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Item 7. Management’s Discussion and Analysis

2022-02-28 compared with 2021-03-01 · 330 added, 380 removed, 310 unchanged (70% of the section changed)

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 together with our consolidated financial statements and related notes and other financial information included in Item 8 of this Annual Report on Form 10-K.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, international operations and product candidates, includes forward-looking statements that involve risks and uncertainties.

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We are a leading biopharmaceutical company developing and commercializing a pipeline of first-in-class therapeutics.

We apply our pioneering expertise in hypoxia-inducible factor (“HIF”) biology, 2-oxoglutarate enzymology, connective tissue growth factor (“CTGF”) biology, and clinical development to advance innovative medicines for the treatment of anemia, fibrotic disease, and cancer.

Roxadustat, our most advanced product, is an oral small molecule inhibitor of HIF prolyl hydroxylase (together with HIF, “HIF-PH”) activity that has received marketing authorization in China (tradename:

爱瑞卓 ® ) for the treatment of anemia caused by chronic kidney disease (“CKD”) in dialysis and non-dialysis patients.

EVRENZO® (roxadustat) is also approved in Japan and Chile for the treatment of anemia associated with CKD in dialysis and non-dialysis patients.

Our New Drug Application (“NDA”) filing in the United States (“U.S.”) for roxadustat for the treatment of anemia in dialysis and non-dialysis CKD patients was submitted for review in December 2019 to the U.S.

Food and Drug Administration (“FDA”) and in December 2020, the FDA extended the review period of the NDA by three months for FibroGen to submit additional analyses of existing roxadustat clinical data, and set a new Prescription Drug User Fee Act (“PDUFA”) goal date of March 20, 2021.

On March 1, 2021, the FDA informed us that the Cardiovascular and Renal Drugs Advisory Committee will hold an advisory committee meeting to review the NDA for roxadustat.

The date of the advisory committee meeting has not been set.

As a result of this communication, we will not receive an approval decision by the PDUFA goal date.

In Europe, the Marketing Authorization Application (“MAA”) filing for roxadustat for the treatment of anemia in dialysis and non-dialysis CKD patients was accepted for regulatory review by the European Medicines Agency (“EMA”) in May 2020 and Astellas Pharma Inc.

(“Astellas”) expects an approval decision mid-2021.

Roxadustat is in Phase 3 clinical development in the U.S.

and Europe and in Phase 2/3 development in China for anemia associated with myelodysplastic syndromes.

Roxadustat is in Phase 2 clinical development for chemotherapy-induced anemia.

Pamrevlumab, an anti-CTGF human monoclonal antibody, is in Phase 3 clinical development for the treatment of idiopathic pulmonary fibrosis (“IPF”), pancreatic cancer and Duchenne muscular dystrophy.

Impact of COVID-19

On March 11, 2020, COVID-19, a disease caused by a novel strain of the coronavirus, was characterized as a pandemic by the World Health Organization.

The rapid spread has resulted in authorities implementing numerous measures to contain the virus, such as travel restrictions, social distancing requirements, quarantines, shelter-in-place orders or voluntarily adopted practices, and business shutdowns.

We have taken measures to minimize the health risks of COVID-19 to our staff, patients, healthcare providers and their communities, as their safety and well-being are our top priority.

In the U.S., our employees are working remotely when possible, while in China they have returned to work in our offices, manufacturing plants, and are performing medical affairs out in the field.

While we have seen some impacts from COVID-19, such as slower enrollment in our clinical trials, particularly our Phase 3 IPF program, we do not know if, or to what extent, these effects will continue in the future, as the impact of the COVID-19 pandemic continues to unfold.

The effect on our operational and financial performance beyond those effects described above, including any impact on sales of roxadustat, will depend in large part on future developments with the pandemic, which cannot be predicted with confidence at this time.

Future developments include the duration, scope, and severity of the COVID-19 pandemic, the actions taken to contain or mitigate its impact, the impact on governmental programs and budgets, the impact on healthcare systems and operating procedures, the development of treatments or vaccines, and the resumption of widespread economic activity.

Due to the inherent uncertainty of the largely unprecedented and rapidly evolving situation, we are unable to predict with any confidence the likely impact of the COVID-19 pandemic on our future operations.

The financial results for the year ended December 31, 2020 were not significantly impacted by COVID-19 relative to prior years.

However, we will continue to monitor, and to the extent possible, mitigate the impact of the COVID-19 pandemic on our business.

We apply our pioneering expertise in hypoxia-inducible factor (“HIF”) biology, 2-oxoglutarate enzymology, and connective tissue growth factor (“CTGF”) biology to advance innovative medicines for the treatment of anemia, fibrotic disease, and cancer.

Roxadustat is our most advanced product, an oral small molecule inhibitor of HIF prolyl hydroxylase (“HIF-PH”) activity.

Roxadustat is currently approved for use in patients with anemia associated with chronic kidney disease (“CKD”) in China (2019), Japan (2020) and Europe (2021), under the tradename EVRENZO ® .

Roxadustat is also being commercialized in China for CKD anemia in dialysis and non-dialysis patients under the tradename:

Roxadustat is in Phase 3 clinical development for anemia associated with myelodysplastic syndromes and Phase 2 clinical development for chemotherapy-induced anemia.

Pamrevlumab is our first-in-class antibody developed to inhibit the activity of CTGF, a common factor in fibrotic and fibro-proliferative disorders characterized by persistent and excessive scarring that can lead to organ dysfunction and failure.

In the second quarter of 2021, the Food and Drug Administration (“FDA”) granted both Rare Pediatric Disease designation and Fast Track designation for pamrevlumab for the treatment of patients with Duchenne Muscular Dystrophy.

In addition, the FDA has granted Orphan Drug Designation to pamrevlumab for the treatment of idiopathic pulmonary fibrosis, locally advanced unresectable pancreatic cancer, and Duchenne Muscular Dystrophy.

Pamrevlumab has also received Fast Track designation from the FDA for the treatment of both idiopathic pulmonary fibrosis and locally advanced unresectable pancreatic cancer.

We have a pipeline of late-stage clinical programs as well as pre-clinical drug candidates at various stages of development that include both small molecules and biologics.

Financial Highlights

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Our revenue for the year ended December 31, 2021 included the revenues recognized related to the following:

$15.0 million regulatory milestone associated with the NDA approval in Japan;

$80.6 million development revenue recognized under collaboration agreements with our partners Astellas and AstraZeneca AB (“AstraZeneca”);

$120.0 million regulatory milestones recognized under our collaboration agreements with our partners Astellas Pharma Inc.

(“Astellas”) associated with the approval by European Commission of EVRENZO ® (roxadustat) for the treatment of adult patients with symptomatic anemia associated with CKD during the third quarter of 2021.

Of this amount, $108.4 million was recognized as license revenue and the remainder included as development revenue;

$70.3 million of development revenue recognized under our collaboration agreements with our partners Astellas and AstraZeneca AB (“AstraZeneca”);

$47.6 million of net product revenue from roxadustat commercial sales in China, mostly from sales to Beijing Falikang Pharmaceutical Co.

(“Falikang”) (see details under Product Revenue, Net section below);

$8.0 million upfront license payment recognized under our license agreement (defined below) with Eluminex Biosciences (Suzhou) Limited (“Eluminex”).

As comparison, our revenue for the year ended December 31, 2020 included the revenues recognized related to the following:

$15.0 million regulatory milestone associated with the New Drug Application (“NDA”) approval in Japan;

$80.6 million development revenue recognized under collaboration agreements with our partners Astellas and AstraZeneca;

$72.5 million of net product revenue from roxadustat commercial sales in China;

$8.9 million of drug product revenue related to roxadustat bulk drug or active pharmaceutical ingredient (“API”) deliveries to AstraZeneca and Astellas.

As comparison, our revenue for the year ended December 31, 2019 included the revenues recognized related to the following:

$130.0 million total of two regulatory milestones associated with the planned MAA submission to the EMA under the collaboration agreement with Astellas for roxadustat as a treatment for dialysis and non-dialysis CKD patients;

$50.0 million regulatory milestone associated with the NDA submission to the FDA under the collaboration agreement with AstraZeneca for roxadustat as a treatment for dialysis and non-dialysis CKD patients;

$22.0 million total of three regulatory milestones associated with roxadustat being included on the updated National Reimbursement Drug List (“NRDL”) released by China’s National Healthcare Security Administration (“NHSA”);

$12.5 million regulatory milestone associated with the NDA approval in Japan;

$36.3 million reduction in drug product revenue of a change in estimated variable consideration related to the API product revenue that was recognized in 2018, which reflected the total difference between estimated and actual listed price and yield from the manufacture of bulk product tablets.

Operating costs and expenses increased for the year ended December 31, 2020 compared to the prior year primarily due to the following:

Higher clinical trial expenses associated with post-approval safety studies in China, and commencement of Phase 3 trials for pamrevlumab;

Higher drug development expenses associated with drug substance manufacturing activities related to pamrevlumab, partially offset by lower activities related to roxadustat and capitalization of inventory manufacturing costs;

Higher employee-related expenses primarily resulting from higher average compensation level and headcount;

Higher stock-based compensation expense, primarily due to the cumulative impact of stock option grant activities;

Higher legal expenses primarily associated with patent-related activities in the United Kingdom;

Lower sales and marketing expenses due to a reversal in co-promotion expenses with AstraZeneca as a result of the China Amendment between FibroGen China and AstraZeneca;

Lower outside services due to lower consulting expenses and scientific contract work related to roxadustat Phase 3 and submission activities.

Operating costs and expenses increased for the year ended December 31, 2021 compared to the prior year as a result of the net effect of the following:

$60.0 million of expenses for acquired in-process research and development assets from HiFiBiO Therapeutics (“HiFiBiO”);

$38.4 million higher clinical trial costs, primarily due to Phase 3 trials for pamrevlumab, as well as impacts from roxadustat post-approval safety studies in China;

$24.4 million higher drug development expenses associated with drug substance and drug product manufacturing activities primarily related to pamrevlumab;

$16.5 million higher employee-related expenses primarily resulting from higher average compensation level and headcount, and higher severance expenses associated with employee departures and cost reduction effort;

$8.8 million higher outside services due to higher consulting expenses related to roxadustat in China, higher scientific contract activities related to pamrevlumab Phase 3, and higher co-promotion expenses resulting from a reversal in co-promotion expenses in prior year period;

$6.0 million lower legal expenses primarily associated with patent-related activities in the United Kingdom.

Our research and development expenses were $387.0 million, $252.9 million and $209.3 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Since inception and through December 31, 2021, we have incurred a total of approximately $2.6 billion in research and development expenses, a majority of which relates to the development of roxadustat, pamrevlumab and other HIF-PH inhibitors.

We expect to continue to incur significant expenses and operating losses over at least the next several years and we expect our research and development expenses to increase in the future as we advance our product candidates through clinical trials and expand our product candidate portfolio.

We expect to continue to incur significant expenses and operating losses over at least the next several years as we continue to make investments in research and development to advance our product candidate portfolio.

In addition, we expect to incur significant expenses relating to seeking regulatory approval for our product candidates and commercializing those products in various markets, including China.

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The process of conducting the necessary clinical research to obtain regulatory approval is costly and time consuming.

Following the complete response letter (“CRL”) for roxadustat in the United States (“U.S.”), we are implementing a cost reduction effort, and as a result, operating expenses may decrease in certain areas in the near future compared to our previous internal plans.

The actual probability of success for each of our product candidates and clinical programs, and our ability to generate product revenue and become profitable, depends upon a variety of factors, including the quality of the product candidate, clinical results, investment in the program, competition, manufacturing capability, commercial viability, and our and our partners’ ability to successfully execute our development and commercialization plans.

For a description of the numerous risks and uncertainties associated with product development, refer to “ Risk Factors .”

During the year ended December 31, 2020, we had a net loss of $189.3 million, or net loss per basic and diluted share of $2.11, as compared to a net loss of $77.0 million, or net loss per basic and diluted share of $0.89 for the prior year, primarily due to a decrease in revenue and an increase in operating expenses.

Cash and cash equivalents, investments and accounts receivable totaled $728.7 million at December 31, 2020, an increase of $105.4 million from December 31, 2019, primarily due to cash provided by operations.

For a description of the numerous risks and uncertainties associated with product development, refer to the “ Risk Factors ” section of this Annual Report.

During the year ended December 31, 2021, we had a net loss of $290.0 million, or net loss per basic and diluted share of $3.14, as compared to a net loss of $189.3 million, or net loss per basic and diluted share of $2.11 for the prior year, primarily due to an increase in operating expenses, partially offset by an increase in revenue.

