Item 2. Management’s Discussion and Analysis
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, Inc. (“FibroGen” or the “Company”) is developing and commercializing a diversified pipeline of novel therapeutics that work at the frontier of cancer biology and anemia.
Roxadustat is an oral small molecule inhibitor of hypoxia-inducible factor 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.
FG-3246 is a first-in-class antibody-drug conjugate targeting a novel epitope on CD46 that is in development for metastatic castration-resistant prostate cancer and other cancer indications.
FibroGen also has a pipeline of preclinical product candidates, FG-3165 and FG-3175, to address unmet patient needs in oncology.
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Financial Highlights
Three Months Ended June 30,
Six Months Ended June 30,
2024
2023
2024
2023
(in thousands, except for per share data)
Result of Operations
Revenue
$
50,641
$
44,319
$
106,544
$
80,480
Operating costs and expenses
61,560
132,367
148,526
244,618
Net loss
(15,544
)
(87,680
)
(48,477
)
(164,385
)
Net loss per share - basic and diluted
$
(0.16
)
$
(0.90
)
$
(0.49
)
$
(1.71
)
June 30, 2024
December 31, 2023
(in thousands)
Balance Sheet
Cash and cash equivalents
$
140,714
$
113,688
Short-term investments
—
121,898
Accounts receivable
$
6,412
$
12,553
Our revenue for the three and six months ended June 30, 2024 included primarily the revenue recognized related to the following, respectively:
• $49.6 million and $80.2 million from roxadustat commercial sales in China, mostly from sales to Beijing Falikang Pharmaceutical Co. Ltd. (“Falikang”);
• $0.7 million and a net reduction of $0.5 million to drug product revenue related to active pharmaceutical ingredient (“API”) deliveries to Astellas Pharma Inc. (“Astellas”); in addition, $25.7 million cumulative catch-up net adjustment in the drug product revenue, for the six months ended June 30, 2024, as a result of terminating the AstraZeneca AB (“AstraZeneca”) U.S./RoW Agreement, effective as of February 25, 2024 (“AstraZeneca Termination and Transition Agreement”), with the exception of South Korea; and
• $0.3 million and $1.1 million of development and other revenue recognized mainly under our collaboration agreements with our partners Astellas and AstraZeneca.
As a comparison, our revenue for the three and six months ended June 30, 2023 included primarily the revenue recognized related to the following, respectively:
• $23.9 million and $48.0 million of net product revenue from roxadustat commercial sales in China;
• $14.3 million and $16.4 million of drug product revenue related to API deliveries to Astellas;
• $4.1 million and $7.8 million of development and other revenue recognized primarily under our collaboration agreements with our partners Astellas and AstraZeneca; and
• $1.0 million upfront payment for the second quarter of 2023 and a $3.0 million milestone payment based on Eluminex Biosciences (Suzhou) Limited (“Eluminex”) implanting a biosynthetic cornea in the first patient of its clinical trial in China and a $3.0 million manufacturing related milestone payment in the first quarter of 2023 for the first quarter of 2023, recognized under our license agreement and amendments with Eluminex.
Operating costs and expenses for the three and six months ended June 30, 2024 decreased compared to the same periods a year ago primarily as a result of the net effect of the following, respectively:
• $24.6 million one-time, non-cash charge of acquired in-process research and development (“IPR&D”) expenses, in the prior year periods, associated with the exclusive license for FG-3246 from Fortis Therapeutics, Inc. (“Fortis”) and the acquisition of Fortis;
• $17.7 million and $32.2 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;
• $10.4 million and $24.6 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 and $14.6 million lower stock-based compensation primarily resulting from significantly lower stock price and cancellations of stock options and restricted stock units due to reduced headcount;
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• $4.8 million and $7.3 million lower outside services expenses due to cancellation of certain programs to streamline operations and cost control efforts;
• $2.5 million and $5.5 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;
• $2.5 million and $5.4 million lower drug development expenses associated with drug substance activities and logistic expenses related to pamrevlumab which was largely completed;
• $3.1 million lower legal expenses for the six months ended June 30, 2024 primarily due to lower activities in corporate legal, legal proceedings and intellectual properties; and
• $21.1 million one-time cost of goods sold recorded for the six months ended June 30, 2024 correspondingly to the above-mentioned drug product revenue resulting from the AstraZeneca Termination and Transition Agreement related to the AstraZeneca U.S./RoW Agreement, as defined further below.
