KYNTRA BIO, INC. 10-Q

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, 2023 filed with the SEC on February 26, 2024 (“2023 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”). FibroGen is developing and commercializing a diversified pipeline of novel therapeutics that work at the frontier of cancer biology and anemia. Pamrevlumab, a human monoclonal antibody targeting CTGF, is in Phase 3 clinical development for the treatment of locally advanced unresectable pancreatic cancer (“LAPC”). Pamrevlumab is also in Phase 2/3 development for the treatment of metastatic pancreatic cancer. To date, we have retained exclusive worldwide rights for pamrevlumab. Roxadustat is an oral small molecule inhibitor of HIF prolyl hydroxylase (“HIF-PH”) 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. Roxadustat is in clinical development for chemotherapy-induced anemia (“CIA”) in China. FibroGen is also developing earlier stage clinical and preclinical product candidates, FG-3246, FG-3165 and FG-3175, to address unmet patient needs in oncology. 25 Table of Contents Financial Highlights Three Months Ended March 31, 2024 2023 (in thousands, except for per share data) Result of Operations Revenue $ 55,902 $ 36,161 Operating costs and expenses 86,965 112,252 Net loss (32,933 ) (76,705 ) Net loss per share - basic and diluted $ (0.33 ) $ (0.81 ) March 31, 2024 December 31, 2023 (in thousands) Balance Sheet Cash and cash equivalents $ 105,734 $ 113,688 Short-term and long-term investments 71,865 121,898 Accounts receivable $ 37,083 $ 12,553 Our revenue for the three months ended March 31, 2024 included primarily the revenue recognized related to the following: • $30.5 million from roxadustat commercial sales in China, mostly from sales to Beijing Falikang Pharmaceutical Co. Ltd. (“Falikang”); • $25.7 million cumulative catch-up net adjustment in the drug product revenue as a result of the termination and transition agreement related to the AstraZeneca AB (“AstraZeneca”) U.S./RoW Agreement, , as defined below, with the exception of South Korea, and a net reduction of $1.2 million to drug product revenue related to API deliveries to Astellas Pharma Inc. (“Astellas”); and • $0.8 million of development revenue recognized under our collaboration agreements with our partners Astellas and AstraZeneca. As a comparison, our revenue for the three months ended March 31, 2023 included primarily the revenue recognized related to the following: • $24.2 million from roxadustat commercial sales in China, mostly from sales to Falikang; • $6.0 million total milestone payments recognized under our license agreement with Eluminex, including a $3.0 million milestone payment based on Eluminex implanting a biosynthetic cornea in the first patient of its clinical trial in China, and a $3.0 million manufacturing related milestone payment; • $3.7 million of development revenue recognized under our collaboration agreements with our partners Astellas and AstraZeneca; and • $2.1 million of drug product revenue related to API deliveries to Astellas. Operating costs and expenses for the three months ended March 31, 2024 decreased compared to the same period a year ago primarily as a result of the net effect of the following: • $14.5 million lower clinical trial expenses primarily associated with the wind down on Phase 2/3 trials for pamrevlumab for the treatment of metastatic pancreatic cancer; • $14.1 million lower employee-related expenses primarily due to the impact from reduction in force actions in July 2023 and cost control efforts; • $7.3 million lower stock-based compensation primarily resulting from significantly lower stock price and cancellations of stock options and restricted stock units; • $3.3 million lower facilities-related expenses due to cost control efforts and lower depreciation expense as certain Property and equipment reached their useful lives in prior year period; 26 Table of Contents • $2.9 million lower legal expenses primarily due to lower corporate legal activities; • $2.9 million lower drug development expenses associated with drug substance activities related to pamrevlumab which was largely completed; and • $21.1 million one-time cost of goods sold recorded correspondingly to the above-mentioned drug product revenue resulting from the termination and transition agreement related to the AstraZeneca U.S./RoW Agreement. For the three months ended March 31, 2024, we had a net loss of $32.9 million, or a net loss per basic and diluted share of $0.33, as compared to a net loss of $76.7 million, or a net loss per basic and diluted share of $0.81, for the same period a year ago, due to increases in revenue and decreases in operating costs and expenses as discussed above. Cash and cash equivalents, investments, and accounts receivable totaled $214.7 million at March 31, 2024, a decrease of $33.5 million from December 31, 2023, primarily due to the cash used in operations as discussed under the Liquidity and Capital Resources section below. Commercial, Development and Research Programs The following is an overview of our clinical, commercial, and research programs. Pamrevlumab: Monoclonal Antibody Targeting Connective Tissue Growth Factor Pamrevlumab is our first-in-class antibody developed to inhibit the activity of CTGF. In addition to enabling progression of fibrosis, CTGF has been shown preclinically to have pro-tumorigenic effects in pancreatic cancer through increasing tumor cell proliferation and survival and promoting tumor angiogenesis and metastasis. The U.S. Food and Drug Administration (“FDA”) has granted Fast Track designation to pamrevlumab for the treatment of patients with locally advanced pancreatic cancer (“LAPC”). The FDA has granted orphan drug designation to pamrevlumab for the treatment of pancreatic cancer. Pamrevlumab for the Treatment of Metastatic Pancreatic Cancer In June 2021, the Pancreatic Cancer Action Network’s (PanCAN) Precision Promise SM adaptive trial platform included pamrevlumab in combination with standard-of-care chemotherapy treatments for pancreatic cancer (gemcitabine and Abraxane ® ), for patients with metastatic pancreatic cancer. Drug candidates in the Precision Promise study will progress from Stage 1 to Stage 2 of this seamless Phase 2/3 study, unless stopped sooner for safety or futility. 