KYNTRA BIO, INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDA TED BALANCE SHEETS (In thousands, except per share amounts) (Unaudited) September 30, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 155,960 $ 171,223 Short-term investments 252,560 233,967 Accounts receivable, net ($ 14,337 and $ 10,930 from related parties) 15,328 17,401 Inventories 39,950 31,015 Prepaid expenses and other current assets 10,426 20,453 Total current assets 474,224 474,059 Restricted time deposits 2,072 2,072 Long-term investments 17,780 167,796 Property and equipment, net 22,287 28,277 Equity method investment in unconsolidated variable interest entity 4,631 3,825 Operating lease right-of-use assets 82,903 91,112 Other assets 4,940 6,680 Total assets $ 608,837 $ 773,821 Liabilities, stockholders’ equity and non-controlling interests Current liabilities: Accounts payable $ 19,323 $ 26,097 Accrued and other current liabilities ($ 55,305 and $ 4 to a related party) 213,806 172,599 Deferred revenue ($ 4,706 and $ 3,201 to related parties) 7,361 15,857 Operating lease liabilities, current 11,504 10,944 Total current liabilities 251,994 225,497 Product development obligations 15,422 17,613 Deferred revenue, net of current ($ 42,278 and $ 25,891 to a related party) 199,758 186,801 Operating lease liabilities, non-current 81,091 88,776 Other long-term liabilities 14,299 26,021 Total liabilities 562,564 544,708 Commitments and Contingencies (Note 8) Stockholders’ equity: Preferred stock, $ 0.01 par value; 125,000 shares authorized; no shares issued and outstanding at September 30, 2022 and December 31, 2021 — — Common stock, $ 0.01 par value; 225,000 shares authorized at September 30, 2022 and December 31, 2021; 93,936 and 92,881 shares issued and outstanding at September 30, 2022 and December 31, 2021 939 929 Additional paid-in capital 1,524,226 1,476,414 Accumulated other comprehensive loss ( 7,346 ) ( 4,163 ) Accumulated deficit ( 1,491,513 ) ( 1,264,034 ) Total stockholders’ equity 26,306 209,146 Non-controlling interests 19,967 19,967 Total equity 46,273 229,113 Total liabilities, stockholders’ equity and non-controlling interests $ 608,837 $ 773,821 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 2 Table of Contents FIBROGEN, INC. CONDENSED CONSOLIDATED S TATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenue: License revenue (includes $ 0 , $ 108,434 , $ 22,590 and $ 108,434 from a related party) $ — $ 116,434 $ 22,590 $ 116,434 Development and other revenue (includes $ 1,414 , $ 14,127 , $ 8,419 and $ 20,383 from a related party) 2,453 26,097 19,672 60,325 Product revenue, net (includes $ 14,914 , $ 10,328 , $ 50,873 and $ 32,495 from a related party) 17,359 13,442 59,495 42,175 Drug product revenue (includes $( 4,077 ), $ 0 , $ 4,610 and $ 2,056 from a related party) ( 4,077 ) — 4,610 ( 168 ) Total revenue 15,735 155,973 106,367 218,766 Operating costs and expenses: Cost of goods sold 4,308 3,266 15,355 9,746 Research and development 75,182 75,880 235,163 273,123 Selling, general and administrative 29,902 25,853 90,722 89,186 Total operating costs and expenses 109,392 104,999 341,240 372,055 Income (loss) from operations ( 93,657 ) 50,974 ( 234,873 ) ( 153,289 ) Interest and other, net Interest expense ( 84 ) ( 109 ) ( 321 ) ( 965 ) Interest income and other income (expenses), net 1,798 ( 1,303 ) 6,672 ( 2,120 ) Total interest and other, net 1,714 ( 1,412 ) 6,351 ( 3,085 ) Income (loss) before income taxes ( 91,943 ) 49,562 ( 228,522 ) ( 156,374 ) Provision for income taxes 114 106 250 235 Investment income in unconsolidated variable interest entity 407 342 1,293 664 Net income (loss) $ ( 91,650 ) $ 49,798 $ ( 227,479 ) $ ( 155,945 ) Net income (loss) per share - basic and diluted $ ( 0.98 ) $ 0.54 $ ( 2.43 ) $ ( 1.69 ) Weighted average number of common shares used to calculate net income (loss) per share: Basic 93,767 92,644 93,431 92,206 Diluted 93,767 92,808 93,431 92,206 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 3 Table of Contents FIBROGEN, INC. CONDENSED CONSOLIDATED STATE MENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net income (loss) $ ( 91,650 ) $ 49,798 $ ( 227,479 ) $ ( 155,945 ) Other comprehensive income (loss): Foreign currency translation adjustments ( 436 ) 396 ( 28 ) 366 Available-for-sale investments: Unrealized gain (loss) on investments, net of tax effect 20 13 ( 3,155 ) ( 25 ) Other comprehensive gain (loss), net of taxes ( 416 ) 409 ( 3,183 ) 341 Comprehensive income (loss) $ ( 92,066 ) $ 50,207 $ ( 230,662 ) $ ( 155,604 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 4 Table of Contents FIBROGEN, INC. CONDENSED CONSOLIDATED STATEMENT S OF CHANGES IN EQUITY (In thousands, except share data) (Unaudited) For The Three Month Period Common Stock Additional Paid-in Accumulated Other Comprehensive Accumulated Non Controlling Shares Amount Capital Income (Loss) Deficit Interests Total Balance at June 30, 2022 93,733,034 $ 937 $ 1,509,636 $ ( 6,930 ) $ ( 1,399,863 ) $ 19,967 $ 123,747 Net loss — — — — ( 91,650 ) — ( 91,650 ) Change in unrealized gain or loss on investments — — — 20 — — 20 Foreign currency translation adjustments — — — ( 436 ) — — ( 436 ) Shares issued from stock plans, net of payroll taxes paid 203,306 2 ( 995 ) — — — ( 993 ) Stock-based compensation — — 15,585 — — — 15,585 Balance at September 30, 2022 93,936,340 $ 939 $ 1,524,226 $ ( 7,346 ) $ ( 1,491,513 ) $ 19,967 $ 46,273 Balance at June 30, 2021 92,608,929 $ 926 $ 1,443,975 $ ( 4,567 ) $ ( 1,179,754 ) $ 19,271 $ 279,851 Net income — — — — 49,798 — 49,798 Change in unrealized gain or loss on investments — — — 13 — — 13 Foreign currency translation adjustments — — — 396 — — 396 Shares issued from stock plans, net of payroll taxes paid 99,023 1 ( 700 ) — — — ( 699 ) Stock-based compensation — — 15,704 — — — 15,704 Balance at September 30, 2021 92,707,952 $ 927 $ 1,458,979 $ ( 4,158 ) $ ( 1,129,956 ) $ 19,271 $ 345,063 5 Table of Contents FIBROGEN, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED) (In thousands, except share data) (Unaudited) For The Nine Month Period Common Stock Additional Paid-in Accumulated Other Comprehensive Accumulated Non Controlling Shares Amount Capital Loss Deficit Interests Total Balance at December 31, 2021 92,880,533 $ 929 $ 1,476,414 $ ( 4,163 ) $ ( 1,264,034 ) $ 19,967 $ 229,113 Net loss — — — — ( 227,479 ) — ( 227,479 ) Change in unrealized gain or loss on investments — — — ( 3,155 ) — — ( 3,155 ) Foreign currency translation adjustments — — — ( 28 ) — — ( 28 ) Shares issued from stock plans, net of payroll taxes paid 1,055,807 10 ( 1,583 ) — — — ( 1,573 ) Stock-based compensation — — 49,395 — — — 49,395 Balance at September 30, 2022 93,936,340 $ 939 $ 1,524,226 $ ( 7,346 ) $ ( 1,491,513 ) $ 19,967 $ 46,273 Balance at December 31, 2020 91,440,633 $ 914 $ 1,399,774 $ ( 4,499 ) $ ( 974,011 ) $ 19,271 $ 441,449 Net loss — — — — ( 155,945 ) — ( 155,945 ) Change in unrealized gain or loss on investments — — — ( 25 ) — — ( 25 ) Foreign currency translation adjustments — — — 366 — — 366 Shares issued from stock plans, net of payroll taxes paid 1,267,319 13 5,116 — — — 5,129 Stock-based compensation — — 54,089 — — — 54,089 Balance at September 30, 2021 92,707,952 $ 927 $ 1,458,979 $ ( 4,158 ) $ ( 1,129,956 ) $ 19,271 $ 345,063 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 6 Table of Contents FIBROGEN, INC. CONDENSED CONSOLIDATED S TATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 2022 2021 Operating activities Net loss $ ( 227,479 ) $ ( 155,945 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 7,503 7,717 Amortization of finance lease right-of-use assets 411 4,509 Net accretion of premium and discount on investments 1,842 1,447 Unrealized loss on equity investments — 12 Investment income in unconsolidated variable interest entity ( 1,293 ) ( 664 ) (Gain) / loss on disposal of property and equipment ( 3 ) 232 Stock-based compensation 49,377 54,089 Expense for acquired in-process research and development asset — 25,000 Realized loss on sales of available-for-sale securities 5 8 Changes in operating assets and liabilities: Accounts receivable, net 983 6,131 Inventories ( 11,147 ) ( 12,658 ) Prepaid expenses and other current assets 8,265 ( 11,160 ) Operating lease right-of-use assets 7,759 1,232 Other assets 823 ( 3,563 ) Accounts payable ( 5,120 ) ( 1,115 ) Accrued and other liabilities 87,167 31,997 Operating lease liabilities, current 715 410 Deferred revenue 4,509 40,650 Accrued interest for finance lease liabilities ( 68 ) ( 76 ) Operating lease liabilities, non-current ( 7,407 ) ( 1,326 ) Other long-term liabilities ( 10,262 ) ( 14,199 ) Net cash used in operating activities ( 93,420 ) ( 27,272 ) Investing activities Purchases of property and equipment ( 3,408 ) ( 3,790 ) Payment made for acquired in-process research and development asset ( 35,000 ) ( 25,000 ) Proceeds from sale of property and equipment 8 — Purchases of available-for-sale securities ( 97,301 ) ( 397,909 ) Proceeds from sales of available-for-sale securities 7,382 4,000 Proceeds from maturities of investments 216,342 46,294 Net cash provided by (used in) investing activities 88,023 ( 376,405 ) Financing activities Repayments of finance lease liabilities ( 23 ) ( 5,359 ) Repayments of lease obligations ( 302 ) ( 302 ) Cash paid for payroll taxes on restricted stock unit releases ( 4,562 ) ( 6,734 ) Proceeds from issuance of common stock 2,989 11,863 Net cash used in financing activities ( 1,898 ) ( 532 ) Effect of exchange rate change on cash and cash equivalents ( 7,968 ) 343 Net decrease in cash and cash equivalents ( 15,263 ) ( 403,866 ) Total cash and cash equivalents at beginning of period 171,223 678,393 Total cash and cash equivalents at end of period $ 155,960 $ 274,527 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 7 Table of Contents FIBROGEN, INC. NOTES TO THE CONDENSED CONSOL IDATED FINANCIAL STATEMENTS (Unaudited) 1. Significant Accounting Policies Description of Operations FibroGen, Inc. (“FibroGen” or the “Company”) is headquartered in San Francisco, California, with subsidiary offices in Beijing and Shanghai, People’s Republic of China (“China”). FibroGen is a leading biopharmaceutical company developing and commercializing a pipeline of first-in-class therapeutics. The Company applies its pioneering expertise in hypoxia-inducible factor (“HIF”) biology, 2-oxoglutarate enzymology, and connective tissue growth factor to advance innovative medicines for the treatment of anemia, fibrotic disease, and cancer. Pamrevlumab, a human monoclonal antibody targeting connective tissue growth factor, is in Phase 3 clinical development for the treatment of idiopathic pulmonary fibrosis, locally advanced unresectable pancreatic cancer and Duchenne muscular dystrophy. To date, the Company has retained exclusive worldwide rights for pamrevlumab. Roxadustat is an oral small molecule inhibitor of HIF prolyl hydroxylase activity. Roxadustat (爱瑞卓 ® , EVRENZO TM ) is approved in China, Europe, Japan, and numerous other countries for the treatment of anemia in chronic kidney disease (“CKD”) for patients who are on dialysis and not on dialysis. Astellas Pharma Inc. (“Astellas”) and FibroGen are collaborating on the development and commercialization of roxadustat in territories including Japan, Europe, Turkey, Russia and the Commonwealth of Independent States, the Middle East, and South Africa. FibroGen and AstraZeneca AB (“AstraZeneca”) are collaborating on the development and commercialization of roxadustat in the United States (“U.S.”), China, other markets in the Americas, Australia/New Zealand, and Southeast Asia. Roxadustat is in Phase 3 clinical development for anemia associated with myelodysplastic syndromes. The Company has completed a Phase 2 study of roxadustat in chemotherapy-induced anemia and is running a Phase 3 trial of roxadustat in chemotherapy-induced anemia in China. The Company has a pipeline of late-stage clinical programs as well as preclinical drug candidates at various stages of development that include both small molecules and biologics. The Company has leveraged its internally developed 2-oxoglutarate and connective tissue growth factor biology expertise as well as in-licensing of additional programs, such as antibodies targeting Galectin-9 protein (“Gal-9”) and C-C Motif Chemokine Receptor 8 (“CCR8”), to further enhance its late-stage preclinical pipeline. FibroGen’s goal is to build a diversified pipeline with novel drugs that will address unmet patient needs in oncology, immunology, and fibrosis. Basis of Presentation and Principles of Consolidation The condensed consolidated financial statements include the accounts of FibroGen, its wholly-owned subsidiaries and its majority-owned subsidiaries, FibroGen Europe Oy and FibroGen China Anemia Holdings, Ltd. All inter-company transactions and balances have been eliminated in consolidation. For the variable interest entity (“VIE”) for which FibroGen is not the primary beneficiary, the Company uses the equity method of accounting. The Company operates as one reportable segment — the discovery, development and commercialization of novel therapeutics to treat serious unmet medical needs. The unaudited condensed consolidated financial statements and related disclosures have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) applicable to interim financial reporting and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”) and, therefore, do not include all information and footnote disclosures normally included in the annual consolidated financial statements. The financial information included herein should be read in conjunction with the consolidated financial statements and related notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed on February 28, 2022 and as amended on March 4, 2022 (“2021 Form 10-K”). Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no impact on previously reported financial position, results of operations, or cash flows. 8 Table of Contents Use of Estimates The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions include valuation and recognition of revenue and deferred revenue, specifically, estimates in variable consideration for drug product sales, and estimates in transaction price per unit for the China manufacturing and supply obligation. On an ongoing basis, management reviews these estimates and assumptions. Changes in facts and circumstances may alter such estimates and actual results could differ from those estimates. In the Company’s opinion, the accompanying unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair statement of its financial position, results of operations and cash flows for the interim periods presented. Significant Accounting Policies The accounting policies used by the Company in its presentation of interim financial results are consistent with those presented in Note 2 to the consolidated financial statements included in the 2021 Form 10-K, except for the updates to the following: Stock-Based Compensation The Company maintains equity incentive plans under which equity awards are granted to employees, which are comprised of stock options, service-based restricted stock units (“RSUs”), performance-based RSUs, and total shareholder return (“TSR”) awards. The Company measures and recognizes compensation expense for all stock options, service and performance-based restricted stock units granted to its employees and directors based on the estimated fair value of the award on the grant date. The Company uses the Black-Scholes valuation model to estimate the fair value of stock option awards. The determination of the grant date fair value of options using the Black-Scholes valuation model is affected by the Company’s estimated common stock fair value and requires management to make a number of assumptions including the expected life of the option, the volatility of the underlying stock, the risk-free interest rate and expected dividends. To estimate the fair value of the TSR awards, the Company uses the Monte Carlo valuation model to simulate the probabilities of achievement, which requires management to make a number of assumptions including 30-day average price, volatility of the underlying stock and the Company's peers, and the risk-free interest rate. The compensation cost of service-based stock options and restricted stock units is recognized net of any estimated forfeitures on a straight-line basis over the employee requisite service period. Compensation cost for performance-based RSUs is expensed over the respective vesting periods when the achievement of performance criteria is probable. Compensation cost for the TSR awards is recognized over the requisite service period, regardless of when, if ever, the market condition is satisfied. The Company believes that the fair value of stock options granted to non-employees is more reliably measured than the fair value of the services received. Net Loss per Share The following is a