S-1/A 1 d808943ds1a.htm AMENDMENT NO. 5 TO FORM S-1 Amendment No. 5 to Form S-1
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As filed with the Securities and Exchange Commission on November 12, 2014

Registration No. 333-199069

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 5

to

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

FibroGen, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   2834   77-0357827

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

409 Illinois St.

San Francisco, CA 94158

(415) 978-1200

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Thomas B. Neff

Chief Executive Officer

FibroGen, Inc.

409 Illinois Street

San Francisco, CA 94158

(415) 978-1200

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Glen Sato

Michael E. Tenta

Cooley LLP

3175 Hanover Street

Palo Alto, CA 94304

(650) 843-5000

 

Michael Lowenstein

Vice President, Legal Affairs

FibroGen, Inc.

409 Illinois Street

San Francisco, CA 94158

(415) 978-1200

  John L. Savva
Sullivan & Cromwell LLP
1870 Embarcadero Road
Palo Alto, CA 94303
(650) 461-5600

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion. Dated November 12, 2014.

7,100,000 Shares

LOGO

Common Stock

 

 

This is an initial public offering of shares of common stock of FibroGen, Inc. All of the 7,100,000 shares of common stock are being sold by the company.

Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $16.00 and $19.00. We intend to list our common stock on the NASDAQ Global Select Market under the symbol “FGEN”.

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, may elect to comply with certain reduced public company reporting requirements in future reports after the completion of this offering.

AstraZeneca, one of our collaboration partners, has agreed to purchase from us concurrently with the closing of this offering in a private placement shares of our common stock with an aggregate purchase price of $20 million at a price per share equal to the initial public offering price.

 

 

See “Risk Factors” on page 18 to read about factors you should consider before buying shares of the common stock.

 

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

     Per
Share
     Total  

Initial public offering price

   $                    $                

Underwriting discount1

   $                    $                

Proceeds, before expenses, to us

   $                    $                

 

1  See “Underwriting” for a description of the compensation payable to the underwriters.

To the extent that the underwriters sell more than 7,100,000 shares of common stock, the underwriters have the option to purchase up to an additional 1,065,000 shares from FibroGen at the initial price to public less the underwriting discount.

 

 

The underwriters expect to deliver the shares against payment in New York, New York on                     , 2014.

 

Goldman, Sachs & Co.   Citigroup   Leerink Partners

RBC Capital Markets

 

Stifel

 

William Blair

 

 

Prospectus dated                     , 2014.


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TABLE OF CONTENTS

Prospectus

 

     Page  

Prospectus Summary

     1   

Risk Factors

     18   

Cautionary Note Regarding Forward-Looking Statements

     64   

Use of Proceeds

     66   

Dividend Policy

     67   

Capitalization

     68   

Dilution

     70   

Selected Consolidated Financial Data

     72   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     74   

Business

     94   

Management

     186   

Executive Compensation

     195   

Certain Relationships and Related Party Transactions

     208   

Principal Stockholders

     210   

Description of Capital Stock

     212   

Shares Eligible for Future Sale

     218   

Material United States Federal Income Tax Consequences to Non-U.S. Holders

     221   

Underwriting

     225   

Concurrent Private Placement

     229   

Validity of Common Stock

     229   

Experts

     229   

Where You Can Find More Information

     229   

Index to Consolidated Financial Statements

     F-1   

 

 

Through and including                     , 2014 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

 

We have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes thereto and the information set forth under the sections “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Unless the context otherwise requires, we use the terms “FibroGen,” “company,” “we,” “us” and “our” in this prospectus to refer to FibroGen, Inc. and, where appropriate, our consolidated subsidiaries.

Company Overview

We are a research-based biopharmaceutical company focused on the discovery, development and commercialization of novel therapeutics to treat serious unmet medical needs. We have capitalized on our extensive experience in fibrosis and hypoxia-inducible factor, or HIF, biology to generate multiple programs targeting various therapeutic areas. Our most advanced product candidate, roxadustat, or FG-4592, is an oral small molecule inhibitor of HIF prolyl hydroxylases, or HIF-PHs, in Phase 3 clinical development for the treatment of anemia in chronic kidney disease, or CKD. Our second product candidate, FG-3019, is a monoclonal antibody in Phase 2 clinical development for the treatment of idiopathic pulmonary fibrosis, or IPF, pancreatic cancer and liver fibrosis. We have taken a global approach to the development and future commercialization of our product candidates, and this includes development and commercialization in the People’s Republic of China, or China.

Roxadustat, the first HIF-PH inhibitor to enter Phase 3 clinical development, acts by stimulating the body’s natural pathway of erythropoiesis, or red blood cell production. Roxadustat represents a new paradigm for the treatment of anemia in CKD patients, and has the potential to offer a safer, more effective, more convenient and more accessible therapy than the current standard of care, injectable erythropoiesis stimulating agents, or ESAs. 1,449 subjects have participated in 26 completed Phase 1 and 2 clinical studies for roxadustat in North America, Europe and Asia. These studies have demonstrated roxadustat’s potential for a favorable safety and efficacy profile in anemic CKD patients, both those who are dialysis-dependent, or DD-CKD, and those who are not dialysis-dependent, or NDD-CKD. We, along with our collaboration partners Astellas Pharma Inc., or Astellas, and AstraZeneca AB, or AstraZeneca, have designed a global Phase 3 program to support regulatory approval of roxadustat in both NDD-CKD and DD-CKD patients in multiple geographies. Based on its multiple potential advantages, we believe there is a significant opportunity for roxadustat to address markets currently served by injectable ESAs. According to IMS Health, 2013 global ESA sales in all anemia indications totaled $8.6 billion. Further, roxadustat could expand access to anemia treatment for the growing global CKD population that is not adequately served by ESAs, and over time, address other anemia indications.

FG-3019 is our fully-human monoclonal antibody that inhibits the activity of connective tissue growth factor, or CTGF, a critical common element in the progression of fibrosis and associated serious diseases. In an animal model of lung fibrosis, FG-3019 reversed fibrosis. In Phase 2 IPF clinical studies, FG-3019 demonstrated the potential for stabilization of disease and, for the first time in human studies, reversal of lung fibrosis in some patients. In an open-label Phase 2 pancreatic cancer study of FG-3019 plus gemcitabine and erlotinib, FG-3019 demonstrated a dose-dependent improvement in one year survival rate. In ten Phase 1 and Phase 2 clinical studies of FG-3019 to date involving over 340 subjects, FG-3019 has been well tolerated across a wide range of doses studied, and there have been no dose-limiting toxicities observed to date.

In IPF, average life expectancy at the time of confirmatory diagnosis is estimated to be between 3 to 5 years, with approximately two-thirds of IPF patients dying within five years of diagnosis. Decision Resources Group estimates that there will be approximately $4.6 billion in U.S. and European sales of IPF drugs in 2020. There is one drug that

 

 

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has been approved in Europe, Canada, Japan and the United States, and a second drug that has been approved in the United States and submitted for accelerated approval in the European Union. However, we believe that FG-3019 could be the first product with disease-modifying activity.

In pancreatic ductal adenocarcinoma, or pancreatic cancer, the fourth leading cause of cancer deaths in the United States, average life expectancy with currently available anti-cancer agents is approximately six to nine months and 94% of patients die within five years of diagnosis. Decision Resources Group estimates that there will be approximately $1.3 billion in sales of pancreatic cancer drugs in 2022.

If FG-3019 can be shown in future clinical studies to safely and effectively address either IPF or pancreatic cancer, we believe that the commercial potential for this product candidate can be significant. To date, we have retained worldwide rights for FG-3019.

The chart below is a summary of our most advanced product candidates:

 

LOGO

We are also currently pursuing the use of our proprietary type III recombinant human collagens in our biosynthetic corneal implant product candidate, FG-5200, for treatment of corneal blindness resulting from partial thickness corneal damage in China, and potentially other territories. FG-5200 is designed to serve as a temporary scaffold to allow for regeneration of the native corneal tissue. Our China subsidiary, FibroGen (China) Medical Technology Development Co., Ltd., or FibroGen China, has submitted a device classification application to the China Food and Drug Administration, or CFDA, to designate FG-5200 as a Domestic Class III medical device.

Overview of Roxadustat—Treatment of Anemia in CKD

Roxadustat is an orally administered small molecule that corrects anemia by a mechanism of action different from that of ESAs. Roxadustat activates a response that is naturally activated when the body responds to reduced oxygen

 

 

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levels in the blood, such as when a person adapts to high altitude. The response activated by roxadustat involves the regulation of multiple, complementary processes to promote erythropoiesis and increase the blood’s oxygen carrying capacity. This coordinated erythropoietic response includes both the stimulation of red blood cell progenitors by increasing the body’s production of erythropoietin, or EPO, and an increase in iron availability for hemoglobin, or Hb, synthesis. Patients taking roxadustat typically have EPO levels within or near the physiologic range naturally experienced by people adapting to hypoxic conditions such as at high altitude, following blood donation or impaired lung function, such as pulmonary edema. By contrast, ESAs act only to stimulate red blood cell progenitors without a corresponding increase in iron availability, and are typically dosed well above the natural physiologic range of EPO. We believe these high ESA doses are a main cause of the significant safety issues that have been attributed to ESAs. Accordingly, the differentiated pharmacologic action of roxadustat has the potential to provide a safer and more effective treatment of anemia in CKD and potentially in other disorders.

Anemia is a serious medical condition in which patients have insufficient red blood cells and low levels of Hb, a protein in red blood cells that carries oxygen to cells throughout the body. Anemia is associated with increased risks of hospitalization, cardiovascular complications, need for blood transfusion, exacerbation of other serious medical conditions and death. In addition, anemia frequently leads to significant fatigue, cognitive dysfunction and decreased quality of life. The more severe the anemia, as measured by lower Hb levels, the greater the health impact on patients. Severe anemia is common in patients with CKD, cancer, myelodysplastic syndrome, or MDS, inflammatory diseases and other serious illnesses. Even when it accompanies these prevalent and serious diseases, anemia is often not effectively treated.

Anemia is particularly prevalent in patients with CKD, which is a critical healthcare problem that affects over 200 million people worldwide, and anemia significantly increases healthcare costs for those patients. CKD is generally a progressive disease characterized by the gradual loss of kidney function that may eventually lead to kidney failure, also known as end stage renal disease, or ESRD. Patients with ESRD require renal replacement therapy – either dialysis treatment or kidney transplantation. More advanced stages of kidney disease are associated with greater rates of anemia and more severe anemia. However, patients typically do not receive treatment for their anemia until they initiate dialysis, and as a result there is a significant need for a safe and effective therapy for patients with anemia in less advanced stages of CKD.

Currently available therapies to treat anemia in CKD include ESAs and blood transfusions. ESAs are currently the standard of care for effectively treating anemia in patients with CKD and must be administered intravenously or subcutaneously. ESAs are all synthetic recombinant versions of human EPO, a hormone that binds to receptors on red blood cell precursors in the bone marrow, thereby stimulating erythropoiesis and increasing Hb levels. Intravenous, or IV, iron is often required to supplement ESAs in dialysis patients in an effort to achieve adequate Hb response and to avoid iron depletion in the course of anemia therapy.

While injectable ESAs have been one of the most commercially successful drug classes, significant safety concerns have emerged from studies published in 2006 to 2009, resulting in several changes to ESA labeling. The package insert for ESAs currently includes a “Black Box” warning, which was mandated by the U.S. Food and Drug Administration, or FDA, and states that ESAs increase the risk of death and major adverse cardiovascular events, such as myocardial infarction, stroke, venous thromboembolism and thrombosis of vascular access. Tumor progression or recurrence in patients with cancer has also been associated with ESAs and is reflected in the Black Box warning. Secondary analyses of these studies suggest that the safety concerns associated with ESAs, particularly the increased cardiovascular risk, may result from the high ESA doses or circulating levels of ESAs, rather than the achieved Hb levels.

 

 

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Potential Advantages of Roxadustat Over the Current Standard of Care

Cardiovascular Safety Advantages

In addition to being linked to an increased incidence of major adverse cardiovascular events as described above, ESAs are associated with an increased risk for new onset hypertension and exacerbation of pre-existing hypertension, increased platelet counts and thromboembolic events, including stroke, vascular access thrombosis (where the dialysis access shunt is blocked due to clotting) and blood clots in the leg.

Safety analyses of our Phase 2 trials did not reveal any association between the roxadustat dose or the associated rate of Hb rise or Hb level and the rates of cardiovascular events, new onset hypertension, exacerbation of pre-existing hypertension, increased platelet counts or thrombosis. In addition, we observed a reduction in average total cholesterol and an improvement in average HDL / LDL ratio versus baseline.

Correcting Anemia within or near Physiologic EPO Levels

In order to be effective, ESAs typically require doses well above physiologic range. By contrast, our clinical trials to date have shown that roxadustat can treat anemia in CKD by causing an increase of blood EPO levels that are typically within or near the physiologic range observed in people who are adapting to high altitude, following blood donation or impaired lung function, such as pulmonary edema. The ability of roxadustat to treat anemia without causing supraphysiologic blood levels of EPO may provide significant safety benefits over ESAs.

Anemia Correction for Patient Populations That are Hyporesponsive to ESAs

CKD patients receive a wide range of ESA doses. Higher doses, and thus higher circulating levels of ESAs, are typically required for patients within the first four months of initiating dialysis, or incident dialysis, suffering from chronic inflammation, undergoing surgery or with acute illness. These higher doses are not only associated with increased safety risks, but also may not be sufficient to effectively raise Hb levels to target in some patients.

In our Phase 2 studies, doses of roxadustat that corrected anemia in incident dialysis patients and patients with elevated markers for inflammation were similar to doses that corrected anemia in non-incident, or stable, dialysis patients and patients without elevated markers for inflammation. We believe effective doses of roxadustat are likely to be comparable in these CKD patient subsets because roxadustat can overcome the direct suppressive effects of inflammatory cytokines on erythropoiesis, can increase iron availability through an increase in iron absorption from the gastrointestinal, or GI, tract, and can increase the release of iron from intracellular stores and the transport of iron to the bone marrow.

Anemia Correction Without the Need for IV Iron

Our Phase 2 studies have shown roxadustat to correct anemia without the need for concomitant administration of IV iron. We believe this benefit results from roxadustat’s effects on iron metabolism described above. In these studies, roxadustat corrected anemia without IV iron in stable and incident dialysis patients and patients with elevated markers for inflammation. In contrast, IV iron supplementation is required to support anemia correction in a majority of U.S. dialysis patients receiving ESAs, and IV iron is associated with a variety of risks, including hypersensitivity (which can be life-threatening), infection, skin problems, hypotension and gastrointestinal symptoms.

Reimbursement and Convenience Advantages

ESAs and oral equivalents of ESAs are included in the bundled payment system in the DD-CKD setting and reimbursed under Medicare Part B in the NDD-CKD setting. Based on roxadustat’s differentiated mechanism of action and therapeutic effects, it is not known whether it will be included in or excluded from the bundle in the DD-CKD setting. Agents that have no IV equivalent in the bundle are currently expected to be excluded from the bundle until 2024.

 

 

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In the NDD-CKD setting, we expect that roxadustat, an oral treatment, should be subject to Medicare Part D, which would allow physicians to prescribe roxadustat without the financial and reimbursement risk associated with purchasing and storing injectable ESAs. We believe that this should encourage significantly greater usage outside of the dialysis setting.

In addition to safety, labeling, reimbursement and efficacy limitations, ESAs must be administered intravenously or subcutaneously, often with IV iron in order to be effective at treating to target Hb levels. Roxadustat, in contrast, is a small molecule administered orally and is therefore more convenient, particularly for the NDD-CKD population, the peritoneal dialysis population and other non-CKD anemia patients who are not already regularly visiting hospitals or dialysis centers.

We also believe that roxadustat’s potential pharmacoeconomic advantages over ESAs may include safety (due to a potential decrease in cardiovascular events and consequently lower associated treatment costs), lower administrative cost, and reduction or elimination of the cost of IV iron and potentially other medications. These pharmacoeconomic advantages may help support reimbursement worldwide, including in Europe and China.

Overview of Roxadustat Clinical Studies and Development Strategy

In our completed Phase 2 studies, we accomplished the following critical objectives:

 

    Identified optimal roxadustat dosing regimens for anemia correction and maintenance of Hb response.

 

    Demonstrated roxadustat’s potential efficacy in the treatment of anemia in both NDD-CKD and DD-CKD patients, including incident dialysis patients, the most unstable and high risk CKD patient population.

 

    Generated substantial safety data indicating that roxadustat is well tolerated, appears safe and could offer an improved cardiovascular profile relative to ESAs. Including our Phase 1, 2 and 3 studies, 1,503 subjects have been exposed to roxadustat.

In support of our initial efforts for regulatory approval in the United States and Europe, we have initiated with our partners our global Phase 3 clinical program for roxadustat in North America, Europe and Asia Pacific, with plans for expanding to other regions. We currently expect FibroGen China to begin a separate Phase 3 program in China in the first half of 2015, and Astellas is responsible for Phase 3 studies upon completion of Phase 2 studies in Japan. We believe that our ongoing global Phase 3 program, with a combined target enrollment of approximately 7,000 – 8,000 patients, is the largest Phase 3 program ever conducted for an anemia product candidate. Most of the primary and secondary efficacy measures that we plan to evaluate in our Phase 3 studies were evaluated previously in our Phase 2 studies. Our Phase 3 program will study multiple patient populations, including stable dialysis and incident dialysis, and will include multiple NDD-CKD studies comparing roxadustat against placebo. Our Phase 3 program is also designed and sized for, and will incorporate, major adverse cardiac events, or MACE, composite safety endpoints that we believe will be required for approval in the United States for all new anemia therapies. Additionally, our Phase 3 studies will incorporate dosing regimens that were extensively tested in our six Phase 2 studies.

Our Collaboration Partnerships for Roxadustat

We are currently developing and commercializing roxadustat for anemia globally in collaboration with our partners. We have two agreements under which we provided Astellas the right to develop and commercialize roxadustat and other compounds for anemia in Japan, Europe, the Commonwealth of Independent States, or CIS, the Middle East and South Africa.

 

 

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We also have two agreements under which we provided AstraZeneca the right to develop and commercialize roxadustat for anemia, one for China, and one for the United States and all other countries not previously licensed to Astellas, or the U.S. / RoW. Payments under these agreements include over $500 million in upfront, non-contingent and other payments received or expected to be received prior to the first United States approval, excluding development cost reimbursement.

So long as the collaboration agreements remain in effect, we expect our CKD anemia program to be fully funded through launch of roxadustat through the payment of upfront, non-contingent and milestone payments, and development cost reimbursement. The total payments to us under these agreements are summarized in the following table:

 

    

Astellas

  

AstraZeneca

Territories

   Japan, Europe, CIS, Middle East, South Africa    U.S., China, RoW

Upfront and Milestone Payments

     

Upfront and other non-contingent payments

   $360.1M    $402.2M*

Potential Milestone Payments:

     

Development and Regulatory

   $542.5M    $571.0M*

Commercial-based

   $15.0M    $652.5M

Total

   $557.5M    $1,223.5M

Total Potential Upfront, Non-contingent and Milestone Payments

   $917.6M    $1,625.7M

Development Cost Reimbursement

     

(for territorial approval)

  

Japan: 100%

Europe: 50%**

  

China: 50%

U.S.: 50% up to FibroGen cap of $116.5M ***

100% above $116.5M

RoW: 100%***

Consideration for Product Sales

     

Transfer Price Payments

   Low 20% of net sales   

U.S. / RoW:

Low-mid single digit % of net sales

Royalty Payments

   N/A   

U.S. / RoW:

Low 20% of net sales

Profit Share

      China: 50/50 profit share

Equity Investment

      $20.0M****

 

* A $62 million time-based development milestone became non-contingent as of July 30, 2014
** Includes 50% of U.S. costs under agreed development plan
*** Includes U.S. and Europe costs not borne by Astellas; $116.5 million is less than 50% of the expected CKD anemia development costs
**** Concurrent private placement of our common stock with an aggregate purchase price of $20 million at a price per share equal to the initial public offering price

In addition, Astellas has separately invested a total of $80.5 million in the preferred stock of FibroGen, Inc. to date.

 

 

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Roxadustat for Treatment of Anemia in China

We believe there is a particularly significant unmet medical need for the treatment of anemia in CKD in China. Anemia is undertreated in the rapidly growing DD-CKD population due in part to the significant safety concerns relating to the high doses of ESAs required to treat some patients to target Hb levels, the lack of IV iron use and reimbursement limitations. Anemia is largely not treated in the NDD-CKD population, which includes patients who are eligible for dialysis but are not dialyzed, due in part to logistical and financial barriers to treatment with ESAs, as well as the insufficient dialysis infrastructure.

In the context of the rapidly growing Chinese pharmaceutical market, we believe that the demand for anemia therapy will continue to grow as a result of an expanding CKD population, and the central government’s mandate to make dialysis, which is still in the early stages of infrastructure development, more available through expansion of government reimbursement and build-out of dialysis facilities. We believe that roxadustat is a particularly promising product candidate for this market.

We plan to seek product approval from the CFDA as a Domestic “Class 1.1” Drug through our China subsidiary, FibroGen (China) Medical Technology Development Co., Ltd., or FibroGen China. We believe the domestic pathway represents the fastest route for bringing roxadustat to market.

We have completed our Phase 1 and Phase 2 clinical trials in China and expect to start our Phase 3 clinical trials in China in the first half of 2015. These Phase 3 trials are expected to continue to be conducted in parallel with, but independently of, the other trials conducted in the global development program, although all available safety data from the global program will be submitted for the China NDA. We plan to perform two Phase 3 trials in China to support approval of roxadustat for the treatment of anemia in DD-CKD and NDD-CKD patients. Based on discussions with the CFDA, the Phase 3 trials are designed to confirm Phase 2 results and have similar trial design and endpoints, except that they are expected to include more patients and longer dosing durations.

Overview of FG-3019

FG-3019 was developed by FibroGen to inhibit the activity of CTGF and its central role in the progression of serious diseases associated with fibrosis. Our data to date indicate that FG-3019 is a promising and highly differentiated product candidate with broad potential to treat a number of fibrotic diseases and cancers. FG-3019 has received orphan drug designation in IPF in the United States.

We are currently conducting an extension study for an open-label Phase 2 trial in IPF, a randomized, double-blind, placebo-controlled Phase 2 trial in IPF, a randomized, open-label Phase 2 trial in pancreatic cancer and a randomized trial in liver fibrosis. We have completed the initial one-year treatment portion of our open-label Phase 2 trial in IPF and an open-label, dose escalation Phase 2 trial in pancreatic cancer. In ten Phase 1 and Phase 2 clinical studies involving FG-3019 to date, including more than 340 patients who were treated with FG-3019 (146 patients dosed for more than 6 months), FG-3019 has been well tolerated across the range of doses studied, and there have been no dose-limiting toxicities seen thus far.

To date, we have retained exclusive worldwide rights for FG-3019. We plan to retain commercial rights to FG-3019 in North America and will also continue to evaluate the opportunities to establish co-development partnerships for FG-3019 as well as commercialization collaborations for territories outside of North America.

Idiopathic Pulmonary Fibrosis

Idiopathic pulmonary fibrosis, or IPF, is a form of progressive pulmonary fibrosis, or abnormal scarring, which destroys the structure and function of the lungs. Current approved therapies are unable to reverse this fibrotic process. Over a period of just a few years, patients with IPF experience debilitating symptoms, including shortness of breath and difficulty performing routine functions, such as walking and talking. Other symptoms include chronic

 

 

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dry, hacking cough, fatigue, weakness, discomfort in the chest, loss of appetite, and rapid weight loss. Average life expectancy at the time of confirmatory diagnosis of IPF is estimated to be between 3 to 5 years, with approximately two-thirds of patients dying within five years of diagnosis. Thus, the survival rates are comparable to some of the most deadly cancers. The United States prevalence and incidence of IPF are estimated to be 44,000 to 135,000 cases and 21,000 new cases per year, respectively. We believe that with the availability of technology to enable more accurate diagnoses, the number of individuals diagnosed with IPF annually will continue to increase.

Pirfenidone has been approved to treat IPF in Europe, Canada, Japan and the United States. According to the FDA advisory committee submission by its sponsor, pirfenidone has been shown to have a modest effect on slowing down the progression of the disease as measured by forced vital capacity, or FVC, in a minority (less than 15%) of patients. Nintedanib has also been approved in the United States and has been submitted for accelerated approval in the EU. We believe there remains an unmet need for a product like FG-3019 which has the potential to stabilize or reverse lung fibrosis and thus slow or stop the deterioration of, or improve, lung function in patients with IPF.

We have completed one year of dosing in two dose-cohorts in an open-label Phase 2 study of FG-3019 in patients with IPF. In addition to monitoring changes in pulmonary function, we incorporated the use of quantitative high resolution computed tomography, or HRCT, to assess changes in fibrosis over the course of the study. Recent publications based on similar quantitative HRCT methods have identified an association between worsening pulmonary fibrosis (as measured by HRCT) and mortality in IPF. The data from the open-label Phase 2 FG-3019 trial show that fibrosis was reversed or stabilized in a substantial subset of IPF patients (38%) after 48 weeks of treatment. To our knowledge, this is the first demonstration of pulmonary fibrosis reversal in any clinical study of IPF.

We are currently conducting a randomized, double-blind, placebo-controlled Phase 2 study to evaluate the safety and efficacy of FG-3019 in approximately 136 IPF patients with mild to moderate disease. As with our ongoing open-label Phase 2 trial, the primary efficacy endpoint is change in FVC from baseline. Secondary endpoints are extent of pulmonary fibrosis as measured by quantitative HRCT, other pulmonary function assessments and measures of health-related quality of life. The study is currently enrolling.

Pancreatic Cancer

Pancreatic cancer has a historic median survival of approximately six to nine months when treated with currently approved drugs. In desmoplastic, or fibrotic, cancers such as pancreatic cancer, we believe that CTGF expression in tumor-associated fibrous tissue promotes abnormal proliferation of stromal cells and tumor cells, induces extracellular-matrix, or ECM, deposition that provides a substrate for tumor cell adherence, promotes angiogenesis and promotes metastasis by enhancing cell motility, invasion and survival. Studies in a transgenic mouse model of pancreatic cancer indicate that treatment with FG-3019 in combination with chemotherapy can enhance the efficacy of chemotherapy and significantly improve survival.

Pancreatic cancer is the fourth leading cause of cancer deaths in the United States. In the United States, the prevalence of pancreatic cancer is estimated to be 44,000 and there are projected to be approximately 46,000 new cases of pancreatic cancer and approximately 39,000 deaths from the disease in 2014. Pancreatic cancer is aggressive and typically not diagnosed until it is incurable. Most patients are diagnosed after the age of 45, and 94% of patients die within five years from diagnosis.

The majority of pancreatic cancer patients are treated with chemotherapy, but this cancer is highly resistant to chemotherapy. Approximately 20% are treated with surgery; however, even for those with successful surgical resection, the median survival is approximately 2 years. Radiation may be used for locally advanced tumors, but it is not curative.

 

 

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Several anti-cancer agents have been approved to treat pancreatic cancer. However, the duration of effect of these treatments is limited. In 1996, gemcitabine was approved for pancreatic cancer based on the demonstrated improvement in median overall survival from four to six months. Erlotinib was approved in 2005 after demonstrating an additional 10 days of survival. Nab-paclitaxel in combination with gemcitabine was recently approved by the FDA for the treatment of pancreatic cancer, having demonstrated median survival of 8.5 months. The limitations of these drugs illustrate that progress in pancreatic cancer has been slow and incremental, and there remains a need for substantial improvement in patient survival and quality of life.

We have completed an open-label Phase 2 dose finding trial of FG-3019 combined with gemcitabine plus erlotinib in patients with previously untreated locally advanced (stage 3) or metastatic (stage 4) pancreatic cancer. FG-3019 demonstrated a dose-dependent improvement in one year survival rate. We have recently begun an open-label, randomized Phase 2 trial of FG-3019 combined with gemcitabine plus nab-paclitaxel chemotherapy versus the chemotherapy regimen alone in patients with marginally inoperable pancreatic cancer that has not been previously treated. Approximately 40 patients are expected to be treated and the number may be increased based on preliminary results. The overall goal of the trial is to determine whether FG-3019 in combination with other drug treatments can convert inoperable pancreatic cancer to operable cancer. Tumor removal is the only chance for cure of pancreatic cancer, but only 15% to 20% of patients are eligible for surgery. The use of an anti-fibrotic agent in combination with chemotherapy may shrink the tumor size enough to enable surgical removal without compromising major blood vessels or other important anatomic structures.

We also plan to perform a randomized Phase 2 trial of FG-3019 combined with gemcitabine and nab-paclitaxel compared to the chemotherapy regimen alone to assess disease progression and survival in patients with previously untreated metastatic pancreatic cancer. The overall goal is to confirm our open-label Phase 2 data that suggest combinations of FG-3019 and chemotherapy may increase survival. We plan to open the study for enrollment in the first half of 2015.

Our Strategy

We intend to leverage our extensive experience in fibrosis and HIF biology to build a successful biopharmaceutical company with a strong pipeline of products and product candidates for the treatment of anemia, fibrosis, cancer, corneal blindness and other serious unmet medical needs. Our near-term and long-term strategies include:

 

    Develop and, if approved, commercialize roxadustat with the assistance of our collaboration partners in the United States, Europe, China and Japan and the rest of the world, including enrolling and completing our global Phase 3 program in CKD anemia and seeking regulatory approval for roxadustat in multiple geographies, including as a Domestic Class 1.1 therapeutic in China.

 

    Enroll and complete our Phase 2 clinical studies of FG-3019 in IPF and pancreatic cancer, and initiate, enroll, and complete subsequent Phase 3 pivotal studies of FG-3019 in IPF and pancreatic cancer in the United States and potentially outside of the United States.

 

    Continue to pursue an extensive and multi-layered patent portfolio to protect our technologies and product candidates.

 

    Explore potential partnering opportunities for the development and commercialization of FG-3019 in certain territories.

 

    Develop FG-5200 for treatment of corneal blindness resulting from partial thickness corneal damage in China and elsewhere in the world.

 

    Strategically invest in the research and development of additional anemia indications for roxadustat, which may include chemotherapy-induced anemia, anemia relating to inflammatory diseases, myelodysplastic syndrome and surgical procedures requiring transfusions.

 

 

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    Use our extensive HIF platform to increase our pipeline by exploring proof-of-concept with our HIF-PH selective inhibitors, such as FG-8205, and our other HIF-PH inhibitors, including FG-6874 (which has completed single and multiple ascending dose Phase 1 clinical studies in Singapore), in indications such as hematopoietic stem cell mobilization, peri-operative anemia, heart failure post-myocardial infarction, inflammatory bowel disease, diabetes, cancer and wound healing.

 

    Expand our efforts in fibrosis by pursuing additional indications for FG-3019, which may include Duchenne muscular dystrophy, scleroderma lung disease, liver fibrosis associated with graft injection, non-alcoholic steatohepatitis, diabetic nephropathy, focal segmental glomerular sclerosis, congestive heart failure, pulmonary arterial hypertension and cancers such as melanoma, ovarian, breast, and squamous cell lung carcinoma.

Financial Overview

Our revenue to date has been generated primarily from collaboration and license revenue pursuant to our collaboration agreements with Astellas and AstraZeneca. We have not generated any commercial product revenue. As of September 30, 2014, we had $175.5 million of cash, cash equivalents and short-term investments and an accumulated deficit of $271.7 million.

Risk Factors Summary

Our business is subject to numerous risks and uncertainties, including those highlighted in the section entitled “Risk Factors” immediately following this prospectus summary. These risks include, among others, the following:

 

    We have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future; we may require additional financings in order to fund our operations;

 

    All of our recent revenue has been received from our roxadustat collaboration partners; if any of the agreements with these collaboration partners were to terminate we would require substantial additional funding;

 

    If we are unable to achieve development and regulatory milestones under our collaboration agreements, our revenues may decrease and our activities may fail to lead to commercialized products;

 

    We are substantially dependent on the success of our lead product candidate, roxadustat, and our second compound in development, FG-3019, and their clinical and commercial success will depend on a number of factors, many of which are beyond our control;

 

    We may be unable to obtain regulatory approval for our product candidates, or such approval may be delayed or limited, due to a number of factors, many of which are beyond our control;

 

    Our Phase 2 results to date for roxadustat and FG-3019 may not be indicative of the results that may be obtained in larger clinical studies required for approval;

 

    We do not know whether our ongoing or planned Phase 3 clinical studies in roxadustat or Phase 2 clinical studies in FG-3019 will need to be redesigned based on interim results, be able to achieve sufficient enrollment or be completed on schedule, if at all;

 

    Our product candidates may cause, or have attributed to them, undesirable side effects or have other properties that delay or prevent their regulatory approval or limit their commercial potential;

 

    If we or third party manufacturers on which we rely cannot manufacture our product candidates and/or products at sufficient yields, we may experience delays in development, regulatory approval and commercialization;

 

 

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    If our collaborations with Astellas or AstraZeneca were terminated, or if Astellas of AstraZeneca were to prioritize other initiatives over their collaborations with us, whether as a result of a change of control or otherwise, our ability to successfully develop and commercialize our lead product candidate, roxadustat, would suffer;

 

    We currently rely, and expect to continue to rely, on third parties to conduct many aspects of our clinical studies, and these third parties may not perform satisfactorily;

 

    Certain of the components of our product candidates are acquired from single-source suppliers and have been purchased without long-term supply agreements;

 

    If our efforts to protect our proprietary technologies are not adequate, we may not be able to compete effectively in our market;

 

    Intellectual property disputes with third parties and competitors may be costly and time consuming, and may negatively affect our competitive position;

 

    We are establishing international operations and seeking approval to commercialize our product candidates outside of the United States, in particular in China, and a number of risks associated with international operations could materially and adversely affect our business;

 

    We are building our own manufacturing facility in China to produce roxadustat and clinical trial material for our corneal program; as an organization, we have limited experience in the construction or operation of a manufacturing plant; accordingly, we cannot assure you we will be able to meet regulatory requirements to operate our plant and to sell our products;

 

    Our decision to seek approval in China for roxadustat as a domestic new drug may not be accepted, which would result in additional delay and expense; and

 

    The market price of our common stock may be highly volatile, and you may not be able to resell your shares at or above the initial public offering price.

Concurrent Private Placement

AstraZeneca, one of our collaboration partners, has agreed to purchase from us concurrently with the closing of this offering in a private placement shares of our common stock with an aggregate purchase price of $20 million at a price per share equal to the initial public offering price.

Our Corporate Information

We were incorporated in 1993 in Delaware. Our headquarters are located at 409 Illinois Street, San Francisco, CA 94158 and our telephone number is (415) 978-1200. Our website address is www.FibroGen.com. The information contained on, or that can be accessed through, our website is not part of, and is not incorporated into, this prospectus.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible for exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and reduced disclosure obligations regarding executive compensation. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We will remain an emerging growth

 

 

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company until the earliest of (1) the last day of the fiscal year (a) following the fifth anniversary of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means we have been public for at least twelve months and the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

“FibroGen,” the FibroGen logo and other trademarks or service marks of FibroGen, Inc. appearing in this prospectus are the property of FibroGen, Inc. This prospectus contains additional trade names, trademarks and service marks of others, which are the property of their respective owners. We do not intend our use of display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

 

 

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The Offering

 

Common stock offered by us

7,100,000 shares

 

Common stock sold in the concurrent private placement

AstraZeneca, one of our collaboration partners, has agreed to purchase from us concurrently with the closing of this offering in a private placement shares of our common stock with an aggregate purchase price of $20 million at a price per share equal to the initial public offering price, or 1,142,857 shares assuming an initial public offering price of $17.50 per share, which is the midpoint of the range set forth on the cover page of this prospectus. We will receive the full proceeds from the sale and will not pay any underwriting discounts or commissions with respect to the shares that are sold in the private placement. The sale of these shares to AstraZeneca will not be registered in this offering and these shares will be subject to a 180-day lock-up agreement with the underwriters in this offering as well as restrictions on sale for two years pursuant to AstraZeneca’s agreement with us. We refer to the private placement of these shares of common stock as the “concurrent private placement”.

 

Common stock to be outstanding after this offering and the concurrent private placement

55,671,852 shares (56,736,852 shares if the underwriters’ option to purchase additional shares is exercised in full)

 

Underwriters’ option to purchase additional shares of common stock offered by us

1,065,000 shares

 

Use of proceeds

We estimate the net proceeds to us from this offering, excluding the proceeds from the concurrent private placement, to be approximately $111.8 million, assuming an initial public offering price of $17.50 per share, which is the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Our proceeds from the sale of common stock sold in the concurrent private placement will be $20 million. See the section of the prospectus captioned “Use of Proceeds.” The principal purposes of this offering are to create a public market for our common stock and thereby facilitate access to the public equity markets, increase our visibility in the marketplace and obtain additional capital. We believe our existing cash and cash equivalents, short-term and long-term investments and payments due under our license and collaboration agreements will be sufficient to meet our anticipated working capital and capital expenditure needs for at least the next 12 months. Additionally, if roxadustat is successful in further clinical development, based on our current development plans, expected payments under our existing license and collaboration agreements may be sufficient to fund our development of roxadustat through commercialization. We intend to use a portion of the net proceeds

 

 

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from this offering and the concurrent private placement to commercialize our unpartnered product candidates such as FG-3019, corneal implants and other HIF-PH inhibitors, as well as for general corporate purposes. These uses include meeting any short term liquidity needs pending receipt of amounts due or subject to reimbursement under our license and collaboration agreements. If the development cost of roxadustat were to exceed our expectations and not be funded by our collaboration partners, or collaboration receipts were less than we anticipate, or if a portion of our existing cash and cash equivalents are used to develop other product candidates, we may use a more substantial portion of the net proceeds from this offering and the concurrent private placement to fund our roxadustat development costs through commercialization. We may also use a portion of the net proceeds to acquire complementary businesses, products or technologies, although we have no present commitments or agreements for any specific acquisitions. Accordingly, we will have broad discretion over the uses of the net proceeds from this offering and the concurrent private placement.

 

Directed Share Program

At our request, the underwriters have reserved up to 5% of the shares being offered by this prospectus for sale at the initial public offering price to certain individuals who are associated with us through a directed share program. None of our directors, executive officers or employees will participate in the directed share program. The number of shares available for sale to the general public will be reduced by the number of directed shares purchased by participants in the program. Any directed shares not purchased will be offered by the underwriters to the general public on the same basis as all other shares offered.