Cash and cash equivalents, investments and accounts receivable totaled $590.4 million at December 31, 2021, a decrease of $138.3 million from December 31, 2020, primarily due to cash used in operations and investment in our pre-clinical pipeline.

Licensing Activities

Exclusive License with Eluminex

In July 2021, we exclusively licensed to Eluminex global rights to our investigational biosynthetic cornea derived from recombinant human collagen type III.

Under the terms of the agreement with Eluminex, Eluminex will make an $8.0 million upfront payment to FibroGen.

In addition, FibroGen may receive up to a total of $64.0 million in future manufacturing, clinical, regulatory, and commercial milestone payments for the biosynthetic cornea program, as well as $36.0 million in commercial milestones for the first recombinant collagen III product that is not the biosynthetic cornea.

FibroGen will be eligible to receive mid single-digit to low double-digit royalties based upon worldwide net sales of cornea products, and low single-digit to mid single-digit royalties based on worldwide net sales of other recombinant human collagen type III products that are not cornea products.

During the third quarter of 2021, the $8.0 million upfront license payment was recognized as license revenue for the performance obligations satisfied.

See Note 3, Collaboration Agreements, License Agreement and Revenues , to the consolidated financial statements for details.

Collaboration Partnerships for Roxadustat

Our current and future research, development, manufacturing and commercialization efforts with respect to roxadustat and our other product candidates currently in development depend on funds from our collaboration agreements with Astellas and AstraZeneca as described below.

See Note 3, Collaboration Agreements, License Agreement and Revenues , to the consolidated financial statements for details.

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 (“Japan Agreement”).

In April 2006, we entered into the Europe Agreement with Astellas for roxadustat for the treatment of anemia in Europe, the Commonwealth of Independent States, the Middle East, and South Africa.

In April 2006, we entered into the Europe Agreement with Astellas for roxadustat for the treatment of anemia in Europe, the Commonwealth of Independent States, the Middle East, and South Africa (“Europe Agreement”).

Under these agreements, we provide Astellas the right to develop and commercialize roxadustat for anemia indications in these territories.

We share responsibility with Astellas for clinical development activities required for the U.S.

and the Europe regulatory approval of roxadustat, and share equally those development costs under the agreed development plan for such activities.

and the Europe regulatory approval of roxadustat, and equally share those development costs under the agreed development plan for such activities.

Astellas will be responsible for clinical development activities and all associated costs required for regulatory approval in all other countries in the Astellas territories.

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Under certain terminations, Astellas is also obligated to pay us a termination fee.

Consideration under these agreements includes a total of $360.1 million in upfront and non-contingent payments, and milestone payments totaling $557.5 million, of which $542.5 million are development and regulatory milestones and $15.0 million are commercial-based milestones.

Total consideration, excluding development cost reimbursement and product sales-related payments, could reach $917.6 million.

The aggregate amount of such consideration received through December 31, 2020 totals $645.1 million.

Additionally, under these agreements, Astellas pays 100% of the commercialization costs in their territories.

In Europe, Astellas will pay us a tiered transfer price for our manufacture and supply of roxadustat based on net sales of roxadustat in the low 20% range.

In Japan, Astellas pays us a transfer price in the low 20% range of the list price published by the Japanese Ministry of Health, Labour and Welfare, adjusted for certain elements.

During the third quarter of 2021, the European Commission approved EVRENZO ® (roxadustat) for the treatment of adult patients with symptomatic anemia associated with CKD.

Astellas has launched EVRENZO in Germany, the United Kingdom, the Netherlands, Austria, and the Nordic countries.

This approval triggered a total of $120.0 million milestone payable to us by Astellas under the Europe Agreement.

Accordingly, the consideration of $120.0 million associated with these milestones was included in the transaction price and allocated to performance obligations under the Europe Agreement, all of which was recognized as revenue during the year ended December 31, 2021 from performance obligations satisfied.

During the fourth quarter of 2020, the Japanese Ministry of Health, Labour and Welfare approved EVRENZO ® (roxadustat) for the treatment of anemia of CKD in adult patients not on dialysis.

Accordingly, the consideration of $15.0 million associated with this milestone was included in the transaction price and allocated to performance obligations under the Japan Agreement in the fourth quarter of 2020, substantially all of which was recognized as revenue during the year ended December 31, 2020 from performance obligations satisfied or partially satisfied.

In September 2019, the Japanese Ministry of Health, Labour and Welfare approved roxadustat for the treatment of anemia associated with dialysis CKD patients.

Accordingly, the consideration of $12.5 million associated with this milestone was included in the transaction price and allocated to performance obligations under the Japan Agreement in the third quarter of 2019.

This milestone payment was received in October 2019.

During the second quarter of 2019, we received positive topline results from analyses of pooled major adverse cardiovascular event (“MACE”) and MACE+ data from its Phase 3 trials evaluating roxadustat as a treatment for dialysis and non-dialysis CKD patients, enabling Astellas to prepare for an MAA submission to the EMA in the second quarter of 2020, following our NDA submission to the FDA in 2019 and acceptance for review in February 2020.

These milestones became probable of being achieved in the second quarter of 2019, and substantially all of the total consideration of $130.0 million associated with these milestones was included in the transaction price and allocated to performance obligations under the Europe Agreement in the second quarter of 2019, of which $128.8 million was recognized as revenue during 2019, and $0.8 million was recognized as revenue during 2020, from performance obligations satisfied or partially satisfied.

According to the Europe Agreement, these milestone payments were billed to Astellas upon the submission of an MAA in the second quarter of 2020 and the total $130.0 million was received during the same quarter.

Total consideration, excluding development cost reimbursement and product sales-related payments, could reach $917.6 million.

Under these agreements, the aggregate amount for upfront payments and milestone payments received through December 31, 2021 totals $765.1 million.

In 2018, FibroGen and Astellas entered into an amendment to the Japan Agreement that will allow Astellas to manufacture roxadustat drug product for commercialization in Japan (the “Japan Amendment”).

Under this amendment, FibroGen would continue to manufacture and supply roxadustat API to Astellas.

Under this amendment, FibroGen would continue to manufacture and supply roxadustat API to Astellas for the roxadustat commercial launch in Japan.

The commercial terms of the Japan Agreement relating to the transfer price for roxadustat for commercial use remain substantially the same, reflecting an adjustment for the manufacture of drug product by Astellas rather than FibroGen.

We fulfilled delivery of a total of $64.8 million API under this amendment in 2018.

In 2019, a change in estimated variable consideration resulted in a $36.3 million reduction to revenue associated with these API shipments , at the time the listed price for roxadustat was issued by the Japanese Ministry of Health, Labour and Welfare, which reflected the total difference between estimated and actual listed price and yield from the manufacture of bulk product tablets.

In addition, in 2020, we recorded another $4.0 million reduction to revenue associated with these API shipments, related to a change in estimated variable consideration, based on the API held by Astellas at March 31, 2020 adjusted to reflect the updated listed price for roxadustat issued by the Japanese Ministry of Health, Labour and Welfare and possible future changes to the listed price, adjusted for the timing of and estimated bulk product strength mix intended to be manufactured by Astellas, estimated cost to convert the API to bulk product tablets, and estimated yield from the manufacture of bulk product tablets, among others.

During the second quarter of 2020, we fulfilled delivery obligations under the term of the Japan Amendment, and recognized related drug product revenue of $8.2 million in the same period.

The amount represents variable consideration and was estimated based on the quantity of product shipped, actual listed price for roxadustat issued by the Japanese Ministry of Health, Labour and Welfare and possible future changes to the listed price, adjusted for the timing of and estimated bulk product strength mix intended to be manufactured by Astellas, estimated cost to convert the API to bulk product tablets, and estimated yield from the manufacture of bulk product tablets, among others.

During the fourth quarter of 2020, we shipped bulk drug product from process validation supplies for commercial sales under the term of the Europe Agreement.

We constrained the estimated variable consideration due to a high degree of uncertainty associated to the final consideration because of an extended length of time over which the considerations may be adjusted.

As a result, we constrained the consideration from this shipment, and recorded $1.4 million as current deferred revenue and $4.6 million as long-term deferred revenue as of December 31, 2020.

The deferred revenue will be recognized over the duration of the contract and when uncertainty is resolved.

In the fourth quarter of 2018, we were engaged in the final stages of review with our partners over the proposed development of roxadustat for the treatment of chemotherapy-induced anemia.

AstraZeneca and Astellas approved the program in December 2018 and January 2019, respectively.

Costs associated with the development of this indication are shared 50-50 between our two partners.

For revenue recognition purposes, we concluded that this new indication represents a modification to the Europe agreements and will be accounted for separately, meaning the development costs associated with the new indications are distinct from the original development costs.

The development service period for roxadustat for the treatment of CIA under the Europe Agreement is estimated to continue through the end of 2023 to allow for development of this indication.

In addition, as of December 31, 2020, Astellas had separate investments of $80.5 million in the equity of FibroGen, Inc.

In July 2013, we entered into the U.S./RoW Agreement a collaboration agreement with AstraZeneca for roxadustat for the treatment of anemia in the U.S.

and all territories not previously licensed to Astellas, except China.

In July 2013, through our China subsidiary and related affiliates, we entered into the China Agreement a collaboration agreement with AstraZeneca for roxadustat for the treatment of anemia in China.

Under the Europe Agreement, Astellas has an option to purchase roxadustat bulk drug product in support of commercial supplies.

We fulfilled an inventory transfer obligation under the terms of the Europe Agreement in the fourth quarter of 2020.

During the first quarter of 2021, we entered into an Astellas EU Supply Agreement (“EU Supply Agreement”) under the 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.

We transferred bulk drug product to Astellas during the first and the fourth quarter of 2021.

We recorded the consideration of $25.9 million from these inventory transfers as deferred revenue as of December 31, 2021.

Additionally, under these agreements, Astellas pays 100% of the commercialization costs in their territories.

In Japan, Astellas pays us a transfer price in the low 20% range of the list price published by the Japanese Ministry of Health, Labour and Welfare, adjusted for certain elements, after commercial launch.

In Europe, Astellas pays us a tiered transfer price for our manufacture and supply of roxadustat based on net sales of roxadustat in the low 20% range.

The related drug product revenue under these agreements were $3.2 million and $4.3 million for the years ended December 31, 2021 and 2020, respectively.

In addition, as of December 31, 2021, Astellas had a separate investment of $80.5 million in the equity of FibroGen, Inc.

In July 2013, we entered into a collaboration agreement with AstraZeneca for roxadustat for the treatment of anemia in the U.S.

and all territories not previously licensed to Astellas (the “U.S./RoW Agreement”), except China.

In July 2013, through our China subsidiary and related affiliates, we entered into the China Agreement with AstraZeneca for roxadustat for the treatment of anemia in China (the “China Agreement”).

Under these agreements, we provide AstraZeneca the right to develop and commercialize roxadustat for anemia in these territories.

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AstraZeneca will hold the equivalent regulatory filings in the other licensed countries.

In 2015, we reached the $116.5 million cap on our initial funding obligations (during which time we shared 50% of the joint initial development costs), therefore all development and commercialization costs for roxadustat for the treatment of anemia in CKD in the U.S., Europe, Japan and all other markets outside of China have been paid by Astellas and AstraZeneca since reaching the cap.

In China, FibroGen (China) Medical Technology Development Co., Ltd.

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Outside of China, we are responsible, through our contract manufacturers, for the manufacture and supply of all quantities of roxadustat to be used in development and commercialization under the AstraZeneca agreements.

Under the China Agreement, which is conducted through FibroGen China Anemia Holdings, Ltd., FibroGen Beijing, and FibroGen International (Hong Kong) Limited (collectively, (“FibroGen China”), the commercial collaboration was structured as a 50/50 profit share, which was amended by the China Amendment in the third quarter of 2020, as discussed and defined below in China Amendment .

AstraZeneca may terminate the U.S./RoW Agreement upon specified events, including our bankruptcy or insolvency, our uncured material breach, technical product failure, or upon 180 days prior written notice at will.

If AstraZeneca terminates the U.S./RoW Agreement at will, in addition to any unpaid non-contingent payments, it will be responsible for paying for a substantial portion of the post-termination development costs under the agreed development plan until regulatory approval.

AstraZeneca may terminate the China Agreement upon specified events, including our bankruptcy or insolvency, our uncured material breach, technical product failure, or upon advance prior written notice at will.

If AstraZeneca terminates our China Agreement at will, it will be responsible for paying for transition costs as well as make a specified payment to FibroGen.