reconciliation of the basic and diluted net income (loss) per share calculation for the periods presented (in thousands, except per share data): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net income (loss) $ ( 91,650 ) $ 49,798 $ ( 227,479 ) $ ( 155,945 ) Weighted average shares used to compute net income (loss) per share: Basic 93,767 92,644 93,431 92,206 Dilutive effect of potential common shares — 164 — — Diluted 93,767 92,808 93,431 92,206 Net income (loss) per share: Basic $ ( 0.98 ) $ 0.54 $ ( 2.43 ) $ ( 1.69 ) Diluted $ ( 0.98 ) $ 0.54 $ ( 2.43 ) $ ( 1.69 ) 9 Table of Contents Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive and as such, these shares are not included in the calculation of diluted earnings per share. The Company reported a net loss for the three months ended September 30, 2022, and nine months ended September 30, 2022 and 2021. Therefore, dilutive common shares are not assumed to have been issued since their effect is anti-dilutive for these periods. Diluted weighted average shares excluded the following potential common shares related to s tock options, RSUs (including service-based RSUs, performance-based RSUs and TSR awards) and shares to be purchased under the 2014 Employee Stock Purchase Plan (“ESPP”) for the periods presented as they were anti-dilutive (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Employee stock options 9,715 10,301 9,794 7,860 RSUs 1,978 1,911 2,066 1,509 ESPP 50 321 390 357 11,743 12,533 12,250 9,726 Risks and Uncertainties The Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, the results of clinical trials and the achievement of milestones, research developments, actions by regulatory authorities, market acceptance of the Company’s product candidates, competition from other products and larger companies, intellectual property protection for the Company's proprietary technology, strategic relationships, and dependence on key individuals, suppliers, clinical organization, and other third parties. Recently Issued Accounting Guidance Not Yet Adopted In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ ASU 2020-04” ) , which provides companies with optional financial reporting alternatives to reduce the cost and complexity associated with the accounting for contracts and hedging relationships affected by reference rate reform. This guidance is effective as of March 12, 2020 through December 31, 2022. Subsequently in January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope , which clarifies ASU 2020-04 and provides certain optional expedients that allow derivative instruments impacted by changes in the interest rate used for margining, discounting or contract price alignment to qualify for certain optional relief. ASU 2021-01 is effective in the same timeframe as ASU2020-04. The relief offered by this guidance, if adopted, is available to companies for the period March 12, 2020 through December 31, 2022. The Company did not elect to apply any of the expedients or exceptions as of and for the three and nine months ended September 30, 2022 . The Company has certain lease arrangements that were accounted for with reference to the London Inter-Bank Offered Rate (“LIBOR”). The Company has evaluated the options for transitioning away from LIBOR for these arrangements and does not expect a material impact on its condensed consolidated financial statements and related disclosures upon adoption of this guidance. 2. Collaboration Agreements, License Agreement and Revenues Astellas Agreements Astellas 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 (“Astellas Japan Agreement”). Under this agreement, Astellas agreed to pay license fees, other upfront consideration and various milestone payments, totaling $ 172.6 million . The Astellas 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 Japan’s Ministry of Health, Labour and Welfare, adjusted for certain elements, after commercial launch. The aggregate amount of consideration received through September 30, 2022 totaled $ 105.1 million , excluding drug product revenue that is discussed under the Drug Product Revenue section below. 10 Table of Contents Amounts recognized as license revenue and development revenue under the Astellas Japan Agreement were as follows for the three and nine months ended September 30, 2022 and 2021 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, Agreement Performance Obligation 2022 2021 2022 2021 Astellas Japan Agreement License revenue $ — $ — $ — $ — Development revenue $ 45 $ 66 $ 156 $ 245 The transaction price related to consideration received through September 30, 2022 and accounts receivable has been allocated to each of the following performance obligations under the Astellas Japan Agreement, along with any associated deferred revenue as follows (in thousands): Astellas Japan Agreement Cumulative Revenue Through September 30, 2022 Deferred Revenue at September 30, 2022 Total Consideration Through September 30, 2022 License $ 100,347 $ — $ 100,347 Development revenue 16,754 — 16,754 Total license and development revenue $ 117,101 $ — $ 117,101 There was no rev enue resulting from changes to estimated variable consideration in the current period relating to performance obligations satisfied or partially satisfied in previous periods for the three months ended September 30, 2022 under the Astellas Japan Agreement. The Company does no t expect material variable consideration from estimated future co-development billing beyond the development period in the transaction price related to the Astellas Japan Agreement. In 2018, FibroGen and Astellas entered into an amendment to the Astellas Japan Agreement that allows Astellas to manufacture roxadustat drug product for commercialization in Japan (the “Astellas Japan Amendment”). The related drug product revenue is described under the Drug Product Revenue section below. Astellas 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 (“Astellas Europe Agreement”). Under the terms of the Astellas Europe Agreement, Astellas agreed to pay license fees, other upfront consideration and various milestone payments, totaling $ 745.0 million . U nder the Astellas Europe Agreement, Astellas committed to fund 50 % of joint development costs for Europe and North America, and all territory-specific costs. The Astellas Europe Agreement also provides for tiered payments based on net sales of product (as defined) in the low 20% range . On March 21, 2022, EVRENZO ® (roxadustat) was registered with the Russian Ministry of Health. The Company evaluated the regulatory milestone payment associated with the approval in Russia under the Astellas Europe Agreement and concluded that this milestone was achieved in the first quarter of 2022. Accordingly, the consideration of $ 25.0 million associated with this milestone was included in the transaction price and allocated to performance obligations under the Astellas Europe Agreement, all of which was recognized as revenue during the first quarter of 2022 from performance obligations satisfied. Such amount was billed and recorded in accounts receivable from Astellas as of March 31, 2022 and received in April 2022. The aggregate amount of consideration received under the Astellas Europe Agreement through September 30, 2022 totaled $ 685.0 million , excluding drug product revenue that is discussed under the Drug Product Revenue section below. Amounts recognized as license revenue and development revenue under the Astellas Europe Agreement were as follows for the three and nine months ended September 30, 2022 and 2021 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, Agreement Performance Obligation 2022 2021 2022 2021 Astellas Europe Agreement License revenue $ — $ 108,434 $ 22,590 $ 108,434 Development revenue $ 1,369 $ 14,061 $ 8,263 $ 20,138 11 Table of Contents The transaction price related to consideration received through September 30, 2022 and accounts receivable has been allocated to each of the following performance obligations under the Astellas Europe Agreement, along with any associated deferred revenue as follows (in thousands): Astellas Europe Agreement Cumulative Revenue Through September 30, 2022 Deferred Revenue at September 30, 2022 Total Consideration Through September 30, 2022 License $ 618,975 $ — $ 618,975 Development revenue 278,905 — 278,905 Total license and development revenue $ 897,880 $ — $ 897,880 There was no rev enue resulting from changes to estimated variable consideration in the current period relating to performance obligations satisfied or partially satisfied in previous periods for three months ended September 30, 2022 under the Astellas Europe Agreement. The remainder of the transaction price related to the Astellas Europe Agreement includes $ 6.3 million of variable consideration from estimated future co-development billing and is estimated to be recognized over the remaining development service period. Under the Astellas Europe Agreement, Astellas has an option to purchase roxadustat bulk drug product in support of commercial supplies. During the first quarter of 2021, the Company entered into an EU Supply Agreement with Astellas under the Astellas Europe Agreement (“Astellas EU Supply Agreement”) to define general forecast, order, supply and payment terms for Astellas to purchase roxadustat bulk drug product from FibroGen in support of commercial supplies. The related drug product revenue is described under the Drug Product Revenue section below. AstraZeneca Agreements AstraZeneca 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 (“AstraZeneca U.S./RoW Agreement”). It also excludes China, which is covered by a separate agreement with AstraZeneca described below. Under the terms of the AstraZeneca U.S./RoW Agreement, AstraZeneca agreed to pay upfront, non-contingent, non-refundable and time-based payments, and potential milestone payments, totaling $ 1.2 billion . AstraZeneca commits to pay the Comp any 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 is entitled to 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. The aggregate amount of consideration received under the AstraZeneca U.S./RoW Agreement through September 30, 2022 totaled $ 439.0 million , excluding drug product revenue that is discussed separately below. While FibroGen and AstraZeneca continue to develop roxadustat in the U.S. for the treatment of anemia in patients with myelodysplastic syndromes, the Company has not been able to agree on a path forward for AstraZeneca to fund further roxadustat development for CKD anemia in the U.S. Therefore, the Company does not expect to receive most or all of the remaining AstraZeneca U.S./RoW Agreement milestones from AstraZeneca. In 2020, the Company entered into a Master Supply Agreement with AstraZeneca under the AstraZeneca U.S./RoW Agreement (“AstraZeneca Master Supply Agreement”) 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 related drug product revenue is described under the Drug Product Revenue section below. 12 Table of Contents AstraZeneca China Agreement Effective July 30, 2013, the Company (through its subsidiaries affiliated with China) entered into the China Agreement (“AstraZeneca China Agreement”). Under the terms of the AstraZeneca China Agreement, AstraZeneca agreed to pay upfront consideration and potential milestone payments, totaling $ 376.7 million . The AstraZeneca China Agreement is structured as a 50/50 profit or loss share (as defined), which was amended under the China Amendment discussed below in 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 period. The aggregate amount of such consideration received for milestone and upfront payments through September 30, 2022 totaled $ 77.2 million . AstraZeneca China Amendment In July 2020, FibroGen China Anemia Holdings, Ltd., FibroGen (China) Medical Technology Development Co., Ltd. (“FibroGen Beijing”), and FibroGen International (Hong Kong) Limited and AstraZeneca entered into the China Amendment, relating to the development and commercialization of roxadustat in China. Under the China Amendment, in September 2020, FibroGen Beijing and AstraZeneca completed the establishment of a jointly owned entity, Beijing Falikang Pharmaceutical Co., Ltd. (“Falikang”), which performs roxadustat distribution, as well as conducts sales and marketing through AstraZeneca. Since Falikang became fully operational in January 2021, substantially all direct roxadustat product sales to distributors in China are made by Falikang, while FibroGen Beijing continues to sell roxadustat product directly in one province in China. FibroGen Beijing manufactures and supplies commercial product to Falikang based on a gross transfer price, which is adjusted for the estimated profit share. Amounts recognized as revenue under the AstraZeneca U.S./RoW Agreement and AstraZeneca China Agreement were as follows for the three and nine months ended September 30, 2022 and 2021 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, Agreement Performance Obligation 2022 2021 2022 2021 AstraZeneca U.S./RoW Agreement and AstraZeneca China Agreement License revenue $ — $ — $ — $ — Development revenue 579 11,970 9,750 39,939 The transaction price relat ed to consideration received through September 30, 2022 and accounts receivable has been allocated to each of the following performance obligations under the AstraZeneca U.S./RoW Agreement and AstraZeneca China Agreement, along with any associated deferred revenue as follows (in thousands): AstraZeneca U.S./RoW Agreement and AstraZeneca China Agreement Cumulative Revenue Through September 30, 2022 Deferred Revenue at September 30, 2022 Total Consideration Through September 30, 2022 License $ 341,844 $ — $ 341,844 Co-development, information sharing & committee services 612,869 — 612,869 China performance obligation * 86,441 175,438 261,879 Total license and development revenue $ 1,041,154 $ 175,438 ** $ 1,216,592 * China performance obligation revenue is recognized as product revenue, as described under Product Revenue, Net section below. ** Contract assets and liabilities related to rights and obligations in the same contract are recorded net on the consolidated balance sheets. As of September 30, 2022, deferred revenue included $ 160.1 million related to the AstraZeneca U.S./RoW Agreement and AstraZeneca China Agreement, which represents the net of $ 175.4 million of deferred revenue presented above and a $ 15.3 million unbilled co-development revenue under the AstraZeneca China Amendment. 13 Table of Contents There was no revenue resulting from changes to estimated variable consideration in the current period relating to performance obligations satisfied or partially satisfied in previous periods for the three months ended September 30, 2022 under the AstraZeneca U.S./RoW Agreement. The remainder of the transaction price related to the AstraZeneca U.S./R oW Agreement and AstraZeneca China Agreement includes $ 13.4 million of variable consideration from estimated future co-development billing and is estimated to be recognized over the remaining development service period, except for amounts allocated to the China performance obligation. 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. The net product revenue from the sales to Falikang and the net product revenue from direct sales distributors in China are described under Product Revenue, Net section below. Product Revenue, Net Product revenue, net from the sales of roxadustat commercial product in China was as follows for the three and nine months ended September 30, 2022 and 2021 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Direct Sales: Gross revenue $ 2,610 $ 3,249 $ 8,972 $ 10,908 Discounts and rebates ( 166 ) ( 133 ) ( 353 ) ( 1,314 ) Sales returns 1 ( 2 ) 3 86 Direct sales revenue, net 2,445 3,114 8,622 9,680 Sales to Falikang: Gross transaction price 32,510 31,179 83,517 82,294 Profit share ( 12,980 ) ( 12,090 ) ( 31,894 ) ( 31,726 ) Net transaction price 19,530 19,089 51,623 50,568 Increase in deferred revenue ( 4,616 ) ( 8,761 ) ( 750 ) ( 18,073 ) Sales to Falikang revenue, net 14,914 10,328 50,873 32,495 Total product revenue, net $ 17,359 $ 13,442 $ 59,495 $ 42,175 Direct Sales Product revenue from direct roxadustat product sales to distributors in China is recognized in an amount that reflects the consideration that the Company expects to be entitled to in exchange for those products, net of various sales rebates and discounts. The total discounts and rebates were immaterial for the periods presented. Due to the Company’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 Company’s legal right to offset is calculated at the individual distributor level. The following table includes a roll-forward of the contract liabilities (in thousands): Balance at December 31, 2021 Additions Deduction Currency Translation and Other Balance at September 30, 2022 Product revenue - Direct sales - contract liabilities $ ( 3,176 ) $ ( 537 ) $ 2,754 $ 226 $ ( 733 ) The above contract liabilities were included in accrued and other current liabilities in the condensed consolidated balance sheet. The rebates and discounts reflected as reductions to gross accounts receivable for direct sales wer e $ 0.7 million and $ 1.1 million a s of September 30, 2022 and December 31, 2021, respectively. 