 

Risk factors

See the section of the prospectus captioned “Risk Factors” beginning on page 18 and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

 

Proposed Listing and Trading symbol

We intend to list our common stock on the NASDAQ Global Select Market under the symbol “FGEN”.

The number of shares of our common stock to be outstanding after this offering and the concurrent private placement is based on 47,428,995 shares of common stock outstanding as of September 30, 2014, which reflects and assumes the conversion of all shares of convertible preferred stock (Senior Preferred Stock and Junior Preferred Stock) and excludes the following shares:

 

    12,970,404 shares of common stock issuable upon the exercise of outstanding stock options issued as of September 30, 2014 pursuant to our 1999 and 2005 Stock Plans at a weighted-average exercise price of $5.56 per share;

 

    1,600,000 shares of common stock to be reserved for future issuance under our 2014 Employee Stock Purchase Plan, or ESPP, as of the date the registration statement of which this prospectus forms a part if declared effective by the SEC, as well as any automatic increases in the number of shares of common stock reserved for future issuance under ESPP;

 

 

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    7,606,104 shares of common stock to be reserved for future issuance under our 2014 Plan as of the date the registration statement of which this prospectus forms a part is declared effective by the SEC (which shares are as of September 30, 2014 and are currently reserved for future grant under our 2005 Plan and will cease to be reserved under our 2005 Plan immediately prior to the time our 2014 Plan becomes effective) as well as any automatic increases in the number of shares of common stock reserved for future issuance under the 2014 Plan;

 

    173,116 shares of common stock issuable upon exercise of common stock warrants outstanding as of September 30, 2014 at a weighted-average exercise price of $7.58 per share; and

 

    958,996 shares of common stock issuable upon the exchange of outstanding preferred stock issued by our European subsidiary, FibroGen Europe Oy, or FibroGen Europe.

Unless otherwise indicated, all information in this prospectus reflects and assumes the following:

 

    an initial public offering price of $17.50 per share (which represents the midpoint of the estimated offering price range set forth on the cover of this prospectus)

 

    the conversion of all outstanding shares of our convertible preferred stock (Senior Preferred Stock and Junior Preferred Stock) into an aggregate of 33,919,954 shares of our common stock, which will occur immediately prior to the completion of this offering;

 

    no exercise by the underwriters of their option to purchase up to 1,065,000 additional shares of our common stock in this offering; and

 

    the filing and effectiveness of our amended and restated certificate of incorporation immediately prior to the completion of this offering.

On November 10, 2014, the Company effected a 1-for-2.5 reverse split of its common stock. Upon the effectiveness of the reverse stock split, (i) every 2.5 shares of outstanding common stock were combined into one share of common stock, (ii) the number of shares of common stock for which each outstanding option or warrant to purchase common stock is exercisable was proportionally decreased on a 1-for-2.5 basis, (iii) the exercise price of each outstanding option or warrant to purchase common stock was proportionately increased on a 1-for-2.5 basis, (iv) the exchange ratio for each share of outstanding FibroGen Europe share of stock which is exchangeable into the Company’s common stock was proportionately reduced on a 1-for-2.5 basis, and (v) the conversion ratio for each share of outstanding preferred stock which is convertible into the Company’s common stock was proportionately reduced on a 1-for-2.5 basis. All of the outstanding common stock share numbers (including shares of common stock which the Company’s outstanding preferred stock shares are convertible into), common stock warrants, share prices, exercise prices and per share amounts have been adjusted in this prospectus, on a retroactive basis, to reflect this 1-for-2.5 reverse stock split for all periods presented. The par value per share and the authorized number of shares of common stock and preferred stock were not adjusted as a result of the reverse stock split.

 

 

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Summary Financial Data

The following tables summarize our financial data and should be read together with the sections in this prospectus entitled “Selected financial data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.

We have derived the consolidated statement of operations data for the years ended December 31, 2012 and 2013 from our audited financial statements included elsewhere in this prospectus. We have derived the statement of operations data for the nine months ended September 30, 2013 and 2014 and the balance sheet data as of September 30, 2014 from our unaudited interim consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited interim consolidated financial statements on the same basis as the audited financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair statement of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that should be expected in the future, and our unaudited interim results are not necessarily indicative of the results that should be expected for the full year or any other period.

 

     Years ended
December 31,
    Nine Months
ended September 30,
 
     2012     2013     2013     2014  
     (in thousands, except per share data)  

Result of Operations

        

Revenue:

        

License and milestone revenue

   $ 62,845      $ 94,961      $ 86,035      $ 106,175   

Collaboration services and other revenue

     3,088        7,209        3,745        15,321   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     65,933        102,170        89,780        121,496   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Research and development (1)

     74,222        85,710        56,276        99,536   

General and administrative (1)

     18,934        24,409        16,498        24,088   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     93,156        110,119        72,774        123,624   

Income (loss) from operations

     (27,223     (7,949     17,006        (2,128

Total interest and other, net

     (5,448     (6,994     (5,176     (6,816
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (32,671     (14,943     11,830        (8,944

Benefit from income taxes

     100        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (32,571   $ (14,943   $ 11,830      $ (8,944

Net income (loss) per share—basic (2)

   $ (2.48   $ (1.13   $ 0.04      $ (0.67
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share—diluted (2)

   $ (2.48   $ (1.13   $ 0.03      $ (0.67

Weighted-average number of common shares used in net income (loss) per share—basic (2)

     13,128        13,186        13,181        13,355   

Weighted-average number of common shares used in net income (loss) per share—diluted (2)

     13,128        13,186        19,919        13,355   

Pro forma net loss per share—basic (unaudited) (3)

     $ (0.32     $ (0.19

Pro forma net loss per share—diluted (unaudited) (3)

     $ (0.32     $ (0.19

Pro forma weighted-average number of common shares used in net loss per share—basic (unaudited) (3)

       47,106          47,275   

Pro forma weighted-average number of common shares used in net loss per share—diluted (unaudited) (3)

       47,106          47,275   

 

(1) Stock-based compensation expense is included in our results of operations as follows (in thousands):

 

     Years Ended
December 31,
     Nine Months Ended
September 30,
 
     2012      2013      2013      2014  

Research and development

   $ 2,277       $ 1,925       $ 1,446       $ 5,775   

General and administrative

     2,284         1,519         1,170         3,959   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $ 4,561       $ 3,444       $ 2,616       $ 9,734   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

 

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(2) See Note 10 to our consolidated financial statements appearing elsewhere in this prospectus for a description of the method used to calculate basic and diluted net income (loss) per share of common stock.
(3) Pro forma basic and diluted net loss per share of common stock is calculated by dividing net loss attributable to common stockholders, by the pro forma weighted-average number of common shares outstanding. The pro forma weighted-average number of common shares includes the weighted-average shares of common stock used to compute basic net loss per share plus the assumed conversion of all outstanding convertible preferred stock. The pro forma weighted-average number of common shares do not include the effect of 958,996 shares of preferred stock held by investors in FibroGen Europe that are exchangeable at the option of the holders into FibroGen, Inc. common stock.

The pro forma balance sheet data set forth below give effect to an assumed conversion as of September 30, 2014 of all outstanding shares of our Senior Preferred Stock and Junior Preferred Stock into 33,919,954 shares of our common stock. See Note 10 to our consolidated financial statements appearing elsewhere in this prospectus for a description of the method used to calculate pro forma basic and diluted net income (loss) per share.

The pro forma as adjusted balance sheet data set forth below give further effect to our issuance and sale of 8,242,857 shares of our common stock in this offering and the concurrent private placement at an assumed initial public offering price of $17.50 per share, which is the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

     As of September 30, 2014  
     Actual     Pro forma     Pro forma as
adjusted
 
     (in thousands)  

Balance Sheet Data:

      

Cash and cash equivalents

   $ 153,889      $ 153,889      $ 287,829 (1) 

Short-term and long-term investments

     21,826        21,826        21,826   

Working capital

     146,545        146,545        281,112   

Total assets

     344,383        344,383        473,308   

Deferred revenue

     71,486        71,486        71,486   

Lease financing obligations

     96,975        96,975        96,975   

Product development obligations

     17,094        17,094        17,094   

Senior Preferred Stock

     168,436        —          —     

Junior Preferred Stock

     136,313        —          —     

Accumulated deficit

     (271,723 )     (271,723 )     (271,723

Total stockholders’ equity (deficit)

     (86,662     81,774        213,520   

Non-controlling interests

     27,875        27,875        27,875   

Total equity (deficit)

     (58,787 )     109,649        241,395   

 

(1) Pro forma as adjusted cash and cash equivalents reflects $2.2 million of deferred offering costs that had been paid as of September 30, 2014.

 

 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Although we have discussed all known material risks, the risks described below are not the only ones that we may face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.

Risks Related to Our Financial Condition and History of Operating Losses

We have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future and may never achieve or sustain profitability. We may require additional financings in order to fund our operations.

We are a clinical-stage biopharmaceutical company with two lead product candidates in clinical development, roxadustat, or FG-4592 in anemia in CKD, and FG-3019 in idiopathic pulmonary fibrosis, or IPF, pancreatic cancer and liver fibrosis. Pharmaceutical product development is a highly risky undertaking. To date, we have focused our efforts and most of our resources on hypoxia-inducible factor, or HIF, and fibrosis biology research, as well as developing our lead product candidates. We are not profitable and, other than in 2006 and 2007 due to income received from our Astellas collaboration, have incurred losses in each year since our inception. We have not generated any significant revenue based on product sales to date. We continue to incur significant research and development and other expenses related to our ongoing operations. Our net loss for the years ended December 31, 2012 and 2013 was approximately $32.6 million and $14.9 million, respectively. For the nine months ended September 30, 2014 we had a net loss of $8.9 million. As of September 30, 2014, we had an accumulated deficit of $271.7 million. As of September 30, 2014, we had capital resources consisting of cash, cash equivalents and short-term investments of $175.5 million. Despite contractual development and cost coverage commitments from our collaboration partners, AstraZeneca AB, or AstraZeneca, and Astellas Pharma Inc., or Astellas, and the potential to receive milestone and other payments from these partners, we anticipate we will continue to incur losses for the foreseeable future, and we anticipate these losses will increase as we continue our development of, and seek regulatory approval for our product candidates. If we do not successfully develop and obtain regulatory approval for our existing or any future product candidates and effectively manufacture, market and sell any product candidates that are approved, we may never generate product sales, and even if we do generate product sales, we may never achieve or sustain profitability on a quarterly or annual basis. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital. Our failure to become and remain profitable would depress the market price of our common stock and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations.

We believe that we will continue to expend substantial resources for the foreseeable future as we continue late-stage clinical development of roxadustat, grow our operations in China, expand our clinical development efforts on FG-3019, seek regulatory approval and prepare for the commercialization of our product candidates, and pursue additional indications. These expenditures will include costs associated with research and development, conducting preclinical trials and clinical trials, obtaining regulatory approvals in various jurisdictions, and manufacturing and supplying products and product candidates for ourselves and our partners. In particular, in our planned Phase 3 clinical trial program for roxadustat, which we believe will be the largest Phase 3 program ever conducted for an anemia product candidate, we are expecting to enroll approximately 7,000 to 8,000 patients worldwide. We are conducting this Phase 3 program in conjunction with Astellas and AstraZeneca, and we are substantially dependent on Astellas and AstraZeneca for the funding of this large program. The outcome of any

 

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clinical trial and/or regulatory approval process is highly uncertain and we are unable to fully estimate the actual costs necessary to successfully complete the development and regulatory approval process for our compounds in development and any future product candidates. We believe that the net proceeds from this offering and the concurrent private placement, together with our expected third party collaboration revenues and existing cash, cash equivalents and short-term investments, will allow us to fund our operating plans through at least the next 12 months. Our operating plans or third party collaborations may change as a result of many factors, which are discussed in more detail below, and other factors that may not currently be known to us, and we therefore may need to seek additional funds sooner than planned, through offerings of public or private securities, debt financings or other sources, such as royalty monetization or other structured financings. Such financings may result in dilution to stockholders, imposition of debt covenants and repayment obligations, or other restrictions that may adversely affect our business. We may also seek additional capital due to favorable market conditions or strategic considerations even if we currently believe that we have sufficient funds for our current or future operating plans.

Our future funding requirements will depend on many factors, including, but not limited to:

 

    the rate of progress in the development of our product candidates;

 

    the costs of development efforts for our product candidates, such as FG-3019, that are not subject to reimbursement from our collaboration partners;

 

    the costs necessary to obtain regulatory approvals, if any, for our product candidates in the United States, China and other jurisdictions, and the costs of post-marketing studies that could be required by regulatory authorities in jurisdictions where approval is obtained;

 

    the continuation of our existing collaborations and entry into new collaborations;

 

    the time and unreimbursed costs necessary to commercialize products in territories in which our product candidates are approved for sale;

 

    the revenues from any future sales of our products as well as revenue earned from profit share, royalties and milestones;

 

    the level of reimbursement or third party payor pricing available to our products;

 

    the costs of establishing and maintaining manufacturing operations and obtaining third party commercial supplies of our products, if any, manufactured in accordance with regulatory requirements;

 

    the costs we incur in maintaining domestic and foreign operations, including operations in China;

 

    the costs associated with being a public company; and

 

    the costs we incur in the filing, prosecution, maintenance and defense of our extensive patent portfolio and other intellectual property rights.

Additional funds may not be available when we require them, or on terms that are acceptable to us. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate our research and development efforts or other operations or activities that may be necessary to commercialize our product candidates.

All of our recent revenue has been received from collaboration partners for our product candidates under development.

During the past two years, substantially all of our revenues were from our collaboration partners, including $90.8 million received under our current collaborations with Astellas and $76.5 million received under our current collaborations with AstraZeneca, constituting 99% and 100% of our revenues for 2012 and 2013, respectively.

We will require substantial additional capital to achieve our development and commercialization goals, which for our lead product candidate, roxadustat, is currently contemplated to be provided under our existing third party collaborations with Astellas and AstraZeneca.

 

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If either or both of these collaborations were to be terminated, we could require significant additional capital in order to proceed with development and commercialization of our product candidates, or we may require additional partnering in order to help fund such development and commercialization. If adequate funds or partners are not available to us on a timely basis or on favorable terms, we may be required to delay, limit, reduce or terminate our research and development efforts or other operations.

If we are unable to continue to progress our development efforts and achieve milestones under our collaboration agreements, our revenues may decrease and our activities may fail to lead to commercial products.

Substantially all of our revenues to date have been, and a significant portion of our future revenues are expected to be, derived from our existing collaboration agreements. Revenues from research and development collaborations depend upon continuation of the collaborations, reimbursement of development costs, the achievement of milestones and royalties and profits from our product sales, if any, derived from future products developed from our research. If we are unable to successfully advance the development of our product candidates or achieve milestones, revenues under our collaboration agreements will be substantially less than expected.

Risks Related to the Development and Commercialization of Our Product Candidates

We are substantially dependent on the success of our lead product candidate, roxadustat, and our second compound in development, FG-3019.

To date, we have invested a substantial portion of our efforts and financial resources in the research and development of roxadustat, which is currently our lead product candidate. Roxadustat is our only product candidate that has advanced into a potentially pivotal trial, and it may be years before the studies required for its approval are completed, if ever. Our other product candidates are less advanced in development and may never enter into pivotal studies. We have completed 26 Phase 1 and 2 clinical studies with roxadustat in North America, Europe and Asia, in which 1,449 subjects have participated and for which we reported favorable primary and secondary safety and efficacy endpoint results. Based on our discussions with the United States Food and Drug Administration, or FDA, we believe that we have an acceptable plan for the conduct of our global Phase 3 clinical trial program. We have also had discussions with China regulatory authorities regarding the conduct of Phase 3 clinical trials in China, which are part of our global Phase 3 clinical trial program for safety data. We have also discussed our Phase 3 clinical development program with three national health authorities in the EU and obtained scientific advice from the European Medicines Agency. Our near-term prospects, including maintaining our existing collaborations with Astellas and AstraZeneca, will depend heavily on successful Phase 3 development and commercialization of roxadustat.

Our other lead product candidate, FG-3019, is currently in clinical development for IPF, pancreatic cancer and liver fibrosis. FG-3019 requires substantial further development and investment. In ten Phase 1 and 2 clinical trials, over 340 subjects have been treated with FG-3019 to date. We do not have a collaboration partner for support of this compound, and, while we have promising open-label safety data and potential signals of efficacy, we would need to complete larger and more extensive controlled clinical trials to validate the results to date in order to continue further development of this product candidate. In addition, although there are many potentially promising indications beyond IPF, pancreatic cancer and liver fibrosis, we are still exploring indications for which further development of, and investment for, FG-3019 may be appropriate. Accordingly, the costs and time to complete development and related risks are currently unknown. Moreover, FG-3019 is a monoclonal antibody, which may require experience and expertise that we may not currently possess as well as financial resources that are potentially greater than those required for our small molecule lead compound, roxadustat.

 

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The clinical and commercial success of roxadustat and FG-3019 will depend on a number of factors, many of which are beyond our control, and we may be unable to complete the development or commercialization of roxadustat or FG-3019.

The clinical and commercial success of roxadustat and FG-3019 will depend on a number of factors, including the following:

 

    the timely initiation, continuation and completion of our Phase 3 clinical trials for roxadustat, which will depend substantially upon requirements for such trials imposed by the FDA and other regulatory agencies and bodies and the continued commitment and coordinated and timely performance by our third party collaboration partners, AstraZeneca and Astellas;

 

    the timely initiation and completion of our Phase 2 clinical trials for FG-3019, including in IPF and pancreatic cancer;

 

    our ability to demonstrate the safety and efficacy of our product candidates to the satisfaction of the relevant regulatory authorities;

 

    whether we are required by the FDA or other regulatory authorities to conduct additional clinical trials, and the scope and nature of such clinical trials, prior to approval to market our products;

 

    the timely receipt of necessary marketing approvals from the FDA and foreign regulatory authorities, including pricing and reimbursement determinations;

 

    the ability to successfully commercialize our product candidates, if approved, for marketing and sale by the FDA or foreign regulatory authorities, whether alone or in collaboration with others;

 

    our ability and the ability of our third party manufacturing partners to manufacture quantities of our product candidates at quality levels necessary to meet regulatory requirements and at a scale sufficient to meet anticipated demand at a cost that allows us to achieve profitability;

 

    our success in educating health care providers and patients about the benefits, risks, administration and use of our product candidates, if approved;

 

    acceptance of our product candidates, if approved, as safe and effective by patients and the healthcare community;

 

    the success of efforts to enter into relationships with large dialysis organizations involving the administration of roxadustat to dialysis patients;

 

    the achievement and maintenance of compliance with all regulatory requirements applicable to our product candidates;

 

    the maintenance of an acceptable safety profile of our products following any approval;

 

    the availability, perceived advantages, relative cost, relative safety, and relative efficacy of alternative and competitive treatments;

 

    our ability to obtain and sustain an adequate level of pricing or reimbursement for our products by third party payors;

 

    our ability to enforce successfully our intellectual property rights for our product candidates and against the products of potential competitors; and

 

    our ability to avoid or succeed in third party patent interference or patent infringement claims.

Many of these factors are beyond our control. Accordingly, we cannot assure you that we will ever be able to achieve profitability through the sale of, or royalties from, our product candidates. If we or our collaboration partners are not successful in obtaining approval for and commercializing our product candidates, or are delayed in completing those efforts, our business and operations would be adversely affected.

 

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We may be unable to obtain regulatory approval for our product candidates, or such approval may be delayed or limited, due to a number of factors, many of which are beyond our control.

The clinical trials and the manufacturing of our product candidates are and will continue to be, and the marketing of our product candidates will be, subject to extensive and rigorous review and regulation by numerous government authorities in the United States and in other countries where we intend to develop and, if approved, market any product candidates. Before obtaining regulatory approval for the commercial sale of any product candidate, we must demonstrate through extensive preclinical trials and clinical trials that the product candidate is safe and effective for use in each indication for which approval is sought. The regulatory review and approval process is expensive and requires substantial resources and time, and in general very few product candidates that enter development receive regulatory approval. Accordingly, we may be unable to successfully develop or commercialize roxadustat or FG-3019 or any of our other product candidates.

We have not obtained regulatory approval for any of our product candidates and it is possible that roxadustat and FG-3019 will never receive regulatory approval in any country. Regulatory authorities may delay, limit or deny approval of roxadustat or FG-3019 for many reasons, including, among others:

 

    our failure to adequately demonstrate to the satisfaction of regulatory authorities that roxadustat is safe and effective in treating anemia in chronic kidney disease, or CKD, or that FG-3019 is safe and effective in treating IPF, pancreatic cancer or liver fibrosis;

 

    our failure to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

    the determination by regulatory authorities that additional clinical trials are necessary to demonstrate the safety and efficacy of roxadustat or FG-3019, or that ongoing clinical trials need to be modified in design, size, conduct or implementation;

 

    our product candidates may exhibit an unacceptable safety signal as they advance through clinical trials, in particular controlled Phase 3 trials;

 

    the contract research organizations, or CROs, that conduct clinical trials on our behalf may take actions outside of our control that materially adversely impact our clinical trials;

 

    we or third party contractors manufacturing our product candidates may not maintain current good manufacturing practices, or cGMP, successfully pass inspection or meet other applicable manufacturing regulatory requirements;

 

    regulatory authorities may not agree with our interpretation of the data from our preclinical trials and clinical trials;

 

    collaboration partners may not perform or complete their clinical programs in a timely manner, or at all; or

 

    principal investigators may determine that one or more serious adverse events, or SAEs, is related or possibly related to roxadustat, and any such determination may adversely affect our ability to obtain regulatory approval, whether or not the determination is correct.

Any of these factors, many of which are beyond our control, could jeopardize our or our collaboration partners’ abilities to obtain regulatory approval for and successfully market roxadustat. Because our business and operations in the near-term are almost entirely dependent upon roxadustat, any significant delays or impediments to regulatory approval could have a material adverse effect on our business and prospects.

Furthermore, in both the United States and China, we also expect to be required to perform additional clinical trials in order to obtain approval or as a condition to maintaining approval due to post-marketing requirements. If the FDA requires a risk evaluation and mitigation strategy, or REMS, for any of our product candidates if approved, the substantial cost and expense of complying with a REMS or other post-marketing requirements may limit our ability to successfully commercialize our product candidates.

 

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Our Phase 2 clinical trial results to date for roxadustat may not be indicative of the results that may be obtained in larger, controlled Phase 3 clinical trials required for approval.

Clinical development is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. Success in preclinical and early clinical trials may not be predictive of similar results in larger, controlled clinical trials, and successful results from early or small clinical trials may not be replicated or show as favorable an outcome, even if successful. For example, in the past we developed an earlier generation product candidate aimed at treating anemia in CKD that resulted in a clinical hold for a safety signal seen in that product in Phase 2 clinical trials. The clinical hold applied to that product candidate and roxadustat and was lifted for both product candidates after submission of the requested data to the FDA. While we have not seen similar safety concerns involving roxadustat to date, our Phase 2 clinical trials have involved a relatively small number of patients exposed to roxadustat for a relatively short period of time compared to the Phase 3 clinical trials that we will be conducting, and only a fraction of the patients in the Phase 2 clinical trials were randomized to placebo. Accordingly, the Phase 2 clinical trials that we have conducted may not have uncovered safety issues, even if they exist. In addition, some of the safety concerns associated with the treatment of patients with anemia in CKD using erythropoiesis stimulating agents, or ESAs, did not emerge for many years until placebo-controlled studies had been conducted in large numbers of patients. The biochemical pathways that we believe are affected by roxadustat are implicated in a variety of biological processes and disease conditions, and it is possible that the use of roxadustat to treat larger numbers of patients will demonstrate unanticipated adverse effects, including possible drug interactions, which may negatively impact the safety profile, use and market acceptance of roxadustat. We studied the potential interaction between roxadustat and three statins (atorvastatin, rosuvastatin and simvastatin), which are used to lower levels of lipids in the blood. An adverse effect associated with increased statin plasma concentration is myopathy, which typically presents in a form of myalgia. The studies indicated the potential for increased exposure to those statins when roxadustat is taken simultaneously with those statins and suggested the need for statin dose reductions for patients receiving higher statin doses. We are planning additional clinical pharmacology studies to evaluate if the effect of any such interaction can be minimized or eliminated by a modification of the dosing schedule that would separate the administration of roxadustat and the statin. It is possible that the potential for interaction between roxadustat and statins could lead to label provisions for statins or roxadustat relating, for example, to dose scheduling or recommended statin dose limitations. In CKD patients statin therapy is often initiated earlier than treatment for anemia, and risks of myopathy have been shown to decrease with increased time on drug. While we believe the prior statin treatment history of such patients at established doses may reduce the risk of adverse effects from any interaction with roxadustat and facilitate any appropriate dose adjustments, we cannot be sure that this will be the case.

The FDA has informed us that our Phase 3 trials must include, as a safety endpoint, a major adverse cardiac events, or MACE, endpoint, which is a composite endpoint designed to identify major safety concerns, in particular relating to cardiovascular events such as cardiovascular death, myocardial infarction and stroke. In addition, we expect that our Phase 3 clinical trials supporting approval in Europe will be required to include MACE+ as a safety endpoint which, in addition to the MACE endpoints, also incorporates measurements of hospitalization rates due to heart failure or unstable angina. As a result, our ongoing and planned Phase 3 clinical trials may identify unanticipated safety concerns in the patient population under study. The FDA has also informed us that the MACE endpoint will need to be evaluated separately for our Phase 3 trials in non-dialysis dependent-CKD patients and our Phase 3 trials in dialysis dependent-CKD patients. The MACE endpoint will be evaluated in pooled analysis across Phase 3 studies of similar study populations and requires demonstration of non-inferiority relative to comparator, which means that the MACE event rate in roxadustat-treated patients must have less than a specified probability of exceeding the rate in the comparator trial by a specified hazard ratio. The number of patients necessary in order to permit a statistical analysis with adequate ability to detect the relative risk of MACE or MACE+ events in different arms of the trial, referred to as statistical power, depends on a number of factors, including the rate at which MACE or MACE+ events occur per patient-year in the trial, treatment duration of the patients, the required hazard ratio, and the required statistical power and confidence intervals.

In addition, we cannot be sure that the potential advantages that we believe roxadustat may have for treatment of patients with anemia in CKD as compared to the use of ESAs will be substantiated by our Phase 3 clinical trials or that we will be able to include a discussion of such advantages in our labeling should we obtain approval. We

 

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believe that roxadustat may have certain benefits as compared to ESAs based on the data from our Phase 2 clinical trials conducted to date, including safety benefits, the absence of a hypertensive effect, the potential to lower cholesterol levels and the potential to correct anemia without the use of IV iron. However, our belief that roxadustat may offer those benefits is based on a limited amount of data from our Phase 2 clinical trials and our understanding of the likely mechanisms of action for roxadustat. Some of these benefits, such as those associated with the apparent effects on blood pressure and cholesterol, are not fully understood and, even if roxadustat receives marketing approval, we do not expect that it will be approved for the treatment of high blood pressure or high cholesterol based on the data from our Phase 3 trials, and we may not be able to refer to any such benefits in the labeling. While the data from our Phase 2 trials suggests roxadustat may reduce LDL, or low-density lipoprotein, and reduce the ratio of LDL to HDL, or high-density lipoprotein, the data show it may also reduce HDL, which may be a risk to patients. In addition, causes of the safety concerns associated with the use of ESAs to achieve specified target Hb levels have not been fully elucidated. While we believe that the issues giving rise to these concerns with ESAs are likely due to factors other than the Hb levels achieved, we cannot be certain that roxadustat will not be associated with similar, or more severe, safety concerns.

Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in early stage development, and we may face similar setbacks. In addition, the CKD patient population has many afflictions that may cause severe illness or death, which may be attributed to roxadustat in a manner that negatively impacts the safety profile of our product candidate. If the results of our ongoing or future clinical trials for roxadustat are inconclusive with respect to efficacy, if we do not meet our clinical endpoints with statistical significance, or if there are unanticipated safety concerns or adverse events that emerge during clinical trials, we may be prevented from or delayed in obtaining marketing approval for roxadustat, and even if we obtain marketing approval, any sales of roxadustat may suffer.

Our Phase 2 results to date for FG-3019 may not be indicative of the results that may be obtained in larger, controlled Phase 2 clinical trials or Phase 3 clinical trials required for approval.

We have conducted only a limited number of Phase 2 clinical trials with FG-3019. We have conducted an open-label Phase 2 dose escalation study of FG-3019 for IPF in 89 patients and a Phase 2 dose finding trial of FG-3019 combined with gemcitabine plus erlotinib in 75 patients with pancreatic cancer. We cannot be sure that the results of these trials will be substantiated in double-blinded trials with larger numbers of patients, that larger trials will demonstrate the efficacy of FG-3019 for these or other indications or that safety issues will not be uncovered in further trials. In the Phase 2 clinical trial for IPF, we used quantitative high resolution computed tomography, or HRCT, to measure the extent of lung fibrosis. While we believe that quantitative HRCT is an accurate measure of lung fibrosis, it is a novel technology that has not yet been accepted by the FDA as a primary endpoint in pivotal clinical trials. In addition, while we believe that the animal studies that we have conducted to date demonstrate that FG-3019 has the potential to arrest or reverse fibrosis and reduce tumor mass, we cannot be sure that these results will be indicative of the effects of FG-3019 in human trials. In addition, the IPF and pancreatic cancer patient populations are extremely ill and routinely experience SAEs, including death, which may be attributed to FG-3019 in a manner that negatively impacts the safety profile of our product candidate. If the additional Phase 2 clinical trials that we are planning for FG-3019 in IPF and pancreatic cancer do not show favorable efficacy results or result in safety concerns, or if we do not meet our clinical endpoints with statistical significance, or demonstrate an acceptable risk-benefit profile, we may be prevented from or delayed in obtaining marketing approval for FG-3019 in one or both of these indications.

We do not know whether our ongoing or planned Phase 3 clinical trials in roxadustat or Phase 2 clinical trials in FG-3019 will need to be redesigned based on interim results, be able to achieve sufficient enrollment or be completed on schedule, if at all.

Clinical trials can be delayed or terminated for a variety of reasons, including delay or failure to:

 

    address any physician or patient safety concerns that arise during the course of the trial;

 

    obtain required regulatory or institutional review board, or IRB, approval or guidance;

 

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    reach timely agreement on acceptable terms with prospective CROs and clinical trial sites;

 

    recruit, enroll and retain patients through the completion of the trial;

 

    maintain clinical sites in compliance with clinical trial protocols;

 

    initiate or add a sufficient number of clinical trial sites; and

 

    manufacture sufficient quantities of product candidate for use in clinical trials.

In addition, we could encounter delays if a clinical trial is suspended or terminated by us, by the relevant IRBs at the sites at which such trials are being conducted, or by the FDA or other regulatory authorities. A suspension or termination of clinical trials may result from any number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, changes in laws or regulations, or a principal investigator’s determination that a serious adverse event could be related to our product candidates. Any delays in completing our clinical trials will increase the costs of the trial, delay the product candidate development and approval process and jeopardize our ability to commence marketing and generate revenues. Any of these occurrences may materially and adversely harm our business and operations and prospects.

Our product candidates may cause or have attributed to them undesirable side effects or have other properties that delay or prevent their regulatory approval or limit their commercial potential.

Undesirable side effects caused by our product candidates or that may be identified as related to our product candidates by physician investigators conducting our clinical trials or even competing products in development that utilize a similar mechanism of action or act through a similar biological disease pathway could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in the delay or denial of regulatory approval by the FDA or other regulatory authorities and potential product liability claims. Adverse events and SAEs that emerge during treatment with our product candidates or other compounds acting through similar biological pathways may be deemed to be related to our product candidate and may result in:

 

    our Phase 3 clinical trial development plan becoming longer and more extensive;

 

    regulatory authorities increasing the data and information required to approve our product candidates and imposing other requirements; and

 

    our collaboration partners terminating our existing agreements.

The occurrence of any or all of these events may cause the development of our product candidates to be delayed or terminated, which could materially and adversely affect our business and prospects. See “Business—Our Development Program for Roxadustat” and “Business—FG-3019 for the Treatment of Fibrosis and Cancer” for a discussion of the adverse events and serious adverse events that have emerged in clinical trials of roxadustat and FG-3019.

Clinical trials of our product candidates may not uncover all possible adverse effects that patients may experience.

Clinical trials are conducted in representative samples of the potential patient population which may have significant variability. Clinical trials are by design based on a limited number of subjects and of limited duration for exposure to the product used to determine whether, on a potentially statistically significant basis, the planned safety and efficacy of any product candidate can be achieved. As with the results of any statistical sampling, we cannot be sure that all side effects of our product candidates may be uncovered, and it may be the case that only with a significantly larger number of patients exposed to the product candidate for a longer duration, may a more complete safety profile be identified. Further, even larger clinical trials may not identify rare serious adverse effects or the duration of such studies may not be sufficient to identify when those events may occur. There have

 

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been other products, including ESAs, that have been approved by the regulatory authorities but for which safety concerns have been uncovered following approval. Such safety concerns have led to labelling changes or withdrawal of ESA products from the market, and any of our product candidates may be subject to similar risks. For example, roxadustat for use in anemia in CKD is being developed to address a very diverse patient population expected to have many serious health conditions at the time of administration of roxadustat, including diabetes, high blood pressure and declining kidney function.

Although to date we have not seen evidence of significant safety concerns with our product candidates currently in clinical trials, patients treated with our products, if approved, may experience adverse reactions and it is possible that the FDA or other regulatory authorities may ask for additional safety data as a condition of, or in connection with, our efforts to obtain approval of our product candidates. If safety problems occur or are identified after our product candidates reach the market, we may, or regulatory authorities may require us to amend the labeling of our products, recall our products or even withdraw approval for our products.

We may fail to enroll a sufficient number of patients in our clinical trials in a timely manner, which could delay or prevent clinical trials of our product candidates.

Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. The timing of our clinical trials depends on the rate at which we can recruit and enroll patients in testing our product candidates. Patients may be unwilling to participate in clinical trials of our product candidates for a variety of reasons, some of which may be beyond our control:

 

    severity of the disease under investigation;

 

    availability of alternative treatments;

 

    size and nature of the patient population;

 

    eligibility criteria for and design of the study in question;

 

    perceived risks and benefits of the product candidate under study;

 

    ongoing clinical trials of competitive agents;

 

    physicians’ and patients’ perceptions as to the potential advantages of our product candidates being studied in relation to available therapies or other products under development;

 

    our, our CRO’s, and our trial sites’ efforts to facilitate timely enrollment in clinical trials;

 

    patient referral practices of physicians; and

 

    ability to monitor patients and collect patient data adequately during and after treatment.

Patients may be unwilling to participate in our clinical trials for roxadustat due to adverse events observed in other drug treatments of anemia in CKD, and patients currently controlling their disease with existing ESAs may be reluctant to participate in a clinical trial with an investigational drug. We may not be able to successfully initiate or continue clinical trials if we cannot rapidly enroll a sufficient number of eligible patients to participate in the clinical trials required by regulatory agencies. If we have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay, limit or terminate on-going or planned clinical trials, any of which could have a material and adverse effect on our business and prospects.

If we or third party manufacturers on which we rely cannot manufacture our product candidates and/or products at sufficient yields, we may experience delays in development, regulatory approval and commercialization.

Completion of our clinical trials and commercialization of our product candidates require access to, or development of, facilities to manufacture our product candidates at sufficient yields and at commercial scale. We have limited experience manufacturing, or managing third parties in manufacturing any of our product candidates

 

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in the volumes that are expected to be necessary to support large-scale clinical trials and sales. Our efforts to establish these capabilities may not meet our requirements as to scale-up, yield, cost, potency or quality in compliance with cGMP. Our clinical trials must be conducted with product produced under applicable cGMP regulations. Failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. Even an experienced third party manufacturer may encounter difficulties in production, which difficulties may include:

 

    costs and challenges associated with scale-up and attaining sufficient manufacturing yields, in particular for biologic products such as FG-3019, which is a monoclonal antibody;

 

    supply chain issues, including the timely availability and shelf life requirements of raw materials and supplies;

 

    quality control and assurance;

 

    shortages of qualified personnel and capital required to manufacture large quantities of product;

 

    compliance with regulatory requirements that vary in each country where a product might be sold;

 

    capacity limitations and scheduling availability in contracted facilities; and

 

    natural disasters that affect facilities and possibly limit production.

Any delay or interruption in the supply of our product candidates or products could have a material adverse effect on our business and operations.

Even if we are able to obtain regulatory approval of our product candidates, the label we obtain may limit the indicated uses for which our product candidates may be marketed.

With respect to roxadustat, we expect that regulatory approvals, if obtained at all, will limit the approved indicated uses for which roxadustat may be marketed, as ESAs have been subject to significant safety limitations on usage as directed by the “Black Box” warnings included in their labels. See “Business—Roxadustat For the Treatment of Anemia in Chronic Kidney Disease—Limitations of the Current Standard of Care for Anemia in CKD”. In addition, in the past, an approved ESA was voluntarily withdrawn due to serious safety issues discovered after approval. The safety concerns relating to ESAs may result in labeling for roxadustat containing similar warnings even if our Phase 3 clinical trials do not suggest that roxadustat has similar safety issues. Even if the label for roxadustat does not contain all of the warnings contained in the Black Box warning for ESAs, the label for roxadustat may contain other warnings that limit the market opportunity for roxadustat. These warnings could include warnings against exceeding specified Hb targets and other warnings that derive from the lack of clarity regarding the basis for the safety issues associated with ESAs, even if our Phase 3 clinical trials do not themselves raise safety concerns.

As an organization, we have never completed a Phase 3 clinical trial or submitted a New Drug Application, or NDA, before, and may be unable to do so efficiently or at all for roxadustat or any product candidate we are developing.

