Travere Therapeutics, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the timelines specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by Rule 13a-15(b) of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a–15(e) and 15d-15(e)), as of the end of the year covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level. Management’s Annual Report on Internal Control Over Financial Reporting Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that: (1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and (3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the company. Management has used the framework set forth in the report entitled Internal Control-Integrated Framework (2013 framework) published by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, to evaluate the effectiveness of our internal control over financial reporting. Based on this assessment, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was effective as of December 31, 2021. BDO USA, LLP, our independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting as of December 31, 2021, which is included herein. 70 Table of Contents Changes in Internal Control Over Financial Reporting There have not been any changes in our internal control over financial reporting during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 71 Table of Contents Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Travere Therapeutics, Inc. San Diego, California Opinion on Internal Control over Financial Reporting We have audited Travere Therapeutics, Inc. and its subsidiaries’ (the “Company’s”) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria . We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company and subsidiaries as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated February 24, 2022, expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ BDO USA, LLP San Diego, California February 24, 2022 72 Table of Contents ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 73 Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information required by this item will be contained under the captions "Election of Directors," "Information Regarding the Board of Directors and Corporate Governance," in our Definitive Proxy Statement for our 2022 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2021 (the "Proxy Statement"). Such information is incorporated herein by reference. We have adopted a Code of Business Conduct that applies to our directors and employees (including our principal executive officer, principal financial officer, principal accounting officer and controller), and have posted the text of the policy on our website (https://ir.travere.com/governance-documents). In addition, we intend to promptly disclose on our website in the future (i) the date and nature of any amendment (other than technical, administrative or other non-substantive amendments) to the policy that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and relates to any element of the code of ethics definition enumerated in Item 406(b) of Regulation S-K, and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that is granted to one of these specified individuals that relates to one or more of the elements of the code of ethics definition enumerated in Item 406(b) of Regulation S-K, the name of such person who is granted the waiver and the date of the waiver. ITEM 11. EXECUTIVE COMPENSATION Information required by this item will be contained under the captions “Compensation Discussion and Analysis,” “Executive Compensation,” “Director Compensation Summary” and “Compensation Committee Interlocks and Insider Participation” in the Proxy Statement. Such information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information required by this item will be contained under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance Under Equity Compensation Plans” in the Proxy Statement. Such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information required by this item will be contained under the caption “Transaction With Related Persons” and “Information Regarding the Board of Directors and Corporate Governance” in the Proxy Statement. Such information is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information required by this item will be contained under the caption “Principal Accountant Fees and Services” in the Proxy Statement. Such information is incorporated herein by reference. 74 Table of Contents PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) The financial statements at page F-1 are incorporated by reference to a part of this Annual Report on Form 10-K. Financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (b) Exhibits: The exhibits to this report are listed in the exhibit index below. Exhibit No. Description 1.1 Open Market Sales Agreement, dated February 24, 2020, by and between the Company and Jefferies LLC. (incorporated by reference to Exhibit 1.1 to the Company's Annual Report on Form 10-K filed with the SEC on February 24, 2020). 2.1+ Asset Purchase Agreement dated January 10, 2015 by and between the Company and Asklepion Pharmaceuticals, LLC (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 11, 2015). 2.2+ Asset Purchase Agreement dated as of June 9, 2016 between the Company and Asklepion Pharmaceuticals, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on August 5, 2016). 2.3* Stock Purchase Agreement, dated October 21, 2020, by and among the Company, Orphan Technologies Limited and Citco Trustees (Cayman) Limited acting solely in its capacity as the sole trustee of The Fuhrer Family Trust (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the SEC on November 18, 2020). 3.1 Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the Company’s General Form for Registration of Securities on Form 10-12G, filed with the SEC on October 28, 2010). 3.2 Certificate of Amendment of Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on June 11, 2015). 3.3 Certificate of Amendment of Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed with the SEC on November 16, 2020). 3.4 Certificate of Amendment to the Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, filed with the SEC on May 18, 2021). 3.5 Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on November 16, 2020). 3.6 Certificate of Amendment of Bylaws of the Company, effective June 9, 2021 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, filed with the SEC on June 10, 2021). 4.1 Reference is made to Exhibits to 3.1 , 3.2 , 3.3 , 3.4 , 3. 5 and 3.6 . 4.2 Description of Common Stock. 4.3 Base Indenture, dated September 10, 2018, between the Company and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the SEC on September 10, 2018). 4.4 First Supplemental Indenture, dated September 10, 2018, between the Company and U.S. Bank National Association, as Trustee (including the form of 2.50% Convertible Senior Note due 2025) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed with the SEC on September 10, 2018). 10.1 Form of Indemnity Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 1, 2018 ) . 10.2† Employment Agreement, dated January 4, 2019, by and between the Company and Eric M. Dube (incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K, filed with the SEC on February 26, 2019). 10.3† Employment Agreement, dated March 2, 2015, by and between the Company and Laura M. Clague (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 11, 2015). 10.4† Amendment to Employment Agreement, entered into as of April 11, 2017 and modifies the Employment Agreement dated March 2, 2015, by and between the Company and Laura M. Clague (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 5, 2017). 10.5† Employment Agreement, dated February 13, 2017, and Amendment to Employment Agreement, dated April 11, 2017, by and between the Company and William Rote (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 1, 2018) 10.6† Employment Agreement, dated February 6, 2017, and Amendment to Employment Agreement, dated April 11, 2017, by and between the Company and Elizabeth E. Reed (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 1, 2018) 10.7† Employment Agreement, dated October 1, 2019, by and between the Company and Peter Heerma (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 5, 2020). 10.8† Employment Agreement, dated July 26, 2018, by and between the Company and Noah Rosenberg, M.D. (incorporated by reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K, filed with the SEC on February 26, 2019). 75 Table of Contents 10.9† Transition Agreement, dated October 12, 2021, between the Company and Noah Rosenberg, M.D. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the SEC on October 12, 2021. 10.10† Consulting Services Agreement dated January 1, 2022, between the Company and Noah Rosenberg, M.D. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the SEC on January 6 , 2022). 10.11† Retirement Agreement, dated January 4, 2019, by and between the Company and Stephen Aselage (incorporated by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K, filed with the SEC on February 26, 2019). 10.12† Non-Employee Director Compensation Program (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 11, 2020). 10.13† The Company's 2021 Executive Officer Annual Bonus Plan (incorporated by reference to Exhibit 10.38 to the Company's Annual Report on Form 10-K, filed with the SEC on March 1, 2021). 10.14† The Company's 2022 Executive Officer Annual Bonus Plan. 10.15† The Company's 2014 Incentive Compensation Plan as amended (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed with the SEC on February 9, 2015). 10.16† The Company's 2015 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 99.1 to the Company's C urrent R eport on Form 8-K, filed with the SEC on May 18, 2017). 10.17† Form of Stock Option Grant Notice, Option Agreement and Notice of Exercise for Inducement Grant Outside of 2015 Equity Incentive Plan (incorporated by reference to Exhibit 99.3 to the Company's current report on Form S-8, filed with the SEC on June 8, 2017). 10.18† Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement for Inducement Grant Outside of 2015 Equity Incentive Plan(incorporated by reference to Exhibit 99.4 to the Company's current report on Form S-8, filed with the SEC on June 8, 2017). 10.19† The Company's 2017 Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.2 to the Company's C urrent report on Form 8-K, filed with the SEC on May 18, 2017 ) . 10.20† The Company's 2018 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K, filed with the SEC on May 18, 2021). 10.21† Form of Stock Option Grant Notice, Option Agreement and Exercise Notice for use under the Company's 2018 Equity Incentive Plan, as amended. 10.22† Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement for use under the Company's 2018 Equity Incentive Plan, as amended. 10.23† Form of Stock Option Grant Notice, Option Agreement and Notice of Exercise for Inducement Grant Outside of 2018 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 99.2 to the Company’s Registration Statement on Form S-8 (File No. 333-232857), filed with the SEC on July 26, 2019). 10.24† Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement for Inducement Grant Outside of 2018 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 99.3 to the Company’s Registration Statement on Form S-8 (File No. 333-232857), filed with the SEC on July 26, 2019). 10.25+¥ Sublicense Agreement, dated February 16, 2012, by and among Ligand Pharmaceuticals Incorporated, a Delaware corporation, Pharmacopeia, Inc., a Delaware limited liability company, and the Company, a Delaware limited liability company . 10.26* Amendment No. 3 to Sublicense Agreement dated as of February 27, 2015, between the Company and Ligand Pharmaceuticals Incorporated . 10.27* Amendment No. 4 to Sublicense Agreement dated as of September 17, 2015, between the Company and Ligand Pharmaceuticals Incorporated . 10.28 Amendment No. 5 to Sublicense Agreement dated as of March 20, 2018, between the Company and Ligand Pharmaceuticals Incorporated (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 1, 2018 ) . 10.29 International Rights Purchase Agreement, dated as of March 26, 2014, by and between Manchester Pharmaceuticals LLC and Retrophin Therapeutics International, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on March 31, 2014). 10.30 Trademark License and Supply Agreement, dated May 29, 2014, by and between the Company and Mission Pharmacal Company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on June 4, 2014). 10.31 First Amendment to Trademark License and Supply Agreement, effective as of July 28, 2014, by and between Mission Pharmacal Company and the Company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 29, 2014). 10.32 Addendum to Trademark License and Supply Agreement, dated October 19, 2015, by and between to Company and Mission Pharmacal (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 6, 2015). 10.33+ Third Amendment to Trademark License and Supply Agreement dated as of March 17, 2016, between the Company and Mission Pharmacal. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 5, 2016). 10.34+ Amendment One to the Third Amendment to Trademark License and Supply Agreement, dated September 12, 2016, by and between the Company and Mission Pharmacal Company (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 4, 2016). 10.35+ Amendment Two to the Third Amendment to Trademark License and Supply Agreement, dated November 3, 2017, by and between the Company and Mission Pharmacal Company (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K, filed with the SEC on February 27, 2018). 10.36 Fourth Amendment to Trademark License and Supply Agreement dated as of November 28, 2018, between the Company and Mission Pharmacal (incorporated by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K, filed with the SEC on February 26, 2019). 76 Table of Contents 10.37+ Fifth Amendment to Trademark License and Supply Agreement dated as of September 30, 2020, between the Company and Mission Pharmacal Company (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 5, 2020). 10.38¥* Master Manufacturing Supply Agreement, dated September 30, 2020, between the Company and STA Pharmaceutical Hong Kong Limited, a subsidiary of WuXi AppTec (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 5, 2020). 10.39¥* License and Collaboration Agreement, dated September 15, 2021, by and among Orphan Technologies and Vifor (International) Ltd., and, solely with respect to Article 15, the Company (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed with the SEC on October 29, 2021). 10.40¥* Commercial Supply Agreement, dated December 21, 2021, between the Company and Catalent Pharma Solutions, LLC. 10.41 Office Lease, effective April 12, 2019, between the Company and Kilroy Realty, L.P. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on August 6, 2019). 10.42* First Amendment to Office Lease, dated November 7, 2019, between the Company and Kilroy Realty, L.P. (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed with the SEC on June 8, 2020). 10.43 Third Amendment to Existing Office Lease and Second Amendment to Long Term Lease, dated May 29, 2020, between the Company and Kilroy Realty, L.P. (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed with the SEC on June 8, 2020). 21.1 List of subsidiaries of the Company. 23.1 Consent of BDO USA, LLP. 24.1 Power of Attorney (see signature page hereto). 31.1 Chief Executive Officer's Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Chief Financial Officer's Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Chief Executive Officer’s Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002. 