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. In the third quarter of 2022, pamrevlumab graduated from Stage 1 to Stage 2, achieving a protocol pre-specified ≥ 35% predictive probability of success for the primary endpoint of overall survival at the completion of the trial. Pamrevlumab was the first experimental treatment arm to graduate to Stage 2 of the trial. The pamrevlumab combination therapy was offered to patients as either a first- or second-line treatment option. In the first quarter of 2024, the pamrevlumab portion of the trial was completed, and we expect topline results to be available in mid-2024. Pamrevlumab for the Treatment of Locally Advanced Unresectable Pancreatic Cancer (“LAPIS”) LAPIS is our double-blind placebo-controlled Phase 3 clinical program for pamrevlumab as a therapy for LAPC. We completed enrollment of 284 patients that are 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 to be available in the third quarter of 2024. 27 Table of Contents Roxadustat for the Treatment of Anemia in Chronic Kidney Disease Roxadustat is our commercial-stage product, an oral small molecule inhibitor of HIF-PH activity that acts by stimulating the body’s natural pathway of erythropoiesis, or red blood cell production. 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 first quarter of 2024, roxadustat achieved an over 39% increase in sales volume relative to the first quarter of 2023. As of February, 2024, roxadustat was the top CKD anemia brand in China with approximately 47% value share within the segment of erythropoiesis stimulating agents and HIF-PH inhibitors (roxadustat is currently the only HIF-PH inhibitor on the market in China). Roxadustat for the Treatment of Chemotherapy-Induced Anemia In May 2023, we announced positive topline data from our Phase 3 clinical study of roxadustat for treatment of anemia in patients receiving concurrent chemotherapy treatment for non-myeloid malignancies in China. Roxadustat (爱瑞卓 ® ) demonstrated non-inferiority compared to recombinant erythropoietin alfa (SEPO ® ) on the primary endpoint of change in hemoglobin (Hb) level from baseline to the average level during Weeks 9-13. In the preliminary safety analysis, the adverse event profile of roxadustat was generally consistent with previous findings and supportive of a positive benefit risk in this patient population. A total of 159 patients with non-myeloid malignancy (solid tumor) with a baseline hemoglobin level at or below 10 g/dL were enrolled into this Phase 3, randomized, open-label, active-controlled study investigating the efficacy and safety of roxadustat for treatment of CIA. Patients were randomly assigned roxadustat or erythropoietin alfa three times per week (TIW), during a treatment period of 12 weeks, with an additional 4-week follow-up period. We recently presented results from this study in an oral presentation at the European Society for Medical Oncology Congress 2023. Our supplemental New Drug Application for roxadustat in CIA was accepted by the China Health Authority in August 2023, and we expect an approval decision in the second half of 2024. Although CIA is one of the most common side effects of chemotherapy, it is frequently undertreated. CIA can adversely affect long-term patient outcomes, as anemia limits both quality of life and the ability of patients to continue chemotherapy treatment. The incidence and severity of CIA depends on a variety of factors. This includes the type of cancer and the treatment, including the type of chemotherapy, schedule, and intensity of therapy. It also depends on whether the patient has received prior myelosuppressive chemotherapy, radiation therapy, or both. Almost 80% of cancer patients in China receiving chemotherapy develop anemia. Approximately 50% of cancer patients in China receiving chemotherapy develop severe anemia that merits treatment (hemoglobin under 10g/dL). In China, over 3 million cancer patients undergo chemotherapy. FG-3246: Prostate Cancer; Potential Additional Cancer Indications In May 2023 we obtained an exclusive license to develop FG-3246 (previously FOR46) in metastatic castration-resistant prostate cancer (“mCRPC”) and other cancer indications. FG-3246 is a first-in-class antibody-drug conjugate targeting a novel epitope on CD46 that is expressed at high levels in certain tumor types with limited expression in most normal tissues. The cytotoxic payload of FG-3246 is monomethyl auristatin E, an anti-mitotic agent that has been utilized in four commercially approved antibody-drug conjugate drugs. FG-3246 demonstrated monotherapy efficacy in a Phase 1 clinical study in heavily-pretreated (and not biomarker selected) patients with mCRPC. Results included a median radiographic progression-free survival of 8.7 months and a PSA50 response in 36% of evaluable patients. For RECIST evaluable patients, 20% met the criteria of a partial response, or measurable reduction in tumor size of ≥ 30%, with a median duration of response of 7.5 months. FG-3246 demonstrated an acceptable safety profile, with adverse events consistent with those observed in other antibody drug conjugate therapies with a MMAE payload, and included infusion related reactions, fatigue, weight loss, neutropenia, and peripheral neuropathy. We plan to meet with the FDA to discuss the development pathway, and we anticipate initiation of a Phase 2 monotherapy dose optimization study of FG-3246 for mCRPC in the second half of 2024. 