For the six months ended June 30, 2024, we had a net loss of $48.5 million, or a net loss per basic and diluted share of $0.49, as compared to a net loss of $164.4 million, or a net loss per basic and diluted share of $1.71, 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 $147.1 million at June 30, 2024, a decrease of $101.0 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.
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 second quarter of 2024, roxadustat achieved an over 33% increase in sales volume relative to the second quarter of 2023. As of May 2024, roxadustat was the top CKD anemia brand in China with approximately 46% value share within the segment of erythropoiesis stimulating agents and HIF-PH inhibitors. Our composition of matter patent in China expired in the second quarter of 2024 and the China Health Authority has approved two generic roxadustat applications for marketing.
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 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, 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.
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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 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 monomethyl auristatin E 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 first quarter of 2025.
In May 2024, we announced positive interim results from the dose escalation portion of the investigator-sponsored Phase 1b/2 study conducted by the University of California, San Francisco (“UCSF”) of FG-3246 in combination with enzalutamide in patients with mCRPC at the 2024 American Society of Clinical Oncology Annual Meeting. The presentation includes data from 17 biomarker unselected patients in the dose escalation portion of the trial. Over 70% of the patients in the study received at least two prior androgen receptor signaling inhibitors, which included prior enzalutamide treatment. Dose escalation was explored with and without prophylactic granulocyte colony-stimulating factor (“G-CSF”) support. The primary endpoint was determination of the maximally tolerated dose of FG-3246 in combination with enzalutamide. The combination treatment demonstrated an encouraging preliminary estimate of median radiographic progression free survival of 10.2 months. The maximally tolerated dose was established at 2.1 mg/kg adjusted body weight, with primary G-CSF prophylaxis, in combination with enzalutamide 160 mg/day. The most frequent adverse events were consistent with other monomethyl auristatin E-based antibody drug conjugates and included fatigue, weight loss, elevated transaminases, neutropenia, and peripheral neuropathy. We expect topline results from the Phase 2 portion of this study of FG-3246 in combination with enzalutamide in the first half of 2025.
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.
Pamrevlumab: Monoclonal Antibody Targeting Connective Tissue Growth Factor
In July 2024, we reported results from Pancreatic Cancer Action Network’s (“PanCAN’s”) Precision Promise SM adaptive trial platform that included pamrevlumab, our antibody developed to inhibit the activity of connective tissue growth factor, in combination with standard-of-care chemotherapy treatments for pancreatic cancer (gemcitabine and Abraxane®), for patients with metastatic pancreatic cancer.
The pamrevlumab experimental arm in PanCAN’s Precision Promise Phase 2/3 adaptive platform trial did not meet the primary endpoint of overall survival as determined by the protocol pre-specified Bayesian statistical analysis.
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Given both 1L and 2L pamrevlumab treatment groups graduated into Stage 2 of PanCAN’s Precision Promise study, the hazard ratio for the primary overall survival analysis assumed a common hazard ratio to estimate a single treatment effect for both 1L and 2L pamrevlumab patients combined compared to patients treated with gemcitabine + nab-paclitaxel. In addition, the pre-specified Bayesian model utilized a hierarchical model that included the borrowing of data from the mFOLFIRINOX control arm to the gemcitabine + nab-paclitaxel control arm for the primary efficacy analysis. The pre-specified primary efficacy analysis was performed in a modified intention-to-treat (“mITT”) population that included only subjects who initiated treatment. The mITT population in the pamrevlumab arm was comprised of a total of 102 patients in the 1L treatment group and 111 patients in the 2L treatment group and the gemcitabine + nab-paclitaxel control arm was comprised of a total of 34 patients in the 1L treatment group and 36 patients in the 2L treatment group.