32.2 Chief Financial Officer’s Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002. 101.INS Inline XBRL Instance Document. 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Taxonomy Extension Presentation Linkbase Document. 104 The cover page to this Annual Report on Form 10-K has been formatted in Inline XBRL. + We have received confidential treatment of certain portions of this agreement, which have been omitted and filed separately with the SEC pursuant to Rule 406 under the Securities Act of 1933, as amended, or Rule 24b-2 of the Securities Exchange Act of 1934, as amended. † Indicates management contract or compensatory plan. ¥ Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company undertakes to furnish supplemental copies of any of the omitted schedules upon request by the SEC. * Certain portions of this exhibit are omitted pursuant to Item 601(b)(10)(iv). ITEM 16. FORM 10-K SUMMARY None. 77 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 24, 2022 Travere Therapeutics, Inc. By: /s/ Eric M. Dube Name: Eric M. Dube Title: Chief Executive Officer POWER OF ATTORNEY Know all persons by these presents, that each person whose signature appears below constitutes and appoints Eric Dube and Laura Clague, and each of them, as his attorneys-in-fact and agents, each with power of substitution in any and all capacities, to sign any amendments to this annual report on Form 10-K, and to file the same with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that the attorney-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: 78 Table of Contents Signature Title Date /s/ Eric M. Dube Chief Executive Officer and Director (Principal Executive Officer) Eric M. Dube February 24, 2022 /s/ Laura Clague Chief Financial Officer (Principal Financial Officer) Laura Clague February 24, 2022 /s/ Sandra Calvin Vice President, Corporate Controller and Chief Accounting Officer (Principal Accounting Officer) Sandra Calvin February 24, 2022 /s/ Stephen Aselage Director Stephen Aselage February 24, 2022 /s/ Roy D. Baynes Director Roy D. Baynes February 24, 2022 /s/ Suzanne Bruhn Director Suzanne Bruhn February 24, 2022 /s/ Timothy Coughlin Director Timothy Coughlin February 24, 2022 /s/ Gary Lyons Director Gary Lyons February 24, 2022 /s/ Jeffrey A. Meckler Director Jeffrey A. Meckler February 24, 2022 /s/ John A. Orwin Director John A. Orwin February 24, 2022 /s/ Sandra E. Poole Director Sandra E. Poole February 24, 2022 /s/ Ron Squarer Director Ron Squarer February 24, 2022 /s/ Ruth Williams-Brinkley Director Ruth Williams-Brinkley February 24, 2022 79 Table of Contents TRAVERE THERAPEUTICS, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (BDO USA, LLP, San Diego, California, PCAOB ID# 243 ) F- 2 Financial Statements Consolidated Balance Sheets at December 31, 202 1 and 2 020 F- 4 Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 202 1 , 20 20 and 20 19 F- 5 Consolidated Statements of Stockholders' Equity for the years ended December 31, 202 1 , 20 20 and 201 9 F- 6 Consolidated Statements of Cash Flows for the years ended December 31, 202 1 , 20 20 and 20 19 F- 7 Notes to Consolidated Financial Statements F- 8 F-1 Table of Contents Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Travere Therapeutics, Inc. San Diego, California Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Travere Therapeutics, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 , in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 24, 2022 expressed an unqualified opinion thereon. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Business Combination-Related Contingent Consideration As described in Note 8 to the consolidated financial statements, the Company acquired two businesses, related to the Cholbam and Chenodal products, whose purchase price included potential future payments that are contingent on the achievement of certain milestones and percentages of future net sales derived from the products acquired. The Company recorded business combination-related contingent consideration liabilities at their fair value on the acquisition date and revalues them at the end of each reporting period. We identified the determination of the fair value of business combination-related contingent consideration as a critical audit matter. The determination of the fair value of business combination-related contingent consideration requires management to make significant judgments including the appropriateness of the valuation model selected, the reasonableness of estimates and assumptions utilized in forecasts of future net sales and the discount rates applied to such forecasts. Changes in these judgments could have a significant impact on the fair value of the business combination- F-2 Table of Contents related contingent consideration. Auditing these elements involved especially challenging auditor judgment due to the subjectivity, nature and extent of auditor effort required to address the matter, including the extent of specialized skills and knowledge needed. The primary procedures we performed to address this critical audit matter included: • Testing the design and operating effectiveness of certain controls over the development of the significant assumptions used in the valuation model selected, including controls over assumptions related to: (i) forecasts of future net sales and (ii) discount rates applied to the forecasts. • Assessing the reasonableness of certain significant assumptions used in the valuation model, by: (i) reviewing the products’ historical performance, (ii) evaluating the reasonableness of significant assumptions (including net sales projections) against budgets and the current performance of the Company, and (iii) performing sensitivity analyses to test the potential effect of changes in certain assumptions on the valuation. • Utilizing professionals with specialized skills and knowledge in valuation to assist in evaluating the appropriateness of the valuation models utilized by management and to assess the reasonableness of certain estimates and assumptions used by management to develop the discount rates applied to the net sales forecasts. License and Collaboration Agreement with Vifor As discussed in Note 4 to the consolidated financial statements, in September 2021, the Company entered into a license and collaboration agreement with Vifor (International) Ltd. (“Vifor Pharma”). Under the terms of the agreement, the Company granted Vifor Pharma an exclusive license to commercialize sparsentan in Europe, Australia, and New Zealand. In exchange for the license, the Company received an upfront payment of $55.0 million during 2021 and is eligible to receive additional regulatory and market access related milestones and sales-based milestones and royalties. We have identified the identification of performance obligations under the Vifor license and collaboration agreement as a critical audit matter. Determining the distinct performance obligations included in the agreement required management to make judgements with respect to the appropriate application of relevant authoritative accounting guidance. Auditing management’s judgments and the resulting impacts on the accounting and revenue recognition for the Vifor license and collaboration agreement required increased auditor effort. The primary procedures we performed to address this critical audit matter included: a. Assessing the key terms in the license and collaboration agreement under the relevant authoritative accounting guidance to evaluate management’s conclusion that the license and collaboration agreement contains two distinct performance obligations. a. Utilizing professionals with increased experience and expertise in technical accounting for license and collaboration agreements to assist in evaluation of management’s conclusions with respect to the performance obligations identified. /s/ BDO USA, LLP We have served as the Company’s auditor since 2014. San Diego, California February 24, 2022 F-3 Table of Contents TRAVERE THERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) December 31, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 165,753 $ 84,772 Marketable debt securities, at fair value 387,129 276,817 Accounts receivable, net 15,914 15,925 Inventory, net 7,313 7,608 Tax receivable 247 17,142 Prepaid expenses and other current assets 6,471 8,143 Total current assets 582,827 410,407 Property and equipment, net 11,106 9,418 Operating lease right of use assets 23,196 25,675 Intangible assets, net 148,435 154,125 Other assets 11,069 7,814 Total assets $ 776,633 $ 607,439 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 15,144 $ 12,133 Accrued expenses 75,180 56,793 Deferred revenue, current portion 16,268 — Business combination-related contingent consideration 7,400 17,400 Operating lease liabilities, current portion 3,908 357 Other current liabilities 6,188 5,977 Total current liabilities 124,088 92,660 Convertible debt 226,581 215,339 Deferred revenue, less current portion 20,379 — Business combination-related contingent consideration, less current portion 59,700 47,700 Operating lease liabilities, less current portion 31,497 28,336 Other non-current liabilities 12,276 12,191 Total liabilities 474,521 396,226 Commitments and Contingencies (See Note 11) Stockholders' Equity: Preferred stock $ 0.0001 par value; 20,000,000 shares authorized; 0 issued and outstanding as of December 31, 2021 and 2020 — — Common stock $ 0.0001 par value; 200,000,000 and 100,000,000 shares authorized; 62,491,498 and 52,248,431 issued and outstanding as of December 31, 2021 and 2020, respectively 6 5 Additional paid-in capital 1,068,634 797,985 Accumulated deficit ( 765,966 ) ( 585,875 ) Accumulated other comprehensive loss ( 562 ) ( 902 ) Total stockholders' equity 302,112 211,213 Total liabilities and stockholders' equity $ 776,633 $ 607,439 The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents TRAVERE THERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except share and per share amounts) Years Ended December 31, 2021 2020 2019 Net product sales $ 210,776 $ 198,321 $ 175,338 License and collaboration revenue 16,714 — — Total revenue 227,490 198,321 175,338 Operating expenses: Cost of goods sold 6,784 6,126 5,234 Research and development 210,328 131,773 140,963 Selling, general and administrative 149,883 135,799 128,951 Change in fair value of contingent consideration 22,260 3,655 15,051 Impairment of L-UDCA IPR&D intangible asset — — 25,500 Write off of L-UDCA contingent consideration — — ( 18,000 ) Acquired IPR&D expense — 97,131 — Impairment of long-term investment — — 15,000 Total operating expenses 389,255 374,484 312,699 Operating loss ( 161,765 ) ( 176,163 ) ( 137,361 ) Other Income (expense), net: Interest income 1,993 5,003 10,055 Interest expense ( 20,141 ) ( 19,050 ) ( 18,828 ) Other income (expense), net 231 1,420 ( 314 ) Total other expense, net ( 17,917 ) ( 12,627 ) ( 9,087 ) Loss before (provision) benefit for income taxes ( 179,682 ) ( 188,790 ) ( 146,448 ) Income tax (provision) benefit ( 409 ) 19,359 21 Net loss $ ( 180,091 ) $ ( 169,431 ) $ ( 146,427 ) Basic and diluted net loss per common share $ ( 3.01 ) $ ( 3.56 ) $ ( 3.46 ) Basic and diluted weighted average common shares outstanding 59,832,287 47,539,631 42,339,961 Comprehensive loss: Net loss $ ( 180,091 ) $ ( 169,431 ) $ ( 146,427 ) Foreign currency translation gain (loss) 1,515 ( 1,452 ) 92 Unrealized (loss) gain on debt securities ( 1,175 ) ( 176 ) 2,163 Comprehensive loss $ ( 179,751 ) $ ( 171,059 ) $ ( 144,172 ) The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents TRAVERE THERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except share amounts) Common Stock Additional Paid in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity Shares Amount BALANCE - DECEMBER 31, 2018 41,389,524 $ 4 $ 589,795 $ ( 1,529 ) $ ( 270,017 ) $ 318,253 Share based compensation — — 20,463 — — 20,463 Unrealized gain/(loss) on marketable debt securities — — — 2,163 — 2,163 Foreign currency translation adjustments — — — 92 — 92 Issuance of common shares under the equity incentive plan and proceeds from exercise. 272,730 — 1,618 — — 1,618 Employee stock purchase program stock purchase and expense 129,324 — 2,444 — — 2,444 Convertible debt issue 1,297,343 — 22,590 — — 22,590 Net loss — — — — ( 146,427 ) ( 146,427 ) BALANCE - DECEMBER 31, 2019 43,088,921 $ 4 $ 636,910 $ 726 $ ( 416,444 ) $ 221,196 Share based compensation — — 22,733 — — 22,733 Issuance of common stock under the equity incentive plan and proceeds from exercise 649,075 — 3,895 — — 3,895 Equity offering, net of issuance costs of $ 7.2 million 7,475,000 1 108,691 — — 108,692 Issuance of common stock under At-The-Market offering, net of offering costs 867,806 — 22,828 22,828 Unrealized gain/(loss) on marketable debt securities — — — ( 176 ) — ( 176 ) Foreign currency translation adjustments — — — ( 1,452 ) — ( 1,452 ) Employee stock purchase program stock purchase and expense 167,629 — 2,928 — — 2,928 Net loss — — — — ( 169,431 ) ( 169,431 ) BALANCE - DECEMBER 31, 2020 52,248,431 $ 5 $ 797,985 $ ( 902 ) $ ( 585,875 ) $ 211,213 Share based compensation — — 29,862 — — 29,862 Issuance of common stock under the equity incentive plan and proceeds from exercise 1,302,966 — 12,841 — — 12,841 Equity offering, net of issuance costs of $ 12.2 million 7,532,500 1 189,278 — — 189,279 Issuance of common stock under At-The-Market offering, net of offering costs 1,240,640 — 35,656 — — 35,656 Unrealized gain/(loss) on marketable debt securities — — — ( 1,175 ) — ( 1,175 ) Foreign currency translation adjustments — — — 1,515 — 1,515 Employee stock purchase program stock purchase and expense 166,961 — 3,012 — — 3,012 Net loss — — — — ( 180,091 ) ( 180,091 ) BALANCE - DECEMBER 31, 2021 62,491,498 $ 6 $ 1,068,634 $ ( 562 ) $ ( 765,966 ) $ 302,112 The accompanying notes are an integral part of these consolidated financial statements F-6 Table of Contents TRAVERE THERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For the year ended December 31, 2021 2020 2019 Cash Flows from Operating Activities: Net loss $ ( 180,091 ) $ ( 169,431 ) $ ( 146,427 ) Adjustments to reconcile net loss to net cash used in operating activities: Share based compensation 30,766 23,614 21,105 Depreciation and amortization 26,617 24,579 20,408 Change in estimated fair value of contingent consideration 22,260 3,655 ( 2,948 ) Payments from change in fair value of contingent consideration ( 14,375 ) ( 12,407 ) ( 5,661 ) Amortization of debt discount and deferred financing costs 11,242 10,478 9,903 Loss on allowance for inventory 2,110 2,225 1,468 Amortization of premiums (discounts) on investments 2,008 703 ( 788 ) Acquired IPR&D expense — 97,131 — Impairment of intangible assets — — 25,500 Loss on impairment of long-term investment — — 15,000 Other 4,692 2,752 1,602 Changes in operating assets and liabilities, net of asset acquisition: Accounts receivable ( 59 ) 2,301 ( 5,184 ) Inventory ( 1,815 ) ( 5,067 ) ( 1,958 ) Prepaid expenses and other current assets ( 1,438 ) ( 4,314 ) 208 Tax receivable 17,099 ( 15,746 ) 555 Change in lease assets and liabilities, net 5,577 ( 1,203 ) ( 4,854 ) Accounts payable 2,770 ( 6,036 ) 9,255 Accrued expenses and other current liabilities 19,545 4,023 4,602 Deferred revenue, current and non-current 38,300 — — Net cash used in operating activities ( 14,792 ) ( 42,743 ) ( 58,214 ) Cash Flows from Investing Activities: Purchase of fixed assets ( 5,101 ) ( 6,767 ) ( 195 ) Purchase of intangible assets ( 19,050 ) ( 17,799 ) ( 15,370 ) Proceeds from the sale/maturity of marketable debt securities 433,604 273,482 259,140 Purchase of marketable debt securities ( 547,076 ) ( 214,964 ) ( 223,712 ) Purchased IPR&D, net of cash acquired — ( 95,279 ) — Net cash (used in) provided by investing activities ( 137,623 ) ( 61,327 ) 19,863 Cash Flows from Financing Activities: Payment of acquisition-related contingent consideration ( 6,104 ) ( 7,648 ) ( 3,388 ) Payment of guaranteed minimum royalty ( 2,100 ) ( 2,100 ) ( 2,084 ) Proceeds from exercise of stock options 12,841 3,895 1,618 Proceeds from the issuance of common stock in At-the-Market equity offering 35,656 22,828 — Proceeds from the issuance of common stock, net of issuance costs 189,278 108,692 — Proceeds from the issuance of common stock under the employee stock purchase program 2,112 2,046 1,777 Net cash provided by (used in) financing activities 231,683 127,713 ( 2,077 ) Effect of exchange rate changes on cash 1,713 ( 1,307 ) ( 9 ) Net increase (decrease) in cash and cash equivalents 80,981 22,336 ( 40,437 ) Cash and cash equivalents, beginning of year 84,772 62,436 102,873 Cash and cash equivalents, end of year $ 165,753 $ 84,772 $ 62,436 Supplemental Disclosure of Cash Flow Information: Cash paid for interest $ 7,327 $ 6,901 $ 7,669 Cash refunded (paid) for income taxes $ 16,420 $ 3,373 $ ( 656 ) Non-cash Investing and financing activities: Accrued royalty in excess of minimum payable to the sellers of Thiola $ 19,362 $ 18,168 $ 15,815 The accompanying notes are an integral part of these consolidated financial statements. F-7 Table of Contents TRAVERE THERAPEUTICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. DESCRIPTION OF BUSINESS Organization and Description of Business Travere Therapeutics, Inc. (“we”, “our”, “us”, “Travere” and the “Company”) refers to Travere Therapeutics, Inc., a Delaware corporation, as well as our direct and indirect subsidiaries. Travere is a fully integrated biopharmaceutical company headquartered in San Diego, California focused on identifying, developing and delivering life-changing therapies to people with rare diseases. We regularly evaluate and, where appropriate, act on opportunities to expand our product pipeline through licenses and acquisitions of products in areas that will serve patients with serious or rare diseases and that we believe offer attractive growth characteristics. The ongoing novel coronavirus (COVID-19) pandemic has resulted in travel restrictions, quarantines, “stay-at-home” and “shelter-in-place” orders and extended shutdown of certain businesses around the world. While the impact of the COVID-19 pandemic did not have a material adverse effect on our financial position or results of operations for the twelve months ended December 31, 2021, these governmental actions and similar actions that may be enacted in the future, and the widespread economic disruption arising from the pandemic, have the potential to materially impact our business and influence our business decisions. The extent and duration of the pandemic is unknown, and the future effects on our business are uncertain and difficult to predict. The Company is continuing to monitor the events and circumstances surrounding the COVID-19 pandemic, which may require adjustments to the Company’s estimates and assumptions in the future. Clinical Programs: Sparsentan is a novel investigational product candidate and has been granted Orphan Drug Designation for the treatment of focal segmental glomerulosclerois (FSGS) and immunoglobulin A nephropathy (IgAN) in the U.S. and Europe. Sparsentan is currently being evaluated in two pivotal Phase 3 clinical studies in rare kidney diseases. Pegtibatinase ( TVT-058) is a novel investigational human enzyme replacement candidate being evaluated for the treatment of classical homocystinuria (HCU). Pegtibatinase has been granted Rare Pediatric Disease and Fast Track designations by the FDA, as well as orphan drug designation in the United States and European Union. Pegtibatinase is currently being evaluated in the Phase 1/2 COMPOSE Study to assess its safety, tolerability, pharmacokinetics, pharmacodynamics and clinical effects in patients with classical HCU. The Company acquired pegtibatinase as part of the November 2020 acquisition of Orphan Technologies Limited. Chenodal (chenodeoxycholic acid or CDCA) is a naturally occurring bile acid that is approved for the treatment of people with radiolucent stones in the gallbladder. In January 2020, we randomized the first patients in our Phase 3 RESTORE Study to evaluate the effects of Chenodal in adult and pediatric patients with cerebrotendinous xanthomatosis (CTX), and the study enrollment remains open. The pivotal study is intended to support an NDA submission for marketing authorization of Chenodal for CTX in the United States. Preclinical Programs: We are a participant in two Cooperative Research and Development Agreements ("CRADAs"), which form a multi-stakeholder approach to pool resources with leading experts, and incorporate the patient perspective early in the therapeutic identification and development process. We have partnered with the National Institutes of Health’s National Center for Advancing Translational Sciences ("NCATS") and leading patient advocacy organizations, CDG Care and Alagille Syndrome Alliance, aimed at the identification of potential small molecule therapeutics for NGLY1 deficiency and Alagille syndrome ("ALGS"), respectively. There are no treatment options currently approved for these diseases. Approved products: • Chenodal (chenodiol tablets) is approved in the United States for the treatment of patients suffering from gallstones in whom surgery poses an unacceptable health risk due to disease or advanced age. • Cholbam ® (cholic acid capsules) is approved in the United States for the treatment of bile acid synthesis disorders due to single enzyme defects and is further indicated for adjunctive treatment of patients with peroxisomal disorders. • Thiola ® and Thiola EC ® (tiopronin tablets) are approved in the United States for the prevention of cystine (kidney) stone formation in patients with severe homozygous cystinuria. F-8 Table of Contents NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows: Principles of Consolidation The consolidated financial statements represent the consolidation of the accounts of the Company and its subsidiaries in conformity with accounting principles generally accepted in the United States ("U.S. GAAP"). All intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates In preparing financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of expenses during the reporting period. Due to inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in these estimates. On an ongoing basis, the Company evaluates its estimates and assumptions. These estimates and assumptions include revenue recognition, forecasting probability-weighted cash flows based upon estimates of forecasted revenues, clinical and regulatory timelines and discount rates, valuing equity securities in share-based payments, estimating expenses of contracted research organizations, estimating the useful lives of depreciable and amortizable assets, goodwill impairment, estimating the fair value of contingent consideration, estimating of valuation allowances and uncertain tax positions, and estimates associated with the assessment of impairment for long-lived assets. Revenue Recognition The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect substantially all the consideration it is entitled to in exchange for the goods or services it transfers to the customer. See Note 3 and Note 4 for further discussion. Payments received under collaboration and licensing agreements may include non-refundable fees at the inception of the arrangements, milestone payments for specific achievements and royalties on the sale of products. At the inception of arrangements that include milestone payments, the Company uses judgement to evaluate whether the milestones are probable of being achieved and estimates the amount to include in the transaction price utilizing the most likely amount method. If it is probable that a significant revenue reversal will not occur, the estimated amount is included in the transaction price. Milestone payments that are not within the Company or the licensee’s control, such as regulatory approvals are not included in the transaction price until those approvals are received. At the end of each reporting period, the Company re-evaluates the probability of achievement of development milestones and any related constraint and adjusts the estimate of the overall transaction price, if necessary. The Company recognizes aggregate sales-based milestones and royalty payments from product sales at the later of when the related sales occur or when the performance obligation to which the sales-based milestone or royalty has been allocated has been satisfied. If it is probable that a significant revenue reversal will not occur, the Company estimates the sales-based milestone and royalty payments using the most likely amount method. The Company utilizes significant judgement to develop estimates of the stand-alone selling price for each distinct performance obligation based upon the relative stand-alone selling price. Variable consideration that relates specifically to the Company’s efforts to satisfy specific performance obligations is allocated entirely to those performance obligations. The stand-alone selling price for license-related performance obligations requires judgement in developing assumptions to project probability-weighted cash flows based upon estimates of forecasted revenues, clinical and regulatory timelines and discount rates. The stand-alone selling price for clinical development performance obligations is based on forecasted expected costs of satisfying a performance obligation plus an appropriate margin. If the licenses to intellectual property are determined to be distinct from the other performance obligations identified in the arrangement and have stand-alone functionality, the Company recognizes revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to benefit from the license. For licenses that are not distinct from other promises, the Company applies judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the related revenue recognition accordingly. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. Revenue is recorded proportionally as costs are incurred. The Company generally utilizes the cost-to-cost method of progress because it F-9 Table of Contents best measures the transfer of control to the customer which occurs as the Company incurs costs. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. The Company uses judgment to estimate the total costs expected to complete the clinical development performance obligations, which include subcontractor costs, labor, materials, other direct costs and an allocation of indirect costs. The Company evaluates these cost estimates and the progress each reporting period and adjusts the measure of progress, if necessary. Research and Development Costs Research and development includes expenses related to sparsentan, pegtibatinase, and the Company's other pipeline programs. The Company expenses all research and development costs as they are incurred. The Company's research and development costs are comprised of salaries and bonuses, benefits, share-based compensation, license fees, milestones under license agreements, costs paid to third-party contractors to perform research, conduct clinical trials, and develop drug materials and delivery devices, and associated overhead expenses and facilities costs. The Company charges direct internal and external program costs to the respective development programs. The Company also incurs indirect costs that are not allocated to specific programs because such costs benefit multiple development programs and allow us to increase our pharmaceutical development capabilities. These consist of internal shared resources related to the development and maintenance of systems and processes applicable to all of our programs. Clinical Trial Expenses The Company records expenses in connection with clinical trials under contracts with contract research organizations (CROs) that support conducting and managing clinical trials. The financial terms and activities of these agreements vary from contract to contract and may result in uneven expense levels. Generally, these agreements set forth activities that drive the recording of expenses such as start-up and initiation activities, enrollment and treatment of patients, or the completion of other clinical trial activities. Expenses related to clinical trials are accrued based on our estimates and/or representations from service providers regarding work performed, including actual level of patient enrollment, completion of patient studies and progress of the clinical trials. Other incidental costs related to patient enrollment or treatment are accrued when reasonably certain. If the amounts we are obligated to pay under our clinical trial agreements are modified (for instance, as a result of changes in the clinical trial protocol or scope of work to be performed), the Company adjusts its accruals accordingly on a prospective basis. Revisions to the Company's contractual payment obligations are charged to expense in the period in which the facts that give rise to the revision become reasonably certain. The Company currently has three Phase 3 clinical trials in process that are in varying stages of activity, with ongoing non-clinical support trials. As such, clinical trial expenses will vary depending on the all the factors set forth above and may fluctuate significantly from quarter to quarter. Share-Based Compensation The Company recognizes all employee share-based compensation as a cost in the financial statements. Equity-classified awards principally related to stock options, restricted stock units (“RSUs”) and performance stock units ("PSUs"), are measured at the grant date fair value of the award. The Company determines grant date fair value of stock option awards using the Black-Scholes option-pricing model. The fair value of RSUs and PSUs are determined using the closing price of the Company’s common stock on the grant date. For service based vesting grants, expense is recognized over the requisite service period based on the number of options or shares expected to ultimately vest. For PSUs, expense is recognized over the implicit service period, assuming vesting is probable. No expense is recognized for PSUs if it is not probable the vesting criteria will be satisfied. Forfeitures are accounted for as they occur. Expiration Term Vesting Term Stock Options 10 years 3 to 4 years Restricted Stock Units ---- 1 to 4 years Earnings (Loss) Per Share The Company calculates basic earnings per share by dividing net income/(loss) by the weighted average number of shares outstanding during the period. The diluted earnings/(loss) per share computation includes the effect, if any, of shares that would be issuable upon the exercise of outstanding stock options, derivative warrant liability, convertible debt and RSUs, reduced by the number of shares which are assumed to be purchased by the Company from the resulting proceeds at the average market price during the year, when such amounts are dilutive to the earnings per share calculation. F-10 Table of Contents Cash and Cash Equivalents The Company considers all highly liquid marketable securities with an original maturity of three months or less to be cash equivalents. Due to the short-term maturity of such investments, the carrying amounts are a reasonable estimate of fair value. Concentration of Credit Risk The Company maintains its cash and cash equivalents at insured financial institutions, the balances of which may, at times, exceed federally insured limits. Generally, these deposits may be redeemed upon demand, and