Strategic Collaborations and Other Significant Agreements

12 Months Ended

Dec. 31, 2017

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Strategic Collaborations and Other Significant Agreements

3. Strategic Collaborations and Other Significant Agreements

Mitsubishi Tanabe Pharma Corporation Collaboration Agreement

Summary of Agreement

On December 11, 2015, the Company and MTPC entered into a collaboration agreement, the MTPC Agreement, providing MTPC with exclusive development and commercialization rights to vadadustat in Japan and certain other Asian countries, collectively, the MTPC Territory. In addition, the Company will supply vadadustat for both clinical and commercial use in the MTPC Territory, subject to MTPC’s option to manufacture commercial drug product in the MTPC Territory.

The Company and MTPC agreed that, instead of including Japanese patients in the Company’s global Phase 3 program for vadadustat, MTPC would be the sponsor of a Phase 3 program for vadadustat in Japan. Following consultation with the Japanese Pharmaceuticals and Medical Devices Agency, or the PMDA, MTPC initiated its Phase 3 development program for vadadustat in Japan in the fourth quarter of 2017.

In consideration for the exclusive license and other rights contained in the MTPC Agreement, Japanese patients will not be included in the global Phase 3 program and MTPC will make payments totaling up to $265.0 million, comprised of $20.0 million upfront payment, up to $50.0 million in specified development and regulatory milestones, up to $175.0 million in specified commercial milestones, and $20.0 million for Phase 2 studies in Japanese patients completed by the Company and reimbursable by MTPC, as well as tiered double-digit royalty payments up to 20% on sales of vadadustat in the MTPC Territory.

MTPC is responsible for the costs of the Phase 3 program in Japan and other studies required there, and will make no funding payments for the global Phase 3 program. The Company recently completed its Phase 2 study of vadadustat in non-dialysis dependent, or NDD, Japanese patients and reported top-line data in the third quarter of 2017. The Company also announced top-line data on its Phase 2 study of vadadustat in dialysis-dependent, or DD, Japanese patients in Japan in the first quarter of 2018. The costs of these Phase 2 studies are reimbursable by MTPC. Therefore, of the $40.0 million received by the Company in 2016, $20.0 million related to the upfront payment and the remaining $20.0 million is being applied towards costs already incurred by the Company for the Phase 2 studies. In addition, MTPC will reimburse the Company for costs in excess of $20.0 million to complete the studies. The Company has incurred approximately $19.0 million in Phase 2 costs through December 2017 and anticipates incurring an additional approximately $2.4 million in Phase 2 costs through the end of the studies. As a result, MTPC would be required to reimburse the Company an additional approximately $1.4 million related to the two Phase 2 studies.

MTPC initiated a Phase 3 NDD-CKD study and a Phase 3 DD-CKD study in Japan in the fourth quarter of 2017. Pursuant to the terms of the MTPC Agreement, MTPC is responsible for performing all Phase 3 activities related to the development of vadadustat in the MTPC Territory and has sole responsibility for the commercialization of vadadustat in the MTPC Territory as well as for Medical Affairs (as defined in the MTPC Agreement) in the MTPC Territory. Akebia is responsible for the completion of Phase 2 dosing studies as reimbursed by MTPC, manufacturing and supplying vadadustat for clinical use in the MTPC Territory and, if approved by the FDA, will enter into a supply agreement with MTPC for the commercial supply of vadadustat prior to commercial launch.

The Company and MTPC have established a joint steering committee pursuant to the agreement to oversee development and commercialization of vadadustat in the MTPC Territory, including approval of any development or commercialization plans. Unless earlier terminated, the MTPC Agreement will continue in effect on a country-by-country basis until the later of: expiration of the last-to-expire patent covering vadadustat in such country in the MTPC Territory; expiration of marketing or regulatory exclusivity in such country in the MTPC Territory; or ten years after the first commercial sale of vadadustat in such country in the MTPC Territory. MTPC may terminate the MTPC Agreement upon twelve months’ notice at any time after the second anniversary of the effective date of the MTPC Agreement. Either party may terminate the MTPC Agreement upon the material breach of the other party that is not cured within a specified time period or upon the insolvency of the other party.

MTPC is required to make certain milestone payments to the Company aggregating to approximately $225.0 million upon the achievement of specified development, regulatory and commercial events. More specifically, the Company is eligible to receive up to $10.0 million in development milestone payments, up to $40.0 million in regulatory milestone payments for the first product to achieve the associated event and up to $175.0 million in commercial milestone payments associated with aggregate sales of all products. Additionally, if vadadustat is commercialized, the Company would be entitled to receive tiered royalty payments in the low double digits based on a percentage of net sales. Royalty payments are subject to certain reductions, including upon the introduction of competitive products in certain instances. Royalties are due on a country-by-country basis from the date of first commercial sale of a licensed product in a country until the last to occur of: (i) the expiration of the last to expire valid claim within the intellectual property covering the licensed product, (ii) the expiration of marketing or regulatory exclusivity in such country, or (iii) the tenth anniversary of the first commercial sale of such licensed product in such country. Due to the uncertainty of pharmaceutical development and the high historical failure rates associated with drug development, no milestone or royalty payments may ever be received from MTPC.

In September 2017, the Company and MTPC entered into a new agreement that provided MTPC with an option to access data from the Company’s global Phase 3 vadadustat program for payments to the Company of up to $25.0 million. 

Revenue Recognition

The Company evaluated the elements of the MTPC Agreement in accordance with the provisions of ASC 605-25. The Company’s arrangement with MTPC contains the following deliverables: (i) license under certain of the Company’s intellectual property to develop and commercialize vadadustat in the MTPC Territory (the License Deliverable), (ii) clinical supply of vadadustat, (iii) knowledge transfer, (iv) Phase 2 dosing study research services, and (v) rights to future know-how.

