioPharma Credit Investments V (Master) LP. as a Lender, entered into the First Amendment and Waiver, or the First Amendment and Waiver, which amends and waives certain provisions of the Loan Agreement, dated November 11, 2019 (see Note 18). Pursuant to the Loan Agreement, as amended, the Company’s filings of Form 10-Q for fiscal quarters ending June 30, 2022 and September 30, 2022, and its future Annual Reports on Form 10-K, must not be subject to any qualification as to going concern. If the Company does not satisfy the covenant as to going concern in any of these filings, the Company will be in default under the Loan Agreement. If an event of default occurs and is continuing under the Loan 131 Agreement, the Collateral Agent is entitled to take enforcement action, including acceleration of amounts due under the Loan Agreement, which the Company may not have the available cash resources to repay at such time. The Company's management completed its going concern assessment in accordance with ASC 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern , or ASC 205-40. Pursuant to the requirements of ASC 205-40, the Company’s management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, the Company’s management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of the Company’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The Company believes that its cash resources will be sufficient to allow the Company to fund its current operating plan through at least the next twelve months from the filing of the Company’s 2021 Annual Report on Form 10-K. However, as certain elements of the Company’s operating plan are outside of the Company’s control, including the potential timely regulatory approval of vadadustat and the receipt of associated regulatory milestones, they cannot be considered probable under ASC 205-40. There also is uncertainty as to whether or not the Company will meet our quarterly and annual debt covenants. These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year after the date the financial statements are issued. The Company will require additional capital to fund its operating plan beyond the next twelve months, including pursuing development and commercial activities related to Auryxia and vadadustat, if approved, or any additional products and product candidates, including those that may be in-licensed or acquired. The Company expects to finance future cash needs through product revenue Management’s plans to alleviate the conditions that raise substantial doubt include raising additional funding through product revenue, earning milestone payments pursuant to the Company’s collaboration agreements, public or private equity or debt transactions, payments from its collaborators, strategic transactions, or a combination of these approaches. However, adequate additional financing may not be available to the Company on acceptable terms, or at all. If the Company is unable to raise capital in sufficient amounts when needed or on attractive terms, it may not be able to pursue development and commercial activities related to Auryxia and vadadustat or any additional products and product candidates, including those that may be in-licensed or acquired. for the Company to continue as a going concern for a period of twelve months from the date the financial statements are issued. The Company has concluded the likelihood that its plan to obtain sufficient funding from one or more of these sources will be successful, while reasonably possible, is less than probable. Accordingly, the Company has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least twelve months from the date of issuance of these financial statements. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities, other than obligations under the Loan Agreement classified as current, that might result from the outcome of the uncertainties described above. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification, or ASC, and Accounting Standards Update, or ASU, of the Financial Accounting Standards Board, or FASB. New Accounting Pronouncements – Recently Adopted 132 In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard became effective for the Company on January 1, 2021. ASU 2019-12 requires certain amendments to be applied using a modified retrospective approach, which requires a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption, while other amendments should be applied on a prospective basis. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures. New Accounting Pronouncements – Not Yet Adopted In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating its contracts and the optional expedients provided by the new standard. Segment Information Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment, which is the business of developing and commercializing novel therapeutics for people with kidney disease. Derivative Financial Instruments The Company accounts for warrants and other derivative financial instruments as either equity or liabilities in accordance with ASC Topic 815, Derivatives and Hedging, or ASC 815, based upon the characteristics and provisions of each instrument. Warrants classified as equity are recorded at fair value as of the date of issuance on the Company’s consolidated balance sheets and no further adjustments to their valuation are made. Warrants classified as derivative liabilities and other derivative financial instruments that require separate accounting as liabilities are recorded on the Company’s consolidated balance sheets at their fair value on the date of issuance and will be revalued on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting periods recorded as other income or expense. The warrant issued by the Company in connection with the Janssen Pharmaceutica NV Research and License Agreement, the Janssen Agreement, is classified as equity in the Company’s consolidated balance sheet at December 31, 2021 (see Note 12). The derivative liability recorded in connection with the Company’s Loan Agreement with Pharmakon is classified as a liability in the Company’s consolidated balance sheet (see Note 11). Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. Estimates are used in the following areas, among others: prepaid and accrued research and development expense, operating lease assets and liabilities, derivative liabilities, other non-current liabilities, including the excess purchase commitment liability, stock-based compensation expense, product and collaboration revenues including various rebates and reserves related to product sales, non-cash interest expense on the liability related to sale of future royalties, inventories, income taxes, intangible assets and goodwill. The Company has made estimates of the impact of COVID-19 within the consolidated financial statements and there may be changes to those estimates in future periods including changes to sales, payer mix, reserves and allowances, intangible assets and goodwill. 133 Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Credit Losses Available for sale debt securities. Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each balance sheet date. The Company classifies all securities as available for sale and includes them in current assets as they are intended to fund current operations. The Company's investment portfolio at any point in time contains investments in money market mutual funds, U.S. government debt securities, certificates of deposit and corporate debt securities. The Company segments its portfolio based on the underlying risk profiles of the securities and have a zero loss expectation for money market mutual funds, U.S. government debt securities and certificates of deposit. The Company regularly reviews the securities in an unrealized loss position and evaluates the current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions. Factors considered also include whether a decline in fair value below the amortized cost basis is due to credit-related factors or noncredit-related factors, the financial condition and near-term prospects of the issuer, and the Company's intent and ability to hold the investment to allow for an anticipated recovery in fair value. Any unrealized loss that is not credit related is recognized in other comprehensive (loss) income in the consolidated statements of operations. A credit-related unrealized loss is recognized as an allowance on the consolidated balance sheets with a corresponding adjustment to earnings in the consolidated statements of operations. Cash, Cash Equivalents, and Restricted Cash Cash and cash equivalents consist of all cash on hand, deposits and funds invested in available for sale securities with original maturities of three months or less at the time of purchase. Cash equivalents are reported at fair value. At December 31, 2021, 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. Restricted cash is included in “prepaid expenses and other current assets” and “other assets” in the consolidated balance sheets. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheet that sum to the total of the amounts reported in the consolidated statement of cash flows (in thousands): December 31, 2021 December 31, 2020 December 31, 2019 Cash and cash equivalents $ 149,800 $ 228,698 $ 147,449 Prepaid expenses and other current assets — 395 263 Other assets 2,039 2,039 2,092 Total cash, cash equivalents, and restricted cash shown in the statement of cash flows $ 151,839 $ 231,132 $ 149,804 Investments Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each balance sheet date. Currently, the Company classifies all securities as available for sale which are included in current assets as they are intended to fund current operations. The Company carries available for sale securities at fair value. The Company conducts periodic reviews to identify and evaluate each investment that has an unrealized loss, in accordance with the meaning of other-than-temporary impairment and its application to certain investments. When assessing whether a decline in the fair value of a security is other-than-temporary, the Company considers the fair market value of the security, the duration of the security’s decline, and prospects for the underlying business. Based on these considerations, the Company did not identify any other-than-temporary unrealized losses at December 31, 2021. Unrealized losses on available for sale securities that are determined to be temporary, and not related to credit loss, are recorded in accumulated other comprehensive loss, a component of stockholders’ equity. The amortized cost of debt securities in this category reflects amortization of premiums and accretion of discounts to maturity computed under the effective interest method. The Company includes this amortization in the caption “Interest income, net” within the consolidated statements of operations and comprehensive loss. The Company also includes in net investment income, realized gains and losses and declines in value determined to be other than temporary. The Company 134 bases the cost of securities sold upon the specific identification method and includes interest and dividends on securities in interest income. Accounts Receivable The Company’s accounts receivable represent amounts due to the Company from product sales (see Note 3) and from its collaboration agreements with MTPC and Otsuka (see Note 4). Reimbursable costs that have not been invoiced as of the balance sheet date are recorded as unbilled accounts receivable. Accounts receivable arising from product sales primarily represent amounts due from wholesale distributors as well as certain specialty pharmacy providers, or collectively, Customers. The Company deducts trade allowances for prompt payment, among other discounts, from its accounts receivable based on its experience that the Company’s Customers will earn these discounts and fees. The Company makes judgments as to its ability to collect outstanding receivables and provides an allowance for receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices and the overall quality and age of those invoices not specifically reviewed as well as historical payment patterns and existing economic factors. The Company believes that credit risks associated with its customers and collaboration partners are not significant. The Company did not have a material allowance for doubtful accounts as of December 31, 2021 and 2020. Concentrations of Credit Risk and Off-Balance Sheet Risk Cash, cash equivalents, investments, and accounts receivable are the only financial instruments that potentially subject the Company to concentrations of credit risk. The Company maintains its cash, cash equivalents, and investments with high quality, accredited financial institutions and, accordingly, such funds are subject to minimal credit risk. The Company’s investment policy includes guidelines on the quality of the institutions and financial instruments and defines allowable investments that the Company believes minimizes the exposure to concentration of credit risk. The Company has no significant off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements. Accounts receivable represent amounts due from the Company’s customers and collaboration partners. As part of its credit management policy, the Company performs ongoing credit evaluations of its Customers and generally does not require collateral from any customer. The Company also monitors economic conditions of its collaboration partners to identify facts or circumstances that may indicate that any of its accounts receivable are at risk of collection. Gross revenues and accounts receivable from each of the Company’s Customers or collaboration partners who individually accounted for 10% or more of total gross revenues and/or 10% or more of total gross accounts receivable consisted of the following: Percent of Total Gross Revenues Years Ended December 31, 2021 2020 2019 Fresenius Medical Care Rx 33 % 29 % 21 % AmerisourceBergen Drug Corporation 16 % 12 % 10 % Otsuka Pharmaceutical Co. Ltd. 14 % 29 % 45 % McKesson Corporation 13 % 11 % — % Cardinal Health, Inc. 11 % — % — % Percent of Gross Accounts Receivable As of December 31, 2021 2020 Otsuka Pharmaceutical Co. Ltd. 22 % — % MTPC 20 % — % Fresenius Medical Care Rx 16 % 19 % AmerisourceBergen Drug Corporation 15 % 29 % Cardinal Health, Inc. 10 % 14 % McKesson Corporation — % 12 % 135 Property and Equipment Property and equipment is stated at cost, less accumulated depreciation. Assets under capital lease are included in property and equipment. Property and equipment is depreciated using the straight-line method over the estimated useful lives of the assets, generally three years to seven years . Such costs are periodically reviewed for recoverability when impairment indicators are present. Such indicators include, among other factors, unused capacity, market value declines and technological obsolescence. 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 December 31, 2021 and 2020. Useful Life December 31, 2021 December 31, 2020 (in thousands) Computer equipment and software 3 $ 1,010 $ 1,010 Furniture and fixtures 5 - 7 2,086 2,086 Equipment 7 2,750 2,692 Leasehold improvements Shorter of the useful life or remaining lease term 8,573 8,573 14,419 14,361 Less accumulated depreciation ( 7,665 ) ( 5,739 ) Net property and equipment $ 6,754 $ 8,622 Depreciation expense was approximately $ 1.9 million, $ 2.1 million and $ 2.2 million for the years ended December 31, 2021, 2020 and 2019, respectively. Leases In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires entities to recognize right-of-use assets and lease liabilities for leases with lease terms of more than 12 months on their balance sheets and provide enhanced disclosures. In 2018, the FASB issued additional ASUs related to Topic 842, or ASC 842, that clarified various aspects of the new lease guidance, including how to record certain transition adjustments, as well as other improvements and practical expedients. The Company made an accounting policy election not to recognize leases with an initial term of 12 months or less within its consolidated balance sheets and to recognize those lease payments on a straight-line basis in its consolidated statements of operations. The Company also made the accounting policy election not to separate the non-lease components from the lease components for its building leases and, rather, account for each non-lease component and lease component as a single component. The Company determines if an arrangement is a lease at inception. An arrangement is determined to contain a lease if the contract conveys the right to control the use of an identified property, plant, or equipment for a period of time in exchange for consideration. If the Company can benefit from the various underlying assets of a lease on their own or together with other resources that are readily available, or if the various underlying assets are neither highly dependent on nor highly interrelated with other underlying assets in the arrangement, they are considered to be a separate lease component. In the event multiple underlying assets are identified, the lease consideration is allocated to the various components based on each of the component’s relative fair value. Operating lease assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent its obligation to make lease payments arising from the leasing arrangement. Operating lease assets and operating lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company uses the implicit rate when readily determinable and uses an estimate of its incremental borrowing rate when the implicit rate is not readily determinable based upon the available information at the commencement date of lease inception. The incremental borrowing rate is determined using a credit rating scoring model to estimate the Company’s credit rating, adjusted for collateralization. The calculation of the operating lease assets includes any lease payments made and excludes any lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. 136 The Company’s operating leases are reflected in prepaid expenses and other current assets, operating lease assets, accrued expenses and operating lease liabilities, net of current portion in its consolidated balance sheets. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Inventory The Company values its inventories at the lower-of-cost or net realizable value. The Company determines the cost of its inventories, which includes amounts related to materials and manufacturing overhead, on a first-in, first-out basis. The Company classifies its inventory costs as long-term, in other assets in its consolidated balance sheets, when it expects to utilize the inventory beyond their normal operating cycle. Prior to the regulatory approval of a product candidate, the Company incurs expenses for the manufacture of material that could potentially be available to support the commercial launch of its products upon approval. Until the first reporting period when regulatory approval has been received or is otherwise considered probable and the future economic benefit is expected to be realized, the Company records all such costs as research and development expense. Inventory used in clinical trials is also expensed as research and development expense, when selected for such use. Inventory that can be used in either the production of clinical or commercial products is expensed as research and development costs when identified for use in a clinical manufacturing campaign. The Company performs an assessment of the recoverability of capitalized inventory during each reporting period, and writes down any excess and obsolete inventory to its net realizable value in the period in which the impairment is first identified. Such impairment charges, should they occur, are recorded as a component of cost of product sales in the consolidated statements of operations and comprehensive loss. The determination of whether inventory costs will be realizable requires the use of estimates by management. If actual market conditions are less favorable than projected by management, additional write-downs of inventory may be required. Additionally, the Company’s product is subject to strict quality control and monitoring that it performs throughout the manufacturing process. In the event that certain batches or units of product do not meet quality specifications, the Company will record a charge to cost of product sales, to write-down any unmarketable inventory to its estimated net realizable value. In all cases, product inventory is carried at the lower of cost or its estimated net realizable value. Debt The Company performs an assessment of all embedded features of a debt instrument to determine if (1) such features should be bifurcated and separately accounted for, and (2) if bifurcation requirements are met, whether such features should be classified and accounted for as equity or liability instruments. If the embedded feature meets the requirements to be bifurcated and accounted for as a liability, the fair value of the embedded feature is measured initially, included as a liability on the consolidated balance sheet, and re-measured to fair value at each reporting period. Any changes in fair value are recorded in the consolidated statement of operations. The Company monitors, on an ongoing basis, whether events or circumstances could give rise to a change in the classification of embedded features. Liability Related to Sale of Future Royalties The Company treats the liability related to sale of future royalties (see Note 5) as a debt financing, amortized under the effective interest rate method over the estimated life of the related expected royalty stream. The liability related to sale of future royalties and the debt amortization are based on the Company’s current estimates of future royalties expected to be paid over the life of the arrangement. The Company will periodically assess the expected royalty payments. To the extent the Company’s estimates of future royalty payments are greater or less than previous estimates or the estimated timing of such payments is materially different than previous estimates, the Company will adjust the effective interest rate and recognize related non-cash interest expense on a prospective basis. Non-cash royalty revenue is reflected as royalty revenue within license, collaboration and other revenue, and non-cash amortization of debt is reflected as interest expense in the unaudited condensed consolidated statements of operations and comprehensive loss. Excess Purchase Commitment Liability The Company 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. The Company re-evaluates the excess purchase commitments each reporting period to assess whether any adjustments to the excess purchase commitment liability are necessary. This evaluation 137 includes reviewing the contractual minimums, expiration and utilization assumptions, and sales forecasts. Inventory receipts that have been previously identified as excess are recorded as a reduction to the excess purchase commitment liability. Revenue Recognition The Company generates revenues primarily from sales of Auryxia, see Note 3, and from its collaborations with MTPC and Otsuka, see Note 4. The Company recognizes revenue in accordance with ASC 606, which applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, it performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. The Company does not include a financing component to its estimated transaction price at contract inception unless it estimates that certain performance obligations will not be satisfied within one year. Additionally, the Company recognizes the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the Company otherwise would have recognized is one year or less. Product Revenue, Net The Company sells Auryxia in the United States, or U.S., primarily to wholesale distributors as well as certain specialty pharmacy providers, collectively, Customers. These Customers resell the Company’s product to health care providers and patients. In addition to distribution agreements with Customers, the Company enters into arrangements with health care providers and payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks, and discounts with respect to the purchase of the Company’s product. The Company recognizes revenue on product sales when the Customer obtains control of the Company’s product, which occurs at a point in time, typically upon delivery to the Customer. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less. Reserves for Variable Consideration Revenue from product sales is recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established and which result from discounts, returns, chargebacks, rebates, co-pay assistance and other allowances that are offered within contracts between the Company and its Customers, health care providers, payors and other indirect customers relating to the Company’s sales of its products. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount will be credited to the Customer) or as a current liability (if the amount is payable to a Customer or a party other than a Customer). When appropriate, these estimates take into consideration a range of possible outcomes which are probability-weighted in accordance with the expected value method in ASC 606 for relevant factors such as the Company’s historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts. The amount of variable consideration that is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Company’s 138 estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known. Trade Discounts and Allowances: The Company generally provides Customers with discounts that include incentive fees that are explicitly stated in the Company’s contracts and are recorded as a reduction of revenue in the period the related product revenue is recognized. 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 consolidated statement of operations and comprehensive loss through December 31, 2021. The Company records a corresponding reduction to accounts receivable (if the trade discount and/or allowance will be credited to the Customer) or an increase to accrued expense (if the trade discount and/or allowance is payable to a Customer) on the consolidated balance sheets. Product Returns: Consistent with industry practice, the Company generally offers Customers a limited right of return which allows for the product to be returned when the product expiry is within an allowable window, when the quantity delivered is different than quantity ordered, the product is damaged in transit prior to receipt by the customer, or is subject to a recall. This right of return generally lapses once the product is provided to a patient. The Company estimates the amount of its product sales that may be returned for credit by its Customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized. The Company currently estimates product return reserve using available industry data and its own historical sales information, including its visibility into the inventory remaining in the distribution channel. Provider Chargebacks and Discounts : Chargebacks for fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to Customers who directly purchase the product from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable. Chargeback amounts are generally determined at the time of resale to the qualified healthcare provider by Customers, and the Company generally issues credits for such amounts within a few weeks of the Customer’s resale of the product. Reserves for chargebacks consist of credits that the Company expects to issue for units that remain in the distribution channel at each reporting period end that the Company expects will be sold to qualified healthcare providers, and chargebacks that Customers have claimed but for which the Company has not yet issued a credit. Commercial and Medicare Part D Rebates: The Company contracts with various commercial payor organizations, primarily health insurance companies and pharmacy benefit managers, for the payment of rebates with respect to utilization of its products. The Company estimates the rebates for commercial and Medicare Part D payors based upon (i) its contracts with the payors and (ii) information obtained from its Customers and other third parties regarding the payor mix for Auryxia. The Company estimates these rebates and records such estimates in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability. Other Government Rebates: The Company is subject to discount obligations under state Medicaid programs and other government programs. The Company estimates its Medicaid and other government programs rebates based upon a range of possible outcomes that are probability-weighted for the estimated payor mix. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included in accrued expenses and other current liabilities on the consolidated balance sheets. For Medicare, the Company also estimates the number of patients in the prescription drug coverage gap for whom the Company will owe an additional liability under the Medicare Part D program. The Company’s liability for these rebates consists of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and estimated future claims that will be made for product that has been recognized as revenue, but which remains in the distribution channel at the end of each reporting period. Other Incentives: Other incentives that the Company offers include voluntary patient assistance programs such as the Company’s co-pay assistance program, which are intended to provide financial assistance to qualified commercially insured patients with prescription drug co-payments required by payors. The calculation of the accrual for co-pay assistance is based on actual claims processed during a given period, as well as historical utilization data to estimate the amount the Company expects to receive associated with product that has been recognized as revenue, but remains in in the distribution channel at the end of each reporting period. Collaboration Revenues 139 The Company enters into out-license and collaboration agreements which are within the scope of ASC 606, under which it licenses certain rights to its product candidates to third parties. The terms of these arrangements typically include payment to the Company of one or more of the following: non-refundable, up-front license fees; development, regulatory, and commercial milestone payments; payments for manufacturing supply services the Company provides through its contract manufacturers; and royalties on net sales of licensed products. Each of these payments may result in license, collaboration and other revenue, except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues. In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under each of its agreements, the Company implements the five-step model noted above. As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine whether the individual promises should be accounted for as separate performance obligations or as a combined performance obligation, and to determine the stand-alone selling price for each performance obligation identified in the contract. A deliverable represents a separate performance obligation if both of the following criteria are met: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and (ii) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. The Company uses key assumptions to determine the stand-alone selling price, which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates, and probabilities of technical and regulatory success. With regard to the MTPC and Otsuka collaboration agreements, the Company recognizes revenue related to amounts allocated to the identified performance obligation on a proportional performance basis as the underlying services are performed. Licenses of Intellectual Property If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in an out-license and collaboration arrangement, the Company recognizes revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. Milestone Payments At the inception of each arrangement that includes development milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to assess the milestone as probable of being achieved. There is considerable judgment involved in determining whether a milestone is probable of being reached at each specific reporting period. Milestone payments that are not within the control of the Company or the customer, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenues as, or when, the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenue in the period of adjustment. Manufacturing Supply Services Arrangements that include a promise for future supply of drug substance or drug product for either clinical development or commercial supply at the licensee’s discretion are generally considered as options. The Company assesses if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations. If the Company is entitled to additional payments when the licensee exercises these options, any additional payments are recorded in license, collaboration and other revenues when the licensee obtains control of the goods, which is upon delivery. Royalties 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 140 been satisfied (or partially satisfied). The Company receives royalty payments from JT and Torii, based on net sales of Riona, and MTPC based on net sales of Vafseo in Japan. Collaborative Arrangements The Company records the elements of its collaboration agreements that represent joint operating activities in accordance with ASC Topic 808, Collaborative Arrangements (ASC 808). Accordingly, the elements of the collaboration agreements that represent activities in which both parties are active participants and to which both parties are exposed to the significant risks and rewards that are dependent on the commercial success of the activities are recorded as collaborative arrangements. The Company considers the guidance in ASC 606-10-15, Revenue from Contracts with Customers – Scope and Scope Exceptions , in determining the appropriate treatment for the transactions between the Company and its collaborative partners and the transactions between the Company and third parties. Generally, the classification of transactions under the collaborative arrangements is determined based on the nature and contractual terms of the arrangement along with the nature of the operations of the participants. Therefore, the Company recognizes its allocation of the shared costs incurred with respect to the jointly conducted medical affairs and commercialization and non-promotional activities under the Otsuka U.S. Agreement, as defined below in Note 4, as a component of the related expense in the period incurred. To the extent product revenue is generated from the collaboration, the Company recognizes its share of the net sales on a gross basis if the Company is deemed to be the principal in the transactions with customers, or on a net basis if the Company is instead deemed to be the agent in the transactions with customers, consistent with the guidance in ASC 606. Business Combinations and Asset Acquisitions The purchase price allocation for business combinations requires extensive use of accounting estimates and judgments to allocate the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values. Under ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business (“2017-01”), the Company first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the single asset or group of assets, as applicable, is not a business. The Company accounts for acquired businesses using the acquisition method of accounting, under which the total purchase price of an acquisition is allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. In determining fair value, the Company uses market participant assumptions pursuant to ASC Topic 820, Fair Value Measurements and Disclosures (ASC 820). Acquisition-related costs are expensed as incurred. Any excess of the consideration transferred over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. The purchase price allocations are initially prepared on a preliminary basis and are subject to change as additional information becomes available concerning the fair value and tax basis of the assets acquired and liabilities assumed. Any adjustments to the purchase price allocations are made as soon as practicable but no later than one year from the acquisition date. Acquired inventory is recorded at its fair value, which may require a step-up adjustment to recognize the inventory at its expected net realizable value. The inventory step-up is recorded to cost of product sales in the Company's consolidated statements of operations when related inventory is sold, and the Company records step-up costs associated with clinical trial material as research and development expense. Intangible Assets The Company maintains a definite-lived intangible asset related to developed product rights for Auryxia, which was acquired on December 12, 2018 as part of the Merger. Intangible assets are initially recorded at fair value and stated net of accumulated amortization and impairments. 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 remaining estimated useful life, which as of December 31, 2021 is estimated to be six 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. If an impairment indicator exists, the Company performs a recoverability test by comparing the sum of the estimated undiscounted cash flows of the intangible asset group to its carrying value on the consolidated balance sheet. If the carrying value of the intangible asset group exceeds the undiscounted cash flows used in the recoverability test, the Company will write the carrying value of the intangible 141 asset group down to the fair value in the period identified. The Company calculates the fair value of the intangible asset group as the present value of estimated future cash flows expected to be generated from the intangible asset group using a risk-adjusted discount rate. In determining estimated future cash flows associated with its intangible asset group, the Company uses market participant assumptions pursuant to ASC Topic 820, Fair Value Measurements and Disclosures (ASC 820). 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 (see Note 9). Goodwill The Company allocates any excess purchase price over the fair value of the net tangible and intangible assets acquired in a business combination to goodwill. Goodwill is evaluated for impairment on an annual basis as of October 1, and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. The Company compares the fair value of its reporting unit to its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of its reporting unit, the Company would record an impairment loss equal to the difference. As described above, the Company operates in one operating segment which the Company considers to be the only reporting unit. Fair Value of Financial Instruments The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. ASC 820 establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments, and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below: • Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. • Level 2 – Valuations based on quoted prices for similar assets or liabilities in markets that are not active, or for which all significant inputs are observable, either directly or indirectly. • Level 3 – Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Items measured at fair value on a recurring basis include available for sale securities and derivative liabilities (see Note 7). The carrying amounts of prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values due to their short-term maturities. Items measured at fair value on a nonrecurring basis include property and equipment, intangible assets and goodwill. The Company remeasures the fair value of these assets upon the occurrence of certain events. There were no impairments to assets measured using Level 3 inputs during the year ended December 31, 2021. During the second quarter of 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). There were no other impairments to assets measured using Level 3 inputs during the year ended December 31, 2020. The Company’s other financial instruments mainly consists of debt (see Note 11). The carrying amount for the Company’s Loan Agreement with Pharmakon approximates fair value because the interest rate is variable and reflects current market rates. 142 Research and Development Costs Research and development costs are expensed as incurred. Research and development expenses are comprised of costs incurred in providing research and development activities, including salaries and benefits, facilities costs, overhead costs, contract research and development services, and other outside costs. Non-refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. External research and development expenses associated with the Company’s programs include clinical trial site costs, research compounds and clinical manufacturing costs, costs incurred for consultants and other outside services, such as data management and statistical analysis support, and materials and supplies used in support of the clinical and preclinical programs. Internal costs of the Company’s clinical program include salaries, benefits, stock-based compensation, and an allocation of the Company’s facility costs. When third-party service providers’ billing terms do not coincide with the Company’s period-end, the Company is required to make estimates of its obligations to those third parties, including clinical trial and pharmaceutical development costs, contractual services costs and supply costs, incurred in a given accounting period and record accruals at the end of the period. The Company bases its estimates on its knowledge of the research and development programs, services performed for the period, past history for related activities and the expected duration of the third-party service contract, where applicable. Advertising Expenses The costs of advertising are expensed as incurred and included in selling, general and administrative expenses in the consolidated statements of operations and comprehensive loss. For the years ended December 31, 2021, 2020 and 2019, advertising expenses totaled $ 8.2 million, $ 5.0 million and $ 6.0 million, respectively, all related to Auryxia. Income Taxes Income taxes are recorded in accordance with FASB Topic 740, Income Taxes, or ASC 740, which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. All deferred taxes as of December 31, 2021 and 2020 are classified as noncurrent within the income tax provision (see Note 14). The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position, as well as consideration of the available facts and circumstances. As of December 31, 2021 and 2020, the Company does no t have any significant uncertain tax positions. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. Stock-Based Compensation The Company accounts for its stock-based compensation awards in accordance with ASC Topic 718, Compensation—Stock Compensation, or ASC 718. ASC 718 requires all stock-based payments to employees and non-employees, including grants of stock options, restricted stock, restricted stock units, or RSUs, performance-based restricted stock units, or PSUs, and modifications to existing stock awards, to be recognized in the statements of operations and comprehensive loss based on their fair values. The Company’s stock-based awards are comprised of stock options, RSUs and PSUs. The Company estimates the fair value of options granted using the Black-Scholes option pricing model. The Company uses a blend of its stock price and the quoted market price of comparable public companies to determine the fair value of restricted stock awards, common stock awards, and performance-based restricted stock awards. The Black-Scholes option pricing model requires the input of certain subjective assumptions, including (a) the expected stock price volatility, (b) the calculation of expected term of the award, (c) the risk-free interest rate and (d) expected dividends. Prior to 2017, due to the lack of company-specific historical and implied volatility data for trading the Company’s stock in the public market, the Company had based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The historical volatility was calculated based on a period of time commensurate with the expected term assumption. The computation of expected volatility was based on the historical volatility of a representative group of companies 143 with similar characteristics to the Company, including stage of product development and life science industry focus. During 2017, the Company began to estimate its volatility by using a blend of its stock price history for the length of time it has market data for its stock and the historical volatility of similar public companies for the expected term of each grant. The Company is a commercial-stage biopharmaceutical company and the representative group of companies has certain similar characteristics to the Company. The Company believes the group selected has sufficient similar economic and industry characteristics and includes companies that are most representative of the Company. The Company uses the simplified method as prescribed by the SEC Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate the expected term for options granted to employees as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The expected term is applied to the stock option grant group as a whole, as the Company does not expect substantially different exercise or post-vesting termination behavior among its employee population. For options granted to non-employees, the Company utilizes the contractual term of the arrangement as the basis for the expected term assumption. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock, which is similar to the Company’s peer group. The Company’s stock-based awards are subject to either service- or performance-based vesting conditions. Compensation expense related to awards to employees and non-employees with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term, and is adjusted for pre-vesting forfeitures in the period in which the forfeitures occur. Compensation expense related to awards to employees and non-employees with performance-based vesting conditions is recognized based on the grant date fair value over the requisite service period using the accelerated attribution method to the extent achievement of the performance condition is probable. For awards with performance conditions in which the award does not vest unless the performance condition is met, the Company recognizes expense if, and to the extent that, the Company estimates that achievement of the performance condition is probable. If the Company concludes that vesting is probable, it recognizes expense from the date it reaches this conclusion through the estimated vesting date. Net Loss per Share Basic net loss per share is calculated by dividing net loss by the weighted-average shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting weighted-average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. For purposes of the diluted net loss per share calculation, preferred stock, stock options, warrants, restricted stock and RSUs are considered to be common stock equivalents, but have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive for all periods presented. Therefore, basic and diluted net loss per share were the same for all periods presented. Diluted net income per share is calculated by dividing the net income by the weighted-average common shares outstanding for the period, including any dilutive effect from outstanding options, warrants, restricted stock and RSUs using the treasury stock method. 3. Product Revenue, Net To date, the Company’s only source of product revenue has been from the U.S. sales of Auryxia. Total net product revenue was $ 142.2 million, $ 128.9 million, and $ 111.1 million for the years ended December 31, 2021, 2020, and 2019, respectively. The following table summarizes activity in each of the product revenue allowance and reserve categories for the years ended December 31, 2019, 2020, and 2021 (in thousands): 144 Chargebacks and Discounts Rebates, Fees and other Deductions Returns Total Balance at December 31, 2018 $ 516 $ 22,861 $ 360 $ 23,737 Provisions related to sales in current year 7,822 110,866 2,008 120,696 Adjustments related to prior year sales — 1,149 — $ 1,149 Credits/payments made ( 7,600 ) ( 104,324 ) ( 2,115 ) $ ( 114,039 ) Balance at December 31, 2019 738 30,552 253 31,543 Current provisions related to sales in current year 10,559 149,472 7,238 167,269 Adjustments related to prior year sales — 377 — 377 Credits/payments made ( 10,495 ) ( 140,489 ) ( 6,842 ) ( 157,826 ) Balance at December 31, 2020 $ 802 $ 39,912 $ 649 $ 41,363 Current provisions related to sales in current year 11,759 133,297 5,852 150,908 Adjustments related to prior year sales ( 1 ) ( 1,790 ) — ( 1,791 ) Credits/payments made ( 11,282 ) ( 144,794 ) ( 6,026 ) ( 162,102 ) Balance at December 31, 2021 $ 1,278 $ 26,625 $ 475 $ 28,378 Chargebacks, discounts and returns are recorded as a direct reduction of revenue on the consolidated statement of operations with a corresponding reduction to accounts receivable on the consolidated balance sheets. Rebates, distribution-related fees, and other sales-related deductions are recorded as a reduction in revenue on the consolidated statement of operations with a corresponding increase to accrued liabilities or accounts payable on the consolidated balance sheets. Accounts receivable, net related to product sales was approximately $ 24.6 million and $ 21.9 million as of December 31, 2021 and 2020, respectively. 4. License, Collaboration and Other Significant Agreements During the years ended December 31, 2021, 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 December 31, 2021: For the Year Ended December 31, 2021 2020 2019 License, Collaboration and Other Revenue: (in thousands) MTPC Agreement $ 12,438 $ 15,405 $ 10,000 Otsuka U.S. Agreement 36,588 93,446 131,314 Otsuka International Agreement 16,449 45,451 75,614 Total Proportional Performance Revenue $ 65,475 $ 154,302 $ 216,928 JT and Torii 5,814 5,681 5,882 MTPC Other Revenue 73 6,423 1,072 Total License, Collaboration and Other Revenue $ 71,362 $ 166,406 $ 223,882 December 31, 2021 Short-Term Long-Term Total Deferred Revenue: (in thousands) Otsuka U.S. Agreement $ 7,970 $ 12,402 $ 20,372 Otsuka International Agreement 5,467 4,393 $ 9,860 MTPC 7,469 — $ 7,469 Vifor Agreement — 4,679 $ 4,679 Total $ 20,906 $ 21,474 $ 42,380 The following table presents changes in the Company’s contract assets and liabilities during the years ended December 31, 2021 and 2020 (in thousands): 145 Balance at Beginning of Period Additions Deductions Balance at End of Period Twelve Months Ended December 31, 2021 Contract assets: Accounts receivable (1) $ 3,045 $ 64,676 $ ( 48,627 ) $ 19,094 Prepaid expenses and other current assets $ 1,722 $ 2,592 $ ( 5 ) $ 4,309 Contract liabilities: Deferred revenue $ 40,559 $ 83,491 $ ( 81,670 ) $ 42,380 Accounts payable $ 7,227 $ 3,171 $ ( 7,227 ) $ 3,171 Accrued expenses and other current liabilities $ 10,000 $ — $ ( 10,000 ) $ — Twelve Months Ended December 31, 2020 Contract assets: Accounts receivable (1) $ 15,822 $ 161,772 $ ( 174,549 ) $ 3,045 Prepaid expenses and other current assets $ — $ 1,722 $ — $ 1,722 Contract liabilities: Deferred revenue $ 72,950 $ 122,108 $ ( 154,499 ) $ 40,559 Accounts payable $ — $ 17,324 $ ( 10,097 ) $ 7,227 Accrued expenses and other current liabilities $ — $ 10,615 $ ( 615 ) $ 10,000 (1) Excludes accounts receivable from other services related to clinical and regulatory activities performed by the Company on behalf of MTPC that are not included in the performance obligations identified under the MTPC Agreement as of December 31, 2021 and 2020. Also excludes accounts receivable related to amounts due to the Company from product sales which are included in the accompanying consolidated balance sheets as of December 31, 2021 and 2020. During the years ended December 31, 2021, 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): For the Year Ended December 31, Revenue Recognized in the Period from: 2021 2020 2019 Amounts included in deferred revenue at the beginning of the period $ 23,364 $ 36,032 $ 80,634 Performance obligations satisfied in previous periods $ 81 $ 25,964 $ 45,592 Mitsubishi Tanabe Pharma Corporation Collaboration Agreement Summary of Agreement 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 to MTPC 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 was 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 for vadadustat. 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 TM as a treatment of anemia due to CKD for adult patients on dialysis and not on dialysis. In January 2022, MTPC filed a new drug application for vadadustat for the treatment of anemia due to CKD in adult patients in Taiwan. 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. Unless earlier terminated, the MTPC Agreement will continue in effect on a country-by-country basis 146 until the later of the following: expiration of the last-to-expire patent covering vadadustat in such country in the MTPC Territory; expiration of marketing or regulatory exclusivity in such country in the MTPC Territory; or ten years after the first commercial sale of vadadustat in such country in the MTPC Territory. MTPC may terminate the MTPC Agreement upon twelve months ’ notice at any time after the second anniversary of the effective date of the MTPC Agreement. Either party may terminate the MTPC Agreement upon the material breach of the other party that is not cured within a specified time period or upon the insolvency of the other party. MTPC is required to make certain milestone payments to the Company aggregating up to approximately $ 225.0 million upon the achievement of specified development, regulatory and commercial events. More specifically, the Company received $ 10.0 million in development milestone payments and is eligible to receive up to $ 40.0 million in regulatory milestone payments, of which the Company received $ 10.0 million in relation to the Japanese NDA, or JNDA, filing in the third quarter of 2019 and earned an additional $ 15.0 million following regulatory approval of vadadustat in Japan in the second quarter of 2020, which the Company received in the third quarter of 2020, and up to $ 175.0 million in commercial milestone payments associated with aggregate sales of all products. 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. The Company is also entitled to receive tiered royalty payments ranging from 13 % 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. Royalties are due on a country-by-country basis from the date of first commercial sale of a licensed product in a country until the last to occur of: (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 and $ 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. In February 2021, the Company entered into a royalty interest acquisition agreement with HealthCare Royalty Partners IV, L.P., or the Royalty Agreement, whereby the Company sold its right to receive royalties and sales milestones under the MTPC Agreement, subject to certain caps and other terms and conditions (see Note 5). Revenue Recognition The Company evaluated the elements of the MTPC Agreement in accordance with the provisions of ASC 606 and concluded that the contract counterparty, MTPC, is a customer. The Company’s arrangement with MTPC contains the following material promises under the contract at inception: (i) license under certain of the Company’s intellectual property to develop and commercialize vadadustat in the MTPC Territory (the License Deliverable), (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 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. 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 MTPC Agreement does not include a general right of return. 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 and determined it is immaterial. As such, the Company did not develop a best estimate of standalone selling price for the License, Research and Clinical Supply Performance Obligation and allocated the entire transaction price to this performance obligation. The deliverables associated with the License, Research and Clinical Supply Performance Obligation were satisfied as of June 30, 2018. The transaction price at inception was comprised of: (i) the up-front payment, (ii) the estimated cost for the Phase 2 studies, (iii) a non-substantive milestone associated with the first patient enrolled in the NDD-CKD Phase 3 study, and (iv) the cost of all clinical supply provided to MTPC for the Phase 3 studies. No other development and no regulatory milestones were included in the transaction price at inception, as all other milestone amounts were fully constrained. Subsequent to inception, the 147 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. The Company determined that the remaining consideration that may be payable to the Company subsequent to MTPC's commercial launch of Vafseo TM, in the third quarter of 2020 is quarterly royalties on net sales, sales milestones, and certain regulatory milestones. As of December 31, 2021, 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 $ 15.0 million relating to regulatory approval of vadadustat in Japan, and (vi) $ 1.2 million in royalties from net sales of Vafseo. As of December 31, 2021, 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 year ended December 31, 2020 and the $ 10.0 million regulatory milestone for the filing of the JNDA as revenue during the year ended December 31, 2019, as the regulatory milestones were both deemed probable of being achieved and the required performance obligations had been satisfied as of December 31, 2020 and 2019, respectively. The Company recognized $ 0.8 million and $ 0.4 million of revenue for royalties from the net sales of Vafseo during the years ended December 31, 2021 and 2020, respectively. As noted above, in February 2021, the Company entered into the Royalty Agreement, whereby the Company sold its right to receive these royalties and sales milestones under the MTPC Agreement, subject to certain caps and other conditions (see Note 5). The revenue is classified as collaboration revenue in the accompanying consolidated statements of operations and comprehensive loss. As of December 31, 2021, there is $ 0.2 million in accounts receivable, no deferred revenue, and no contract assets. There were no asset or liability balances related to the MTPC Agreement classified as long-term in the consolidated balance sheet as of December 31, 2021. Supply of Drug Product to MTPC In March 2020, in connection with the MTPC Agreement, the Company and MTPC executed an amendment to the MTPC Agreement pursuant to which the Company agreed to supply MTPC with certain vadadustat process validation drug product for commercial use, and MTPC agreed to reimburse the Company for certain manufacturing-related expenses. In connection with this arrangement, the Company invoiced the upfront payment of $ 10.4 million, which it received during the three months ended June 30, 2020. The Company does not recognize revenue under this arrangement until risk of loss passes to MTPC and delivery has occurred and MTPC has accepted the product. During the years ended December 31, 2021 and 2020, the Company recognized $ 0 million and $ 6.2 million, respectively, in revenue for drug product that was delivered during the applicable period. As of December 31, 2021, the Company recorded no accounts receivable, no deferred revenue, and $ 2.1 million in other current liabilities and no other non-current liabilities for drug product that is subject to return by MTPC. On July 15, 2020, the Company and its collaboration partner MTPC entered into a supply agreement, or the MTPC Supply Agreement. The MTPC Supply Agreement includes the terms and conditions under which the Company will supply vadadustat drug product to MTPC for commercial use in Japan and certain other Asian countries, as contemplated by the MTPC Agreement. Pursuant to the MTPC Supply Agreement, MTPC provides a rolling forecast, or the MTPC Forecast, to the Company on a quarterly basis. The MTPC Forecast reflects 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 makes an up-front payment for a certain percentage of each batch of vadadustat drug product ordered. The term of the MTPC Supply Agreement extends throughout the term of the MTPC Agreement, and the termination provisions of the MTPC Agreement govern termination of the MTPC Supply Agreement. During the year ended December 31, 2021, the Company recognized $ 11.6 million of revenue under the MTPC Supply Agreement and invoiced MTPC for $ 18.2 million in up-front payments for vadadustat drug product ordered by MTPC. As of December 31, 2021, the Company recorded $ 9.4 million in accounts receivable, $ 7.5 million in deferred revenues, $ 14.9 million in other current liabilities and $ 5.8 million in other non-current liabilities. 148 U.S. Collaboration and License Agreement with Otsuka Pharmaceutical Co. Ltd. Summary of Agreement On December 18, 2016, the Company entered into a collaboration and license agreement with Otsuka, or the Otsuka U.S. Agreement. The collaboration is focused on the development and commercialization of vadadustat in the United States. Under the terms of the Otsuka U.S. Agreement, the Company is responsible for leading the development of vadadustat, including the completed Phase 3 development program, and the Company controls and retains final decision making authority with respect to certain matters, including U.S. pricing strategy and manufacturing. The Company and Otsuka will co-commercialize vadadustat in the United States, subject to the approval of vadadustat by the FDA. Under the terms of the Otsuka U.S. Agreement, the Company granted to Otsuka a co-exclusive, non-sublicensable license under certain intellectual property controlled by the Company solely to perform medical affairs activities and to conduct non-promotional and commercialization activities related to vadadustat in accordance with the associated plans. The co-exclusive license relates to activities that will be jointly conducted by the Company and Otsuka pursuant to the terms of the Otsuka U.S. Agreement. Additionally, the parties agreed not to promote, market or sell any competing product in the territory covered by the Otsuka U.S. Agreement. The Company is responsible for performing all activities related to the development of vadadustat as outlined in the current global development plan, while Otsuka may agree to perform certain activities under the global development plan from time to time as agreed to by the parties. The current global development plan encompasses all activities with respect to the completed PRO 2 TECT and INNO 2 VATE clinical programs through the filing for marketing approval, as well as certain other studies. The Company’s obligations related to the conduct of the current global development plan include the associated manufacturing and supply services for vadadustat. Under the Otsuka U.S. Agreement, the parties jointly conduct all medical affairs, commercialization and non-promotional activities pursuant to underlying plans as agreed to by the parties. 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. Agreement are governed by a joint steering committee, or JSC, formed by an equal number of representatives from the Company and Otsuka. The JSC coordinates and monitors the parties’ activities under the collaboration. Among other responsibilities, the JSC manages the overall strategic alignment between the parties, oversees the current global development plan and reviews other detailed plans setting forth the parties’ activities under the arrangement, including the medical affairs plan and commercialization and non-promotional activities plan. Additionally, the parties established a joint development committee, or JDC, which is comprised of an equal number of representatives from the Company and Otsuka. Among other responsibilities, the JDC shares information related to, and reviews and discusses activities and progress under, the current global development plan and any other development that may be conducted pursuant to the collaboration. The Company and Otsuka also established a joint manufacturing committee, or JMC, which is comprised of an equal number of representatives from each of the parties. Among other responsibilities, the JMC oversees the manufacturing plan and related manufacturing activities. In support of the potential commercialization of vadadustat, the parties established a joint commercialization committee, or JCC, which is comprised of an equal number of representatives from the Company and Otsuka. Among other responsibilities, the JCC oversees the activities and progress under the commercialization and non-promotional activities plan and all other sales and marketing activities. The Company has retained final decision‑making authority with respect to certain matters, including U.S. pricing strategy and certain other key commercialization matters. Under the terms of the Otsuka U.S. Agreement, the Company received a $ 125.0 million up-front, non-refundable, non-creditable cash payment in December 2016. In March 2017, the Company received a payment of approximately $ 33.8 million, which represented reimbursement for Otsuka’s share of costs previously incurred by the Company in implementing the current global development plan through December 31, 2016. Commencing in the third quarter of 2017, whereupon the Company had incurred a specified amount of incremental costs, Otsuka began to contribute, as required by the Otsuka U.S. 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 December 31, 2016 will total $ 360.1 million or more, depending on the actual costs incurred toward the current global development plan, which amount includes the Additional Funding (as defined below). The costs associated with the performance of any development activities in addition to those outlined in the current global development plan will be subject to a cost sharing or reimbursement mechanism as set forth in the Otsuka U.S. Agreement or to be determined by the parties. Costs incurred with respect to medical affairs and commercialization and non-promotional activities will generally be shared equally by the parties. In addition, due to the costs incurred in completing the activities under the current global development plan exceeding a certain threshold in the second quarter of 2019, the Company elected to require Otsuka to increase the aggregate percentage of current global development costs it funds under 149 the Otsuka U.S. Agreement and the Otsuka International Agreement, as defined below, from 52.5 % to 80 %, or the Otsuka Funding Option. The Company estimates the additional funding as a result of exercising the Otsuka Funding Option, or the Additional Funding, to total approximately $ 149.6 million or more, depending on the actual costs incurred toward the current global development plan. The Additional Funding is fully creditable against future payments due to the Company under the arrangement, provided that future payments due to the Company may not be reduced by more than 50 % in any calendar year and any remaining creditable amount above 50 % in any calendar year will be applied to subsequent future payments until fully credited. As of December 31, 2021, the Additional Funding was $ 111.9 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 December 31, 2021, 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. Due to the uncertainty of drug development and commercialization and the high historical failure rates associated therewith, no milestone payments may ever be received from Otsuka. Under the Otsuka U.S. Agreement, the Company and Otsuka also share the costs of commercializing vadadustat in the United States and the profits from the sales of vadadustat after approval by the FDA. In connection with the profit share calculation, net sales include gross sales to third-party customers net of discounts, rebates, chargebacks, taxes, freight and insurance charges and other applicable deductions. Shared costs generally include costs attributable or reasonably allocable to the manufacture of vadadustat for commercialization purposes and the performance of medical affairs activities, non-promotional activities and commercialization activities. Unless earlier terminated, the Otsuka U.S. Agreement will expire in the United States on a product-by-product basis on the date that one or more generic versions of vadadustat first achieves 90 % market penetration. Either party may terminate the Otsuka U.S. Agreement in its entirety upon an uncured breach or insolvency on the part of the other party. 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 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 will automatically terminate and the licenses granted to the Company will become freely sublicensable. In addition, the upfront payment, all development costs and milestone payments received by the Company prior to such termination will not be refunded to Otsuka. Revenue Recognition The Company evaluated the elements of the Otsuka U.S. Agreement in accordance with the provisions of ASC 606 and concluded that the contract counterparty, Otsuka, is a customer. The Company’s arrangement with Otsuka contains the following material promises under the contract at inception: (i) license under certain of the Company’s intellectual property to develop, perform medical affairs activities with respect to and conduct non-promotional and commercialization activities related to vadadustat and products containing or comprising vadadustat (the License Deliverable), (ii) development services to be performed pursuant to the current global development plan (the Development Services Deliverable), (iii) rights to future intellectual property (the Future IP Deliverable), and (iv) joint committee services (the Committee Deliverable). The Company has identified three performance obligations in connection with its obligations under the Otsuka U.S. Agreement. 