KYNTRA BIO, INC. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes and other financial information included in Item 8 of this Annual Report on Form 10-K for the year ended December 31, 2021 (“Annual Report”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, international operations and product candidates, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this Annual Report for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. BUSINESS OVERVIEW We are headquartered in San Francisco, California, with subsidiary offices in Beijing and Shanghai, People’s Republic of China (“China”). We are a leading biopharmaceutical company developing and commercializing a pipeline of first-in-class therapeutics. We apply our pioneering expertise in hypoxia-inducible factor (“HIF”) biology, 2-oxoglutarate enzymology, and connective tissue growth factor (“CTGF”) biology to advance innovative medicines for the treatment of anemia, fibrotic disease, and cancer. Roxadustat is our most advanced product, an oral small molecule inhibitor of HIF prolyl hydroxylase (“HIF-PH”) activity. Roxadustat is currently approved for use in patients with anemia associated with chronic kidney disease (“CKD”) in China (2019), Japan (2020) and Europe (2021), under the tradename EVRENZO ® . Roxadustat is also being commercialized in China for CKD anemia in dialysis and non-dialysis patients under the tradename: 爱瑞卓 ® . Roxadustat is in Phase 3 clinical development for anemia associated with myelodysplastic syndromes and Phase 2 clinical development for chemotherapy-induced anemia. Pamrevlumab is our first-in-class antibody developed to inhibit the activity of CTGF, a common factor in fibrotic and fibro-proliferative disorders characterized by persistent and excessive scarring that can lead to organ dysfunction and failure. In the second quarter of 2021, the Food and Drug Administration (“FDA”) granted both Rare Pediatric Disease designation and Fast Track designation for pamrevlumab for the treatment of patients with Duchenne Muscular Dystrophy. In addition, the FDA has granted Orphan Drug Designation to pamrevlumab for the treatment of idiopathic pulmonary fibrosis, locally advanced unresectable pancreatic cancer, and Duchenne Muscular Dystrophy. Pamrevlumab has also received Fast Track designation from the FDA for the treatment of both idiopathic pulmonary fibrosis and locally advanced unresectable pancreatic cancer. We have a pipeline of late-stage clinical programs as well as pre-clinical drug candidates at various stages of development that include both small molecules and biologics. 84 Financial Highlights Years Ended December 31, 2021 2020 2019 (in thousands, except for per share data) Result of Operations Revenue $ 235,309 $ 176,319 $ 256,577 Operating costs and expenses 523,839 368,199 345,891 Net loss (290,023 ) (189,291 ) (76,970 ) Net loss per share - basic and diluted $ (3.14 ) $ (2.11 ) $ (0.89 ) December 31, 2021 December 31, 2020 (in thousands) Balance Sheet Cash and cash equivalents $ 171,223 $ 678,393 Short-term and long-term investments $ 401,763 $ 8,388 Accounts receivable $ 17,401 $ 41,883 Our revenue for the year ended December 31, 2021 included the revenues recognized related to the following: • $120.0 million regulatory milestones recognized under our collaboration agreements with our partners Astellas Pharma Inc. (“Astellas”) associated with the approval by European Commission of EVRENZO ® (roxadustat) for the treatment of adult patients with symptomatic anemia associated with CKD during the third quarter of 2021. Of this amount, $108.4 million was recognized as license revenue and the remainder included as development revenue; • $70.3 million of development revenue recognized under our collaboration agreements with our partners Astellas and AstraZeneca AB (“AstraZeneca”); • $47.6 million of net product revenue from roxadustat commercial sales in China, mostly from sales to Beijing Falikang Pharmaceutical Co. Ltd. (“Falikang”) (see details under Product Revenue, Net section below); and • $8.0 million upfront license payment recognized under our license agreement (defined below) with Eluminex Biosciences (Suzhou) Limited (“Eluminex”). As comparison, our revenue for the year ended December 31, 2020 included the revenues recognized related to the following: • $15.0 million regulatory milestone associated with the New Drug Application (“NDA”) approval in Japan; • $80.6 million development revenue recognized under collaboration agreements with our partners Astellas and AstraZeneca; • $72.5 million of net product revenue from roxadustat commercial sales in China; and • $8.9 million of drug product revenue related to roxadustat bulk drug or active pharmaceutical ingredient (“API”) deliveries to AstraZeneca and Astellas. Operating costs and expenses increased for the year ended December 31, 2021 compared to the prior year as a result of the net effect of the following: • $60.0 million of expenses for acquired in-process research and development assets from HiFiBiO Therapeutics (“HiFiBiO”); • $38.4 million higher clinical trial costs, primarily due to Phase 3 trials for pamrevlumab, as well as impacts from roxadustat post-approval safety studies in China; • $24.4 million higher drug development expenses associated with drug substance and drug product manufacturing activities primarily related to pamrevlumab; • $16.5 million higher employee-related expenses primarily resulting from higher average compensation level and headcount, and higher severance expenses associated with employee departures and cost reduction effort; • $8.8 million higher outside services due to higher consulting expenses related to roxadustat in China, higher scientific contract activities related to pamrevlumab Phase 3, and higher co-promotion expenses resulting from a reversal in co-promotion expenses in prior year period; and • $6.0 million lower legal expenses primarily associated with patent-related activities in the United Kingdom. 85 Our research and development expenses were $387.0 million, $252.9 million and $209.3 million for the years ended December 31, 2021, 2020 and 2019, respectively. Since inception and through December 31, 2021, we have incurred a total of approximately $2.6 billion in research and development expenses, a majority of which relates to the development of roxadustat, pamrevlumab and other HIF-PH inhibitors. We expect to continue to incur significant expenses and operating losses over at least the next several years as we continue to make investments in research and development to advance our product candidate portfolio. In addition, we expect to incur significant expenses relating to seeking regulatory approval for our product candidates and commercializing those products in various markets, including China. We consider the active management and development of our clinical pipeline to be particularly crucial to our long-term success. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time consuming. Following the complete response letter (“CRL”) for roxadustat in the United States (“U.S.”), we are implementing a cost reduction effort, and as a result, operating expenses may decrease in certain areas in the near future compared to our previous internal plans. The actual probability of success for each of our product candidates and clinical programs, and our ability to generate product revenue and become profitable, depends upon a variety of factors, including the quality of the product candidate, clinical results, investment in the program, competition, manufacturing capability, commercial viability, and our and our partners’ ability to successfully execute our development and commercialization plans. For a description of the numerous risks and uncertainties associated with product development, refer to the “ Risk Factors ” section of this Annual Report. During the year ended December 31, 2021, we had a net loss of $290.0 million, or net loss per basic and diluted share of $3.14, as compared to a net loss of $189.3 million, or net loss per basic and diluted share of $2.11 for the prior year, primarily due to an increase in operating expenses, partially offset by an increase in revenue. Cash and cash equivalents, investments and accounts receivable totaled $590.4 million at December 31, 2021, a decrease of $138.3 million from December 31, 2020, primarily due to cash used in operations and investment in our pre-clinical pipeline. Licensing Activities Exclusive License with Eluminex In July 2021, we exclusively licensed to Eluminex global rights to our investigational biosynthetic cornea derived from recombinant human collagen type III. Under the terms of the agreement with Eluminex, Eluminex will make an $8.0 million upfront payment to FibroGen. In addition, FibroGen may receive up to a total of $64.0 million in future manufacturing, clinical, regulatory, and commercial milestone payments for the biosynthetic cornea program, as well as $36.0 million in commercial milestones for the first recombinant collagen III product that is not the biosynthetic cornea. FibroGen will be eligible to receive mid single-digit to low double-digit royalties based upon worldwide net sales of cornea products, and low single-digit to mid single-digit royalties based on worldwide net sales of other recombinant human collagen type III products that are not cornea products. During the third quarter of 2021, the $8.0 million upfront license payment was recognized as license revenue for the performance obligations satisfied. See Note 3, Collaboration Agreements, License Agreement and Revenues , to the consolidated financial statements for details. Collaboration Partnerships for Roxadustat Our current and future research, development, manufacturing and commercialization efforts with respect to roxadustat and our other product candidates currently in development depend on funds from our collaboration agreements with Astellas and AstraZeneca. See Note 3, Collaboration Agreements, License Agreement and Revenues , to the consolidated financial statements for details. Astellas In June 2005, we entered into a collaboration agreement with Astellas for the development and commercialization (but not manufacture) of roxadustat for the treatment of anemia in Japan (“Japan Agreement”). In April 2006, we entered into the Europe Agreement with Astellas for roxadustat for the treatment of anemia in Europe, the Commonwealth of Independent States, the Middle East, and South Africa (“Europe Agreement”). Under these agreements, we provide Astellas the right to develop and commercialize roxadustat for anemia indications in these territories. 