The Company has identified two units of accounting in connection with its obligations under the MTPC Agreement. Factors considered in making the assessment of standalone value included, among other things, the capabilities of the collaboration partner, whether any other vendor sells the item separately, whether the value of the deliverable is dependent on the other elements in the arrangement, whether there are other vendors that can provide the items and if the customer could use the item for its intended purpose without the other deliverables in the arrangement. Additionally, the License Agreement does not include a general right of return. The two units of accounting identified in connection with the Company’s obligations under the MTPC Agreement are as follows:

(i) License, Research Services and Clinical Supply Unit of Accounting

The License Deliverable does not have standalone value and does not qualify for separation from the clinical supply of vadadustat. More specifically, the license delivered to MTPC does not provide the contractual right to manufacture vadadustat. MTPC is contractually prohibited from manufacturing any Licensed Product covered by the licenses during clinical trials. Accordingly, MTPC must obtain the clinical trial products from the Company which significantly limits the ability for MTPC to use the license for their intended use on a standalone basis.

The License Deliverable does not have standalone value and does not qualify for separation from the knowledge transfer because MTPC cannot fully utilize the license for its intended purpose without the corresponding information regarding know-how, development data and regulatory materials possessed by the Company.

The License Deliverable does not have standalone value and does not qualify for separation from the Phase 2 dosing study research services because MTPC cannot fully utilize the license for its intended purpose without the performance of the Phase 2 dosing studies. The Phase 2 dosing studies needed to be performed prior to the PMDA approving any Phase 3 study to be performed in the MTPC Territory. Furthermore, MTPC cannot benefit from the Phase 2 dosing studies without the license and the undelivered Phase 3 clinical supply.

The License Deliverable does not have standalone value from the clinical supply, knowledge transfer or Phase 2 studies. As a result, the License Deliverable, clinical supply, knowledge transfer and Phase 2 studies have been combined as a single unit of accounting (the License, Research and Clinical Supply Unit of Accounting)

(ii) Rights to Future Know-How Unit of Accounting

The License, Research and Clinical Supply Unit of Accounting has standalone value and qualifies for separation from the rights to future know how because MTPC can obtain the value of the License, Research and Clinical Supply Unit of Accounting without receipt of any rights to future know how that may be discovered or developed in the future.

The Company has determined that neither VSOE of selling price nor TPE of selling price is available for either of the units of accounting identified at inception of the arrangement with MTPC. Accordingly, the selling price of each unit of accounting was determined based on the Company’s BESP. The Company developed the BESP with the objective of determining the price at which it would sell such an item if it were to be sold regularly on a standalone basis. The Company developed the BESP for the Rights to Future Know How Unit of Accounting primarily based on the likelihood that additional intellectual property covered by the license conveyed will be developed during the term of the arrangement. The Company did not develop a BESP for the License, Research and Clinical Supply Unit of Accounting because the BESP associated with the Rights to Future Know How Unit of Accounting was determined to be immaterial. The Company has concluded that a change in the key assumptions used to determine the BESP for each unit of accounting would not have a significant impact on the allocation of arrangement consideration.

Allocable arrangement consideration at inception is comprised of: (i) the up-front payment of $20.0 million, (ii) the estimate of the cost for the Phase 2 studies of approximately $21.4 million, and (iii) the cost of all clinical supply provided to MTPC for the Phase 3 studies. No amounts were allocated to the Rights to Know How Unit of Accounting because the associated BESP was determined to be immaterial therefore the arrangement consideration will be allocated to the License, Research Services and Clinical Supply Unit of Accounting.

TheCompanyhasevaluatedallofthedevelopment,regulatoryandsalesmilestonesthatmaybereceivedinconnectionwiththe MTPC Agreement.Inevaluatingifamilestone  issubstantive,theCompanyassesseswhether:(i)theconsiderationiscommensuratewitheithertheCompany’sperformancetoachievethemilestoneortheenhancementofthevalueofthedelivereditem(s)asaresultofaspecificoutcomeresultingfromtheCompany’sperformancetoachievethemilestone,(ii)theconsiderationrelatessolelytopastperformance,and(iii)theconsiderationisreasonablerelativetoallofthedeliverablesandpaymenttermswithinthearrangement.Alldevelopmentandregulatorymilestones, with the exception of one development milestone associated with the near-term progress of the Phase 3 study, areconsideredsubstantiveonthebasisofthecontingentnatureofthemilestone,specificallyreviewingfactorssuchasthescientific,clinical,regulatory,commercialandotherrisksthatmustbeovercometoachievethemilestoneas wellasthe levelofeffortandinvestmentrequired. Accordingly, suchamountswillbe recognizedas revenuein fullintheperiodinwhichtheassociatedmilestoneisachieved,assumingallotherrevenuerecognitioncriteria are met. The non-substantive development milestone will be included in the arrangement consideration, if and when received, and allocated to the License, Research Services and Clinical Unit of Accounting within the arrangement and recognized as revenue when those underlying obligations are satisfied. The total aggregate amount of developmentmilestonesis$10.0million, of which $6.0 million was received in December 2017 and the remaining $4.0 million was invoiced in January 2018,andthetotalaggregateamountofapprovalmilestonesisupto$40.0million.Allsalesmilestones,upto$175.0million,willbeaccountedforinthesamemannerasroyaltiesandrecordedasrevenueuponachievementofthemilestone,assumingallotherrevenue recognition criteria are met.

TheCompanywillrecognizeroyaltyrevenueintheperiodofsaleoftherelatedproduct(s),basedontheunderlyingcontractterms,providedthatthereportedsalesarereliablymeasurableandtheCompanyhasnoremainingperformanceobligations,assumingallotherrevenuerecognitioncriteriaaremet.

Revenue for the fixed and determinable consideration made up of (i) the up-front payment of $20.0 million, (ii) the estimate of the cost for the Phase 2 studies of approximately $21.4 million, (iii) the cost of all clinical supply provided to MTPC for the Phase 3 studies, and (iv) $6.0 million in non-substantive development milestone received in the fourth quarter of 2017 will be recognized using a proportional performance method using the Company’s delivery of clinical supply of vadadustat to MTPC for the Phase 3 study as the basis. During the year-end December 31, 2017, the Company recognized revenue totaling $39.7 million with respect to the MTPC agreement. The revenue is classified as collaboration revenue in the accompanying consolidated statement of operations. As of December 31, 2017, there is approximately $7.5 million of short-term deferred revenue and $1.3 million in accounts receivable. There were no asset or liability balances classified as long-term in the consolidated balance sheet as of December 31, 2017.