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. Agreement does not include a general right of return. The three performance obligations identified in connection with the Company’s obligations under the Otsuka U.S. Agreement are as follows: (i) License and Development Services Combined (License Performance Obligation) The License Deliverable is not distinct from the Development Services Deliverable due to the limitations inherent in the license conveyed. More specifically, the license conveyed to Otsuka does not provide Otsuka with the right to manufacture vadadustat and products containing or comprising vadadustat. However, the manufacturing and supply services that are conducted as part of the services to be performed pursuant to the current global development plan are necessary for Otsuka to fully exploit the associated license for its intended purpose. The value of the rights provided through the license conveyed will be realized when the underlying products covered by the intellectual property progress through the development cycle, receive 150 regulatory approval and are commercialized. Products containing or comprising vadadustat cannot be commercialized until the development services under the current global development plan are completed. Accordingly, Otsuka must obtain the manufacturing and supply of the associated products that are included within the development services to be performed pursuant to the current global development plan from the Company in order to derive benefit from the license, which significantly limits the ability for Otsuka to utilize the License Deliverable for its intended purpose in a way that generates economic benefits. (i) Rights to Future Intellectual Property (Future IP Performance Obligation) The License Deliverable and the Development and Services Deliverable combined are 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 joint committee services have no bearing on the value to be derived from the rights to potential future intellectual property. As a result, the Future IP Deliverable qualifies as a separate performance obligation. (i) Joint Committee Services (Committee Performance Obligation) The License Deliverable and the Development and Services Deliverable combined are distinct from the Committee Deliverable because Otsuka can obtain the value of the license using the clinical trial materials implicit in the development services without the joint committee services. The Committee Deliverable also is distinct from the rights to Future IP Deliverable because the joint committee services have no bearing on the value to be derived from the rights to potential future intellectual property. As a result, the Committee Deliverable qualifies as a separate performance obligation. The Company allocates the transaction price to each performance obligation based on the Company’s best estimate of the relative standalone selling price. The Company developed a best estimate of standalone selling price for the Committee Performance Obligation after considering the nature of the services to be performed and estimates of the associated effort and rates applicable to such services that would be expected to be realized under similar contracts. The Company developed a best estimate of standalone selling price for the Future IP Performance Obligation primarily based on the likelihood that additional intellectual property covered by the license conveyed will be developed during the term of the arrangement. The Company did not develop a best estimate of standalone selling price for the License Performance Obligation due to the following: (i) the best estimates of standalone selling price associated with the Future IP Performance Obligation was determined to be immaterial and (ii) the period of performance and pattern of recognition for the License Performance Obligation and the Committee Performance Obligation was determined to be similar. The Company 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. The transaction price at inception was comprised of: (i) the up-front payment, (ii) the cost share payment with respect to amounts incurred by the Company through December 31, 2016, and (iii) an estimate of the cost share payments to be received with respect to amounts incurred by the Company subsequent to December 31, 2016. No development or regulatory milestones were included in the transaction price at inception, as all 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. Any consideration related to sales-based milestones will be recognized when the related sales occur as they were determined to relate predominantly to the license granted to Otsuka 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. 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 amount. In connection with the modification, the Company adjusted the transaction price to include the Additional Funding amount as additional variable consideration. The Company constrains the variable consideration to an amount for which a significant revenue reversal is not probable. In the event that there is consideration received by a customer in the form of activities performed by such customer under the global development plan, such consideration is reflected as a reduction to the transaction price as contra revenue rather than as an expense because the associated services are not distinct from the License Performance Obligation. 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. Accordingly, the Company will 151 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 December 31, 2021, the transaction price totaling $ 518.9 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 $ 360.1 million with respect to amounts incurred by the Company subsequent to December 31, 2016. As of December 31, 2021, no development or regulatory milestones have been assessed as probable of being reached and thus have been fully constrained. During the years ended December 31, 2021, 2020 and 2019, the Company recognized revenue totaling approximately $ 36.6 million, $ 93.4 million and $ 131.3 million, respectively, with respect to the Otsuka U.S. Agreement. The revenue is classified as collaboration revenue in the accompanying consolidated statements of operations. As of December 31, 2021, there is approximately $ 20.4 million of deferred revenue related to the Otsuka U.S. Agreement of which $ 8.0 million is classified as current and $ 12.4 million is classified as long-term in the accompanying consolidated balance sheet based on the performance period of the underlying obligations. Additionally, as of December 31, 2021, there are approximately $ 2.0 million in contract liabilities (included in accounts payable) and $ 3.0 million in prepaid expenses and other current assets in the accompanying consolidated balance sheet. As of December 31, 2021, there were no accounts receivable in the accompanying consolidated balance sheet. The Company determined that the medical affairs, commercialization and non-promotional activities elements of the Otsuka U.S. Agreement represent joint operating activities in which both parties are active participants and of which both parties are exposed to significant risks and rewards that are dependent on the success of the activities. Accordingly, the Company is accounting for the joint medical affairs, commercialization and non-promotional activities in accordance with ASC No. 808, Collaborative Arrangements (ASC 808). Additionally, the Company has determined that in the context of the medical affairs, commercialization and non-promotional activities, Otsuka does not represent a customer as contemplated by ASC 606-10-15, Revenue from Contracts with Customers – Scope and Scope Exceptions . As a result, the activities conducted pursuant to the medical affairs, commercialization and non-promotional activities plans will be accounted for as a component of the related expense in the period incurred. During the years ended December 31, 2021, 2020 and 2019, the Company incurred approximately $ 17.5 million, $ 5.1 million and $ 1.8 million, respectively, of costs related to the cost-sharing provisions of the Otsuka U.S. Agreement of which approximately $ 8.6 million, $ 2.2 million and $ 0.7 million are reimbursable by Otsuka and recorded as a reduction to research and development expense during each of the years ended December 31, 2021, 2020 and 2019, respectively. During the years ended December 31, 2021, 2020 and 2019, Otsuka incurred approximately $ 0.9 million, $ 2.1 million and $ 1.9 million, respectively, of costs related to the cost-sharing provisions of the Otsuka U.S. Agreement, of which approximately $ 0.4 million, $ 1.1 million and $ 1.0 million are reimbursable by the Company and recorded as an increase to research and development expense during the years ended December 31, 2021, 2020 and 2019, respectively. International Collaboration and License Agreement with Otsuka Pharmaceutical Co. Ltd. Summary of Agreement On April 25, 2017, the Company entered into a collaboration and license agreement with Otsuka, or the Otsuka International Agreement. The collaboration is focused on the development and commercialization of vadadustat in Europe, Russia, China, Canada, Australia, the Middle East and certain other territories, collectively, the Otsuka International Territory. Under the terms of the Otsuka International Agreement, the Company is responsible for leading the development of vadadustat, including the completed 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. Under the terms of the Otsuka International Agreement, the Company granted to Otsuka an exclusive, sublicensable license under certain intellectual property controlled by the Company to develop and commercialize vadadustat and products containing or comprising vadadustat in the Otsuka International Territory. Pursuant to the terms of the Otsuka International Agreement, the Company is responsible for performing all activities related to the development of vadadustat as outlined in the current global development plan, while Otsuka may agree to perform certain activities under the global development plan from time to time as agreed to by the parties. Under the Otsuka International Agreement, the Company controls and retains final decision-making authority with respect to certain matters. Per the terms of the Otsuka International Agreement, Otsuka is generally responsible for the conduct of any development activities that may be 152 required for marketing approvals in the Otsuka International Territory or otherwise performed with respect to the Otsuka International Territory that are incremental to those included in the current global development plan. The Company’s obligations related to the conduct of the current global development plan include the associated manufacturing and supply services for vadadustat. Under the Otsuka International Agreement, Otsuka is to be solely responsible for the conduct of all medical affairs and commercialization activities in the Otsuka International Territory pursuant to underlying plans as reviewed and discussed by the parties. If approved by the relevant jurisdictional regulatory health authorities in the Otsuka International Territory, the Company will provide vadadustat to Otsuka for commercialization pursuant to a separate supply agreement to be negotiated. Additionally, the parties agreed not to promote, market or sell any competing product in the territory covered by the agreement. The activities under the Otsuka International Agreement are governed by a JSC formed by an equal number of representatives from the Company and Otsuka. The JSC coordinates and monitors the parties’ activities under the collaboration. Among other responsibilities, the JSC manages the overall strategic alignment between the parties, oversees the current global development plan and reviews other detailed plans setting forth any other development activities that may be conducted under the arrangement. Additionally, the parties established a JDC, which is comprised of an equal number of representatives from the Company and Otsuka. Among other responsibilities, the JDC shares information related to, and reviews and discusses activities and progress under, the current global development plan and any other development that may be conducted pursuant to the collaboration. The Company and Otsuka also established a JMC, which is comprised of an equal number of representatives from each of the parties. Among other responsibilities, the JMC oversees the manufacturing plan and related manufacturing activities. In support of the potential commercialization of vadadustat, the parties established a JCC, which is comprised of an equal number of representatives from the Company and Otsuka. Among other responsibilities, the JCC manages the activities and progress under the commercialization and non-promotional activities plan and all other sales and marketing activities. The Company has retained final decision‑making authority with respect to certain matters. Otsuka has retained final decision‑making authority with respect to all commercialization matters, other than decisions related to certain marketing matters. Under the terms of the Otsuka International Agreement, the Company received a $ 73.0 million up-front, non-refundable, non-creditable cash payment. 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. The Company estimates that Otsuka’s funding of the current global development plan costs subsequent to March 31, 2017 will total roughly $ 244.6 million or more, depending on the actual current global development plan costs incurred. The costs associated with the performance of any mutually agreed upon development activities in addition to those outlined in the current global development plan will be subject to a cost sharing or reimbursement mechanism as set forth in the Otsuka International Agreement or to be determined by the parties. Otsuka may elect to conduct additional studies of vadadustat in the EU, subject to the Company’s right to delay such studies based on its objectives outside the Otsuka International Territory. Otsuka will pay a percentage of the costs of any such studies, and the Company will pay its portion of the costs in the form of a credit against future amounts due to the Company under the Otsuka International Agreement. The costs incurred related to any other development activities, which are pursued solely for obtaining or maintaining marketing approval in the Otsuka International Territory or otherwise performed solely with respect to the Otsuka International Territory that are incremental to the development activities included in the current global development plan, will be borne in their entirety by Otsuka. Otsuka will pay costs incurred with respect to medical affairs and commercialization activities in the Otsuka International Territory. 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 December 31, 2021, the Company is eligible to receive up to $ 17.0 million in regulatory milestone payments for the licensed HIF product if the Company achieves the associated event within 12 to 24 months of the first HIF product approval. Moreover, the Company is eligible for up to $ 525.0 million in commercial milestone payments associated with aggregate sales of all licensed products. Additionally, to the extent vadadustat is commercialized, the Company would be entitled to receive tiered royalty payments ranging from the low double digits to the low thirties based on a percentage of net sales. Royalties are due on a country-by-country basis from the date of the first commercial sale of a licensed product in a country until the latest to occur of: (i) the expiration date in such country of the last to expire valid claim within the intellectual property covering the licensed product, (ii) the date of expiration of data 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 pharmaceutical development and the high historical failure rates associated therewith, no milestone or royalty payments may ever be received from Otsuka. There are no cancellation, termination or refund provisions in the Otsuka International Agreement that contain material financial consequences to the Company. 153 Unless earlier terminated, the Otsuka International Agreement will expire upon the expiration of the royalty term in the last country in the Otsuka International Territory. 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, 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 International Agreement, all rights and licensees granted to Otsuka under the Otsuka International Agreement will automatically term inate, and the licenses granted to the Company will become freely sublicensable, but potentially subject to a future royalty. In addition, the upfront payment, all development costs and milestone payments received by the Company prior to such termination will not be eligible for refund to Otsuka. Revenue Recognition The Company has accounted for the Otsuka International Agreement separately from the collaboration arrangement with Otsuka with respect to the U.S. due to the lack of interrelationship and interdependence of the elements and payment terms within each of the contracts as they relate to the respective territories. Accordingly, the Company has applied the guidance in ASC 606 solely in reference to the terms and conditions of the Otsuka International Agreement, while the Otsuka U.S. Agreement has continued to be accounted for as a discrete agreement in its own right. The Company evaluated the Otsuka International Agreement in accordance with the provisions of ASC 606 and concluded that the contract counterparty, Otsuka, is a customer. The Company’s arrangement with Otsuka related to the Otsuka International Territory contains the following material promises under the contract at inception: (i) license under certain of the Company’s intellectual property to develop and commercialize (including the associated packaging) vadadustat and products containing or comprising vadadustat and development services to be performed pursuant to the current global development plan (the License and Development Services Deliverable), (ii) rights to future intellectual property (the Future IP Deliverable) and (iii) joint committee services (the Committee Deliverable). The Company has identified three performance obligations in connection with its obligations under the Otsuka International Agreement. 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. The three performance obligations identified in connection with the Company’s obligations under the Otsuka International Agreement are as follows: (i) License and Development Services Combined (License Performance Obligation) The Company has determined that the license granted to Otsuka pursuant to the Otsuka International Agreement will be accounted for as component of the development services as opposed to a separately identified promise. Although the rights granted under the license are effective throughout the entire term of the arrangement, the Company will not be providing significant additional contributions of study data, regulatory submissions and regulatory approvals beyond the point that services under the current global development plan are conducted. Therefore, the period and pattern of recognition would be the same for both the license and the development services. Consequently, the Company has concluded that the license will effectively be treated as an inherent part of the associated development services promise instead of as a separate promise. As a result, the License and Development Services Deliverable will be treated as a single performance obligation (the License Performance Obligation). (i) 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. As a result, the Future IP Deliverable qualifies as a separate performance obligation. (i) Joint Committee Services (Committee Performance Obligation) The License and Development Services Deliverable is distinct from the Committee Deliverable because Otsuka can obtain the value of the license using the clinical trial materials implicit in the development service without the joint committee services. The Committee Deliverable is distinct from the Future IP Deliverable because the Committee Deliverable has no bearing on the value to be derived from the rights to potential 154 future intellectual property. As a result, the Committee Deliverable qualifies as a separate performance obligation. The Company allocates the transaction price to each performance obligation based on the Company’s best estimate of the relative standalone selling price. The Company developed a best estimate of standalone selling price for the Committee Performance Obligation after considering the nature of the services to be performed and estimates of the associated effort and rates applicable to such services that would be expected to be realized under similar contracts. The Company developed a best estimate of standalone selling price for the Future IP Performance Obligation primarily based on the likelihood that additional intellectual property covered by the license conveyed will be developed during the term of the arrangement. The Company did not develop a best estimate of standalone selling price for the License Performance Obligation due to the following: (i) the best estimates of standalone selling price associated with the Future IP Performance Obligation was determined to be immaterial and (ii) the period of performance and pattern of recognition for the License Performance Obligation and the Committee Performance Obligation was determined to be similar. The Company 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. The transaction price at inception was comprised of: (i) the up-front payment, (ii) the cost share payment with respect to amounts incurred by the Company during the quarter ended March 31, 2017, and (iii) an estimate of the cost share payments to be received with respect to amounts incurred by the Company subsequent to March 31, 2017. No development or regulatory milestones were included in the transaction price at inception, as all milestone amounts were fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including whether the receipt of the milestone payment 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 Otsuka 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. In the event that there is consideration received by a customer in the form of activities performed by such customer under the global development plan, such consideration is reflected as a reduction to the transaction price as contra revenue rather than as an expense because the associated services are not distinct from the License Performance Obligation. 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. 