the Company believes there is minimal risk of losses on such balances. The Company monitors its investments with counterparties with the objective of minimizing concentrations of credit risk. The Company's investment policy is to invest only in institutions that meet high credit quality standards and established limits on the amount and time to maturity of investments with any individual counterparty. The policy also requires that investments are only entered into with corporate and financial institutions that meet high quality standards. Marketable Debt Securities The Company accounts for marketable debt securities held as “available-for-sale” in accordance with ASC 320, “Investments - Debt Securities” (“ASC 320”). The Company classifies these investments as current assets and carries them at fair value. Unrealized gains and losses on marketable debt securities are recorded as a separate component of stockholders’ equity as accumulated other comprehensive loss, unless an impairment is determined to be the result of credit-related factors or the Company intends to sell the security or it is more likely than not that the Company will be required to sell the security before recovery. Realized gains or losses on debt security transactions and declines in value that are determined to be the result of credit losses, if any, are reported in the Consolidated Statements of Operations and Comprehensive Loss. Marketable debt securities are maintained at one financial institution and are governed by the Company’s investment policy. See Note 6 for further discussion. Trade Receivables, Net Trade accounts receivable are recorded net of reserves for prompt pay discounts and expected credit losses. Estimates for allowances for credit losses are determined based on existing contractual obligations, historical payment patterns and individual customer circumstances. The allowance for credit losses was zero at both December 31, 2021 and 2020, respectively. For the years ended December 31, 2021, 2020 and 2019, bad debt expense recorded in the Consolidated Statements of Operations and Comprehensive Loss was immaterial. The Company's evaluation and application of ASU No. 2016-13, Financial Instruments - Credit Losses for the current period included an assessment of our aged trade receivables balances and their underlying credit risk characteristics. Our evaluation of past events, current conditions, and reasonable and supportable forecasts about the future resulted in an expectation of immaterial credit losses. Inventory, Related Reserves and Cost of Goods Sold Inventory, which is recorded at the lower of cost or net realizable value, includes materials, labor, and other direct and indirect costs and is valued using the first-in, first-out method. The Company periodically analyzes its inventory levels to identify inventory that may expire prior to expected sale or has a cost basis in excess of its estimated realizable value, and writes down such inventory as appropriate. In addition, the Company's products are subject to strict quality control and monitoring which the Company’s manufacturers perform throughout their manufacturing process. The Company does not directly manufacture any product. The Company has single suppliers for products Chenodal and Thiola, and prospectively arranges for manufacture from contract service providers for its product Cholbam. The inventory reserve was $ 4.1 million and $ 3.6 million at December 31, 2021 and 2020, respectively. Inventory, net of reserve, consisted of the following at December 31, 2021 and 2020 ( in thousands ): December 31, 2021 December 31, 2020 Raw material $ 5,205 $ 3,219 Finished goods 2,108 4,389 Total inventory $ 7,313 $ 7,608 Cost of goods sold includes the cost of inventory sold, third party manufacturing and supply chain costs, product shipping and handling costs, and provisions for excess and obsolete inventory. Segment Information The Company currently operates in one operating segment focused on the development and commercialization of innovative therapies for people with serious and life-threatening rare diseases and medical conditions. The Company is not organized by market and is managed and operated as one business. A single management team reports to the chief operating decision maker who comprehensively manages the entire business. The F-11 Table of Contents Company does not operate any separate lines of business or separate business entities with respect to its products. Accordingly, the Company does not accumulate discrete financial information with respect to separate products, other than revenues, and does not have separately reportable segments. Property and Equipment, net Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the related estimated useful lives as presented in the table below. Significant additions and improvements are capitalized, while repairs and maintenance are charged to expense as incurred. Property and equipment purchased for specific research and development projects with no alternative use is expensed as incurred. The major classifications of property and equipment, including their respective expected useful lives, consist of the following: Computers and equipment 3 years Furniture and fixtures 7 years Leasehold improvements Shorter of length of lease or life of the asset Leases The Company determines whether a contract is, or contains, a lease at inception. The Company classifies each of its leases as operating or financing considering factors such as the length of the lease term, the present value of the lease payments, the nature of the asset being leased, and the potential for ownership of the asset to transfer during the lease term. Leases with terms greater than one year are recognized on the Consolidated Balance Sheets as Right-of-use assets and Lease liabilities and are measured at the present value of the fixed payments due over the expected lease term minus the present value of any incentives, rebates or abatements expected to be received from the lessor. Options to extend a lease are typically excluded from the expected lease term as the exercise of the option is typically not reasonably certain. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis an amount equal to the lease payments over a similar term and in a similar economic environment. The Company records expense to recognize fixed lease payments on a straight-line basis over the expected lease term. Costs determined to be variable and not based on an index or rate are not included in the measurement of the lease liability and are expensed as incurred. Intangible Assets, Net The Company's intangible assets consist of licenses and purchased technology. Intangible assets with definite lives are amortized on a straight-line basis over their estimated useful lives and are reviewed periodically for impairment. Intangible assets related to in-process research and development (IPR&D) projects are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. During the period the assets are considered indefinite-lived, they will not be amortized but will be tested for impairment. If and when development is complete, which generally occurs when regulatory approval to market a product is obtained, the associated assets are deemed finite-lived and are amortized over a period that best reflects the economic benefits provided by these assets. Intangible Assets with Cost Accumulation Model In 2014, the Company entered into a license agreement with Mission Pharmacal in which the Company obtained the exclusive right to license the trademark of Thiola. The acquisition of the Thiola license qualified as an asset acquisition under the principles of ASC 805, Business Combinations ("ASC 805") in effect at the time of acquisition. The license agreement requires the Company to make royalty payments based on net sales of Thiola. The liability for royalties in excess of the annual contractual minimum is recognized in the period in which the royalties become probable and estimable, which is typically in the period corresponding with the respective sales. The Company records an offsetting increase to the cost basis of the asset under the cost accumulation model. The additional cost basis is subsequently amortized over the remaining life of the license agreement. Consistent with all prior periods since Thiola was acquired, the Company has not accrued any liability for royalties in excess of the annual contractual minimum at December 31, 2021 as such royalties are not yet probable and estimable. Goodwill Goodwill represents the excess of purchase price over fair value of net assets acquired in a business combination and is not amortized. Goodwill is subject to impairment testing at least annually or when a triggering event occurs that could indicate a potential impairment. The Company has one segment and one reporting unit and as such reviews goodwill for impairment at the consolidated level. F-12 Table of Contents For the years ended December 31, 2021, 2020 and 2019 there were no impairments to goodwill. Impairment of Long-Lived Assets The Company's long-lived assets are primarily comprised of intangible assets, right-of-use assets, and property and equipment. The Company evaluates its finite-lived intangible assets, right-of-use assets, and property and equipment for impairment whenever events or changes in circumstances indicate the carrying value of an asset or group of assets may not be recoverable. If these circumstances exist, recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to future undiscounted net cash flows expected to be generated by the use and eventual disposition of the asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. In addition, indefinite-lived intangible assets, comprised of IPR&D, are reviewed for impairment annually and whenever events or changes in circumstances indicate that it is more likely than not that the asset is impaired by comparing the fair value to the carrying value of the asset. To determine the fair value of the asset, the Company used the multi-period excess earnings method of the income approach. The more significant assumptions inherent in the application of this method include: the amount and timing of projected future cash flows (including revenue, cost of sales, research and development costs, and sales and marketing expenses), and the discount rate selected to measure the risks inherent in the future cash flows. There were no impairments related to finite-lived intangible assets in the years ended December 31, 2021, 2020 and 2019. Contingent Consideration The Company records contingent consideration resulting from a business combination at its fair value on the acquisition date. On a quarterly basis, the Company revalues these obligations and record increases or decreases from their fair value as an adjustment to the consolidated statement of operations. Changes to contingent consideration obligations can result from changes to discount rates, accretion of the liability due to the passage of time, changes in revenue forecasts and changes in our estimates of the likelihood or timing of achieving commercial revenue milestones. Income Taxes The Company follows ASC 740, Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the asset will not be realized. The standard addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company’s policy is to record estimated interest and penalty related to the underpayment of income taxes or unrecognized tax benefits as a component of its income tax provision. Foreign Currency Translation Functional and presentation currency Items included in the financial statements of each entity comprising the Company are measured using the currency of the primary economic environment in which the entity operates (the functional currency). Transactions and balances Foreign currency transactions in each entity comprising the Company are remeasured into the functional currency of the entity using the exchange rates prevailing at the respective transaction dates. Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized within Other operating expense, net except for changes related to the liability related to the sale of future royalties which are recorded in Other non-operating (income) expense, net in the Consolidated Statements of Operations and Comprehensive Loss. The results and financial position of the Company that have a functional currency different from the US dollar are translated as follows: a. assets and liabilities presented are translated at the closing exchange rate as of December 31, 2021 and 2020; F-13 Table of Contents b. income and expenses for the statements of operations and comprehensive loss are translated at average exchange rates that are relevant for the respective periods for which the income and expenses occurred; and c. significant transactions use the exchange rate on the date of the transaction; All resulting exchange differences arising from such translations are recognized directly in comprehensive income and presented as a separate component of equity. Reclassifications Certain reclassifications have been made to the prior year financial statements in order to conform to the current year’s presentation, including reclassifying operating lease right of use assets and operating lease liabilities from other assets and other liabilities, respectively on the Consolidated Balance Sheets. These reclassifications did not have an impact on total assets or total liabilities of the Consolidated Balance Sheets. Patents The Company expenses external costs, such as filing fees and associated attorney fees, incurred to obtain issued patents and patent applications pending. The Company also expenses costs associated with maintaining and defending patents subsequent to their issuance in the period incurred. Legal Contingencies The Company may, from time to time, be involved in various claims and legal actions that arise in the ordinary course of business. The Company accrues for legal contingencies when it is determined probable that a liability has been incurred and the amount of the loss can be reasonably estimated. See Note 11 for further discussion. Recently Issued Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial position or results of operations upon adoption. In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. The ASU includes amendments to the guidance on convertible instruments and the derivative scope exception for contracts in an entity's own equity and simplifies the accounting for convertible instruments which include beneficial conversion features or cash conversion features by removing certain separation models in Subtopic 470-20. Additionally, the ASU will require entities to use the "if-converted" method when calculating diluted earnings per share for convertible instruments. The ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The new standard will impact the Company's accounting for its Convertible Senior Notes Due 2025 (2025 Notes), discussed in Note 7, which are currently accounted for using the cash conversion model applied under ASC 470-20, Debt with Conversion and Other Options ("ASC 470-20"). Under the new guidance, the Company intends to apply the modified retrospective method as the transition approach at adoption, which will result in adjustments to the January 1, 2022 opening balances of convertible debt, additional paid-in capital, and accumulated deficit. Additionally, from January 1, 2022, the Company will no longer incur non-cash interest expense for the amortization of debt discount resulting in lower interest expense for the 2025 Notes. NOTE 3. REVENUE RECOGNITION Product Sales, Net Product sales consist of Bile Acid products (Chenodal and Cholbam) and Tiopronin products (Thiola and Thiola EC). The Company sells its products through direct-to-patient distributors worldwide, with the United States and Canada representing 98 % and 2 % of net product sales, respectively, based on the product shipment destination. Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs upon delivery to the customer. The Company receives payments from its product sales based on terms that generally are within 30 days of delivery of product to the patient. Deductions from Revenue Revenues from product sales are recorded at the net sales price, which includes provisions resulting from discounts, rebates and co-pay assistance that are offered to its customers, health care providers, payers and other indirect customers relating to the Company’s sales of its products. These F-14 Table of Contents provisions are based on the amounts earned or to be claimed on the related sales and are classified as a reduction of accounts receivable (if the amount is payable to the customer) or as a current liability (if the amount is payable to a party other than a customer). Where appropriate, these reserves take into consideration the Company’s historical experience, current contractual and statutory requirements and specific known market events and trends. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. If actual results in the future vary from the Company’s provisions, the Company will adjust the provision, which would affect net product revenue and earnings in the period such variances become known. Our historical experience is that such adjustments have been immaterial. Government Rebates: We calculate the rebates that we will be obligated to provide to government programs and deduct these estimated amounts from our gross product sales at the time the revenues are recognized. Allowances for government rebates and discounts are established based on actual payer information, which is reasonably estimated at the time of delivery, and the government-mandated discounts applicable to government-funded programs. Rebate discounts are included in accrued expenses in the accompanying Consolidated Balance Sheets. Commercial Rebates: We calculate the rebates that we incur due to contracts with certain commercial payers and deduct these amounts from our gross product sales at the time the revenues are recognized. Allowances for commercial rebates are established based on actual payer information, which is reasonably estimated at the time of delivery. Rebate discounts are included in accrued expenses in the accompanying Consolidated Balance Sheets. Prompt Pay Discounts: We offer discounts to certain customers for prompt payments. We accrue for the calculated prompt pay discount based on the gross amount of each invoice for those customers at the time of sale. Product Returns: Consistent with industry practice, we offer our customers a limited right to return product purchased directly from the Company, which is principally based upon the product’s expiration date. Generally, shipments are only made upon a patient prescription thus returns are minimal. Co-pay Assistance: We offer a co-pay assistance program, which is intended to provide financial assistance to qualified commercially insured patients with prescription drug co-payments required by payers. The calculation of the accrual for co-pay assistance is based on an identification of claims and the cost per claim associated with product that has been recognized as revenue. The following table summarizes net product sales for the twelve months ended December 31, 2021, 2020 and 2019 ( in thousands ): Twelve Months Ended December 31, 2021 2020 2019 Tiopronin products $ 115,122 $ 108,883 $ 95,638 Bile acid products 95,654 89,438 79,700 Total net product revenue $ 210,776 $ 198,321 $ 175,338 NOTE 4. COLLABORATION AND LICENSE AGREEMENTS On September 15, 2021, the Company entered into a license and collaboration agreement (“License Agreement”) with Vifor (International) Ltd. (“Vifor Pharma”), pursuant to which the Company granted an exclusive license to Vifor Pharma for the commercialization of sparsentan in Europe, Australia and New Zealand ("Licensed Territories"). Vifor Pharma also has first right of negotiation to expand the licensed territories into Canada, China, Brazil and/ or Mexico. Under the terms of the License Agreement, the Company received an upfront payment of $ 55.0 million and will be eligible for up to $ 135.0 million in aggregate regulatory and market access related milestone payments and up to $ 655.0 million in aggregate sales-based milestone payments for a total potential value of up to $ 845.0 million. The Company is also entitled to receive tiered double-digit royalties of up to 40 percent of annual net sales of sparsentan in the Licensed Territories. Under the License Agreement, Vifor Pharma will be responsible for all commercialization activities in the Licensed Territories. The Company remains responsible for the worldwide clinical development of sparsentan through regulatory approval as defined and will retain all rights to sparsentan in the United States and rest of world outside of the Licensed Territories. Development costs for any post regulatory approval development activities, subject to approval by both parties, will be borne by the Company and Vifor Pharma as defined, respectively. The License Agreement will remain in effect, unless terminated earlier, until the expiration of all royalty terms for sparsentan in the licensed territories. Each party has the right to terminate the License Agreement for the other party’s uncured material breach, insolvency or if the time required for performance under the License Agreement by the other party is extended due to a force majeure event that continues for six months or more. The Company assessed the License Agreement and determined that it meets both criteria to be considered a collaborative agreement within the Scope of ASC 808, Collaborative Arrangements ("ASC 808") of active participation by both parties and exposures to significant risks and rewards dependent on the commercial success of the activities. Both parties participate on joint steering and other committees overseeing the collaboration F-15 Table of Contents activities. Also, both parties are exposed to significant risks and rewards based on the economic outcomes of regulatory approvals and commercialization of sparsentan. The Company determined the transaction price under the License Agreement totaled $ 55.0 million, consisting of the fixed non-refundable upfront payment. The variable regulatory and access related milestones were excluded from the transaction price given the substantial uncertainty related to their achievement. Sales-based milestone payments and royalties on net sales were excluded from the transaction price and will be recognized at the later of when the related sales occur or when the performance obligation to which the sales-based milestone or royalty has been allocated have been satisfied. The Company concluded that Vifor Pharma represented a customer and applied relevant guidance from ASC 606 to evaluate the accounting under the License Agreement. In accordance with this guidance, the Company concluded that the promise to grant the license is distinct from the promise to provide clinical development services resulting in two performance obligations as the license has stand-alone functionality due to sparsentan being a later stage asset and the clinical development services are primarily related to achieving regulatory approval. As a result, the Company allocated $ 12.0 million of the transaction price, based on the performance obligations' relative standalone selling prices, to the license. The remaining $ 43.0 million of the transaction price was allocated to the clinical development activities and recorded as deferred revenue, which will be recognized over the development period based upon the ratio of costs incurred to date to the total estimated costs. The Company recognized a total of $ 16.7 million in license and collaboration revenue for the twelve months ended December 31, 2021, which consisted of $ 12.0 million from the license and $ 4.7 million from the clinical development activities, based upon the ratio of costs incurred to total estimated costs. Deferred revenue related to the clinical development activities as of December 31, 2021 was $ 36.6 million. Of this amount, $ 16.3 million was classified as current as of December 31, 2021, based upon amount expected to be realized within the next year. In February 2021, the Company entered into a limited co-promotion agreement with Albireo Pharma, Inc. ("Albireo"), whereby the Company's Cholbam dedicated sales representatives will dedicate a portion of their efforts to promoting Albireo's product, Bylvay (odevixibat), in the United States. The initial term of the arrangement is two years from the July 2021 launch of Bylvay, terminable at will by either party after one year following launch. For the year ended December 31, 2021, the Company recognized $ 1.8 million, offset against selling, general, and administrative expenses. NOTE 5. ACQUISITIONS Acquisition of Orphan Technologies Limited In November 2020, the Company completed the acquisition of Orphan Technologies Limited (“Orphan”), including Orphan’s rare metabolic disorder drug pegtibatinase (TVT-058). The Company acquired Orphan by purchasing all of the outstanding shares. In exchange for the shares, the Company made an upfront cash payment at closing of $ 90.0 million plus closing adjustments, net liabilities assumed, and transaction expenses of $ 1.2 million, $ 1.8 million, and $ 4.2 million, respectively. Under the Agreement, the Company has also agreed to make contingent cash payments up to an aggregate of $ 427.0 million based on the achievement of certain development, regulatory and commercialization events as set forth in the Agreement, as well as additional tiered mid-single digit royalty payments based upon future net sales of any pegtibatinase products in the US and Europe, subject to certain reductions as set forth in the Agreement, and a contingent payment in the event a pediatric rare disease voucher for any pegtibatinase product is granted. The Company applied the principles of ASC 805 in determining the proper accounting treatment for the acquisition. Substantially all of the value of the assets acquired was concentrated within pegtibatinase, and as of the acquisition date, the Company did not anticipate any economic benefit to be derived from pegtibatinase other than the primary indication. Accordingly, the transaction was treated as an asset acquisition with amounts charged to expense for the acquired in-process research and development on the date of acquisition. The Company incurred $ 97.1 million in expenses related to the Orphan acquisition, which was recognized in 2020. In accordance with ASC 450, contingent cash payments will be accrued for when it is probable that a liability has been incurred and the amount can be reasonably estimated. As of December 31, 2021, no contingent cash payments have been accrued. F-16 Table of Contents NOTE 6. MARKETABLE DEBT SECURITIES The Company's marketable debt securities as of December 31, 2021 and 2020 were comprised of available-for-sale corporate and government debt securities. These securities are carried at fair value, with the unrealized gains and losses reported in accumulated other comprehensive income (loss), unless an impairment is determined to be the result of credit-related factors or the Company intends to sell the security or it is more likely than not that the Company will be required to sell the security before recovery. The amortized cost of marketable debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion is included in interest income. Realized gains and losses and declines in value that are determined to be the result of credit losses, if any, on available-for-sale securities are included in other income or expense. Unrealized losses that are determined to be credit-related are also recorded as an allowance against the amortized cost basis. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income. All available-for-sale securities are classified as current assets, even if the maturity when acquired by the Company is greater than one year due to the ability to liquidate within the next 12 months. Marketable debt securities consist of the following ( in thousands ): As of December 31, 2021 2020 Marketable debt securities: Commercial paper $ 127,379 $ 135,145 Corporate debt securities 233,319 98,646 Securities of government sponsored entities 26,431 43,026 Total marketable debt securities $ 387,129 $ 276,817 The following is a summary of short-term marketable debt securities classified as available-for-sale as of December 31, 2021 ( in thousands ): Contractual Maturity (in years) Amortized Cost Unrealized Gains Unrealized Losses Aggregate Estimated Fair Value Marketable debt securities: Commercial paper Less than 1 $ 127,435 $ — $ ( 57 ) $ 127,378 Corporate debt securities Less than 1 113,001 — ( 97 ) 112,904 Securities of government-sponsored entities Less than 1 21,909 — ( 5 ) 21,904 Total maturity less than 1 year 262,345 — ( 159 ) 262,186 Corporate debt securities 1 to 2 120,705 — ( 289 ) 120,416 Securities of government-sponsored entities 1 to 2 4,549 — ( 22 ) 4,527 Total maturity 1 to 2 years 125,254 — ( 311 ) 124,943 Total available-for-sale marketable debt securities $ 387,599 $ — $ ( 470 ) $ 387,129 F-17 Table of Contents The following is a summary of short-term marketable debt securities classified as available-for-sale as of December 31, 2020 ( in thousands ): Contractual Maturity (in years) Amortized Cost Unrealized Gains Unrealized Losses Aggregate Estimated Fair Value Marketable debt securities: Commercial paper Less than 1 $ 135,161 $ 1 $ ( 17 ) $ 135,145 Corporate debt securities Less than 1 92,906 723 — 93,629 Securities of government-sponsored entities Less than 1 43,031 — ( 5 ) 43,026 Total maturity less than 1 year 271,098 724 ( 22 ) 271,800 Corporate debt securities 1 to 2 5,013 4 — 5,017 Total maturity 1 to 2 years 5,013 4 — 5,017 Total available-for-sale marketable debt securities $ 276,111 $ 728 $ ( 22 ) $ 276,817 During 2021, the Company had less than $ 0.1 million in realized gains on marketable debt securities. During 2020, the Company had $ 0.1 million in realized gains on marketable debt securities. The Company received proceeds from the sale or maturity of marketable debt securities of $ 433.6 million, $ 273.5 million and $ 259.1 million for 2021, 2020 and 2019, respectively. The primary objective of the Company’s investment portfolio is to preserve capital and liquidity while enhancing overall returns. The Company’s investment policy limits interest-bearing security investments to certain types of instruments issued by institutions with primarily investment grade credit ratings and places restrictions on maturities and concentration by asset class and issuer. The Company reviews the available-for-sale marketable debt securities for declines in fair value below the cost basis each quarter. For any security whose fair value is below its amortized cost basis, the Company first evaluates whether it intends to sell the impaired security, or will otherwise be more likely than not required to sell the security before recovery. If either are true, the amortized cost basis of the security is written down to its fair value at the reporting date. If neither circumstance holds true, the Company assesses whether any portion of the unrealized loss is a result of a credit loss. Any amount deemed to be attributable to credit loss is recognized in the income statement, with the amount of the loss limited to the