U.S. Collaboration and License Agreement with Otsuka Pharmaceutical Co. Ltd.

Summary of Agreement

On December 18, 2016, the Company entered into a collaboration and license agreement with Otsuka, or the Otsuka U.S. Agreement. The collaboration is focused on the development and commercialization of vadadustat in the United States. Under the terms of the Otsuka U.S. Agreement, the Company will continue to lead the development of vadadustat, including the ongoing Phase 3 development program. The Company and Otsuka will co-commercialize vadadustat in the United States, subject to the approval of vadadustat by the FDA.

Under the terms of the Otsuka U.S. Agreement, the Company granted to Otsuka a co-exclusive, non-sublicensable license under certain intellectual property controlled by the Company solely to perform medical affairs activities and to conduct non-promotional and commercialization activities related to vadadustat in accordance with the associated plans. The co-exclusive license relates to activities that will be jointly conducted by the Company and Otsuka pursuant to the terms of the Otsuka U.S. Agreement.

Pursuant to the terms of the Otsuka U.S. Agreement, the Company is responsible for performing all activities related to the development of vadadustat as outlined in the current global development plan. The current global development plan encompasses all activities with respect to the ongoing PRO₂TECT and INNO₂VATE clinical programs that are necessary through the filing for marketing approval, as well as other studies. Under the Otsuka U.S. Agreement, the Company controls and retains final decision‑making authority with respect to the development of vadadustat. The Company’s obligations related to the conduct of the current global development plan include the associated manufacturing and supply services for vadadustat.

Under the Otsuka U.S. Agreement, the parties jointly conduct, and have equal responsibility for, all medical affairs, commercialization and non-promotional activities pursuant to underlying plans as agreed to by the parties. If approved by the FDA, the Company will provide vadadustat to Otsuka for commercialization pursuant to a separate supply agreement to be negotiated.

The activities under the Otsuka U.S. Agreement are governed by a joint steering committee, or JSC, formed by an equal number of representatives from the Company and Otsuka. The JSC coordinates and monitors the parties’ activities under the collaboration. Among other responsibilities, the JSC manages the overall strategic alignment between the parties, oversees the current global development plan and reviews the other detailed plans setting forth the parties’ activities under the arrangement, including the medical affairs plan and commercialization and non-promotional activities plan. Additionally, the parties established a joint development committee, or JDC, which is comprised of an equal number of representatives from the Company and Otsuka. Among other responsibilities, the JDC will share information related to, and review and discuss activities and progress under, the current global development plan and any other development that may be conducted pursuant to the collaboration. In support of the potential commercialization of vadadustat, the parties will establish a joint commercialization committee, or JCC, which will be comprised of an equal number of representatives from the Company and Otsuka. Among other responsibilities, the JCC will manage the activities and progress under the commercialization and non-promotional activities plan and all other sales and marketing activities. The Company has retained the final decision‑making authority with respect to all development matters, pricing strategy and certain other key commercialization matters.

Under the terms of the Otsuka U.S. Agreement, the Company received a $125.0 million up-front, non-refundable, non-creditable cash payment in December 2016. In March 2017, the Company received a payment of approximately $33.8 million, which represents reimbursement for Otsuka’s share of costs previously incurred by the Company in implementing the current global development plan through December 31, 2016. Going forward, Otsuka will contribute a percentage of the remaining costs to be incurred under the current global development plan subsequent to December 31, 2016, commencing upon the date on which the Company has incurred a specified amount of incremental costs. The Company estimates that Otsuka’s funding of the current global development plan costs subsequent to December 31, 2016 will total $153.6 million or more, depending on the actual costs incurred toward the vadadustat global development program. The costs associated with the performance of any development activities in addition to those outlined in the current global development plan will be subject to a cost sharing or reimbursement mechanism to be determined by the parties. Costs incurred with respect to medical affairs and commercialization and non-promotional activities will generally be shared equally by the parties. Either party’s share of the medical affairs and/or commercialization activities may be increased at such party’s request upon mutual agreement of the parties. In addition, if the costs incurred in completing the activities under the current global development plan exceed a certain threshold, then the Company may elect to require Otsuka to fund a higher percentage of the current global development costs. In such event, the excess of the payments made under such election and Otsuka’s allocated share of the current global development costs is fully creditable against future payments due to the Company under the arrangement.

In addition, Otsuka would be required to make certain milestone payments to the Company upon the achievement of specified development, regulatory and commercial events. More specifically, the Company is eligible to receive up to $125.0 million in development milestone payments and up to $65.0 million in regulatory milestone payments for the first product to achieve the associated event. Moreover, the Company is eligible for up to $575.0 million in commercial milestone payments associated with aggregate sales of all products. Due to the uncertainty of pharmaceutical development and the high historical failure rates associated therewith, no milestone payments may ever be received from Otsuka.

Under the Otsuka U.S. Agreement, the Company and Otsuka share the costs of developing and commercializing vadadustat in the United States and the profits from the sales of vadadustat after approval by the FDA. In connection with the profit share calculation, net sales include gross sales to third-party customers net of discounts, rebates, chargebacks, taxes, freight and insurance charges and other applicable deductions. Shared costs generally include costs attributable or reasonably allocable to the manufacture of vadadustat for commercialization purposes and the performance of medical affairs activities, non-promotional activities and commercialization activities.

Under the Otsuka U.S. Agreement, Otsuka originally had a limited period of time in which it can exercise an option to convert the arrangement from a profit share to a right to receive a mid-single digit royalty on future net sales of commercialized products (the Royalty Conversion Option). On August 4, 2017, Otsuka agreed to waive its right to exercise the Royalty Conversion Option in advance of its expiration, consequently, Otsuka has no further right to elect to exercise this option.

