FibroGen(FGEN) - 2021 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) FibroGen reported a net loss of $205.7 million for the first half of 2021, driven by decreased revenue and increased R&D costs, significantly impacting its cash position Condensed Consolidated Balance Sheets The balance sheet reflects a significant decrease in cash and total assets, alongside an increase in total liabilities, impacting stockholders' equity Balance Sheet Items | Balance Sheet Items | June 30, 2021 ($ in thousands) | December 31, 2020 ($ in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | 353,361 | 678,393 | | Total current assets | 564,466 | 755,110 | | Total assets | 808,618 | 826,840 | | Total current liabilities | 232,764 | 163,187 | | Total liabilities | 528,767 | 385,391 | | Total stockholders' equity | 279,851 | 441,449 | - Cash and cash equivalents decreased significantly by 48% from $678.4 million at year-end 2020 to $353.4 million as of June 30, 2021[21] Condensed Consolidated Statements of Operations The statements of operations show a widened net loss for Q2 and the first half of 2021, primarily due to decreased revenue and a substantial increase in R&D expenses Statements of Operations Metrics | Metric ($ in thousands, except per share) | Q2 2021 | Q2 2020 | 6 Months 2021 | 6 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | 24,364 | 42,888 | 62,793 | 67,288 | | R&D Expenses | 122,567 | 61,414 | 197,243 | 116,315 | | SG&A Expenses | 32,554 | 63,535 | 63,334 | 113,138 | | Loss from Operations | (133,835) | (85,137) | (204,263) | (166,212) | | Net Loss | (133,988) | (85,313) | (205,743) | (163,661) | | Net Loss Per Share | (1.45) | (0.95) | (2.24) | (1.84) | - Net loss for Q2 2021 widened to $134.0 million from $85.3 million in Q2 2020, primarily due to a 43% decrease in revenue and a 100% increase in R&D expenses[24] Condensed Consolidated Statements of Cash Flows Cash flow statements reveal a significant shift from positive to negative operating cash flow, leading to a substantial net decrease in cash for the first half of 2021 Cash Flow Activities | Cash Flow Activity ($ in thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | (71,527) | 90,179 | | Net cash (used in) provided by investing activities | (254,252) | 209,864 | | Net cash provided by financing activities | 301 | 3,459 | | Net (decrease) increase in cash | (325,032) | 303,003 | - There was a significant reversal in operating cash flow, from a $90.2 million inflow in the first six months of 2020 to a $71.5 million outflow in the same period of 2021[35] Notes to the Condensed Consolidated Financial Statements Key notes detail the negative FDA advisory committee recommendation for roxadustat, a new licensing agreement, revenue deferrals, and recent securities class action lawsuits - In July 2021, the FDA's Cardiovascular and Renal Drugs Advisory Committee (CRDAC) voted to recommend not approving roxadustat for anemia due to CKD in adult patients[42] - The company entered into an exclusive license agreement with HiFiBiO Therapeutics in June 2021, making a $25.0 million upfront payment which was recorded as a research and development expense[69][70] - Following the negative FDA CRDAC vote, the company revised its estimates of variable consideration and deferred $11.2 million in drug product revenue related to commercial supply shipments to AstraZeneca[78][104][154] - In April and May 2021, several securities class action complaints were filed against FibroGen and certain officers, alleging materially false and misleading statements regarding Phase 3 clinical data and prospects for FDA approval[149] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes the increased net loss in Q2 and H1 2021 to lower revenues, particularly from deferred drug product revenue, and a surge in R&D expenses, while affirming sufficient liquidity for the next 12 months Business Overview and Recent Developments Recent developments include the negative FDA advisory committee vote on roxadustat, its ongoing commercialization in Asia, and pipeline expansion through a new immuno-oncology partnership - A key development was the July 2021 vote by the FDA's CRDAC, which recommended against approving roxadustat for anemia in CKD patients, posing a significant risk to U.S. approval[164][183] - Roxadustat is being commercialized in China, Japan, South Korea, and Chile, with listings in hospitals representing approximately 81% of the CKD anemia market opportunity in China as of Q2 2021[162][179] - The company expanded its pipeline through a partnership with HiFiBiO Therapeutics, licensing three immuno-oncology programs with a $25 million upfront payment and potential for $1.1 billion in milestones[196][197] - Pamrevlumab, an antibody targeting CTGF, is in Phase 3 development for idiopathic pulmonary fibrosis (IPF), pancreatic cancer, and Duchenne muscular dystrophy (DMD)[165] Results of Operations Analysis of operations reveals a significant decline in total revenue, primarily due to negative drug product revenue, coupled with a substantial increase in R&D expenses and a decrease in SG&A expenses Revenue by Category | Revenue Category ($ in thousands) | Q2 2021 | Q2 