14 Table of Contents Sales to Falikang – China Performance Obligation Since Falikang became fully operational in January 2021, substantially all direct roxadustat product sales to distributors in China are made by Falikang. FibroGen Beijing manufactures and supplies commercial product to Falikang. The net transfer price for FibroGen Beijing’s product sales to Falikang is based on a gross transfer price, which is adjusted to account for the 50/50 profit share for the period. The roxadustat sales to Falikang marked the beginning of the Company’s China performance obligation under the Company’s agreements with AstraZeneca . Product revenue is based on the transaction price of the China performance obligation. Revenue is recognized when control of the product is transferred to Falikang, in an amount that reflects the allocation of the transaction price to the performance obligation satisfied during the reporting period. Any net transaction price in excess of the revenue recognized is added to the deferred balance to date, and will be recognized in future periods as the performance obligation is satisfied. Periodically, the Company updates its assumptions such as total sales quantity, performance period and other inputs including foreign currency translation impact, among others. Following updates to its estimates, the Company deferred $ 4.6 million and $ 0.8 million from the net transfer price to Falikang, which was included in the related deferred revenue of the China performance obligation during the three and nine months ended September 30, 2022, respectively. The following table includes a roll-forward of the related deferred revenue that is considered as a contract liability (in thousands): Balance at December 31, 2021 Additions Recognized as Revenue Currency Translation and Other Balance at September 30, 2022 Product revenue - AstraZeneca China performance obligation - deferred revenue $ ( 171,516 ) $ ( 57,846 ) $ 50,873 $ 3,051 $ ( 175,438 ) 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 products is transferred to AstraZeneca. As of September 30, 2022 , approximately $ 18.0 million of the above 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. Due to the Company’s legal right to offset, at each balance sheet date, the rebates and discounts, mainly related to profit sharing, are presented as reductions to gross accounts receivable from Falikang, which was $ 0.3 million and $ 13.4 million as of September 30, 2022 and December 31, 2021 , respectively. Drug Product Revenue Drug product revenue from commercial-grade active pharmaceutical ingredient (“API”) or bulk drug product sales to Astellas and AstraZeneca was as follows for the three and nine months ended September 30, 2022 and 2021 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Astellas Japan Agreement $ ( 4,313 ) $ — $ 3,297 $ 2,056 Astellas Europe Agreement 236 — 1,313 — AstraZeneca U.S./RoW Agreement — — — ( 2,224 ) Drug product revenue $ ( 4,077 ) $ — $ 4,610 $ ( 168 ) Astellas Japan Agreement During the first quarter of 2022, the Company fulfilled a shipment obligation under the terms of Astellas Japan Amendment, and recognized related drug product revenue of $ 9.8 million in the same period. In addition, the Company updated its estimate of variable consideration related to the API shipments fulfilled under the terms of Japan Amendment with Astellas, and recorded a reduction to the drug product revenue of $ 2.2 million during the first quarter of 2022. Specifically, the change in estimated variable consideration was based on the API held by Astellas at period end, adjusted to reflect the 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. 15 Table of Contents During the three months ended September 30, 2022, the Company updated its estimate of variable consideration related to the API shipments fulfilled under the terms of Astellas Japan Amendment, and accordingly recorded adjustments to the drug product revenue of $( 4.3 ) million. Specifically, the change in estimated variable consideration was based on the API held by Astellas at period end, adjusted to reflect foreign currency translation impact and the changes in the estimated bulk product strength mix intended to be manufactured by Astellas, among others. This amount was included in accrued liabilities as of September 30, 2022, representing the Company's best estimate that this amount will be paid within the next 12 months. During the nine months ended September 30, 2021, the Company updated its estimate of variable consideration related to the API shipments fulfilled under the terms of Astellas Japan Amendment, and accordingly recorded adjustments to the drug product revenue of $ 2.1 million. Specifically, the change in estimated variable consideration was based on the API held by Astellas at period end, adjusted to reflect the 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. Astellas Europe Agreement During the second quarter of 2022, the Company transferred bulk drug product for commercial purposes under the terms of the Astellas Europe Agreement and the Astellas EU Supply Agreement, and recognized the related fully burdened manufacturing costs of $ 1.0 million as drug product revenue, and recorded $ 23.2 million as deferred revenue due to a high degree of uncertainty associated with the variable consideration for revenue recognition purposes. In addition, the Company recognized royalty revenue of $ 0.2 million and $ 0.3 million as drug product revenue from the deferred revenue under the Astellas Europe Agreement during the three and nine months ended September 30, 2022, respectively. The remainder of the deferred revenue will be recognized as and when uncertainty is resolved, based on the performance of roxadustat product sales in the Astellas territory. During the first quarter of 2022, the Company billed and received $ 49.2 million from Astellas related to the annual transfer price true up for bulk drug product transferred for commercial purposes. This amount was recorded in deferred revenue and netted against an unbilled contract asset as of December 31, 2021. The Company updated its estimate of variable consideration related to the bulk drug product transferred in prior years. Specifically, the change in estimated variable consideration was based on the bulk drug product held by Astellas at the period end, adjusted to reflect the changes in the estimated transfer price, forecast information, shelf-life estimates and other items. As a result, during the nine months ended September 30, 2022, the Company reclassified a total of $ 51.0 million from the related deferred revenue to accrued liabilities. As of September 30, 2022, the related balance in accrued liabilities was $ 51.0 million, representing the Company's best estimate that this amount will be paid within the next 12 months. AstraZeneca U.S./RoW Agreement During the first quarter of 2022, the Company evaluated the current developments in the U.S. market, and updated its estimates of variable consideration associated with bulk drug product shipments to AstraZeneca in prior years as commercial supply. As a result, during the nine months ended September 30, 2022, the Company reclassified $ 11.2 million from the related deferred revenue to accrued liabilities. As of September 30, 2022, the related balance in accrued liabilities was $ 11.2 million, representing its best estimate that this amount will be paid within the next 12 months . The following table includes a roll-forward of the above-mentioned deferred revenues that are considered as contract liabilities related to drug product (in thousands): Balance at December 31, 2021 Additions Recognized as Revenue Reclassified to Accrued Liability / Accounts Payable Balance at September 30, 2022 Astellas Japan Agreement $ ( 1,974 ) $ ( 2,226 ) $ — $ 4,200 $ — Astellas Europe Agreement ( 25,891 ) ( 72,409 ) 326 50,990 ( 46,984 ) AstraZeneca U.S./RoW Agreement ( 11,171 ) — — 11,171 — Drug product revenue - deferred revenue $ ( 39,036 ) $ ( 74,635 ) $ 326 $ 66,361 $ ( 46,984 ) 16 Table of Contents Eluminex Agreement In July 2021, FibroGen exclusively licensed to Eluminex Biosciences (Suzhou) Limited (“Eluminex”) global rights to its investigational biosynthetic cornea derived from recombinant human collagen Type III. Under the terms of the agreement with Eluminex , as amended and restated on January 21, 2022, Eluminex made an $ 8.0 million upfront payment to FibroGen during the first quarter of 2022, which was recognized as license revenue for the performance obligation satisfied during the third quarter of 2021 and recorded as an unbilled contract asset as of December 31, 2021 in the prepaid expenses and other current assets in the condensed consolidated balance sheet. In addition, FibroGen may receive up to a total of $ 64.0 million in future manufacturing, clinical, regulatory, and commercial milestone payments for the biosynthetic cornea program, as well as $ 36.0 million in commercial milestones for the first recombinant collagen III product that is not the biosynthetic cornea. FibroGen will also be eligible to receive mid single-digit to low double-digit royalties based upon worldwide net sales of cornea products, and low single-digit to mid single-digit royalties based upon worldwide n et sales of other recombinant human collagen type III products that are not cornea products. During the first quarter of 2022, FibroGen and Eluminex entered into a separate contract manufacturing agreement, under which the Company is responsible for supplying the cornea product at cost plus 10 % of its product manufacturing costs until its manufacturing technology is fully transferred to Eluminex. The related contract manufacturing revenue was recorded as other revenue and included in development and other revenue in the condensed consolidated statement of operations. Amounts recognized as revenue under the Eluminex were as follows for the three and nine months ended September 30, 2022 and 2021 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, Agreement Performance Obligation 2022 2021 2022 2021 Eluminex License revenue $ — $ 8,000 $ — $ 8,000 Eluminex Other revenue - contract manufacturing $ 460 $ — $ 1,502 $ — 3. Variable Interest Entity Falikang is a distribution entity jointly owned by AstraZeneca and FibroGen Beijing. FibroGen Beijing owns 51.1 % of the outstanding shares of Falikang. Pursuant to the guidance under ASC 810, Consolidation (“ASC 810”), the Company concluded that Falikang qualifies as a VIE. As Falikang is a distribution entity and AstraZeneca is the final decision maker for all the roxadustat commercialization activities, the Company lacks the power criterion, while AstraZeneca meets both the power and economic criteria under the ASC 810 to direct the activities of Falikang that most significantly impact its performance. Therefore, the Company is not the primary beneficiary of this VIE for accounting purposes. As a result, the Company accounts for its investment in Falikang under the equity method, and Falikang is not consolidated into the Company’s condensed consolidated financial statements. The Company records its total investments in Falikang as an equity method investment in an unconsolidated VIE in the condensed consolidated balance sheet. In addition, the Company recognizes its proportionate share of the reported profits or losses of Falikang as investment gain or loss in unconsolidated VIE in the condensed consolidated statement of operations and as an adjustment to its investment in Falikang in the condensed consolidated balance sheet. Falikang has not incurred material profit or loss to date. The Company may provide shareholder loans to Falikang to meet necessary financial obligations as part of its operations. To date, these loans have been immaterial. The Company’s equity method investment in Falikang was as follows (in thousands): Entity Ownership Percentage Balance at December 31, 2021 Share of Net Income Currency Translation Balance at September 30, 2022 Falikang 51.1 % $ 3,825 $ 1,293 $ ( 487 ) $ 4,631 Falikang is considered a related party to the Company. See Note 7, Related Party Transactions , for related disclosures. 17 Table of Contents 4. Fair Value Measurements The fair values of the Company’s financial assets that are measured on a recurring basis are as follows (in thousands): September 30, 2022 Level 1 Level 2 Level 3 Total Money market funds $ 46,470 $ — $ — $ 46,470 Corporate bonds — 101,695 — 101,695 Commercial paper — 43,570 — 43,570 U.S. government bonds 103,257 5,490 — 108,747 Agency bonds — 13,880 — 13,880 Asset-backed securities — 2,479 — 2,479 Foreign government bonds — 4,950 — 4,950 Total $ 149,727 $ 172,064 $ — $ 321,791 December 31, 2021 Level 1 Level 2 Level 3 Total Money market funds $ 58,801 $ — $ — $ 58,801 Corporate bonds — 182,646 — 182,646 Commercial paper — 69,079 — 69,079 U.S. government bonds 91,522 — — 91,522 Agency bonds — 23,275 — 23,275 Asset-backed securities — 27,087 — 27,087 Foreign government bonds — 9,154 — 9,154 Total $ 150,323 $ 311,241 $ — $ 461,564 The Company’s Level 2 investments are valued using third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar investments, issuer credit spreads, benchmark investments, prepayment/default projections based on historical data, and other observable inputs. There were no transfers of assets between levels during the three and nine months ended September 30, 2022 . 5. Balance Sheet Components Cash and Cash Equivalents Cash and cash equivalents consisted of the following (in thousands): September 30, 2022 December 31, 2021 Cash $ 104,509 $ 111,422 Commercial paper 4,981 1,000 Money market funds 46,470 58,801 Total cash and cash equivalents $ 155,960 $ 171,223 At September 30, 2022 and December 31, 2021 , a total of $ 84.4 million and $ 91.2 million, respectively, of the Company’s cash and cash equivalents were held outside of the U.S. in its foreign subsidiaries to be used primarily for its China operations. 18 Table of Contents Investments The Company’s investments consist of available-for-sale debt investments and marketable equity investments. The amortized cost, gross unrealized holding gains or losses, and fair value of the Company’s investments by major investments type are summarized in the tables below (in thousands): September 30, 2022 Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Estimated Fair Value Corporate bonds $ 103,539 $ — $ ( 1,844 ) $ 101,695 Commercial paper 38,589 — — 38,589 U.S. government bonds 110,559 1 ( 1,813 ) 108,747 Agency bonds 14,210 — ( 330 ) 13,880 Asset-backed securities 2,479 — — 2,479 Foreign government bonds 5,020 — ( 70 ) 4,950 Total investments $ 274,396 $ 1 $ ( 4,057 ) $ 270,340 December 31, 2021 Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Estimated Fair Value Corporate bonds $ 183,136 $ 2 $ ( 492 ) $ 182,646 Commercial paper 68,079 — — 68,079 U.S. government bonds 91,840 — ( 318 ) 91,522 Agency bonds 23,339 — ( 64 ) 23,275 Asset-backed securities 27,105 — ( 18 ) 27,087 Foreign government bonds 9,165 — ( 11 ) 9,154 Total investments $ 402,664 $ 2 $ ( 903 ) $ 401,763 The following table summarizes, for all available for sale securities in an unrealized loss position, the fair value and gross unrealized loss by length of time the security has been in a continual unrealized loss position (in thousands): September 30, 2022 Less than 12 Months 12 Months or More Total Estimated Fair Value Gross Unrealized Holding Losses Estimated Fair Value Gross Unrealized Holding Losses Estimated Fair Value Gross Unrealized Holding Losses Corporate bonds $ 79,274 $ ( 1,275 ) $ 22,421 $ ( 569 ) $ 101,695 $ ( 1,844 ) U.S. government bonds 81,493 ( 1,166 ) 22,309 ( 647 ) 103,802 ( 1,813 ) Agency bonds 11,401 ( 288 ) 2,479 ( 42 ) 13,880 ( 330 ) Asset-backed securities — — — — — — Foreign government bonds 4,950 ( 70 ) — — 4,950 ( 70 ) Total $ 177,118 $ ( 2,799 ) $ 47,209 $ ( 1,258 ) $ 224,327 $ ( 4,057 ) December 31, 2021 Less than 12 Months 12 Months or More Total Estimated Fair Value Gross Unrealized Holding Losses Estimated Fair Value Gross Unrealized Holding Losses Estimated Fair Value Gross Unrealized Holding Losses Corporate bonds $ 177,124 $ ( 492 ) $ — $ — $ 177,124 $ ( 492 ) U.S. government bonds 91,522 ( 318 ) — — 91,522 ( 318 ) Agency bonds 23,274 ( 64 ) — — 23,274 ( 64 ) Asset-backed securities 27,087 ( 18 ) — — 27,087 ( 18 ) Foreign government bonds 9,155 ( 11 ) — — 9,155 ( 11 ) Total $ 328,162 $ ( 903 ) $ — $ — $ 328,162 $ ( 903 ) 19 Table of Contents At September 30, 2022 , the available-for-sale investments had contractual maturities range from several months to two years . The Company periodically reviews its available-for-sale investments for other-than-temporary impairment. The Company considers factors such as the duration, severity and the reason for the decline in value, the potential recovery period and its intent to sell. For debt securities, the Company also considers whether (i) it is more likely than not that the Company will be required to sell the debt securities before recovery of their amortized cost basis, and (ii) the amortized cost basis cannot be recovered as a result of credit losses. Based on the results of its review, the Company did no t recognize any other-than-temporary impairment loss during the three and nine months ended September 30, 2022 and 2021. Inventories Inventories consisted of the following (in thousands): September 30, 2022 December 31, 2021 Raw materials $ 1,231 $ 1,363 Work-in-progress 35,205 21,499 Finished goods 3,514 8,153 Total inventories $ 39,950 $ 31,015 Accrued and Other Current Liabilities Accrued and other current liabilities consisted of the following (in thousands): September 30, 2022 December 31, 2021 Preclinical and clinical trial accruals $ 71,303 $ 56,283 API and bulk drug product price true-up 66,474 — Acquired in-process research and development asset — 35,000 Payroll and related accruals 17,782 20,909 Accrued co-promotion expenses - current 31,883 25,746 Contract liabilities to pharmaceutical distributors 733 3,176 Roxadustat profit share to AstraZeneca 7,058 7,895 Property taxes and other taxes 7,685 12,610 Professional services 6,184 6,074 Other 4,704 4,906 Total accrued and other current liabilities $ 213,806 $ 172,599 The accrued liabilities of $ 66.5 million for API and bulk drug product price true-up as of September 30, 2022 resulted from changes in estimated variable consideration associated with the API shipments fulfilled under the terms of the Astellas Japan Amendment, the bulk drug product transferred under the terms of the Astellas Europe Agreement and the Astellas EU Supply Agreement, and the bulk drug product shipments to AstraZeneca under the terms of the AstraZeneca Master Supply Agreement. See the Drug Product Revenue section in Note 2, Collaboration Agreements, License Agreement and Revenues, for details. The acquired in-process research and development asset of $ 35.0 million as of December 31, 2021 was related to the upfront payment under an exclusive license and option agreement with HiFiBiO Therapeutics (“HiFiBiO”), which was paid during the nine months ended September 30, 2022 . 