Primary Overall Survival Analysis as Determined by Pre-Specified Bayesian Statistical Analysis (mITT Population)
Bayesian Model Common Hazard Ratio (“HR”)
Posterior Probability
Median
Mean (SD)
95% CI
Pr(HR < 1)
Primary Efficacy Analysis
1.170
1.184 (0.175)
(0.882, 1.563)
0.13977
In July 2024, we also reported results from LAPIS, our double-blind placebo-controlled Phase 3 clinical program for pamrevlumab in 284 patients with locally advanced unresectable pancreatic cancer 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).
The study did not meet the primary endpoint of overall survival (stratified log-rank p-value=0.55). Median overall survival of 17.3 months was observed in the pamrevlumab combined with gemcitabine + nab-paclitaxel or FOLFIRINOX arm compared to median overall survival of 17.9 months in the control arm of placebo combined with gemcitabine + nab-paclitaxel or FOLFIRINOX (HR: 1.08; 95% CI – 0.83 to 1.41).
The preliminary safety analyses across both studies indicate that the safety profile of pamrevlumab combined with gemcitabine + nab-paclitaxel or FOLFIRINOX was generally well tolerated with an acceptable safety profile in pancreatic cancer patients. No clinically meaningful differences in treatment emergent adverse events were seen between the treatment arms.
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. In June 2024, we received FDA clearance for our investigational new drug application for FG-3165.
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.
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 mCRPC 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.
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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 Entities , 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.
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 June 30, 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 $(0.4) million and $13.8 million for the three months ended June 30, 2024 and 2023, and ($2.6) million and $15.5 million for the six months ended June 30, 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 $1.1 million and $0.5 million for the three months ended June 30, 2024 and 2023, and $2.1 million and $0.8 million for the six months ended June 30, 2024 and 2023, respectively.
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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 AstraZeneca 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 AstraZeneca 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 AstraZeneca 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 June 30, 2024 totaled $77.2 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 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 June 30, 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, Falikang, which performs roxadustat distribution, as well as conducts sales and marketing through AstraZeneca.
Substantially all direct roxadustat product sales to distributors in China are made by Falikang, while we expect that FibroGen Beijing will continue to sell roxadustat product directly in one province in China. FibroGen Beijing manufactures and supplies commercial product to Falikang based on an agreed upon transfer price, which includes gross transaction 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 net product revenue of $49.6 million and $23.9 million for the three months ended June 30, 2024 and 2023, and $80.2 million and $48.0 million for the six months ended June 30, 2024 and 2023, respectively, majority of which were from the sales to Falikang.
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RESULTS OF OPERATIONS
Revenue
Three Months Ended June 30,
Change
Six Months Ended June 30,
Change
2024
2023
$
%
2024
2023
$
%
(dollars in thousands)
Revenue:
License revenue
$
—
$
1,000
$
(1,000
)
(100
)
%
$
—
$
7,000
$
(7,000
)
(100
)
%
Development and other revenue
269
5,158
(4,889
)
(95
)
%
1,147
9,050
(7,903
)
(87
)
%
Product revenue, net
49,643
23,889
25,754
108
%
80,181
48,049
32,132
67
%
Drug product revenue, net
729
14,272
(13,543
)
(95
)
%
25,216
16,381
8,835
54
%
Total revenue
$
50,641
$
44,319
$
6,322
14
%
$
106,544
$
80,480
$
26,064
32
%
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 June 30, 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.
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 $6.3 million, or 14%, for the three months ended June 30, 2024, and increased $26.1 million, or 32%, for the six months ended June 30, 2024, respectively, compared to the same periods a year ago for the reasons discussed in the sections below.
License Revenue
Three Months Ended June 30,
Change
Six Months Ended June 30,
Change
2024
2023
$
%
2024
2023
$
%
(dollars in thousands)
License revenue:
Eluminex
—
1,000
(1,000
)
(100
)
%
—
7,000
(7,000
)
(100
)
%
Total license revenue
$
—
$
1,000
$
(1,000
)
(100
)
%
$
—
$
7,000
$
(7,000
)
(100
)
%
34
Table of Contents
There was no license revenue during the three and six months ended June 30, 2024. License revenue recognized for three and six months ended June 30, 2023 included $1.0 million upfront payment under the A&R Eluminex Agreement. License revenue recognized for the six months ended June 30, 2023 also 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 June 30,
Change
Six Months Ended June 30,
Change
2024
2023
$
%
2024
2023
$
%
(dollars in thousands)
Development revenue:
Astellas
$
319
$
1,839
$
(1,520
)
(83
)
%
$
613
$
3,463
$
(2,850
)
(82
)
%
AstraZeneca
(50
)
2,273
(2,323
)
(102
)
%
418
4,305
(3,887
)
(90
)
%
Total development revenue
269
4,112
(3,843
)
(93
)
%
1,031
7,768
(6,737
)
(87
)
%
Other revenue
—
1,046
(1,046
)
(100
)
%
116
1,282
(1,166
)
(91
)
%
Total development and other revenue
$
269
$
5,158
$
(4,889
)
(95
)
%
$
1,147
$
9,050
$
(7,903
)
(87
)
%
Development and other revenue decreased $4.9 million, or 95%, for the three months ended June 30, 2024, and decreased $7.9 million, or 87%, for the six months ended June 30, 2024, respectively, compared to the same periods a year ago.
Development revenue recognized under our collaboration agreements with Astellas for the three and six months ended June 30, 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 and six months ended June 30, 2024 was the final development revenue as a result of the termination of the AstraZeneca U.S./RoW Agreement.
Other revenue recognized for the six months ended June 30, 2024 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. Other revenue recognized for the three and six months ended June 30, 2023 also included revenue from sales of certain research and development material.
Product Revenue, Net
Three Months Ended June 30,
Change
Six Months Ended June 30,
Change
2024
2023
$
%
2024
2023
$
%
(dollars in thousands)
Direct Sales:
Gross revenue
$
4,046
$
3,607
$
439
12
%
$
7,831
$
6,667
$
1,164
17
%
Discounts and rebates
(408
)
(229
)
(179
)
78
%
(767
)
(503
)
(264
)
52
%
Sales returns
—
(1
)
1
(100
)
%
(1
)
1
(2
)
(200
)
%
Direct sales revenue, net
3,638
3,377
261
8
%
7,063
6,165
898
15
%
Sales to Falikang:
Gross transaction price
49,352
42,153
7,199
17
%
92,912
76,402
16,510
22
%
Profit share
(21,397
)
(18,312
)
(3,085
)
17
%
(40,420
)
(33,300
)
(7,120
)
21
%
Net transaction price
27,955
23,841
4,114
17
%
52,492
43,102
9,390
22
%
Decrease in deferred revenue
18,050
(3,329
)
21,379
(642
)
%
20,626
(1,218
)
21,844
(1,793
)
%
Sales to Falikang revenue, net
46,005
20,512
25,493
124
%
73,118
41,884
31,234
75
%
Total product revenue, net
$
49,643
$
23,889
$
25,754
108
%
$
80,181
$
48,049
$
32,132
67
%
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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 $25.8 million, or 108%, for the three months ended June 30, 2024, and increased $32.1 million, or 67%, for the six months ended June 30, 2024, respectively, compared to the same periods 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 $0.3 million, or 8%, for the three months ended June 30, 2024, and increased $0.9 million, or 15%, for the six months ended June 30, 2024, respectively, compared to the same periods a year ago, due to the increase in sales volume during the current year periods, offset by lower government-listed price. The total discounts and rebates were immaterial for each of the three and six months ended June 30, 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 $25.5 million, or 124%, for the three months ended June 30, 2024, and increased $31.2 million, or 75%, for the six months ended June 30, 2024, respectively, compared to the same periods a year ago. The gross transaction price increased $7.2 million, and the calculated profit share increased $3.1 million for the three months ended June 30, 2024, and the gross transaction price increased $16.5 million, and the calculated profit share increased $7.1 million for the six months ended June 30, 2024, respectively, compared to the same periods a year ago, primarily due to the increase in sales volume during the current year period.