Unless earlier terminated, the Otsuka U.S. Agreement will expire on a country-by-country and product-by-product basis on the date that one or more generic versions of vadadustat first achieves 90% market penetration. Either party may terminate the Otsuka U.S. Agreement in its entirety upon an uncured breach or insolvency on the part of the other party. Otsuka may terminate the Otsuka U.S. Agreement in its entirety upon 12 months’ prior written notice at any time after the release of the first topline data from the global Phase 3 development program for vadadustat. In the event of termination of the Otsuka U.S. Agreement, all rights and licensees granted to Otsuka under the Otsuka U.S. Agreement will automatically terminate and the licenses granted to the Company will become freely sublicensable. In addition, the upfront payment, all development costs and milestone payments received by the Company prior to such termination will not be refunded to Otsuka.

Revenue Recognition

The Company evaluated the elements of the Otsuka US Agreement in accordance with the provisions of ASC 605-25. The Company’s arrangement with Otsuka contains the following deliverables: (i) license under certain of the Company’s intellectual property to develop, perform medical affairs activities with respect to and conduct non-promotional and commercialization activities related to vadadustat and products containing or comprising vadadustat (the License Deliverable), (ii) development services to be performed pursuant to the current global development plan (the Development Services Deliverable), (iii) rights to future intellectual property (the Future IP Deliverable), and (iv) joint committee services (the Committee Deliverable).

The Company has identified three units of accounting in connection with its obligations under the Otsuka U.S. Agreement. Factors considered in making the assessment of standalone value included, among other things, the capabilities of the collaboration partner, whether any other vendor sells the item separately, whether the value of the deliverable is dependent on the other elements in the arrangement, whether there are other vendors that can provide the items and if the customer could use the item for its intended purpose without the other deliverables in the arrangement. Additionally, the Otsuka U.S. Agreement does not include a general right of return. The three units of accounting identified in connection with the Company’s obligations under the Otsuka U.S. Agreement are as follows:

(i) License and Development Services Combined (License Unit of Accounting)

The License Deliverable does not qualify for separation from the Development Services Deliverable, due to the contractual limitations inherent in the license conveyed. More specifically, Otsuka does not have the contractual right to manufacture vadadustat and products containing or comprising vadadustat. However, the manufacturing and supply services that are conducted as part of the services to be performed pursuant to the current global development plan are necessary for Otsuka to fully exploit the associated license for its intended purpose. The value of the rights provided through the license conveyed will be realized when the underlying products covered by the intellectual property progress through the development cycle, receive marketing approval and are commercialized. Products containing or comprising vadadustat cannot be commercialized until the development services under the current global development plan are completed. Accordingly, Otsuka must obtain the manufacturing and supply of the associated products that is included within the development services to be performed pursuant to the current global development plan from the Company in order to derive benefit from the license which significantly limits the ability for Otsuka to utilize the License Deliverable for its intended purpose on a standalone basis.

(ii) Rights to Future Intellectual Property Unit of Accounting

The License Deliverable and the Development Services Deliverable qualify for separation from the Future IP Deliverable because Otsuka can obtain the value of the license using the clinical trial materials implicit in the development services without the receipt of any other intellectual property that may be discovered or developed in the future. The Future IP Deliverable qualifies for separation from the Committee Deliverable because the joint committee services have no bearing on the value to be derived from the rights to potential future intellectual property.

(iii) Joint Committee Services Unit of Accounting

The License Deliverable and Development Services Deliverable qualify for separation from the Committee Deliverable because Otsuka can obtain the value of the license using the clinical trial materials implicit in the development services without the joint committee services. The Committee Deliverable has standalone value from the rights to Future IP Deliverable because the joint committee services have no bearing on the value to be derived from the rights to potential future intellectual property.

The Company has determined that neither VSOE of selling price nor TPE of selling price is available for any of the units of accounting identified at inception of the Otsuka U.S. Agreement. Accordingly, the selling price of each unit of accounting was determined based on the Company’s BESP. The Company developed the BESP with the objective of determining the price at which it would sell such an item if it were to be sold regularly on a standalone basis. In developing the BESP for the Joint Committee Services Unit of Accounting, the Company considered the nature of the services to be performed and estimates of the associated effort and rates applicable to such services that would be expected to be realized under similar contracts. The Company developed the BESP for the Rights to Future Intellectual Property Unit of Accounting primarily based on the likelihood that additional intellectual property covered by the license conveyed will be developed during the term of the arrangement. The Company did not develop a BESP for the License Unit of Accounting due to the following: (i) the BESP associated with the Rights to Future Intellectual Property Unit of Accounting was determined to be immaterial and (ii) the period of performance and pattern of recognition for the License Unit of Accounting and the Joint Committee Services Unit of Accounting was determined to be similar. The Company has concluded that a change in the key assumptions used to determine the BESP for each unit of accounting would not have a significant impact on the allocation of arrangement consideration.

Allocable arrangement consideration at inception is comprised of: (i) the up-front payment of $125.0 million, (ii) the cost share payment with respect to amounts incurred by the Company through December 31, 2016 of $33.8 million, and (iii) an estimate of the cost share payments to be received with respect to amounts incurred by the Company subsequent to December 31, 2016. As of December 31, 2017, the estimate of the cost share payments to be received is $153.6 million or more. No amounts were allocated to the Rights to Future Intellectual Property Unit of Accounting because the associated BESP was determined to be immaterial. Due to the similar performance period and recognition pattern between the License Unit of Accounting and the Joint Committee Services Unit of Accounting, the arrangement consideration totaling $312.4 million has been allocated to the License Unit of Accounting and the Joint Committee Services Unit of Accounting on a combined basis. Accordingly, the Company will recognize revenue related to the allocable arrangement consideration on a proportional performance basis as the underlying development services are performed pursuant to the current global development plan which is commensurate with the period and consistent with the pattern over which the Company’s obligations are satisfied for both the License Unit of Accounting and the Joint Committee Services Unit of Accounting. Effectively, the Company has treated the arrangement as if the License Unit of Accounting and the Joint Committee Services Unit of Accounting are a single unit of accounting.