6. Income Taxes Provisions for income tax for the three and nine months ended September 30, 2022 and 2021 were primarily due to foreign taxes. Based upon the weight of available evidence, which includes its historical operating performance, reported cumulative net losses since inception, the Company has established and continues to maintain a full valuation allowance against its net deferred tax assets as it does not currently believe that realization of those assets is more likely than not. 20 Table of Contents 7. Related Party Transactions Astellas is an equity investor in the Company and is considered a related party. The Company recorded revenue related to collaboration agreements with Astellas of $ 1.4 million and $12 2.6 million for the three months ended September 30, 2022 and 2021 , and $ 31.0 million and $ 128.8 million for the nine months ended September 30, 2022 and 2021 , respectively. The Company also recorded drug product revenue from Astellas of $( 4.1 ) million and zero for the three months ended September 30, 2022 and 2021 , and $ 4.6 million and $ 2.1 million for the nine months ended September 30, 2022 and 2021, respectively. See Note 2, Collaboration Agreements, License Agreement and Revenues , for details. The Company’s expense related to collaboration agreements with Astellas was immaterial for each of the three and nine months ended September 30, 2022 and 2021. As of September 30, 2022 and December 31, 2021 , accounts receivable from Astellas were $ 1.4 million and $ 10.9 million, respectively. As of September 30, 2022 and December 31, 2021 , total deferred revenue from Astellas was $ 47.0 million and $ 27.9 million, respectively. As of September 30, 2022 , the amount due to Astellas was $ 55.3 million. As of December 31, 2021, amount due to Astellas was immaterial. Falikang, an entity jointly owned by FibroGen Beijing and AstraZeneca is an unconsolidated VIE accounted for as an equity method investment, and considered as a related party to the Company. FibroGen Beijing owns 51.1 % of Falikang’s equity. See Note 3, Variable Interest Entity , for details. The net product revenue from Falikang was $ 14.9 million and $ 10.3 million for the three months ended September 30, 2022 and 2021, and $ 50.9 million and $ 32.5 million for the nine months ended September 30, 2022 and 2021, respectively. See the Product Revenue, Net section in Note 2, Collaboration Agreements, License Agreement and Revenues , for details. The investment income in Falikang was $ 0.4 million and $ 0.3 million for the three months ended September 30, 2022 and 2021, and $ 1.3 million and $ 0.7 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022 and December 31, 2021, the Company’s equity method investment in Falikang was $ 4.6 million and $ 3.8 million , respectively. See Note 3, Variable Interest Entity , for details. As of September 30, 2022 , accounts receivable, net, from Falikang was of $ 12.9 million. As of December 31, 2021 , accounts receivable, net, from Falikang was zero . As of September 30, 2022 , the total deferred revenue from Falikang was zero . As of December 31, 2021 , the total deferred revenue from Falikang was $ 1.2 million. 8. Commitments and Contingencies Contract Obligations As of September 30, 2022, the Company had $ 92.6 million of operating lease liabilities. As of September 30, 2022 , the Company had outstanding total non-cancelable purchase obligations of $ 51.2 million, including $ 21.0 million for manufacture and supply of pamrevlumab, $ 7.8 million for manufacture and supply of roxadustat, and $ 22.3 million for other purchases and programs. The Company expects to fulfill its commitments under these agreements in the normal course of business, and as such, no liability has been recorded. Some of the Company’s license agreements provide for periodic maintenance fees over specified time periods, as well as payments by the Company upon the achievement of development, regulatory and commercial milestones. As of September 30, 2022 , future milestone payments for research and preclinical stage development programs consisted of up to approximately $ 697.9 million in total potential future milestone payments under the Company’s license agreements with HiFiBiO (for Gal-9 and CCR8), Medarex, Inc. and others. These milestone payments generally become due and payable only upon the achievement of certain developmental, clinical, regulatory and/or commercial milestones. The event triggering such payment or obligation has not yet occurred. 21 Table of Contents Legal Proceedings and Other Matters From time to time, the Company is a party to various legal actions, both inside and outside the U.S., arising in the ordinary course of its business or otherwise. The Company accrues amounts, to the extent they can be reasonably estimated, that the Company believes will result in a probable loss (including, among other things, probable settlement value) to adequately address any liabilities related to legal proceedings and other loss contingencies. A loss or a range of loss is disclosed when it is reasonably possible that a material loss will incur and can be estimated, or when it is reasonably possible that the amount of a loss, when material, will exceed the recorded provision. The Company did not have any material accruals for any active legal action in its condensed consolidated balance sheet as of September 30, 2022, as the Company could not predict the ultimate outcome of these matters, or reasonably estimate the potential exposure. Between April 2021 and May 2021, five putative securities class action complaints were filed against FibroGen and certain of its current and former executive officers (collectively, the “Defendants”) in the U.S. District Court for the Northern District of California. The lawsuits allege that Defendants violated the Securities Exchange Act of 1934 by making materially false and misleading statements regarding FibroGen’s Phase 3 clinical studies data and prospects for U.S. Food and Drug Administration approval. On August 30, 2021, the Court consolidated the actions and appointed a group of lead plaintiffs. Plaintiffs filed their consolidated amended complaint on October 29, 2021 and a corrected consolidated amended complaint on November 19, 2021 (the “Complaint”). The Complaint alleges false and misleading statements between December 2018 and June 2021 and seeks to represent a class of persons or entities that purchased FibroGen securities between December 20, 2018 and July 15, 2021. On July 15, 2022, the court issued an order denying Defendants’ motions to dismiss. Defendants answered the Complaint on September 13, 2022 and discovery is ongoing. On July 30, 2021, a purported shareholder derivative (the “California Federal Derivative”) complaint was filed in the U.S. District Court for the Northern District of California. The California Federal Derivative complaint names as defendants ten of FibroGen’s current and former officers and directors, as well as FibroGen as nominal defendant, and asserts state and federal claims based on some of the same alleged misstatements as the securities class action complaint. The California Federal Derivative complaint seeks unspecified damages, attorneys’ fees, and other costs. On October 21, 2022, the parties filed a stipulation setting forth a schedule by which plaintiff will file an amended complaint in the California Federal Derivative action and defendants will move to dismiss on the basis of improper forum. On December 27, 2021, a second purported shareholder derivative (the “Delaware Federal Derivative”) complaint was filed in the U.S. District Court for the District of Delaware. The Delaware Federal Derivative complaint names 17 of FibroGen’s current and former officers and directors as defendants, as well as FibroGen as nominal defendant, and asserts state and federal claims based on some of the same alleged misstatements as the securities class action complaint, as well as allegations of insider trading against certain defendants. The Delaware Federal Derivative complaint seeks unspecified damages, attorneys’ fees, and other costs. The Delaware Federal Derivative action has been stayed pending resolution of any motions for summary judgment in the securities class action. On April 14, 2022, a third purported shareholder derivative (the “Delaware Chancery Derivative”) complaint was filed in the Delaware Court of Chancery. The Delaware Chancery Derivative complaint names the same defendants as the second purported shareholder derivative action and asserts similar claims based upon similar allegations. The Delaware Chancery Derivative complaint seeks unspecified damages, attorneys’ fees, and other costs. Defendants have not been served in the Delaware Chancery Derivative action. The Company believes that the claims are without merit and it intends to vigorously defend against them. However, any litigation is inherently uncertain, and any judgment or injunctive relief entered against FibroGen or any adverse settlement could materially and adversely impact its business, results of operations, financial condition, and prospects. In the fourth quarter of 2021, the Company received a subpoena from the SEC requesting documents related to roxadustat’s pooled cardiovascular safety data. The Company is fully cooperating with the SEC. The Company cannot predict with any degree of certainty the outcome of the SEC’s investigation or determine the extent of any potential liabilities. The Company also cannot predict whether there will be any loss as a result of the investigation nor can it provide an estimate of the possible loss or range of loss. Any adverse outcome in this matter or any related proceeding could expose the Company to substantial damages, penalties, or reputational harm that may have a material adverse impact on the Company’s business, results of operations, financial condition, growth prospects, and price of its common stock. 22 Table of Contents Between August 3, 2022 and August 4, 2022, the Company's Board of Directors received three litigation demands from purported shareholders of the Company, asking the Board of Directors to investigate and take action against certain current and former officers and directors of the Company for alleged wrongdoing based on the same allegations in the pending derivative and securities class action lawsuits. The Company may in the future receive such additional demands. Starting in October 2021, certain challenges have been filed with the China National Intellectual Property Administration against patents which claim a crystalline form of roxadustat. Final resolution of such proceedings will take time and the Company could not predict the ultimate outcome, or reasonably estimate the potential exposure. Indemnification Agreements The Company enters into standard indemnification arrangements in the ordinary course of business, including for example, service, manufacturing and collaboration agreements. Pursuant to these arrangements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, including in connection with intellectual property infringement claims by any third party with respect to its technology. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The Company has entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the extent permissible under applicable law. The maximum potential amount of future payments the Company could be required to make under these arrangements is not determinable. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these arrangements is minimal. 9. Subsequent Event Strategic Financing Agreement On November 4, 2022, the Company entered into a revenue interest financing agreement (“RIFA”) with an affiliate of NovaQuest Capital Management (“NovaQuest”) with respect to royalties from Astellas’s sales of roxadustat in Europe, Japan and the other Astellas territories. Pursuant to the RIFA, NovaQuest agreed to pay FibroGen, within ten business days, an investment amount equal to $ 50.0 million (the “Investment Amount”), in consideration for certain royalty and other revenue payments FibroGen will make to NovaQuest. FibroGen agreed to pay NovaQuest annually, up to certain caps (see below), 22.5% of all revenue recognized by the Company in respect of net sales of roxadustat in Europe and Japan and the other Astellas territories, and certain other tiered percentages of revenue (in each case paid annually), pursuant to FibroGen’s license and collaboration agreements with Astellas. The RIFA also provides for certain minimum repayment provisions. The total aggregate payments that can be received by NovaQuest under this Agreement are capped at certain fixed multiples of the Investment Amount based upon time. Once NovaQuest receives an aggregate of either $ 100 million (two times of the Investment Amount) by the end of 2028, $ 112.5 million (two and a quarter times of the Investment Amount) by the end of 2029, or $ 125 million (two and a half times of the Investment Amount) by the end of 2030, the Agreement will expire resulting in FibroGen retaining all subsequent Investment roxadustat royalties. FibroGen is also permitted to prepay its obligations according to a prepayment schedule with reduced repayment caps. 23 Table of Contents ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and in our Securities and Exchange Commission (“SEC”) filings, including our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 28, 2022 and as amended on March 4, 2022 (“2021 Form 10-K”). FORWARD-LOOKING STATEMENTS The following discussion and information contained elsewhere in this Quarterly Report on Form 10-Q contain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), Section 27A of the Securities Act of 1933, as amended (“Securities Act”) and within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are often identified by the use of words such as “may,” “will,” “expect,” “anticipate,” “intend,” “could,” “should,” “estimate,” or “continue,” and similar expressions or variations. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Such forward-looking and other statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors,” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. New risks emerge from time to time, and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking and other statements we may make. In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking and other statements. While we may elect to update these forward-looking and other statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking and other statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q and are cautioned not to place undue reliance on such forward-looking statements. BUSINESS OVERVIEW We are headquartered in San Francisco, California, with subsidiary offices in Beijing and Shanghai, People’s Republic of China (“China”). We are a leading biopharmaceutical company discovering, developing and commercializing a pipeline of first-in-class therapeutics. We apply our pioneering expertise in hypoxia-inducible factor (“HIF”) biology, 2-oxoglutarate enzymology, and connective tissue growth factor biology to advance innovative medicines for the treatment of anemia, fibrotic disease, and cancer. We have a pipeline of late-stage clinical programs as well as preclinical drug candidates at various stages of development that include both small molecules and biologics. We have leveraged our internally developed 2-oxoglutarate and connective tissue growth factor biology expertise as well as in-licensing of additional programs, such as antibodies targeting Galectin-9 protein (“Gal-9”) and C-C Motif Chemokine Receptor 8 (“CCR8”), to further enhance our late-stage preclinical pipeline. Our goal is to build a diversified pipeline with novel drugs that will address unmet patient needs in oncology, immunology, and fibrosis. 24 Table of Contents Financial Highlights Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (in thousands, except for per share data) Result of Operations Revenue $ 15,735 $ 155,973 $ 106,367 $ 218,766 Operating costs and expenses 109,392 104,999 341,240 372,055 Net loss (91,650 ) 49,798 (227,479 ) (155,945 ) Net loss per share - basic and diluted $ (0.98 ) $ 0.54 $ (2.43 ) $ (1.69 ) September 30, 2022 December 31, 2021 (in thousands) Balance Sheet Cash and cash equivalents $ 155,960 $ 171,223 Short-term and long-term investments 270,340 401,763 Accounts receivable $ 15,328 $ 17,401 Our revenue for the current year periods included the revenue recognized related to the following: • $2.0 million and $18.2 million of development revenue for the three and nine months ended September 30, 2022, respectively, recognized under our collaboration agreements with our partners Astellas Pharma Inc. (“Astellas”) and AstraZeneca AB (“AstraZeneca”); • For the nine months ended September 30, 2022, a $25.0 million regulatory milestone recognized in the first quarter of 2022 under our collaboration agreements with our partner Astellas associated with the approval of EVRENZO ® (roxadustat) in Russia. Of this amount, $22.6 million was recognized as license revenue and the remainder was included as development revenue; • $17.4 million and $59.5 million of net product revenue for the three and nine months ended September 30, 2022, respectively, from roxadustat commercial sales in China; and • $(4.1) million and $4.6 million of drug product revenue for the three and nine months ended September 30, 2022, respectively, related to active pharmaceutical ingredient (“API”) deliveries to Astellas. As a comparison, our revenue for the prior year periods included the revenue recognized related to the following: • $120.0 million regulatory milestones recognized under our collaboration agreements with our partner Astellas associated with the approval by European Commission of EVRENZO® (roxadustat) for the treatment of adult patients with symptomatic anemia associated with chronic kidney disease (“CKD”) during the third quarter of 2021. Of this amount, $108.4 million was recognized as license revenue and the remainder included as development revenue; • $26.1 million and $60.3 million of development revenue for the three and nine months ended September 30, 2021, respectively, recognized under our collaboration agreements with our partners Astellas and AstraZeneca; • $13.4 million and $42.2 million of net product revenue for the three and nine months ended September 30, 2021, respectively, from roxadustat commercial sales in China; and • $8.0 million upfront license payment recognized in the third quarter of 2021 under our license agreement with Eluminex Biosciences (Suzhou) Limited (“Eluminex”). Operating costs and expenses for the three months ended September 30, 2022 increased compared to the same period a year ago as a result of the net effect of the following: • $11.8 million higher drug development expenses associated with drug substance and drug product manufacturing activities related to pamrevlumab; • $6.2 million higher legal expenses primarily due to a one-time favorable patent-related court ruling recorded in the prior year period; 25 Table of Contents • $8.0 million lower clinical trial expenses associated with roxadustat post-approval safety studies and Phase 3 trials for pamrevlumab; and • $4.3 million lower employee-related expenses primarily due to a payroll tax refund received during the third quarter of 2022, and lower headcount as part of the cost reduction effort we started to implement in the second half of 2021 following the complete response letter (“CRL”) issued by the Food and Drug Administration for roxadustat in CKD anemia in the United States (“U.S.”), stating that it could not be approved in its present form. Operating costs and expenses for the nine months ended September 30, 2022 decreased compared to the same period a year ago as a result of the net effect of the following: • $25.0 million for acquired in-process research and development asset from HiFiBiO Therapeutics (“HiFiBiO”) in the prior year period, which did not recur in the current year period; • $11.3 million lower employee-related expenses and $4.7 million lower stock-based compensation expenses primarily due to lower headcount as part of the cost reduction effort mentioned above, and a payroll tax refund received during the third quarter of 2022; • $9.0 million lower clinical trial expenses associated with roxadustat post-approval safety studies and Phase 3 trials for pamrevlumab; • 14.4 million higher drug development expenses associated with drug substance and drug product manufacturing activities related to pamrevlumab; • $5.6 million higher cost of goods sold due to higher roxadustat product sales; and • $4.9 million higher legal expenses primarily due to a one-time favorable patent-related court ruling recorded in the prior year period. For the three months ended September 30, 2022, we had a net loss of $91.7 million, or a net loss per basic and diluted share of $0.98, as compared to a net income of $49.8 million for the same period a year ago, due to decrease in revenue and increases in operating costs and expenses as discussed above. For the nine months ended September 30, 2022, we had a net loss of $227.5 million, or a net loss per basic and diluted share of $2.43, as compared to a net loss of $155.9 million for the same period a year ago, due to decreases in revenue, offset by decreases in operating costs and expenses as discussed above. Cash and cash equivalents, investments, and accounts receivable totaled $441.6 million at September 30, 2022, a decrease of $148.8 million from December 31, 2021, primarily due to the cash used in operations and investment in our preclinical pipeline. Commercial and Development Programs The following is an overview of our clinical and commercial programs. Roxadustat for the Treatment of Anemia in Chronic Kidney Disease Roxadustat is our commercial-stage product, an oral small molecule inhibitor of HIF prolyl hydroxylase (“HIF-PH”) activity that acts by stimulating the body’s natural pathway of erythropoiesis, or red blood cell production. Roxadustat continues to be approved in jurisdictions throughout the world, including recent marketing approvals in Turkey and the Philippines. Roxadustat (爱瑞卓®️, EVRENZO TM ) is approved in China, Europe, Japan, and numerous other countries for the treatment of anemia in CKD for patients who are on dialysis and not on dialysis. In China, roxadustat (tradename: 爱瑞卓®) continues to see significant volume growth in the treatment of anemia caused by CKD in non-dialysis and dialysis patients. In the third quarter of 2022, roxadustat achieved an over 80% increase in sales volume relative to the third quarter of 2021 benefitting from the 2021 National Reimbursement Drug List price reduction. As of August 2022, roxadustat was the top CKD anemia brand in China with approximately 33% value share within the segment of erythropoiesis stimulating agents and HIF-PH inhibitors (roxadustat is the only HIF-PH inhibitor on the market in China). 26 Table of Contents Roxadustat for the Treatment of Anemia in Myelodysplastic Syndromes In the third quarter of 2022, we completed enrollment of MATTERHORN, our Phase 2/3 placebo-controlled, double-blind clinical trial to evaluate the safety and efficacy of roxadustat for the treatment of anemia in myelodysplastic syndromes (“MDS”) in the U.S. and Europe. This trial is studying roxadustat in 140 transfusion-dependent, lower-risk MDS patients, in which subjects are randomized 3:2 to receive roxadustat or placebo three-times-weekly. The primary endpoint is the proportion of patients who achieve transfusion independence for 56 consecutive days within the first 28 weeks of the trial, with secondary endpoints and safety evaluated at 52 weeks. We expect topline 28-Week data from this study in the first half of 2023. Roxadustat for the Treatment of Chemotherapy-Induced Anemia We continue to enroll our randomized, active controlled Phase 3 clinical trial in China of roxadustat in chemotherapy-induced anemia for non-myeloid malignancies. The study will enroll approximately 146 subjects and the primary efficacy endpoint is the mean change in hemoglobin level from baseline to the level averaged over Weeks 9-13. We expect topline data from this study in mid-2023. Pamrevlumab: Monoclonal Antibody Targeting Connective Tissue Growth Factor Pamrevlumab is our first-in-class antibody developed to inhibit the activity of connective tissue growth factor, a common factor in fibrotic and fibro-proliferative disorders characterized by persistent and excessive scarring that can lead to organ dysfunction and failure. The U.S. Food and Drug Administration has granted Fast Track and Orphan Drug designations to pamrevlumab for the treatment of idiopathic pulmonary fibrosis (“IPF”), locally advanced unresectable pancreatic cancer (“LAPC”), and Duchenne muscular dystrophy (“DMD”) (with DMD receiving Rare Pediatric Disease designation). Pamrevlumab for the Treatment of Idiopathic Pulmonary Fibrosis We are conducting two randomized, double-blind, placebo-controlled, Phase 3 studies of pamrevlumab in IPF. Each study has a primary efficacy endpoint for the U.S. of change from baseline in forced vital capacity (“FVC”). For Europe, these same trials utilize a different primary efficacy endpoint of disease progression (defined by a decline in FVC percent predicted of greater than or equal to 10% or death), with change of FVC as the key secondary endpoint. Other secondary endpoints will include clinical outcomes of disease progression, acute IPF exacerbations, patient reported outcomes, and quantitative changes in lung fibrosis volume from baseline. We completed enrollment of ZEPHYRUS-1, our first Phase 3 trial of pamrevlumab in 356 IPF patients, and we expect topline data from ZEPHYRUS-1 in mid-2023. We continue to enroll patients in ZEPHYRUS-2, our second Phase 3 trial of pamrevlumab in approximately 340 IPF patients, and we expect topline data from ZEPHYRUS-2 in mid-2024. Pamrevlumab for the Treatment of Locally Advanced Unresectable Pancreatic Cancer We completed enrollment of LAPIS in the first quarter of 2022, our double-blind placebo-controlled Phase 3 clinical program for pamrevlumab as a neoadjuvant therapy for LAPC. We enrolled 284 patients, randomized at a 1:1 ratio to receive either pamrevlumab or placebo, in each case in combination with chemotherapy (either FOLFIRINOX or gemcitabine plus nab-paclitaxel). We expect topline data for the primary endpoint of overall survival in the first half of 2024. Pamrevlumab for the Treatment of Metastatic Pancreatic Cancer In June 2021 the Pancreatic Cancer Action Network's (PanCAN) Precision PromiseSM adaptive trial platform included pamrevlumab, with standard of care chemotherapy treatments for pancreatic cancer (gemcitabine and Abraxane®), in its study for patients with metastatic pancreatic cancer. The combination therapy is offered to patients as either a first- or second-line treatment option (the first experimental treatment arm to be offered as a first-line treatment in PanCAN’s innovative Precision Promise trial). The objective of Precision Promise is to expedite the study and approval of promising therapies for pancreatic cancer by bringing multiple stakeholders together, including academic, industry and regulatory entities. 27 Table of Contents Pamrevlumab for the Treatment of Duchenne Muscular Dystrophy Non-Ambulatory Patients In the first quarter of 2022, we completed enrollment of LELANTOS-1, our Phase 3 clinical trial evaluating pamrevlumab in combination with systemic corticosteroids as a treatment for DMD. LELANTOS-1 is a double-blind, placebo-controlled trial in 99 non-ambulatory DMD patients. Patients are randomized at a 1:1 ratio to pamrevlumab or placebo for a treatment period of 52 weeks. The primary endpoint will assess change in upper limb function from baseline to Week 52 and additional endpoints will include pulmonary, cardiac, performance, and fibrosis assessments. We expect topline data from this study in the first half of 2023. Ambulatory Patients In the second quarter of 2022, we completed enrollment of our double-blind, placebo-controlled Phase 3 clinical trial, LELANTOS-2, evaluating pamrevlumab in combination with systemic corticosteroids in 73 ambulatory DMD patients. Patients aged 6-12 are randomized at a 1:1 ratio to pamrevlumab or placebo for a treatment period of 52 weeks. The primary efficacy endpoint will assess ambulatory function, measured by the change in North Star Ambulatory Assessment from baseline to Week 52. We expect topline data from this study in the second half of 2023. Strategic Financing Agreement On November 4, 2022, we entered into a revenue interest financing agreement (“RIFA”) with an affiliate of NovaQuest Capital Management (“NovaQuest”) with respect to our royalties from Astellas’ sales of roxadustat in Europe, Japan and the other Astellas territories. Pursuant to the RIFA, NovaQuest agreed to pay us an investment amount equal to $50.0 million in consideration for certain royalty and other revenue payments we will make to NovaQuest. For additional details about this financing transaction, see Note 9, Subsequent Event , to the condensed consolidated financial statements. Collaboration Partnerships for Roxadustat Our current and future research, development, manufacturing and commercialization efforts with respect to roxadustat depend on funds from our collaboration agreements with Astellas and AstraZeneca. See Note 2, Collaboration Agreements, License Agreement and Revenues , to the condensed consolidated financial statements for details. Astellas In June 2005, we entered into a collaboration agreement with Astellas for the development and commercialization (but not manufacture) of roxadustat for the treatment of anemia in Japan (“Astellas Japan Agreement”). In April 2006, we entered into a separate collaboration agreement with Astellas for roxadustat for the treatment of anemia in Europe, the Commonwealth of Independent States, the Middle East, and South Africa (“Astellas Europe Agreement”). Under these agreements, the aggregate amount of consideration received through September 30, 2022 totaled $790.1 million. On March 21, 2022, EVRENZO ® (roxadustat) was registered with the Russian Ministry of Health. We evaluated the regulatory milestone payment associated with the approval in Russia under the Astellas Europe Agreement and concluded that this milestone was achieved in the first quarter of 2022. Accordingly, the consideration of $25.0 million associated with this milestone was included in the transaction price and allocated to performance obligations under the Astellas Europe Agreement, all of which was recognized as revenue during the first quarter of 2022 from performance obligations satisfied. In 2018, we and Astellas entered into an amendment to the Astellas Japan Agreement that allows Astellas to manufacture roxadustat drug product for commercialization in Japan (the “Astellas Japan Amendment”). The related drug product revenue was $(4.3) million for the three months ended September 30, 2022, and $3.3 million and $2.1 million for nine months ended September 30, 2022 and 2021, respectively. 