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Collaboration Agreements and Revenues | 12 Months Ended
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Dec. 31, 2020
Organization Consolidation And Presentation Of Financial Statements [Abstract] |
Collaboration Agreements and Revenues |
4. | Collaboration Agreements and Revenues
Astellas Agreements Japan Agreement In June 2005, the Company entered into a collaboration agreement with Astellas for the development and commercialization (but not manufacture) of roxadustat for the treatment of anemia in Japan (“Japan Agreement”). Under this agreement, Astellas paid license fees and other consideration totaling $40.1 million (such amounts were fully received as of February 2009). Under the Japan Agreement, the Company is also eligible to receive from Astellas an aggregate of approximately $132.5 million in potential milestone payments, comprised of (i) up to $22.5 million in milestone payments upon achievement of specified clinical and development milestone events (such amounts were fully received as of July 2016), (ii) up to $95.0 million in milestone payments upon achievement of specified regulatory milestone events, and (iii) up to approximately $15.0 million in milestone payments upon the achievement of specified commercial sales milestone. The Japan Agreement also provides for tiered payments based on net sales of product (as defined) in the low 20% range of the list price published by the Japanese Ministry of Health, Labour and Welfare, adjusted for certain elements, after commercial launch. The aggregate amount of the considerations received under the Japan Agreement, through December 31, 2020 totals $105.1 million, excluding drug product revenue that is discussed separately below. During the fourth quarter of 2020, the Japanese Ministry of Health, Labour and Welfare approved EVRENZO® (roxadustat) for the treatment of anemia of CKD in adult patients not on dialysis. This approval triggered a $15.0 million milestone payable to the Company by Astellas under the Japan Agreement. Accordingly, the consideration of $15.0 million associated with this milestone was included in the transaction price and allocated to performance obligations under the Japan Agreement in the fourth quarter of 2020, substantially all of which was recognized as revenue during the year ended December 31, 2020 from performance obligations satisfied or partially satisfied. In Septembe r 2019, the Japanese Ministry of Health, Labour and Welfare approved EVRENZO® (generic name: roxadustat; tradename EVRENZO® in Japan) for the treatment of anemia associated with CKD in dialysis patients. This approval triggered a $12.5 million milestone payable to the Company by Astellas under the Japan Agreement. Accordingly, the consideration of $12.5 million associated with this milestone was included in the transaction price and allocated to performance obligations under the Japan Agreement in the t hird quarter of 2019, substantially all of which was recognized as revenue during the year ended December 31, 2019 from performance obligations satisfied or partially satisfied. During the second quarter of 2018, Astellas reported positive results from the final phase 3 CKD-dialysis trial of roxadustat in Japan, indicating that Astellas was ready to make an NDA submission for the treatment of anemia with roxadustat in CKD-dialysis patients in 2018. The Company evaluated the regulatory milestone payment associated with NDA submission in Japan based on variable consideration requirements under the current revenue standards and concluded that this milestone became probable of being achieved in the second quarter of 2018. Accordingly, the consideration of $15.0 million associated with this milestone was included in the transaction price and allocated to performance obligations under the Japan Agreement in the second quarter of 2018, substantially all of which was recognized as revenue during the year ended December 31, 2018 from performance obligations satisfied or partially satisfied. In 2018, FibroGen and Astellas entered into an amendment to the Japan Agreement that allows Astellas to manufacture roxadustat drug product for commercialization in Japan (the “Japan Amendment”). Under this amendment, FibroGen would continue to manufacture and supply roxadustat API to Astellas for the roxadustat commercial launch in Japan. The commercial terms of the Japan Agreement relating to the transfer price for roxadustat for commercial use remain substantially the same, reflecting an adjustment for the manufacture of drug product by Astellas rather than FibroGen. The Company fulfilled shipment obligations under the term of the Japan Amendment in the second quarter of 2020 and in 2018. The related drug product revenue, as described in details under Drug Product Revenue section below, were $4.3 million, $(36.3) million and $64.8 million in the years ended December 31, 2020, 2019 and 2018, respectively. Europe Agreement In April 2006, the Company entered into a separate collaboration agreement with Astellas for the development and commercialization of roxadustat for the treatment of anemia in Europe, the Middle East, the Commonwealth of Independent States and South Africa (“Europe Agreement”). Under the terms of the Europe Agreement, Astellas paid license fees and other upfront consideration totaling $320.0 million (such amounts were fully received as of February 2009). The Europe Agreement also provides for additional development and regulatory approval milestone payments up to $425.0 million, comprised of (i) up to $90.0 million in milestone payments upon achievement of specified clinical and development milestone events (such amounts were fully received as of 2012), (ii) up to $335.0 million in milestone payments upon achievement of specified regulatory milestone events. Under the Europe Agreement, Astellas committed to fund 50% of joint development costs for Europe and North America, and all territory-specific costs. The Europe Agreement also provides for tiered payments based on net sales of product (as defined) in the low 20% range. The aggregate amount of the considerations received under the Europe Agreement through December 31, 2020 totals $540.0 million, excluding drug product revenue that is discussed separately below. During the second quarter of 2019, the Company received positive topline results from analyses of pooled major adverse cardiovascular event (“MACE”) and MACE+ data from its Phase 3 trials evaluating roxadustat as a treatment for dialysis and non-dialysis CKD patients, enabling Astellas to prepare for an MAA submission to the EMA in the second quarter of 2020, following the Company’s NDA submission to the FDA that was accepted for review in February 2020. The Company evaluated the two regulatory milestone payments associated with the planned MAA submission and concluded that these milestones became probable of being achieved in the second quarter of 2019. Accordingly, the total consideration of $130.0 million associated with these milestones was included in the transaction price and allocated to performance obligations under the Europe Agreement in the second quarter of 2019, of which $128.8 million was recognized as revenue during the year ended December 31, 2019 and $0.8 million was recognized as revenue during the year ended December 31, 2020, from performance obligations satisfied or partially satisfied. According to the Europe Agreement, these milestone payments are billable to Astellas upon the