In the event of any termination of the agreements, but subject to modification upon termination for technical product failure, AstraZeneca will transfer and assign to us any regulatory filings and approvals for roxadustat in the affected territories that they may hold under our agreements, grant us licenses and conduct certain transition activities.

Under the AstraZeneca agreements, we will receive upfront and subsequent non-contingent payments totaling $402.2 million.

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Total consideration under the agreements, excluding development cost reimbursement, transfer price payments, royalties and profit share, could reach $1.6 billion.

The aggregate amount of such consideration received through December 31, 2020 totals $516.2 million.

The aggregate amount for upfront payments and milestone payments received through December 31, 2021 totals $516.2 million.

Under the U.S./RoW Agreement, AstraZeneca will pay for all commercialization costs in the U.S.

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In addition, we will receive a transfer price for delivery of commercial product based on a percentage of net sales in the low- to mid-single digit range and AstraZeneca will pay us a tiered royalty on net sales of roxadustat in the low 20% range.

Under the China Agreement, which is conducted through FibroGen China Anemia Holdings, Ltd.

(“FibroGen Cayman”), FibroGen Beijing, and FibroGen International (Hong Kong) Limited (collectively, (“FibroGen China, the commercial collaboration was structured as a 50/50 profit share, which was amended by the China Amendment in the third quarter of 2020, as discussed and defined below in China Amendment .

If AstraZeneca terminates our China Agreement at will, it will be responsible for paying for transition costs as well as make a specified payment to FibroGen.

As mentioned above, during the second quarter of 2019, we received positive topline results from analyses of pooled MACE and MACE+ data from its Phase 3 trials for roxadustat, enabling our U.S.

NDA submission to the FDA.

The regulatory milestone payment associated with this NDA submission became probable of being achieved in the second quarter of 2019.

Accordingly, the consideration of $50.0 million associated with this milestone was included in the transaction price and allocated to performance obligations under the combined arrangement in the second quarter of 2019, of which $42.4 million was recognized as revenue during 2019, and $0.6 million was recognized as revenue during 2020, from performance obligations satisfied or partially satisfied.

We submitted such NDA to the FDA in December 2019, which was accepted for review in February 2020.

According to the U.S/RoW Agreement, this milestone payment is billable to AstraZeneca when the NDA is accepted by the FDA.

Therefore, this $50.0 million milestone was billed during the first quarter of 2020, the payment of which was fully received in April 2020.

In December 2019, roxadustat has been included on the updated NRDL released by China’s NHSA for the treatment of anemia in CKD, covering patients who are non-dialysis-dependent as well as those who are dialysis-dependent.

Accordingly, the total consideration of $22.0 million associated with these milestones was included in the transaction price and allocated to performance obligations under the combined arrangement in the fourth quarter of 2019.

This milestone payment was fully received during the first quarter of 2020.

As mentioned above, in the fourth quarter of 2018, we were engaged in the final stages of review with our partners over the proposed development of roxadustat for the treatment of CIA .

AstraZeneca and Astellas approved the program in December 2018 and January 2019, respectively.

Costs associated with the development of this indication are expected to be shared 50-50 between our two partners.

In addition to CIA, in December 2018, anemia of chronic inflammation and multiple myeloma have been approved for development by AstraZeneca and is expected to be fully funded by them.

For revenue recognition purposes, we concluded that the approval of additional research and development services for these new indications represent modifications to our collaboration agreements in the periods in which approval was received.

The research and development services associated with the new indications are distinct from other promises in our collaboration agreements, and will be accounted for separately .

The development service period for roxadustat for the treatment of CIA, anemia of chronic inflammation and multiple myeloma under the AstraZeneca agreements is estimated to continue through the end of 2024, to allow for development of these additional indications .

China Amendment

On July 8, 2020, FibroGen China and AstraZeneca (together with FibroGen China, the “Parties”) entered into an amendment, effective July 1, 2020, to the China Agreement, relating to the development and commercialization of roxadustat in China (the “China Amendment”).

In July 2020, FibroGen China and AstraZeneca (together with FibroGen China, the “Parties”) entered into an amendment, effective July 1, 2020, to the China Agreement, relating to the development and commercialization of roxadustat in China (the “China Amendment”).

While the responsibilities of the Parties under the China Agreement remain largely the same, certain changes were made.

The China Amendment provides for the establishment of a jointly owned entity that will perform roxadustat distribution, as well as conduct sales and marketing through AstraZeneca.

To prepare for the establishment of this jointly owned entity, in July 2020, FibroGen Beijing acquired Beijing Kangda Yongfu Pharmaceutical Co., LTD (“Kangda”).

The purpose of the acquisition was to acquire a distribution license owned by Kangda for commercializing and distributing roxadustat in China.

FibroGen Beijing continues to hold all of the regulatory licenses issued by China regulatory authorities and continues to be primarily responsible for regulatory, clinical, manufacturing, medical affairs and pharmacovigilance activities.

In September 2020, FibroGen Beijing and AstraZeneca entered into an equity transfer agreement and shareholders agreement related to Kangda.

Concurrently with the equity transfer, the two parties renamed Kangda to Beijing Falikang Pharmaceutical Co.

(“Falikang”).

See Note 3, Acquisition and Variable Interest Entity , to the consolidated financial statements for details.

As Falikang is a distribution entity for roxadustat and AstraZeneca is the final decision maker for all the roxadustat commercialization activities, we lack the power criterion while AstraZeneca meets both the power and economic criteria under ASC 810, to direct the activities of Falikang that most significantly impact its performance.

Under the 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 conduct sales and marketing through AstraZeneca.

As Falikang is a distribution entity for roxadustat and AstraZeneca is the final decision maker for all the roxadustat commercialization activities, we lack the power criterion while AstraZeneca meets both the power and economic criteria under the Accounting Standards Codification (“ASC”) 810, Consolidation , to direct the activities of Falikang that most significantly impact its performance.

Therefore, we are not the primary beneficiary of Falikang.

As a result, we accounted for our investment in Falikang under the equity method, and Falikang is not consolidated into our consolidated financial statements.

In addition, we recognized our proportionate share of the reported profits or losses of Falikang, as other income (loss) in the consolidated statement of operations, and as an adjustment to its investment in unconsolidated subsidiary in the consolidated balance sheet.

As a result, we account for our investment in Falikang under the equity method, and Falikang is not consolidated into our consolidated financial statements.

In addition , we recognized our proportionate share of the reported profits or losses of Falikang, as other income (loss) in the consolidated statement of operations, and as an adjustment to investment in unconsolidated subsidiary in the consolidated balance sheet.

Falikang has not incurred material profit or loss to date.

In accordance with the China Amendment, we are currently in the interim period.

The interim period is defined as the period from April 1, 2020 to the time when Falikang is fully operational, which commenced in January 2021.

During the interim period, FibroGen continues to sell product directly to the distributors, who remain as our customers.

The calculation for profit or loss share has changed related to sales of roxadustat in China for the period from April 1, 2020 onwards.

See Note 4, Equity method investment - Variable Interest Entity , to the consolidated financial statements for details.

Under the China Amendment, the interim period is defined as the period from April 1, 2020 to the time when Falikang is fully operational.

Falikang became fully operational in January 2021.

The calculation for profit or loss share related to sales of roxadustat in China has changed for the period from April 1, 2020 onwards.

With effect from April 1, 2020, the Parties have changed the method under which commercial expenses incurred by AstraZeneca are calculated and billed.

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In addition, the China Amendment has allowed for a higher cost of manufacturing incurred by FibroGen Beijing to be included in the profit or loss share calculation, subject to an annual cap, among other changes.

Once Falikang is fully operational, AstraZeneca will bill the co-promotion expenses to Falikang, rather than FibroGen Beijing.

In addition, FibroGen Beijing will manufacture and supply commercial product to Falikang based on an agreed upon transfer price.

Development costs will continue to be shared 50/50 between the Parties.

As a result, the interim period primarily includes the following activities :

As a result, the interim period during the year ended December 31, 2020 primarily includes the following activities:

Co-promotion expenses:

The China Amendment revised the payment arrangements and calculation of the historical unpaid co-promotion expenses to AstraZeneca for its sales and marketing efforts associated with the commercial sales for roxadustat in China since the product launch.

Under the previous China Agreement, payment of these historical co-promotion expenses was subject to certain profitability and cash flow thresholds.

No amount of the historical co-promotion costs had been paid prior to the China Amendment as these thresholds had not yet been met.

Under the China Amendment, a portion of the historical unpaid co-promotion expenses was adjusted to reduce the amount owed by FibroGen Beijing and the current period co-promotion expenses are capped at a percentage of net roxadustat sales in China.

As a result, in the third quarter of 2020, we reversed approximately $84.4 million of previously accrued co-promotion expenses payable, which was recorded as a reduction to selling, general and administrative expenses, where these expenses were initially recorded during the periods from the initiation of commercial activities in the first quarter of 2019 to the second quarter of 2020.

The co-promotion expenses for the year ended December 31, 2020, capped at a percentage of net roxadustat sales in China, were $27.2 million, included in the selling, general and administrative expenses.

After this adjustment, as of December 31, 2020, $16.9 million and $11.5 million of the recalculated accrued co-promotion expenses were recorded in accounts payable and accrued liabilities, respectively, as they were anticipated to be paid within the next 12 months;

and $27.4 million of the recalculated accrued co-promotion expenses remained in the long-term liabilities, as it is not anticipated to be paid within the next 12 months.

Under the China Amendment, the co-promotion expenses for the years ended December 31, 2021 and 2020, capped at a percentage of net roxadustat sales in China, were $4.7 million and $27.2 million, respectively, included in the selling, general and administrative expenses.

Profit share:

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Based on the calculation revised under the China Amendment, profit was achieved during the third and fourth quarter of 2020.

As a result, we recorded a profit share liability of $7.0 million to AstraZeneca as of December 31, 2020 in the accrued and other current liabilities, which correspondingly reduced the deferred revenue related to the performance obligation in accordance with the China Agreement.

As a result, we recorded a profit share liability of $7.9 million and $7.0 million to AstraZeneca as of December 31, 2021 and 2020, respectively, in the accrued and other current liabilities, which correspondingly reduced the deferred revenue related to the performance obligation in accordance with the China Agreement.

Since Falikang became fully operational in January 2021, substantially all direct roxadustat product sales to distributors in China are made by Falikang, while FibroGen Beijing continues to sell roxadustat product directly in a few provinces in China.

FibroGen Beijing manufactures and supplies commercial product to Falikang based on a gross transaction price, which is adjusted for the estimated profit share.

Revenue is recognized at a point in time when control of roxadustat commercial product is transferred to Falikang.

For our direct sales of commercial drug product, revenue is recognized when control of the promised good is transferred to the customer in an amount that reflects the consideration that we expect to be entitled to in exchange for the product.

During the year ended December 31, 2021, we recognized $35.6 million of net product revenue from the sales to Falikang, and $12.1 million of net product revenue from sales directly to distributors in a few provinces in China, as described in details under Product Revenue, Net section below.

In addition, AstraZeneca now bills the co-promotion expenses to Falikang and to FibroGen Beijing, respectively, for its services provided to the respective entity.

Development costs continue to be shared 50/50 between the Parties.

FibroGen, Inc.

and AstraZeneca concurrently amended the U.S./RoW Agreement to reflect minor changes in the governance structure under the China Agreement.

Starting in the first quarter of 2021, our revenue will be made of 1) a transfer price from our sales to Falikang, and 2) sales made directly by FibroGen Beijing to distributors who have not transitioned to Falikang.

The transfer price earned is expected to be in the range of 30-45% of Falikang’s net sales, which reflects the fact that Falikang will pay AstraZeneca the commercialization expenses and AstraZeneca’s profit share.

For revenue recognition purposes, we estimate the total consideration on a per unit basis and recognize as we transfer control of the commercial drug product to Falikang.

Additional Information Related to Collaboration Agreements

Of the $1.1 billion in development and regulatory milestones payable in the aggregate under our Astellas and AstraZeneca collaboration agreements, $425.0 million is payable upon achievement of milestones relating to the submission and approval of roxadustat in dialysis-dependent CKD and non-dialysis-dependent CKD in the U.S.

For more detailed discussions on the accounting for these agreements, refer to Note 4, Collaboration Agreements and Revenues, to the consolidated financial statements.

Total cash consideration received through December 31, 2020 and potential cash consideration, other than development cost reimbursement, transfer price payments, royalties and profit share, pursuant to our existing collaboration agreements are as follows:

Received Through

For more detailed discussions on the accounting for these agreements, See Note 3, Collaboration Agreements, License Agreement and Revenues, to the consolidated financial statements.