28 Table of Contents During the first quarter of 2021, we entered into an EU Supply Agreement with Astellas under the Astellas Europe Agreement to define general forecast, order, supply and payment terms for Astellas to purchase roxadustat bulk drug product from FibroGen in support of commercial supplies (the “Astellas EU Supply Agreement”). The related drug product revenue was $0.2 million and $1.3 million for the three and nine months ended September 30, 2022, respectively. There was no related drug product revenue for the three and nine months ended September 30, 2021. AstraZeneca In July 2013, we entered into a collaboration agreement with AstraZeneca for roxadustat for the treatment of anemia in the U.S. and all territories not previously licensed to Astellas, except China (the “AstraZeneca U.S./RoW Agreement”). In July 2013, through our China subsidiary and related affiliates, we entered into a collaboration agreement with AstraZeneca for roxadustat for the treatment of anemia in China (the “AstraZeneca China Agreement”). Under the AstraZeneca agreements, the aggregate amount of consideration received through September 30, 2022 totaled $516.2 million. Under the AstraZeneca China Agreement, which is conducted through FibroGen China Anemia Holdings, Ltd., FibroGen (China) Medical Technology Development Co., Ltd. (“FibroGen Beijing”), and FibroGen International (Hong Kong) Limited (collectively, (“FibroGen China”), the commercial collaboration was structured as a 50/50 profit share, which was amended by the China Amendment in the third quarter of 2020, as discussed and defined below in AstraZeneca China Amendment . In 2020, we entered into a Master Supply Agreement with AstraZeneca under the AstraZeneca U.S./RoW Agreement (the “AstraZeneca Master Supply Agreement”) to define general forecast, order, supply and payment terms for AstraZeneca to purchase roxadustat bulk drug product from FibroGen in support of commercial supplies. There was no related drug product revenue for the three and nine months ended September 30, 2022 and the three months ended September 30, 2021. The related drug product revenue was $(2.2) million for the nine months ended September 30, 2021. AstraZeneca China Amendment In July 2020, FibroGen China and AstraZeneca entered into an amendment, effective July 1, 2020, to the AstraZeneca China Agreement, relating to the development and commercialization of roxadustat in China (the “AstraZeneca China Amendment”). Under the AstraZeneca China Amendment, in September 2020, FibroGen Beijing and AstraZeneca completed the establishment of a jointly owned entity, Beijing Falikang Pharmaceutical Co., Ltd. (“Falikang”), which performs roxadustat distribution, as well as conducts sales and marketing through AstraZeneca. FibroGen Beijing manufactures and supplies commercial product to Falikang based on an agreed upon transfer price, which includes gross transfer price, net of calculated profit share. Revenue is recognized upon the transfer of control of commercial products to Falikang in an amount that reflects the allocation of transaction price of the China manufacturing and supply obligation (“China performance obligation”) to the performance obligation satisfied during the reporting period. We recognized related net product revenue of $17.4 million and $13.4 million for the three months ended September 30, 2022 and 2021, and $59.5 million and $42.2 million for the nine months ended September 30, 2022 and 2021, respectively. 29 Table of Contents Additional Information Related to Collaboration Agreements Total cash consideration received through September 30, 2022 and potential cash consideration, for upfront payments and milestone payments under our collaboration agreements are as follows: Cash Received for Upfront Payments and Milestone Payments Through September 30, 2022 Additional Potential Cash Payment for Milestones Total Potential Cash Payments for Upfront Payments and Milestones (in thousands) Astellas--related-party: Astellas Japan Agreement $ 105,093 $ 67,500 $ 172,593 Astellas Europe Agreement 685,000 60,000 745,000 Total Astellas 790,093 127,500 917,593 AstraZeneca: AstraZeneca U.S./RoW Agreement 439,000 810,000 1,249,000 AstraZeneca China Agreement 77,200 299,500 376,700 Total AstraZeneca 516,200 1,109,500 1,625,700 Total $ 1,306,293 $ 1,237,000 $ 2,543,293 The above table does not include development cost reimbursement, transfer price payments, and royalties and profit share under our existing collaboration agreements. While we continue to commercialize roxadustat in China with AstraZeneca, and develop roxadustat in the U.S. for the treatment of anemia in patients with MDS, we have not been able to agree on a path forward for AstraZeneca to fund further roxadustat development for CKD anemia in the U.S. Therefore, we do not expect to receive most or all of these potential AstraZeneca U.S./RoW Agreement milestones from AstraZeneca. RESULTS OF OPERATIONS Revenue Three Months Ended September 30, Change Nine Months Ended September 30, Change 2022 2021 $ % 2022 2021 $ % (dollars in thousands) Revenue: License revenue $ — $ 116,434 $ (116,434 ) (100 ) % $ 22,590 $ 116,434 $ (93,844 ) (81 ) % Development and other revenue 2,453 26,097 (23,644 ) (91 ) % 19,672 60,325 (40,653 ) (67 ) % Product revenue, net 17,359 13,442 3,917 29 % 59,495 42,175 17,320 41 % Drug product revenue (4,077 ) — (4,077 ) NM 4,610 (168 ) 4,778 2,844 % Total revenue $ 15,735 $ 155,973 $ (140,238 ) (90 ) % $ 106,367 $ 218,766 $ (112,399 ) (51 ) % NM = Not meaningful Under our revenue recognition policy, license revenue includes amounts from upfront, non-refundable license payments and amounts allocated pursuant to the standalone selling price method from other consideration received during the respective periods. This revenue is generally recognized as deliverables are met and services are performed. Development revenue includes co-development and other development related services. Co-development services are recognized as revenue in the period in which they are billed to our partners, excluding China. For China co-development services, revenue is deferred until we begin to transfer control of the manufactured commercial product to AstraZeneca, which commenced in the first quarter of 2021 and is expected to continue through 2028, which reflects our best estimates. Other development related services are recognized as revenue over the non-contingent development period based on a proportional performance method. As of September 30, 2022, the estimated future non-contingent development periods range from 18 to 21 months. Other revenues consist of contract manufacturing revenue and sales of research and development material and have not been material for any of the periods presented. Product revenue is recognized when our customer obtains control of promised goods or services in an amount that reflects the consideration we expect to receive in exchange for those goods or services. 30 Table of Contents Drug product revenue includes commercial-grade API or bulk drug product sales to AstraZeneca, under the AstraZeneca U.S./RoW Agreement, and Astellas in support of pre-commercial preparation prior to the New Drug Application or Marketing Authorization Application approval, and to Astellas for ongoing commercial launch in Japan and Europe. Drug product revenue is recognized when we fulfill the inventory transfer obligations. 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. Actual amounts of consideration ultimately received in the future may differ from our estimates, for which we will adjust these estimates and affect the drug product revenue in the period such variances become known. In the future, we will continue generating revenue from collaboration agreements in the form of license fees, milestone payments, reimbursements for collaboration services and royalties on drug product sales, and from product sales. We expect that any revenues we generate will fluctuate from quarter to quarter due to the uncertain timing and amount of such payments and sales. Total revenue decreased $140.2 million, or 90% for the three months ended September 30, 2022 and $112.4 million, or 51% for the nine months ended September 30, 2022 compared to the same periods a year ago, respectively, for the reasons discussed in the sections below. License Revenue Three Months Ended September 30, Change Nine Months Ended September 30, Change 2022 2021 $ % 2022 2021 $ % (dollars in thousands) License revenue: Astellas $ — $ 108,434 $ (108,434 ) (100 ) % $ 22,590 $ 108,434 $ (85,844 ) (79 ) % Eluminex — 8,000 (8,000 ) (100 ) % — 8,000 (8,000 ) (100 ) % Total license revenue $ — $ 116,434 $ (116,434 ) (100 ) % $ 22,590 $ 116,434 $ (93,844 ) (81 ) % License revenue recognized under our collaboration agreements with Astellas for the nine months ended September 30, 2022 represented the allocated revenue of related to $25.0 million regulatory milestone associated with the approval of EVRENZO ® (roxadustat) in Russia that was included in the transaction price during the first quarter of 2022 when such milestone was achieved. License revenue recognized under our collaboration agreements with Astellas for the three and nine months ended September 30, 2021 represented the allocated revenue of related to a total of $120.0 million regulatory milestones associated with the approval by European Commission of EVRENZO ® (roxadustat) for the treatment of adult patients with symptomatic anemia associated with CKD during the third quarter of 2021. Development and Other Revenue Three Months Ended September 30, Change Nine Months Ended September 30, Change 2022 2021 $ % 2022 2021 $ % (dollars in thousands) Development revenue: Astellas $ 1,414 $ 14,127 $ (12,713 ) (90 ) % $ 8,419 $ 20,383 $ (11,964 ) (59 ) % AstraZeneca 579 11,970 (11,391 ) (95 ) % 9,750 39,939 (30,189 ) (76 ) % Total development revenue 1,993 26,097 (24,104 ) (92 ) % 18,169 60,322 (42,153 ) (70 ) % Other revenue 460 — 460 100 % 1,503 3 1,500 50,000 % Total development and other revenue $ 2,453 $ 26,097 $ (23,644 ) (91 ) % $ 19,672 $ 60,325 $ (40,653 ) (67 ) % Development and other revenue decreased $23.6 million, or 91% for the three months ended September 30, 2022 and $40.7 million, or 67% for the nine months ended September 30, 2022, compared to the same periods a year ago, respectively. Development revenue recognized under our collaboration agreements with Astellas decreased in co-development billings related to the development of roxadustat under our collaboration agreements with Astellas for the three and nine months ended September 30, 2022 as a result of the substantial completion of Phase 3 trials for roxadustat. 31 Table of Contents Development revenue recognized under our collaboration agreements with Astellas for the nine months ended September 30, 2022 included the allocated revenue of $2.4 million related to the above-mentioned $25.0 million regulatory milestone associated with the approval in Russia during the first quarter of 2022. Comparatively, development revenue recognized under our collaboration agreements with Astellas for the three and nine months ended September 30, 2021 included the allocated revenue of $11.6 million related to the above-mentioned $120.0 million associated with the approvals in EU achieved during the third quarter of 2021. Development revenue recognized under our collaboration agreements with AstraZeneca for the three and nine months ended September 30, 2022 was impacted by the decrease in CKD-related co-development billings in the U.S. Other revenue recognized for the three and nine months ended September 30, 2022 was primarily related to our contract manufacturing agreement with Eluminex, under which we are responsible for supplying the cornea product at 110% of our product manufacturing costs until our manufacturing technology is fully transferred to Eluminex. Product Revenue, Net Three Months Ended September 30, Change Nine Months Ended September 30, Change 2022 2021 $ % 2022 2021 $ % (dollars in thousands) Direct Sales: Gross revenue $ 2,610 $ 3,249 $ (639 ) (20 ) % $ 8,972 $ 10,908 $ (1,936 ) (18 ) % Discounts and rebates (166 ) (133 ) (33 ) 25 % (353 ) (1,314 ) 961 (73 ) % Sales returns 1 (2 ) 3 (150 ) % 3 86 (83 ) (97 ) % Direct sales revenue, net 2,445 3,114 (669 ) (21 ) % 8,622 9,680 (1,058 ) (11 ) % Sales to Falikang: Gross transaction price 32,510 31,179 1,331 4 % 83,517 82,294 1,223 1 % Profit share (12,980 ) (12,090 ) (890 ) 7 % (31,894 ) (31,726 ) (168 ) 1 % Net transaction price 19,530 19,089 441 2 % 51,623 50,568 1,055 2 % Increase in deferred revenue (4,616 ) (8,761 ) 4,145 (47 ) % (750 ) (18,073 ) 17,323 (96 ) % Sales to Falikang revenue, net 14,914 10,328 4,586 44 % 50,873 32,495 18,378 57 % Total product revenue, net $ 17,359 $ 13,442 $ 3,917 29 % $ 59,495 $ 42,175 $ 17,320 41 % In January 2021, Falikang became fully operational and substantially all direct product sales to distributors in China have been made by Falikang, while FibroGen Beijing continues to sell product directly in one province in China. Total product revenue, net increased $3.9 million, or 29% for the three months ended September 30, 2022, and $17.3 million, or 41% for the nine months ended September 30, 2022, compared to the same periods a year ago, respectively. Product revenue from direct sales to distributors is recognized in an amount that reflects the consideration that we expect to be entitled to in exchange for those products, net of various sales rebates and discounts. The discounts and rebates primarily consisted of the contractual sales rebate that were calculated based on the stated percentage of gross sales by each distributor in the distribution agreement, and non-key account hospital listing award that was calculated based on eligible non-key account hospital listing to date achieved by each distributor with certain requirements met during the period. Product revenue from direct sales, net decreased $0.7 million, or 21% for the three months ended September 30, 2022, and $1.1 million, or 11% for the nine months ended September 30, 2022, compared to the same periods a year ago, respectively. The gross product revenue from direct sales to distributors decreased $0.6 million and $1.9 million for the three and nine months ended September 30, 2022, compared to the same periods a year ago, respectively, primarily due to the lower National Reimbursement Drug List price effective in the first quarter of 2022 and unfavorable foreign currency translation rate of Renminbi against the U.S. dollar during the current year period, partially offset by an increase in sales volume. The total discounts and rebates were immaterial for the three and nine months ended September 30, 2022 as compared to the same periods a year ago due to the continuous settlement as well as transition from direct sales to sales to Falikang. 32 Table of Contents FibroGen Beijing manufactures and supplies commercial product to Falikang based on an agreed upon transfer price, which includes gross transfer price, net of calculated profit share. Revenue is recognized upon the transfer of control of commercial products to Falikang in an amount that reflects the allocation of the China performance obligation transaction price to the performance obligation satisfied during the reporting period. The variable consideration components that are included in the transaction price may be constrained, and are included in the 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. Sales to Falikang revenue, net increased $4.6 million, or 44% for the three months ended September 30, 2022, and $18.4 million, or 57% for the nine months ended September 30, 2022, compared to the same periods a year ago, respectively. The gross transfer price increased $1.3 million and $1.2 million, and the calculated profit share increased $0.9 million and $0.2 million for the three and nine months ended September 30, 2022, compared to the same periods a year ago, respectively, primarily due to the increase in sales volume, offset by the lower National Reimbursement Drug List price effective in the first quarter of 2022, and unfavorable foreign currency translation rate of Renminbi against the U.S. dollar during the current year period. Periodically, we update our assumptions such as total sales quantity, performance period and other inputs including foreign currency translation impact, among others. Following updates to our estimates, we deferred $4.6 million and $0.8 million for the three and nine months ended September 30, 2022, and $8.8 million and $18.1 million for the three and nine months ended September 30, 2021, respectively, from the net transfer price to Falikang, which was included in the related deferred revenue of the China performance obligation. Drug Product Revenue Three Months Ended September 30, Change Nine Months Ended September 30, Change 2022 2021 $ % 2022 2021 $ % (dollars in thousands) Drug product revenue: Astellas Japan Agreement $ (4,313 ) $ — $ (4,313 ) NM $ 3,297 $ 2,056 $ 1,241 60 % Astellas Europe Agreement 236 — 236 NM 1,313 — 1,313 NM AstraZeneca U.S./RoW Agreement — — — NM — (2,224 ) 2,224 (100 ) % Total drug product revenue: $ (4,077 ) $ — $ (4,077 ) NM $ 4,610 $ (168 ) $ 4,778 2,844 % NM = Not meaningful Astellas Japan Agreement During the first quarter of 2022, we fulfilled a shipment obligation under the terms of Astellas Japan Amendment and recognized related drug product revenue of $9.8 million in the same period. In addition, during the first quarter of 2022, we updated our estimate of variable consideration related to the API shipments fulfilled under the terms of Japan Amendment with Astellas, and recorded a reduction to the drug product revenue of $2.2 million. Specifically, the change in estimated variable consideration was based on the API held by Astellas at period end, adjusted to reflect the 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 three months ended September 30, 2022, we updated our estimate of variable consideration related to the API shipments fulfilled under the terms of Astellas Japan Amendment, and accordingly recorded adjustments to the drug product revenue of $(4.3) million. Specifically, the change in estimated variable consideration was based on the API held by Astellas at period end, adjusted to reflect the changes in the estimated bulk product strength mix intended to be manufactured by Astellas and foreign currency translation impact, among others. During the nine months ended September 30, 2021, we updated our estimate of variable consideration related to the API shipments fulfilled under the terms of Astellas Japan Amendment, and accordingly recorded adjustments to the drug product revenue of $2.1 million. Specifically, the change in estimated variable consideration was based on the API held by Astellas at period end, adjusted to reflect the 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. 33 Table of Contents Astellas Europe Agreement During the second quarter of 2022, we transferred bulk drug product for commercial purposes under the terms of the Astellas Europe Agreement and the Astellas EU Supply Agreement, and recognized the related fully burdened manufacturing costs of $1.0 million as drug product revenue, and recorded $23.2 million as deferred revenue due to a high degree of uncertainty associated with the variable consideration for revenue recognition purposes. In addition, we recognized royalty revenue of $0.2 million and $0.3 million as drug product revenue from the deferred revenue under the Astellas Europe Agreement for the three and nine months ended September 30, 2022, respectively. The remainder of the deferred revenue will be recognized as and when uncertainty is resolved, based on the performance of roxadustat product sales in the Astellas territory. During the first quarter of 2022, we billed and received $49.2 million from Astellas related to the annual transfer price true up for bulk drug product transferred for commercial purposes under the terms of the Astellas Europe Agreement and the Astellas EU Supply Agreement. This amount was recorded in deferred revenue and netted against an unbilled contract asset as of December 31, 2021. We updated our estimate of variable consideration related to the bulk drug product transferred in prior years. Specifically, the change in estimated variable consideration was based on the bulk drug product held by Astellas at the period end, adjusted to reflect the changes in the estimated transfer price, forecast information, shelf-life estimates and other items. As a result, during the nine months ended September 30, 2022, we reclassified a total of $51.0 million from the related deferred revenue to accrued liabilities. As of September 30, 2022, the related balance in accrued liabilities was $51.0 million, representing our best estimate that this amount will be paid within the next 12 months. During the first quarter of 2021, we shipped bulk drug product from process validation supplies for commercial purposes under the terms of the Astellas Europe Agreement. We constrained the consideration of $11.8 million from this shipment due to a high degree of uncertainty associated with the variable consideration for revenue recognition purposes, which was recorded as deferred revenue and will be recognized as and when uncertainty is resolved. AstraZeneca U.S./RoW Agreement We shipped bulk drug product to AstraZeneca as commercial supply under the terms of the AstraZeneca Master Supply Agreement in 2020 and during the first half of 2021. Following the CRL for roxadustat in CKD anemia in the U.S. received in August 2021, we evaluated the impact of these developments in revising our estimates of variable consideration associated with drug product revenue. As a result, we updated the estimated transaction price during the nine months ended September 30, 2021, and recorded a reduction to the drug product revenue of $2.2 million and $11.2 million as deferred revenue. During the first quarter of 2022, we evaluated the current developments in the U.S. market, and updated our estimates of variable consideration associated with bulk drug product shipments to AstraZeneca in prior years as commercial supply under the terms of the AstraZeneca Master Supply Agreement. As a result, during the nine months ended September 30, 2022, we reclassified $11.2 million from the related deferred revenue to accrued liabilities. As of September 30, 2022, the related balance in accrued liabilities was $11.2 million, representing its best estimate that this amount will be paid within the next 12 months. Operating Costs and Expenses Three Months Ended September 30, Change Nine Months Ended September 30, Change 2022 2021 $ % 2022 2021 $ % (dollars in thousands) Operating costs and expenses Cost of goods sold $ 4,308 $ 3,266 $ 1,042 32 % $ 15,355 $ 9,746 $ 5,609 58 % Research and development 75,182 75,880 (698 ) (1 ) % 235,163 273,123 (37,960 ) (14 ) % Selling, general and administrative 29,902 25,853 4,049 16 % 90,722 89,186 1,536 2 % Total operating costs and expenses $ 109,392 $ 104,999 $ 4,393 4 % $ 341,240 $ 372,055 $ (30,815 ) (8 ) % Total operating costs and expenses increased $4.4 million, or 4% for the three months ended September 30, 2022, and decreased $30.8 million, or 8% for the nine months ended September 30, 2022, compared to the same periods a year ago, respectively, for the reasons discussed in the sections below. 34 Table of Contents Cost of Goods Sold Cost of goods sold increased $1.0 million, or 32% for the three months ended September 30, 2022 and $5.6 million, or 58% for the nine months ended September 30, 2022, compared to the same periods a year ago, respectively. Cost of goods sold, associated with the roxadustat commercial sales in China, consists of direct costs to manufacture commercial product, as well as indirect costs including factory overhead, storage, shipping, quality assurance, idle capacity charges, and inventory valuation adjustments. Cost of goods sold associated with the roxadustat commercial sales in China was $4.0 million for the three months ended September 30, 2022, as compared to $2.8 million to the same period a year ago, an increase of $1.2 million, or 44%, and was $11.5 million for the nine months ended September 30, 2022, as compared to $7.4 million to the same period a year ago, an increase of $4.1 million, or 55%, respectively, resulting from the increase in the sales volume, partially offset by improved unit cost efficiency due to higher production volume. Cost of goods sold associated with the roxadustat drug product revenue in the U.S. was immaterial for the three months ended September 30, 2022 and 2021, and was $2.7 million and $2.3 million for the nine months ended September 30, 2022 and 2021, respectively, associated with the costs of API or bulk drug product delivered to Astellas and AstraZeneca in the respective periods. We expect costs of goods sold to increase in relation to drug product revenue as we deplete inventories that we had expensed prior to receiving regulatory approvals. Cost of goods sold for the three and nine months ended September 30, 2022 also included manufacturing costs of $0.2 million and $1.2 million, respectively, related to our contract manufacturing revenue from Eluminex. Research and Development Expenses Research and development expenses consist of third-party research and development costs and the fully-burdened amount of costs associated with work performed under collaboration agreements. Research and development expenses include employee-related expenses for research and development functions, expenses incurred under agreements with clinical research organizations, other clinical and preclinical costs and allocated direct and indirect overhead costs, such as facilities costs, information technology costs and other overhead. Research and development costs are expensed as incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites. Research and development expenses also include in-process research and development assets that have no alternative future use other than in a particular research and development project. Following the CRL for roxadustat in CKD anemia in the U.S., we have implemented a cost reduction effort and, as a result, research and development expenses have decreased and may continue to decrease in certain areas over time. The following table summarizes our research and development expenses incurred during the three and nine months ended September 30, 2022 and 2021: Phase of Three Months Ended September 30, Nine Months Ended September 30, Product Candidate Development 2022 2021 2022 2021 (in thousands) Pamrevlumab Phase 2/3 $ 53,582 $ 43,780 $ 149,590 $ 137,334 Roxadustat Phase 3 9,147 19,822 31,873 72,989 Other research and development expenses 12,453 12,278 53,700 62,800 Total research and development expenses $ 75,182 $ 75,880 $ 235,163 $ 273,123 The program-specific expenses summarized in the table above include costs we directly attribute to our product candidates. We allocate research and development salaries, benefits, stock-based compensation and other indirect costs to our product candidates on a program-specific basis, and we include these costs in the program-specific expenses. 35 Table of Contents Research and development expenses decreased $0.7 million, or 1% for the three months ended September 30, 2022, compared to the same period a year ago, as a result of the net effect of the following: • Decrease of $8.0 million in clinical trials costs, primarily due to Phase 3 trials for pamrevlumab and CKD studies for roxadustat; • Decrease of $5.3 million in employee-related costs primarily due to a payroll tax refund received during the third quarter of 2022, and lower headcount as part of the cost reduction effort we started to implement in the second half of 2021 following the CRL for roxadustat in CKD anemia in the U.S.; and • Increase of $11.8 million in drug development expenses associated with drug substance and drug product manufacturing activities primarily related to pamrevlumab. Research and development expenses decreased $38.0 million, or 14% for the nine months ended September 30, 2022, compared to the same period a year ago, as a result of the net effect of the following: • Decrease of $25.0 million for acquired in-process research and development asset from HiFiBiO, which incurred in the prior year period; and • Decrease of $10.6 million in employee-related costs and decrease of $4.6 million in stock-based compensation expenses primarily due to lower headcount as part of the cost reduction effort we started to implement in the second half of 2021 following the CRL for roxadustat in CKD anemia in the U.S., and a payroll tax refund received during the third quarter of 2022; • Decrease of $9.0 million in clinical trials costs, primarily due to Phase 3 trials for pamrevlumab and CKD studies for roxadustat; and • Increase of $14.4 million in drug development expenses associated with drug substance and drug product manufacturing activities primarily related to pamrevlumab. Selling, General and Administrative Expenses Selling, general and administrative (“SG&A”) expenses consist primarily of employee-related expenses for executive, operational, finance, legal, compliance, and human resource functions. SG&A expenses also include facility-related costs, professional fees, accounting and legal services, other outside services including co-promotional expenses associated with our commercialization efforts in China, recruiting fees and expenses associated with obtaining and maintaining patents. Following the CRL for roxadustat in CKD anemia in the U.S., we have implemented a cost reduction effort and, as a result, SG&A expenses have decreased and may continue to decrease in certain areas over time. SG&A expenses increased $4.0 million, or 16% for the three months ended September 30, 2022, compared to the same period a year ago, primarily as a result of the net effect of the following: • Increase of $6.2 million in legal expenses primarily due to a one-time favorable patent-related court ruling recorded in the prior year period; and • Decrease of $1.4 million in outside services expenses due to lower sample costs and promotional expenses for roxadustat in China. SG&A expenses increased $1.5 million, or 2% for the nine months ended September 30, 2022, compared to the same period a year ago, as a result of the net effect of the following: • Increase of $4.9 million in legal expenses primarily due to a one-time favorable patent-related court ruling recorded in the prior year period; and • Decrease of $3.0 million in outside services expenses due to lower promotional expenses and sample costs for roxadustat in China. 36 Table of Contents Interest and Other, Net Three Months Ended September 30, Change Nine Months Ended September 30, Change 2022 2021 $ % 2022 2021 $ % (dollars in thousands) Interest and other, net: Interest expense $ (84 ) $ (109 ) $ 25 (23 ) % $ (321 ) $ (965 ) $ 644 (67 ) % Interest income and other income (expenses), net 1,798 (1,303 ) 3,101 238 % 6,672 (2,120 ) 8,792 415 % Total interest and other, net $ 1,714 $ (1,412 ) $ 3,126 221 % $ 6,351 $ (3,085 ) $ 9,436 306 % Interest Expense Interest expense relates to our finance lease liabilities accretion primarily for our leased facilities in San Francisco and China. Interest expense also includes interest related to the Technology Development Center of the Republic of Finland product development obligations. Interest expense was immaterial for the three months ended September 30, 2022 and 2021. Interest expense decreased $0.6 million, or 67% for the nine months ended September 30, 2022 compared to the same period a year ago primarily due to the lease modification and renewal in 2021 being classified as operating leases, as compared to finance leases previously. Interest Income and Other Income (Expenses), Net Interest income and other income (expenses), net primarily include interest income earned on our cash, cash equivalents and investments, foreign currency transaction gains (losses), remeasurement of certain monetary assets and liabilities in non-functional currency of our subsidiaries into the functional currency, realized gains (losses) on sales of investments, and other non-operating income and expenses. Interest income and other income (expenses), net improved $3.1 million, or 238% for the three months ended September 30, 2022, compared to the same period a year ago, primarily due to foreign currency transaction impacts and higher interest income from our investments. Interest income and other income (expenses), net improved $8.8 million, or 415% for the nine months ended September 30, 2022 compared to the same period a year ago, primarily due to a reduction of $6.0 million to other expenses recorded during the second quarter of 2022 to release the previously estimated late payment fees related to value added tax in China, upon the receipt of a written evidence from China’s State Taxation Administration, which confirmed the transfer of certain intellectual property rights in 2020 relating to our Chinese business between our wholly owned subsidiaries is exempted from value added tax. In addition, the interest income from our investments was higher compared to the same period a year ago. Income Taxes Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (dollars in thousands) Income (loss) before income taxes $ (91,943 ) $ 49,562 $ (228,522 ) $ (156,374 ) Provision for income taxes 114 106 250 235 Effective tax rate (0.1 ) % 0.2 % (0.1 ) % (0.2 ) % 37 Table of Contents Provisions for income taxes for the three and nine months ended September 30, 2022 and 2021 were primarily due to foreign taxes. Based upon the weight of available evidence, which includes our historical operating performance, reported cumulative net losses since inception and expected continuing net loss, we have established a full valuation allowance against our net deferred tax assets as we do not currently believe that realization of those assets is more likely than not. We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of this allowance. However, given our anticipated future foreign earnings, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a portion of the valuation allowance may no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. The exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve. Investment Income in Unconsolidated Variable Interest Entity Investment income in unconsolidated variable interest entity represented our proportionate share of the reported profits of Falikang, an unconsolidated variable interest entity accounted for under the equity method, and was immaterial for the three and nine months ended September 30, 2022 and 2021. See Note 3, Variable Interest Entity , to the condensed consolidated financial statements for details. LIQUIDITY AND CAPITAL RESOURCES Financial Condition We have historically funded our operations principally from the sale of common stock (including our public offering proceeds) and from the execution of collaboration agreements involving license payments, milestones and reimbursement for development services. As of September 30, 2022, we had cash and cash equivalents of $156.0 million, compared to $171.2 million as of December 31, 2021. Cash is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Investments, consisting of available-for-sale securities, and stated at fair value, are also available as a source of liquidity. As of September 30, 2022, we had short-term and long-term investments of $252.6 million and $17.8 million, respectively, compared to $234.0 million and $167.8 million, respectively, as of December 31, 2021. As of September 30, 2022, a total of $84.4 million of our cash and cash equivalents was held outside of the U.S. in our foreign subsidiaries, including $63.1 million held in China, to be used primarily for our China operations. On November 4, 2022, we entered into a RIFA with NovaQuest with respect to our royalties from Astellas’ sales of roxadustat in Europe, Japan and the other Astellas territories. Pursuant to the RIFA, NovaQuest agreed to pay us an investment amount equal to $50.0 million, in consideration for certain royalty and other revenue payments we will make to NovaQuest. For additional details about this financing transaction, see Note 9, Subsequent Event , to the condensed consolidated financial statements. Cash flows from Falikang, a distribution joint venture between FibroGen Beijing and AstraZeneca, and cash flows into FibroGen Beijing, are currently intended to remain onshore in China. Our long-term plans for distributing cash flows from FibroGen Beijing may involve any number of scenarios including keeping the money onshore to fund future expansion of our China operations or paying down certain debt obligations. To date, no such debt repayments have occurred, nor have there been any other payments or distributions from FibroGen Beijing to entities or investors outside of China. Our capital contributions to FibroGen Beijing and the liquidity position of FibroGen Beijing depend on many factors, including those set forth under Part II, Item 1A “ Risk Factors ” in this Quarterly Report. 38 Table of Contents Cash Sources and Uses The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods set forth below (in thousands): Nine Months Ended September 30, 2022 2021 Net cash provided by (used in): Operating activities $ (93,420 ) $ (27,272 ) Investing activities 88,023 (376,405 ) Financing activities (1,898 ) (532 ) Effect of exchange rate changes on cash and cash equivalents (7,968 ) 343 Net decrease in cash and cash equivalents $ (15,263 ) $ (403,866 ) Operating Activities Net cash used in operating activities was $93.4 million for the nine months ended September 30, 2022 and consisted primarily of net loss of $227.5 million adjusted for non-operating cash items of $57.8 million, partially offset by a net increase in operating assets and liabilities of $76.2 million. The significant non-operating cash items included stock-based compensation expense of $49.4 million, and depreciation expense of $7.5 million. The significant items in the changes in operating assets and liabilities included the increases resulting from the following: • Accrued and other liabilities increased $87.2 million, primarily related to the total of $66.5 million for API and bulk drug product price true-up as of September 30, 2022, resulting from changes in estimated variable consideration associated with the API shipments fulfilled under the terms of the Astellas Japan Amendment, the bulk drug product transferred under the terms of the Astellas Europe Agreement and the Astellas EU Supply Agreement, and the bulk drug product shipments to AstraZeneca under the terms of the AstraZeneca Master Supply Agreement. See the Drug Product Revenue section in Note 2, Collaboration Agreements, License Agreement and Revenues, to the condensed consolidated financial statements for details. The accrued and other liabilities were also impacted by the classification of a portion of accrued co-promotion expenses from other long-term liabilities to current liabilities based on the updated estimate of timing for payment, and by the timing of invoicing and payment; • Prepaid expenses and other current assets decreased $8.3 million, primarily due to the collection of $8.0 million from Eluminex for upfront license payment during the first quarter of 2022, and less prepayments made for roxadustat API manufacturing activities; and • Deferred revenue increased $4.5 million, primarily related to the deferred considerations of the bulk drug product transferred to Astellas under the terms of the Astellas Europe Agreement and the Astellas EU Supply Agreement during the current year period, offset by the above-mentioned reclassification to accrued liabilities, resulting from changes in estimated variable consideration associated with the API or bulk drug product deliveries fulfilled with Astellas and AstraZeneca. The increases were partially offset by the decreases resulting from the following: • Inventories increased $11.1 million, driven by the increased inventory level primarily related to inventory cost capitalized related to Europe and other territories, and FibroGen Beijing’s productions of roxadustat for commercial sales purposes; • Other long-term liabilities decreased $10.3 million driven by the above-mentioned classification of a portion of accrued co-promotion expenses from other long-term liabilities to current liabilities based on the updated estimate of timing for payment; and • Accounts payable decreased $5.1 million, primarily driven by the timing of invoicing and payments. 39 Table of Contents Net cash used in operating activities was $27.3 million for the nine months ended September 30, 2021 and consisted primarily of net loss of $155.9 million adjusted for non-operating cash items of $92.4 million, offset by a net increase in operating assets and liabilities of $36.3 million. The significant non-operating cash items included stock-based compensation expense of $54.1 million, expense for acquired in-process research and development asset from HiFiBiO of $25.0 million, depreciation expense of $7.7 million and amortization of finance lease right-of-use assets of $4.5 million. The significant items in the changes in operating assets and liabilities included the increases resulting from the following: • Deferred revenue increased $40.7 million, primarily related to the above-mentioned $11.8 million and $11.2 million of the deferred considerations of the bulk drug product shipped to Astellas and AstraZeneca, respectively, due to a high degree of uncertainty associated with the variable consideration for revenue recognition purposes, and $18.1 million of the deferred revenue from the sales to Falikang associated with the China performance obligation; • Accrued and other liabilities increased $32.0 million, primarily driven by the timing of invoicing and payment; and • Accounts receivable decreased $6.1 million, primarily driven by the timing of the receipt of upfront payments and the recognition of revenues under our collaboration agreements with Astellas and AstraZeneca, as well as the collection from our distributors and Falikang. The increases were partially offset by the decreases resulting from the following: • Other long-term liabilities decreased $14.2 million, primarily due to the decrease in the co-promotional expenses with AstraZeneca for its sales and marketing efforts related to the commercial launch of roxadustat in China that are not expected to be paid in the next year; • Inventories increased $12.7 million, driven by the increased inventory level primarily related to FibroGen Beijing’s productions of roxadustat for commercial sales purposes and pre-launch inventory cost capitalized in the U.S.; • Prepaid expenses and other current assets increased $11.2 million, primarily due to the unbilled upfront license payment from Eluminex of $8.0 million, and prepayments made for roxadustat API manufacturing activities; and • Other assets increased $3.6 million, primarily related to the increases in various licenses. Investing Activities Investing activities primarily consist of purchases of property and equipment, purchases of investments, purchase of acquired in-process research and development asset and proceeds from the maturity and sale of investments. Net cash provided by investing activities was $88.0 million for the nine months ended September 30, 2022 and consisted primarily of $216.3 million of proceeds from maturities of investments and $7.4 million of proceeds from sales of available-for-sale securities, partially offset by $97.3 million of cash used in purchases of available-for-sale securities, $35.0 million of cash paid for the acquired in-process research and development asset, and $3.4 million of cash used in purchases of property and equipment. Net cash used in investing activities was $376.4 million for the nine months ended September 30, 2021 and consisted primarily of $397.9 million of cash used in purchases of available-for-sale securities, $25.0 million of cash paid for the acquired in-process research and development asset and $3.8 million of cash used in purchases of property and equipment, partially offset by $46.3 million of proceeds from maturities of investments and $4.0 million of proceeds from sales of available-for-sale securities. 40 Table of Contents Financing Activities Financing activities primarily reflect proceeds from the issuance of our common stock, cash paid for payroll taxes on restricted stock unit releases, repayments of our lease liabilities and obligations. Net cash used in financing activities was $1.9 million for the nine months ended September 30, 2022 and consisted primarily of $4.6 million of cash paid for payroll taxes on restricted stock unit releases, partially offset by $3.0 million of proceeds from the issuance of common stock upon exercise of stock options and purchases under our 2014 Employee Stock Purchase Plan (“ESPP”). Net cash provided by financing activities was $0.5 million for the nine months ended September 30, 2021 and consisted primarily of $11.9 million of proceeds from the issuance of common stock upon exercise of stock options and purchases under our ESPP, partially offset by $6.7 million of cash paid for payroll taxes on restricted stock unit releases, and $5.4 million of repayments of finance lease liabilities. Material Cash Requirements We started generating revenue from commercial sales of roxadustat product in China in the third quarter of 2019. Even with the expectation of increases in revenue from product sales, we anticipate that we will continue to generate losses for the foreseeable future. Following the CRL for roxadustat in CKD anemia in the U.S., we have implemented a cost reduction effort, and as a result, operating expenses have decreased and may continue to decrease in certain areas over time compared to our previous internal plans. To date, we have funded certain portions of our research and development and manufacturing efforts globally through collaboration partners and capital investment. There is no guarantee that sufficient funds will be available to continue to fund these development efforts through commercialization or otherwise. Although AstraZeneca is currently funding all non-China collaboration expenses not reimbursed by Astellas, including development of MDS in the U.S., we expect our research and development expenses to continue to increase as we invest in our other programs. Additionally, we have not been able to agree on a path forward for AstraZeneca to fund further roxadustat development in the U.S. for CKD anemia. We are also subject to all the risks related to the development and commercialization of novel therapeutics, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business, such as the COVID-19 pandemic or other factors outlined under Part II, Item 1A “ Risk Factors ” in this Quarterly Report on Form 10-Q. We anticipate that we will need substantial additional funding in connection with our continuing operations. We believe that our existing cash and cash equivalents, short-term and long-term investments and accounts receivable, together with the financing amount under the RIFA expected in November 2022, will be sufficient to meet our anticipated cash requirements for at least the next 12 months from the date of issuance of the financial statements included in this Quarterly Report on Form 10-Q. However, we may need additional capital thereafter and our liquidity assumptions could turn out to be wrong, or may change over time, and we could utilize our available financial resources sooner than we currently expect. In addition, we may elect to raise additional funds at any time through equity, equity-linked, debt financing arrangements or from other sources. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under Part II, Item 1A “ Risk Factors ” in this Quarterly Report on Form 10-Q. We may not be able to secure additional financing to meet our operating requirements on acceptable terms, or at all. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the incurrence of indebtedness, we will be subject to increased fixed payment obligations and could also be subject to restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. If we are unable to obtain needed additional funds, we will have to reduce our operating costs and expenses, which would impair our growth prospects and could otherwise negatively impact our business. 41 Table of Contents Commitments and Contingencies Contractual Obligations As of September 30, 2022, we had $92.6 million of operating lease liabilities. The material cash requirements related to our lease liabilities included $15.6 million expected to be paid within the next 12 months. As of September 30, 2022, we had outstanding total non-cancelable purchase obligations of $51.2 million, including $21.0 million for manufacture and supply of pamrevlumab, $7.8 million for manufacture and supply of roxadustat, and $22.3 million for other purchases and programs. We expect to fulfill our commitments under these agreements in the normal course of business, and as such, no liability has been recorded. The material cash requirements related to our non-cancelable purchase obligations included $29.2 million expected to be paid within the next 12 months. Some of our license agreements provide for periodic maintenance fees over specified time periods, as well as payments by the Company upon the achievement of development, regulatory and commercial milestones. As of September 30, 2022, future milestone payments for research and preclinical stage development programs consisted of up to approximately $697.9 million in total potential future milestone payments under our license agreements with HiFiBiO (for Gal-9 and CCR8), Medarex, Inc. and others. These milestone payments generally become due and payable only upon the achievement of certain developmental, clinical, regulatory and/or commercial milestones. The event triggering such payment or obligation has not yet occurred. Off-Balance Sheet Arrangements During the three and nine months ended September 30, 2022, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements. Recently Issued Accounting Guidance For recently issued accounting guidance, see Note 1, Significant Accounting Policies, to the condensed consolidated financial statements. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no material changes in our critical accounting policies, estimates and judgments during the three and nine months ended September 30, 2022 compared with the disclosures in Part II, Item 7 of our 2021 Form 10-K. ITEM 3. QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK. During the three and nine months ended September 30, 2022, we believe there were no material changes to our exposure to market risks as set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our 2021 Form 10-K. 42 Table of Contents