28 Table of Contents An investigator-sponsored trial of FG-3246 plus enzalutimide is ongoing. Side effects have been manageable and are consistent with other monomethyl auristatin E-based antibody-drug conjugate drugs. Development of the CD46-targeted PET biomarker is currently underway with UCSF, a collaborator of Fortis. We are also exploring additional potential tumor indications in which CD46 is commonly expressed. Preclinical Pipeline Our preclinical pipeline consists of two antibodies for immuno-oncology that are in investigational new drug application-enabling studies. FG-3165 is a galectin-9 (“Gal9”) targeted antibody under development for treatment of solid tumors characterized by high Gal9 levels of expression. Gal9 has been reported to bind to multiple immune checkpoints on lymphocytes that suppress T and natural killer cell activation, and it is a driver of cancer progression in acute myeloid leukemia. In preclinical studies FG-3165 and its variants inhibit Gal9 mediated T cell death, and also promotes anti-tumor immune responses in combination with other immune checkpoint targeted drugs. We submitted an investigational new drug application for FG-3165 in April 2024. FG-3175 is a c-c motif chemokine receptor 8 (“CCR8”) targeted antibody under development for treatment of solid tumors that are highly infiltrated by CCR8-positive T regulatory cells. T regulatory cells contribute to an immune suppressed tumor microenvironment, and multiple preclinical studies have demonstrated immune activation and tumor regression following depletion of this cell type from the tumor microenvironment. FG-3175 is a variant of our previous lead anti-CCR8 antibody, FG-3163, and was deemed to be a superior clinical candidate following extended characterization of both antibodies. FG-3175 has enhanced antibody dependent cellular cytotoxicity activity and induces potent killing of CCR8 expressing cells by natural killer cells in in vitro assay systems. We plan to submit an investigational new drug application (IND) in 2025. Exclusive License from and Option to Acquire Fortis Therapeutics On May 5, 2023, we entered into an exclusive option agreement to acquire Fortis with its novel Phase 1 antibody-drug conjugate, FG-3246 (previously FOR46), that targets a novel epitope on CD46 preferentially expressed on certain cancer cells. FG-3246 is in development for the treatment of metastatic castration-resistant prostate cancer with potential applicability in other solid tumors and hematologic malignancies. Pursuant to an evaluation agreement entered into with Fortis concurrent with the option agreement, FibroGen has exclusively licensed FG-3246 and will control and fund future research, development, including a Phase 2 clinical study sponsored by FibroGen, and manufacturing of FG-3246 during the option period. As part of the clinical development strategy, we will continue the work to develop a PET-based biomarker utilizing a radiolabeled version of the targeting antibody for patient selection. FibroGen have made four quarterly payments totaling $5.4 million to Fortis in support of its continued development obligations, of which the last payment was $1.7 million and was made during the three months ended March 31, 2024. If we exercise the option to acquire Fortis, we will pay Fortis $80.0 million, and thereafter, Fortis would be eligible to receive from FibroGen up to $200.0 million in contingent payments associated with the achievement of various regulatory approvals. If we acquire Fortis, we would also be responsible to pay UCSF, an upstream licensor to Fortis, development milestone fees and a single digit royalty on net sales of therapeutic or diagnostic products arising from the collaboration. If FibroGen chooses not to acquire Fortis, its exclusive license to FG-3246 would expire. For additional details about this transaction, see the Consolidated Variable Interest Entity - Fortis section in Note 3, Variable Interest Entity , to the condensed consolidated financial statements. Exclusive License from HiFiBiO In June 2021, we entered into an exclusive license and option agreement with HiFiBiO (HK) Ltd. (d.b.a. HiFiBiO Therapeutics) (“HiFiBiO”), pursuant to which we exclusively licensed from HiFiBiO all product candidates in HiFiBiO’s Galectin-9 program and subsequently exclusively licensed all product candidates in HiFiBiO’s CCR8 program. In addition to the upfront payments we previously paid, HiFiBiO may receive up to a total of $345 million in future clinical, regulatory, and commercial milestone payments for each program. HiFiBiO will also be eligible to receive tiered royalties based upon worldwide net sales. 29 Table of Contents Exclusive License to Eluminex In April 2023, FibroGen and Eluminex entered into an Amended and Restated Exclusive License Agreement (“A&R Eluminex Agreement”) in order to add to the license rights to recombinant human collagen Type I (in addition to the rights to collagen Type III that were already licensed). See the Eluminex Agreement section in Note 2, Collaboration Agreements, License Agreement and Revenues, to the condensed consolidated financial statements for details. 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 March 31, 2024 totaled $790.1 million. Based on the current development plans for roxadustat in Japan and Europe, we do not expect to receive most or all of the additional potential milestones under the Astellas Japan Agreement or the Astellas Europe Agreement. 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 $(2.2) million and $1.7 million for the three months ended March 31, 2024 and 2023, respectively. 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 $1.0 million and $0.4 million for the three months ended March 31, 2024 and 2023, respectively. 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, except for China and other territories not previously licensed to Astellas (the “AstraZeneca U.S./RoW Agreement”). 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. On February 23, 2024, we entered into an agreement to terminate the AstraZeneca U.S./RoW Agreement with AstraZeneca, effective as of February 25, 2024. Pursuant to the termination and transition agreement, AstraZeneca returns all of their non-China roxadustat rights to us, with the exception of South Korea, and provides certain assistance during a transition period. In addition, as a part of this termination and transition agreement, AstraZeneca will receive tiered mid-single digit royalties on FibroGen’s sales of roxadustat in the terminated territories, or thirty-five percent of all revenue FibroGen receives if it licenses or sells such rights to a third-party. Neither party incurred any early termination penalties. The aggregate amount of consideration for milestone and upfront payments received under the AstraZeneca U.S./RoW Agreement through the termination totaled $439.0 million. In addition, resulting from the above-mentioned termination and transition agreement, FibroGen and AstraZeneca settled the outstanding balances relating to past transactions under the AstraZeneca Master Supply Agreement. Accordingly, during the three months ended March 31, 2024, we recorded a cumulative catch-up net adjustment of $25.7 million to the drug product revenue. 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 March 31, 2024 totaled $77.2 million. 