difference between fair value and amortized cost and recorded as an allowance for credit losses. The portion of the unrealized loss related to factors other than credit losses is recognized in other comprehensive income (loss). The following is a summary of available-for-sale marketable debt securities in an unrealized loss position with no credit losses reported as of December 31, 2021 ( in thousands ): Less Than 12 Months 12 Months or Greater Total Description of Securities Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Commercial paper $ 122,380 $ 57 $ — $ — $ 122,380 $ 57 Corporate debt securities 231,879 386 — — 231,879 386 Securities of government-sponsored entities 26,431 27 — — 26,431 27 Total $ 380,690 $ 470 $ — $ — $ 380,690 $ 470 The following is a summary of available-for-sale marketable debt securities in an unrealized loss position with no credit losses reported as of December 31, 2020 ( in thousands ): Less Than 12 Months 12 Months or Greater Total Description of Securities Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Commercial paper $ 112,148 $ 17 $ — $ — $ 112,148 $ 17 Securities of government-sponsored entities 43,026 5 — — 43,026 5 Total $ 155,174 $ 22 $ — $ — $ 155,174 $ 22 As of December 31, 2021 and December 31, 2020, the amortized cost of the available-for-sale marketable debt securities in an unrealized loss position was $ 381.2 million and $ 155.2 million, respectively. F-18 Table of Contents As of December 31, 2021 and December 31, 2020, the Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis. The Company does not believe the unrealized losses incurred during the period are due to credit-related factors. Liquidity issues that arose from economic circumstances surrounding the COVID-19 pandemic have eased and the credit ratings of the securities held remain of the highest quality. While certain securities in the portfolio may be downgraded momentarily, the Federal Reserve has allowed institutions to continue to issue debt where there is need, with the government itself purchasing such securities. Moreover, the Company continues to receive payments of interest and principal as they become due, and our expectation is that those payments will continue to be received timely. Uncertainty surrounding the COVID-19 pandemic, as well as other factors unknown to us at this time, may cause actual results to differ and require adjustments to the Company’s estimates and assumptions in the future. NOTE 7. CONVERTIBLE SENIOR NOTES Convertible Senior Notes Due 2025 On September 10, 2018, the Company completed its registered underwritten public offering of the "2025 Notes" and entered into a base indenture and supplemental indenture agreement ("2025 Indenture") with respect to the 2025 Notes. The 2025 Notes will mature on September 15, 2025 ("Maturity Date”), unless earlier repurchased, redeemed, or converted. The 2025 Notes are senior unsecured obligations of the Company and bear interest at an annual rate of 2.50 %, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2019. The composition of the Company’s 2025 Notes are as follows ( in thousands ): December 31, 2021 December 31, 2020 2.50 % convertible senior notes due 2025 $ 276,000 $ 276,000 Unamortized debt discount ( 46,045 ) ( 56,384 ) Unamortized debt issuance costs ( 3,374 ) ( 4,277 ) Total 2025 Notes, net of unamortized debt discount and debt issuance costs $ 226,581 $ 215,339 The net proceeds from the issuance of the 2025 Notes were approximately $ 267.2 million, after deducting commissions and the offering expenses payable by the Company. A portion of the net proceeds from the 2025 Notes were used by the Company to repurchase $ 23.4 million aggregate principal amount of its 4.5 % senior convertible notes due in 2019 in privately-negotiated transactions. Holders may convert their 2025 Notes at their option only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2018 (and only during such calendar quarter), if the last reported sale price per share of the Company’s common stock for each of at least 20 trading days, whether or not consecutive, during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter exceeds 130 % of the conversion price on the applicable trading day; (2) during the five consecutive business days immediately after any 10 consecutive trading day period (“measurement period”) if the trading price per $1,000 principal amount of 2025 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on the Company’s common stock; (4) if the Company calls the 2025 Notes for redemption; and (5) at any time from, and including, May 15, 2025 until the close of business on the scheduled trading day immediately before the Maturity Date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at the Company’s election, based on the applicable conversion rate. The initial conversion rate for the 2025 Notes is 25.7739 shares of the Company’s common stock per $1,000 principal amount of 2025 Notes, which represents an initial conversion price of approximately $ 38.80 per share. If a “make-whole fundamental change” (as defined in the 2025 Indenture) occurs, then the company will, in certain circumstances, increase the conversion rate for a specified period of time. The 2025 Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after September 15, 2022 and, in the case of any partial redemption, on or before the 40th scheduled trading day before the Maturity Date, at a cash redemption price equal to the principal amount of the 2025 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price on each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice. If a fundamental change (as defined in the 2025 Indenture) occurs, then, subject to certain exceptions, holders may require the Company to repurchase their 2025 Notes at a cash repurchase price equal to the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. As of December 31, 2021, the 2025 Notes had a market price of $ 1,089 per $1,000 principal amount, or $ 300.6 million. In the event of conversion, holders would forgo all future interest payments, any unpaid accrued interest and the possibility of further stock price appreciation. Upon the receipt of conversion requests, the settlement of the 2025 Notes will be paid pursuant to the terms of the 2025 Indenture. In the event that all of the 2025 F-19 Table of Contents Notes are converted, the Company would be required to repay the $ 276.0 million in principal value and any conversion premium in any combination of cash and shares of its common stock at the Company’s option. In addition, calling the 2025 Notes for redemption will constitute a “make whole fundamental change.” The 2025 Notes are the Company’s general unsecured obligations that rank senior in right of payment to all of its indebtedness that is expressly subordinated in right of payment to the 2025 Notes, and equal in right of payment to the Company’s unsecured indebtedness. The 2025 Notes are currently classified on the Company’s consolidated balance sheet at December 31, 2021 as long-term convertible debt. Under ASC 470-20, an entity must separately account for the liability and equity components of convertible debt instruments (such as the 2025 Notes) that may be settled entirely or partially in cash upon conversion, in a manner that reflects the issuer’s economic interest cost. The liability component of the instrument is valued in a manner that reflects the market interest rate for a similar nonconvertible instrument at the date of issuance. The initial carrying value of the liability component was $ 198.6 million. The equity component of $ 77.4 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 2025 Notes and was recorded in additional paid-in capital on the Consolidated Balance Sheets at the issuance date. That equity component is treated as a discount on the liability component of the 2025 Notes, which is amortized over the seven-year term of the 2025 Notes using the effective interest rate method. The equity component is not re-measured as long as it continues to meet the conditions for equity classification. The Company allocated the total transaction costs of approximately $ 8.8 million related to the issuance of the 2025 Notes to the liability and equity components of the 2025 Notes based on their relative values. Transaction costs attributable to the liability component are amortized to interest expense over the seven-year term of the 2025 Notes, and transaction costs attributable to the equity component are netted with the equity component in stockholders’ equity. The effective interest rate on the liability components of the 2025 Notes for the years ended December 31, 2021, 2020 and 2019 was 7.7 %. The following table sets forth total interest expense recognized related to the 2025 Notes ( in thousands ): Twelve Months Ended December 31, 2021 2020 2019 Contractual interest expense $ 6,900 $ 6,900 $ 6,900 Amortization of debt discount 10,339 9,578 8,874 Amortization of debt issuance costs 903 900 896 Total interest expense for the 2025 Notes $ 18,142 $ 17,378 $ 16,670 The 2025 Notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, the issuance of other indebtedness or the issuance or repurchase of securities by the Company. The 2025 Indenture contains customary events of default with respect to the 2025 Notes, including that upon certain events of default, 100 % of the principal and accrued and unpaid interest on the 2025 Notes will automatically become due and payable. Interest Expense Total interest expense recognized for the years ended December 31, 2021, 2020 and 2019 was $ 20.1 million, $ 19.1 million and $ 18.8 million, respectively. NOTE 8. FAIR VALUE MEASUREMENTS The Company accounts for financial instruments in accordance with ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below: Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2 – Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly; and Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. F-20 Table of Contents The valuation techniques used to measure the fair value of the Company’s debt securities and all other financial instruments, all of which have counter-parties with high credit ratings, were valued based on quoted market prices or model driven valuations using significant inputs derived from or corroborated by observable market data. Based on the fair value hierarchy, the Company classified debt securities within Level 2. The Company acquired two businesses, related to the Cholbam and Chenodal products, whose purchase price included potential future payments that are contingent on the achievement of certain milestones and percentages of future net sales derived from the products acquired. The Company recorded contingent consideration liabilities at their fair value on the acquisition date and revalues them at the end of each reporting period. In estimating the fair value of the Company’s contingent consideration, the Company uses a Monte Carlo Simulation. The determination of the contingent consideration liabilities requires significant judgments including the appropriateness of the valuation model and reasonableness of estimates and assumptions included in the forecasts of future net sales and the discount rates applied to such forecasts. Changes in these estimates and assumptions could have a significant impact on the fair value of the contingent consideration liabilities. Discount rates used to determine the fair value at December 31, 2021 and 2020 are as follows: Revenue Discount Payment Discount Cholbam Chenodal December 31, 2021 6.25 % 7.25 % 6.48 % December 31, 2020 6.50 % 8.50 % 7.45 % Based on the fair value hierarchy, the Company classified the fair value of contingent consideration within Level 3 because valuation inputs are based on projected revenues discounted to a present value. Financial instruments with carrying values approximating fair value include cash and cash equivalents, accounts receivable, and accounts payable, due to their short-term nature. As of December 31, 2021, the fair value of the Company's 2.5 % Convertible Senior Notes due 2025 was $ 300.6 million, which was estimated utilizing market quotations, and are considered Level 2. The following table presents the Company’s asset and liabilities, measured and recognized at fair value on a recurring basis, classified under the appropriate level of the fair value hierarchy as of December 31, 2021 (in thousands): As of December 31, 2021 Fair Value Hierarchy at December 31, 2021 Total carrying and estimated fair value Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Asset: Cash and Cash Equivalents $ 165,753 $ 165,753 $ — $ — Marketable debt securities, available-for-sale 387,129 — 387,129 — Total $ 552,882 $ 165,753 $ 387,129 $ — Liabilities: Business combination-related contingent consideration $ 67,100 $ — $ — $ 67,100 Total $ 67,100 $ — $ — $ 67,100 The following table presents the Company’s assets and liabilities that are measured and recognized at fair value on a recurring basis, classified under the appropriate level of the fair value hierarchy as of December 31, 2020 (in thousands): As of December 31, 2020 Fair Value Hierarchy at December 31, 2020 Total carrying and estimated fair value Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Asset: Cash and Cash Equivalents $ 84,772 $ 84,772 $ — $ — Marketable debt securities, available-for-sale 276,817 — 276,817 — Total $ 361,589 $ 84,772 $ 276,817 $ — Liabilities: Business combination-related contingent consideration $ 65,100 $ — $ — $ 65,100 Total $ 65,100 $ — $ — $ 65,100 F-21 Table of Contents The following table sets forth a summary of changes in the estimated fair value of the Company's Level 3 business combination-related contingent consideration for the years ended December 31, 2021 and 2020 (in thousands) : Fair Value Measurements of Acquisition-Related Contingent Consideration (Level 3) 2021 2020 Balance at January 1, $ 65,100 $ 70,900 Changes in the fair value of contingent consideration 22,260 3,655 Contractual payments ( 17,444 ) ( 7,003 ) Contractual payments included in accrued liabilities at December 31 ( 2,700 ) ( 2,488 ) Foreign currency impact ( 116 ) 36 Balance at December 31, $ 67,100 $ 65,100 NOTE 9. INTANGIBLE ASSETS Ligand License Agreement In 2013, the Company entered into a $ 2.5 million agreement with Ligand for a worldwide sublicense to develop, manufacture and commercialize a drug technology compound including sparsentan (the “Ligand License Agreement”). The cost of the Ligand License Agreement, which is presented net of amortization in the accompanying Consolidated Balance Sheets in intangible assets, net, is being amortized to research and development on a straight-line basis through September 30, 2023. As consideration for the license, we are required to make substantial payments upon the achievement of certain milestones, totaling up to $ 114.1 million. Through 2021, we have made milestone payments to Ligand of $ 7.2 million under the terms of the Ligand License Agreement. Should we commercialize sparsentan or any products containing related compounds, we will be obligated to pay to Ligand an escalating annual royalty between 15 % and 17 % of net sales of all such products. In September 2015, the Ligand License Agreement was amended to facilitate sub-licensing in Asia-Pacific. As consideration for the amendment the Company paid $ 1.0 million. In March 2018, the Ligand License Agreement was amended to update certain development milestones set forth in the Sublicense Agreement to comport with the current development timeline for sparsentan. As consideration, the Company paid Ligand $ 4.6 million, which replaced the amount that would have been due upon initiation of the first Phase 3 trial for sparsentan. Manchester Pharmaceuticals