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 December 31, 2021, the transaction price totaling $ 317.7 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 $ 244.6 million. As of December 31, 2021, no development or regulatory milestones have been assessed as probable of being reached and thus have been fully constrained. During the years ended December 31, 2021, 2020 and 2019, the Company recognized revenue totaling approximately $ 16.4 million, $ 45.5 million, and $ 75.6 million, respectively, with respect to the Otsuka International Agreement. The revenue is classified as collaboration revenue in the accompanying consolidated statements of operations. As of December 31, 2021, there is approximately $ 9.9 million of deferred revenue related to the Otsuka International Agreement of which $ 5.5 million is classified as current and $ 4.4 million is classified as long-term in the accompanying consolidated balance sheet based on the performance period of the underlying obligations. Additionally, as of December 31, 2021, there are $ 0.9 million in contract liabilities (included in accounts payable) and $ 1.3 million in prepaid expenses and other current assets in the accompanying consolidated balance sheet. As of December 31, 2020, there were no accounts receivable in the accompanying consolidated balance sheet. 155 Janssen Pharmaceutica NV Research and License Agreement Summary of Agreement On February 9, 2017, the Company entered into a Research and License Agreement, the Janssen Agreement, with Janssen Pharmaceutica NV, or Janssen, a subsidiary of Johnson & Johnson, pursuant to which Janssen granted the Company an exclusive license under certain intellectual property rights to develop and commercialize worldwide certain HIF prolyl hydroxylase targeted compounds. Under the terms of the Janssen Agreement, Janssen granted to the Company a license for a three-year research term to conduct research on the HIF compound portfolio, which research term is now expired. During the research term, the Company could designate one or more compounds as candidates for development and commercialization. Once a compound was designated for development and commercialization, the Company was to be solely responsible for the development and commercialization of the compound worldwide at its own cost and expense. Under the terms of the Janssen Agreement, the Company made an upfront payment of $ 1.0 million in cash to Janssen and issued a warrant to purchase 509,611 shares of the Company’s common stock, which expired on February 9, 2022. In addition, Janssen could be eligible to receive up to an aggregate of $ 16.5 million from the Company in specified development milestone payments on a product-by-product basis. Janssen will also be eligible to receive up to $ 215.0 million from the Company in specified commercial milestones as well as tiered, escalating royalties ranging from a low to mid-single digit percentage of net sales, on a product-by-product basis, and subject to reduction upon expiration of patent rights or the launch of a generic product in the territory. Unless earlier terminated, the Janssen Agreement will expire on a product-by-product and country-by-country basis upon the expiration of the last royalty term, which ends upon the longer of the expiration of the patents licensed under the Janssen Agreement, the expiration of regulatory exclusivity for such product, or 10 years from first commercial sale of such product. The Company may terminate the Janssen Agreement in its entirety or only with respect to a particular licensed compound or product upon 180 days' prior written notice to Janssen. The parties also have customary termination rights, subject to a cure period, in the event of the other party’s material breach of the Janssen Agreement or in the event of certain additional circumstances. As discussed above, the Company issued a Common Stock Purchase Warrant, or the Warrant, to Johnson & Johnson Innovation – JJDC, Inc., or JJDC, an affiliate of Janssen, for 509,611 shares of the Company’s common stock at an exercise price of $ 9.81 per share. The Warrant was exercisable by JJDC, in whole or in part, at any time prior to February 9, 2022. 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. The Warrant expired on February 9, 2022. Cyclerion Therapeutics License Agreement Summary of Agreement On June 4, 2021, the Company entered into a License Agreement, the Cyclerion Agreement, with Cyclerion Therapeutics Inc., or Cyclerion, pursuant to which Cyclerion granted the Company an exclusive global license under certain intellectual property rights to research, develop and commercialize praliciguat, an investigational oral soluble guanylate cyclase ("sGC") stimulator. Under the terms of the Cyclerion Agreement, the Company made an upfront payment of $ 3.0 million in cash to Cyclerion, which was paid during the second quarter of 2021. Substantially all of the fair value of the assets acquired in conjunction with the Cyclerion Agreement was concentrated in the acquired license. As a result, the Company accounted for this transaction as an asset acquisition under ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business . The upfront payment was charged to expense at acquisition, as it relates to a development stage compound with no alternative future use. In addition, Cyclerion is eligible to receive up to an aggregate of $ 222.0 million from the Company in specified development and regulatory milestone payments on a product-by-product basis. Cyclerion will also be eligible to receive specified commercial milestones as well as tiered royalties ranging from a low-single-digit to mid-double-digit percentage of net sales, on a product-by-product basis, and subject to reduction upon expiration of patent rights or the launch of a generic product in the territory. The Company recorded the upfront payment in the amount of $ 3.0 million to research and development expense in June 2021. 156 Unless earlier terminated, the Cyclerion Agreement will expire on a product-by-product and country-by-country basis upon the expiration of the last royalty term, which ends upon the longest of (i) the expiration of the patents licensed under the Cyclerion Agreement, (ii) the expiration of regulatory exclusivity for such product, and (iii) 10 years from first commercial sale of such product. The Company may terminate the Cyclerion Agreement in its entirety or only with respect to a particular licensed compound or product upon 180 days' prior written notice to Cyclerion. The parties also have customary termination rights, subject to a cure period, in the event of the other party’s material breach of the Cyclerion Agreement or in the event of certain additional circumstances. Vifor License Agreement Summary of Agreement On May 12, 2017, the Company entered into a License Agreement, or the Vifor Agreement, with Vifor (International) Ltd., or Vifor Pharma, pursuant to which the Company granted Vifor Pharma an exclusive license to sell vadadustat solely to Fresenius Kidney Care Group LLC, or FKC, an affiliate of Fresenius Medical Care North America, or FMCNA, in the United States. On April 8, 2019, the Company and Vifor Pharma entered into an Amended and Restated License Agreement, or the Vifor First Amended Agreement, which amended and restated in full the Vifor Agreement. Pursuant to the Vifor First Amended Agreement, the Company granted Vifor Pharma an exclusive license to sell vadadustat to FKC and to certain third party dialysis organizations approved by the Company, or Third Party Dialysis Organizations, in the United States. The license granted under the Vifor First Amended Agreement was to become effective upon (i) the approval of vadadustat for DD-CKD adult patients by the FDA, (ii) the earlier of a determination by the Centers for Medicare & Medicaid Services, or 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, and (iii) payment by Vifor Pharma of a $ 25.0 million milestone upon the occurrence of (i) and (ii). The Vifor First Amended Agreement is structured as a profit share arrangement between the Company and Vifor Pharma in which the Company will receive a majority of the profit, after deduction of certain amounts relating to Vifor Pharma’s costs, from Vifor Pharma’s sales of vadadustat to FKC and the Third Party Dialysis Organizations in the United States. The Company will share the milestone payment and the revenue from the profit share with Otsuka pursuant to the Otsuka U.S. Agreement. Under the Vifor First Amended Agreement, the Company retains rights to commercialize vadadustat for use in the NDD-CKD market and in other dialysis organizations in the United States, which will be done in collaboration with Otsuka following FDA approval. The Vifor First Amended Agreement provides that the Company and Vifor Pharma will enter into a commercial supply agreement for vadadustat pursuant to which the Company will supply all of Vifor Pharma’s requirements for vadadustat in the United States. In addition, Vifor Pharma will enter into supply arrangements with FKC and the Third Party Dialysis Organizations that will govern the terms pursuant to which Vifor Pharma will supply vadadustat to FKC and the Third Party Dialysis Organizations for use in patients at its dialysis centers in the United States. During the term of the Vifor First Amended Agreement, Vifor Pharma is not permitted to sell any HIF product that competes with vadadustat in the United States to FKC or its affiliates or to any Third Party Dialysis Organization, and the Company may not directly supply vadadustat to FKC or any other affiliate of FMCNA or any Third Party Dialysis Organization. Unless earlier terminated, the Vifor First 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 First 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 adult 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 First Amended Agreement in the event of the other party’s uncured material breach or bankruptcy. The Company may terminate the Vifor First Amended Agreement (or suspend the license) upon the occurrence of certain events, such as for specific violations of the Vifor First Amended Agreement, Vifor Pharma’s failure to achieve certain sales levels, or if there are changes in Vifor Pharma’s relationship with FKC or in applicable laws and regulations related to the reimbursement of drugs like vadadustat at dialysis clinics, or if Vifor Pharma contests the validity or enforceability of any patent controlled by the Company that covers vadadustat. The Vifor First Amended Agreement also includes a standstill provision and customary representations and warranties. The Vifor First Amended Agreement was further amended on February 18, 2022, which amended and restated the Vifor First Amended Agreement in its entirety. See Note 18 contained in this Annual Report on Form 10-K for further information. 157 Investment Agreement In connection with the Vifor Agreement, in May 2017, the Company and Vifor Pharma entered into an investment agreement, or the First Investment Agreement, pursuant to which the Company sold an aggregate of 3,571,429 shares of the Company’s common stock, or the Shares, to Vifor Pharma at a price per share of $ 14.00 for a total of $ 50.0 million. The amount representing the premium over the closing stock price of $ 12.69 on the date of the transaction, totaling $ 4.7 million, was determined by the Company to represent consideration related to the Vifor Agreement. As the parties’ rights under the Vifor Agreement are conditioned upon (a) the approval of vadadustat for DD-CKD adult 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; and (c) payment by Vifor Pharma of a $ 25.0 million milestone upon the occurrence of (a) and (b), in accordance with ASC 606, the Company has determined that the full transaction price is fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including clinical and regulatory risks that must be overcome in order for the parties’ rights to become effective and the probability of the $ 25.0 million milestone being achieved. Accordingly, the $ 4.7 million continues to be recorded as deferred revenue in the accompanying consolidated balance sheets. Upon the satisfaction of the aforementioned conditions, revenue will be recognized as the Company supplies vadadustat to Vifor Pharma using a proportional performance method. Vifor Pharma agreed to a lock-up restriction such that it agreed not to sell the Shares for a period of time following the effective date of the First Investment Agreement as well as a customary standstill agreement. The lock-up restriction in place as part of the First Investment Agreement has since expired. In addition, the First Investment Agreement contains voting agreements made by Vifor Pharma with respect to the Shares. The Shares have not been registered pursuant to the Securities Act, and were issued and sold in reliance upon the exemption from registration contained in Section 4(a)(2) of the Securities Act and Rule 506 promulgated thereunder. The Company and Vifor Pharma also entered into a new Investment Agreement on February 18, 2022. See Note 18 contained in this Annual Report on Form 10-K for further information. Priority Review Voucher Letter Agreement On February 14, 2020, the Company entered into a letter agreement, or the Letter Agreement, with Vifor Pharma relating to Vifor Pharma’s agreement with a third party to purchase a Priority Review Voucher, or the PRV, issued by the FDA, subject to satisfaction of customary closing conditions, or the PRV Purchase. A PRV entitles the holder to priority review of a New Drug Application, or NDA, or a Biologics License Application for a new drug, which reduces the target FDA review time to six months after official acceptance of the submission, and could lead to expedited approval. Pursuant to the Letter Agreement, Akebia paid Vifor Pharma $ 10.0 million in connection with the closing of the PRV Purchase. The $ 10.0 million payment to Vifor Pharma was recorded to research and development expense in the consolidated statement of operations and as an operating cash outflow in the unaudited condensed consolidated statement of cash flows during 2020. Vifor Pharma was obligated to retain all rights to, and maintain the validity of, the PRV until Akebia and Vifor Pharma (a) enter into a definitive agreement setting forth the financial and other terms by which Vifor Pharma will assign the PRV to Akebia for use with Akebia’s planned NDA for vadadustat for the treatment of anemia due to CKD in both dialysis-dependent and non-dialysis dependent patients, or (b) make a mutual decision to sell the PRV and share the proceeds based on certain terms. In March 2021, the Company submitted an NDA for the treatment of anemia due to CKD in both DD-CKD and NDD-CKD adult patients. The Company's NDA submission did not include a PRV. On August 21, 2021, the Company and Vifor Pharma executed an amendment to the Letter Agreement whereby the parties agreed that Vifor Pharma would sell the PRV to a third party, and the Company and Vifor Pharma would share the proceeds from the sale based on certain terms. In the fourth quarter of 2021, Vifor Pharma sold the PRV to a third party, and Vifor Pharma paid the Company $ 8.6 million in proceeds from the sale, which was recorded as contra research and development expense. These proceeds were subsequently paid to Otsuka as reimbursement for their contribution to the purchase of the PRV, as required under a separate letter agreement executed with Otsuka. License Agreement with Panion & BF Biotech, Inc. As a result of the Merger, the Company had a license agreement, which was amended from time to time, with Panion & BF Biotech, Inc., or Panion, under which Keryx, the Company’s wholly owned subsidiary, was the contracting party, or the Panion License Agreement, pursuant to which Keryx in-licensed the exclusive worldwide rights, excluding certain Asian-Pacific countries, or the Licensor Territory, for the development and commercialization of ferric citrate. 158 On April 17, 2019, the Company and Panion entered into a second amended and restated license agreement, or the Panion Amended License Agreement, which amends and restates in full the Panion License Agreement, effective as of April 17, 2019. The Panion Amended License Agreement provides Keryx with an exclusive license under Panion-owned know-how and patents covering the rights to sublicense, develop, make, use, sell, offer for sale, import and export ferric citrate worldwide, excluding the Licensor Territory. The Panion Amended License Agreement also provides Panion with an exclusive license under Keryx-owned patents covering the rights to sublicense (with the Company’s written consent), develop, make, use, sell, offer for sale, import and export ferric citrate in certain countries in the Licensor Territory. Consistent with the Panion License Agreement, under the Panion Amended License Agreement, Panion is eligible to receive from the Company or any sublicensee royalty payments based on a mid-single digit percentage of sales of ferric citrate in the Company’s licensed territories. The Company is eligible to receive from Panion or any sublicensee royalty payments based on a mid-single digit percentage of net sales of ferric citrate in Panion’s licensed territories. The Panion Amended License Agreement terminates upon the expiration of each of the Company’s and Panion’s obligations to pay royalties thereunder. 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. 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. The Panion Amended License Agreement includes customary terms relating to, among others, indemnification, confidentiality, remedies, and representations and warranties. 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. During the years ended December 31, 2021, 2020 and 2019, the Company incurred approximately $ 11.8 million, $ 11.2 million and $ 10.2 million, respectively, in royalty payments due to Panion relating to the Company’s sales of Auryxia in the United States and JT and Torii’s net sales of Riona in Japan. Sublicense Agreement with Japan Tobacco, Inc. and its subsidiary, Torii Pharmaceutical Co., Ltd. Summary of Agreement As a result of the Merger, the Company has an Amended and Restated Sublicense Agreement, which was amended in June 2013, with JT and Torii, or the JT and Torii Sublicense Agreement, under which Keryx, the Company’s wholly owned subsidiary, remains the contracting party. Under the JT and Torii Sublicense Agreement, JT and Torii obtained the exclusive sublicense rights for the development and commercialization of ferric citrate hydrate in Japan. JT and Torii are responsible for the future development and commercialization costs in Japan. In January 2014, JT and Torii received manufacturing and marketing approval of ferric citrate from the Japanese Ministry of Health, Labour and Welfare. Ferric citrate hydrate, which launched in May 2014 and is being marketed in Japan by Torii under the brand name Riona, is indicated as an oral treatment for the improvement of hyperphosphatemia in patients with CKD, including NDD-CKD and DD-CKD. In July 2019, JT and Torii, reported positive top-line results from a pivotal Phase 3 comparative study evaluating Riona for the treatment of IDA in adult patients in Japan, which was approved in March 2021. In May 2020, JT and Torii filed an application for approval of IDA as an additional indication for Riona in Japan. The Company is eligible to receive royalty payments based on a tiered low double-digit percentage of net sales of Riona in Japan inclusive of amounts that the Company must pay to Panion on JT and Torii's net sales of Riona under the Panion License Agreement subject to certain reductions upon expiration or termination of the Amended and Restated License Agreement between Keryx and Panion, pursuant to which Keryx in-licensed the exclusive worldwide rights, excluding certain Asian-Pacific countries, for the development and commercialization of ferric citrate. The Company is entitled to receive up to an additional $ 55.0 million upon the achievement of certain annual net sales milestones. The sublicense under the JT and Torii Sublicense Agreement terminates upon the expiration of all underlying patent rights. Also, JT and Torii may terminate the JT and Torii Sublicense Agreement with or without cause upon at least six months prior written notice to the Company. Additionally, either party may terminate the JT and Torii Sublicense Agreement for cause upon 60 days’ prior written notice after the breach of any uncured material provision of the JT and Torii Sublicense Agreement, or after certain insolvency events . 159 Revenue Recognition The Company evaluated the elements of the JT and Torii Sublicense Agreement in accordance with the provisions of ASC 606 and concluded that the contract counterparty, JT and Torii, is a customer. The Company’s arrangement with JT and Torii contains the following material promises under the contract at inception: (i) exclusive license to develop and commercialize ferric citrate hydrate in Japan (the License Deliverable), (ii) supply of ferric citrate hydrate until JT and Torii could secure their own source (the Supply Deliverable), (iii) knowledge transfer, and (iv) rights to future know-how. The Company identified two performance obligations in connection with its obligations under the JT and Torii Sublicense Agreement: (i) License and Supply Performance Obligation and (ii) Rights to Future Know-How Performance Obligation . The Company allocated the transaction price to each performance obligation based on the Company’s best estimate of the relative standalone selling price. The Company developed a best estimate of the standalone selling price for the Rights to Future Know-How Performance Obligation primarily based on the likelihood that additional intellectual property covered by the license conveyed will be developed during the term of the arrangement and determined it immaterial. As such, the Company did not develop a best estimate of standalone selling price for the License and Supply Performance Obligation and allocated the entire transaction price to this performance obligation. 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. As such, any initial license fees as well as any development-based milestones and manufacturing fee revenue were received and recognized prior to the Merger. The Company determined that the remaining consideration that may be payable to the Company under the terms of the sublicense agreement are either quarterly royalties on net sales or payments due upon the achievement of sales-based milestones. In accordance with ASC 606, the Company recognizes sales-based royalties and 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. During the years ended December 31, 2021, 2020 and 2019, the Company recognized $ 5.8 million, $ 5.7 million and $ 5.9 million, respectively, in license revenue 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. 