30 Table of Contents 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 AstraZeneca China Amendment in the third quarter of 2020, as discussed and defined below in AstraZeneca China Amendment . On September 18, 2023, we received the formal notice, from Beijing Medical Products Administration, of renewal of its right to continue to market Roxadustat in China through 2028. The Company evaluated the regulatory milestone payment associated with this renewal under the AstraZeneca China Agreement and concluded that this milestone was achieved in the third quarter of 2023. Accordingly, the consideration of $4.0 million associated with this milestone was included in the transaction price and allocated to performance obligations under the AstraZeneca U.S./RoW Agreement and the AstraZeneca China Agreement, $3.5 million of which was recognized as revenue during the third quarter of 2023 from performance obligations satisfied or partially satisfied. As of March 31, 2024, the $4.0 million milestone was recorded as a contract asset and was fully netted against the contract liabilities (deferred revenue) related to the AstraZeneca China Agreement. 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 $30.5 million and $24.2 million for the three months ended March 31, 2024 and 2023, respectively. RESULTS OF OPERATIONS Revenue Three Months Ended March 31, Change 2024 2023 $ % (dollars in thousands) Revenue: License revenue $ — $ 6,000 $ (6,000 ) (100 ) % Development and other revenue 878 3,891 (3,013 ) (77 ) % Product revenue, net 30,538 24,161 6,377 26 % Drug product revenue, net 24,486 2,109 22,377 1,061 % Total revenue $ 55,902 $ 36,161 $ 19,741 55 % 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. We recognize development services as revenue in the period in which they are billed to our partners, excluding China. As of March 31, 2024, we do not expect to incur significant future co-development services. For China co-development services, we defer revenue until we begin to transfer control of the manufactured commercial product to AstraZeneca, which commenced in the first quarter of 2021 and we expect to continue through 2033, which reflects our best estimates. Other revenues consist of contract manufacturing revenue, patent transfer and sales of research and development material, which have not been material for any of the periods presented. We recognize product revenue 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. 31 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. We recognize drug product revenue 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. The AstraZeneca U.S./RoW Agreement was terminated on February 23, 2024 (except for South Korea), while the AstraZeneca China Agreement and relationship continue unaffected. In the future, we will continue generating revenue from collaboration agreements in the form of milestone payments 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 increased $19.7 million, or 55%, for the three months ended March 31, 2024, compared to the same period a year ago for the reasons discussed in the sections below. License Revenue Three Months Ended March 31, Change 2024 2023 $ % (dollars in thousands) License revenue: Eluminex — 6,000 (6,000 ) (100 ) % Total license revenue $ — $ 6,000 $ (6,000 ) (100 ) % There was no license revenue during the three months ended March 31, 2024. License revenue recognized for three months ended March 31, 2023 included a $3.0 million milestone payment based on Eluminex implanting a biosynthetic cornea in the first patient of its clinical trial in China, and a $3.0 million manufacturing related milestone payment when such milestones were achieved. Development and Other Revenue Three Months Ended March 31, Change 2024 2023 $ % (dollars in thousands) Development revenue: Astellas $ 294 $ 1,624 $ (1,330 ) (82 ) % AstraZeneca 468 2,032 (1,564 ) (77 ) % Total development revenue 762 3,656 (2,894 ) (79 ) % Other revenue 116 235 (119 ) (51 ) % Total development and other revenue $ 878 $ 3,891 $ (3,013 ) (77 ) % Development and other revenue decreased $3.0 million, or 77%, for the three months ended March 31, 2024, compared to the same period a year ago. Development revenue recognized under our collaboration agreements with Astellas for the three months ended March 31, 2024 was impacted by the decrease in co-development billings due to the closeout activities under our collaboration agreements with Astellas for roxadustat. Development revenue recognized under our collaboration agreements with AstraZeneca for the three months ended March 31, 2024 was the final development revenue as a result of the termination of the AstraZeneca U.S./RoW Agreement. Other revenue recognized for the three months ended March 31, 2024 and 2023 included 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, which occurred by the end of 2023. 32 Table of Contents Product Revenue, Net Three Months Ended March 31, Change 2024 2023 $ % (dollars in thousands) Direct Sales: Gross revenue $ 3,786 $ 3,060 $ 726 24 % Discounts and rebates (360 ) (273 ) (87 ) 32 % Sales returns (1 ) 2 (3 ) (150 ) % Direct sales revenue, net 3,425 2,789 636 23 % Sales to Falikang: Gross transaction price 43,560 34,249 9,311 27 % Profit share (19,023 ) (14,988 ) (4,035 ) 27 % Net transaction price 24,537 19,261 5,276 27 % Decrease in deferred revenue 2,576 2,111 465 22 % Sales to Falikang revenue, net 27,113 21,372 5,741 27 % Total product revenue, net $ 30,538 $ 24,161 $ 6,377 26 % 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 $6.4 million, or 26%, for the three months ended March 31, 2024, compared to the same period a year ago. We recognize product revenue from direct sales to distributors 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. Product revenue from direct sales, increased $0.6 million, or 23%, for the three months ended March 31, 2024, compared to the same period a year ago, due to the increase in sales volume during the current year period. The total discounts and rebates were immaterial for each of the three months ended March 31, 2024 and 2023. FibroGen Beijing manufactures and supplies commercial product to Falikang based on a gross transaction price, adjusted for the estimated profit share. We recognize revenue 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 $5.7 million, or 27%, for the three months ended March 31, 2024, compared to the same period a year ago. The gross transfer price increased $9.3 million, and the calculated profit share increased $4.0 million for the three months ended March 31, 2024, compared to the same period a year ago, primarily due to the increase in sales volume during the current year period. Periodically, we update our assumptions such as total sales quantity, performance period, gross transaction price, profit share and other inputs including foreign currency translation impact, among others. Following updates to our estimates, we recognized $2.6 million and $2.1 million from the previously deferred revenue of the China performance obligation during the three months ended March 31, 2024 and 2023, respectively. 