submission of an MAA, therefore this $130.0 million was an unbilled contract asset as of December 31, 2019, and billed to Astellas upon the submission of an MAA in the second quarter of 2020 with the total $130.0 million received during the same quarter. In the fourth quarter of 2018, the Company was engaged in the final stages of review with its partners over the proposed development of roxadustat for the treatment of chemotherapy-induced anemia (“CIA”). AstraZeneca and Astellas approved the program in December 2018 and January 2019, respectively. Costs associated with the development of this indication are expected to be shared 50-50 between the Company’s two partners. For revenue recognition purposes, the Company concluded that this new indication represents a modification to the Europe agreements and will be accounted for separately, meaning the development costs associated with the new indications are distinct from the original development costs. The development service period for roxadustat for the treatment of CIA under the Europe Agreement is estimated to continue through the second quarter of 2024 to allow for development of this indication. Under the Europe Agreement, Astellas has an option to purchase roxadustat bulk drug product in support of commercial supplies. The Company fulfilled a shipment obligation under the term of the Europe Amendment in the fourth quarter of 2020, as described in details under Drug Product Revenue section below. AstraZeneca Agreements U.S./Rest of World (“RoW”) Agreement Effective July 30, 2013, the Company entered into a collaboration agreement with AstraZeneca for the development and commercialization of roxadustat for the treatment of anemia in the U.S. and all other countries in the world, other than China, not previously licensed under the Astellas Europe and Astellas Japan Agreements (“U.S./RoW Agreement”). It also excludes China, which is covered by a separate agreement with AstraZeneca described below. Under the terms of the U.S./RoW Agreement, AstraZeneca paid upfront, non-contingent, non-refundable and time-based payments totaling $374.0 million (such amounts were fully received as of June 2016). Under the U.S./RoW Agreement, the Company is also eligible to receive from AstraZeneca an aggregate of approximately $875.0 million in potential milestone payments, comprised of (i) up to $65.0 million in milestone payments upon achievement of specified clinical and development milestone events, (ii) up to $325.0 million in milestone payments upon achievement of specified regulatory milestone events, (iii) up to $160.0 million in milestone payments related to activity by potential competitors and (iv) up to approximately $325.0 million in milestone payments upon the achievement of specified commercial sales events. The aggregate amount of the considerations received under the U.S./RoW Agreement through December 31, 2020 totals $439.0 million, excluding drug product revenue that is discussed separately below. Under the U.S./RoW Agreement, the Company and AstraZeneca will share equally in the development costs of roxadustat not already paid for by Astellas, up to a total of $233.0 million (i.e. the Company’s share of development costs is $116.5 million, which was reached in 2015). Development costs incurred by FibroGen during the development period in excess of the $233.0 million (aggregated spend) are fully reimbursed by AstraZeneca. AstraZeneca will pay the Company tiered royalty payments on AstraZeneca’s future net sales (as defined in the agreement) of roxadustat in the low 20% range. In addition, the Company will receive a transfer price for shipment of commercial product based on a percentage of AstraZeneca’s net sales (as defined in the agreement) in the low- to mid-single digit range. As mentioned above, during the second quarter of 2019, the Company received positive topline results from analyses of pooled MACE and MACE+ data from its Phase 3 trials for roxadustat, enabling the Company’s NDA submission to the FDA. The Company evaluated the regulatory milestone payment associated with this planned NDA submission and concluded that this milestone became probable of being achieved in the second quarter of 2019. Accordingly, the consideration of $50.0 million associated with this milestone was included in the transaction price and allocated to performance obligations under the combined arrangement in the second quarter of 2019, of which $42.4 million was recognized as revenue during the year ended December 31, 2019 and $0.6 million was recognized as revenue during the year ended December 31, 2020, from performance obligations satisfied or partially satisfied. The Company submitted such NDA in December 2019, which was accepted by FDA in February 2020. According to the U.S/RoW Agreement, this milestone payment is billable to AstraZeneca when the NDA is accepted by the FDA, therefore this $50.0 million was an unbilled contract asset as of December 31, 2019, and was billed during the first quarter of 2020, the payment of which was fully received in April 2020. As mentioned above, AstraZeneca and Astellas approved the development of roxadustat for the treatment of CIA in December 2018 and January 2019, respectively. Costs associated with the development of this indication are expected to be shared 50/50 between AstraZeneca and Astellas. In addition, in December 2018, anemia of chronic inflammation and multiple myeloma was approved for development by AstraZeneca and is expected to be fully funded by them. For revenue recognition purposes, the Company concluded that the addition of these new indications represents a modification to the collaboration agreements and will be accounted for separately, meaning the development costs associated with the new indications are distinct from the original development costs. The development service period for roxadustat for the treatment of CIA, anemia of chronic inflammation and multiple myeloma under the AstraZeneca agreements is estimated to continue through the end of 2024, to allow for development of these additional indications. In 2020, the Company entered into Commercial Supply Agreement under the U.S./RoW Agreement with AstraZeneca to define general forecast, order, supply and payment terms for AstraZeneca to purchase roxadustat bulk drug product from FibroGen in support of commercial supplies. The Company shipped bulk drug product to AstraZeneca as pre-commercial supply for process validation purposes during the year ended December 31, 2020 and recognized related drug product revenue of $4.6 million, as described in details under Drug Product Revenue section below. China Agreement Effective July 30, 2013, the Company (through its subsidiaries affiliated with China) entered into a collaboration agreement with AstraZeneca for the development and commercialization (but not manufacture) of roxadustat for the treatment of anemia in China (“China Agreement”). Under the terms of the China Agreement, AstraZeneca agreed to pay upfront consideration totaling $28.2 million (such amounts were fully received in 2014). Under the China Agreement, the Company is also eligible to receive from AstraZeneca an aggregate of approximately $348.5 million in potential milestone payments, comprised of (i) up to $15.0 million in milestone payments upon achievement of specified clinical and development milestone events, (ii) up to $146.0 million in milestone payments upon achievement of specified regulatory milestone events, and (iii) up to approximately $187.5 