Annual report pursuant to Section 13 and 15(d)

Royalty Obligation

v3.20.4
Royalty Obligation
12 Months Ended
Dec. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Royalty Obligation Royalty Obligation
The royalty obligations are the result of a resolution of the board of directors of the Company dated March 8, 2012 whereby certain executive officers at that time (former executive officers) were provided with future potential employee benefit obligations for remaining with the Company, for a certain period of time, and this obligation was also contingent on the occurrence of uncertain future events. The obligation was recorded once the specified events were deemed probable to occur.
As a result of the completion of the Phase 3 AURORA trial, and the results obtained from the trial in the fourth quarter of 2019, the Company re-assessed the probability of royalty obligation payments being required in the future, and recorded the royalty obligation at December 31, 2019. Until one of the triggering events occur, no royalty payments are required to be paid. Royalties on sales or licensing expected in the next twelve months have been classified as short term. The total balance of the royalty obligation at December 31, 2020 and December 31, 2019 was estimated to be $15 million and $8.2 million, respectively.
During the year ended December 31, 2020 the Company re-assessed the royalty obligation and reduced the discount rate from 12.0% at December 31, 2019 to 10.3% at December 31, 2020. The reduction was primarily attributable to the decline in interest rates caused by the global coronavirus (COVID-19) pandemic. The change in discount rate, FDA approval of LUPKYNIS on January 22, 2021 and passage of time, on revaluation, resulted in an increase in the royalty obligation of $6.8 million for the year ended December 31, 2020.