33 Table of Contents Drug Product Revenue, Net Three Months Ended March 31, Change 2024 2023 $ % (dollars in thousands) Drug product revenue, net: Astellas Japan Agreement $ (2,205 ) $ 1,732 $ (3,937 ) (227 ) % Astellas Europe Agreement 1,021 377 644 171 % AstraZeneca U.S./RoW Agreement 25,670 — 25,670 NM Total drug product revenue, net: $ 24,486 $ 2,109 $ 22,377 1,061 % Drug product revenue, net increased $22.4 million, or 1,061%, for the three months ended March 31, 2024, compared to the same period a year ago. Astellas Japan Agreement During the first quarter of 2024, we updated our estimate of variable consideration related to the active pharmaceutical ingredient (“API”) shipments fulfilled under the terms of Astellas Japan Amendment, and accordingly 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, and foreign exchange impacts, among others. . During the first quarter of 2023, 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 $1.7 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 estimated yield from the manufacture of bulk product tablets, among others. As of March 31, 2024, the balances related to the API price true-up under the Astellas Japan Agreement $1.6 million in accrued liabilities and $2.5 million in other long-term liabilities, representing our best estimate of the timing for these amounts to be paid. As of December 31, 2023, the related balances were $1.2 million in accrued liabilities and $0.7 million in other long-term liabilities. Astellas Europe Agreement We updated our estimate of variable consideration related to the bulk drug product transferred under the terms of the Astellas Europe Agreement and the Astellas EU Supply Agreement 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, we reclassified from the related deferred revenue to accrued liabilities and as of December 31, 2023, the related balance in accrued liabilities was $38.6 million. Further during the first quarter of 2024, we reclassified $5.7 million from the related deferred revenue to accrued liabilities. As of March 31, 2024, the balances related to the bulk drug product price true-up under the Astellas Europe Agreement and the Astellas EU Supply Agreement were $44.3 million in accrued liabilities, representing our best estimate that these amounts will be paid within the next 12 months. We recognized royalty revenue as drug product revenue, from the deferred revenue under the Astellas Europe Agreement, of $1.0 million and $0.4 million for the three months ended March 31, 2024 and 2023, respectively. It is our best estimate that the remainder of the deferred revenue will be recognized as revenue and when uncertainty is resolved, based on the performance of roxadustat product sales in the Astellas territory. AstraZeneca U.S./RoW Agreement As described above, pursuant to the termination and transition agreement related to the AstraZeneca U.S./RoW Agreement, FibroGen and AstraZeneca settled the outstanding balances relating to past transactions under the AstraZeneca Master Supply Agreement. Accordingly, during the three months ended March 31, 2024, we accounted for the termination of the AstraZeneca U.S./RoW agreement as a contract modification under the ASC 606 and recorded a cumulative catch-up net adjustment of $25.7 million to the drug product revenue. As of March 31, 2024, the related accounts receivable was $26.0 million and the related accrued liabilities of $11.5 million, both of which have been settled in April 2024. 34 Table of Contents Operating Costs and Expenses Three Months Ended March 31, Change 2024 2023 $ % (dollars in thousands) Operating costs and expenses Cost of goods sold $ 25,753 $ 3,491 $ 22,262 638 % Research and development 38,392 74,486 (36,094 ) (48 ) % Selling, general and administrative 22,820 34,275 (11,455 ) (33 ) % Total operating costs and expenses $ 86,965 $ 112,252 $ (25,287 ) (23 ) % Total operating costs and expenses decreased $25.3 million, or 23%, compared to the same period a year ago for the reasons discussed in the sections below. Cost of Goods Sold Cost of goods sold increased $22.3 million, or 638%, for the three months ended March 31, 2024, compared to the same period a year ago. As described above, during the three months ended March 31, 2024, we recorded a cumulative catch-up net adjustment to the drug product revenue resulting from the termination and transition agreement related to the AstraZeneca U.S./RoW Agreement. Correspondingly, we recorded the related cost of goods sold of $21.1 million during the three months ended March 31, 2024. 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 $4.4 million and $3.2 million for the three months ended March 31, 2024 and 2023. Cost of goods sold in China increased as compared to the prior year periods due to the increases in the sales volume, offset by the improved unit cost efficiency resulting from higher production volume. Cost of goods sold also included manufacturing costs related to our contract manufacturing revenue from Eluminex, which was immaterial for the periods presented. 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. We expense research and development costs as incurred. We recognize costs for certain development activities 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 (“IPR&D”) assets that have no alternative future use other than in a particular research and development project. We have implemented efforts to streamline operations to align with our business goals in the second half of 2023. 