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Collaboration and Licensing Agreements | 9 Months Ended
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Sep. 30, 2022
Collaboration and Licensing Agreements |
Collaboration and Licensing Agreements | COLLABORATION AND LICENSING AGREEMENTS Kyowa Kirin Co., Ltd. (“KKC”) 2019 KKC Agreement In November 2019, we entered into a research collaboration and option agreement with KKC (the “2019 KKC Agreement”) for research associated with identifying two preclinical compounds that are ready for designation as development compounds (“DCs”). Pursuant to the 2019 KKC Agreement, upon completion of the research and designation by the research steering committee of one or more DCs, KKC has the right to execute one or more separate collaborative agreements relating to the development and commercialization of one or both DCs in certain specified territories. Under the terms of the 2019 KKC Agreement, KKC paid us a non-refundable, non-creditable upfront fee of $10.0 million in two installments as follows: the first installment of $5.0 million within 30 days of November 11, 2019 (the “Effective Date”), and the second installment of $5.0 million on the first anniversary of the Effective Date. The original term of the 2019 KKC Agreement commenced on the Effective Date and was to end on the earliest of: (i) 2 years following the Effective Date, (ii) the nomination of a program DC for both programs, (iii) the nomination of one program DC and the decision by the parties to cease research for the other program, or (iv) the decision by the parties to cease research for both programs. We entered into three amendments to the 2019 KKC Agreement, which have resulted in the extension of the original term. Under the third amendment to the 2019 KKC Agreement entered into on June 28, 2022, the current term will end on February 28, 2023. We have no material future obligations under the 2019 KKC Agreement and recorded no revenue under the 2019 KKC Agreement during the three and nine months ended September 30, 2022. During the three and nine months ended September 30, 2021, we recognized $0.9 million and $3.7 million, respectively, as collaborative development revenue under the 2019 KKC Agreement in the accompanying condensed statement of operations and comprehensive loss. 2017 KKC Agreement In November 2017, we entered into an exclusive license agreement with KKC (the “2017 KKC Agreement”), under which we granted KKC an exclusive license to develop and commercialize certain NHE3 inhibitors including tenapanor in Japan for the treatment of cardiorenal diseases and conditions, excluding cancer. We retained the rights to tenapanor outside of Japan, and also retained the rights to tenapanor in Japan for indications other than those stated above. Pursuant to the 2017 KKC Agreement, KKC is responsible for all costs and expenses incurred in the development and commercialization of tenapanor for all licensed indications in Japan. We are responsible for supplying the tenapanor drug substance for KKC’s use in development and commercialization throughout the term of the 2017 KKC Agreement, provided that KKC may exercise an option to manufacture the tenapanor drug substance under certain conditions. We assessed these arrangements in accordance with Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) and related amendments (“ASC 606”) and concluded that the contract counterparty, KKC, is a customer. Under the terms of the 2017 KKC Agreement, we received $30.0 million in upfront license fees, which was recognized as revenue when the agreement was executed. Based on our assessment, management determined that the license and the manufacturing supply services were its material performance obligations at the inception of the 2017 KKC Agreement, and as such, each of the performance obligations is distinct. Under the terms of the 2017 KKC Agreement, KKC paid us an up-front license fee of $30.0 million. We may be entitled to receive up to $55.0 million in total development and regulatory milestones, of which $10.0 million has been received and recognized as revenue as of September 30, 2022. We may also be eligible to receive approximately ¥8.5 billion for commercialization milestones, or approximately $58.7 million at the currency exchange rate on September 30, 2022, as well as reimbursement of costs plus a reasonable overhead for the supply of product and royalties on net sales throughout the term of the agreement. As discussed in Note 7. Deferred Royalty Obligation, the future royalties and commercial milestone payments we may receive under the 2017 KKC Agreement will be remitted to HealthCare Royalty Partners IV, L.P. pursuant to a Royalty and Sales Milestone Interest Acquisition Agreement. The variable consideration related to the remaining milestone payments has not been included in the transaction price as these were fully constrained at September 30, 2022. Please see Note 16 Subsequent Events related to the October 31, 2022 KKC submission of a NDA to the Japanese Ministry of Health, Labour and Welfare for tenapanor for the improvement of hyperphosphatemia in adult patients with CKD on dialysis. On April 11, 2022, we entered into a second amendment to the 2017 KKC Agreement (the "2022 Amendment"). Under the terms of the 2022 Amendment, we and KKC have agreed to a reduction in the royalty rate payable to us by KKC upon net sales of tenapanor in Japan. The royalty rate will be reduced from the high teens to low double digits for a two-year period of time following the first commercial sale in Japan, and then to mid-single digits for the remainder of the royalty term. As discussed in Note 7. Deferred Royalty Obligation, the future commercial milestones and royalties we may receive under the 2017 KKC Agreement will be remitted to HealthCare Royalty Partners IV, L.P. pursuant to a Royalty and Sales Milestone Interest Acquisition Agreement. As consideration for the reduction in the royalty rate, KKC has agreed to pay us up to an additional $40.0 million payable in two tranches, with the first payment due following KKC's filing with the Japanese Ministry of Health, Labour and Welfare of its application for marketing approval for tenapanor and the second payment due following KKC’s receipt of regulatory approval to market tenapanor for hyperphosphatemia in Japan. The variable consideration related to the reduction in the royalty rate has not been included in the transaction price as these were fully constrained at September 30, 2022. During the three and nine months ended September 30, 2022 we recognized no licensing revenue related to the 2017 KKC Agreement. During the three and nine months ended September 30, 2021, we recognized zero and $5.0 million respectively, as licensing revenue upon the initiation of phase 3 clinical studies by KKC in Japan to evaluate tenapanor for hyperphosphatemia. During the three and nine months ended September 30, 2022, we recognized $83 thousand and $1.0 million, respectively, as product supply revenue related to the manufacturing supply of tenapanor and other materials to KKC pursuant to the 2017 KKC Agreement. During the three and nine months ended September 30, 2021, we recognized $0.3 million and $0.4 million, respectively, as product supply revenue pursuant to the 2017 KKC Agreement. As detailed below under the heading Deferred revenue - non-current, we have received prepayments from KKC for the manufacturing of tenapanor drug substance that will be used to satisfy KKC needs. Shanghai Fosun Pharmaceutical Industrial Development Co. Ltd. (“Fosun Pharma”) In December 2017, we entered into an exclusive license agreement with Fosun Pharma (the “Fosun Agreement”), for the development, commercialization and distribution of tenapanor in China for both hyperphosphatemia and IBS-C. Under the terms of the Fosun Agreement, Fosun paid us a $12.0 million upfront license fee. We may be entitled to receive development and commercialization milestones of up to $113.0 million, of which $3.0 million has been received and recognized as revenue as of September 30, 2022, as well as reimbursement of cost plus a reasonable overhead for the supply of product and tiered royalties on net sales ranging from the mid-teens to 20%. The variable consideration related to the remaining development milestone payments has not been included in the transaction price as these were fully constrained at September 30, 2022. During the three and nine months ended September 30, 2022, we recognized $9 thousand as product supply revenue pursuant to the terms of the Fosun Agreement. We recorded no revenue during the three and nine months ended September 30, 2021 related to the Fosun Agreement. Knight Therapeutics, Inc. (“Knight“) In March 2018, we entered into an exclusive license agreement with Knight (the “Knight Agreement”) for the development, commercialization and distribution of tenapanor in Canada for hyperphosphatemia and IBS-C. Under the terms of the Knight Agreement, Knight paid us a $2.3 million upfront payment. We may also be eligible to receive approximately CAD22.2 million for development and commercialization milestones, or approximately $16.1 million at the currency exchange rate on September 30, 2022, of which $0.7 million has been received and recognized as revenue as of September 30, 2022. We are also eligible to receive royalties throughout the term of the agreement, and a transfer price for manufacturing services. The variable consideration related to the remaining development milestone payments has not been included in the transaction price as they were fully constrained at September 30, 2022. During the three and nine months ended September 30, 2022, we recognized $9 thousand and $23 thousand, respectively, as licensing revenue under the terms of the Knight Agreement. During the three and nine months ended September 30, 2021, we recognized $2 thousand and $7 thousand respectively, under the terms of the Knight Agreement. AstraZeneca AB (“AstraZeneca”) In June 2015, we entered into a termination agreement with AstraZeneca (the “AstraZeneca Termination Agreement”) pursuant to which we have agreed to pay AstraZeneca (i) future royalties at a royalty rate of 10% of net sales of tenapanor or other NHE3 products by us or our licensees, and (ii) 20% of non-royalty revenue received from a licensee of tenapanor or another NHE3 inhibitor, up to a maximum of $75.0 million in aggregate for (i) and (ii). As of September 30, 2022, to date in aggregate, we have recognized $12.4 million of the $75.0 million, which has been recorded as cost of revenue, and have paid AstraZeneca $11.6 million. During the three and nine months ended September 30, 2022 we recognized and recorded as cost of revenue $0.5 million and $0.8 million, respectively, related to the AstraZeneca Termination Agreement. During the three and nine months ended September 30, 2021 we recognized zero and $1.0 million, respectively, as cost of revenue related to the AstraZeneca Termination Agreement. Deferred Revenue The following tables present changes in our current and non-current deferred revenue balances during the reporting period. The September 30, 2022 deferred revenue balance is attributable entirely to the 2017 KKC Agreement, while the current September 30, 2021 deferred revenue balance is attributable to the 2019 KKC Agreement and the non-current September 30, 2021 deferred revenue balance is attributable to the 2017 KKC Agreement (in thousands):
Deferred revenue - current | 2022 |  | 2021
Balance at January 1, | $ | — |  |  | $ | 4,177 |
Increases due to amounts reclassified from non-current, to be recognized in the next twelve months | 3,961 |  |  |
Increases to amounts invoiced, for which cash has not yet been received | 42 |  |  | — |
Decreases due to revenue recognized in the period for which cash has been received | — |  |  | (3,650) |
Balance at September 30, | $ | 4,003 |  |  | $ | 527 |
Deferred revenue - non-current | 2022 |  | 2021
Balance at January 1, | $ | 4,727 |  |  | $ | — |
Increases due to cash received during the period | 7,694 |  |  | 2,947 |
Increases to amounts invoiced, for which cash has not yet been received | 100 |  |  | — |
Decreases due to amounts reclassified as current, to be recognized in the next twelve months | (3,961) |  |  | — |
Balance at September 30, | $ | 8,560 |  |  | $ | 2,947 |

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- Definition The entire disclosure for collaborative arrangements in which the entity is a participant, including a) information about the nature and purpose of such arrangements; b) its rights and obligations thereunder; c) the accounting policy for collaborative arrangements; and d) the income statement classification and amounts attributable to transactions arising from the collaborative arrangement between participants. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 808 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6931272&loc=SL5834143-161434 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 808 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=6931272&loc=SL5834143-161434 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 808 -URI https://asc.fasb.org/topic&trid=5833765 + Details
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