million in milestone payments upon the achievement of specified commercial sales and other events. The China Agreement is structured as a 50/50 profit or loss share (as defined), which was amended under the China Amendment discussed below in the third quarter of 2020, and provides for joint development costs (including capital and equipment costs for construction of the manufacturing plant in China), to be shared equally during the development. The aggregate amount of the considerations received under the China Agreement through December 31, 2020 totals $77.2 million. In December 2019, roxadustat has been included on the updated NRDL released by China’s National Healthcare Security Administration for the treatment of anemia in CKD, covering patients who are non-dialysis dependent as well as those who are dialysis-dependent. The inclusion on the NRDL triggered a total of $22.0 million milestones payable to the Company by AstraZeneca. Accordingly, the total consideration of $22.0 million associated with these milestones was included in the transaction price and allocated to performance obligations under the combined arrangement, of which $18.7 million was recognized as revenue during the year ended December 31, 2019. The Company continued to recognize related revenue during the year ended December 31, 2020, from performance obligations satisfied or partially satisfied, and the amount was not material. This milestone payment was received during the first quarter of 2020. On December 17, 2018, FibroGen Beijing, received marketing authorization from the NMPA for roxadustat, a first-in-class HIF prolyl hydroxylase inhibitor, for the treatment of anemia caused by CKD in patients on dialysis. This approval triggered a $6.0 million milestone payable to the Company by AstraZeneca. On December 29, 2018, FibroGen Beijing received First Manufacturing Approval for a Product in the Field in the Territory, which allows production for Phase 4 clinical studies, patients’ early experience programs, donation programs, as well as to supply products for testing and assessments required prior to launch. This approval triggered a $6.0 million milestone payable to the Company by AstraZeneca. Approximately $9.9 million of the total $12.0 million milestone payables was recognized as revenue during the year ended December 31, 2018. The Company continued to recognize related revenues during the years ended December 31, 2019 and 2020, from performance obligations satisfied or partially satisfied, and the amounts were not material. China Amendment On July 8, 2020, FibroGen China and AstraZeneca (together with FibroGen China, the “Parties”) entered into the China Amendment, effective July 1, 2020, relating to the development and commercialization of roxadustat in China. While the responsibilities of the Parties under the China Agreement remain largely the same, certain changes were made. Under the China Amendment, in September 2020, FibroGen Beijing and AstraZeneca completed the establishment of a jointly owned entity, Falikang, which will perform roxadustat distribution, as well as conduct sales and marketing through AstraZeneca. See Note 3, Acquisition and Variable Interest Entity, for details. In accordance with the China Amendment, the Company is currently in the interim period. Under the China Amendment, the interim period is defined as the period from April 1, 2020 to the time when Falikang is fully operational, which commenced in January 2021. During the interim period, FibroGen continues to sell product directly to the distributors, who remain as the Company’s customers. Under the China Amendment, the calculation for profit or loss share has changed related to sales of roxadustat in China for the period from April 1, 2020 onwards. With effect from April 1, 2020, the Parties have changed the method under which commercial expenses incurred by AstraZeneca are calculated and billed. AstraZeneca’s co-promotion expenses for their sales and marketing efforts are now subject to a cap of a percentage of net sales. Once AstraZeneca has been fully reimbursed for their sales and marketing costs under the cap, AstraZeneca will bill the co-promotion expenses based on actual costs on a prospective basis. In addition, the China Amendment has allowed for a higher cost of manufacturing incurred by FibroGen Beijing to be included in the profit or loss share calculation, subject to an annual cap, among other changes. Once Falikang is fully operational, substantially all direct product sales will be made by Falikang while the Company continues to sell product directly in few provinces in China. AstraZeneca will bill the co-promotion expenses to Falikang and to FibroGen Beijing, respectively, for its services provided to the respective entity. In addition, FibroGen Beijing will sell commercial product to Falikang based on an agreed upon transfer price. Development costs will continue to be shared 50/50 between the Parties. As a result, the interim period primarily includes the following activities:
• | Co-promotion expenses: The China Amendment revised the payment arrangements and calculation of the historical unpaid co-promotion expenses to AstraZeneca for its sales and marketing efforts associated with the commercial sales for roxadustat in China since the product launch. Under the previous China Agreement, payment of these historical co-promotion expenses was subject to certain profitability and cash flow thresholds. No amount of the historical co-promotion costs had been paid prior to the China Amendment as these thresholds had not yet been met. Under the China Amendment, a portion of the historical unpaid co-promotion expenses was adjusted to reduce the amount owed by FibroGen Beijing and the current period co-promotion expenses are capped at a percentage of net roxadustat sales in China. As a result, in the third quarter of 2020, the Company reversed approximately $84.4 million of previously accrued co-promotion expenses payable, which was recorded as a reduction to selling, general and administrative expenses, where these expenses were initially recorded during the periods from the initiation of commercial activities in the first quarter of 2019 to the second quarter of 2020. The co-promotion expenses for the year ended December 31, 2020, capped at a percentage of net roxadustat sales in China, were $27.2 million, included in the selling, general and administrative expenses. After this adjustment, as of December 31, 2020, $16.9 million and $11.5 million of the recalculated accrued co-promotion expenses were recorded in accounts payable and accrued liabilities, respectively, as they were anticipated to be paid within the next 12 months; and $27.4 million of the recalculated accrued co-promotion expenses adjusted under the China Amendment remained in the long-term liabilities, as it is not anticipated to be paid within the next 12 months.
• | Profit share: Profit/loss share between FibroGen Beijing and AstraZeneca is based on a calculation of the current period net roxadustat sales in China and deductible expenses pursuant to the China Agreement. Based on the calculation revised under the China Amendment, profit was achieved during the third and fourth quarter of 2020. As a result, the Company recorded a profit share liability of $7.0 million to AstraZeneca as of December 31, 2020 in the accrued and other current liabilities, which correspondingly reduced the deferred revenue related to the performance obligation in accordance with the China Agreement.