TheCompanyhasevaluatedallofthedevelopment,regulatoryandcommercialmilestonesthatmaybereceivedinconnectionwiththe Otsuka U.S. Agreement.Inevaluatingifamilestone  issubstantive,theCompanyassesseswhether:(i)theconsiderationis commensuratewitheithertheCompany’sperformancetoachievethemilestoneortheenhancementofthevalueofthedelivereditem(s)asaresultofaspecificoutcomeresultingfromtheCompany’sperformancetoachievethemilestone,(ii)theconsiderationrelatessolelytopastperformance,and(iii)theconsiderationisreasonablerelativetoallofthedeliverablesandpaymenttermswithinthearrangement. Alldevelopmentandregulatorymilestonesareconsideredsubstantiveonthebasisofthecontingentnatureofthemilestone,specificallyreviewingfactorssuchasthescientific,clinical,regulatory,commercialandotherrisksthatmustbeovercometoachievethemilestoneas wellasthe levelofeffortandinvestmentrequired. Accordingly, suchamountswillbe recognizedas revenuein fullintheperiodinwhichtheassociatedmilestoneisachieved,assumingallotherrevenuerecognitioncriteriaaremet.Allcommercial milestones will be recordedasrevenueuponachievementof themilestone,assumingallotherrevenuerecognitioncriteriaaremet.

During the years ended December 31, 2017 and December 31, 2016, the Company recognized revenue totaling approximately $86.0 million and $1.5 million, respectively, with respect to the Otsuka U.S. Agreement. The revenue is classified as collaboration revenue in the accompanying consolidated statement of operations. As of December 31, 2017, there is approximately $99.9 million of deferred revenue related to the Otsuka U.S. Agreement of which $45.3 million is classified as current and $54.6 million is classified as long-term in the accompanying consolidated balance sheet based on the performance period of the underlying obligations. Additionally, as of December 31, 2017, there is approximately $17.3 million in accounts receivable, of which $2.0 million is in unbilled accounts receivable, in the accompanying consolidated balance sheet.

The Company determined that the medical affairs, commercialization and non-promotional activities elements of the Otsuka U.S. Agreement represent joint operating activities in which both parties are active participants and of which both parties are exposed to significant risks and rewards that are dependent on the success of the activities. Accordingly, the Company is accounting for the joint medical affairs, commercialization and non-promotional activities in accordance with ASC No. 808, Collaborative Arrangements, orASC 808. Additionally, the medical affairs, commercialization and non-promotional activities were not deemed to be deliverables under ASC No. 605-25, Revenue Recognition–Multiple-Element Arrangements, orASC 605-25. As a result, the activities conducted pursuant to the medical affairs, commercialization and non-promotional activities plans will be accounted for as a component of the related expense in the period incurred. During the year ended December 31, 2017, the Company incurred approximately $0.7 million of costs related to the cost-sharing provisions of the Otsuka U.S. Agreement of which approximately $0.2 million are reimbursable by Otsuka and recorded as a reduction to research and development expense during the year ended December 31, 2017.

International Collaboration and License Agreement with Otsuka Pharmaceutical Co. Ltd.

Summary of Agreement

On April 25, 2017, the Company entered into a collaboration and license agreement with Otsuka, or the Otsuka International Agreement. The collaboration is focused on the development and commercialization of vadadustat in Europe, Russia, China, Canada, Australia, the Middle East and certain other territories, collectively, the Otsuka International Territory. Under the terms of the Otsuka International Agreement, the Company will continue to lead the development of vadadustat, including the ongoing global Phase 3 development program. Otsuka has the sole responsibility, at its own cost, for the commercialization of vadadustat in the Otsuka International Territory, subject to the approval by the relevant regulatory authorities.

Under the terms of the Otsuka International Agreement, the Company granted to Otsuka an exclusive, sublicensable license under certain intellectual property controlled by the Company to develop and commercialize vadadustat and products containing or comprising vadadustat in the Otsuka International Territory.

Pursuant to the terms of the Otsuka International Agreement, the Company is responsible for performing all activities related to the development of vadadustat as outlined in the current global development plan; however, the parties may agree to allocate certain responsibilities to Otsuka. The current global development plan encompasses all activities with respect to the ongoing PRO₂TECT and INNO₂VATE program, as well as other studies, through the filing for marketing approval. The current global development plan also includes other derivative and ancillary studies. Under the Otsuka International Agreement, the Company controls and retains final decision-making authority with respect to the development of vadadustat other than with respect to certain development matters specific to the Otsuka International Territory. Per the terms of the Otsuka International Agreement, Otsuka is generally responsible for the conduct of any development activities that may be required for marketing approval in the Otsuka International Territory or otherwise performed with respect to the Otsuka International Territory that are incremental to those included in the current global development plan. The Company’s obligations related to the conduct of the current global development plan include the associated manufacturing and supply services for vadadustat.

Under the Otsuka International Agreement, Otsuka is to be solely responsible for the conduct of all medical affairs and commercialization activities in the Otsuka International Territory pursuant to underlying plans as reviewed and discussed by the parties. If approved by the relevant jurisdictional regulatory health authorities in the Otsuka International Territory, the Company will provide vadadustat to Otsuka for commercialization pursuant to a separate supply agreement to be negotiated.

The activities under the Otsuka International Agreement are governed by a JSC formed by up to a specified number of representatives from the Company and Otsuka. The JSC coordinates and monitors the parties’ activities under the collaboration. Among other responsibilities, the JSC manages the overall strategic alignment between the parties, oversees the current global development plan and reviews the other detailed plans setting forth any other development activities that may be conducted under the arrangement. Additionally, the parties established a JDC which is be comprised of up to a specified number of representatives from the Company and Otsuka. Among other responsibilities, the JDC shares information related to, and reviews and discusses activities and progress under, the current global development plan and any other development that may be conducted pursuant to the collaboration. The Company and Otsuka also established a joint manufacturing committee, or JMC, which is comprised of up to a specified number of representatives from each of the parties. Among other responsibilities, the JMC oversees the manufacturing plan and related manufacturing activities. In support of the potential commercialization of vadadustat, the parties established a JCC which is comprised of up to a specified number of representatives from the Company and Otsuka. Among other responsibilities, the JCC reviews and discusses the activities and progress under the commercialization plan and all other sales and marketing activities. The Company has retained the final decision‑making authority with respect to all development matters, other than decisions related to certain development matters specific to the Otsuka International Territory. Otsuka has retained the final decision‑making authority with respect to all commercialization matters, other than decisions related to certain marketing matters.