Total cash consideration received through December 31, 2021 and potential cash consideration for upfront payments and milestone payments under our collaboration agreements are as follows:

Cash Received for Upfront Payments and Milestone Payments

December 31, 2021

Cash Payments

Cash Payment for Milestones

Cash Payments for Upfront Payments and Milestones

(in thousands)

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Total AstraZeneca

Total revenue

The above table does not include development cost reimbursement, transfer price payments, and royalties and profit share under our existing collaboration agreements.

These collaboration agreements also provide for reimbursement of certain fully burdened research and development costs as well as direct out of pocket expenses.

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Our revenue to date has been generated substantially from our collaboration agreements with Astellas and AstraZeneca.

In addition, we started roxadustat commercial sales in China in the third quarter of 2019.

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 periods.

In addition, we started roxadustat commercial sales in China in 2019.

This revenue is generally recognized as deliverables are met and services are performed.

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Co-development services are recognized as revenue in the period in which they are billed to our partners, excluding China.

For China co-development services, revenue is deferred until we begin to transfer control of the manufactured commercial drug product to AstraZeneca..

For China co-development services, revenue is deferred until we begin to transfer control of the manufactured commercial drug product to AstraZeneca , which commenced in the first quarter of 2021 and is expected to continue through 2028 .

Other development related services are recognized as revenue over the non-contingent development period based on a proportional performance method.

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Development and other revenues represented 30%, 46% and 44% of total revenues for the years ended December 31, 2021, 2020 and 2019 , respectively.

We started generating net product revenue from commercial sales of roxadustat drug product in China in the third quarter of 2019.

Product revenue is recognized when our customer obtains control of promised goods or services in an amount that reflects the consideration we expect to receive in exchange for those goods or services.

Product revenue represented 41% and 1% of total revenue for the year ended December 31, 2020 and 2019, respectively.

Drug product revenue includes commercial-grade API or bulk drug product sales to AstraZeneca and Astellas i n support of pre-commercial preparation prior to the NDA or MAA approval, and to Astellas for ongoing commercial launch in Japan.

Drug product revenue is recognized when we fulfill the delivery obligations.

Product revenue represented 20%, 41% and 1% of total revenue for the years ended December 31, 2021, 2020 and 2019, respectively.

Drug product revenue includes commercial-grade API or bulk drug product sales to AstraZeneca and Astellas in support of pre-commercial preparation prior to the NDA or Marketing Authorization Application approval, and to Astellas for ongoing commercial launch in Japan and Europe.

Drug product revenue is recognized when we fulfill the inventory transfer obligations.

The amount of variable consideration that is included in the transaction price may be constrained, and is included in the drug product revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period when the uncertainty associated with the variable consideration is subsequently resolved.

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We expect that any revenues we generate will fluctuate from quarter to quarter due to the uncertain timing and amount of such payments and sales.

Total revenue decreased $80.3 million, or 31% for the year ended December 31, 2020 compared to the year ended December 31, 2019 for the reasons discussed in the sections below.

Total revenue increased $59.0 million, or 33% for the year ended December 31, 2021 compared to the year ended December 31, 2020 for the reasons discussed in the sections below.

License Revenue

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Total license revenue

License revenue decreased $162.8 million, or 92% for the year ended December 31, 2020 compared to the year ended December 31, 2019.

License revenue recognized under our collaboration agreements with Astellas decreased $115.1 million, or 89% for the year ended December 31, 2020 compared to the year ended December 31, 2019.

License revenue recognized under our collaboration agreements with Astellas for the year ended December 31, 2020 represented the allocated revenue of related to a regulatory milestone of $15.0 million associated with the NDA approval in Japan achieved during the fourth quarter of 2020.

License revenue recognized under our collaboration agreements with Astellas for the year ended December 31, 2019 represented the allocated revenue of $117.5 million related to two regulatory milestones totaling $130.0 million associated with the planned MAA submission in Europe that were included in the transaction price during the second quarter of 2019 when these milestones became probable of being achieved;

and the allocated revenue of $11.9 million related to a regulatory milestone of $12.5 million associated with the NDA approval in Japan achieved during the third quarter of 2019.

We did not have any license revenue under our collaboration agreements with AstraZeneca for the year ended December 31, 2020.

License revenue recognized under our collaboration agreements with AstraZeneca for the year ended December 31, 2019 represented the revenue allocated to the U.S./RoW license of $33.1 million related to a regulatory milestone of $50.0 million associated with the NDA submission in the U.S.

that was included in the transaction price during the second quarter of 2019 when this milestone became probable of being achieved;

and the revenue allocated to the U.S./RoW license of $14.6 million related to three regulatory milestones totaling $22.0 million associated with roxadustat being included on the updated NRDL released by China’s NHSA during the fourth quarter of 2019.

License revenue increased $102.1 million, or 713% for the year ended December 31, 2021 compared to the year ended December 31, 2020.

License revenue recognized under our collaboration agreements with Astellas increased $94.1 million, or 657% for the year ended December 31, 2021 compared to the year ended December 31, 2020.

License revenue recognized under our collaboration agreements with Astellas for the year ended December 31, 2021 represented the allocated revenue related to a total of $120.0 million regulatory milestones associated with the approval by European Commission of EVRENZO ® (roxadustat) for the treatment of adult patients with symptomatic anemia associated with CKD during the third quarter of 2021.

License revenue recognized under our collaboration agreements with Astellas for the year ended December 31, 2020 represented the allocated revenue related to a regulatory milestone of $15.0 million associated with the NDA approval in Japan achieved during the fourth quarter of 2020.

License revenue recognized under our license agreement with Eluminex for the year ended December 31, 2021 represented the $8.0 million upfront license payment.

Development and Other Revenue

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Development and other revenue decreased $10.3 million, or 13% for the year ended December 31, 2021 compared to the year ended December 31, 2020.

Development revenue recognized under our collaboration agreements with Astellas decreased $10.2 million, or 35% for the year ended December 31, 2020 compared to the year ended December 31, 2019.

Development revenue recognized under our collaboration agreements with Astellas increased $2.8 million, or 14% for the year ended December 31, 2021 compared to the year ended December 31, 2020.

Development revenue recognized under our collaboration agreements with Astellas for the year ended December 31, 2021 included the allocated revenue of $11.6 million related to the above-mentioned $120.0 million associated with the approvals in the European Union achieved during the third quarter of 2021.

Development revenue recognized under our collaboration agreements with Astellas for the year ended December 31, 2020 included the allocated revenue of $0.7 million related to the above-mentioned $15.0 million associated with the NDA approval in Japan achieved during the fourth quarter of 2020.

Development revenue recognized under our collaboration agreements with Astellas for the year ended December 31, 2019 included the allocated revenue of $11.4 million related to the above-mentioned $130.0 million associated with the regulatory milestones of the planned MAA submission in Europe, and the allocated revenue of $0.5 million related to the above-mentioned $12.5 million associated with the NDA approval in Japan.

The decrease for the year ended December 31, 2020 was partially offset by an increase in co-development billings related to related to higher medical affairs activities under the Europe Agreement.

Development revenue recognized under our collaboration agreements with AstraZeneca decreased $23.3 million, or 28% for the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to a decrease in co-development billings related to the development of roxadustat as a result of the substantial completion of Phase 3 trials for roxadustat.

Development revenue recognized under our collaboration agreements with AstraZeneca for the year ended December 31, 2019 also included the allocated revenue of $9.3 million related to the above-mentioned $50.0 million associated with the regulatory milestone of the NDA submission in the U.S., and the allocated revenue of $4.1 million related to the above-mentioned regulatory milestones totaling $22.0 million associated with roxadustat being included on the updated NRDL released by China’s NHSA.

The increases were partially offset by the decrease in co-development billings related to the development of roxadustat under our collaboration agreements with Astellas for the year ended December 31, 2021, as a result of the substantial completion of Phase 3 trials for roxadustat.

Development revenue recognized under our collaboration agreements with AstraZeneca decreased $13.1 million, or 21% for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to the extension of the estimated future non-contingent development period when we were notified of the FDA Cardiovascular and Renal Drugs Advisory Committee meeting to review the NDA for roxadustat, and decrease in CKD related co-development billings in the U.S.

Product Revenue, Net

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(dollars in thousands)

Direct Sales:

Gross revenue

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Other discounts and rebates

Product revenue, net

We started roxadustat commercial sales in China in the third quarter of 2019.

Therefore, the year-over-year comparison would not be meaningful, as the prior year was at limited sales volume.

The gross product revenue for the year ended December 31, 2020 was $89.0 million.

In the second quarter of 2020, we amended the agreement with our pharmaceutical distributors, which triggered accounting modifications particularly related to non-key account hospital listing award.

For the year ended December 31, 2020, the non-key account hospital listing award was $9.3 million, which was recorded as a reduction to the revenue and calculated based on eligible non-key account hospital listing to date achieved by each distributor with certain requirements met during the period.

For the year ended December 31, 2020 and 2019, the contractual sales rebate was $6.2 million and $0.1 million, respectively, which were calculated based on the stated percentage of gross sales by each distributor in the distribution agreement entered between FibroGen and each distributor.

Sales returns

Direct sales revenue, net

Sales to Falikang:

Gross transaction price

Net transaction price

Increase in deferred revenue

Sales to Falikang revenue, net

Total product revenue, net

In January 2021, Falikang became fully operational and substantially all direct product sales to distributors in China were made by Falikang, while FibroGen Beijing continued to sell product directly in a few provinces in China.

Product revenue from direct sales to distributors is recognized in an amount that reflects the consideration that we expect to be entitled to in exchange for those products, net of sales rebates and discounts.

The gross product revenue from direct sales to distributors decreased $75.3 million, or 85% for the year ended December 31, 2021 compared to the year ended December 31, 2020 due to the above-mentioned transition of direct product sales to distributors to Falikang.

The total discounts and rebates were $1.7 million and $16.4 million for the years ended December 31, 2021 and 2020, respectively.

The discounts and rebates for the year ended December 31, 2021 included $1.0 million of price adjustments recorded based on government-listed price guidance and estimated channel inventory levels.

The discounts and rebates for the year ended December 31, 2020 included $9.3 million of non-key account hospital listing award related to accounting modifications of non-key account hospital listing award, as a result of the amendment to the agreement with our pharmaceutical distributors in the second quarter of 2020.

In addition, the discounts and rebates consisted of the contractual sales rebates that were calculated based on the stated percentage of gross sales by each distributor in the distribution agreement.

All other rebates and discounts, including sales return allowance were immaterial for the periods presented.

For the year ended December 31, 2019, a $0.9 million of price adjustment was recorded based on government-listed price guidance and estimated channel inventory levels.

FibroGen Beijing manufactures and supplies commercial product to Falikang based on an agreed upon transfer price, which includes a gross transfer price, net of a calculated profit share.

Revenue is recognized upon the transfer of control of commercial products to Falikang in an amount that reflects the allocation of the China performance obligation transaction price to the performance obligation satisfied during the reporting period.

The variable consideration components that are included in the transaction price may be constrained, and are included in the product revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period when the uncertainty associated with the variable consideration is subsequently resolved.

During the year ended December 31, 2021, the gross transfer price was $97.5 million, net of the calculated profit share of $34.8 million.

Following updates to our estimates, we deferred $27.2 million from the sales to Falikang for year ended December 31, 2021, which was included in the related deferred revenue of the China performance obligation.

Drug Product Revenue

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Total drug product revenue:

In 2018, FibroGen and Astellas entered into the Japan Amendment.

Under this amendment, FibroGen would continue to manufacture and supply roxadustat API to Astellas for the roxadustat commercial launch in Japan.

We fulfilled the shipment obligations under the term of the Japan Amendment during the year ended December 31, 2018, and recognized the related product revenue of $64.8 million based on a transaction price that was subject to potential future adjustments, which represented a form of variable consideration.

Related to the above API shipments in 2018, a change in estimated variable consideration incurred in 2019 at the time the actual listed price for roxadustat was issued by the Japanese Ministry of Health, Labour and Welfare, which resulted in a total difference of $36.3 million between the estimated and the actual listed price and yield from the manufacture of bulk product tablets.

In addition, during the year ended December 31, 2020, we recorded another $4.0 million reduction to drug product revenue, related to a change in estimated variable consideration, based on the API held by Astellas at March 31, 2020 adjusted to reflect the updated listed price for roxadustat issued by the Japanese Ministry of Health, Labour and Welfare and changes in the estimated bulk product strength mix intended to be manufactured by Astellas, estimated cost to convert the API to bulk product tablets, and estimated yield from the manufacture of bulk product tablets, among others.