Accounting for the Astellas Agreements For each of the Astellas agreements, the Company has evaluated the promised services within the respective arrangements and has identified performance obligations representing those services and bundles of services that are distinct. Promised services that were not distinct have been combined with other promised services to form a distinct bundle of promised services, with revenue being recognized on the bundle of services rather than the individual services. There are no right-of-return provisions for the delivered items in the Astellas agreements. As of December 31, 2020, the transaction price for the Japan Agreement, excluding manufacturing services that is discussed separately below, included $40.1 million of non-contingent upfront payments, $65.0 million of variable consideration related to payments for milestones considered probable of being achieved, and $11.7 million of variable consideration related to co-development billings. The transaction price for the Europe Agreement, excluding manufacturing services that is discussed separately below, included $320.0 million of non-contingent upfront payments, $220.0 million of variable consideration related to payments for milestones considered probable of being achieved, and $225.9 million of variable consideration related to co-development billings. For revenue recognition purposes, the Company determined that the term of each collaboration agreement with Astellas begins on the effective date and ends upon the completion of all performance obligations contained in the agreement. The contract term is defined as the period in which parties to the contract have present and enforceable rights and obligations. The Company believes that the requirement to continue funding development for a substantive period of time and loss of product rights, along with non-refundable upfront payments already remitted by Astellas, create significant disincentive for Astellas to exercise its right to terminate the agreements. For the Astellas agreements, the Company allocated the transaction price to the various performance obligations based on the relative SSP of each performance obligation, with the exception of co-development billings allocated entirely to co-development services performance obligations. For the technology license under the Japan Agreement and the Europe Agreement, SSP was determined primarily by using the discounted cash flow (“DCF”) method, which aggregates the present value of future cash flows to determine the valuation as of the effective date of each of the agreements. The DCF method involves the following key steps: 1) the determination of cash flow forecasts and 2) the selection of a range of comparative risk-adjusted discount rates to apply against the cash flow forecasts. The discount rates selected were based on expectations of the total rate of return, the rate at which capital would be attracted to the Company and the level of risk inherent within the Company. The discounts applied in the DCF analysis ranged from 17.5% to 20.0%. The Company’s cash flow forecasts were derived from probability-adjusted revenue and expense projections by territory. Such projections included consideration of taxes and cash flow adjustments. The probability adjustments were made after considering the likelihood of technical success at various stages of clinical trials and regulatory approval phases. SSP also considered certain future royalty payments associated with commercial performance of the Company’s compounds, transfer prices and expected gross margins. The promised services that were analyzed, along with their general timing of satisfaction and recognition as revenue, are as follows:
(1) | License to the Company’s technology existing at the effective date of the agreements. For both of the Astellas agreements, the license was delivered at the beginning of the agreement term. In both cases, the Company concluded at the time of the agreement that its collaboration partner, Astellas, would have the knowledge and capabilities to fully exploit the licenses without the Company’s further involvement. However, the Japan Agreement has contractual limitations that might affect Astellas’ ability to fully exploit the license and therefore, potentially, the conclusion as to whether the license is capable of being distinct. In the Japan Agreement, Astellas does not have the right to manufacture commercial supplies of the drug. In order to determine whether this characteristic of the agreement should lead to a conclusion that the license was not distinct in the context of the agreement, the Company considered the ability of Astellas to benefit from the license together with other resources readily available to Astellas. Finally, the Company considered the fact that at the time of delivery of the license, the development services were beyond the preclinical development phase and any remaining development work in either agreement would not be expected to result in any significant modification or customization to the licensed technology. As such, the development services are separately identifiable from the licensed technology, indicating that the license is a distinct performance obligation.
Manufacturing rights. In the case of the Japan Agreement, the Company retained manufacturing rights largel y because of the way the parties chose for FibroGen to be compensated under the agreement. At the time the agreement was signed, the Company believed that it was more advantageous upon commercialization to have a transfer price revenue model in place as op posed to a traditional sales-based model. The manufacturing process does not require specialized knowledge or expertise uniquely held by FibroGen, and notwithstanding contractual restrictions, Astellas could employ manufacturing services from readily avail able third parties in order to benefit from the license. Therefore, along with the foregoing paragraph, the Company determined that the license in Japan is a distinct performance obligation despite the retention of manufacturing rights by the Company. In summary, the Company concludes that item (1) represents a performance obligation. The portion of the transaction price allocated to this performance obligation based on a relative SSP basis is recognized as revenue in its entirety at the point in time the license transfers to Astellas.
(2) | Co-development services (Europe Agreement). This promise relates to co-development services that were reasonably expected to be performed by the Company at the time the collaboration agreement was signed and is considered distinct. Co-development billings are allocated entirely to the co-development services performance obligation as amounts are related specifically to research and development efforts necessary to satisfy the performance obligation, and such an allocation is consistent with the allocation objective. Revenue is recognized over time based on progress toward complete satisfaction of the performance obligation. The Company uses an input method to measure progress toward the satisfaction of the performance obligation, which is based on costs of labor hours and out-of-pocket expenses incurred relative to total expected costs to be incurred. The measure of progress is updated each reporting period. Co-development services are expected to continue over the development period that is currently estimated to continue through the end of 2021. In addition, the Company concluded that the new indication related to CIA approved in January 2019 represents a modification to the Europe agreements at that time and will be accounted for separately, for which the development service period is estimated to continue through the second quarter of 2024. There was no provision for co-development services in the Japan Agreement.
(3) | License to the Company’s technology developed during the term of the agreement and development (referred to as “when and if available”) and information sharing services. These promises are generally satisfied throughout the term of the agreements.
(4) | Manufacturing of clinical supplies of products. This promise is satisfied as supplies for clinical product are delivered for use in the Company’s clinical trial programs during the development period, or pre-commercialization period.
(5) | Committee service. This promise is satisfied throughout the course of the agreements as meetings are attended.
Items (2)-(5) are bundled into a single performance obligation that is distinct given the fact that all are highly interrelated during the development period (pre-commercial phase of development) such that satisfying them independently is not practicable. Revenue is recognized over time based on progress toward complete satisfaction of the performance obligation. The Company uses an input method to measure progress toward the satisfaction of the performance obligation, which is based on costs of labor hours or full time equivalents and out-of-pocket expenses incurred relative to total expected costs to be incurred. The measure of progress is updated each reporting period.