Periodically, we update our assumptions such as gross transaction price, profit share, performance period, total sales quantity and other inputs including foreign currency translation impact, among others. Following updates to our estimates, we recognized $18.1 million and $20.6 million for the three and six months ended June 30, 2024, respectively, from the previously deferred revenue of the China performance obligation. Comparatively, we deferred $3.3 million and $1.2 million for the three and six months ended June 30, 2023, respectively, from the net transfer price to Falikang, which was included in the related deferred revenue of the China performance obligation.
Drug Product Revenue, Net
Three Months Ended June 30,
Change
Six Months Ended June 30,
Change
2024
2023
$
%
2024
2023
$
%
(dollars in thousands)
Drug product revenue, net:
Astellas Japan Agreement
$
(366
)
$
13,809
$
(14,175
)
(103
)
%
$
(2,571
)
$
15,541
$
(18,112
)
(117
)
%
Astellas Europe Agreement
1,095
463
632
137
%
2,116
840
1,276
152
%
AstraZeneca U.S./RoW Agreement
—
—
—
NM
25,671
—
25,671
NM
Total drug product revenue, net:
$
729
$
14,272
$
(13,543
)
(95
)
%
$
25,216
$
16,381
$
8,835
54
%
NM = Not meaningful
Drug product revenue, net decreased $13.5 million, or 95%, for the three months ended June 30, 2024, and increased $8.8 million, or 54%, for the six months ended June 30, 2024, respectively, compared to the same periods a year ago.
Astellas Japan Agreement
During the second quarter of 2024, we updated our estimate of variable consideration related to the API shipments fulfilled under the terms of Astellas Japan Amendment, and accordingly recorded a reduction to the drug product revenue of $0.4 million. Specifically, the change in estimated variable consideration was based on the API held by Astellas at period end, adjusted to reflect the foreign exchange impacts and the changes in the estimated bulk product strength mix intended to be manufactured by Astellas, among others.
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Table of Contents
During the first quarter of 2024, we updated our estimate of variable consideration related to the 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 second quarter of 2023, we fulfilled two shipment obligations under the terms of Astellas Japan Amendment and recognized related drug product revenue of $14.4 million in the same period. In addition, we updated our estimate of variable consideration related to the API shipments fulfilled under the terms of Astellas Japan Amendment, and accordingly recorded a reduction to the drug product revenue of $0.6 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 June 30, 2024, the balances related to the API price true-up under the Astellas Japan Agreement were $2.2 million in accrued liabilities and $0.6 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. We further reclassified $5.4 million from the related deferred revenue to accrued liabilities and paid $35.3 million to Astellas during the six months ended June 30, 2024. As of June 30, 2024, the balances related to the bulk drug product price true-up under the Astellas Europe Agreement and the Astellas EU Supply Agreement were $8.8 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 $1.1 million and $0.5 million for the three months ended June 30, 2024 and 2023, and $2.1 million and $0.8 million for the six months ended June 30, 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 AstraZeneca 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. The related accounts receivable of $26.0 million and the related accrued liabilities of $11.5 million as of March 31, 2024 were settled during the three months ended June 30, 2024.