86 We share responsibility with Astellas for clinical development activities required for the U.S. and the Europe regulatory approval of roxadustat, and equally share those development costs under the agreed development plan for such activities. Astellas will be responsible for clinical development activities and all associated costs required for regulatory approval in all other countries in the Astellas territories. Astellas will own and have responsibility for regulatory filings in its territories. We are responsible, either directly or through our contract manufacturers, for the manufacture and supply of all quantities of roxadustat to be used in development and commercialization under the agreements. Astellas is responsible for roxadustat commercialization activities in the Astellas territories. The Astellas agreements will continue in effect until terminated. Either party may terminate the agreements for certain material breaches by the other party. In addition, Astellas will have the right to terminate the agreements for certain specified technical product failures, upon generic sales reaching a particular threshold, upon certain regulatory actions, or upon our entering into a settlement admitting the invalidity or unenforceability of our licensed patents. Astellas may also terminate the agreements for convenience upon advance written notice to us. In the event of any termination of the agreements, Astellas will transfer and assign to us the regulatory filings for roxadustat and will assign or license to us the relevant trademarks used with the products in the Astellas territories. Under certain terminations, Astellas is also obligated to pay us a termination fee. During the third quarter of 2021, the European Commission approved EVRENZO ® (roxadustat) for the treatment of adult patients with symptomatic anemia associated with CKD. Astellas has launched EVRENZO in Germany, the United Kingdom, the Netherlands, Austria, and the Nordic countries. This approval triggered a total of $120.0 million milestone payable to us by Astellas under the Europe Agreement. Accordingly, the consideration of $120.0 million associated with these milestones was included in the transaction price and allocated to performance obligations under the Europe Agreement, all of which was recognized as revenue during the year ended December 31, 2021 from performance obligations satisfied. During the fourth quarter of 2020, the Japanese Ministry of Health, Labour and Welfare approved EVRENZO ® (roxadustat) for the treatment of anemia of CKD in adult patients not on dialysis. Accordingly, the consideration of $15.0 million associated with this milestone was included in the transaction price and allocated to performance obligations under the Japan Agreement in the fourth quarter of 2020, substantially all of which was recognized as revenue during the year ended December 31, 2020 from performance obligations satisfied or partially satisfied. Consideration under these agreements includes a total of $360.1 million in upfront and non-contingent payments, and milestone payments totaling $557.5 million, of which $542.5 million are development and regulatory milestones and $15.0 million are commercial-based milestones. Total consideration, excluding development cost reimbursement and product sales-related payments, could reach $917.6 million. Under these agreements, the aggregate amount for upfront payments and milestone payments received through December 31, 2021 totals $765.1 million. In 2018, FibroGen and Astellas entered into an amendment to the Japan Agreement that will allow Astellas to manufacture roxadustat drug product for commercialization in Japan (the “Japan Amendment”). Under this amendment, FibroGen would continue to manufacture and supply roxadustat API to Astellas for the roxadustat commercial launch in Japan. The commercial terms of the Japan Agreement relating to the transfer price for roxadustat for commercial use remain substantially the same, reflecting an adjustment for the manufacture of drug product by Astellas rather than FibroGen. Under the Europe Agreement, Astellas has an option to purchase roxadustat bulk drug product in support of commercial supplies. We fulfilled an inventory transfer obligation under the terms of the Europe Agreement in the fourth quarter of 2020. During the first quarter of 2021, we entered into an Astellas EU Supply Agreement (“EU Supply Agreement”) under the Europe Agreement to define general forecast, order, supply and payment terms for Astellas to purchase roxadustat bulk drug product from FibroGen in support of commercial supplies. We transferred bulk drug product to Astellas during the first and the fourth quarter of 2021. We recorded the consideration of $25.9 million from these inventory transfers as deferred revenue as of December 31, 2021. Additionally, under these agreements, Astellas pays 100% of the commercialization costs in their territories. In Japan, Astellas pays us a transfer price in the low 20% range of the list price published by the Japanese Ministry of Health, Labour and Welfare, adjusted for certain elements, after commercial launch. In Europe, Astellas pays us a tiered transfer price for our manufacture and supply of roxadustat based on net sales of roxadustat in the low 20% range. The related drug product revenue under these agreements were $3.2 million and $4.3 million for the years ended December 31, 2021 and 2020, respectively. In addition, as of December 31, 2021, Astellas had a separate investment of $80.5 million in the equity of FibroGen, Inc. 87 AstraZeneca In July 2013, we entered into a collaboration agreement with AstraZeneca for roxadustat for the treatment of anemia in the U.S. and all territories not previously licensed to Astellas (the “U.S./RoW Agreement”), except China. In July 2013, through our China subsidiary and related affiliates, we entered into the China Agreement with AstraZeneca for roxadustat for the treatment of anemia in China (the “China Agreement”). Under these agreements, we provide AstraZeneca the right to develop and commercialize roxadustat for anemia in these territories. We share responsibility with AstraZeneca for clinical development activities required for U.S. regulatory approval of roxadustat, and FibroGen will transfer the U.S. NDA to AstraZeneca upon approval. AstraZeneca will hold the equivalent regulatory filings in the other licensed countries. In China, FibroGen (China) Medical Technology Development Co., Ltd. (“FibroGen Beijing”) will conduct the development work for CKD anemia, will hold all of the regulatory licenses issued by China regulatory authorities, and will be primarily responsible for regulatory, clinical and manufacturing. China development costs are shared 50/50. AstraZeneca is also responsible for 100% of development expenses in all other licensed territories outside of China. Outside of China, we are responsible, through our contract manufacturers, for the manufacture and supply of all quantities of roxadustat to be used in development and commercialization under the AstraZeneca agreements. Under the China Agreement, which is conducted through FibroGen China Anemia Holdings, Ltd., FibroGen Beijing, and FibroGen International (Hong Kong) Limited (collectively, (“FibroGen China”), the commercial collaboration was structured as a 50/50 profit share, which was amended by the China Amendment in the third quarter of 2020, as discussed and defined below in China Amendment . AstraZeneca may terminate the U.S./RoW Agreement upon specified events, including our bankruptcy or insolvency, our uncured material breach, technical product failure, or upon 180 days prior written notice at will. If AstraZeneca terminates the U.S./RoW Agreement at will, in addition to any unpaid non-contingent payments, it will be responsible for paying for a substantial portion of the post-termination development costs under the agreed development plan until regulatory approval. AstraZeneca may terminate the China Agreement upon specified events, including our bankruptcy or insolvency, our uncured material breach, technical product failure, or upon advance prior written notice at will. If AstraZeneca terminates our China Agreement at will, it will be responsible for paying for transition costs as well as make a specified payment to FibroGen. In the event of any termination of the agreements, but subject to modification upon termination for technical product failure, AstraZeneca will transfer and assign to us any regulatory filings and approvals for roxadustat in the affected territories that they may hold under our agreements, grant us licenses and conduct certain transition activities. Under the AstraZeneca agreements, we will receive upfront and subsequent non-contingent payments totaling $402.2 million. Potential milestone payments under the agreements total $1.2 billion, of which $571.0 million are development and regulatory milestones and $652.5 million are commercial-based milestones. Total consideration under the agreements, excluding development cost reimbursement, transfer price payments, royalties and profit share, could reach $1.6 billion. The aggregate amount for upfront payments and milestone payments received through December 31, 2021 totals $516.2 million. Under the U.S./RoW Agreement, AstraZeneca will pay for all commercialization costs in the U.S. and RoW and AstraZeneca will be responsible for the U.S. commercialization of roxadustat, with FibroGen undertaking specified commercial activities in the U.S. In addition, we will receive a transfer price for delivery of commercial product based on a percentage of net sales in the low- to mid-single digit range and AstraZeneca will pay us a tiered royalty on net sales of roxadustat in the low 20% range. China Amendment In July 2020, FibroGen China and AstraZeneca (together with FibroGen China, the “Parties”) entered into an amendment, effective July 1, 2020, to the China Agreement, relating to the development and commercialization of roxadustat in China (the “China Amendment”). While the responsibilities of the Parties under the China Agreement remain largely the same, certain changes were made. 88 Under the China Amendment, in September 2020, FibroGen Beijing and AstraZeneca completed the establishment of a jointly owned entity, Falikang , which performs roxadustat distribution, as well as conduct sales and marketing through AstraZeneca. As Falikang is a distribution entity for roxadustat and AstraZeneca is the final decision maker for all the roxadustat commercialization activities, we lack the power criterion while AstraZeneca meets both the power and economic criteria under the Accounting Standards Codification (“ASC”) 810, Consolidation , to direct the activities of Falikang that most significantly impact its performance. Therefore, we are not the primary beneficiary of Falikang. As a result, we account for our investment in Falikang under the equity method, and Falikang is not consolidated into our consolidated financial statements. In addition , we recognized our proportionate share of the reported profits or losses of Falikang, as other income (loss) in the consolidated statement of operations, and as an adjustment to investment in unconsolidated subsidiary in the consolidated balance sheet. Falikang has not incurred material profit or loss to date. See Note 4, Equity method investment - Variable Interest Entity , to the consolidated financial statements for details. Under the China Amendment, the interim period is defined as the period from April 1, 2020 to the time when Falikang is fully operational. Falikang became fully operational in January 2021. The calculation for profit or loss share related to sales of roxadustat in China has changed for the period from April 1, 2020 onwards. With effect from April 1, 2020, the Parties have changed the method under which commercial expenses incurred by AstraZeneca are calculated and billed. AstraZeneca’s co-promotion expenses for their sales and marketing efforts are now subject to a cap of a percentage of net sales. Once AstraZeneca has been fully reimbursed for their sales and marketing costs under the cap, AstraZeneca will bill the co-promotion expenses based on actual costs on a prospective basis. In addition, the China Amendment has allowed for