We are currently conducting Phase 2 clinical trials for FG-3019 and we may need to conduct additional Phase 2 clinical trials before initiating our Phase 3 clinical trials for FG-3019. We intend to conduct Phase 3 clinical trials of roxadustat, and if our Phase 2 clinical trials are successful for FG-3019, we intend to conduct Phase 3 clinical trials for FG-3019. The conduct of Phase 3 clinical trials and the submission of a successful NDA is a complicated process. As an organization, we have not completed a Phase 3 clinical trial before, have limited experience in preparing, submitting and prosecuting regulatory filings, and have not submitted an NDA before. Consequently, we may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to NDA submission and approval of roxadustat or for any other product candidate we are developing, even if our earlier stage clinical trials are successful. We may require more time and incur greater

 

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costs than our competitors and may not succeed in obtaining regulatory approvals of product candidates that we develop. Failure to commence or complete, or delays in, our planned clinical trials would prevent us from or delay us in commercializing roxadustat or any other product candidate we are developing.

If we are unable to establish sales, marketing and distribution capabilities or enter into or maintain agreements with third parties to market and sell our product candidates, we may not be successful in commercializing our product candidates if and when they are approved.

We do not have a sales or marketing infrastructure and have no experience in the sales, marketing or distribution of pharmaceutical products in any country. To achieve commercial success for any product for which we obtain marketing approval, we will need to establish sales and marketing capabilities or make and maintain our existing arrangements with third parties to perform these services at a level sufficient to support our commercialization efforts.

To the extent that we would undertake sales and marketing of any of our products directly, there are risks involved with establishing our own sales, marketing and distribution capabilities. Factors that may inhibit our efforts to commercialize our products on our own include:

 

    our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;

 

    the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future products;

 

    our inability to effectively manage geographically dispersed sales and marketing teams;

 

    the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and

 

    unforeseen costs and expenses associated with creating an independent sales and marketing organization.

With respect to roxadustat, we are dependent on the commercialization capabilities of our collaboration partners, AstraZeneca and Astellas. If either such partner were to terminate its agreement with us, we would have to commercialize on our own or with another third party. We will have limited or little control over the commercialization efforts of such third parties, and either of them may fail to devote the necessary resources and attention to sell and market our products, if any, effectively. If they are not successful in commercializing our product candidates, our business and financial condition would suffer.

We face substantial competition, which may result in others discovering, developing or commercializing products before, or more successfully, than we do.

The development and commercialization of new pharmaceutical products is highly competitive. Our future success depends on our ability to achieve and maintain a competitive advantage with respect to the development and commercialization of our product candidates. Our objective is to discover, develop and commercialize new products with superior efficacy, convenience, tolerability and safety. We expect that in many cases, the products that we commercialize will compete with existing, market-leading products of companies that have large, established commercial organizations.

If roxadustat is approved and launched commercially, competing drugs are expected to include ESAs such as EPOGEN® and Aranesp®, commercialized by Amgen Inc., Procrit® and Eprex®, commercialized by Johnson & Johnson Inc., and Mircera®, which has received marketing approval in the United States, has been commercialized by Hoffmann-La Roche, or Roche, outside of the United States, and which Roche is able to commercialize in the United States beginning in mid-2014 if it chooses to do so. ESAs currently comprise the standard of care in the treatment of anemia in CKD, serving a significant majority of dialysis patients on Medicare. It may be difficult to encourage treatment providers and patients to switch from products with which

 

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they have become familiar to roxadustat. We may also face competition from potential new anemia therapies currently in clinical development. For example, there are several other HIF product candidates in various stages of active development for anemia indications that may be in competition with roxadustat for patient recruitment and enrollment for clinical trials and may be in direct competition with roxadustat if and when it is approved and launched commercially. These candidates are being developed by such companies as Akebia Pharmaceuticals, Inc., or Akebia, Bayer Corporation, GlaxoSmithKline plc and Japan Tobacco Inc. Some of these product candidates may enter the market prior to roxadustat. There may be new therapies for renal-related diseases that could limit the market or level of reimbursement available for roxadustat if and when it is commercialized.

The introduction of biosimilars for ESAs into the market in the United States will likely also increase the competition for roxadustat if approved. A biosimilar product is a follow-on version of an existing, branded biologic product. Under current laws, an application for a biosimilar product should not be approved by the FDA until 12 years after the existing, patent-protected product was approved under a Biologics License Application, or BLA. The patents for the existing, branded product must expire in a given market before biosimilars may enter that market with limited or no risk of being sued for patent infringement. The patents for epoetin alfa, a version of EPOGEN, expired in 2004 in the European Union, and the remaining patents have expired or will expire between 2012 and 2015 in the United States. Several biosimilar versions of currently marketed ESAs are available for sale in the EU and other biosimilars are currently under development, including in the United States.

Furthermore, in the case of roxadustat, many of our existing and potential competitors have distribution relationships with leading dialysis providers and customers as well as brand recognition and reimbursement. Two of the largest operators of dialysis clinics in the United States, DaVita Healthcare Partners Inc., or DaVita, and Fresenius SE & Co. KGaA, or Fresenius, represent more than 60% of the dialysis market in the United States and have entered into long-term sales agreements with Amgen that began in January 2012, which in the case of Fresenius, includes an exclusive relationship. As a result, successful penetration of this market would require AstraZeneca to reach a significant agreement with Fresenius or DaVita, the two largest dialysis clinics in the United States, on favorable terms and on a timely basis.

If FG-3019 is approved and launched commercially to treat IPF, competing drugs are expected to include Intermune’s pirfenidone, which is approved for marketing in Europe, Canada, Japan and the United States, and Boehringer Ingelheim’s nintedanib which has been approved in the United States and has been submitted for accelerated approval in the EU. Nintedanib is also in development for non-small cell lung cancer and ovarian cancer. Other potential competitive product candidates in various stages of Phase 2 development for IPF include Gilead Sciences, Inc.’s simtuzumab, Celgene Corporation’s CC-4047 and CC-930, Janssen Biotech, Inc. and Johnson & Johnson Inc.’s CNTO-888, Sanofi’s GC-1008, Novartis’ QAX-576 and Biogen Idec’s STX-100.

If FG-3019 is approved and launched commercially to treat pancreatic cancer, we expect it to be used in combination instead of as monotherapy; and, likely competition for FG-3019 would be from other agents also seeking approval in combination with gemcitibine and nab-paclitaxel from companies such as Threshold Pharmaceuticals, Inc., Gilead Sciences, Inc. and Halozyme Therapeutics, Inc. Gemcitabine and/or nab-paclitaxel are the current standard of care in the first-line treatment of metastatic pancreatic cancer. Celgene Corporation’s Abraxane® (nab-paclitaxel) was launched in the U.S. and Europe in 2013 and 2014, respectively, and was the first drug approved in this disease in nearly a decade. Other chemotherapies include capecitabine (Xeloda®), oxaliplatin (Eloxatin®), fluorouracil or leucovorin. There are a number of product candidates in clinical trials for pancreatic cancer, many of which are in combination with existing chemotherapies, as both first-line and second-line therapy for metastatic pancreatic cancer. In a recent Phase 3 clinical trial in first-line metastatic pancreatic cancer comparing gemcitabine with the regimen known as FOLFIRINOX, which is a combination of oxaliplatin, irinotecan, fluorouracil and leucovorin. Merrimack Pharmaceuticals, Inc. is currently conducting a pivotal Phase 3 clinical trial of MM-398 for the treatment of patients with metastatic pancreatic cancer who have previously failed treatment with gemcitabine.

 

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The success of any or all of these potential competitive products may negatively impact the development and potential for success of FG-3019. In addition, any competitive products that are on the market or in development may compete with FG-3019 for patient recruitment and enrollment for clinical trials or may force us to change our clinical trial comparators, whether placebo or active, in order to compare FG-3019 against another drug, which may be the new standard of care.

Moreover, many of our competitors have significantly greater resources than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients, manufacturing pharmaceutical products, and commercialization. In the potential anemia market for roxadustat, for example, large and established companies such as Amgen and Roche, among others, compete aggressively to maintain their market shares. In particular, these companies have greater experience and expertise in securing reimbursement, government contracts and relationships with key opinion leaders; conducting testing and clinical trials; obtaining and maintaining regulatory approvals and distribution relationships to market products; and marketing approved products. These companies also have significantly greater research and marketing capabilities than we do and may also have products that have been approved or are in later stages of development, and have collaboration agreements in our target markets with leading dialysis companies and research institutions. These competitors have in the past successfully prevented new and competing products from entering into the anemia market, and we expect that their resources will represent challenges for us and our collaboration partners, AstraZeneca and Astellas. If we and our collaboration partners are not able to compete effectively against existing and potential competitors, our business and financial condition may be materially and adversely affected.

Our future commercial success depends upon attaining significant market acceptance of our product candidates, if approved, among physicians, patients, third party payors and others in the health care community.

Even if we obtain marketing approval for roxadustat, FG-3019 or any other product candidates that we may develop or acquire in the future, these product candidates may not gain market acceptance among physicians, third party payors, patients and others in the health care community. Market acceptance of any approved product depends on a number of other factors, including:

 

    the clinical indications for which the product is approved and the labeling required by regulatory authorities for use with the product, including any warnings that may be required in the labeling;

 

    acceptance by physicians and patients of the product as a safe and effective treatment and the willingness of the target patient population to try new therapies and of physicians to prescribe new therapies;

 

    the cost, safety, efficacy and convenience of treatment in relation to alternative treatments;

 

    the restrictions on the use of our products together with other medications, if any;

 

    the availability of adequate coverage and reimbursement or pricing by third party payors and government authorities;

 

    the ability of treatment providers, such as dialysis clinics, to enter into relationships with us without violating their existing agreement; and

 

    the effectiveness of our sales and marketing efforts.

For example, in the case of roxadustat, two of the largest operators of dialysis clinics in the United States, DaVita and Fresenius, represent more than 60% of the dialysis market in the United States and have entered into long-term sales agreements with Amgen that began in January 2012, which in the case of Fresenius, includes an exclusive relationship.

 

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Limited reimbursement or insurance coverage of our approved products, if any, by third party payors may render our products less attractive to patients and healthcare providers.

Market acceptance and sales of any approved products will depend significantly on reimbursement or coverage of our products by third party payors and may be affected by existing and future healthcare reform measures or the prices of related products for which reimbursement third party applies. Coverage and reimbursement by a third party payor may depend upon a number of factors, including the third party payor’s determination that use of a product is:

 

    a covered benefit under its health plan;

 

    safe, effective and medically necessary;

 

    appropriate for the specific patient;

 

    cost-effective; and

 

    neither experimental nor investigational.

Obtaining coverage and reimbursement approval for a product from a government or other third party payor is a time consuming and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data for the use of our products to the payor, which we may not be able to provide. Furthermore, the reimbursement policies of third party payors may significantly change in a manner that renders our clinical data insufficient for adequate reimbursement or otherwise limits the successful marketing of our products. Even if we obtain coverage for our product candidates, third party payors may not establish adequate reimbursement amounts, which may reduce the demand for, or the price of, our products. If reimbursement is not available or is available only to limited levels, we may not be able to commercialize certain of our products.

In countries outside of the United States, price controls may limit the price at which products such as roxadustat, if approved, are sold. For example, reference pricing is used by various European Union member states and parallel distribution, or arbitrage between low-priced and high-priced member states, can further reduce prices. In some countries, we or our partner may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of our product candidates to other available products in order to obtain or maintain reimbursement or pricing approval. Publication of discounts by third party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unacceptable levels, we or our partner may elect not to commercialize our products in such countries, and our business and financial condition could be adversely affected.

Risks Related to Our Reliance on Third Parties

If our collaborations with Astellas or AstraZeneca were terminated, or if Astellas or AstraZeneca were to prioritize other initiatives over their collaborations with us, whether as a result of a change of control or otherwise, our ability to successfully develop and commercialize our lead product candidate, roxadustat, would suffer.

We have entered into collaboration agreements with respect to the development and commercialization of our lead product candidate, roxadustat, with Astellas and AstraZeneca. These agreements provide for reimbursement of our development costs by our collaboration partners and also provide for commercialization of roxadustat throughout the major territories of the world.

Our agreements with Astellas and AstraZeneca provide each of them with the right to terminate their respective agreements with us, upon the occurrence of negative clinical results, delays in the development and commercialization of our product candidates or adverse regulatory requirements or guidance. The termination of any of our collaboration agreements would require us to fund and perform the further development and commercialization of roxadustat in the affected territory, or pursue another collaboration, which we may be

 

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unable to do, either of which could have an adverse effect on our business and operations. In addition, each of those agreements provides our respective partners the right to terminate any of those agreements upon written notice for convenience. Moreover, if Astellas or AstraZeneca, or any successor entity, were to determine that their collaborations with us are no longer a strategic priority, or if either of them or a successor were to reduce their level of commitment to their collaborations with us, our ability to develop and commercialize roxadustat could suffer. In addition, some of our collaborations are exclusive and preclude us from entering into additional collaboration agreements with other parties in the area or field of exclusivity.

If we fail to establish and maintain strategic collaborations related to our product candidates, we will bear all of the risk and costs related to the development and commercialization of any such product candidate, and we may need to seek additional financing, hire additional employees and otherwise develop expertise at significant cost. This in turn may negatively affect the development of our other product candidates as we direct resources to our most advanced product candidates.

Conflicts with our collaboration partners could jeopardize our collaboration agreements and our ability to commercialize product candidates.

Our collaboration partners have certain rights to control decisions regarding the development and commercialization of our product candidates with respect to which they are providing funding. If we have a disagreement over strategy and activities, our plans for obtaining approval may be revised and negatively affect the anticipated timing and potential for success of our product candidates. Even if a product under a collaboration agreement is approved, we will remain substantially dependent on the commercialization strategy and efforts of our collaboration partners, and neither of our collaboration partners has experience in commercialization of a novel drug such as roxadustat in the dialysis market.

With respect to our collaboration agreements for roxadustat, there are additional complexities in that we and our collaboration partners, Astellas and AstraZeneca, must reach consensus on our Phase 3 development program. Multi-party decision-making is complex and involves significant time and effort, and there can be no assurance that the parties will cooperate or reach consensus, or that one or both of our partners will not ask to proceed independently in some or all of their respective territories or functional areas of responsibility in which the applicable collaboration partner would otherwise be obligated to cooperate with us. Any disputes or lack of cooperation with us by either Astellas or AstraZeneca may negatively impact the timing or success of our planned Phase 3 clinical studies.

We intend to conduct proprietary research programs in specific disease areas that are not covered by our collaboration agreements. Our pursuit of such opportunities could, however, result in conflicts with our collaboration partners in the event that any of our collaboration partners takes the position that our internal activities overlap with those areas that are exclusive to our collaboration agreements, and we should be precluded from such internal activities. Moreover, disagreements with our collaboration partners could develop over rights to our intellectual property. In addition, our collaboration agreements may have provisions that give rise to disputes regarding the rights and obligations of the parties. Any conflict with our collaboration partners could lead to the termination of our collaboration agreements, delay collaborative activities, reduce our ability to renew agreements or obtain future collaboration agreements or result in litigation or arbitration and would negatively impact our relationship with existing collaboration partners.

Certain of our collaboration partners could also become our competitors in the future. If our collaboration partners develop competing products, fail to obtain necessary regulatory approvals, terminate their agreements with us prematurely or fail to devote sufficient resources to the development and commercialization of our product candidates, the development and commercialization of our product candidates and products could be delayed.

 

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We rely on third parties for the conduct of most of our preclinical and clinical trials for our product candidates, and if our third party contractors do not properly and successfully perform their obligations under our agreements with them, we may not be able to obtain or may be delayed in receiving regulatory approvals for our product candidates.

We rely heavily on university, hospital, dialysis centers and other institutions and third parties, including the principal investigators and their staff, to carry out our clinical trials in accordance with our clinical protocols and designs. We also rely on a number of third party contract research organizations, or CROs, to assist in undertaking, managing, monitoring and executing our ongoing clinical trials, including those for roxadustat. We expect to continue to rely on CROs, clinical data management organizations, medical institutions and clinical investigators to conduct our development efforts in the future, including our Phase 3 development program for roxadustat. We compete with many other companies for the resources of these third parties, and large pharmaceutical companies often have significantly more extensive agreements and relationships with such third party providers, and such third party providers may prioritize the requirements of such large pharmaceutical companies over ours. The third parties on whom we rely may terminate their engagements with us at any time, which may cause delay in the development and commercialization of our product candidates. If any such third party terminates its engagement with us or fails to perform as agreed, we may be required to enter into alternative arrangements, which would result in significant cost and delay to our product development program. Moreover, our agreements with such third parties generally do not provide assurances regarding employee turnover and availability, which may cause interruptions in the research on our product candidates by such third parties.

Moreover, while our reliance on these third parties for certain development and management activities will reduce our control over these activities, it will not relieve us of our responsibilities. For example, the FDA and foreign regulatory authorities require compliance with regulations and standards, including good clinical practices, or GCP, requirements, for designing, conducting, monitoring, recording, analyzing and reporting the results of clinical trials to ensure that the data and results from trials are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Although we rely on third parties to conduct our clinical trials, we are responsible for ensuring that each of these clinical trials is conducted in accordance with its general investigational plan and protocol under legal and regulatory requirements. Regulatory authorities enforce these GCP requirements through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to comply with applicable GCP requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or other regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements.

If CROs and other third parties do not successfully carry out their duties under their agreements with us, if the quality or accuracy of the data they obtain is be compromised due to their failure to adhere to trial protocols or to regulatory requirements, or if they otherwise fail to comply with regulations and trial protocols or meet expected standards or deadlines, the trials of our product candidates may not meet regulatory requirements. If trials do not meet regulatory requirements or if these third parties need to be replaced, the development of our product candidates may be delayed, suspended or terminated, or the results may not be acceptable. If any of these events occur, we may not be able to obtain regulatory approval of our product candidates on a timely basis, at a reasonable cost, or at all.

 

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We currently rely, and expect to continue to rely, on third parties to conduct many aspects of our product manufacturing, and these third parties may not perform satisfactorily.

We do not have any operating manufacturing facilities at this time, and our current manufacturing facility plans in China are not expected to satisfy the requirements necessary to support roxadustat development and commercialization outside of China. Other than in and for China specifically, we do not expect to independently manufacture our products. We currently rely, and expect to continue to rely, on third parties to scale-up, manufacture and supply roxadustat and our other product candidates outside of China. Risks arising from our reliance on third party manufacturers include:

 

    reduced control and additional burdens of oversight as a result of using third party manufacturers for all aspects of manufacturing activities, including regulatory compliance and quality control and assurance;

 

    termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that may negatively impact our planned development and commercialization activities;

 

    the possible misappropriation of our proprietary technology, including our trade secrets and know-how; and

 

    disruptions to the operations of our third party manufacturers or suppliers unrelated to our product, including the bankruptcy of the manufacturer or supplier or a catastrophic event affecting our manufacturers or suppliers.

Any of these events could lead to development delays or failure to obtain regulatory approval, or affect our ability to successfully commercialize our product candidates. Some of these events could be the basis for action by the FDA or another regulatory authority, including injunction, recall, seizure or total or partial suspension of production.

The facilities used by our contract manufacturers to manufacture our product candidates must pass inspections by the FDA and other regulatory authorities. Although, except for China, we do not control the manufacturing operations of, and expect to remain completely dependent on, our contract manufacturers for manufacture of drug substance and finished drug product, we are ultimately responsible for ensuring that our product candidates are manufactured in compliance with cGMP requirements. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the regulatory requirements of the FDA or other regulatory authorities, we will not be able to secure and/or maintain regulatory approval for our product candidates. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. In addition, although our longer-term agreements are expected to provide for requirements to meet our quantity and quality requirements to manufacture our products candidates for clinical studies and commercial sale, we will have minimal direct control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel and we expect to rely on our audit rights to ensure that those qualifications are maintained to meet our requirements. If our contract manufacturers’ facilities do not pass inspection by regulatory authorities, or if regulatory authorities do not approve these facilities for the manufacture of our products, or withdraw any such approval in the future, we would need to identify and qualify alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our products, if approved. Moreover, any failure of our third party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us or adverse regulatory consequences, including clinical holds, warnings or untitled letters, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which would be expected to significantly and adversely affect supplies of our products to us and our collaboration partners.

Any of our third party manufacturers may terminate their engagement with us at any time and we have not yet entered into any commercial supply agreements for the manufacture of active pharmaceutical ingredient or drug product. With respect to roxadustat, AstraZeneca and Astellas have certain rights to assume manufacturing of

 

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roxadustat and the existence of those rights may limit our ability to enter into favorable long-term supply agreements, if at all, with other third party manufacturers. In addition, our product candidates and any products that we may develop may compete with other product candidates and products for access and prioritization to manufacture. Certain third party manufacturers may be contractually prohibited from manufacturing our product due to non-compete agreements with our competitors or a commitment to grant another party priority relative to our products. There are a limited number of third party manufacturers that operate under cGMP and that might be capable of manufacturing to meet our requirements. Due to the limited number of third party manufacturers with the contractual freedom, expertise, required regulatory approvals and facilities to manufacture our products on a commercial scale, identifying and qualifying a replacement third party manufacturer would be expensive and time-consuming and may cause delay or interruptions in the production of our product candidates or products, which in turn may delay, prevent or impair our development and commercialization efforts.

We have a letter agreement with IRIX Pharmaceuticals, Inc., or IRIX, a third party manufacturer that we have used in the past, pursuant to which we agreed to negotiate a single source manufacturing agreement that included a right of first negotiation for the cGMP manufacture of HIF-PH inhibitors, including roxadustat, provided that IRIX is able to match any third party bids within 5%. The exclusive right to manufacture extends for five years after approval of an NDA for those compounds, and any agreement would provide that no minimum amounts would be specified until appropriate by forecast, that we and a commercialization partner would have the rights to contract with independent third parties that exceed IRIX’s internal manufacturing capabilities or in the event that we or our commercialization partner determines for reasons of continuity of supply and security that such a need exists, provided that IRIX would supply no less than 65% of the product if it is able to provide this level of supply. Subsequent to the letter agreement, we and IRIX have entered into several additional service agreements. IRIX has requested in writing that we honor the letter agreement with respect to the single source manufacturing agreement, and if we were to enter into any such exclusive manufacturing agreement, there can be no assurance that IRIX will not assert a claim for right to manufacture roxadustat or that IRIX could manufacture roxadustat successfully and in accordance with applicable regulations for a commercial product and the specifications of our collaboration partners.

If any third party manufacturer terminates its engagement with us or fails to perform as agreed, we may be required to find replacement manufacturers, which would result in significant cost and delay to our development programs. Although we believe that there are several potential alternative manufacturers who could manufacture our product candidates, we may incur significant delays and added costs in identifying, qualifying and contracting with any such third party or potential second source manufacturer. In any event, with any third party manufacturer we expect to enter into technical transfer agreements and share our know-how with the third party manufacturer, which can be time-consuming and may result in delays. These delays could result in a suspension or delay of our Phase 3 clinical trials or, if roxadustat is approved and marketed, a failure to satisfy patient demand.

Certain of the components of our product candidates are acquired from single-source suppliers and have been purchased without long-term supply agreements. The loss of any of these suppliers, or their failure to supply us with supplies of sufficient quantity and quality to complete our drug substance or finished drug product of acceptable quality and an acceptable price, would materially and adversely affect our business.

We do not have an alternative supplier of certain components of our product candidates. To date, we have used purchase orders for the supply of materials that we use in our product candidates. We may be unable to enter into long-term commercial supply arrangements with our vendors, or do so on commercially reasonable terms, which could have a material adverse impact upon our business. In addition, we currently rely on our contract manufacturers to purchase from third-party suppliers some of the materials necessary to produce our product candidates. We do not have direct control over the acquisition of those materials by our contract manufacturers. Moreover, we currently do not have any agreements for the commercial production of those materials.

The logistics of our supply chain, which includes shipment of materials and intermediates from countries such as China and India adds additional time and risk to the manufacture of our product candidates. While we have in the

 

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past maintained sufficient inventory of materials, active pharmaceutical ingredient, or API, and drug product to meet our and our collaboration partners’ needs for roxadustat to date, the lead time and regulatory approvals required to source from and into countries outside of the United States increases the risk of delay and potential shortages of supply.

Risks Related to Our Intellectual Property

If our efforts to protect our proprietary technologies are not adequate, we may not be able to compete effectively in our market.

We rely upon a combination of patents, trade secret protection and contractual arrangements to protect the intellectual property related to our technologies. We will only be able to protect our products and proprietary information and technology by preventing unauthorized use by third parties to the extent that our patents, trade secrets, and contractual position allow us to do so. Any disclosure to or misappropriation by third parties of our trade secrets or confidential information could compromise our competitive position. Moreover, we are involved in, have in the past been involved in, and may in the future be involved in legal or administrative proceedings involving our intellectual property and initiated by third parties, which proceedings can result in significant costs and commitment of management time and attention. As our product candidates continue in development, third parties may attempt to challenge the validity and enforceability of our patents and proprietary information and technologies.

We also are involved in, have in the past been involved in, and may in the future be involved in initiating legal or administrative proceedings involving the product candidates and intellectual property of our competitors. These proceedings can result in significant costs and commitment of management time and attention, and there can be no assurance that our efforts would be successful in preventing or limiting the ability of our competitors to market competing products.

Composition-of-matter patents relating to the active pharmaceutical ingredient are generally considered to be the strongest form of intellectual property protection for pharmaceutical products, as such patents provide protection not limited to any one method of use. Method-of-use patents protect the use of a product for the specified method(s), and do not prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. We rely on a combination of these and other types of patents to protect our product candidates, and there can be no assurance that our intellectual property will create and sustain the competitive position of our product candidates.

Biotechnology and pharmaceutical product patents involve highly complex legal and scientific questions and can be uncertain. Any patent applications that we own or license may fail to result in issued patents. Even if patents do successfully issue from our applications, third parties may challenge their validity or enforceability, which may result in such patents being narrowed, invalidated, or held unenforceable. Even if our patents and patent applications are not challenged by third parties, those patents and patent applications may not prevent others from designing around our claims and may not otherwise adequately protect our product candidates. If the breadth or strength of protection provided by the patents and patent applications we hold with respect to our product candidates is threatened, competitors with significantly greater resources could threaten our ability to commercialize our product candidates. Discoveries are generally published in the scientific literature well after their actual development, and patent applications in the United States and other countries are typically not published until 18 months after filing, and in some cases are never published. Therefore, we cannot be certain that we or our licensors were the first to make the inventions claimed in our owned and licensed patents or patent applications, or that we or our licensors were the first to file for patent protection covering such inventions. Subject to meeting other requirements for patentability, for United States patent applications filed prior to March 16, 2013, the first to invent the claimed invention is entitled to receive patent protection for that invention while, outside the United States, the first to file a patent application encompassing the invention is entitled to patent protection for the invention. The United States moved to a “first to file” system under the Leahy-Smith America Invents Act, or AIA, effective March 16, 2013. The effects of this change and other elements of the AIA

 

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are currently unclear, as the United States Patent and Trademark Office, or USPTO, is still implementing associated regulations, and the applicability of the AIA and associated regulations to our patents and patent applications have not been fully determined. This new system also includes new procedures for challenging issued patents and pending patent applications, which creates additional uncertainty. We may become involved in opposition or interference proceedings challenging our patents and patent applications or the patents and patent applications of others, and the outcome of any such proceedings are highly uncertain. An unfavorable outcome in any such proceedings could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology and compete directly with us, or result in our inability to manufacture, develop or commercialize our product candidates without infringing the patent rights of others.

In addition to the protection afforded by patents, we seek to rely on trade secret protection and confidentiality agreements to protect proprietary know-how, information, or technology that is not covered by our patents. Although our agreements require all of our employees to assign their inventions to us, and we require all of our employees, consultants, advisors and any third parties who have access to our trade secrets, proprietary know-how and other confidential information and technology to enter into appropriate confidentiality agreements, we cannot be certain that our trade secrets, proprietary know-how and other confidential information and technology will not be subject to unauthorized disclosure or that our competitors will not otherwise gain access to or independently develop substantially equivalent trade secrets, proprietary know-how and other information and technology. Furthermore, the laws of some foreign countries, in particular, China, where we have operations, do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property globally. If we are unable to prevent unauthorized disclosure of our intellectual property related to our product candidates and technology to third parties, we may not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business and operations.

Intellectual property disputes with third parties and competitors may be costly and time consuming, and may negatively affect our competitive position.

Our commercial success may depend on our avoiding infringement of the patents and other proprietary rights of third parties as well as on enforcing our patents and other proprietary rights against third parties. Pharmaceutical and biotechnology intellectual property disputes are characterized by complex, lengthy and expensive litigation over patents and other intellectual property rights. We may initiate or become a party to, or be threatened with, future litigation or other proceedings regarding intellectual property rights with respect to our product candidates and competing products.

As our product candidates progress toward commercialization, we or our collaboration partners may be subject to patent infringement claims from third parties. We attempt to ensure that our product candidates do not infringe third party patents and other proprietary rights. However, the patent landscape in competitive product areas is highly complex, and there may be patents of third parties of which we are unaware that may result in claims of infringement. Accordingly, there can be no assurance that our product candidates do not infringe proprietary rights of third parties, and parties making claims against us may seek and obtain injunctive or other equitable relief, which could potentially block further efforts to develop and commercialize our product candidates including roxadustat or FG-3019. Any litigation involving defense against claims of infringement, regardless of the merit of such claims, would involve substantial litigation expense and would be a substantial diversion of management time.

We intend, if necessary, to vigorously enforce our intellectual property in order to protect the proprietary position of our product candidates, including roxadustat and FG-3019. Active efforts to enforce our patents may include litigation, administrative proceedings, or both, depending on the potential benefits that might be available from those actions and the costs associated with undertaking those efforts against third parties. We carefully review and monitor publicly available information regarding products that may be competitive with our product candidates and assert our intellectual property rights where appropriate. We previously prevailed in an administrative challenge initiated by a major biopharmaceutical company regarding our intellectual property

 

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rights, maintaining our intellectual property in all relevant scope, and will continue to protect and enforce our intellectual property rights. Moreover, third parties may continue to initiate new proceedings in the U.S. and foreign jurisdictions to challenge our patents from time to time.

We may consider administrative proceedings and other means for challenging third party patents and patent applications. Third parties may also challenge our patents and patent applications, through interference, reexamination, inter partes review, and post-grant review proceedings before the USPTO or through other comparable proceedings, such as oppositions or invalidation proceedings, before foreign patent offices. An unfavorable outcome in any such challenge could require us to cease using the related technology and to attempt to license rights to it from the prevailing third party, which may not be available on commercially reasonable terms, if at all, in which case our business could be harmed. Even if we are successful, participation in administrative proceedings before the USPTO or a foreign patent office may result in substantial costs and time on the part of our management and other employees. For example, on December 5, 2013, Akebia filed an opposition to our European Patent No. 1463823, or the ‘823 patent, with the European Patent Office, and Akebia and other third parties may initiate or pursue similar proceedings with the European Patent Office or other corresponding foreign jurisdictions. The granted claims of the ‘823 patent encompass the use of roxadustat for the treatment of anemia. While we believe the ‘823 patent will be upheld in its entirety, the ultimate outcome of the opposition remains uncertain, and ultimate resolution of the proceeding may take a number of years and result in substantial costs to us.

Furthermore, there is a risk that any public announcements concerning the status or outcomes of intellectual property litigation or administrative proceedings may adversely affect the price of our stock. If securities analysts or our investors interpret such status or outcomes as negative or otherwise creating uncertainty, our common stock price may be adversely affected.

Our reliance on third parties and agreements with collaboration partners requires us to share our trade secrets, which increases the possibility that a competitor may discover them or that our trade secrets will be misappropriated or disclosed.

Our reliance on third party contractors to develop and manufacture our product candidates is based upon agreements that limit the rights of the third parties to use or disclose our confidential information, including our trade secrets and know-how. Despite the contractual provisions, the need to share trade secrets and other confidential information increases the risk that such trade secrets and information are disclosed or used, even if unintentionally, in violation of these agreements. In the highly competitive markets in which our product candidates are expected to compete, protecting our trade secrets, including our strategies for addressing competing products, is imperative, and any unauthorized use or disclosure could impair our competitive position and may have a material adverse effect on our business and operations.

In addition, our collaboration partners are larger, more complex organizations than ours, and the risk of inadvertent disclosure of our proprietary information may be increased despite their internal procedures and contractual obligations in place with our collaboration partners. Despite our efforts to protect our trade secrets and other confidential information, a competitor’s discovery of such trade secrets and information could impair our competitive position and have an adverse impact on our business.

We have an extensive worldwide patent portfolio. The cost of maintaining our patent protection is high and maintaining our patent protection requires continuous review and compliance in order to maintain worldwide patent protection. We may not be able to effectively maintain our intellectual property position throughout the major markets of the world.

The USPTO and foreign patent authorities require maintenance fees and payments as well as continued compliance with a number of procedural and documentary requirements. Noncompliance may result in abandonment or lapse of the subject patent or patent application, resulting in partial or complete loss of patent

 

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rights in the relevant jurisdiction. Non-compliance may result in reduced royalty payments for lack of patent coverage in a particular jurisdiction from our collaboration partners or may result in competition, either of which could have a material adverse effect on our business.

We have made, and will continue to make, certain strategic decisions in balancing costs and the potential protection afforded by the patent laws of certain countries. As a result, we may not be able to prevent third parties from practicing our inventions in all countries throughout the world, or from selling or importing products made using our inventions in and into the United States or other countries. Third parties may use our technologies in territories in which we have not obtained patent protection to develop their own products and, further, may infringe our patents in territories which provide inadequate enforcement mechanisms, even if we have patent protection. Such third party products may compete with our product candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

The laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the United States, and we may encounter significant problems in securing and defending our intellectual property rights outside the United States.

Many companies have encountered significant problems in protecting and defending intellectual property rights in certain countries. The legal systems of certain countries, particularly certain developing countries such as China, do not always favor the enforcement of patents, trade secrets, and other intellectual property rights, particularly those relating to pharmaceutical and biotechnology products, which could make it difficult for us to stop infringement of our patents, misappropriation of our trade secrets, or marketing of competing products in violation of our proprietary rights. In China, our intended establishment of significant operations will depend in substantial part on our ability to effectively enforce our intellectual property rights in that country. Proceedings to enforce our intellectual property rights in foreign countries could result in substantial costs and divert our efforts and attention from other aspects of our business, and could put our patents in these territories at risk of being invalidated or interpreted narrowly, or our patent applications at risk of not granting, and could provoke third parties to assert claims against us. We may not prevail in all legal or other proceedings that we may initiate and, if we were to prevail, the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Intellectual property rights do not address all potential threats to any competitive advantage we may have.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and intellectual property rights may not adequately protect our business or permit us to maintain our competitive advantage. The following examples are illustrative:

 

    Others may be able to make compounds that are the same as or similar to our current or future product candidates but that are not covered by the claims of the patents that we own or have exclusively licensed.

 

    We or any of our licensors or strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed.

 

    We or any of our licensors or strategic partners might not have been the first to file patent applications covering certain of our inventions.

 

    Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights.

 

    The prosecution of our pending patent applications may not result in granted patents.

 

    Granted patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors.

 

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    Patent protection on our product candidates may expire before we are able to develop and commercialize the product, or before we are able to recover our investment in the product.

 

    Our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for such activities, as well as in countries in which we do not have patent rights, and may then use the information learned from such activities to develop competitive products for sale in markets where we intend to market our product candidates.

The existence of counterfeit pharmaceutical products in pharmaceutical markets may damage our brand and reputation and have a material adverse effect on our business, operations and prospects.

Counterfeit products, including counterfeit pharmaceutical products, are a significant problem, particularly in China. Counterfeit pharmaceuticals are products sold under the same or very similar brand names and/or having a similar appearance to genuine products, but which are sold without proper licenses or approvals. Such products divert sales from genuine products, often are of lower cost, often are of lower quality (having different ingredients or formulations, for example), and have the potential to damage the reputation for quality and effectiveness of the genuine product. If counterfeit pharmaceuticals illegally sold under our brand name result in adverse side effects to consumers, we may be associated with any negative publicity resulting from such incidents. In addition, consumers may buy counterfeit pharmaceuticals that are in direct competition with our pharmaceuticals, which could have an adverse impact on our revenues, business and results of operations. With respect to China, although the government has recently been increasingly active in policing counterfeit pharmaceuticals, there is not yet an effective counterfeit pharmaceutical regulation control and enforcement system in China. As a result, we may not be able to prevent third parties from selling or purporting to sell our products in China. The proliferation of counterfeit pharmaceuticals has grown in recent years and may continue to grow in the future. The existence of and any increase in the sales and production of counterfeit pharmaceuticals, or the technological capabilities of counterfeiters, could negatively impact our revenues, brand reputation, business and results of operations.

Risks Related to Government Regulation

The regulatory approval process is highly uncertain and we may not obtain regulatory approval for the commercialization of our product candidates.

The time required to obtain approval by the FDA and comparable foreign regulatory authorities is unpredictable, but typically takes many years following the commencement of preclinical studies and clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate, and it is possible that neither roxadustat nor FG-3019, nor any future product candidates we may discover, in-license or acquire and seek to develop in the future, will ever obtain regulatory approval.

Our product candidates could fail to receive regulatory approval from the FDA or other regulatory authorities for many reasons, including:

 

    disagreement over the design or implementation of our clinical trials;

 

    failure to demonstrate that a product candidate is safe and effective for its proposed indication;

 

    failure of clinical trials to meet the level of statistical significance required for approval;

 

    failure to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

    disagreement over our interpretation of data from preclinical studies or clinical trials;

 

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    disagreement over whether to accept efficacy results from clinical trial sites outside the United States where the standard of care is potentially different from that in the United States;

 

    the insufficiency of data collected from clinical trials of our present or future product candidates to support the submission and filing of an NDA or other submission or to obtain regulatory approval;

 

    disapproval of the manufacturing processes or facilities of either our manufacturing plant or third party manufacturers with whom we contract for clinical and commercial supplies; or

 

    changes in the approval policies or regulations that render our preclinical and clinical data insufficient for approval.

The FDA or other regulatory authorities may require more information, including additional preclinical or clinical data to support approval, which may delay or prevent approval and our commercialization plans, or we may decide to abandon the development program altogether. Even if we do obtain regulatory approval, our product candidates may be approved for fewer or more limited indications than we request, approval may be contingent on the performance of costly post-marketing clinical trials, or approval may require labeling that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. In addition, if our product candidates produce undesirable side effects or safety issues, the FDA may require the establishment of REMS or other regulatory authorities may require the establishment of a similar strategy, that may, restrict distribution of our approved products, if any, and impose burdensome implementation requirements on us. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

Even if we believe our current or planned clinical trials are successful, regulatory authorities may not agree that our completed clinical trials provide adequate data on safety or efficacy. Approval by one regulatory authority does not ensure approval by any other regulatory authority. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. We may not be able to file for regulatory approvals and even if we file we may not receive the necessary approvals to commercialize our product candidates in any market.