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Table of Contents
Operating Costs and Expenses
Three Months Ended June 30,
Change
Six Months Ended June 30,
Change
2024
2023
$
%
2024
2023
$
%
(dollars in thousands)
Operating costs and expenses
Cost of goods sold
$
5,178
$
5,708
$
(530
)
(9
)
%
$
30,931
$
9,199
$
21,732
236
%
Research and development
34,106
95,478
(61,372
)
(64
)
%
72,498
169,964
(97,466
)
(57
)
%
Selling, general and administrative
22,276
31,181
(8,905
)
(29
)
%
45,097
65,455
(20,358
)
(31
)
%
Total operating costs and expenses
$
61,560
$
132,367
$
(70,807
)
(53
)
%
$
148,526
$
244,618
$
(96,092
)
(39
)
%
Total operating costs and expenses decreased $70.8 million, or 53%, and decreased $96.1 million, or 39%, for the six months ended June 30, 2024, respectively, compared to the same periods a year ago for the reasons discussed in the sections below.
Cost of Goods Sold
Cost of goods sold decreased $0.5 million, or 9%, for the three months ended June 30, 2024, and increased $21.7 million, or 236%, for the six months ended June 30, 2024, respectively, compared to the same periods 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 AstraZeneca 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 $5.0 million and $3.6 million for the three months ended June 30, 2024 and 2023, and $9.4 million and $6.8 million for the six months ended June 30, 2024, respectively. Cost of goods sold in China increased as compared to the prior year periods due to the increases in the sales volume.
Cost of goods sold also included manufacturing costs related to our contract manufacturing revenue from Eluminex, which was immaterial for the periods presented.
38
Table of Contents
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 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 and six months ended June 30, 2024 and 2023:
Phase of
Three Months Ended June 30,
Six Months Ended June 30,
Product Candidate
Development
2024
2023
2024
2023
(in thousands)
Pamrevlumab
Phase 2/3
$
19,915
$
41,586
$
41,613
$
87,771
Roxadustat
Approved / Phase 3
1,754
8,356
4,306
17,450
FG-3246
Phase 1
6,140
25,895
*
11,789
25,895
*
FG-3165
Preclinical
5,748
3,029
13,322
8,764
Other research and development expenses
549
16,612
1,468
30,084
Total research and development expenses
$
34,106
$
95,478
$
72,498
$
169,964
* Included $24.6 million one-time, non-cash acquired IPR&D expenses associated with the recent exclusive license for FG-3246 from Fortis and the acquisition of Fortis.
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 $61.4 million, or 64%, for the three months ended June 30, 2024, and decreased $97.5 million, or 57%, for the six months ended June 30, 2024, compared to the same periods a year ago, primarily as a result of the net effect of the following, respectively:
• $24.6 million one-time, non-cash charge of acquired IPR&D expenses, in the prior year periods, associated with the exclusive license for FG-3246 from Fortis and the acquisition of Fortis;
• Decrease of $17.7 million and $32.2 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 $6.0 million and $17.0 million in employee-related costs primarily due to the impact from reduction in force actions in July 2023 and cost control efforts;
• Decrease of $3.6 million and $7.3 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 $3.6 million and $7.2 million in stock-based compensation primarily resulting from significantly lower stock price and cancellations of stock options and restricted stock units due to reduced headcount;
• Decrease of $2.5 million and $5.4 million in drug development expenses associated with drug substance activities and logistic expenses related to pamrevlumab which was largely completed; and
• Decrease of $2.2 million and $4.3 million in outside services expenses primarily related to cancellation of certain programs to streamline operations and cost control efforts.
39
Table of Contents
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 $8.9 million, or 29%, for the three months ended June 30, 2024, and decreased $20.4 million, or 31%, for the six months ended June 30, 2024, compared to the same periods a year ago, primarily as a result of the net effect of the following, respectively:
• Decrease of $3.7 million and $7.4 million in stock-based compensation primarily resulting from significantly lower stock price and cancellations of stock options and restricted stock units due to reduced headcount;
• Decrease of $2.9 million and $7.6 million in employee-related costs primarily due to the impact from reduction in force actions in July 2023 and cost control efforts;
• Decrease of $2.6 million and $3.0 million in outside services expenses due to cancellation of certain programs and cost control efforts; and
• Decrease of $3.1 million in legal expenses for the six months ended June 30, 2024 primarily due to lower activities in corporate legal, legal proceedings and intellectual properties.
Interest and Other, Net
Three Months Ended June 30,
Change
Six Months Ended June 30,
Change
2024
2023
$
%
2024
2023
$
%
(dollars in thousands)
Interest and other, net:
Interest expense
$
(4,783
)
$
(3,069
)
$
(1,714
)
56
%
$
(9,779
)
$
(5,441
)
$
(4,338
)
80
%
Interest income and other income (expenses), net
(1,281
)
2,652
(3,933
)
(148
)
%
1,289
3,687
(2,398
)
(65
)
%
Total interest and other, net
$
(6,064
)
$
(417
)
$
(5,647
)
1,354
%
$
(8,490
)
$
(1,754
)
$
(6,736
)
384
%
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 $1.7 million, or 56%, for the three months ended June 30, 2024, and increased $4.3 million, or 80%, for the six months ended June 30, 2024, respectively, compared to the same periods a year ago, primarily due to the higher interest expense related to the senior secured term loan facilities. The loan was drawn in the middle of the second quarter of 2023, and therefore, the related interest expense only the represented partial prior year periods. 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 decreased $3.9 million, or 148%, and decreased $2.4 million, or 65%, for the six months ended June 30, 2024, respectively, compared to the same periods a year ago, primarily due to foreign currency transaction losses and lower interest income resulting from lower investment balances.
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Table of Contents
Income Taxes
Three Months Ended June 30,
Six Months Ended June 30,
2024
2023
2024
2023
(dollars in thousands)
Loss before income taxes
$
(16,983
)
$
(88,465
)
$
(50,472
)
$
(165,892
)
Benefit from income taxes
(262
)
(235
)
(229
)
(161
)
Effective tax rate
1.5
%
0.3
%
0.5
%
0.1
%
Benefits from income taxes for the three and six months ended June 30, 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 and six months ended June 30, 2024 and 2023. See Equity method investment - Unconsolidated VIE - Falikang section of Note 3, Variable Interest Entities , 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 Revenue Interest Financing Agreement (“RIFA”) with NovaQuest Capital Management (“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.
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 June 30, 2024, we had cash and cash equivalents of $140.7 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 June 30, 2024, we did not have any short-term investments, compared to short-term investments of $121.9 million as of December 31, 2023. As of June 30, 2024, a total of $39.3 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.
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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 and six months ended June 30, 2024, FibroGen Beijing made a total of $10.8 million and $27.3 million repayments of intercompany loans, respectively. 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):
Six Months Ended June 30,
2024
2023
Net cash provided by (used in):
Operating activities
$
(99,157
)
$
(212,162
)
Investing activities
123,515
89,197
Financing activities
(133
)
123,017
Effect of exchange rate changes on cash and cash equivalents
2,801
(3,167
)
Net increase (decrease) in cash and cash equivalents
$
27,026
$
(3,115
)
Operating Activities
Net cash used in operating activities was $99.2 million for the six months ended June 30, 2024 and consisted primarily of net loss of $48.5 million adjusted for non-operating cash items of $15.8 million, and a net decrease in operating assets and liabilities of $66.5 million. The significant non-operating cash items included stock-based compensation expense of $17.4 million. The significant items in the changes in operating assets and liabilities included the following:
• Accrued and other liabilities decreased $52.7 million, primarily driven by payment of $35.3 million to Astellas and $11.5 million to AstraZeneca related to accrued API and bulk drug product price true-up; bonus and severance payouts totaling $19.1 million, offset by accrued inventory related cost of $8.5 million as of June 30, 2024, as part of the cost of goods sold resulting from the above-mentioned termination of the AstraZeneca U.S./RoW agreement. The accrued and other liabilities were also impacted by the timing of invoicing and payment;
• Deferred revenue decreased $29.5 million, primarily related to the $20.6 million product revenue recognized from the previously deferred revenue of the China performance obligation during the six months ended June 30, 2023. See the 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 $2.1 million royalty revenue recognized from the deferred revenue under the Astellas Europe Agreement, and the reclassification of $5.4 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 six months ended June 30, 2023. 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 $8.0 million, primarily driven by the timing of invoicing and payments;
• Accrued interest expense related to sale of future revenues decreased $1.9 million due to the $5.7 million interest paid, offset by the interest expense of $3.7 million accrued during the six months ended June 30, 2024. See Note 7, Liability Related to Sale of Future Revenues, to the condensed consolidated financial statements for details;
• Inventory decreased $15.6 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;
• Accounts receivable decreased $6.0 million, primarily driven by the receipt of the billings under our collaboration and license agreements; and
• Prepaid expenses and other current assets decreased $4.5 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.
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Net cash used in operating activities was $212.2 million for the six months ended June 30, 2023 and consisted primarily of net loss of $164.4 million adjusted for non-operating cash items of $64.0 million, and a net decrease in operating assets and liabilities of $111.8 million. The significant non-operating cash items included stock-based compensation expense of $32.0 million, acquired IPR&D expenses associated with the acquisition of Fortis of $24.6 million, depreciation expense of $5.0 million and non-cash interest expense related to sale of future revenues of $3.6 million. The significant items in the changes in operating assets and liabilities included the following:
• Accrued and other liabilities decreased $57.0 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 the payment of $57.4 million previously accrued balance made during the current year period. The accrued and other liabilities were also impacted by the timing of invoicing and payment;
• Deferred revenue decreased $25.6 million, primarily related to the reclassification of $24.0 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;
• Accounts payable decreased $20.8 million, primarily driven by the payments made for the historical co-promotion expenses to AstraZeneca during the current year period, as well as the timing of invoicing and payments;
• Accounts receivable increased $10.0 million, primarily driven by the receivable related to the API shipments to Astellas during the second quarter of 2023, as well as the timing of the receipt of payments and the billings under our collaboration and license agreements;
• Prepaid expenses and other current assets decreased $4.2 million, primarily due to less prepayments made for roxadustat and pamrevlumab clinical activities; and
• Inventories increased $2.0 million, driven by the increased inventory level primarily related to FibroGen Beijing’s productions of roxadustat for commercial sales purposes.
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 $123.5 million for the six months ended June 30, 2024 and consisted of $132.2 million of proceeds from maturities of investments, partially offset by $8.6 million of cash used in purchases of available-for-sale securities.
Net cash provided by investing activities was $89.2 million for the six months ended June 30, 2023 and consisted primarily of $192.9 million of proceeds from maturities of investments, partially offset by $104.5 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 six months ended June 30, 2024.
Net cash provided by financing activities was $123.0 million for the six months ended June 30, 2023 and consisted primarily of $71.3 million net proceeds from senior secured term loan facilities, $48.4 million net proceeds received under the ATM Program, $3.7 million of proceeds from the issuance of common stock upon exercise of stock options and purchases under our Employee Stock Purchase Plan.
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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 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 implemented (including from the reduction in workforce in July 2023), and the significant cost reduction plan in the U.S., responding to the recent pamrevlumab results announced in July 2024 (including terminating pamrevlumab research and development investment and expeditiously wind down remaining obligations, and reduction in U.S. workforce) 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 (including assumptions with respect to our research and development expenses, revenue expectations, contractual obligations, ability to repatriate cash from China, partnering or monetization of assets, and others). 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.
Commitments and Contingencies
Contractual Obligations
As of June 30, 2024, we had $73.9 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 June 30, 2024, we had outstanding total non-cancelable purchase obligations of $19.7 million, including $11.2 million for manufacture and supply of pamrevlumab, $0.8 million for manufacture and supply of roxadustat, and $7.6 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 $14.7 million expected to be paid within the next 12 months.
Under the Financing Agreement with Morgan Stanley Tactical Value, as of June 30, 2024, we had $72.5 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 June 30, 2024, we had $55.2 million of liability related to sale of future revenues on the condensed consolidated balance sheets, $0.6 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.
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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 June 30, 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 and six months ended June 30, 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 and six months ended June 30, 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.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.