(6) | Manufacturing commercial supplies of products. This promised service is distinct as services are not interrelated with any of the other performance obligations. Payments received for commercial supplies of products represent sales-based payments related predominately to the license of intellectual property under both Astellas agreements. Revenue is recognized as supplies are shipped for commercial use during the commercialization period.
Under the Japan Amendment the drug product revenue represents variable consideration and is estimated based on the quantity of product shipped, actual listed price for roxadustat issued by the Japanese Ministry of Health, Labour and Welfare and possible future changes to the listed price, adjusted for estimated bulk product strength mix intended to be manufactured by Astellas, estimated cost to convert the API to bulk drug product tablets, and estimated yield from the manufacture of bulk product tablets, among others. Under the Europe Agreement, the drug product revenue amount represents variable consideration and is estimated based on the quantity of product shipped and an estimated price. The estimated price is based on the contractual transfer price percentage applied on the estimated weighted average net sales price per strength, which is estimated to be realized by Astellas from the end sale of roxadustat in its approved territories. The amount of variable consideration that is included in the transaction price may be constrained, and is included in the drug product revenue only to the extent that it is probable that a significant re versal in the amount of the cumulative revenue recognized will not occur in a future period when the uncertainty associated with the variable consideration is subsequently resolved. Estimating variable consideration and the related constraint requires the use of significant management judgment. The Company reviews new information that may affect its variable consideration estimate at every reporting period and records an adjustment to revenue, if certain and material. Actual amounts of consideration ultimately received in the future may differ from the Company’s estimates, for which the Company will adjust these estimates and affect the drug product revenue in the period such variances become known. As each of the agreements provides for annual true up to the considerations paid for its commercial supplies, the Company will re-evaluate the transaction price in each reporting period and record adjustment to revenue as uncertain events are resolved or other changes in circumstances occur. Accounting for the AstraZeneca Agreements The Company evaluated whether the U.S./RoW Agreement and the China Agreement should be accounted for as a single or separate arrangements and concluded that the agreements should be accounted for as a single arrangement with the presumption that two or more agreements executed with a single customer at or around the same time should be presumed to be a single arrangement. The key points the Company considered in reaching this conclusion are as follows:
1. | While the two agreements were largely negotiated separately, those negotiations proceeded concurrently, and were intended to be completed contemporaneously, presuming AstraZeneca decided to proceed with licenses in all regions available.
2. | Throughout negotiations for both agreements, the Company and the counterparties understood and considered the possibility that one arrangement may be executed without the execution of the other arrangement. However, the preference for the Company and the counterparties during the negotiations was to execute both arrangements concurrently.
3. | The two agreements were executed as separate agreements because different development, regulatory and commercial approaches required certain terms of the agreements to be structured differently, rather than because the Company or the counterparties considered the agreements to be fundamentally separate negotiations.
Accordingly, as the agreements are being accounted for as a single arrangement, upfront and other non-contingent consideration received and to be received has been and will be pooled together and allocated to each of the performance obligations in both the U.S./RoW Agreement and the China Agreement based on their relative SSPs. For each of the AstraZeneca agreements, the Company has evaluated the promised services within the respective arrangements and has identified performance obligations representing those services and bundled services that are distinct. Promised services that were not distinct have been combined with other promised services to form a distinct bundle of promised services, with revenue being recognized on the bundle of services rather than the individual promised services. There are no right-of-return provisions for the delivered items in the AstraZeneca agreements. As of December 31, 2020, the transaction price for the U.S./RoW Agreement and the China Agreement, excluding manufacturing services that is discussed separately below, included $402.2 million of non-contingent upfront payments, $114.0 million of variable consideration related to payments for milestones considered probable of being achieved, $564.9 million of variable consideration related to co-development billings, offset by $7.0 million of variable consideration related to profit share under the China Amendment. For the AstraZeneca agreements, the Company allocated the transaction price to the various performance obligations based on the relative SSP of each performance obligation, with the exception of co-development billings and commercial sale of product. Co-development billings under the U.S./RoW Agreement were allocated entirely to the U.S./RoW co-development services performance obligation, and co-development billings under the China Agreement were allocated entirely to the combined performance obligation under the China Agreement. Commercial sale of product under the U.S./ROW Agreement is entirely allocated to the manufacturing commercial supply of products performance obligation, and commercial sale of product under the China Agreement is allocated entirely to the combined China performance obligation. For revenue recognition purposes, the Company determined that the term of its collaboration agreements with AstraZeneca begin on the effective date and ends upon the completion of all performance obligations c ontained in the agreements. T he contract term is defined as the period in which parties to the contract have present and enforceable rights and obligations. The Company believes that the requirement to continue funding development for a substantive period of time and the loss of product rights, along with non-refundable upfront payments already remitted by AstraZeneca, represent substantive termination penalties that create significant disincentive for AstraZeneca to exercise its right to terminate the agre ement. For the technology license under the AstraZeneca U.S./RoW Agreement, SSP was determined based on a two-step process. The first step involved determining an implied royalty rate that would result in the net present value of future cash flows to equal to zero (i.e. where the implied royalty rate on the transaction would equal the target return for the investment). This results in an upper bound estimation of the magnitude of royalties that a hypothetical acquirer would reasonably pay for the forecasted cash flow stream. The Company’s cash flow forecasts were derived from probability-adjusted revenue and expense projections. Such projections included consideration of taxes and cash flow adjustments. The probability adjustments were made after considering the likelihood of technical success at various stages of clinical trials and regulatory approval phases. The second step involved applying the implied royalty rate, which was determined to be 40%, against the probability-adjusted projected net revenues by territory and determining the value of the license as the net present value of future cash flows after adjusting for taxes. The discount rate utilized was 17.5%. U.S./RoW Agreement: The promised services that were analyzed, along with their general timing of satisfaction and recognition as revenue, are as follows:
(1) | License to the Company’s technology existing at the effective date of the agreements. For the U.S./RoW Agreement, the license was delivered at the beginning of the agreement term. The Company concluded that AstraZeneca has the knowledge and capabilities to fully exploit the license under the U.S./RoW Agreement without the Company’s further involvement. Finally, the Company considered the fact that at the time of delivery of the license, the development services were beyond the preclinical development phase and any remaining development work would not be expected to result in any significant modification or customization to the licensed technology. As such, the development services are separately identifiable from the licensed technology, indicating that the license is a distinct performance obligation. Therefore, the Company has concluded that the license is distinct and represents a performance obligation. The portion of the transaction price allocated to this performance obligation based on a relative SSP basis is recognized as revenue in its entirety at the point in time the license transfers to AstraZeneca.
(2) | Co-development services. This promise relates to co-development services that were reasonably expected to be performed by the Company at the time the collaboration agreement was signed and is distinct. Co-development billings are allocated entirely to the co-development services performance obligation as amounts are related specifically to research and development efforts necessary to satisfy the performance obligation, and such an allocation is consistent with the allocation objective. Revenue is recognized over time based on progress toward complete satisfaction of the performance obligation. The Company uses an input method to measure progress toward the satisfaction of the performance obligation, which is based on costs of labor hours or full time equivalents and out-of-pocket expenses incurred relative to total expected costs to be incurred. Co-development services are expected to continue over the development period that is currently estimated to continue through the end of the first quarter of 2021. In addition, the Company concluded that the addition of the new indications related to CIA, anemia of chronic inflammation and multiple myeloma approved during the fourth quarter of 2018 represents a modification to the collaboration agreements and will be accounted for separately, for which the joint development service period is estimated to continue through the end of 2024.
(3) | Manufacturing of clinical supplies of products. This promise is satisfied as supplies for clinical product are delivered for use in the Company’s clinical trial programs during the development period, or pre-commercialization period.
(4) | Information sharing and committee service. These promises are satisfied throughout the course of the agreement as services are provided.
Items (2)-(4) are bundled into a single performance obligation that is distinct given the fact that all are highly interrelated during the development period (pre-commercial phase of development) such that delivering them independently is not practicable. Revenue is recognized over time based on progress toward complete satisfaction of the performance obligation. The Company uses an input method to measure progress toward the satisfaction of the performance obligation, which is based on costs of labor hours or full time equivalents and out-of-pocket expenses incurred relative to total expected costs to be incurred. The measure of progress is updated each reporting period.
(5) | Manufacturing commercial supplies of products. This promise is distinct as services are not interrelated with any of the other performance obligations. Revenue is recognized as supplies are shipped for commercial use during the commercialization period. The drug product revenue amount represents variable consideration and is estimated based on the quantity of product shipped and an estimated price for each individual purchase order. The estimated price is based on the contractual transfer price percentage applied on the estimated weighted average net sales price, which is estimated to be realized by AstraZeneca from the end sale o f roxadustat in its approved territories.
The amount of variable consideration that is included in the transaction price may be constrained, and is included in the drug product revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period when the uncertainty associated with the variable consideration is subsequently resolved. Estimating variable consideration and the related constraint requires the use of significant management judgment. The Company reviews new information that may affect its variable consideration estimate at every reporting period and records an adjustment to revenue, if certain and material. Actual amounts of consideration ultimately received in the future may differ from the Company’s estimates, for which the Company will adjust these estimates and affect the drug product revenue in the period such variances become known. As the agreement provides for an annual true up to the considerations paid for its commercial supplies, the Company will re-evaluate the transaction price in each reporting period and record an adjustment to revenue as uncertain events are resolved or other changes in circumstances occur. China Agreement: The promised services that were analyzed are consistent with the U.S./RoW Agreement, except for license to the Company’s technology existing at the effective date of the agreement, described as follows:
• | License to the Company’s technology existing at the effective date of the agreement. The license was delivered at the beginning of the agreement term. However, the China Agreement with AstraZeneca has contractual limitations that might affect AstraZeneca’s ability to fully exploit the license and therefore, potentially, the conclusion as to whether the license is distinct in the context of the agreement. In the China Agreement, AstraZeneca does not have the right to manufacture commercial supplies of the drug. In order to determine whether this characteristic of the arrangement should lead to a conclusion that the license was not distinct in the context of the agreement, the Company considered the ability of AstraZeneca to benefit from the license on its own or together with other resources readily available to AstraZeneca.