a higher cost of manufacturing incurred by FibroGen Beijing to be included in the profit or loss share calculation, subject to an annual cap, among other changes. As a result, the interim period during the year ended December 31, 2020 primarily includes the following activities: • Co-promotion expenses: The China Amendment revised the payment arrangements and calculation of the historical unpaid co-promotion expenses to AstraZeneca for its sales and marketing efforts associated with the commercial sales for roxadustat in China since the product launch. Under the China Amendment, a portion of the historical unpaid co-promotion expenses was adjusted to reduce the amount owed by FibroGen Beijing and the current period co-promotion expenses are capped at a percentage of net roxadustat sales in China. As a result, in the third quarter of 2020, we reversed approximately $84.4 million of previously accrued co-promotion expenses payable, which was recorded as a reduction to selling, general and administrative expenses, where these expenses were initially recorded during the periods from the initiation of commercial activities in the first quarter of 2019 to the second quarter of 2020. Under the China Amendment, the co-promotion expenses for the years ended December 31, 2021 and 2020, capped at a percentage of net roxadustat sales in China, were $4.7 million and $27.2 million, respectively, included in the selling, general and administrative expenses. • Profit share: Profit/loss share between FibroGen Beijing and AstraZeneca is based on a calculation of the current period net roxadustat sales in China and deductible expenses pursuant to the China Agreement. Based on the calculation revised under the China Amendment, profit was achieved during the third and fourth quarter of 2020. As a result, we recorded a profit share liability of $7.9 million and $7.0 million to AstraZeneca as of December 31, 2021 and 2020, respectively, in the accrued and other current liabilities, which correspondingly reduced the deferred revenue related to the performance obligation in accordance with the China Agreement. Since Falikang became fully operational in January 2021, substantially all direct roxadustat product sales to distributors in China are made by Falikang, while FibroGen Beijing continues to sell roxadustat product directly in a few provinces in China. FibroGen Beijing manufactures and supplies commercial product to Falikang based on a gross transaction price, which is adjusted for the estimated profit share. Revenue is recognized at a point in time when control of roxadustat commercial product is transferred to Falikang. For our direct sales of commercial drug product, revenue is recognized when control of the promised good is transferred to the customer in an amount that reflects the consideration that we expect to be entitled to in exchange for the product. During the year ended December 31, 2021, we recognized $35.6 million of net product revenue from the sales to Falikang, and $12.1 million of net product revenue from sales directly to distributors in a few provinces in China, as described in details under Product Revenue, Net section below. In addition, AstraZeneca now bills the co-promotion expenses to Falikang and to FibroGen Beijing, respectively, for its services provided to the respective entity. Development costs continue to be shared 50/50 between the Parties. FibroGen, Inc. and AstraZeneca concurrently amended the U.S./RoW Agreement to reflect minor changes in the governance structure under the China Agreement. 89 Additional Information Related to Collaboration Agreements Of the $1.1 billion in development and regulatory milestones payable in the aggregate under our Astellas and AstraZeneca collaboration agreements, $425.0 million is payable upon achievement of milestones relating to the submission and approval of roxadustat in dialysis-dependent CKD and non-dialysis-dependent CKD in the U.S. and Europe. For more detailed discussions on the accounting for these agreements, See Note 3, Collaboration Agreements, License Agreement and Revenues, to the consolidated financial statements. Total cash consideration received through December 31, 2021 and potential cash consideration for upfront payments and milestone payments under our collaboration agreements are as follows: Cash Received for Upfront Payments and Milestone Payments Through December 31, 2021 Additional Potential Cash Payment for Milestones Total Potential Cash Payments for Upfront Payments and Milestones (in thousands) Astellas--related-party: Japan Agreement $ 105,093 $ 67,500 $ 172,593 Europe Agreement 660,000 85,000 745,000 Total Astellas 765,093 152,500 917,593 AstraZeneca: U.S. / RoW Agreement 439,000 810,000 1,249,000 China Agreement 77,200 299,500 376,700 Total AstraZeneca 516,200 1,109,500 1,625,700 Total $ 1,281,293 $ 1,262,000 $ 2,543,293 The above table does not include development cost reimbursement, transfer price payments, and royalties and profit share under our existing collaboration agreements. These collaboration agreements also provide for reimbursement of certain fully burdened research and development costs as well as direct out of pocket expenses. RESULTS OF OPERATIONS Revenue Years Ended December 31, Change 2021 vs. 2020 2021 2020 2019 $ % (dollars in thousands) Revenue: License revenue $ 116,434 $ 14,323 $ 177,086 $ 102,111 713 % Development and other revenue 70,275 80,592 114,115 (10,317 ) (13 ) % Product revenue, net 47,638 72,498 1,700 (24,860 ) (34 ) % Drug product revenue 962 8,906 (36,324 ) (7,944 ) (89 ) % Total revenue $ 235,309 $ 176,319 $ 256,577 $ 58,990 33 % Our revenue to date has been generated substantially from our collaboration agreements with Astellas and AstraZeneca. In addition, we started roxadustat commercial sales in China in 2019. Under our revenue recognition policy, license revenue includes amounts from upfront, non-refundable license payments and amounts allocated pursuant to the standalone selling price method from other consideration received during the respective periods. This revenue is generally recognized as deliverables are met and services are performed. License revenues represented 50%, 8% and 69% of total revenues for the years ended December 31, 2021, 2020 and 2019, respectively. 90 Development revenue includes co-development and other development related services. Co-development services are recognized as revenue in the period in which they are billed to our partners, excluding China. For China co-development services, revenue is deferred until we begin to transfer control of the manufactured commercial drug product to AstraZeneca , which commenced in the first quarter of 2021 and is expected to continue through 2028 . Other development related services are recognized as revenue over the non-contingent development period based on a proportional performance method. As of December 31, 202 1 , the estimated future non-contingent development periods range from 3 0 to 54 months. Other revenues consist of sales of research and development material and have not been material for any of the periods presented. Development and other revenues represented 30%, 46% and 44% of total revenues for the years ended December 31, 2021, 2020 and 2019 , respectively. Product revenue is recognized when our customer obtains control of promised goods or services in an amount that reflects the consideration we expect to receive in exchange for those goods or services. Product revenue represented 20%, 41% and 1% of total revenue for the years ended December 31, 2021, 2020 and 2019, respectively. Drug product revenue includes commercial-grade API or bulk drug product sales to AstraZeneca and Astellas in support of pre-commercial preparation prior to the NDA or Marketing Authorization Application approval, and to Astellas for ongoing commercial launch in Japan and Europe. Drug product revenue is recognized when we fulfill the inventory transfer obligations. The amount of variable consideration that is included in the transaction price may be constrained, and is included in the drug product revenue 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 when the uncertainty associated with the variable consideration is subsequently resolved. Actual amounts of consideration ultimately received in the future may differ from our estimates, for which we will adjust these estimates and affect the drug product revenue in the period such variances become known. Drug product revenues represented 0%, 5%, and (14)% of total revenues for the years ended December 31, 2021, 2020 and 2019, respectively. In the future, we will continue generating revenue from collaboration agreements in the form of license fees, milestone payments, reimbursements for collaboration services and royalties on product sales, and from product sales. We expect that any revenues we generate will fluctuate from quarter to quarter due to the uncertain timing and amount of such payments and sales. Total revenue increased $59.0 million, or 33% for the year ended December 31, 2021 compared to the year ended December 31, 2020 for the reasons discussed in the sections below. License Revenue Years Ended December 31, Change 2021 vs. 2020 2021 2020 2019 $ % (dollars in thousands) License revenue: Astellas $ 108,434 $ 14,323 $ 129,405 $ 94,111 657 % AstraZeneca — — 47,681 — — % Eluminex 8,000 — — 8,000 100 % Total license revenue $ 116,434 $ 14,323 $ 177,086 $ 102,111 713 % License revenue increased $102.1 million, or 713% for the year ended December 31, 2021 compared to the year ended December 31, 2020. License revenue recognized under our collaboration agreements with Astellas increased $94.1 million, or 657% for the year ended December 31, 2021 compared to the year ended December 31, 2020. License revenue recognized under our collaboration agreements with Astellas for the year ended December 31, 2021 represented the allocated revenue related to a total of $120.0 million regulatory milestones associated with the approval by European Commission of EVRENZO ® (roxadustat) for the treatment of adult patients with symptomatic anemia associated with CKD during the third quarter of 2021. License revenue recognized under our collaboration agreements with Astellas for the year ended December 31, 2020 represented the allocated revenue related to a regulatory milestone of $15.0 million associated with the NDA approval in Japan achieved during the fourth quarter of 2020. License revenue recognized under our license agreement with Eluminex for the year ended December 31, 2021 represented the $8.0 million upfront license payment. 91 Development and Other Revenue Years Ended December 31, Change 2021 vs. 2020 2021 2020 2019 $ % (dollars in thousands) Development revenue: Astellas $ 21,927 $ 19,174 $ 29,394 $ 2,753 14 % AstraZeneca 48,345 61,418 84,719 (13,073 ) (21 ) % Total development revenue 70,272 80,592 114,113 (10,320 ) (13 ) % Other revenue 3 — 2 3 100 % Total development and other revenue $ 70,275 $ 80,592 $ 114,115 $ (10,317 ) (13 ) % Development and other revenue decreased $10.3 million, or 13% for the year ended December 31, 2021 compared to the year ended December 31, 2020. Development revenue recognized under our collaboration agreements with Astellas increased $2.8 million, or 14% for the year ended December 31, 2021 compared to the year ended December 31, 2020. Development revenue recognized under our collaboration agreements with Astellas for the year ended December 31, 2021 included the allocated revenue of $11.6 million related to the above-mentioned $120.0 million associated with the approvals in the European Union achieved during the third quarter of 2021. Development revenue recognized under our collaboration agreements with Astellas for the year ended December 31, 2020 included the allocated revenue of $0.7 million related to the above-mentioned $15.0 million associated with the NDA approval in Japan achieved during the fourth quarter of 2020. The increases were partially offset by the decrease in co-development billings related to the development of roxadustat under our collaboration agreements with Astellas for the year ended December 31, 2021, as a result of the substantial completion of Phase 3 trials for roxadustat. Development revenue recognized under our collaboration agreements with AstraZeneca decreased $13.1 million, or 21% for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to the extension of the estimated future non-contingent development period when we were notified of the FDA Cardiovascular and Renal Drugs Advisory Committee meeting to review the NDA for roxadustat, and decrease in CKD related co-development billings in the U.S. Product Revenue, Net Years Ended December 31, Change 2021 vs. 2020 2021 2020 2019 $ % (dollars in thousands) Direct Sales: Gross revenue $ 13,727 $ 89,027 $ 2,803 $ (75,300 ) (85 ) % Price adjustment (982 ) — (936 ) (982 ) 100 % Non-key account hospital listing award 95 (9,325 ) — 9,420 (101 ) % Contractual sales rebate (832 ) (6,189 ) (149 ) 5,357 (87 ) % Other discounts and rebates (21 ) (923 ) (18 ) 902 (98 ) % Sales returns 83 (92 ) — 175 (190 ) % Direct sales revenue, net 12,070 72,498 1,700 (60,428 ) (83 ) % Sales to Falikang: Gross transaction price 97,531 — — 97,531 100 % Profit share (34,759 ) — — (34,759 ) 100 % Net transaction price 62,772 — — 62,772 100 % Increase in deferred revenue (27,204 ) — — (27,204 ) 100 % Sales to Falikang revenue, net 35,568 — — 35,568 100 % Total product revenue, net $ 47,638 $ 72,498 $ 1,700 $ (24,860 ) (34 ) % 92 In January 2021, Falikang became fully operational and substantially all direct product sales to distributors in China were made by Falikang, while FibroGen Beijing continued to sell product directly in a few provinces in China. Product revenue from direct sales to distributors is recognized in an amount that reflects the consideration that we expect to be entitled to in exchange for those products, net of sales rebates and discounts. The gross product revenue from direct sales to distributors decreased $75.3 million, or 85% for the year ended December 31, 2021 compared to the year ended December 31, 2020 due to the above-mentioned transition of direct product sales to distributors to Falikang. The total discounts and rebates were $1.7 million and $16.4 million for the years ended December 31, 2021 and 2020, respectively. The discounts and rebates for the year ended December 31, 2021 included $1.0 million of price adjustments recorded based on government-listed price guidance and estimated channel inventory levels. The discounts and rebates for the year ended December 31, 2020 included $9.3 million of non-key account hospital listing award related to accounting modifications of non-key account hospital listing award, as a result of the amendment to the agreement with our pharmaceutical distributors in the second quarter of 2020. In addition, the discounts and rebates consisted of the contractual sales rebates that were calculated based on the stated percentage of gross sales by each distributor in the distribution agreement. All other rebates and discounts, including sales return allowance were immaterial for the periods presented. FibroGen Beijing manufactures and supplies commercial product to Falikang based on an agreed upon transfer price, which includes a gross transfer price, net of a calculated profit share. Revenue is recognized upon the transfer of control of commercial products to Falikang in an amount that reflects the allocation of the China performance obligation transaction price to the performance obligation satisfied during the reporting period. The variable consideration components that are included in the transaction price may be constrained, and are included in the product revenue 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 when the uncertainty associated with the variable consideration is subsequently resolved. During the year ended December 31, 2021, the gross transfer price was $97.5 million, net of the calculated profit share of $34.8 million. Following updates to our estimates, we deferred $27.2 million from the sales to Falikang for year ended December 31, 2021, which was included in the related deferred revenue of the China performance obligation. Drug Product Revenue Years Ended December 31, Change 2021 vs. 2020 2021 2020 2019 $ % (dollars in thousands) Drug product revenue: Astellas $ 3,186 $ 4,281 $ (36,324 ) $ (1,095 ) (26 ) % AstraZeneca (2,224 ) 4,625 — (6,849 ) (148 ) % Total drug product revenue: $ 962 $ 8,906 $ (36,324 ) $ (7,944 ) (89 ) % Total drug product revenue recognized under the Astellas agreements was $3.2 million and $4.3 million for the years ended December 31, 2021 and 2020, respectively. During the years ended December 31, 2021 and 2020, we updated our estimate of variable consideration related to the API shipments fulfilled under the terms of the Japan Amendment with Astellas in 2018 and 2020, and recorded an adjustment to the drug product revenue of $2.1 million and $(4.0) million for the years ended December 31, 2021 and 2020, respectively. Specifically, the change in estimated variable consideration was based on the API held by Astellas at the period end, adjusted to reflect the changes in the estimated bulk product strength mix intended to be manufactured by Astellas, estimated cost to convert the API to bulk product tablets, and estimated yield from the manufacture of bulk product tablets, among others. During the fourth quarter of 2021, we transferred bulk drug product for commercial purposes under the terms of the Europe Agreement and the EU Supply Agreement with Astellas, and recognized the related fully burdened manufacturing costs of $1.0 million as drug product revenue, and recorded $8.3 million as deferred revenue as of December 31, 2021, due to a high degree of uncertainty associated with the final consideration. During the first quarter of 2021, we transferred bulk drug product from process validation supplies for commercial purposes under the terms of the Europe Agreement and the EU Supply Agreement with Astellas. We recorded the consideration of $11.8 million from this inventory transfer as deferred revenue as of December 31, 2021, due to a high degree of uncertainty associated with the final consideration. 93 During the fourth quarter of 2021, we updated our estimate of variable consideration related to the bulk drug product inventory transfers fulfilled under the terms of the Europe Agreement and the EU Supply Agreement with Astellas, and recorded an unbilled contract asset of $49.8 million, which was offset by related deferred revenue under the Europe Agreement and EU Supply Agreement. Specifically, the change in estimated variable consideration was based on the bulk drug product held by Astellas at the period end, adjusted to reflect the changes in the estimated transfer price, among others. During the fourth quarter of 2020, we transferred bulk drug product from process validation supplies for commercial purposes under the terms of the Europe Agreement with Astellas. As a result, we recorded $6.0 million as deferred revenue as of December 31, 2020, due to a high degree of uncertainty associated with the final consideration. We recognized royalty revenue of $0.2 million from this deferred revenue during the year ended December 31, 2021. The remainder of the deferred revenue will be recognized as and when uncertainty is resolved. During the second quarter of 2020, we fulfilled the shipment obligations under the terms of the Japan Amendment with Astellas, and recognized related drug product revenue of $8.2 million in the same period. Total drug product revenue recognized under the AstraZeneca agreements was $(2.2) million and $4.6 million for the years ended December 31, 2021 and 2020, respectively. During the first half of 2021, we shipped bulk drug product to AstraZeneca as commercial supply under the terms of the Master Supply Agreement. Based on the above-mentioned FDA CRL in August 2021, we evaluated the impact of these developments in revising our estimates of variable consideration associated with drug product revenue. As a result, we updated the estimated transaction price for these shipments, and recorded $11.2 million as deferred revenue as of December 31, 2021. During the first three quarters of 2020, we shipped process validation product to AstraZeneca as pre-commercial supply under the U.S./RoW Agreement and recorded the related drug product revenue of $4.6 million during the year ended December 31, 2020. Operating Costs and Expenses Years Ended December 31, Change 2021 vs. 2020 2021 2020 2019 $ % (dollars in thousands) Operating costs and expenses Cost of goods sold $ 12,871 $ 8,869 $ 1,147 $ 4,002 45 % Research and development 387,043 252,924 209,265 134,119 53 % Selling, general and administrative 123,925 106,406 135,479 17,519 16 % Total operating costs and expenses $ 523,839 $ 368,199 $ 345,891 $ 155,640 42 % Total operating expenses increased $155.6 million, or 42%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, for the reasons discussed in the sections below. Cost of goods sold Cost of goods sold increased $4.0 million, or 45%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. Cost of goods sold, associated with the roxadustat commercial sales in China, consists of direct costs to manufacture commercial product, as well as indirect costs including factory overhead, storage, shipping, quality assurance, idle capacity charges, and inventory valuation adjustments. Cost of goods sold, associated with the roxadustat commercial sales in China, was $9.3 million and $8.5 million for the years ended December 31, 2021 and 2020, respectively, due to the overall increase in the gross sales, offset by lower unit cost resulting from higher production volume, and lower storage and shipping costs with sales to distributors being transitioned to Falikang that started in January 2021. Cost of goods sold associated with the roxadustat drug product revenue in the U.S. was $3.6 million and $0.4 million for the years ended December 31, 2021 and 2020, respectively, due to increased drug product shipments during the current year. W e expect costs of goods sold to increase in relation to drug product revenue as we deplete inventories that we had expensed prior to receiving regulatory approvals. 