LLC In 2014, the Company acquired intangible assets with finite lives related to the Chenodal product rights, trade names, and customer relationships with the values of $ 67.8 million, $ 0.2 million, and $ 0.4 million, respectively. The useful lives related to the acquired product rights, trade names, and customer relationships are expected to be approximately 16 , 1 and, 10 years, respectively. Amortization of product rights, trade names and customer relationships are being recorded in selling, general and administrative expense over their respective lives. Thiola License Agreement The Company entered into a license agreement with Mission Pharmacal in 2014, in which the Company obtained an exclusive, royalty-bearing license to market, sell and commercialize Thiola (tiopronin) in the United States and Canada, and a non-exclusive license to use know-how relating to Thiola to the extent necessary to market Thiola. The initial term of the license is 10 years and will automatically renew thereafter for periods of one year . The acquisition of the Thiola license qualified as an asset acquisition under the principles of ASC 805 in effect at the time of acquisition. The license agreement requires the Company to make royalty payments based on net sales of Thiola. The liability for royalties in excess of the annual contractual minimum is recognized in the period in which the royalties become probable and estimable, which is typically in the period corresponding with the respective sales. The Company records an offsetting increase to the cost basis of the asset under the cost accumulation model. The additional cost basis is subsequently amortized over the remaining life of the license agreement. The Company paid Mission an up-front license fee of $ 3 million and will pay guaranteed minimum royalties during each calendar year the greater of $ 2 million or twenty percent ( 20 %) of the Company’s net sales of Thiola through May 28, 2024. In November 2017, the Company amended its agreement with Mission to extend the term of the current exclusive U.S. and Canada licensing agreement by an additional five years , to 2029. The royalty rate and guaranteed minimum payment were also extended through the new agreement term. Upon execution of the amendment, the Company capitalized an additional $ 5.9 million in intangible assets and recorded a guaranteed minimum liability for the same amount. F-22 Table of Contents In November 2018, the Company amended its agreement with Mission to remove all territorial restrictions on our license. As consideration for the expanded territory the Company paid an up-front fee of $ 0.3 million and will pay guaranteed minimum royalties equaling the greater of $ 0.1 million or 20 % of our Thiola net sales generated outside of the United States during each calendar year. Upon execution of the amendment, the Company capitalized an additional $ 1.0 million in intangible assets and recorded a guaranteed minimum liability of $ 0.7 million related to this amendment. The present value of guaranteed minimum royalties payable using a discount rate of ranging from approximately 7 % to 11 % based on the Company’s then borrowing rate is $ 12.3 million and $ 13.4 million as of December 31, 2021 and 2020, respectively. As of December 31, 2021, the guaranteed minimum royalty current and long-term liability was approximately $ 2.1 million and $ 10.2 million, respectively, and is recorded as Other Liability in the Consolidated Balance Sheet. As of December 31, 2020, the guaranteed minimum royalty current and long-term liability was approximately $ 2.1 million and $ 11.3 million, respectively, and is recorded as Other Liability in the Consolidated Balance Sheet. The Company has capitalized $ 123.3 million related to the Thiola intangible asset which consists of the up-front license fee, professional fees, present value of the guaranteed minimum royalties and any additional payments through 2021 in excess of minimum royalties. In 2021 the Company added $ 19.4 million to the intangible asset related to the royalties in excess of the minimum. Consistent with all prior periods since Thiola was acquired, the Company has not accrued any liability for royalties in excess of the annual contractual minimum at December 31, 2021, as such royalties are not yet probable and estimable. There are 7.4 years remaining in the term of the license agreement. Cholbam Asset Purchase On March 31, 2015, the Company completed its acquisition from Asklepion of all worldwide rights, titles and ownership of Cholbam, including all related contracts, data assets, intellectual property, regulatory assets and the PRV. The Company capitalized $ 75.9 million and $ 7.3 million for the U.S. and international economic interest, respectively. Amortizable intangible assets as of December 31, 2021 ( in thousands ): Useful Life Gross Carrying Amount Accumulated Amortization Net Book Value Thiola License 15 $ 123,316 $ ( 37,992 ) $ 85,324 Chenodal Product Rights 16 67,849 ( 32,938 ) 34,911 Economic Interest - U.S. revenue Cholbam 10 75,900 ( 51,258 ) 24,642 Ligand License 11 7,900 ( 5,875 ) 2,025 Economic Interest - International revenue Cholbam 10 7,982 ( 7,483 ) 499 Manchester Customer Relationships 10 403 ( 313 ) 90 Internal use software 5 207 ( 199 ) 8 Total $ 283,557 $ ( 136,058 ) $ 147,499 Amortizable intangible assets as of December 31, 2020 ( in thousands ): Useful Life Gross Carrying Amount Accumulated Amortization Net Book Value Thiola License 15 $ 103,992 $ ( 28,117 ) $ 75,875 Chenodal Product Rights 16 67,849 ( 28,700 ) 39,149 Economic Interest - U.S. revenue Cholbam 10 75,900 ( 43,675 ) 32,225 Ligand License 11 7,900 ( 4,717 ) 3,183 Economic Interest - International revenue Cholbam 10 8,250 ( 5,673 ) 2,577 Manchester Customer Relationships 10 403 ( 273 ) 130 Internal use software 5 207 ( 157 ) 50 Manchester trade name 1 175 ( 175 ) — Total $ 264,676 $ ( 111,487 ) $ 153,189 The following table summarizes amortization expense for the twelve months ended December 31, 2021, 2020 and 2019 ( in thousands ): 2021 2020 2019 Research and development $ 1,158 $ 1,162 $ 1,158 Selling, general and administrative 23,788 21,275 18,549 Total amortization expense $ 24,946 $ 22,437 $ 19,707 F-23 Table of Contents As of December 31, 2021, amortization expense for the next five years and thereafter is expected to be as follows ( in thousands ): 2022 $ 25,040 2023 24,241 2024 23,408 2025 17,621 2026 15,751 Thereafter 41,438 Total $ 147,499 Goodwill As of December 31, 2021 and 2020, the Company had goodwill of $ 0.9 million. NOTE 10. ACCRUED EXPENSES Accrued expenses consist of the following at December 31, 2021 and 2020 ( in thousands ): 2021 2020 Research and development $ 26,841 $ 10,166 Compensation related costs 25,998 17,912 Accrued royalties and contingent consideration 8,402 7,857 Government rebates payable 7,493 10,707 Miscellaneous accrued 3,302 6,207 Selling, general and administrative 3,144 3,944 Total accrued expenses $ 75,180 $ 56,793 NOTE 11. COMMITMENTS AND CONTINGENCIES Contingencies In October 2021, our Kolbam distributor in France notified us that the French authorities are asking for reimbursement for a portion of Kolbam sales in France during the periods from 2015-2020. During this period, the Company had aggregate revenues from sales of Kolbam in France of approximately $ 8.0 million. At this time, the Company is not able to estimate the potential liability that may be incurred, if any. Legal Proceedings From time to time in the normal course of business, the Company is subject to various legal matters such as threatened or pending claims or litigation. Although the results of claims and litigation cannot be predicted with certainty, the Company does not believe it is a party to any claim or litigation the outcome of which, if determined adversely to it, would individually or in the aggregate be reasonably expected to have a material adverse effect on its results of operations or financial condition. NOTE 12. STOCKHOLDERS’ EQUITY Common Stock The Company is currently authorized to issue up to 200,000,000 shares of $ 0.0001 par value common stock. All issued shares of common stock are entitled to vote on a 1 share/1 vote basis. Preferred Stock The Company is currently authorized to issue up to 20,000,000 shares of $ 0.0001 par value preferred stock, of which 1,000 shares are designated Class "A" Preferred shares. Class A Preferred Shares are not entitled to interest, have certain liquidation preferences, special voting rights and other provisions. No preferred stock has been issued to date. F-24 Table of Contents 2015 Equity Incentive Plan On June 8, 2015, the Company's stockholders approved the 2015 Equity Incentive Plan (the "2015 Plan"). The 2015 Plan is intended as the successor to and continuation of the Company’s 2014 Incentive Compensation Plan. Stockholders approved 1.4 million new shares to be issued under the 2015 Plan, in addition to 0.6 million unallocated shares remaining available for issuance under the 2014 Incentive Compensation Plan that were added to the 2015 Plan. Options issued under the 2015 Plan will generally expire ten years from the date of grant and vest over a three-year or four-year period. On May 18, 2016, the Company's stockholders approved an amendment to the 2015 Plan (the "Amended 2015 Plan"). The amendment provides for an additional 1.6 million new shares to be issued under the Amended 2015 Plan, in addition to 0.7 million unallocated shares remaining available for issuance. The amendment also includes a provision that on or after March 21, 2016, the number of shares available for issuance under the Amended 2015 Plan will be reduced by one share for each share subject to a stock option or stock appreciation right and by 2.0 shares for each share subject to any other type of stock award issued pursuant to the Amended 2015 Plan, and any such shares will return to the share reserve at the same rates upon cancellation or other forfeiture of such awards or shares. On May 17, 2017, the Company's stockholders approved an amendment to the Amended 2015 Plan. The amendment provides for an additional 1.8 million new shares to be issued under the Amended 2015 Plan. 2018 Equity Incentive Plan On May 9, 2018, the Company's stockholders approved the 2018 Equity Incentive Plan (the "2018 Plan"). The 2018 Plan is intended as the successor to and continuation of the Amended 2015 Plan. Stockholders approved 1.8 million new shares to be issued under the 2018 Plan, in addition to 1.6 million unallocated shares remaining available for issuance under the Amended 2015 Plan that were added to the 2018 Plan. Options issued under the 2018 Plan will generally expire ten years from the date of grant and vest over a four-year period. On May 9, 2019, the Company’s stockholders approved an amendment to the 2018 Plan that increased the number of authorized shares issuable under the 2018 Plan by 2.0 million shares. On May 15, 2020, the Company's stockholders approved an amendment to the 2018 Plan that increased the number of authorized shares issuable under the 2018 Plan by 2.4 million shares. On May 14, 2021, the Company’s stockholders approved an amendment to the 2018 Plan that increased the number of authorized shares issuable under the 2018 Plan by 3.2 million shares. 2017 Employee Stock Purchase Plan The 2017 Employee Stock Purchase Plan ("2017 ESPP") originated with 380,000 shares of common stock available for issuance. Beginning on January 1, 2018, and ending on (and including) January 1, 2026, the number of shares of common stock available for issuance under the 2017 ESPP shall increase by an amount equal to the lesser of (i) one percent ( 1 %) of the total number of shares of common stock outstanding on December 31st of the preceding calendar year and (ii) 300,000 shares of common stock. Substantially all employees are eligible to participate and, through payroll deductions, can purchase shares on established dates semi-annually. The purchase price per share sold pursuant to the 2017 ESPP will be the lower of (i) 85 % of the fair market value of common stock on the first day of the offering period or (ii) 85 % of the fair market value on the purchase date. Each offering period will span up to six months . Purchases may be up to 15 % of qualified compensation, with an annual limit of $ 25,000 . The 2017 ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code. As of December 31, 2021, there were approximately 1,580,000 shares authorized and 989,052 shares reserved for future issuance under the 2017 ESPP. Stock Options The fair values of stock option grants during the years ended December 31, 2021, 2020 and 2019 were calculated on the date of grant using the Black-Scholes option pricing model. Compensation expense is recognized over the period of service, generally the vesting period. During the year ended December 31, 2021, 1,850,407 stock options were granted by the Company. The following weighted average assumptions were used in the Black-Scholes options pricing model to estimate the fair value of stock options for the specified reporting periods: F-25 Table of Contents Twelve Months Ended December 31, 2021 2020 2019 Risk free rate 0.6 % 1.5 % 2.3 % Expected volatility 59 % 64 % 68 % Expected life (in years) 6.4 6.3 6.2 Expected dividend yield — — — The risk-free interest rate was based on rates established by the Federal Reserve. The Company’s expected volatility was based on analysis of the Company’s volatility. In years prior to 2020, the assessment also took into account the volatilities of guideline companies due to limited history of the Company's own activity. The expected life of the Company’s options was determined using the Company's historical exercise activity. In years prior to 2020, the Company applied the simplified method as a result of limited historical data regarding the Company’s exercise activity. The dividend yield is based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the foreseeable future. The following table summarizes our stock option activity and related information for the year ended December 31, 2021: Weighted Average Shares Underlying Options Exercise Price Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2020 8,242,996 $ 18.97 6.43 $ 71,641 Granted 1,850,407 25.32 — — Forfeited and expired ( 427,289 ) 24.37 — — Exercised ( 779,830 ) 16.47 — 7,538 Outstanding at December 31, 2021 8,886,284 $ 20.26 6.27 $ 96,577 The following table summarizes our stock options exercisable at December 31, 2021, 2020 and 2019: Weighted Average Shares Underlying Options Exercise Price Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) 2019 4,936,995 $ 18.93 5.62 $ 4,490 2020 5,488,207 $ 19.37 5.36 $ 46,626 2021 6,011,349 $ 19.34 5.16 $ 71,063 The weighted average grant date fair value of options granted was $ 14.00 , $ 9.54 , and $ 12.11 during the years ended December 31, 2021, 2020 and 2019, respectively. The aggregate intrinsic value for outstanding options is calculated as the difference between the exercise price of the underlying awards and the closing price of the Company’s common stock of $ 31.04 , $ 27.25 and $ 14.20 as of December 31, 2021, 2020 and 2019, respectively. Unrecognized compensation cost associated with unvested stock options amounts to $ 30.0 million as of December 31, 2021, which will be expensed over a weighted average remaining vesting period of 2.5 years. Restricted Stock Units As of December 31, 2021, there was approximately $ 23.2 million of unrecognized compensation cost related to restricted stock units ("RSUs") granted. This amount is expected to be recognized over a weighted average period of 2.4 years. The following table summarizes our restricted stock unit activity for the year ended