For the China Agreement, the Company retained manufacturing rights as an essential part of a strategy to pursue domestic regulatory pathway for product approval which requires the regulatory licensure of the manufacturing facility in order to commence commercial shipment. The prospects for the collaboration as a whole would have been substantially different had manufacturing rights been provided to AstraZeneca. We hold the rights to manufacture commercial drug product in China. Therefore, AstraZeneca cannot benefit from the license on its own or together with other readily available resources. Accordingly, all the promises identified, including the license, co-development services and manufacturing of commercial supplies,, under the China Agreement have been bundled into a single performance obligation and amounts of the transaction price allocable to this performance obligation are deferred until control of the manufactured commercial drug product has begun to transfer to AstraZeneca. In accordance with the China Amendment, once Falikang is fully operational, which commenced in January 2021, substantially all product sales will be made by Falikang directly to the distributors in China, while the Company continues to sell directly in few provinces in China. Revenue will be recognized upon the transfer of control of commercial drug product to Falikang. For the Company’s direct sales of commercial drug product, revenue will be recognized when control of the promised good is transferred to the customer in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for the product. Summary of revenue recognized under the collaboration agreements The table below summarizes the accounting treatment for the various performance obligations pursuant to each of the Astellas and AstraZeneca agreements. License amounts identified below are included in the “License revenue” line item in the consolidated statements of operations. All other elements identified below are included in the “Development and other revenue” line item in the consolidated statements of operations. Amounts recognized as license revenue and development revenue under the Japan Agreement with Astellas were as follows (in thousands):
|  |  |  | Years Ended December 31, |
Agreement |  | Performance Obligation |  | 2020 |  |  | 2019 |  |  | 2018 |
Japan |  | License revenue |  | $ | 14,323 |  |  | $ | 11,935 |  |  | $ | 14,323 |
|  | Development revenue |  | $ | 1,220 |  |  | $ | 1,222 |  |  | $ | 2,400 |
The transaction price related to consideration received and accounts receivable has been allocated to each of the following performance obligations under the Japan Agreement, along with any associated deferred revenue as follows (in thousands):
Japan Agreement |  | Cumulative Revenue Through December 31, 2020 |  |  | Deferred Revenue at December 31, 2020 |  |  | Total Consideration Through December 31, 2020 |
License |  | $ | 100,347 |  |  | $ | — |  |  | $ | 100,347 |
Development revenue |  |  | 16,350 |  |  |  | 130 |  |  |  | 16,480 |
Total license and development revenue |  | $ | 116,697 |  |  | $ | 130 |  |  | $ | 116,827 |
The revenue recognized under the Japan Agreement for the year ended December 31, 2020 included an increase of $15.1 million resulting from changes to estimated variable consideration in the current year relating to performance obligations satisfied or partially satisfied in previous periods. The Company does not expect material variable consideration from estimated future co-development billing beyond development period in the transaction price related to the Japan Agreement. Amounts recognized as license revenue and development revenue under the Europe Agreement with Astellas were as follows (in thousands):
|  |  |  | Years Ended December 31, |
Agreement |  | Performance Obligation |  | 2020 |  |  | 2019 |  |  | 2018 |
Europe |  | License revenue |  | $ | — |  |  | $ | 117,470 |  |  | $ | — |
|  | Development revenue |  | $ | 17,954 |  |  | $ | 28,172 |  |  | $ | 18,503 |
The transaction price related to consideration received and accounts receivable has been allocated to each of the following performance obligations under the Europe Agreement with Astellas, along with any associated deferred revenue as follows (in thousands):
Europe Agreement |  | Cumulative Revenue Through December 31, 2020 |  |  | Deferred Revenue at December 31, 2020 |  |  | Total Consideration Through December 31, 2020 |
License |  | $ | 487,951 |  |  | $ | — |  |  | $ | 487,951 |
Development revenue |  |  | 248,962 |  |  |  | 1,429 |  |  |  | 250,391 |
Total license and development revenue |  | $ | 736,913 |  |  | $ | 1,429 |  |  | $ | 738,342 |
The revenue recognized under the Europe Agreement for the year ended December 31, 2020 included an increase in revenue of $1.5 million resulting from changes to estimated variable consideration in the current year relating to performance obligations satisfied or partially satisfied in previous periods. The remainder of the transaction price related to the Europe Agreement includes $27.6 million of variable consideration from estimated future co-development billing and is expected to be recognized over the remaining development service period. Amounts recognized as license revenue and development revenue under the U.S./RoW and China Agreements with AstraZeneca were as follows (in thousands):
|  |  |  | Years Ended December 31, |
Agreement |  | Performance Obligation |  | 2020 |  |  | 2019 |  |  | 2018 |
U.S. / RoW and China |  | License revenue |  | $ | — |  |  | $ | 47,681 |  |  | $ | 7,946 |
|  | Development revenue |  |  | 61,508 |  |  |  | 84,629 |  |  |  | 104,970 |
|  | China performance obligation |  | $ | (90 | ) |  | $ | 90 |  |  | $ | — |
The transaction price related to consideration received and accounts receivable has been allocated to each of the following performance obligations under the U.S./RoW Agreement and China Agreement, along with any associated deferred revenue as follows (in thousands):
U.S. / RoW and China Agreements |  | Cumulative Revenue Through December 31, 2020 |  |  | Deferred Revenue at December 31, 2020 |  |  | Total Consideration Through December 31, 2020 |
License |  | $ | 341,844 |  |  | $ | — |  |  | $ | 341,844 |
Co-development, information sharing & committee services |  |  | 554,775 |  |  |  | 2,276 |  |  |  | 557,051 |
China performance obligation |  |  | — |  |  |  | 137,338 |  |  |  | 137,338 |
Total license and development revenue |  | $ | 896,619 |  |  | $ | 139,614 |  | * | $ | 1,036,233 |
* | Contract assets and liabilities related to rights and obligations in the same contract are recorded net on the consolidated balance sheets. As of December 31, 2020, deferred revenue included $137.5 million related to the U.S./RoW and China Agreement, which represents the net of $139.6 million of deferred revenue presented above and a $2.1 million unbilled co-development revenue under the China Amendment with AstraZeneca.