94 Research and Development Expenses Research and development expenses consist of third-party research and development costs and the fully-burdened amount of costs associated with work performed under collaboration agreements. Research and development costs include employee-related expenses for research and development functions, expenses incurred under agreements with clinical research organizations (“CROs”), other clinical and preclinical costs and allocated direct and indirect overhead costs, such as facilities costs, information technology costs and other overhead. Research and development expenses also include in-process research and development assets that have no alternative future use other than in a particular research and development project. Research and development costs are expensed as incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites. Following the CRL for roxadustat in the U.S., we are implementing a cost reduction effort, and as a result, research and development expenses may decrease in certain areas in the near future compared to our previous internal plans. The following table summarizes our research and development expenses incurred during the years ended December 31, 2021, 2020 and 2019: Years Ended December 31, Product Candidate Phase of Development 2021 2020 2019 (in thousands) Roxadustat Phase 3 $ 97,245 $ 122,962 $ 125,429 Pamrevlumab Phase 2/3 188,534 111,728 58,750 Other research and development expenses 101,264 * 18,234 25,086 Total research and development expenses $ 387,043 $ 252,924 $ 209,265 * Other research and development expenses included $60.0 million of acquired in-process research and development assets related to upfront payments to HiFiBiO. See Note 2, Summary of Significant Accounting Policies - License Acquisition Agreement , to the consolidated financial statements for details. The program-specific expenses summarized in the table above include costs we directly attribute to our product candidates. We allocate research and development salaries, benefits, stock-based compensation and other indirect costs to our product candidates on a program-specific basis, and we include these costs in the program-specific expenses. Research and development expenses increased $134.1 million, or 53%, for the year ended December 31, 2021 compared to the year ended December 31, 2020 as a result of the net effect of the following: • Expense of a total of $60.0 million for acquired in-process research and development assets from HiFiBiO; • Increase of $38.4 million in clinical trials costs, primarily due to Phase 3 trials for pamrevlumab and roxadustat post-approval safety studies in China; • Increase of $24.4 million in drug development expenses associated with drug substance and drug product manufacturing activities primarily related to pamrevlumab; • Increase of $9.1 million in employee-related costs primarily due to higher headcount in the research and development functions in China and higher compensation levels, and higher severance expenses associated with employee departures and cost reduction effort; • Increase of $5.5 million in outside services due to higher consulting expenses related to roxadustat in China and higher scientific contract activities related to pamrevlumab Phase 3; and • Decrease of $5.7 million in stock-based compensation expense, primarily due to cancellation related to departure of certain senior level employees and lower stock price and accelerated recognition due to departure of certain executive employees in the prior year period that did not recur in 2021. 95 Selling, General and Administrative Expenses We started to incur sales and marketing expenses in 2019 in China to prepare for commercial operations. Selling, general and administrative (“SG&A”) expenses consist primarily of employee-related expenses for executive, operational, finance, legal, compliance, and human resource functions. SG&A expenses also include facility-related costs, professional fees, accounting and legal services, other outside services including co-promotional expenses associated with our commercialization efforts in China, re cruiting fees and expenses associated with obtaining and maintaining patents. Following the CRL for roxadustat in the U.S., we are implementing a cost reduction effort, and as a result, SG&A expenses may decrease in certain areas in the near future compared to our previous internal plans. SG&A expenses increased $17.5 million, or 16%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, as a result of the net effect of the following: • Increase of $7.4 million in employee-related costs primarily due to higher headcount in the general and administrative functions and higher compensation levels, and higher severance expenses associated with employee departures and cost reduction effort; • Increase of $5.3 million in facilities-related expense due to higher repair and general maintenance expenses and higher lease expenses resulting from the lease modification of our San Francisco property lease from a finance lease to operating lease during the second quarter of 2021; • Increase of $4.1 million in stock-based compensation expense, primarily due to the cumulative impact of stock option grant activities expensed in the normal course, and accelerated recognition due to departure of certain executive employees during the current year; partially offset by the impact from lower stock price; • Increase of $3.3 million in outside service expenses, due to the above-mentioned reversal of co-promotion expenses in prior year period in the third quarter of 2020, offset by less sample expenses and the fact that AstraZeneca now bills the co-promotion expenses to Falikang and to FibroGen Beijing, respectively, for its services provided to the respective entity in 2021. In addition, the increase included costs incurred related to pre-commercialization efforts for pamrevlumab. The increases were partially offset by lower sample costs for roxadustat; • Increase of $2.9 million in professional service fees; and • Decrease of $6.0 million in legal expenses primarily associated with the patent-related activities in the United Kingdom. Interest and Other, Net Years Ended December 31, Change 2021 vs. 2020 2021 2020 2019 $ % (dollars in thousands) Interest and other, net: Interest expense $ (1,075 ) $ (2,402 ) $ (2,876 ) $ 1,327 (55 ) % Interest income and other income (expenses), net (1,078 ) 5,553 15,548 (6,631 ) (119 ) % Total interest and other, net $ (2,153 ) $ 3,151 $ 12,672 $ (5,304 ) (168 ) % Interest Expense Interest expense relates to our finance lease liabilities accretion primarily for our leased facilities in San Francisco and China. Interest expense also includes interest related to the Technology Development Center of the Republic of Finland product development obligations. Interest expense decreased $1.3 million, or 55% for the year ended December 31, 2021 compared to the year ended December 31, 2020. The decrease was primarily due to the lease amendment effective June 1, 2021, related to our long-term property lease in San Francisco, was determined as a lease modification and classified as an operating lease, as compared to a finance lease before the lease modification. In addition, the new lease agreement effective in February 2021 for our long-term property lease in China was classified as an operating lease, as compared to a finance lease for the expired lease. The classification for both leases no longer trigger recognition of interest on the lease liabilities separately in the consolidated statement of operations. See Note 6, Leases , to the consolidated financial statements for details. 96 Interest Income and Other Income (Expenses), Net Interest income and other income (expenses), net primarily include interest income earned on our cash, cash equivalents and investments, foreign currency transaction gains (losses), remeasurement of certain monetary assets and liabilities in non-functional currency of our subsidiaries into the functional currency, realized gains (losses) on sales of investments, and other non-operating income and expenses. Interest income and other income (expenses), net decreased $6.6 million, or 119%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to lower interest earned on our cash, cash equivalents and investments associated with the lower interest rates, as well as unfavorable foreign exchange impacts. Provision for Income Taxes Years Ended December 31, 2021 2020 2019 (dollars in thousands) Loss before income taxes $ (290,683 ) $ (188,729 ) $ (76,642 ) Provision for income taxes 347 360 328 Effective tax rate (0.1 ) % (0.2 ) % (0.4 ) % The provisions for income taxes for the years ended December 31, 2021 and 2020 were due to foreign taxes. Based upon the weight of available evidence, which includes our historical operating performance, reported cumulative net losses since inception and expected continuing net loss, we have established a full valuation allowance against our net deferred tax assets as we do not currently believe that realization of those assets is more likely than not. We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of this allowance. However, given our anticipated future foreign earnings, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a portion of the valuation allowance may no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. The exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve. During 2020, we transferred certain intellectual property rights relating to our Chinese business between our wholly owned subsidiaries that are based in different tax jurisdictions. The transferor entity was not subject to income taxes in its local jurisdiction. The acquiring entity of the intellectual property is entitled to amortize the acquisition price of the intangible assets for tax purposes. In accordance with ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory , we recognized a deferred tax asset of $78.7 million for the temporary difference arising from the acquirer’s excess tax basis. Furthermore, based upon the weight of available evidence, we recognized a full valuation allowance against this deferred tax asset since it does not currently believe that realization of this gross deductible temporary difference is more likely than not. Accordingly, this inter-company transfer did not have a material impact to our consolidated financial statements. Investment Income (Loss) in Unconsolidated Variable Interest Entity Investment income (loss) in unconsolidated variable interest entity represented our proportionate share of the reported profits or losses of Falikang, an unconsolidated variable interest entity accounted for under the equity method, and was immaterial for the years ended December 31, 2021 and 2020. See Note 4, Equity method investment - Variable Interest Entity , to the consolidated financial statements for details. 