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Development and other revenue | 19,641 | 18,957 | 4% | | Product revenue, net | 13,371 | 15,693 | (15%) | | Drug product revenue | (8,648) | 8,238 | (205%) | | Total revenue | 24,364 | 42,888 | (43%) | Operating Expenses | Operating Expenses ($ in thousands) | Q2 2021 | Q2 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Cost of goods sold | 3,078 | 3,076 | 0% | | Research and development | 122,567 | 61,414 | 100% | | Selling, general and administrative | 32,554 | 63,535 | (49%) | - The 100% increase in R&D expenses for Q2 2021 was primarily due to a $25.0 million expense for an acquired in-process R&D asset from HiFiBiO, a $21.7 million increase in pamrevlumab manufacturing activities, and an $8.3 million increase in clinical trial costs[241] - The 49% decrease in SG&A expenses for Q2 2021 was mainly driven by a $34.9 million reduction in outside service expenses due to a change in the calculation of co-promotion expenses with AstraZeneca in China following the formation of the Falikang joint venture[244] Liquidity and Capital Resources The company's liquidity position shows a significant decrease in cash and cash equivalents, with net cash used in operating activities, though management projects sufficient funds for the next 12 months - As of June 30, 2021, the company had $353.4 million in cash and cash equivalents, and $259.7 million in short- and long-term investments[260] - Net cash used in operating activities for the first six months of 2021 was $71.5 million, a stark contrast to the $90.2 million provided by operating activities in the same period of 2020[267][268][270] - Management believes that existing cash, investments, and receivables will be sufficient to meet anticipated cash requirements for at least the next 12 months[266] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that there were no material changes to its exposure to market risks during the three and six months ended June 30, 2021, as compared to the risks disclosed in its 2020 Annual Report on Form 10-K - No material changes to market risk exposure were reported for the period[298] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2021, due to material weaknesses in risk assessment and revenue recognition controls, with a remediation plan in progress - Management concluded that disclosure controls and procedures were not effective as of June 30, 2021[301] - The ineffectiveness is due to material weaknesses in the risk assessment process and controls related to drug product revenue recognition, which were first identified as of September 30, 2020[303] - A remediation plan is underway, which includes a comprehensive annual risk assessment, designing and implementing new controls, and hiring additional accounting and internal audit staff[306] PART II—OTHER INFORMATION Item 1. Legal Proceedings The company is facing multiple securities class action and shareholder derivative complaints alleging false and misleading statements regarding roxadustat's clinical data and FDA approval prospects, which FibroGen intends to vigorously defend against - Multiple securities class action and shareholder derivative lawsuits were filed against the company in Q2 and Q3 2021[313][314] - The lawsuits allege false and misleading statements about roxadustat's Phase 3 clinical data and its FDA approval prospects, which the company denies[313][315] Item 1A. Risk Factors The company highlights significant risks, including substantial dependence on roxadustat and pamrevlumab, the negative FDA advisory committee vote for roxadustat, intense competition, supply chain disruptions, reliance on partners, and ongoing material weaknesses in internal financial controls - The company is substantially dependent on the success of its lead products, roxadustat and pamrevlumab[318] - A significant risk is the negative vote from the FDA's CRDAC, which is expected to have a major impact on roxadustat's approvability for CKD anemia in the U.S[332] - The company faces substantial competition from established ESAs and other HIF-PH inhibitors in development from companies like GSK, Bayer, and Akebia[356][358] - Identified material weaknesses in internal control over financial reporting could result in material misstatements if not successfully remediated[453] Item 5. Other Information An internal review confirmed that while roxadustat's cardiovascular safety data was accurate, post-hoc changes to stratification factors were used in analyses designated as "primary" in public disclosures, attributed to data complexity and internal compartmentalization, with responsible individuals no longer employed - An internal review confirmed that while underlying data for roxadustat's cardiovascular safety was accurate, post-hoc changes to stratification factors were used in the analyses designated as "primary" in public disclosures[543][544] - The company attributes the issue to data complexity, unclear analysis plans, and compartmentalized information within the organization[544] - Individuals directly responsible for the decision to use post-hoc stratification factors in the primary analyses are no longer employed by FibroGen[545]