During the second quarter of 2020, we fulfilled shipment obligations under the term of the Japan Amendment, and recognized the related drug product revenue of $8.2 million in the same period.

During the fourth quarter of 2020, we shipped bulk drug product from process validation supplies for commercial purposes under the term of the Europe Agreement.

We constrained the consideration of this shipment due to a high degree of uncertainty associated to the final consideration.

As a result, we recorded $1.4 million as current deferred revenue and $4.6 million as long-term deferred revenue as of December 31, 2020.

The deferred revenue will be recognized as and when uncertainty is resolved.

Under the U.S./RoW Agreement, FibroGen would manufacture and supply roxadustat bulk drug product to AstraZeneca in support of commercial supplies.

We shipped bulk drug product to AstraZeneca as pre-commercial supply for process validation purposes during the year ended December 31, 2020 and recognized drug product revenue of $4.6 million.

The drug product revenue amount represents variable consideration and was estimated based on the quantity of product shipped and an estimated price.

Total drug product revenue recognized under the Astellas agreements was $3.2 million and $4.3 million for the years ended December 31, 2021 and 2020, respectively.

During the years ended December 31, 2021 and 2020, we updated our estimate of variable consideration related to the API shipments fulfilled under the terms of the Japan Amendment with Astellas in 2018 and 2020, and recorded an adjustment to the drug product revenue of $2.1 million and $(4.0) million for the years ended December 31, 2021 and 2020, respectively.

Specifically, the change in estimated variable consideration was based on the API held by Astellas at the period end, adjusted to reflect the changes in the estimated bulk product strength mix intended to be manufactured by Astellas, estimated cost to convert the API to bulk product tablets, and estimated yield from the manufacture of bulk product tablets, among others.

During the fourth quarter of 2021, we transferred bulk drug product for commercial purposes under the terms of the Europe Agreement and the EU Supply Agreement with Astellas, and recognized the related fully burdened manufacturing costs of $1.0 million as drug product revenue, and recorded $8.3 million as deferred revenue as of December 31, 2021, due to a high degree of uncertainty associated with the final consideration.

During the first quarter of 2021, we transferred bulk drug product from process validation supplies for commercial purposes under the terms of the Europe Agreement and the EU Supply Agreement with Astellas.

We recorded the consideration of $11.8 million from this inventory transfer as deferred revenue as of December 31, 2021, due to a high degree of uncertainty associated with the final consideration.

During the fourth quarter of 2021, we updated our estimate of variable consideration related to the bulk drug product inventory transfers fulfilled under the terms of the Europe Agreement and the EU Supply Agreement with Astellas, and recorded an unbilled contract asset of $49.8 million, which was offset by related deferred revenue under the Europe Agreement and EU Supply Agreement.

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, among others.

During the fourth quarter of 2020, we transferred bulk drug product from process validation supplies for commercial purposes under the terms of the Europe Agreement with Astellas.

As a result, we recorded $6.0 million as deferred revenue as of December 31, 2020, due to a high degree of uncertainty associated with the final consideration.

We recognized royalty revenue of $0.2 million from this deferred revenue during the year ended December 31, 2021.

The remainder of the deferred revenue will be recognized as and when uncertainty is resolved.

During the second quarter of 2020, we fulfilled the shipment obligations under the terms of the Japan Amendment with Astellas, and recognized related drug product revenue of $8.2 million in the same period.

Total drug product revenue recognized under the AstraZeneca agreements was $(2.2) million and $4.6 million for the years ended December 31, 2021 and 2020, respectively.

During the first half of 2021, we shipped bulk drug product to AstraZeneca as commercial supply under the terms of the Master Supply Agreement.

Based on the above-mentioned FDA CRL in August 2021, we evaluated the impact of these developments in revising our estimates of variable consideration associated with drug product revenue.

As a result, we updated the estimated transaction price for these shipments, and recorded $11.2 million as deferred revenue as of December 31, 2021.

During the first three quarters of 2020, we shipped process validation product to AstraZeneca as pre-commercial supply under the U.S./RoW Agreement and recorded the related drug product revenue of $4.6 million during the year ended December 31, 2020.

Operating Costs and Expenses

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Total operating costs and expenses

We have taken measures to minimize the health risks of COVID-19 to our staff, patients, healthcare providers and their communities, as their safety and well-being are our top priority.

In the U.S., our employees are working remotely when possible, while in China they have returned to work in our offices, manufacturing plants, and are performing medical affairs out in the field.

We have also seen some reduced enrollment in our clinical trials, particularly for our IPF pamrevlumab trial.

However, the overall impact of COVID-19 on our expenses was not significant.

In the year ended December 31, 2020, some reduction in expenses, such as due to reduced travel and paused or slowed enrollment for trials, were offset by some increased expenses, such as in patient care.

Total operating expenses increased $155.6 million, or 42%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, for the reasons discussed in the sections below.

Cost of goods sold

Cost of goods sold was $8.9 million and $1.1 million for the years ended December 31, 2020 and 2019, respectively, and primarily consisted of costs associated with the manufacturing of roxadustat product and storage and logistic costs.

We started commercial sales of roxadustat drug product in China in the third quarter of 2019.

Cost of goods sold increased $4.0 million, or 45%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.

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.

The year-over-year comparison would not be meaningful as the prior year was the first year for roxadustat commercial sales with limited sales volume.

Cost of goods sold, associated with the roxadustat commercial sales in China, was $9.3 million and $8.5 million for the years ended December 31, 2021 and 2020, respectively, due to the overall increase in the gross sales, offset by lower unit cost resulting from higher production volume, and lower storage and shipping costs with sales to distributors being transitioned to Falikang that started in January 2021.

Cost of goods sold associated with the roxadustat drug product revenue in the U.S.

was not material for the year ended December 31, 2020 and 2019.

was $3.6 million and $0.4 million for the years ended December 31, 2021 and 2020, respectively, due to increased drug product shipments during the current year.

W e expect costs of goods sold to increase in relation to drug product revenue as we deplete inventories that we had expensed prior to receiving regulatory approvals.

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Research and development costs include employee-related expenses for research and development functions, expenses incurred under agreements with clinical research organizations (“CROs”), other clinical and preclinical costs and allocated direct and indirect overhead costs, such as facilities costs, information technology costs and other overhead.

Research and development expenses also include in-process research and development assets that have no alternative future use other than in a particular research and development project.

Research and development costs are expensed as incurred.

Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites.

Following the CRL for roxadustat in the U.S., we are implementing a cost reduction effort, and as a result, research and development expenses may decrease in certain areas in the near future compared to our previous internal plans.

The following table summarizes our research and development expenses incurred during the years ended December 31, 2021, 2020 and 2019:

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Total research and development expenses

Other research and development expenses included $60.0 million of acquired in-process research and development assets related to upfront payments to HiFiBiO.

See Note 2, Summary of Significant Accounting Policies - License Acquisition Agreement , to the consolidated financial statements for details.

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.

We expect our research and development expenses to increase in the future as we advance our product candidates through clinical trials and expand our product candidate portfolio.

Research and development expenses increased $134.1 million, or 53%, for the year ended December 31, 2021 compared to the year ended December 31, 2020 as a result of the net effect of the following:

Increase of $36.1 million in clinical trials costs, primarily due to commencement of Phase 3 trials for pamrevlumab and post-approval safety studies in China;

Increase of $10.3 million in drug development expenses, primarily due to higher drug substance manufacturing activities and supplies related to pamrevlumab, and higher supply chain expenses related to roxadustat, partially offset by lower drug substance manufacturing activities related to roxadustat and lower drug product manufacturing costs related to pamrevlumab;

Increase of $5.2 million in stock-based compensation expense, primarily due to the cumulative impact of stock option grant activities and accelerated recognition due to departure of certain executive employees;

Increase of $3.2 million in employee-related costs primarily due to higher headcount in the research and development functions in China and higher compensation levels, partially offset by decrease in events and travel costs due to the COVID-19 pandemic;

Increase of $3.1 million in facility related expense, primarily due to higher allocated overhead costs, higher depreciation expenses related to China facilities and general maintenance expenses;

Decrease of $6.1 million due to capitalization of inventory manufacturing costs associated with roxadustat production;

Decrease of $5.3 million in outside services due to lower consulting expenses and scientific contract work related to roxadustat Phase 3 and submission activities.

Expense of a total of $60.0 million for acquired in-process research and development assets from HiFiBiO;

Increase of $38.4 million in clinical trials costs, primarily due to Phase 3 trials for pamrevlumab and roxadustat post-approval safety studies in China;

Increase of $24.4 million in drug development expenses associated with drug substance and drug product manufacturing activities primarily related to pamrevlumab;

Increase of $9.1 million in employee-related costs primarily due to higher headcount in the research and development functions in China and higher compensation levels, and higher severance expenses associated with employee departures and cost reduction effort;

Increase of $5.5 million in outside services due to higher consulting expenses related to roxadustat in China and higher scientific contract activities related to pamrevlumab Phase 3;

Decrease of $5.7 million in stock-based compensation expense, primarily due to cancellation related to departure of certain senior level employees and lower stock price and accelerated recognition due to departure of certain executive employees in the prior year period that did not recur in 2021.

Selling, General and Administrative Expenses

We started to incur sales and marketing expenses in the first quarter of 2019 in China to prepare for commercial operations.

We started to incur sales and marketing expenses in 2019 in China to prepare for commercial operations.

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, recruiting fees and expenses associated with obtaining and maintaining patents.

We anticipate that our SG&A expenses will increase in the future as we anticipate an increase in payroll and related expenses associated with an increase in headcount to support the growth of the business in connection with potential commercialization of our product candidates.

SG&A expenses decreased $29.1 million, or 21%, for the year ended December 31, 2020 compared to the year ended December 31, 2019, as a result of the net effect of the following:

Decrease of $44.9 million in outside service expenses, resulting from the above-mentioned reversal of previously accrued co-promotion expenses payable, which was recorded as a reduction to selling, general and administrative expenses.

In addition, current year co-promotion expenses are capped at a percentage of net sales;

Increase of $6.8 million in employee-related costs primarily due to higher headcount in the sales and marketing functions in China and higher compensation levels;

Increase of $4.2 million in legal expenses primarily associated with patent-related activities in United Kingdom.

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, re cruiting fees and expenses associated with obtaining and maintaining patents.

Following the CRL for roxadustat in the U.S., we are implementing a cost reduction effort, and as a result, SG&A expenses may decrease in certain areas in the near future compared to our previous internal plans.

SG&A expenses increased $17.5 million, or 16%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, as a result of the net effect of the following:

Increase of $7.4 million in employee-related costs primarily due to higher headcount in the general and administrative functions and higher compensation levels, and higher severance expenses associated with employee departures and cost reduction effort;

Increase of $5.3 million in facilities-related expense due to higher repair and general maintenance expenses and higher lease expenses resulting from the lease modification of our San Francisco property lease from a finance lease to operating lease during the second quarter of 2021;

Increase of $4.1 million in stock-based compensation expense, primarily due to the cumulative impact of stock option grant activities expensed in the normal course, and accelerated recognition due to departure of certain executive employees during the current year;

partially offset by the impact from lower stock price;

Increase of $3.3 million in outside service expenses, due to the above-mentioned reversal of co-promotion expenses in prior year period in the third quarter of 2020, offset by less sample expenses and the fact that AstraZeneca now bills the co-promotion expenses to Falikang and to FibroGen Beijing, respectively, for its services provided to the respective entity in 2021.

In addition, the increase included costs incurred related to pre-commercialization efforts for pamrevlumab.

The increases were partially offset by lower sample costs for roxadustat;

Increase of $2.9 million in professional service fees;

Decrease of $6.0 million in legal expenses primarily associated with the patent-related activities in the United Kingdom.

Interest and Other, Net

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Interest expense

Investment loss in unconsolidated variable

interest entity

Interest income and other, net

Interest income and other income (expenses), net

Total interest and other, net

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Interest expense also includes interest related to the Technology Development Center of the Republic of Finland product development obligations.

Interest expense decreased $0.5 million, or 16%, for the year ended December 31, 2020 compared to the year ended December 31, 2019 due to lower interest rates related to our finance lease liabilities.

Investment Loss in Unconsolidated Variable Interest Entity

Investment loss in unconsolidated variable interest entity represented our proportionate share of the reported profits or losses of Falikang, an unconsolidated VIE accounted for under the equity method, and was immaterial for the year ended December 31, 2020.

See Note 3, Acquisition and Variable Interest Entity , to the consolidated financial statements for details.

Interest Income and Other, Net

Interest income and other, 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.