97 LIQUIDITY AND CAPITAL RESOURCES Financial Conditions We have historically funded our operations principally from the sale of common stock (including our public offering proceeds) and from the execution of collaboration agreements involving license payments, milestones and reimbursement for development services. As of December 31, 2021, we had cash and cash equivalents of $171.2 million, short-term investments of $234.0 million and long-term investments of $167.8 million. Cash is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Investments, consisting of available-for-sale securities, and stated at fair value, are also available as a source of liquidity. As of December 31, 2021, a total of $91.2 million of our cash and cash equivalents was held outside of the U.S. in our foreign subsidiaries, including $69.9 million held in China, to be used primarily for our China operations. Cash flows from Falikang, a distribution joint venture between FibroGen Beijing and AstraZeneca, and cash flows into FibroGen Beijing, are currently intended to remain onshore in China. Our long-term plans for distributing cash flows from FibroGen Beijing may involve any number of scenarios including keeping the money onshore to fund future expansion of our China operations or paying down certain debt obligations. To date, no such debt repayments have occurred, nor have there been any other payments or distributions from FibroGen Beijing to entities or investors outside of China. Our capital contributions to FibroGen Beijing and the liquidity position of FibroGen Beijing depend on many factors, including those set forth under Part I, Item 1A “Risk Factors” in this Annual Report. Cash Sources and Uses The following table summarizes the primary sources and uses of cash for the years ended December 31, 2021, 2020 and 2019: Years Ended December 31, 2021 2020 2019 Net cash provided by (used in): Operating activities $ (82,232 ) $ 81,602 $ (78,705 ) Investing activities (426,972 ) 452,487 120,018 Financing activities (563 ) 13,343 (4,300 ) Effect of exchange rate changes on cash and cash equivalents 2,597 4,695 (5 ) Net increase (decrease) in cash and cash equivalents $ (507,170 ) $ 552,127 $ 37,008 Operating Activities Net cash used in operating activities was $82.2 million for the year ended December 31, 2021 and consisted primarily of net loss of $290.0 million adjusted for non-cash items and non-operating activities of $147.7 million and a net increase in operating assets and liabilities of $60.1 million. The significant non-cash items included stock-based compensation expense of $71.2 million, expense for acquired in-process research and development asset from HiFiBiO of $60.0 million, depreciation expense of $10.2 million, and amortization of finance lease ROU of $4.6 million. The significant items in the changes in operating assets and liabilities included the increases resulting from the following: • Deferred revenue of $57.6 million, primarily related to the above-mentioned $25.9 million and $11.2 million of the deferred considerations of the bulk drug product shipped to Astellas and AstraZeneca, respectively, due to a high degree of uncertainty associated with the final consideration, and $27.2 million of the deferred revenue from the sales to Falikang associated with the China performance obligation. The change in deferred revenue was also driven by the extension of the estimated future non-contingent development period and recognition of revenues under our collaboration agreements with Astellas and AstraZeneca. See Note 3, Collaboration Agreements, License Agreement and Revenues , to the consolidated financial statements for details; 98 • Accounts receivable of $25.2 million, primarily driven by the timing of the receipt of upfront payments and the recognition of revenues under our collaboration agreements with Astellas and AstraZeneca; • Accrued and other liabilities of $16.4 million, primarily driven by $14.2 million increase in co-promotion expenses at December 31, 2021 that is anticipated to be paid within the next 12 months, offset by $12.0 million decrease in contract liabilities to pharmaceutical distributors at December 31, 2021 due to settlement during the year. The accrued and other liabilities were also impacted by the timing of invoicing and payment; The increases were partially offset by the decreases resulting from the following: • Inventories of $14.2 million, driven by the increased inventory level primarily related to FibroGen Beijing’s productions of roxadustat for commercial sales purposes and pre-launch inventory cost capitalized in the U.S.; • Other long-term liabilities of $12.1 million, primarily due to the decrease in the co-promotional expenses with AstraZeneca for its sales and marketing efforts related to the commercial launch of roxadustat in China that are not expected to be paid in the next year; • Prepaid expenses and other current assets of $9.9 million, primarily due to the unbilled upfront license payment from Eluminex of $8.0 million, and prepayments made for roxadustat API manufacturing activities; and • Other assets of $4.4 million, primarily related to the increases in various licenses. Net cash provided by operating activities was $81.6 million for the year ended December 31, 2020 and consisted primarily of net loss of $189.3 million adjusted for non-cash items of $96.3 million and a net increase in operating assets and liabilities of $174.6 million. The significant non-cash items included stock-based compensation expense of $72.7 million, depreciation expense of $11.7 million, and amortization of finance lease ROU of $10.4 million. The significant items in the changes in operating assets and liabilities included the increases resulting from the following: • Prepaid expenses and other current assets of $123.5 million and Deferred revenue of $45.1 million, primarily related to the billing and receipt of $130.0 million in regulatory milestones under the Europe Agreement with Astellas associated with the Marketing Authorization Application submission in Europe; and the billing and receipt of $50.0 million regulatory milestone under the U.S./RoW Agreement with AstraZeneca associated with the NDA submission for review in the U.S. These milestones were not billable as of December 31, 2019, and was net of the associated deferred revenues of $4.8 million and $50.0 million, respectively. The change in deferred revenue was also driven by the recognition of revenues under our collaboration agreements with Astellas and AstraZeneca; • Accrued and other liabilities of $31.0 million, primarily driven by $11.5 million of the accrued co-promotion expenses at December 31, 2020 that is anticipated to be paid within the next 12 months resulting from the China Amendment in the third quarter of 2020, $7.0 million of profit share liability to AstraZeneca accrued at December 31, 2020, as well as driven by the timing of invoicing and payment; offset by the payment of $36.3 million that was accrued at December 31, 2019, related to the change in estimated variable consideration associated with the API shipment; • Accounts payable of $17.7 million, primarily driven by $16.9 million of the co-promotion expenses at December 31, 2020 that is scheduled to be paid to AstraZeneca; and • Other assets of $5.8 million, primarily related to the return and consumption of input value added tax by FibroGen Beijing. The increases were partially offset by the decreases resulting from the following: • Other long-term liabilities of $27.1 million, primarily due to the adjustment in long-term co-promotion expenses payable to AstraZeneca for its sales and marketing efforts related to the commercial sales of roxadustat in China resulting from the China Amendment in the third quarter of 2020; • Accounts receivable of $12.0 million, primarily driven by the increase in accounts receivable from customers in China for roxadustat sales, as well as the timing of the receipt of upfront payments and the recognition of revenues under our collaboration agreements with Astellas and AstraZeneca; and • Inventories of $9.2 million, driven by the increased inventory level primarily related to FibroGen Beijing’s productions of roxadustat for commercial sales purposes and pre-launch inventory cost capitalized in the U.S. 99 Investing Activities Investing activities primarily consist of purchases of property and equipment, purchases of investments, and proceeds from the maturity and sale of investments. Net cash used in investing activities was $427.0 million for the year ended December 31, 2021 and consisted primarily of $484.1 million of cash used in purchases of available-for-sale securities, $25.0 million of cash paid for the acquired in-process research and development asset and $5.2 million of cash used in purchases of property and equipment, partially offset by $83.1 million of proceeds from maturities of investments and $4.2 million of proceeds from sales of available-for-sale securities. Net cash provided by investing activities was $452.5 million for the year ended December 31, 2020 and consisted of proceeds from maturities of investments of $456.9 million, proceeds from sales of available-for-sale securities of $10.6 million, partially offset by cash used in purchases of available-for-sale securities of $8.2 million, purchases of property and equipment of $4.0 million, and net payments of $2.8 million made for investment in Falikang. Financing Activities Financing activities primarily reflect proceeds from the issuance of our common stock, cash paid for payroll taxes on restricted stock unit releases, repayments of our lease liabilities and obligations. Net cash used in financing activities was $0.6 million for the year ended December 31, 2021 and consisted primarily of $7.4 million of cash paid for payroll taxes on restricted stock unit releases, and $5.5 million of repayments of finance lease liabilities, partially offset by $12.7 million of proceeds from the issuance of common stock upon exercise of stock options and purchases under our Employee Share Purchase Plan (“ESPP”). Net cash provided by financing activities was $13.3 million for the year ended December 31, 2020 and consisted primarily of $37.8 million of proceeds from the issuance of common stock upon exercise of stock options and purchases under ESPP, partially offset by $12.6 million of repayments of finance lease liabilities, $11.5 million of cash paid for payroll taxes on restricted stock unit releases, and $0.4 million of repayments on our lease obligations. Operating Capital Requirements In the third quarter of 2019, we started generating revenue from commercial sales of roxadustat product in China. Even with the expectation of increases in revenue from product sales, we anticipate that we will continue to generate losses for the foreseeable future. Following the CRL for roxadustat in the U.S., we are implementing a cost reduction effort, and as a result, operating expenses may decrease in certain areas in the near future compared to our previous internal plans. To date, we have funded certain portions of our research and development and manufacturing efforts globally through collaboration partners, government support, and capital investment. There is no guarantee that sufficient funds will be available to continue to fund these development efforts through commercialization or otherwise. Although AstraZeneca is funding all non-China collaboration expenses not reimbursed by Astellas, we expect our research and development expenses to continue to increase as we invest in our other programs. We are subject to all the risks related to the development and commercialization of novel therapeutics, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business, such as from the COVID-19 pandemic or other factors outlined under Part I, Item 1A “ Risk Factors ” in this Annual Report. We anticipate that we will need substantial additional funding in connection with our continuing operations. 100 We believe that our existing cash and cash equivalents, short-term and long-term investments and accounts receivable will be sufficient to meet our anticipated cash requirements for at least the next 12 months from the date of this Annual Report. However, we may need additional capital thereafter and our liquidity assumptions may change over time, and we could utilize our available financial resources sooner than we currently expect. In addition, we may elect to raise additional funds at any time through equity, equity-linked, debt financing arrangements or from other sources. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under Part I, Item 1A “ Risk Factors ” in this Annual Report. We may not be able to secure additional financing to meet our operating requirements on acceptable terms, or at all. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the incurrence of indebtedness, we will be subject to increased fixed payment obligations and could also be subject to restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. If we are unable to obtain needed additional funds, we will have to reduce our operating costs and expenses, which would impair our growth prospects and could otherwise negatively impact our business. Commitments and Contingencies Contractual Obligations At December 31, 2021, our material cash requirements from known contractual and other obligations primarily relate to our lease liabilities and purchase obligations. Expected timing of those payments are as follows: Payments Due In Total Next 12 Months Beyond 12 Months Lease liabilities $ 117,768 $ 15,399 $ 102,369 Purchase obligations 73,262 49,424 23,838 Total contractual obligations $ 191,030 $ 64,823 $ 126,207 Our lease liabilities are primarily related to our real estate leases for office spaces in the U.S. and China. See Note 6, Leases , to the consolidated financial statements for details. Our outstanding non-cancelable purchase obligations primarily related to manufacturing and supply for pamrevlumab and roxadustat. See Note 9, Commitments and Contingencies , to the consolidated financial statements for details. Some of our license agreements provide for periodic maintenance fees over specified time periods, as well as payments by us upon the achievement of development, regulatory and commercial milestones. As of December 31, 2021, future milestone payments for research and pre-clinical stage development programs consisted of up to approximately $704.1 million in total potential future milestone payments under our license agreements with HiFiBiO (for Galectin-9 and CCR8), Medarex, Inc. and others. These milestone payments generally become due and payable only upon the achievement of certain developmental, clinical, regulatory and/or commercial milestones. The event triggering such payment or obligation has not yet occurred and therefore these amounts have been excluded from the table above. The table above excludes uncertain tax benefits of approximately $57.7 million that are disclosed in Note 12, Income Taxes , to the consolidated financial statements because these uncertain tax positions, if recognized, would be an adjustment to the gross deferred tax assets and the corresponding valuation allowance, if warranted. As of December 31, 2021, we have several on-going clinical studies in various stages. Under agreements with various CROs, and clinical study sites, we incur expenses related to clinical studies of our product candidates and potential other clinical candidates. The timing and amounts of these disbursements are contingent upon the achievement of certain milestones, patient enrollment and services rendered or as expenses are incurred by the CROs or clinical trial sites. Therefore, we cannot estimate the potential timing and amount of these payments and they have been excluded from the table above. Although our material contracts with CROs are cancellable, we have historically not canceled such contracts. 101 As of December 31, 2021 , our FibroGen Europe Oy (“FibroGen Europe”) subsidiary had $ 10.7 million of principal outstanding and $ 6.9 million of interest accrued related to the TEKES loans, respectively, which have been included as product development obligations on our consolidated balance sheet. There is no stated maturity date related to these loans and each loan may be forgiven if the research work funded by TEKES does not result in an economically profitable business or does not meet its technological objectives. In addition, we are not a guarantor of the TEKES loans, and these loans are not repayable by FibroGen Europe until it has distributable funds. We do not expect FibroGen Europe to have such funds for at least the next five years. For the foregoing reasons, we cannot estimate the potential timing and the amounts of repayments (if required) or forgiveness. As a result, the TEKES loans have been excluded from the table above. Legal Proceedings We are a party to various legal actions that arose in the ordinary course of our business. We recognize accruals for any legal action when we conclude that a loss is probable and reasonably estimable. We did not have any material accruals for any currently active legal action in our consolidated balance sheets as of December 31, 2021, as we could not predict the ultimate outcome of these matters, or reasonably estimate the potential exposure. See Note 9, Commitments and Contingencies , to the consolidated financial statements for details. Off-Balance Sheet Arrangements During the year ended December 31, 2021, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements. Indemnification Agreements We enter into standard indemnification arrangements in the ordinary course of business, including for example, service, manufacturing and collaboration agreements. Pursuant to these arrangements, we indemnify, holds harmless, and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, including in connection with intellectual property infringement claims by any third party with respect to its technology. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. We have entered into indemnification agreements with our directors and officers that may require us to indemnify our directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the extent permissible under applicable law. The maximum potential amount of future payments we could be required to make under these arrangements is not determinable. Recently Issued and Adopted Accounting Guidance For recently issued accounting guidance, see Note 2, Significant Accounting Policies, to the consolidated financial statements. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this Annual Report, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements. 102 Revenue Recognition Revenues under collaboration agreements Our collaboration agreements include multiple performance obligations comprised of promised services, or bundles of services, that are distinct. Services that are not distinct are combined with other services in the agreement until they form a distinct bundle of services. Our process for identifying performance obligations and an enumeration of each obligation for each agreement is outlined in Note 3, Collaboration Agreements, License Agreement and Revenues , to our consolidated financial statements. Determining the performance obligations within a collaboration agreement often involves significant judgment and is specific to the facts and circumstances contained in each agreement. We have identified the following material promises under its collaboration agreements: (1) license of FibroGen technology, (2) the performance of co-development services, including manufacturing of clinical supplies and other services during the development period, and (3) manufacture of commercial supply. The evaluation as to whether these promises are distinct, and therefore represent separate performance obligations, is described in more detail in Note 3, Collaboration Agreements, License Agreement and Revenues , to our consolidated financial statements. For revenue recognition purposes, we determine that the terms of our collaboration agreements begin on the effective date and end upon the completion of all performance obligations contained in the agreements. In each agreement, the contract term is defined as the period in which parties to the contract have present and enforceable rights and obligations. We believe that the existence of what we consider to be substantive termination penalties on the part of the counterparty create sufficient incentive for the counterparty to avoid exercising its right to terminate the agreement unless in exceptionally rare situations. The transaction price for each collaboration agreement is determined based on the amount of consideration we expect to be entitled for satisfying all performance obligations within the agreement. Our collaboration agreements include payments to us of one or more of the following: non-refundable upfront license fees; co-development billings; development, regulatory, and commercial milestone payments; payments from sales of API; payments from sales of bulk drug product and royalties on net sales of licensed products. Upfront license fees are non-contingent and non-refundable in nature and are included in the transaction price at the point when the license fees become due to us. We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less. Co-development billings resulting from our research and development efforts, which are reimbursable under its collaboration agreements, are considered variable consideration. Determining the reimbursable amount of research and development efforts requires detailed analysis of the terms of the collaboration agreements and the nature of the research and development efforts incurred. Determining the amount of variable consideration from co-development billings requires us to make estimates of future research and development efforts, which involves significant judgment. Co-development billings are allocated entirely to the co-development services performance obligation when amounts are related specifically to research and development efforts necessary to satisfy the performance obligation, and such an allocation is consistent with the allocation objective. Milestone payments are also considered variable consideration, which requires us to make estimates of when achievement of a particular milestone becomes probable. Similar to other forms of variable consideration, milestone payments are included in the transaction price when it becomes probable that such inclusion would not result in a significant revenue reversal. Milestone payments are therefore included in the transaction price when achievement of the milestone becomes probable. For arrangements that include sales-based royalties and for which the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, royalty revenue resulting from its collaboration arrangements was immaterial. 