The revenue recognized under the U.S./RoW Agreement and China Agreement for the year ended December 31, 2020 included a reduction in revenue of $2.9 million resulting from changes to estimated variable consideration in the current year relating to performance obligations satisfied or partially satisfied in previous periods. The remainder of the transaction price related to the U.S./RoW Agreement and China Agreement includes $37.9 million of variable consideration from estimated future co-development billing. The amount allocated to the U.S./RoW Agreement is expected to be recognized over the remaining development service period. The amount allocated to the China performance obligation is expected to be recognized as the Company transfers control of the commercial drug product to Falikang. Product Revenue, Net Product revenue from roxadustat commercial sales in China is recognized in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those products, net of various sales rebates and discounts. Product revenue, net was as follows (in thousands):
|  | Years Ended December 31, |
|  | 2020 |  |  | 2019 |
Gross revenue |  | $ | 89,027 |  |  | $ | 2,803 |
Price adjustment |  |  | — |  |  |  | (936 | )
Non-key account hospital listing award |  |  | (9,325 | ) |  |  | — |
Contractual sales rebate |  |  | (6,189 | ) |  |  | (149 | )
Other discounts and rebates |  |  | (923 | ) |  |  | (18 | )
Sales return |  |  | (92 | ) |  |  | — |
Product revenue, net |  | $ | 72,498 |  |  | $ | 1,700 |
In the second quarter of 2020, the Company amended the agreement with its pharmaceutical distributors, which triggered accounting modifications particularly related to the non-key account hospital listing award. For the year ended December 31, 2020, the non-key account hospital listing award was $9.3 million, which was recorded as a reduction to the revenue and calculated based on eligible non-key account hospital listings to date achieved by each distributor with certain requirements met during the period. For the year ended December 31, 2020 and 2019, the contractual sales rebate was $6.2 million and $0.1 million, respectively, which were calculated based on the stated percentage of gross sales by each distributor in the distribution agreement entered between FibroGen and each distributor. All other rebates and discounts, including sales return allowance were immaterial for the periods presented. For the year ended December 31, 2019, a $0.9 million of price adjustment was recorded based on government-listed price guidance and estimated channel inventory levels. The rebates and discounts that the Company’s pharmaceutical distributors have earned are eligible to be applied against future sales orders, limited to certain maximums until such rebates and discounts are exhausted. These rebates and discounts are recorded as contract liabilities at the time they become eligible in the same period that the related revenue is recorded. Due to the distributor’s legal right to offset, at each balance sheet date, the rebates and discounts are presented as reductions to gross accounts receivable from the distributor, or as a current liability to the distributor to the extent that the total amount exceeds the gross accounts receivable or when the Company expects to settle the discount in cash. The distributor’s legal right of offset is calculated at the individual distributor level. The following table includes a roll-forward of the related contract liabilities (in thousands):
|  | Balance at December 31, 2019 |  |  | Additions |  |  | Deduction |  |  | Currency Translation and Other |  |  | Gross Contract Liabilities Balance |  |  | Balance Presented Net Against Accounts Receivable |  |  | Balance at December 31, 2020 |
Product revenue - Contract liabilities |  | $ | (1,102 | ) |  | $ | (16,497 | ) |  | $ | 2,184 |  |  | $ | (270 | ) |  | $ | (15,685 | ) |  | $ | 548 |  |  | $ | (15,137 | )
As of December 31, 2020, the total rebates and discounts as reductions to gross accounts receivable was $0.5 million, and the total contract liabilities was $15.1 million, which was included in accrued and other current liabilities in the consolidated balance sheet. The reductions to gross accounts receivable, including the above-mentioned contra-accounts receivable items related to product revenue, totaled $0.8 million and $1.1 million as of December 31, 2020 and 2019, respectively. Drug Product Revenue Drug product revenue was as follows (in thousands):
|  | Years Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Astellas |  | $ | 4,281 |  |  | $ | (36,324 | ) |  | $ | 64,776 |
AstraZeneca |  |  | 4,625 |  |  |  | — |  |  |  | — |
Drug product revenue |  | $ | 8,906 |  |  | $ | (36,324 | ) |  | $ | 64,776 |
The Company fulfilled all the shipment obligations under the term of the Japan Amendment during the year ended December 31, 2018, and recognized the related product revenue of $64.8 million in the same period based on a transaction price that was subject to potential future adjustments, which represented a form of variable consideration. A change in estimated variable consideration incurred in 2019 related to the above API shipments in 2018, at the time the actual listed price for roxadustat was issued by the Japanese Ministry of Health, Labour and Welfare, which resulted in a total difference of $36.3 million between the estimated and the actual listed price and yield from the manufacture of bulk product tablets. In addition, during the year ended December 31, 2020, the Company recorded another $4.0 million reduction to drug product revenue related to the above API shipments, due to a change in estimated variable consideration. Specifically, the change in estimated variable consideration was based on the API held by Astellas at March 31, 2020 adjusted to reflect the updated listed price for roxadustat issued by the Japanese Ministry of Health, Labour and Welfare and changes in the estimated bulk product strength mix intended to be manufactured by Astellas, estimated cost to convert the API to bulk product tablets, and estimated yield from the manufacture of bulk product tablets, among others. During the second quarter of 2020, the Company fulfilled shipment obligations under the term of Japan Amendment with Astellas, and recognized related drug product revenue of $8.2 million in the same period. During the fourth quarter of 2020, the Company shipped bulk drug product from process validation supplies for commercial purposes under the term of the Europe Agreement with Astellas. The Company constrained the consideration from this shipment due to a high degree of uncertainty associated to the final consideration. As a result, the Company recorded $1.4 million as current deferred revenue and $4.6 million as long-term deferred revenue as of December 31, 2020. The deferred revenue will be recognized as and when uncertainty is resolved. The following table includes a roll-forward of the related contract liabilities (in thousands):
|  | Balance at December 31, 2019 |  |  | Additions |  |  | Balance at December 31, 2020 |
Drug product revenue - Astellas - contract liabilities |  | $ | — |  |  | $ | (5,984 | ) |  | $ | (5,984 | )
During the year ended December 31, 2020, the Company shipped bulk drug product to AstraZeneca as pre-commercial supply for process validation purposes, under the term of Commercial Supply Agreement under the U.S./RoW Agreement with AstraZeneca, and recognized drug product revenue of $4.6 million. Other Revenues Other revenues consist primarily of collagen material sold for research purposes. Other revenues were immaterial for each of the three years ended December 31, 2020. Deferred Revenue Deferred revenue represents amounts billed, or in certain cases, yet to be billed to the Company’s collaboration partners for which the related revenues have not been recognized because one or more of the revenue recognition criteria have not been met. The current portion of deferred revenue represents the amount to be recognized within one year from the balance sheet date based on the estimated performance period of the underlying performance obligations. The long-term portion of deferred revenue represents amounts to be recognized after one year through the end of the non-contingent performance period of the underlying performance obligations. Deferred revenue includes amounts allocated to the China performance obligation under the AstraZeneca arrangement as revenue recognition associated with this unit of accounting is tied to the commercial launch of the products within China and to when the control of the manufactured commercial drug product is transferred to AstraZeneca. As of December 31, 2020, approximately $3.5 million of the deferred revenue related to the China unit of accounting was included in short-term deferred revenue, which represents the amount of deferred revenue associated with the China unit of accounting that is expected to be recognized within the next 12 months, associated with the commercial sales in China.

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