5. Liability Related to Sale of Future Royalties On February 25, 2021, the Company entered into the Royalty Agreement with HealthCare Royalty Partners IV, L.P., or HCR, pursuant to which the Company sold to HCR its right to receive royalties and sales milestones for vadadustat in Japan and certain other Asian countries, such countries, collectively, the MTPC Territory, and such payments collectively the Royalty Interest Payments, in each case, payable to the Company under the MTPC Agreement, subject to an annual maximum “cap” of $ 13.0 million, or the Annual Cap, and an aggregate maximum “cap” of $ 150.0 million, or the Aggregate Cap. After HCR receives Royalty Interest Payments equal to the Annual Cap in a given calendar year, the Company will receive 85 % of the Royalty Interest Payments for the remainder of that year. After HCR receives Royalty Interest Payments equal to the Aggregate Cap, or the Company pays the Aggregate Cap to HCR (net of the Royalty Interest Payments already received by HCR), the Royalty Interest Payments will revert back to the Company, and HCR would have no further right to any Royalty Interest Payments. The Company received $ 44.8 million from HCR (net of certain transaction expenses) under the Royalty Agreement, and the Company is eligible to receive an additional $ 5.0 million in each year from 2021 through 2023 under the Royalty Agreement if specified annual sales milestones are achieved for vadadustat in the MTPC Territory, subject to the satisfaction of certain customary conditions. The sales milestone for vadadustat in the MTPC Territory was not achieved for 2021. The Company retains the right to receive all potential future regulatory milestones for vadadustat under the MTPC Agreement. The Royalty Agreement will terminate on the earlier of the date on which HCR has received (i) the last Royalty Interest Payment or (ii) payment by the Company of an amount equal to the Aggregate Cap minus the aggregate amount of all Royalty Interest Payments actually received by HCR. Although the Company sold its right to receive royalties and sales milestones for vadadustat in the MTPC Territory as described above, as a result of its ongoing involvement in the cash flows related to these royalties, the Company will continue to account for these royalties as revenue. The Company recognized the proceeds received from HCR as a liability that is being amortized using the effective interest method over the life of the arrangement. At the transaction date, the Company recorded the net proceeds of $ 44.8 million as a liability. In order to determine the amortization of the liability, the Company is required to estimate the total amount of future net royalty payments to be made to HCR over the term of the Royalty Agreement. The total threshold of net royalties to be paid, less the net proceeds received, will be recorded as interest expense over the life of the liability. The Company imputes interest on the unamortized portion of the liability using the effective interest method. The annual effective interest rate as of December 31, 2021 was 18.3 % which is reflected as interest expense in the consolidated statements of operations and comprehensive loss. Over the course of the Royalty Agreement, the actual interest rate will be 160 affected by the amount and timing of royalty revenue recognized and changes in forecasted royalty revenue. There are a number of factors that could materially affect the amount and timing of royalty payments from MTPC, none of which are within the Company's control. On a quarterly basis, the Company reassesses the effective interest rate and adjusts the rate prospectively as needed. The following table shows the activity within the liability account for the year ended December 31, 2021: December 31, 2021 (in thousands) Liability related to sale of future royalties, net — beginning balance $ — Proceeds from sale of future royalties, net 44,783 MTPC royalties payable ( 821 ) Non-cash interest expense recognized 9,117 Liability related to sale of future royalties, net — ending balance $ 53,079 The Royalty Agreement requires the Company to take certain actions, including actions with respect to the Royalty Interest Payments, the MTPC Agreement, the MTPC Supply Agreement, and the Company's intellectual property. The Royalty Agreement also contains certain representations and warranties, covenants, indemnification obligations, events of default and other provisions that are customary for a royalty monetization transaction of this nature. In addition, the Company granted HCR a precautionary security interest in connection with the Royalty Interest Payments. 6. Available For Sale Securities Available for sale securities at December 31, 2021 and 2020 consist of the following: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (in thousands) December 31, 2021 Cash and cash equivalents $ 149,800 $ — $ — $ 149,800 Total cash, cash equivalents, and available for sale securities $ 149,800 $ — $ — $ 149,800 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (in thousands) December 31, 2020 Cash and cash equivalents $ 228,698 $ — $ — $ 228,698 Available for sale securities: Certificates of deposit $ 39,979 $ 13 $ — $ 39,992 Total available for sale securities $ 39,979 $ 13 $ — $ 39,992 Total cash, cash equivalents, and available for sale securities $ 268,677 $ 13 $ — $ 268,690 There were no realized gains or losses on available for sale securities for the years ended December 31, 2021 or 2020. Additionally, the Company did no t have any available for sale securities that were in an unrealized loss position as of December 31, 2021 or 2020. As such, the Company did not recognize any credit losses during the year ended December 31, 2021. 7. Fair Value of Financial Instruments The Company utilizes a portfolio management company for the valuation of the majority of its investments. This company is an independent, third-party vendor recognized to be an industry leader with access to market information that obtains or computes 161 fair market values from quoted market prices, pricing for similar securities, recently executed transactions, cash flow models with yield curves and other pricing models. For valuations obtained from the pricing service, the Company performs due diligence to understand how the valuation was calculated or derived, focusing on the valuation technique used and the nature of the inputs. Based on the fair value hierarchy, the Company classifies its cash equivalents and available for sale securities within Level 1 or Level 2. 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 December 31, 2021 and 2020 are summarized below: Fair Value Measurements Using Level 1 Level 2 Level 3 Total (in thousands) December 31, 2021 Assets: Cash and cash equivalents $ 149,800 — — $ 149,800 $ 149,800 $ — $ — $ 149,800 Liabilities: Derivative liability — — $ 1,820 $ 1,820 $ — $ — $ 1,820 $ 1,820 Fair Value Measurements Using Level 1 Level 2 Level 3 Total (in thousands) December 31, 2020 Assets: Cash and cash equivalents $ 228,698 — — $ 228,698 U.S. government debt securities — 39,992 — 39,992 $ 228,698 $ 39,992 $ — $ 268,690 Liabilities: Derivative liability — — $ 2,420 $ 2,420 $ — $ — $ 2,420 $ 2,420 The Company’s Loan Agreement with Pharmakon (see Note 11) contains certain provisions that change the underlying cash flows of the debt instrument, including a potential extension to the interest-only period dependent on both (a) no event of default having occurred and continuing and (b) the Company achieving certain regulatory and revenue conditions. The Company also assessed the acceleration of the obligations under the Loan Agreement under an event of default. In addition, under certain circumstances, a default interest rate will apply on all outstanding obligations during the occurrence and continuance of an event of default. In accordance with ASC 815, the Company concluded that these features are not clearly and closely related to the host instrument, and represent a single compound derivative that is required to be re-measured at fair value on a quarterly basis. The events of default include maintaining, on an annual basis, a minimum liquidity threshold which started in 2021, and on a quarterly basis, a minimum net sales threshold for Auryxia which started in the fourth quarter of 2020. The Company recorded a derivative liability related to the Company’s Loan Agreement with Pharmakon of $ 1.8 million and $ 2.4 million as of December 31, 2021 and 2020, respectively. The Company classified the derivative liability as a non-current liability on the balance sheet at December 31, 2021 and 2020. The estimated fair value of the derivative liability on both December 31, 2021 and 2020 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. Should the Company’s 162 assessment of the probabilities around these scenarios change, including for changes in market conditions, there could be a change to the fair value of the derivative liability. The following table provides a roll-forward of the fair value of the derivative liability (in thousands): Balance at December 31, 2020 $ 2,420 Change in fair value of derivative liability, recorded as other income ( 600 ) Balance at December 31, 2021 $ 1,820 The Company had no other assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at December 31, 2021 and 2020. Investment securities are exposed to various risks such as interest rate, market and credit risks. When the Company holds investment securities, due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, the Company considers if changes in risks in the near term would result in material changes in the fair value of investments. 8. Inventory The components of inventory are summarized as follows: December 31, 2021 December 31, 2020 (in thousands) Raw materials $ 1,763 $ 2,542 Work in process 62,635 64,076 Finished goods 14,661 19,691 Total inventory $ 79,059 $ 86,309 Long-term inventory, which primarily consists of raw materials and work in process, is included in other assets in the Company’s consolidated balance sheets. December 31, 2021 December 31, 2020 (in thousands) Balance Sheet Classification: Inventory $ 38,195 $ 61,017 Other assets 40,864 25,292 Total inventory $ 79,059 $ 86,309 Inventory amounts written down as a result of excess, obsolescence, scrap or other reasons and charged to cost of goods sold totaled $ 15.6 million, $ 20.1 million, and $ 7.1 million during the years ended December 31, 2021, 2020, and 2019 respectively. The decrease in inventory amounts written down for the year ended December 31, 2021 as compared to the year ended December 31, 2020 was primarily due to lower write-downs to inventory reserves related to a previously disclosed manufacturing quality issue related to Auryxia during 2020. In addition, there were $ 8.7 million, $ 11.4 million, and $ 17.1 million in related step-up charges during the years ended December 31, 2021, 2020, and 2019, respectively. During the fourth quarter of 2021, the Company recorded $ 12.5 million of receipts related to inventory previously identified as excess as a reduction to the excess purchase commitment liability. If future sales of Auryxia are lower than expected, the Company may be required to write-down the value of such inventories. Inventory write-downs and losses on purchase commitments are recorded as a component of cost of sales in the consolidated statement of operations. 9. Intangible Assets and Goodwill Intangible Assets 163 The following table presents the Company’s intangible assets (in thousands): December 31, 2021 Gross Carrying Value Accumulated Amortization ASC 842 Adjustment Total Acquired intangible assets: Developed product rights for Auryxia 213,603 ( 105,476 ) — 108,127 Total $ 213,603 $ ( 105,476 ) $ — $ 108,127 December 31, 2020 Gross Carrying Value Accumulated Amortization ASC 842 Adjustment Total Acquired intangible assets: Developed product rights for Auryxia $ 213,603 $ ( 69,433 ) $ — $ 144,170 Favorable lease 545 ( 5 ) ( 540 ) — Total $ 214,148 $ ( 69,438 ) $ ( 540 ) $ 144,170 On December 12, 2018, the Company completed the Merger, whereby it acquired certain definite-lived intangible assets, including the developed product rights for Auryxia and a favorable lease. The Company amortizes its definite-lived intangible assets acquired as part of the Merger using the straight-line method, which is considered the best estimate of economic benefit, over its estimated useful life of six years . 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 $ 36.0 million, $ 31.5 million and $ 36.4 million in amortization expense related to the developed product rights for Auryxia during the years ended December 31, 2021, 2020 and 2019, respectively. Estimated future amortization expense for the intangible asset as of December 31, 2021 is as follows (in thousands): Total 2022 $ 36,043 2023 36,042 2024 36,042 2025 — 2026 — Thereafter — $ 108,127 Auryxia Intangible Asset Impairment In the second quarter of 2020, in connection with a routine business review, the Company reduced its short-term and long-term Auryxia revenue forecast. 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. Based on this analysis, the undiscounted cash flows were not sufficient to recover the carrying value of the Auryxia asset group. As a result, the Company was required to perform Step 3 of the impairment test to determine the fair value of the Auryxia asset group. To estimate the fair value, the Company performed a business enterprise valuation for the Auryxia asset group using the income approach, which is based on a discounted cash flow analysis and calculates the fair value by estimating the after-tax cash flows attributable to the asset group and then discounting the after-tax cash flows to present value using a risk-adjusted discount rate. Key estimates and assumptions used in the valuations included projected revenues and expenses related to the asset, estimated contributory asset charges, and a risk-adjusted discount rate of 9.5 % to calculate the present value of the future expected cash inflows. The Company believes its assumptions are consistent with the plans and estimates that a market participant would use 164 to manage the business. The discount rates used are intended to reflect the risks inherent in future cash flow projections and were based on an estimate of the weighted average cost of capital, or WACC, of market participants relative to the Auryxia asset group. As a result of this analysis, the fair value of the Auryxia asset group was below its carrying value, and the Company recorded an impairment charge of $ 115.5 million during the three months ended June 30, 2020 and made a corresponding adjustment to the estimated useful life of the developed product rights for Auryxia from nine years to seven years . The impairment charge has been entirely allocated to the Company’s only intangible asset, the developed product rights for Auryxia, as all other long-lived assets had fair values that were either equal to or greater than their carrying value. Per ASC 360-10, the carrying amount of a long-lived asset of the group would not be reduced below its fair value. The Company believes its assumptions used to determine the fair value of the Auryxia asset group are reasonable. 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. In the fourth quarter of 2020, as part of the Company's routine forecasting process, the Company reassessed and prospectively adjusted the estimated useful life of the developed product rights for Auryxia from seven years to six years . This was not deemed an impairment indicator as of December 31, 2020. Goodwill Goodwill was $ 55.1 million as of December 31, 2021 and 2020, derived as follows (in thousands): Total Merger consideration $ 527,754 Less: Fair value of identified acquired assets and liabilities, net ( 472,701 ) Goodwill $ 55,053 The Company operates in one operating segment which the Company considers to be the only reporting unit. Goodwill is evaluated for impairment at the reporting unit level 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 the years ended December 31, 2021, 2020 and 2019. 10. Accrued Expenses Accrued expenses are as follows: December 31, 2021 December 31, 2020 (in thousands) Product revenue allowances $ 26,624 $ 38,049 Accrued clinical 14,036 28,986 Amounts due to collaboration partners 22,654 17,977 Otsuka PRV contribution — 10,000 Accrued payroll and related 15,863 14,899 Lease liability 4,802 5,286 Royalties 3,472 2,998 Professional fees 1,899 3,271 Accrued commercial manufacturing 3,843 514 Accrued other 11,263 8,644 Total accrued expenses $ 104,456 $ 130,624 165 11. Debt Future principal payments pursuant to the contractual terms of the Term Loans (as defined below) as of December 31, 2021 are as follows (in thousands): Principal Payments (in thousands) 2022 $ 7,140 2023 33,474 2024 59,386 2025 — 2026 — Thereafter — Total before unamortized discount and issuance costs 100,000 Less: unamortized discount and issuance costs ( 2,457 ) Total term loans $ 97,543 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 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, and the second tranche of $ 20.0 million, or Tranche B, was drawn on December 10, 2020, or the Tranche B Funding Date. Each of the Tranche A Funding Date and the Tranche B Funding Date, a Funding Date. Proceeds from the Term Loans may be used for general corporate purposes. The Company and Keryx entered into a Guaranty and Security Agreement with the Collateral Agent, or the Guaranty and Security Agreement, on the Tranche A Funding Date. Pursuant to the Guaranty and Security Agreement, the Company’s obligations under the Term Loans are unconditionally guaranteed by Keryx, or the Guarantee. Additionally, the obligations of the Company and Keryx under the Term Loans and the Guarantee are secured by a first priority lien on certain assets of the Company and Keryx, including Auryxia and certain related assets, cash, and certain equity interests held by the Company and Keryx, collectively the Collateral. The Term Loans bear interest at a floating rate per annum equal to the three-month LIBOR rate plus 7.50 %, subject to a 2.00 % LIBOR floor and a 3.35 % LIBOR cap, payable quarterly in arrears. The Term Loans will mature on the fifth anniversary of the Tranche A Funding Date, or the Maturity Date. The Company will repay the principal under the Term Loans in equal quarterly payments starting on the 33 rd-month anniversary of the applicable Funding Date or, if certain conditions are met, it will have the option to repay the principal in equal quarterly payments starting on the 48 th-month anniversary of the applicable Funding Date, or collectively the Amortization Schedule. Under certain circumstances, unless certain liquidity conditions are met, the Maturity Date may decrease by up to one year , and the Amortization Schedule may correspondingly commence up to one year earlier. On the Tranche A Funding Date, the Company paid to Pharmakon a facility fee equal to 2.00 % of the aggregate principal amount of the Term Loans, or $ 2.0 million, in addition to other expenses incurred by Pharmakon and reimbursed by the Company, or Lender Expenses. The Tranche A draw was $ 77.3 million, net of facility fee, Lender Expenses and issuance costs. The Tranche B draw was $ 20.0 million, net of immaterial Lender Expenses and issuance costs. 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. A change of control triggers a mandatory prepayment of the Term Loans. 166 The Loan Agreement contains customary representations, warranties, events of default and covenants of the Company and its subsidiaries, including maintaining, on an annual basis, a minimum liquidity threshold which started in 2021, and on a quarterly basis, a minimum net sales threshold for Auryxia which started in the fourth quarter of 2020. On February 18, 2022, the Loan Agreement was amended, which waived the provision under the Loan Agreement that required the Company to not be subject to any qualification as a going concern within the Company's 2021 Annual Report on Form 10-K. Pursuant to the Loan Agreement, as amended, the Company’s filings of Form 10-Q for fiscal quarters ending June 30, 2022 and September 30, 2022, and its future Annual Reports on Form 10-K, must not be subject to any qualification as to going concern. If the Company does not satisfy the covenant as to going concern in any of these filings, the Company will be in default under the Loan Agreement. There is uncertainty as to whether or not the Company will meet our future quarterly and annual debt covenants related to qualification as to going concern. If an event of default occurs and is continuing under the Loan Agreement, the Collateral Agent is entitled to take enforcement action, including acceleration of amounts due under the Loan Agreement. Therefore, as of December 31, 2021, the Company classified the borrowings under the Loan Agreement as current. 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 December 31, 2021, 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. As part of this analysis, the Company assessed the economic characteristics and risks of the Loan Agreement, including put and call features. The terms and features assessed include a potential extension to the interest-only period dependent on both no event of default having occurred and continuing and on the Company achieving certain regulatory and revenue conditions. The Company also assessed the acceleration of the obligations under the Loan Agreement under an event of default. In addition, under certain circumstances, a default interest rate will apply on all outstanding obligations during the occurrence and continuance of an event of default. In accordance with ASC 815, the Company concluded that these features are not clearly and closely related to the host instrument, and represent a single compound derivative that is required to be re-measured at fair value on a quarterly basis. The fair value of the derivative liability related to the Company’s Loan Agreement was $ 1.8 million and $ 2.4 million as of December 31, 2021 and 2020, respectively. The Company classified the derivative liability as a non-current liability on the balance sheet at December 31, 2021. The Company recognized approximately $ 10.9 million and $ 8.9 million of interest expense related to the Loan Agreement during the years ended December 31, 2021 and 2020, respectively. 12. Warrant 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. The warrant was fully vested upon issuance and exercisable in whole or in part, at any time prior to February 9, 2022. The warrant satisfied the equity classification criteria of ASC 815, and is therefore classified as an equity instrument. The fair value at issuance of $ 3.4 million was calculated using the Black-Scholes option pricing model and was charged to research and development expense as it represented consideration for a license for which the underlying intellectual property was deemed to have no alternative future use. As of December 31, 2021, the warrant remained outstanding. The Warrant expired on February 9, 2022. 13. Stockholders’ Equity Authorized and Outstanding Capital Stock 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 December 31, 2021, the authorized capital stock of the Company included 350,000,000 shares of common stock, par value $ 0.00001 per share, of which 177,000,963 and 148,074,085 shares were issued and outstanding at December 31, 2021 and 2020, 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 December 31, 2021 and 2020. At-the-Market Facility On November 12, 2019, the Company entered into an Amended and Restated Controlled Equity Offering SM Sales Agreement with Cantor Fitzgerald & Co. for the offer and sale of common stock at the then current market prices in amounts to be determined from time to time. Also, on November 12, 2019, the Company filed a prospectus supplement pursuant to which it was able to offer and sell up to $ 75.0 million of its common stock at the then current market prices from time to time. In 167 December 2019, the Company commenced sales under this program. Through December 31, 2019, the Company sold 2,684,392 shares of common stock under this program with net proceeds (after deducting commissions and other offering expenses) of $ 16.8 million. 