Interest income and other, net decreased $10.0 million, or 64%, for the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to lower interest earned on our cash, cash equivalents and investments of $9.4 million associated with the lower average balances.

On April 1, 2020, FibroGen Beijing adopted Renminbi Yuan (“CNY”) as its functional currency based on reassessment of the primary economic environment in which FibroGen Beijing operates, as such environment was mainly associated with its growing manufacturing and product sales activities conducted in CNY.

Prior to April 1, 2020, FibroGen Beijing’s functional currency was the U.S.

This change did not result in material impact to unrealized foreign currency gain or loss during the year ended December 31, 2020.

Interest expense decreased $1.3 million, or 55% for the year ended December 31, 2021 compared to the year ended December 31, 2020.

The decrease was primarily due to the lease amendment effective June 1, 2021, related to our long-term property lease in San Francisco, was determined as a lease modification and classified as an operating lease, as compared to a finance lease before the lease modification.

In addition, the new lease agreement effective in February 2021 for our long-term property lease in China was classified as an operating lease, as compared to a finance lease for the expired lease.

The classification for both leases no longer trigger recognition of interest on the lease liabilities separately in the consolidated statement of operations.

See Note 6, Leases , to the 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 $6.6 million, or 119%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to lower interest earned on our cash, cash equivalents and investments associated with the lower interest rates, as well as unfavorable foreign exchange impacts.

Provision for Income Taxes

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Effective tax rate

The provisions for income taxes for the years end December 31, 2020 and 2019 were due to foreign taxes.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted and signed into law.

The CARES Act includes changes to the tax provisions that benefits business entities, and makes certain technical corrections to the 2017 Tax Cuts and Jobs Act.

GAAP requires recognition of the tax effects of new legislation during the reporting period that includes the enactment date.

We evaluated and determined that the impact is immaterial.

The provisions for income taxes for the years ended December 31, 2021 and 2020 were 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 will continue to maintain a full valuation allowance on our net deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of this allowance.

We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of this allowance.

However, given our anticipated future foreign earnings, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a portion of the valuation allowance may no longer be needed.

Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded.

The exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.

During 2020, we transferred certain intellectual property rights relating to our Chinese business between our wholly owned subsidiaries that are based in different tax jurisdictions.

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Accordingly, this inter-company transfer did not have a material impact to our consolidated financial statements.

Investment Income (Loss) in Unconsolidated Variable Interest Entity

Investment income (loss) in unconsolidated variable interest entity represented our proportionate share of the reported profits or losses of Falikang, an unconsolidated variable interest entity accounted for under the equity method, and was immaterial for the years ended December 31, 2021 and 2020.

See Note 4, Equity method investment - Variable Interest Entity , to the consolidated financial statements for details.

LIQUIDITY AND CAPITAL RESOURCES

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We have historically funded our operations principally from the sale of common stock (including our public offering proceeds) and from the execution of collaboration agreements involving license payments, milestones and reimbursement for development services.

As of December 31, 2020, we had cash and cash equivalents of $678.4 million.

As of December 31, 2020, we had short-term and long-term investments of $8.1 million and $0.2 million, respectively.

As of December 31, 2021, we had cash and cash equivalents of $171.2 million, short-term investments of $234.0 million and long-term investments of $167.8 million.

Cash is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation.

Investments, consisting of available-for-sale debt investments and marketable equity investments, and stated at fair value, are also available as a source of liquidity.

Investments, consisting of available-for-sale securities, and stated at fair value, are also available as a source of liquidity.

As of December 31, 2021, a total of $91.2 million of our cash and cash equivalents was held outside of the U.S.

in our foreign subsidiaries to be used primarily for our China operations.

Operating Capital Requirements

In the third quarter of 2019, we started generating revenue from commercial sales of roxadustat product in China.

Even with the expectation of increases in revenue from product sales, we anticipate that we will continue to generate losses for the foreseeable future.

We expect increase in our operating expenses as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products.

To date, we have funded certain portions of our research and development and manufacturing efforts in China and Europe through outside parties.

There is no guarantee that sufficient funds will be available to continue to fund these development efforts through commercialization or otherwise.

Although our share of expenses for roxadustat will decrease as a result of AstraZeneca funding all non-China collaboration expenses not reimbursed by Astellas, we expect our research and development expenses to continue to increase as we invest in our other programs.

We are subject to all the risks related to the development and commercialization of novel therapeutics, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business, such as from the COVID-19 pandemic or other factors outlined under Part I, Item 1A “ Risk Factors ” in this Annual Report on Form 10-K.

We anticipate that we will need substantial additional funding in connection with our continuing operations.

We believe that our existing cash and cash equivalents, short-term and long-term investments and accounts receivable will be sufficient to meet our anticipated cash requirements for at least the next 12 months from the date of this Annual Report on Form 10-K.

However, our liquidity assumptions may change over time, and we could utilize our available financial resources sooner than we currently expect.

In addition, we may elect to raise additional funds at any time through equity, equity-linked or debt financing arrangements.

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.

We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.

Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under Part I, Item 1A “ Risk Factors ” in this Annual Report on Form 10-K.

We may not be able to secure additional financing to meet our operating requirements on acceptable terms, or at all.

If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted.

If we raise additional financing by the incurrence of indebtedness, we will be subject to increased fixed payment obligations and could also be subject to restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business.

If we are unable to obtain needed additional funds, we will have to reduce our operating costs and expenses, which would impair our growth prospects and could otherwise negatively impact our business.

in our foreign subsidiaries, including $69.9 million held in China, to be used primarily for our China operations.

Cash flows from Falikang, a distribution joint venture between FibroGen Beijing and AstraZeneca, and cash flows into FibroGen Beijing, are currently intended to remain onshore in China.

Our long-term plans for distributing cash flows from FibroGen Beijing may involve any number of scenarios including keeping the money onshore to fund future expansion of our China operations or paying down certain debt obligations.

To date, no such debt repayments have occurred, nor have there been any other payments or distributions from FibroGen Beijing to entities or investors outside of China.

Our capital contributions to FibroGen Beijing and the liquidity position of FibroGen Beijing depend on many factors, including those set forth under Part I, Item 1A “Risk Factors” in this Annual Report.

Cash Sources and Uses

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Years Ended December 31,

(in thousands)

Net cash provided by (used in):

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Operating Activities

Net cash used in operating activities was $81.6 million for the year ended December 31, 2020 and consisted primarily of net loss of $189.3 million adjusted for non-cash items of $96.3 million and a net increase in operating assets and liabilities of $174.6 million.

Net cash used in operating activities was $82.2 million for the year ended December 31, 2021 and consisted primarily of net loss of $290.0 million adjusted for non-cash items and non-operating activities of $147.7 million and a net increase in operating assets and liabilities of $60.1 million.

The significant non-cash items included stock-based compensation expense of $71.2 million, expense for acquired in-process research and development asset from HiFiBiO of $60.0 million, depreciation expense of $10.2 million, and amortization of finance lease ROU of $4.6 million.

The significant items in the changes in operating assets and liabilities included the increases resulting from the following:

Deferred revenue of $57.6 million, primarily related to the above-mentioned $25.9 million and $11.2 million of the deferred considerations of the bulk drug product shipped to Astellas and AstraZeneca, respectively, due to a high degree of uncertainty associated with the final consideration, and $27.2 million of the deferred revenue from the sales to Falikang associated with the China performance obligation.

The change in deferred revenue was also driven by the extension of the estimated future non-contingent development period and recognition of revenues under our collaboration agreements with Astellas and AstraZeneca.

See Note 3, Collaboration Agreements, License Agreement and Revenues , to the consolidated financial statements for details;

Accounts receivable of $25.2 million, primarily driven by the timing of the receipt of upfront payments and the recognition of revenues under our collaboration agreements with Astellas and AstraZeneca;

Accrued and other liabilities of $16.4 million, primarily driven by $14.2 million increase in co-promotion expenses at December 31, 2021 that is anticipated to be paid within the next 12 months, offset by $12.0 million decrease in contract liabilities to pharmaceutical distributors at December 31, 2021 due to settlement during the year.

The accrued and other liabilities were also impacted by the timing of invoicing and payment;

The increases were partially offset by the decreases resulting from the following:

Inventories of $14.2 million, driven by the increased inventory level primarily related to FibroGen Beijing’s productions of roxadustat for commercial sales purposes and pre-launch inventory cost capitalized in the U.S.;

Other long-term liabilities of $12.1 million, primarily due to the decrease in the co-promotional expenses with AstraZeneca for its sales and marketing efforts related to the commercial launch of roxadustat in China that are not expected to be paid in the next year;

Prepaid expenses and other current assets of $9.9 million, primarily due to the unbilled upfront license payment from Eluminex of $8.0 million, and prepayments made for roxadustat API manufacturing activities;

Other assets of $4.4 million, primarily related to the increases in various licenses.

Net cash provided by operating activities was $81.6 million for the year ended December 31, 2020 and consisted primarily of net loss of $189.3 million adjusted for non-cash items of $96.3 million and a net increase in operating assets and liabilities of $174.6 million.

The significant non-cash items included stock-based compensation expense of $72.7 million, depreciation expense of $11.7 million, and amortization of finance lease ROU of $10.4 million.

The significant items in the changes in operating assets and liabilities included the increases resulting from the following:

Prepaid expenses and other current assets of $123.5 million and Deferred revenue of $45.1 million, primarily related to the billing and receipt of $130.0 million in regulatory milestones under the Europe Agreement with Astellas associated with the MAA submission in Europe;

and the billing and receipt of $50.0 million regulatory milestone under the U.S./RoW Agreement with AstraZeneca associated with the NDA submission for review in the U.S.

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Inventories of $9.2 million, driven by the increased inventory level primarily related to FibroGen Beijing’s productions of roxadustat for commercial sales purposes and pre-launch inventory cost capitalized in the U.S.

Net cash used in operating activities was $78.7 million for the year ended December 31, 2019 and consisted primarily of net loss of $77.0 million adjusted for non-cash items of $83.9 million and a net decrease in operating assets and liabilities of $85.7 million.

The significant non-cash items included stock-based compensation expense of $66.3 million, depreciation expense of $11.1 million, amortization of finance lease ROU of $10.3 million, and net amortization of premium and discount on investments of $3.7 million.

The significant items in the changes in operating assets and liabilities included the decreases resulting from the following:

Prepaid expenses and other current assets of $128.6 million and deferred revenue of $49.9 million, primarily driven by a $130.0 million unbilled contract asset related to regulatory milestones under the Europe Agreement with Astellas associated with the planned MAA submission in Europe and a $50.0 million contract asset related to a regulatory milestone under the U.S./RoW Agreement with AstraZeneca associated with the NDA submission in the U.S., which were not billable to Astellas or AstraZeneca as of December 31, 2019, net of the associated deferred revenues of $4.8 million and $50.0 million, respectively.

The change in deferred revenue was also related to the recognition of revenues under our collaboration agreements with Astellas and AstraZeneca;

Inventories of $6.9 million, due to the capitalization of inventory costs starting in June 2019 when FibroGen Beijing began productions of roxadustat for commercial sales purposes.

Other assets of $3.3 million, primarily related to the net accumulation of input value added tax by FibroGen Beijing;

Accounts payable of $3.1 million, primarily driven by the timing of invoicing and payments.

The decreases were partially offset by the increases resulting from the following:

Other long-term liabilities of $52.4 million, primarily due to the accrual of co-promotional expenses with AstraZeneca for sales and marketing efforts related to the commercial launch of roxadustat in China that were not expected to be paid in the next year;

Accounts receivable of $35.2 million, primarily related to the collection of $43.9 million from Astellas for the API shipment in December 2018 under the Japan Amendment, as well as the timing of the receipt of upfront payments and recognition of revenues under our collaboration agreements with Astellas and AstraZeneca;

Accrued and other liabilities of $18.3 million, primarily driven by the accrued $36.3 million related to the change in estimated variable consideration associated with the roxadustat API, offset by the timing of invoicing and payments.

Investing Activities

Investing activities primarily consist of purchases of property and equipment, purchases of investments, and proceeds from the maturity and sale of investments.

Net cash used in investing activities was $427.0 million for the year ended December 31, 2021 and consisted primarily of $484.1 million of cash used in purchases of available-for-sale securities, $25.0 million of cash paid for the acquired in-process research and development asset and $5.2 million of cash used in purchases of property and equipment, partially offset by $83.1 million of proceeds from maturities of investments and $4.2 million of proceeds from sales of available-for-sale securities.