If our product candidates obtain marketing approval, we will be subject to more extensive healthcare laws, regulation and enforcement and our failure to comply with those laws could have a material adverse effect on our results of operations and financial condition.

If we obtain approval for any of our product candidates, the regulatory requirements applicable to our operations, in particular our sales and marketing efforts, will increase significantly with respect to our operations and the potential for civil and criminal enforcement by the federal government and the states and foreign governments will increase with respect to the conduct of our business. The laws that may affect our operations in the United States include:

 

    the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;

 

    federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third party payors that are false or fraudulent;

 

    the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;

 

    HIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH, and its implementing regulations, which imposes certain requirements relating to the privacy, security, and transmission of individually identifiable health information;

 

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    the federal physician sunshine requirements under PPACA, which requires manufacturers of drugs, devices, biologics, and medical supplies to report annually to the Centers for Medicare and Medicaid Services, or CMS, information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members;

 

    foreign and state law equivalents of each of the above federal laws, such as the U.S. Foreign Corrupt Practices Act, or FCPA, anti-kickback and false claims laws that may apply to items or services reimbursed by any third party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance efforts.

The scope of these laws and our lack of experience in establishing the compliance programs necessary to comply with this complex and evolving regulatory environment increases the risks that we may violate the applicable laws and regulations. If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs and imprisonment, any of which could materially adversely affect our ability to operate our business and our financial results.

The impact of recent United States healthcare reform and other changes in the healthcare industry and in healthcare spending is currently unknown, and may adversely affect our business model.

The commercial potential for our approved products, if any, could be affected by changes in healthcare spending and policy in the United States and abroad. We operate in a highly regulated industry and new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions, related to healthcare availability, the method of delivery or payment for healthcare products and services could negatively impact our business, operations and financial condition.

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, also called the MMA, altered Medicare coverage and payments for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. The MMA also provided authority for limiting the number of drugs that will be covered in any therapeutic class and as a result, we expect that there will be additional pressure to reduce costs. For example, the CMS in implementing the MMA has enacted regulations that reduced capitated payments to dialysis providers. These cost reduction initiatives and other provisions of the MMA could decrease the scope of coverage and the price that may be received for any approved dialysis products and could seriously harm our business and financial condition. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policies and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement that results from the MMA may cause a similar reduction in payments from private payors. Similar regulations or reimbursement policies have been enacted in many international markets which could similarly impact the commercial potential for our products.

Under the Medicare Improvements for Patients and Providers Act, or MIPPA, a basic case-mix adjusted composite, or bundled, payment system commenced in January 2011 and transitioned fully by January 2014 to a single reimbursement rate for drugs and all services furnished by renal dialysis centers for Medicare beneficiaries with end-stage renal disease. Specifically, under MIPPA the bundle now covers drugs, services, lab tests and supplies under a single treatment base rate for reimbursement by CMS based on the average cost per treatment,

 

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including the cost of ESAs and IV iron doses, typically without adjustment for usage. It is unknown whether roxadustat will be included in the payment bundle. If roxadustat is included in the bundle, it may reduce the price that could be charged for roxadustat, and therefore potentially limit our profitability. On the other hand, it is possible that exclusion from the bundle may limit or delay market penetration of roxadustat.

More recently, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively PPACA, was enacted in 2010 with a goal of reducing the cost of healthcare and substantially changing the way healthcare is financed by both government and private insurers. The PPACA, among other things, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and creates a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. In addition, other legislative changes have been proposed and adopted in the United States since the PPACA was enacted. On August 2, 2011, the Budget Control Act of 2011 created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of up to 2% per fiscal year, which went into effect on April 1, 2013.

It is likely that federal and state legislatures within the United States and foreign governments will continue to consider changes to existing healthcare legislation. We cannot predict the reform initiatives that may be adopted in the future or whether initiatives that have been adopted will be repealed or modified. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect:

 

    the demand for any products that may be approved for sale;

 

    the price and profitability of our products;

 

    pricing, coverage and reimbursement applicable to our products;

 

    the ability to successfully position and market any approved product; and

 

    the taxes applicable to our pharmaceutical product revenues.

We may not be able to conduct, or contract others to conduct, animal testing in the future, which could harm our research and development activities.

Certain laws and regulations relating to drug development require us to test our product candidates on animals before initiating clinical trials involving humans. Animal testing activities have been the subject of controversy and adverse publicity. Animal rights groups and other organizations and individuals have attempted to stop animal testing activities by pressing for legislation and regulation in these areas and by disrupting these activities through protests and other means. To the extent the activities of these groups are successful, our research and development activities may be interrupted or delayed.

Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could result in significant liability for us and harm our reputation.

We are exposed to the risk of employee fraud or other misconduct, including intentional failures to comply with FDA regulations or similar regulations of comparable foreign regulatory authorities, provide accurate information to the FDA or comparable foreign regulatory authorities, comply with manufacturing standards we have established, comply with federal and state healthcare fraud and abuse laws and regulations and similar laws

 

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and regulations established and enforced by comparable foreign regulatory authorities, comply with the FCPA and other anti-bribery laws, report financial information or data accurately or disclose unauthorized activities to us. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions, delays in clinical trials, or serious harm to our reputation. We will adopt a code of conduct for our directors, officers and employees, or the Code of Business Conduct and Ethics, which will be effective as of consummation of this offering, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could harm our business, results of operations, financial condition and cash flows, including through the imposition of significant fines or other sanctions.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations applicable to our operations in the United States and foreign countries. These current or future laws and regulations may impair our research, development or manufacturing efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

Risks Related to Our International Operations

We are establishing international operations and seeking approval to commercialize our product candidates outside of the United States, in particular in China, and a number of risks associated with international operations could materially and adversely affect our business.

We expect to be subject to a number risks related with our international operations, many of which may be beyond our control. These risks include:

 

    different regulatory requirements for drug approvals in foreign countries;

 

    different standards of care in various countries that could complicate the evaluation of our product candidates;

 

    different United States and foreign drug import and export rules;

 

    reduced protection for intellectual property rights in certain countries;

 

    unexpected changes in tariffs, trade barriers and regulatory requirements;

 

    different reimbursement systems and different competitive drugs indicated to treat the indications for which our product candidates are being developed;

 

    economic weakness, including inflation, or political instability in particular foreign economies and markets;

 

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    compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

    compliance with the FCPA, and other anti-corruption and anti-bribery laws;

 

    foreign taxes, including withholding of payroll taxes;

 

    foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;

 

    workforce uncertainty in countries where labor unrest is more common than in the United States;

 

    production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;

 

    potential liability resulting from development work conducted by foreign distributors; and

 

    business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters.

The pharmaceutical industry in China is highly regulated and such regulations are subject to change.

The pharmaceutical industry in China is subject to comprehensive government regulation and supervision, encompassing the approval, registration, manufacturing, packaging, licensing and marketing of new drugs. See “Business—Government Regulation—Regulation in China” for a discussion of the regulatory requirements that are applicable to our current and planned business activities in China. In recent years, the regulatory framework in China regarding the pharmaceutical industry has undergone significant changes, and we expect that it will continue to undergo significant changes. Any such changes or amendments may result in increased compliance costs on our business or cause delays in or prevent the successful development or commercialization of our product candidates in China. Chinese authorities have become increasingly vigilant in enforcing laws in the pharmaceutical industry, in some cases launching industry-wide investigations, oftentimes appearing to focus on foreign companies. The costs and time necessary to respond to an investigation can be material. Any failure by us or our partners to maintain compliance with applicable laws and regulations or obtain and maintain required licenses and permits may result in the suspension or termination of our business activities in China.

Patients’ use of traditional Chinese medicine in violation of study protocols in our China studies may lead the CFDA and regulators in other jurisdictions in which are seeking approval to suspend our studies, reject our study data and withhold approval for roxadustat.

A common issue encountered in conducting clinical studies in China is patients’ use of traditional Chinese medicine in violation of study protocols. We believe that many patients with anemia in CKD are currently being treated with traditional Chinese medicine, and it is possible that such patients may continue their use of traditional Chinese medicine after enrollment in our studies and in violation of study protocols. If the patients participating in our China clinical studies do not comply with study protocols and continue to use traditional Chinese medicine, adverse events may emerge in our studies that are due to such traditional Chinese medicine or the interaction between such traditional Chinese medicine and roxadustat. In addition, the use of traditional Chinese medicine by patients in our studies may confound our study results. The occurrence of such adverse events or the confounding our study results may lead the China Food and Drug Administration, or CFDA, and regulators in other jurisdictions in which we are seeking approval to, among other things, suspend our studies, reject our study data and withhold approval for roxadustat.

We are building our own manufacturing facility in China to produce roxadustat and clinical trial material for our corneal implant program. As an organization, we have limited experience in the construction or operation of a manufacturing plant, and, accordingly we cannot assure you we will be able to meet regulatory requirements to operate our plant and to sell our products.

We recently received a Pharmaceutical Production Permit, a general manufacturing license, for our facility in China in which we intend to manufacture roxadustat and FG-5200 in support of the clinical development and

 

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potential commercialization of these product candidates in China. However, we have not yet received a license to commercially manufacture either roxadustat or FG-5200. As an organization, we have limited experience building a manufacturing facility in the past and our facility must be constructed, licensed and operated in conformity with applicable cGMP requirements. We will be obligated to comply with continuing cGMP requirements and there can be no assurance that we will receive and maintain all of the appropriate licenses required to manufacture our product candidates for clinical and commercial use in China. In addition, we and our product suppliers must continually spend time, money and effort in production, record-keeping and quality assurance and appropriate controls in order to ensure that any products manufactured in our facility meet applicable specifications and other requirements for product safety, efficacy and quality and there can be no assurance that our efforts will succeed for licensure or continue to be successful in meeting these requirements. Moreover, our facility, even if approved for the manufacture of roxadustat, would require separate approval for the separate suite being constructed for the manufacture of FG-5200, whether it is categorized as a medical device or other product under CFDA guidelines. For FG-5200, we expect to convert our existing manufacturing process to an automated process which would require us to show that implants from our new manufacturing process are comparable to the implants from our existing manufacturing process. There can be no assurance that we will successfully receive licensure and maintain approval for the manufacture of either or both of roxadustat or FG-5200, either of which would be expected to delay or preclude our ability to develop and commercialize those product candidates in China and may materially adversely affect our business and operations and prospects in China.

Manufacturing facilities in China are subject to periodic unannounced inspections by the CFDA and other regulatory authorities. We expect to depend on these facilities for our product candidates and business operations in China. Natural disasters or other unanticipated catastrophic events, including power interruptions, water shortages, storms, fires, earthquakes, terrorist attacks, government appropriation of our facility, and wars, could significantly impair our ability to operate our manufacturing facility and certain equipment, records and other materials located in these facilities would be difficult to replace or require substantial replacement lead time that would impact our ability to successfully commercialize our product candidates in China. The occurrence of any such event could materially and adversely affect our business, financial condition, results of operations, cash flows and prospects.

Our decision to seek approval in China for roxadustat as a domestic new drug may not be accepted, which would result in additional delay and expense.

Our Chinese subsidiary, FibroGen (China) Medical Technology Development Co., Ltd., or FibroGen China plans to seek approval for roxadustat in China as a Domestic Class 1.1 Drug, which is not a typical route to approval in China for enterprises with headquarters outside of China. Our submission for review of a New Drug Application under domestic drug regulations rather than under the imported drug regulations may not result in approval, or the regulatory authorities may determine that we are not eligible for approval as a domestic drug, which would require us to obtain approval for roxadustat first in the United States or in Europe and then to prepare and submit a new application for approval of roxadustat in China as an imported drug. This would result in significant delay in our commercialization plans for roxadustat. While we plan to provide the China-only clinical trial data required of a domestic drug, the size of our trial in China and the additional safety data from our global roxadustat Phase 3 program may not be deemed sufficient to receive approval. Elements of our plan for approval of roxadustat and other product candidates in China are based on communications with the CFDA and not on formal written regulations, findings or determinations. Accordingly, while we believe we have understandings with the CFDA regarding the domestic drug approval process and the clinical data currently required for approval, the regulatory authorities may later determine that changes are required in the drug approval process, that additional or different clinical data must be generated, or that the domestic drug route may not be available to FibroGen China, any of which could significantly delay approval of roxadustat or any of our other product candidates, and materially and adversely affect our plans and operations in China.

 

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Even if roxadustat is approved in China, we and our collaboration partner in China, AstraZeneca, may experience difficulties in successfully generating sales of roxadustat in China.

We and AstraZeneca have a profit sharing arrangement with respect to roxadustat in China. Even if roxadustat is approved for sale in China, we and AstraZeneca may experience difficulties in our marketing, commercialization and sales efforts in China, and our business and operations could be adversely affected. In particular, sales of roxadustat in China may be limited due to the complex nature of the healthcare system, low average personal income, lack of patient cost reimbursement, pricing controls, poorly developed infrastructure and potentially rapid competition from other products.

The market for treatments of anemia in CKD in China is highly competitive.

Even if roxadustat is approved in China, it will face intense competition in the market for treatments of anemia in CKD. Roxadustat would compete with ESAs, which are offered by established multinational pharmaceutical companies such as Kirin Brewery Company Limited and Roche and Chinese pharmaceutical companies such as 3SBio Inc. and Di’ao Group Chengdu Diao Jiuhong Pharmaceutical Factory. Many of these competitors have substantially greater name recognition, scientific, financial and marketing resources as well as established distribution capabilities than we do. Many of our competitors have more resources to develop or acquire, and more experience in developing or acquiring, new products and in creating market awareness for those products. Many of these competitors have significantly more experience than we have in navigating the Chinese regulatory framework regarding the development, manufacturing and marketing of drugs in China, as well as in marketing and selling anemia products in China. Additionally, we believe that most patients with anemia in CKD in China are currently being treated with traditional Chinese medicine, which is widely accepted and highly prevalent in China. Traditional Chinese medicine treatments are often oral and thus convenient and low-cost, and practitioners of traditional Chinese medicine are numerous and accessible in China. As a result, it may be difficult to persuade patients with anemia in CKD to switch from traditional Chinese medicine to roxadustat.

There is no assurance that roxadustat will be included in the Medical Insurance Catalogs.

Eligible participants in the national basic medical insurance program in China, which consists of mostly urban residents, are entitled to reimbursement from the social medical insurance fund for up to the entire cost of medicines that are included in the Medical Insurance Catalogs. See “Business—Government Regulation—Regulation in China.” We believe that the inclusion of a drug in the Medical Insurance Catalogs can substantially improve the sales of a drug. The Ministry of Labor and Social Security in China, or the MLSS, together with other government authorities, select medicines to be included in the Medical Insurance Catalogs based on a variety of factors, including treatment requirements, frequency of use, effectiveness and price. The MLSS also occasionally removes medicines from such catalogs. There can be no assurance that roxadustat will be included, and once included, remain in the Medical Insurance Catalogs. The exclusion or removal of roxadustat from the Medical Insurance Catalogs may materially and adversely affect sales of roxadustat.

We may not be successful in the tender processes for the purchase of medicines by state-owned and state-controlled hospitals.

Most hospitals in China participate in collective tender processes for the purchase of medicines listed in the Medical Insurance Catalogs and medicines that are consumed in large volumes and commonly prescribed for clinical uses. During a collective tender process, the hospitals will establish a committee consisting of recognized pharmaceutical experts. The committee will assess the bids submitted by the various participating pharmaceutical manufacturers, taking into consideration, among other things, the quality and price of the drug product and the service and reputation of the manufacturer. Only drug products that have been selected in the collective tender processes may be purchased by participating hospitals. If we are unable to win purchase contracts through the collective tender processes in which we decide to participate, there will be limited demand for roxadustat, and sales revenues from roxadustat will be materially and adversely affected.

 

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We plan to seek approval for FG-5200 as a medical device, with respect to which we have no development and manufacturing experience. Even if FG-5200 can be manufactured successfully and achieve regulatory approval, we may not achieve commercial success.

We plan to seek regulatory approval for FG-5200 as a medical device, with respect to which we have no development and manufacturing experience. There can be no assurance that we will achieve medical device designation or receive approval for FG-5200. In addition, we have not yet used the material planned for our clinical trials of FG-5200 in any previous clinical trials and because we have not yet received a license to manufacture FG-5200 in our China manufacturing facility or at scale, we will have to show that FG-5200 from our China manufacturing facility meets the applicable regulatory requirements. There can be no assurance that we can meet these requirements or that FG-5200 can be approved for development, manufacture and sale in China.

Even if we are able to manufacture and develop FG-5200 as a medical device in China, the size and length of any potential clinical trials required for approval are uncertain and we are unable to predict the time and investment required to obtain regulatory approval. Moreover, even if FG-5200 can be successfully developed for approval in China, our product candidate would require extensive training and investment in assisting physicians in the use of FG-5200.

The retail prices of any product candidates that we develop may be subject to control, including periodic downward adjustment, by Chinese government authorities.

The price for pharmaceutical products is highly regulated in China, both at the national and provincial level. Price controls may reduce prices to levels significantly below those that would prevail in less regulated markets or limit the volume of products which may be sold, either of which may have a material and adverse effect on potential revenues from sales of roxadustat in China. Moreover, the process and timing for the implementation of price restrictions is unpredictable, which may cause potential revenues from the sales of roxadustat to fluctuate from period to period.

If our planned business activities in China fall within a restricted category under China Catalog for Guidance for Foreign Investment, we will need to operate in China through a variable interest entity structure.

The China Catalog for Guidance for Foreign Investment sets forth the industries and sectors that the Chinese government encourages and restricts foreign investment and participation. The Catalog for Guidance for Foreign Investment is subject to revision from time to time by China Ministry of Commerce. While we currently do not believe the development and marketing of roxadustat falls within a restricted category under the Catalog for Guidance for Foreign Investment, if roxadustat does fall under such a restricted category, we will need to operate in China through a variable interest entity, or VIE, structure. A VIE structure involves a wholly foreign-owned enterprise that would control and receive the economic benefits of a domestic Chinese company through various contractual relationships. Such a structure would subject us to a number of risks that may have an adverse effect on our business, including that China government may determine that such contractual arrangements do not comply with applicable regulations, Chinese tax authorities may require us to pay additional taxes, shareholders of our VIEs may have potential conflicts of interest with us, and we may lose the ability to use and enjoy assets held by our VIEs that are important to the operations of our business if such entities go bankrupt or become subject to dissolution or liquidation proceedings. VIE structures in China have come under increasing scrutiny from accounting firms and the SEC staff. If we do attempt to use a VIE structure and are unsuccessful in structuring it so as to qualify as a VIE, we would not be able to consolidate the financial statements of the VIE with our financial statements, which could have a material adverse effect on our operating results and financial condition.

FibroGen China would be subject to restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity requirements.

We plan to conduct all of our business in China through FibroGen China. We may rely on dividends and royalties paid by FibroGen China for a portion of our cash needs, including the funds necessary to service any

 

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debt we may incur and to pay our operating expenses. The payment of dividends by FibroGen China is subject to limitations. Regulations in China currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China. FibroGen China is not permitted to distribute any profits until losses from prior fiscal years have been recouped and in any event must maintain certain minimum capital requirements. FibroGen China is also required to set aside at least 10.0% of its after-tax profit based on Chinese accounting standards each year to its statutory reserve fund until the cumulative amount of such reserves reach 50.0% of its registered capital. Statutory reserves are not distributable as cash dividends. In addition, if FibroGen China incurs debt on its own behalf in the future, the agreements governing such debt may restrict its ability to pay dividends or make other distributions to us.

Any capital contributions from us to FibroGen China must be approved by the Ministry of Commerce in China, and failure to obtain such approval may materially and adversely affect the liquidity position of FibroGen China.

The Ministry of Commerce in China or its local counterpart must approve the amount and use of any capital contributions from us to FibroGen China, and there can be no assurance that we will be able to complete the necessary government registrations and obtain the necessary government approvals on a timely basis, or at all. If we fail to do so, we may not be able to contribute additional capital to fund our Chinese operations, and the liquidity and financial position of FibroGen China may be materially and adversely affected.

We may be subject to currency exchange rate fluctuations and currency exchange restrictions with respect to our operations in China, which could adversely affect our financial performance.

If roxadustat is approved for sale in China, most of our product sales will occur in local Chinese currency and our operating results will be subject to volatility from currency exchange rate fluctuations. To date, we have not hedged against the risks associated with fluctuations in exchange rates and, therefore, exchange rate fluctuations could have an adverse impact on our future operating results. Changes in value of the Renminbi against the U.S. dollar, Euro and other currencies is affected by, among other things, changes in China’s political and economic conditions. Currently, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. Any significant currency exchange rate fluctuations may have a material adverse effect on our business and financial condition.

In addition, China government imposes controls on the convertibility of the Renminbi into foreign currencies and the remittance of foreign currency out of China for certain transactions. Shortages in the availability of foreign currency may restrict the ability of FibroGen China to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency-denominated obligations. Under existing Chinese foreign exchange regulations, payments of current account items, including profit distributions, interest payments and balance of trade, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. However, approval from SAFE or its local branch is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The China government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our operational requirements, our liquidity and financial position may be materially and adversely affected.

Because FibroGen China’s funds are held in banks that do not provide insurance, the failure of any bank in which FibroGen China deposit its funds could adversely affect our business.

Banks and other financial institutions in China do not provide insurance for funds held on deposit. As a result, in the event of a bank failure, FibroGen China may not have access to funds on deposit. Depending upon the amount of money FibroGen China maintains in a bank that fails, its inability to have access to cash could materially impair its operations.

 

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We may be subject to tax inefficiencies associated with our offshore corporate structure.

The tax regulations of the United States and other jurisdictions in which we operate are extremely complex and subject to change. New laws, new interpretations of existing laws, or limitations on our ability to structure our operations and intercompany transactions may lead to inefficient tax treatment of our revenue, profits, royalties and distributions, if any are achieved. For example, under the Internal Revenue Code, certain types of income derived by our foreign subsidiaries that are controlled foreign corporations could give rise to a current inclusion of income to FibroGen, Inc., for U.S. tax purposes.

In addition, we and our foreign subsidiaries have various intercompany transactions. We may not be able to obtain certain benefits under relevant tax treaties to avoid double taxation on certain transactions among our subsidiaries. If we are not able to avail ourselves of the tax treaties we could be subject to additional taxes, which could adversely affect our financial condition and results of operations.

The enactment of legislation implementing changes in the U.S. taxation of international business activities or the adoption of other tax reform policies could materially impact our financial position and results of operations.

The current Administration has proposed, and Congress has introduced, legislation to reform the U.S. taxation of international business activities, including, but not limited to, limiting the ability of taxpayers to claim and utilize foreign tax credits, limiting the check-the-box regime, revising the rules applicable to transfers of intangible property, and deferring certain tax deductions until non-U.S. earnings are repatriated to the United States. The current Administration has made public statements indicating that it has made the issue a priority, and key members of the U.S. Congress have conducted hearings and proposed legislation. Accordingly, depending on the final form of legislation enacted, if any, the consequences of changes to the U.S. taxation of international business activities may be significant for our China Business and other offshore activities. If any of these proposals are enacted into legislation, they could have material adverse consequences on our effective tax rate, the amount of tax we pay and our financial position and results of operations.

We have implemented a corporate structure taking into consideration our international operations and potentially applicable tax impact on our worldwide operations, and any changes in applicable tax laws and regulations may negatively impact our financial condition and operating results.

We have developed our corporate structure to be closely aligned with the international nature of our business. There can be no assurance that the applicable tax laws and regulations will continue in effect or that the taxing authorities in any or all of the applicable jurisdictions will not challenge one or more aspects or characterizations of our corporate structure and the treatment of transactions or agreements within our corporate structure, or determine that the manner in which we operate our business is not consistent with our corporate structure. Any unfavorable changes in laws and regulations or positions by tax authorities could harm our financial position and results of operations.

Our foreign operations, particularly those in China, are subject to significant risks involving the protection of intellectual property.

We seek to protect the products and technology that we consider important to our business by filing China and international patent applications, relying on trade secrets or pharmaceutical regulatory protection or employing a combination of these methods. We currently have 3 granted patents and 15 pending patent applications relating to roxadustat in China. See “Business—Intellectual Property.” However, the filing of a patent application does not mean that we will be granted a patent, or that any patent eventually granted will be as broad as requested in the patent application or will be sufficient to protect our technology. There are a number of factors that could cause our patents, if granted, to become invalid or unenforceable or that could cause our patent applications not to be granted, including known or unknown prior art, deficiencies in the patent application, or lack of originality

 

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of the technology. Furthermore, the terms of our patents are limited. The patents we hold and patents that may be granted from our currently pending patent applications have, absent any patent term adjustment or extension, a twenty-year protection period starting from the date of application.

Intellectual property rights and confidentiality protections in China may not be as effective as those in the United States or other countries for many reasons, including lack of procedural rules for discovery and evidence, low damage awards, and lack of judicial independence. Implementation and enforcement of Chinese intellectual property laws have historically been deficient and ineffective and may be hampered by corruption and local protectionism. Policing unauthorized use of proprietary technology is difficult and expensive, and we may need to resort to litigation to enforce or defend patents issued to us or to determine the enforceability and validity of our proprietary rights or those of others. The experience and capabilities of Chinese courts in handling intellectual property litigation varies, and outcomes are unpredictable. An adverse determination in any such litigation could materially impair our intellectual property rights and may harm our business.

We are subject to laws and regulations governing corruption, which will require us to develop and implement costly compliance programs.

We must comply with a wide range of laws and regulations to prevent corruption, bribery, and other unethical business practices, including the FCPA and anti-bribery and anti-corruption laws in other countries, particularly China. The creation and implementation of international business practices compliance programs is costly and such programs are difficult to enforce, particularly where reliance on third parties is required.

Anti-bribery laws prohibit us, our employees, and some of our agents or representatives from offering or providing any personal benefit to covered government officials to influence their performance of their duties or induce them to serve interests other than the missions of the public organizations in which they serve. Certain commercial bribery rules also prohibit offering or providing any personal benefit to employees and representatives of commercial companies to influence their performance of their duties or induce them to serve interests other than their employers. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring us to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by the Department of Justice, or DOJ. The Securities and Exchange Commission, or the SEC, is involved with enforcement of the books and records provisions of the FCPA.

Compliance with these anti-bribery laws is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the anti-bribery laws present particular challenges in the pharmaceutical industry, because, in many countries including China, hospitals are state-owned or operated by the government, and doctors and other hospital employees are considered foreign government officials; furthermore, in certain countries (China in particular), hospitals and clinics are permitted to sell pharmaceuticals to their patients and are primary or significant distributors of pharmaceuticals, Certain payments to hospitals in connection with clinical studies, procurement of pharmaceuticals and other work have been deemed to be improper payments to government officials and have led to vigorous anti-bribery law enforcement actions imposing heavy fines in multiple jurisdictions, particularly in the United States and China.

It is not always possible to identify and deter violations, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.

In the pharmaceutical industry, corrupt practices include, among others, acceptance of kickbacks, bribes or other illegal gains or benefits by the hospitals and medical practitioners from pharmaceutical manufacturers, distributors or their third party agents in connection with the prescription of certain pharmaceuticals. If our employees, affiliates, distributors or third party marketing firms violate these laws or otherwise engage in illegal

 

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practices with respect to their sales or marketing of our products or other activities involving our products, we could be required to pay damages or heavy fines by multiple jurisdictions where we operate, which could materially and adversely affect our financial condition and results of operations. The Chinese government has also sponsored anti-corruption campaigns from time to time, which could have a chilling effect on any future marketing efforts by us to new hospital customers. There have been recent occurrences in which certain hospitals have denied access to sales representatives from pharmaceutical companies because the hospitals wanted to avoid the perception of corruption. If this attitude becomes widespread among our potential customers, our ability to promote our products to hospitals may be adversely affected.

As we expand our operations in China and other jurisdictions internationally, we will need to increase the scope of our compliance programs to address the risks relating to the potential for violations of the FCPA and other anti-bribery and anti-corruption laws. Our compliance programs will need to include policies addressing not only the FCPA, but also the provisions of a variety of anti-bribery and anti-corruption laws in multiple foreign jurisdictions, including China, encompass provisions relating to books and records that will apply to us as we become a public company and include effective training for our personnel throughout our organization. The creation and implementation of anti-corruption compliance programs is costly and such programs are difficult to enforce, particularly where reliance on third parties is required. Violation of the FCPA and other anti-corruption laws can result in significant administrative and criminal penalties for us and our employees, including substantial fines, suspension or debarment from government contracting, prison sentences, or even the death penalty in extremely serious cases in certain countries. The SEC also may suspend or bar us from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions. Even if we are not ultimately punished by government authorities, the costs of investigation and review, the distraction of company personnel, legal defense costs, and harm to our reputation could be substantial and could limit our profitability or our ability to develop or commercialize our product candidates. In addition, if any of our competitors are not subject to the FCPA, they may engage in practices that will lead to their receipt of preferential treatment from foreign hospitals and enable them to secure business from foreign hospitals in ways that are unavailable to us.

Our operations in China subject us to various Chinese labor and social insurance laws, and our failure to comply with such laws may materially and adversely affect our business, financial condition and results of operations.

We are subject to China Labor Contract Law, which became effective in 2008 and provides stronger protections for employees and imposes more obligations on employers. The Labor Contract Law places certain restrictions on the circumstances under which employers may terminate labor contracts and require economic compensation to employees upon termination of employment, among other things. In addition, companies operating in China are generally required to contribute to labor union funds and the mandatory social insurance and housing funds. Any failure by us to comply with Chinese labor and social insurance laws may subject us to late fees, fines and penalties, or cause the suspension or termination of our ability to conduct business in China, any of which could have a material and adverse effect on business, results of operations and prospects.

Uncertainties with respect to the China legal system could have a material adverse effect on us.

The legal system of China is a civil law system primarily based on written statutes. Unlike in a common law system, prior court decisions may be cited for reference but are not binding. Because the China legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to us. Moreover, decision makers in China judicial system have significant discretion in interpreting and implementing statutory and contractual terms, which may render it difficult for FibroGen China to enforce the contracts it has entered into with our business partners, customers and suppliers. Different government departments may have different interpretations of certain laws and regulations, and licenses and permits issued or granted by one government authority may be revoked by a higher government authority at a later time. Navigating the uncertainty and change in China legal system will require the devotion of significant resources and time, and there can be no assurance that our contractual and other rights will ultimately be enforced.

 

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Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations.

The Chinese economy and Chinese society continue to undergo significant change. Adverse changes in the political and economic policies of the Chinese government could have a material adverse effect on the overall economic growth of China, which could adversely affect our ability to conduct business in China. The Chinese government continues to adjust economic policies to promote economic growth. Some of these measures benefit the overall Chinese economy, but may also have a negative effect on us. For example, our financial condition and results of operations in China may be adversely affected by government control over capital investments or changes in tax regulations. As the Chinese pharmaceutical industry grows and evolves, the Chinese government may also implement measures to change the structure of foreign investment in this industry. We are unable to predict the frequency and scope of such policy changes, any of which could materially and adversely affect FibroGen China’s liquidity and access to capital and its ability to conduct business in China. Any failure on our part to comply with changing government regulations and policies could result in the loss of our ability to develop and commercialize our product candidates in China.

Risks Related to the Operation of Our Business

We may encounter difficulties in managing our growth and expanding our operations successfully.

As we seek to advance our product candidates through clinical trials and commercialization, we will need to expand our development, regulatory, manufacturing, commercialization and administration capabilities or contract with third parties to provide these capabilities for us. As our operations expand and we undertake the efforts and expense to operate as a public reporting company, we expect that we will need to increase the responsibilities on members of management and manage any future growth effectively. Our failure to accomplish any of them could prevent us from successfully implementing our strategy and maintaining the confidence of investors in our company.

If we fail to attract and keep senior management and key personnel, in particular our chief executive officer, we may be unable to successfully develop our product candidates, conduct our clinical trials and commercialize our product candidates.

We are highly dependent on our chief executive officer, Thomas Neff, and other members of our senior management team. The loss of the services of Mr. Neff or any of these other individuals would be expected to significantly negatively impact the development and commercialization of our product candidates, our existing collaborative relationships and our ability to successfully implement our business strategy.

Recruiting and retaining qualified commercial, development, scientific, clinical and manufacturing personnel are and will continue to be critical to our success. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize product candidates. We may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the intense competition among numerous biopharmaceutical companies for similar personnel.

There is also significant competition, in particular in the San Francisco Bay area, for the hiring of experienced and qualified personnel, which increases the importance of retention of our existing personnel. If we are unable to continue to attract and retain personnel with the quality and experience applicable to our product candidates, our ability to pursue our strategy will be limited and our business and operations would be adversely affected.

 

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If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.

We face an inherent risk of product liability as a result of the clinical testing, manufacturing and commercialization of our product candidates. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in a product, negligence, strict liability or breach of warranty. Claims could also be asserted under state consumer protection acts. If we are unable to obtain insurance coverage at levels that are appropriate to maintain our business and operations, or if we are unable to successfully defend ourselves against product liability claims, we may incur substantial liabilities or otherwise cease operations. Product liability claims may result in:

 

    termination of further development of unapproved product candidates or significantly reduced demand for any approved products;

 

    material costs and expenses to defend the related litigation;

 

    a diversion of time and resources across the entire organization, including our executive management;

 

    product recalls, withdrawals or labeling restrictions;

 

    termination of our collaboration relationships or disputes with our collaboration partners; and

 

    reputational damage negatively impacting our other product candidates in development.

If we fail to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims, we may not be able to continue to develop our product candidates. We maintain product liability insurance in a customary amount for the stage of development of our product candidates. Although we believe that we have sufficient coverage based on the advice of our third party advisors, there can be no assurance that such levels will be sufficient for our needs. Moreover, our insurance policies have various exclusions, and we may be in a dispute with our carrier as to the extent and nature of our coverage, including whether we are covered under the applicable product liability policy. If we are not able to ensure coverage or are required to pay substantial amounts to settle or otherwise contest the claims for product liability, our business and operations would be negatively affected.

Our business and operations would suffer in the event of computer system failures.

Despite the implementation of security measures, our internal computer systems, and those of our CROs, collaboration partners, and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, natural disasters, fire, terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed, ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of our product candidates could be delayed.

Our headquarters and data storage facilities are located near known earthquake fault zones. The occurrence of an earthquake, fire or any other catastrophic event could disrupt our operations or the operations of third parties who provide vital support functions to us, which could have a material adverse effect on our business, results of operations and financial condition.

We and some of the third party service providers on which we depend for various support functions, such as data storage, are vulnerable to damage from catastrophic events, such as power loss, natural disasters, terrorism and similar unforeseen events beyond our control. Our corporate headquarters and other facilities are located in the San Francisco Bay Area, which in the past has experienced severe earthquakes and fires.

 

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We do not carry earthquake insurance. Earthquakes or other natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition and prospects.

If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, damaged critical infrastructure, such as our data storage facilities, enterprise financial systems or manufacturing resource planning and enterprise quality systems, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business.

Furthermore, integral parties in our supply chain are operating from single sites, increasing their vulnerability to natural disasters or other sudden, unforeseen and severe adverse events. If such an event were to affect our supply chain, it could have a material adverse effect on our business.

Risks Related to Our Common Stock and This Offering

We do not know whether a market will develop for our common stock or what the market price of our common stock will be, and as a result, it may be difficult for you to sell your shares of our common stock.

Before this offering, there was no public trading market for our common stock. If a market for our common stock does not develop or is not sustained, it may depress the market price of our common stock and make it difficult for you to sell your shares of common stock at an attractive price, or at all. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of common stock as consideration. We cannot predict the prices at which our common stock will trade. It is possible that in one or more future periods our results of operations may be below the expectations of public market analysts and investors and, as a result of these and other factors, the price of our common stock may fall.

The market price of our common stock may be highly volatile, and you may not be able to resell your shares at or above the initial public offering price.

In general, pharmaceutical, biotechnology and other life sciences company stocks have been highly volatile in the current market. The volatility of pharmaceutical, biotechnology and other life sciences company stocks is sometimes unrelated to the operating performance of particular companies and biotechnology and life science companies stocks often respond to trends and perceptions rather than financial performance. In particular, the market price of shares of our common stock could be subject to wide fluctuations in response to the following factors:

 

    results of clinical trials of our product candidates, including roxadustat and FG-3019;

 

    the timing of the release of results of and regulatory updates regarding our clinical trials;

 

    the level of expenses related to any of our product candidates or clinical development programs;

 

    results of clinical trials of our competitors’ products;

 

    safety issues with respect to our product candidates or our competitors’ products;

 

    regulatory actions with respect to our product candidates and any approved products or our competitors’ products;

 

    fluctuations in our financial condition and operating results, which will be significantly affected by the manner in which we recognize revenue from the achievement of milestones under our collaboration agreements;

 

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    adverse developments concerning our collaborations and our manufacturers;

 

    the termination of a collaboration or the inability to establish additional collaborations;

 

    the publication of research reports by securities analysts about us or our competitors or our industry or negative recommendations or withdrawal of research coverage by securities analysts;

 

    the inability to obtain adequate product supply for any approved drug product or inability to do so at acceptable prices;

 

    disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;

 

    the ineffectiveness of our internal controls;

 

    our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market;

 

    additions and departures of key personnel;

 

    announced strategic decisions by us or our competitors;

 

    changes in legislation or other regulatory developments affecting our product candidates or our industry;

 

    fluctuations in the valuation of the biotechnology industry and particular companies perceived by investors to be comparable to us;

 

    sales of our common stock by us, our insiders or our other stockholders;

 

    speculation in the press or investment community;

 

    announcement or expectation of additional financing efforts;

 

    announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;

 

    changes in accounting principles;

 

    activities of the government of China, including those related to the pharmaceutical industry as well as industrial policy generally;

 

    performance of other United States publicly traded companies with significant operations in China;

 

    terrorist acts, acts of war or periods of widespread civil unrest;

 

    natural disasters such as earthquakes and other calamities;

 

    changes in market conditions for biopharmaceutical stocks;

 

    changes in general market and economic conditions; and

 

    the other factors described in this “Risk Factors” section.

As a result of fluctuations caused by these and other factors, comparisons of our operating results across different periods may not be accurate indicators of our future performance. Any fluctuations that we report in the future may differ from the expectations of market analysts and investors, which could cause the price of our common stock to fluctuate significantly. Moreover, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.

 

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If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Our principal stockholders and management own a significant percentage of our stock and will be able to exercise significant influence over matters subject to stockholder approval.

As of September 30, 2014, our executive officers, directors and principal stockholders, together with their respective affiliates, owned approximately 29.1% of our common stock, including shares subject to outstanding options that are exercisable within 60 days after such date, and we expect that upon completion of this offering and the concurrent private placement that same group will continue to hold at least 25.1% of our outstanding common stock. Accordingly, even after this offering and the concurrent private placement, these stockholders will be able to exert a significant degree of influence over our management and affairs and over matters requiring stockholder approval, including the election of our board of directors and approval of significant corporate transactions. The interests of this group may differ from those of other stockholders and they may vote their shares in a way that is contrary to the way other stockholders vote their shares. This concentration of ownership could have the effect of entrenching our management and/or the board of directors, delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material and adverse effect on the fair market value of our common stock.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act and for so long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Specifically, the JOBS Act:

 

    permits us to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

 

    eliminates the requirement to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

 

    removes the requirement to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board;

 

    reduces disclosure obligations regarding executive compensation; and

 

    exempts from the requirements of holding a non-binding stockholder advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

This prospectus is based upon the reduced reporting burdens under the JOBS Act and we expect to continue at these reduced levels for so long as we are permitted under the JOBS Act. Specifically, we could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including any of the following: if the market value of our common stock held by non-affiliates exceeds $700 million as of June 30 in any calendar year before that time or if we have total annual gross revenue of $1 billion or more during any fiscal year before that time, in which cases we would no longer be an emerging growth company as of

 

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the end of such year or, if we issue more than $1 billion in non-convertible debt during any three-year period before that time, we would cease to be an emerging growth company immediately. If any investors find our common stock less attractive as a result, there may be a less active market for our common stock and our stock price may be more volatile.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. However, we chose to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates that adoption of such standards is required for non-emerging growth companies. Our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

A significant portion of our total outstanding shares may be sold into the public market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time after the expiration of the lock-up agreements described in the “Underwriting” section of this prospectus. These sales, or the market perception that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering and the concurrent private placement, we will have 55,671,852 shares of common stock outstanding. This includes the 7,100,000 shares that we are selling in this offering, which may be resold in the public market immediately subject to any restrictions imposed on our affiliates under Rule 144. In addition, up to 5% of the shares sold in this offering may be locked up for 45 days following the date of this prospectus through a directed share program. Such 45-day lock up will only apply to purchasers of a minimum of 15,000 shares purchased through the directed share program. The remaining shares, or 85.8% of our outstanding shares after this offering and the concurrent private placement, are currently or will be restricted as a result of securities laws, lock-up agreements or market stand off agreements but will be able to be sold, subject to any applicable volume limitations under federal securities laws with respect to affiliate sales, in the near future as set forth in the section entitled “Shares Eligible For Future Sale”.

In addition, as of December 31, 2013, there were 11,084,044 shares subject to outstanding options and 173,116 shares subject to outstanding warrants to purchase common stock that will become eligible for sale in the public market to the extent permitted by any applicable vesting requirements, the lock-up agreements and Rules 144 and 701 under the Securities Act. We also intend to register all shares of common stock that we may issue under our employee benefit plans, including our 2005 Equity Incentive Plan and 2014 Equity Incentive Plan. Once we register these shares and they are issued in accordance with the terms of the plans, they can be freely sold in the public market upon issuance, subject to the lock-up agreements and the restrictions imposed on our affiliates under Rule 144. For more information, see “Shares Eligible for Future Sale—Rule 144”.

Proceedings instituted by the SEC against five China based accounting firms, including the Chinese affiliate of our independent registered public accounting firm, could result in our financial statements being determined to not be in compliance with the requirements of the Exchange Act.

In late 2012, the SEC commenced administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the Chinese affiliates of the “big four” accounting firms, including PricewaterhouseCoopers Zhong Tian CPAs Limited, the Chinese affiliate of our independent registered public accounting firm. The Rule 102(e) proceedings initiated by the SEC relate to these firms’ failure to produce documents, including audit work papers, in response to the request of the SEC pursuant to Section 106 of the Sarbanes-Oxley Act of 2002, as the auditors located in China are not in a position lawfully to produce documents directly to the SEC because of restrictions under Chinese law and specific directives issued by the China Securities Regulatory Commission. The issues raised by the proceedings are not specific to our auditors or to us.

 

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In January 2014, an administrative law judge reached an initial decision that the Chinese affiliates of the “big four” accounting firms should be barred from practicing before the SEC for a period of six months. However, it is currently impossible to determine the ultimate outcome of this matter as the accounting firms have filed a petition for review of the initial decision, and, pending that review, the effect of the initial decision is suspended. It will, therefore, be for the commissioners of the SEC to make a legally binding order specifying the sanctions, if any, to be placed on these audit firms. Once such an order was made, the accounting firms would have a right to appeal to U.S. Federal courts, and the effect of the order might be further suspended pending the outcome of that appeal.

Although it does not play a substantial role (as defined under PCAOB standards) in the audit of our consolidated financial statements, if PricewaterhouseCoopers Zhong Tian CPAs Limited were denied, temporarily, the ability to practice before the SEC, our ability to produce audited consolidated financial statements for our company could be affected and we could be determined not to be in compliance with the requirements of the Securities Exchange Act of 1934. Such a determination could ultimately lead to the delisting of our shares from the NASDAQ Global Select Market or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our stock.

You will incur immediate and substantial dilution as a result of this offering.

The initial public offering price of our common stock will be substantially higher than the net tangible book value per share of our common stock. Therefore, if you purchase common stock in this offering, you will pay a price per share that substantially exceeds our pro forma adjusted net tangible book value per share after this offering. To the extent shares subsequently are issued under options, you will incur further dilution. Based on an initial assumed public offering price of $17.50, the midpoint of the range set forth on the cover page of this prospectus, you will incur immediate and substantial dilution of $13.21 per share, representing the difference between our pro forma net tangible book value per share, after giving effect to this offering and the concurrent private placement, and the assumed initial public offering price. In addition, purchasers of common stock in this offering and the concurrent private placement will have contributed approximately 30.7% of the aggregate price paid by all purchasers of our stock but will own approximately 14.8% of our common stock outstanding after this offering and the concurrent private placement.

In addition, as of September 30, 2014, we had outstanding stock options to purchase an aggregate of 12,970,404 shares of common stock, and warrants to purchase an aggregate of 173,116 shares of common stock at a weighted-average exercise price of $7.58 per share. As of September 30, 2014, 958,996 shares of our common stock were issuable upon the exchange of outstanding preferred stock of our European subsidiary, FibroGen Europe Oy, or FibroGen Europe. To the extent these outstanding options, warrants or shares of FibroGen Europe preferred stock are exercised to purchase or are exchanged for shares of our common stock, there will be further dilution to investors in the offering and the concurrent private placement. Further, because we may need to raise additional capital to fund our clinical development programs, we may in the future sell substantial amounts of common stock or securities convertible into or exchangeable for common stock.

We have broad discretion in the use of net proceeds from this offering and the concurrent private placement and may not use them effectively.

We currently intend to use the net proceeds from this offering and the concurrent private placement to further development of our product candidates in additional indications and for general corporate purposes. Investors are directed to see the section of this prospectus entitled “Use of Proceeds.” Although we currently plan to use the net proceeds from this offering and the concurrent private placement as described, we will have broad discretion in the application of the net proceeds. Our failure to apply these funds effectively could affect our ability to continue to develop, manufacture and commercialize our product candidates.

 

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We will incur increased costs as a result of operating as a public company and we expect to devote substantial resources to public company compliance programs.

As a public company, we will incur significant legal, insurance, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of The NASDAQ Stock Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment will result in increased general and administrative expenses and may divert management’s time and attention from product development activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed. In the future, it will be more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

Specifically, in order to comply with the requirements of being a public company, we may need to undertake various actions, including implementing new internal controls and procedures and hiring new accounting or internal audit staff. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. Any failure to develop or maintain effective controls could adversely affect the results of periodic management evaluations. In the event that we are not able to demonstrate compliance with the Sarbanes-Oxley Act, that our internal control over financial reporting is perceived as inadequate, or that we are unable to produce timely or accurate financial statements, investors may lose confidence in our operating results and the price of our ordinary shares could decline. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on The NASDAQ Stock Market.

We are not currently required to comply with the SEC’s rules that implement Section 404 of the Sarbanes-Oxley Act, or Section 404, and are therefore not yet required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with certain of these rules, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual report. This assessment will need to include the disclosure of any material weaknesses in our internal control over financial reporting identified by our management or our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will need to continue to dedicate internal resources, outside consultants and continue to execute a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements and we cannot assure you that there will not be material weaknesses or significant deficiencies in our internal controls in the future.

 

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We may engage in future acquisitions that could disrupt our business, cause dilution to our stockholders and harm our business, results of operations, financial condition and cash flows and future prospects.

While we currently have no specific plans to acquire any other businesses, we may, in the future, make acquisitions of, or investments in, companies that we believe have products or capabilities that are a strategic or commercial fit with our present or future product candidates and business or otherwise offer opportunities for our company. In connection with these acquisitions or investments, we may:

 

    issue stock that would dilute our existing stockholders’ percentage of ownership;

 

    incur debt and assume liabilities; and

 

    incur amortization expenses related to intangible assets or incur large and immediate write-offs.

We may not be able to complete acquisitions on favorable terms, if at all. If we do complete an acquisition, we cannot assure you that it will ultimately strengthen our competitive position or that it will be viewed positively by customers, financial markets or investors. Furthermore, future acquisitions could pose numerous additional risks to our operations, including:

 

    problems integrating the purchased business, products or technologies, or employees or other assets of the acquisition target;

 

    increases to our expenses;

 

    disclosed or undisclosed liabilities of the acquired asset or company;

 

    diversion of management’s attention from their day-to-day responsibilities;

 

    reprioritization of our development programs and even cessation of development and commercialization of our current product candidates;

 

    harm to our operating results or financial condition;

 

    entrance into markets in which we have limited or no prior experience; and

 

    potential loss of key employees, particularly those of the acquired entity.

We may not be able to complete any acquisitions or effectively integrate the operations, products or personnel gained through any such acquisition.

Provisions in our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current directors or management.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws that will become effective upon the closing of this offering contain provisions that may have the effect of discouraging, delaying or preventing a change in control of us or changes in our management. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:

 

    authorize “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock;

 

    create a classified board of directors whose members serve staggered three-year terms;

 

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    specify that special meetings of our stockholders can be called only by our board of directors pursuant to a resolution adopted by a majority of the total number of directors;

 

    prohibit stockholder action by written consent;

 

    establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors;

 

    provide that our directors may be removed prior to the end of their term only for cause;

 

    provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;

 

    require a supermajority vote of the holders of our common stock or the majority vote of our board of directors to amend our bylaws; and

 

    require a supermajority vote of the holders of our common stock to amend the classification of our board of directors into three classes and to amend certain other provisions of our certificate of incorporation.

These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.

Moreover, because we are incorporated in Delaware, we are governed by certain anti-takeover provisions under Delaware law which may discourage, delay or prevent someone from acquiring us or merging with us whether or not it is desired by or beneficial to our stockholders. We are subject to the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

Any provision of our amended and restated certificate of incorporation, our amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.

In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses or tax credits, or NOLs or credits, to offset future taxable income. Our existing NOLs or credits may be subject to substantial limitations arising from previous ownership changes, and if we undergo an ownership change in connection with or after this offering, our ability to utilize NOLs or credits could be further limited by Section 382 of the Code. In addition, future changes in our stock ownership, many of which are outside of our control, could result in an ownership change under Section 382 of the Code. Our NOLs or credits may also be impaired under state law. Accordingly, we may not be able to utilize a material portion of our NOLs or credits. Furthermore, our ability to utilize our NOLs or credits is conditioned upon our attaining profitability and generating United States federal and state taxable income. As described above under “—Risks Related to our Financial Position and History of Operating Losses,” we have incurred significant net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future; thus, we do not know whether or when we will generate the United States federal or state taxable income necessary to utilize our NOLs or credits. A full valuation allowance has been provided for the entire amount of our NOLs and credits.

 

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Our amended and restated certificate of incorporation designates the state or federal courts located in the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation that will become effective upon the closing of this offering provides that, subject to limited exceptions, the state and federal courts located in the State of Delaware will be the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated by-laws, or (4) any other action asserting a claim against us that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our amended and restated certificate of incorporation described above. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.

Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain and you may never receive a return on your investment.

You should not rely on an investment in our common stock to provide dividend income. We do not anticipate that we will pay any cash dividends to holders of our common stock in the foreseeable future and investors seeking cash dividends should not purchase our common stock. We plan to retain any earnings to invest in our product candidates and maintain and expand our operations. Therefore, capital appreciation, or an increase in your stock price, which may never occur, may be the only way to realize any return on your investment.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, particularly in the sections captioned “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains forward-looking statements, which involve substantial risks and uncertainties. In this prospectus, all statements other than statements of historical or present facts contained in this prospectus, including statements regarding our future financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “contemplate,” “intend,” “target,” “project,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” or the negative of these terms or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements appear in a number of places throughout this prospectus and include statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things, our ongoing and planned preclinical development and clinical trials, the timing of and our ability to make regulatory filings and obtain and maintain regulatory approvals for roxadustat, FG-3019 and our other product candidates, our intellectual property position, the potential safety, efficacy, reimbursement, convenience clinical and pharmaco-economic benefits of our product candidates, the potential markets for any of our product candidates, our ability to develop commercial functions, our ability to operate in China, expectations regarding clinical trial data, our results of operations, cash needs, spending of the proceeds from this offering and the concurrent private placement, financial condition, liquidity, prospects, growth and strategies, the industry in which we operate and the trends that may affect the industry or us. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions described in the section of this prospectus captioned “Risk Factors” and elsewhere in this prospectus, regarding, among other things:

 

    We have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future; we may require additional financings in order to fund our operations;

 

    All of our recent revenue has been received from our roxadustat collaboration partners; if any of the agreements with these collaboration partners were to terminate, we would require substantial additional funding;

 

    If we are unable to achieve development and regulatory milestones under our collaboration agreements, our revenues may decrease and our activities may fail to lead to commercialized products;

 

    We are substantially dependent on the success of our lead product candidate, roxadustat, and our second compound in development, FG-3019, and their clinical and commercial success will depend on a number of factors, many of which are beyond our control;

 

    We may be unable to obtain regulatory approval for our product candidates, or such approval may be delayed or limited, due to a number of factors, many of which are beyond our control;

 

    Our Phase 2 results to date for roxadustat and FG-3019 may not be indicative of the results that may be obtained in larger clinical studies required for approval;

 

    We do not know whether our ongoing or planned Phase 3 clinical studies in roxadustat or Phase 2 clinical studies in FG-3019 will need to be redesigned based on interim results, be able to achieve sufficient enrollment or be completed on schedule, if at all;

 

    Our product candidates may cause, or have attributed to them, undesirable side effects or have other properties that delay or prevent their regulatory approval or limit their commercial potential;

 

    If we or third party manufacturers on which we rely cannot manufacture our product candidates and/or products at sufficient yields, we may experience delays in development, regulatory approval and commercialization;

 

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    If our collaborations with Astellas or AstraZeneca were terminated, or if Astellas of AstraZeneca were to prioritize other initiatives over their collaborations with us, whether as a result of a change of control or otherwise, our ability to successfully develop and commercialize our lead product candidate, roxadustat, would suffer;

 

    We currently rely, and expect to continue to rely, on third parties to conduct many aspects of our clinical studies, and these third parties may not perform satisfactorily;

 

    Certain of the components of our product candidates are acquired from single-source suppliers and have been purchased without long-term supply agreements;

 

    If our efforts to protect our proprietary technologies are not adequate, we may not be able to compete effectively in our market;

 

    Intellectual property disputes with third parties and competitors may be costly and time consuming, and may negatively affect our competitive position;

 

    We are establishing international operations and seeking approval to commercialize our product candidates outside of the United States, in particular in China, and a number of risks associated with international operations could materially and adversely affect our business;

 

    We are building our own manufacturing facility in China to produce roxadustat and clinical trial material for our corneal program; as an organization, we have limited experience in the construction or operation and licensure of a manufacturing plant; accordingly, we cannot assure you we will be able to meet regulatory requirements to operate our plant and to sell our products;

 

    Our decision to seek approval in China for roxadustat as a domestic new drug may not be accepted, which would result in additional delay and expense; and

 

    The market price of our common stock may be highly volatile, and you may not be able to resell your shares at or above the initial public offering price.

These risks are not exhaustive. Other sections of this prospectus may include additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The forward-looking statements made in this prospectus are based on circumstances as of the date on which the statements are made. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus or to conform these statements to actual results or to changes in our expectations.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. You should also read carefully the factors described in the section of this prospectus captioned “Risk Factors” and elsewhere to better understand the risks and uncertainties inherent in our business and underlying and forward-looking statements.

This prospectus also contains market data, research, industry forecasts and other similar information obtained from or based on industry reports and publications, including information concerning our industry, our business, and the potential markets for our product candidates, including data regarding the estimated size and patient populations of those and related markets, their projected growth rates and the incidence of certain medical conditions, as well as physician and patient practices within the related markets. Such data and information involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from this offering, excluding the proceeds from the concurrent private placement, will be approximately $111.8 million, assuming an initial public offering price of $17.50 per share, which is the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Our proceeds from the sale of the common stock sold in the concurrent private placement will be $20 million.

A $1.00 increase (decrease) in the assumed initial public offering price of $17.50 per share would increase (decrease) the net proceeds to us from this offering by $6.6 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us. Each increase or decrease of shares by 1,420,000 shares in the number of shares offered by us would increase or decrease the net proceeds to us from this offering by approximately $23.1 million, assuming that the assumed initial price to public remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We do not expect that a change in the initial price to the public or the number of shares by these amounts would have a material effect on uses of the proceeds from this offering and the concurrent private placement, although it may accelerate the time at which we will need to seek additional capital.

The principal purposes of this offering are to create a public market for our common stock and thereby facilitate access to the public equity markets, increase our visibility in the marketplace and obtain additional capital. We believe our existing cash and cash equivalents, short-term and long-term investments and payments due under our license and collaboration agreements will be sufficient to meet our anticipated working capital and capital expenditure needs for at least the next 12 months. Additionally, if roxadustat is successful in further clinical development, based on our current development plans, expected payments under our existing license and collaboration agreements may be sufficient to fund our development of roxadustat through commercialization. We intend to use a portion of the net proceeds from this offering and the concurrent private placement to commercialize our unpartnered product candidates such as FG-3019, corneal implants and other HIF-PH inhibitors, as well as for general corporate purposes. These uses include meeting any short term liquidity needs pending receipt of amounts due or subject to reimbursement under our license and collaboration agreements. If the development cost of roxadustat were to exceed our expectations and not be funded by our collaboration partners, or collaboration receipts were less than we anticipate, or if a portion of our existing cash and cash equivalents are used to develop other product candidates, we may use a more substantial portion of the net proceeds from this offering and the concurrent private placement to fund our roxadustat development costs through commercialization. We may also use a portion of the net proceeds to acquire complementary businesses, products or technologies, although we have no present commitments or agreements for any specific acquisitions. Accordingly, we will have broad discretion over the uses of the net proceeds from this offering and the concurrent private placement. Pending these uses, we plan to invest these net proceeds in short-term and long-term interest bearing obligations, investment grade instruments, certificates of deposit or direct or guaranteed obligations of the United States.

We will have broad discretion in the application of the net proceeds, and investors will be relying on the judgment of our management regarding the application of the net proceeds of this offering and the concurrent private placement.

 

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DIVIDEND POLICY

We have never declared or paid dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support operations and to finance the growth and development of our business. We do not intend to declare or pay cash dividends on our capital stock in the foreseeable future. Any future determination to pay dividends will be made at the discretion of our board of directors subject to applicable laws, and will depend upon, among other factors, our results of operations, financial condition, contractual restrictions and capital requirements. Our future ability to pay cash dividends on our stock may be limited by the terms of any future debt or preferred securities.

 

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CAPITALIZATION

The following table sets forth our cash, cash equivalents and investments and capitalization as of September 30, 2014:

 

    on an actual basis;

 

    on a pro forma basis to give effect to the automatic conversion of all outstanding shares of our convertible preferred stock (Senior Preferred Stock and Junior Preferred Stock) into an aggregate of 33,919,954 shares of common stock immediately prior to the completion of this offering; and

 

    on a pro forma as adjusted basis to give further effect to the sale of 8,242,857 shares of our common stock offered in this offering and the concurrent private placement, based on an assumed initial public offering price of $17.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this information together with our unaudited interim consolidated financial statements and related notes appearing elsewhere in this prospectus and the information set forth under the heading “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

 

     As of September 30, 2014  
     Actual     Pro Forma     Pro Forma,
as Adjusted
 
     (unaudited, in thousands)  

Cash, cash equivalents and investments (1)

   $ 175,715      $ 175,715      $ 309,655 (2) 
  

 

 

   

 

 

   

 

 

 

Current and long-term lease financing obligations

     96,975        96,975        96,975   

Product development obligations

     17,094        17,094        17,094   
  

 

 

   

 

 

   

 

 

 

Total obligations

     114,069        114,069        114,069   
  

 

 

   

 

 

   

 

 

 

Series E and F redeemable convertible preferred stock (Senior Preferred Stock); par value $0.01 per share, 38,340,182 shares authorized, 38,340,182 shares issued and outstanding at September 30, 2014 (unaudited), and no shares authorized, issued or outstanding pro forma and pro forma as adjusted at September 30, 2014 (unaudited)

     168,436        —          —     

Stockholders’ equity (deficit):

      

Series A, B, C, D, G and royalty acquisition convertible preferred stock (Junior Preferred Stock); par value $0.01 per share, 86,659,818 shares authorized, 46,460,057 shares issued and outstanding at September 30, 2014 (unaudited), and no shares authorized, issued or outstanding pro forma and pro forma as adjusted at September 30, 2014 (unaudited)

     136,313        —          —     

Common stock; par value of $0.01, 225,000,000 shares authorized, 13,509,041 shares issued and outstanding at September 30, 2014 (unaudited), and 47,428,995 shares issued and outstanding pro forma and 55,671,852 shares issued and outstanding pro forma as adjusted at September 30, 2014

     135        474        556   

Additional paid-in capital

     51,790        356,200        487,864   

Accumulated other comprehensive loss

     (3,177     (3,177     (3,177

Accumulated deficit

     (271,723     (271,723     (271,723
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     (86,662     81,774        213,520   

Non-controlling interests

     27,875        27,875        27,875   
  

 

 

   

 

 

   

 

 

 

Total equity (deficit)

     (58,787     109,649        241,395   
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 109,649      $ 109,649      $ 241,395   
  

 

 

   

 

 

   

 

 

 

 

(1) Includes $0.2 million classified as long-term investments.
(2) Pro forma as adjusted cash, cash equivalents and investments reflects $2.2 million of deferred offering costs that had been paid as of September 30, 2014.

 

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If the underwriters’ option to purchase additional shares of our common stock from us were exercised in full, pro forma as adjusted cash and cash equivalents and investments, additional paid-in capital, total stockholders’ equity and shares outstanding as of September 30, 2014 would be $327.0 million, $505.2 million, $230.9 million and 56,736,852 shares, respectively.

The actual, pro forma and pro forma as adjusted information set forth in the table above are based on 13,509,041 shares of our common stock outstanding as of September 30, 2014, and excludes the following:

 

    12,970,404 shares of common stock issuable upon the exercise of outstanding stock options issued as of September 30, 2014 pursuant to our 1999 and 2005 Stock Plans at a weighted-average exercise price of $5.56 per share;

 

    1,600,000 shares of common stock to be reserved for future issuance under our 2014 Employee Stock Purchase Plan, or ESPP, as of the date the registration statement of which this prospectus forms a part is declared effective by the SEC, as well as any automatic increases in the number of shares of common stock reserved for future issuance under the ESPP.

 

    7,606,104 shares of common stock to be reserved for future issuance under our 2014 Plan as of the date the registration statement of which this prospectus forms a part is declared effective by the SEC (which shares are as of September 30, 2014 and are currently reserved for future grant under our 2005 Plan and will cease to be reserved under our 2005 Plan immediately prior to the time our 2014 Plan becomes effective) as well as any automatic increases in the number of shares of common stock reserved for future issuance under this the 2014 Plan;

 

    173,116 shares of common stock issuable upon exercise of common stock warrants outstanding as of September 30, 2014 at a weighted-average exercise price of $7.58 per share; and

 

    958,996 shares of common stock issuable upon the exchange of outstanding preferred stock issued by FibroGen Europe.

 

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DILUTION

Dilution in net tangible book value per share to new investors is the amount by which the offering price paid by the purchasers of the shares of common stock sold in the offering exceeds the pro forma net tangible book value per share of common stock after the offering. Net tangible book value per share is determined at any date by subtracting our total liabilities from the total book value of our tangible assets and dividing the difference by the number of shares of common stock deemed to be outstanding at that date.

The historical net tangible book value of our common stock as of September 30, 2014 was $(61.6) million, or $(4.56) per share. Our pro forma net tangible book value as of September 30, 2014 was $106.8 million, or $2.25 per share, which gives effect to the conversion of all outstanding shares of our preferred stock into an aggregate of 33,919,954 shares of our common stock immediately prior to the completion of this offering. After giving effect to the receipt and our intended use of approximately $131.8 million of estimated net proceeds from our sale of shares of common stock in this offering and the concurrent private placement at an assumed offering price of $17.50 per share, which is the midpoint of the range set forth on the cover page of this prospectus, our pro forma as adjusted net tangible book value as of September 30, 2014 would have been $238.6 million, or $4.29 per share. This represents an immediate increase in net tangible book value of $2.04 per share to existing stockholders and an immediate dilution of $13.21 per share to new investors purchasing shares of common stock in the offering. The following table illustrates this substantial and immediate per share dilution to new investors.

 

Assumed initial public offering price per share (the midpoint of the range set forth on the cover page of this prospectus)

      $ 17.50   

Pro forma net tangible book value per share at September 30, 2014

   $ 2.25      

Pro forma increase per share attributable to new investors

   $ 2.04      
  

 

 

    

Pro forma as adjusted net tangible book value per share after giving effect to this offering

      $ 4.29   
     

 

 

 

Dilution in net tangible book value per share to new investors

      $ 13.21   
     

 

 

 

Each $1.00 increase or decrease in the assumed initial public offering price of $17.50 per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value by $6.6 million, the pro forma as adjusted net tangible book value per share by $0.12 and the dilution per share to new investors in this offering by $0.88, or $0.86 if the underwriters exercise their option to purchase additional shares in full, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

Similarly, each increase or decrease of 1,420,000 shares in the number of shares offered by us would increase or decrease, as applicable, our pro forma as adjusted net tangible book value by approximately $23.1 million, the pro forma as adjusted net tangible book value per share by $0.30 and the dilution per share to new investors by $0.30, or $0.33 if the underwriters exercise their option to purchase additional shares in full, assuming the assumed initial public offering price remains the same and after deducting underwriting discounts and commissions and estimated expenses payable by us.

The following table summarizes, as of September 30, 2014:

 

    the total number of shares of common and preferred stock purchased from us by our existing stockholders and by new investors purchasing shares in this offering and the concurrent private placement;

 

    the total consideration attributable to our existing stockholders and by new investors purchasing common stock in this offering and the concurrent private placement, assuming an initial public offering of $17.50 per share, which is the midpoint of the range set forth on the cover page of this prospectus (before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering); and

 

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    the average price per share paid by existing stockholders and by new investors purchasing shares in this offering and the concurrent private placement.

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number      Percent     Amount      Percent    

Existing stockholders

     47,428,995         85   $ 325,778,395         69   $ 6.87   

Concurrent private placement investor

     1,142,857         2        20,000,000         4        17.50   

New investors

     7,100,000         13        124,250,000         27        17.50   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

     55,671,852         100   $ 470,028,395         100   $ 8.44   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Each $1.00 increase or decrease in the assumed price of the initial public offering and the concurrent private placement of $17.50 per share would increase or decrease, as applicable, total consideration paid by existing stockholders, total consideration paid by new investors in the initial public offering and the average price per share by $47.4 million, $7.1 million and $0.99, respectively, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and without deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

If the underwriters exercise their option to purchase additional shares in full, the percentage of shares held by the existing stockholders after this offering and the concurrent private placement would be reduced to 84% of the total number of shares of our common stock outstanding after this offering and the concurrent private placement, and the number of shares held by new investors would increase to 8,165,000 shares, or 14%, of the total number of shares of our common stock outstanding after this offering and the concurrent private placement.

The tables and calculations above are based on the number of shares of our common stock outstanding as of September 30, 2014, but do not include, as of September 30, 2014, the following shares:

 

    12,970,404 shares of common stock issuable upon the exercise of outstanding stock options issued as of September 30, 2014 pursuant to our 1999 and 2005 Stock Plans at a weighted-average exercise price of $5.56 per share;

 

    1,600,000 shares of common stock to be reserved for future issuance under our ESPP, as of the date the registration statement of which this prospectus forms a part is declared effective by the SEC, as well as any automatic increases in the number of shares of common stock reserved for future issuance under the ESPP.

 

    7,606,104 shares of common stock to be reserved for future issuance under our 2014 Plan as of the date the registration statement of which this prospectus forms a part is declared effective by the SEC (which shares are as of September 30, 2014 and are currently reserved for future grant under our 2005 Plan and will cease to be reserved under our 2005 Plan immediately prior to the time our 2014 Plan becomes effective) as well as any automatic increases in the number of shares of common stock reserved for future issuance under this the 2014 Plan;

 

    173,116 shares of common stock issuable upon exercise of common stock warrants outstanding as of September 30, 2014 at a weighted-average exercise price of $7.58 per share; and

 

    958,996 shares of common stock issuable upon the exchange of outstanding preferred stock issued by FibroGen Europe.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following selected financial data together with the section of this prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included in this prospectus. The statement of operations data for the years ended December 31, 2012 and 2013 and the balance sheet data as of December 31, 2012 and 2013 are derived from our consolidated financial statements included elsewhere in this prospectus. The statement of operations data for the nine months ended September 30, 2013 and 2014 and the balance sheet data as of September 30, 2014 are derived from our unaudited interim consolidated financial statements included elsewhere in this prospectus. We have included, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair statement of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results to be expected in the future, and our unaudited interim results are not necessarily indicative of the results to be expected for the full year or any other period.

 

     Years ended
December 31,
    Nine Months
ended September 30,
 
     2012     2013     2013     2014  
     (in thousands, except per share data)  

Result of Operations

        

Revenue:

        

License and milestone revenue

   $ 62,845      $ 94,961      $ 86,035      $ 106,175   

Collaboration services and other revenue

     3,088        7,209        3,745        15,321   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     65,933        102,170        89,780        121,496   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Research and development (1)

     74,222        85,710        56,276        99,536   

General and administrative (1)

     18,934        24,409        16,498        24,088   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     93,156        110,119        72,774        123,624   

Income (loss) from operations

     (27,223     (7,949     17,006        (2,128

Total interest and other, net

     (5,448     (6,994     (5,176     (6,816
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (32,671     (14,943     11,830        (8,944

Benefit from income taxes

     100        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (32,571   $ (14,943   $ 11,830      $ (8,944

Net income (loss) per share—basic (2)

   $ (2.48   $ (1.13   $ 0.04      $ (0.67
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share—diluted (2)

   $ (2.48   $ (1.13   $ 0.03      $ (0.67

Weighted-average number of common shares used in net income (loss) per share—basic (2)

     13,128        13,186        13,181        13,355   

Weighted-average number of common shares used in net income (loss) per share—diluted (2)

     13,128        13,186        19,919        13,355   

Pro forma net loss per share—basic (unaudited) (3)

     $ (0.32     $ (0.19

Pro forma net loss per share—diluted (unaudited) (3)

     $ (0.32     $ (0.19

Pro forma weighted-average number of common shares used in net loss per share—basic (unaudited) (3)

       47,106          47,275   

Pro forma weighted-average number of common shares used in net loss per share—diluted (unaudited) (3)

       47,106          47,275   

 

(1) Stock-based compensation expense is included in our results of operations as follows (in thousands):

 

     Years Ended
December 31,
     Nine Months Ended
September 30,
 
     2012      2013      2013      2014  

Research and development

   $ 2,277       $ 1,925       $ 1,446       $ 5,775   

General and administrative

     2,284         1,519         1,170         3,959   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $ 4,561       $ 3,444       $ 2,616       $ 9,734   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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(2) See Note 10 within the notes to our consolidated financial statements appearing elsewhere in this prospectus for a description of the method used to calculate basic and diluted net income (loss) per share of common stock.
(3) Pro forma basic and diluted net loss per share of common stock is calculated by dividing net loss attributable to common stockholders, by the pro forma weighted-average number of common shares outstanding. The pro forma weighted-average number of common shares includes the weighted-average shares of common stock used to compute basic net loss per share plus the assumed conversion of all outstanding convertible preferred stock. The pro forma weighted-average number of common shares do not include the effect of 958,996 shares of preferred stock held by investors in FibroGen Europe that are exchangeable at the option of the holders into FibroGen, Inc. common stock.

 

     As of December 31,     As of
September 30,
 
     2012     2013     2014  
     (in thousands)  
Balance Sheet Data:       

Cash and cash equivalents

   $ 38,872      $ 76,332      $ 153,889   

Short-term and long-term investments

     82,630        61,833        21,826   

Working capital

     29,125        106,164        146,545   

Total assets

     265,588        296,952       344,383   

Deferred revenue

     5,764        36,649        71,486   

Lease financing obligations

     92,902        96,809        96,975   

Product development obligations

     17,152        18,257        17,094   

Senior Preferred Stock

     168,436        168,436        168,436   

Junior Preferred Stock

     136,313        136,313        136,313   

Accumulated deficit

     (247,836 )     (262,779     (271,723 )

Non-controlling interests

     27,700        27,875        27,875   

Total deficit

   $ (46,252 )   $ (60,833   $ (58,787 )

 

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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 appearing in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, 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. You should review the “Risk Factors” section of this prospectus beginning on page 18 for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a research-based, biopharmaceutical company focused on the discovery, development and commercialization of novel therapeutics to treat serious unmet medical needs. We have capitalized on our extensive experience in fibrosis and hypoxia-inducible factor, or HIF, biology to generate multiple programs targeting various therapeutic areas. Roxadustat, or FG-4592, is an oral small molecule inhibitor of HIF prolyl hydroxylases, or HIF-PHs, in Phase 3 clinical development for the treatment of anemia in chronic kidney disease, or CKD. FG-3019 is our monoclonal antibody in Phase 2 clinical development for the treatment of idiopathic pulmonary fibrosis, or IPF, pancreatic cancer and liver fibrosis. We have taken a global approach with respect to our product candidates, and this includes development and commercialization of product candidates in the People’s Republic of China, or China.

Roxadustat, the first HIF-PH inhibitor to enter Phase 3 clinical development, acts by stimulating the body’s natural pathway of erythropoiesis, or red blood cell production. Roxadustat represents a new paradigm for the treatment of anemia in CKD patients, and has the potential to offer a safer, more effective, more convenient and more accessible therapy than the current standard of care, injectable erythropoiesis stimulating agents, or ESAs. We, along with our collaboration partners Astellas Pharma Inc., or Astellas, and AstraZeneca AB, or AstraZeneca, have designed a global Phase 3 program to support regulatory approval of roxadustat in both NDD-CKD and DD-CKD patients in multiple geographies.

FG-3019 is our fully-human monoclonal antibody that inhibits the activity of connective tissue growth factor, or CTGF, a critical common element in the progression of fibrosis and associated serious diseases. We are currently conducting an open-label Phase 2 trial in IPF; a randomized, double-blind placebo-controlled Phase 2 trial in IPF; an open-label Phase 2 trial in pancreatic cancer; and a randomized, double-blind, placebo-controlled Phase 2 trial in liver fibrosis. To date, we have retained exclusive worldwide rights for FG-3019.

We are also currently pursuing our corneal implant FG-5200 for treatment of corneal blindness resulting from partial thickness corneal damage in China.

To date, our operations have been primarily funded by net proceeds from the sale of convertible preferred stock of FibroGen, Inc. and sales of preferred stock in our majority-owned subsidiaries as well as equity investments from our collaboration partners and upfront payments, milestone payments and net research and development payments from our collaboration partners.

Since inception and through September 30, 2014, we have incurred a total of $867.2 million in research and development expenses, a majority of which relates to the development of roxadustat, FG-3019 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 continue to increase in the future as we advance our product candidates through clinical trials and expand our product candidate portfolio. We will not generate revenue based on product sales unless and until we or one of our partners successfully complete development of and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of

 

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years and is subject to significant uncertainty. In addition, we expect to incur significant expenses relating to seeking regulatory approval for our product candidates. We also anticipate increased expenses related to audit, legal, regulatory and tax-related services associated with operating as a public reporting company. We consider the active management and development of our clinical pipeline to be crucial to our long-term success. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time consuming. Except for $116.5 million, all currently planned development and commercialization costs for roxadustat for the treatment of anemia in CKD in the United States, Europe, Japan and all other markets outside of China are paid by Astellas and AstraZeneca. All development and commercialization costs for roxadustat in China will be shared equally, and AstraZeneca will pay for all of our commercialization costs until profitability and AstraZeneca will recoup such costs out of product sales, if any. Any termination of any of our collaboration agreements would require us to fund the further development and commercialization of roxadustat in the affected territory or pursue another collaboration, which we may be unable to do, either of which could have an adverse effect on our business and operations.

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, see “Risk Factors”.

Financial Operations Overview

Revenue

Our revenue to date has been generated primarily from our collaboration agreements with Astellas Pharmaceuticals Inc., or Astellas, and AstraZeneca AB, or AstraZeneca. The following tables summarize the sources of our revenue for the years ended December 31, 2012 and 2013, and the nine months ended September 30, 2013 and 2014:

 

     Year Ended December 31,      Nine Months Ended September 30,  
         2012              2013              2013              2014      
     (in thousands)      (unaudited, in thousands)  

Astellas-Related party:

           

License

   $ 12,845       $ 9,826       $ 6,543       $ 9,966   

Milestone

     50,000         12,500         12,500         —     

Collaboration Services

     2,275         3,335         2,520         2,507   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Astellas

   $ 65,120       $ 25,661       $ 21,563       $ 12,473   
  

 

 

    

 

 

    

 

 

    

 

 

 

AstraZeneca:

           

License

   $ —         $ 72,635       $ 66,992       $ 96,209   

Milestone

     —           —           —           —     

Collaboration Services

     —           3,843         1,207         12,769   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total AstraZeneca

   $ —         $ 76,478       $ 68,199       $ 108,978   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other

   $ 813       $ 31       $ 18       $ 45   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Revenue

   $ 65,933       $ 102,170       $ 89,780       $ 121,496   
  

 

 

    

 

 

    

 

 

    

 

 

 

Under our revenue recognition policy, license revenue includes amounts from upfront, non-refundable license payments and amounts allocated pursuant to the relative selling price method from other consideration received (other than substantive milestone payments) during the periods. This revenue is generally recognized as deliverables are met and services are performed. Milestone revenue includes payments from milestones which are deemed to be substantive in nature and is recognized in its entirety in the period in which the milestone is

 

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achieved. License and milestone revenues represented 95% and 93% of total revenues for the years ended December 31, 2012 and 2013, respectively, and 96% and 87% for the nine months ended September 30, 2013 and 2014, respectively.

Collaboration services include co-development services, manufacturing of clinical supplies, committee services and information sharing. Collaboration services revenues are recognized over the non-contingent performance period, ranging from 36 to 65 months. Other revenues consist of royalty payments received, which are recorded on a monthly basis as they are reported to us, and have been included with collaboration services and other revenue in the Consolidated Statements of Operations, as they have not been material for each of the years ended December 31, 2012 and 2013 and the nine months ended September 30, 2013 and 2014. Collaboration services and other revenues represented 5% and 7% of total revenues for the years ended December 31, 2012 and 2013, respectively, and 4% and 13% for the nine months ended September 30, 2013 and 2014, respectively.

We have not generated any revenues based on the sale of products. In the future, we may generate revenue from product sales and from collaboration agreements in the form of license fees, milestone payments, reimbursements for collaboration services and royalties on product sales. We expect that any revenues we generate will fluctuate from quarter to quarter as a result of the uncertain timing and amount of such payments and sales.

Collaboration Agreements

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.

In June 2005, we entered into a collaboration agreement with Astellas for roxadustat for the treatment of anemia in Japan (“Japan Agreement”).

In April 2006, we entered into a collaboration 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”).

In July 2013, we entered into a collaboration agreement with AstraZeneca for roxadustat for the treatment of anemia in the U.S. and all territories not previously licensed to Astellas, except China (“US/RoW Agreement”).

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

For more detailed discussions on the accounting for these agreements, see Note 3 to the consolidated financial statements. In addition, see “Business—Collaborations” for a more detailed description of our collaboration agreements.

 

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Total cash consideration received through September 30, 2014 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:

 

     Cash Received Through
September 30, 2014
     Additional Potential
Cash Payments
     Total Potential Cash
Payments
 
     (in thousands)  

Astellas-Related party:

        

Japan Agreement

   $ 52,593       $ 120,000       $ 172,593   

Europe Agreement

     410,000         335,000         745,000   
  

 

 

    

 

 

    

 

 

 

Total Astellas

   $ 462,593       $ 455,000       $ 917,593   
  

 

 

    

 

 

    

 

 

 

AstraZeneca:

        

US/RoW Agreement

   $ 192,000       $ 1,057,000       $ 1,249,000   

China Agreement

     28,200         348,500         376,700   
  

 

 

    

 

 

    

 

 

 

Total AstraZeneca

   $ 220,200       $ 1,405,500       $ 1,625,700   
  

 

 

    

 

 

    

 

 

 

Total

   $ 682,793       $ 1,860,500       $ 2,543,293   
  

 

 

    

 

 

    

 

 

 

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

Research and Development Expenses

Research and development expenses consist of third party research and development costs and the fully-burdened amount of costs associated with work performed under collaboration agreements. Research and development costs include employee-related expenses for research and development functions, expenses incurred under agreements with clinical research organizations, or 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 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.

The following table summarizes our research and development expenses incurred during the years ended December 31, 2012 and 2013, and for the nine months ended September 30, 2013 and 2014:

 

          Year Ended
December 31,
     Nine Months Ended
September 30,
 
          2012      2013      2013      2014  

Product

Candidate

  

Phase of

Development

   (in thousands)      (in thousands)  

Roxadustat

   Phase 3    $ 36,631       $ 43,620       $ 28,999       $ 27,698   

FG-3019

   Phase 2      16,607         20,103         12,055         11,316   

FG-6874

   Phase 1      3,410         1,979         1,486         12,045   

FG-5200

   Preclinical      2,428         3,154         2,187         2,337   

Other research and development expenses

     15,146         16,854         11,549         46,140   
     

 

 

    

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 74,222       $ 85,710       $ 56,276       $ 99,536   
     

 

 

    

 

 

    

 

 

    

 

 

 

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. The largest component of our total operating expenses has historically been our investment in research and development activities, including the clinical development of our product candidates. Since inception and

 

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through September 30, 2014, we have incurred a total of $867.2 million in research and development expenses, a majority of which relates to the development of roxadustat, FG-3019 and other HIF-PH inhibitors. We expect our research and development expenses to continue to increase in the future as we advance our product candidates through clinical trials and expand our product candidate portfolio. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time consuming. We consider the active management and development of our clinical pipeline to be crucial to our long-term success. The actual probability of success for each product candidate and clinical program may be affected by a variety of factors, including the safety and efficacy data of the product candidate, investment in the program, competition, manufacturing capability and commercial viability. Furthermore, we have entered into collaborations with third parties to participate in the development and commercialization of our product candidates, and we may enter into additional collaborations in the future. In situations in which third parties have control over the preclinical development or clinical study process for a product candidate, the estimated completion dates are largely outside of our control. We are unable to forecast with any degree of certainty which of our product candidates, if any, will be subject to collaborations in the future or how such arrangements would affect our development plans or capital requirements. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects, or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.

The duration, costs and timing of clinical studies and development of our product candidates will depend on a variety of factors. For example, if the FDA, EMA or another regulatory authority were to require us to conduct clinical studies beyond those that we currently anticipate will be required, or if we experience significant delays in enrollment in any of our clinical studies, we could be required to expend significant additional financial resources and the time to the completion of clinical development would be extended.

We intend to identify additional partnerships to further develop product candidates other than roxadustat, which may offset a portion of our research and development expenses through reimbursement from potential partners. Because of the numerous risks and uncertainties associated with drug development, we are unable to predict the timing or amount of expenses incurred or when, or if, we will be able to achieve sustained profitability.

General and Administrative Expenses

General and administrative expenses consist primarily of employee-related expenses for executive, operational, finance, legal, compliance and human resource functions. Other general and administrative expenses include facility-related costs and professional fees, accounting and legal services, other outside services, recruiting fees and expenses associated with obtaining and maintaining patents.

For the years ended December 31, 2012 and 2013, and for the nine months ended September 30, 2013 and 2014, we incurred $18.9 million, $24.4 million, $16.5 million and $24.1 million, respectively, in general and administrative expenses.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates. We also anticipate increased expenses, including exchange listing and Securities and Exchange Commission requirements, director and officer insurance premiums, legal, audit and tax fees, regulatory compliance programs and investor relations costs associated with being a public company. Additionally, if and when we believe the first regulatory approval of one of our product candidates appears likely, we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidates.

 

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Interest and Other, Net

Interest Expense

In connection with our long-term lease for our corporate headquarters in San Francisco, California, which was entered into in September 2006, and the lease for our pilot plant located in Beijing Yizhuang Biomedical Park, or BYBP, which was entered into in February 2013, we recognized an asset for costs of constructing the building shells of $50.8 million and $3.1 million, respectively for these facilities and recorded a corresponding lease financing obligation. In addition, we recorded $32.5 million in reimbursements for tenant improvements in the San Francisco location and $0.5 million in rent reimbursements for BYBP.

As the monthly lease payments are made, we record interest expense and an increase or reduction in the corresponding lease financing obligation for any amounts allocated to or deficiencies being applied to the principal value of these obligations.

Interest expense includes payments made for imputed interest related to the facility lease financing obligations for the San Francisco and China properties (see Note 8 to the consolidated financial statements) and interest related to The Technology Development Center of the Republic of Finland, or TEKES, product development obligations (see Note 6 to the consolidated financial statements).

Interest Income

Interest income represents interest earned on our cash, cash equivalents and investments.

Other Income (Expense)

Other income (expense) relates to foreign currency transaction gains (losses) and remeasurement of certain monetary assets and liabilities in non-functional currency of our subsidiaries using exchange rates in effect at the end of the period into the functional currency as well as realized gains (losses) on sales of investments.

Sublease Income

We sublease approximately 34,400 square feet of space within our corporate headquarters facility to certain subtenants on a short-term basis. These subleases include invoices for base rent and reimbursement of various expenses. Sublease income is included as an offset to our facilities expenses for both general and administrative and research and development expenses. For the years ended December 31, 2012 and 2013, and the nine months ended September 30, 2013 and 2014, we had sublease income of $4.3 million, $4.5 million, $3.4 million and $3.7 million, respectively.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this prospectus, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.

 

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Revenue Recognition

Substantially all of our revenues to date have been generated from our collaboration agreements.

Our collaboration agreements include multiple deliverables, and we follow the guidance in Accounting Standards Codification Topic 605-25, “Revenue Recognition—Multiple-Element Arrangements,” or ASC Topic 605-25 (“ASC 605-25”). ASC 605-25:

 

  provides guidance on how revenue arrangements with multiple deliverables should be separated and how the arrangement consideration should be allocated among the separate units of accounting;

 

  requires an entity to determine the selling price of a separate deliverable using a hierarchy of (i) vendor-specific objective evidence, or VSOE, (ii) third-party evidence, or TPE, or (iii) best estimate of selling price, or BESP; and

 

  requires the allocation of the arrangement consideration, at the inception of the arrangement, to the separate units of accounting based on relative selling price.

We evaluate all deliverables within an arrangement to determine whether or not they provide value on a stand-alone basis. Based on this evaluation, the deliverables are separated into units of accounting. The arrangement consideration that is fixed or determinable at the inception of the arrangement is allocated to the separate units of accounting based on their relative selling prices. Significant judgment may be required in determining whether a deliverable provides stand-alone value, determining the amount of arrangement consideration that is fixed or determinable, and estimating the stand-alone selling price of each unit of accounting.

To date, we have determined that the selling price for the deliverables within our collaboration agreements should be determined using BESP, as neither VSOE nor TPE is available. The process for determining BESP involves significant judgment on our part and includes consideration of multiple factors, including assumptions related to the market opportunity and the time needed to commercialize a product candidate pursuant to the relevant license, estimated direct expenses and other costs, which include the rates normally charged by contract research and contract manufacturing organizations for development and manufacturing obligations, and rates that would be charged by qualified outsiders for committee services.

For each unit of accounting identified within an arrangement, we determine the period over which the deliverables are provided and the performance obligation is satisfied. Service revenue is recognized using a proportional performance method. Direct labor hours or full time equivalents are used as the measurement of performance. Revenue may be recognized using a straight line method when performance is expected to occur consistently over a period of time.

Payments or reimbursements resulting from our research and development efforts for those arrangements where such efforts are considered as deliverables are recognized as the services are performed and are presented on a gross basis. To the extent payments are required to be made to our collaboration partners pursuant to research and development efforts, those costs are charged to research and development using the guidance pursuant to ASC 605-250, Customer Payments and Incentives, which states that cash consideration given by a vendor to a customer is presumed to be a reduction of the selling prices unless the vendor receives an identifiable benefit in exchange for the consideration that is sufficiently separable from the recipient’s purchase of the vendor’s products, and the vendor can reasonably estimate the fair value of the benefit.

Each of our collaboration agreements includes milestones for which we follow ASC Topic 605-28, Revenue Recognition—Milestone Method (“ASC 605-28”). ASC 605-28 establishes the milestone method as an acceptable method of revenue recognition for certain contingent event-based payments under research and development arrangements. Under the milestone method, a payment that is contingent upon the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved. A milestone is an event (i) that can only be achieved based in whole or in part on either our performance or on the occurrence of a specific outcome resulting from our performance, (ii) for which there is substantive uncertainty at the date the

 

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arrangement is entered into that the event will be achieved and (iii) that would result in additional payments being due to us. Determining whether a milestone is substantive is a matter of judgment and that assessment must be made at the inception of the arrangement. Milestones are considered substantive when the consideration earned from the achievement of the milestone (i) is commensurate with either our performance to achieve the milestone or the enhancement of the value of the item delivered as a result of a specific outcome resulting from our performance to achieve the milestone, (ii) relates solely to past performance and (iii) is reasonable relative to all deliverables and payment terms in the arrangement. Payments for achieving milestones which are not considered substantive are treated as additional arrangement consideration and are allocated following the relative selling price method previously described.

Clinical Trial Accruals

Clinical trial costs are a component of research and development expenses. We accrue and expense clinical trial activities performed by third parties based upon actual work completed in accordance with agreements established with clinical research organizations and clinical sites. We determine the actual costs through external service providers as well as confirmation with internal personnel as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services.

Income Taxes

We account for income taxes using an asset and liability approach. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Operating loss and tax credit carryforwards are measured by applying currently enacted tax laws. Valuation allowances are provided when necessary to reduce net deferred tax assets to an amount that is more likely than not to be realized. As of December 31, 2012 and 2013, we provided a full valuation allowance against our net deferred tax assets.

We recognize the tax effects of an uncertain tax position only if it is more likely than not to be sustained based solely on its technical merits as of the reporting date and only in an amount more likely than not to be sustained upon review by the tax authorities. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately reflect actual outcomes.

As of December 31, 2013, we had net operating loss carryforwards available to offset future taxable income of approximately $115.4 million and $171.7 million for federal and state tax purposes, respectively. These carryforwards will begin to expire in 2024 for federal purposes and in 2014 for state purposes, if not utilized before these dates. We also had foreign net operating loss carryforwards of approximately $17.3 million that expire between 2014 and 2023 if not utilized.

As of December 31, 2013, we had approximately $18.4 million of federal and $13.8 million of state research and development tax credit carryforwards available to offset future taxable income. The federal credits will begin to expire in 2018 and the California research credits have no expiration dates.

Utilization of net operating losses and tax credit carryforwards may be limited by the “ownership change” rules, as defined in Section 382 of the Internal Revenue Code (any such limitation, a “Section 382 limitation”). Similar rules may apply under state tax laws. We have performed an analysis to determine whether an “ownership change” occurred from inception to December 31, 2013. Based on this analysis, management determined that we did experience historical ownership changes of greater than 50% during this period. Therefore, the utilization of a portion of our net operating losses and credit carryforwards is currently limited. However, these Section 382 limitations are not expected to result in a permanent loss of the net operating losses and credit carryforwards. As such, a reduction of our gross deferred tax asset for our net operating loss and tax credit carryforwards is not necessary prior to considering the valuation allowance. In the event we experience any subsequent changes in ownership, the amount of net operating losses and research and development credit carryforwards useable in any taxable year could be limited and may expire unutilized.

 

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Stock-Based Compensation

We measure and recognize compensation expense for all stock options granted to our employees, directors and non-employees based on the estimated fair value of the award on the grant date. We use the Black-Scholes valuation model to estimate the fair value of stock option awards. The fair value is recognized as expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award, on a straight-line basis. We believe that the fair value of stock options granted to non-employees is more reliably measured than the fair value of the services received. As such, the fair value of the unvested portion of the options granted to non-employees is re-measured as of each reporting date. The resulting increase in value, if any, is recognized as expense during the requisite service period on a straight-line basis. The determination of the grant date fair value of options using an option pricing model is affected by our estimated common stock fair value and requires management to make a number of assumptions, including the expected life of the option, the volatility of the underlying stock, the risk-free interest rate and expected dividends.

Historically, for all periods prior to this initial public offering, the fair values of the shares of common stock underlying our stock-based awards were estimated on each grant date by our board of directors. In order to determine the fair value of our common stock underlying option grants, our board of directors considered, among other things, contemporaneous valuations of our common stock prepared by unrelated third-party valuation firms in accordance with the guidance provided by the American Institute of Certified Public Accountants 2004 Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the Practice Aid. Given the absence of a public trading market of our common stock, our board of directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock, including:

 

    contemporaneous valuations of our common stock performed by unrelated third-party valuation firms as of February 29, 2012, August 31, 2012, February 15, 2013, July 31, 2013, October 31, 2013 and February 28, 2014;

 

    our stage of development;

 

    our operational and financial performance;

 

    the nature of our services and our competitive position in the marketplace;

 

    the value of companies that we consider peers based on a number of factors, including similarity to us with respect to industry and business model;

 

    the likelihood of achieving a liquidity event, such as an initial public offering or sale given prevailing market conditions, and the nature and history of our business;

 

    issuances of preferred stock and the rights, preferences and privileges of our preferred stock relative to those of our common stock;

 

    current business conditions and projections;

 

    the history of our company and our introduction of new solutions; and

 

    the lack of marketability of our common stock.

Stock-based compensation for options granted in March 2014 and December 2013 (which were not deemed granted for accounting purposes until the third quarter of fiscal year 2014, as such grants were pending stockholder approval for an increase in the share reserve under the 2005 Stock Plan, which approval was received in July 2014) has been calculated based on our conclusion to use the deemed fair value of common stock on the accounting grant date using a discount to the midpoint of the range set forth on the cover of this prospectus.

 

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Common Stock Valuation Methodology

The valuations were performed in accordance with applicable elements of the Practice Aid. The Practice Aid prescribes several valuation approaches for estimating the value of an enterprise, such as the cost, market and income approaches, and various methodologies for allocating the value of an enterprise to its common stock.

The Practice Aid identifies various available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value of common stock at each valuation date. In accordance with the Practice Aid, our board determined that the Probability-Weighted Expected Return Method (or PWERM) was the most appropriate method for determining the fair value of our common stock for the above noted valuation dates based on our stage of development and other relevant factors. The PWERM is a scenario-based analysis that estimates value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class.

For valuations after the completion of this initial public offering, our board of directors will determine the fair value of each share of underlying common stock based on the closing price of our common stock as reported on the NASDAQ Global Select Market on the date of grant.

Results of Operations

 

     Years ended
December 31,
    Nine Months
ended September 30,
 
     2012     2013     2013     2014  
                 (unaudited)  
     (in thousands)  

Revenue:

        

License and milestone revenue

   $ 62,845      $ 94,961      $ 86,035      $ 106,175   

Collaboration services and other revenue

     3,088        7,209        3,745        15,321   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     65,933        102,170        89,780        121,496   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Research and development

     74,222        85,710        56,276        99,536   

General and administrative

     18,934        24,409        16,498        24,088   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     93,156        110,119        72,774        123,624   

Income (loss) from operations

     (27,223     (7,949     17,006        (2,128

Total interest and other, net

     (5,448     (6,994     (5,176     (6,816
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (32,671     (14,943     11,830        (8,944

Benefit from income taxes

     100        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (32,571   $ (14,943   $ 11,830      $ (8,944
  

 

 

   

 

 

   

 

 

   

 

 

 

Comparison of the nine months ended September 30, 2013 and 2014 (unaudited)

Revenue

 

     Nine Months Ended September 30,     Change      %
Change
 
     2013      % of
Revenue
    2014      % of
Revenue
      
     (dollars in thousands)  

Revenue:

       

License and milestone revenue

   $ 86,035         96   $ 106,175         87   $ 20,140         23

Collaboration services and other revenue

     3,745         4     15,321         13     11,576         309
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total revenue

   $ 89,780         100   $ 121,496         100   $ 31,716         35
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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Total revenue increased by $31.7 million, or 35%, for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 for the reasons as more fully discussed in the sections below.

License and Milestone Revenue

 

     Nine Months Ended September 30,     Change     %
Change
 
     2013      % of
License and
Milestone
Revenue
    2014      % of
License and
Milestone
Revenue
     
     (dollars in thousands)  

License and milestone revenue:

              

Astellas—Related party

   $ 19,043         22   $ 9,966         9   $ (9,077     (48 )% 

AstraZeneca

     66,992         78     96,209         91     29,217        44
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total license and milestone revenue

   $ 86,035         100   $ 106,175         100   $ 20,140        23
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

License and milestone revenue increased by $ 20.1 million for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. This increase was primarily driven by license revenue recognized in connection with our collaboration agreements signed in July 2013 with AstraZeneca, partially offset by the decrease in milestone revenue recognized in connection with our collaboration agreement with Astellas during the nine months ended September 30, 2013. The amount of license revenue recognized for the nine months ended September 30, 2014 and September 30, 2013 was comprised principally of the receipt of a $110 million time-based payment in June 2014 and up-front payments of $ 98.2 million in July 2013, respectively, and the application of the relative selling price method to each of the deliverables underlying the AstraZeneca agreement. As a result of applying the relative selling price method and assessing the timing of the provision of various deliverables (as more fully discussed in the notes to the consolidated financial statements), at September 30, 2014 and September 30, 2013, approximately $ 17.4 million and $ 19.2 million, respectively (which relate to the co-development, information sharing and committee services unit of accounting), and $14.9 million and $ 13.3 million, respectively (which relate to the China unit of accounting), of these payments were deferred. The application of the relative selling price method to the reimbursements for co-development payments from both Astellas and AstraZeneca contributed to $16.8 million of the $20.1 million increase in license and milestone revenue for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. The amounts related to the co-development, information sharing and committee services unit of accounting will be recognized as revenue as these services are performed through the remainder of the non-contingent development period (which was estimated as 65 months from the date the AstraZeneca agreement was signed). The amount relating to the China unit of accounting has been deferred until commercialization commences in the China market.

Collaboration Services and Other Revenue

Collaboration services revenue increased $11.6 million for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, primarily due to an increase in expenses subject to reimbursement following our entry into our agreements with AstraZeneca.

 

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Operating Expenses

 

     Nine Months Ended September 30,     Change      %
Change
 
     2013      % of
Revenue
    2014      % of
Revenue
      
     (dollars in thousands)  

Operating expenses:

               

Research and development

   $ 56,276         63   $ 99,536         82   $ 43,260         77

General and administrative

     16,498         18     24,088         20     7,590         46
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total operating expenses

   $ 72,774         81   $ 123,624         102     50,850         70
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Research and development expenses increased by $43.3 million, or 77% for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. The increase was primarily due to an increase in personnel related costs of $10.7 million, of which $7.1 million related to an increase in headcount and related expenses and $4.3 million related to an increase in stock-based compensation expenses associated with new grants. These increases were partially offset by a decrease in expense of $0.7 million under our corporate bonus program. We also experienced an increase in outside services expenses of $18.9 million as we utilized third parties for scientific contract work for increased regulatory submissions for roxadustat and certain other of our product candidates and an increase in drug development expenses of $4.0 million due to increased supply required for roxadustat and FG-3019 trials. In addition, our overall clinical trials expenses increased $8.4 million, as a result of our increased use of CROs as well as costs for data management.

General and administrative expenses increased $7.6 million, or 46%, for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. The increase was primarily due to an increase in personnel related costs of $4.4 million, of which $1.9 million related to an increase in headcount and related expenses and $2.8 million related to an increase in stock-based compensation expenses associated with new grants. These increases were partially offset by a decrease in expense of $0.3 million under our corporate bonus program. In addition, professional fees increased $2.6 million due to increase in audit, tax, recruiting and other outside services costs. Furthermore, facilities expense increased $0.6 million due to the costs associated with our newly leased facility in China.

Interest Expense and Other, Net

 

     Nine Months Ended
September 30,
    Change      %
Change
 
     2013     2014       
     (dollars in thousands)  

Interest expense and other, net:

         

Interest expense

   $ 7,999      $ 8,174      $ 175         2

Interest income

     (2,709     (1,364     1,345         (50 )% 

Foreign currency and other (gain) loss

     (114     6        120         (105 )% 
  

 

 

   

 

 

   

 

 

    

 

 

 

Total interest expense and other, net

   $ 5,176      $ 6,816      $ 1,640         32
  

 

 

   

 

 

   

 

 

    

 

 

 

Interest expense and other, net increased $1.6 million, or 32%, for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013. Interest expense includes payments made for imputed interest related to the facility lease financing obligations for the San Francisco and the China properties as well as interest related to the TEKES product development obligations. Interest expense increased $0.2 million, primarily due to the newly-leased facility in China.

Interest income consists primarily of interest earned on bonds held. Interest income decreased $1.3 million for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, due to a decrease in bond interest related to the maturity and call of bonds. Foreign currency and other decreased $0.1 million for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, as a result of nonrecurring realized gains on the sale of investments for the nine months ended September 30, 2013.

 

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Comparison of the years ended December 31, 2012 and 2013

Revenue

 

     Year Ended December 31,               
     2012      % of
Revenue
    2013      % of
Revenue
    Change      %
Change
 
     (dollars in thousands)  

Revenue:

               

License and milestone revenue

   $ 62,845         95   $ 94,961         93   $ 32,116         51

Collaboration services and other revenue

     3,088         5     7,209         7     4,121         133
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total revenue

   $ 65,933         100   $ 102,170         100   $ 36,237         55
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total revenue increased by $36.2 million, or 55% for the year ended December 31, 2013 compared to the year ended December 31, 2012 for the reasons as more fully discussed in the sections below.

License and Milestone Revenue

 

     Year Ended December 31,              
     2012      % of
License
and
Milestone
Revenue
    2013      % of
License
and
Milestone
Revenue
    Change     %
Change
 
     (dollars in thousands)  

License and milestone revenue:

              

Astellas—Related party

   $ 62,845         100   $ 22,326         24   $ (40,519     (64 )% 

AstraZeneca

     —           —          72,635         76     72,635        NM   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total license and milestone revenue

   $ 62,845         100   $ 94,961         100   $ 32,116        51
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

NM - Not Meaningful

License and milestone revenue increased by $32.1 million, or 51% for the year ended December 31, 2013 compared to the year ended December 31, 2012. This increase was primarily driven by license and milestone revenue recognized in connection with our collaboration agreements signed in July 2013 with AstraZeneca. Under our collaboration agreements with Astellas, we recognized revenue related to two substantive milestones in 2012 and 2013 of $50.0 million and $12.5 million, respectively.

Collaboration Services and Other Revenue

Collaboration services and other revenue increased $4.1 million, or 133% for the year ended December 31, 2013 compared to the year ended December 31, 2012, primarily due to an increase in expenses subject to reimbursement of $3.8 million following our entry into our agreements with AstraZeneca.

Operating Expenses

 

     Year Ended December 31,               
     2012      % of
Revenue
    2013      % of
Revenue
    Change      %
Change
 
     (dollars in thousands)  

Operating expenses:

               

Research and development

   $ 74,222         113   $ 85,710         84   $ 11,488         15

General and administrative

     18,934         29     24,409         24     5,475         29
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total operating expenses

   $ 93,156         142   $ 110,119         108     16,963         18
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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Research and development expenses increased by $11.5 million, or 15% for the year ended December 31, 2013 compared to the year ended December 31, 2012. The increase was primarily due to an increase in personnel related costs of $8.6 million, of which $3.2 million related to an increase in headcount and related expenses and $5.4 million related to increased expenses under our corporate bonus program, primarily due to the agreements signed with AstraZeneca in July 2013. We also experienced an increase in outside services expenses of $3.2 million as we utilized third parties to support increased regulatory efforts for roxadustat, and certain other of our product candidates and an increase in drug development expenses of $1.9 million due to increased supply required for roxadustat and FG-3019 trials. These increases were partially offset by a decrease in overall clinical trials expenses of $2.1 million, primarily related to the decrease in clinical investigator site costs and decreased activity for CROs.

General and administrative expenses increased $5.5 million, or 29% for the year ended December 31, 2013 compared to the year ended December 31, 2012. The increase was primarily due to an increase in personnel expenses of $3.9 million, of which $0.8 million related to an increase in headcount and related expenses and $3.1 million related to increased expenses under our corporate bonus program, primarily due to the agreements signed with AstraZeneca in July 2013. In addition, professional fees increased $1.6 million due to increased legal and outside services costs related to the execution of the AstraZeneca agreements as well as other general corporate legal expenses. Furthermore, facilities expense increased $0.2 million due to the costs associated with the newly leased facility in China.

Interest Expense and Other, Net

 

     Year Ended
December 31,
           %
Change
 
     2012     2013     Change     
     (dollars in thousands)  

Interest expense and other, net:

         

Interest expense

   $ 10,026      $ 10,702      $ 676         7

Interest income

     (4,397     (3,552     845         (19 )% 

Foreign currency and other

     (181     (156     25         (14 )% 
  

 

 

   

 

 

   

 

 

    

 

 

 

Total interest expense and other, net

   $ 5,448      $ 6,994      $ 1,546         28
  

 

 

   

 

 

   

 

 

    

 

 

 

Interest expense and other, net increased $1.5 million, or 28%, for the year ended December 31, 2013, compared to the year ended December 31, 2012. Interest expense includes payments made for imputed interest related to the facility lease financing obligations for the headquarters and China facilities as well as interest related to the TEKES product development obligations, which increased $0.7 million, primarily due to the newly-leased facility in China.

Interest income consists primarily of interest earned on bonds held. Interest income decreased $0.8 million, or 19%, for the year ended December 31, 2013, compared to the year ended December 31, 2012, due to a decrease in bond interest related to the maturity and call of bonds.

Liquidity and Capital Resources

We have historically funded our operations principally from the sale of convertible preferred stock and from the execution of certain collaboration agreements involving license payments, milestones and reimbursement for development services. To date, we have raised net proceeds of $302.7 million through the sale of FibroGen, Inc. convertible preferred stock and $27.9 million in sales of convertible preferred stock in our majority-owned subsidiaries. We have also received approximately $13.0 million of loans from TEKES. As of September 30, 2014, we had cash and cash equivalents of approximately $153.9 million. Cash is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Investments, consisting principally of corporate and government debt securities and stated at fair value, are also available as a source of liquidity. As of September 30, 2014, we had short-term and long-term investments of approximately $21.6 million and $0.2 million, respectively.

 

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Cash Flows

The following table sets forth the primary sources and uses of cash for each of the periods set forth below:

 

     Years ended
December 31,
     Nine Months
ended September 30,
 
     2012     2013      2013      2014  
                  (unaudited)  
     (in thousands)  

Net cash provided by (used in):

          

Operating activities

   $ (5,605   $ 25,918       $ 48,566       $ 46,179   

Investing activities

     19,152        10,778         5,362         33,004   

Financing activities

     6,807        680         292         (1,571

Effect of exchange rate changes on cash

     (66     84         39         (55
  

 

 

   

 

 

    

 

 

    

 

 

 

Net change in cash and cash equivalents

   $ 20,288      $ 37,460       $ 54,259       $ 77,557   
  

 

 

   

 

 

    

 

 

    

 

 

 

Operating Activities

Net cash provided by operating activities was $46.2 million for the nine months ended September 30, 2014, and consisted primarily of net loss of $8.9 million adjusted for non-cash items including stock-based compensation expense of $9.7 million, depreciation expense of $3.3 million, amortization of bond premium/discount of $0.4 million and a net increase in operating assets and liabilities of $41.6 million. The significant items in the change in operating assets and liabilities include an increase in deferred revenue of $34.8 million and an increase in accounts payable and accrued expenses of $11.0 million. The increase in deferred revenue relates to the timing of upfront payments and recognition of revenues under our collaboration agreements with Astellas and AstraZeneca. The increase in accrued expenses is driven by the increase in clinical trial activity related to upcoming Phase 3 trials for roxadustat.

Net cash provided by operating activities was $48.6 million for the nine months ended September 30, 2013, and consisted primarily of net income of $11.8 million adjusted for non-cash items including stock-based compensation expense of $2.6 million, depreciation expense of $3.9 million, investment gain of $0.2 million, amortization of bond premium/discount of $0.6 million and a net decrease in operating assets and liabilities of $29.8 million. The change in operating assets and liabilities was primarily driven by a decrease of $31.2 million in deferred revenue and a decrease in accounts payable and accrued expenses of $0.8 million that was driven by a decrease in accrued clinical trial related expenses. This decrease was partially offset by changes in accounts receivable and deferred revenues related to our collaboration agreements.

Net cash provided by operating activities was $25.9 million for the year ended December 31, 2013, and consisted primarily of a net loss of $14.9 million adjusted for non-cash items including stock-based compensation expense of $3.4 million, depreciation expense of $5.1 million, investment gains of $0.3 million, amortization of bond premium/discount of $0.8 million and a net increase in operating assets and liabilities of $31.8 million. The change in operating assets and liabilities include increases in accounts payable and accrued expenses of $9.3 million, an increase in deferred revenue of $30.9 million, a decrease in prepaid expenses and other current assets of $0.8 million, offset by increases of $0.5 million in other assets and $8.7 million in accounts receivable. The increase in accounts payable and accrued expenses was primarily due to increased accrued payroll expenses and accrued clinical trial related expenses. The increase in accounts receivable and deferred revenue relate to the timing of milestone payments and recognition of revenues under our collaboration agreements with Astellas and AstraZeneca.

Net cash used in operating activities was $5.6 million for the year ended December 31, 2012, and consisted primarily of a net loss of $32.6 million adjusted for non-cash items including stock-based compensation expense of $4.6 million, depreciation expense of $5.6 million, investment gains of $0.4 million, amortization of bond premium or discount of $0.9 million and a net decrease in operating assets and liabilities of $16.3 million. The change in operating assets and liabilities include an increase in accounts payable and accrued expenses of

 

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$2.2 million and a decrease of $14.1 million in accounts receivable, offset by increases of $0.5 million in prepaid expenses and other current assets and $0.4 million in other assets. The increase in accounts receivable relate to the timing of milestone payments under our collaboration agreements with Astellas.

Investing Activities

Net cash provided by investing activities consisted of purchases of fixed assets, purchases of investments, and proceeds from the maturity and sale of investments.

Net cash provided by investing activities for the nine months ended September 30, 2014 was $33.0 million and consisted of proceeds from maturities of investments of $38.5 million offset by $5.5 million in purchases of fixed assets. Net cash provided by investing activities for the nine months ended September 30, 2013 was $5.4 million and consisted of $7.6 million in proceeds from sales and maturities of investments, offset by $2.3 million in purchases of fixed assets.

Net cash provided by investing activities for the year ended December 31, 2013 was $10.8 million and consisted primarily of proceeds from sales and maturities of investments of $17.6 million offset by $6.8 million purchases of fixed assets. Net cash provided by investing activities for the year ended December 31, 2012 was $19.2 million and consisted primarily of $22.1 million in proceeds from sales and maturities of investments, offset by $2.2 million in purchases of investments and $0.7 million in purchases of fixed assets.

Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2014 was $1.6 million and consisted of $2.2 million in payments in equity issuance costs (costs paid associated with the planned public offering of our securities) and $0.3 million of repayments on our lease liability, partially offset by $0.9 million in proceeds from issuance of common stock upon exercise of stock options. Net cash provided by financing activities for the nine months ended September 30, 2013 was $0.3 million and consisted of $0.6 million in proceeds from a convertible promissory note and $0.2 million in proceeds from non-controlling interests, partially offset by $0.2 million of repayments of capital lease obligations and $0.3 million for repayments of our lease liability.

Net cash provided by financing activities for the year ended December 31, 2013 was $0.7 million and consisted of $0.6 million from our lease financing liability rent subsidy, $0.6 million in proceeds from a convertible promissory note and $0.2 million in proceeds from non-controlling interests. These amounts were partially offset by $0.3 million of repayments on equipment loans and $0.4 million on our option lease liability. Net cash provided by financing activities for the year ended December 31, 2012 was $6.8 million and consisted of $6.6 million proceeds from non-controlling interests, $0.8 million proceeds from notes receivable, and $0.2 million from issuance of common stock, offset by $0.3 million of repayments on equipment loans, and $0.4 million on our lease option liability.

During the years ended December 31, 2012 and 2013, we also drew down and fully repaid amounts on our credit facility of $17.3 million and $11.5 million, respectively.

Operating Capital Requirements

To date, we have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize one or more of our current or future product candidates. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. We are subject to all the risks related to the development and

 

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commercialization of novel therapeutics, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. Upon the closing of this offering, we expect to incur additional costs associated with operating as a public company. We anticipate that we will need substantial additional funding in connection with our continuing operations.

We believe our existing cash and cash equivalents, short-term and long-term investments and payments due under our license and collaboration agreements will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our longer term liquidity requirements may require us to raise additional capital, such as through additional equity or debt financings. Our future capital requirements will depend on many factors, including our ability to meet milestones under our current collaboration agreements, and the timing of our expenditures related to clinical trials.

In addition, we may require additional capital sooner for the further development of our existing product candidates and may also need to raise additional funds sooner to pursue other development activities related to additional product candidates.

Until we can generate a sufficient amount of revenue from our product candidates, if ever, we expect to finance future cash needs through public or private equity or debt offerings. Additional capital may not be available on reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. If we raise additional funds through the issuance of additional equity or debt securities, it could result in dilution to our existing stockholders or increased fixed payment obligations, and any such securities may have rights senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects.

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 funding requirements, both near- and long-term, will depend on many factors, including, but not limited to:

 

    the rate of progress in the development of our product candidates;

 

    the costs of development efforts for our product candidates, such as FG-3019, that are not subject to reimbursement from our collaboration partners;

 

    the costs necessary to obtain regulatory approvals, if any, for our product candidates in the United States, China and other jurisdictions, and the costs of post-marketing studies that could be required by regulatory authorities in jurisdictions where approval is obtained;

 

    the continuation of our existing collaborations and entry into new collaborations;

 

    the time and unreimbursed costs necessary to commercialize products in territories in which our product candidates are approved for sale;

 

    the revenues from any future sales of our products for which we are entitled to a profit share, royalties and milestones;

 

    the level of reimbursement or third party payor pricing available to our products;

 

    the costs of establishing and maintaining manufacturing operations and obtaining third party commercial supplies of our products, if any, manufactured in accordance with regulatory requirements;

 

    the costs we incur in maintaining domestic and foreign operations, including operations in China;

 

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    the costs associated with being a public company; and

 

    the costs we incur in the filing, prosecution, maintenance and defense of our extensive patent portfolio and other intellectual property rights.

If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition and results of operations could be materially adversely affected.

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.

Contractual Obligations and Commitments

Cease-Use Liability

In April 2009, in conjunction with the move of our headquarters to a new facility, we exited from one of the two buildings we formerly occupied. This facility closure was accounted for in accordance with accounting guidance related to costs associated with exit or disposal activities. Based upon this guidance, we recorded a cease-use liability equal to the net present value of the future minimum lease payments, net of expected future sublease payments, through the end of the remaining lease term. Any adjustments to the cease-use liability, due to factors such as expected future sublease payments, will be recorded in general and administrative expenses in the period those adjustments occur. A rollforward of the cease-use liability is shown below:

 

     Years Ended December 31,     Nine Months
Ended September 30,
2014
 
     2012     2013    
                 (unaudited)  
     (in thousands)  

Beginning liability balance

   $ 2,868      $ 1,861      $ 894   

Payments made

     (885     (967     (539

Adjustments to estimates

     (122     —          —     
  

 

 

   

 

 

   

 

 

 

Ending liability balance

   $ 1,861      $ 894      $ 355   
  

 

 

   

 

 

   

 

 

 

Contractual Obligations

At December 31, 2013, our contractual obligations were as follows:

 

     Payments due by period  
     Less than
1 year
     1 to 3
years
     3 to 5
years
     More than
5 years
     Total  
     (in thousands)  

Contractual obligations:

              

Operating lease obligations

   $ 3,917       $ 555       $  —         $  —         $ 4,472   

Lease financing obligations

     13,286         41,356         43,562         41,382         139,586   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 17,203       $ 41,911       $ 43,562       $ 41,382       $ 144,058   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The contractual obligations table excludes uncertain tax benefits of approximately $13.5 million that are disclosed in Note 12 in the notes to our consolidated financial statements because these uncertain tax positions, if recognized, would be an adjustment to the deferred tax assets.

Clinical Trials

As of December 31, 2013, we have several on-going clinical studies in various stages. Under agreements with various clinical research organizations, or CROs, and clinical study sites, we incur expenses related to clinical

 

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studies of our product candidates and potential other clinical candidates. The timing and amounts of these disbursements are contingent upon the achievement of certain milestones, patient enrollment and services rendered or as expenses are incurred by the CROs or clinical trial sites. 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

As of December 31, 2013, our FibroGen Europe subsidiary had $13.0 million of principal outstanding and $5.3 million of interest accrued related to the TEKES loans, respectively, which have been included as product development obligations in our consolidated balance sheet.

There is no stated maturity date related to these loans and each loan may be forgiven if the research work funded by TEKES does not result in an economically profitable business or does not meet its technological objectives. In addition, we are not a guarantor of the TEKES loans, and these loans are not repayable by FibroGen Europe until it has distributable funds. We do not expect FibroGen Europe to have such funds for at least the next five years. For the foregoing reasons, we cannot estimate the potential timing and the amounts of repayments (if required) or forgiveness. As a result, the TEKES loans have been excluded from the table above.

Off-Balance Sheet Arrangements

During the year ended December 31, 2013, 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.

JOBS Act Accounting Election

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Quantitative and Qualitative Disclosures About Market Risks

We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates. The functional currency of our FibroGen Europe subsidiary is the local currency. Most of our revenue from collaboration agreements are denominated in U.S. dollars, and therefore our revenue is not currently subject to significant foreign currency risk. Our operating expenses are denominated in the currencies of the countries in which our operations are located, which are primarily in the United States, China, and Europe. Our consolidated results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates.

In February 2013, we entered into a long-term property lease with Beijing Economic-Technological Development Area (“BDA”) Management Committee for a pilot plant located in Beijing Yizhuang Biomedical Park of BDA. The lease financing obligation of approximately $3.1 million is payable in Renminbi and subject to fluctuation in the exchange rate with the U.S. dollar. During the year ended December 31, 2013, the effect of a hypothetical 10% change in foreign currency exchange rates would have resulted in a gain or loss on foreign currency of approximately $0.3 million.

The primary objective of our investment activities is to preserve our capital to fund our operations. We also seek to maximize income from our cash and cash equivalents without assuming significant risk. To achieve our

 

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objectives, we invest our non-operating cash and cash equivalents in high quality and highly liquid U.S. government money market funds and in other money market funds in stable economies. A portion of our investments are invested in high quality corporate bonds and may be subject to interest rate risk and could fall in value if market interest rates increase. However, because we generally hold our bonds to maturity, we believe that our exposure to interest rate risk is not significant and a 1% change in market interest rates would not have a material impact on the total fair value of our portfolio. We actively monitor changes in interest rates.

To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments.

Recent Accounting Pronouncements

In April 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” The ASU amendment changes the requirements for reporting discontinued operations in Subtopic 205-20. The amendment is effective on a prospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2014. Early adoption is permitted for disposals that have not been reported in financial statements previously issued. We will apply the provisions of this ASU to any future transactions after the effective date which qualify for reporting discontinued operations.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The ASU’s effective date will be the first quarter of fiscal year 2017 (for a public entity) or the first quarter of 2018 (for a non-public entity, but with earlier adoption permitted) using one of two retrospective application methods. We have not determined the potential effects of this ASU on our consolidated financial statements.

In August 2014, the FASB issued new guidance related to the disclosures around going concern. The new standard provides guidance around management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. We will apply the guidance and disclosure provisions of the new standard upon adoption.

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02). This accounting standard update requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. This ASU is effective for reporting periods beginning after December 15, 2012. We adopted this guidance in the first quarter of 2013 and the adoption of this guidance did not have an impact on our consolidated financial statements or results of operations.

In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a Consensus of the FASB Emerging Issues Task Force) (ASU 2013-02). This newly issued accounting standard update requires a liability related to an unrecognized tax benefit to be presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. We adopted this guidance in the first quarter of 2014 and the adoption of this guidance did not have an impact on our consolidated financial statements.

 

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BUSINESS

OVERVIEW

We are a research-based, biopharmaceutical company focused on the discovery, development and commercialization of novel therapeutic agents to treat serious unmet medical needs. We have capitalized on our extensive experience in fibrosis and hypoxia inducible factor, or HIF, biology to generate multiple programs targeting various therapeutic areas. Our most advanced product candidate, roxadustat, or FG-4592, is an oral small molecule inhibitor of HIF prolyl hydroxylases, or HIF-PHs, in Phase 3 clinical development for the treatment of anemia in chronic kidney disease, or CKD. Our second product candidate, FG-3019, is a monoclonal antibody in Phase 2 clinical development for the treatment of idiopathic pulmonary fibrosis, or IPF, pancreatic cancer and liver fibrosis. We have taken a global approach to the development and future commercialization of our product candidates, and this includes development and commercialization in the People’s Republic of China, or China.

We intend to leverage our extensive experience in fibrosis and HIF biology to build a successful biopharmaceutical company with a strong pipeline of products and product candidates for the treatment of anemia, fibrosis, cancer, corneal blindness and other serious unmet medical needs. Our near-term and long-term strategies include:

 

    Develop and, if approved, commercialize roxadustat with the assistance of our collaboration partners in the United States, Europe, China and Japan and the rest of the world, including enrolling and completing our global Phase 3 program in CKD anemia and seeking regulatory approval for roxadustat in multiple geographies, including as a Domestic Class 1.1 therapeutic in China.

 

    Enroll and complete our Phase 2 clinical studies of FG-3019 in IPF and pancreatic cancer, and initiate, enroll, and complete subsequent Phase 3 pivotal studies of FG-3019 in IPF and pancreatic cancer in the United States and potentially outside of the United States.

 

    Continue to pursue an extensive and multi-layered patent portfolio to protect our technologies and product candidates.

 

    Explore potential partnering opportunities for the development and commercialization of FG-3019 in certain territories.

 

    Develop FG-5200 for treatment of corneal blindness resulting from partial thickness corneal damage in China and elsewhere in the world.

 

    Strategically invest in the research and development of additional anemia indications for roxadustat, which may include chemotherapy-induced anemia, anemia relating to inflammatory diseases, myelodysplastic syndrome, or MDS, and surgical procedures requiring transfusions.

 

    Use our extensive HIF platform to increase our pipeline by exploring proof-of-concept with our HIF-PH selective inhibitors, such as FG-8205, and our other HIF-PH inhibitors, including FG-6874 (which has completed single and multiple ascending dose Phase 1 clinical studies in Singapore), in indications such as hematopoietic stem cell mobilization, peri-operative anemia, heart failure post-myocardial infarction, inflammatory bowel disease, diabetes, cancer and wound healing.

 

    Expand our efforts in fibrosis by pursuing additional indications for FG-3019, which may include Duchenne muscular dystrophy, scleroderma lung disease, liver fibrosis associated with graft rejection, non-alcoholic steatohepatitis, or NASH, diabetic nephropathy, focal segmental glomerular sclerosis, congestive heart failure, pulmonary arterial hypertension and cancers such as melanoma, ovarian, breast, and squamous cell lung carcinoma.

 

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ROXADUSTAT FOR THE TREATMENT OF ANEMIA IN CHRONIC KIDNEY DISEASE

Roxadustat is an internally discovered HIF-PH inhibitor that acts by stimulating the body’s natural pathway of erythropoiesis, or red blood cell production. Roxadustat, the first HIF-PH inhibitor to enter Phase 3 clinical development, represents a new paradigm for the treatment of anemia in CKD patients, with the potential to offer a safer, more effective, more convenient and more accessible therapy than the current standard of care, injectable erythropoiesis stimulating agents, or ESAs.

Roxadustat is currently in Phase 3 global development for the treatment of anemia in patients with chronic kidney disease, or CKD. 1,449 subjects have participated in 26 completed Phase 1 and 2 clinical studies for roxadustat in North America, Europe and Asia. These studies have demonstrated roxadustat’s potential for a favorable safety and efficacy profile in anemic CKD patients, both those who are dialysis-dependent, or DD-CKD, and those who are not dialysis-dependent, or NDD-CKD. According to IMS Health, 2013 global ESA sales in all anemia indications totaled $8.6 billion. While the use of ESAs to treat anemia in CKD has largely been limited to use in DD-CKD patients, we and our partners believe that, as an oral agent with a potentially more favorable safety profile, roxadustat could increase accessibility and expand the market for anemia treatment by penetrating the NDD-CKD market. In the longer term, we believe roxadustat has the potential to address non-CKD anemia markets, including chemotherapy-induced anemia, anemia related to inflammation (such as inflammatory diseases), myelodysplastic syndrome, or MDS, and surgical procedures requiring transfusions.

We, along with our collaboration partners Astellas Pharma Inc., or Astellas, and AstraZeneca AB, or Astra Zeneca, have designed a global Phase 3 program to support regulatory approval of roxadustat in both NDD-CKD and DD-CKD patients in the United States, the European Union, Japan and China. Our US and EU Phase 3 program has an aggregate target enrollment of approximately 7,000 to 8,000 patients worldwide and is the largest Phase 3 clinical program ever conducted for an anemia product candidate. Our Phase 3 program is also designed and sized for, and will incorporate major adverse cardiac events, or MACE, composite safety endpoints that we believe will be required for approval in the United States for all new anemia therapies. Our Phase 3 program will study multiple patient populations, including patients within the first four months of initiating dialysis, or incident dialysis, and non-incident, or stable, dialysis patients and will include multiple NDD-CKD studies comparing roxadustat against placebo control.

Background of Anemia in CKD

Anemia is a serious medical condition in which patients have insufficient red blood cells and low levels of hemoglobin, or Hb, a protein in red blood cells that carries oxygen to cells throughout the body. Anemia is associated with increased risks of hospitalization, cardiovascular complications, need for blood transfusion, exacerbation of other serious medical conditions and death. In addition, anemia frequently leads to significant fatigue, cognitive dysfunction, and decreased quality of life. The more severe the anemia, as measured in lower Hb levels, the greater the health impact on patients. Severe anemia is common in patients with CKD, cancer, MDS, inflammatory diseases, and other serious illnesses. Even when it accompanies prevalent and serious diseases, anemia is often not effectively treated.

Anemia is particularly prevalent in patients with CKD, which is a critical healthcare problem and is most commonly caused by diabetes and hypertension in the United States and Europe. CKD affects over 200 million people worldwide and anemia significantly increases healthcare costs for those patients. CKD is generally a progressive disease characterized by the gradual loss of kidney function that may eventually lead to kidney failure, also known as end stage renal disease, or ESRD. Patients with ESRD require renal replacement therapy—either dialysis treatment or kidney transplantation. CKD accompanied by anemia is associated with worse health outcomes than CKD alone, including more rapid progression of CKD and increased death rate. There are 5 stages of CKD which are primarily defined by a measure of the filtration function of the kidney (GFR).

 

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Stages of CKD and Prevalence in the United States

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* US prevalence is estimated for adults 20 years of age or older

† GFR: Glomerular Filtration Rate (ml/min/1.73m2)

Sources: The prevalence of stage 1 through stage 4 CKD was calculated based on estimates by Kidney Disease Improving Global Outcomes (2012 guideline), 2011 estimates by the U.S. Renal Data System (USRDS) using data from the National Health and Nutrition Examination Survey (NHANES) 2005-2010 and 2011 data from the U.S. Census Bureau. The prevalence of stage 5 CKD was calculated based on 2011 data from the USRDS using data from NHANES 2005-2010 and 2011 data from the U.S. Census Bureau.

The prevalence rate of anemia in patients with Hb<12 g/dL is set forth below.

 

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Sources: The prevalence of anemia in stage 1 through stage 4 CKD and stage 5 NDD-CKD were derived from Stauffer and Fan, Prevalence of Anemia in Chronic Kidney Disease in the United States, PLoS ONE (2014). The prevalence of anemia in patients undergoing dialysis was derived from Goodkin et al, Naturally Occurring Higher Hemoglobin Concentration Does Not Increase Mortality among Hemodialysis Patients, J Am Soc Nephrol (2011).

In the United States, according to the USRDS, a majority of dialysis eligible CKD patients are currently on dialysis. According to USRDS data as of 2011, approximately 430,000 patients were receiving dialysis in the United States, of whom approximately 80% were being treated with ESAs for anemia. Despite the presence of anemia in stages 3 and 4 CKD patients, in clinical practice, patients typically do not receive ESA treatment for their anemia until they initiate dialysis. In many CKD patients, the disease progresses gradually over decades, and, therefore, patients can spend years suffering from the symptoms and negative health impacts of anemia before they receive treatment. Many of these patients die from cardiovascular events before they initiate dialysis.

 

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Limitations of the Current Standard of Care for Anemia in CKD

Current therapies to treat anemia in CKD include injectable ESAs, intravenous iron, or IV iron, oral iron and blood transfusions. ESAs are the current standard of care for effectively treating anemic CKD patients and are administered intravenously or subcutaneously, typically in conjunction with IV iron. ESAs currently on the market are all synthetic recombinant versions of human erythropoietin, or EPO, a hormone that stimulates erythropoiesis and increases Hb levels by binding to receptors on red blood cell precursors in the bone marrow.

The introduction of the first ESA in 1989 was viewed as a major advance in the treatment of anemia in CKD because it significantly decreased the need for blood transfusions. Since then, ESAs have become one of the most commercially successful drug classes. However, because ESAs were never studied relative to placebo in large randomized clinical trials prior to approval, it was not until years later that their safety profile became better elucidated. Studies published in 2006 to 2009 demonstrated the safety risks of higher ESA doses used to target Hb levels of 13 to 15 g/dL, prompting physicians to balance serious safety concerns against the efficacy of ESAs. The safety concerns observed with injectable ESAs in these studies included an increased risk of cardiovascular adverse events and death as well as a potentially increased rate of tumor recurrence in patients with cancer.

The emergence of the safety issues resulted in several changes to ESA drug labeling. This combination of safety concerns and labeling changes, in addition to the subsequent reimbursement changes, described below, was followed by a decline in ESA sales revenues beginning in 2007. While we believe this decline in ESA sales is primarily due to complete suspension of use of ESAs in anemias associated with cancer, and restrictions on use in chemotherapy induced anemia, we believe the decline in sales is also partly due to the progressive decline in ESA dose administered to CKD patients. Compared to the average ESA dose at the end of 2006, the mean monthly ESA dose in patients on hemodialysis dropped by 6%, 19% and 37% by the end of 2009, 2010 and 2011, respectively (USRDS ESRD Atlas 2013).

Safety Issues of ESAs

Several large clinical trials were designed to demonstrate that targeting higher as opposed to lower Hb levels results in better outcomes. However, they instead generated data showing that targeting higher Hb levels with ESAs resulted in an increase in adverse events, including cardiovascular adverse events. These adverse events were initially observed in 1998 in the NHCT (Normal Hematocrit Cardiac Trial) in CKD patients on dialysis, where the high Hb level treatment arm targeted Hb levels of 13 to 15 g/dL. Additional safety concerns emerged following the CHOIR (Correction of Hemoglobin in Outcomes and Renal Insufficiency), CREATE (Cardiovascular Risk Reduction by Early Anemia Treatment with Epoetin Beta), and TREAT (Trial to Reduce Cardiovascular Events with Aranesp Therapy) studies in NDD-CKD patients, which were published between 2006 and 2009.

Secondary analyses of NHCT, CHOIR and TREAT, as well as subsequent observational studies in dialysis patients, suggest that these safety concerns, particularly the increased cardiovascular risk associated with ESAs, may result from the high ESA doses used to target higher Hb levels rather than the achieved Hb levels themselves. For example, a secondary analysis of CHOIR showed that patients who achieved the desired Hb level with the lowest amounts of ESA have the lowest risk of adverse cardiovascular outcomes as measured by composite endpoints consisting of hospitalization for heart failure, heart attack, stroke, and death. Patients who were treated with the highest ESA doses and, particularly those who achieved the lowest Hb levels, had the greatest risk for these events. In addition, observational studies in patients undergoing dialysis highlighted these risks with high ESA doses and also indicated that higher Hb levels achieved with lower ESA doses were associated with better outcomes.

For example, in an analysis of data from the USRDS of 94,569 hemodialysis patients, increased mortality was found in patients with increased epoetin alfa dose. Patients who achieved the highest hematocrit level (which is a measure of the percentage of volume of whole blood made up of red blood cells; under typical conditions, Hb level can be estimated as one-third the hematocrit level) and received the lowest ESA doses (lowest dose quartile, Q1) had the

 

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lowest mortality rate, and, at any particular ESA dose quartile, patients with higher hematocrit levels tended to have lower mortality levels, according to Zhang et al (Am J Kidney Dis 44:866-876) as illustrated in the chart below.

Unadjusted 1-Year Mortality Rates (per 1000)

by Hematocrit and ESA dosing quartile

 

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Warnings about these risks have been incorporated into guidelines and position papers from major kidney societies and thought leaders. Kidney Disease: Improving Global Outcomes, or KDIGO, a non-profit foundation established in 2003 and operated by the National Kidney Foundation, committed to improving global clinical guidelines for kidney patients, for example, states that, “[t]here may be toxicity from high doses of ESA, as suggested, though not proven, by recent post-hoc analyses of major ESA randomized controlled trials, especially in conjunction with the achievement of high Hb levels. Therefore, in general ESA dose escalation should be avoided.” In addition, the European Renal Best Practices Group specified in a recent position statement that caution should be used in ESA therapy in patients with specific risk factors.

Limited Effectiveness of ESAs in Certain Patient Populations

Hb responses to ESA doses are on a continuum with some patients responding with a satisfactory Hb increase to a small ESA dose and others responding very poorly to very high doses. In addition, patients’ responsiveness to ESAs can change over time and as a result of circumstances such as acute illness or surgery. In an attempt to reach target Hb level, ESA doses are increased in treatment-resistant patients, or hyporesponders, which can result in up to a 40-fold difference in ESA doses between the most ESA-resistant and the most ESA-responsive DD-CKD patients. Even with high doses of ESAs and concomitant IV iron, some of these hyporesponders are unable to reach target Hb levels.

Hyporesponsiveness is a significant problem in incident dialysis patients, for whom ESA doses are typically high, and is associated with a combination of critically low kidney function and accompanying illnesses, such as infections and chronic inflammation. Incident dialysis patients are generally more anemic, and have a higher risk of death, than patients who have been on dialysis for many months.

A major cause of ESA hyporesponsiveness is an underlying chronic inflammatory state that exists in many CKD patients. Chronic inflammation has a suppressive effect on erythropoiesis in CKD via two main mechanisms.

 

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Firstly, pro-inflammatory cytokines such as tumor necrosis factor alpha, or TNF-alpha, and interleukin-6, or IL-6, have been implicated in the suppression of erythropoiesis through inhibition of the response of erythroid progenitor cells to EPO. Secondly, pro-inflammatory cytokines such as IL-6 elevate the levels of hepcidin, the major hormone that regulates iron metabolism. The consequence of elevated hepcidin levels is a reduction in iron absorption from the gastrointestinal tract, or GI tract, and the trapping of iron in cellular stores. Together this leads to inadequate availability of iron to keep pace with the demands of the bone marrow for erythropoiesis, despite adequate total body iron stores. This condition is referred to as functional iron deficiency.

In the presence of inflammation, even high doses of ESAs may be ineffective to achieve target Hb levels, and to the extent Hb levels are raised, the risks associated with the higher ESA doses required may outweigh the benefits of any increased Hb levels.

Requirement for IV Iron to Support ESA Activity and Associated Safety Risks

IV iron supplementation is used to support anemia correction in a majority of hemodialysis patients treated with ESAs in the United States. ESA labeling indicates that physicians should evaluate the iron status in all patients before and during CKD anemia treatment and maintain iron repletion. Many CKD patients have deficient iron stores, or absolute iron deficiency, and cannot absorb enough iron from diet or oral iron supplements to correct this deficiency. Physicians administer IV iron to ensure patients are iron replete prior to initiating ESA treatment and continue IV iron to mitigate iron depletion caused by ESA-mediated erythropoiesis.

Additionally, many CKD patients who have adequate iron stores suffer from functional iron deficiency. IV iron is administered in an attempt to address this shortage of available iron in these CKD patients, resulting in many patients having elevated body iron stores. While IV iron can help correct anemia when used with ESAs, published studies have suggested acute and chronic risks of both morbidity and mortality associated with the use of IV iron. The acute risks of IV iron supplementation include hypersensitivity reactions (which can be life-threatening and the warning of anaphylaxis risk appears in every IV iron product package insert in the United States), infection, as well as less severe but more common side-effects, such as skin problems, hypotension and GI tract symptoms. In addition to acute side-effects, there may also be chronic adverse effects on organ systems related to the cumulative deposits of iron resulting from the volume of iron administered.

Using data from 12 countries obtained over the past twelve years, Bailie et al. demonstrated a direct dose risk relationship between the amount of IV iron administered per month to dialysis patients and the risk of hospitalization and death (Kidney International (2014)). The study identified that, even after controlling for other risk factors and adjusting for different practice patterns globally, dialysis patients receiving greater than 300 mg of IV iron per month had a greater risk of hospitalization or death than those receiving less than 300 mg. Mortality was 13% greater among those receiving between 300 and 400 mg of IV iron per month and 18% greater among those receiving greater than 400 mg of IV iron per month. Furthermore, hospitalization risk was 12% greater among those who received greater than 300 mg per month. The current paradigm of administrating greater doses of IV iron to decrease ESA doses in light of this recently described associated risk underscores the significant unmet need in the treatment of anemia.

Elevated Blood Pressure

ESAs have long been associated with increased blood pressure, including new onset hypertension and exacerbation of pre-existing hypertension. As a result, ESA labeling carries a warning for the potential for increased blood pressure with ESA usage. Hypertension has been shown to accelerate CKD progression and significantly increase the risk of death in CKD patients due to the increased risk of heart attack or stroke.

Increased Thromboembolism and Vascular Access Thrombosis

ESA use has been associated with thromboembolic events, including stroke, vascular access thrombosis (where the dialysis access shunt is blocked due to blood-clotting), blood clots in the leg, which may in part be due to increases in circulating platelet levels. As a result, ESA labeling carries a warning for an increased risk of thromboembolic events.

 

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FDA Restrictions on ESA Usage

In response to safety concerns elucidated in the large clinical studies described above, the US Food and Drug Administration, or the FDA, steadily increased restrictions on the use of injectable ESAs from 2007 through 2011. During 2007, following the NHCT, CHOIR and CREATE studies and several oncology studies, the FDA mandated the inclusion of a boxed warning, or “Black Box” warning, in the package insert for ESAs. A Black Box warning is the strongest warning that the FDA can require in the package insert of prescription drugs. In June 2011, the FDA required further modification to the package insert for ESAs. The current boxed warning states that ESAs increase the risk of death, myocardial infarction, or heart attack, stroke, venous thromboembolism, thrombosis of vascular access and tumor progression or recurrence. In addition, the package insert changes include more conservative dosing guidelines for the use of injectable ESAs in anemic CKD patients. Specifically, the FDA removed the prior target Hb range of 10 to 12 g/dL and recommends that physicians initiate treatment of CKD patients when the Hb level is less than 10 g/dL and reduce or interrupt ESA dosing if the Hb level approaches or exceeds 10 g/dL for NDD-CKD patients and 11 g/dL for DD-CKD patients. In addition, physicians are advised to use only the lowest dose needed to avoid red blood cell transfusions.

Reimbursement Challenges Associated with ESAs

In addition to the safety concerns and labeling changes for ESAs, the reimbursement applicable to dialysis, including associated drugs such as ESAs, has also changed significantly in recent years, which made ESAs less economically attractive for providers to administer. Prior to January 2011, CMS reimbursed dialysis centers and other healthcare providers for use of ESAs at average selling price plus a premium to their cost, which enabled providers to realize a profit on the administration of ESAs, regardless of the quantity dosed. Under the Medicare Improvements for Patients and Providers Act, or MIPPA, a basic case-mix adjusted composite, or bundled, payment system commenced in January 2011 and transitioned fully by January 2014 to a single reimbursement rate for drugs and all services furnished by renal dialysis centers for Medicare beneficiaries with end-stage renal disease. Specifically, under MIPPA the bundle now covers drugs, services, lab tests and supplies under a single treatment base rate for reimbursement by CMS based on the average cost per treatment, including the cost of ESAs and IV iron doses, typically without adjustment for usage.

ESAs administered to NDD-CKD patients have long been reimbursed under Medicare Part B, which requires providers to purchase and store ESAs in advance of being reimbursed, and in many healthcare practices, the amount reimbursed does not cover the cost of ESA administration. For many of these providers, including in nephrology practices where purchase and storing is most common, due to label changes and related reduction in patients available for treatment, ESA administration in NDD-CKD has become economically unattractive. Furthermore, non-nephrologists generally have elected not to provide ESAs. Accordingly, ESA treatment has been limited outside of dialysis centers.

Inconvenience of ESAs

In addition to safety, labeling, reimbursement and efficacy limitations, ESAs must be administered intravenously or subcutaneously, often with IV iron in order for ESAs to be effective at treating to target Hb levels. ESAs are therefore inconvenient for the NDD-CKD population, the peritoneal dialysis population, for whom treatment is often administered at home, and other non-CKD anemia patients who are not already regularly visiting a hospital or dialysis center.

Our Solution

We believe that there is a significant need for a safer, more effective, more convenient and more accessible alternative to injectable ESAs for the treatment of anemia in CKD patients. In addition, we believe there is a significant opportunity for treatment of anemia in markets not effectively addressed by ESAs, such as in the NDD-CKD population and non-CKD anemia markets.

 

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Roxadustat—A Novel, Orally Administered Treatment for Anemia

Roxadustat is an orally administered small molecule that corrects anemia by a different mechanism of action from that of ESAs. As a HIF-PH inhibitor, roxadustat activates a response that is naturally activated when the body responds to reduced oxygen levels in the blood, such as when a person adapts to high altitude. The response activated by roxadustat involves the regulation of multiple, complementary processes to promote erythropoiesis and increase the blood’s oxygen carrying capacity. This coordinated erythropoietic response includes both the stimulation of red blood cell progenitors, by increasing the body’s production of EPO, and an increase in iron availability for Hb synthesis. Patients taking roxadustat typically have EPO levels within or near the physiologic range naturally experienced by people adapting to hypoxic conditions such as at high altitude, following blood donation or impaired lung function, such as pulmonary edema. By contrast, ESAs act only to stimulate red blood cell progenitors without a corresponding increase in iron availability, and are typically dosed at well above the natural physiologic range of EPO. The sudden demand for iron stimulated by ESA-induced erythropoiesis can

lead to functional or absolute iron deficiency. We believe these high doses of ESAs are a main cause of the significant safety issues that have been attributed to this class of drugs. In contrast, the differentiated mechanism of action of roxadustat, which involves induction of the body’s own natural pathways to achieve a more complete erythropoiesis, has the potential to provide a safer and more effective treatment of anemia, including in the presence of inflammation, which normally limits iron availability.

 

Our HIF-PH inhibitor technology relies on the natural mechanism by which the body responds to low oxygen levels. HIF is a transcription factor comprised of a HIF-alpha and a HIF-beta subunit, both of which are required to stimulate erythropoiesis. Under normal oxygen conditions, the HIF-alpha subunit is targeted for rapid degradation through the activity of a family of HIF-PH enzymes. However, under low oxygen conditions, the HIF-PH enzymes cannot function and HIF-alpha accumulates. HIF-alpha then combines with HIF-beta, and the newly formed HIF complex initiates transcription of a number of

 

 

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genes involved in the erythropoietic process, which ultimately leads to increased oxygen delivery to tissues. Roxadustat works by reversibly inhibiting the HIF-PH enzymes, thus mimicking this coordinated natural erythropoietic response through genes transcribing the proteins shown below involved in iron absorption, mobilization and transport as well as stimulation of red blood cell progenitors.

 

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Our discovery and development of roxadustat resulted from years of experience working with prolyl hydroxylase enzymes, such as those that regulate HIF, and a deep understanding of the complexities of HIF biology. We have explored therapeutic activation of HIF to treat anemia from an integrated perspective with a focus on applying our HIF-PH inhibitor technology to produce coordinated effects on erythropoiesis and iron homeostasis and metabolism. As part of these progressive efforts, we have explored the ability of our HIF-PH inhibitor technology to increase sensitivity to endogenous EPO by increasing EPO receptor expression on red blood cell progenitors. We have investigated multiple effects of HIF-PH inhibitors on iron metabolism, including their ability to regulate genes that can increase iron bioavailability. We have also shown that administration of HIF-PH inhibitors can decrease expression of hepcidin, the key hormone that regulates iron metabolism. Hepcidin is elevated under conditions of chronic inflammation, leading to reduced iron availability for erythropoiesis. Based on our gene expression and hepcidin data, we believe HIF-PH inhibitors can increase intestinal iron absorption and enhance the mobilization and uptake of iron. In addition, we have shown that HIF-PH inhibitors can improve transferrin saturation (a measure of circulating iron available for erythropoiesis) and can correct anemia associated with chronic inflammation by overcoming the hepcidin-mediated sequestration of iron that cannot be overcome by ESA therapy.

Based on our knowledge of HIF biology, we selected roxadustat from our extensive library of compounds from various chemical classes of HIF-PH inhibitors, including heterocyclic carboxamides and 2-oxoglutarate mimetics. Roxadustat was selected based on our belief that stabilizing the two main forms of HIF in the cell, HIF-1 and HIF-2, leads to a more complete erythropoietic response.

 

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Although HIF-PH inhibitor programs have been subsequently initiated at several other companies, we expect to remain the leader in the development of HIF-PH inhibitors for anemia, with more patients dosed and more studies conducted with roxadustat than with any other HIF-PH inhibitor.

Potential Advantages of Roxadustat for Treatment of Anemia in CKD

We believe that roxadustat has the potential to offer several safety, efficacy, reimbursement, and convenience advantages over ESAs.

Potential Safety and Efficacy Advantages

Our clinical trials to date have shown that roxadustat can treat anemia in CKD with much lower circulating EPO levels than with treatment by ESAs, mitigate the need for IV iron and treat anemia in the presence of inflammation, thereby offering potential safety and efficacy benefits over ESAs. We have incorporated several endpoints into our Phase 3 studies to further elucidate and demonstrate these and other potential clinical benefits of roxadustat.

Potential Cardiovascular Benefits

The CKD patient population is at high risk for cardiovascular events such as heart attacks and strokes. One known side effect of ESAs is elevation of blood pressure, which is particularly dangerous in this high risk patient population. In contrast, we did not observe increases in blood pressure in patients treated with roxadustat beyond the background levels observed for the comparable placebo-treated patients in a NDD-CKD Phase 2 trial. However, these data should be cautiously assessed due to the limited number of patients exposed. In Study 041, the NDD-CKD patients treated with roxadustat three times weekly for more than 12 weeks had a modest decrease in blood pressure in a subgroup analysis of our Phase 2 NDD-CKD study.

In our Phase 2 studies, we did not observe a safety signal for thromboembolic risk. In contrast to the platelet increase with ESA treatment, platelet counts reported in roxadustat-treated patients did not increase, as those with platelet levels in the top 25th percentile at baseline saw their platelet levels decrease towards normal levels while those with platelet levels in the lower 75th percentile at baseline saw their platelet levels remain stable. This finding supports our belief in a potential safety benefit over ESAs since the platelet increase with ESAs could be a contributing factor in the thromboembolic risk associated with ESAs.

In addition, in our Phase 2 clinical trials, we observed reductions in total cholesterol and an improvement in average HDL / LDL ratio. Since many CKD patients have high cholesterol levels, which contribute to cardiovascular-related morbidity and mortality, the improvement in the average HDL / LDL ratio observed with roxadustat treatment could confer a benefit to patients.

Based on our preclinical and clinical data generated to date, we believe roxadustat could offer cardiovascular benefits to a CKD patient population that typically has cardiovascular-related co-morbidities and is at a high risk for cardiovascular events.

Potential for Anemia Correction with Moderate EPO Levels

Randomized trials have suggested that high doses of ESAs administered in an attempt to achieve a target Hb level may cause the safety issues associated with ESA therapy. These high doses result in serum EPO levels much higher than physiological range. In contrast, the level of endogenous EPO elevation among patients treated with roxadustat is typically within or near the range observed when ascending to a higher elevation or giving blood. Treating anemia while maintaining lower circulating EPO levels may mitigate, or even avoid, the risks from ESA therapy, including cardiovascular events and death.

 

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The following graph depicts:

 

  1) the circulating endogenous EPO levels in natural physiologic adaptations, such as adjustment to high altitude, blood loss, or pulmonary edema [left, LOGO ];

 

  2) transient peak endogenous EPO levels estimated for CKD patients who achieved a Hb response to therapeutic doses of roxadustat in our phase 2 clinical studies [middle, LOGO ];

 

  3) the estimated peak circulating recombinant EPO levels resulting from IV ESA doses in distributions reported by the Dialysis Outcomes and Practice Patterns Study, or DOPPS, for the fourth quarter of 2011 in the United States (after bundling was initiated and when the Hb target in ESA labeling was in the range of 10-11 g/dL [right, LOGO ]).

LOGO

1Milledge & Cotes (1985) J Appl Physiol 59:360; 2Goldberg et al. (1993), Clin Biochem 26:183, Maeda et al. (1992) Int J Hematol 55:111; 3Kato et al. (1994) Ren Fail 16:645; 4The transient peak endogenous EPO concentrations, or Cmax, data for roxadustat was derived from a subset of 243 patients who achieved a Hb response to roxadustat in our Phase 2 studies for whom we believe doses depicted approximated therapeutic doses. Hb target ranges for these patients were above the Hb levels specified in the current ESA package insert for CKD patients. Only doses in those patients whose Hb responded in Phase 2 studies are reflected in the figure. The subset of patients included 134 NDD-CKD patients treated to thrice-weekly, twice-weekly, or weekly doses of roxadustat for >16 weeks. The subset also included 109 DD-CKD patients, including incident dialysis patients whose anemia was corrected with therapeutic doses, and stable dialysis patients who received maintenance doses. EPO levels were not measured in all patients; instead EPO Cmax levels were estimated based on data derived from a more limited number of patients in whom EPO levels were measured at various roxadustat doses and among whom there was substantial variation in measured EPO levels. Accordingly, individual patients who received roxadustat may have realized EPO Cmax levels significantly above or below these estimated levels. Moreover, the estimates reflected in the graph may not be reflective of actual EPO Cmax levels or ranges that will be realized in larger populations of patients receiving roxadustat in our Phase 3 clinical trials. 5EPO Cmax was computed from ESA dose distributions based on Flaherty et al. (1990) Clin Pharmacol Ther 47:557.

 

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Potential for Anemia Correction for Patient Populations that are Hyporesponsive to ESAs

Incident dialysis patients and patients who have chronic inflammation are often hyporesponsive to ESAs, which necessitates the use of higher doses of ESAs to increase Hb levels, thus increasing both safety risk and treatment cost. In contrast, the dose of roxadustat may not need to be increased in incident dialysis patients or to overcome the suppressive effects of inflammation on erythropoiesis, which we believe may confer significant safety and efficacy benefits.

As a result of roxadustat’s different mechanism of action, the ability of roxadustat to stimulate erythropoiesis does not appear to be impaired by chronic inflammation. In a preclinical model of inflammation induced by peptidoglycan-polysaccharide (PG-PS) polymers, roxadustat increased Hb levels and mean corpuscular volume (MCV), whereas Aranesp®, an ESA, and IV iron did not increase Hb or MCV. In contrast, the same doses of roxadustat and Aranesp® were both effective at raising Hb levels in the unchallenged rats (without inflammation). In addition, the ESA actually decreased MCV in the unchallenged rats, as compared to the control.

LOGO

Our preclinical studies indicate that roxadustat can overcome the direct suppressive effects of inflammatory cytokines on erythropoiesis. In addition, roxadustat can reduce hepcidin levels, thus increasing absorption of iron from the GI tract and the release of iron from intracellular stores and mitigating the functional iron deficiency associated with chronic inflammation.

Furthermore, in our Phase 2 studies, patients’ Hb response to roxadustat was independent of the degree of underlying inflammation, as assessed by circulating levels of C-reactive protein, or CRP, a well-recognized marker of inflammation. Incident dialysis patients have the highest levels of mortality of all dialysis patients. The

 

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incident dialysis period is also the period during which mean ESA doses are generally highest. To the extent the increased levels of mortality are associated with high ESA doses, roxadustat may offer a benefit to incident dialysis patients. The median roxadustat dose in our dialysis Study 053 was 1.3 mg/kg; the endogenous EPO levels usually associated with this dose level are comparable to the physiologic range naturally experienced by people adapting to high altitude or following blood donation. See additional information on endogenous EPO levels under the heading “Potential for Anemia Correction with Moderate EPO Levels”.

Potential for Reduced Hepcidin Levels and Anemia Correction Without IV Iron

An important differentiator of roxadustat from ESAs is that roxadustat is expected to correct anemia and maintain Hb without IV iron supplementation. Patients with chronic illness, such as CKD, often suffer from absolute iron deficiency or functional iron deficiency. We believe that elevated levels of hepcidin, the major hormone that regulates iron metabolism, contributes to both absolute and functional iron deficiency.

Our Phase 2 clinical trials have shown that roxadustat can significantly reduce hepcidin levels in patients with DD-CKD and NDD-CKD. The following figure shows a reduction in serum hepcidin level of approximately two thirds, observed at week 5, in 52 incident dialysis patients treated with roxadustat.

Reduction of Serum Hepcidin Levels (Study 053) in Incident Dialysis Patients

 

LOGO

In addition, we believe roxadustat increases the levels of proteins involved in iron uptake, release and transport. Data from our Phase 2 clinical trials indicate that oral iron supplementation alone is adequate to correct anemia during treatment with roxadustat, in contrast to ESAs which typically require IV iron supplementation. Additionally, our data indicate that unlike ESAs, roxadustat treatment does not require that patients be iron replete before initiating therapy.

Avoiding IV iron helps to avoid the significant safety risks associated with IV iron described above, and, because the cost of oral iron is significantly less than the cost of IV iron, could also confer significant costs savings.

Potential Reimbursement and Convenience Advantages

Potentially Differentiated Reimbursement Framework

ESAs are included in the MIPPA bundled payment system in the DD-CKD setting and reimbursed under Medicare Part B in the NDD-CKD setting. Based on our roxadustat data to date, we believe roxadustat has the potential to correct anemia through a differentiated mechanism of action and different therapeutic effects that create the potential to

 

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displace multiple drugs in current use (such as ESAs and IV iron), or those in development (such as agents for suppression of hepcidin). Although the bundle currently covers ESAs or oral equivalents of ESAs or other IV products encompassed by the bundle, due to the differentiated nature of roxadustat and a lack of definition in the regulations on oral equivalency, for which there may be a CMS determination later this year, it is unclear whether roxadustat will be included in or excluded from the bundle. Under MIPPA, agents that have no IV equivalent in the bundle are currently expected to be excluded from the bundle until 2024. We believe that there may be commercial benefits in either event but are unable to predict the potential benefits until further guidance from CMS becomes available.

In the NDD-CKD setting, we expect that roxadustat, an oral treatment, should be subject to Medicare Part D, which would allow physicians to prescribe roxadustat without the financial and reimbursement risk associated with purchasing and storing injectable ESAs. We believe that this should encourage significantly greater usage outside of the dialysis setting.

Potential Reduction of Other Medications

In addition to potentially eliminating the need for IV iron, based on our Phase 2 clinical trial results to date, we believe that roxadustat has the potential to reduce the use of other medications frequently required in some CKD anemia patients, such as anti-hypertensives, anti-coagulants, and statins.

Oral Administration

Many physicians that treat CKD patients, particularly cardiologists, endocrinologists, and internists, do not typically stock or administer ESAs. An easily accessible oral agent that is dispensed by pharmacies could significantly increase the number of physicians treating anemia in patients with CKD and therefore the number of patients receiving treatment.

In addition, the oral administration of roxadustat potentially offers a significant convenience advantage for CKD patients who have yet to initiate dialysis and are therefore not regularly visiting a dialysis center. Patients can more easily self-administer medicine in any setting, rather than being subject to the inconvenience and restrictions of regular visits to physicians’ offices or infusion centers for treatment with ESAs.

Potential Pharmacoeconomic Advantages

Based on our Phase 2 clinical trial results to date, we believe that roxadustat’s potential pharmacoeconomic advantages over ESA therapy may include safety (with a potential decrease in cardiovascular events and consequently lower associated treatment costs), lower administrative cost, reduction or elimination of IV iron and potentially other medications. If we can demonstrate any of these pharmacoeconomic advantages in our Phase 3 studies, they may help support reimbursement worldwide, including Europe and China.

The Market Opportunity for Roxadustat

We believe that there is a significant opportunity for roxadustat to address markets currently served by injectable ESAs. According to IMS Health, 2013 global ESA sales in all indications totaled $8.6 billion, driven primarily by $6.2 billion in the United States and Europe. We believe that a substantial portion of ESA sales are for CKD anemia. For example, in the U.S., EPOGEN, which is primarily used in the DD-CKD patient population, had 2013 sales of approximately $2 billion. We further believe that the number of patients requiring anemia therapy will grow steadily as the global CKD population and access to dialysis care continue to expand, particularly in China and other emerging markets including the rest of Asia, Latin America, Eastern Europe, the Middle East and the Commonwealth of Independent States.

Furthermore, we believe that there is a significant opportunity for roxadustat to address patient segments that are currently not effectively served by ESAs, such as anemia in the NDD-CKD patient population, which is

 

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substantially larger than the DD-CKD patient population. Diabetes and hypertension are the leading causes of secondary CKD. Although we estimate approximately 36% of diabetic and 20% of hypertensive CKD patients are anemic (Hb<12g/dL), we believe the majority of these patients are currently untreated for anemia since they are under the care of non-nephrology specialists, such as endocrinologists, diabetologists, cardiologists and internists, where ESA therapies are not readily available.

We also believe that roxadustat may provide a safer option to re-establish the chemotherapy induced anemia market, which was once a market of comparable size to the DD-CKD anemia market. Other non-CKD anemias, including anemia related to inflammatory diseases, MDS and surgical procedures requiring transfusions, which are not addressed adequately with currently available therapies, could form another opportunity.

 

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OUR DEVELOPMENT PROGRAM FOR ROXADUSTAT

As of October 22, 2014, there have been 1,932 subjects enrolled in more than 32 roxadustat clinical studies in North America, Latin America, Europe, and Asia, of which 1,503 subjects have been exposed to roxadustat. We have treated some of these patients for 24 weeks in Phase 2 studies, and several patients for 3 years in a safety extension study.

We along with our partners, Astellas and AstraZeneca, have designed our global Phase 3 program to support regulatory approval of roxadustat in both NDD-CKD and DD-CKD patients in the United States, the European Union, Japan and China. Our US and EU Phase 3 program has an aggregate target enrollment of approximately 7,000 to 8,000 patients worldwide and is the largest Phase 3 clinical program ever conducted for an anemia product candidate. Our U.S. Phase 3 program is also designed and sized for demonstrating non-inferiority to comparators for the MACE composite safety endpoints in two separate patient pools, NDD-CKD and DD-CKD. We believe this will be required for approval in the United States for all new anemia therapies. Our Phase 3 program will study multiple patient populations, including incident dialysis patients and stable dialysis patients and will include multiple NDD-CKD studies comparing roxadustat against placebo controls. Five of the six Phase 3 studies supporting approval in the EU use the same patients that are intended to support approval in the United States. However, the EU requires shorter treatment duration and less overall patient exposure. We currently expect to complete patient enrollment in our U.S. studies by or in the first half of 2016, and that data for U.S. Phase 3 NDD-CKD studies will be reported in 2017. We currently anticipate filing for approval for roxadustat in the United States in 2018.

We have a separate roxadustat clinical development program for China and we currently plan to initiate Phase 3 studies in the first half of 2015 through FibroGen China. We currently anticipate filing for approval for roxadustat in China in 2016. In addition, Astellas is developing roxadustat in Japan as part of a Japan-specific development program and is currently conducting Phase 2 studies there.

Our Phase 2 Program

We have completed and analyzed six roxadustat Phase 2 studies, three in NDD-CKD patients and three in DD-CKD patients, to assess the efficacy of roxadustat to both correct anemia (“correction”) and maintain the Hb response (“maintenance”). Data from these studies have been published and presented at various medical conferences. Two of the six completed Phase 2 studies were conducted in China. The efficacy and safety data generated from our China studies were consistent with our U.S. Phase 2 studies and further contributed to the promising efficacy and safety results to date. Our collaboration partner Astellas’ Japan Phase 2 dialysis study in patients with CKD anemia has been completed, and data reconciliation and analysis are in process.

The data from our completed Phase 2 studies demonstrated that roxadustat achieved a clinically meaningful increase in Hb levels in anemic NDD-CKD and DD-CKD patients and maintained Hb levels in DD-CKD patients who were converted from ESA therapy. Roxadustat corrected anemia without the need for IV iron supplementation and exhibited an acceptable safety profile. Specifically, our Phase 2 studies achieved the following objectives:

 

    Identified optimal roxadustat dosing regimens for anemia correction and maintenance of Hb response.

 

    Demonstrated roxadustat’s potential to treat anemia in both NDD-CKD and DD-CKD patients, including incident dialysis patients, the most unstable and high risk CKD patient population.

 

    Generated substantial safety data, indicating that roxadustat is well tolerated, appears safe and could offer an improved cardiovascular profile relative to ESAs. Including our Phase 1, 2 and 3 studies 1,503 subjects have been exposed to roxadustat.

 

    Demonstrated that roxadustat may be able to treat anemia without the need for IV iron supplementation.

 

    Demonstrated that roxadustat can reduce hepcidin levels and potentially treat anemia in a significant subset of patients with inflammation.

 

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The following chart summarizes the design of our completed studies in DD-CKD and NDD-CKD patients and indicates the primary objectives of each study.

Completed Phase 2 Studies

 

Study Number,

Study

Location

  CKD Patient
Population
  Study
Objective
  Number of
Roxadustat
Patients
    Number of
Comparator
Patients
    Total Number of
Patients in Study
    Treatment
Duration
(Weeks)
  Dose Frequencies
        Placebo     ESA        

FGCL-4592-017 US

  Non-dialysis   Correction,
PK
    88        28          116      4   TIW, BIW

FGCL-4592-041 US

  Non-dialysis   Correction &
Maintenance
    145            145      16;24   TIW, BIW, QW

FGCL-4592-047 China

  Non-dialysis   Correction     61        30          91      8   TIW

FGCL-4592-040 US

  Stable
Dialysis
  Conversion &
Maintenance
    117        4        40        161      6;19   TIW

FGCL-4592-053 Russia, US, Hong Kong

  Incident
Dialysis
  Correction     60            60      12   TIW

FGCL-4592-048 China

  Stable
Dialysis
  Conversion,
PK
    74          22        96      6   TIW
     

 

 

       

 

 

     

Total

        545            669       
     

 

 

       

 

 

     

QW = weekly; BIW = twice weekly; TIW = three times weekly

The following chart summarizes the design of our ongoing Phase 2 studies and indicates the primary objectives of each study.

Ongoing Phase 2 Studies

 

Study

Number,

Location

  CKD Patient
Population
  Study
Objective
  Number of
Roxadustat
Patients
    Number of
Comparator
Patients
  Total Target
Number of
Patients in Study
    Treatment
Duration (weeks)
    Dose
Frequencies
        Placebo   ESA      

1517-CL-0303* Japan

  Non-dialysis   Correction     75      25       100        24      TIW, QW

1517-CL-0304* Japan

  Dialysis   Maintenance     90        30     120        24      TIW

FGCL- 4592-059 US

  Non-dialysis
& Dialysis
  Long Term
Safety &
Maintenance
    15            15        260+      TIW, BIW, QW

 

*Studies 1517-CL-303 and -304 are being conducted by Astellas

QW = weekly; BIW = twice weekly; TIW = three times weekly

Study 017: Dose Escalating Study in NDD-CKD patients

Study 017 established proof of concept for roxadustat by showing a significant increase in Hb in a dose-dependent manner, and provided data on the relationship between roxadustat dose and Hb response. This formed the basis for the dosing rules that we applied in subsequent studies of longer duration and in a larger number of patients.

 

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This study, a randomized, single-blind, placebo-controlled, dose-escalation study, was the first Phase 2 study to assess the safety and efficacy of a range of roxadustat doses in the correction of anemia in NDD-CKD stage 3 and 4 patients, over four weeks of treatment, and a 12-week safety follow-up period. A total of 116 patients (of which 96 were evaluable) were randomized sequentially into four weight-based dose cohorts: 1 mg/kg, 1.5 mg/kg, 2 mg/kg, and 0.7 mg/kg, respectively. Roxadustat was administered either twice weekly or three times weekly.

Weight Based, Three Times Weekly and Twice Weekly Dosing Leads to Hb Improvement. We tested 4 different roxadustat weight-based doses administered for four weeks with Hb measurements over a six week period. As shown in the table below, all of the patients in the highest weight-based dose cohort met the criteria for response in that they achieved Hb rise > 1 g/dL in four weeks. As roxadustat achieved 100% Hb response at the 2 mg/kg dose, higher doses were not pursued in this study despite the absence of dose limiting toxicity. Roxadustat was well tolerated without any safety concerns.

Significant, Dose Dependent Increases in Hb. As shown in the table below, the dose-dependent change in Hb from baseline in roxadustat patients was statistically significant from placebo by Day 8 (p=0.025) and remained so at each assessment through Week 6 (p=0.0001 at Day 22; p<0.0001 at Day 26–29/end of treatment).

A p-value is a statistical measure of the probability that the difference in two values could have occurred by chance. The smaller the p-value, the greater the statistical significance and confidence in the result. Typically, results are considered statistically significant if they have a p-value less than 0.05, meaning that there is less than a one-in-20 likelihood that the observed results occurred by chance. The FDA requires that sponsors demonstrate the effectiveness and safety of their product candidates through the conduct of adequate and well-controlled studies in order to obtain marketing approval. Typically, the FDA requires a p-value of less than 0.05 to establish the statistical significance of a clinical trial, although there are no laws or regulations requiring that clinical data be statistically significant, or that require a specific p-value, in order for the FDA to grant approval.

Hb Responses to a Range of Roxadustat Doses in FGCL-4592-017

 

           0.7 mg/kg     1 mg/kg     1.5 mg/kg     2 mg/kg  
     Placebo     BIW     TIW     BIW     TIW     BIW     TIW     BIW     TIW  

N

     23        10        12        5        5        10        11        9        11   

Mean Maximum Change in Hb

     0.44        0.82        1.22        1.12        0.81        1.74        2.03        1.93        2.16   

Standard Error of the Mean

     0.11        0.28        0.37        0.26        0.45        0.32        0.26        0.22        0.25   

% Hb Responder

     13     30     58     60     40     80     91     100     100

Median Time to Response (Days)

     NA        NA        26.5        42        NA        24.5        14        21        14   

 

BIW = twice weekly; TIW = three times weekly

Standard error of the mean, or SE, is a statistical measure of the amount that an observed mean may be expected to differ by chance from the true mean. For a population that follows a normal distribution, 68% of observed means will be within one standard error of the mean.

Dose-Dependent Reduction in Hepcidin Levels. Roxadustat reduced serum hepcidin levels in a dose-dependent fashion.

Study 041: Study for Optimization of Starting Dose and Dose Titration in NDD-CKD Patients

Study 041 demonstrated that both tier-weight and fixed starting doses can initiate anemia correction. In tier-weight based dosing for this study, we used starting doses based on the patient’s body weight category: high, middle or low. This randomized, open-label Phase 2 study was designed to evaluate the efficacy and safety of roxadustat over 16 to 24 weeks in 145 NDD-CKD patients (of which 143 were efficacy evaluable), and to

 

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evaluate the effects of dosing regimens in order to determine an optimized approach to anemia correction. In this trial, we tested six different starting dose regimens: three fixed doses, and three tier-weight doses. In fixed dosing, all patients in the same cohort were given the same starting dose.

We tested both three times weekly and twice weekly dosing frequencies for anemia correction, similar to Study 017, and further demonstrated that Hb levels can be maintained using 3 dosing frequencies (three times weekly, twice weekly and weekly) once target Hb ³ 11 g/dL was achieved. We also studied various dose adjustment rules, with dose adjustment decisions made from 5 weeks onward, and every 4 weeks thereafter, to seek the best dose titration scheme.

Hb Correction. We met the primary efficacy endpoint of cumulative number (%) of patients with a Hb response, defined as an increase in Hb ³ 1.0 g/dL from baseline and Hb ³ 11.0 g/dL at the end of treatment. Regardless of the starting dose or dose titration scheme, 92% of patients collectively from all cohorts achieved an Hb increase of at least 1 g/dL from baseline. These data suggest the doses studied are of adequate range for anemia correction. The following figure shows mean Hb levels for the six dose groups.

FGCL-4592-041 Hb Response Over Various Dosing Regimens

 

LOGO

     * n at baseline

TIW = three times weekly; BIW = twice weekly; QW= once weekly

 

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Hb Correction was Independent of Inflammation Status. In this study, in a post-hoc analysis, we observed that the magnitude of increases in Hb in response to roxadustat treatment was comparable for both patients with inflammation (elevated CRP levels) and without inflammation (normal CRP levels).

FGCL-4592-041 Mean (± SE) Maximum Change in Hb (g/dL) in 12 Weeks

 

LOGO

This stands in contrast to treatments with ESAs, where elevated CRP is frequently associated with lower Hb response to ESAs. We observed a 30% reduction in mean hepcidin level from baseline with eight weeks of roxadustat treatment (p=0.0003), which supports our belief in roxadustat’s ability to overcome inflammation and to maintain iron availability for erythropoiesis.

FGCL-4592-041 Mean (± SE) Serum Hepcidin Level (ng/mL)

 

LOGO

Hb Correction Without IV Iron and in Patients Who Have Low Iron Levels at Study Initiation. In connection with the conduct of the study, we also evaluated several iron parameters to assess roxadustat’s ability to improve Hb without the use of IV iron. At baseline, 49% of the efficacy evaluable patients did not have sufficient iron levels in the body to qualify for initiation of ESA treatment under current practice guidelines and would have been excluded from participation in all prior ESA Phase 3 trials. These patients would not be considered iron replete and are

 

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typically first treated with IV iron prior to ESA treatment initiation in an effort to ensure an adequate response to ESA and to minimize the risk of iron depletion. Of all patients in this study receiving roxadustat, only 38% were taking oral iron supplements. A mean Hb increase of 1.8 g/dL was achieved in the first 16 weeks of treatment without IV iron supplementation. There was no evidence for iron depletion as CHr, reticulocyte hemoglobin content or the amount of Hb in newly formed red blood cells, was maintained. Furthermore, there was evidence for improved iron utilization with increases in the MCV and increase in mean corpuscular hemoglobin concentration (MCHC) over the first 16 weeks of treatment with roxadustat from baseline (p=0.0018 and p<0.0001, respectively); both MCV and MCHC typically decrease when there is iron deficiency.

Despite the minimal use of oral iron and lack of IV iron usage, patients who were not iron replete had similar Hb responses at Week 16 as patients who were iron replete.

Reduction in Cholesterol Levels. In a post-hoc analysis of all cohorts, total cholesterol decreased during treatment with roxadustat. Mean reductions in total cholesterol were greater for patients with abnormally high cholesterol levels (> 200mg/dL). Decreases in cholesterol levels were independent of whether patients were taking statins or other lipid lowering agents. Furthermore, the HDL/LDL ratio improved with roxadustat treatment in the subgroup of patients in whom lipid profiles were conducted.

Improvement in Quality of Life. Finally, in an analysis of exploratory endpoints we observed improved quality of life in patients treated with roxadustat using a standard questionnaire called the SF-36 HRQOL. The largest positive changes from baseline occurred in the Vitality subscale (>4 points, p<0.0001) and Physical Component (>1.6 points, p<0.005) subscales of the questionnaire. We believe these data demonstrate that by correcting patients’ anemia, roxadustat may improve quality of life.

Study 040: ESA Conversion Study in DD-CKD Patients

Study 040 was designed to evaluate the short- and long-term dosing of roxadustat in patients on hemodialysis, or HD, treatment. These results established a conversion dose relationship between ESAs and roxadustat that will be used for Phase 3 trials. Roxadustat maintained Hb without the use of IV iron, which is generally required for the treatment of anemia by ESAs.

This randomized, single-blind study was the first roxadustat study in patients on HD treatment. Part 1 was a six week open-label Phase 2 dose ranging study in 54 patients (of which 42 were efficacy evaluable) to evaluate the impact of 4 sequential doses of roxadustat on dialysis patients’ Hb levels over six weeks upon switching from epoetin alfa, in comparison to those continuing prior epoetin alfa doses. Part 2 was a 19 week treatment study in 90 patients (of which 83 were efficacy evaluable) to establish optimal conversion doses and dose adjustments. Patients included had previously demonstrated a wide range of ESA-responsiveness. Study 040 met its primary endpoint in Part 1 of maintaining Hb in patients previously treated with epoetin alfa at Week 6, indicating that roxadustat can replace ESAs in DD-CKD. Study 040 also met its primary endpoint in Part 2 of maintaining Hb at Week 19, indicating that roxadustat may be effective at long-term maintenance of Hb. IV iron was prohibited in both roxadustat treated patients and ESA treated control patients during this study.

Maintenance of Hb Levels Following Conversion from ESAs. In Part 1 of this study (six week treatment), 41 patients were randomized to one of four roxadustat dose cohorts, and 13 were randomized to continue on epoetin alfa treatment. The primary endpoint was maintaining an Hb level equal to or above 0.5 g/dL below baseline Hb by the end of six weeks. As shown in the figure below, roxadustat had a dose-response effect for maintaining Hb levels. The lowest roxadustat dose cohort of 1.0 mg/kg was comparable to epoetin alfa with maintenance in 44% of roxadustat patients and 33% of the control arm, patients who continued treatment with epoetin alfa (but who were required to stop concomitant treatment with IV iron). Roxadustat doses of 1.5 mg/kg or higher were better than epoetin alfa at maintaining Hb, with 79.2% overall maintenance and with 80% maintenance at the 1.5 mg/kg roxadustat dose, 80% maintenance at the 1.8 mg/kg roxadustat dose and 77.8% maintenance at 2 mg/kg roxadustat dose.

 

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In Part 2 of the study (19 week treatment), 67 patients (with baseline ESA dose requirements ranging from 7 to 164.5 U/kg three times weekly) were randomized to seven cohorts of roxadustat (with various starting doses) and 23 patients were randomized to continue on epoetin alfa. Hb correction in the roxadustat treated patients pooled across all treatment cohorts was maintained over the 19 week treatment period and was comparable to epoetin alfa. The average roxadustat dose requirement for Hb maintenance was approximately 1.70 mg/kg three times weekly.

In Part 1, which was dose ranging, we observed an increase in Hb level at doses of 1.5 to 2.0 mg/kg TIW as shown in the figures below. In Part 2, which was to establish the optimal conversion dose, we observed similar Hb maintenance between roxadustat and epoetin alfa.

FGCL-4592-040 Mean: (± SE) Hemoglobin Over Time During Anemia Treatment with Roxadustat or Epoetin Alfa in Dialysis Patients

 

Part 1 (6 Weeks Dosing)    Part 2 (19 Weeks Dosing)

 

LOGO

In addition, in an exploratory analysis of this study we observed a dose dependent decrease in hepcidin in Part 1 of this study.

 

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FGCL-4592-040: Change in Hepcidin Level from Baseline (ng/mL)

 

LOGO

 

* n at baseline
** p<0.05 (comparing hepcidin change from baseline between the 2.0 mg/kg roxadustat group and the epoetin alfa group).

DD-CKD patients who switched from ESA treatment to treatment with 2.0 mg/kg roxadustat had significantly greater reduction in serum hepcin level than those who continued ESA treatment (p=0.038).

FGCL-4592-040 Mean (± SE) Serum Hepcidin Level (ng/mL)

 

LOGO

 

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Roxadustat Doses are Associated with Lower Circulating EPO Levels than Epoetin Alfa. The following chart shows the result of six patients who were highly responsive to epoetin alfa and participated in a substudy in which their EPO levels during treatment with roxadustat were compared to EPO levels when the patients were receiving epoetin alfa prior to randomization. Their mean peak EPO concentration after an average dose of 44 U/kg was significantly higher when patients were receiving epoetin alfa relative to when they were receiving a mean roxadustat dose of 1.3 mg/kg as illustrated below. This observation is consistent with the mechanisms of action of ESA and roxadustat, respectively, and we believe the lower EPO exposure observed with roxadustat offers potential safety benefits.

FGCL-4592-040: Mean (+SE) Plasma Erythropoietin Levels During Treatment With Roxadustat Compared With Prior Epoetin Alfa Dosing In the Same Patients (n=6)

 

LOGO

Maintenance of Adequate Iron Supply. The concentrations of Hb within newly formed red blood cells, or CHr, is a measure of iron availability for erythropoiesis. In an exploratory analysis of this study, without IV iron supplementation (which was prohibited in this study), CHr was maintained during roxadustat treatment but declined in patients who continued treatment with epoetin alfa. This finding indicates that unlike epoetin alfa, roxadustat allows endogenous stores of iron to provide an adequate supply to newly forming red blood cells without any IV iron supplementation.

 

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FGCL-4592-040: Mean Reticulocyte Hb Content (CHr) Over Time in Subjects Treated with Roxadustat and Epoetin Alfa

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* n at baseline

Reduction in Total Cholesterol. Consistent with our Phase 2 studies in NDD-CKD patients, we observed in a post-hoc analysis that roxadustat reduced total cholesterol levels in stable dialysis patients, and this effect appeared durable throughout the 19 week treatment period as depicted below.

FGCL-4592-040: Mean (±SE) Total Cholesterol Over Time During Treatment of Dialysis Patients with Roxadustat or epoetin alfa-Treated

 

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Study 053: Correction of Anemia in Incident Dialysis Patients

Incident dialysis patients are at increased risk of serious cardiovascular events and death as compared to stable dialysis patients. The mortality rate among dialysis patients is highest during the first few months of dialysis initiation, and on average, patients also require the highest doses of ESA in this period. These patients typically have high levels of systemic inflammation and require IV iron supplementation for ESA to be effective.

This randomized, open-label study was designed to evaluate the safety and efficacy of roxadustat for correction of anemia in 60 incident dialysis patients (of which 55 were efficacy evaluable) who were on dialysis for at least two weeks and not more than four months and had not been treated with ESAs, and to compare the treatment responses to roxadustat under the different iron supplementation conditions. All treatment groups in Study 053 met their primary endpoint in increasing Hb level during treatment: each cohort achieved maximum mean Hb increases from baseline, ranging between 2.8 g/dL to 3.5 g/dL, resulting from 12 weeks of roxadustat treatment. We observed that at week 12 in excess of 90% of the patients achieved a greater than 1 g/dL increase in Hb from baseline. In addition, while roxadustat corrected anemia without iron supplementation, oral iron enabled an optimal Hb response. More importantly, oral iron was as effective as IV iron for Hb correction by roxadustat. In contrast, ESA therapy requires IV iron supplementation in this patient population.

This study also showed that roxadustat can correct anemia regardless of the patient’s level of inflammation as measured by CRP. At Week 12, the median weekly dose of roxadustat was 4.0 mg/kg in this trial of incident dialysis patients and is similar to the median weekly dose of 4.45 mg/kg at Week 12 in Study 040, our trial of roxadustat in stable dialysis patients. In contrast, ESA therapy typically involves higher doses at the time of dialysis initiation.

The 48 HD patients were randomized to one of the three iron supplementation options: oral iron, IV iron or no iron. Included in the 60 patients were 12 peritoneal dialysis, or PD, patients who received oral iron. This study incorporated the same tier-weight based dosing regimen utilized in Study 041.

Hb Correction in Incident Dialysis Patients Without IV Iron Administration. All three cohorts of roxadustat treated HD patients (no iron, oral iron or IV iron supplementation) and PD patients (oral iron) achieved a significant increase in the maximum Hb change from baseline, the primary efficacy endpoint. Most importantly, the maximum increase in Hb was not significantly different between roxadustat treated HD patients supplemented with oral iron (3.4 g/dL) and those supplemented with IV iron (3.5 g/dL). In contrast, a published study of ESAs in this patient population showed that patients supplemented with oral iron achieved a Hb response comparable to no iron supplementation and significantly lower Hb response than those supplemented with IV iron. These Phase 2 data demonstrate that roxadustat, unlike ESAs, may eliminate the need for IV iron and thus avoid the side effects of IV iron in DD-CKD patients.

 

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FGCL-4592-053: Hemoglobin Over Time During Anemia Correction with Roxadustat in Incident Dialysis Patients, with No Iron, Oral Iron, or IV Iron Supplementation

 

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Note: Hb = hemoglobin; HD = hemodialysis; PD = peritoneal dialysis; n= number of patients

Note: *p<0.05 compared to IV iron and oral iron

Maintenance of Iron Stores. In an exploratory analysis of this study, transferrin saturation, or TSAT, a marker of iron stores, was well maintained during this period of intensive production of red blood cells with oral iron alone, indicating that iron stores can be maintained without IV iron.

FGCL-4592-053: TSAT Over Time During Anemia Correction With Roxadustat In Incident Dialysis Patients, With No Iron, Oral Iron, or IV Iron Supplementation

 

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Hb Correction Independent of Inflammation Status. As is typical of incident dialysis patients, about half of all patients had elevated CRP levels at baseline. In a post-hoc analysis of this study, we observed that Hb responses following roxadustat treatment were independent of baseline CRP levels. These data demonstrate that, unlike the ESAs, roxadustat has the potential to overcome the suppressive effects of inflammation on Hb responsiveness to treatment.

 

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Significant Reduction in Hepcidin. Consistent with our other studies, in an exploratory analysis of this study we observed that patients’ hepcidin levels were significantly reduced, most notably in the no iron and oral iron cohorts, by > 50% from baseline, and to a lesser extent in the IV iron cohort. At follow-up (4 weeks after stopping roxadustat), hepcidin levels returned towards baseline values. Hepcidin reduction may be one of the mechanisms for overcoming the Hb suppressive effects of inflammation by making iron more available for roxadustat-induced erythropoiesis.

China Phase 2 Studies

In China, roxadustat is known as FG-4592. We performed two Phase 2 studies in China, one trial in NDD-CKD patients, and another trial in DD-CKD patients. In these trials, Hb correction in NDD-CKD patients and Hb maintenance in DD-CKD patients replicated the results seen in the US trials.

Study 047: 8 Week Placebo-Controlled NDD-CKD

In this multi-center, double-blind, placebo-controlled study, 91 anemic CKD patients were randomized 2:1 to roxadustat or placebo treatment groups, respectively, in two sequential dose cohorts or placebo. Iron repletion at baseline was not required and IV iron supplementation was prohibited during the trial; oral iron supplementation was allowed during the trial, similar to the corresponding US Study 041. The study used tier-weight starting dose for four weeks after which the roxadustat dose was adjusted, depending upon the initial response to treatment. Study 047 met its primary endpoint of a mean maximum increase from baseline Hb at the end of Week 8. The mean maximum Hb increases at the end of eight weeks of treatment were 1.6 g/dL and 2.4 g/dL in the low-dose and the high dose cohort, respectively, compared to 0.4 g/dL for placebo, p < 0.0001 for each cohort compared to placebo.

FGCL-4592-047: Hb Over Time (g/dL) in Chinese NDD-CKD Patients

 

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* n at baseline

 

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Study 048: Stable Dialysis Conversion in China

In this multi-center, open-label, ESA-controlled study, 84 HD patients (of which 82 were efficacy evaluable) with Hb 9 to 12 g/dL previously maintained with ESAs were randomized 3:1 to roxadustat or epoetin alfa treatment groups, respectively, in three sequential dose cohorts of increasing starting doses of roxadustat. This study design was similar to Part 1 of Study 040. Study 048, an exploratory study, achieved its objective of number (%) of patients with successful dose conversion whose Hb levels are maintained at no lower than 0.5 g/dL below their mean baseline value at the end of Weeks 5 and 6 (59.1% for the low-dose, 88.9% for the mid-dose, and 100% for the high dose). The Hb responses to the roxadustat treatment of Chinese dialysis patients, with the low dose cohort were numerically similar to epoetin alfa, while the mid-dose and the high-dose cohorts each had a statistically significantly higher Hb response rate than epoetin alfa. Hb responses to the roxadustat treatment of Chinese dialysis patients (as shown in the figure below) were similar to Part 1 of Study 040 in the United States.

FGCL-4592-048: Hb Over Time in Chinese Stable Dialysis Patients

 

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Safety Summary

As of October 22, 2014, 1,503 subjects have received roxadustat in our clinical development program, including 537 healthy volunteers and 966 CKD patients (both dialysis and non-dialysis). The longest treatment exposure (10 participants in an ongoing open-label extension study) is over 2 years. A range of roxadustat doses, up to 3.0 mg/kg in DD-CKD patients and up to 5.0 mg/kg in healthy volunteers, have been administered and all roxadustat doses have been well-tolerated. The following summarizes the safety findings of our preclinical, Phase 1 and Phase 2 studies:

 

   

No Overall Safety Signals. An independent data monitoring committee consisting of external experts in nephrology, hepatology, and biostatistics reviewed safety data from all US and Europe Phase 2 studies, and determined there were no safety signals. The overall frequency and type of treatment-emergent adverse events and serious adverse events, or SAEs, observed in these clinical studies reflect events that would be expected to occur in each of the NDD-CKD and DD-CKD patient populations. Safety analyses did not reveal any association between the rates of occurrence of cardiovascular events with roxadustat dose, rate of Hb rise or Hb level. The SAEs experienced in our studies identified by the

 

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principal investigator as possibly related to roxadustat were a stroke in a patient with a prior history of multiple strokes, one incident of vomiting, and one incident of deep venous thrombosis. The most commonly reported treatment emergent adverse events in the Phase 2 studies were diarrhea, nausea, urinary tract infection, nasopharyngitis, peripheral edema, hyperkalemia, headache, hypertension and upper respiratory tract infection.

Of our completed Phase 2 clinical studies, four (Studies 017, 047, 040 and 048) were controlled, two with placebo and two with ESA.

For Study 017, which had a treatment period of 4 weeks, for 88 subjects on roxadustat, and 28 subjects on placebo, we observed treatment emergent SAEs, or TSAEs, in 4 patients (4.5%) on roxadustat, with 0 cardiovascular SAEs and 0 SAEs for the composite safety endpoint. There were also TSAEs in 1 patient (3.6%) in the placebo arm of the study, including 1 cardiovascular SAE and 0 SAEs for the composite safety endpoint. The composite safety endpoint (exploratory analysis) includes death, myocardial infarction, congestive heart failure, subendocardial ischaemia, cerebrovascular accident, thrombosis (fistula), arteriovenous fistula occlusion, angina pectoris, and vascular graft thrombosis. A patient may experience more than one SAE, in which case a patient is only counted once in this analysis. TSAEs observed in patients treated with roxadustat were arteriovenous fistula site complications, dyspnea, femoral neck fracture and non-cardiac chest pain. SAEs observed in patients treated with placebo were acute renal failure and pericarditis.

For Study 047, which had a treatment period of 8 weeks, for 61 subjects on roxadustat, and 30 subjects on placebo, we observed TSAEs in 8 patients on roxadustat (13.1%), with 0 cardiovascular SAEs, and 0 SAEs for the composite safety endpoint, and TSAEs in 4 patients on placebo (13.3%), including 1 cardiovascular SAE (3.3%), and 1 SAE (3.3%) for the composite safety endpoint. TSAEs observed in patients treated with roxadustat were chronic renal failure (4), upper respiratory tract infection (1), hyperkalaemia (2) and urinary tract infection (1). TSAEs observed in patients treated with placebo were unstable angina (1), anemia (1), retinal detachment (1), pneumonia (1) and gastritis (1).

For Study 040, which had a treatment period of 19 weeks, for 66 subjects on roxadustat, and 23 subjects on ESAs, we observed TSAEs in 15 patients on roxadustat (22.7%), including 1 cardiovascular SAEs (1.5%), and 8 SAEs for the composite safety endpoint (12.1%), and TSAEs in 4 patients on ESAs (17.4%), including 2 cardiovascular SAEs (8.7%), and 4 SAEs (17.4%) for the composite safety endpoint. TSAEs categorized by System Organ Class, a standard event classification, observed in patients treated with roxadustat were infections and infestations (5), metabolism and nutrition disorders (2), cardiac disorders (1), gastrointestinal disorders (1), nervous system disorders (2), respiratory, thoracic and mediastinal disorders (2), skin and subcutaneous tissue disorders (1), injury, poisoning and procedural complications (2), and psychiatric disorders (1). TSAEs categorized by System Organ Class observed in patients treated with ESA were infections and infestations (3), metabolism and nutrition disorders (3), cardiac disorders (1), respiratory, thoracic and mediastinal disorders (1), blood and lymphatic system disorders (1) and vascular disorders (1).

For Study 048 which had a treatment period of 6 weeks, for 74 subjects on roxadustat, and 22 subjects on ESAs, we observed 0 TSAEs in patients on roxadustat, including cardiovascular SAEs and for the composite safety endpoint. There were also 0 TSAEs in the patients taking ESAs.

The differences in the SAE percentages described are not considered statistically significant.

The three SAEs described above that were considered by the principal investigator to be possibly related to roxadustat did not occur in these four studies.

 

   

No Liver Enzyme Safety Signal. Liver enzymes were monitored closely in the roxadustat Phase 2 clinical development program. No evidence of hepatotoxicity was observed in any of the roxadustat clinical trials, and the independent data monitoring committee concluded that there was no concern for

 

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hepatotoxicity to date. Liver enzymes are being monitored in Phase 3 according to current FDA guidelines, without any special requirements.

 

    Extensive Evaluation of Cancer Risk. Furthermore, to assess the potential cancer risk of roxadustat, we conducted 12 tumor studies in rodents. These studies included xenograft, syngeneic, or spontaneous tumors of lung, colon, breast, pancreas, melanoma, ovarian, renal, prostate and leukemic origin, several of which are reported to be dependent on vascular endothelial growth factor, or VEGF, a protein that can be regulated by HIF for which increased levels have potentially been linked to increased tumor growth. No effect on tumor promotion was observed with roxadustat in any of the studies. In addition, roxadustat had no effect on tumor initiation or metastasis in the studies in which these end-points were also measured. Five other HIF-PH inhibitors from our library have been evaluated in many of the same rodent tumor models as roxadustat, as well as some additional ones (35