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 months ended March 31, 2024 and 2023: Phase of Three Months Ended March 31, Product Candidate Development 2024 2023 (in thousands) Pamrevlumab Phase 2/3 $ 21,698 $ 40,865 Roxadustat Approved / Phase 3 2,551 7,706 FG-3246 Phase 1 5,649 — Other research and development expenses 8,494 25,915 Total research and development expenses $ 38,392 $ 74,486 35 Table of Contents 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. Research and development expenses decreased $36.1 million, or 48%, for the three months ended March 31, 2024, compared to the same period a year ago, primarily as a result of the net effect of the following: • Decrease of $14.5 million in clinical trials costs primarily associated with the wind down on Phase 2/3 trials for pamrevlumab for the treatment of metastatic pancreatic cancer; • Decrease of $9.4 million in employee-related costs primarily due to the impact from reduction in force actions in July 2023 and cost control efforts; • Decrease of $3.7 million in facilities-related expenses due to cost control efforts and lower depreciation expense as certain Property and equipment reached their useful lives in prior year period; • Decrease of $3.7 million in stock-based compensation primarily resulting from significantly lower stock price and cancellations of stock options and restricted stock units; • Decrease of $2.9 million in drug development expenses associated with drug substance activities related to pamrevlumab which was largely completed in the prior year; and • Decrease of $2.1 million in outside services expenses primarily related to cancellation of certain early-stage programs to streamline operations. 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. We have implemented efforts to streamline operations to align with our business goals in the second half of 2023. As a result, SG&A expenses have decreased in certain areas and may continue to decrease over time. SG&A expenses decreased $11.5 million, or 33%, for the three months ended March 31, 2024, compared to the same period a year ago, primarily as a result of the net effect of the following: • Decrease of $4.7 million in employee-related costs primarily due to the impact from reduction in force actions in July 2023 and cost control efforts; • Decrease of $3.7 million in stock-based compensation primarily resulting from significantly lower stock price and cancellations of stock options and restricted stock units; and • $2.9 million lower legal expenses primarily due to lower corporate legal activities. Interest and Other, Net Three Months Ended March 31, Change 2024 2023 $ % (dollars in thousands) Interest and other, net: Interest expense $ (4,996 ) $ (2,372 ) $ (2,624 ) 111 % Interest income and other income (expenses), net 2,570 1,036 1,534 148 % Total interest and other, net $ (2,426 ) $ (1,336 ) $ (1,090 ) 82 % 36 Table of Contents Interest Expense Interest expense represents the interest related to the senior secured term loan facilities, interest related to sale of future revenues and interest related to the Technology Development Center of the Republic of Finland product development obligations. Interest expense increased $2.6 million, or 111%, for the three months ended March 31, 2024, compared to the same period a year ago. Interest expense for the three months ended March 31, 2024, due to the $2.9 million related to the senior secured term loan facilities drawn in the second quarter of 2023. See Note 6, Senior Secured Term Loan Facilities, to the condensed consolidated financial statements for details. 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 increased $1.5 million, or 148%, for the three months ended March 31, 2024, primarily due to lower loss related to our investments as compared to the same period a year ago. Income Taxes Three Months Ended March 31, 2024 2023 (dollars in thousands) Loss before income taxes $ (33,489 ) $ (77,427 ) Provision for income taxes 33 74 Effective tax rate (0.1 ) % (0.1 ) % Provisions for income taxes for the three months ended March 31, 2024 and 2023 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. 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, which was immaterial for the three months ended March 31, 2024 and 2023. See Equity method investment - Unconsolidated VIE - Falikang section of 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), from the execution of collaboration agreements involving license payments, milestone payments, reimbursement for development services, and the associated product revenue and drug product revenue. On November 4, 2022, we entered into a RIFA with NovaQuest with respect to our revenues from Astellas’ sales of roxadustat in Europe, Japan and the other Astellas territories. Pursuant to the RIFA, in the fourth quarter of 2022, we received $49.8 million from NovaQuest, representing the gross proceeds of $50.0 million net of initial issuance costs, in consideration for a portion of future revenues we will receive from Astellas. For additional details about this financing transaction, see Note 7, Liability Related to Sale of Future Revenues , to the condensed consolidated financial statements. 37 Table of Contents On February 27, 2023, we entered into an Amended and Restated Equity Distribution Agreement (the “at-the-market agreement”) with Goldman Sachs & Co., LLC and BofA Securities, Inc. (each a “Sales Agent”), which amended and restated its Equity Distribution Agreement with Goldman Sachs & Co., LLC, dated August 8, 2022, to add BofA Securities, Inc. as an additional Sales Agent under that agreement. Under the at-the-market agreement, we may issue and sell, from time to time and through the Sales Agents, shares of our common stock having an aggregate offering price of up to $200.0 million (the “ATM Program”). Under the ATM Program, we sold a total of 2,472,090 shares of our common stock and received net proceeds of approximately $48.4 million during the first and second quarter of 2023. On April 29, 2023, we entered into the Financing Agreement with investment funds managed by Morgan Stanley Tactical Value, (“Lenders”), and Wilmington Trust, National Association, as the administrative agent, providing for senior secured term loan facilities consisting of a $75.0 million initial term loan. The clinical development milestones which could have triggered Delayed Draw Term Loan 1 were not achieved, and the Lenders have not funded Delayed Draw Term Loan 2. For additional details about this financing transaction, see Note 6, Senior Secured Revolving Line of Credit , to the condensed consolidated financial statements. As of March 31, 2024, we had cash and cash equivalents of $105.7 million, compared to $113.7 million as of December 31, 2023. 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 March 31, 2024, we had short-term investments of $71.9 million, compared to short-term investments of $121.9 million as of December 31, 2023. As of March 31, 2024, a total of $27.6 million of our cash and cash equivalents was held outside of the U.S. in our foreign subsidiaries, substantially all held in China, to be used primarily for our China operations. 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. During the three months ended March 31, 2024, FibroGen Beijing made a total of $16.5 million repayments of intercompany loans. 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. 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): Three Months Ended March 31, 2024 2023 Net cash provided by (used in): Operating activities $ (59,288 ) $ (101,591 ) Investing activities 51,276 103,482 Financing activities (165 ) 31,485 Effect of exchange rate changes on cash and cash equivalents 223 (526 ) Net increase (decrease) in cash and cash equivalents $ (7,954 ) $ 32,850 Operating Activities Net cash used in operating activities was $59.3 million for the three months ended March 31, 2024 and consisted primarily of net loss of $32.9 million adjusted for non-operating cash items of $7.7 million, and a net decrease in operating assets and liabilities of $34.1 million. The significant non-operating cash items included stock-based compensation expense of $8.8 million. The significant items in the changes in operating assets and liabilities included the following: • Accounts receivable increased $24.7 million, primarily driven by the receivable from AstraZeneca of $26.0 million associated with the settlement of the past transactions under the AstraZeneca Master Supply Agreement resulting from the termination of the AstraZeneca U.S./RoW agreement. See the Drug Product Revenue, Net section in Note 2, Collaboration Agreements, License Agreement and Revenues, to the condensed consolidated financial statements for details. • Accounts payable decreased $13.6 million, primarily driven by the timing of invoicing and payments; 38 Table of Contents • Deferred revenue decreased $10.2 million, primarily related to the reclassification of $5.7 million to accrued liabilities, resulting from changes in estimated variable consideration associated with 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. See the Drug Product Revenue, Net section in Note 2, Collaboration Agreements, License Agreement and Revenues, to the condensed consolidated financial statements for details. In addition, the decrease in deferred revenue was also related to the product revenue recognized from the previously deferred revenue of the China performance obligation during the three months ended March 31, 2024. See the Product Revenue, Net section in Note 2, Collaboration Agreements, License Agreement and Revenues, to the condensed consolidated financial statements for details; • Accrued interest expense related to sale of future revenues decreased $3.6 million due to the $5.7 million interest paid, offset by the interest expense of $2.0 million accrued during the three months ended March 31, 2024. See Note 7, Liability Related to Sale of Future Revenues, to the condensed consolidated financial statements for details; • Accrued and other liabilities decreased $3.0 million, primarily related to bonus and severance payouts totaling $19.1 million, offset by accrued inventory related cost of $8.5 million as of March 31, 2024, as part of the cost of goods sold resulting from the above-mentioned termination of the AstraZeneca U.S./RoW agreement, as well as the movements related to API and bulk drug product price true-up, resulting from changes in estimated variable consideration primarily associated with the bulk drug product transferred under the terms of the Astellas Europe Agreement and the Astellas EU Supply Agreement. The accrued and other liabilities were also impacted by the timing of invoicing and payment; • Inventory decreased $13.8 million primarily driven by the $12.6 million of work-in-progress inventory that was reimbursed as part of the above-mentioned termination of the AstraZeneca U.S./RoW agreement; and • Prepaid expenses and other current assets decreased $5.3 million, primarily due to the reimbursements from the insurance for the legal fees associated with the class action lawsuit, which is recoverable under our insurance policies. Net cash used in operating activities was $101.6 million for the three months ended March 31, 2023 and consisted primarily of net loss of $76.7 million adjusted for non-operating cash items of $21.1 million, and a net decrease in operating assets and liabilities of $46.0 million. The significant non-operating cash items included stock-based compensation expense of $16.1 million and depreciation expense of $2.5 million and non-cash interest expense related to sale of future revenues of $2.2 million. The significant items in the changes in operating assets and liabilities included the following: • Accrued and other liabilities decreased $66.3 million, primarily related to the movements related to API and bulk drug product price true-up, resulting from changes in estimated variable consideration associated with the API shipments fulfilled under the terms of the Astellas Japan Amendment, and the bulk drug product transferred under the terms of the Astellas Europe Agreement and the Astellas EU Supply Agreement, including scheduling for payment of $57.4 million previously accrued balance and therefore moved it to accounts payable as of March 31, 2023. The accrued and other liabilities were also impacted by the timing of invoicing and payment; • Deferred revenue decreased $18.9 million, primarily related to the reclassification of $16.6 million to accrued liabilities, resulting from changes in estimated variable consideration associated with 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; • Inventories increased $1.9 million, driven by the increased inventory level primarily related to FibroGen Beijing’s productions of roxadustat for commercial sales purposes; and • Accounts payable increased $40.5 million, primarily driven by the above-mentioned scheduling for payment of $57.4 million previously accrued balance related to the bulk drug product transferred under the terms of the Astellas Europe Agreement and the Astellas EU Supply Agreement, as well as the timing of invoicing and payments. Investing Activities Investing activities primarily consist of purchases of property and equipment, purchases of investments, purchase of acquired IPR&D assets and proceeds from the maturity and sale of investments. Net cash provided by investing activities was $51.3 million for the three months ended March 31, 2024 and consisted primarily of $59.9 million of proceeds from maturities of investments, partially offset by $8.6 million of cash used in purchases of available-for-sale securities. 39 Table of Contents Net cash provided by investing activities was $103.5 million for the three months ended March 31, 2023 and consisted primarily of $104.8 million of proceeds from maturities of investments and $1.7 million of proceeds from sales of available-for-sale securities, partially offset by $2.5 million of cash used in purchases of available-for-sale securities. Financing Activities Financing activities primarily reflect proceeds from strategic financing arrangements, proceeds from the issuance of our common stock, cash paid for payroll taxes on restricted stock unit releases, and repayments of our lease liabilities and obligations. Net cash used in financing activities was immaterial for the three months ended March 31, 2024. Net cash provided by financing activities was $31.5 million for the three months ended March 31, 2023 and consisted primarily of $30.8 million net proceeds received under the ATM Program. Material Cash Requirements We generate revenue from commercial sales of roxadustat product in China, Japan and Europe. Even with the expectation of increases in these revenues, we anticipate that we will continue to generate losses for the foreseeable future. To date, we have funded certain portions of our research and development and manufacturing efforts globally through collaboration partners, debt financings, and equity financing. We expect to continue to incur significant research and development expenses to invest in our other programs and there is no guarantee that sufficient funds will be available to continue to fund these development efforts through commercialization or otherwise. 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 factors outlined under Part II, Item 1A “ Risk Factors ” in this Quarterly Report on Form 10-Q, as well as unknown factors that may adversely affect our business. We anticipate that we will need substantial additional funding in connection with our continuing operations. Based on our current operating plan, which contemplates the maintenance of a minimum balance of $30 million of unrestricted cash and cash equivalents held in accounts in the U.S., as required under the debt covenants associated with the senior secured term loan facilities, we believe that our existing cash and cash equivalents, short-term and long-term investments and accounts receivable, together with the proceeds from senior secured term loan facilities in the second quarter of 2023, the financing amount under the RIFA received in the fourth quarter of 2022, and the net proceeds received under our ATM program in the first half of 2023, as well as the cost savings we have recently implemented (including from the reduction in workforce that we announced on July 19, 2023), 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 to fund our operations, and our liquidity assumptions may materially differ. For example, we may utilize our available financial resources sooner than we currently expect and may incur additional expenses. 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 funding, we could delay, reduce or eliminate research and development programs, product portfolio development or future commercialization efforts which could adversely affect our business prospects. 40 Table of Contents Commitments and Contingencies Contractual Obligations As of March 31, 2024, we had $77.7 million of operating lease liabilities. The material cash requirements related to our lease liabilities included $18.6 million expected to be paid within the next 12 months. As of March 31, 2024, we had outstanding total non-cancelable purchase obligations of $35.6 million, including $22.8 million for manufacture and supply of pamrevlumab, $1.7 million for manufacture and supply of roxadustat, and $11.0 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 $30.7 million expected to be paid within the next 12 months. Under the Financing Agreement with Morgan Stanley Tactical Value, as of March 31, 2024, we had $72.2 million of senior secured term loan facilities balance on the condensed consolidated balance sheets, which are not subject for repayment until May 2026. Meanwhile, we are obliged to pay interest on a monthly basis, for which we expect to pay a total of $10.5 million within the next 12 months. See Note 6, Senior Secured Term Loan Facilities , to the condensed consolidated financial statements for details. Under the RIFA with NovaQuest, as of March 31, 2024, we had $53.4 million of liability related to sale of future revenues on the condensed consolidated balance sheets, $1.2 million of which we anticipate to pay within the next 12 month. Based on our current estimates of drug product revenue and revenue from milestone payments under the Astellas Agreements, and taking into the consideration of the terms under the RIFA, we anticipate to reach a Payment Cap up to $125.0 million by 2031. See Note 7, Liability Related to Sale of Future Revenues , to the condensed consolidated financial statements for details. 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 March 31, 2024, 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. 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 months ended March 31, 2024 compared with the disclosures in Part II, Item 7 of our 2023 Form 10-K. ITEM 3. QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK. During the three months ended March 31, 2024, 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 2023 Form 10-K. 41 Table of Contents