Net cash provided by investing activities was $452.5 million for the year ended December 31, 2020 and consisted of proceeds from maturities of investments of $456.9 million, proceeds from sales of available-for-sale securities of $10.6 million, partially offset by cash used in purchases of available-for-sale securities of $8.2 million, purchases of property and equipment of $4.0 million, and net payments of $2.8 million made for investment in Falikang.

Net cash used in investing activities was $120.0 million for the year ended December 31, 2019 and consisted of proceeds from maturities of investments of $537.1 million, partially offset by cash used in purchases of available-for-sale securities and term deposit of $411.3 million, and purchases of property and equipment of $5.8 million.

Financing Activities

Financing activities primarily reflect proceeds from the issuance of our common stock, cash paid for payroll taxes on restricted stock unit releases, repayments of our lease liabilities and obligations.

Net cash used in financing activities was $0.6 million for the year ended December 31, 2021 and consisted primarily of $7.4 million of cash paid for payroll taxes on restricted stock unit releases, and $5.5 million of repayments of finance lease liabilities, partially offset by $12.7 million of proceeds from the issuance of common stock upon exercise of stock options and purchases under our Employee Share Purchase Plan (“ESPP”).

Net cash provided by financing activities was $13.3 million for the year ended December 31, 2020 and consisted primarily of $37.8 million of proceeds from the issuance of common stock upon exercise of stock options and purchases under ESPP, partially offset by $12.6 million of repayments of finance lease liabilities, $11.5 million of cash paid for payroll taxes on restricted stock unit releases, and $0.4 million of repayments on our lease obligations.

Net cash used in financing activities was $4.3 million for the year ended December 31, 2019 and consisted primarily of $12.8 million of cash paid for payroll taxes on restricted stock unit releases, $11.9 million of repayments of finance lease liabilities, and $0.4 million of repayments on our lease obligations, partially offset by $20.8 million of proceeds from the issuance of common stock upon exercise of stock options and purchases under ESPP.

Off-Balance Sheet Arrangements

During the year ended December 31, 2020, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements.

Indemnification Agreements

We enter into standard indemnification arrangements in the ordinary course of business, including for example, service, manufacturing and collaboration agreements.

Pursuant to these arrangements, we indemnify, holds harmless, and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, including in connection with intellectual property infringement claims by any third party with respect to its technology.

The term of these indemnification agreements is generally perpetual any time after the execution of the agreement.

We have entered into indemnification agreements with our directors and officers that may require us to indemnify our directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the extent permissible under applicable law.

The maximum potential amount of future payments we could be required to make under these arrangements is not determinable.

We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements.

As a result, we believe the estimated fair value of these arrangements is minimal.

Contractual Obligations and Commitments

Operating Capital Requirements

In the third quarter of 2019, we started generating revenue from commercial sales of roxadustat product in China.

Even with the expectation of increases in revenue from product sales, we anticipate that we will continue to generate losses for the foreseeable future.

Following the CRL for roxadustat in the U.S., we are implementing a cost reduction effort, and as a result, operating expenses may decrease in certain areas in the near future compared to our previous internal plans.

To date, we have funded certain portions of our research and development and manufacturing efforts globally through collaboration partners, government support, and capital investment.

There is no guarantee that sufficient funds will be available to continue to fund these development efforts through commercialization or otherwise.

Although AstraZeneca is funding all non-China collaboration expenses not reimbursed by Astellas, we expect our research and development expenses to continue to increase as we invest in our other programs.

We anticipate that we will need substantial additional funding in connection with our continuing operations.

However, we may need additional capital thereafter and our liquidity assumptions may change over time, and we could utilize our available financial resources sooner than we currently expect.

In addition, we may elect to raise additional funds at any time through equity, equity-linked, debt financing arrangements or from other sources.

We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.

Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under Part I, Item 1A “ Risk Factors ” in this Annual Report.

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.

Commitments and Contingencies

Contractual Obligations

At December 31, 2020, our contractual obligations were as follows:

At December 31, 2021, our material cash requirements from known contractual and other obligations primarily relate to our lease liabilities and purchase obligations.

Expected timing of those payments are as follows:

Payments Due In

More Than 5 Years

(in thousands)

Operating lease liabilities

Finance lease liabilities

Purchase obligation - Manufacture and supply of roxadustat

Purchase obligation - Manufacture and supply of pamrevlumab

Purchase obligation - Other purchases

Next 12 Months

Beyond 12 Months

Lease liabilities

Purchase obligations

Total contractual obligations

The contractual obligations table excludes uncertain tax benefits of approximately $48.6 million that are disclosed in Note 13, Income Taxes , to the consolidated financial statements because these uncertain tax positions, if recognized, would be an adjustment to the gross deferred tax assets and the corresponding valuation allowance, if warranted.

Our lease liabilities are primarily related to our real estate leases for office spaces in the U.S.

See Note 6, Leases , to the consolidated financial statements for details.

Our outstanding non-cancelable purchase obligations primarily related to manufacturing and supply for pamrevlumab and roxadustat.

See Note 9, Commitments and Contingencies , to the consolidated financial statements for details.

Some of our license agreements provide for periodic maintenance fees over specified time periods, as well as payments by us upon the achievement of development, regulatory and commercial milestones.

Future milestone payments for research and pre-clinical stage development programs consisted of up to $10.9 million in total potential future milestone payments under our license agreements with Dana-Farber Cancer Institute, University of Miami and Medarex, Inc.

As of December 31, 2021, future milestone payments for research and pre-clinical stage development programs consisted of up to approximately $704.1 million in total potential future milestone payments under our license agreements with HiFiBiO (for Galectin-9 and CCR8), Medarex, Inc.

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 .

Clinical Trials

The event triggering such payment or obligation has not yet occurred and therefore these amounts have been excluded from the table above.

The table above excludes uncertain tax benefits of approximately $57.7 million that are disclosed in Note 12, Income Taxes , to the consolidated financial statements because these uncertain tax positions, if recognized, would be an adjustment to the gross deferred tax assets and the corresponding valuation allowance, if warranted.

As of December 31, 2021, we have several on-going clinical studies in various stages.

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Therefore, we cannot estimate the potential timing and amount of these payments and they have been excluded from the table above.

Although our material contracts with CROs are cancellable, we have historically not cancelled such contracts.

Product Development Obligations

Although our material contracts with CROs are cancellable, we have historically not canceled such contracts.

As of December 31, 2021 , our FibroGen Europe Oy (“FibroGen Europe”) subsidiary had $ 10.7 million of principal outstanding and $ 6.9 million of interest accrued related to the TEKES loans, respectively, which have been included as product development obligations on our consolidated balance sheet.

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We recognize accruals for any legal action when we conclude that a loss is probable and reasonably estimable.

On April 20, 2020, in response to an invalidation action brought against certain FibroGen United Kingdom patents by Akebia, the United Kingdom court handed down a decision invalidating United Kingdom designations of European Patent Nos.

1463823, 1633333, 2298301, 2322153, and 2322155.

The United Kingdom designation to European Patent No.

2289531 was held to be valid in amended form, but not infringed by Akebia.

We and our partner Astellas have filed an appeal of the decision in the United Kingdom Court of Appeal.

We did not have any material accruals for any currently active legal action in our consolidated balance sheets as of December 31, 2021, as we could not predict the ultimate outcome of these matters, or reasonably estimate the potential exposure.

See Note 9, Commitments and Contingencies , to the consolidated financial statements for details.

Off-Balance Sheet Arrangements

During the year ended December 31, 2021, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements.

Indemnification Agreements

We enter into standard indemnification arrangements in the ordinary course of business, including for example, service, manufacturing and collaboration agreements.

Pursuant to these arrangements, we indemnify, holds harmless, and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, including in connection with intellectual property infringement claims by any third party with respect to its technology.

The term of these indemnification agreements is generally perpetual any time after the execution of the agreement.

The maximum potential amount of future payments we could be required to make under these arrangements is not determinable.

Recently Issued and Adopted Accounting Guidance

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.

This guidance requires capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

This guidance was effective for annual reporting periods beginning after December 15, 2019, including interim periods.

We adopted this guidance on January 1, 2020 using the prospective method, and the adoption of this guidance did not have material impact to our consolidated financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

This guidance is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

This guidance requires the measurement of financial assets with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

This guidance requires an impairment model, known as the current expected credit loss model, which is based on expected losses rather than incurred losses.

Entities are required to carry an allowance for expected credit losses for financial assets, including most debt instruments (except those carried at fair value) and trade receivables.

In November 2019, the FASB issued ASU No.

2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses (“ASU 2019-11”) , which has the same effective dates and transition requirements as ASU 2016 - 13 .

ASU 2016-13 and ASU 2019-11 were effective for annual reporting periods beginning after December 15, 2019 including interim periods.

Our investment portfolio primarily consists of U.S.

Treasury bills and notes carried at fair value, which is required to follow the impairment model under Topic 326.

We adopted this guidance on January 1, 2020 .

Based on the composition of our trade receivables and investment portfolio, economic conditions and historical credit loss activity, the adoption of this guidance did not have material impact to our consolidated financial statements.

For recently issued accounting guidance, see Note 2, Significant Accounting Policies, to the consolidated financial statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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Services that are not distinct are combined with other services in the agreement until they form a distinct bundle of services.

Our process for identifying performance obligations and an enumeration of each obligation for each agreement is outlined in Note 4, Collaboration Agreements and Revenues , to our consolidated financial statements.

Our process for identifying performance obligations and an enumeration of each obligation for each agreement is outlined in Note 3, Collaboration Agreements, License Agreement and Revenues , to our consolidated financial statements.

Determining the performance obligations within a collaboration agreement often involves significant judgment and is specific to the facts and circumstances contained in each agreement.

We have identified the following material promises under our collaboration agreements:

We have identified the following material promises under its collaboration agreements:

(1) license of FibroGen technology, (2) the performance of co-development services, including manufacturing of clinical supplies and other services during the development period, and (3) manufacture of commercial supply.

The evaluation as to whether these promises are distinct, and therefore represent separate performance obligations, is described in more details in Note 4, Collaboration Agreements and Revenues , to our consolidated financial statements.

For revenue recognition purposes, we determine that the term of our collaboration agreements begin on the effective date and ends upon the completion of all performance obligations contained in the agreements.

The evaluation as to whether these promises are distinct, and therefore represent separate performance obligations, is described in more detail in Note 3, Collaboration Agreements, License Agreement and Revenues , to our consolidated financial statements.

For revenue recognition purposes, we determine that the terms of our collaboration agreements begin on the effective date and end upon the completion of all performance obligations contained in the agreements.

In each agreement, the contract term is defined as the period in which parties to the contract have present and enforceable rights and obligations.

We believe that the existence of what it considers to be substantive termination penalties on the part of the counterparty create sufficient incentive for the counterparty to avoid exercising its right to terminate the agreement unless in exceptionally rare situations.

We believe that the existence of what we consider to be substantive termination penalties on the part of the counterparty create sufficient incentive for the counterparty to avoid exercising its right to terminate the agreement unless in exceptionally rare situations.

The transaction price for each collaboration agreement is determined based on the amount of consideration we expect to be entitled for satisfying all performance obligations within the agreement.

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We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.

Co-development billings resulting from our research and development efforts, which are reimbursable under our collaboration agreements, are considered variable consideration.

Co-development billings resulting from our research and development efforts, which are reimbursable under its collaboration agreements, are considered variable consideration.

Determining the reimbursable amount of research and development efforts requires detailed analysis of the terms of the collaboration agreements and the nature of the research and development efforts incurred.

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For arrangements that include sales-based royalties and for which the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

To date, we have not recognized any royalty revenue resulting from our collaboration arrangements.

To date, royalty revenue resulting from its collaboration arrangements was immaterial.

The transaction price is allocated to performance obligations based on their relative standalone selling price (“SSP”), with the exception of co-development billings allocated entirely to co-development services performance obligations.

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Significant judgment may be required in determining whether a performance obligation is distinct, determining the amount of variable consideration to be included in the transaction price, and estimating the SSP of each performance obligation.

An enumeration of our significant judgments is outlined in Note 4, Collaboration Agreements and Revenues , to our consolidated financial statements.

An enumeration of our significant judgments is outlined in Note 3, Collaboration Agreements, License Agreement and Revenues, to our consolidated financial statements.

For each performance obligation identified within an arrangement, we determine the period over which the promised services are transferred and the performance obligation is satisfied.

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For each performance obligation satisfied over time, we assess the proper method to be used for revenue recognition, either an input method to measure progress toward the satisfaction of services or an output method of determining the progress of completion of performance obligation.

Drug product revenue

Drug product revenue includes commercial-grade API or bulk drug product sales to AstraZeneca and Astellas, and is recognized when we fulfill the shipment obligations.