Under the terms of the Otsuka International Agreement, the Company received a $73.0 million up-front, non-refundable, non-creditable cash payment. The Company also received a payment of approximately $0.2 million which represents reimbursement for Otsuka’s share of costs previously incurred by the Company in implementing the current global development plan in excess of a specified threshold during the quarter-ended March 31, 2017. Additionally, Otsuka will contribute a percentage of the remaining costs to be incurred under the current global development plan subsequent to March 31, 2017. The Company estimates that Otsuka’s funding of the current global development plan costs subsequent to March 31, 2017 will total roughly $163.6 million or more, depending on the actual global development costs incurred. The costs associated with the performance of any mutually agreed upon development activities in addition to those outlined in the current global development plan will be subject to a cost sharing or reimbursement mechanism to be determined by the parties. Otsuka may elect to conduct additional studies of vadadustat in the EU, subject to the Company’s right to delay such studies based on its objectives outside the Otsuka International Territory. Otsuka will pay a percentage of the costs of any such studies, and the Company will pay its portion of the costs in the form of a credit against future amounts due to the Company under the Otsuka International Agreement. The costs incurred related to any other development activities, which are pursued solely for obtaining or maintaining marketing approval in the Otsuka International Territory or otherwise performed solely with respect to the Otsuka International Territory that are incremental to the development activities included in the current global development plan, will be borne in their entirety by Otsuka. Otsuka will pay costs incurred with respect to medical affairs and commercialization activities in the Otsuka International Territory.

In addition, Otsuka would be required to make certain milestone payments to the Company upon the achievement of specified development, regulatory and commercial events. More specifically, the Company is eligible to receive up to $80.0 million in development milestone payments and up to $52.0 million in regulatory milestone payments for the first product to achieve the associated event. Moreover, the Company is eligible for up to $525.0 million in commercial milestone payments associated with aggregate sales of all products. Additionally, to the extent vadadustat is commercialized, the Company would be entitled to receive tiered royalty payments ranging from the low double digits to the low thirties based on a percentage of net sales. Royalties are due on a country-by-country basis from the date of the first commercial sale of a licensed product in a country until the latest to occur of:  (i) the expiration date in such country of the last to expire valid claim within the intellectual property covering the licensed product, (ii) the date of expiration of data or regulatory exclusivity in such country or (iii) the tenth anniversary of the first commercial sale of such licensed product in such country. Due to the uncertainty of pharmaceutical development and the high historical failure rates associated therewith, no milestone or royalty payments may ever be received from Otsuka. There are no cancellation, termination or refund provisions in the Otsuka International Agreement that contain material financial consequences to the Company.

Unless earlier terminated, the Otsuka International Agreement will expire upon the expiration of the royalty term in the last country in the Otsuka International Territory. Either party may terminate the Otsuka International Agreement in its entirety upon an uncured material breach or insolvency on the part of the other party. Otsuka may terminate the Otsuka International Agreement in its entirety or for a specific sub-division of the Otsuka International Territory upon 12 months’ prior written notice at any time after the release of the first topline data from either the PRO₂TECT Phase 3 development program or the INNO₂VATE Phase 3 development program, whichever comes first. In the event of termination of the Otsuka International Agreement, all rights and licensees granted to Otsuka under the Otsuka International Agreement will automatically terminate and the licenses granted to the Company will become freely sublicensable, but potentially subject to a future royalty. In addition, the upfront payment, all development costs and milestone payments received by the Company prior to such termination will not be eligible for refund to Otsuka.

Revenue Recognition

The Company has accounted for the Otsuka International Agreement separately from the collaboration arrangement with Otsuka with respect to the U.S. due to the lack of interrelationship and interdependence of the elements and payment terms within each of the contracts as it relates to the respective territories. Accordingly, the Company has applied the guidance in ASC No. 605-25, Revenue Recognition–Multiple-Element Arrangements, orASC 605-25, solely in reference to the terms and conditions of the Otsuka International Agreement, while the collaboration arrangement with Otsuka related to the U.S. has continued to be accounted for as a discrete agreement in its own right. The Company evaluated the Otsuka International Agreement in accordance with the provisions of ASC 605-25. The Company’s arrangement with Otsuka related to the Otsuka International Territory contains the following deliverables:  (i) license under certain of the Company’s intellectual property to develop and commercialize (including the associated packaging) vadadustat and products containing or comprising vadadustat (the License Deliverable), (ii) development services to be performed pursuant to the current global development plan (the Development Services Deliverable), (iii) rights to future intellectual property (the Future IP Deliverable) and (iv) joint committee services (the Committee Deliverable).

The Company has identified three units of accounting in connection with its obligation under the Otsuka International Agreement. Factors considered in making this assessment included, among other things, the capabilities of the collaboration partner, whether any other vendor sells the item separately, whether the value of the deliverable is dependent on the other elements in the arrangement, whether there are other vendors that can provide the items and if the customer could use the item for its intended purpose without the other deliverables in the arrangement. Additionally, the Otsuka International Agreement does not include a general right of return. The three units of accounting identified in connection with the Company’s obligations under the Otsuka International Agreement are as follows:  

(i) License and Development Services Combined (License Unit of Accounting)

The License Deliverable does not qualify for separation from the Development Services Deliverable due to the contractual limitations inherent in the license conveyed. More specifically, Otsuka does not have the contractual right to manufacture vadadustat and products containing or comprising vadadustat. However, the manufacturing and supply services that are conducted as part of the services to be performed pursuant to the current global development plan are necessary for Otsuka to fully exploit the associated license for its intended purpose. The value of the rights provided through the license conveyed will be realized when the underlying products covered by the intellectual property progress through the development cycle, receive marketing approval and are commercialized. Products containing or comprising vadadustat cannot be commercialized until the development services under the current global development plan are completed. Accordingly, Otsuka must obtain the manufacturing and supply of the associated products that is included within the development services to be performed pursuant to the current global development plan from the Company in order to derive benefit from the license which significantly limits the ability for Otsuka to utilize the License Deliverable for its intended purpose on a standalone basis. Therefore, the License Deliverable does not have standalone value from the Development Services Deliverable. As a result, the License Deliverable and the Development Services Deliverable have been combined as a single unit of accounting (the License Unit of Accounting).

(ii) Rights to Future Intellectual Property Unit of Accounting

The License Deliverable and the Development Services Deliverable qualify for separation from the Future IP Deliverable because Otsuka can obtain the value of the license using the clinical trial materials implicit in the development services without the receipt of any other intellectual property that may be discovered or developed in the future. The Future IP Deliverable qualifies for separation from the Committee Deliverable because the Committee Services Deliverable has no bearing on the value to be derived from the rights to potential future intellectual property.

(iii) Joint Committee Services Unit of Accounting

The License Deliverable and the Development Services deliverable qualify for separation from the Committee Deliverable because Otsuka can obtain the value of the license using the clinical trial materials implicit in the development service without the joint committee services. The Committee Deliverable qualifies for separation from the Future IP Deliverable because the Committee Deliverable has no bearing on the value to be derived from the rights to potential future intellectual property.

The Company has determined that neither VSOE of selling price nor TPE of selling price is available for any of the units of accounting identified at inception of the arrangement with Otsuka. Accordingly, the selling price of each unit of accounting was determined based on the Company’s BESP. The Company developed the BESP with the objective of determining the price at which it would sell such an item if it were to be sold regularly on a standalone basis. In developing the BESP for the Joint Committee Services Unit of Accounting, the Company considered the nature of the services to be performed and estimates of the associated effort and rates applicable to such services that would be expected to be realized under similar contracts. The Company developed the BESP for the Rights to Future Intellectual Property Unit of Accounting primarily based on the likelihood that additional intellectual property covered by the license conveyed will be developed during the term of the arrangement. The Company did not develop a BESP for the License Unit of Accounting due to the following: (i) the BESP associated with the rights to future intellectual property unit of accounting was determined to be immaterial and (ii) the period of performance and pattern of recognition for the License Unit of Accounting and the joint committee services unit of accounting was determined to be similar. The Company has concluded that a change in the key assumptions used to determine the BESP for each unit of accounting would not have a significant impact on the allocation of arrangement consideration.

Allocable arrangement consideration at inception is comprised of: (i) the up-front payment of $73.0 million, (ii) the cost share payment with respect to amounts incurred by the Company during the quarter ended March 31, 2017 of $0.2 million and (iii) an estimate of the cost share payments to be received with respect to amounts incurred by the Company subsequent to March 31, 2017. As of December 31, 2017, the estimate of the cost share payments to be received is approximately $163.6 million. No amounts were allocated to the Rights to Future Intellectual Property Unit of Accounting because the associated BESP was determined to be immaterial. Due to the similar performance period and recognition pattern between the License Unit of Accounting and the Joint Committee Services Unit of Accounting, the arrangement consideration totaling $236.8 million has been allocated to the License Unit of Accounting and the Joint Committee Services Unit of Accounting on a combined basis. Accordingly, the Company will recognize revenue related to the allocable arrangement consideration on a proportional performance basis as the underlying development services are performed pursuant to the current global development plan which is commensurate with the period and consistent with the pattern over which the Company’s obligations are satisfied for both the License Unit of Accounting and the Joint Committee Services Unit of Accounting. Effectively, the Company has treated the arrangement as if the License Unit of Accounting and the Joint Committee Services Unit of Accounting are a single unit of accounting.

TheCompanyhasevaluatedallofthedevelopment,regulatoryandcommercial milestonesthatmaybereceivedinconnectionwiththeOtsuka International Agreement.Inevaluatingifamilestone issubstantive,theCompanyassesseswhether:(i)theconsiderationis commensuratewitheithertheCompany’sperformancetoachievethemilestoneortheenhancementofthevalueofthedelivereditem(s)asaresultofaspecificoutcomeresultingfromtheCompany’sperformancetoachievethemilestone,(ii)theconsiderationrelatessolelytopastperformance,and(iii)theconsiderationisreasonablerelativetoallofthedeliverablesandpaymenttermswithinthearrangement.Alldevelopmentandregulatorymilestonesareconsideredsubstantiveonthebasisofthecontingentnatureofthemilestone,specificallyreviewingfactorssuchasthescientific,clinical,regulatory,commercialandotherrisksthatmustbeovercometoachievethemilestoneas wellasthe levelofeffortandinvestmentrequired. Accordingly, suchamountswillbe recognizedas revenuein fullintheperiodinwhichtheassociatedmilestoneisachieved,assumingallotherrevenuerecognitioncriteriaaremet.Allcommercial milestones willbeaccountedforinthesamemannerasroyaltiesandrecordedasrevenueuponachievementofthemilestone,assumingallotherrevenuerecognitioncriteriaaremet. The Company will recognize royalty revenue in the period of sale of the related product(s), based on the underlying contract terms, provided that the reported sales are reliably measurable and the Company has no remaining performance obligations, assuming all other revenue recognition criteria are met.

During the year ended December 31, 2017, the Company recognized revenue totaling approximately $52.3 million with respect to the Otsuka International Agreement. The revenue is classified as collaboration revenue in the accompanying consolidated statement of operations. As of December 31, 2017, there is approximately $70.8 million of deferred revenue related to the Otsuka International Agreement of which $32.1 million is classified as current and $38.7 million is classified as long-term in the accompanying consolidated balance sheet based on the performance period of the underlying obligations. Additionally, as of December 31, 2017, there is approximately $15.6 million in accounts receivable, of which $1.7 million is in unbilled accounts receivable, in the accompanying consolidated balance sheet.

Janssen Pharmaceutica NV Research and License Agreement

Summary of Agreement

On February 9, 2017, the Company entered into a Research and License Agreement, the Janssen Agreement, with Janssen Pharmaceutica NV, or Janssen, a subsidiary of Johnson & Johnson, pursuant to which Janssen granted the Company an exclusive license under certain intellectual property rights to develop and commercialize worldwide certain HIF-PH targeted compounds.

Under the terms of the Janssen Agreement, Janssen granted to the Company a license for a three-year research term to conduct research on the HIF compound portfolio, unless the Company elects to extend such research term for up to two additional one-year periods upon payment of an extension fee. During the research term, the Company may designate one or more compounds as candidates for development and commercialization. Once a compound is designated for development and commercialization, the Company will be solely responsible for the development and commercialization of the compound worldwide at its own cost and expense. The Janssen Agreement includes a license to develop and commercialize AKB-5169, a preclinical compound in development as an oral treatment for inflammatory bowel disease, or IBD.

Under the terms of the Janssen Agreement, the Company made an upfront payment of $1.0 million in cash to Janssen and issued a warrant to purchase 509,611 shares of the Company’s common stock. In addition, Janssen could be eligible to receive up to an aggregate of $16.5 million from the Company in specified development milestone payments on a product-by-product basis. Janssen will also be eligible to receive up to $215.0 million from the Company in specified commercial milestones as well as tiered, escalating royalties ranging from a low to mid-single digit percentage of net sales, on a product-by-product basis.

Unless earlier terminated, the Janssen Agreement will expire on a product-by-product and country-by-country basis upon the expiration of the last royalty term, which ends upon the longer of the expiry of the patents licensed under the Janssen Agreement, the expiry of regulatory exclusivity for such product, or 10 years from first commercial sale of such product. The Company may terminate the Janssen Agreement in its entirety or only with respect to a particular licensed compound or product upon 180 days’ prior written notice to Janssen. The parties also have customary termination rights, subject to a cure period, in the event of the other party’s material breach of the Janssen Agreement or in the event of certain additional circumstances.

As discussed above, the Company issued a Common Stock Purchase Warrant, the Warrant, to Johnson & Johnson Innovation – JJDC, Inc., or JJDC, an affiliate of Janssen, for 509,611 shares of the Company’s common stock at an exercise price of $9.81 per share. The Warrant is exercisable by JJDC, in whole or in part, at any time prior to the fifth anniversary of the date of issuance. The Warrant and the shares issuable upon exercise of the Warrant will be sold and issued without registration under the Securities Act of 1933, or the Securities Act. The Company recorded the fair value of the warrant in the amount of $3.4 million to additional paid in capital and research and development expense in March 2017.

Vifor Pharma License Agreement

Summary of License Agreement

On May 12, 2017, the Company entered into a License Agreement, or the Vifor Agreement, with Vifor (International) Ltd., or Vifor Pharma, pursuant to which the Company will grant Vifor Pharma an exclusive license to sell vadadustat solely to Fresenius Kidney Care Group LLC, or FKC, an affiliate of Fresenius Medical Care North America, in the United States.

The parties’ rights under the Vifor Agreement are conditioned upon the approval of vadadustat for DD-CKD patients by the FDA, inclusion of vadadustat in a bundled reimbursement model, and payment by Vifor Pharma of a $20.0 million milestone upon the occurrence of these two events. The Vifor Agreement is structured as a profit share arrangement between the Company and Vifor Pharma in which the Company will receive a majority of the profit from Vifor Pharma’s sales of vadadustat to FKC in the United States. The Company will share the milestone payment and the revenue from the profit share with Otsuka pursuant to the Otsuka U.S Agreement. The Company retains all rights to commercialize vadadustat for use in the NDD-CKD market and in other dialysis organizations in the United States, which will be done in collaboration with Otsuka following FDA approval.

Prior to FDA approval of vadadustat, the Company and Vifor Pharma will enter into a commercial supply agreement for vadadustat pursuant to which the Company will supply all of Vifor Pharma’s requirements for vadadustat in the United States. In addition, Vifor Pharma will enter into a supply agreement with FKC that will govern the terms pursuant to which Vifor Pharma will supply vadadustat to FKC for use in patients at its dialysis centers. During the term of the Vifor Agreement, Vifor Pharma will not sell to FKC or its affiliates any HIF product that competes with vadadustat in the United States.

Unless earlier terminated, the Vifor Agreement will expire upon the later of the expiration of all patents that claim or cover vadadustat, or expiration of data or regulatory exclusivity for vadadustat in the United States. Vifor Pharma may terminate the Vifor Agreement in its entirety upon 12 months’ prior written notice after the release of the first topline data in the vadadustat global Phase 3 program for dialysis-dependent CKD patients. Either party may terminate the Vifor Agreement in the event of the other party’s uncured material breach. The Company may also terminate the Vifor Agreement upon the occurrence of other events, such as for specific violations of the Vifor Agreement or if there are changes in Vifor Pharma’s relationship with FKC.

Investment Agreement

In connection with the Vifor Agreement, in May 2017, the Company and Vifor Pharma entered into an investment agreement, the Investment Agreement, pursuant to which the Company sold an aggregate of 3,571,429 shares of common stock, the Shares, par value $0.00001 per share, to Vifor Pharma at a price per share of $14.00 for a total of $50.0 million dollars. The amount representing the premium over the closing stock price of $12.69 on the date of the transaction, totaling $4.7 million, was determined by the Company to represent consideration related to the Vifor Agreement. As the parties’ rights under the Vifor Agreement are conditioned upon (a) the approval of vadadustat for DD-CKD patients by the FDA; (b) inclusion of vadadustat in a bundled reimbursement model; and (c) payment by Vifor Pharma of a $20.0 million milestone upon the occurrence of these two events, in accordance with ASC 605, the Company cannot currently determine the extent of its responsibility to supply all of Vifor Pharma’s requirements for vadadustat in the United States. Accordingly, the $4.7 million is recorded as deferred revenue in the accompanying consolidated balance sheets. Upon the satisfaction of the aforementioned conditions, revenue will be recognized as the Company supplies vadadustat to Vifor Pharma using a proportional performance method.

Vifor Pharma has agreed to a lock-up restriction such that it agrees not to sell its shares for a period of time following the effective date of the Investment Agreement as well as a customary standstill agreement. In addition, the Investment Agreement contains voting agreements made by Vifor Pharma with respect to the Shares. The Shares have not been registered pursuant to Securities Act of 1933, the “Act”, and were issued and sold in reliance upon the exemption from registration contained in Section 4(a)(2) of the Act and Rule 506 promulgated thereunder.