December 31, 2021: Number of RSUs Weighted Average Grant Date Fair Value Unvested December 31, 2020 1,109,942 $ 17.84 Granted 911,523 25.06 Vested ( 408,136 ) 18.08 Forfeited/cancelled ( 139,380 ) 21.62 Unvested December 31, 2021 1,473,949 $ 21.88 F-26 Table of Contents Performance-based Stock Units PSUs are subject to vest only if certain specified criteria are achieved. As of December 31, 2021, there was less than $ 0.1 million of unrecognized compensation cost related to performance-based stock units ("PSUs") granted. This amount is expected to be recognized over a weighted average period of 0.5 years. The following table summarizes our performance-based stock unit activity for the year ended December 31, 2021: Number of PSUs Weighted Average Grant Date Fair Value Unvested December 31, 2020 167,500 $ 16.48 Granted — — Vested ( 115,000 ) 15.46 Forfeited/cancelled — — Unvested December 31, 2021 52,500 $ 18.73 Share Based Compensation Total non-cash stock-based compensation expense consisted of the following for the years ended December 31, 2021, 2020 and 2019 ( in thousands ): Twelve Months Ended December 31, 2021 2020 2019 Selling, general and administrative expenses $ 18,134 $ 14,247 $ 14,195 Research and development expenses 12,632 9,367 6,910 Total $ 30,766 $ 23,614 $ 21,105 NOTE 13. NET LOSS PER COMMON SHARE Basic and diluted net loss per common share is calculated by dividing net loss applicable to common stockholders by the weighted-average number of common shares outstanding during the period. The Company’s potentially dilutive shares, which include outstanding stock options, restricted stock units, and shares issuable upon conversion of the 2025 Notes, are considered to be common stock equivalents and are not included in the calculation of diluted net loss per share because their effect is anti-dilutive. Basic and diluted net loss per share is calculated as follows (net loss amounts are stated in thousands) : For the year ended December 31, 2021 2020 2019 Shares Net loss EPS Shares Net loss EPS Shares Net loss EPS Basic and diluted loss per share 59,832,287 $ ( 180,091 ) $ ( 3.01 ) 47,539,631 $ ( 169,431 ) $ ( 3.56 ) 42,339,961 $ ( 146,427 ) $ ( 3.46 ) For the years ended December 31, 2021, 2020 and 2019, the following shares were excluded because they were anti-dilutive: For the year ended December 31, 2021 2020 2019 Convertible debt 7,113,402 7,113,402 7,632,414 Restricted stock 1,569,470 1,368,096 599,298 Options 9,214,188 8,349,310 7,644,251 Total anti-dilutive shares 17,897,060 16,830,808 15,875,963 F-27 Table of Contents NOTE 14. INCOME TAXES For financial reporting purposes, net loss before income taxes includes the following components ( in thousands ): Year Ended December 31, 2021 2020 2019 United States $ ( 124,132 ) $ ( 65,881 ) $ ( 129,452 ) Foreign* ( 55,550 ) ( 122,909 ) ( 16,996 ) Total $ ( 179,682 ) $ ( 188,790 ) $ ( 146,448 ) *Foreign losses in 2020 include charges relate to IPR&D. See Note 5 for further discussion. The components of the provision (benefit) for income taxes, in the Consolidated Statements of Operations are as follows ( in thousands ): 2021 2020 2019 Current Federal $ — $ ( 19,436 ) $ ( 319 ) State 412 74 298 Foreign ( 3 ) 3 — 409 ( 19,359 ) ( 21 ) Deferred Federal — — — State — — — — — — Total tax provision (benefit) $ 409 $ ( 19,359 ) $ ( 21 ) The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate expressed as a percentage of loss before income taxes: 2021 2020 2019 Statutory rate - federal ( 21.00 ) % ( 21.00 ) % ( 21.00 ) % State taxes, net of federal benefit ( 2.71 ) % ( 1.57 ) % ( 4.35 ) % Foreign rate differential 3.28 % 6.65 % — % IPR&D — % 6.50 % — % Federal IRS Audit settlement — % 1.62 % — % Nondeductible executive compensation 0.48 % — % — % Excess tax benefits associated with share-based awards 0.19 % — % — % Other permanent differences 0.15 % 0.09 % 0.24 % Tax credits ( 10.87 ) % ( 4.49 ) % ( 15.17 ) % Return to provision adjustments and other true-ups 2.42 % 4.88 % 0.44 % CARES Act-Net operating loss carryback — % ( 9.58 ) % — % Other 0.20 % ( 0.10 ) % 2.32 % Change in valuation allowance 28.09 % 6.75 % 37.50 % Income tax provision (benefit) 0.23 % ( 10.25 ) % ( 0.02 ) % The significant components of the Company’s deferred tax assets and liabilities as of December 31, 2021 and 2020 are as follows ( in thousands ): F-28 Table of Contents 2021 2020 Deferred Tax Assets: Net operating loss $ 38,618 $ 19,114 Research and development and other tax credits 69,213 46,294 Contingent consideration 16,726 16,311 Other accrued expenses 8,678 7,489 Stock based compensation 18,003 21,886 Charitable contributions 3,427 2,575 Intangible assets greater than book 48,801 45,520 Interest expense limitation 2,802 1,659 Operating lease liabilities 8,825 7,314 Tax basis depreciation greater than book depreciation 13 76 215,106 168,238 Deferred Tax Liabilities: Operating lease right of use assets ( 5,782 ) ( 6,544 ) Convertible debt ( 11,020 ) ( 13,868 ) ( 16,802 ) ( 20,412 ) Net deferred tax assets before valuation allowance 198,304 147,826 Valuation allowance ( 198,304 ) ( 147,826 ) Total deferred tax assets $ — $ — The Company has established a full valuation allowance against its U.S. federal, state, and foreign deferred tax assets due to the uncertainty surrounding the realization of such assets in future periods. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Management considers the scheduled reversal of deferred liabilities and tax planning strategies in making this assessment and evaluates the recoverability of the deferred tax assets as of each reporting date. At such time as it is determined that it is more likely than not that deferred assets are realizable, the valuation allowance will be reduced accordingly and recorded as a tax benefit. The Company has recorded a valuation allowance of $ 198.3 million as of December 31, 2021 to reflect the estimated amount of deferred tax assets that may not be realized. The Company increased its valuation allowance by $ 50.5 million and $ 63.1 million for the years ended December 31, 2021 and 2020, respectively. At December 31, 2021, the Company had available unused U.S. federal and state net operating loss (“NOL”) carryforwards of $ 85.8 million and $ 151.2 million, respectively, all of which are fully offset by a valuation allowance. Additionally, the Company had an interest expense limitation carryforward of $ 12.6 million that is fully offset by a valuation allowance. The federal NOL and interest expense limitation carryforward have an indefinite life. The state NOL carryforwards will begin to expire in 2022. In addition, at December 31, 2021, the Company had federal orphan drug tax credit carryforwards of $ 61.7 million that begin to expire in 2035 unless utilized, federal research and development tax credit carryforwards of $ 5.4 million that begin to expire in 2033 unless utilized, state research and development tax credit carryforwards of $ 10.1 million that begin to expire in 2030 unless utilized, and California Competes tax credit carryforwards of $ 2.0 million that begin to expire in 2022. Pursuant to Internal Revenue Code Sections 382 and 383, use of the Company’s federal net operating loss and credit carryforwards may be limited upon a cumulative change in ownership of more than 50% within a three-year period. At December 31, 2021, the Company had Irish NOL carryforwards of $ 15.9 million which are fully offset by a valuation allowance and have an indefinite life. The Company also had Swiss NOL carryforwards of $ 77.3 million which are fully offset by a valuation allowance and begin to expire in 2023 as well as Federal Act on Tax Reform and AHV Financing (“TRAF”) cantonal tax benefits of $ 526.2 million which expire in 2029. The Company accounts for uncertain tax benefits in accordance with the provisions of ASC 740-10 of the Accounting for Uncertainty in Income Taxes . As of December 31, 2021, the Company had $ 7.8 million in unrecognized tax benefits of which $ 7.5 million related to orphan drug and research and development tax credits which was recorded as a reduction to the deferred tax assets with a corresponding reduction in the Company’s valuation allowance of $ 7.5 million. To the extent unrecognized tax benefits are recognized at a time when a valuation allowance does not exist, the recognition of the $ 7.5 million tax benefit would reduce the effective tax rate. The Company does not anticipate that the amount of unrecognized tax benefits as of December 31, 2021 will change materially within the following 12 months. A reconciliation of the Company's unrecognized tax benefits for the years 2021 and 2020 is provided in the following table ( in thousands ): F-29 Table of Contents 2021 2020 Balance as of January 1: $ 5,193 $ 235 Increase in current period positions 2,255 1,187 Decrease in prior period positions — ( 235 ) Increase in prior period positions 377 4,006 Balance as of December 31: $ 7,825 $ 5,193 The Company files income tax returns in the U.S. federal jurisdiction, various state and local, and foreign jurisdictions. With few exceptions, the Company’s income tax returns are open to examination by federal authorities for the years ended December 31, 2018, and forward, and for state and foreign tax authorities, for the years ended December 31, 2017, and forward. The Company recognizes interest and penalties as a component of income tax expense. Interest and penalties for the year ended December 31, 2021 were less than $ 0.1 million. The Company did no t recognize any interest or penalties for the years ended December 31, 2020 and 2019. NOTE 15. EQUITY OFFERINGS Underwritten Public Offerings of Common Stock In February 2021, we sold an aggregate of 7.5 million shares of our common stock in an underwritten public offering, at a price to the public of $ 26.75 per share. The net proceeds to us from the offering, after deducting the underwriting discounts and offering expenses, were $ 189.3 million. In June 2020, the Company sold an aggregate of 7.5 million shares of its common stock in an underwritten public offering, at a price to the public of $ 15.50 per share. The net proceeds to the Company from the offering, after deducting the underwriting discounts and offering expenses, were $ 108.7 million. At-the-Market Equity Offering In February 2020, the Company entered into an Open Market Sale Agreement ("ATM Agreement") with Jefferies LLC, as agent (“Jefferies”), pursuant to which the Company may offer and sell, from time to time through Jefferies, shares of its common stock having an aggregate offering price of up to $ 100.0 million. Of the $ 100.0 million originally authorized for sale under the ATM Agreement, approximately $ 28.6 million were sold under our prior registration statement on Form S-3 (Registration Statement No. 333-227182). An additional $ 31.7 million were sold under our effective registration statement on Form S-3 (Registration Statement No. 333-259311). In 2020, the Company sold 867,806 shares under the ATM Agreement, resulting in gross proceeds of $ 23.5 million. In 2021, the Company sold a combined 1,240,640 shares under the ATM Agreement, resulting in gross proceeds of $ 36.8 million. Through December 31, 2021, the Company has sold a total of 2,108,446 shares under the ATM Agreement, resulting in gross proceeds of $ 60.3 million. As of December 31, 2021, an aggregate amount of $ 39.7 million remained eligible for sale under the facility. Authorized Shares of Common Stock On May 14, 2021, in connection with the Company’s 2021 Annual Meeting of Stockholders, the Company’s stockholders approved, among other matters, a Certificate of Amendment (“Certificate of Amendment”) to the Company’s Certificate of Incorporation to increase the number of shares of common stock authorized for issuance thereunder from 100,000,000 to 200,000,000 . Effective May 18, 2021, the Certificate of Amendment was filed with the Secretary of State of the State of Delaware. NOTE 16. RETIREMENT PLAN The Company has a 401(k) defined contribution savings plan for the benefit of all eligible employees. Employer matching contributions were $ 1.3 million, $ 1.2 million, and $ 1.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. F-30 Table of Contents NOTE 17. PROPERTY AND EQUIPMENT Property, plant and equipment, net consisted of the following (in thousands ): December 31, 2021 2020 Computers and equipment $ 1,950 $ 595 Furniture and fixtures 2,783 1,791 Leasehold improvements 8,790 4,630 Construction-in-progress 631 6,339 14,154 13,355 Less: Accumulated depreciation ( 3,048 ) ( 3,937 ) Total property and equipment, net $ 11,106 $ 9,418 The construction-in-process balance consists of costs related to the Company’s leasehold improvements at its facilities in San Diego, California. Non-cash investing activities for the years ending December 31, 2021 and 2020 included accrued capital expenditures of $ 0.1 million and $ 1.9 million, respectively. There were no accrued capital expenditures for the year ending December 31, 2019. Depreciation expense for the years ended December 31, 2021, 2020 and 2019 was $ 1.7 million, $ 2.1 million and $ 0.7 million, respectively. NOTE 18. LEASES As of December 31, 2021, the Company had one operating lease with Kilroy Realty, L.P. (the "Landlord") for office space located in San Diego, California, which was entered into in April 2019 and subsequently amended in May 2020. Coinciding with our ability to direct the use of the office space, which occurred in phases over 2020, and utilizing a discount rate equal to our borrowing rate, the Company established ROU assets totaling $ 34.6 million and lease liabilities totaling $ 34.5 million. The total ROU asset and lease liability at measurement were each offset by lease incentives associated with tenant improvement allowances totaling $ 7.9 million. The initial term of the office lease ends in August 2028, and the Landlord has granted the Company an option to extend the term of the lease by a period of 5 years. At this time, it is not reasonably certain that we will extend the term of the lease and therefore the renewal period has been excluded from the aforementioned ROU asset and lease liability measurements. The measurement of the lease term occurs from the February 2021 occupancy date of the office space delivered in September 2020. The aggregate base rent due over the initial term of the lease is approximately $ 49.5 million. Following is a schedule of the future minimum rental commitments for our operating leases reconciled to the lease liability and ROU asset as of December 31, 2021 ( in thousands ): December 31, 2021 2022 $ 6,020 2023 6,200 2024 6,386 2025 6,578 2026 6,775 Thereafter 11,760 Total undiscounted future minimum payments 43,719 Present value discount ( 8,314 ) Total operating lease liability 35,405 Unamortized lease incentives ( 6,559 ) Cash payments in excess of straight-line lease expense ( 5,650 ) Total ROU asset $ 23,196 For the twelve months ended December 31, 2021, 2020 and 2019 the Company recorded $ 4.9 million, $ 2.0 million, and $ 2.4 million, respectively, in expense related to operating leases, including amortized tenant improvement allowances. F-31 Table of Contents Supplemental cash flow information related to leases is as follows ( in thousands ): 2021 2020 2019 Operating cash flows used for operating leases $ 2,205 $ 2,537 $ 2,639 NOTE 19. SUBSEQUENT EVENTS At-the-Market Equity Offering From January 1, 2022 through February 22, 2022, the Company sold 701,600 shares of its common stock under the ATM Agreement, resulting in gross proceeds of $ 20.1 million. After giving effect to such sales as of February 22, 2022, an aggregate amount of $ 19.6 million remained eligible for sale under the facility. F-32