103 The transaction price is allocated to performance obligations based on their relative standalone selling price (“SSP”), with the exception of co-development billings allocated entirely to co-development services performance obligations. The SSP is determined based on observable prices at which we separately sell the products and services. If an SSP is not directly observable, then we will estimate the SSP considering marketing conditions, entity-specific factors, and information about the customer or class of customer that is reasonably available. The process for determining SSP involves significant judgment and includes consideration of multiple factors, including assumptions related to the market opportunity and the time needed to commercialize a product candidate pursuant to the relevant license, estimated direct expenses and other costs, which include the rates normally charged by contract research and contract manufacturing organizations for development and manufacturing obligations, and rates that would be charged by qualified outsiders for committee services. Significant judgment may be required in determining whether a performance obligation is distinct, determining the amount of variable consideration to be included in the transaction price, and estimating the SSP of each performance obligation. An enumeration of our significant judgments is outlined in Note 3, Collaboration Agreements, License Agreement and Revenues, to our consolidated financial statements. For each performance obligation identified within an arrangement, we determine the period over which the promised services are transferred and the performance obligation is satisfied. Service revenue is recognized over time based on progress toward complete satisfaction of the performance obligation. For each performance obligation satisfied over time, we assess the proper method to be used for revenue recognition, either an input method to measure progress toward the satisfaction of services or an output method of determining the progress of completion of performance obligation. License revenue Under a license agreement, if the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from upfront license fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, we determine whether the combined performance obligation is satisfied over time or at a point in time. If the combined performance obligation is satisfied over time, we use judgment in determining the appropriate method of measuring progress for purposes of recognizing revenue from the up-front license fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. Product revenue, net Product revenue, net consists of revenues from sales of roxadustat commercial product to Falikang, and directly to pharmaceutical distributors located in a few provinces in China that are not covered by Falikang. Falikang is jointly owned by AstraZeneca and FibroGen Beijing. We are not the primary beneficiary of Falikang for accounting purposes, as AstraZeneca is the final decision maker for all the roxadustat commercialization activities, and we lack the power criterion to direct the activities of Falikang (see Note 4, Equity method investment - Variable Interest Entity, to our consolidated financial statements). Sales to Falikang Falikang became fully operational in January 2021, at which time FibroGen Beijing began selling roxadustat commercial product to Falikang. Falikang is FibroGen Beijing’s primary customer in China and substantially all roxadustat product sales to distributors in China are made by Falikang. Falikang bears inventory risk once it receives and accepts the product from FibroGen Beijing, and is responsible for delivering product to its distributors. The promises identified under the AstraZeneca China Agreement (as defined in Note 3, Collaboration Agreements, License Agreement and Revenues ), including the license, co-development services and manufacturing of commercial supplies have been bundled into a single performance obligation (“China performance obligation”). Amounts of the transaction price allocable to this performance obligation under our agreements with AstraZeneca as outlined in Note 3, Collaboration Agreements, License Agreement and Revenues, are deferred until control of the manufactured commercial product is transferred to AstraZeneca. 104 The initiation of roxadustat sales to Falikang marked the beginning of the China performance obligation . Revenue is recognized at a point in time when control of roxadustat commercial product is transferred to Falikang. Revenue is recognized based on the estimated transaction price per unit and actual quantity of product delivered during the reporting period. Specifically, the transaction price per unit is determined based on the overall transaction price over the total estimated sales quantity for the estimated performance period in which we determined it is likely those sales would occur. The price per unit is subject to reassessment on a quarterly basis, which may result in adjustments due to changes in estimates. The overall transaction price for FibroGen Beijing’s product sales to Falikang includes the following elements of consideration: ● Non-refundable upfront license fees; development, regulatory, and commercial milestone payments based on the China Agreement allocated to the China performance obligation; ● Co-development billings resulting from our research and development efforts, which are reimbursable under the China Agreement; ● Interim profit/loss share between FibroGen Beijing and AstraZeneca from April 1, 2020 through December 31, 2020; and ● Net transaction price from product sales to Falikang from January 1, 2021 onwards. The net transaction price includes the following elements: o Gross transaction price: The gross transaction price is based on a percentage of Falikang’s net sales to its distributors, which takes into account Falikang’s operating expenses and its payments to AstraZeneca for roxadustat sales and marketing efforts, capped at a percentage of Falikang’s net roxadustat sales. o Profit share: The gross transaction price is then adjusted for an estimated amount to achieve the 50/50 profit share from current period roxadustat net sales in China. The adjustments to date have been a reduction to the transaction price and the related accounts receivable from Falikang. The non-refundable upfront license fees constitute a fixed consideration. The remainder of the above are variable consideration components, which may be constrained, and included in the transaction 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 when the uncertainty associated with the variable consideration is subsequently resolved. The calculation of the above variable consideration includes significant assumptions such as total sales quantity, performance period, gross transaction price and profit share, which require a significant judgment. Any net transaction price in excess of the revenue recognized is deferred, and will be recognized over future periods as the performance obligations are satisfied. Direct Sales to Distributors We sell roxadustat in China directly to a number of pharmaceutical distributors located in a few provinces in China that are not covered by Falikang. These pharmaceutical distributors are our customers. Hospitals order roxadustat through a distributor and we ship the product directly to the distributors. The delivery of roxadustat to a distributor represents a single performance obligation. Distributors are responsible for delivering product to end users, primarily hospitals. Distributors bear inventory risk once they receive and accept the product. Product revenue is recognized when control of the promised good is transferred to the customer in an amount that reflects the consideration that we expect to be entitled to in exchange for the product. The period between the transfer of control of the promised goods and when we receive payment is based on 60-day payment terms. As such, product revenue is not adjusted for the effects of a significant financing component. Product revenue is recorded at the net sales prices that includes the following estimates of variable consideration: ● Price adjustment: When China’s National Healthcare Security Administration releases price guidance for roxadustat under the National Reimbursement Drug List, any channel inventories that have not been sold through by distributors, or to patients by hospitals and retailers, would be eligible for a price adjustment under the price protection. The price adjustment is calculated based on estimated channel inventory levels; ● Contractual sales rebate: The contractual sales rebate is calculated based on the stated percentage of gross sales by each distributor in the distribution agreement entered between FibroGen and each distributor. The contractual sales rebate is recorded as a reduction to revenue at the point of sale to the distributor; 105 ● Non-key account hospital listing award: A one-time fixed-amount award is offered to a distributor who successfully lists the product with an eligible hospital, and who meets certain requirements. For the year ended December 31, 2020, the non-key account hospital listing award was capitalized when the distributor meets eligibility requirements, and amortized as reduction to product revenue over future sales orders made by the distributor until exhausted. For the year ended December 31, 2021, the non-key account hospital listing award was immaterial and recorded as a reduction to revenue when distributor meets eligibility requirements; ● Other discounts and rebates, including key account hospital sales rebate and transfer fee discount, are generally based on a percentage of eligible gross sales made by the distributor and recorded as a reduction to revenue at the point of sale to the distributor; and ● Sales returns: Distributors can request to return product to us only due to quality issues or for product purchased within one year prior to the product’s expiration date. The calculation of the above variable consideration is based on gross sales to the distributor, or estimated utilizing best available information from the distributor, maximum known exposures and other available information including estimated channel inventory levels and estimated sales made by the distributor to hospitals, which involve a significant judgment. The above rebates and discounts all together are eligible to be applied against the distributor’s future sales order, limited to certain maximums until such rebates and discounts are exhausted. These rebates and discounts are recorded as contract liabilities at the time they become eligible and in the same period that the related revenue is recorded. Due to the distributor’s legal right to offset, at each balance sheet date, the liability for rebates and discounts are presented as reductions of gross accounts receivable from the distributor, or as a current liability to the distributor to the extent that the total amount exceeds the gross accounts receivable or when we expect to settle the discount in cash. The distributor’s legal right of offset is calculated at the individual distributor level. Drug product revenue Drug product revenue includes commercial-grade API or bulk drug product sales to AstraZeneca and Astellas in support of pre-commercial preparation prior to the NDA or Marketing Authorization Application approval, and to Astellas for ongoing commercial launch in Japan and Europe. Drug product revenue is recognized when we fulfill the inventory transfer obligations. The amount of variable consideration that is included in the transaction price may be constrained, and is included in the drug product revenue 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 when the uncertainty associated with the variable consideration is subsequently resolved. Estimating variable consideration and the related constraint requires the use of significant management judgment. We review new information that may affect its variable consideration estimate at every reporting period and records revenue adjustment, if certain and material. Actual amounts of consideration ultimately received in the future may differ from our estimates, for which we will adjust these estimates and affect the drug product revenue in the period such variances become known. As each of our collaboration agreements provide for annual true up to the considerations paid for our commercial supplies, we will re-evaluate the transaction price in each reporting period and record adjustment to revenue as uncertain events are resolved or other changes in circumstances occur. 106