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 of its common stock at current market prices from time to time. During the year ended December 31, 2020, the Company sold 3,509,381 shares of common stock under this program with net proceeds (after deducting commissions and other offering expenses) of $ 10.6 million. During the three months ended March 31, 2021, the Company sold 5,224,278 shares of common stock under this program with net proceeds (after deducting commissions and other offering expenses) of $ 15.9 million. On February 25, 2021, the Company filed a prospectus relating to the sales agreement with its new shelf registration statement (which replaced the prior shelf registration statement and the sales agreement prospectus supplement), pursuant to which it is able to offer and sell up to $ 100.0 million of its common stock at current market prices from time to time. During the year ended December 31, 2021 and through the date of this Annual Report on Form 10-K, the Company sold 21,532,665 shares of common stock under this program with net proceeds (after deducting commissions and other offering expenses) of $ 73.2 million. Equity Offering 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. Equity Plans 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. The Company’s 2014 Incentive Plan was subsequently amended on December 11, 2018, which amendment did not require shareholder approval. The Company’s 2014 Incentive Plan, as amended, is referred to as the 2014 Plan. The 2014 Plan replaced the Company’s Amended and Restated 2008 Equity Incentive Plan, or the 2008 Plan; however, options or other awards granted under the 2008 Plan prior to the adoption of the 2014 Plan that have not been settled or forfeited remain outstanding and effective. On June 6, 2019, the Company’s shareholders approved the Amended and Restated 2014 Employee Stock Purchase Plan, or the ESPP. 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 year ended December 31, 2021, the Company granted 1,373,200 options to purchase shares of the Company’s common stock to new hires under the Inducement Award Program, of which 1,238,200 options to purchase shares of the Company's common stock remained outstanding at December 31, 2021. 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. Dividend equivalents may also be provided in connection with an award under the 2014 Plan. The Company’s employees, officers, directors and consultants and advisors are eligible to receive awards under the 2014 Plan. The Company initially reserved 1,785,000 shares of its common stock for the issuance of awards under the 2014 Plan. The 2014 Plan provides that the number of shares reserved and available for issuance under the 2014 Plan will automatically increase annually on January 1 of each calendar year, by an amount equal to three percent ( 3 %) of the number of the Company's shares outstanding on a fully diluted basis as of the close of business on the immediately preceding December 31, or the 2014 Plan Evergreen Provision. The Company’s Board of Directors may act prior to January 1 of any year to provide that there will be no automatic increase in the number of Akebia Shares available for grant under the 2014 Plan for that year (or that the increase will be less than the amount that would otherwise have automatically been made). On December 12, 2018, in connection with the consummation of the Merger, the Company assumed outstanding and unexercised options to purchase Keryx Shares, as adjusted by the Exchange Multiplier pursuant to the terms of the Merger Agreement, under the following Keryx equity plans, or the Keryx Equity Plans: the Keryx 1999 Share Option Plan, the Keryx 2004 Long-Term Incentive Plan, the Keryx 2007 Incentive Plan, the Keryx Amended and Restated 2013 Incentive Plan, and the Keryx 2018 Equity Incentive Plan, or the Keryx 2018 Plan. 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 168 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 year ended December 31, 2021, the Company granted 1,997,200 options to purchase Akebia Shares to employees under the 2014 Plan, 1,373,200 options to purchase Akebia Shares to employees under the Inducement Award Program, 3,399,412 Akebia RSUs to employees under the 2014 Plan, 136,708 Akebia PSUs to employees under the 2014 Plan, 281,000 options to purchase Akebia Shares to directors under the 2014 Plan, and 82,200 Akebia RSUs to directors under the 2014 Plan. The ESPP provides for the issuance 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 December 31, 2021 of the Company’s common stock available for future issuance under the ESPP is 5,173,141 . 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. Shares Reserved for Future Issuance The Company has reserved for future issuance the following number of shares of common stock: December 31, 2021 December 31, 2020 Common stock options, RSUs and PSUs outstanding (1) 16,065,218 14,108,828 Shares available for issuance under Akebia equity plans (2) 4,675,734 3,468,080 Warrant to purchase common stock 509,611 509,611 Shares available for issuance under the ESPP 5,173,141 5,480,334 Total 26,423,704 23,566,853 (1) Includes awards granted under the 2014 Plan and the Inducement Award Program and awards issued in connection with the Merger. (2) On January 1, 2022, January 1, 2021 and January 1, 2020, the shares reserved for future grants under the 2014 Plan increased by 5,807,270 , 4,880,775 and 4,031,376 shares, respectively, pursuant to the 2014 Plan Evergreen Provision. Stock-Based Compensation Stock Options Service-Based Stock Options On February 28, 2021, as part of the Company’s annual grant of equity, the Company issued 1,997,200 stock options to employees. In addition, the Company issues stock options to directors, new hires and occasionally to other employees not in connection with the annual grant process. Options granted by the Company vest over periods of between 12 and 48 months, subject, in each case, to the individual’s continued service through the applicable vesting date. Options vest either 100 % on the first anniversary of the grant date or in installments of (i) 25 % at the one year anniversary and (ii) 12 equal quarterly installments beginning after the one year anniversary of the grant date, subject to the individual’s continuous service with the Company. Options generally expire ten years after the date of grant. The Company recorded approximately $ 8.9 million, $ 8.5 million and $ 5.4 million of stock-based compensation expense related to stock options granted during the years ended December 31, 2021, 2020 and 2019, respectively. The assumptions used in the Black-Scholes pricing model to estimate the grant date fair value of options granted under the 2014 Plan are as follows: Year ended December 31, 2021 2020 2019 Risk-free interest rate 0.66 % - 1.37 % 0.32 % - 1.38 % 1.42 % - 2.57 % Dividend yield — % — % — % Volatility 77.81 % - 81.79 % 69.56 % - 75.91 % 61.4 % - 64.1 % Expected term (years) 5.51 - 6.25 5.51 - 6.25 5.51 - 6.25 The following table summarizes the Company’s stock option activity, excluding performance-based options, for the year ended December 31, 2021: 169 Shares Weighted-Average Exercise Price Weighted-Average Contractual Life (in years) Aggregate Intrinsic Value Outstanding, December 31, 2020 9,370,373 $ 9.31 $ 387,596 Granted 3,651,400 $ 3.34 Exercised — $ — $ — Forfeited ( 1,517,165 ) $ 7.70 $ 43,756 Expired/cancelled ( 106,393 ) $ 11.35 Outstanding, December 31, 2021 11,398,215 $ 7.60 7.24 $ 267,830 Options exercisable, December 31, 2021 5,848,562 $ 9.92 5.80 $ 267,440 Vested and expected to vest, December 31, 2021 11,398,215 $ 7.60 The weighted-average grant date fair values of options granted in the years ended December 31, 2021, 2020, and 2019 were $ 2.29 , $ 5.63 , and $ 3.85 per share, respectively. There was no intrinsic value of options exercised during the year ended December 31, 2021, as there were no options exercised in 2021. The total intrinsic value of options exercised during the years ended December 31, 2020 and 2019 were $ 0.4 million and $ 1.3 million, respectively. The fair value of options that vested during the years ended December 31, 2021, 2020, and 2019 were $ 10.6 million, $ 6.8 million, and $ 4.3 million, respectively. As of December 31, 2021, there was approximately $ 15.7 million of unrecognized compensation cost related to stock options outstanding under the Company’s 2014 Plan or made pursuant to the Inducement Award Program, which is expected to be recognized over a weighted average period of 2.33 years. Performance-Based Stock Options The Company also grants performance-based stock options to employees under the 2014 Plan. The performance-based stock options granted by the Company vest in connection with the achievement of specified commercial and regulatory milestones. The performance-based stock option also feature a time-based vesting component. 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 options granted and recognized over time based on the probability of meeting such commercial and regulatory milestones. The Company issued 99,558 and no performance-based options during the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, the Company had 99,558 performance-based options outstanding compared to no performance-based options outstanding at December 31, 2020. The following table summarizes the Company’s performance-based option activity for the year ended December 31, 2021: Shares Weighted-Average Exercise Price Weighted-Average Contractual Life (in years) Aggregate Intrinsic Value Outstanding, December 31, 2020 — $ — $ — Granted 99,558 $ 2.74 Exercised — $ — $ — Forfeited/cancelled $ — Outstanding, December 31, 2021 99,558 $ 2.74 9.6 $ — The Company did no t record any stock-based compensation expense related to performance-based options during 2021, 2020 and 2019. There were no performance-based options that vested during fiscal year 2021 or 2020, and 46,790 performance-based options that vested during fiscal year 2019. As of December 31, 2021, there were no unrecognized compensation costs related to performance-based stock options under the Company’s 2014 Plan. Restricted Stock Units Service-Based Restricted Stock Units On February 28, 2021, as part of the Company’s annual grant of equity, the Company issued 3,180,400 restricted stock units, or RSUs, to employees. In addition, the Company occasionally issues RSUs not in connection with the annual grant process to employees. Generally, RSUs granted by the Company vest in one of the following ways: (i) 100 % of each RSU grant vests on either the first or the third anniversary of the grant date, (ii) one third of each RSU grant vests on the first, second and third anniversaries of the grant date, subject, in each case, to the individual’s continued service through the applicable vesting date, or 170 (iii) 50 % of each RSU grant vests on the first anniversary and 25 % of each RSU grant vests every six months after the one year anniversary of the grant date. 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 $ 12.9 million, $ 14.6 million and $ 6.2 million of stock-based compensation expense related to employee RSUs in 2021, 2020 and 2019, respectively. On December 12, 2018, pursuant to the Merger Agreement, each Keryx Share that was subject to a Keryx restricted share award, other than those Keryx restricted shares that accelerated or lapsed as a result of the completion of the Merger, was converted into an RSU award of Akebia, covering the number of Akebia Shares determined in accordance with the Exchange Multiplier. As a result, the Company issued 486,709 service-based RSUs in substitution for Keryx restricted share awards in connection with the Merger. These RSUs vest either (i) in 3 equal annual installments beginning after the one year anniversary of the grant date or (ii) one third on the one year anniversary of the grant date with the remaining RSUs vesting on the first day of each calendar quarter over the next two years thereafter. As of October 1, 2021, the RSU awards granted in connection with the Merger were fully vested and none are outstanding as of December 31, 2021. Performance-Based Restricted Stock Units During the year ended December 31, 2021, the Company issued 37,150 performance-based restricted stock units, or PSUs, to the Company’s executives. The PSUs granted by the Company vest in connection with the achievement of specified commercial and regulatory milestones. The PSUs also feature a time-based vesting component. 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 $ 0.3 million, $ 0.5 million and $ 0 of stock-based compensation expense related to employee PSUs in 2021, 2020 and 2019, respectively. The following table summarizes the Company’s RSU and PSU activity for the year ended December 31, 2021: Shares Weighted- Average Grant Date Fair Value Unvested balance, December 31, 2020 4,725,353 $ 7.43 Granted 3,518,762 $ 3.44 Vested ( 2,267,342 ) $ 6.77 Forfeited ( 1,422,430 ) $ 5.82 Unvested balance, December 31, 2021 4,554,343 $ 5.17 The total fair value of RSUs and PSUs that vested during 2021, 2020 and 2019 (measured on the date of vesting) was $ 15.4 million, $ 9.4 million, and $ 2.7 million, respectively. As of December 31, 2021, there was approximately $ 12.4 million of unrecognized compensation cost related to RSUs and PSUs, which is expected to be recognized over a weighted average period of 1.56 years. There are 13,102 performance-based RSUs, issued in connection with the Merger, outstanding at December 31, 2021. Employee Stock Purchase Plan The first offering period under the ESPP opened on January 2, 2015. The Company issued 307,193 shares during the year ended December 31, 2021. The Company recorded approximately $ 0.6 million, $ 0.8 million and $ 0.3 million of stock-based compensation expense related to the ESPP during 2021, 2020 and 2019, respectively. Compensation Expense Summary The Company has classified its stock-based compensation expense related to share-based awards as follows: 171 Years ended December 31, 2021 2020 2019 (in thousands) Research and development $ 5,816 $ 6,113 $ 3,544 Selling, general and administrative 16,919 18,347 8,381 Total $ 22,735 $ 24,460 $ 11,925 Compensation expense by type of award: Years ended December 31, 2021 2020 2019 (in thousands) Stock options $ 8,958 $ 8,517 $ 5,421 Restricted stock units 12,927 14,639 6,240 Performance RSUs 294 464 — Employee stock purchase plan 556 840 264 Total $ 22,735 $ 24,460 $ 11,925 14. Income Taxes The Company’s income tax provision was computed based on the federal statutory rate and the state statutory rates, net of the related federal benefit. At December 31, 2018 the Company recorded a tax benefit of $ 28.3 million as a result of the Merger with Keryx. As part of purchase accounting, the Company recorded a deferred tax liability that is a source of income for which the Company can benefit from its tax attributes. The use of the Company’s tax attributes resulted in a release of the corresponding valuation allowance associated with this benefit. At December 31, 2019 the Company recorded an additional tax benefit of $ 6.6 million as a result of additional losses incurred during the year. There was no current or deferred income tax expense or benefit for the years ended December 31, 2021 and December 31, 2020 due to the Company’s net losses and increases in its valuation allowance against its deferred tax assets. The provision for income taxes for each of the years ended December 31, 2021, 2020 and 2019 consisted of the following: Year ended December 31, 2021 2020 2019 Current: Federal — — — State — — — Foreign — — — Total Current: — — — Deferred: Federal — — — State — — ( 6,631 ) Foreign — — — Total Deferred: — — ( 6,631 ) Total Income Taxes — — ( 6,631 ) Our effective income tax rate differs from the statutory federal income tax rate as follows for the years ended December 31, 2021, 2020 and 2019: 172 Year ended December 31, 2021 2020 2019 Federal tax at statutory rate 21.0 % 21.0 % 21.0 % State and local tax at statutory rate 3.0 3.0 5.5 Research and development tax credits — 0.1 2.0 Change in valuation allowance ( 22.7 ) ( 21.5 ) ( 22.4 ) Other permanent differences ( 1.0 ) ( 0.4 ) ( 0.3 ) Reduction in deferred tax assets for change in ownership — — ( 1.6 ) Effect of rate changes 0.3 0.8 ( 1.4 ) Provision to Return Adjustment 0.3 ( 1.5 ) — Prior Period Adjustment to State NOL DTA — ( 1.5 ) — Other ( 0.9 ) — ( 0.5 ) Effective tax rate — % — % 2.3 % Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. When realization of the deferred tax asset is more likely than not to occur, the benefit related to the deductible temporary differences attributable to operations is recognized as a reduction of income tax expense. A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized. The Company cannot be certain that future taxable income will be sufficient to realize its deferred tax assets. Accordingly, the Company has recorded a valuation allowance against the Company’s otherwise recognizable net deferred tax assets. The Company continues to maintain the underlying tax benefits to offset future taxable income and to monitor the need for a valuation allowance based on the profitability of its future operations. The valuation allowance increased by approximately $ 64.2 million and $ 82.5 million, during the years ended December 31, 2021 and 2020, respectively. Significant components of the Company’s deferred tax assets and liabilities are as follows: 173 December 31, 2021 2020 (in thousands) Deferred tax assets: Accrued expenses $ 3,306 $ 3,079 Deferred revenue 9,725 9,091 Sale of Royalty 12,037 — Stock based compensation 9,194 10,014 Research and development credits 5,034 4,620 Other non-current liabilities 20,424 17,015 Net operating loss carryforward 286,908 262,532 ASC 842 lease liability 9,096 6,776 Fixed assets 799 700 UNICAP 3,190 2,132 Inventory Reserve 10,281 8,260 Derivative Liability 413 542 Other 6,081 2,535 Total deferred tax assets 376,488 327,296 Less valuation allowance ( 342,122 ) ( 277,941 ) Total deferred tax assets, net of valuation allowance 34,366 49,355 Deferred tax liabilities: Fixed assets — — Intangible assets ( 25,598 ) ( 34,178 ) Inventory — ( 8,479 ) ASC 842 ROU asset ( 8,486 ) ( 6,101 ) Other ( 282 ) ( 597 ) Total deferred tax liabilities ( 34,366 ) ( 49,355 ) Net deferred tax liability $ — $ — At December 31, 2021 and 2020, the Company has approximately $ 0.3 million (after amortization of $ 1.7 million) and $ 0.4 million (after amortization of $ 1.6 million), respectively, of start-up expenses capitalized for income tax purposes with amortization available to offset future federal, state and local income tax. As of December 31, 2021 and 2020, the Company has approximately $ 1,223.3 million and $ 1,128.3 million, respectively, of federal NOL carry-forwards which expire through 2037. Included in the $ 1,223.3 million of federal NOLs are losses of $ 641.4 million that will carry forward indefinitely as a result of the Tax Cuts and Jobs Act. Additionally, at December 31, 2021 and 2020, the Company has approximately $ 1,792.1 million and $ 1,620.7 million, respectively, of state NOL carry-forwards which expired through 2041. The Company also has approximately $ 2.5 million of federal research and development tax credit carryforwards which expire through 2040 and $ 3.2 million of state research and development tax credit carryforwards which expire through 2036. Under the provisions of the Internal Revenue Code, the net operating losses and tax credit carry-forwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating losses and tax credit carryforwards may become subject to an annual limitation under Internal Revenue Code 382 and 383 if there is more than a 50 % change in ownership of the stockholders that own 5 % or more of the Company’s outstanding stock over a three-year period. The Company completed an evaluation of its ownership changes and concluded that an ownership change did occur on December 12, 2018 for both Akebia and Keryx in connection with the Merger. As a consequence of this ownership change, the Company’s NOLs and tax credit carryforwards allocable to the tax periods preceding the ownership change became subject to limitation under Section 382. The Company reduced its associated deferred tax assets by $ 44.9 million as a result of the limitation. The Company files income tax returns in the U.S. federal and various state and local jurisdictions. For federal and state income tax purposes, the 2020, 2019 and 2018 tax years remain open for examination under the normal three-year statute of limitations. 174 The statute of limitations for income tax audits in the United States will commence upon utilization of net operating losses and will expire three years from the filing of the tax return the loss was utilized on. There was no accrual for uncertain tax positions or for interest and penalties related to uncertain tax positions for 2021, 2020 and 2019. The Company does not believe that there will be a material change in its unrecognized tax positions over the next twelve months. All of the unrecognized tax benefits, if recognized, would be offset by the valuation allowance. 15. Employee Retirement Plan In 2008, the Company established a retirement plan, or the Plan, authorized by Section 401(k) of the Internal Revenue Code. In accordance with the Plan, all employees who have attained the age of 21 are eligible to participate in the Plan as of the first Entry Date, as defined, following their date of employment. Each employee can contribute a percentage of compensation up to a maximum of the statutory limits per year. Company contributions are discretionary and contributions in the amount of approximately $ 1.8 million, $ 1.6 million and $ 1.3 million were made during the years ended December 31, 2021, 2020 and 2019, respectively. 16. Commitments and Contingencies Leases The Company leases approximately 65,167 square feet of office and lab space in Cambridge, Massachusetts under a lease which was most recently amended in November 2020, collectively the Cambridge Lease. Under the Third Amendment to the Cambridge Lease, or the Third Amendment, executed in July 2016, total monthly lease payments under the initial base rent were approximately $ 242,000 and are subject to annual rent escalations. In addition to such annual rent escalations, base rent payments for a portion of said premises commenced on January 1, 2017 in the monthly amount of approximately $ 22,000 . The Fourth Amendment to the Cambridge Lease, executed in May 2017, provided additional storage space to the Company and did not impact rent payments. In April 2018, the Company entered into a Fifth Amendment to the Cambridge Lease, or the Fifth Amendment, for an additional 19,805 square feet of office space on the 12t h floor. Monthly lease payments for the existing 45,362 square feet of office and lab space, under the Third Amendment, remain unchanged. The new space leased by the Company was delivered in September 2018 and additional monthly lease payments of approximately $ 135,000 commenced in February 2019 and are subject to annual rent escalations, which commenced in September 2019. In November 2020, the Company entered into a Sixth Amendment to the Cambridge Lease, or the Sixth Amendment, to extend the term of the Cambridge Lease with respect to the lab space from November 30, 2021 to January 31, 2025. The Sixth Amendment includes two months of free rent starting in December 2020 and additional monthly lease payments of approximately $ 48,000 , which commenced in December 2021, and is subject to annual rent escalations, which commence in December 2022. Additionally, as a result of the Merger, the Company has a lease for 27,300 square feet of office space in Boston, Massachusetts, or the Boston Lease, which expires in February 2023. The total monthly lease payments under the base rent are approximately $ 136,000 and are subject to annual rent escalations. As of the date of the filing of this Annual Report on Form 10-K, the Company has amended the Boston Lease to extend the term as further described in Note 18. The term of the Cambridge Lease with respect to the office space expires on September 11, 2026, with one five-year extension option available. The term of the Boston Lease office space expires on February 28, 2023, with an extension option for one additional five-year extension option available. The renewal option in the with respect to the Cambridge Lease was not included in the calculation of the operating lease assets and operating lease liabilities as the renewal is not reasonably certain. As of December 31, 2021, the renewal option for the Boston Lease office space was included in the calculation of the operating lease assets and operating lease liabilities as the Company became reasonably certain that the Company would exercise the extension option. As of the date of the filing of this Annual Report on Form 10-K, the Company has amended the Boston Lease to extend the term as further described in Note 18. The term of the Cambridge Lease with respect to the lab space expires on January 31, 2025, with an extension option for one additional period through September 11, 2026. The renewal options in this real estate lease was included in the calculation of the operating lease assets and operating lease liabilities as the renewal is reasonably certain. The lease agreements do not contain residual value guarantees. Operating lease costs were $ 6.7 million for both the years ended December 31, 2021 and 2020. Cash paid for amounts included in the measurement of operating lease liabilities were $ 7.1 million and $ 7.0 million for the years ended December 31, 2021 and 2020, respectively. In September 2019, Keryx entered into an agreement to sublease the Boston office space to Foundation Medicine, Inc., or Foundation. The sublease is subject and subordinate to the Boston Lease between Keryx and the landlord. The term of the sublease commenced on October 16, 2019, upon receipt of the required consent from the landlord for the sublease agreement, and expires on February 27, 2023. Foundation is obligated to pay Keryx rent that approximates the rent due from Keryx to its 175 landlord with respect to the Boston Lease. Sublease rental income is recorded to other income. 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 $ 1.8 million in sublease rental income from Foundation during each of the years ended December 31, 2021 and 2020. The Company has not entered into any material short-term leases or financing leases as of December 31, 2021. The total security deposit in connection with the Cambridge Lease is $ 1.6 million as of December 31, 2021. Additionally, the Company recorded $ 0.4 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 as restricted cash in prepaid expenses and other current assets in the Company’s consolidated balance sheet as of December 31, 2021. As of December 31, 2021, undiscounted minimum rental commitments under non-cancelable leases, for each of the next five years and total thereafter are as follows: Operating Leases Lease Payments to be Received from Sublease Net Operating Lease Payments (in thousands) 2022 $ 7,328 $ 1,824 $ 5,504 2023 6,955 307 6,648 2024 8,167 — 8,167 2025 8,293 — 8,293 2026 6,571 — 6,571 Thereafter 12,200 — 12,200 Total $ 49,514 $ 2,131 $ 47,383 In arriving at the operating lease liabilities, the Company applied incremental borrowing rates ranging from 6.65 % to 7.25 %, which were based on the remaining lease term at either the date of adoption of ASC 842 or the effective date of any subsequent lease term extensions. As of December 31, 2021, the remaining lease terms ranged from 4.70 years to 9.59 years. As of December 31, 2021, the following represents the difference between the remaining undiscounted minimum rental commitments under non-cancelable leases and the operating lease liabilities: Operating Leases (in thousands) Total Undiscounted minimum rental commitments $ 49,514 Present value adjustment using incremental borrowing rate ( 10,673 ) Operating lease liabilities $ 38,841 Manufacturing Agreements As a result of the Merger, the Company's contractual obligations include Keryx’s commercial supply agreements with BioVectra Inc., or 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, 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 require 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 176 Company and BioVectra each have the ability to terminate these agreements upon the occurrence of certain conditions. As of December 31, 2021, 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 $ 83.6 million through the end of the contract term. Pursuant to the Siegfried Master Manufacturing Services and Supply Agreement, as amended (the most recent amendment having been executed on February 11, 2021), or the Siegfried 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. The term of the Siegfried Agreement expires on December 31, 2022, subject to the Company's option to extend through December 31, 2023 by providing 12 months' prior written notice to Siegfried. The Siegfried Agreement provides the Company and Siegfried with certain termination rights. As of the date of the filing of this Annual Report on Form 10-K, the Company has notified Siegfried that the Company has elected not to exercise the option to extend the term of the Siegfried Agreement through December 31, 2023. As of December 31, 2021, the Company is required to purchase a minimum quantity of drug substance for Auryxia annually at a total cost of approximately $ 15.6 million through the year ending December 31, 2022. 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 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. The Company regularly reviews its estimate of the excess purchase commitment liability including review of assumptions of expected future demand, estimates of anticipated expiry of inventory under firm purchase commitments that are estimated to expire before they could be sold as well as any modifications to supply agreements during each reporting period. The excess purchase commitment liability relating to these executory contracts was $ 76.7 million and $ 55.8 million as of December 31, 2021 and 2020, respectively. During the quarter ended December 31, 2021, the Company completed its annual budget process for 2022, which included the impact of recent activity in regards to the impact of COVID-19 on the Company's growth rates. As a result of this budget process, the Company performed an update of its long-term plan. This update to the Company's long-term plan and related estimates of expiry resulted in a $ 18.0 million charge to cost of goods sold during the quarter ended December 31, 2021. During the quarter ended December 31, 2021, the Company reduced the excess purchase commitment liability by $ 12.5 million for inventory received that had been previously identified as excess. During the quarter ended September 30, 2021, the Company recorded a $ 6.0 million reduction to the excess purchase commitments liability within cost of goods sold primarily due to the settlement of all patent litigation proceedings related to Abbreviated New Drug Applications filed with respect to Auryxia, which allows for generic versions of Auryxia beginning in March 2025. The Company recognized this non-cash gain in accordance with ASC 270 Interim Reporting, specifically ASC 270-10-45-6(c) Other Presentation Matters, which allows for recovery of losses on the same inventory in later interim periods of the same fiscal year as long as the as long as the recovery of losses does not exceed the previously recognized loss. During the quarter ended June 30, 2021, the Company completed a routine update of its long-range plan and related estimates of expiry. This routine update included the impact of recent activity with regards to the Company's long-term payor contract strategy which continues to focus on contract economics and net revenue growth and resulted in a $ 30.3 million charge to cost of goods sold during the quarter ended June 30, 2021.The Company considered whether the respective increases in the excess purchase commitment liability were potential indicators of impairment of the Auryxia asset group as of December 31, 2021 and June 30, 2021. As part of its assessments, the Company reviewed the Auryxia net sales and estimated future cash flows included in its long-range plan and concluded that the respective increases in excess purchase commitment liability were not indicators of impairment of the Auryxia asset group as of December 31, 2021 or June 30, 2021. During the first quarter ended March 31, 2021, the Company recorded a non-cash gain to cost of goods sold of $ 8.9 million driven largely by a reduction in purchase commitments due to the amendment to the Siegfried Agreement. 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 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 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. Pursuant to the Esteve Agreement, the Company has agreed to purchase a certain percentage of the global demand for vadadustat drug substance from Esteve. As of December 31, 2021, the Company has committed to purchase $ 28.9 million of vadadustat drug substance from Esteve through the fourth quarter of 2022. On March 11, 2020, the Company entered into a Supply Agreement with Patheon Inc., or Patheon, or the Patheon Agreement. The Patheon Agreement includes the terms and conditions under which Patheon will manufacture vadadustat drug product for 177 commercial use. Pursuant to the Patheon Agreement, the Company provides Patheon a long-term forecast on an annual basis, as well as short-term forecasts on a quarterly basis, or the Patheon Forecast. The Patheon Forecast reflects the Company’s needs for commercial supply of vadadustat drug product produced by Patheon, represented as a quantity of drug product per calendar quarter. The parties have agreed to a volume-based pricing structure under the Patheon Agreement. The Patheon Agreement has an initial term beginning March 11, 2020 and ending June 30, 2023. Pursuant to the Patheon Agreement, the Company has agreed to purchase a certain percentage of the global demand for vadadustat drug product from Patheon. As of December 31, 2021, the Company had a minimum commitment with Patheon for $ 4.0 million through the fourth quarter of 2022. 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 DS Agreement. The WuXi STA DS Agreement includes the terms and conditions under which WuXi STA will manufacture vadadustat drug substance for commercial use. Pursuant to the WuXi STA DS Agreement, the Company provides rolling forecasts to WuXi STA on a quarterly basis, or the WuXi STA DS Forecast. The WuXi STA DS 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 DS Agreement. The WuXi STA DS Agreement has an initial term of four years , beginning April 2, 2020 and ending April 2, 2024. Pursuant to the WuXi STA DS Agreement, the Company has agreed to purchase a certain percentage of the global demand for vadadustat drug substance from WuXi STA. As of December 31, 2021, the Company has committed to purchase $ 29.2 million of vadadustat drug substance from WuXi STA through the third quarter of 2022. On February 10, 2021, the Company entered into a Supply Agreement with WuXi STA, or the WuXi STA DP Agreement. The WuXi STA DP Agreement includes the terms and conditions under which WuXi STA will manufacture and supply vadadustat drug product for commercial purposes. Pursuant to the WuXi STA DP Agreement, the Company will provide rolling forecasts to WuXi STA on a quarterly basis, or the WuXi STA DP Forecast. Each WuXi STA DP Forecast will reflect the quantities of vadadustat drug product that the Company expects to order from WuXi STA over a certain number of months, represented as a quantity of vadadustat drug product per calendar quarter. Pursuant to the WuXi STA DP Agreement, the Company has agreed to purchase a certain percentage of global demand for vadadustat drug product from WuXi STA. The parties have agreed to a volume-based pricing structure under the WuXi STA DP Agreement. The vadadustat drug product price will remain fixed for the first 12 months and thereafter shall be annually reviewed by the Company and WuXi STA. The Company will also reimburse WuXi STA for certain reasonable expenses. The WuXi STA DP Agreement has an initial term of four years , beginning February 10, 2021 and ending February 10, 2025. The WuXi STA DP Agreement may be renewed or extended by mutual agreement of the Company and WuXi STA with at least 18 months’ prior written notice. The WuXi STA DP Agreement allows the Company to terminate the relationship on 180 calendar days’ prior written notice to WuXi STA for any reason. In addition, each party has the ability to terminate the WuXi STA DP Agreement upon the occurrence of certain conditions. 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 December 31, 2021 were approximately $ 5.0 million, of which Otsuka reimburses a significant portion back to the Company. Substantive performance for the committed work with IQVIA was completed in 2020 and close out activities will be performed throughout 2022. The Company also contracts with various other organizations to conduct research and development activities with remaining contract costs to the Company of approximately $ 237.8 million at December 31, 2021. The scope of the services under these research and development contracts can be modified and the contracts cancelled by the Company upon written notice. In some instances, the contracts may be cancelled by the third party upon written notice. Litigation and Related Matters From time to time, the Company may become subject to legal proceedings and claims which arise in the ordinary course of its business. Consistent with ASC 450, Contingencies , the Company’s policy is to record a liability if a loss in a significant legal dispute is considered probable and an amount can be reasonably estimated. The Company provides disclosure when a loss in excess of any reserve is reasonably possible, and if estimable, the Company discloses the potential loss or range of possible loss. Significant judgment is required to assess the likelihood of various potential outcomes and the quantification of loss in those scenarios. The Company’s estimates change as litigation progresses and new information comes to light. Changes in Company estimates could have a material impact on the Company’s results and financial position. As of December 31, 2021, 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. 178 17. Net Loss per Share 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: Year ended December 31, 2021 2020 2019 Warrants 509,611 509,611 509,611 Outstanding stock options 11,398,215 9,386,517 7,670,899 Unvested restricted stock units 4,667,003 4,722,311 4,524,132 Total 16,574,829 14,618,439 12,704,642 18. Subsequent Events Second Amended and Restated License Agreement with Vifor Pharma On Febr uary 18, 202 2, the Company and Vifor Pharma entered into a Second Amended and Restated License Agreement, or the Vifor Second Amended Agreement, which amends and restates the Vifor First Amended Agreement. Pursuant to the Vifor Second Amended Agreement, the Company granted Vifor Pharma an exclusive license to sell vadadustat to the Supply Group in the United States, or the Territory. Vadadustat is the Company's investigational oral HIF prolyl hydroxylase inhibitor for the treatment of anemia due to CKD, for which the Company has filed a new drug application with the FDA. Like the Vifor First Amended Agreement, the Vifor Second Amended Agreement is structured as a profit share arrangement between the Company and Vifor Pharma in which the Company will receive approximately 66 % of the profit, net of certain pre-specified costs. Under the Vifor Second Amended Agreement, Vifor Pharma will make an upfront payment to the Company of $ 25 million in lieu of the previously disclosed milestone payment of $ 25 million that Vifor Pharma was to pay to the Company following approval of vadadustat by the FDA. In addition, Vifor Pharma made an equity investment in the Company as further described below under “Investment Agreement.” The Company currently retains rights to commercialize vadadustat for use in the non-dialysis dependent CKD market and to sell to dialysis organizations outside of the Supply Group. As under the Vifor First Amended Agreement, during the term of the Vifor Second Amended Agreement, Vifor Pharma is not permitted to sell any HIF product that competes with vadadustat in the Territory to the Supply Group. As under the Vifor First Amended Agreement, the Vifor Second Amended Agreement provides that the Company and Vifor Pharma will enter into a commercial supply agreement for vadadustat pursuant to which the Company will supply all of Vifor Pharma’s requirements for vadadustat in the Territory. Under the Vifor Second Amended Agreement, Vifor Pharma will contribute $ 40 million to the Working Capital Fund, established to partially fund the Company's costs of purchasing vadadustat from its contract manufacturers, which amount of funding will fluctuate, and which funding the Company will repay to Vifor Pharma over time. Unless earlier terminated, the Vifor Second Amended Agreement will expire upon the later of the expiration of all patents that claim or cover vadadustat or the expiration of marketing or regulatory exclusivity for vadadustat in the Territory. Vifor Pharma may terminate the Vifor Second Amended Agreement in its entirety upon 30 months’ prior written notice after the first anniversary of the receipt of regulatory approval, if approved, from the FDA for vadadustat for dialysis-dependent CKD patients. The Company may terminate the Vifor Second Amended Agreement in its entirety for convenience, following the earlier of a certain period of time elapsing or following certain specified regulatory events, and upon six months’ prior written notice. If the Company so terminates for convenience, subject to a specified exception, the Company will pay a termination fee to Vifor Pharma. In addition, either party may, subject to a cure period, terminate the Vifor Second Amended Agreement in the event of the other party’s uncured material breach or bankruptcy. The Company may also terminate the Vifor Second Amended Agreement upon the occurrence of certain other events. The Vifor Second Amended Agreement also continues to include a standstill provision and customary representations and warranties. Investment Agreement In connection with entering into the Vifor Second Amended Agreement, on February 18, 2022, the Company and Vifor Pharma entered into an investment agreement, or the Second Investment Agreement, pursuant to which Akebia sold an aggregate of 4,000,000 shares of its common stock, par value $ 0.00001 per share, or the Shares, to Vifor Pharma for a total of $ 20 million on February 22, 2022. Vifor Pharma has agreed to a lock-up restriction to not sell or otherwise dispose of the Shares for a period of time following the effective date of the Investment Agreement as well as a customary standstill agreement. In addition, the Second Investment Agreement contains voting agreements made by Vifor Pharma with respect to the Shares. The Shares have not been registered 179 pursuant to the Act and were issued and sold in reliance upon the exemption from registration contained in Section 4(a)(2) of the Act and/or Rule 506 promulgated thereunder, as the transaction does not involve any public offering within the meaning of Section 4(a)(2) of the Act. First Amendment and Waiver to Loan Agreement with Pharmakon On February 18, 2022, in connection with entering into the Vifor Second Amended Agreement, the Company and Pharmakon entered into the First Amendment and Waiver, or the First Amendment and Waiver, which amends and waives certain provisions of the Loan Agreement. Pursuant to the First Amendment and Waiver, the Collateral Agent and the Lenders agreed to (1) add the Working Capital Fund to the definition of Permitted Indebtedness under the Loan Agreement, as such term is defined in the Loan Agreement. subject to certain rights of notice and acceleration of the loans under the Loan Agreement granted to the Collateral Agent and Lenders in connection with the Company’s repayment of the Working Capital Fund to Vifor Pharma, and (2) provide the Company with a waiver with respect to a financial statement covenant included in the Loan Agreement and added a new covenant providing that our Quarterly Reports on Form 10-Q for the fiscal quarters ending June 30, 2022 and September 30, 2022 must not be subject to any qualification as to going concern. Amendment to Lease Agreement with CLPF One Marina Park Drive LLC On February 24, 2022, Keryx and the Company entered into an Assignment and Assumption Agreement, pursuant to which the Company assumed all of the rights and responsibilities of Keryx with respect to the One Marina Park Drive Office Lease, dated April 29, 2015, by and between Keryx and Fallon Cornerstone One MPD LLC, or Fallon, or the Boston Lease, for the entire twelfth floor of the building located at One Marina Park Drive, Boston, Massachusetts, or the Premises. On February 24, 2022, the Company entered into a First Amendment to Lease, or the First Lease Amendment, with CLPF One Marina Park Drive LLC (successor-in-interest to Fallon), or the Landlord, amending the Boston Lease for the Premises. Pursuant to the First Lease Amendment, the Company has agreed to extend the term of the Boston Lease, as amended, until July 31, 2031. The monthly lease payment for the Premises pursuant to the First Lease Amendment will be $ 200,122.00 commencing on August 1, 2023, with an annual rent escalation of approximately 2 % commencing on August 1, 2024. The First Lease Amendment also includes a Landlord’s allowance for certain leasehold improvements to the Premises in an amount of up to $ 1,954,680.00 , provided that such allowance must be used prior to August 1, 2024. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.