The drug product revenue is accounted for as variable consideration, estimated at the time of sale using the expected value method.

We apply significant judgment in estimating the variable consideration, which involves the use of significant assumptions such as the future list price adjustments set by the Japanese Ministry of Health, Labour and Welfare, product mix, and timing of processing of API into bulk drug product.

In 2018, FibroGen and Astellas entered into an amendment to the Japan Agreement that allows Astellas to manufacture roxadustat drug product for commercialization in Japan (the “Japan Amendment”).

Under this amendment, FibroGen would continue to manufacture and supply roxadustat API to Astellas for the roxadustat commercial launch in Japan.

The drug product revenue represents variable consideration and is estimated based on the quantity of product shipped, actual listed price for roxadustat issued by the Japanese Ministry of Health, Labour and Welfare and possible future changes to the listed price , adjusted for the timing of and estimated bulk product strength mix intended to be manufactured by Astellas, estimated cost to convert the API to bulk drug product tablets, and estimated yield from the manufacture of bulk product tablets, among others.

Under the Europe Agreement with Astellas, Astellas has an option to purchase roxadustat bulk drug product in support of commercial supplies.

The drug product revenue amount represents variable consideration and is estimated based on the quantity of product shipped and an estimated price.

The estimated price is based on the contractual transfer price percentage applied on the estimated weighted average net sales price per strength, which is estimated to be realized by Astellas from the end sale of roxadustat in its approved territories.

In 2020, we entered into Commercial Supply Agreement under the U.S./RoW Agreement with AstraZeneca to define general forecast, order, supply and payment terms for AstraZeneca to purchase roxadustat bulk drug product from us in support of commercial supplies.

The drug product revenue amount represents variable consideration and was estimated based on the quantity of product shipped and an estimated price.

The estimated price is based on the contractual transfer price percentage applied on the estimated weighted average net sales price per strength, which is estimated to be realized by AstraZeneca from the end sale of roxadustat in its approved territories.

Estimating variable consideration and the related constraint requires the use of significant management judgment.

We review new information that may affect its variable consideration estimate at every reporting period and record revenue adjustment, if certain and material.

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.

As each of our collaboration agreements provide for annual true up to the considerations paid for our commercial supplies, we will re-evaluate the transaction price in each reporting period and record an adjustment to revenue as uncertain events are resolved or other changes in circumstances occur.

License revenue

Under a license agreement, if the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from upfront license fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license.

For licenses that are bundled with other promises, we determine whether the combined performance obligation is satisfied over time or at a point in time.

If the combined performance obligation is satisfied over time, we use judgment in determining the appropriate method of measuring progress for purposes of recognizing revenue from the up-front license fees.

We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

Product revenue, net

We sell roxadustat in China through a number of pharmaceutical distributors located in China.

Product revenue, net consists of revenues from sales of roxadustat commercial product to Falikang, and directly to pharmaceutical distributors located in a few provinces in China that are not covered by Falikang.

Falikang is jointly owned by AstraZeneca and FibroGen Beijing.

We are not the primary beneficiary of Falikang for accounting purposes, as AstraZeneca is the final decision maker for all the roxadustat commercialization activities, and we lack the power criterion to direct the activities of Falikang (see Note 4, Equity method investment - Variable Interest Entity, to our consolidated financial statements).

Sales to Falikang

Falikang became fully operational in January 2021, at which time FibroGen Beijing began selling roxadustat commercial product to Falikang.

Falikang is FibroGen Beijing’s primary customer in China and substantially all roxadustat product sales to distributors in China are made by Falikang.

Falikang bears inventory risk once it receives and accepts the product from FibroGen Beijing, and is responsible for delivering product to its distributors.

The promises identified under the AstraZeneca China Agreement (as defined in Note 3, Collaboration Agreements, License Agreement and Revenues ), including the license, co-development services and manufacturing of commercial supplies have been bundled into a single performance obligation (“China performance obligation”).

Amounts of the transaction price allocable to this performance obligation under our agreements with AstraZeneca as outlined in Note 3, Collaboration Agreements, License Agreement and Revenues, are deferred until control of the manufactured commercial product is transferred to AstraZeneca.

The initiation of roxadustat sales to Falikang marked the beginning of the China performance obligation .

Revenue is recognized at a point in time when control of roxadustat commercial product is transferred to Falikang.

Revenue is recognized based on the estimated transaction price per unit and actual quantity of product delivered during the reporting period.

Specifically, the transaction price per unit is determined based on the overall transaction price over the total estimated sales quantity for the estimated performance period in which we determined it is likely those sales would occur.

The price per unit is subject to reassessment on a quarterly basis, which may result in adjustments due to changes in estimates.

The overall transaction price for FibroGen Beijing’s product sales to Falikang includes the following elements of consideration:

Non-refundable upfront license fees;

development, regulatory, and commercial milestone payments based on the China Agreement allocated to the China performance obligation;

Co-development billings resulting from our research and development efforts, which are reimbursable under the China Agreement;

Interim profit/loss share between FibroGen Beijing and AstraZeneca from April 1, 2020 through December 31, 2020;

Net transaction price from product sales to Falikang from January 1, 2021 onwards.

The net transaction price includes the following elements:

Gross transaction price:

The gross transaction price is based on a percentage of Falikang’s net sales to its distributors, which takes into account Falikang’s operating expenses and its payments to AstraZeneca for roxadustat sales and marketing efforts, capped at a percentage of Falikang’s net roxadustat sales.

Profit share:

The gross transaction price is then adjusted for an estimated amount to achieve the 50/50 profit share from current period roxadustat net sales in China.

The adjustments to date have been a reduction to the transaction price and the related accounts receivable from Falikang.

The non-refundable upfront license fees constitute a fixed consideration.

The remainder of the above are variable consideration components, which may be constrained, and included in the transaction price 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.

The calculation of the above variable consideration includes significant assumptions such as total sales quantity, performance period, gross transaction price and profit share, which require a significant judgment.

Any net transaction price in excess of the revenue recognized is deferred, and will be recognized over future periods as the performance obligations are satisfied.

Direct Sales to Distributors

We sell roxadustat in China directly to a number of pharmaceutical distributors located in a few provinces in China that are not covered by Falikang.

These pharmaceutical distributors are our customers.

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Distributors bear inventory risk once they receive and accept the product.

Product revenue is recognized when control of the promised good is transferred to the customer in an amount that reflects the consideration to which we expect to be entitled to in exchange for the product.

The period between the transfer of control of the promised goods and when we receive payment is based on a general 60-day payment term.

Product revenue is recognized when control of the promised good is transferred to the customer in an amount that reflects the consideration that we expect to be entitled to in exchange for the product.

The period between the transfer of control of the promised goods and when we receive payment is based on 60-day payment terms.

As such, product revenue is not adjusted for the effects of a significant financing component.

Product revenue is recorded at the net sales prices (transaction price) which includes the following estimates of variable consideration:

Product revenue is recorded at the net sales prices that includes the following estimates of variable consideration:

Price adjustment:

In December 2019, China’s National Healthcare Security Administration released price guidance for roxadustat under the NRDL, effective January 1, 2020.

Any channel inventories as of January 1, 2020 that had not been sold to hospitals by distributors, or to patients by hospitals, were eligible for a price adjustment under the price protection.

The price adjustment is calculated based on estimated channel inventory levels at January 1, 2020.

If price guidance changes in the future, the price adjustment will be calculated in the same manner;

When China’s National Healthcare Security Administration releases price guidance for roxadustat under the National Reimbursement Drug List, any channel inventories that have not been sold through by distributors, or to patients by hospitals and retailers, would be eligible for a price adjustment under the price protection.

The price adjustment is calculated based on estimated channel inventory levels;

Contractual sales rebate:

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The contractual sales rebate is recorded as a reduction to revenue at the point of sale to the distributor;

Key account hospital sales rebate :

An a dditional sales rebate is provided to a distributor for product sold to key account hospitals as a percentage of gross sales made by the distributor to eligible hospitals .

This additional rebate is recorded as a reduction to revenue at the point of sale to the distributor;

Transfer fee discount :

The transfer fee discount is offered to a distributor who has its downstream distributors supply to eligible hospitals.

This discount is calculated based on a percentage of gross sales made to the downstream distributors, and recorded as a reduction to revenue as incurred;

Sales return :

Distributors can request to return product to us only due to quality issues or for product purchased within one year prior to the product’s expiration date;

Non-key account hospital listing award:

A one-time fixed-amount award is offered to a distributor who successfully lists the product with an eligible hospital, and who meets certain requirements.

We consider this particular award to be an upfront payment to a customer within the definitions of ASC 606.

The non-key account hospital listing award is capitalized when the distributor meets eligibility requirements, and amortized as reduction to product revenue over future sales orders made by the distributor until exhausted.

The calculation of the above variable consideration is based on gross sales to the distributor, or estimated utilizing best available information from the distributor, maximum known exposures and other available information including estimated channel inventory levels and estimated sales made by the distributor to hospitals, which involve a substantial degree of judgment.

For the year ended December 31, 2020, the non-key account hospital listing award was capitalized when the distributor meets eligibility requirements, and amortized as reduction to product revenue over future sales orders made by the distributor until exhausted.

For the year ended December 31, 2021, the non-key account hospital listing award was immaterial and recorded as a reduction to revenue when distributor meets eligibility requirements;

Other discounts and rebates, including key account hospital sales rebate and transfer fee discount, are generally based on a percentage of eligible gross sales made by the distributor and recorded as a reduction to revenue at the point of sale to the distributor;

Sales returns:

Distributors can request to return product to us only due to quality issues or for product purchased within one year prior to the product’s expiration date.

The above rebates and discounts all together are eligible to be applied against the distributor’s future sales order, limited to certain maximums until such rebates and discounts are exhausted.

These rebates and discounts are recorded as contract liabilities at the time they become eligible and in the same period that the related revenue is recorded.

Due to the distributor’s legal right to offset, at each balance sheet date, the rebates and discounts are presented as reductions to gross accounts receivable from the distributor, or as a current liability to the distributor to the extent that the total amount exceeds the gross accounts receivable or when we expect to settle the discount in cash.

Due to the distributor’s legal right to offset, at each balance sheet date, the liability for rebates and discounts are presented as reductions of gross accounts receivable from the distributor, or as a current liability to the distributor to the extent that the total amount exceeds the gross accounts receivable or when we expect to settle the discount in cash.

The distributor’s legal right of offset is calculated at the individual distributor level.

Valuation of inter-company transfer of intellectual property

ASU 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory, issued by the FASB requires companies to recognize the income tax consequences of an inter-company transfer of assets when the transfer occurs.

The guidance in ASU 2016-16 does not change accounting for the pre-tax effects of inter-company asset transfers under Accounting Standards Codification Topic 810, Consolidation.

As described in Note 13, Income Taxes , to our consolidated financial statements, during 2020, we transferred certain intellectual property rights relating to our Chinese business between our wholly owned subsidiaries that are based in different tax jurisdictions.

The transferor entity was not subject to income taxes in its local jurisdiction.

The acquiring entity of the intellectual property is entitled to amortize the acquisition price of the intangible assets for tax purposes.

In accordance with ASU 2016-16, we recognized a deferred tax asset of $78.7 million for the temporary difference arising from the acquirer’s excess tax basis.

Furthermore, based upon the weight of available evidence, we recognized a full valuation allowance against this deferred tax asset since we do not currently believe that realization of this gross deductible temporary difference is more likely than not.

The estimated fair value for the transfer of these intellectual property rights was determined using the excess earning method, a variation of the income valuation approach.

The excess earnings method estimates the value of an intangible asset equal to the present value of the incremental after-tax cash flows attributable to that intangible asset over its remaining economic life.

Long-term cash flow projections for the asset require the use of significant estimates and judgements, including revenue volume and price.

The fair value of the asset was determined using an estimated discount rate of 12.3%, which reflects the risks inherent in future cash flow projections and represents a rate of return that a market participant would expect for this asset.

The transferred intangible asset is being amortized over an estimated useful life of approximately 8 years by the acquiring entity.

We believe our assumptions are consistent with the plans and estimates that a market participant would use to acquire this intangible asset.

Drug product revenue

Drug product revenue is recognized when we fulfill the inventory transfer obligations.

Estimating variable consideration and the related constraint requires the use of significant management judgment.

We review new information that may affect its variable consideration estimate at every reporting period and records revenue adjustment, if certain and material.

As each of our collaboration agreements provide for annual true up to the considerations paid for our commercial supplies, we will re-evaluate the transaction price in each reporting period and record adjustment to revenue as uncertain events are resolved or other changes in circumstances occur.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis